<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
TOP FIVE INDUSTRIES 4
TOP TEN HOLDINGS 4
CURRENT DISTRIBUTION 5
NET ASSET VALUE 5
Q&A WITH YOUR PORTFOLIO MANAGERS 6
GLOSSARY OF TERMS 10
A FOCUS ON SENIOR LOANS 11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 12
FINANCIAL STATEMENTS 35
NOTES TO FINANCIAL STATEMENTS 40
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 46
TRUST OFFICERS AND IMPORTANT ADDRESSES 47
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
February 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all mutual fund shareholders earmarked retirement as
their primary financial goal in 1998.
Through all the changes in the investment environment over the past century, the
general principles that have made generations of investors successful remain the
same. Some that have stood the test of time include:
- - Investing for the long-term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Believing in the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG] [SIG]
Richard F. Powers, III Dennis J. McDonnell
Chairman President
Van Kampen Van Kampen
Investment Advisory Corp. Investment Advisory Corp.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH REMAINED VIBRANT IN THE SECOND HALF OF 1999, DUE TO STRONG
CONSUMER SPENDING, INVENTORY BUILD-UP, AND EXPORTS. GROSS DOMESTIC PRODUCT
(GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH, INCREASED AT HISTORICALLY HIGH
ANNUALIZED RATES OF 5.7 PERCENT AND 6.9 PERCENT, RESPECTIVELY, IN THE LAST TWO
QUARTERS OF THE YEAR. WITH GDP MEASURING 4.1 PERCENT FOR 1999, THIS WAS THE
THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4 PERCENT. THE CLOSE OF THE
REPORTING PERIOD ALSO MARKED 107 CONSECUTIVE MONTHS OF ECONOMIC EXPANSION--THE
LONGEST STREAK IN U.S. HISTORY.
STRONG GDP DATA, AMONG OTHER FACTORS, PROMPTED THE FEDERAL RESERVE BOARD TO TAKE
AN ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH AND WARDING OFF INFLATION.
ALTHOUGH THE CONSUMER PRICE INDEX (CPI) ROSE A MODEST 2.7 PERCENT DURING 1999,
THE FED INCREASED THE FEDERAL FUNDS RATE BY 0.25 PERCENT IN AUGUST AND NOVEMBER
1999 AND IN FEBRUARY 2000. FED POLICYMAKERS SUGGESTED THAT ADDITIONAL INCREASES
ARE LIKELY IN THE COMING MONTHS.
ALTHOUGH THE CPI REMAINED QUIET, HINTS OF INFLATION WERE PRESENT IN OTHER
ECONOMIC MEASURES SUCH AS THE EMPLOYMENT COST INDEX (ECI) AND CONSUMER SPENDING
RATES. THE JOB MARKET CONTINUED TO THRIVE AS UNEMPLOYMENT DROPPED TO ITS LOWEST
LEVEL IN 30 YEARS. CONSEQUENTLY, AT YEAR-END THE ECI RECORDED ITS SHARPEST
QUARTER-TO-QUARTER INCREASE SINCE 1991, AS EMPLOYERS WERE FORCED TO INCREASE
BENEFITS SUCH AS HEALTH INSURANCE AND PAID LEAVE TO ATTRACT WORKERS.
THE PROSPECT OF RISING INTEREST RATES APPEARED TO HAVE LITTLE IMPACT ON CONSUMER
SPENDING AND OPTIMISM. CONSUMERS SPENT FREELY IN THE LAST MONTHS OF 1999, WHICH
CULMINATED IN THE STRONGEST HOLIDAY SALES SINCE 1992. AND, THANKS TO PLENTIFUL
JOBS, LOW INFLATION, AND THE REJUVENATED STOCK MARKET, CONSUMER CONFIDENCE
REACHED AN ALL-TIME HIGH IN JANUARY.
INTEREST RATES AND INFLATION
(January 31, 1998 - January 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jan 1998 5.5 1.6
5.5 1.4
5.5 1.4
Apr 1998 5.5 1.4
5.5 1.7
5.5 1.7
Jul 1998 5.5 1.7
5.5 1.6
5.25 1.5
Oct 1998 5 1.5
4.75 1.5
4.75 1.6
Jan 1999 4.75 1.7
4.75 1.6
4.75 1.7
Apr 1999 4.75 2.3
4.75 2.1
5 2
Jul 1999 5 2.1
5.25 2.3
5.25 2.6
Oct 1999 5.25 2.6
5.5 2.6
5.5 2.7
Jan 2000 5.5 2.7
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
2
<PAGE> 4
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of January 31, 2000)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
<S> <C> <C>
TOTAL RETURNS AND DISTRIBUTION RATE
- -----------------------------------------------------------------------
Six-month total return(1) 0.62%
- -----------------------------------------------------------------------
One-year total return(1) 3.34%
- -----------------------------------------------------------------------
Five-year average annual total return(1) 6.29%
- -----------------------------------------------------------------------
Ten-year average annual total return(1) 6.94%
- -----------------------------------------------------------------------
Life-of-Trust average annual total return(1) 7.07%
- -----------------------------------------------------------------------
Commencement date 10/04/89
- -----------------------------------------------------------------------
Distribution rate(2) 6.90%
- -----------------------------------------------------------------------
SHARE VALUATIONS
- -----------------------------------------------------------------------
Net asset value on 01/31/00 $9.61
- -----------------------------------------------------------------------
Six-month high net asset value (08/01/99) $9.87
- -----------------------------------------------------------------------
Six-month low net asset value (01/31/00) $9.61
- -----------------------------------------------------------------------
</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 3.00% imposed on most Shares
accepted by the Fund for repurchase within the first year and declining
thereafter to 0.00% after the fifth year. If the early withdrawal charge were
included, total return would be lower.
(2) Distribution rate is based upon the offering price of $9.65 and the current
monthly dividend of $.0555 per share as of January 25, 2000.
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
risk considerations, charges and expenses, investment objectives and operating
policies. Prospective investors should read the prospectus carefully before
investing or sending money.
3
<PAGE> 5
PORTFOLIO AT A GLANCE
TOP FIVE PORTFOLIO INDUSTRIES
(as a percentage of total assets - January 31, 2000)
<TABLE>
<S> <C> <C>
Health Care 8.6%
- ---------------------------------------------------------------------
Finance 5.8%
- ---------------------------------------------------------------------
Broadcasting--Cable 5.0%
- ---------------------------------------------------------------------
Hotels, Motels, and Gaming 4.6%
- ---------------------------------------------------------------------
Telecommunications -- Personal Communication Systems 4.1%
- ---------------------------------------------------------------------
</TABLE>
TOP TEN HOLDINGS
(as a percentage of total assets - January 31, 2000)
<TABLE>
<S> <C> <C>
Charter Communications, Inc. 2.30%
- ---------------------------------------------------------------------
Allied Waste North America, Inc. 2.16%
- ---------------------------------------------------------------------
Integrated Health Services, Inc. 1.41%
- ---------------------------------------------------------------------
Felcor Suite Hotels 1.35%
- ---------------------------------------------------------------------
BCP SP Ltd. 1.33%
- ---------------------------------------------------------------------
Lyondell Petrochemicals Corp. 1.33%
- ---------------------------------------------------------------------
Wyndham International, Inc. 1.32%
- ---------------------------------------------------------------------
Ventas Realty, Ltd., Inc. 1.28%
- ---------------------------------------------------------------------
Community Health Systems, Inc. 1.25%
- ---------------------------------------------------------------------
Total Renal Care Holdings, Inc. 1.19%
- ---------------------------------------------------------------------
</TABLE>
4
<PAGE> 6
CURRENT DISTRIBUTION
(January 31, 1990 - January 31, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN PRIME RATE INCOME
TRUST 3-MONTH TREASURY BILL
---------------------------- ---------------------
<S> <C> <C>
1/90 10.24 8.01
10.01 8.03
10.00 7.73
10.00 7.34
1/91 9.50 6.38
8.51 5.69
8.02 5.68
7.60 4.97
1/92 6.51 3.94
6.51 3.77
6.00 3.24
5.99 3.01
1/93 5.96 2.97
6.01 2.96
5.76 3.10
5.50 3.10
1/94 5.47 3.03
6.16 3.95
6.50 4.36
7.00 5.15
1/95 8.01 5.99
8.02 5.86
8.02 5.58
8.03 5.51
1/96 7.54 5.05
7.01 5.15
6.80 5.31
7.01 5.15
1/97 7.02 5.15
7.03 5.23
6.80 5.23
6.80 5.20
1/98 6.79 5.18
6.79 4.97
6.79 5.07
6.48 4.32
1/99 6.21 4.45
6.20 4.54
6.50 4.75
6.58 5.09
1/00 6.90 5.69
</TABLE>
NET ASSET VALUE
(January 31, 1990 - January 31, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN PRIME RATE INCOME TRUST
----------------------------------
<S> <C>
1/90 10.02
10.01
10.01
10.00
1/91 10.00
9.99
9.99
10.00
1/92 10.00
10.00
10.00
10.01
1/93 10.06
10.04
10.00
10.01
1/94 10.07
10.04
10.05
10.05
1/95 10.04
10.04
10.05
10.03
1/96 10.02
10.00
10.00
10.00
1/97 9.99
9.97
9.96
9.96
1/98 9.97
9.96
9.98
9.96
1/99 9.92
9.93
9.87
9.75
1/00 9.61
</TABLE>
Past performance does not guarantee future results.
5
<PAGE> 7
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN PRIME
RATE INCOME TRUST ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS DURING THE PAST SIX MONTHS. ONE OF THE KEY EVENTS DURING THE PERIOD WAS
A CHANGE IN PORTFOLIO MANAGERS. ON DECEMBER 8, 1999, HOWARD TIFFEN ASSUMED
DAY-TO-DAY MANAGEMENT RESPONSIBILITIES FOR THE TRUST. HE BRINGS MORE THAN 30
YEARS OF GLOBAL AND DOMESTIC INVESTMENT EXPERIENCE TO VAN KAMPEN'S SENIOR LOAN
TEAM.
THE FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE TRUST'S PERFORMANCE
DURING THE SIX MONTHS ENDED JANUARY 31, 2000.
Q CAN YOU TALK ABOUT MARKET
CONDITIONS DURING THE LAST SIX MONTHS?
A The last six months could be
described as a game of two halves in the senior loan market. In the summer and
fall of 1999, the supply of loans in the senior loan market was extremely
favorable to investors, providing many new loans with relatively favorable yield
and credit terms. The winter months of 1999 and early 2000 were the reverse,
with sparse offerings and lower relative yields, making it a more difficult
environment for investors.
Credit deterioration, however, had a much larger impact on investors than
did the supply of senior loans. Defaults reached levels not seen since 1992, and
that was unusual and unexpected by us given the strength of the economy.
Q HOW DID THESE CONDITIONS AFFECT
THE TRUST, AND WHAT OTHER FACTORS HAD A SIGNIFICANT IMPACT ON THE TRUST'S
PERFORMANCE?
