<PAGE> 1
EXHIBIT (a)(1)(ii)
VAN KAMPEN
PRIME RATE INCOME TRUST
OFFER TO PURCHASE FOR CASH
100,569,693 OF ITS ISSUED AND OUTSTANDING COMMON SHARES
AT NET ASSET VALUE PER COMMON SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT
EASTERN STANDARD TIME ON FRIDAY, JULY 14, 2000, UNLESS THE OFFER IS EXTENDED. TO
ENSURE PROCESSING OF YOUR REQUEST, A LETTER OF TRANSMITTAL OR A MANUALLY SIGNED
FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR COMMON SHARES AND ALL OTHER
REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY (AS DEFINED BELOW) ON OR
BEFORE JULY 14, 2000.
To the Holders of Common Shares of
VAN KAMPEN PRIME RATE INCOME TRUST:
Van Kampen Prime Rate Income Trust (the "Trust") is offering to purchase up
to 100,569,693 of its common shares of beneficial interest, with par value of
$0.01 per share ("Common Shares"), at a price (the "Purchase Price") equal to
the net asset value per Common Share ("NAV") determined as of 5:00 P.M. Eastern
Standard Time on the Expiration Date (as defined herein). The tendering,
acceptance and withdrawal of tenders are subject to the terms and conditions set
forth in this Offer to Purchase and the related Letter of Transmittal (which
together constitute the "Offer"). The Offer is scheduled to terminate as of
12:00 Midnight Eastern Standard Time on July 14, 2000, unless extended by action
of the Trust's Board of Trustees. An Early Withdrawal Charge (as defined in
Section 3) will be imposed on most Common Shares accepted for payment that have
been held for less than five years. The Common Shares are not currently traded
on an established trading market. The purpose of the Offer is to provide
liquidity to shareholders since the Trust is unaware of any secondary market
which exists for the Common Shares. The NAV on June 9, 2000 was $9.52. You can
obtain current NAV quotations from Van Kampen Funds Inc. ("VK") by calling (800)
341-2911 between the hours of 7:00 A.M. and 7:00 P.M. Central Standard Time,
Monday through Friday, except holidays. See Section 9.
If more than 100,569,693 Common Shares are duly tendered prior to the
expiration of the Offer, the Trust presently intends to, subject to the
condition that there have been no changes in the factors originally considered
by the Board of Trustees when it determined to make the Offer and the other
conditions set forth in Section 6, but is under no obligation to, extend the
Offer period, if necessary, and increase the number of Common Shares that the
Trust is offering to purchase to an amount which it believes will be sufficient
to accommodate the excess Common Shares tendered as well as any Common Shares
tendered during the extended Offer period or purchase 100,569,693 Common Shares
(or such greater number of Common Shares sought) on a pro rata basis.
THIS OFFER IS BEING MADE TO ALL SHAREHOLDERS OF THE TRUST
AND IS NOT CONDITIONED UPON ANY MINIMUM NUMBER
OF COMMON SHARES BEING TENDERED.
THIS OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE SECTION 6.
43 PRT006-06/00
<PAGE> 2
SUMMARY TERM SHEET
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION IN THIS OFFER TO PURCHASE. YOU
SHOULD CAREFULLY READ THE ENTIRE OFFER TO PURCHASE AND RELATED LETTER OF
TRANSMITTAL FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE
OFFER, AND TO FULLY UNDERSTAND THESE TERMS AND CONDITIONS.
<TABLE>
<S> <C>
The Trust The Trust is a non-diversified, closed-end management
investment company organized as a Massachusetts business
trust. The Trust seeks to provide shareholders with a high
level of current income, consistent with the preservation of
capital, by investing in a professionally managed portfolio
of interests in floating or variable rate senior loans. As
of June 9, 2000, the Trust had net assets of approximately
$6.8 billion and had issued and outstanding 718,354,953
Common Shares. As of June 9, 2000, the Trust's net asset
value per Common Share was $9.52. For additional information
about the Trust, see Sections 9, 10, 13 and 14.
The Offer The Trust is offering to purchase for cash at the Purchase
Price up to 100,569,693 of its outstanding Common Shares
which are properly tendered and accepted for payment prior
to the Expiration Date of the Offer. The tendering,
acceptance and withdrawal of tenders are subject to the
terms and conditions set forth in this Offer to Purchase and
the related Letter of Transmittal. See Sections 1, 2, 5 and
6. An early withdrawal charge will be imposed on most Common
Shares accepted for payment that have been held for less
than five years. See Section 3.
Purpose of the Offer The purpose of this Offer is to attempt to provide liquidity
to the holders of Common Shares. The Trust currently does
not believe that an active secondary market for its Common
Shares exists or is likely to develop, and therefore the
Trustees consider each quarter making a tender offer to
purchase Common Shares at their NAV to attempt to provide
liquidity to the holders of Common Shares. There can be no
assurance that this Offer will provide sufficient liquidity
to all holders of Common Shares that desire to sell their
Common Shares or that the Trust will make any such tender
offer in the future. The Trustees may terminate the Offer,
amend its terms, reject Common Shares tendered for payment
or postpone payment, if during the tender period, certain
events occur which the Trustees consider make it inadvisable
to proceed with the Offer. See Sections 6, 7, 11 and 16.
The Purchase Price The purchase price is equal to the NAV per Common Share
determined as of 5:00 P.M. Eastern Standard Time on the
Expiration Date. See Section 1. The cost of purchasing the
full 100,569,693 Common Shares pursuant to the Offer would
be approximately $957,423,477 (assuming a NAV of $9.52 per
Common Share on the Expiration Date). The Trust anticipates
that cash necessary to purchase any Common Shares acquired
pursuant to the Offer will first be derived from cash on
hand, such as proceeds from sales of new common shares of
the Trust and specified pay-downs from the senior loans in
the Trust's portfolio, and then from the proceeds from the
sale of cash equivalents held by the Trust. The Trust also
may borrow amounts, if necessary, pursuant to a credit
agreement which has been established to provide the Trust
with additional liquidity for its tender offers. See Section
12.
The Expiration Date The Offer is scheduled to terminate as of 12:00 Midnight
Eastern Standard Time on July 14, 2000, unless extended by
action of the Trust's Board of Trustees. The later of July
14, 2000 or the latest time and date to which the Offer is
extended is the "Expiration Date". If the expiration date is
extended, the Trust will make a public announcement of the
new expiration date. See Sections 1 and 16.
Tendering Common Shareholders seeking to tender their Common Shares pursuant
to the Offer must send to
Shares the Trust's depositary on or before the Expiration Date a
properly completed and executed Letter of Transmittal (or
manually signed facsimile thereof), Common Share
certificates (if applicable) and any other documents
required by the Letter of Transmittal. See Section 3.
Withdrawing Tenders Shareholders seeking to withdraw their tender of Common
Shares must send to the Trust's depositary a written,
telegraphic, telex or facsimile transmission notice of
withdrawal that specifies the name of the person withdrawing
a tender of Common Shares, the number of Common Shares to be
withdrawn, and, if certificates representing such Common
Shares have been delivered or otherwise identified to the
depositary, the name of the registered holder(s) of such
Common Shares. Shareholders may withdraw Common Shares
tendered at any time prior to the Expiration Date and, if
the Common Shares have not yet been accepted for payment by
the Trust, at any time after 12:00 Midnight Eastern Standard
Time on August 11, 2000. See Section 4.
</TABLE>
2
<PAGE> 3
IMPORTANT
If you desire to tender all or any portion of your Common Shares, you
should either (1) complete and sign the Letter of Transmittal and mail or
deliver it along with any Common Share certificate(s) and any other required
documents to Van Kampen Investor Services Inc. (the "Depositary") or (2) request
your broker, dealer, commercial bank, trust company or other nominee to effect
the transaction for you. If your Common Shares are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, you must
contact such broker, dealer, commercial bank, trust company or other nominee if
you desire to tender your Common Shares.
NEITHER THE TRUST NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF SUCH
SHAREHOLDER'S COMMON SHARES. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL
INFORMATION IN THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISERS AND MAKE
THEIR OWN DECISIONS WHETHER TO TENDER COMMON SHARES AND, IF SO, HOW MANY COMMON
SHARES TO TENDER.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
TRUST AS TO WHETHER SHAREHOLDERS SHOULD TENDER COMMON SHARES PURSUANT TO THE
OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST.
Questions and requests for assistance may be directed to VK at the address
and telephone number set forth below. Requests for additional copies of this
Offer to Purchase and the Letter of Transmittal should be directed to VK.
June 16, 2000 VAN KAMPEN PRIME RATE INCOME TRUST
<TABLE>
<S> <C>
Van Kampen Funds Inc. Depositary: Van Kampen Investor Services Inc.
1 Parkview Plaza By Mail, Hand Delivery or Courier:
P.O. Box 5555 7501 Tiffany Springs Parkway
Oakbrook Terrace, IL 60181-5555 Kansas City, MO 64153
(800) 341-2911 Attn: Van Kampen
Prime Rate Income Trust
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <S> <C>
1. Price; Number of Common Shares.............................. 5
2. Procedure for Tendering Common Shares....................... 5
3. Early Withdrawal Charge..................................... 7
4. Withdrawal Rights........................................... 8
5. Payment for Shares.......................................... 9
6. Certain Conditions of the Offer............................. 9
7. Purpose of the Offer........................................ 10
8. Plans or Proposals of the Trust............................. 10
9. Price Range of Common Shares; Dividends..................... 11
10. Interest of Trustees and Executive Officers; Transactions
and Arrangements Concerning the Common Shares............... 11
11. Certain Effects of the Offer................................ 12
12. Source and Amount of Funds.................................. 12
13. Certain Information about the Trust......................... 14
14. Additional Information...................................... 15
15. Certain Federal Income Tax Consequences..................... 15
16. Extension of Tender Period; Termination; Amendments......... 16
17. Miscellaneous............................................... 16
EXHIBIT A: Financial Statements
Unaudited Financial Statements for the six-months ended
January 31, 2000............................................ A-1
Audited Financial Statements for the year ended July 31,
1999........................................................ A-35
</TABLE>
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<PAGE> 5
1. PRICE; NUMBER OF COMMON SHARES. The Trust will, upon the terms and
subject to the conditions of the Offer, accept for payment (and thereby
purchase) 100,569,693 or such lesser number of its issued and outstanding Common
Shares which are properly tendered (and not withdrawn in accordance with Section
4) prior to 12:00 Midnight Eastern Standard Time on July 14, 2000 (such time and
date being hereinafter called the "Initial Expiration Date"). The Trust reserves
the right to extend the Offer. See Section 16. The later of the Initial
Expiration Date or the latest time and date to which the Offer is extended is
hereinafter called the "Expiration Date." The Purchase Price of the Common
Shares will be their NAV determined as of 5:00 P.M. Eastern Standard Time on the
Expiration Date. The NAV on June 9, 2000 was $9.52. You can obtain current NAV
quotations from VK by calling (800) 341-2911 between the hours of 7:00 A.M. and
7:00 P.M. Central Standard Time, Monday through Friday, except holidays.
Shareholders tendering Common Shares remain entitled to receive dividends
declared on such shares up to the settlement date of the Offer. See Section 9.
The Trust will not pay interest on the Purchase Price under any circumstances.
An Early Withdrawal Charge will be imposed on most Common Shares accepted for
payment that have been held for less than five years. See Section 3.
The Offer is being made to all shareholders of the Trust and is not
conditioned upon any minimum number of Common Shares being tendered. If the
number of Common Shares properly tendered prior to the Expiration Date and not
withdrawn is less than or equal to 100,569,693 Common Shares (or such greater
number of Common Shares as the Trust may elect to purchase pursuant to the
Offer), the Trust will, upon the terms and subject to the conditions of the
Offer, purchase at NAV all Common Shares so tendered. If more than 100,569,693
Common Shares are duly tendered prior to the expiration of the Offer and not
withdrawn, the Trust presently intends to, subject to the condition that there
have been no changes in the factors originally considered by the Board of
Trustees when it determined to make the Offer and the other conditions set forth
in Section 6, but is not obligated to, extend the Offer period, if necessary,
and increase the number of Common Shares that the Trust is offering to purchase
to an amount which it believes will be sufficient to accommodate the excess
Common Shares tendered as well as any Common Shares tendered during the extended
Offer period or purchase 100,569,693 Common Shares (or such greater number of
Common Shares sought) on a pro rata basis.
On June 9, 2000, there were approximately 718,354,953 Common Shares issued
and outstanding and there were approximately 219,185 holders of record of Common
Shares. Except as set forth in Section 10 below, the Trust is not aware of any
Common Shares to be purchased from any officers, trustees or affiliates of the
Trust pursuant to the Offer.
The Trust reserves the right, in its sole discretion, at any time or from
time to time, to extend the period of time during which the Offer is open by
giving oral or written notice of such extension to the Depositary and making a
public announcement thereof. See Section 16. There can be no assurance, however,
that the Trust will exercise its right to extend the Offer. If the Trust
decides, in its sole discretion, to increase (except for any increase not in
excess of 2% of the outstanding Common Shares) or decrease the number of Common
Shares being sought and, at the time that notice of such increase or decrease is
first published, sent or given to holders of Common Shares in the manner
specified below, the Offer is scheduled to expire at any time earlier than the
tenth business day from the date that such notice is first so published, sent or
given, the Offer will be extended at least until the end of such ten business
day period.
2. PROCEDURE FOR TENDERING COMMON SHARES.
Proper Tender of Common Shares. Except as otherwise set forth under the
heading "Procedures for Selling Group Members" below, for Common Shares to be
properly tendered pursuant to the Offer, a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) with any required
signature guarantees, any certificates for such Common Shares, and any other
documents required by the Letter of Transmittal, must be received on or before
the Expiration Date by the Depositary at its address set forth on page 3 of this
Offer to Purchase.
It is a violation of Section 14(e) of the Securities and Exchange Act of
1934 (the "Exchange Act"), and Rule 14e-4 promulgated thereunder, for a person
to tender Common Shares in a partial tender offer for such person's own account
unless at the time of tender and until such time as the securities are accepted
for payment the person so tendering has a net long position equal to or greater
than the amount tendered in (i) the Common Shares and will deliver or cause to
be delivered such shares for purposes of tender to the
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Trust prior to or on the Expiration Date, or (ii) an equivalent security and,
upon the acceptance of his or her tender will acquire the Common Shares by
conversion, exchange, or exercise of such equivalent security to the extent
required by the terms of the Offer, and will deliver or cause to be delivered
the Common Shares so acquired for the purpose of tender to the Trust prior to or
on the Expiration Date.
Section 14(e) and Rule 14e-4 provide a similar restriction applicable to
the tender or guarantee of a tender on behalf of another person.
The acceptance of Common Shares by the Trust for payment will constitute a
binding agreement between the tendering shareholder and the Trust upon the terms
and subject to the conditions of the Offer, including the tendering
shareholder's representation that (i) such shareholder has a net long position
in the Common Shares being tendered within the meaning of Rule 14e-4 promulgated
under the Exchange Act and (ii) the tender of such Common Shares complies with
Rule 14e-4.
Signature Guarantees and Method of Delivery. Signatures on the Letter of
Transmittal are not required to be guaranteed unless (1) the proceeds for the
tendered Common Shares will amount to more than $50,000, (2) the Letter of
Transmittal is signed by someone other than the registered holder of the Common
Shares tendered therewith, or (3) payment for tendered Common Shares is to be
sent to a payee other than the registered owner of such Common Shares and/or to
an address other than the registered address of the registered owner of the
Common Shares. In those instances, all signatures on the Letter of Transmittal
must be guaranteed by a bank or trust company; a broker-dealer; a credit union;
a national securities exchange, registered securities association or clearing
agency; a savings and loan association; or a federal savings bank (an "Eligible
Institution"). If Common Shares are registered in the name of a person or
persons other than the signer of the Letter of Transmittal or (a) if payment is
to be made to, (b) unpurchased Common Shares are to be registered in the name of
or (c) any certificates for unpurchased Common Shares are to be returned to any
person other than the registered owner, then the Letter of Transmittal and, if
applicable, the tendered Common Share certificates must be endorsed or
accompanied by appropriate authorizations, in either case signed exactly as such
name or names appear on the registration of the Common Shares with the
signatures on the certificates or authorizations guaranteed by an Eligible
Institution. If signature is by attorney-in-fact, executor, administrator,
Trustee, guardian, officer of a corporation or another acting in a fiduciary or
representative capacity, other legal documents will be required. See
Instructions 1 and 4 of the Letter of Transmittal.
