1
EXHIBIT (a)(1)(ii)
VAN KAMPEN
SENIOR FLOATING RATE FUND
OFFER TO PURCHASE FOR CASH 26,366,439
OF ITS ISSUED AND OUTSTANDING COMMON SHARES
AT NET ASSET VALUE PER COMMON SHARE
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT
EASTERN TIME ON FRIDAY, AUGUST 17, 2001, 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 17, 2001.
- --------------------------------------------------------------------------------
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 26,366,439 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
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 Time on August 17, 2001, 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 13, 2001 was $8.53. You may
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 Time, Monday
through Friday, except holidays. See Section 9.
If more than 26,366,439 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 26,366,439 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.
14 SFR006-07/01
2
SUMMARY TERM SHEET
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION IN THIS OFFER TO PURCHASE. YOU SHOULD
CAREFULLY READ THE ENTIRE OFFER TO PURCHASE AND RELATED LETTER OF TRANSMITTAL FOR A
MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE OFFER AND TO FULLY
UNDERSTAND THESE TERMS AND CONDITIONS.
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 13, 2001,
the Trust had net assets of approximately $682 million and
had issued and outstanding 79,898,303 Common Shares. As of
July 13, 2001, the Trust's NAV was $8.53. 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 26,366,439 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 Time on the Expiration Date. See Section 1. The
cost of purchasing the full 26,366,439 Common Shares
pursuant to the Offer would be approximately $224,905,725
(assuming a NAV of $8.53 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 may also 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 Time on August 17, 2001, unless extended by action
of the Trust's Board of Trustees. The later of August 17,
2001 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 up to 12:00 Midnight Eastern Time on
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 Time on September 14, 2001. See
Section 4.
2
3
IMPORTANT
If you desire to tender all or any portion of your Common Shares, you
should either (1) complete and sign the Letter of Transmittal and mail or
deliver it along with any Common Share certificate(s) and any other required
documents to Van Kampen Investor Services Inc. (the "Depositary") or (2) request
your broker, dealer, commercial bank, trust company or other nominee to effect
the transaction for you. If your Common Shares are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, you must
contact such broker, dealer, commercial bank, trust company or other nominee if
you desire to tender your Common Shares.
NEITHER THE TRUST NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF SUCH
SHAREHOLDER'S COMMON SHARES. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL
INFORMATION IN THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISERS AND MAKE
THEIR OWN DECISIONS WHETHER TO TENDER COMMON SHARES AND, IF SO, HOW MANY COMMON
SHARES TO TENDER.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
TRUST AS TO WHETHER SHAREHOLDERS SHOULD TENDER COMMON SHARES PURSUANT TO THE
OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST.
Questions and requests for assistance may be directed to 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 20, 2001 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 Regular Mail,
Van Kampen Investor Services Inc.
P.O. Box 218256
Kansas City, MO 64121-8256
Attn:Van Kampen Senior Floating Rate
Fund
By Certified, Registered,
Overnight Mail or Courier,
Van Kampen Investor Services Inc.
7501 Tiffany Springs Parkway
Kansas City, MO 64153
Attn:Van Kampen Senior Floating Rate
Fund
3
4
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. Price; Number of Common Shares.............................. 5
2. Procedure for Tendering Common Shares....................... 5
3. Early Withdrawal Charge..................................... 7
4. Withdrawal Rights........................................... 8
5. Payment for Shares.......................................... 9
6. Certain Conditions of the Offer............................. 9
7. Purpose of the Offer........................................ 10
8. Plans or Proposals of the Trust............................. 10
9. Price Range of Common Shares; Dividends..................... 11
10. Interest of Trustees and Executive Officers; Transactions
and Arrangements Concerning the Common Shares............... 11
11. Certain Effects of the Offer................................ 12
12. Source and Amount of Funds.................................. 12
13. Certain Information about the Trust......................... 14
14. Additional Information...................................... 15
15. Certain Federal Income Tax Consequences..................... 15
16. Extension of Tender Period; Termination; Amendments......... 16
17. Miscellaneous............................................... 16
EXHIBIT A:
Unaudited Financial Statements for the Period Ended January
31, 2001.................................................... A-1
Audited Financial Statements for the Fiscal Year Ended July
31, 2000.................................................... A-24
4
5
1. PRICE; NUMBER OF COMMON SHARES. The Trust will, upon the terms and
subject to the conditions of the Offer, accept for payment (and thereby
purchase) 26,366,439 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 Time on August 17, 2001 (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 Time on the Expiration Date. The
NAV on July 13, 2001 was $8.53. You may 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
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 26,366,439 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 26,366,439
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 26,366,439 Common Shares (or such greater number of
Common Shares sought) on a pro rata basis.
On July 13, 2001 there were approximately 79,893,303 Common Shares issued
and outstanding and there were approximately 19,864 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 (i) the Common Shares and will deliver or cause to
be delivered such shares for purposes of tender to the
5
6
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 $100,000, (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
final and binding. The Trust reserves the absolute right to reject any or all
tenders determined by it not to be in
6
7
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. The Depositary will withhold 30% of the
gross payments payable to a Non-U.S. Shareholder unless the Non-U.S. Shareholder
has provided to the Depositary a form on which it claims eligibility for a
reduced rate of withholding or establishes an exemption from withholding. For
this purpose, a Non-U.S. 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 under the laws of the United States or any
state thereof, (iii) an estate, the income of which is subject to United States
federal income taxation regardless its source 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. To claim tax treaty benefits,
Non-U.S. Shareholders will be required to provide the Depositary with a properly
completed IRS Form W-8BEN certifying their entitlement thereto. In addition, in
certain cases where payments are made to a Non-U.S. Shareholder that is a
partnership or other pass-through entity, persons holding an interest in the
entity will need to provide the required certification. For example, an
individual Non-U.S. Shareholder who holds shares in the Trust through a
non-United States partnership must provide an IRS Form W-8BEN to the Depositary
to claim the benefits of an applicable tax treaty. The Depositary will determine
a shareholder's status as a Non-U.S. Shareholder and eligibility for a reduced
rate of, or an exemption from, withholding by reference to the Form W-8BEN
provided by the Non-U.S. Shareholder unless facts and circumstances indicate
that reliance is not warranted. A Non-U.S. 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.
