<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
A Focus on Senior Loans.......................... 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 33
Statement of Operations.......................... 34
Statement of Changes in Net Assets............... 35
Statement of Cash Flows.......................... 36
Financial Highlights............................. 37
Notes to Financial Statements.................... 38
</TABLE>
PRIT SAR 3/99
<PAGE> 2
LETTER TO SHAREHOLDERS
February 19, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your trust.
ECONOMIC OVERVIEW
Despite a difficult six months in many emerging markets, the U.S. economy
remained strong. The nation's gross domestic product (GDP), a measure of
economic health, grew 4.3 percent in 1998, surpassing 1997's growth rate. In the
fourth quarter alone, GDP rose 6.1 percent--surprising most economists, whose
estimates had been much more conservative. This impressive growth suggests that
the U.S. economy remains fundamentally sound, despite a crisis of confidence in
the third quarter as a result of the financial problems abroad. A continuation
of low inflation--only a 1.6 percent increase in the consumer price index in
1998--also helped maintain the health of the domestic economy and kept
inflation-adjusted interest rates attractive.
In the last few months of 1998, the Federal Reserve's interest rate
decreases contributed to the positive financial environment. In response to
declining corporate profits and mounting international concerns, the Fed lowered
interest rates three times, with 0.25 percent cuts in September, October, and
November. These rate cuts, coupled with a wave of corporate mergers and
cost-cutting measures, lent the support needed to foster continued growth
despite the global financial situation.
MARKET REVIEW
Although the economy moved along at a healthy pace, the stock and bond
markets experienced significant volatility in the third quarter of 1998, with
investor concerns about the financial problems in Asia and Latin America
reaching a peak in August. During this time, American and foreign investors
alike pursued a flight to quality--seeking the relative safety of large-company
stocks and government bonds. During this period, investor interest in the senior
loan market increased dramatically as companies issued greater amounts of
Continued on page 2
1
<PAGE> 3
senior loan debt to finance their business transactions in the third and fourth
quarters. In 1998, leveraged lending hit $272 billion, topping the record $194
billion we saw in 1997. The secondary market also experienced strong growth,
with a total volume of $67.3 billion, up from $62 billion the previous year.
OUTLOOK
Our outlook for the domestic economy remains positive, although we expect
that growth may slow somewhat in the coming months. Internationally, we
anticipate that low interest rates and declining inflation should lead to
improvements in troubled areas such as Asia and Latin America.
In the senior loan market, we believe that the banking industry should
remain strong as large-scale mergers and acquisitions continue to generate
short-term corporate capital needs. As a result, we believe there may be a
healthy supply of senior loans with attractive yields going forward.
Additional details about your trust, including a question-and-answer section
with your portfolio manager, are provided in this report. As always, we are
pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JANUARY 31, 1999
VAN KAMPEN PRIME RATE INCOME TRUST
<TABLE>
<CAPTION>
<S> <C>
TOTAL RETURNS
Six-month total return(1).................................. 2.67%
One-year total return(1)................................... 6.18%
Five-year average annual total return(1)................... 6.91%
Life-of-Trust average annual total return(1)............... 7.52%
Commencement date.......................................... 10/04/89
Distribution rate(2)....................................... 6.21%
SHARE VALUATIONS
Net asset value on 01/31/99................................ $ 9.92
Six-month high net asset value............................. $ 9.98
Six-month low net asset value.............................. $ 9.91
</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 $9.91 and the current
monthly dividend of $.0513 per share as of January 25, 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
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
CYCLICAL INDUSTRIES: Industries where earnings tend to rise quickly when the
economy strengthens and fall quickly when the economy weakens. Examples of
cyclical industries include housing, automobiles, and paper. Noncyclical
industries are typically less sensitive to changes in the economy. These
include utilities, grocery stores, and pharmaceuticals.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system 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.
FLIGHT TO QUALITY: The flow of funds toward relatively safer investments in
times of marketplace uncertainty or fear.
HEDGE FUND: A fund, usually used by wealthy individuals and institutions, that
is allowed to use aggressive strategies that are unavailable to most mutual
funds.
LONDON INTER-BANK OFFER RATE (LIBOR): The interest rate that the largest
international banks charge each other for loans.
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 common shares outstanding. The NAV does not
include any initial or contingent deferred sales charge.
SECONDARY MARKET: A market where securities are traded after they are initially
offered.
SENIOR LOANS: Loans or other debt securities that are given preference to junior
securities of the borrower. In the event of bankruptcy, payments to holders
of senior loan obligations are given priority over payments to holders of
subordinated debt, as well as shareholders of preferred and common stock.
Senior loans may share priority status with other senior securities of the
borrower, and such status is not a guarantee that monies to which the Trust
is entitled will be paid.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN PRIME RATE INCOME TRUST
We recently spoke with the portfolio manager of the Van Kampen Prime Rate Income
Trust about the key events and economic forces that shaped the markets during
the past six months. The Trust's portfolio manager, Jeffrey W. Maillet, senior
vice president of Van Kampen Investment Advisory Corp., has been responsible for
the day-to-day management of the Trust's portfolio since its inception. The
following excerpts reflect his views on the Trust's performance during the six
months ended January 31, 1999.
Q HOW DID CONDITIONS IN THE SENIOR LOAN MARKET AFFECT THE TRUST DURING THE
PAST SIX MONTHS?
A The financial turbulence in the second half of the year precipitated a
modest credit crunch. Between overseas turmoil and the collapse of Long
Term Capital Management, a large U.S. hedge fund, we saw a widening of
credit spreads as investors demanded greater yield compensation for higher-risk
investments. Yet market fundamentals didn't necessarily warrant such caution, as
the economy remained sound and inflation continued to be low. These conditions
created a favorable pricing environment and wider yield spreads for senior
loans. For example, loans that ordinarily might have come to market yielding 175
basis points above LIBOR were coming to market at LIBOR plus 350 basis points.
We were able to obtain some very attractive securities under these
circumstances.
Q WHAT AREAS OF THE MARKET OFFERED THE BEST OPPORTUNITIES?
A We found ample opportunities from a broad range of industries.
Telecommunications--including cellular, satellite, wireless, and personal
communications systems--was the second largest industry weighting in the
portfolio. This industry has seen a high level of consolidation recently, for
which senior loans have helped provide the financing. The portfolio is composed
of loans from a variety of industries, with greater concentration in
broadcasting, health care, and printing/publishing. We favored health care and
broadcasting for their noncyclical nature, as the earnings of companies from
these areas traditionally haven't been closely tied to the health of the overall
economy.
5
<PAGE> 7
Q CAN YOU TALK ABOUT SOME OF YOUR LARGEST HOLDINGS?
A Most of the borrowers represented in the portfolio provide basic goods and
services to the domestic economy. Currently, we hold more than 300 issues
from 48 industry sectors. Some of our largest holdings include:
- - Starwood Hotels and Resorts, Inc.--A hotel operating and management company,
Starwood boasts more Conde Nast Traveler Gold List winners than any other
hotel company in the world.
- - BCP SP--Based in Sao Paulo, this wireless communications company was created
through a joint venture between American-owned BellSouth and Safra, a
Brazilian firm. The portfolio owns senior loans that provided financing for
this deal.
- - Chancellor Broadcasting--This diversified media company, with interests in
radio, outdoor advertising, and television, continues to benefit from industry
deregulation.
- - Safety-Kleen--This firm provides hazardous and industrial waste management
services designed to collect, process, recycle, and dispose of hazardous and
industrial waste.
- - Nextel Finance--The leading provider of fully integrated wireless
communications, this company has built the largest guaranteed all-digital
wireless network in the United States.
- - Total Renal Care--This health care services company provides dialysis services
for patients suffering from chronic kidney failure.
Our holdings represent companies that we believe can perform well in the
long run and make their loan payments on schedule. If you turn to the complete
listing of the Trust's investments on page 11, you'll probably see some familiar
companies whose products or services you use every day. Senior loans often
provide integral financing for the growth and development of these firms. Keep
in mind that not every loan in the portfolio will produce positive results, and
all of the loans are subject to credit risk.
Q CAN THE TRUST INVEST IN SENIOR LOANS THAT ARE USED TO FINANCE CONSTRUCTION
OR REAL ESTATE DEVELOPMENT PROJECTS?
A Yes. The Board of Trustees of the Trust recently authorized these
investments, provided they are consistent with the Trust's overall
investment objectives and policies, as described in the Trust's
prospectus.
Q HOW DID THE TRUST PERFORM DURING THE REPORTING PERIOD?
A The Trust's total return for the six-month period was 2.67 percent(1) at
net asset value (NAV). Based on the January 25, 1999, public offering
price of $9.91 per share, the Trust's current monthly dividend of $0.0513
represents a distribution rate of 6.21 percent(2). For more information on the
Trust's performance, please refer to the chart on page 3. Past performance does
not guarantee future results.
6
<PAGE> 8
Q HOW DID CHANGING INTEREST RATES AFFECT THE TRUST?
A Senior loans have the ability to adjust their interest payments over time
in conjunction with changes in interest rates--generally, interest rates
on these loans 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 the reporting period, 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.
While the dividend has been pressured by falling interest rates, remember
that the Trust's NAV has remained relatively consistent--between $9.91 and $9.98
per share during the reporting period. Also, remember that the Trust has the
potential to increase its dividend income in a rising interest rate environment,
due to the adjustable nature of the underlying loans in the portfolio.