Payment for Common Shares tendered and accepted for payment pursuant to the
Offer will be made only after receipt by the Depositary on or before the
Expiration Date of a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile thereof) and any other documents required by the
Letter of Transmittal. If your Common Shares are evidenced by certificates,
those certificates must be received by the Depositary on or prior to the
Expiration Date.
THE METHOD OF DELIVERY OF ANY DOCUMENTS, INCLUDING CERTIFICATES FOR COMMON
SHARES, IS AT THE ELECTION AND RISK OF THE PARTY TENDERING COMMON SHARES. IF
DOCUMENTS ARE SENT BY MAIL, IT IS RECOMMENDED THAT THEY BE SENT BY REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED.
Procedures for Selling Group Members. If you are a selling group member, in
order for you to tender any Common Shares pursuant to the Offer, you may place a
confirmed wire order with VK. All confirmed wire orders used to tender Common
Shares pursuant to this Offer must be placed on the Expiration Date only (wire
orders placed on any other date will not be accepted by the Trust). Common
Shares tendered by a wire order are deemed to be tendered when VK receives the
order but subject to the condition subsequent that the settlement instructions,
including (with respect to tendered Common Shares for which the selling group
member is not the registered owner) a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof), any other
documents required by the Letter of Transmittal and any Common Share
certificates, are received by the Depository within three New York Stock
Exchange trading days after receipt by VK of such order.
Determinations of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tenders will be
determined by the Trust, in its sole discretion, whose determination shall be
final and binding. The Trust reserves the absolute right to reject any or all
tenders determined by it not to be in appropriate form or the acceptance of or
payment for which may, in the opinion of the Trust's counsel, be
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unlawful. The Trust also reserves the absolute right to waive any of the
conditions of the Offer or any defect in any tender with respect to any
particular Common Share(s) or any particular shareholder, and the Trust's
interpretations of the terms and conditions of the Offer will be final and
binding. Unless waived, any defects or irregularities in connection with tenders
must be cured within such times as the Trust shall determine. Tendered Common
Shares will not be accepted for payment unless the defects or irregularities
have been cured within such time or waived. Neither the Trust, VK, the
Depositary nor any other person shall be obligated to give notice of any defects
or irregularities in tenders, nor shall any of them incur any liability for
failure to give such notice.
Federal Income Tax Withholding. To prevent backup federal income tax
withholding equal to 31% of the gross payments made pursuant to the Offer, each
shareholder who has not previously submitted a Form W-9 to the Trust or does not
otherwise establish an exemption from such withholding must notify the
Depositary of such shareholder's correct taxpayer identification number (or
certify that such taxpayer is awaiting a taxpayer identification number) and
provide certain other information by completing the Form W-9 enclosed with the
Letter of Transmittal. Foreign shareholders who are resident aliens and who have
not previously submitted a Form W-9, or other foreign shareholders who have not
previously submitted a Form W-8, to the Trust must do so in order to avoid
backup withholding.
The Depositary will withhold 30% of the gross payments payable to a foreign
shareholder unless the Depositary determines that a reduced rate of withholding
or an exemption from withholding is applicable. (Exemption from backup
withholding does not exempt a foreign shareholder from the 30% withholding on
dividends.) For this purpose, a foreign shareholder, in general, is a
shareholder that is not (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income taxation regardless of the
source of such income or (iv) a trust whose administration is subject to the
primary jurisdiction of a United States court and which has one or more United
States fiduciaries who have the authority to control all substantial decisions
of the trust. The Depositary will determine a shareholder's status as a foreign
shareholder and eligibility for a reduced rate of, or an exemption from,
withholding by reference to the shareholder's address and to any outstanding
certificates or statements concerning eligibility for a reduced rate of, or
exemption from, withholding unless facts and circumstances indicate that
reliance is not warranted. A foreign shareholder who has not previously
submitted the appropriate certificates or statements with respect to a reduced
rate of, or exemption from, withholding for which such shareholder may be
eligible should consider doing so in order to avoid over-withholding. A foreign
shareholder may be eligible to obtain a refund of tax withheld if such
shareholder meets one of the three tests for capital gain or loss treatment
described in Section 15 or is otherwise able to establish that no tax or a
reduced amount of tax was due.
For a discussion of certain other federal income tax consequences to
tendering shareholders, see Section 15.
3. EARLY WITHDRAWAL CHARGE. The Depositary will impose an early withdrawal
charge (the "Early Withdrawal Charge") on most Common Shares accepted for
payment which have been held less than five years. The Early Withdrawal Charge
will be imposed on a number of Common Shares accepted for payment from a record
holder of Common Shares the value of which exceeds the aggregate value at the
time the tendered Common Shares are accepted for payment of (a) all Common
Shares owned by such holder that were purchased more than five years prior to
such acceptance, (b) all Common Shares owned by such holder that were acquired
through reinvestment of distributions, and (c) the increase, if any, of value of
all other Common Shares owned by such holder (namely, those purchased within the
five years preceding acceptance for payment) over the purchase price of such
Common Shares. The Early Withdrawal Charge will be paid to VK on behalf of the
holder of the Common Shares. In determining whether an Early Withdrawal Charge
is payable, Common Shares accepted for payment pursuant to the Offer shall be
deemed to be those Common
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Shares purchased earliest by the Shareholder. Any Early Withdrawal Charge which
is required to be imposed will be made in accordance with the following
schedule.
<TABLE>
<CAPTION>
EARLY
YEAR OF REPURCHASE WITHDRAWAL
AFTER PURCHASE CHARGE
------------------ ----------
<S> <C>
First....................................................... 3.0%
Second...................................................... 2.5%
Third....................................................... 2.0%
Fourth...................................................... 1.5%
Fifth....................................................... 1.0%
Sixth and following......................................... 0.0%
</TABLE>
Exchanges. Tendering shareholders may elect to have the Depositary invest
the cash proceeds from the tender of Common Shares of the Trust in contingent
deferred sales charge shares ("Class B Shares") of open-end investment companies
advised by either Van Kampen Investment Advisory Corp. or Van Kampen Asset
Management Inc. and distributed by VK ("VK Funds"), subject to certain
limitations. The Early Withdrawal Charge will be waived for Common Shares
tendered pursuant to this election, however, such Class B Shares immediately
become subject to a contingent deferred sales charge schedule equivalent to the
Early Withdrawal Charge schedule of the Trust. Thus, shares of such VK Funds may
be subject to a contingent deferred sales charge upon a subsequent redemption
from the VK Funds. The purchase of shares of such VK Fund will be deemed to have
occurred at the time of the purchase of the Common Shares of the Trust for
calculating the applicable contingent deferred sales charge.
The prospectus for each VK Fund describes its investment objectives and
policies. Shareholders can obtain a prospectus without charge by calling
1-800-341-2911 and should consider these objectives and policies carefully
before making the election described above. Tendering shareholders may purchase
Class B Shares of a VK Fund only if shares of such VK Fund are available for
sale, and shareholders establishing a new Class B Share account of a VK Fund
must invest net tender proceeds from Common Shares which have a value at or
above the new account minimum of such VK Fund. An exchange is still deemed to be
a tender of Common Shares causing a taxable event and may result in a taxable
gain or loss for tendering shareholders.
A shareholder may make the election described above by completing the
appropriate section on the Letter of Transmittal or by giving proper
instructions to the shareholder's broker or dealer. Although this election to
purchase Class B Shares of a VK Fund has been made available as a convenience to
the Trust's shareholders, neither the Trust nor its Board of Trustees makes any
recommendation as to whether shareholders should invest in shares of another VK
Fund.
4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4,
tenders of Common Shares made pursuant to the Offer will be irrevocable. You may
withdraw Common Shares tendered at any time prior to the Expiration Date and, if
the Common Shares have not yet been accepted for payment by the Trust, at any
time after 12:00 Midnight Eastern Standard Time on August 11, 2000.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Depositary at the address
set forth on page 3 of this Offer to Purchase. Any notice of withdrawal must
specify the name of the person having tendered the Common Shares to be
withdrawn, the number of Common Shares to be withdrawn, and, if certificates
representing such Common Shares have been delivered or otherwise identified to
the Depositary, the name of the registered holder(s) of such Common Shares as
set forth in such certificates if different from the name of the person
tendering the Common Shares. If certificates have been delivered to the
Depositary, then, prior to the release of such certificates, you must also
submit the certificate numbers shown on the particular certificates evidencing
such Common Shares and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Trust in its sole discretion,
whose determination shall be final and binding. None of the Trust, VK, the
Depositary or any other person is or will be obligated to give any notice of any
defects or
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irregularities in any notice of withdrawal, and none of them will incur any
liability for failure to give any such notice. Common Shares properly withdrawn
shall not thereafter be deemed to be tendered for purposes of the Offer.
However, withdrawn Common Shares may be retendered by following the procedures
described in Section 2 prior to the Expiration Date.
5. PAYMENT FOR SHARES. For purposes of the Offer, the Trust will be deemed
to have accepted for payment (and thereby purchased) Common Shares which are
tendered and not withdrawn when, as and if it gives oral or written notice to
the Depositary of its acceptance of such Common Shares for payment pursuant to
the Offer.
Payment for Common Shares purchased pursuant to the Offer will be made by
depositing the aggregate purchase price therefor with the Depositary, which will
act as agent for tendering shareholders for the purpose of receiving payment
from the Trust and either transmitting payment directly to the tendering
shareholders or, in the case of tendering shareholders electing to invest such
proceeds in another VK Fund, transmitting payment directly to the transfer agent
for purchase of Class B Shares of the designated VK Fund for the account of such
shareholders. In all cases, payment for Common Shares accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary,
as required pursuant to the Offer, of a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof), any certificates
representing such Common Shares, if issued, and any other required documents.
Certificates for Common Shares not purchased (see Sections 1 and 6), or for
Common Shares not tendered included in certificates forwarded to the Depositary,
will be returned promptly following the termination, expiration or withdrawal of
the Offer, without expense to the tendering shareholder.
The Trust will pay all transfer taxes, if any, payable on the transfer to
it of Common Shares purchased pursuant to the Offer. If, however, payment of the
purchase price is to be made to, or (in the circumstances permitted by the
Offer) if unpurchased Common Shares are to be registered in the name of any
person other than the registered holder, or if tendered certificates, if any,
are registered or the Common Shares tendered are held in the name of any person
other than the person signing the Letter of Transmittal, the amount of any
transfer taxes (whether imposed on the registered holder or such other person)
payable on account of the transfer to such person will be deducted from the
Purchase Price unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted. Shareholders tendering Common Shares remain
entitled to receive dividends declared on such shares up to the settlement date
of the Offer. The Trust will not pay any interest on the Purchase Price under
any circumstances. An Early Withdrawal Charge will be imposed on most Common
Shares accepted for payment that have been held for less than five years. See
Section 3. In addition, if certain events occur, the Trust may not be obligated
to purchase Common Shares pursuant to the Offer. See Section 6.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO HAS NOT PREVIOUSLY SUBMITTED A
COMPLETED AND SIGNED SUBSTITUTE FORM W-9 AND WHO FAILS TO COMPLETE FULLY AND
SIGN THE SUBSTITUTE FORM W-9 ENCLOSED WITH THE LETTER OF TRANSMITTAL MAY BE
SUBJECT TO REQUIRED FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS
PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION 2.
6. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of
the Offer, the Trust shall not be required to accept for payment, purchase or
pay for any Common Shares tendered, and may terminate or amend the Offer or may
postpone the acceptance for payment of, the purchase of and payment for Common
Shares tendered, if at any time at or before the time of purchase of any such
Common Shares, any of the following events shall have occurred (or shall have
been determined by the Trust to have occurred) which, in the Trust's sole
judgment in any such case and regardless of the circumstances (including any
action or omission to act by the Trust), makes it inadvisable to proceed with
the Offer or with such purchase or payment: (1) in the reasonable judgment of
the Trustees, there is not sufficient liquidity of the assets of the Trust; (2)
such transactions, if consummated, would (a) impair the Trust's status as a
regulated investment company under the federal income tax law (which would make
the Trust a taxable entity, causing the Trust's taxable income to be taxed at
the Trust level) or (b) result in a failure to comply with applicable asset
coverage requirements; or (3) there is, in the Board of Trustees' reasonable
judgment, any (a) material legal action or proceeding instituted or threatened
challenging such transactions or otherwise materially adversely
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<PAGE> 10
affecting the Trust, (b) suspension of or limitation on prices for trading
securities generally on any United States national securities exchange or in the
over-the-counter market, (c) declaration of a banking moratorium by federal or
state authorities or any suspension of payment by banks in the United States,
(d) limitation affecting the Trust or the issuers of its portfolio securities
imposed by federal or state authorities on the extension of credit by lending
institutions, (e) commencement of war, armed hostilities or other international
or national calamity directly or indirectly involving the United States or (f)
other event or condition which would have a material adverse effect on the Trust
or the holders of its Common Shares if the tendered Common Shares are purchased.
The foregoing conditions are for the Trust's sole benefit and may be
asserted by the Trust regardless of the circumstances giving rise to any such
condition (including any action or inaction by the Trust), and any such
condition may be waived by the Trust in whole or in part, at any time and from
time to time in its sole discretion. The Trust's failure at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right; the
waiver of any such right with respect to particular facts and circumstances
shall not be deemed a waiver with respect to any other facts or circumstances;
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time. Any determination by the Trust concerning the
events described in this Section 6 shall be final and shall be binding on all
parties.
If the Trust determines to terminate or amend the Offer or to postpone the
acceptance for payment of or payment for Common Shares tendered, it will, to the
extent necessary, extend the period of time during which the Offer is open as
provided in Section 16. Moreover, in the event any of the foregoing conditions
are modified or waived in whole or in part at any time, the Trust will promptly
make a public announcement of such waiver and may, depending on the materiality
of the modification or waiver, extend the Offer period as provided in Section
16.
7. PURPOSE OF THE OFFER. The Trust currently does not believe that an
active secondary market for its Common Shares exists or is likely to develop. In
recognition of the possibility that a secondary market may not develop for the
Common Shares of the Trust, or, if such a market were to develop, the Common
Shares might trade at a discount, the Trustees have determined that it would be
in the best interest of its shareholders for the Trust to take action to attempt
to provide liquidity to shareholders or to reduce or eliminate any future market
value discount from NAV that might otherwise exist, respectively. To that end,
the Trustees presently intend each quarter to consider making a tender offer to
purchase Common Shares at their NAV. The purpose of this Offer is to attempt to
provide liquidity to the holders of Common Shares. There can be no assurance
that this Offer will provide sufficient liquidity to all holders of Common
Shares that desire to sell their Common Shares or that the Trust will make any
such tender offer in the future.
NEITHER THE TRUST NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF SUCH
SHAREHOLDER'S COMMON SHARES AND HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY SUCH
RECOMMENDATION. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL INFORMATION IN
THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISORS AND MAKE THEIR OWN
DECISIONS WHETHER TO TENDER COMMON SHARES AND, IF SO, HOW MANY COMMON SHARES TO
TENDER.