To prevent backup federal income tax withholding of a percentage of the
gross payments made pursuant to the Offer, each shareholder (other than a
Non-U.S. 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. Non-U.S. Shareholders who are resident aliens and who
have not previously submitted a Form W-9, or other Non-U.S. Shareholders who
have not previously submitted a Form W-8BEN, to the Trust must do so in order to
avoid backup withholding. Exemption from backup withholding does not exempt a
Non-U.S. Shareholder from the 30% withholding described above.
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
7
8
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 (such funds are collectively
referred to herein as the "VK Funds"), subject to certain limitations. See also,
section 5 regarding payment for shares tendered. 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 tender proceeds from Common Shares which have a value at or above
the 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. Please consult your tax adviser regarding
the tax consequences of any exchange.
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. VK Funds may offer certain shareholder services to investors such as
automated purchase, redemption or exchange privileges. These shareholders
services are described in the VK Fund's prospectus. For shareholders electing
this exchange option, in order to establish an automated purchase, redemption
and exchange privileges on your VK Fund Class C Share account, a signature
guarantee form will be required for such account. Shareholders may access
materials to establish these privileges by calling the Investor Services
Department at (800) 341-2911 or accessing applicable forms at
http://www.vankampen.com and selecting the Shareholder section and then the
Forms Library.
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 12:00 Midnight Eastern Time
on 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 Time on September
14, 2001.
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.
8
9
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.
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 FORM W-9 AND WHO FAILS TO COMPLETE FULLY AND SIGN THE 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
9
10
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 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. 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
10
11
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.
9. PRICE RANGE OF COMMON SHARES; DIVIDENDS. The Trust's NAV from July 13,
1999 through July 13, 2001 ranged from a high of $10.12 to a low of $8.51. On
July 13, 2001, the NAV was $8.53. You may 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 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 25, 2001.............................................. $0.0520
May 25, 2001............................................... $0.0535
April 25, 2001............................................. $0.0570
March 23, 2001............................................. $0.0610
February 23, 2001.......................................... $0.0665
January 25, 2001........................................... $0.0489
December 31, 2000.......................................... $0.017602938
December 22, 2000.......................................... $0.0665
November 24, 2000.......................................... $0.0665
October 25, 2000........................................... $0.0665
September 25, 2000......................................... $0.065693541
August 25, 2000............................................ $0.063999996
July 25, 2000.............................................. $0.0640
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 13, 2001, 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.
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
12
11. CERTAIN EFFECTS OF THE OFFER. The purchase of Common Shares pursuant to
the Offer will have the effect of increasing the proportionate interest in the
Trust of shareholders who do not tender their Common Shares. If you retain your
Common Shares you will be subject to any increased risks that may result from
the reduction in the Trust's aggregate assets resulting from payment for the
tendered Common Shares (e.g., greater volatility due to decreased
diversification and higher expenses). However, the Trust believes that since the
Trust is engaged in a continuous offering of the Common Shares, those risks
would be reduced to the extent new Common Shares of the Trust are sold. All
Common Shares purchased by the Trust pursuant to the Offer will be held in
treasury pending disposition.
12. SOURCE AND AMOUNT OF FUNDS. The total cost to the Trust of purchasing
the full 26,366,439 Common Shares pursuant to the Offer would be approximately
$224,905,725 (assuming a NAV of $8.53 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 12, 2001 (described in
more detail below). If, in the judgment of the Trustees, there is not sufficient
liquidity of the assets of the Trust to pay for tendered Common Shares, the
Trust may terminate the Offer. See Section 6.
The Trust has entered into a Third Amendment and Restatement of Credit
Agreement, dated as of September 13, 2000 (the "Credit Agreement"), among the
Trust and Van Kampen Prime Rate Income Trust (the "Co-Borrower") as borrowers
(collectively the "Borrowers"), the banks party thereto (the "Financial
Institutions"), and Bank of America, N.A., ("BofA"), as agent, pursuant to which
the Financial Institutions have committed to provide a credit facility of up to
$500,000,000 (subject to an optional commitment increase upon approval of each
Borrower's Board of Trustees and the Financial Institutions) (the "Credit
Facility Commitment") 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 any outstanding borrowing
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 amount of the Credit Facility Commitment,
provided that the aggregate amount of Loans to the Trust or the
Co-Borrower on an individual basis cannot exceed twenty-five percent
(25%) 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 0.50%,
or (ii) at a rate per annum equal to a reserve-adjusted interbank
offered rate offered by BofA's Grand Cayman Branch ("IBOR") plus 0.50%
per annum. Each of the Trust and Co-Borrower will bear the expenses of
any borrowings attributable to it under the Credit Agreement. Such
interest will be due, in arrears, on the outstanding principal amount of
each Loan (i) as to any federal funds rate Loan on the last business day
of each calendar quarter and (ii) as any offshore rate Loan, from one
(1) day to sixty (60) days from the date of the Loan, as selected by the
Trust or Co-Borrower, as applicable, in advance. Interest on the
outstanding principal of the Loans will also be due on the date of any
prepayment of any offshore rate Loan and on demand during the existence
of an event of default under the Credit Agreement payable by the
borrower subject to such event of default. Overdue payments of principal
and interest will bear interest, payable upon demand, at a
12
13
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 arrangement 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 Credit Agreement provides for BofA to elect to make swingline loans
to each Borrower in amounts which in the aggregate do not exceed
$25,000,000, provided that the aggregate amount of such swingline loans
to the Trust or the Co-Borrower on an individual basis cannot exceed
the lesser of (a) BofA's commitment under the Credit Agreement, (b) the
combined commitment of all Financial Institutions under the Credit
Agreement or (c) twenty-five percent (25%) of the net asset value of
the Trust or Co-Borrower, as the case may be. Such swingline loans are
due no later than the seventh business day following the day the
swingline loan was made, bear interest at a rate per annum equal to the
federal funds rate from time to time plus 0.50% due upon the repayment
of such loan and, if unpaid when due or the Borrower otherwise elects,
may convert to a traditional federal funds rate Loan under the Credit
Agreement funded by BofA and all of the other Financial Institutions in
accordance with the Credit Agreement's commitment schedule.