Q WHAT IS YOUR OUTLOOK FOR THE SENIOR LOAN MARKET AND FOR THE TRUST?
A Most of our loans have tended to be repaid by their issuers in 18 to 24
months, so we are constantly seeking to replenish the portfolio. As such,
strong deal flows in the senior loan market should be a benefit to
shareholders, as we expect plenty of attractive securities to choose from. In
addition, we believe the U.S. banking industry currently may be the strongest in
the world, lending support to the senior loan market.
Going forward, we will seek to assemble an array of senior loan holdings
that have the potential to offer investors a degree of relative stability in a
variety of market conditions. It is inevitable that the senior loan market will
encounter rough spots from time to time. But we are confident that our loans
have certain characteristics--such as their status as senior corporate
debt--that can make them an ideal complement to the more aggressive components
of an investor's portfolio. In addition, our portfolio management team has
successfully navigated the Trust through a variety of economic conditions, and
we believe we are prepared to handle whatever challenges the economy presents.
[SIG]
Jeffrey W. Maillet
Portfolio Manager
Please see footnotes on page 3
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. 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 unsecured, and circumstances could arise (such as
bankruptcy of a borrower) that could cause the Trust's security interest in the
loan's collateral to be invalidated.
CREDIT QUALITY
Many senior loans carry provisions designed to protect the lender in certain
circumstances. In addition, the variable-rate nature of the portfolio is
expected to lessen the fluctuation in the Trust's net asset value. However, the
net asset value will still be subject to the influence of changes in the real or
perceived credit quality of the loans in which the Trust invests. This may occur
in the event of a sudden or extreme increase in prevailing interest rates, a
default in a loan in which the Trust holds an interest, or a substantial
deterioration in the borrower's creditworthiness. From time to time, the Trust's
net asset value may be more or less than at the time of the investment.
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
are traded on stock exchanges and valued daily at the market price. It is
management's opinion that shareholders will 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 SECTORS AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN
INTERESTS
<TABLE>
<S> <C>
AS OF JANUARY 31, 1999
Health Care ................................... 11.8%
Finance ....................................... 7.6%
Broadcasting--Cable ........................... 6.3%
Chemicals, Plastics & Rubber .................. 5.4%
Printing/Publishing ........................... 4.9%
</TABLE>
NET ASSET VALUE STABILITY SINCE INCEPTION
OCTOBER 4, 1989 THROUGH JANUARY 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
Jan 1999 9.92
</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 JANUARY 25, 1999
CURRENT DISTRIBUTION
[Current Distribution 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
Jan 1999 6.21 4.45
</TABLE>
TOP FIVE HOLDINGS AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN INTERESTS
<TABLE>
<S> <C>
AS OF JANUARY 31, 1999
Stone Container Corp........................... 2.47%
Integrated Health Services, Inc................ 2.20%
Starwood Hotels and Resorts, Inc............... 1.85%
Nextel Finance Co.............................. 1.63%
Safety-Kleen Corp.............................. 1.56%
</TABLE>
Past performance does not guarantee future results.
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN
INTERESTS AEROSPACE/DEFENSE 1.2%
$ 7,047 Aerostructures Corp., Term
Loan............................ NR BB- 12/31/03 $ 7,050,529
5,500 Decrane Finance Co., Term
Loan............................ B1 B+ 09/30/05 5,500,000
7,425 Fairchild Holding Corp., Term
Loan............................ NR NR 06/18/04 7,425,763
650 Fairchild Holding Corp.,
Revolving Credit................ NR NR 06/18/04 650,005
38,125 Gulfstream Delaware Corp., Term
Loan............................ NR NR 09/30/02 38,127,398
13,059 K & F Industries, Inc., Term
Loan............................ Ba3 B+ 10/15/05 13,060,710
7,840 Tri-Star, Inc., Term Loan....... NR NR 09/30/03 7,842,182
14,197 United Defense Industries, Inc.,
Term Loan....................... B1 BB- 10/06/05 to
10/06/06 14,198,853
3,850 Whittaker Corp., Term Loan...... NR NR 05/30/03 3,849,996
795 Whittaker Corp., Revolving
Credit.......................... NR NR 05/30/01 794,264
--------------
98,499,700
--------------
AUTOMOTIVE 2.8%
34,000 American Axel and Manufacturing,
Inc., Term Loan................. B1 B+ 04/30/06 34,007,593
8,423 American Bumper and
Manufacturing Co., Term Loan.... NR NR 04/30/04 8,425,376
56,427 Breed Technologies, Inc., Term
Loan............................ B1 BB 04/27/04 to
04/27/06 56,428,164
3,359 Breed Technologies, Inc.,
Revolving Credit................ B1 BB 04/27/04 to
04/27/06 3,359,511
63,377 Federal Mogul Corp., Term
Loan............................ Ba2 B+ 12/31/03 to
12/31/05 63,425,630
1,517 Federal Mogul Corp., Revolving
Credit.......................... Ba2 B+ 03/12/04 1,518,261
10,000 Insilco Corp., Term Loan........ Ba3 B+ 11/24/05 9,999,743
4,798 JMS Automotive Rebuilders, Inc.,
Term Loan (a)(b)................ NR NR 06/30/04 3,946,997
6,500 Metalforming Technologies, Inc.,
Term Loan....................... NR NR 06/30/05 6,500,824
7,821 Murray's Discount Auto Stores,
Inc., Term Loan................. NR NR 06/30/03 7,038,938
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AUTOMOTIVE (CONTINUED)
$ 225 Murray's Discount Auto Stores,
Inc., Revolving Credit.......... NR NR 06/30/03 $ 225,000
9,243 The Plastech Group, Term Loan... NR NR 04/01/02 to
04/01/04 9,239,941
16,491 Safelite Glass Corp., Term
Loan............................ B1 B+ 12/23/04 to
12/23/05 16,500,252
--------------
220,616,230
--------------
BROADCASTING--CABLE 5.4%
4,646 Adelphia Cable Partners, LP,
Revolving Credit................ Ba2 BB+ 12/31/03 4,652,902
22,500 Bresnan Communications Co., LP,
Term Loan....................... Ba3 BB+ 03/31/06 22,529,625
5,880 Cable Systems International,
Inc., Term Loan................. NR NR 12/31/02 5,881,481
17,500 Charter Communications
Entertainment II, Term Loan..... Ba3 NR 12/31/07 17,503,323
32,000 Charter Communications
Entertainment II & Long Beach,
Term Loan....................... Ba3 NR 03/31/06 32,014,300
47,144 Chelsea Communications, Inc.,
Term Loan....................... Ba2 NR 12/31/04 47,146,985
10,400 Encore Investments, Term Loan... NR NR 06/30/04 10,409,432
20 Encore Investments, Revolving
Credit.......................... NR NR 06/30/04 20,000
45,000 Falcon Holdings Group, LP, Term
Loan............................ Ba3 BB- 12/31/07 44,502,125
15,000 Frontiervision Operating
Partners, LP, Term Loan......... Ba3 BB 03/31/06 15,003,260
22,083 Garden State Cablevision, LP,
Revolving Credit................ NR NR 06/30/05 22,086,929
53,458 InterMedia Partners IV, LP, 01/01/05 to
Term Loan....................... Ba3 NR 12/31/07 53,461,836
60,170 Marcus Cable Operating Co., 12/31/02 to
Term Loan....................... Ba3 B- 04/30/04 60,177,510
3,411 Marcus Cable Operating Co.,
Revolving Credit................ Ba3 B- 12/31/02 3,410,571
1,990 Mark Twain Cablevision, LP,
Term Loan....................... NR NR 06/30/04 1,990,296
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BROADCASTING--CABLE (CONTINUED)
$ 23,727 TCI Pacific, Inc., Term Loan.... NR NR 12/31/04 $ 23,728,174
30,286 Triax Midwest Associates, Term
Loan............................ NR NR 06/30/06 to
06/30/07 30,285,956
1,676 Triax Midwest Associates,
Revolving Credit................ NR NR 06/30/06 1,676,552
27,029 TW Fanch, Revolving Credit...... NR NR 12/31/04 27,041,126
--------------
423,522,383
--------------
BROADCASTING--DIVERSIFIED 1.2%
76,638 Chancellor Broadcasting Co.,
Term Loan....................... Ba1 BB- 06/30/05 76,678,832
18,653 Chancellor Broadcasting Co.,
Revolving Credit................ Ba1 BB- 06/30/05 18,686,381
--------------
95,365,213
--------------
BROADCASTING--RADIO 0.4%
35,000 Jacor Communications, Inc.,
Term Loan....................... Ba2 BB- 12/31/04 35,000,720
--------------
BROADCASTING--TELEVISION 1.8%
11,731 Benedek Broadcasting Corp., 05/01/01 to
Term Loan....................... B1 NR 11/01/02 11,734,856
20,000 Black Entertainment Television,
Inc., Term Loan................. NR NR 06/30/06 20,002,856
9,980 Lin Television Corp., Term
Loan............................ Ba3 B- 03/31/07 9,980,279
66,000 Sinclair Broadcasting, Term
Loan............................ Ba2 BB- 09/15/05 66,012,534
32,000 TLMD Acquisition Co., Term
Loan............................ B1 B+ 03/31/07 32,006,900
--------------
139,737,425
--------------
BUILDINGS & REAL ESTATE 0.8%
20,000 BSL Holdings, Term Loan......... NR BB- 12/30/05 20,007,777
47,222 Walter Industries, Inc., Term
Loan............................ NR NR 10/15/03 47,222,048
--------------
67,229,825
--------------
CHEMICAL, PLASTICS & RUBBER 4.7%
11,227 Cedar Chemicals Corp., Term
Loan............................ NR NR 10/30/03 11,228,880
10,527 Foamex, LP, Term Loan........... Ba3 B 06/30/05 to
06/30/06 10,529,812
5,357 Foamex, LP, Revolving Credit.... Ba3 B 06/12/03 5,357,153
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CHEMICAL, PLASTICS & RUBBER
(CONTINUED)
$ 6,965 General Chemical Group, Term
Loan............................ NR BB+ 06/15/06 $ 6,965,000
10,000 Harris Speciality Chemicals,
Term Loan....................... NR NR 03/31/06 10,000,000
14,373 High Performance Plastics, Inc.,
Term Loan....................... NR NR 03/31/05 14,372,993
40,551 Huntsman Group Holdings, Term
Loan............................ Ba2 BB 12/31/02 to
12/31/05 40,574,595
6,667 Huntsman Group Holdings,
Revolving Credit................ Ba2 BB 12/31/02 6,666,781
18,939 Huntsman Specialty Chemical 03/15/04 to
Corp., Term Loan................ Ba2 NR 03/15/05 18,951,180
5,640 Jet Plastica Industries, Inc.,
Term Loan....................... NR NR 12/31/02 to
12/31/04 5,644,668
30,000 Kosa, LLC, Term Loan............ Ba1 BB+ 12/31/06 30,012,607
93,487 Lyondell Petrochemical Corp.