8. PLANS OR PROPOSALS OF THE TRUST. Except as set forth in this Section 8,
the Trust has no present plans or proposals which relate to or would result in
any extraordinary transaction such as a merger, reorganization or liquidation
involving the Trust; any purchase, sale or transfer of a material amount of
assets of the Trust other than in its ordinary course of business; any material
changes in the Trust's present capitalization (except as resulting from the
Offer or otherwise set forth herein); or any other material changes in the
Trust's structure or business. The Trust's fundamental investment policies and
restrictions give the Trust the flexibility to pursue its investment objective
through a fund structure commonly known as a "master-feeder" structure. If the
Trust converts to a master-feeder structure, the existing shareholders of the
Trust would continue to hold their shares of the Trust and the Trust would
become a feeder-fund of the master-fund. The value of a shareholder's shares
would be the same immediately after any conversion as the value immediately
before such conversion. Use of this master-feeder structure potentially would
result in increased assets
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<PAGE> 11
invested among the collective investment vehicle of which the Trust would be a
part, thus allowing operating expenses to be spread over a larger asset base,
potentially achieving economies of scale. The Trust's Board of Trustees
presently does not intend to affect any conversion to a master-feeder structure.
9. PRICE RANGE OF COMMON SHARES; DIVIDENDS. The Trust's NAV from June 9,
1998 through June 9, 2000 ranged from a high of $9.99 to a low of $9.51. On June
9, 2000, the NAV was $9.52. You can obtain current NAV quotations from VK by
calling (800) 341-2911 between the hours of 7:00 A.M. and 7:00 P.M. Central
Standard Time, Monday through Friday, except holidays. NAV quotes also may be
obtained through the ICI Pricing Service which is released each Friday evening
and published by the Dow Jones Capital Markets Wire Service on each Friday;
published in the New York Times on each Saturday; published in the Chicago
Tribune on each Sunday; and published weekly in Barron's magazine. The Trust
offers and sells its Common Shares to the public on a continuous basis through
VK as principal underwriter. The Trust is not aware of any secondary market
trading for the Common Shares. Dividends on the Common Shares are declared daily
and paid monthly.
Over the twelve month period preceding the commencement of the Offer, the
Trust paid the following dividends per Common Share held for the entire
respective dividend period:
<TABLE>
<CAPTION>
DIVIDEND PAYMENT AMOUNT OF DIVIDEND
DATE PER COMMON SHARE
---------------- ------------------
<S> <C>
May 25, 2000............................................... $0.0575
April 25, 2000............................................. $0.0575
March 24, 2000............................................. $0.0569
February 25, 2000.......................................... $0.0555
January 25, 2000........................................... $0.0420
December 31, 1999.......................................... $0.0135
December 23, 1999.......................................... $0.0535
November 24, 1999.......................................... $0.0535
October 25, 1999........................................... $0.0535
September 24, 1999......................................... $0.0535
August 25, 1999............................................ $0.0535
July 23, 1999.............................................. $0.0535
June 25, 1999.............................................. $0.0531
</TABLE>
Shareholders tendering Common Shares remain entitled to receive dividends
declared on such Common Shares up to the settlement date of the Offer.
10. INTEREST OF TRUSTEES AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING THE COMMON SHARES. Except as set forth in this Section
10, as of June 9, 2000, the trustees and executive officers of the Trust as a
group beneficially owned no Common Shares. As of June 9, 2000, Rod Dammeyer, a
Trustee of the Trust, owned 10,832.095 Common Shares and Wayne W. Whalen, a
trustee of the Trust, owned 1,867.423 Common Shares. Mr. Dammeyer has indicated
his intention to tender all of his Common Shares pursuant to the Offer on the
same terms as other holders of Common Shares. The Trust is not aware of any
other Common Shares to be purchased from any officer, trustee or affiliate of
the Trust pursuant to the Offer.
Except as set forth in this Section 10, based upon the Trust's records and
upon information provided to the Trust by its trustees, executive officers and
affiliates (as such term is used in the Securities Exchange Act of 1934),
neither the Trust nor, to the best of the Trust's knowledge, any of the trustees
or executive officers of the Trust, nor any affiliates of any of the foregoing,
has effected any transactions in the Common Shares during the sixty day period
prior to the date hereof. Rod Dammeyer acquired 129.4730 Common Shares and Wayne
W. Whalen acquired 22.332 Common Shares between April 9, 2000 and June 9, 2000
through the reinvestment of dividends as described in the Trust's prospectus.
Except as set forth in this Offer to Purchase, neither the Trust nor, to
the best of the Trust's knowledge, any of its affiliates, trustees or executive
officers, is a party to any agreement, arrangement or understanding, whether or
not legally enforceable, between the Trust, any of the Trust's executive
officers or trustees, any person controlling the Trust or any officer or
director of any corporation ultimately in control of the Trust and any other
person with respect to any securities of the Trust.
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<PAGE> 12
11. CERTAIN EFFECTS OF THE OFFER. The purchase of Common Shares pursuant to
the Offer will have the effect of increasing the proportionate interest in the
Trust of shareholders who do not tender their Common Shares. If you retain your
Common Shares you will be subject to any increased risks that may result from
the reduction in the Trust's aggregate assets resulting from payment for the
tendered Common Shares (e.g., greater volatility due to decreased
diversification and higher expenses). However, the Trust believes that since the
Trust is engaged in a continuous offering of the Common Shares, those risks
would be reduced to the extent new Common Shares of the Trust are sold. All
Common Shares purchased by the Trust pursuant to the Offer will be held in
treasury pending disposition.
12. SOURCE AND AMOUNT OF FUNDS. The total cost to the Trust of purchasing
the full 100,569,693 Common Shares pursuant to the Offer would be approximately
$957,423,477 (assuming a NAV of $9.52 on the Expiration Date). The Trust
anticipates that the Purchase Price for any Common Shares acquired pursuant to
the Offer will first be derived from cash on hand, such as proceeds from sales
of new Common Shares of the Trust and specified pay-downs from the participation
interests in senior corporate loans which it has acquired, and then from the
proceeds from the sale of cash equivalents held by the Trust. The Trust may from
time to time enter into one or more credit agreements to provide the Trust with
additional liquidity to meet its obligations to purchase Common Shares pursuant
to any tender offer it may make. The Trust has been a party to such credit
arrangements in the past and currently is a party to a credit agreement which
will terminate by its terms on September 13, 2000 (described in more detail
below). If, in the judgment of the Trustees, there is not sufficient liquidity
of the assets of the Trust to pay for tendered Common Shares, the Trust may
terminate the Offer. See Section 6.
The Trust has entered into a Second Amendment and Restatement of Credit
Agreement, dated as of June 14, 1999 as amended by letter agreement dated June
13, 2000 (the "Credit Agreement"), among the Trust and Van Kampen Senior
Floating Rate Fund (the "Co-Borrower") as borrowers, the banks party thereto
(the "Financial Institutions"), and Bank of America National Trust and Savings
Association ("BofA"), as agent, pursuant to which the Financial Institutions
have committed to provide a credit facility of up to $500,000,000 to the Trust
and the Co-Borrower, which is not secured by the assets of the Trust or
Co-Borrower or other collateral. As of the date hereof, neither the Trust nor
the Co-Borrower has drawn any of the funds available under the Credit Agreement.
The proceeds of any amounts borrowed under the Credit Agreement may be used to
provide the Trust with additional liquidity to meet its obligations to purchase
Common Shares pursuant to any tender offer that it may make. The Credit
Agreement has terms and conditions substantially similar to the following:
a. Each of the Trust and the Co-Borrower is entitled to borrow money
("Loans") from the Financial Institutions in amounts which in the
aggregate do not exceed the lesser of (i) the $500 million credit
facility, provided that the aggregate amount of Loans to the Trust or
the Co-Borrower on an individual basis cannot exceed twelve and one half
percent (12.5%) of the net asset value of the Trust or Co-Borrower, as
the case may be (defined as total assets minus total liabilities minus
assets subject to liens).
b. Loans made under the Credit Agreement, if any, will bear interest daily
at the option of the Trust or Co-Borrower, as applicable, (i) at a rate
per annum equal to the federal funds rate from time to time plus 0.45%,
or (ii) at a rate per annum equal to a reserve-adjusted interbank
offered rate offered by BofA's Grand Cayman Branch ("IBOR") plus 0.45%
per annum. Each of the Trust and Co-Borrower will bear the expenses of
any borrowings attributable to it under the Credit Agreement. Such
interest will be due, in arrears, on the outstanding principal amount of
each Loan (i) as to any federal funds rate Loan on the last business day
of each calendar quarter and (ii) as any offshore rate Loan, from one
(1) day to sixty (60) days from the date of the Loan, as selected by the
Trust or Co-Borrower, as applicable, in advance. Interest on the
outstanding principal of the Loans will also be due on the date of any
prepayment of any offshore rate Loan and on demand during the existence
of an event of default under the Credit Agreement payable by the
borrower subject to such event of default. Overdue payments of principal
and interest will bear interest, payable upon demand, at a penalty rate.
No Loan shall be outstanding for a period of more than sixty (60) days,
and there shall be no more than three Interest Periods as defined in the
Credit Agreement in effect.
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<PAGE> 13
c. The Trust paid approximately $34,680 of fees and expenses to BofA or its
affiliates on the date the Credit Agreement was executed. In addition,
during the term of the Credit Agreement, the Trust is obligated to pay
its pro rata share (based on the relative net assets of the Trust and
Co-Borrower) of a commitment fee computed at the rate of 0.09% per annum
on the average daily unused amount of the facility.
d. The principal amount of any Loan made under the Credit Agreement, if
any, is required to be paid sixty (60) days from the date of the Loan.
Each of the Trust and Co-Borrower is entitled to prepay a Loan made to
it in multiples of $1,000,000, provided that the Trust or Co-Borrower,
as applicable, gives sufficient notices of prepayment. On the Commitment
Termination Date (as defined below), all outstanding principal and
accrued interest under the Credit Agreement will be due and payable in
full.
e. The drawdown of the initial Loan, if any, under the Credit Agreement is
subject to certain conditions, including, among other things, the Trust
and Co-Borrower, as applicable, executing and delivering a promissory
note made payable to the order of each Financial Institution, in the
form attached to the Credit Agreement (the "Promissory Notes").
The drawdown of each Loan, if any, is further conditioned upon the
satisfaction of additional conditions, including, without limitation,
(i) the providing of notice with respect to the Loan; (ii) the asset
coverage ratio for the applicable borrower being at least 8 to 1; (iii)
there being no default or event of default in existence with respect to
the applicable borrower; (iv) the representations and warranties with
respect to the applicable borrower made in the Credit Agreement
continuing to be true; and (v) there being no Loans outstanding with
respect to the applicable borrower for more than sixty (60) days on the
day preceding the proposed borrowing.
f. The Credit Agreement contains various affirmative and negative
covenants of the Trust and Co-Borrower, including, without limitation,
obligations: (i) to provide periodic financial information; (ii) with
limited exceptions, to not consolidate with or merge into any other
entity or have any other entity merge into it and to not sell all or
any substantial part of its assets; (iii) to continue to engage in its
current type of business and to maintain its existence as a business
trust; (iv) to comply with applicable laws, rules and regulations; (v)
to maintain insurance on its property and business; (vi) to limit the
amount of its debt based upon 12.5% of the net asset value of the
applicable borrower; and (vii) to not create any lien on any of its
assets, with certain exceptions.
g. The Credit Agreement also contains various events of default (with
certain specified grace periods), including, without limitation: (i)
failure to pay when due any amounts required to be paid to the Financial
Institutions under the Credit Agreement or the Promissory Notes; (ii)
any material misrepresentations in the Credit Agreement or documents
delivered to the Financial Institutions; (iii) failure to observe or
perform certain terms, covenants and agreements contained in the Credit
Agreement, the Promissory Notes or other documents delivered to the
Financial Institutions; (iv) failure to comply with the Trust's or
Co-Borrower's, as applicable, fundamental investment policies or
investment restrictions; (v) failure to comply by the Trust or
Co-Borrower, as applicable, with all material provisions of the
Investment Company Act of 1940; (vi) the voluntary or involuntary
bankruptcy of the Trust or Co-Borrower, as applicable; (vii) the entry
of judgments for the payment of money in excess of $5,000,000 in the
aggregate which remains unsatisfied or unstayed for a period of 30 days;
and (viii) a change in control of the Trust's or Co-Borrower's, as
applicable, investment adviser.
h. The credit facility provided pursuant to the Credit Agreement will
terminate on September 13, 2000 (the "Commitment Termination Date"),
unless extended or earlier terminated pursuant to the terms thereof, and
all accrued interest and principal will be due thereon.
Pursuant to guidelines applicable to the Trust and the Co-Borrower, any
Loans to the Trust and Co-Borrower will be made on a first-come, first-serve
basis. If, at any time, the demand for borrowings by the Trust and Co-Borrower
exceeds amounts available under the Credit Agreement, such borrowing will be
allocated on a fair and equitable basis, taking into consideration factors,
including without limitation, relative net assets of the Trust and Co-Borrower,
amounts requested by the Trust and Co-Borrower, and availability of other
sources of cash to meet each parties needs.
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<PAGE> 14
The Trust intends to repay any Loans under the Credit Agreement from
proceeds from the specified pay-downs from the interests in Senior Loans (as
defined below) which will be acquired and from proceeds from the sale of Common
Shares.
The foregoing descriptions of the Credit Agreement do not purport to be
complete or final, and are qualified in their entirety by reference to the
Credit Agreement included as Exhibits (b)(1) and (b)(2) to the Issuer Tender
Offer Statement on Schedule TO of the Trust. See Section 14.
13. CERTAIN INFORMATION ABOUT THE TRUST. The Trust was organized as a
Massachusetts business trust on July 14, 1989 and is a non-diversified,
closed-end management investment company under the Investment Company Act of
1940. The Trust's investment objective is to provide a high level of current
income, consistent with the preservation of capital. The Fund seeks to achieve
its investment objective by investing in a professionally managed portfolio of
interests in floating or variable rate senior loans ("Senior Loans") to
corporations, partnerships and other entities ("Borrowers") which operate in a
variety of industries and geographical regions. Although the Trust's NAV will
vary, the Trust's policy of acquiring interests in floating or variable rate
Senior Loans is expected to minimize fluctuations in the Trust's NAV as a result
of changes in interest rates. Senior Loans in which the Trust will invest
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
the prime rate offered by one or more major United States banks ("Prime Rate"),
the London Inter-Bank Offered Rate ("LIBOR"), the certificate of deposit rate or
other base lending rates used by commercial lenders. The Senior Loans in the
Trust's portfolio at all times have a dollar-weighted average time until next
interest rate redetermination of 90 days or less. As a result, as short-term
interest rates increase, the interest payable to the Trust from its investments
in Senior Loans should increase, and as short-term interest rates decrease, the
interest payable to the Trust on its investments in Senior Loans should
decrease. The amount of time required to pass before the Trust realizes the
effects of changing short-term market interest rates on its portfolio varies
with the dollar-weighted average time until the next interest rate
redetermination on securities in the Trust's portfolio.
The Trust has registered as a "non-diversified" investment company so that,
subject to its investment restrictions, it is able to invest more than 5% of the
value of its assets in the obligations of any single issuer, including Senior
Loans of a single Borrower or participations in Senior Loans purchased from a
single lender. To the extent the Trust invests a relatively high percentage of
its assets in obligations of a limited number of issuers, the Trust will be more
susceptible than a more widely diversified investment company to any single
corporate, economic, political or regulatory occurrence.
