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EXHIBIT (a)(1)(ii)
VAN KAMPEN
SENIOR FLOATING RATE FUND
OFFER TO PURCHASE FOR CASH 37,624,602
OF ITS ISSUED AND OUTSTANDING COMMON SHARES
AT NET ASSET VALUE PER COMMON SHARE
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THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT
EASTERN STANDARD TIME ON FRIDAY, AUGUST 18, 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 AUGUST 18, 2000.
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To the Holders of Common Shares of
VAN KAMPEN SENIOR FLOATING RATE FUND:
Van Kampen Senior Floating Rate Fund (the "Trust") is offering to purchase
up to 37,624,602 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 August 18, 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 one year. The Common Shares are not currently
traded on an established trading market. The purpose of the Offer is to attempt
to provide liquidity to shareholders since the Trust is unaware of any secondary
market which exists for the Common Shares. The NAV on July 14, 2000 was $9.64.
You can obtain current NAV quotations from Van Kampen Funds Inc. ("VKFI") 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 37,624,602 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 37,624,602 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.
10 SFR006-07/00
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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.
The Trust The Trust is a non-diversified, closed-end management
investment company organized as a Massachusetts business
trust. The Trust seeks to provide a high level of current
income, consistent with the preservation of capital. The
Trust seeks to achieve its investment objective by investing
in a professionally managed portfolio of interests in
floating or variable rate senior loans. As of July 14, 2000,
the Trust had net assets of approximately $1.45 billion and
had issued and outstanding 150,498,408 Common Shares. As of
July 14, 2000, the Trust's net asset value per Common Share
was $9.64. 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 37,624,602 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 one year. 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 determined as of 5:00
P.M. Eastern Standard Time on the Expiration Date. See
Section 1. The cost of purchasing the full 37,624,602 Common
Shares pursuant to the Offer would be approximately
$362,701,163 (assuming a NAV of $9.64 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 August 18, 2000, unless extended by
action of the Trust's Board of Trustees. The later of August
18, 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 Shares Shareholders seeking to tender their Common Shares pursuant
to the Offer must send to 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 September 15, 2000. See Section 4.
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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 VKFI 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 VKFI.
July 21, 2000 VAN KAMPEN SENIOR FLOATING
RATE FUND
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
(800) 341-2911
Depositary: Van Kampen Investor
Services Inc.
By Mail, Hand Delivery or Courier:
7501 Tiffany Springs Parkway
Kansas City, MO 64153
Attn: Van Kampen Senior Floating
Rate Fund
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TABLE OF CONTENTS
SECTION PAGE
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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............................................... 17
EXHIBIT A: Unaudited Financial Statements for the Semiannual
Period Ended January 31, 2000......................... A-1
Audited Financial Statements for the Fiscal Year
Ended July 31, 1999................................... A-23
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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) 37,624,602 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 August 18, 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 July 14, 2000 was $9.64. You can obtain current NAV
quotations from VKFI 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 one year. 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 37,624,602 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 37,624,602
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 37,624,602 Common Shares (or such greater number of
Common Shares sought) on a pro rata basis.
On July 14, 2000 there were approximately 150,498,408 Common Shares issued
and outstanding and there were approximately 39,418 holders of record of Common
Shares. The Trust has been advised that no trustees, officers or affiliates of
the Trust intend to tender any Common Shares 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
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(i) the Common Shares and will deliver or cause to be delivered such shares for
purposes of tender to the 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 VKFI. 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 VKFI 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 VKFI 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
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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 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, VKFI, 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). 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 one year. 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 one year 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
one year preceding acceptance for payment) over the purchase price of such
Common Shares. The Early Withdrawal Charge will be paid to VKFI 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.
EARLY
YEAR OF REPURCHASE WITHDRAWAL
AFTER PURCHASE CHARGE
------------------ ----------
First....................................................... 1.0%
Second and following........................................ 0.0%
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 C Shares") of certain open-end investment
companies advised by either Van Kampen Investment Advisory Corp. or Van Kampen
Asset Management Inc. and distributed by VKFI ("VK Funds"), subject to certain
limitations. The Early Withdrawal Charge will be waived for Common Shares
tendered pursuant to this election, however, such Class C 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 C Shares of a VK Fund only if shares of such VK Fund are available for
sale, and shareholders establishing a new Class C 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 the 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 C 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 September 15, 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, VKFI, Van
Kampen Investments Inc. ("VK Inc."), the Depositary or any other person is or
will be obligated to give any notice of any defects or 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.
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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 C 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 one year. 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 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 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
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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 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.
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9. PRICE RANGE OF COMMON SHARES; DIVIDENDS. The Trust's NAV from July 14,
1998 through July 14, 2000 ranged from a high of $10.12 to a low of $9.63. On
July 14, 2000, the NAV was $9.64. You can obtain current NAV quotations from
VKFI 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 VKFI 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:
DIVIDEND PAYMENT AMOUNT OF DIVIDEND
DATE PER COMMON SHARE
---------------- ------------------
June 23, 2000.............................................. $0.0640
May 25, 2000............................................... $0.0639
April 25, 2000............................................. $0.0640
March 24, 2000............................................. $.063035705
February 25, 2000.......................................... $.0610
January 25, 2000........................................... $.046212125
December 31, 1999.......................................... $0.0148
December 23, 1999.......................................... $0.0575
November 24, 1999.......................................... $0.0575
October 25, 1999........................................... $0.0575
September 24, 1999......................................... $0.0575
August 25, 1999............................................ $0.0561
July 23, 1999.............................................. $0.0550
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. As of July 14, 2000, the trustees and
executive officers of the Trust as a group beneficially owned no Common Shares.
In connection with the Trust's organization on December 19, 1997, VK Inc., an
affiliate of the Trust's investment adviser, was issued 10,000 Common Shares for
$100,000. The Trust has been informed that no trustee or executive officer or
affiliate of the Trust intends to tender any Common Shares 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 60 day period
prior to the date hereof.
The Board of Trustees has recently appointed Richard F. Powers, III
(President and Chief Executive Officer of Van Kampen Investments Inc.) as a
trustee of the Trust replacing the retiring Don G. Powell (former Chairman and
Director of Van Kampen Investments Inc.). Mr. Powers has also been appointed as
President of the Trust and certain other funds distributed by VKFI. Prior to May
1998, Mr. Powers was Executive Vice President and Director of Marketing at
Morgan Stanley Dean Witter & Co. and Director of Dean Witter Discover & Co. and
Dean Witter Realty. Prior to 1996, Mr. Powers was a Director of Dean Witter
Reynolds Inc. Dennis J. McDonnell retired from the Board of Trustees of the
Trust and retired as Executive Vice President and Chief Investment Officer of
the Trust on March 31, 2000. The Board of Trustees appointed Stephen L. Boyd
(Executive Vice President and Chief Investment Officer of Van Kampen Investments
Inc. and President and Chief Operating Officer of the Adviser) as Executive Vice
President and
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Chief Investment Officer of the Trust. Mr. Boyd has been named Executive Vice
President and Chief Investment Officer of certain other funds distributed by
VKFI.
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.
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 37,624,602 Common Shares pursuant to the Offer would be approximately
$362,701,163 (assuming a NAV of $9.64 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 currently is a party to a credit
agreement which will terminate by its terms on September 13, 2000 (described in
more detail below). The Trust has never borrowed any amounts available under
such credit arrangements in the past. 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 Prime Rate
Income Trust (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
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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.
c. The Trust paid approximately $5,320 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
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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.
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 December 19, 1997 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 preservation of capital. The Trust 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. Howard Tiffen,
Vice President of the Trust and Senior Vice President and Director of Senior
Loans of the Adviser, has 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 Prime Rate
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Income Trust, 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 $11.8 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 is a party to an
Administration Agreement with VK Inc. Under the Administration Agreement, the
Trust pays VK Inc. a monthly fee based on the per annum rate of 0.25% of the
Trust's average daily net assets. The Trust is a party to an Offering Agreement
with VKFI. Under the Offering Agreement, the Trust offers and sells its Common
Shares to the public on a continuous basis through VKFI as principal
underwriter. The Adviser, VK Inc. and VKFI are indirect wholly owned
subsidiaries of Morgan Stanley Dean Witter & Co. VKFI compensates broker-dealers
participating in the continuous offering of the Trust's Common Shares at a rate
of 0.75% of the dollar value of Common Shares purchased from the Trust by such
broker-dealers. VKFI also compensates broker-dealers who have entered into sales
agreements with VKFI at an annual rate, paid quarterly, equal to an amount up to
0.75% 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.
VKFI 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 VKFI out of its
own assets, and not out of the assets of the Trust. The compensation paid to
such broker-dealers and to VKFI, 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 in the aggregate exceed
applicable limitations. In addition, the Trust may make service fee payments
pursuant to the Trust's Service Plan for personal services and/or the
maintenance of shareholder accounts to VKFI and broker-dealers and other persons
in amounts not exceeding 0.25% of the Trust's average daily net assets for any
fiscal year. The Trustees have initially implemented the Service Plan by
authorizing service fee payments to VKFI and broker-dealers and other persons in
amounts not expected to exceed 0.15% of the Trust's average daily net assets.
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
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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 C 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 C
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 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
16
17
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.
July 21, 2000 VAN KAMPEN SENIOR FLOATING RATE FUND
17
18
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD(1).