Term Loan....................... Ba2 BBB- 06/30/99 to
06/30/05 93,525,450
15,000 MetoKote Corp., Term Loan....... NR NR 11/02/05 15,004,863
9,837 Pioneer Americas Acquisition
Corp., Term Loan................ B2 B+ 12/31/06 9,847,442
11,964 Reid Plastics, Inc., Term
Loan............................ NR NR 11/12/03 11,971,069
42,876 Sterling Chemicals, Inc., Term
Loan............................ Ba3 NR 09/30/04 42,902,004
11,585 Texas Petrochemicals Corp., Term
Loan............................ Ba3 NR 06/30/01 to
06/30/04 11,586,620
1,867 Texas Petrochemicals Corp.,
Revolving Credit................ Ba3 NR 12/31/02 1,867,130
6,538 TruSeal Technologies, Inc., Term
Loan............................ NR NR 06/30/04 6,498,436
8,140 Vinings Industries, Inc., Term
Loan............................ NR NR 03/31/05 8,143,946
4,577 West American Rubber, Term
Loan............................ NR NR 06/30/05 4,577,029
--------------
366,227,658
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMUNICATIONS--TELEPHONE 0.1%
$ 4,583 International Data Response,
Term Loan....................... NR NR 12/31/01 to
12/31/02 $ 4,588,346
7,119 Mitel Corp., Term Loan.......... NR NR 12/26/03 7,122,106
--------------
11,710,452
--------------
CONSTRUCTION MATERIALS 1.8%
21,707 Behr Process Corp., Term Loan... NR NR 03/31/02 to
03/31/05 21,722,941
882 Behr Process Corp., Revolving
Credit.......................... NR NR 03/31/02 882,354
1,611 Brand Scaffold Services, Inc.,
Term Loan....................... B1 NR 09/30/02 1,611,950
56 Brand Scaffold Services, Inc.,
Revolving Credit................ B1 NR 09/30/02 55,556
10,000 Dayton Superior Corp., Term
Loan............................ NR NR 09/29/05 10,002,855
6,833 Flextek Components, Inc. (a).... NR NR 02/28/05 5,466,300
13,632 Falcon Building Products, Inc.,
Term Loan....................... B1 B+ 06/30/05 13,645,070
59,449 National Gypsum Co., Term
Loan............................ NR NR 09/20/03 59,451,272
4,655 Panolam Industries, Inc., Term
Loan............................ B1 NR 10/31/02 4,654,891
6,919 Reliant Building Products, Inc.,
Term Loan....................... B1 B+ 03/31/04 6,922,813
14,850 Werner Holding Co., Term Loan... Ba3 B+ 11/30/04 to
11/30/05 14,854,498
--------------
139,270,500
--------------
CONTAINERS, PACKAGING & GLASS 3.8%
37,500 Dr. Pepper Holdings, Inc., Term
Loan............................ NR NR 12/31/05 37,524,317
8,288 Fleming Packaging Corp., Term
Loan............................ NR NR 08/30/04 8,290,907
9,900 Graham Packaging Co., Term
Loan............................ B1 B+ 01/31/06 to
01/31/07 9,903,758
29,663 Huntsman Packaging Corp., Term
Loan............................ B1 BB- 09/30/05 to
09/30/06 29,662,500
29,700 IPC, Inc., Term Loan............ NR B+ 10/02/04 29,776,354
5,000 Packaging Dynamics, Term Loan... NR NR 11/20/05 5,001,795
165,364 Stone Container Corp., Term
Loan............................ Ba3 B+ 04/01/00 to
10/01/03 165,534,107
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONTAINERS, PACKAGING & GLASS
(CONTINUED)
$ 579 Stone Container Corp., Revolving
Credit.......................... Ba3 B+ 05/15/99 $ 579,465
8,009 Stronghaven, Inc., Term Loan.... NR NR 05/15/04 7,208,700
7,146 Tekni-Plex, Inc., Term Loan..... B1 B+ 03/03/06 7,150,120
--------------
300,632,023
--------------
DIVERSIFIED MANUFACTURING 2.1%
3,969 Advanced Accessory Systems, LLC,
Term Loan....................... B1 B+ 10/30/04 3,968,368
8,955 CII Carbon, LLC, Term Loan...... NR NR 06/25/08 8,957,202
6,383 ConMed Corp., Term Loan......... B1 BB- 12/30/04 6,384,859
9,850 Desa International, Term Loan... B2 B+ 12/26/04 9,852,468
27,044 Evenflo & Spalding Holdings
Corp., Term Loan................ B3 B- 09/30/03 to
03/30/06 27,044,314
6,566 Evenflo & Spalding Holdings
Corp., Revolving Credit......... B3 B- 09/30/03 6,566,484
25,757 International Wire Group, Inc.,
Term Loan....................... B1 NR 09/30/03 25,762,351
10,821 Intesys Technologies, Inc., Term
Loan............................ NR NR 06/30/04 to
06/30/06 10,823,292
427 Intesys Technologies, Inc.,
Revolving Credit................ NR NR 06/30/06 426,688
7,673 M.W. Manufacturers, Term Loan... NR NR 09/15/02 7,674,577
18,476 Neenah Foundry Co., Term Loan... Ba3 BB- 09/30/05 18,482,065
12,500 Superior Telecom, Term Loan..... Ba3 B+ 11/27/05 12,504,666
24,792 UCAR International, Inc., Term
Loan............................ Ba3 BB- 12/31/02 24,805,373
6,161 U.F. Acquisition, Term Loan..... NR NR 12/15/02 6,163,540
--------------
169,416,247
--------------
ECOLOGICAL 1.4%
7,000 Environmental System, Term
Loan............................ B1 BB- 09/30/05 7,003,661
104,885 Safety-Kleen Corp., Term Loan... Ba3 BB 04/03/05 to
04/03/06 104,904,164
--------------
111,907,825
--------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EDUCATION & CHILD CARE 0.2%
$ 8,690 Kindercare Learning Centers,
Inc., Term Loan................. Ba3 B+ 03/21/06 $ 8,690,275
4,969 La Petite Academy, Inc., Term
Loan............................ B2 B 05/11/05 4,969,276
--------------
13,659,551
--------------
ELECTRONICS 2.6%
29,906 Amphenol Corp., Term Loan....... Ba3 B+ 10/03/04 to
05/19/06 29,911,135
6,650 Banker's Systems, Inc., Term
Loan............................ NR NR 11/01/02 6,651,655
7,170 Beltone Electronics, Inc., Term
Loan............................ NR NR 10/31/03 to
10/31/04 7,170,421
3,861 Caribiner International, Term
Loan............................ NR NR 09/30/03 3,861,471
12,675 Chatham Technologies 08/18/03 to
Acquisition, Inc., Term Loan.... NR NR 08/18/05 12,674,918
5,872 Claricom, Inc., Term Loan....... NR NR 11/30/02 5,871,770
43,352 DecisionOne Corp., Term Loan.... B1 B- 08/07/03 to
08/07/05 43,373,468
16,912 Fairchild Semiconductor Corp.,
Term Loan....................... Ba3 BB 03/11/03 16,912,010
5,400 Fisher Scientific International, 01/21/05 to
Inc., Term Loan................. Ba3 B+ 01/21/06 5,502,142
3,935 Labtec, Inc., Term Loan......... NR NR 10/07/04 3,936,285
4,435 Rowe International, Inc., Term
Loan (a)........................ NR NR 03/31/00 4,480,400
8,643 Sarcom, Inc., Term Loan......... NR NR 12/31/02 8,643,126
24,976 Sterling Diagnostic Imaging,
Inc., Term Loan................. NR NR 09/30/05 24,972,711
7,500 Stoneridge, Inc., Term Loan..... Ba3 BB 12/31/05 7,500,000
18,629 Viasystems, Inc., Term Loan..... B2 B+ 03/31/04 to
06/30/05 18,633,721
634 Viasystems, Inc., Revolving
Credit.......................... B2 B+ 12/31/02 633,548
4,900 WGL Acquisition Corp., Term
Loan............................ NR NR 07/30/04 4,900,669
--------------
205,629,450
--------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ENTERTAINMENT/LEISURE 3.4%
$ 24,744 AMF Group, Inc., Term Loan...... B1 B 03/31/03 to
03/31/04 $ 24,747,563
21,500 ASC Network Corp., Term Loan.... NR NR 05/31/06 21,500,561
2,200 Camelot Music Holdings, Inc.,
Revolving Credit................ NR NR 01/27/02 2,200,000
20,000 Florida Panthers Holding, Inc.