The Trust is advised by Van Kampen Investment Advisory Corp. (the
"Adviser") pursuant to an Investment Advisory Agreement under which the Trust
accrues daily and pays monthly to the Adviser an investment management fee based
on the per annum rate of: 0.95% of the first $4.0 billion of average daily net
assets of the Trust, 0.90% on the next $3.5 billion, 0.875% on the next $2.5
billion and 0.85% on average daily net assets over $10.0 billion. Effective
December 9, 1999, Howard Tiffen, Senior Vice President and Director of Senior
Loans of the Adviser, assumed primary responsibility for the day-to-day
management of the Trust. Mr. Tiffen also has primary responsibility for the
day-to-day management of the portfolio of the Van Kampen Senior Floating Rate
Fund, a continuously offered closed end investment company, and Van Kampen
Senior Income Trust, a closed end investment company listed on the New York
Stock Exchange, both investing primarily in Senior Loans and having investment
objectives and policies substantially similar to those of the Fund. Mr. Tiffen
is also Senior Vice President and Director of Senior Loans of Van Kampen Asset
Management Inc. and Van Kampen Management Inc. Mr. Tiffen has over 25 years of
investment experience and manages over $11 billion in senior loan assets for Van
Kampen Investments Inc. Prior to joining the Adviser, Mr. Tiffen was senior
portfolio manager for Pilgrim Investments' Senior Floating Rate Investment
Management business from 1995 to 1999, where he managed the Pilgrim Prime Rate
Trust and other structured senior loan portfolios. From 1982 to 1995, Mr. Tiffen
held positions in the lending and capital markets functions at Bank of America,
and its predecessor, Continental Bank. The Trust also is a party to an
Administration Agreement and an Offering Agreement with VK. Under the
Administration Agreement, the Trust pays VK a monthly fee based on the per annum
rate of 0.25% of the Trust's average daily net assets. Under the Offering
Agreement, the Trust offers and sells its Common Shares to the public on a
continuous
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<PAGE> 15
basis through VK as principal underwriter. The Adviser and VK are indirect
wholly owned subsidiaries of Morgan Stanley Dean Witter & Co. VK compensates
broker-dealers participating in the continuous offering of the Trust's Common
Shares at a rate of 3.0% of the dollar value of Common Shares purchased from the
Trust by such broker-dealers. VK also compensates broker-dealers who have
entered into sales agreements with VK at an annual rate, paid quarterly, equal
to an amount up to 0.35% of the value of Common Shares sold by each respective
broker-dealer and remaining outstanding after one year from the date of their
original purchase. VK also may provide, from time to time, additional cash
incentives to broker-dealers which employ representatives who sell a minimum
dollar amount of the Common Shares. All such compensation is or will be paid by
VK out of its own assets, and not out of the assets of the Trust. The
compensation paid to such broker-dealers and to VK, including the compensation
paid at the time of purchase, the quarterly payments, any additional incentives
paid from time to time and the Early Withdrawal Charge, if any, will not exceed
applicable limitations.
The principal executive offices of the Trust are located at 1 Parkview
Plaza, Oakbrook Terrace, IL 60181-5555.
Reference is hereby made to Section 9 of this Offer to Purchase and the
financial statements attached hereto as Exhibit A which are incorporated herein
by reference.
14. ADDITIONAL INFORMATION. The Trust has filed an Issuer Tender Offer
Statement on Schedule TO with the Securities and Exchange Commission (the
"Commission") which includes certain additional information relating to the
Offer. Such material may be inspected and copied at prescribed rates at the
Commission's public reference facilities at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; Jacob K. Javits Federal Building, 26 Federal
Plaza, New York, New York 10278; and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained by mail at prescribed rates from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Issuer Tender Offer Statement on Schedule TO is
available along with other related materials at the Commission's internet
website (http://www.sec.gov).
15. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion is a
general summary of the federal income tax consequences of a sale of Common
Shares pursuant to the Offer. Shareholders should consult their own tax advisers
regarding the tax consequences of a sale of Common Shares pursuant to the Offer,
as well as the effects of state, local and foreign tax laws and any proposed tax
law changes.
The sale of Common Shares pursuant to the Offer will be a taxable
transaction for federal income tax purposes, either as a "sale or exchange," or
under certain circumstances, as a "dividend." Under Section 302(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), a sale of Common Shares
pursuant to the Offer generally will be treated as a "sale or exchange" if the
receipt of cash by the shareholder or by the Depositary on behalf of the
shareholder, in the case of a tendering shareholder electing to invest cash
proceeds from the tender of Common Shares in Class B Shares of a designated VK
Fund: (a) results in a "complete termination" of the shareholder's interest in
the Trust, (b) is "substantially disproportionate" with respect to the
shareholder, or (c) is "not essentially equivalent to a dividend" with respect
to the shareholder. In determining whether any of these tests has been met,
Common Shares actually owned, as well as Common Shares considered to be owned by
the shareholder by reason of certain constructive ownership rules set forth in
Section 318 of the Code, generally must be taken into account. If any of these
three tests for "sale or exchange" treatment is met, a shareholder will
recognize gain or loss equal to the difference between the amount of cash
received by the shareholder or by the Depositary on behalf of the shareholder,
in the case of a tendering shareholder electing to invest cash proceeds from the
tender of Common Shares in Class B Shares of a designated VK Fund, pursuant to
the Offer and the tax basis of the Common Shares sold. If such Common Shares are
held as a capital asset, the gain or loss will be a capital gain or loss. The
maximum tax rate applicable to net capital gains recognized by individuals and
other non-corporate taxpayers is (i) the same as the maximum ordinary income
rate for capital assets held for one year or less or (ii) 20% for capital assets
held for more than one year. The maximum long-term capital gains rate for
corporations is 35%.
If none of the tests set forth in Section 302(b) of the Code is met,
amounts received by a shareholder or by the Depositary on behalf of a
shareholder, as the case may be, who sells Common Shares pursuant to the Offer
will be taxable to the shareholder as a "dividend" to the extent of such
shareholder's allocable share of
15
<PAGE> 16
the Trust's current or accumulated earnings and profits, and the excess of such
amounts received over the portion that is taxable as a dividend would constitute
a non-taxable return of capital (to the extent of the shareholder's tax basis in
the Common Shares sold pursuant to the Offer) and any amounts in excess of the
shareholder's tax basis would constitute taxable gain. Thus, a shareholder's tax
basis in the Common Shares sold will not reduce the amount of the "dividend."
Any remaining tax basis in the Common Shares tendered to the Trust will be
transferred to any remaining Common Shares held by such shareholder. In
addition, if a tender of Common Shares is treated as a "dividend" to a tendering
shareholder, a constructive dividend under Section 305(c) of the Code may result
to a non-tendering shareholder whose proportionate interest in the earnings and
assets of the Trust has been increased by such tender. The Trust believes,
however, that the nature of the repurchase will be such that a tendering
shareholder will qualify for "sale or exchange" treatment (as opposed to
"dividend" treatment).
16. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS. The Trust
reserves the right, at any time and from time to time, to extend the period of
time during which the Offer is pending by making a public announcement thereof.
In the event that the Trust so elects to extend the tender period, the Purchase
Price for the Common Shares tendered will be determined as of 5:00 P.M. Eastern
Standard Time on the Expiration Date, as extended, and the Offer will terminate
as of 12:00 Midnight Eastern Standard Time on the Expiration Date, as extended.
During any such extension, all Common Shares previously tendered and not
purchased or withdrawn will remain subject to the Offer. The Trust also reserves
the right, at any time and from time to time up to and including the Expiration
Date, to (a) terminate the Offer and not to purchase or pay for any Common
Shares or, subject to applicable law, postpone payment for Common Shares upon
the occurrence of any of the conditions specified in Section 6, and (b) amend
the Offer in any respect by making a public announcement thereof. Such public
announcement will be issued no later than 9:00 A.M. Eastern Standard Time on the
next business day after the previously scheduled Expiration Date and will
disclose the approximate number of Common Shares tendered as of that date.
Without limiting the manner in which the Trust may choose to make a public
announcement of extension, termination or amendment, except as provided by
applicable law, the Trust shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
release to the Dow Jones News Service.
If the Trust materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Trust will extend the Offer to the extent required by Rule 13e-4 promulgated
under the Exchange Act. These rules require that the minimum period during which
an offer must remain open following material changes in the terms of the offer
or information concerning the offer (other than a change in price or a change in
percentage of securities sought) will depend on the facts and circumstances,
including the relative materiality of such terms or information. If (i) the
Trust increases or decreases the price to be paid for Common Shares, or the
Trust increases the number of Common Shares being sought by an amount exceeding
2% of the outstanding Common Shares, or the Trust decreases the number of Common
Shares being sought and (ii) the Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth business day from,
and including, the date that notice of such increase or decrease is first
published, sent or given, the Offer will be extended at least until the
expiration of such period of ten business days.
17. MISCELLANEOUS. The Offer is not being made to, nor will the Trust
accept tenders from, owners of Common Shares in any jurisdiction in which the
Offer or its acceptance would not comply with the securities or Blue Sky laws of
such jurisdiction. The Trust is not aware of any jurisdiction in which the
making of the Offer or the tender of Common Shares would not be in compliance
with the laws of such jurisdiction. However, the Trust reserves the right to
exclude holders in any jurisdiction in which it is asserted that the Offer
cannot lawfully be made. So long as the Trust makes a good-faith effort to
comply with any state law deemed applicable to the Offer, the Trust believes
that the exclusion of holders residing in such jurisdiction is permitted under
Rule 13e-4(f)(9) promulgated under the Exchange Act. In any jurisdiction the
securities or Blue Sky laws of which require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on the Trust's behalf by
one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
June 16, 2000 VAN KAMPEN PRIME RATE INCOME TRUST
16
<PAGE> 17
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
A-1
<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>
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
A-2
<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>
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
A-3
<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>
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
A-4
<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>
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
A-5
<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>
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
A-6
<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>
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
A-7
<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>
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
A-8
<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>
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
A-9
<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>
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
A-10
<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>
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
A-11
<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>
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
A-12
<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>
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
A-13
<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>
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
A-14
<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>
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
A-15
<PAGE> 32
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
A-16
<PAGE> 33
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
A-17
<PAGE> 34
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
A-18
<PAGE> 35
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
A-19
<PAGE> 36
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
A-20
<PAGE> 37
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
A-21
<PAGE> 38
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
A-22
<PAGE> 39
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
A-23
<PAGE> 40
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
A-24
<PAGE> 41
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
A-25
<PAGE> 42
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
A-26
<PAGE> 43
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
A-27
<PAGE> 44
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
A-28
<PAGE> 45
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.
A-29
<PAGE> 46
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.
A-30
<PAGE> 47
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
A-31
<PAGE> 48
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.
A-32
<PAGE> 49
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