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
VARIABLE RATE** SENIOR LOAN INTERESTS 80.1%
AEROSPACE/DEFENSE 1.9%
$ 4,933 Aerostructures Corp.,
Term Loan............... NR BB- 12/31/03 $ 4,933,479
13,850 Decrane Finance Co.,
Term Loan............... B2 B+ 09/30/05 to 04/23/06 13,849,379
6,419 High Performance
Plastics, Inc., Term
Loan.................... NR NR 03/31/05 6,417,676
7,449 Stellex Technologies,
Inc., Term Loan......... B2 B+ 09/30/06 7,448,209
--------------
32,648,743
--------------
AUTOMOTIVE 3.4%
4,868 Breed Technologies,
Inc., Term
Loan (a)(b)............. NR NR 04/27/04 to 04/27/06 3,894,256
949 Breed Technologies,
Inc., Revolving Credit
Agreement (a)(b)........ NR NR 04/27/04 758,983
193 Breed Technologies,
Inc., Debtor In
Possession (b).......... NR NR 09/30/00 193,425
5,000 Exide Corp., Term
Loan.................... Ba3 NR 03/18/05 5,012,360
12,632 J.L. French Automotive
Castings, Inc., Term
Loan.................... B1 B+ 10/21/06 12,632,091
9,967 Metalforming
Technologies, Inc., Term
Loan.................... NR NR 06/30/06 9,965,795
4,000 Polypore, Inc., Term
Loan.................... Ba3 B+ 12/31/06 3,999,807
4,947 Safelite Glass Corp.,
Term Loan............... B1 B+ 12/23/03 3,907,641
2,000 Safelite Glass Corp.,
Revolving Credit
Agreement............... B1 B+ 12/23/03 1,579,480
15,000 Tenneco Automotive,
Inc., Term Loan......... Ba3 BB 11/04/07 to 07/04/08 15,107,295
--------------
57,051,133
--------------
See Notes to Financial Statements
A-1
19
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
BEVERAGE, FOOD & TOBACCO 2.8%
$ 39,284 Agrilink Foods, Inc.,
Term Loan............... B1 B+ 09/30/04 to 09/30/05 $ 39,038,558
9,250 B & G Foods, Inc., Term
Loan.................... B1 B+ 03/31/06 9,246,161
--------------
48,284,719
--------------
BROADCASTING--CABLE 0.6%
9,310 Fairchild Corp., Term
Loan.................... Ba3 BB- 04/30/06 9,310,954
--------------
BROADCASTING--DIVERSIFIED 0.9%
10,000 Comcord Broadcasting,
Term Loan............... NR NR 06/30/07 9,999,773
4,550 White Knight, Term
Loan.................... NR NR 06/30/07 4,550,894
--------------
14,550,667
--------------
BROADCASTING--RADIO 0.4%
7,000 Cumulus Media, Inc.,
Term Loan............... B1 B+ 09/30/07 to 02/28/08 6,999,931
--------------
BROADCASTING--TELEVISION 1.0%
8,000 Quoram Broadcasting,
Inc., Term Loan......... NR NR 09/30/07 7,999,300
9,333 Sinclair Broadcast
Group, Inc., Term
Loan.................... Ba2 BB- 09/15/05 9,331,821
--------------
17,331,121
--------------
BUILDINGS & REAL ESTATE 1.0%
4,954 Builders FirstSource,
Inc., Term Loan......... NR BB- 12/30/05 4,955,136
12,500 Prison Realty Trust,
Inc., Term Loan......... Ba3 BB 12/31/02 12,502,029
--------------
17,457,165
--------------
CHEMICAL, PLASTICS & RUBBER 4.7%
10,000 Georgia Gulf Corp., Term
Loan.................... Ba1 BBB- 11/12/06 10,058,330
1,148 Huntsman Corp., Term
Loan.................... Ba2 BB 12/31/02 1,147,892
2,659 Huntsman Corp.,
Revolving Credit
Agreement............... Ba2 BB 12/31/02 2,658,382
24,063 Lyondell Chemical Co.,
Term Loan............... Ba3 NR 06/30/05 to 05/17/06 24,461,323
See Notes to Financial Statements
A-2
20
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CHEMICAL, PLASTICS & RUBBER (CONTINUED)
$ 5,000 MetoKote Corp., Term
Loan.................... NR NR 11/02/05 $ 4,999,669
8,075 Pioneer Americas, Inc.,
Term Loan............... B3 B+ 12/31/06 8,066,504
6,278 Sterling Pulp Chemicals,
Inc., Term Loan......... B3 BB- 09/30/04 6,278,381
17,113 Sybron Chemicals, Inc.,
Term Loan............... NR NR 07/31/04 17,083,973
5,713 West American Rubber,
Term Loan............... NR NR 06/30/05 5,713,000
--------------
80,467,454
--------------
CONSTRUCTION MATERIALS 2.7%
20,875 American Building Co.,
Term Loan............... NR NR 11/15/05 20,861,807
5,216 Flextek Components,
Inc., Term Loan (a)..... NR NR 02/28/05 2,625,755
12,103 Hexcel Corp., Term
Loan.................... Ba3 BB- 09/14/05 to 09/15/05 12,100,439
9,950 Mueller Group, Inc.,
Term Loan............... NR B+ 08/16/06 to 08/16/07 10,008,038
--------------
45,596,039
--------------
CONTAINERS, PACKAGING & GLASS 2.3%
10,960 Dr. Pepper Holdings,
Inc., Term Loan......... NR NR 10/07/07 10,986,260
10,000 LLS Corp., Term Loan.... B1 B+ 07/31/06 9,998,518
14,925 Mediapak Corp., Term
Loan.................... NR NR 12/31/05 to 12/31/06 14,927,269
3,894 Stone Container Corp.,
Term Loan............... Ba3 B+ 10/01/03 3,906,946
--------------
39,818,993
--------------
DIVERSIFIED MANUFACTURING 1.3%
9,975 Blount, Inc., Term
Loan.................... B1 B+ 09/30/06 9,971,692
12,500 Citation Corp., Term
Loan.................... NR B+ 12/01/07 12,500,525
--------------
22,472,217
--------------
See Notes to Financial Statements
A-3
21
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
ECOLOGICAL 3.0%
$ 50,000 Allied Waste North
America, Inc., Term
Loan.................... Ba3 BB 07/23/06 to 07/23/07 $ 48,465,150
3,188 Safety-Kleen Corp., Term
Loan.................... Ba3 BB 04/03/05 to 04/03/06 3,182,412
--------------
51,647,562
--------------
ELECTRONICS 2.3%
7,500 Amphenol Corp., Term
Loan.................... Ba3 BB 05/19/04 7,414,845
7,500 Computer Associates
International, Inc.,
Term Loan............... Baa1 BBB+ 05/26/04 7,492,181
8,946 Dynamic Details, Inc.,
Term Loan............... B1 NR 04/22/05 8,946,000
4,957 EG&G Technical Services,
Inc., Term Loan......... B1 NR 08/20/07 4,956,777
4,953 Stratus Computers, Inc.,
Term Loan............... NR NR 12/31/04 4,978,126
5,000 Stream International,
Term Loan............... NR NR 12/31/06 5,000,100
--------------
38,788,029
--------------
ENTERTAINMENT & LEISURE 4.1%
10,000 Aspen Marketing, Inc.,
Term Loan............... NR NR 06/30/06 10,002,286
12,500 Bally Total Fitness
Holding Corp., Term
Loan.................... B1 B+ 11/10/04 12,491,717
10,000 Fitness Holdings
Worldwide, Inc., Term
Loan.................... NR B+ 11/02/06 to 11/02/07 9,988,750
15,000 SFX Entertainment, Inc.,
Term Loan............... B1 B+ 06/30/06 14,981,250
17,000 Six Flags Theme Parks,
Inc., Term Loan......... Ba2 B+ 09/30/05 17,107,763
4,610 True Temper Sports,
Inc., Term Loan......... B1 BB- 09/30/05 4,609,858
--------------
69,181,624
--------------
See Notes to Financial Statements
A-4
22
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
FINANCE 3.1%
$ 9,950 Bridge Information
Systems, Inc., Term
Loan.................... NR NR 05/29/05 $ 9,952,422
16,958 Outsourcing Solutions,
Term Loan............... B2 NR 06/01/06 16,957,100
10,000 Paul G. Allen, Term
Loan.................... NR NR 06/10/03 9,996,063
16,000 Sovereign Bancorp, Inc.,
Term Loan............... Ba3 NR 11/14/03 16,053,328
--------------
52,958,913
--------------
GROCERY 1.6%
27,615 The Pantry, Inc., Term
Loan.................... B1 BB- 01/31/06 27,678,769
--------------
HEALTHCARE 3.1%
15,000 Alliance Imaging, Inc.,
Term Loan............... B1 NR 11/02/07 to 11/02/08 14,997,339
9,975 Charles River
Laboratories, Inc., Term
Loan.................... B1 B+ 09/29/07 9,968,571
4,988 Unilab Corp., Term
Loan.................... B1 B+ 11/23/06 4,987,690
18,119 Vencor, Inc., Term Loan
(a)(b).................. Caa2 NR 01/15/05 15,763,784
7,900 Wilson Greatbatch, Ltd.,
Term Loan............... NR NR 07/30/04 7,899,944
--------------
53,617,328
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER
PRODUCTS 1.7%
21,398 Imperial Home Decor
Group, Inc., Term Loan
(b)..................... Caa3 D 03/13/06 12,223,212
16,519 Rent-A-Center, Inc.,
Term Loan............... Ba3 BB- 01/31/06 to 01/31/07 16,405,000
--------------
28,628,212
--------------
See Notes to Financial Statements
A-5
23
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
HOTELS, MOTELS, INNS & GAMING 1.9%
$ 10,000 Aladdin Gaming, LLC,
Term Loan............... B2 NR 08/25/06 to 08/26/06 $ 10,000,695
6,987 Meditrust Corp.,
Revolving Credit
Agreement............... NR NR 07/17/01 6,986,042
16,000 Starwood Hotel and
Resorts Worldwide, Inc.,
Term Loan............... Ba1 NR 02/23/03 15,999,487
--------------
32,986,224
--------------
INSURANCE 0.3%
5,000 Brera Gab Robins, Inc.,
Term Loan............... NR NR 12/01/05 4,999,963
--------------
MACHINERY 2.4%
4,078 Numantics, Inc., Term
Loan.................... Ba3 B 03/19/04 to 09/19/05 4,078,763
15,000 Ocean Rig (Norway), Term
Loan.................... NR NR 06/01/08 14,997,821
10,000 Terex Corp., Term
Loan.................... Ba3 BB- 03/06/06 10,029,690
12,500 United Rentals, Inc.,
Term Loan............... Ba2 BB+ 06/30/06 12,476,563
--------------
41,582,837
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 0.6%
9,850 Ispat Inland, Term
Loan.................... Ba3 BB 07/16/05 to 07/16/06 9,800,750
--------------
PERSONAL & MISCELLANEOUS SERVICES 0.9%
1,842 Boyds Collection, Ltd.,
Term Loan............... Ba3 B+ 04/21/06 1,831,020
13,500 Dimac Corp., Term
Loan.................... NR NR 06/30/06 to 12/30/06 13,521,808
--------------
15,352,828
--------------
PHARMACEUTICALS 1.0%
17,471 King Pharmaceuticals,
Inc., Term Loan......... B1 BB- 12/18/06 17,517,899
--------------
PRINTING & PUBLISHING 3.6%
6,380 Advanstar