Term Loan....................... NR NR 06/15/99 20,013,029
7,920 KSL Recreation Group, Inc. 04/30/05 to
Term Loan....................... B2 B+ 04/30/06 7,927,440
4,752 KSL Recreation Group, Inc.,
Revolving Credit................ B2 B+ 04/30/04 4,755,180
79,000 Metro-Goldwyn-Mayer, Inc., Term
Loan............................ NR NR 03/31/05 to
03/31/06 79,021,508
13,980 Metro-Goldwyn-Mayer, Inc.,
Revolving Credit................ NR NR 09/30/03 13,982,434
5,048 Regal Cinemas, Inc., Term
Loan............................ Ba3 BB- 05/27/06 to
05/27/07 5,050,954
9,933 SFX Entertainment, Inc., Term
Loan............................ B1 B+ 03/31/06 9,938,727
5,236 Six Flags Theme Park, Term
Loan............................ Ba3 B+ 11/30/04 5,236,521
6,700 Sportcraft, Ltd., Term Loan..... NR NR 12/31/02 6,700,081
4,988 True Temper, Term Loan.......... B1 BB- 09/30/05 4,988,457
46,819 Viacom, Inc., Term Loan......... Baa3 BBB- 04/01/02 to
07/01/02 46,826,940
1,368 Viacom, Inc., Revolving
Credit.......................... Baa3 BBB- 07/01/02 1,368,918
15,000 WestStar Cinemas, Inc., Term
Loan............................ NR NR 09/30/05 15,000,478
--------------
269,258,791
--------------
FARMING & AGRICULTURE 0.7%
11,000 Doane Pet Care Cos., Term
Loan............................ B1 B+ 12/31/05 to
12/31/06 11,005,377
37,459 Seminis, Inc., Term Loan........ NR NR 12/31/03 to
12/31/04 37,472,474
4,912 Walco International, Inc., Term
Loan............................ NR NR 03/31/04 4,914,278
--------------
53,392,129
--------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCE 6.6%
$ 14,000 Blackstone Capital Co., Term
Loan............................ NR NR 05/31/99 $ 14,005,591
38,000 Bridge Information Systems,
Inc., Term Loan................. NR NR 05/27/05 38,006,516
30,000 Felcor Suite Hotels, Term
Loan............................ Ba1 BB+ 06/30/01 30,000,000
31,509 Mafco Finance Corp., Term
Loan............................ NR NR 04/28/00 31,523,578
26,500 Metris Cos., Inc., Term Loan.... Ba3 NR 06/30/03 26,500,627
39,773 Outsourcing Solutions, Term
Loan............................ B2 NR 10/15/04 39,780,113
46,450 Patriot American Hospitality,
Inc., 03/31/99 to
Term Loan....................... NR NR 03/31/03 46,473,532
65,000 Paul G. Allen, Term Loan........ NR NR 06/10/03 65,000,788
125,000 Starwood Hotels and Resorts,
Inc., 02/23/99 to
Term Loan....................... Ba1 NR 02/23/03 124,950,003
98,718 Ventas Realty Ltd., Inc., Term
Loan............................ NR NR 04/30/03 98,741,625
--------------
514,982,373
--------------
FOOD/BEVERAGE 2.1%
46,977 Agrilink Foods, Term Loan....... B1 BB- 09/30/04 to
09/30/05 46,978,170
11,494 Amerifoods Cos., Inc., Term
Loan............................ NR NR 06/30/99 to
06/30/02 10,919,067
8,898 Edwards Baking Corp., Term
Loan............................ NR NR 09/30/03 to
09/30/05 8,898,375
12,417 Favorite Brands International,
Inc., Term Loan................. B2 B 05/19/05 12,417,230
19,184 Fleming Cos., Inc., Term Loan... Ba3 BB+ 07/25/04 19,230,661
15,971 Fleming Cos., Inc., Revolving
Credit.......................... Ba3 BB+ 07/25/03 16,036,217
7,425 Leon's Bakery, Inc., Term
Loan............................ NR NR 05/02/05 7,425,843
7,220 Mistic Brands, Inc., Term
Loan............................ NR NR 06/01/04 to
06/01/05 7,220,651
10,864 Southern Foods Group, Inc., Term
Loan............................ Ba3 BB- 02/28/06 10,867,676
21,448 Stroh Brewery Co., Term Loan.... NR NR 06/30/03 21,449,206
--------------
161,443,096
--------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOOD STORES/GROCERY 1.5%
$ 42,756 Bruno's, Inc., Term Loan (a)
(b)............................. Caa2 NR 12/02/03 to
04/15/05 $ 38,021,978
4,830 Bruno's, Inc., Revolving Credit
(a) (b)......................... Caa2 NR 12/02/03 4,294,150
12,429 Eagle Family Foods, Inc., Term
Loan............................ B1 B+ 12/31/05 12,435,267
4,592 Harvest Foods, Inc., Term Loan
(a) (b)......................... NR NR 06/30/02 91,830
30,652 Pathmark Stores, Inc., Term
Loan............................ B1 B+ 06/15/01 to
12/15/01 30,675,094
3,127 Pathmark Stores, Inc., Revolving
Credit.......................... B1 B+ 06/15/01 3,139,183
8,474 Randall's Food Markets, Inc.,
Term Loan....................... Ba3 BB- 06/27/06 8,478,130
5,748 Randall's Food Markets, Inc.,
Revolving Credit................ Ba3 BB- 06/27/04 5,747,906
5,000 The Pantry, Inc., Term Loan..... B1 BB- 01/31/06 5,000,000
8,391 Star Markets Co., Inc., Term
Loan............................ Ba3 NR 12/31/02 to
12/31/03 8,396,731
2,465 Star Markets Co., Inc.,
Revolving Credit................ Ba3 NR 12/31/01 2,466,245
--------------
118,746,514
--------------
HEALTH CARE & BEAUTY AIDS 1.6%
8,910 Kinetic Concepts, Inc., Term
Loan............................ Ba3 B+ 12/31/04 to
12/31/05 8,914,800
16,796 Mary Kay Cosmetics, Inc., Term
Loan............................ NR NR 03/06/04 16,804,504
1,709 Mary Kay Cosmetics, Inc.,
Revolving Credit................ NR NR 03/06/04 1,710,180
24,626 Playtex Products, Inc., Term
Loan............................ Ba2 BB 09/15/03 24,636,779
54,725 Revlon Consumer Products Corp.,
Term Loan....................... Ba3 BB- 05/30/02 54,761,208
20,000 24 Hour Fitness, Inc., Term
Loan............................ NR NR 12/31/05 20,004,668
--------------
126,832,139
--------------
HEALTHCARE 10.1%
3,960 Alliance Imaging, Inc., Term
Loan............................ B1 B+ 12/18/03 to
06/18/04 3,961,817
6,545 Charter Behavioral, Revolving
Credit.......................... NR NR 06/17/02 6,554,585
58,480 Community Health Systems, Inc., 12/31/03 to
Term Loan....................... NR NR 12/31/05 58,477,692
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$ 44,472 Dade International, Inc., Term
Loan............................ B1 NR 12/31/02 to
12/31/04 $ 44,492,723
15,030 Extendicare Health Services,
Inc., Term Loan................. Ba3 B+ 12/31/03 15,032,842
27,397 FPA Medical Management, Inc.,
Term Loan (a)(b)................ Caa3 D 09/30/01 21,998,694
4,813 FPA Medical Management, Inc.,
Debtor in Possession (a)(b)..... Caa3 D 02/01/09 4,812,748
27,010 Genesis Healthcare Ventures,
Inc., 09/30/04 to
Term Loan....................... Ba3 B+ 06/01/05 27,014,470
148,500 Integrated Health Services,
Inc., 09/15/03 to
Term Loan....................... Ba3 B+ 12/31/05 148,532,315
50,000 Magellan Health Services, Inc.,
Term Loan....................... B1 B+ 02/12/05 50,050,218
6,714 Medical Specialties Group, Inc., 06/30/01 to
Term Loan....................... NR NR 06/30/04 6,722,790
11,000 Mediq/PRN Life Support Services,
Inc., Term Loan................. B1 B+ 06/30/06 11,016,024
7,500 Meditrust Corp., Term Loan...... NR NR 07/17/01 7,500,253
26,490 MedPartners, Inc., Term Loan.... B1 BB- 05/31/01 26,503,659
5,786 MedPartners, Inc., Revolving
Credit.......................... B1 BB- 05/31/01 5,786,982
18,535 Multicare Companies, Inc., Term
Loan............................ B1 B+ 09/30/04 to
06/01/05 18,536,073
45,000 National Medical Care, Inc.,
Term Loan....................... Ba1 BB 09/30/03 45,019,557
13,500 Oxford Health Plans, Inc., Term
Loan............................ B3 B- 05/15/03 13,500,735
24,950 Paragon Health Network, Inc., 03/31/05 to
Term Loan....................... Ba3 NR 03/31/06 24,950,948
34,052 Quest Diagnostics, Inc., Term
Loan............................ Ba3 BB+ 12/05/02 to
06/30/06 34,053,272
7,900 SMT Health Services, Inc., Term
Loan............................ NR NR 08/30/03 7,899,994
15,010 Stryker Corp., Term Loan........ Ba2 BB 12/04/05 to
12/04/06 15,000,438
49,579 Sun Healthcare Group, Inc., 11/12/04 to
Term Loan....................... Ba3 B 11/12/05 49,578,563
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$ 89,100 Total Renal Care Holdings, Inc.,
Term Loan....................... Ba2 NR 03/31/08 $ 89,126,248
56,747 Vencor, Inc., Term Loan......... B1 B- 01/15/05 56,747,866
--------------
792,871,506
--------------
HOME & OFFICE FURNISHINGS,
HOUSEWARES & DURABLE CONSUMER
PRODUCTS 2.6%
13,000 Corning Consumer Products, Co.,
Term Loan....................... B1 BB- 10/09/06 13,000,000
49,817 Dal-Tile Group, Inc., Term
Loan............................ NR NR 12/31/02 to
12/31/03 49,906,963
4,085 Dal-Tile Group, Inc., Revolving
Credit.......................... NR NR 12/31/02 4,087,246
34,000 Furniture Brands International,
Inc., Term Loan................. NR NR 06/30/07 34,001,421
26,045 Imperial Home Decor Group, Inc., 03/12/04 to
Term Loan....................... B1 B+ 03/13/06 26,055,151
1,802 Imperial Home Decor Group, Inc.,
Revolving Credit................ B1 B+ 03/12/04 1,801,987
72,635 Renters Choice, Inc., Term
Loan............................ Ba3 BB- 01/31/06 to
01/31/07 72,641,230
--------------
201,493,998
--------------
HOTELS, MOTELS, & GAMING 0.9%
41,000 Alladin Gaming, LLC, Term
Loan............................ B2 NR 02/26/08 41,010,259
9,534 Alliance Gaming Corp., Term
Loan............................ B1 B 01/31/05 9,536,216
2,093 Alliance Gaming Corp., Delayed
Draw Term Loan.................. B1 B 01/31/05 2,093,221
5,000 Harrah's Jazz Co., Term Loan.... Baa3 BBB- 01/06/06 5,000,363