f. The drawdown of the initial Loan or swingline 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 or swingline 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 4 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.
g. 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 25% of the net asset value of the
applicable borrower; and (vii) to not create any lien on any of its
assets, with certain exceptions.
h. 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,
13
14
with all material provisions of the Investment Company Act of 1940; (vi)
the voluntary or involuntary bankruptcy of the Trust or Co-Borrower, as
applicable; (vii) the entry of judgments for the payment of money in
excess of $5,000,000 in the aggregate which remains unsatisfied or
unstayed for a period of 30 days; and (viii) a change in control of the
Trust's or Co-Borrower's, as applicable, investment adviser.
i.The credit facility provided pursuant to the Credit Agreement will
terminate on September 12, 2001 (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 Exhibit (b)(1) 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 primarily 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
14
15
assets over $10.0 billion. 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. 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 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 redemption" 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, 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, by the Depositary on behalf of the
15
16
Shareholder 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
Time on the Expiration Date, as extended, and the Offer will terminate as of
12:00 Midnight Eastern 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 Time on the next business day after the previously
scheduled Expiration Date and will disclose the approximate number of Common
Shares tendered as of that date. Without limiting the manner in which the Trust
may choose to make a public announcement of extension, termination or amendment,
except as provided by applicable law, the Trust shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by making a release to the Dow Jones News Service.
If the Trust materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Trust will extend the Offer to the extent required by Rule 13e-4 promulgated
under the Exchange Act. These rules require that the minimum period during which
an offer must remain open following material changes in the terms of the offer
or information concerning the offer (other than a change in price or a change in
percentage of securities sought) will depend on the facts and circumstances,
including the relative materiality of such terms or information. If (i) the
Trust increases or decreases the price to be paid for Common Shares, or the
Trust increases the number of Common Shares being sought by an amount exceeding
2% of the outstanding Common Shares, or the Trust decreases the number of Common
Shares being sought and (ii) the Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth business day from,
and including, the date that notice of such increase or decrease is first
published, sent or given, the Offer will be extended at least until the
expiration of such period of ten business days.
17. MISCELLANEOUS. The Offer is not being made to, nor will the Trust
accept tenders from, owners of Common Shares in any jurisdiction in which the
Offer or its acceptance would not comply with the securities or Blue Sky laws of
such jurisdiction. The Trust is not aware of any jurisdiction in which the
making of the
16
17
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 20, 2001 VAN KAMPEN SENIOR FLOATING RATE FUND
17
18
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.(1)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
VARIABLE RATE** SENIOR LOAN INTERESTS 84.1%
AEROSPACE/DEFENSE 2.6%
$ 3,198 Aerostructures Corp.,
Term Loan............... NR BB- 12/31/03 $ 3,167,829
3,723 Decrane Finance Co.,
Term Loan............... B2 B+ 06/30/05 3,568,002
9,574 EG&G Technical Services,
Inc., Term Loan......... B1 NR 08/20/07 9,438,308
2,146 Hexcel Corp., Term
Loan.................... Ba3 BB- 09/15/05 2,116,440
7,432 Stellex Technologies,
Inc., Term Loan (b)..... Caa2 NR 09/30/06 6,391,364
1,990 Vought Aircraft
Industries, Inc., Term
Loan.................... NR NR 07/30/07 to 06/30/08 1,980,879
--------------
26,662,822
--------------
AUTOMOTIVE 5.3%
3,970 AMCAN Technologies,
Inc., Term Loan......... NR NR 03/28/07 3,961,114
963 Breed Technologies,
Inc., Term Loan (a)..... NR NR 12/20/04 962,999
4,685 Exide Corp., Term Loan.. Ba3 B+ 03/18/05 4,278,586
5,000 Federal-Mogul Corp.,
Term Loan............... B2 B+ 02/24/04 4,975,000
12,515 J.L. French Automotive
Castings, Inc., Term
Loan.................... B1 B+ 10/21/06 11,814,874
7,500 Meridian Automotive
Systems, Inc., Term