A-33
<PAGE> 50
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>
A-34
<PAGE> 51
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Prime Rate Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Prime Rate Income Trust (the "Trust"), including the portfolio of
investments as of July 31, 1999, and the related statements of operations and
cash flows for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1999, by correspondence with the custodian and selling or agent banks; where
replies were not received we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Prime Rate Income Trust as of July 31, 1999, the results of its
operations and cash flows for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented, in conformity with generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
September 14, 1999
A-35
<PAGE> 52
PORTFOLIO OF INVESTMENTS
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS 89.2%
AEROSPACE/DEFENSE 0.6%
$ 8,935 Aerostructures Corp.,
Term Loan................ NR BB- 12/31/03 to 09/06/04 $ 8,944,347
13,030 Aircraft Braking Systems,
Inc., Term Loan.......... NR NR 10/15/05 13,028,371
10,460 Decrane Finance Co.,
Term Loan................ B2 B+ 09/30/05 to 04/23/06 10,458,252
8,751 Fairchild Holding Corp.,
Term Loan................ Ba3 BB- 04/30/06 8,718,938
8,626 United Defense
Industries, Inc., Term
Loan..................... Ba3 BB- 10/06/05 to 10/06/06 8,626,037
--------------
49,775,945
--------------
AUTOMOTIVE 2.6%
34,000 American Axel and
Manufacturing Co., Term
Loan..................... Ba3 BB- 04/30/06 33,999,238
10,000 American Bumper and
Manufacturing Co., Term
Loan..................... NR NR 04/30/04 9,992,999
55,833 Breed Technologies, Inc.,
Term Loan................ Caa1 CCC 04/27/04 to 04/27/06 55,823,812
4,415 Breed Technologies, Inc.,
Revolving Credit
Agreement................ Caa1 CCC 04/27/04 4,414,294
15,000 Dura Operating Corp, Term
Loan..................... Ba3 BB- 03/31/06 14,976,526
40,000 Federal Mogul Corp., Term
Loan..................... Ba2 NR 03/24/05 39,998,082
9,950 Insilco Corp., Term
Loan..................... Ba3 B+ 11/24/05 9,950,000
4,798 JMS Automotive
Rebuilders, Inc., Term
Loan (a)(b).............. NR NR 06/30/04 479,761
10,000 Metalforming
Technologies, Inc., Term
Loan..................... NR NR 06/30/06 9,998,985
</TABLE>
See Notes to Financial Statements
A-36
<PAGE> 53
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
AUTOMOTIVE (CONTINUED)
$ 7,769 Murray's Discount Auto
Stores, Inc., Term
Loan..................... NR NR 06/30/03 $ 6,985,640
8,612 The Plastech Group, Term
Loan..................... NR NR 04/01/02 to 04/01/04 8,603,055
16,491 Safelite Glass Corp.,
Term Loan................ B1 B+ 12/23/04 to 12/23/05 16,492,344
--------------
211,714,736
--------------
BEVERAGE, FOOD, & TOBACCO 2.1%
46,930 Agrilink Foods, Term
Loan..................... B1 BB- 09/30/04 to 09/30/05 46,928,779
11,500 Amerifoods Cos., Inc.,
Term Loan (g)............ NR NR 06/30/01 10,925,000
37,406 Dr. Pepper Holdings,
Inc., Term Loan.......... NR NR 12/31/05 37,369,140
9,369 Edwards Baking Corp.,
Term Loan................ NR NR 09/30/03 to 09/30/05 9,354,199
12,375 Favorite Brands
International, Inc., Term
Loan..................... Caa3 NR 05/19/05 11,132,174
17,977 Fleming Cos., Inc., Term
Loan..................... Ba3 BB+ 07/25/04 17,957,466
19,853 Fleming Cos., Inc.,
Revolving Credit
Agreement................ Ba3 BB+ 07/25/03 19,852,028
7,425 Leon's Bakery, Inc., Term
Loan..................... NR NR 05/02/05 7,424,294
9,620 Southern Foods Group,
Inc., Term Loan.......... Ba3 BB- 02/28/06 9,623,611
--------------
170,566,691
--------------
BROADCASTING--CABLE 5.4%
9,800 Bresnan Communications
Co., LP, Term Loan....... Ba3 BB+ 01/29/08 9,798,569
200,000 Charter Communications,
Inc., Term Loan.......... Ba3 BB+ 03/17/08 200,006,254
46,906 Chelsea Communications,
Inc., Term Loan.......... Ba2 NR 12/31/04 46,903,030
10,400 Encore Investments, Term
Loan..................... NR NR 06/30/04 10,400,000
</TABLE>
See Notes to Financial Statements
A-37
<PAGE> 54
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
BROADCASTING--CABLE (CONTINUED)
$ 44,278 Falcon Communications,
Inc., Term Loan.......... NR BB 12/31/07 $ 44,269,363
15,000 Frontiervision Operating
Partners, LP, Term
Loan..................... Ba3 BB 03/31/06 14,996,721
20,694 Garden State Cablevision,
LP, Revolving Credit
Agreement................ NR NR 06/30/05 20,694,291
53,416 InterMedia Partners IV,
LP, Term Loan............ Ba3 NR 01/01/05 to 12/31/07 53,404,413
30,286 Triax Midwest Associates,
Term Loan................ NR NR 06/30/06 to 06/30/07 30,279,581
1,676 Triax Midwest Associates,
Revolving Credit
Agreement................ NR NR 06/30/06 1,675,566
7,000 TW Fanch, Term Loan...... NR NR 12/31/07 6,974,486
--------------
439,402,274
--------------
BROADCASTING--DIVERSIFIED 1.5%
76,638 Chancellor Broadcasting
Co., Term Loan........... Ba1 BB- 06/30/05 76,637,798
26,494 Chancellor Broadcasting
Co., Revolving Credit
Agreement................ Ba1 BB- 06/30/05 26,493,646
15,000 Muzak Audio
Communications, Inc.,
Term Loan................ B1 B+ 12/31/06 14,999,382
5,000 White Knight
Broadcasting, Inc., Term
Loan..................... NR NR 06/30/07 5,001,301
--------------
123,132,127
--------------
BROADCASTING--TELEVISION 1.6%
20,000 Black Entertainment
Television, Inc., Term
Loan..................... NR NR 06/30/06 19,997,910
9,511 Lin Television Corp.,
Term Loan................ Ba3 BB- 03/31/07 9,510,107
8,000 Quorom Broadcasting,
Inc., Term Loan.......... Ba1 BB 09/30/07 7,998,997
</TABLE>
See Notes to Financial Statements
A-38
<PAGE> 55
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
BROADCASTING--TELEVISION (CONTINUED)
$ 63,800 Sinclair Broadcasting,
Term Loan................ Ba2 BB- 09/15/05 $ 63,722,969
32,000 TLMD Acquisition Co.,
Term Loan................ NR NR 03/31/07 31,994,533
--------------
133,224,516
--------------
BUILDINGS & REAL ESTATE 0.8%
19,917 BSL Holdings, Term
Loan..................... NR BB- 12/30/05 19,908,287
47,222 Walter Industries, Inc.,
Term Loan................ NR NR 10/15/03 47,200,012
--------------
67,108,299
--------------
CHEMICAL, PLASTICS & RUBBER 4.6%
11,170 Cedar Chemicals Corp.,
Term Loan................ NR NR 10/30/03 11,170,062
10,474 Foamex, LP, Term Loan.... B3 B 06/30/05 to 06/30/06 10,473,295
4,833 Foamex, LP, Revolving
Credit Agreement......... B3 B 06/12/03 4,833,316
6,563 Gentek, Inc., Term
Loan..................... Ba3 BB 04/30/07 6,562,584
14,301 High Performance
Plastics, Inc., Term
Loan..................... NR NR 03/31/05 14,299,981
40,551 Huntsman Group Holdings,
Term Loan................ Ba2 BB 12/31/02 to 10/07/05 40,553,466
9,524 Huntsman Group Holdings,
Revolving Credit
Agreement................ Ba2 BB 12/31/02 9,524,074
55,000 Huntsman Specialty
Chemical Corp., Term
Loan..................... Ba3 NR 06/30/07 to 06/30/08 54,997,176
5,398 Jet Plastica Industries,
Inc., Term Loan.......... NR NR 12/31/02 to 12/31/04 5,389,977
29,760 Kosa, LLC, Term Loan..... Ba1 BB+ 12/31/06 29,761,652
121,018 Lyondell Petrochemical
Co., Term Loan........... Ba3 NR 06/30/03 to 05/17/06 121,002,634
15,000 MetoKote Corp., Term
Loan..................... NR NR 11/02/05 14,999,886
5,102 NEN Acquisition
Industries, Inc., Term
Loan..................... NR NR 03/31/05 5,099,948
9,800 Pioneer Americas
Acquisition Corp., Term
Loan..................... B2 B+ 12/31/06 9,787,227
</TABLE>
See Notes to Financial Statements
A-39
<PAGE> 56
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
CHEMICAL, PLASTICS & RUBBER (CONTINUED)
$ 1,667 Sovereign Specialty,
Inc., Revolving Credit
Agreement................ B1 BB- 07/31/01 $ 1,666,667
11,144 Texas Petrochemicals
Corp., Term Loan......... Ba3 NR 06/30/01 to 06/30/04 11,143,229
1,156 Texas Petrochemicals
Corp., Revolving Credit
Agreement................ Ba3 NR 12/31/02 1,156,000
6,442 TruSeal Technologies,
Inc., Term Loan.......... NR NR 06/30/04 6,441,789
8,100 Vinings Industries, Inc.,
Term Loan................ NR NR 03/31/05 8,099,555
4,554 West American Rubber,
Term Loan................ NR NR 06/30/05 4,554,000
--------------
371,516,518
--------------
CONSTRUCTION MATERIALS 1.7%
20,883 Behr Process Corp., Term
Loan..................... NR NR 03/31/02 to 03/31/05 20,884,934
1,444 Brand Scaffold Services,
Inc., Term Loan.......... B1 NR 09/30/02 1,446,747
10,000 Dayton Superior Corp.,
Term Loan................ NR NR 09/29/05 9,998,255
13,593 Falcon Building Products,
Inc., Term Loan.......... B1 B+ 06/30/05 13,592,692
6,831 Flextek Components, Inc.,
Term Loan (b)............ NR NR 02/28/05 5,471,009
59,349 National Gypsum Co., Term
Loan..................... NR NR 09/20/03 59,347,577
7,960 Panolam Industries, Inc.,
Term Loan................ B1 B+ 12/31/05 to 02/26/06 7,956,793
6,491 Reliant Building
Products, Inc., Term
Loan..................... B2 B+ 03/31/04 6,489,588
14,775 Werner Holding Co., Term
Loan..................... Ba3 B+ 11/30/04 to 11/30/05 14,772,513
--------------
139,960,108
--------------
</TABLE>
See Notes to Financial Statements
A-40
<PAGE> 57
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
CONTAINERS, PACKAGING & GLASS 3.1%
$ 8,203 Fleming Packaging Corp.,
Term Loan................ NR NR 08/30/04 $ 8,200,322
9,850 Graham Packaging Co.,
Term Loan................ B1 B+ 02/02/06 to 02/02/07 9,841,424
29,288 Huntsman Packaging Corp.,
Term Loan................ B1 BB- 09/30/05 to 06/30/06 29,288,301
29,475 IPC, Inc., Term Loan..... NR B+ 10/02/04 29,449,900
37,190 Packaging Corp., Term
Loan..................... Ba3 BB 04/12/07 to 04/12/08 37,188,173
4,971 Packaging Dynamics, Term
Loan..................... NR NR 11/20/05 4,967,977
118,847 Stone Container Corp.,
Term Loan................ Ba3 B+ 10/01/03 118,846,967
7,874 Stronghaven, Inc., Term
Loan..................... NR NR 05/15/04 7,085,501
7,110 Tekni-Plex, Inc., Term
Loan..................... B1 B+ 03/03/06 7,110,395
--------------
251,978,960
--------------
DIVERSIFIED MANUFACTURING 2.5%
3,472 Advanced Accessory
Systems, LLC, Term
Loan..................... B1 B+ 10/30/04 3,471,972
30,000 Chart Industries, Inc.,
Term Loan................ NR NR 03/31/06 29,959,717
7,633 CII Carbon, LLC, Term
Loan..................... NR NR 06/25/08 7,632,783
6,360 ConMed Corp., Term
Loan..................... B1 BB- 12/30/04 6,358,675
14,625 Desa International, Term
Loan..................... B2 B+ 11/26/03 to 12/26/04 14,621,732
30,120 International Wire Group,
Inc., Term Loan.......... B1 NR 09/30/03 30,118,627
7,792 Intesys Technologies,
Inc., Term Loan.......... NR NR 06/30/04 to 06/30/06 7,791,551
672 Intesys Technologies,
Inc., Revolving Credit
Agreement................ NR NR 06/30/04 671,999
18,352 Neenah Foundry Co., Term
Loan..................... Ba3 BB- 09/30/05 18,347,181
27,043 Spalding Holdings, Inc.,
Term Loan................ NR B- 09/30/03 to 03/30/06 27,040,414
</TABLE>
See Notes to Financial Statements
A-41
<PAGE> 58
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
DIVERSIFIED MANUFACTURING (CONTINUED)
$ 7,930 Spalding Holdings, Inc.,
Revolving Credit
Agreement................ NR B- 09/30/03 $ 7,929,323
12,292 Superior Telecom, Term
Loan..................... Ba3 B+ 11/27/05 12,292,446
24,688 UCAR International, Inc.,
Term Loan................ Ba3 BB- 12/31/02 24,688,001
6,161 United Fixtures Co., Term
Loan..................... NR NR 12/15/02 6,161,228
7,000 Western Industries, Inc.,
Term Loan................ NR NR 06/23/06 6,999,381
--------------
204,085,030
--------------
ECOLOGICAL 3.5%
170,000 Allied Waste North
America, Inc., Term
Loan..................... Ba3 NR 07/23/06 to 07/23/07 170,000,000
6,965 Environmental System,
Inc., Term Loan.......... B1 BB- 09/30/05 6,965,000
104,358 Safety-Kleen Corp., Term
Loan..................... Ba3 BB 03/10/05 to 03/10/06 104,347,654
--------------
281,312,654
--------------
EDUCATION & CHILDCARE 0.2%
8,602 Kindercare Learning
Centers, Inc., Term
Loan..................... Ba3 B+ 03/21/06 8,602,157
4,906 La Petite Academy, Inc.,
Term Loan................ B2 B 05/11/05 4,906,239
--------------
13,508,396
--------------
ELECTRONICS 2.3%
38,285 Amphenol Corp., Term
Loan..................... Ba3 B+ 05/19/04 to 05/19/06 38,287,399
6,817 Beltone Electronics,
Inc., Term Loan.......... NR NR 10/31/04 6,815,462
3,663 Caribiner International,
Term Loan................ NR NR 09/30/03 3,663,205
12,602 Chatham Technologies
Acquisition, Inc., Term
Loan..................... NR NR 08/18/03 to 08/18/05 12,601,310
7,000 Communications
Instruments, Inc., Term
Loan..................... Ba3 BB- 03/15/04 6,999,758
47,850 DecisionOne Corp., Term
Loan..................... Caa3 B- 08/07/03 to 08/07/05 33,494,482
5,384 Fisher Scientific
International, Inc., Term
Loan..................... Ba3 B+ 01/21/05 to 01/21/06 5,485,132
</TABLE>
See Notes to Financial Statements
A-42
<PAGE> 59
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
ELECTRONICS (CONTINUED)
$ 25,000 General Cable Corp., Term
Loan..................... Ba3 NR 06/30/07 $ 24,993,799
2,858 Labtec, Inc., Term
Loan..................... NR NR 10/07/04 2,857,747
4,435 Rowe International, Inc.,
Term Loan................ NR NR 12/31/03 4,435,436
8,375 Sarcom, Inc., Term
Loan..................... NR NR 12/31/02 8,374,602
7,462 Stoneridge, Inc., Term
Loan..................... Ba3 BB 12/31/05 7,462,309
9,969 Stratus Computers, Inc.,
Term Loan................ NR NR 02/26/05 9,965,085
21,722 Viasystems, Inc., Term
Loan..................... B2 B+ 04/30/03 to 06/30/05 21,717,394
1,007 Viasystems, Inc.,
Revolving Credit
Agreement................ B2 B+ 12/31/02 1,007,167
--------------
188,160,287
--------------
ENTERTAINMENT & LEISURE 3.1%
24,558 AMF Group, Inc., Term
Loan..................... B1 B 03/31/03 to 03/31/04 24,568,104
21,295 ASC Network Corp., Term
Loan..................... NR NR 05/31/06 21,295,136
7,840 KSL Recreation Group,
Inc., Term Loan.......... B2 B+ 04/30/05 to 04/30/06 7,832,266
4,069 KSL Recreation Group,
Inc., Revolving Credit
Agreement................ B2 B+ 04/30/04 4,065,865
79,000 Metro-Goldwyn-Mayer,
Inc., Term Loan.......... Ba1 BBB- 03/31/05 to 03/31/06 78,987,744
28,860 Metro-Goldwyn-Mayer,
Inc., Revolving Credit
Agreement................ Ba1 BBB- 09/30/03 28,860,240
5,011 Regal Cinemas, Inc., Term
Loan..................... Ba3 BB- 05/27/06 to 05/27/07 5,007,606
9,933 SFX Entertainment, Inc.,
Term Loan................ B1 B+ 03/31/06 9,930,737
5,229 Six Flags Theme Park,
Term Loan................ Ba3 B+ 11/30/04 5,227,618
6,700 Sportcraft, Ltd., Term
Loan..................... NR NR 12/31/02 6,698,229
4,962 True Temper, Term Loan... B1 BB- 09/30/05 4,960,731
4,975 United Artists Theatre,
Inc., Term Loan.......... B1 B+ 04/21/06 to 04/21/07 4,971,458
</TABLE>
See Notes to Financial Statements
A-43
<PAGE> 60