A The rise in defaults hurt the entire
senior loan industry during the six-month period. Much of the Trust's loss,
approximately 2.6 percent of NAV, was due to its concentration in the
health-care industry--or, to be more precise, nursing homes.
We first mentioned this situation in your last report dated July 31, 1999.
At that time, it was clear that the Balanced Budget Act of 1997 was having more
of a negative effect on nursing homes than initially expected. One component of
the act changed how nursing homes are reimbursed by Medicare. The new policy was
originally projected to save Medicare $8 billion in nursing-home costs over a
five-year period. In 1999, it was discovered that the savings had been
underestimated by nearly half, and that Medicare's new policy would realize
savings of approximately $17 billion over the same period--a difference of $9
billion--siphoned out of nursing-home revenues.
For many nursing homes, most of which rely on Medicare for about 60 percent
of their revenues, this result put a significant strain on their businesses. As
of January 31, 2000, three of the
6
<PAGE> 8
seven largest providers of long-term care facilities were operating under
bankruptcy protection. [Editor's note: As of February 20, 2000, four of the
seven largest providers were operating under bankruptcy protection.]
During 1999, Congress amended the Act to provide some relief from these
negative effects on nursing-home providers. The Balanced Budget Refinement Act
of 1999 revised again the Medicare reimbursement policy to reduce the burden on
the nursing home sector by approximately $3 billion over the next 5 years, and
this should relieve some of the stress that has been placed on these businesses.
Although there were other isolated credit problems in the Trust's portfolio,
it was the health-care sector that had the largest negative effect on NAV. The
Trust's NAV fell from $9.85 on July 31, 1999, to $9.61 as of January 31, 2000.
Q WHY DID DEFAULTS AFFECT THE
TRUST? AREN'T THE LOANS BACKED BY COLLATERAL?
A Defaults affect all holders of
interests in senior loans, even those that are collateralized. At least 80
percent of the Trust's loans are required to be "collateralized"--backed by the
borrowers' assets. As a result, the Trust is likely to recover more of its
investment in a defaulted senior loan than it would if it were invested in other
types of securities. Recovery on defaulted senior loans, however, takes time.
When a senior loan defaults (i.e., the borrower is unable to make a scheduled
payment of interest or principal), lenders typically engage in negotiations with
the borrower and, in many cases, other participants in the borrower's capital
structure, to seek to recover the value of the loans. This usually takes the
form of an out-of-court restructuring or bankruptcy proceeding, either of which
can last for several years. During this period, the value of the defaulted
senior loan may decrease, which may result in a decline in the Trust's NAV.
If the borrower is unable to get back on its feet during that period, its
assets would typically be sold, if possible, and the creditors--including the
Trust--are then paid out of the proceeds. However, even in the case of
collateralized senior loans, there is no certainty that the sale of the
collateral will be sufficient to repay all or part of the loan or that the
collateral can or will be sold.
A July 1999 report by rating agency Moody's Investor Services Inc.
summarized the advantages of senior loans in bankruptcy situations. The report
found that, in the event of a bankruptcy, the median recovery for senior secured
and senior unsecured obligations, such as those held by the Trust, was
significantly higher than it was for other investments such as senior
subordinated debt, subordinated debt (such as bonds), and preferred and common
stock.
Although this Moody's report may not be indicative of future recoveries for
defaulted senior loans in general or those held in the Trust, it lends support
to our view that long-term investors in senior loans have historically recovered
more of their investments following bankruptcies than have investors in other
securities
7
<PAGE> 9
because of the loan's senior position in a borrower's capital
structure--demonstrating one of the principal benefits of this asset class.
Q THE FEDERAL RESERVE RAISED
INTEREST RATES SEVERAL TIMES DURING THE PERIOD. HOW DID THIS AFFECT THE
TRUST?
A Senior loans are one of the few
fixed-income asset classes with the potential to benefit from rising interest
rates, demonstrating another advantage of this asset class. Interest rates on
senior loans are reset periodically to reflect trends in prevailing short-term
interest rates, such as the Prime Rate and London InterBank Offered Rate. In
January, the Trust raised its dividend from $0.0535 to $0.0555 per share. Of
course, while the loans have the ability to pay investors higher yields when
interest rates rise, they also can pay lower rates when interest rates fall.
Shareholders often ask, "If borrowers are often required to pay higher
yields to investors when interest rates rise, doesn't the risk of default
increase with their higher debt costs?" The answer is typically no, at least not
directly. Borrowers are often required to purchase interest-rate insurance from
a third-party bank or insurer. The insurance does not guarantee the solvency of
the borrower, but, subject to the insurer's financial condition, it protects
borrowers from the rising interest cost of their senior loan in rising
interest-rate environments by paying the excess interest cost over a contractual
interest cost cap.
Q VAN KAMPEN RECENTLY ANNOUNCED
THAT IT BEGAN MAKING GREATER USE OF INDEPENDENT MARKET INDICATORS PROVIDED
BY LOAN PRICING CORPORATION (LPC), AN INDEPENDENT PRICING SERVICE, IN
VALUING CERTAIN OF THE SENIOR LOANS IN THE TRUST'S PORTFOLIO. WHAT IMPACT
MIGHT THIS HAVE ON THE PERFORMANCE?
A Making greater use of market
indicators, which was implemented on January 26, 2000, has had an insignificant
impact on the NAV of the Trust. The Trust's use of market indicators in valuing
senior loans is not new; we've used these indicators as a factor in valuing
senior loans throughout the life of the Trust, as set forth in the Trust's
disclosure documents. As of January 31, 2000, approximately 42 percent of the
Trust's senior loan assets were priced based on market indicators provided by
LPC.
As stated in the Trust's disclosure documents, the NAV of the Trust will
fluctuate as a function of interest rate and credit factors. Moreover, the
Trust's greater use of independent market indicators in valuing certain senior
loans has no affect on the yield of the Trust. Yield is determined based upon
the income earned on assets held in the Trust.
The Trust will continue to value senior loans for which reliable market
indicators are not available in a manner consistent with the Board of Trustees'
long-standing fair value methodology and with pricing policies governed by
procedures adopted by the Board.
8
<PAGE> 10
Q TO SUMMARIZE, HOW DID THE
TRUST PERFORM DURING THE REPORTING PERIOD?
A The Trust's total return for the six-
month period was 0.62 percent at NAV. Based on the January 25, 2000, public
offering price of $9.65 per share, the Trust's current monthly dividend of
$.0555 represents a distribution rate of 6.90 percent. For more information on
the Trust's performance, please refer to the chart and footnotes on page 3.
Also, please remember that past performance does not guarantee future results.
Q WHAT IS YOUR OUTLOOK FOR THE
SENIOR LOAN MARKET AND FOR THE TRUST?
A We believe the outlook for the
senior loan market is very good, particularly when compared to our outlook six
months ago. In the primary or "new loans" market, we've seen a large number of
mergers and acquisitions (M&A) in recent months. M&A activity often leads to an
increase in new senior loans coming to market, as many companies use senior
loans to help finance these activities. We believe this may lead to an abundance
of offerings with strong credit protection and higher relative yields. In the
developing secondary market, we believe there may be growing opportunities for
the Trust to acquire senior loans from other investors at prices lower than and
at yields higher than we could expect to receive in the primary or new loans
markets.
In terms of credit quality, we believe the rate of defaults during 2000 may
be lower than in 1999. We anticipate that defaults during 2000 may fall to
approximately 2 to 3 percent from 7.5 percent during 1999. The principal reason
for our optimism is that we believe the negative effects of the Balanced Budget
Act of 1997 on the health-care sector were reflected primarily during 1999 and
that most of the defaults by nursing-home providers have already occurred. Of
course, there can be no assurance that our forecast will be accurate, but we are
hopeful the industry-wide problem that occurred in the health-care sector is
behind us.
As the Fed raises interest rates, we may also see a rise in investors'
demand for senior loan funds, as investors seek to take advantage of one of the
few asset classes with the potential to benefit from rising interest rates and
inflation.
With regard to the Trust, our goal is to further diversify the loans we
hold. With a department staff of 23 professionals, including 11 analysts with an
average of nearly 15 years of experience, we believe that we have the resources
to manage a significantly larger number of loans than we currently hold. In the
long run, we believe that improved diversification will add strength and
stability to the Trust's NAV and dividends.
9
<PAGE> 11
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATION.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
FUNDAMENTALS: Characteristics of a company, such as revenue growth, earnings
growth, financial strength, market share, and quality of management.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing this
amount by the number of shares outstanding. The NAV does not include any initial
or contingent deferred sales charge; if these charges were included, the NAV
would decrease.
SENIOR LOANS: Loans or other debt securities that are given preference to junior
securities of the borrower. In the event of bankruptcy, payments to holders of
senior loan obligations are given priority over payments to shareholders of
subordinated debt, as well as shareholders of preferred and common stock. Senior
loans may share priority status with other senior securities of the borrower,
and such status is not a guarantee that monies to which the Trust is entitled
will be paid.
10
<PAGE> 12
A FOCUS ON SENIOR LOANS
The Prime Rate Income Trust invests primarily in senior collateralized loans
to corporations, partnerships, and other business entities that operate in a
variety of industries and geographic locations. Senior loans have a number of
characteristics that, in the opinion of the Trust's management team, are
important to the integrity of the Trust's portfolio. These include:
SENIOR STANDING
With respect to interest payments, senior loans generally have priority over
other classes of loans, preferred stock, or common stocks, though they may have
equal status with other securities of the borrower. This status is not a
guarantee, however, that monies to which the Trust is entitled will be paid. If
they are not fully paid, it potentially could have a negative effect on the
Trust's net asset value. For more details, please refer to the prospectus.
COLLATERAL BACKING
Senior loans are often secured by collateral that has been pledged by the
borrower under the terms of a loan agreement. Forms of collateral include
trademarks, accounts receivable or inventory, buildings, real estate,
franchises, and common and preferred stock in subsidiaries and affiliates. Under
certain circumstances, collateral might not be entirely sufficient to satisfy
the borrower's obligations in the event of nonpayment of scheduled interest or
principal, and in some instances may be difficult to liquidate on a timely
basis.
Additionally, a decline in the value of the collateral could cause the loan
to become substantially undersecured, and circumstances could arise (such as
bankruptcy of a borrower) that could cause the Trust's security interest in the
loan's collateral to be invalidated. This could potentially have a negative
effect on the Trust's net asset value.
CREDIT QUALITY
Many senior loans carry provisions designed to protect the lender in certain
circumstances. In addition, the variable-rate nature of the portfolio is
expected to lessen the fluctuation in the Trust's net asset value. However, the
net asset value will still be subject to the influence of changes in the real or
perceived credit quality of the loans in which the Trust invests. This may
occur, for example, in the event of a sudden or extreme increase in prevailing
interest rates, a default in a loan in which the Trust holds an interest, or a
substantial deterioration in the borrower's creditworthiness. From time to time,
the Trust's net asset value may be more or less than at the time of the
investment.