Communications, Inc.,
Term Loan............... Ba3 B+ 04/30/05 6,361,063
16,000 Big Flower Press
Holdings, Inc., Term
Loan.................... B1 NR 12/06/08 15,999,550
See Notes to Financial Statements
A-6
24
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PRINTING & PUBLISHING (CONTINUED)
$ 4,923 Check Printers, Inc.,
Term Loan............... NR NR 06/30/05 $ 4,923,026
10,000 Haights Cross
Communications, Inc.,
Term Loan............... B2 B+ 12/10/06 10,000,000
8,789 Pacifica Papers, Inc.,
Term Loan............... Ba2 BB 03/12/06 8,790,383
6,429 Penton Media, Inc., Term
Loan.................... Ba3 BB- 06/30/07 6,427,143
4,984 Reiman Publications,
Inc., Term Loan......... NR NR 12/10/05 5,003,005
4,135 TWP Capital Corp., Term
Loan.................... NR NR 10/01/04 4,135,399
--------------
61,639,569
--------------
RESTAURANTS & FOOD SERVICE 1.8%
3,640 AFC Enterprises, Inc.,
Term Loan............... Ba3 BB- 06/30/02 3,640,014
1,384 Carvel Corp., Term
Loan.................... NR NR 06/30/00 1,383,750
24,805 Domino's, Inc., Term
Loan.................... B1 B+ 12/21/06 to 12/21/07 24,895,255
--------------
29,919,019
--------------
RETAIL--OFFICE PRODUCTS 0.9%
7,000 Buhrmann US, Inc., Term
Loan.................... Ba3 BB- 10/26/07 7,037,191
8,810 U.S. Office Products
Co., Term Loan.......... B3 B 06/09/06 8,809,858
--------------
15,847,049
--------------
RETAIL--OIL & GAS 0.6%
9,334 Superior Energy
Services, Inc., Term
Loan.................... Ba3 BB- 06/30/06 9,332,915
--------------
RETAIL--STORES 1.3%
14,813 Duane Reade, Inc., Term
Loan.................... B1 B+ 02/15/06 14,814,163
7,123 Kirkland's Holdings,
Term Loan............... NR NR 06/30/02 7,123,145
--------------
21,937,308
--------------
See Notes to Financial Statements
A-7
25
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TELECOMMUNICATIONS--CELLULAR 0.9%
$ 15,000 Wireless One Network,
L.P., Term Loan......... NR NR 09/30/07 $ 15,000,375
--------------
TELECOMMUNICATIONS--HYBRID 3.4%
5,000 Cincinnati Bell, Inc.,
Term Loan............... Ba1 BB+ 12/30/06 4,999,745
13,500 Nextel Finance Co., Term
Loan.................... Ba2 BB- 06/30/08 to 12/31/08 13,682,817
15,000 Orius Corp., Term
Loan.................... NR B+ 12/14/06 14,999,157
24,000 Pacific Crossing Ltd.,
Term Loan............... NR NR 07/28/06 24,000,000
--------------
57,681,719
--------------
TELECOMMUNICATIONS--PERSONAL COMMUNICATION SYSTEMS 7.1%
38,300 BCP SP Ltd., Term
Loan.................... NR NR 03/31/00 37,917,000
18,810 Davel Financing Co...... NR NR 06/23/05 18,813,496
15,000 Nextel Partners
Operating Corp., Term
Loan.................... B2 B- 07/29/08 14,993,745
29,034 Omnipoint
Communications, Inc.,
Term Loan............... B2 NR 02/01/06 to 02/17/06 29,194,367
6,000 Omnipoint Midwest
Holdings, Term Loan..... NR NR 12/31/06 5,997,815
5,000 TeleCorp PCS, Inc., Term
Loan.................... B2 NR 12/05/07 4,989,585
9,694 Telespectrum Worldwide,
Inc., Term Loan......... NR NR 12/31/01 to 12/31/03 9,692,133
--------------
121,598,141
--------------
TELECOMMUNICATIONS--WIRELESS MESSAGING 1.8%
55,000 Iridium Operating LLC,
Term Loan (a)(b)........ NR D 12/29/00 20,350,127
11,000 TSR Wireless LLC, Term
Loan.................... NR NR 06/30/05 11,025,226
--------------
31,375,353
--------------
TEXTILES & LEATHER 3.2%
8,155 American Marketing
Industries, Inc., Term
Loan.................... NR NR 11/30/04 to 11/30/05 8,156,178
19,242 Glenoit Corp., Term
Loan.................... B1 B 12/31/03 to 06/30/04 19,242,102
See Notes to Financial Statements
A-8
26
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TEXTILES & LEATHER (CONTINUED)
$ 5,400 Humphrey's, Inc., Term
Loan.................... B2 NR 01/15/03 $ 5,401,608
3,385 Joan Fabrics Corp., Term
Loan.................... NR NR 06/30/05 3,376,887
4,994 Norcorp, Inc., Term
Loan.................... NR NR 05/30/06 to 11/30/06 4,993,185
13,825 Norcross Safety
Products, Term Loan..... NR NR 10/02/05 13,825,000
--------------
54,994,960
--------------
TRANSPORTATION--CARGO 1.8%
4,821 Gemini Leasing, Inc.,
Term Loan............... B1 NR 08/12/05 4,813,937
17,000 North American Van
Lines, Inc., Term
Loan.................... B1 B+ 11/18/07 16,998,159
8,059 OmniTrax Railroads, LLC,
Term Loan............... NR NR 05/14/05 8,060,365
--------------
29,872,461
--------------
TRANSPORTATION--MANUFACTURING COMPONENTS 1.0%
17,188 SPX Corp., Term Loan.... Ba2 BB+ 09/30/06 17,273,438
--------------
TRANSPORTATION--PERSONAL 3.7%
40,000 Avis Rent A Car, Inc.,
Term Loan............... Ba3 BB+ 06/30/06 to 06/30/07 40,261,140
23,084 Motor Coach Industries
International, Inc.,
Term Loan............... Ba3 BB- 06/15/06 23,066,570
--------------
63,327,710
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 80.1%
(Cost $1,412,077,633)..................................................... $1,366,530,091
--------------
See Notes to Financial Statements
A-9
27
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
VALUE
SHORT-TERM INVESTMENTS 18.3%
COMMERCIAL PAPER 16.1%
Armstrong World Industries ($5,000,000 par, maturing 02/23/00,
yielding 5.74%)................................................. $ 4,982,461
Ashland, Inc. ($20,000,000 par, maturing 02/10/00 to 02/18/00,
yielding 5.75% to 5.83%)........................................ 19,958,095
Autoliv ASP, Inc. ($8,774,000 par, maturing 02/29/00, yielding
5.90%).......................................................... 8,733,737
Baxter International, Inc. ($25,000,000 par, maturing 02/02/00,
yielding 5.50%)................................................. 24,996,181
Bell Atlantic Network ($20,984,000 par, maturing 02/08/00 to
02/15/00, yielding 5.58% to 5.60%).............................. 20,954,693
CSX Corp. ($10,000,000 par, maturing 02/16/00, yielding 5.85%).. 9,975,625
Conagra, Inc. ($10,000,000 par, maturing 02/02/00, yielding
5.70%).......................................................... 9,998,417
Cox Communications, Inc. ($20,000,000 par, maturing 02/11/00 to
02/17/00, yielding 5.80% to 5.95%).............................. 19,963,644
Dial Corp. ($6,800,000 par, maturing 02/03/00, yielding
5.75%).......................................................... 6,797,828
Dominion Resources, Inc. ($25,000,000 par, maturing 02/08/00 to
02/24/00, yielding 5.75% to 5.86%).............................. 24,932,661
FDX Corp. ($20,000,000 par, maturing 02/03/00 to 02/18/00,
yielding 5.73% to 5.75%)........................................ 19,969,664
Fluor Corp. ($7,200,000 par, maturing 02/16/00, yielding
5.64%).......................................................... 7,183,080
Grainger W.W., Inc. ($10,000,000 par, maturing 02/15/00,
yielding 5.60%)................................................. 9,978,222
Hertz Corp. ($10,000,000 par, maturing 02/10/00, yielding
5.55%).......................................................... 9,986,125
Illinois Power Co. ($5,000,000 par, maturing 02/04/00, yielding
5.70%).......................................................... 4,997,625
Nabisco, Inc. ($10,620,000 par, maturing 02/15/00, yielding
5.70%).......................................................... 10,596,459
RPM, Inc. ($22,000,000 par, maturing 02/04/00 to 02/09/00,
yielding 5.80% to 5.85%)........................................ 21,981,200
Safeway, Inc. ($10,000,000 par, maturing 02/07/00, yielding
5.75%).......................................................... 9,990,417
Texas Utilities Co. ($15,000,000 par, maturing 02/07/00 to
02/25/00, yielding 5.72% to 5.95%).............................. 14,970,633
Wal Mart Stores, Inc. ($10,000,000 par, maturing 02/14/00,
yielding 5.59%)................................................. 9,979,814
Xtra, Inc. ($4,000,000 par, maturing 02/04/00, yielding
5.72%).......................................................... 3,998,093
--------------
TOTAL COMMERCIAL PAPER.......................................... 274,924,674
--------------
See Notes to Financial Statements
A-10
28
YOUR FUND'S INVESTMENTS
January 31, 2000 (Unaudited)
VALUE
SHORT-TERM LOAN PARTICIPATIONS 2.1%
Comdisco Inc. ($6,000,000 par, maturing 02/01/00, yielding
6.00%).......................................................... $ 6,000,000
Cox Communications, Inc. ($5,000,000 par, maturing 02/01/00,
yielding 6.00%)................................................. 5,000,000
Praxair, Inc. ($25,000,000 par, maturing 02/01/00, yielding
6.40%).......................................................... 25,000,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS............................ 36,000,000
--------------
TIME DEPOSIT 0.1%
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 18.3%
(Cost $312,924,674)....................................................... 312,924,674
--------------
TOTAL INVESTMENTS 98.4%
(Cost $1,725,002,307)..................................................... 1,679,454,765
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%................................. 27,860,543
--------------
NET ASSETS 100.0%.......................................................... $1,707,315,308
==============
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.