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
ENTERTAINMENT & LEISURE (CONTINUED)
$ 35,860 Viacom, Inc., Term
Loan..................... Baa3 BBB- 04/01/02 to 04/02/02 $ 35,851,544
2,195 Viacom, Inc., Revolving
Credit Agreement......... Baa3 BBB- 04/01/02 2,193,840
15,000 WestStar Cinemas, Inc.,
Term Loan (b)............ NR NR 09/30/05 14,250,000
--------------
254,701,118
--------------
FARMING & AGRICULTURE 0.2%
10,945 Doane Pet Care Cos., Term
Loan..................... B1 B+ 12/31/05 to 12/31/06 10,938,314
4,887 Walco International,
Inc., Term Loan.......... NR NR 03/31/04 4,887,500
--------------
15,825,814
--------------
FINANCE 4.2%
23,537 Alliance Data Systems,
Inc., Term Loan.......... NR NR 07/25/03 23,537,202
821 Alliance Data Systems,
Inc., Revolving Credit
Agreement................ NR NR 07/25/03 821,429
4,844 Blackstone Capital Co.,
Term Loan................ NR NR 11/30/00 4,844,135
40,000 Bridge Information
Systems, Inc., Term
Loan..................... NR NR 05/29/05 39,997,753
31,500 Mafco Finance Corp., Term
Loan..................... NR NR 04/28/00 31,491,428
975 Mafco Finance Corp.,
Revolving Credit
Agreement................ NR NR 04/28/00 973,459
26,500 Metris Cos., Inc., Term
Loan..................... Ba3 NR 06/30/03 26,499,915
39,564 Outsourcing Solutions,
Term Loan................ B2 BB- 10/15/04 39,559,244
65,000 Paul G. Allen, Term
Loan..................... NR NR 06/10/03 64,998,543
8,955 Prison Realty Group,
Inc., Term Loan.......... Ba1 BB 01/01/03 8,935,527
</TABLE>
See Notes to Financial Statements
A-44
<PAGE> 61
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
FINANCE (CONTINUED)
$ 98,173 Ventas Realty Ltd., Inc.,
Term Loan................ NR NR 04/30/03 $ 95,207,951
4,758 Wasserstein/C&A Holdings,
Inc., Term Loan.......... NR NR 11/30/00 4,753,623
--------------
341,620,209
--------------
GROCERY 1.4%
4,988 Big V Supermarkets, Inc.,
Term Loan................ B1 B+ 08/10/03 4,987,304
42,756 Bruno's, Inc., Term Loan
(a)(b)................... Caa2 NR 12/02/03 to 04/15/05 38,010,084
4,830 Bruno's, Inc., Revolving
Credit Agreement
(a)(b)................... Caa2 NR 12/02/03 4,294,150
12,393 Eagle Family Foods, Inc.,
Term Loan................ B1 B 12/31/05 12,389,348
30,350 Pathmark Stores, Inc.,
Term Loan................ B1 B+ 06/15/01 to 12/15/01 30,348,591
4,582 Pathmark Stores, Inc.,
Revolving Credit
Agreement................ B1 B+ 06/15/01 4,581,760
8,440 Randall's Food Markets,
Inc., Term Loan.......... Ba2 BB- 06/27/06 8,439,873
5,748 Randall's Food Markets,
Inc., Revolving Credit
Agreement................ Ba2 BB- 06/27/04 5,747,567
4,786 The Pantry, Inc., Term
Loan..................... B1 BB- 01/31/06 4,785,960
--------------
113,584,637
--------------
HEALTHCARE & BEAUTY AIDS 1.8%
27,555 Kinetic Concepts, Inc.,
Term Loan................ Ba3 B+ 12/31/04 to 12/31/05 27,554,662
16,269 Mary Kay Cosmetics, Inc.,
Term Loan................ NR NR 03/06/04 16,252,955
1,281 Mary Kay Cosmetics, Inc.,
Revolving Credit
Agreement................ NR NR 03/06/04 1,281,641
24,501 Playtex Products, Inc.,
Term Loan................ Ba2 BB 09/15/03 24,495,763
</TABLE>
See Notes to Financial Statements
A-45
<PAGE> 62
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
HEALTHCARE & BEAUTY AIDS (CONTINUED)
$ 54,450 Revlon Consumer Products
Corp., Term Loan......... Ba3 BB- 05/30/02 to 05/31/02 $ 54,401,792
20,000 24 Hour Fitness, Inc.,
Term Loan................ NR NR 12/31/05 19,999,931
--------------
143,986,744
--------------
HEALTHCARE 9.4%
3,940 Alliance Imaging, Inc.,
Term Loan................ B1 B+ 12/18/03 3,939,593
6,431 Charter Behavioral,
Revolving Credit
Agreement................ NR NR 06/17/02 6,431,167
9,966 Columbia Healthone, Inc.,
Term Loan................ Ba2 BB+ 06/30/05 9,965,517
99,540 Community Health Systems,
Inc., Term Loan.......... NR NR 12/31/03 to 12/31/05 99,533,563
14,741 Extendicare Health
Services, Inc., Term
Loan..................... Ba3 B+ 12/31/03 14,737,922
26,839 Genesis Healthcare
Ventures, Inc., Term
Loan..................... Ba3 B 09/30/04 to 06/01/05 26,849,361
147,750 Integrated Health
Services, Inc., Term
Loan..................... Ba3 B- 09/15/03 to 12/31/05 147,708,501
46,201 Magellan Health Services,
Inc., Term Loan.......... B2 B+ 02/12/05 46,200,511
24,105 Mariner Post-Acute
Network, Inc., Term
Loan..................... Caa2 CCC 03/31/05 to 03/31/06 24,101,104
6,714 Medical Specialties
Group, Inc., Term Loan... NR NR 06/30/01 to 06/30/04 6,716,516
11,000 Mediq/PRN Life Support
Services, Inc., Term
Loan..................... B1 B 06/30/06 10,994,341
25,000 Meditrust Corp., Term
Loan..................... NR NR 07/17/01 24,994,335
11,871 MedPartners, Inc., Term
Loan..................... B1 BB- 05/31/01 11,871,428
10,821 MedPartners, Inc.,
Revolving Credit
Agreement................ B1 BB- 05/31/01 10,821,387
18,360 Multicare Companies,
Inc., Term Loan.......... B1 B 09/30/04 to 06/01/05 18,367,862
</TABLE>
See Notes to Financial Statements
A-46
<PAGE> 63
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$ 45,000 National Medical Care,
Inc., Term Loan.......... Ba1 BB 09/30/03 $ 44,997,473
13,500 Oxford Health Plans,
Inc., Term Loan.......... B3 NR 05/15/03 13,475,250
26,916 Quest Diagnostics, Inc.,
Term Loan................ Ba3 BB 12/05/02 to 12/06/03 26,915,854
19,900 Stryker Corp., Term
Loan..................... Ba2 BB 12/04/05 to 12/04/06 19,900,000
48,404 Sun Healthcare Group,
Inc., Term Loan (b)...... Caa2 NR 11/12/04 to 11/12/05 46,952,064
89,100 Total Renal Care
Holdings, Inc., Term
Loan..................... Ba2 NR 03/31/08 89,078,581
55,461 Vencor, Inc., Term
Loan (e)................. Caa2 NR 01/15/05 52,686,950
4,863 Wilson Greatbatch, Ltd.,
Term Loan................ NR NR 07/30/04 4,862,534
--------------
762,101,814
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES &
DURABLE CONSUMER PRODUCTS 2.4%
12,870 Corning Consumer
Products, Co., Term
Loan..................... B1 NR 10/09/06 12,869,036
48,390 Dal-Tile Group, Inc.,
Term Loan................ NR NR 12/31/02 to 12/31/03 48,390,094
3,588 Dal-Tile Group, Inc.,
Revolving Credit
Agreement................ NR NR 12/31/02 3,588,475
34,000 Furniture Brands
International, Inc., Term
Loan..................... NR NR 06/30/07 33,976,483
26,045 Imperial Home Decor
Group, Inc., Term Loan... B1 B 03/12/04 to 03/13/06 26,042,672
3,604 Imperial Home Decor
Group, Inc., Revolving
Credit Agreement......... B1 B 03/12/04 3,603,629
70,429 Rent A Center, Inc., Term
Loan..................... Ba3 NR 01/31/06 to 01/31/07 70,431,813
--------------
198,902,202
--------------
</TABLE>
See Notes to Financial Statements
A-47
<PAGE> 64
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
HOTELS, MOTELS, INNS & GAMING 5.3%
$ 41,000 Aladdin Gaming, LLC, Term
Loan..................... B2 NR 02/26/08 $ 40,989,102
9,498 Alliance Gaming Corp.,
Term Loan................ B1 B 01/31/05 9,496,172
2,085 Alliance Gaming Corp.,
Delayed Draw Term Loan... B1 B 01/31/05 2,085,347
100,000 Felcor Suite Hotels, Term
Loan..................... Ba1 BB+ 03/31/04 99,999,751
5,000 Jazz Casino Co., Term
Loan..................... NR NR 01/06/06 4,991,731
13,235 Las Vegas Sands, Inc.,
Term Loan................ NR B+ 11/30/03 13,235,757
1,380 Las Vegas Sands, Inc.,
Revolving Credit
Agreement................ NR B+ 11/30/03 1,380,057
160,000 Starwood Hotels and
Resorts Worldwide, Inc.,
Term Loan................ Ba1 NR 02/23/03 159,992,388
100,000 Wyndham International,
Inc., Term Loan.......... NR NR 06/30/06 99,994,384
--------------
432,164,689
--------------
INSURANCE 0.5%
17,325 BRW Acquisition, Inc.,
Term Loan................ NR NR 07/10/06 to 07/10/07 17,325,000
24,250 Willis Corroon, Inc.,
Term Loan................ Ba2 BB 11/19/05 to 11/19/07 24,245,767
--------------
41,570,767
--------------
MACHINERY 0.4%
9,500 Alliance Laundry Systems,
LLC, Term Loan........... B1 B+ 06/30/05 9,481,417
15,000 Ocean Rig (Norway), Term
Loan..................... NR NR 06/01/08 14,996,571
5,815 RIGCO N.A., LLC, Term
Loan (e)................. NR NR 09/30/05 5,814,800
--------------
30,292,788
--------------
MINING, STEEL, IRON, & NON-PRECIOUS METALS 1.1%
19,990 Carmeuse Lime, Inc., Term
Loan..................... NR NR 03/31/06 19,991,110
8,369 Earle M. Jorgensen, Term
Loan..................... B1 B+ 03/31/04 8,401,267
</TABLE>
See Notes to Financial Statements
A-48
<PAGE> 65
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
MINING, STEEL, IRON, & NON-PRECIOUS METALS (CONTINUED)
$ 9,409 Fairmont Minerals, Ltd.,
Term Loan................ NR NR 02/25/05 $ 9,409,412
12,998 Global Metal
Technologies, Term
Loan..................... NR NR 03/13/05 12,996,637
38,655 Ispat Inland, Term
Loan..................... Ba3 BB 07/16/05 to 07/16/06 38,653,783
--------------
89,452,209
--------------
NATURAL RESOURCES--COAL 0.1%
7,035 Alliance Coal Corp., Term
Loan..................... NR NR 12/31/01 to 12/31/02 7,034,209
4,711 Centennial Resources,
Inc., Term Loan (a)(b)... NR NR 03/31/02 to 03/31/04 1,413,462
781 Centennial Resources,
Inc., Debtor in
Possession (a)(b)........ NR NR 03/31/02 to 03/31/04 780,798
--------------
9,228,469
--------------
NON-DURABLE CONSUMER PRODUCTS 0.1%
4,045 Homemaker Industries,
Inc., Term Loan.......... NR NR 06/30/04 4,044,551
--------------
PAPER & FOREST PRODUCTS 0.7%
9,046 Bear Island Paper Co.,
LLC, Term Loan........... Ba3 B+ 12/31/05 9,045,406
21,529 Crown Paper Co., Term
Loan..................... B2 B+ 08/23/02 21,528,109
3,509 Crown Paper Co.,
Revolving Credit
Agreement................ B2 B+ 08/23/02 3,508,588
3,761 CST/Office Products,
Inc., Term Loan.......... NR NR 12/31/01 to 01/31/02 3,196,734
14,850 Le Group Forex, Inc.,
Term Loan................ NR BB 06/30/05 14,850,000
8,833 Pacifica Papers, Inc.,
Term Loan................ Ba2 BB 03/12/06 8,832,958
--------------
60,961,795
--------------
PERSONAL & MISCELLANEOUS SERVICES 0.7%
9,266 Accessory Network Group,
Term Loan................ NR NR 07/31/05 9,265,909
8,525 Arena Brands, Inc., Term
Loan..................... NR NR 06/01/02 8,522,309
843 Arena Brands, Inc.,
Revolving Credit
Agreement................ NR NR 06/01/02 842,498
</TABLE>
See Notes to Financial Statements
A-49
<PAGE> 66
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
PERSONAL & MISCELLANEOUS SERVICES
(CONTINUED)
$ 6,650 Banker's Systems, Inc.,
Term Loan................ NR NR 11/01/02 $ 6,650,000
5,996 Borg Warner Security,
Revolving Credit
Agreement................ Ba3 NR 03/31/02 5,996,136
9,342 Boyds Collection, Ltd.,
Term Loan................ Ba3 B+ 04/21/06 9,338,687
13,500 Dimac Corp., Term Loan... Caa1 B- 06/30/06 to 12/30/06 13,485,593
--------------
54,101,132
--------------
PHARMACEUTICALS 0.2%
17,167 Endo Pharmaceuticals,
Inc., Term Loan.......... NR NR 06/30/04 17,165,224
--------------
PRINTING & PUBLISHING 3.6%
14,940 Advanstar Communications,
Term Loan................ Ba3 B+ 04/30/05 14,940,000
12,036 ADVO, Inc., Term Loan.... NR NR 09/29/03 12,032,221
12,250 American Media
Operations, Inc., Term
Loan..................... Ba3 B+ 09/30/01 to 04/01/07 12,239,097
4,948 Check Printers, Inc.,
Term Loan................ NR NR 06/30/05 4,948,221
8,775 Cygnus Publishing, Inc.,
Term Loan................ NR NR 06/05/05 8,777,984
68,000 Journal Register Co.,
Term Loan................ Ba1 BB+ 09/30/06 67,996,179
31,030 Morris Communications,
Inc., Term Loan.......... NR NR 03/31/04 to 06/30/05 31,029,963
36,467 Outdoor Systems, Inc.,
Term Loan................ Ba2 BB- 06/30/04 36,466,988
19,000 PRIMEDIA, Inc., Term
Loan..................... Ba3 BB- 06/30/04 18,999,945
6,268 TWP Capital Corp., Term
Loan..................... NR NR 10/01/04 6,268,001
14,653 Von Hoffman Press, Inc.,
Term Loan................ B1 B+ 05/30/03 to 05/30/05 14,652,350
1,916 Von Hoffman Press, Inc.,
Revolving Credit
Agreement................ B1 B+ 05/30/03 1,916,218
</TABLE>
See Notes to Financial Statements
A-50
<PAGE> 67
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
PRINTING & PUBLISHING (CONTINUED)
$ 4,942 Yellow Book USA, L.P.,
Term Loan................ NR NR 12/15/05 to 12/05/06 $ 4,942,308
45,000 Ziff-Davis Publishing,
Inc., Term Loan.......... Ba2 BB- 03/31/05 44,915,126
9,875 21st Century Newspaper,
Inc., Term Loan.......... NR NR 09/15/05 9,869,152
--------------
289,993,753
--------------
RESTAURANTS & FOOD SERVICE 1.4%
9,275 Applebee's International,
Inc., Term Loan.......... NR NR 03/31/06 9,274,647
5,236 California Pizza Kitchen,
Inc., Term Loan.......... NR NR 09/30/04 5,236,214
2,443 Carvel Corp., Term
Loan..................... NR NR 06/30/00 2,443,324
24,918 Domino's Pizza, Term
Loan..................... B1 B+ 12/21/06 to 12/21/07 24,918,414
41,827 S.C. International
Services, Inc., Term
Loan..................... Ba3 NR 08/28/02 41,819,182
24,330 Shoney's, Inc., Term
Loan..................... B1 NR 04/30/02 24,317,246
7,099 Volume Services America,
Term Loan................ B1 B+ 12/01/06 7,097,775
--------------
115,106,802
--------------
RETAIL--LUXURY GOODS 0.1%
7,391 Ebel USA, Inc., Term
Loan..................... NR NR 09/30/01 7,378,690
--------------
RETAIL--OFFICE PRODUCTS 0.7%
7,000 Identity Group, Inc.,
Term Loan................ NR NR 05/11/07 6,998,871
52,422 U.S. Office Products Co.,
Term Loan................ B2 B 06/09/06 52,421,498
--------------
59,420,369
--------------
RETAIL--OIL & GAS 0.1%
11,831 TravelCenters of America,
Inc., Term Loan.......... Ba2 BB- 03/31/05 11,853,444
--------------
RETAIL--SPECIALTY 0.2%
12,750 Hollywood Entertainment
Corp., Revolving Credit
Agreement................ B1 B+ 09/05/02 12,747,752
--------------
</TABLE>
See Notes to Financial Statements
A-51
<PAGE> 68
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
RETAIL--STORES 1.0%
$ 11,500 Advance Stores Co., Term
Loan..................... B1 NR 04/15/06 $ 11,499,946
1,786 American Blind and
Wallpaper Factory, Term
Loan..................... NR NR 12/31/05 1,786,179
5,838 Kirklands Holdings, Term
Loan..................... NR NR 06/30/02 5,837,995
12,308 Nebraska Book Co., Inc.,
Term Loan................ B1 B+ 03/31/06 12,304,959
21,400 Payless Cashways, Inc.,
Term Loan................ NR NR 11/30/02 19,925,744
7,600 Payless Cashways, Inc.,
Revolving Credit
Agreement................ NR NR 05/31/02 7,599,985
15,545 Peebles, Inc., Term
Loan..................... NR NR 06/09/02 15,545,387
4,844 Vitamin Shoppe
Industries, Inc., Term
Loan..................... NR NR 05/15/04 4,842,870
--------------
79,343,065
--------------
TELECOMMUNICATIONS--CELLULAR 5.2%
19,950 American Cellular
Wireless, Inc., Term
Loan..................... NR NR 06/30/07 19,940,866
100,000 BCP SP Ltd., Term Loan... NR NR 03/16/00 98,825,348
75,000 Cellular, Inc., Financial
Corp. (CommNet), Term
Loan..................... B1 NR 09/18/06 to 09/18/07 74,861,435
18,905 Centennial Cellular,
Inc., Term Loan.......... B2 NR 05/31/07 to 11/30/07 18,903,350