SPECIAL CONSIDERATIONS
Under normal market conditions, the Trust may invest up to 20 percent of its
assets in senior loans that are not secured by any specific collateral. From
time to time, the Trust may hold equity positions as collateral, which may
contribute to volatility in the Trust's net asset value. These equity positions
may or may not be traded on stock exchanges and valued daily at the market
price. It is management's opinion that shareholders will generally ultimately
benefit from these holdings. In addition, up to 20 percent of the Trust's assets
may be invested in senior loans made to non-U.S. borrowers, although these loans
must be U.S.-dollar denominated.
11
<PAGE> 13
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR TRUST AT THE END OF THE
REPORTING PERIOD.(1)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
VARIABLE RATE** SENIOR LOAN INTERESTS
AEROSPACE/DEFENSE 0.8%
$8,892 Aerostructures Corp.,
Term Loan............... NR BB- 12/31/03 to 09/06/04 $ 8,893,877
10,374 Aircraft Braking
Systems, Inc., Term
Loan.................... NR NR 10/15/05 10,374,610
10,407 Decrane Finance Co.,
Term Loan............... B2 B+ 9/30/05 to 04/23/06 10,406,886
8,658 Fairchild Holding Corp.,
Term Loan............... Ba3 BB- 04/30/06 8,658,400
14,229 High Performance
Plastics, Inc., Term
Loan.................... NR NR 03/31/05 14,226,597
5,167 United Defense
Industries, Inc., Term
Loan.................... Ba3 BB- 10/06/05 to 10/06/06 5,132,763
--------------
57,693,133
--------------
AUTOMOTIVE 3.4%
34,000 American Axle and
Manufacturing, Inc. Term
Loan.................... Ba3 BB- 04/30/06 33,902,250
55,833 Breed Technologies,
Inc., Term Loan
(a)(b).................. NR NR 04/27/04 to 04/27/06 44,666,642
5,838 Breed Technologies,
Inc., Revolving Credit
Agreement (a)(b)........ NR NR 04/27/04 4,670,666
2,047 Breed Technologies,
Inc., Debtor in
Possession (b).......... NR NR 09/30/00 2,047,000
27,440 Cambridge Industries,
Inc., Term Loan......... Caa1 NR 06/30/05 24,978,219
15,000 Dura Operating Corp.,
Term Loan............... Ba3 BB- 03/31/06 15,034,380
40,000 Federal Mogul Corp.,
Term Loan............... Ba2 BB+ 03/24/05 39,993,320
9,529 Insilco Corp., Term
Loan.................... Ba3 B+ 11/24/05 9,528,940
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
AUTOMOTIVE (CONTINUED)
$12,998 Global Metal
Technologies, Term
Loan.................... NR NR 03/13/05 $ 12,997,315
10,000 Meridian Automotive,
Term Loan............... NR NR 04/30/04 10,000,139
9,967 Metalforming
Technologies, Inc., Term
Loan.................... NR NR 06/30/06 9,960,890
16,409 Safelite Glass Corp.,
Term Loan............... B1 B+ 12/23/04 to 12/23/05 12,966,069
31,398 SPX Corp., Term Loan.... Ba2 BB+ 09/30/04 to 09/30/06 31,486,920
--------------
252,232,750
--------------
BEVERAGE, FOOD & TOBACCO 1.1%
46,159 Agrilink Foods, Term
Loan.................... B1 B+ 09/30/04 to 09/30/05 45,870,305
6,172 Amerifoods Cos., Inc.,
Term Loan (f)........... NR NR 06/30/01 3,764,622
14,214 Dr. Pepper Holdings,
Inc., Term Loan......... NR NR 10/07/07 14,248,433
9,370 Edwards Baking Corp.,
Term Loan............... NR NR 09/30/03 to 09/30/05 9,361,836
7,350 Leon's Bakery, Inc.,
Term Loan............... NR NR 05/02/05 7,349,793
--------------
80,594,989
--------------
BROADCASTING--CABLE 5.0%
15,324 Adelphia Cable
Partnership, Revolving
Credit Agreement........ Ba2 BB+ 12/31/03 15,322,000
9,800 Bresnan Communications
Co., LP, Term Loan...... NR NR 01/29/08 9,824,500
170,000 Charter Communications,
Inc., Term Loan......... Ba3 BB+ 03/17/08 170,721,650
46,669 Chelsea Communications,
Inc., Term Loan......... Ba2 NR 12/31/04 46,660,938
10,400 Encore Investments, Term
Loan.................... NR NR 06/30/04 10,401,869
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
BROADCASTING--CABLE (CONTINUED)
$3,000 Encore Investments,
Revolving Credit
Agreement............... NR NR 06/30/04 $ 2,999,910
44,055 Falcon Communications,
Inc., Term Loan......... Ba3 BB 12/31/07 44,020,593
14,969 Frontiervision Operating
Partners, LP, Term
Loan.................... Ba2 BB 03/31/06 14,966,540
19,861 Garden State
Cablevision, LP,
Revolving Credit
Agreement............... NR NR 06/30/05 19,861,316
35,000 Insight Kentucky
Partners, Term Loan..... Ba3 BB+ 12/31/07 34,773,970
--------------
369,553,286
--------------
BROADCASTING--DIVERSIFIED 0.3%
15,000 Muzak Audio
Communications, Inc.,
Term Loan............... B1 B+ 12/31/06 14,998,780
4,550 White Knight
Broadcasting, Inc., Term
Loan.................... NR NR 06/30/07 4,549,592
--------------
19,548,372
--------------
BROADCASTING--TELEVISION 1.8%
19,920 Black Entertainment
Television, Inc., Term
Loan.................... NR NR 06/30/06 19,739,485
9,511 Lin Television Corp.,
Term Loan............... Ba3 BB- 03/31/07 9,494,815
8,000 Quorom Broadcasting,
Inc., Term Loan......... NR NR 09/30/07 7,999,300
61,600 Sinclair Broadcasting,
Term Loan............... Ba2 BB- 09/15/05 61,590,020
31,920 TLMD Acquisition Co.,
Term Loan............... NR NR 03/31/07 31,919,887
--------------
130,743,507
--------------
BUILDINGS & REAL ESTATE 0.8%
19,817 Builders Firstsource,
Term Loan............... NR BB- 12/30/05 19,820,544
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
BUILDINGS & REAL ESTATE (CONTINUED)
$41,667 Walter Industries, Inc.,
Term Loan............... NR NR 10/15/03 $ 41,654,361
--------------
61,474,905
--------------
CHEMICAL, PLASTICS & RUBBER 3.8%
11,114 Cedar Chemicals Corp.,
Term Loan............... NR NR 10/30/03 11,107,101
10,420 Foamex, LP, Term Loan... B3 B 06/30/05 to 06/30/06 10,414,279
3,625 Foamex, LP, Revolving
Credit Agreement........ B3 B 06/12/03 3,624,933
6,530 Gentek, Inc., Term
Loan.................... Ba3 BB 04/30/07 6,527,608
40,551 Huntsman Group Holdings,
Term Loan............... Ba2 NR 12/31/02 to 10/07/05 40,573,110
12,095 Huntsman Group Holdings,
Revolving Credit
Agreement............... Ba2 NR 12/31/02 12,095,969
35,000 Huntsman Specialty
Chemical Corp., Term
Loan.................... Ba3 BB 06/30/07 to 06/30/08 35,266,140
5,298 Jet Plastica Industries,
Inc., Term Loan......... NR NR 12/31/02 to 12/31/04 5,296,770
97,272 Lyondell Petrochemical
Corp., Term Loan........ Ba3 NR 06/30/05 to 05/17/06 98,707,179
15,000 MetoKote Corp., Term
Loan.................... NR NR 11/02/05 14,999,006
9,750 Pioneer Americas
Acquisition Corp., Term
Loan.................... B3 B+ 12/31/06 9,733,445
10,786 Texas Petrochemicals
Corp., Term Loan........ B1 NR 06/30/01 to 06/30/04 10,788,253
889 Texas Petrochemicals
Corp., Revolving Credit
Agreement............... B1 NR 12/31/02 889,354
6,402 TruSeal Technologies,
Inc., Term Loan......... NR NR 06/30/04 6,398,647
8,060 Vinings Industries,
Inc., Term Loan......... NR NR 03/31/05 8,055,016
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
CHEMICAL, PLASTICS & RUBBER (CONTINUED)
$4,531 West American Rubber,
Term Loan............... NR NR 06/30/05 $ 4,531,000
--------------
279,007,810
--------------
CONSTRUCTION MATERIALS 0.5%
1,305 Brand Scaffold Services,
Inc., Term Loan......... B1 NR 09/30/02 1,304,850
278 Brand Scaffold Services,
Inc., Revolving Credit
Agreement............... B1 NR 09/30/02 277,778
10,000 Dayton Superior Corp.,
Term Loan............... NR NR 09/29/05 9,995,830
6,831 Flextek Components,
Inc., Term Loan (a)..... NR NR 02/28/05 3,438,910
6,451 Reliant Building
Products, Inc., Term
Loan.................... B2 CCC 03/31/04 6,451,256
14,700 Werner Holding Co., Term
Loan.................... Ba3 B+ 11/30/04 to 11/30/05 14,646,183
--------------
36,114,807
--------------
CONTAINERS, PACKAGING & GLASS 2.8%
8,750 ACX Technologies, Term
Loan.................... Ba1 NR 08/01/00 8,761,305
7,763 Fleming Packaging Corp.,
Term Loan............... NR NR 08/30/04 7,763,333
9,800 Graham Packaging Co.,
Term Loan............... B1 B+ 01/31/06 to 01/31/07 9,792,999
28,669 Huntsman Packaging
Corp., Term Loan........ B1 BB- 09/30/05 to 06/30/06 28,452,954
29,325 IPC, Inc., Term Loan.... NR B+ 10/02/04 29,105,063
7,481 Mediapak Corp., Term
Loan.................... NR NR 12/31/05 to 12/31/06 7,482,429
17,227 Packaging Corp., Term
Loan.................... Ba3 BB 04/12/07 to 04/12/08 17,326,098
4,941 Packaging Dynamics, Term
Loan.................... NR NR 11/20/05 4,940,394
73,334 Stone Container Corp.,
Term Loan............... Ba3 B+ 10/01/03 73,580,904
2,297 Stone Container Corp.,
Revolving Credit
Agreement............... Ba3 B+ 10/01/03 2,276,266
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
CONTAINERS, PACKAGING & GLASS (CONTINUED)
$7,874 Stronghaven, Inc., Term
Loan.................... NR NR 05/15/04 $ 7,086,847
7,074 Tekni-Plex, Inc., Term
Loan.................... B1 B+ 03/03/06 7,073,943
--------------
203,642,535
--------------
DIVERSIFIED MANUFACTURING 2.6%
3,435 Advanced Accessory
Systems, LLC, Term
Loan.................... B1 B+ 10/30/04 3,435,567
29,925 Chart Industries, Inc.,