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.
* Senior Loans in the Fund'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 Fund's portfolio may occur. As a
result, the actual remaining maturity of Senior Loans held in the Fund's
portfolio may be substantially less than the stated maturities shown.
Although the Fund is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, the Fund 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 Fund 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 Fund 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-11
29
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
January 31, 2000 (Unaudited)
ASSETS:
Total Investments (Cost $1,725,002,307)..................... $1,679,454,765
Cash........................................................ 17,688,765
Receivables:
Interest.................................................. 13,202,529
Fund Shares Sold.......................................... 7,159,471
Investments Sold.......................................... 2,613,998
Prepaid Expenses............................................ 738,865
Other....................................................... 309,128
--------------
Total Assets.......................................... 1,721,167,521
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 9,560,981
Income Distributions...................................... 2,039,823
Investment Advisory Fee................................... 1,426,091
Administrative Fee........................................ 394,957
Distributor and Affiliates................................ 282,171
Initial Offering and Registration Costs................... 41,558
Trustees' Deferred Compensation and Retirement Plans........ 53,856
Accrued Expenses............................................ 52,776
--------------
Total Liabilities..................................... 13,852,213
--------------
NET ASSETS.................................................. $1,707,315,308
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 173,671,374 shares issued and
outstanding).............................................. $ 1,736,714
Paid in Surplus............................................. 1,744,154,325
Accumulated Undistributed Net Investment Income............. 6,088,149
Accumulated Net Realized Gain............................... 883,662
Net Unrealized Depreciation................................. (45,547,542)
--------------
NET ASSETS.................................................. $1,707,315,308
==============
NET ASSET VALUE PER COMMON SHARE ($1,707,315,308 divided by
173,671,374 shares outstanding)........................... $ 9.83
==============
See Notes to Financial Statements
A-12
30
Statement of Operations
For the Six Months Ended January 31, 2000 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 70,674,892
Fees........................................................ 16,239
Other....................................................... 706,003
------------
Total Income............................................ 71,397,134
------------
EXPENSES:
Investment Advisory Fee..................................... 7,733,324
Administrative Fee.......................................... 2,035,085
Service Fee................................................. 1,221,051
Shareholder Services........................................ 545,403
Custody..................................................... 272,132
Legal....................................................... 154,400
Amortization of Organizational Costs........................ 102,254
Trustees' Fees and Related Expenses......................... 45,988
Other....................................................... 455,473
------------
Total Expenses.......................................... 12,565,110
------------
NET INVESTMENT INCOME....................................... $ 58,832,024
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 1,110,577
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (911,892)
End of the Period......................................... (45,547,542)
------------
Net Unrealized Depreciation During the Period............... (44,635,650)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(43,525,073)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 15,306,951
============
See Notes to Financial Statements
A-13
31
Statement of Changes in Net Assets
For the Six Months Ended January 31, 2000 and the Year Ended July 31, 1999
(Unaudited)
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31, 2000 JULY 31, 1999
----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 58,832,024 $ 58,912,884
Net Realized Gain................................ 1,110,577 891,210
Net Unrealized Depreciation During the Period.... (44,635,650) (1,472,606)
-------------- --------------
Change in Net Assets from Operations............. 15,306,951 58,331,488
-------------- --------------
Distributions from Net Investment Income......... (56,047,850) (56,436,224)
Distributions from Net Realized Gain............. (1,076,619) (39,076)
-------------- --------------
Total Distributions.......................... (57,124,469) (56,475,300)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... (41,817,518) 1,856,188
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 415,319,512 1,133,265,976
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................... 40,301,672 39,411,306
Cost of Shares Repurchased....................... (178,440,995) (114,016,137)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... 277,180,189 1,058,661,145
-------------- --------------
TOTAL INCREASE IN NET ASSETS..................... 235,362,671 1,060,517,333
NET ASSETS:
Beginning of the Period.......................... 1,471,952,637 411,435,304
-------------- --------------
End of the Period (Including undistributed net
investment income of $6,088,149 and $3,303,975,
respectively).................................. $1,707,315,308 $1,471,952,637
============== ==============
See Notes to Financial Statements
A-14
32
Statement of Cash Flows
For the Six Months Ended January 31, 2000 (Unaudited)
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 15,306,951
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (228,705,381)
Increase in Interest Receivable........................... (5,716,487)
Increase in Receivable for Investments sold............... (2,363,998)
Increase in Prepaid Expenses.............................. (490,230)
Decrease in Unamortized Organizational Costs.............. 102,254
Increase in Other Assets.................................. (296,386)
Increase in Payable for Investments Purchased............. 9,560,981
Increase in Investment Advisory Fees Payable.............. 231,234
Increase in Administrative Fees Payable................... 60,851
Decrease in Distributor & Affiliates Payable.............. (39,042)
Decrease in Accrued Expenses.............................. (210,196)
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 19,414
-------------
Total Adjustments....................................... (227,846,986)
-------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (212,540,035)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 427,452,185
Change in Intra-day Credit Line with Custodian Bank......... (2,093,112)
Payments on Shares Repurchased.............................. (178,440,995)
Cash Dividends Paid......................................... (15,612,659)
Capital Gain Distributions Paid............................. (1,076,619)
-------------
Net Cash Provided by Financing Activities................. 230,228,800
-------------
NET INCREASE IN CASH........................................ 17,688,765
Cash at Beginning of the Period............................. -0-
-------------
CASH AT END OF THE PERIOD................................... $ 17,688,765
=============
See Notes to Financial Statements
A-15
33
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
MARCH 27, 1998
SIX MONTHS (COMMENCEMENT
ENDED OF INVESTMENT
JANUARY 31, YEAR ENDED OPERATIONS) TO
2000 JULY 31, 1999 JULY 31, 1998
----------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.... $ 10.085 $ 10.037 $10.000
-------- -------- -------
Net Investment Income..................... .360 .652 .213
Net Realized and Unrealized Gain/Loss..... (.261) .037 .034
-------- -------- -------
Total from Investment Operations............ .099 .689 .247
-------- -------- -------
Less:
Distributions from Net Investment
Income.................................. .347 .640 .210
Distributions from Realized Gain.......... .006 .001 -0-
-------- -------- -------
Total Distributions......................... .353 .641 .210
-------- -------- -------
NET ASSET VALUE, END OF THE PERIOD.......... $ 9.831 $ 10.085 $10.037
======== ======== =======
Total Return* (a)........................... 1.02%** 7.09% 2.52%**
Net Assets at End of the Period (In
millions)................................. $1,707.3 $1,472.0 $ 411.4
Ratio of Expenses to Average Net Assets*.... 1.54% 1.60% 1.70%
Ratio of Net Investment Income to Average
Net Assets*............................... 7.21% 6.66% 6.33%
Portfolio Turnover (b)...................... 19%** 23% 4%**
* If certain expenses had not been waived by Van
Kampen, Total Return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................ N/A 1.61% 1.92%
Ratio of Net Investment Income to
Average Net Assets.................... N/A 6.65% 6.11%
** Non-Annualized
N/A = Not Applicable.
(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 1% imposed on most
shares accepted by the Fund for repurchase which have been held for less
than one year. If the early withdrawal charge was 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-16
34
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Senior Floating Rate Fund (the "Fund") is registered as a non-
diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to provide a
high level of current income, consistent with preservation of capital. The Fund
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 Fund commenced investment operations on March 27,
1998.
The following is a summary of significant accounting policies consistently
followed by the Fund 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 Fund's Variable Rate Senior Loan interests ("Loan
interests") are valued by the Fund following guidelines established and
periodically reviewed by the Fund's Board of Trustees. Subject to criteria
established by the Fund'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 Fund'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 commercial paper, negotiable certificates of deposit and short-term
variable rate securities which have adjustment periods comparable to the Loan
interests in the Fund's portfolio. The fair value of Loan interests are reviewed
and approved by the Fund's Valuation Committee and by the Fund'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 that Loan interest.
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.