Loan.................... B1 BB- 03/31/07 7,505,424
9,850 Metalforming
Technologies, Inc., Term
Loan.................... NR NR 06/30/06 9,198,343
See Notes to Financial Statements
A-1
19
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
AUTOMOTIVE (CONTINUED)
$ 3,980 Polypore, Inc., Term
Loan.................... Ba3 B+ 12/31/06 $ 3,997,114
7,155 Safelite Glass Corp.,
Term Loan (a)........... NR NR 09/30/07 7,154,506
--------------
53,847,960
--------------
BEVERAGE, FOOD & TOBACCO 2.0%
18,716 Agrilink Foods, Inc.,
Term Loan............... B1 B+ 09/30/04 to 09/30/05 17,160,154
3,721 B & G Foods, Inc., Term
Loan.................... B1 B+ 03/31/06 3,463,933
--------------
20,624,087
--------------
BROADCASTING--CABLE 0.6%
6,975 Fairchild Corp., Term
Loan.................... Ba3 BB- 04/30/06 6,556,335
--------------
BROADCASTING--DIVERSIFIED 1.4%
10,000 Comcorp Broadcasting,
Inc., Term Loan......... NR NR 06/30/07 8,400,000
2,000 Emmis Communications
Corp., Term Loan........ Ba2 B+ 08/31/09 2,005,312
4,550 White Knight
Broadcasting, Inc., Term
Loan.................... NR NR 06/30/07 3,822,000
--------------
14,227,312
--------------
BROADCASTING--TELEVISION 0.8%
7,920 Quoram Broadcasting,
Inc., Term Loan......... NR NR 09/30/07 7,926,605
566 Sinclair Broadcast
Group, Inc., Term
Loan.................... Ba2 BB- 09/15/05 554,450
--------------
8,481,055
--------------
BUILDINGS & REAL ESTATE 1.1%
4,904 Builders Firstsource,
Inc., Term Loan......... NR BB- 12/30/05 4,927,707
5,412 Corrections Corp. of
America, Term Loan...... B3 B 12/31/02 4,221,481
1,491 Crescent Real Estate
Equities Co., Term
Loan.................... NR NR 02/01/04 1,494,885
--------------
10,644,073
--------------
See Notes to Financial Statements
A-2
20
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CHEMICALS, PLASTICS & RUBBER 4.9%
$ 4,975 Applied Tech Management
Corp., Term Loan........ B1 NR 04/30/07 $ 4,953,670
4,938 Georgia Gulf Corp., Term
Loan.................... Ba1 BBB- 11/12/06 4,955,329
4,628 Huntsman Corp., Term
Loan.................... Ba2 NR 09/30/03 to 12/31/05 4,534,187
1,507 Huntsman Corp.,
Revolving Credit
Agreement............... Ba2 NR 12/31/02 1,462,784
3,910 Huntsman ICI Chemicals,
LLC, Term Loan.......... Ba3 BB 06/30/07 to 06/30/08 3,921,343
5,803 Lyondell Chemical Co.,
Term Loan............... Ba3 NR 06/30/05 to 05/17/06 5,909,532
4,950 MetoKote Corp., Term
Loan.................... NR NR 11/02/05 4,919,070
4,945 Nutrasweet Acquisition
Corp., Term Loan........ Ba3 NR 05/25/07 to 05/25/09 4,917,549
2,978 OM Group, Inc., Term
Loan.................... NR NR 03/31/07 2,990,527
8,000 Pioneer America
Acquisition Corp., Term
Loan (a)................ Caa1 D 12/31/06 2,800,000
5,437 Sterling Pulp Chemicals,
Inc., Term Loan......... B3 BB- 06/30/05 5,347,168
5,825 West American Rubber
Co., Term Loan.......... NR NR 06/30/05 to 12/30/05 3,494,751
--------------
50,205,910
--------------
CONSTRUCTION MATERIAL 1.9%
875 Dayton Superior Corp.,
Term Loan............... Ba3 BB- 06/01/08 878,281
6,194 Flextek Components,
Inc., Term Loan (a)..... NR NR 08/31/03 2,229,856
10,192 Magnatrax Corp., Term
Loan.................... NR NR 11/15/05 10,168,581
5,970 Washington Group
International, Inc.,
Term Loan............... NR BBB- 07/07/07 5,949,481
--------------
19,226,199
--------------
See Notes to Financial Statements
A-3
21
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CONTAINERS, PACKAGING & GLASS 3.7%
$10,000 LLS Corp., Term Loan.... B1 B+ 07/31/06 $ 9,971,880
14,775 Nexpak Corp., Term
Loan.................... NR NR 12/31/05 to 12/31/06 13,775,477
5,000 Pliant Corp., Term
Loan.................... B2 BB- 05/31/08 4,772,362
3,891 Stone Container Corp.,
Term Loan............... Ba3 B+ 10/01/03 3,907,715
4,975 Tekni-Plex, Inc., Term
Loan.................... Ba3 B+ 06/26/08 4,875,500
--------------
37,302,934
--------------
DIVERSIFIED MANUFACTURING 1.0%
7,491 Citation Corp., Term
Loan.................... NR B+ 12/01/07 7,355,296
2,431 Mueller Group, Inc.,
Term Loan............... B1 B+ 08/16/07 2,441,619
--------------
9,796,915
--------------
ECOLOGICAL 0.4%
3,467 Allied Waste Industries,
Inc., Term Loan......... Ba3 BB 07/23/06 to 07/23/07 3,413,111
3,143 Safety-Kleen Corp., Term
Loan (a) (b)............ NR NR 04/03/05 to 04/03/06 958,549
--------------
4,371,660
--------------
ELECTRONICS 4.1%
838 Audio Visual Services
Corp., Term Loan........ NR NR 10/01/01 519,591
1,118 Audio Visual Services
Corp., Revolving Credit
Agreement............... NR NR 10/01/01 693,188
5,334 Dynamic Details, Inc.,
Term Loan............... B1 B+ 04/22/05 5,310,270
4,500 Kinetic Group, Inc.,
Term Loan............... Ba3 B- 02/28/06 4,501,047
9,781 Stratus Computer, Inc.,
Term Loan............... NR NR 02/26/05 9,761,599
5,000 Stream International
Holdings, Inc., Term
Loan.................... NR NR 12/31/06 4,968,750
5,896 Superior Telecom, Inc.,