Term Loan............... NR NR 03/31/06 29,923,971
7,613 CII Carbon, LLC, Term
Loan.................... NR NR 06/25/08 7,612,107
11,327 ConMed Corp., Term
Loan.................... B1 BB- 12/30/04 to 06/30/05 11,319,795
14,500 Desa International, Term
Loan.................... B2 B+ 11/26/03 to 12/26/04 14,497,160
30,025 International Wire
Group, Inc., Term
Loan.................... B1 NR 09/30/03 30,027,887
18,275 Neenah Foundry Co., Term
Loan.................... B1 BB- 09/30/05 18,273,013
25,664 Spalding Holdings, Inc.,
Term Loan............... B3 B- 09/30/03 to 03/30/06 25,624,549
8,875 Spalding Holdings, Inc.,
Revolving Credit
Agreement............... B3 B- 09/30/03 8,866,506
12,222 Superior Telecom, Term
Loan.................... Ba3 B+ 11/27/05 12,226,422
24,583 UCAR International,
Inc., Term Loan......... Ba3 BB- 12/31/02 24,649,905
3,471 United Fixtures Co.,
Term Loan............... NR NR 12/15/02 2,256,860
6,965 Western Industries,
Inc., Term Loan......... NR NR 06/23/06 6,961,619
--------------
195,675,361
--------------
ECOLOGICAL 3.2%
165,000 Allied Waste North
America, Inc., Term
Loan.................... Ba3 BB 07/23/06 to 07/23/07 159,934,995
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
ECOLOGICAL (CONTINUED)
$6,930 Environmental System,
Term Loan............... NR NR 09/30/05 $ 6,931,216
70,915 Safety-Kleen Corp., Term
Loan.................... Ba3 BB 03/10/05 to 03/10/06 70,794,616
--------------
237,660,827
--------------
EDUCATION & CHILD CARE 0.2%
8,602 Kindercare Learning
Centers, Inc., Term
Loan.................... Ba3 B+ 03/21/06 8,601,820
4,844 La Petite Academy, Inc.,
Term Loan............... B2 B 05/11/05 4,843,400
--------------
13,445,220
--------------
ELECTRONICS 3.3%
32,323 Amphenol Corp., Term
Loan.................... Ba3 BB 05/19/04 to 05/19/06 32,102,014
6,622 Beltone Electronics,
Inc., Term Loan......... NR NR 10/31/04 6,618,920
3,529 Caribiner International,
Term Loan............... NR NR 09/30/03 3,528,651
12,232 Chatham Technologies
Acquisition, Inc., Term
Loan.................... NR NR 08/18/03 to 08/18/05 11,862,956
6,965 Communications
Instruments, Inc., Term
Loan.................... Ba3 BB- 03/15/04 6,961,198
47,850 DecisionOne Corp., Term
Loan (h)................ Caa3 C 08/07/03 to 08/07/05 23,925,000
4,957 EG&G Technical Service,
Term Loan............... B1 NR 08/20/07 4,956,777
5,368 Fisher Scientific
International, Inc.,
Term Loan............... Ba3 B+ 01/21/05 to 01/21/06 5,379,082
22,367 General Cable Corp.,
Term Loan............... Ba3 NR 06/30/07 22,376,515
4,435 Rowe International,
Inc., Term Loan......... NR NR 12/31/03 4,435,436
8,107 Sarcom, Inc., Term
Loan.................... NR NR 12/31/02 8,107,143
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
ELECTRONICS (CONTINUED)
$50,000 Semiconductor Components
Industries, Term Loan... NR BB- 08/04/06 to 08/04/07 $ 50,476,550
7,425 Stoneridge, Inc., Term
Loan.................... Ba3 BB 12/31/05 7,417,916
9,906 Stratus Computer, Inc.,
Term Loan............... NR NR 02/26/05 9,907,179
39,698 Viasystems, Inc., Term
Loan.................... B1 B+ 03/31/04 to 06/30/05 39,697,173
1,473 Viasystems, Inc.,
Revolving Credit
Agreement............... B1 B+ 12/31/02 1,473,299
4,863 Wilson Greatbatch, Inc.,
Term Loan............... NR NR 07/30/04 4,863,403
--------------
244,089,212
--------------
ENTERTAINMENT & LEISURE 3.2%
13,310 American Skiing Co.,
Term Loan............... NR NR 05/31/06 13,312,858
24,393 AMF Group, Inc., Term
Loan.................... B2 B 03/31/03 to 03/31/04 24,384,389
10,000 Fitness Holdings, Term
Loan.................... NR B+ 11/02/06 to 11/02/07 9,988,750
7,840 KSL Recreation Group,
Inc., Term Loan......... B2 B+ 04/30/05 to 04/30/06 7,791,000
1,473 KSL Recreation Group,
Inc., Revolving Credit
Agreement............... B2 B+ 04/30/04 1,472,595
79,000 Metro-Goldwyn-Mayer,
Inc., Term Loan......... Baa3 BBB- 03/31/05 to 03/31/06 78,035,803
5,011 Regal Cinemas, Inc.,
Term Loan............... B1 B+ 05/27/06 to 05/27/07 5,010,987
9,933 SFX Entertainment, Inc.,
Term Loan............... B1 B+ 06/30/06 9,920,917
6,700 Sportcraft, Ltd., Term
Loan.................... NR NR 12/31/02 6,698,811
4,610 True Temper, Term Loan.. B1 BB- 09/30/05 4,609,163
4,892 United Artists Theatre,
Inc., Term Loan......... B3 CCC 04/21/06 to 04/21/07 4,529,522
35,860 Viacom, Inc., Term
Loan.................... Baa3 BBB- 04/01/02 to 04/02/02 35,367,103
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
ENTERTAINMENT & LEISURE (CONTINUED)
$1,810 Viacom, Inc., Revolving
Credit Agreement........ Baa3 BBB- 04/01/02 $ 1,809,746
15,000 WestStar Cinemas, Inc.,
Term Loan (a)(b)........ NR NR 09/30/05 9,900,000
21,760 WFI Group, Inc., Term
Loan.................... Baa3 NR 07/14/04 21,756,328
--------------
234,587,972
--------------
FARMING & AGRICULTURE 0.1%
10,890 Doane Pet Care Cos.,
Term Loan............... B1 B+ 12/31/05 to 12/31/06 10,926,296
--------------
FINANCE 5.8%
23,537 Alliance Data Systems,
Inc., Term Loan......... NR NR 07/25/03 23,528,332
39,800 Bridge Information
Systems, Inc., Term
Loan.................... NR NR 05/29/05 39,779,702
31,500 Mafco Finance Corp.,
Term Loan............... NR NR 04/28/00 31,500,849
4,875 Mafco Finance Corp.,
Revolving Credit
Agreement............... NR NR 04/28/00 4,875,463
26,500 Metris Cos., Inc., Term
Loan.................... Ba3 NR 06/30/03 26,494,739
37,930 Outsourcing Solutions,
Term Loan............... B2 BB- 06/01/00 to 12/01/05 37,927,850
65,000 Paul G. Allen, Term
Loan.................... NR NR 06/10/03 65,007,171
70,154 Rent A Center, Inc.,
Term Loan............... Ba3 BB- 01/31/06 to 01/31/07 69,671,998
34,000 Sovereign Bancorp, Term
Loan.................... Ba3 NR 11/14/03 34,113,322
97,629 Ventas Realty Ltd.,
Inc., Term Loan......... NR NR 04/30/03 94,700,887
--------------
427,600,313
--------------
GROCERY 1.6%
4,963 Big V Supermarkets,
Inc., Term Loan......... B1 B+ 08/10/03 4,910,806
42,756 Bruno's, Inc.,
Term Loan (a)........... Caa2 NR 12/02/03 to 04/15/05 35,487,480
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
GROCERY (CONTINUED)
$4,830 Bruno's, Inc., Revolving
Credit Agreement (a).... Caa2 NR 12/02/03 $ 4,009,162
12,357 Eagle Family Foods,
Inc., Term Loan......... B1 B 12/31/05 12,356,113
16,673 Fleming Cos., Inc., Term
Loan.................... Ba3 BB 07/25/04 16,663,121
31,324 Fleming Cos., Inc.,
Revolving Credit
Agreement............... Ba3 BB 07/25/03 31,322,761
3,156 Pathmark Stores, Inc.,
Term Loan............... B3 B+ 06/15/01 2,984,193
7,927 Pathmark Stores, Inc.,
Revolving Credit
Agreement............... B3 B+ 06/15/01 7,496,299
4,761 The Pantry, Inc., Term
Loan.................... B1 BB- 01/31/06 4,772,202
--------------
120,002,137
--------------
HEALTH CARE & BEAUTY AIDS 1.7%
27,415 Kinetic Concepts, Inc.,
Term Loan............... Ba3 B 12/31/04 to 12/31/05 27,420,472
15,743 Mary Kay, Inc., Term
Loan.................... NR NR 03/06/04 15,740,126
1,239 Mary Kay, Inc.,
Revolving Credit
Agreement............... NR NR 03/06/04 1,238,961
24,376 Playtex Products, Inc.,
Term Loan............... Ba2 BB 09/15/03 24,380,629
54,450 Revlon Consumer Products
Corp., Term Loan........ B2 B+ 05/30/02 to 05/31/02 54,443,631
--------------
123,223,819
--------------
HEALTHCARE 8.7%
10,000 Alliance Imaging, Inc.,
Term Loan............... B1 NR 11/02/07 to 11/02/08 9,998,226
6,772 Caremark Rx, Inc., Term
Loan.................... B1 BB- 05/31/01 6,773,145
9,286 Caremark Rx, Inc.,
Revolving Credit
Agreement............... B1 BB- 05/31/01 9,285,189
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$4,869 Charter Behavioral,
Revolving Credit
Agreement (h)........... NR NR 06/17/02 $ 4,868,253
9,931 Columbia Healthone,
Inc., Term Loan......... Ba2 BB+ 06/30/05 9,897,934
93,627 Community Health
Systems, Inc., Term
Loan.................... NR NR 12/31/03 to 12/31/05 93,081,472
11,514 Extendicare Health
Services, Inc., Term
Loan.................... B1 B 12/31/03 11,515,458
26,702 Genesis Healthcare
Ventures, Inc., Term
Loan.................... B2 B 09/30/04 to 06/01/05 26,725,356
147,375 Integrated Health
Services, Inc., Term
Loan (a)(h)............. Caa2 NR 09/15/03 to 09/15/05 104,603,142
43,405 Magellan Health
Services, Inc., Term
Loan.................... B2 B+ 02/12/05 43,402,024
23,579 Mariner Post-Acute
Network, Inc., Term
Loan (a)(b)............. Caa2 NR 03/31/05 to 03/31/06 10,610,639
6,714 Medical Specialties
Group, Inc., Term
Loan.................... NR NR 06/30/01 to 06/30/04 6,717,845
10,945 Mediq/PRN Life Support
Services, Inc., Term
Loan.................... B1 CCC 06/30/06 10,939,185
18,267 Multicare Companies,
Inc., Term Loan......... B3 B 09/30/04 to 06/01/05 18,286,808
42,975 National Medical Care,
Inc., Term Loan......... Ba1 BB 09/30/03 42,973,160
4,592 Nen Life Science
Products, Term Loan..... NR NR 03/31/05 4,591,746
13,500 Oxford Health Plans,