A-17
35
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
B. SECURITY TRANSACTIONS Investment transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Facility
fees received are 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. ORGANIZATIONAL COSTS The Fund has agreed to reimburse Van Kampen Funds Inc.
or its affiliates (collectively "Van Kampen") for costs incurred in connection
with the Fund's organization in the amount of $140,000. These costs normally are
amortized over a 60 month period beginning on the date of the Fund's initial
public offering of its shares. However, AICPA Statement of Position 98-5, which
is effective for fiscal years beginning after December 15, 1998, requires that
unamortized organizational costs on the Fund's statement of assets and
liabilities be written off. Therefore, the Fund wrote off the remaining
unamortized organizational costs in August 1999.
E. FEDERAL INCOME TAXES It is the Fund'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.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sale
transactions.
At January 31, 2000, for federal income tax purposes the cost of long- and
short-term investments is $1,725,004,944, the aggregate gross unrealized
appreciation is $7,278,392 and the aggregate gross unrealized depreciation is
$52,828,571 resulting in net unrealized depreciation on long- and short-term
investments of $45,550,179.
F. DISTRIBUTION OF INCOME AND GAINS The Fund 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-18
36
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
AVERAGE NET ASSETS % PER ANNUM
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%
In addition, the Fund will pay a monthly administrative fee to Van Kampen
Funds Inc., the Fund's Administrator, at an annual rate of .25% of the average
net assets of the Fund. 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
Fund's portfolio and providing certain services to the holders of the Fund's
securities.
For the six months ended January 31, 2000, the Fund recognized expenses of
approximately $115,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended January 31, 2000, the Fund recognized expenses of
approximately $9,100 representing Van Kampen's cost of providing legal services
to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the six months ended January
31, 2000, the Fund recognized expenses for their services of approximately
$447,700. Transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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 Fund. The maximum
annual benefit per trustee under the plan is $2,500.
A-19
37
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At January 31, 2000 and July 31, 1999, paid in surplus aggregated $1,744,154,325
and $1,467,251,336 respectively.
Transactions in common shares were as follows:
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31, 2000 JULY 31, 1999
Beginning Shares.................................... 145,951,374 40,992,495
----------- -----------
Shares Sold....................................... 41,528,218 112,343,843
Shares Issued Through Dividend Reinvestment....... 4,038,542 3,904,175
Shares Repurchased................................ (17,846,760) (11,289,139)
----------- -----------
Net Increase in Shares............................ 27,720,000 104,958,879
----------- -----------
Ending Shares....................................... 173,671,374 145,951,374
=========== ===========
4. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $489,727,594 and $238,544,595,
respectively.
5. TENDER OF SHARES
The Board of Trustees currently intends, each quarter, to consider authorizing
the Fund to make tender offers for all or a portion of its then outstanding
common shares at the net asset value of the common shares at that time. For the
six months ended January 31, 2000, 17,846,760 shares were tendered and
repurchased by the Fund.
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 one year which are
accepted by the Fund for repurchase pursuant to tender offers. The early
withdrawal charge of 1.00% will be payable to Van Kampen. For the six months
ended January 31, 2000, Van Kampen received early withdrawal charges of
approximately $470,300 in connection with tendered shares of the Fund.
7. COMMITMENTS/BORROWINGS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Fund had unfunded loan commitments of approximately $7,113,261 as of January
31, 2000. The Fund generally will maintain with its custodian short-term
A-20
38
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
investments having an aggregate value at least equal to the amount of unfunded
loan commitments.
The Fund, along with the Van Kampen Prime Rate Income Trust, has entered
into a revolving credit agreement with a syndicate led by Bank of America for an
aggregate of $500,000,000, which will terminate on June 13, 2000. The proceeds
of any borrowing by the Fund 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 Fund 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%. There have been no borrowings under this agreement to
date.
8. SENIOR LOAN PARTICIPATION COMMITMENTS
The Fund invests primarily in participations, assignments, or acts as a party to
the primary lending syndicate of a Variable Rate Senior Loan interest to
corporations, partnerships, and other entities. When the Fund purchases a
participation of a Senior Loan interest, the Fund 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 Fund assumes the
credit risk of the Borrower, Selling Participant or other persons
interpositioned between the Fund and the Borrower.
At January 31, 2000, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Fund on a participation
basis.
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
Lehman Brothers............................................. $12,500 $12,502
Bankers Trust............................................... 8,155 8,156
Canadian Imperial Bank of Commerce.......................... 7,700 7,700
Citibank.................................................... 7,500 7,492
Credit Suisse............................................... 6,998 7,011
------- -------
Total....................................................... $42,853 $42,861
======= =======
9. SERVICE PLAN
The Fund has adopted a Service Plan (the "Plan") designed to meet the service
fee requirements of the sales charge rule of the National Association of
Securities Dealers, Inc. The Plan governs payments for personal services and/or
the maintenance of shareholder accounts.
A-21
39
NOTES TO
FINANCIAL STATEMENTS
January 31, 2000 (Unaudited)
Annual fees under the Plan of .15% (.25% maximum) of net assets are accrued
daily and paid quarterly. For the six months ended January 31, 2000, the Fund
paid service fees of $1,221,100 to Van Kampen.
A-22
40
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Senior Floating Rate Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Senior Floating Rate Fund (the "Fund"), 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
the year then ended and for the period from March 27, 1998 (commencement of
investment operations) to July 31, 1998, and the financial highlights for each
of the periods presented. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit 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 Senior Floating Rate Fund 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 the year then ended and for the period from March 27, 1998 (commencement of
investment operations) to July 31, 1998, 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-23
41
PORTFOLIO OF INVESTMENTS
July 31, 1999
- --------------------------------------------------------------------------------
Principal Bank Loan
Amount Ratings* Stated
(000) Borrower Moody's S&P Maturity** Value
- ----------------------------------------------------------------------------------------------------
VARIABLE RATE *** SENIOR LOAN INTERESTS 78.7%
AEROSPACE/DEFENSE 1.8%
$ 4,952 Aerostructures Corp., Term
Loan............................. NR BB- 12/31/03 $ 4,948,658
13,920 Decrane Finance Co., Term Loan... B2 B+ 09/30/05 to 04/23/06 13,912,566
7,483 Stellex Technologies, Inc., Term
Loan............................. B2 B+ 09/30/06 7,476,987
--------------
26,338,211
--------------
AUTOMOTIVE 1.9%
4,868 Breed Technologies, Inc., Term
Loan............................. Caa1 CCC 04/27/04 to 04/27/06 4,866,610
717 Breed Technologies, Inc.,
Revolving Credit Agreement....... Caa1 CCC 04/27/04 717,137