75,000 Global Crossing Holdings,
Inc., Term Loan.......... Ba1 BBB- 06/30/06 74,998,172
13,453 NATG Holdings, Inc., Term
Loan..................... NR NR 12/31/04 13,453,448
40,000 Sygnet Wireless, Inc.,
Term Loan................ B3 NR 03/23/07 to 12/23/07 39,997,908
65,000 Western Wireless Corp.,
Term Loan................ B1 NR 03/31/05 64,998,970
20,000 Wireless One Network,
Term Loan................ NR NR 09/30/07 19,968,159
--------------
425,947,656
--------------
</TABLE>
See Notes to Financial Statements
A-52
<PAGE> 69
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
TELECOMMUNICATIONS--HYBRID 3.3%
$ 25,000 Alaska Communication,
Inc., Term Loan.......... B1 BB 11/14/07 to 05/14/08 $ 24,995,155
125,000 Nextel Finance Co., Term
Loan..................... Ba3 B 03/31/06 to 03/31/07 124,998,375
10,000 Nextel Finance Co., Term
Loan (Argentina)......... NR NR 03/31/03 9,989,953
27,500 Nextel Partners Co., Term
Loan..................... B2 B- 11/01/07 27,498,267
30,000 Pacific Crossing Ltd.,
Term Loan................ NR NR 07/28/06 30,000,000
50,000 Teligent, Inc., Term
Loan..................... B3 B- 06/30/06 50,009,034
--------------
267,490,784
--------------
TELECOMMUNICATIONS--PERSONAL
COMMUNICATION SYSTEMS 2.5%
7,083 Mitel Corp., Term Loan... NR NR 12/26/03 7,082,054
74,160 Omnipoint Communications,
Inc., Term Loan.......... B2 NR 02/01/06 to 02/17/06 75,239,556
11,000 Powertel PCS, Inc.,
Revolving Credit
Agreement................ NR NR 03/31/06 11,000,611
5,000 Powertel PCS, Inc., Term
Loan..................... NR NR 03/31/06 5,000,277
17,000 Telecorp PCS, Inc., Term
Loan..................... B2 NR 12/05/07 16,999,870
9,819 Telespectrum Worldwide,
Inc., Term Loan.......... NR NR 12/31/01 to 12/31/03 9,815,897
40,000 Tritel Holding Corp.,
Term Loan................ B2 NR 12/31/07 39,998,724
42,000 Triton PCS, Inc., Term
Loan..................... B1 B 05/04/07 41,999,902
--------------
207,136,891
--------------
TELECOMMUNICATIONS--WIRELESS MESSAGING 1.5%
27,335 Arch Paging, Inc., Term
Loan..................... B2 B- 12/31/02 to 06/30/06 26,611,706
15,000 CCPR Services, Inc., Term
Loan..................... NR NR 06/30/02 14,988,022
65,000 Iridium Operating LLC,
Term Loan (e)............ NR CC 12/29/00 58,499,842
</TABLE>
See Notes to Financial Statements
A-53
<PAGE> 70
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
TELECOMMUNICATIONS--WIRELESS MESSAGING (CONTINUED)
$ 9,460 Teletouch Communications,
Inc., Term Loan.......... NR NR 11/30/05 $ 9,459,517
11,000 TSR Wireless LLC, Term
Loan..................... NR NR 06/30/05 11,005,584
--------------
120,564,671
--------------
TEXTILES & LEATHER 1.6%
11,098 American Marketing
Industries, Inc., Term
Loan..................... NR NR 11/30/02 11,097,432
8,820 GFSI, Inc., Term Loan.... NR NR 03/31/04 8,824,256
20,000 Glenoit Corp., Term
Loan..................... B1 BB- 12/31/03 to 06/30/04 19,995,311
9,600 Humphrey's, Inc., Term
Loan..................... B2 NR 01/15/03 9,584,804
14,425 Joan Fabrics Corp., Term
Loan..................... NR NR 06/30/05 to 06/30/06 14,425,328
12,673 Johnston Industries,
Inc., Term Loan.......... NR NR 07/01/00 12,675,781
20,000 Norcorp, Inc., Term
Loan..................... NR NR 03/31/06 19,999,840
13,895 Norcross Safety Products,
Term Loan................ NR NR 10/02/05 13,895,286
9,552 Polyfibron Technologies,
Inc., Term Loan.......... NR NR 12/28/03 9,554,038
6,840 William Carter Co., Term
Loan..................... Ba3 BB- 10/30/03 6,837,305
--------------
126,889,381
--------------
TRANSPORTATION--CARGO 1.1%
25,091 Atlas Freighter Leasing,
Inc., Term Loan.......... Ba3 NR 05/29/04 to 06/30/04 25,087,514
9,875 CTC Distribution
Services, LLC, Term
Loan..................... NR NR 02/25/06 9,872,992
33,827 Evergreen International
Aviation, Inc., Term
Loan..................... NR NR 05/31/02 to 05/31/03 33,829,044
7,550 Gemini Air Cargo, Inc.,
Term Loan................ B1 NR 12/12/02 7,548,053
7,388 North American Van Lines,
Inc., Term Loan.......... NR NR 03/30/05 7,386,028
8,100 OmniTrax Railroads, LLC,
Term Loan................ NR NR 05/14/05 8,099,242
--------------
91,822,873
--------------
</TABLE>
See Notes to Financial Statements
A-54
<PAGE> 71
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
TRANSPORTATION--MANUFACTURING COMPONENTS 0.8%
$ 27,440 Cambridge Industries,
Inc., Term Loan.......... B1 NR 06/30/05 $ 27,441,523
39,497 SPX Corp., Term Loan..... Ba3 BB 09/30/04 to 09/30/06 39,494,394
--------------
66,935,917
--------------
TRANSPORTATION--PERSONAL 1.9%
50,000 Avis Rent A Car, Inc.,
Term Loan................ Ba3 BB+ 06/30/06 to 06/30/07 50,000,234
16,453 Blue Bird Body Co., Term
Loan..................... Ba2 BB- 11/01/03 16,452,500
47,178 Continental Airlines,
Inc., Term Loan.......... Ba1 BB 07/31/02 to 07/31/04 47,173,964
40,000 Transportation
Manufacturing, Inc., Term
Loan..................... NR BB- 06/16/06 40,000,000
--------------
153,626,698
--------------
TRANSPORTATION--RAIL MANUFACTURING 0.0%
2,000 Johnstown America
Industries, Inc., Term
Loan..................... B1 NR 04/29/05 1,999,658
--------------
UTILITIES 0.1%
8,000 LIR Energy, Limited, Term
Loan..................... NR NR 04/21/00 7,999,384
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 89.2%.............. 7,261,408,491
--------------
OTHER LOAN INTERESTS 0.6%
London Fog Industries, Inc. ($13,541,264 par, 10.00% coupon,
maturing 02/27/03) 144A (f)..................................... 13,541,264
Satelites Mexicanos ($35,524,000 par, 9.06% coupon, maturing
06/30/04) 144A (f).............................................. 35,524,000
--------------
TOTAL OTHER LOAN INTERESTS...................................... 49,065,264
--------------
</TABLE>
See Notes to Financial Statements
A-55
<PAGE> 72
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Value
----------------------------------------------------------------------------
<S> <C>
EQUITIES 1.1%
AFC Enterprises, Inc. (604,251 common shares) (c)(d)........ $ 10,084,949
American Blind and Wallpaper Factory, Inc. (198,600 common
shares) (c)(d)(h)......................................... 1,999,906
Best Products Co., Inc. (297,480 common shares) (d)......... 0
Best Products Co., Inc. (Warrants for 28,080 common shares)
(d)....................................................... 0
Classic Cable, Inc. (Warrants for 760 common shares) (d).... 0
CST/Star Products, Inc. (0.3 common shares) (c)(d).......... 557
Dan River, Inc. (192,060 common shares) (d)................. 1,296,405
Flagstar Cos., Inc. (8,755 common shares) (d)............... 22
London Fog Industries, Inc. (1,083,301 common shares)
(c)(d)(h)................................................. 10,984,672
London Fog Industries, Inc., (Warrants for 66,580 common
shares) (c)(d)(h)......................................... 0
Fleer/Marvel Entertainment, Inc. (570,427 preferred shares)
(h)....................................................... 5,704,278
Fleer/Marvel Entertainment, Inc. (891,340 common shares)
(d)(h).................................................... 5,682,292
Murray's Discount Auto Stores, Inc. (Warrants for 289 common
shares) (c)(d)............................................ 3
Nextel Communications, Inc. (Warrants for 60,000 common
shares) (c)(d)............................................ 2,313,750
Payless Cashways, Inc. (1,024,159 common shares) (d)(h)..... 2,176,338
Rigco N.A., LLC (Warrants for .325% interest of company's
fully diluted equity) (d)................................. 0
Rowe International, Inc. (91,173 common shares) (c)(d)(h)... 2,500,900
Sarcom, Inc. (43 common shares) (c)(d)...................... 0
Trans World Entertainment Corp. (3,789,962 common shares)
(c)(d)(h)................................................. 47,137,653
--------------
TOTAL EQUITIES.............................................. 89,881,725
--------------
TOTAL LONG-TERM INVESTMENTS 90.9%
(Cost $7,466,535,285)................................... 7,400,355,480
--------------
SHORT-TERM INVESTMENTS 8.5%
COMMERCIAL PAPER 5.5%
Autoliv ASP, Inc. ($29,955,000 par, maturing 08/18/99 to
08/20/99, yielding 5.25% to 5.28%)........................ $ 29,879,319
Central & Southwest Corp. ($20,000,000 par, maturing
08/10/99, yielding 5.23%)................................. 19,973,850
Comdisco, Inc. ($30,000,000 par, maturing 08/09/99 to
08/10/99, yielding 5.25% to 5.27%)........................ 29,964,246
Compaq Computer Corp. ($24,355,000 par, maturing 08/13/99 to
08/25/99, yielding 5.26% to 5.28%)........................ 24,299,808
Conagra, Inc. ($6,995,000 par, maturing 08/02/99, yielding
5.22%).................................................... 6,993,986
</TABLE>
See Notes to Financial Statements
A-56
<PAGE> 73
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
----------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER (CONTINUED)
Cox Communications, Inc. ($3,000,000 par, maturing 08/11/99,
yielding 5.25%)........................................... $ 2,995,625
CSX Corp. ($5,000,000 par, maturing 08/30/99, yielding
5.27%).................................................... 4,978,774
Grainger W.W., Inc. ($27,250,000 par, maturing 08/04/99 to
08/17/99, yielding 5.06% to 5.08%)........................ 27,200,869
Halliburton Co. ($5,000,000 par, maturing 08/02/99, yielding
5.07%).................................................... 4,999,296
Hertz Corp. ($14,150,000 par, maturing 08/05/99, yielding
5.11%).................................................... 14,141,966
Hunt (J.B.) Transportation Services, Inc. ($4,590,000 par,
maturing 08/03/99, yielding 5.20%)........................ 4,588,674
Pfizer, Inc. ($270,000 par, maturing 08/26/99, yielding
5.06%).................................................... 269,051
Rayonier, Inc. ($6,075,000 par, maturing 08/10/99, yielding
5.25%).................................................... 6,067,027
Raytheon Co. ($20,000,000 par, maturing 08/09/99, yielding
5.22%).................................................... 19,976,800
Rite Aid Corp. ($50,000,000 par, maturing 08/09/99 to
09/08/99, yielding 5.25% to 5.27%)........................ 49,829,576
Safeway, Inc. ($50,100,000 par, maturing 08/02/99 to
09/07/99, yielding 5.20% to 5.30%)........................ 49,935,605
Tampa Electric Co. ($9,392,000 par, maturing 08/02/99,
yielding 5.07%)........................................... 9,390,677
Tandy Corp. ($2,500,000 par, maturing 08/04/99, yielding
5.24%).................................................... 2,498,908
Texas Utilities Co. ($17,359,000 par, maturing 08/02/99 to
08/16/99, yielding 5.23% to 5.31%)........................ 17,323,074
Times Mirror Co. ($17,561,000 par, maturing 08/02/99 to
08/06/99, yielding 5.03% to 5.08%)........................ 17,550,159
TRW, Inc. ($51,015,000 par, maturing 08/05/99 to 09/20/99,
yielding 5.27% to 5.47%).................................. 50,850,224
Western Resources, Inc. ($25,244,000 par, maturing 08/11/99
to 08/25/99, yielding 5.24% to 5.27%)..................... 25,170,895
Xtra, Inc. ($24,960,000 par, maturing 08/04/99 to 09/15/99,
yielding 5.25% to 5.30%).................................. 24,890,980
--------------
TOTAL COMMERCIAL PAPER...................................... 443,769,389
--------------
SHORT-TERM LOAN PARTICIPATIONS 3.0%
Anadarko Pete Corp. ($5,000,000 par, maturing 08/02/99,
yielding 5.22%)........................................... 5,000,000
Army and Air Force Exchange Service ($20,000,000 par,
maturing 08/12/99 to 08/13/99, yielding 5.13%)............ 20,000,000
Ashland Oil Co. ($6,900,000 par, maturing 08/05/99, yielding
5.27%).................................................... 6,900,000
Cabot Corp. ($26,237,000 par, maturing 08/02/99 to 08/20/99,
yielding 5.23% to 5.32%).................................. 26,237,000
</TABLE>
See Notes to Financial Statements
A-57
<PAGE> 74
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
----------------------------------------------------------------------------
<S> <C>
SHORT-TERM LOAN PARTICIPATIONS (CONTINUED)
{Centex Corp. ($15,000,000 par, maturing 08/02/99, yielding
5.30%).................................................... $ 15,000,000
Conagra, Inc. ($10,000,000 par, maturing 08/16/99, yielding
5.25%).................................................... 10,000,000
Gillette Co. ($4,600,000 par, maturing 08/02/99, yielding
5.16%).................................................... 4,600,000
Hertz Corp. ($10,000,000 par, maturing 08/05/99, yielding
5.12%).................................................... 10,000,000
National Rural Utilities Coop Finance Corp. ($15,000,000
par, maturing 08/24/99, yielding 5.10%)................... 15,000,000
Praxair, Inc. ($15,000,000 par, maturing 08/05/99, yielding
5.22%).................................................... 15,000,000
Ralston Purina Co. ($20,000,000 par, maturing 08/03/99,
yielding 5.26%)........................................... 20,000,000
Sara Lee Corp. ($6,700,000 par, maturing 08/05/99, yielding
5.08%).................................................... 6,700,000
Sprint Capital Corp. ($20,000,000 par, maturing 08/10/99,
yielding 5.25%)........................................... 20,000,000
Tandy Corp. ($32,600,000 par, maturing 08/03/99 to 08/17/99,
yielding 5.25% to 5.30%).................................. 32,600,000
Temple Inland, Inc. ($8,000,000 par, maturing 08/03/99,
yielding 5.24%)........................................... 8,000,000
Universal Corp. ($10,000,000 par, maturing 08/03/99,
yielding 5.28%)........................................... 10,000,000
Western Resources, Inc. ($21,900,000 par, maturing 08/12/99
to 08/19/99, yielding 5.27% to 5.28%)..................... 21,900,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS........................ 246,937,000
--------------
TOTAL SHORT-TERM INVESTMENTS 8.5%
(Cost $690,706,389)....................................... 690,706,389
--------------
TOTAL INVESTMENTS 99.4%
(Cost $8,157,239,674)..................................... 8,091,061,869
OTHER ASSETS IN EXCESS OF LIABILITIES 0.6%................. 45,329,104
--------------
NET ASSETS 100.0%.......................................... $8,136,390,973
==============
</TABLE>
NR = Not Rated
+ Bank loans rated below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered to be below Investment grade.
(a) This Senior Loan interest is non-income producing.
(b) This Borrower has filed for protection in federal bankruptcy court.
(c) Restricted security.
(d) Non-income producing security as this stock currently does not declare
dividends.
(e) Subsequent to the year ended July 31, 1999, this borrower has filed for
protection in federal bankruptcy court.
(f) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(g) Interest is accruing at less than the stated coupon.
(h) Affiliated company. See notes to financial statements.