Inc., Term Loan......... B3 NR 05/15/03 13,481,294
27,500 Quest Diagnostics, Inc.,
Term Loan............... Ba3 BB 08/16/06 to 08/16/07 27,637,500
4,201 Stryker Corp., Term
Loan.................... Ba2 BB 12/04/05 to 12/04/06 4,216,824
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$46,322 Sun Healthcare Group,
Inc., Term
Loan (a)(b)............. Caa2 NR 11/12/04 to 11/12/05 $ 35,204,971
88,200 Total Renal Care
Holdings, Inc., Term
Loan.................... Ba2 NR 03/31/08 88,200,000
9,975 Unilab Corp., Term
Loan.................... B1 B+ 11/23/06 9,976,280
55,365 Vencor, Inc., Term
Loan (a)(b)............. Caa2 NR 01/15/05 48,167,118
--------------
641,153,569
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER PRODUCTS 1.7%
22,870 Corning Consumer
Products, Co., Term
Loan.................... B1 NR 10/09/06 to 04/09/07 22,858,163
46,963 Dal-Tile Group, Inc.,
Term Loan............... NR NR 12/31/02 to 12/31/03 46,037,833
2,905 Dal-Tile Group, Inc.,
Revolving Credit
Agreement............... NR NR 12/31/02 2,905,372
34,000 Furniture Brands
International, Inc.,
Term Loan............... NR NR 06/30/07 33,702,500
25,884 Imperial Home Decor
Group, Inc., Term
Loan (b)................ Caa3 D 03/12/04 to 03/13/06 14,752,088
4,309 Imperial Home Decor
Group, Inc., Revolving
Credit Agreement (b).... Caa3 D 03/12/04 2,456,183
--------------
122,712,139
--------------
HOTELS, MOTELS, & GAMING 4.6%
41,000 Aladdin Gaming, LLC,
Term Loan............... B2 NR 02/26/08 41,000,223
9,293 Alliance Gaming Corp.,
Term Loan............... B2 B 01/31/05 9,278,802
2,041 Alliance Gaming Corp.,
Delayed Draw Term
Loan.................... B2 B 01/31/05 2,037,715
100,000 Felcor Suite Hotels,
Term Loan............... Ba2 BB 03/31/04 99,979,200
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
HOTELS, MOTELS, & GAMING (CONTINUED)
$5,000 Jazz Casino Co., Term
Loan.................... NR NR 01/06/06 $ 4,996,544
12,243 Las Vegas Sands, Inc.,
Term Loan............... NR B+ 11/30/03 12,237,489
1,728 Las Vegas Sands, Inc.,
Revolving Credit
Agreement............... NR B+ 11/30/03 1,727,316
25,000 Meditrust Corp., Term
Loan.................... NR NR 07/17/01 24,246,100
50,000 Starwood Hotels and
Resorts, Inc., Term
Loan.................... Ba1 NR 02/23/03 49,991,896
100,000 Wyndham International,
Inc., Term Loan......... NR NR 06/30/06 97,805,800
--------------
343,301,085
--------------
INSURANCE 0.6%
17,325 BRW Acquisition, Inc.,
Term Loan............... NR NR 07/10/06 to 07/10/07 17,299,677
24,250 Willis Corroon, Inc.,
Term Loan............... Ba2 BB 11/19/05 to 11/19/07 24,308,091
--------------
41,607,768
--------------
MACHINERY 0.5%
9,500 Alliance Laundry
Systems, LLC, Term
Loan.................... B1 B+ 06/30/05 9,499,151
15,000 Ocean Rig (Norway), Term
Loan.................... NR NR 06/01/08 14,997,821
5,815 RIGCO N.A., LLC, Term
Loan (a)(b)............. NR NR 09/30/05 5,524,060
7,500 United Rentals, Term
Loan.................... Ba2 BB+ 06/30/09 7,485,938
--------------
37,506,970
--------------
MINING, STEEL, IRON, & NON-PRECIOUS METALS 1.0%
19,970 Carmeuse Lime, Inc.,
Term Loan............... NR NR 03/31/06 19,973,629
8,327 Earle M. Jorgensen, Term
Loan.................... B1 B+ 03/31/04 8,305,809
9,312 Fairmont Minerals, Ltd.,
Term Loan............... NR NR 02/25/05 9,311,965
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
MINING, STEEL, IRON, & NON-PRECIOUS METALS (CONTINUED)
$38,460 Ispat Inland, Term
Loan.................... Ba3 BB 07/16/05 to 07/16/06 $ 38,267,250
--------------
75,858,653
--------------
NATURAL RESOURCES--COAL 0.0%
4,712 Centennial Resources,
Inc., Term
Loan (a)(b)............. NR NR 03/31/02 to 03/31/04 471,154
781 Centennial Resources,
Inc., Debtor in
Possession (a)(b)....... NR NR 03/31/02 to 03/31/04 780,798
--------------
1,251,952
--------------
PAPER & FOREST PRODUCTS 0.5%
2,671 Bear Island Paper Co.,
LLC, Term Loan.......... Ba3 B+ 12/31/05 2,669,619
20,163 Crown Paper Co., Term
Loan.................... B2 B+ 08/23/02 20,176,188
6,040 Crown Paper Co.,
Revolving Credit
Agreement............... B2 B+ 08/23/02 6,039,757
3,802 CST/Office Products,
Inc., Term Loan......... NR NR 12/31/01 to 01/31/02 1,900,847
8,789 Pacifica Papers, Inc.,
Term Loan............... Ba2 BB 03/12/06 8,790,383
--------------
39,576,794
--------------
PERSONAL & MISCELLANEOUS SERVICES 0.8%
9,219 Accessory Network Group,
Term Loan............... NR NR 07/31/05 9,219,780
8,180 Arena Brands, Inc., Term
Loan.................... NR NR 06/01/02 8,168,045
1,010 Arena Brands, Inc.,
Revolving Credit
Agreement............... NR NR 06/01/02 1,009,477
8,075 Boyds Collection, Ltd.,
Term Loan............... Ba3 B+ 04/21/06 8,028,318
6,584 Burns International,
Revolving Credit
Agreement............... Ba3 BB- 03/31/02 6,584,340
13,500 Dimac Corp., Term Loan.. Caa1 NR 06/30/06 to 12/30/06 13,493,216
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
PERSONAL & MISCELLANEOUS SERVICES (CONTINUED)
$10,000 Weight Watchers
International, Term
Loan.................... Ba2 B+ 09/30/06 $ 9,999,879
--------------
56,503,055
--------------
PHARMACEUTICALS 0.2%
17,167 Endo Pharmaceuticals,
Inc., Term Loan......... NR NR 06/30/04 17,163,890
--------------
PRINTING/PUBLISHING 3.2%
14,722 Advanstar
Communications, Term
Loan.................... Ba3 B+ 04/30/05 14,679,376
12,000 American Media
Operations, Inc., Term
Loan.................... Ba3 B+ 09/30/01 to 04/01/07 12,268,189
24,000 Big Flower Press, Term
Loan.................... B1 NR 12/06/08 23,999,325
4,923 Check Printers, Inc.,
Term Loan............... NR NR 06/30/05 4,922,983
11,663 Cygnus Publishing, Inc.,
Term Loan............... NR NR 06/05/05 11,665,839
68,000 Journal Register Co.,
Term Loan............... Ba1 BB+ 09/30/06 67,959,188
30,290 Morris Communications,
Inc., Term Loan......... NR NR 03/31/04 to 06/30/05 30,292,672
19,000 PRIMEDIA, Inc., Term
Loan.................... Ba3 BB- 06/30/04 18,997,003
6,186 TWP Capital Corp., Term
Loan.................... NR NR 10/01/04 6,185,401
14,483 Von Hoffman Press, Inc.,
Term Loan............... B1 B+ 05/30/03 to 05/30/05 14,485,340
2,021 Von Hoffman Press, Inc.,
Revolving Credit
Agreement............... B1 B+ 05/30/03 2,021,522
16,500 Ziff-Davis Publishing,
Inc., Term Loan......... Ba2 BB- 03/31/05 16,395,704
9,825 21st Century Newspaper,
Inc., Term Loan......... NR NR 09/15/05 9,819,712
--------------
233,692,254
--------------
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
RESTAURANTS & FOOD SERVICE 1.3%
$8,331 Applebee's
International, Inc.,
Term Loan............... NR NR 03/31/06 $ 8,331,311
2,443 Carvel Corp., Term
Loan.................... NR NR 06/30/00 2,442,667
14,850 Domino's Pizza, Term
Loan.................... B1 B+ 12/21/06 to 12/21/07 14,904,249
41,615 S.C International
Services, Inc., Term
Loan.................... Ba3 NR 08/28/02 41,593,871
21,844 Shoney's, Inc., Term
Loan.................... B1 NR 04/30/02 21,842,649
7,064 Volume Services America,
Term Loan............... B1 B+ 12/01/06 7,064,933
--------------
96,179,680
--------------
RETAIL--OFFICE PRODUCTS 0.7%
6,965 Identity Group, Inc.,
Term Loan............... NR NR 05/11/07 6,961,195
46,254 U.S. Office Products
Co., Term Loan.......... B3 B 06/09/06 46,251,757
--------------
53,212,952
--------------
RETAIL--OIL & GAS 0.2%
11,794 TravelCenters of
America, Inc., Term
Loan.................... Ba2 BB- 03/31/05 11,852,719
--------------
RETAIL--SPECIALTY 0.3%
15,300 Hollywood Entertainment
Corp., Revolving Credit
Agreement............... B1 B+ 09/05/02 15,299,465
7,715 Murray's Discount Auto
Stores, Inc., Term
Loan.................... NR NR 06/30/03 7,719,008
520 Murray's Discount Auto
Stores, Inc., Revolving
Credit Agreement........ NR NR 06/30/03 468,000
--------------
23,486,473
--------------
RETAIL--STORES 0.8%
11,454 Advance Stores Co., Term
Loan.................... B1 NR 04/15/06 11,453,173
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
RETAIL--STORES (CONTINUED)
$1,786 American Blind and
Wallpaper Factory, Term
Loan.................... NR NR 12/31/05 $ 1,786,179
5,809 Kirkland's Holdings,
Term Loan............... NR NR 06/30/02 5,808,305
12,163 Nebraska Book Co., Inc.,
Term Loan............... B1 B+ 03/31/06 12,164,643
10,220 Payless Cashways, Inc.,
Term Loan............... NR NR 11/30/02 10,220,370
15,427 Peebles, Inc., Term
Loan.................... NR NR 06/09/02 15,426,798
4,805 Vitamin Shoppe
Industries, Inc., Term
Loan.................... NR NR 05/15/04 4,803,785
--------------
61,663,253
--------------
TELECOMMUNICATIONS--CELLULAR 2.1%
19,850 American Cellular
Wireless, Inc., Term
Loan.................... NR NR 06/30/07 19,842,914
8,835 Centennial Cellular,
Inc., Term Loan......... B1 B+ 05/31/07 to 11/30/07 8,889,300
39,217 Sygnet Wireless, Inc.,
Term Loan............... B3 NR 03/23/07 to 12/23/07 39,350,606
65,000 Western Wireless Corp.,
Term Loan............... B1 NR 03/31/05 64,994,779