Term Loan............... B2 B+ 11/27/05 5,350,891
See Notes to Financial Statements
A-4
22
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
ELECTRONICS (CONTINUED)
$ 2,488 Veridian Corp., Term
Loan.................... Ba3 BB- 08/24/06 $ 2,499,373
7,993 Viasystems, Inc., Term
Loan.................... B1 BB- 03/31/07 7,959,362
--------------
41,564,071
--------------
ENTERTAINMENT & LEISURE 2.6%
9,860 Aspen Marketing Group,
Term Loan............... NR NR 06/30/06 9,773,410
10,882 Fitness Holdings
Worldwide, Inc., Term
Loan.................... NR B 11/02/06 to 11/02/07 10,544,716
4,000 Six Flags Theme Parks,
Inc., Term Loan......... Ba2 BB- 09/30/05 4,027,748
2,615 True Temper, Inc., Term
Loan.................... B1 BB- 09/30/05 2,546,271
--------------
26,892,145
--------------
FARMING & AGRICULTURE 0.3%
3,250 The Scotts Co., Term
Loan.................... Ba3 BB 12/31/07 3,271,531
--------------
FINANCE 2.2%
2,305 Bridge Information
Systems, Inc., Term Loan
(a) (c)................. NR NR 05/29/05 368,790
16,788 Outsourcing Solutions,
Term Loan............... B2 BB- 06/01/06 16,395,797
5,715 Rent-A-Center, Inc.,
Term Loan............... Ba3 BB- 01/31/06 to 01/31/07 5,659,967
--------------
22,424,554
--------------
GROCERY 0.5%
4,990 The Pantry, Inc., Term
Loan.................... B1 BB- 01/31/06 5,004,963
--------------
HEALTHCARE 3.9%
7,500 AMN Healthcare, Inc.,
Term Loan............... NR NR 03/31/05 7,428,511
589 Community Health
Systems, Inc., Term
Loan.................... NR NR 12/31/05 584,300
1,000 InteliStaf Group, Inc.,
Term Loan............... NR NR 10/31/07 991,281
See Notes to Financial Statements
A-5
23
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
HEALTHCARE (CONTINUED)
$ 8,014 LifePoint Hospitals,
Inc., Term Loan......... B1 B+ 11/11/05 $ 8,050,182
4,919 Unilab Corp., Term
Loan.................... B1 B+ 11/23/06 4,937,758
18,119 Vencor, Inc., Term Loan
(a) (b)................. NR NR 01/15/05 17,394,520
--------------
39,386,552
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER
PRODUCTS 1.2%
8,436 Formica Corp., Term
Loan.................... B1 B+ 04/30/06 8,090,423
16,043 Imperial Home Decor
Group, Inc., Term Loan
(a) (b)................. NR NR 03/12/04 to 03/13/06 1,331,582
5,355 Imperial Home Decor
Group, Inc., Revolving
Credit Agreement
(a) (b)................. NR NR 03/12/04 444,450
873 Sleepmaster, LLC, Term
Loan.................... B1 BB- 12/31/06 872,843
1,500 Targus Group
International, Inc.,
Term Loan............... NR NR 08/31/06 1,491,552
--------------
12,230,850
--------------
HOTELS, MOTELS, INNS & GAMING 2.9%
9,947 Aladdin Gaming, LLC,
Term Loan............... B2 NR 03/31/07 8,057,368
2,494 Autotote Corp., Term
Loan.................... B1 B+ 09/30/07 2,504,331
10,000 Extended Stay America,
Inc., Term Loan......... Ba3 NR 06/30/07 10,046,430
3,474 Isle of Capri Casinos,
Inc., Term Loan......... Ba2 BB- 03/02/06 to 03/02/07 3,486,235
5,473 Las Vegas Sands, Inc.,
Term Loan............... B2 B+ 06/30/04 5,483,615
--------------
29,577,979
--------------
INSURANCE 0.5%
4,975 Brera GAB Robins, Inc.,
Term Loan............... NR NR 12/01/05 4,654,579
--------------
See Notes to Financial Statements
A-6
24
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
MACHINERY 3.5%
$ 2,993 Alliance Laundry
Systems, LLC, Term
Loan.................... B1 B+ 06/30/05 $ 2,921,428
5,000 Ashtead Group, PLC, Term
Loan.................... NR NR 06/01/07 4,946,875
7,250 Gleason Corp., Term
Loan.................... NR NR 02/18/08 7,280,702
15,000 Ocean Rig ASA--(Norway),
Term Loan............... NR NR 06/01/08 14,116,988
3,190 Terex Corp., Term Loan.. Ba3 BB- 03/06/06 3,186,177
2,989 Weigh-Tronix, LLC, Term
Loan.................... NR NR 06/30/07 2,970,075
--------------
35,422,245
--------------
MEDICAL PRODUCTS & SUPPLIES 4.1%
10,000 Alliance Imaging, Inc.,
Term Loan............... B1 NR 11/02/07 to 11/02/08 9,858,330
6,300 Charles River
Laboratories, Inc., Term
Loan.................... Ba3 BB- 09/29/07 6,324,839
14,849 Dade Behring, Inc., Term
Loan.................... NR B 06/30/06 to 06/30/07 10,691,457
9,925 National Nephrology
Associates, Inc., Term
Loan.................... B1 B+ 12/31/05 9,866,075
5,136 Stryker Corp., Term
Loan.................... Ba1 BBB- 12/04/05 5,163,941
--------------
41,904,642
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 1.9%
15,689 Ispat Inland, Term
Loan.................... Ba3 BB- 07/16/05 to 07/16/06 11,296,142
2,695 P&L Coal Holdings Corp.,
Term Loan............... Ba2 NR 06/30/06 2,695,760
4,950 UCAR International,
Inc., Term Loan......... Ba3 BB- 12/30/07 4,895,277
--------------
18,887,179
--------------
See Notes to Financial Statements
A-7
25
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
NON-DURABLE CONSUMER PRODUCTS 1.5%
$ 8,072 American Marketing
Industries, Inc., Term
Loan.................... NR NR 11/30/04 to 11/30/05 $ 7,518,137
992 American Safety Razor