12,632 JL French Automotive Castings,
Inc., Term Loan.................. B1 B+ 10/21/06 12,630,974
10,000 Metalforming Technologies, Inc.,
Term Loan........................ NR NR 06/30/06 9,990,325
--------------
28,205,046
--------------
BEVERAGE, FOOD & TOBACCO 3.3%
39,940 Agrilink Foods, Term Loan........ B1 BB- 09/30/04 to 09/30/05 39,937,063
9,250 B & G Foods, Inc., Term Loan..... B1 B+ 03/31/06 9,243,122
--------------
49,180,185
--------------
BROADCASTING 2.2%
10,000 Comcorp Broadcasting, Inc., Term
Loan............................. NR NR 06/30/07 9,999,726
4,376 Fairchild Corp., Term Loan....... Ba3 BB- 04/30/06 4,374,840
8,000 Quoram Broadcasting, Inc., Term
Loan............................. Ba1 BB 09/30/07 8,009,522
9,667 Sinclair Broadcasting, Term
Loan............................. Ba2 BB- 09/15/05 9,654,995
--------------
32,039,083
--------------
BUILDINGS & REAL ESTATE 0.3%
4,979 BSL Holdings, Term Loan.......... NR BB- 12/30/05 4,975,019
--------------
CHEMICALS, PLASTICS & RUBBER 5.0%
6,451 High Performance Plastics, Inc.,
Term Loan........................ NR NR 03/31/05 6,446,921
24,170 Lyondell Petrochemical Co., Term
Loan............................. Ba3 NR 06/30/05 to 05/17/06 24,162,755
5,000 MetoKote Corp., Term Loan........ NR NR 11/02/05 4,999,730
8,125 Pioneer Americas Acquisition
Corp., Term Loan................. B2 B+ 12/31/06 8,111,409
6,575 Sterling Pulp Chemicals, Inc.,
Term Loan........................ B3 BB- 09/30/04 6,571,201
17,806 Sybron Chemicals, Inc., Term
Loan............................. NR NR 07/31/04 17,802,942
5,742 West American Rubber, Term
Loan............................. NR NR 06/30/05 5,741,504
--------------
73,836,462
--------------
See Notes to Financial Statements
A-24
42
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
Principal Bank Loan
Amount Ratings* Stated
(000) Borrower Moody's S&P Maturity** Value
- ----------------------------------------------------------------------------------------------------
COMMUNICATIONS -- TELEPHONE 1.9%
$18,937 Davel Financing Co., LLC, Term
Loan............................. NR NR 06/23/05 $ 18,918,326
9,819 Telespectrum Worldwide, Inc.,
Term Loan........................ NR NR 12/31/01 to 12/31/03 9,815,712
--------------
28,734,038
--------------
CONSTRUCTION MATERIALS 2.4%
21,000 American Buildings Co., Term
Loan............................. NR NR 11/15/05 20,999,978
5,216 Flextek Components, Inc., Term
Loan (a)......................... NR NR 02/28/05 4,182,641
10,114 Hexcel Corp., Term Loan.......... Ba2 BB 09/14/05 10,105,369
--------------
35,287,988
--------------
CONTAINERS, PACKAGING & GLASS 1.3%
5,925 American Bottling Co., Term
Loan............................. NR NR 05/01/07 5,924,050
1,148 Huntsman Packaging Corp., Term
Loan............................. Ba2 NR 12/31/02 1,148,028
2,093 Huntsman Packaging Corp.,
Revolving Credit Agreement....... Ba2 NR 12/31/02 2,093,316
4,947 Safelite Glass Corp., Term
Loan............................. B1 B+ 12/23/03 4,944,638
1,200 Safelite Glass Corp., Revolving
Credit Agreement................. B1 B+ 12/23/03 1,199,729
3,911 Stone Container Corp., Term
Loan............................. Ba3 B+ 10/01/03 3,910,712
--------------
19,220,473
--------------
DIVERSIFIED MANUFACTURING 0.6%
7,792 Intesys Technologies, Inc., Term
Loan............................. NR NR 06/30/04 to 06/30/06 7,786,137
672 Intesys Technologies, Inc.,
Revolving Credit Agreement....... NR NR 06/30/04 672,000
--------------
8,458,137
--------------
ECOLOGICAL 3.6%
50,000 Allied Waste North America, Inc.,
Term Loan........................ Ba3 NR 07/23/06 to 07/23/07 50,000,000
3,204 Safety-Kleen Corp., Term Loan.... Ba3 BB 04/03/05 to 04/03/06 3,202,946
--------------
53,202,946
--------------
ELECTRONICS 1.5%
7,500 Amphenol Corp., Term Loan........ Ba3 B+ 05/19/04 7,493,775
8,982 Details Capital Corp., Term
Loan............................. B1 B+ 04/22/05 8,981,225
4,984 Stratus Computers, Inc., Term
Loan............................. NR NR 12/31/04 5,007,542
--------------
21,482,542
--------------
ENTERTAINMENT & LEISURE 0.3%
4,963 True Temper Sports, Inc., Term
Loan............................. B1 BB- 09/30/05 4,958,950
--------------
See Notes to Financial Statements
A-25
43
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
Principal Bank Loan
Amount Ratings* Stated
(000) Borrower Moody's S&P Maturity** Value
- ----------------------------------------------------------------------------------------------------
FARMING & AGRICULTURE 0.3%
$ 4,887 Walco International, Inc., Term
Loan............................. NR NR 03/31/04 $ 4,918,047
--------------
FINANCE 1.8%
10,000 Bridge Information Systems, Inc.,
Term Loan........................ NR NR 05/29/05 9,993,589
6,961 Outsourcing Solutions, Term
Loan............................. B2 BB- 10/15/04 6,957,363
10,000 Paul G. Allen, Term Loan......... NR NR 06/10/03 9,999,150
--------------
26,950,102
--------------
GROCERY 1.9%
27,759 The Pantry, Inc., Term Loan...... B1 BB- 01/31/06 27,758,315
--------------
HEALTHCARE 2.2%
6,908 Meditrust Corp., Term Loan....... NR NR 07/17/01 6,907,522
18,151 Vencor, Inc., Term Loan (b)...... Caa2 NR 01/15/05 17,241,865
7,900 Wilson Greatbatch, Ltd., Term
Loan............................. NR NR 07/30/04 7,898,611
--------------
32,047,998
--------------
HOME & OFFICE FURNISHINGS,
HOUSEWARES & DURABLE CONSUMER
PRODUCTS 2.6%
21,500 Imperial Home Decor Group, Inc.,
Term Loan........................ B1 B 03/13/05 to 03/13/06 21,573,296
16,583 Renters Choice, Inc., Term
Loan............................. Ba3 BB- 01/31/06 to 01/31/07 16,583,642
--------------
38,156,938
--------------
HOTELS, MOTELS, INNS, & GAMING 3.4%
10,000 Aladdin Gaming, LLC, Term Loan... B2 NR 08/25/06 to 08/26/06 9,997,342
40,000 Starwood Hotels & Resorts
Worldwide, Inc., Term Loan....... Ba1 NR 02/23/03 40,011,547
50,008,889
--------------
MACHINERY 1.3%
4,187 Numatics, Inc., Term Loan........ Ba3 B 03/19/04 to 09/19/05 4,184,097
15,000 Ocean Rig (Norway), Term Loan.... NR NR 06/01/08 14,992,358
--------------
19,176,455
--------------
MINING, STEEL, IRON &
NON-PRECIOUS METALS 1.0%
9,900 Ispat Inland, Term Loan.......... Ba3 BB 07/16/05 to 07/16/06 9,893,616
5,000 White Knight Resources, Ltd.,
Term Loan........................ NR NR 06/30/07 5,001,004
--------------
14,894,620
--------------
See Notes to Financial Statements
A-26
44
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
Principal Bank Loan
Amount Ratings* Stated
(000) Borrower Moody's S&P Maturity** Value
- ----------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS 1.6%
$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 8,832,072
--------------
23,682,072
--------------
PERSONAL & MISCELLANEOUS
SERVICES 1.1%
2,131 Boyds Collection, Ltd., Term
Loan............................. Ba3 B+ 04/21/06 2,128,845
13,500 Dimac Corp., Term Loan........... Caa1 B- 06/30/06 to 12/30/06 13,527,759
--------------
15,656,604
--------------
PHARMACEUTICALS 1.2%
17,559 King Pharmaceuticals, Inc., Term
Loan............................. B1 BB- 12/18/06 17,558,824
--------------
PRINTING & PUBLISHING 1.8%
6,474 Advanstar Communications, Term
Loan............................. Ba3 B+ 04/30/05 6,473,441
4,948 Check Printers, Inc., Term
Loan............................. NR NR 06/30/05 4,948,221
5,566 Penton Media, Inc., Term Loan.... Ba3 BB- 05/31/06 5,565,960
4,984 Reiman Publications, Inc., Term
Loan............................. NR NR 12/10/05 4,983,950
4,190 TransWestern Publishing, LP, Term
Loan............................. Ba3 B+ 10/01/04 4,189,907
--------------
26,161,479
--------------
RESTAURANTS & FOOD SERVICE 2.1%
4,171 Americas Favorite Chicken, Inc.,
Term Loan........................ Ba3 BB- 06/30/02 4,168,827
1,384 Carvel Corp., Term Loan.......... NR NR 06/30/00 1,382,250
24,918 Domino's Pizza, Term Loan........ B1 B+ 12/21/06 to 12/21/07 24,908,997
--------------
30,460,074
--------------
RETAIL -- OFFICE PRODUCTS 0.7%
9,985 U.S. Office Products Co., Term
Loan............................. B2 B 06/09/06 9,984,561
--------------
RETAIL -- STORES 1.5%
14,888 Duane Reade, Inc., Term Loan..... B1 B+ 02/15/06 14,892,722
7,159 Kirklands Holdings, Term Loan.... NR NR 06/30/02 7,158,350
--------------
22,051,072
--------------
TELECOMMUNICATIONS -- CELLULAR 3.8%
38,300 BCP SP Ltd., Term Loan........... NR NR 03/31/00 37,938,261
3,000 Cellular, Inc. Financial Corp.