20,000 Wireless One Network,
Term Loan............... NR NR 09/30/07 20,000,499
--------------
153,078,098
--------------
TELECOMMUNICATIONS--HYBRID 2.9%
15,000 Alaska Communication,
Inc., Term Loan......... B1 BB 11/14/07 to 05/14/08 15,056,250
68,500 Nextel Finance Co., Term
Loan.................... Ba2 BB- 06/30/08 to 12/31/08 69,427,627
10,000 Nextel Finance Co., Term
Loan (Argentina)........ NR NR 03/31/03 9,995,847
37,500 Nextel Partners Co.,
Term Loan............... B2 B- 11/01/07 to 07/29/08 37,530,205
5,000 Orius Corp., Term
Loan.................... NR B+ 12/14/06 4,999,719
30,000 Pacific Crossing Ltd.,
Term Loan............... NR NR 07/28/06 29,997,133
</TABLE>
See Notes to Financial Statements
28
<PAGE> 30
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
TELECOMMUNICATIONS--HYBRID (CONTINUED)
$50,000 Teligent, Inc., Term
Loan.................... B3 B- 06/30/06 $ 49,973,593
--------------
216,980,374
--------------
TELECOMMUNICATIONS--PERSONAL COMMUNICATION SYSTEMS 4.1%
100,000 BCP SP Ltd., Term Loan.. NR NR 03/16/00 98,983,687
6,750 Mitel Corp., Term
Loan.................... NR NR 12/26/03 6,751,203
73,904 Omnipoint
Communications, Inc.,
Term Loan............... B2 NR 02/01/06 to 02/17/06 74,313,364
5,000 Powertel PCS, Inc., Term
Loan.................... NR NR 03/31/06 4,999,876
11,000 Powertel PCS, Inc.,
Revolving Credit
Agreement............... NR NR 03/31/06 10,999,727
17,000 Telecorp PCS, Inc., Term
Loan.................... B2 NR 12/05/07 16,964,589
9,694 Telespectrum Worldwide,
Inc., Term Loan......... NR NR 12/31/01 to 12/31/03 9,692,087
40,000 Tritel Holding Corp.,
Term Loan............... B2 NR 12/31/07 40,137,520
42,000 Triton PCS, Inc., Term
Loan.................... B1 B 05/04/07 41,536,236
--------------
304,378,289
--------------
TELECOMMUNICATIONS--WIRELESS MESSAGING 0.8%
14,823 Arch Paging, Inc., Term
Loan.................... B2 B 12/31/02 to 12/31/03 14,803,077
65,000 Iridium Operating LLC,
Term Loan (a)(b)........ NR D 12/29/00 24,049,579
9,460 Teletouch
Communications, Inc.,
Term Loan............... NR NR 11/30/05 9,451,218
11,000 TSR Wireless LLC, Term
Loan.................... NR NR 06/30/05 11,000,608
--------------
59,304,482
--------------
TEXTILES & LEATHER 1.4%
11,040 American Marketing
Industries, Inc., Term
Loan.................... NR NR 11/30/02 11,041,998
</TABLE>
See Notes to Financial Statements
29
<PAGE> 31
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
TEXTILES & LEATHER (CONTINUED)
$8,234 GFSI, Inc., Term Loan... Ba3 NR 03/31/04 $ 8,240,214
19,242 Glenoit Corp., Term
Loan.................... B1 B 12/31/03 to 06/30/04 19,241,675
9,600 Humphrey's, Inc., Term
Loan.................... B2 NR 01/15/03 9,602,859
10,127 Joan Fabrics Corp., Term
Loan.................... NR NR 06/30/05 to 06/30/06 10,101,443
12,322 Johnston Industries,
Inc., Term Loan......... NR NR 07/01/00 12,323,104
14,983 Norcorp, Inc., Term
Loan.................... NR NR 03/31/06 to 11/30/06 14,980,062
13,825 Norcross Safety
Products, Term Loan..... NR NR 10/02/05 13,823,503
6,768 William Carter Co., Term
Loan.................... Ba3 BB- 10/30/03 6,765,177
--------------
106,120,035
--------------
TRANSPORTATION--CARGO 1.1%
23,289 Atlas Freighter Leasing,
Inc., Term Loan......... Ba2 NR 05/29/04 to 06/30/04 23,259,775
9,825 CTC Distribution
Services, LLC, Term
Loan.................... NR NR 02/25/06 9,824,817
31,932 Evergreen International
Aviation, Inc., Term
Loan.................... NR NR 05/31/02 to 05/31/03 31,819,293
8,179 Gemini Leasing, Inc.,
Term Loan............... B1 NR 08/12/05 8,172,804
8,059 OmniTrax Railroads, LLC,
Term Loan............... NR NR 05/14/05 8,060,365
--------------
81,137,054
--------------
TRANSPORTATION--PERSONAL 1.8%
50,000 Avis Rent A Car, Inc.,
Term Loan............... Ba3 BB+ 06/30/06 to 06/30/07 50,326,425
44,401 Continental Airlines,
Inc., Term Loan......... Ba1 BB 07/31/02 to 07/31/04 44,372,949
41,790 Motor Coach Industries,
Term Loan............... Ba3 BB- 04/29/05 to 06/16/06 41,785,632
--------------
136,485,006
--------------
UTILITIES 0.1%
5,000 AES Texas Funding....... Ba1 NR 01/24/01 5,000,000
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 81.4%........... 6,017,023,795
--------------
</TABLE>
See Notes to Financial Statements
30
<PAGE> 32
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
DESCRIPTION VALUE
<S> <C>
OTHER LOAN INTERESTS 0.5%
London Fog Industries, Inc. ($13,541,264 par, 10.00% coupon,
maturing 02/27/03) 144A Private Placement (a)(b)(e).......
$ 11,510,074
Satelites Mexicanos ($29,296,000 par, 9.06% coupon, maturing
06/30/04) 144A Private Placement (e)......................
29,473,717
--------------
TOTAL FIXED INCOME SECURITIES...............................
40,983,791
--------------
EQUITIES 0.7%
AFC Enterprises, Inc. (604,251 common shares) (c)(d)........
4,154,226
American Blind and Wallpaper Factory, Inc. (198,600 common
shares) (c)(d)(g).........................................
695,100
Best Products Co., Inc. (297,480 common shares) (d).........
0
Best Products Co., Inc. (Warrants for 28,080 common shares)
(d).......................................................
0
Classic Cable, Inc. (Warrants for 760 common shares) (d)....
0
CST/Star Products, Inc. (0.3 common shares) (c)(d)..........
557
Dan River, Inc. (192,060 common shares) (d).................
912,285
Flagstar Cos., Inc. (8,755 common shares) (d)...............
22
London Fog Industries, Inc. (1,083,301 common shares)
(c)(d)(g).................................................
0
London Fog Industries, Inc. (Warrants for 66,580 common
shares) (c)(d)(g).........................................
0
Fleer/Marvel Entertainment, Inc. (593,473 preferred
shares)(g)................................................
5,970,334
Fleer/Marvel Entertainment, Inc. (891,340 common shares)
(d)(g)....................................................
5,459,457
Murray's Discount Auto Stores, Inc. (Warrants for 289 common
shares) (c)(d)............................................
3
Payless Cashways, Inc. (1,024,159 common shares) (d)(g).....
1,728,268
RIGCO N.A., L.L.C. (Warrants for .325% interest of company's
fully diluted equity) (d).................................
0
Rowe International, Inc. (91,173 common shares) (c)(d)(g)...
912
Sarcom, Inc. (43 common shares) (c)(d)......................
0
Trans World Entertainment Corp. (3,789,962 common shares)
(c)(d)(g).................................................
35,057,149
United Fixtures Holdings, Inc. (196,020 common shares)
(c)(d)....................................................
0
United Fixtures Holdings, Inc. (53,810 preferred shares)
(c)(d)....................................................
535,409
--------------
TOTAL EQUITIES..............................................
54,513,722
--------------
TOTAL LONG-TERM INVESTMENTS 82.6%
(Cost $6,381,345,439).....................................
6,112,521,308
--------------
SHORT-TERM INVESTMENTS 16.8%
COMMERCIAL PAPER 13.0%
Armstrong World Industries, Inc. ($50,000,000 par, maturing
02/17/00 to 02/23/00, yielding 5.74% to 5.75%)............
49,875,617
Autoliv ASP, Inc. ($27,853,000 par, maturing 03/01/00 to
03/06/00, yielding 5.85% to 6.00%)........................
27,705,934
</TABLE>
See Notes to Financial Statements
31
<PAGE> 33
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
DESCRIPTION VALUE
<S> <C>
COMMERCIAL PAPER (CONTINUED)
Baxter International, Inc. ($10,000,000 par, maturing
02/02/00, yielding 5.50%).................................
$ 9,998,472
Cargill, Inc. ($70,000,000 par, maturing 02/08/00 to
03/03/00, yielding 5.53% to 5.63%)........................
69,808,300
Case Corp. ($6,500,000 par, maturing 02/14/00, yielding
5.80%)....................................................
6,486,386
Centex Corp. ($19,494,000 par, maturing 02/14/00 to
02/29/00, yielding 5.85%).................................
19,441,865
Central & Southwest Corp. ($28,866,000 par, maturing
02/25/00, yielding 5.77%).................................
28,795,243
Comdisco, Inc. ($21,500,000 par, maturing 02/23/00 to
03/13/00, yielding 5.82% to 5.90%)........................
21,376,090
Compaq Computer Corp. ($30,000,000 par, maturing 02/24/00 to
03/01/00, yielding 5.83%).................................
29,873,683
Cox Communications, Inc. ($10,000,000 par, maturing
02/18/00, yielding 5.95%).................................
9,971,903
CSX Corp. ($55,000,000 par, maturing 02/16/00 to 02/24/00,
yielding 5.75% to 5.85%)..................................
54,836,076
CVS Corp. ($45,000,000 par, maturing 02/25/00 to 02/29/00,
yielding 5.72% to 5.75%)..................................
44,808,329
Dominion Resources, Inc. ($42,000,000 par, maturing 02/04/00
to 02/17/00, yielding 5.72% to 5.75%).....................
41,944,803
FDX Corp. ($45,000,000 par, maturing 02/08/00 to 02/22/00,
yielding 5.73% to 5.80%)..................................