Co., Term Loan.......... B1 B+ 04/30/07 988,734
1,636 GFSI, Inc., Term Loan... Ba3 NR 03/31/04 1,609,882
4,939 Norcorp, Inc., Term
Loan.................... NR NR 05/30/06 to 11/30/06 4,906,196
--------------
15,022,949
--------------
PERSONAL & MISCELLANEOUS SERVICES 1.5%
2,466 Coinmach Laundry Corp.,
Term Loan............... NR BB- 12/31/04 2,405,668
11,953 DIMAC Corp., Term Loan
(b)..................... NR NR 06/30/06 to 12/30/06 6,215,556
414 DIMAC Corp., Debtor in
Possession (b).......... NR NR 03/31/01 414,208
9,454 Telespectrum Worldwide,
Inc., Term Loan......... NR NR 12/31/01 to 12/31/03 6,618,034
--------------
15,653,466
--------------
PHARMACEUTICALS 0.1%
988 Bergen Brunswig Corp.,
Term Loan............... NR BB 03/31/06 989,282
--------------
PRINTING & PUBLISHING 7.0%
4,974 21st Century Newspapers,
Term Loan............... NR NR 09/15/05 4,949,552
4,963 American Reprographics
Co., Term Loan.......... NR NR 03/31/08 4,986,212
4,873 Check Printers, Inc.,
Term Loan............... NR NR 06/30/05 4,761,180
8,500 Commerce Connect Media,
Inc., Term Loan......... NR NR 12/31/07 8,432,260
9,900 Haights Cross
Communications, LLC,
Term Loan............... B2 B+ 12/10/06 9,323,981
4,975 Liberty Group Operating,
Inc., Term Loan......... B1 B 03/31/07 4,984,328
4,888 Medical Arts Press,
Inc., Term Loan......... NR NR 05/16/06 4,910,828
See Notes to Financial Statements
A-8
26
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PRINTING & PUBLISHING (CONTINUED)
$ 6,396 Penton Media, Inc., Term
Loan.................... Ba3 BB- 06/30/07 $ 6,235,462
5,000 PRIMEDIA, Inc., Term
Loan.................... NR BB- 07/31/04 4,992,190
4,026 TWP, Inc., Term Loan.... Ba3 B+ 10/01/04 3,911,199
5,951 Vertis, Inc., Term
Loan.................... B1 BB- 12/06/08 5,847,302
5,985 Vutek, Inc., Term
Loan.................... NR NR 06/30/07 5,932,815
2,031 Ziff-Davis Media, Inc.,
Term Loan............... Ba3 B+ 03/31/07 2,028,402
--------------
71,295,711
--------------
RESTAURANTS & FOOD SERVICE 1.5%
2,600 AFC Enterprises, Inc.,
Term Loan............... Ba2 BB- 06/30/02 2,590,513
7,500 Captain D's, Inc., Term
Loan.................... B2 B+ 12/31/01 6,862,528
1,384 Carvel Corp., Term
Loan.................... NR NR 06/30/01 1,365,625
4,344 Domino's Pizza, Inc.,
Term Loan............... B1 B+ 12/21/06 to 12/21/07 4,365,129
--------------
15,183,795
--------------
RETAIL--OFFICE PRODUCTS 0.2%
3,760 U.S. Office Products
Co., Term Loan.......... Caa1 CCC- 06/09/06 2,331,253
--------------
RETAIL--OIL & GAS 1.2%
7,396 Barjan Products, LLC,
Term Loan............... NR NR 05/31/06 7,427,997
4,975 Kwik Trip, Term Loan.... NR NR 07/27/07 4,931,621
--------------
12,359,618
--------------
RETAIL--STORES 2.1%
7,051 Kirklands Holdings, Term
Loan.................... NR NR 06/30/02 7,051,024
14,000 Rite Aid Corp., Term
Loan.................... B1 BB- 08/01/02 13,860,000
--------------
20,911,024
--------------
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 3.5%
12,000 360networks, Inc., Term
Loan.................... B1 BB- 10/24/07 11,709,996
2,973 Alaska Communications
Systems Holdings, Inc.,
Term Loan............... B1 BB 11/14/07 to 05/14/08 2,967,523
See Notes to Financial Statements
A-9
27
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS (CONTINUED)
$ 5,000 Cincinnati Bell, Inc.,
Term Loan............... Ba1 BB+ 12/30/06 $ 5,013,670
2,000 McLeodUSA, Inc., Term
Loan.................... Ba2 BB- 05/31/08 2,003,334
9,190 Orius Corp., Term Loan.. NR B+ 12/14/06 8,914,519
5,000 Rural Cellular Corp.,
Term Loan............... B1 B+ 10/03/08 to 04/03/09 4,989,065
--------------
35,598,107
--------------
TELECOMMUNICATIONS--LONG DISTANCE 1.3%
14,000 Pacific Crossing, Ltd.,
Term Loan............... NR NR 07/28/06 13,282,500
--------------
TELECOMMUNICATIONS--PAGING 0.0%
10,973 TSR Wireless, LLC, Term
Loan (a) (b)............ NR NR 06/30/05 0
--------------
TELECOMMUNICATIONS--WIRELESS 4.3%
15,000 BCP SP, Ltd., Term
Loan.................... NR NR 03/31/02 to 03/31/05 14,702,668
5,000 Crown Castle
International Corp.,
Term Loan............... Ba3 BB- 03/15/08 5,024,305
3,500 Nextel Finance Co., Term
Loan.................... Ba2 BB- 06/30/08 to 12/31/08 3,510,434
5,000 Nextel Partners, Inc.,
Term Loan............... B2 B- 07/29/08 5,017,710
10,000 VoiceStream Wireless
Corp., Term Loan........ B1 B+ 06/30/09 9,934,380
5,000 Western Wireless Corp.,
Term Loan............... Ba2 BB 09/30/08 5,016,145
--------------
43,205,642
--------------
TEXTILES & LEATHER 2.0%
18,955 Glenoit Corp., Term
Loan.................... Caa1 D 12/31/03 to 06/30/04 14,784,511
5,397 Humphrey's, Inc., Term
Loan.................... NR NR 01/15/03 1,322,151
See Notes to Financial Statements
A-10
28
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TEXTILES & LEATHER (CONTINUED)
$ 3,044 Joan Fabrics Corp., Term
Loan.................... NR BB- 06/30/05 to 06/30/06 $ 2,966,271