11,029 Las Vegas Sands, Inc., Term
Loan............................ B1 B+ 11/30/03 11,031,420
720 Las Vegas Sands, Inc., Revolving
Credit.......................... B1 B+ 11/30/03 720,059
--------------
69,391,538
--------------
INSURANCE 0.2%
17,500 BRW Acquisition, Inc., Term
Loan............................ NR NR 07/10/06 to
07/10/07 17,500,000
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MACHINERY 0.4%
$ 9,500 Alliance Laundry Systems, LLC,
Term Loan....................... B1 B+ 06/30/05 $ 9,509,277
15,000 Ocean Rig (Norway), Term Loan... NR NR 06/01/08 15,003,260
5,815 RIGCO N. A., LLC, Term Loan..... NR NR 09/30/05 5,814,800
--------------
30,327,337
--------------
MINING, STEEL, IRON, &
NON-PRECIOUS METALS 0.7%
7,437 Alliance Coal Corp., Term
Loan............................ NR NR 12/31/01 to
12/31/02 7,441,006
8,411 Earle M. Jorgensen, Term Loan... B1 B+ 03/31/04 8,443,339
9,506 Fairmont Minerals, Ltd., Term
Loan............................ NR NR 02/25/05 9,507,730
8,762 Global Metal Technologies, Term
Loan............................ NR NR 03/13/05 8,757,279
19,900 Ispat Inland, Term Loan......... Ba3 BB 07/16/05 to
07/16/06 19,900,000
--------------
54,049,354
--------------
NATURAL RESOURCES--COAL 0.0%
4,712 Centennial Resources, Inc., Term 03/31/02 to
Loan (a)(b)..................... NR NR 03/31/04 3,063,767
647 Centennial Resources, Inc., 03/31/02 to
Debtor in Possession (a)(b)..... NR NR 03/31/04 647,171
--------------
3,710,938
--------------
NON-DURABLE CONSUMER PRODUCTS
0.1%
4,045 Homemaker Industries, Inc., Term
Loan............................ NR NR 06/30/04 4,044,600
--------------
PAPER & FOREST PRODUCTS 0.8%
24,175 Crown Paper Co., Term Loan...... Ba3 BB 08/23/02 24,195,698
4,261 Crown Paper Co., Revolving
Credit.......................... Ba3 BB 08/23/02 4,264,769
3,761 CST/Office Products, Inc., Term
Loan............................ NR NR 12/31/01 3,760,864
14,925 Le Group Forex, Inc., Term
Loan............................ NR BB 06/30/05 14,932,771
17,156 Paper Acquisition Corp., Term
Loan............................ NR NR 06/17/01 17,156,300
--------------
64,310,402
--------------
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERSONAL & MISCELLANEOUS SERVICES 0.8%
$ 9,466 Accessory Network Group, Term
Loan............................ NR NR 07/31/05 $ 9,468,650
17 Borg Warner Security, Revolving
Credit.......................... B1 BB- 03/31/02 17,874
8,838 Arena Brands, Inc., Term Loan... NR NR 06/01/02 8,837,500
763 Arena Brands, Inc., Revolving
Credit.......................... NR NR 06/01/02 762,517
22,902 Boyds Collection, Ltd., Term
Loan............................ Ba3 B+ 04/21/06 22,905,150
13,500 Dimac Corp., Term Loan.......... B1 B+ 06/30/06 to
12/30/06 13,538,410
4,714 Smarte Carte Corp., Term Loan... NR NR 06/30/03 4,716,784
--------------
60,246,885
--------------
PHARMACEUTICALS 0.3%
17,167 Endo Pharmaceuticals, Inc., Term
Loan............................ NR NR 06/30/04 17,177,547
5,102 NEN Acquisition, Inc., Term
Loan............................ NR NR 03/31/05 5,112,066
--------------
22,289,613
--------------
PRINTING/PUBLISHING 4.2%
14,970 Advanstar Communications, Term
Loan............................ Ba3 B+ 04/30/05 14,970,000
13,158 ADVO, Inc., Term Loan........... NR NR 09/29/03 13,159,623
35,000 American Media Operations, Inc.,
Term Loan....................... Ba2 BB- 03/31/04 35,014,163
9,900 Bear Island Paper Co., LLC, Term
Loan............................ Ba3 B+ 12/31/05 9,902,687
4,987 Check Printers, Inc., Term
Loan............................ NR NR 06/30/05 4,989,482
8,888 Cygnus Publishing, Inc., Term
Loan............................ NR NR 06/05/05 8,900,078
68,000 Journal Register Co., Term
Loan............................ Ba1 BB+ 09/30/06 68,000,000
31,770 Morris Communications, Inc., 03/31/04 to
Term Loan....................... NR NR 06/30/05 31,770,719
38,946 Outdoor Systems, Inc., Term
Loan............................ Ba2 BB- 06/30/04 38,946,118
19,000 PRIMEDIA, Inc., Term Loan....... Ba3 NR 06/30/04 19,011,954
6,350 TransWestern Publishing LP, Term
Loan............................ Ba3 B+ 10/01/04 6,350,285
14,790 Von Hoffman Press, Inc., Term
Loan............................ B1 B+ 05/30/03 to
05/30/05 14,800,732
1,811 Von Hoffman Press, Inc.,
Revolving Credit................ B1 B+ 05/30/03 1,811,507
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRINTING/PUBLISHING (CONTINUED)
$ 5,000 Yellow Book USA, LP, Term
Loan............................ NR NR 12/15/05 to
12/05/06 $ 5,002,883
45,000 Ziff-Davis Publishing, Inc.,
Term Loan....................... Ba2 BB 03/31/05 45,014,682
9,925 21st Century Newspaper, Inc.,
Term Loan....................... NR NR 09/15/03 9,926,145
--------------
327,571,058
--------------
RESTAURANTS & FOOD SERVICE 2.1%
12,438 Applebee's International, Inc.,
Term Loan....................... NR NR 03/31/06 12,438,072
5,629 California Pizza Kitchen, Inc.,
Term Loan....................... NR NR 09/30/04 5,631,972
2,443 Carvel Corp., Term Loan......... NR NR 06/30/00 2,445,285
34,188 CKE Restaurants, Inc., Term
Loan............................ Ba2 NR 04/15/03 34,187,574
25,000 Domino's Pizza, Term Loan....... B1 B+ 12/21/06 to
12/21/07 25,011,735
42,040 S.C. International Services,
Inc., Term Loan................. Ba3 B 08/28/02 42,048,868
31,287 Shoney's, Inc., Term Loan....... B1 NR 04/30/02 31,313,018
10,000 Volume Services America, Term
Loan............................ NR B+ 12/01/06 10,004,178
--------------
163,080,702
--------------
RETAIL--LUXURY GOODS 0.1%
7,391 Ebel USA, Inc., Term Loan....... NR NR 09/30/01 7,390,595
--------------
RETAIL--OFFICE PRODUCTS 0.7%
6,354 Identity Group, Inc., Term
Loan............................ NR NR 11/22/03 6,354,197
52,474 U.S. Office Products Co., Term
Loan............................ B2 B- 06/09/06 52,475,669
--------------
58,829,866
--------------
RETAIL--OIL & GAS 0.2%
11,869 TravelCenters of America, Inc.,
Term Loan....................... Ba2 BB 03/31/05 11,885,145
--------------
RETAIL--SPECIALTY 0.2%
12,183 Hollywood Entertainment Corp.,
Revolving Credit................ Ba3 NR 09/05/02 12,184,986
6,627 Luxottica Group SPA, Term
Loan............................ NR NR 06/30/01 6,626,825
--------------
18,811,811
--------------
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RETAIL - STORES 1.0%
$ 11,500 Advance Stores Co., Term Loan... B1 NR 04/15/06 $ 11,500,524
1,985 American Blind and Wallpaper
Factory, Inc. .................. NR NR 12/31/05 2,034,184
5,868 Kirkland's Holdings, Term
Loan............................ NR NR 06/30/02 5,868,099
7,442 Nebraska Book Co., Inc., Term
Loan............................ B1 B+ 03/31/06 7,442,651
22,249 Payless Cashways, Inc., Term
Loan............................ NR NR 11/30/02 22,249,336
7,100 Payless Cashways, Inc.,
Revolving Credit................ NR NR 05/31/02 7,100,296
15,702 Peebles, Inc., Term Loan........ NR NR 06/09/02 15,702,844
4,902 Vitamin Shoppe Industries, Inc.,
Term Loan....................... NR NR 05/15/04 4,903,455
--------------
76,801,389
--------------
TELECOMMUNICATIONS - CELLULAR
3.6%
20,000 American Cellular Wireless,
Inc., Term Loan................. B2 NR 06/30/07 19,987,875
100,000 BCP SP Ltd., Term Loan.......... NR NR 03/31/00 99,353,094
75,000 Cellular, Inc., Financial Corp. 09/18/06 to
(CommNet), Term Loan............ B1 B 09/18/07 74,967,546
65,000 Western Wireless Corp., Term
Loan............................ B1 NR 03/31/05 65,008,693
20,000 Wireless One Network, Term
Loan............................ NR NR 09/30/07 20,008,465
--------------
279,325,673
--------------
TELECOMMUNICATIONS - HYBRID 1.8%
13,652 Atlantic Crossing, Term Loan.... NR NR 11/30/02 13,650,591
100,000 Nextel Finance Co., Term Loan... Ba3 B- 09/30/06 100,004,727
10,000 Nextel Finance Co., Term Loan
(Argentina)..................... NR NR 03/31/03 10,003,952
15,000 Pacific Crossing Ltd., Term
Loan............................ NR NR 07/28/06 15,000,000
--------------
138,659,270
--------------
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS--PERSONAL
COMMUNICATION SYSTEMS 2.5%
$ 55,000 Cox Communications, Inc., Term
Loan............................ Baa2 NR 12/31/06 $ 55,011,530
74,472 Omnipoint Communications, Inc.,
Term Loan....................... B2 B 02/17/06 74,489,296
11,000 Powertel PCS, Inc., Revolving
Credit.......................... NR NR 03/31/06 11,006,238
17,000 Telecorp PCS, Inc., Term Loan... NR NR 12/05/07 17,007,121
42,000 Triton PCS, Inc., Term Loan..... B1 B 05/04/07 42,014,253
--------------
199,528,438
--------------
TELECOMMUNICATIONS--WIRELESS
MESSAGING 2.0%
27,431 Arch Communications, Inc., Term
Loan............................ B3 B 12/31/02 to
06/30/06 27,437,609
15,000 CCPR Services, Inc., Term
Loan............................ NR NR 06/30/02 15,008,648
48,000 Iridium Operating LLC, Term
Loan............................ NR B 12/29/00 46,796,996
47,257 Mobilemedia Communications,
Inc., 06/30/02 to
Term Loan....................... Caa3 D 06/30/03 47,257,316
1,882 Mobilemedia Communications,
Inc., Revolving Credit.......... Caa3 D 06/30/02 1,881,821
9,500 Teletouch Communications, Inc.,