44,917,640
Fluor Corp. ($10,000,000 par, maturing 02/15/00, yielding
5.62%)....................................................
9,978,145
Ford Motor Corp. ($20,000,000 par, maturing 03/07/00,
yielding 5.65%)...........................................
19,890,139
Halliburton Co. ($3,800,000 par, maturing 02/02/00, yielding
5.51%)....................................................
3,799,418
Hertz Corp. ($20,000,000 par, maturing 03/02/00, yielding
5.66%)....................................................
19,905,667
Illinois Power Co. ($37,500,000 par, maturing 02/08/00 to
03/02/00, yielding 5.75% to 5.90%)........................
37,401,094
Kimberly Clark Corp. ($7,300,000 par, maturing 02/22/00,
yielding 5.65%)...........................................
7,275,940
MCI Worldcom, Inc. ($20,000,000 par, maturing 03/08/00,
yielding 5.84%)...........................................
19,883,200
Mallinckrodt Group, Inc. ($25,000,000 par, maturing
02/15/00, yielding 5.75%).................................
24,944,097
Maytag Corp. ($10,900,000 par, maturing 02/25/00, yielding
5.75%)....................................................
10,858,217
Nabisco, Inc. ($25,000,000 par, maturing 03/08/00 to
03/09/00, yielding 5.80%).................................
24,852,583
Pitney Bowes, Inc. ($15,000,000 par, maturing 02/24/00,
yielding 5.62%)...........................................
14,946,142
RPM, Inc. ($49,415,000 par, maturing 02/09/00 to 02/22/00,
yielding 5.81% to 5.85%)..................................
49,340,504
Safeway, Inc. ($40,100,000 par, maturing 02/07/00 to
03/10/00, yielding 5.70% to 5.80%)........................
39,813,505
</TABLE>
See Notes to Financial Statements
32
<PAGE> 34
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
DESCRIPTION VALUE
<S> <C>
COMMERCIAL PAPER (CONTINUED)
Safeway, Inc. ($45,000,000 par, maturing 02/17/00 to
02/18/00, yielding 5.74%).................................
$ 44,882,011
Tampa Electric Co. ($7,000,000 par, maturing 02/24/00,
yielding 5.62%)...........................................
6,974,866
Tandy Corp. ($17,600,000 par, maturing 02/09/00 to 02/10/00,
yielding 5.76%)...........................................
17,576,256
Texas Utilities Co. ($50,000,000 par, maturing 02/03/00 to
02/10/00, yielding 5.63% to 5.72%)........................
49,962,017
TRW, Inc. ($45,000,000 par, maturing 02/28/00, yielding
5.82%)....................................................
44,803,575
WalMart Stores, Inc. ($30,625,000 par, maturing 02/14/00 to
02/28/00, yielding 5.59% to 5.63%)........................
30,539,764
Xtra, Inc. ($22,355,000 par, maturing 02/03/00 to 03/01/00,
yielding 5.75% to 5.90%)..................................
22,280,022
--------------
TOTAL COMMERCIAL PAPER 13.0%...............................
959,747,503
--------------
SHORT-TERM LOAN PARTICIPATIONS 3.8%
Alltel Corp. ($35,000,000 par, maturing 02/22/00 to
02/25/00, yielding 5.70% to 5.72%)........................
35,000,000
Anadarko Pete Corp. ($35,000,000 par, maturing 02/01/00 to
02/07/00, yielding 5.64% to 5.94%)........................
35,000,000
Army and Air Force Exchange Service ($11,000,000 par,
maturing 02/11/00, yielding 5.68%)........................
11,000,000
Ashland Oil Co. ($40,000,000 par, maturing 02/01/00 to
02/09/00, yielding 5.80% to 5.88%)........................
40,000,000
Bell Atlantic Financial Services ($20,000,000 par, maturing
02/09/00, yielding 5.54%).................................
20,000,000
Bell Atlantic Network Funding ($60,000,000 par, maturing
02/02/00 to 02/09/00, yielding 5.54%).....................
60,000,000
Central & Southwest Corp. ($22,000,000 par, maturing
03/10/00, yielding 5.98% to 6.00%)........................
22,000,000
Conagra, Inc. ($15,000,000 par, maturing 02/17/00, yielding
5.83%)....................................................
15,000,000
Cox Communications, Inc. ($2,000,000 par, maturing 02/01/00,
yielding 6.00%)...........................................
2,000,000
Dial Corp. ($15,000,000 par, maturing 02/01/00, yielding
5.72%)....................................................
15,000,000
EOG Resources ($15,000,000 par, maturing 03/07/00, yielding
5.95%)....................................................
15,000,000
Mead Corp. ($10,000,000 par, maturing 02/01/00, yielding
5.97%)....................................................
10,000,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS........................
280,000,000
--------------
</TABLE>
See Notes to Financial Statements
33
<PAGE> 35
YOUR TRUST'S INVESTMENTS
January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
DESCRIPTION VALUE
<S> <C>
TIME DEPOSIT 0.0%
State Street Bank & Trust Corp. ($2,000,000 par, 5.00
coupon, dated 01/31/00, to be sold on 02/01/00 at
$2,000,278)...............................................
$ 2,000,000
--------------
TOTAL SHORT-TERM INVESTMENTS 16.8%
(Cost $1,241,747,503).....................................
1,241,747,503
--------------
TOTAL INVESTMENTS 99.4%
(Cost $7,623,092,942).....................................
7,354,268,811
OTHER ASSETS IN EXCESS OF LIABILITIES 0.6%.................
40,887,884
--------------
NET ASSETS 100.0%..........................................
$7,395,156,695
==============
</TABLE>
NR - Not Rated
+ Bank loans rated below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poors Group are considered to be below investment grade.
1 Industry percentages are calculated as a percentage of net assets
(a) This Senior Loan interest is non-income producing.
(b) This Borrower has filed for protection in federal bankruptcy court.
(c) Restricted security.
(d) Non-income producing security as this stock currently does not declare
dividends.
(e) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(f) Interest is accruing at less than the stated coupon.
(g) Affiliated company. See notes to financial statements.
(h) Subsequent to January 31, 2000, this borrower has filed for protection in
federal bankruptcy court.
* Senior Loans in the Trust's portfolio generally are subject to mandatory
and/or optional prepayment. Because of these mandatory prepayment conditions
and because there may be significant economic incentives for a Borrower to
prepay, prepayments of Senior Loans in the Trust's portfolio may occur. As a
result, the actual remaining maturity of Senior Loans held in the Trust's
portfolio may be substantially less than the stated maturities shown.
Although the Trust is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, the Trust estimates that the actual
average maturity of the Senior Loans held in its portfolio will be
approximately 18-24 months.
** Senior Loans in which the Trust invests generally pay interest at rates
which are periodically redetermined by reference to a base lending rate
plus a premium. These base lending rates are generally (i) the lending rate
offered by one or more major European banks, such as the London Inter-Bank
Offered Rate ("LIBOR"), (ii) the prime rate offered by one or more major
United States banks and (iii) the certificate of deposit rate. Senior loans
are generally considered to be restricted in that the Trust ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
borrower prior to the disposition of a Senior Loan.
See Notes to Financial Statements
34
<PAGE> 36
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
January 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $7,623,092,942)..................... $7,354,268,811
Receivables:
Interest and Fees......................................... 57,707,117
Investments Sold.......................................... 1,304,110
Fund Shares Sold.......................................... 5,289,129
Other....................................................... 271,842
--------------
Total Assets............................................ 7,418,841,009
--------------
LIABILITIES:
Payables:
Income Distributions...................................... 8,263,452
Investment Advisory Fee................................... 6,136,555
Distributor and Affiliates................................ 1,932,982
Fund Shares Repurchased................................... 1,666,865
Administrative Fee........................................ 1,659,654
Custodian Bank............................................ 428,945
Investments Purchased..................................... 215,824
Accrued Expenses............................................ 2,957,894
Trustees' Deferred Compensation and Retirement Plans........ 422,143
--------------
Total Liabilities....................................... 23,684,314
--------------
NET ASSETS.................................................. $7,395,156,695
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 769,655,798 shares issued and
outstanding).............................................. $ 7,696,558
Paid in Surplus............................................. 7,706,517,177
Accumulated Undistributed Net Investment Income............. 21,317,534
Accumulated Net Realized Loss............................... (71,550,443)
Net Unrealized Depreciation................................. (268,824,131)
--------------
NET ASSETS.................................................. $7,395,156,695
==============
NET ASSET VALUE PER COMMON SHARE ($7,395,156,695 divided by
769,655,798 shares outstanding)........................... $ 9.61
==============
</TABLE>
See Notes to Financial Statements
35
<PAGE> 37
Statement of Operations
For the Six Months Ended January 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 319,956,156
Fees........................................................ 1,017,826
Dividends................................................... 220,079
Other....................................................... 3,974,586
-------------
Total Income............................................ 325,168,647
-------------
EXPENSES:
Investment Advisory Fee..................................... 37,282,931
Administrative Fee.......................................... 10,095,796
Shareholder Services........................................ 3,536,201
Legal....................................................... 1,129,200
Custody..................................................... 517,579
Trustees' Fees and Related Expenses......................... 146,030
Other....................................................... 1,952,913
-------------
Total Expenses.......................................... 54,660,650
Less: Credits Earned on Cash Balances................... 96,228
-------------
Net Expenses............................................ 54,564,422
-------------
NET INVESTMENT INCOME....................................... $ 270,604,225
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (4,586,549)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (66,177,805)
End of the Period......................................... (268,824,131)
-------------
Net Unrealized Depreciation During the Period............... (202,646,326)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $(207,232,875)
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 63,371,350
=============
</TABLE>
See Notes to Financial Statements
36
<PAGE> 38
Statement of Changes in Net Assets
For the Six Months Ended January 31, 2000 and the Year Ended July 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2000 JULY 31, 1999
------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net Investment Income........................... $ 270,604,225 $ 510,587,206
Net Realized Loss............................... (4,586,549) (39,696,960)
Net Unrealized Depreciation During the Period... (202,646,326) (60,996,583)
-------------- --------------
Change in Net Assets from Operations............ 63,371,350 409,893,663
Distributions from Net Investment Income........ (264,127,842) (506,562,808)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... (200,756,492) (96,669,145)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Sold................ 321,448,407 1,681,564,508
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 139,573,154 268,516,058
Cost of Shares Repurchased...................... (1,001,499,347) (1,029,903,851)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. (540,477,786) 920,176,715
-------------- --------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS......... (741,234,278) 823,507,570
NET ASSETS:
Beginning of the Period......................... 8,136,390,973 7,312,883,403
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of
$21,317,534 and $14,841,151, respectively).... $7,395,156,695 $8,136,390,973
============== ==============
</TABLE>
See Notes to Financial Statements
37
<PAGE> 39
Statement of Cash Flows
For the Six Months Ended January 31, 2000 (Unaudited)
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 63,371,350
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Decrease in Investments at Value.......................... 736,793,058
Increase in Interest and Fees Receivables................. (5,817,097)
Decrease in Receivable for Investments Sold............... 1,019,827
Decrease in Other Assets.................................. 58,431
Decrease in Investment Advisory Fee Payable............... (320,933)
Decrease in Administrative Fee Payable.................... (91,311)
Decrease in Distributor and Affiliates Payable............ (486,202)
Increase in Payable for Investments Purchased............. 215,824
Decrease in Accrued Expenses.............................. (953,047)
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 58,220
-------------
Total Adjustments....................................... 730,476,770
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 793,848,120
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 333,797,557
Payments on Shares Repurchased.............................. (999,832,482)
Change in Intra-day Credit Line with Custodian Bank......... (848,037)
Cash Dividends Paid......................................... (126,965,158)
-------------
Net Cash Used for Financing Activities.................... (793,848,120)
-------------
NET INCREASE IN CASH........................................ -0-
Cash at Beginning of the Period............................. -0-
-------------
CASH AT END OF THE PERIOD................................... $ -0-
=============
</TABLE>
See Notes to Financial Statements
38
<PAGE> 40
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JANUARY 31, YEAR ENDED JULY 31,
2000 1999 1998 1997 1996
----------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 9.854 $ 9.976 $ 9.963 $ 10.002 $ 10.046
-------- -------- -------- -------- --------
Net Investment Income............. .333 .640 .675 .701 .735
Net Realized and Unrealized
Gain/Loss....................... (.256) (.125) .015 (.042) (.028)
-------- -------- -------- -------- --------
Total from Investment Operations.... .077 .515 .690 .659 .707
Less Distributions from Net
Investment Income................. .323 .637 .677 .698 .751
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 9.608 $ 9.854 $ 9.976 $ 9.963 $ 10.002
======== ======== ======== ======== ========
Total Return (a).................... 0.62%* 5.23% 7.22% 6.79% 7.22%
Net Assets at End of the Period (In
millions)......................... $7,395.2 $8,136.4 $7,312.9 $6,237.0 $4,865.8
Ratio of Expenses to Average Net
Assets............................ 1.35% 1.35% 1.41% 1.42% 1.46%
Ratio of Net Investment Income to
Average Net Assets................ 6.68% 6.48% 6.81% 7.02% 7.33%
Portfolio Turnover (b).............. 12%* 44% 73% 83% 66%
</TABLE>
* Non-Annualized
(a) 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. If the early withdrawal charge were included, total return would be
lower.