1,703 Norcross Safety
Products, LLC, Term
Loan.................... NR NR 10/02/05 1,670,929
--------------
20,743,862
--------------
TRANSPORTATION--CARGO 2.4%
4,340 Atlas Freighter Leasing,
Inc., Term Loan......... NR NR 04/20/05 to 04/20/06 4,194,496
3,936 Evergreen International
Aviation, Inc., Term
Loan.................... NR NR 05/02/04 3,920,780
3,474 Gemini Leasing, Inc.,
Term Loan............... B1 NR 08/12/05 3,477,925
4,860 North American Van
Lines, Inc., Term
Loan.................... B1 B+ 11/18/07 4,550,387
7,977 OmniTrax Railroads, LLC,
Term Loan............... NR NR 05/14/05 7,894,773
--------------
24,038,361
--------------
TRANSPORTATION--PERSONAL 1.3%
18,363 Motor Coach Industries
International, Inc.,
Term Loan............... Ba3 BB- 06/16/06 13,496,749
--------------
TRANSPORTATION--RAIL MANUFACTURING 0.2%
2,978 RailWorks Corp., Term
Loan.................... B3 B 09/30/06 2,471,325
--------------
UTILITIES 0.6%
5,970 Western Resources, Inc.,
Term Loan............... NR NR 03/17/03 6,024,727
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 84.1%........................ 855,776,923
--------------
EQUITIES 0.2%
Breed Technologies, Inc. (Warrants for 126,731 common
shares) (d) (e)........................................... 718,565
Flextek Components, Inc. (Warrants for 758 common shares)
(d) (e)................................................... 0
Safelite Glass Corp. (321,953 common shares) (e)............ 978,737
See Notes to Financial Statements
A-11
29
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BORROWER VALUE
EQUITIES (CONTINUED)
Safelite Realty (21,732 common shares) (d) (e).............. $ 0
Stream International, Inc. (Warrants for 286,063 common
shares) (d) (e)........................................... 0
--------------
TOTAL EQUITIES.............................................. 1,697,302
--------------
TOTAL LONG-TERM INVESTMENTS 84.3%
(Cost $955,009,243)....................................... 857,474,225
--------------
SHORT-TERM INVESTMENTS 15.2%
COMMERCIAL PAPER 7.3%
Centex Corp. ($15,000,000 par, maturing 02/09/01, yielding
6.63%).................................................... 14,977,900
Chevron Phillips Chemical Co. ($18,400,000 par, maturing
02/09/01, yielding 6.55% to 6.65%)........................ 18,372,995
Comdisco, Inc. ($15,000,000 par, maturing 02/08/01, yielding
6.70% to 6.75%)........................................... 14,980,361
ConAgra Foods, Inc. ($10,000,000 par, maturing 02/05/01,
yielding 6.60%)........................................... 9,992,667
TRW, Inc. ($4,900,000 par, maturing 02/06/01, yielding
6.85%).................................................... 4,895,338
TXU Corp. ($11,000,000 par, maturing 02/12/01, yielding
6.70%).................................................... 10,977,481
--------------
TOTAL COMMERCIAL PAPER...................................... 74,196,742
--------------
SHORT-TERM LOAN PARTICIPATIONS 7.7%
Chevron Philips Chemical Co. ($4,200,000 par, maturing
02/01/01, yielding 6.50%)................................. 4,200,000
Cox Communications, Inc. ($15,000,000 par, maturing
02/01/01, yielding 6.50%)................................. 15,000,000
Federated Department Stores, Inc. ($1,200,000 par, maturing
02/01/01, yielding 6.50%)................................. 1,200,000
NiSource, Inc. ($13,000,000 par, maturing 02/05/01 to
02/09/01, yielding 6.60% to 6.62%)........................ 13,000,000
Tampa Electric Co. ($10,000,000 par, maturing 02/01/01,
yielding 5.95%)........................................... 10,000,000
TRW, Inc. ($4,900,000 par, maturing 02/01/01, yielding
6.50%).................................................... 10,000,000
WorldCom, Inc. ($25,000,000 par, maturing 02/01/01, yielding
6.60% to 6.75%)........................................... 25,000,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS........................ 78,400,000
--------------
See Notes to Financial Statements
A-12
30
YOUR FUND'S INVESTMENTS
January 31, 2001 (Unaudited)
BORROWER VALUE
TIME DEPOSIT 0.2%
State Street Bank & Trust Corp. ($2,000,000 par, 5.625%
coupon, dated 01/31/01, to be sold on 02/01/01 at
$2,000,313)............................................... $ 2,000,000
--------------
TOTAL SHORT-TERM INVESTMENTS 15.2%
(Cost $154,596,742)....................................... 154,596,742
--------------
TOTAL INVESTMENTS 99.5%
(Cost $1,109,605,985)..................................... 1,012,070,967
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%................. 5,169,580
--------------
NET ASSETS 100.0%.......................................... $1,017,240,547
==============
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.
(c) Subsequent to January 31, 2001, this borrower has filed for protection in
federal bankruptcy court.
(d) Non-income producing security as this stock currently does not declare
dividends.