Term Loan....................... NR NR 11/30/05 9,500,000
11,000 TSR Wireless LLC, Term Loan..... NR NR 06/30/05 10,996,790
--------------
158,879,180
--------------
TEXTILES & LEATHER 1.1%
11,155 American Marketing Industries,
Inc., Term Loan................. NR NR 11/30/02 11,157,464
8,865 GFSI, Inc., Term Loan........... NR NR 03/31/04 8,873,607
9,600 Humphrey's, Inc., Term Loan..... Caa1 B+ 01/15/03 9,608,134
14,367 Joan Fabrics Corp., Term Loan... NR NR 06/30/05 to
06/30/06 14,371,504
15,213 Johnston Industries, Inc., Term
Loan............................ NR NR 07/01/00 15,213,150
13,965 Norcross Safety Prod., Term
Loan............................ NR NR 10/02/05 13,965,000
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TEXTILES & LEATHER (CONTINUED)
$ 9,767 Polyfibron Technologies, Inc.,
Term Loan....................... NR NR 12/28/03 $ 9,768,120
6,912 William Carter Co., Term Loan... Ba3 BB- 10/30/03 6,918,459
--------------
89,875,438
--------------
TRANSPORTATION--CARGO 1.3%
26,893 Atlas Freighter Leasing, Inc., 05/29/04 to
Term Loan....................... Ba3 NR 06/30/04 26,897,994
9,925 CTC Distribution Services, LLC,
Term Loan....................... NR NR 02/15/06 9,927,004
39,178 Evergreen International 05/31/02 to
Aviation, Inc., Term Loan....... Ba3 NR 05/31/03 39,211,954
7,550 Gemini Air Cargo, Inc., Term
Loan............................ B1 NR 12/12/02 7,552,526
7,425 North American Van Lines, Inc.,
Term Loan....................... NR NR 03/30/05 7,428,216
8,959 OmniTrax Railroads, LLC, Term
Loan............................ NR NR 05/14/05 8,962,439
--------------
99,980,133
--------------
TRANSPORTATION--MANUFACTURING
COMPONENTS 0.8%
27,720 Cambridge Industries, Inc., Term
Loan............................ B1 NR 06/30/05 27,743,749
9,235 Eagle-Picher Industries, Inc., 08/31/05 to
Term Loan....................... B1 B+ 08/31/06 9,235,200
24,938 SPX Corp., Term Loan............ Ba3 BB 03/31/06 24,956,060
--------------
61,935,009
--------------
TRANSPORTATION--PERSONAL 0.9%
16,814 Blue Bird Body Co., Term Loan... Ba2 BB- 11/02/02 to
11/01/03 16,814,167
49,964 Continental Airlines, Inc., Term
Loan............................ Ba1 BB 07/31/02 to
07/31/04 49,984,470
--------------
66,798,637
--------------
TRANSPORTATION--RAIL
MANUFACTURING 0.2%
16,095 Johnstown America Industries,
Inc., Term Loan................. B1 BB- 03/31/03 16,096,599
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 85.8%........... 6,738,765,358
--------------
</TABLE>
See Notes to Financial Statements
28
<PAGE> 30
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Borrower Value
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FIXED INCOME SECURITIES 0.7%
London Fog Industries, Inc. ($13,541,264 par, 10.00% coupon,
maturing 02/27/03)........................................... $ 13,541,264
Satelites Mexicanos ($39,907,000 par, 9.06% coupon, maturing
06/30/04).................................................... 39,956,884
--------------
TOTAL FIXED INCOME SECURITIES................................ 53,498,148
--------------
EQUITIES 1.3%
AFC Enterprises, Inc. (604,251 common shares) (c)(d)......... 4,682,945
American Blind and Wallpaper Factory, Inc. (198,600 common
shares) (c)(d)............................................... 3,505,910
Best Products Co., Inc. (297,480 common shares) (d).......... 0
Best Products Co., Inc. (Warrants for 28,080 common shares)
(d).......................................................... 0
Camelot Music Holdings, Inc. (1,994,717 common shares)
(c)(d)....................................................... 55,901,939
Classic Cable, Inc. (Warrants for 760 common shares) (d)..... 0
Dan River, Inc. (192,060 common shares) (d).................. 1,896,592
Flagstar Cos., Inc. (8,755 common shares) (d)................ 22
London Fog Industries, Inc. (1,083,301 common shares)
(c)(d)....................................................... 16,401,177
London Fog Industries, Inc., (Warrants for 66,580 common
shares) (c)(d)............................................... 0
Fleer/Marvel Entertainment, Inc. (537,526 preferred
shares)...................................................... 10,680,642
Fleer/Marvel Entertainment, Inc. (891,340 common shares)
(d).......................................................... 5,682,292
Nextel Communications, Inc. (Warrants for 60,000 common
shares) (c)(d)............................................... 1,020,000
Payless Cashways, Inc. (1,024,159 common shares) (d)......... 2,432,378
Rigco N.A., L.L.C. (Warrants for .325% interest of company's
fully diluted equity) (d).................................... 16,250
Rowe International, Inc. (91,173 common shares) (c)(d)....... 2,500,900
Sarcom, Inc. (43 common shares) (c)(d)....................... 0
--------------
TOTAL EQUITIES............................................... 104,721,047
--------------
TOTAL LONG-TERM INVESTMENTS 87.8%
(Cost $6,922,107,824)........................................ 6,896,984,553
--------------
</TABLE>
See Notes to Financial Statements
29
<PAGE> 31
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Borrower Value
- ------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS 11.2%
COMMERCIAL PAPER 3.2%
Boeing Capital Corp. ($13,375,000 par, maturing 02/01/99,
yielding 4.84%).............................................. $ 13,375,000
Boston Scientific Corp. ($7,180,000 par, maturing 02/26/99,
yielding 5.25%).............................................. 7,153,823
Case Credit Corp. ($5,000,000 par, maturing 03/12/99,
yielding 4.96%).............................................. 4,973,133
Comdisco, Inc. ($14,250,000 par, maturing 02/11/99, yielding
5.68%)....................................................... 14,227,517
CSX Corp. ($50,000,000 par, maturing 02/03/99 to 03/30/99,
yielding 4.97% to 5.00%)..................................... 49,775,635
CVS Corp. ($12,500,000 par, maturing 02/10/99, yielding
4.98%)....................................................... 12,484,437
FDX Corp. ($15,000,000 par, maturing 02/25/99, yielding
6.00%)....................................................... 14,940,000
McKesson Corp. ($20,000,000 par, maturing 02/04/99, yielding
5.00%)....................................................... 19,991,667
Raytheon Co. ($2,444,000 par, maturing 03/12/99, yielding
5.00%)....................................................... 2,430,762
Safeway, Inc. ($50,000,000 par, maturing 02/12/99 to
02/17/99, yielding 4.99%).................................... 49,909,903
Sprint Capital Corp. ($15,000,000 par, maturing 02/24/99,
yielding 5.00%).............................................. 14,952,083
Tandy Corp. ($18,000,000 par, maturing 02/04/99 to 02/11/99,
yielding 4.97%).............................................. 17,982,881
Texas Utilities Co. ($20,000,000 par, maturing 02/10/99,
yielding 4.93%).............................................. 19,975,350
Western Resources, Inc. ($8,000,000 par, maturing 02/04/99,
yielding 4.90%).............................................. 7,996,733
--------------
TOTAL COMMERCIAL PAPER....................................... 250,168,924
--------------
SHORT-TERM LOAN PARTICIPATIONS 8.0%
Airtouch Communications, Inc. ($15,000,000 par, maturing
02/16/99, yielding 5.11%).................................... 15,000,000
Alltel Corp. ($15,000,000 par, maturing 02/08/99, yielding
4.90%)....................................................... 15,000,000
American Stores Co. ($50,000,000 par, maturing 02/19/99 to
03/15/99, yielding 4.98% to 5.08%)........................... 50,000,000
Anadarko Pete Corp. ($50,000,000 par, maturing 02/02/99 to
02/08/99, yielding 4.94% to 4.96%)........................... 50,000,000
</TABLE>
See Notes to Financial Statements
30
<PAGE> 32
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Borrower Value
- ------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM LOAN PARTICIPATIONS (CONTINUED)
Cabot Corp. ($29,900,000 par, maturing 02/05/99 to 02/19/99,
yielding 5.08% to 5.73%)..................................... $ 29,900,000
Case Credit Corp. ($45,000,000 par, maturing 02/02/99 to
02/26/99, yielding 5.05% to 5.91%)........................... 45,000,000
Centex Corp. ($34,450,000 par, maturing 02/18/99 to 02/25/99,
yielding 4.97% to 5.03%)..................................... 34,450,000
Central and Southwest Corp. ($50,000,000 par, maturing
03/04/99 to 04/27/99, yielding 5.00% to 5.11%)............... 50,000,000
Cincinnati Gas and Electric Co. ($9,345,000 par, maturing
02/02/99, yielding 5.10%).................................... 9,345,000
ConAgra, Inc. ($50,000,000 par, maturing 02/01/99 to
02/24/99, yielding 4.93% to 5.01%)........................... 50,000,000
Enron Corp. ($37,000,000 par, maturing 02/01/99, yielding
4.98%)....................................................... 37,000,000
Fluor Corp. ($25,000,000 par, maturing 02/04/99 to 02/09/99,
yielding 4.85% to 4.88%)..................................... 25,000,000
GTE Funding, Inc. ($15,500,000 par, maturing 02/05/99,
yielding 4.82%).............................................. 15,500,000
Nipsco Capital Markets, Inc. ($23,500,000 par, maturing