(b) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interests.
See Notes to Financial Statements
39
<PAGE> 41
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (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 corporations,
partnerships and other entities which operate in a variety of industries and
geographical regions. 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 Trust's Variable Rate Senior Loan interests and Other
Loan interests (collectively "Loan interests") are valued by the Trust following
guidelines established and periodically reviewed by the Trust's Board of
Trustees. Subject to criteria established by the Trust's Board of Trustees about
the availability and reliability of market indicators obtained from independent
pricing sources, certain Loan interests are valued at the mean of bid and ask
market indicators supplied by independent pricing sources approved by the
Trust's Board of Trustees. All other Loan interests are valued by considering a
number of factors including consideration of market indicators, transactions in
instruments which Van Kampen Investment Advisory Corp. (the "Adviser") believes
may be comparable (including comparable credit quality, interest rate, interest
rate redetermination period and maturity), the credit worthiness of the
Borrower, the current interest rate, the period until next interest rate
redetermination and the maturity of such Loan interests. Consideration of
comparable instruments may include variable rate securities which have
adjustment periods comparable to the Loan interests in the Trust's portfolio.
The fair value of Loan interests are reviewed and approved by the Trust's
Valuation Committee and by the Trust's Board of Trustees. The fair value of a
Loan interest may differ significantly from the market value that would have
been used had there been a ready and reliable market for the Loan interest.
Equity securities are valued on the basis of prices furnished by pricing
services or as determined in good faith by the Adviser.
40
<PAGE> 42
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
Short-term securities with remaining maturities of 60 days or less are
valued at amortized cost. Short-term loan participations are valued at cost in
the absence of any indication of impairment.
B. SECURITY TRANSACTIONS Investment transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
C. INVESTMENT INCOME Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Facility fees on senior loans
purchased are treated as market discounts. Market premiums and discounts are
amortized over the stated life of each applicable security.
Other income is comprised primarily of amendment fees. Amendment fees are
earned as compensation for agreeing to changes in loan agreements.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At July 31, 1999, the Trust had an accumulated capital loss carryforward
for tax purposes of $29,215,056, which will expire between July 31, 2004 and
July 31, 2007. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of wash sales, post October losses
which may not be recognized for tax purposes until the first day of the
following fiscal year and losses that were recognized for book purposes but not
for tax purposes at the end of the fiscal year.
At January 31, 2000, for federal income tax purposes cost of long- and
short-term investments is $7,639,547,465, the aggregate gross unrealized
appreciation is $21,447,592 and the aggregate gross unrealized depreciation is
$306,726,246 resulting in net unrealized depreciation on long- and short-term
investments of $285,278,654.
E. DISTRIBUTION OF INCOME AND GAINS The Trust declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
41
<PAGE> 43
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
F. EXPENSE REDUCTIONS During the six months ended January 31, 2000, the Trust's
custody fee was reduced by $96,228 as a result of credits earned on overnight
cash balances.
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, 2000, the Trust recognized expenses of
approximately $183,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the six months ended January 31, 2000, the Trust recognized expenses of
approximately $43,300 representing Van Kampen Funds Inc. or its affiliates'
(collectively "Van Kampen") cost of providing legal services to the Trust.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Trust. For the six months ended January
31, 2000, the Trust recognized expenses for these services of approximately
$2,624,900. Transfer agency fees are determined through negotiations with the
Trust'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
42
<PAGE> 44
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
During the period, the Trust owned shares of the following affiliated
companies. Affiliated companies are defined by the Investment Company Act of
1940 as those companies in which a fund holds 5% or more of the outstanding
voting securities.
<TABLE>
<CAPTION>
REALIZED DIVIDEND MARKET VALUE
NAME SHARES* GAIN/(LOSS) INCOME 1/31/00
<S> <C> <C> <C> <C>
American Blind and Wallpaper
Factory, Inc..................... 198,600 0 0 $ 695,100
London Fog Industries, Inc......... 1,083,301 0 0 0
Fleer/Marvel Entertainment, Inc.... 1,484,813 0 0 11,429,791
Payless Cashways, Inc.............. 1,024,159 0 0 1,728,268
Rowe International, Inc............ 91,173 0 0 912
Trans World Entertainment Corp..... 3,789,962 0 0 35,057,149
</TABLE>
* Shares were acquired through the restructuring of Senior loan interests.
3. CAPITAL TRANSACTIONS
At January 31, 2000 and July 31, 1999, paid in surplus aggregated $7,706,517,177
and $8,246,435,399, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2000 JULY 31, 1999
<S> <C> <C>
Beginning Shares................................... 825,612,225 733,069,022
------------ ------------
Shares Sold...................................... 32,883,872 169,386,633
Shares Issued Through Dividend Reinvestment...... 14,321,020 27,059,241
Shares Repurchased............................... (103,161,319) (103,902,671)
------------ ------------
Net Increase/Decrease in Shares Outstanding...... (55,956,427) 92,543,203
------------ ------------
Ending Shares...................................... 769,655,798 825,612,225
============ ============
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $815,644,916 and $1,894,486,863,
respectively.
43
<PAGE> 45
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
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, 2000, 103,161,319 shares were tendered and repurchased
by the Trust.
6. EARLY WITHDRAWAL CHARGE
An early withdrawal charge to recover offering expenses will be imposed in
connection with most common shares held for less than five years which are
accepted by the Trust for repurchase pursuant to tender offers. The early
withdrawal charge will be payable to Van Kampen. Any early withdrawal charge
which is required to be imposed will be made in accordance with the following
schedule.
<TABLE>
<CAPTION>
WITHDRAWAL
YEAR OF REPURCHASE CHARGE
<S> <C>
First....................................................... 3.0%
Second...................................................... 2.5%
Third....................................................... 2.0%
Fourth...................................................... 1.5%
Fifth....................................................... 1.0%
Sixth and following......................................... 0.0%
</TABLE>
For the six months ended January 31, 2000, Van Kampen received early
withdrawal charges of approximately $10,691,450 in connection with tendered
shares of the Trust.
7. COMMITMENTS/BORROWINGS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $230,650,800 as of
January 31, 2000. The Trust generally will maintain with its custodian
short-term investments having an aggregate value at least equal to the amount of
unfunded loan commitments.
The Trust, along with the Van Kampen Senior Floating Rate Fund, has entered
into a revolving credit agreement with a syndicate led by Bank of America for an
aggregate of $500,000,000, which will terminate on June 13, 2000. The proceeds
of any borrowing by the Trust under the revolving credit agreement may only be
used, directly or indirectly, for liquidity purposes in connection with the
consummation of a tender offer by the Trust for its shares. Annual commitment
fees of .09% are charged on the unused portion of the credit line. Borrowings
44
<PAGE> 46
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
under this facility will bear interest at either the LIBOR rate or the Federal
Funds rate plus .45%. There have been no borrowings under this agreement to
date.
8. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. When the Trust
purchases a participation of a Senior Loan interest, the Trust typically enters
into a contractual agreement with the lender or other third party selling the
participation, but not with the borrower directly. As such, the Trust assumes
the credit risk of the borrower, Selling Participant or other persons
interpositioned between the Trust and the borrower.
At January 31, 2000, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Trust on a participation
basis.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
<S> <C> <C>
Bankers Trust............................................... $ 61,714 $ 61,572
Societe Generale............................................ 21,760 21,756
Bank of New York............................................ 16,500 16,396
Chase Securities Inc........................................ 7,686 7,686
Morgan Guaranty Trust....................................... 5,000 5,000
Donaldson Lufkin Jenrette................................... 4,963 4,911
Goldman Sachs............................................... 3,866 3,862
Canadian Imperial Bank of Commerce.......................... 3,442 3,447
-------- --------
Total....................................................... $124,931 $124,630
======== ========
</TABLE>
45
<PAGE> 47
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth*
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Small Cap Value
Technology
Growth and Income
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income*
Global Franchise
Global Government Securities*
Global Managed Assets*
International Magnum
Latin American
Strategic Income
Worldwide High Income
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
Tax Free
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal
Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]
- - call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
Central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.
[PHONE ICON]
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
46
<PAGE> 48
TRUST OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN PRIME RATE INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act
of 1940.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information
on how to purchase shares and other pertinent data. After June 30, 2000 the
report must, if used with prospective investors, be accompanied by a monthly
performance update.
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YEAR 2000 UPDATE
As we enter the new century, it's "business as usual" for Van Kampen.
Thank you for the confidence you showed in us during the changeover on
January 1, 2000, and for entrusting us with your investment portfolio. We
look forward to continuing to serve your investment needs.
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