(CommNet), Term Loan............. B1 NR 09/30/05 2,994,465
15,000 Wireless One Network, LP, Term
Loan............................. NR NR 09/30/07 14,973,525
--------------
55,906,251
--------------
See Notes to Financial Statements
A-27
45
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
Principal Bank Loan
Amount Ratings* Stated
(000) Borrower Moody's S&P Maturity** Value
- ----------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- HYBRID 3.8%
$32,000 Nextel Finance Co., Term Loan.... Ba3 B 09/30/06 to 03/31/07 $ 32,001,236
24,000 Pacific Crossing, Ltd., Term
Loan............................. NR NR 07/28/06 23,998,088
--------------
55,999,324
--------------
TELECOMMUNICATIONS -- PERSONAL COMMUNICATIONS SYSTEMS 2.3%
29,133 Omnipoint Communications, Inc.,
Term Loan........................ B2 NR 02/01/06 to 02/17/06 29,553,419
5,000 Telecorp PCS, Inc., Term Loan.... B2 NR 12/05/07 4,998,546
--------------
34,551,965
--------------
TELECOMMUNICATIONS -- WIRELESS MESSAGING 7.0%
45,000 Arch Paging, Inc., Term Loan..... B2 B 06/30/06 42,266,962
55,000 Iridium Operating, LLC, Term Loan
(b).............................. NR CC 12/29/00 49,496,314
11,000 TSR Wireless, LLC, Term Loan..... NR NR 06/30/05 10,996,383
--------------
102,759,659
--------------
TEXTILES & LEATHER 3.6%
8,196 American Marketing Industries,
Inc., Term Loan.................. NR NR 11/30/04 to 11/30/05 8,193,262
20,000 Glenoit Corp., Term Loan......... B1 BB- 12/31/03 to 06/30/04 19,995,312
5,400 Humphrey's, Inc., Term Loan...... B2 NR 01/15/03 5,389,878
4,822 Joan Fabrics Corp., Term Loan.... NR NR 06/30/05 4,817,305
13,895 Norcross Safety Products, Term
Loan............................. NR NR 10/02/05 13,893,518
--------------
52,289,275
--------------
TRANSPORTATION -- CARGO 0.9%
4,450 Gemini Air Cargo, Inc., Term
Loan............................. B1 NR 12/12/02 4,446,759
8,100 OmniTrax Railroads, LLC, Term
Loan............................. NR NR 05/14/05 8,098,386
--------------
12,545,145
--------------
TRANSPORTATION -- MANUFACTURING COMPONENTS 3.3%
24,813 SPX Corp., Term Loan............. Ba3 BB 09/30/06 24,809,445
23,200 Transportation Manufacturing,
Inc., Term Loan.................. NR BB- 06/15/06 23,200,000
--------------
48,009,445
--------------
TRANSPORTATION -- PERSONAL 3.4%
50,000 Avis Rent A Car, Inc., Term
Loan............................. Ba3 BB+ 06/30/06 to 06/30/07 50,000,234
--------------
TOTAL VARIABLE RATE *** SENIOR LOAN INTERESTS 78.7%
(Cost $1,158,358,320)............................................................ $1,157,446,428
--------------
See Notes to Financial Statements
A-28
46
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
Value
- ----------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 19.9%
COMMERCIAL PAPER 14.4%
Alabama Power Co. ($10,000,000 par, maturing 08/03/99, yielding 5.10%)........... $ 9,997,167
Baxter International, Inc. ($144,000 par, maturing 08/03/99, yielding 5.10%)..... 143,959
CSX Corp. ($15,000,000 par, maturing 08/24/99, yielding 5.27%)................... 14,949,496
Centex Corp. ($1,181,000 par, maturing 08/05/99, yielding 5.23%)................. 1,180,314
Comdisco, Inc. ($21,500,000 par, maturing 08/10/99 to 08/11/99, yielding 5.27% to
5.30%)......................................................................... 21,469,121
Compaq Computer Corp. ($8,122,000 par, maturing 08/25/99, yielding 5.28%)........ 8,093,411
Cox Communications, Inc. ($20,900,000 par, maturing 08/09/99 to 08/10/99,
yielding 5.22% to 5.25%)....................................................... 20,875,552
General Electric Capital Corp. ($1,450,000 par, maturing 08/23/99, yielding
5.07%)......................................................................... 1,445,507
General Motors Corp. ($505,000 par, maturing 08/05/99, yielding 5.05%)........... 504,717
Halliburton Co. ($4,591,000 par, maturing 08/02/99, yielding 5.07%).............. 4,590,353
Hunt (J.B.) Transportation Services, Inc. ($4,000,000 par, maturing 08/04/99,
yielding 5.18%)................................................................ 3,998,273
Pfizer, Inc. ($3,788,000 par, maturing 08/12/99 to 08/13/99, yielding 5.06%)..... 3,781,890
Praxair, Inc. ($1,479,000 par, maturing 08/19/99, yielding 5.25%)................ 1,475,118
Raytheon Co. ($10,000,000 par, maturing 08/09/99, yielding 5.22%)................ 9,988,400
Rite Aid Corp. ($22,000,000 par, maturing 08/09/99 to 08/12/99, yielding
5.25%)......................................................................... 21,971,271
Safeway, Inc. ($17,500,000 par, maturing 08/02/99, yielding 5.28% to 5.30%)...... 17,497,432
TRW, Inc. ($15,675,000 par, maturing 08/16/99, yielding 5.30%)................... 15,640,384
Tampa Electric Co. ($5,585,000 par, maturing 08/19/99, yielding 5.04%)........... 5,570,926
Tandy Corp. ($15,700,000 par, maturing 08/23/99 to 08/25/99, yielding 5.18%)..... 15,647,797
Temple Inland, Inc. ($9,787,000 par, maturing 08/02/99, yielding 5.25%).......... 9,785,573
Western Resources, Inc. ($8,512,000 par, maturing 08/02/99 to 08/25/99, yielding
5.25% to 5.27%)................................................................ 8,486,075
Xtra, Inc. ($14,576,000 par, maturing 08/05/99 to 08/24/99, yielding 5.22% to
5.30%)......................................................................... 14,540,220
--------------
TOTAL COMMERCIAL PAPER............................................................. 211,632,956
--------------
SHORT-TERM LOAN PARTICIPATIONS 5.5%
Cummins Engine, Inc. ($10,000,000 par, maturing 08/02/99, yielding 5.23%)........ 10,000,000
Englehard Corp. ($12,707,000 par, maturing 08/18/99, yielding 5.27%)............. 12,707,000
Enron Oil & Gas Co. ($2,000,000 par, maturing 08/02/99, yielding 5.28%).......... 2,000,000
Gillette Co. ($5,000,000 par, maturing 08/02/99, yielding 5.16%)................. 5,000,000
National Rural Utilities Coop Finance Corp. ($3,600,000 par, maturing 08/12/99,
yielding 5.10%)................................................................ 3,600,000
Ralston Purina Co. ($10,000,000 par, maturing 08/03/99, yielding 5.23%).......... 10,000,000
See Notes to Financial Statements
A-29
47
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
Value
- ----------------------------------------------------------------------------------------------------
SHORT-TERM LOAN PARTICIPATIONS (CONTINUED)
Sprint Capital Corp. ($12,863,000 par, maturing 08/17/99 to 08/24/99, yielding
5.26% to 5.27%)................................................................ $ 12,863,000
Temple Inland, Inc. ($5,000,000 par, maturing 08/03/99, yielding 5.24%).......... 5,000,000
Universal Corp. ($15,000,000 par, maturing 08/03/99 to 08/24/99, yielding 5.27%
to 5.28%)...................................................................... 15,000,000
Western Resources, Inc. ($5,500,000 par, maturing 08/06/99, yielding 5.28%)...... 5,500,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS 5.5%......................................... 81,670,000
--------------
TOTAL SHORT-TERM INVESTMENTS 19.9%
(Cost $293,302,956).............................................................. 293,302,956
--------------
TOTAL INVESTMENTS 98.6%
(Cost $1,451,661,276)............................................................ 1,450,749,384
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%......................................... 21,203,253
--------------
NET ASSETS 100.0%................................................................. $1,471,952,637
==============
NR = Not Rated
(a) This Senior Loan interest is non-income producing.
(b) Subsequent to the year ended July 31, 1999, this borrower has filed for
protection in federal bankruptcy court.
* Bank loans rated below Baa by Moody's Investor Services, Inc. or BBB by
Standard & Poor's Group are considered to be below investment grade.
** Senior Loans in the Fund'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 Fund's portfolio may occur. As a
result, the actual remaining maturity of Senior Loans held in the Fund's
portfolio may be substantially less than the stated maturities shown.
Although the Fund is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, the Fund 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 Fund 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 Fund 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-30
48
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
- --------------------------------------------------------------------------------
ASSETS:
Total Investments (Cost $1,451,661,276)..................... $1,450,749,384
Receivables:
Fund Shares Sold.......................................... 19,292,144
Interest.................................................. 7,486,042
Funding Fee............................................... 250,000
Prepaid Expenses............................................ 248,635
Unamortized Organizational Costs............................ 102,254
Other....................................................... 12,742
--------------
Total Assets.......................................... 1,478,141,201
--------------
LIABILITIES:
Payables:
Custodian Bank............................................ 2,093,112
Income Distributions...................................... 1,906,304
Investment Advisory Fee................................... 1,194,857
Administrative Fee........................................ 334,106
Distributor and Affiliates................................ 321,213
Initial Offering and Registration Costs................... 41,558
Accrued Expenses............................................ 262,972
Trustees' Deferred Compensation and Retirement Plans........ 34,442
--------------
Total Liabilities..................................... 6,188,564
--------------
NET ASSETS.................................................. $1,471,952,637
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 145,951,374 shares issued and
outstanding).............................................. $ 1,459,514
Paid in Surplus............................................. 1,467,251,336
Accumulated Undistributed Net Investment Income............. 3,303,975
Accumulated Net Realized Gain............................... 849,704
Net Unrealized Depreciation................................. (911,892)
--------------
NET ASSETS.................................................. $1,471,952,637
==============
NET ASSET VALUE PER COMMON SHARE
($1,471,952,637 divided by 145,951,374 shares
outstanding).............................................. $ 10.09
==============
See Notes to Financial Statements
A-31
49
STATEMENT OF OPERATIONS
For the Year Ended July 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest.................................................... $72,161,646
Fees........................................................ 183,161
Other....................................................... 694,082
-----------
Total Income............................................ 73,038,889
-----------
EXPENSES:
Investment Advisory Fee..................................... 8,398,576
Administrative Fee.......................................... 2,210,152
Service Fee................................................. 1,326,091
Shareholder Services........................................ 593,110
Legal....................................................... 250,491
Custody..................................................... 179,791
Trustees' Fees and Related Expenses......................... 44,013
Amortization of Organizational Costs........................ 28,003
Other....................................................... 1,191,214
-----------
Total Expenses.......................................... 14,221,441
Investment Advisory Fee Reduction....................... 95,436
-----------
Net Expenses............................................ 14,126,005
-----------
NET INVESTMENT INCOME....................................... $58,912,884
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 891,210
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 560,714
End of the Period......................................... (911,892)
-----------
Net Unrealized Depreciation During the Period............... (1,472,606)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $ (581,396)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $58,331,488
===========
See Notes to Financial Statements
A-32
50
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended July 31, 1999 and the Period March 27, 1998
(Commencement of Investment Operations) to July 31, 1998
- --------------------------------------------------------------------------------
Year Ended Period Ended
July 31, 1999 July 31, 1998
- --------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........................... $ 58,912,884 $ 5,120,997
Net Realized Gain/Loss.......................... 891,210 (2,430)
Net Unrealized Appreciation/Depreciation During
the Period.................................... (1,472,606) 560,714
-------------- ------------
Change in Net Assets from Operations............ 58,331,488 5,679,281
-------------- ------------
Distributions from Net Investment Income........ (56,436,224) (4,980,066)
Distributions from Net Realized Gain............ (39,076) -0-
-------------- ------------
Total Distributions........................... (56,475,300) (4,980,066)
-------------- ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... 1,856,188 699,215