02/05/99, yielding 5.02%).................................... 23,500,000
Ralston Purina Co. ($31,250,000 par, maturing 02/01/99 to
02/09/99, yielding 4.95% to 5.00%)........................... 31,250,000
Rayonier, Inc. ($10,000,000 par, maturing 02/09/99, yielding
5.02%)....................................................... 10,000,000
Temple Inland, Inc. ($50,000,000 par, maturing 02/02/99 to
02/23/99, yielding 5.02% to 5.92%)........................... 50,000,000
Universal Corp. ($56,000,000 par, maturing 02/11/99 to
02/16/99, yielding 5.02% to 5.06%)........................... 56,000,000
Western Resources, Inc. ($32,000,000 par, maturing 02/03/99
to 02/22/99, yielding 4.97% to 5.00%)........................ 32,000,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS......................... 628,945,000
--------------
</TABLE>
See Notes to Financial Statements
31
<PAGE> 33
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- ------------------------------------------------------------------------------------------
<S> <C>
TOTAL SHORT-TERM INVESTMENTS
(Cost $879,113,924).......................................... $ 879,113,924
--------------
TOTAL INVESTMENTS 99.0%
(Cost $7,801,221,748)........................................ 7,776,098,477
OTHER ASSETS IN EXCESS OF LIABILITIES 1.0%.................. 75,803,012
--------------
NET ASSETS 100.0%........................................... $7,851,901,489
==============
</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.
* 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
32
<PAGE> 34
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $7,801,221,748)..................... $7,776,098,477
Receivables:
Interest and Fees......................................... 75,306,116
Fund Shares Sold.......................................... 24,759,715
Other....................................................... 9,281
--------------
Total Assets.......................................... 7,876,173,589
--------------
LIABILITIES:
Payables:
Income Distributions...................................... 7,830,606
Investment Advisory Fee................................... 6,186,576
Distributor and Affiliates................................ 2,486,646
Administrative Fee........................................ 1,673,592
Fund Shares Repurchased................................... 797,339
Accrued Expenses............................................ 4,088,474
Deferred Facility Fees...................................... 983,118
Trustees' Deferred Compensation and Retirement Plans........ 225,749
--------------
Total Liabilities..................................... 24,272,100
--------------
NET ASSETS.................................................. $7,851,901,489
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 791,217,837 shares issued and
outstanding).............................................. $ 7,912,178
Paid in Surplus............................................. 7,905,821,414
Accumulated Undistributed Net Investment Income............. 10,138,427
Net Unrealized Depreciation................................. (25,123,271)
Accumulated Net Realized Loss............................... (46,847,259)
--------------
NET ASSETS.................................................. $7,851,901,489
==============
NET ASSET VALUE PER COMMON SHARE ($7,851,901,489 divided by
791,217,837 shares outstanding)........................... $ 9.92
==============
</TABLE>
See Notes to Financial Statements
33
<PAGE> 35
STATEMENT OF OPERATIONS
For the Six Months Ended January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $295,703,178
Fees........................................................ 3,633,129
Other....................................................... 1,416,662
------------
Total Income............................................ 300,752,969
------------
EXPENSES:
Investment Advisory Fee..................................... 35,781,437
Administrative Fee.......................................... 9,665,933
Shareholder Services........................................ 3,709,369
Legal....................................................... 1,104,800
Custody..................................................... 360,764
Trustees' Fees and Expenses................................. 158,417
Other....................................................... 1,875,721
------------
Total Expenses.......................................... 52,656,441
------------
NET INVESTMENT INCOME....................................... $248,096,528
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(19,580,325)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (5,181,222)
End of the Period......................................... (25,123,271)
------------
Net Unrealized Depreciation During the Period............... (19,942,049)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(39,522,374)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $208,574,154
============
</TABLE>
See Notes to Financial Statements
34
<PAGE> 36
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended January 31, 1999
and the Year Ended July 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1999 July 31, 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net Investment Income........................... $ 248,096,528 $ 461,572,692
Net Realized Loss............................... (19,580,325) (17,725,403)
Net Unrealized Appreciation/Depreciation During
the Period.................................... (19,942,049) 26,278,934
-------------- --------------
Change in Net Assets from Operations............ 208,574,154 470,126,223
Distributions from Net Investment Income........ (248,711,244) (461,726,242)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... (40,137,090) 8,399,981
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Sold................ 932,775,966 1,654,063,711
Value of Shares Issued Through Dividend
Reinvestment.................................. 133,699,433 245,628,149
Cost of Shares Repurchased...................... (487,320,223) (832,176,219)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. 579,155,176 1,067,515,641
-------------- --------------
TOTAL INCREASE IN NET ASSETS.................... 539,018,086 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 $10,138,427 and
$10,753,143, respectively).................... $7,851,901,489 $7,312,883,403
============== ==============
</TABLE>
See Notes to Financial Statements
35
<PAGE> 37
STATEMENT OF CASH FLOWS
For the Six Months Ended January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 208,574,154
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (522,173,587)
Increase in Interest and Fees Receivables................. (17,539,292)
Decrease in Receivable for Investments Sold............... 9,271,953
Decrease in Other Assets.................................. 46,315
Decrease in Deferred Facility Fees........................ (2,290,802)
Increase in Investment Advisory and Administrative Fees
Payable................................................. 532,632
Increase in Distributor and Affiliates Payable............ 1,187,308
Increase in Accrued Expenses.............................. 14,140
Increase in Deferred Compensation and Retirement Plans
Expenses................................................ 69,574
-------------
Total Adjustments....................................... (530,881,759)
-------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (322,307,605)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 934,422,994
Payments on Shares Repurchased.............................. (487,891,528)
Decrease in Intra-day Credit Line with Custodian Bank....... (7,513,945)
Cash Dividends Paid......................................... (116,709,916)
-------------
Net Cash Provided by Financing Activities................. 322,307,605
-------------
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
36
<PAGE> 38
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended July 31,
Ended -----------------------------------------
January 31, 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.......... .323 .675 .701 .735 .756
Net Realized and Unrealized
Gain/Loss.................... (.050) .015 (.042) (.028) (.004)
------- -------- -------- -------- --------
Total from Investment
Operations..................... .273 .690 .659 .707 .752
Less Distributions from Net
Investment Income.............. .325 .677 .698 .751 .758
------- -------- -------- -------- --------
Net Asset Value, End of the
Period......................... $ 9.924 $ 9.976 $ 9.963 $ 10.002 $ 10.046
======= ======== ======== ======== ========
Total Return (a)................. 2.67%* 7.22% 6.79% 7.22% 7.82%
Net Assets at End of the Period
(In millions).................. $7,851.9 $7,312.9 $6,237.0 $4,865.8 $2,530.1
Ratio of Expenses to Average Net
Assets......................... 1.36% 1.41% 1.42% 1.46% 1.49%
Ratio of Net Investment Income to
Average
Net Assets..................... 6.42% 6.81% 7.02% 7.33% 7.71%
Portfolio Turnover (b)........... 21%* 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 repayments and sales of variable rate
senior loan interests.