See Notes to Financial Statements
A-58
<PAGE> 75
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
* Senior Loans in the Trust's portfolio generally are subject to mandatory
and/or optional prepayment. Because of these mandatory prepayment conditions
and because there may be significant economic incentives for a Borrower to
prepay, prepayments of Senior Loans in the Trust's portfolio may occur. As a
result, the actual remaining maturity of Senior Loans held in the Trust's
portfolio may be substantially less than the stated maturities shown.
Although the Trust is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, the Trust estimates that the actual
average maturity of the Senior Loans held in its portfolio will be
approximately 18-24 months.
** Senior Loans in which the Trust invests generally pay interest at rates
which are periodically redetermined by reference to a base lending rate
plus a premium. These base lending rates are generally (i) the lending rate
offered by one or more major European banks, such as the London Inter-Bank
Offered Rate ("LIBOR"), (ii) the prime rate offered by one or more major
United States banks, and (iii) the certificate of deposit rate. Senior
loans are generally considered to be restricted in that the Trust
ordinarily is contractually obligated to receive approval from the Agent
Bank and/or borrower prior to the disposition of a Senior Loan.
See Notes to Financial Statements
A-59
<PAGE> 76
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $8,157,239,674)..................... $8,091,061,869
Receivables:
Interest and Fees......................................... 51,890,020
Fund Shares Sold.......................................... 17,638,279
Prepayments............................................... 2,323,937
Other....................................................... 330,273
--------------
Total Assets.......................................... 8,163,244,378
--------------
LIABILITIES:
Payables:
Income Distributions...................................... 10,673,922
Investment Advisory Fee................................... 6,457,488
Distributor and Affiliates................................ 2,419,184
Administrative Fee........................................ 1,750,965
Custodian Bank............................................ 1,276,982
Accrued Expenses............................................ 3,910,941
Trustees' Deferred Compensation and Retirement Plans........ 363,923
--------------
Total Liabilities..................................... 26,853,405
--------------
NET ASSETS.................................................. $8,136,390,973
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 825,612,225 shares issued and
outstanding).............................................. $ 8,256,122
Paid in Surplus............................................. 8,246,435,399
Accumulated Undistributed Net Investment Income............. 14,841,151
Net Unrealized Depreciation................................. (66,177,805)
Accumulated Net Realized Loss............................... (66,963,894)
--------------
NET ASSETS.................................................. $8,136,390,973
==============
NET ASSET VALUE PER COMMON SHARE ($8,136,390,973 divided by
825,612,225 shares outstanding)........................... $ 9.85
==============
</TABLE>
See Notes to Financial Statements
A-60
<PAGE> 77
STATEMENT OF OPERATIONS
For the Year Ended July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 601,850,652
Fees........................................................ 6,208,118
Dividends................................................... 653,734
Other....................................................... 8,647,834
-------------
Total Income............................................ 617,360,338
-------------
EXPENSES:
Investment Advisory Fee..................................... 72,850,479
Administrative Fee.......................................... 19,708,066
Shareholder Services........................................ 6,844,200
Legal....................................................... 2,245,100
Custody..................................................... 763,954
Trustees' Fees and Related Expenses......................... 363,340
Other....................................................... 3,997,993
-------------
Total Expenses.......................................... 106,773,132
-------------
NET INVESTMENT INCOME....................................... $ 510,587,206
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (39,696,960)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (5,181,222)
End of the Period......................................... (66,177,805)
-------------
Net Unrealized Depreciation During the Period............... (60,996,583)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $(100,693,543)
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 409,893,663
=============
</TABLE>
See Notes to Financial Statements
A-61
<PAGE> 78
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended July 31, 1999 and 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1999 July 31, 1998
---------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net Investment Income........................... $ 510,587,206 $ 461,572,692
Net Realized Loss............................... (39,696,960) (17,725,403)
Net Unrealized Appreciation/Depreciation During
the Period.................................... (60,996,583) 26,278,934
-------------- --------------
Change in Net Assets from Operations............ 409,893,663 470,126,223
Distributions from Net Investment Income........ (506,562,808) (461,726,242)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... (96,669,145) 8,399,981
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Sold................ 1,681,564,508 1,654,063,711
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 268,516,058 245,628,149
Cost of Shares Repurchased...................... (1,029,903,851) (832,176,219)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. 920,176,715 1,067,515,641
-------------- --------------
TOTAL INCREASE IN NET ASSETS.................... 823,507,570 1,075,915,622
NET ASSETS:
Beginning of the Period......................... 7,312,883,403 6,236,967,781
-------------- --------------
End of the Period (including accumulated
undistributed net investment income of
$14,841,151 and $10,753,143, respectively).... $8,136,390,973 $7,312,883,403
============== ==============
</TABLE>
See Notes to Financial Statements
A-62
<PAGE> 79
STATEMENT OF CASH FLOWS
For the Year Ended July 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 409,893,663
---------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (837,136,979)
Decrease in Interest and Fees Receivables................. 5,876,804
Decrease in Receivable for Prepayments.................... 6,948,016
Increase in Other Assets.................................. (274,677)
Decrease in Deferred Facility Fees........................ (3,273,920)
Increase in Investment Advisory Fee Payable............... 685,968
Increase in Administrative Fee Payable.................... 194,949
Increase in Distributor and Affiliates Payable............ 1,119,846
Decrease in Accrued Expenses.............................. (163,393)
Increase in Trustees' Deferred Compensation and Retirement
Plans Payable........................................... 207,748
---------------
Total Adjustments..................................... (825,815,638)
---------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (415,921,975)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 1,690,332,972
Payments on Shares Repurchased.............................. (1,031,272,495)
Change in Intra-day Credit Line with Custodian Bank......... (6,236,963)
Cash Dividends Paid......................................... (236,901,539)
---------------
Net Cash Provided by Financing Activities................. 415,921,975
---------------
NET INCREASE IN CASH........................................ -0-
Cash at Beginning of the Period............................. -0-
---------------
CASH AT END OF THE PERIOD................................... $ -0-
===============
</TABLE>
See Notes to Financial Statements
A-63
<PAGE> 80
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $ 9.976 $ 9.963 $ 10.002 $ 10.046 $ 10.052
-------- -------- -------- -------- --------
Net Investment Income........ .640 .675 .701 .735 .756
Net Realized and Unrealized
Gain/Loss.................. (.125) .015 (.042) (.028) (.004)
-------- -------- -------- -------- --------
Total from Investment
Operations................... .515 .690 .659 .707 .752
Less Distributions from Net
Investment Income............ .637 .677 .698 .751 .758
-------- -------- -------- -------- --------
Net Asset Value, End of the
Period....................... $ 9.854 $ 9.976 $ 9.963 $ 10.002 $ 10.046
======== ======== ======== ======== ========
Total Return (a)............... 5.23% 7.22% 6.79% 7.22% 7.82%
Net Assets at End of the Period
(In millions)................ $8,136.4 $7,312.9 $6,237.0 $4,865.8 $2,530.1
Ratio of Expenses to Average
Net Assets................... 1.35% 1.41% 1.42% 1.46% 1.49%
Ratio of Net Investment Income
to Average Net Assets........ 6.48% 6.81% 7.02% 7.33% 7.71%
Portfolio Turnover (b)......... 44% 73% 83% 66% 71%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the contingent deferred sales charge.
(b) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interests.
See Notes to Financial Statements
A-64
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Prime Rate Income Trust (the "Trust") is registered as a
non-diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust's investment objective is to provide
a high level of current income, consistent with preservation of capital. The
Trust seeks to achieve its objective by investing primarily in a portfolio of
interests in floating or variable rate senior loans to United States
corporations, partnerships and other entities. The Trust commenced investment
operations on October 4, 1989.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--The value of the Trust's Variable Rate Senior Loan
interests and Other Loan interests (collectively "Loan interest") totaling
$7,310,473,755 (89.8% of net assets) is determined by Van Kampen Investment
Advisory Corp. (the "Adviser") following guidelines and procedures established,
and periodically reviewed, by the Board of Trustees. The value of a Loan
interest in the Trust's portfolio is determined with reference to changes in
market interest rates and to the creditworthiness of the underlying obligor. In
valuing Loan interests, the Adviser considers market quotations and transactions
in instruments that the Adviser believes may be comparable to such Loan
interests. In determining the relationship between such instruments and the Loan
interests, the Adviser considers such factors as the creditworthiness of the
underlying obligor, the current interest rate, the interest rate redetermination
period and maturity date. To the extent that reliable secondary market
transactions in Senior Loan interests have occurred, the Adviser also considers
pricing information derived from such secondary market transactions in valuing
Loan interests. Because of uncertainty in the nature of the valuation process,
the estimated value of a Loan interest may differ significantly from the value
that would have been used had there been reliable market activity for that Loan
interest. Equity securities are valued on the basis of prices furnished by
pricing services or as determined in good faith by the Adviser. Short-term
securities with remaining maturities of 60 days or less are
A-65
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
valued at amortized cost. Short-term loan participations are valued at cost in
the absence of any indication of impairment.
B. SECURITY TRANSACTIONS--Investment transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
C. INVESTMENT INCOME--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Facility fees on senior loans
purchased are treated as market discounts. Market premiums and discounts are
amortized over the stated life of each applicable security.
Other income is comprised primarily of amendment fees. Amendment fees are
earned as compensation for agreeing to changes in loan agreements.
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At July 31, 1999, the Trust had an accumulated capital loss carryforward
for tax purposes of $29,215,056, which will expire between July 31, 2004 and
July 31, 2007. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of wash sales, post October losses
which may not be recognized for tax purposes until the first day of the
following fiscal year and losses that were recognized for book purposes but not
for tax purposes at the end of the fiscal year.
At July 31, 1999, for federal income tax purposes cost of long- and
short-term investments is $8,173,783,765, the aggregate gross unrealized
appreciation is $30,113,270 and the aggregate gross unrealized depreciation is
$112,835,166 resulting in net unrealized depreciation on long- and short-term
investments of $82,721,896.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
A-66
<PAGE> 83
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1999 fiscal year have been identified and appropriately
reclassified. Permanent differences relating to expenses which are not
deductible for tax purposes totaling $63,610 were reclassified from capital to
accumulated undistributed net investment income.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
---------------------------------------------------------------------
<S> <C>
First $4.0 billion.................................... .950 of 1%
Next $3.5 billion..................................... .900 of 1%
Next $2.5 billion..................................... .875 of 1%
Over $10.0 billion.................................... .850 of 1%
</TABLE>
In addition, the Trust will pay a monthly administrative fee to Van Kampen
Funds Inc., the Trust's Administrator, at an annual rate of .25% of the average
net assets of the Trust. The administrative services to be provided by the
Administrator include monitoring the provisions of the loan agreements and any
agreements with respect to participations and assignments, record keeping
responsibilities with respect to interests in Variable Rate Senior Loans in the
Trust's portfolio and providing certain services to the holders of the Trust's
securities.
For the year ended July 31, 1999, the Trust recognized expenses of
approximately $334,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the year ended July 31, 1999, the Trust recognized expenses of
approximately $110,300 representing Van Kampen Funds Inc. or its affiliates'
(collectively "Van Kampen") cost of providing legal services to the Trust.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Trust. For the year ended July 31, 1999,
the Trust recognized expenses for these services of approximately $5,333,400.
Transfer agency fees are determined through negotiations with the Trust's Board
of Trustees and are based on competitive market benchmarks.
A-67
<PAGE> 84
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
During the period, the Trust owned shares of the following affiliated
companies. Affiliated companies are defined by the Investment Company Act of
1940 as those companies in which a fund holds 5% or more of the outstanding
voting securities.
<TABLE>
<CAPTION>
Realized Dividend Market Value
Name Shares* Gain/(Loss) Income at 7/31/99
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Blind and
Wallpaper Factory,
Inc...................... 198,600 0 0 $ 1,999,906
London Fog Industries,
Inc...................... 1,083,301 0 0 10,984,672
Fleer/Marvel Entertainment,
Inc...................... 1,461,767 0 653,734 11,386,570
Payless Cashways, Inc...... 1,024,159 0 0 2,176,338
Rowe International, Inc.... 91,173 0 0 2,500,900
Trans World Entertainment
Corp..................... 3,789,962 0 0 47,137,653
</TABLE>
*Shares were acquired through the restructuring of Senior loan interests.
3. CAPITAL TRANSACTIONS
At July 31, 1999 and July 31, 1998, paid in surplus aggregated $8,246,435,399
and $7,327,247,726, respectively.
A-68
<PAGE> 85
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1999 July 31, 1998
-----------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares........................... 733,069,022 626,018,023
------------ -----------
Shares Sold.............................. 169,386,633 165,907,778
Shares Issued Through Dividend
Reinvestment.......................... 27,059,241 24,636,104
Shares Repurchased....................... (103,902,671) (83,492,883)
------------ -----------
Net Increase in Shares Outstanding....... 92,543,203 107,050,999
------------ -----------
Ending Shares.............................. 825,612,225 733,069,022
============ ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $3,787,004,302 and
$3,058,028,938, respectively.
5. TENDER OF SHARES
The Board of Trustees currently intends, each quarter, to consider authorizing
the Trust to make tender offers for all or a portion of its then outstanding
common shares at the then net asset value of the common shares. For the year
ended July 31, 1999, 103,902,671 shares were tendered and repurchased by the
Trust.
6. EARLY WITHDRAWAL CHARGE
An early withdrawal charge to recover offering expenses will be imposed in
connection with most common shares held for less than five years which are
accepted by the Trust for repurchase pursuant to tender offers. The early
withdrawal charge will be payable to Van Kampen. Any early withdrawal charge
which is required to be imposed will be made in accordance with the following
schedule.
<TABLE>
<CAPTION>
WITHDRAWAL
YEAR OF REPURCHASE CHARGE
----------------------------------------------------------------------
<S> <C>
First................................................... 3.0%
Second.................................................. 2.5%
Third................................................... 2.0%
Fourth.................................................. 1.5%
Fifth................................................... 1.0%
Sixth and following..................................... 0.0%
</TABLE>
A-69
<PAGE> 86
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
For the year ended July 31, 1999, Van Kampen received early withdrawal
charges of approximately $13,808,700 in connection with tendered shares of the
Trust.
7. COMMITMENTS/BORROWINGS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $267,917,303 as of July
31, 1999. The Trust generally will maintain with its custodian short-term
investments having an aggregate value at least equal to the amount of unfunded
loan commitments.
The Trust, along with the Van Kampen Senior Floating Rate Fund, has entered
into a revolving credit agreement with a syndicate led by Bank of America for an
aggregate of $500,000,000, which will terminate on June 13, 2000. The proceeds
of any borrowing by the Trust under the revolving credit agreement may only be
used, directly or indirectly, for liquidity purposes in connection with the
consummation of a tender offer by the Trust for its shares. Annual commitment
fees of .09% are charged on the unused portion of the credit line. Borrowings
under this facility will bear interest at either the LIBOR rate or the Federal
Funds rate plus .45%, except during the period from December 17, 1999 through
January 14, 2000, the applicable margin shall be .575%. There have been no
borrowings under this agreement to date.
8. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. When the Trust
purchases a participation of a Senior Loan interest, the Trust typically enters
into a contractual agreement with the lender or other third party selling the
participation, but not with the borrower directly. As such, the Trust assumes
the credit risk of the borrower, Selling Participant or other persons
interpositioned between the Trust and the borrower.
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<PAGE> 87
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
--------------------------------------------------------------------------------
At July 31, 1999, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Trust on a participation
basis.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
-------------------------------------------------------------------------
<S> <C> <C>
Lehman Brothers................................. $100,000 $ 99,998
Bankers Trust................................... 59,153 59,157
Bank of New York................................ 45,000 44,915
Chase Securities Inc............................ 10,066 10,066
Donaldson Lufkin Jenrette....................... 4,988 4,987
Goldman Sachs................................... 3,948 3,948
Canadian Imperial Bank of Commerce.............. 3,442 3,443
-------- --------
Total........................................... $226,597 $226,514
======== ========
</TABLE>
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