-------------- ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold....................... 1,133,265,976 408,647,472
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 39,411,306 3,263,134
Cost of Shares Repurchased...................... (114,016,137) (1,274,517)
-------------- ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. 1,058,661,145 410,636,089
-------------- ------------
TOTAL INCREASE IN NET ASSETS.................... 1,060,517,333 411,335,304
NET ASSETS:
Beginning of the Period......................... 411,435,304 100,000
-------------- ------------
End of the Period (Including undistributed net
investment income of $3,303,975 and $309,945,
respectively)................................. $1,471,952,637 $411,435,304
============== ============
See Notes to Financial Statements
A-33
51
STATEMENT OF CASH FLOWS
For the Year Ended July 31, 1999
- --------------------------------------------------------------------------------
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 58,331,488
---------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (1,057,228,835)
Increase in Interest Receivable........................... (4,953,617)
Increase in Receivable for Funding Fee.................... (250,000)
Decrease in Prepaid Expenses.............................. 230,851
Decrease in Unamortized Organizational Costs.............. 28,003
Decrease in Other Assets.................................. 6,370
Increase in Investment Advisory Fees Payable.............. 886,398
Increase in Administrative Fees Payable................... 236,132
Increase in Distributor & Affiliates Payable.............. 201,797
Decrease in Organizational Costs Payable.................. (135,000)
Decrease in Offering & Registration Fees Payable.......... (430,251)
Increase in Accrued Expenses.............................. 145,577
Increase in Trustees' Deferred Compensation and Retirement
Plans Payable........................................... 28,631
---------------
Total Adjustments....................................... (1,061,233,944)
---------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (1,002,902,456)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 1,130,436,489
Change in Intra-day Credit Line with Custodian Bank......... 2,093,112
Payments on Shares Repurchased.............................. (114,016,137)
Cash Dividends Paid......................................... (15,610,394)
Capital Gain Distributions Paid............................. (39,076)
---------------
Net Cash Provided by Financing Activities................. 1,002,863,994
---------------
NET DECREASE IN CASH........................................ (38,462)
Cash at Beginning of the Period............................. 38,462
---------------
CASH AT END OF THE PERIOD................................... $ -0-
===============
See Notes to Financial Statements
A-34
52
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
March 27, 1998
(Commencement
of Investment
Year Ended Operations) to
July 31, 1999 July 31, 1998
- ------------------------------------------------------------------------------------
Net Asset Value, Beginning of the Period............. $10.037 $10.000
------- -------
Net Investment Income.............................. .652 .213
Net Realized and Unrealized Gain................... .037 .034
------- -------
Total from Investment Operations..................... .689 .247
------- -------
Less:
Distributions from Net Investment Income........... .640 .210
Distributions from Realized Gain................... .001 -0-
------- -------
Total Distributions.................................. .641 .210
------- -------
Net Asset Value, End of the Period................... $10.085 $10.037
======= =======
Total Return* (a).................................... 7.09% 2.52%**
Net Assets at End of the Period (In millions)........ $1,472.0 $ 411.4
Ratio of Expenses to Average Net Assets*............. 1.60% 1.70%
Ratio of Net Investment Income to Average Net
Assets*............................................ 6.66% 6.33%
Portfolio Turnover (b)............................... 23% 4%**
* If certain expenses had not been waived by Van Kampen, Total
Return would have been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets.............. 1.61% 1.92%
Ratio of Net Investment Income to Average Net
Assets............................................. 6.65% 6.11%
**Non-Annualized
(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-35
53
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Senior Floating Rate Fund (the "Fund"), is registered as a
non-diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to provide a
high level of current income, consistent with preservation of capital. The Fund
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 Fund commenced investment operations on March 27,
1998.
The following is a summary of significant accounting policies consistently
followed by the Fund 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 Fund's Variable Rate Senior Loan
interests, totaling $1,157,446,428 (78.7% 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 Variable Rate Senior Loan interest in the Fund's portfolio is
determined with reference to changes in market interest rates and to the
creditworthiness of the underlying obligor. In valuing Variable Rate Senior Loan
interests, the Adviser considers market quotations and transactions in
instruments that the Adviser believes may be comparable to such Variable Rate
Senior Loan interests. In determining the relationship between such instruments
and the Variable Rate Senior Loan interest, the Adviser considers such factors
as the creditworthiness of the underlying obligor, the current interest rate,
the interest rate redetermination period and the maturity date. To the extent
that reliable secondary market transactions in Variable Rate Senior Loan
interest have occurred, the Adviser also considers pricing information derived
from such secondary market transactions in valuing Variable Rate Senior Loan
interests. Because of uncertainty in the nature of the valuation process, the
estimated value of a Variable Rate Senior Loan interest may differ significantly
from the value that would have been used had there been reliable market activity
for that Variable Rate Senior Loan interest. Short-term securities with
remaining maturities of 60 days or less are valued at
A-36
54
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
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--Interest income is recorded on an accrual basis. Facility
fees received 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. ORGANIZATIONAL COSTS--The Fund has agreed to reimburse Van Kampen Funds Inc.
or its affiliates (collectively "Van Kampen") for costs incurred in connection
with the Fund's organization in the amount of $140,000. These costs normally are
amortized over a 60 month period beginning on the date of the Fund's initial
public offering of its shares. However, AICPA Statement of Position 98-5, which
is effective for fiscal years beginning after December 15, 1998, requires that
unamortized organizational costs on the Fund's statement of assets and
liabilities be written off. Therefore, the Fund will write off the remaining
unamortized organizational costs in August 1999. The Adviser has agreed that in
the event any of the initial shares of the Fund originally purchased by Van
Kampen are redeemed, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Fund'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.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sale
transactions.
At July 31, 1999, for federal income tax purposes the cost of long- and
short-term investments is $1,451,663,912, the aggregate gross unrealized
appreciation is $5,579,324 and the aggregate gross unrealized depreciation is
$6,493,852 resulting in net unrealized depreciation on long- and short-term
investments of $914,528.
A-37
55
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
F. DISTRIBUTION OF INCOME AND GAINS--The Fund 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.
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 of $479,486 relating to certain offering
costs which are not deductible for tax purposes and $37,884 relating to expenses
not deductible for tax purposes have been reclassified from capital to
accumulated undistributed net investment income.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
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%
In addition, the Fund will pay a monthly administrative fee to Van Kampen
Funds Inc., the Fund's Administrator, at an annual rate of .25% of the average
net assets of the Fund. 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
Fund's portfolio and providing certain services to the holders of the Fund's
securities.
For the year ended July 31, 1999, the Adviser voluntarily waived $95,436 of
its investment advisory fees. This waiver is voluntary in nature and can be
discontinued at the Adviser's discretion.
For the year ended July 31, 1999, the Fund recognized expenses of
approximately $226,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
A-38
56
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
For the year ended July 31, 1999, the Fund recognized expenses of
approximately $23,800 representing Van Kampen's cost of providing legal services
to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended July 31, 1999,
the Fund recognized expenses for their services of approximately $484,500.
Transfer agency fees are determined through negotiations with the Fund's Board
of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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 Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At July 31, 1999 and 1998, paid in surplus aggregated $1,467,251,336 and
$410,157,150, respectively.
Transactions in common shares were as follows:
Year Ended Period Ended
July 31, 1999 July 31, 1998
- ------------------------------------------------------------------------------
Beginning Shares............................ 40,992,495 10,000
----------- ----------
Shares Sold............................... 112,343,843 40,784,384
Shares Issued Through Dividend
Reinvestment........................... 3,904,175 325,311
Shares Repurchased........................ (11,289,139) (127,200)
----------- ----------
Net Increase in Shares.................... 104,958,879 40,982,495
----------- ----------
Ending Shares............................... 145,951,374 40,992,495
=========== ==========
4. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $1,005,714,746 and $176,166,968,
respectively.
A-39
57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
5. TENDER OF SHARES
The Board of Trustees currently intends, each quarter, to consider authorizing
the Fund to make tender offers for all or a portion of its then outstanding
common shares at the net asset value of the common shares at that time. For the
year ended July 31, 1999, 11,289,139 shares were tendered and repurchased by the
Fund.
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 one year which are
accepted by the Fund for repurchase pursuant to tender offers. The early
withdrawal charge of 1.00% will be payable to Van Kampen. For the year ended
July 31, 1999, Van Kampen received early withdrawal charges of approximately
$528,221 in connection with tendered shares of the Fund.
7. COMMITMENTS/BORROWINGS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Fund had unfunded loan commitments of approximately $8,233,701 as of July
31, 1999. The Fund generally will maintain with its custodian short-term
investments having an aggregate value at least equal to the amount of unfunded
loan commitments.
The Fund, along with the Van Kampen Prime Rate Income Trust, has entered
into a revolving credit agreement with a syndicate led by Bank of America for an
aggregate of $500,000,000, which will terminate on June 13, 2000. The proceeds
of any borrowing by the Fund 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 Fund 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 Fund invests primarily in participations, assignments, or acts as a party to
the primary lending syndicate of a Variable Rate Senior Loan interest to
corporations, partnerships, and other entities. When the Fund purchases a
participation of a Senior Loan interest, the Fund 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 Fund assumes the
credit risk
A-40
58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
of the Borrower, Selling Participant or other persons interpositioned between
the Fund and the Borrower.
At July 31, 1999, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Fund on a participation
basis.
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
- --------------------------------------------------------------------------
Bankers Trust..................................... $ 8,196 $ 8,193
Canadian Imperial Bank of Commerce................ 12,152 12,147
------- -------
Total............................................. $20,348 $20,340
======= =======
9. SERVICE PLAN
The Fund has adopted a Service Plan (the "Plan") designed to meet the service
fee requirements of the sales charge rule of the National Association of
Securities Dealers, Inc. The Plan governs payments for personal services and/or
the maintenance of shareholder accounts.
Annual fees under the Plan of .15% (.25% maximum) of net assets are accrued
daily and paid quarterly. For the year ended July 31, 1999, the Fund paid
service fees of $1,327,950 to Van Kampen.
A-41