* Non-Annualized.
See Notes to Financial Statements
37
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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, totaling $6,738,765,358 (85.8% of net assets) is determined in the
absence of actual market values 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 Variable Rate Senior Loan
interest in the Trust's portfolio is determined with reference to changes in
market interest rates and to the creditworthiness of the underlying obligor. In
valuing Variable Rate Senior Loan interests, the Adviser considers market
quotations and transactions in instruments that the Adviser believes may be
comparable to such Variable Rate Senior Loan interests. In determining the
relationship between such instruments and the Variable Rate Senior Loan
interests, the Adviser considers such factors as the creditworthiness of the
underlying obligor, the current interest rate, the interest rate redetermination
period and maturity date. To the extent that reliable market transactions in
Variable Rate Senior Loan interests have occurred, the Adviser also considers
pricing information derived from such secondary market transactions in valuing
Variable Rate Senior Loan interests. Because of uncertainty inherent in the
valuation process, the estimated value of a Variable Rate Senior Loan interest
may differ significantly from the value that would have been used had there been
market activity for that Variable Rate Senior Loan interest. Equity securities
are valued on the basis of prices furnished by
38
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
pricing services or as determined in good faith by the Adviser. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Investment transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Facility
fees received are recognized as income ratably over the expected life of the
loan. Facility fees on senior loans purchased after July 31, 1997, are treated
as market discounts. Market premiums and discounts are amortized over the stated
life of each applicable security.
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At July 31, 1998, the Trust had an accumulated capital loss carryforward
for tax purposes of $3,873,769, which will expire between July 31, 2004 and July
31, 2006. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of wash sales, past 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 tax purposes but not
for book purposes at the end of the fiscal year.
At January 31, 1999, for federal income tax purposes cost of long- and
short-term investments is $7,804,800,175, the aggregate gross unrealized
appreciation is $21,381,523 and the aggregate gross unrealized depreciation is
$50,083,221 resulting in net unrealized depreciation of $28,701,698.
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.
39
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $4.0 billion.................................... .950 of 1%
Next $3.5 billion..................................... .900 of 1%
Next $2.5 billion..................................... .875 of 1%
Over $10.0 billion.................................... .850 of 1%
</TABLE>
In addition, the Trust will pay a monthly administrative fee to Van Kampen
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 six months ended January 31, 1999, the Trust recognized expenses of
approximately $181,900 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the six months ended January 31, 1999, the Trust recognized expenses of
approximately $43,400 representing Van Kampen Funds Inc. or its affiliates'
(collectively "Van Kampen") cost of providing legal services to the Trust.
Van Kampen Investor Services Inc., ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Trust. For the six months ended
January 31, 1999, the Trust recognized expenses for these services of
approximately $2,722,400. Transfer agency fees are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
market benchmarks.
Certain officers and trustees of the 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
40
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
3. CAPITAL TRANSACTIONS
At January 31, 1999 and July 31, 1998, paid in surplus aggregated $7,905,821,414
and $7,327,247,726, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1999 July 31, 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares........................... 733,069,022 626,018,023
----------- -----------
Shares Sold................................ 93,820,648 165,907,778
Shares Issued Through Dividend
Reinvestment............................. 13,452,361 24,636,104
Shares Repurchased......................... (49,124,194) (83,492,883)
----------- -----------
Net Increase in Shares Outstanding......... 58,148,815 107,050,999
----------- -----------
Ending Shares.............................. 791,217,837 733,069,022
=========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $1,580,287,355 and
$1,455,277,827, respectively.
5. TENDER OF SHARES
The Board of Trustees currently intends, each quarter, to consider authorizing
the Trust to make tender offers for all or a portion of its then outstanding
common shares at the then net asset value of the common shares. For the six
months ended January 31, 1999, 49,124,194 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
41
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 six months ended January 31, 1999, Van Kampen received early
withdrawal charges of approximately $6,994,500 in connection with tendered
shares of the Trust.
7. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $355,102,634 as of
January 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 has entered into a revolving credit agreement with a syndicate led
by Bank of America for an aggregate of $500,000,000, which will terminate on
April 15, 1999. The proceeds of any borrowing by the Trust under the revolving
credit agreement may only be used, directly or indirectly, for liquidity
purposes in connection with the consummation of a tender offer by the Trust for
its shares. Annual commitment fees of .065% are charged on the unused portion of
the credit line. Borrowings under this facility will bear interest at either the
LIBOR rate or the Federal Funds rate plus .375%. There have been no borrowings
under this agreement to date. The Trust is currently evaluating alternative
credit arrangements to provide additional liquidity for tender offers. The Trust
expects that any such arrangements would have customary covenants and default
limitations. There can be no assurance that the Trust will enter into future
credit arrangements.
42
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
8. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. When the Trust
purchases a participation of a Senior Loan interest, the Trust typically enters
into a contractual agreement with the lender or other third party selling the
participation, but not with the borrower directly. As such, the Trust assumes
the credit risk of the borrower, Selling Participant or other persons
interpositioned between the Trust and the borrower.
At January 31, 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 $100,000
Bank of New York................................ 52,220 52,235
Bankers Trust................................... 45,331 45,347
Chase Securities Inc............................ 10,684 10,685
Donaldson Lufkin Jenrette....................... 9,243 9,240
Canadian Imperial Bank of Commerce.............. 3,442 3,444
Goldman Sachs................................... 3,256 3,257
-------- --------
Total........................................... $224,176 $224,208
======== ========
</TABLE>
43
<PAGE> 45
VAN KAMPEN PRIME RATE INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
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*
JEFFREY W. MAILLET*
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 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, 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.
44
<PAGE> 46
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> VK PRIME RATE INCOME TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<INVESTMENTS-AT-COST> 7,801,221,748
<INVESTMENTS-AT-VALUE> 7,776,098,477
<RECEIVABLES> 100,065,831
<ASSETS-OTHER> 9,281
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,876,173,589
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,272,100
<TOTAL-LIABILITIES> 24,272,100
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,913,733,592
<SHARES-COMMON-STOCK> 791,217,837
<SHARES-COMMON-PRIOR> 733,069,022
<ACCUMULATED-NII-CURRENT> 10,138,427
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (46,847,259)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (25,123,271)
<NET-ASSETS> 7,851,901,489
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 295,703,178
<OTHER-INCOME> 5,049,791
<EXPENSES-NET> (52,656,441)
<NET-INVESTMENT-INCOME> 248,096,528
<REALIZED-GAINS-CURRENT> (19,580,325)
<APPREC-INCREASE-CURRENT> (19,942,049)
<NET-CHANGE-FROM-OPS> 208,574,154
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (248,711,244)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 93,820,648
<NUMBER-OF-SHARES-REDEEMED> (49,124,194)
<SHARES-REINVESTED> 13,452,361
<NET-CHANGE-IN-ASSETS> 539,018,086
<ACCUMULATED-NII-PRIOR> 10,753,143
<ACCUMULATED-GAINS-PRIOR> (27,266,934)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 35,781,437
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 52,656,441
<AVERAGE-NET-ASSETS> 7,669,282,546
<PER-SHARE-NAV-BEGIN> 9.976
<PER-SHARE-NII> 0.323
<PER-SHARE-GAIN-APPREC> (0.050)
<PER-SHARE-DIVIDEND> (0.325)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.924
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