(e) Restricted Security
* 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-13
31
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
January 31, 2001 (Unaudited)
ASSETS:
Total Investments (Cost $1,109,605,985)..................... $1,012,070,967
Receivables:
Investments Sold.......................................... 20,511,094
Interest.................................................. 9,628,742
Fund Shares Sold.......................................... 659,931
Prepaid Expenses............................................ 506,710
Other....................................................... 46,410
--------------
Total Assets............................................ 1,043,423,854
--------------
LIABILITIES:
Payables:
Custodian Bank............................................ 21,990,302
Income Distributions...................................... 1,577,194
Investment Advisory Fee................................... 893,064
Distributor and Affiliates................................ 484,108
Administrative Fee........................................ 254,686
Initial Offering and Registration Costs................... 41,558
Accrued Expenses............................................ 866,693
Trustees' Deferred Compensation and Retirement Plans........ 75,702
--------------
Total Liabilities....................................... 26,183,307
--------------
NET ASSETS.................................................. $1,017,240,547
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 114,790,745 shares issued and
outstanding).............................................. $ 1,147,907
Paid in Surplus............................................. 1,181,582,432
Accumulated Undistributed Net Investment Income............. 4,659,362
Accumulated Net Realized Loss............................... (72,614,136)
Net Unrealized Depreciation................................. (97,535,018)
--------------
NET ASSETS.................................................. $1,017,240,547
==============
NET ASSET VALUE PER COMMON SHARE ($1,017,240,547 divided by
114,790,745 shares outstanding)........................... $ 8.86
==============
See Notes to Financial Statements
A-14
32
Statement of Operations
For the Six Months Ended January 31, 2001 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 60,701,939
Fees........................................................ 21,644
Other....................................................... 888,545
------------
Total Income............................................ 61,612,128
------------
EXPENSES:
Investment Advisory Fee..................................... 5,690,100
Administrative Fee.......................................... 1,497,395
Service Fee................................................. 898,437
Shareholder Services........................................ 580,569
Legal....................................................... 338,150
Custody..................................................... 200,502
Trustees' Fees and Related Expenses......................... 25,297
Other....................................................... 859,006
------------
Total Expenses.......................................... 10,089,456
------------
NET INVESTMENT INCOME....................................... $ 51,522,672
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(72,607,098)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (85,096,571)
End of the Period......................................... (97,535,018)
------------
Net Unrealized Depreciation During the Period............... (12,438,447)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(85,045,545)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(33,522,873)
============
See Notes to Financial Statements
A-15
33
Statement of Changes in Net Assets
For the Six Months Ended January 31, 2001 and the Year Ended July 31, 2000
(Unaudited)
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2001 JULY 31, 2000
---------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........................... $ 51,522,672 $ 116,971,614
Net Realized Gain/Loss.......................... (72,607,098) 3,089,393
Net Unrealized Depreciation During the Period... (12,438,447) (84,184,679)
-------------- --------------
Change in Net Assets from Operations............ (33,522,873) 35,876,328
-------------- --------------
Distributions from Net Investment Income........ (50,467,727) (116,807,793)
Distributions from Net Realized Gain............ (2,869,516) (1,076,619)
-------------- --------------
Total Distributions......................... (53,337,243) (117,884,412)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... (86,860,116) (82,008,084)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold....................... 56,259,606 568,093,865
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 34,777,539 81,211,399
Cost of Shares Repurchased...................... (444,545,090) (581,641,209)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. (353,507,945) 67,664,055
-------------- --------------
TOTAL DECREASE IN NET ASSETS.................... (440,368,061) (14,344,029)
NET ASSETS:
Beginning of the Period......................... 1,457,608,608 1,471,952,637
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of
$4,659,362 and $3,604,417, respectively)...... $1,017,240,547 $1,457,608,608
============== ==============
See Notes to Financial Statements
A-16
34
Statement of Cash Flows
For the Six Months Ended January 31, 2001 (Unaudited)
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ (33,522,873)
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Decrease in Investments at Value.......................... 437,561,147
Decrease in Interest Receivable........................... 1,403,144
Increase in Receivable for Investments Sold............... (20,511,094)
Decrease in Prepaid Expenses.............................. 9,426
Increase in Other Assets.................................. (12,786)
Decrease in Investment Advisory Fees Payable.............. (339,976)
Decrease in Administrative Fees Payable................... (89,468)
Increase in Distributor & Affiliates Payable.............. 110,059
Increase in Accrued Expenses.............................. 102,312
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 9,657
-------------
Total Adjustments....................................... 418,242,421
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 384,719,548
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 58,277,856
Change in Intra-day Credit Line with Custodian Bank......... 20,462,657
Payments on Shares Repurchased.............................. (444,596,879)
Cash Dividends Paid......................................... (15,993,666)
Capital Gain Distributions Paid............................. (2,869,516)
-------------
Net Cash Provided by Financing Activities................. (384,719,548)
-------------
NET INCREASE IN CASH........................................ -0-
Cash at Beginning of the Period............................. -0-
-------------
CASH AT END OF THE PERIOD................................... $ -0-
=============
See Notes to Financial Statements
A-17
35
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
MARCH 27, 1998
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED JULY 31, OF INVESTMENT
JANUARY 31, ------------------------- OPERATIONS) TO
2001 2000 1999 JULY 31, 1998
----------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $ 9.58 $ 10.09 $ 10.04 $ 10.00
-------- -------- -------- -------
Net Investment Income.......... .42 .72 .65 .21
Net Realized and Unrealized
Gain/Loss.................... (.71) (.50) .04 .04
-------- -------- -------- -------
Total from Investment
Operations..................... (.29) .22 .69 .25
-------- -------- -------- -------
Less:
Distributions from Net
Investment Income............ .40 .72 .64 .21
Distributions from Realized
Gain......................... .03 .01 -0- -0-
-------- -------- -------- -------
Total Distributions.............. .43 .73 .64 .21
-------- -------- -------- -------
NET ASSET VALUE, END OF THE
PERIOD......................... $ 8.86 $ 9.58 $ 10.09 $ 10.04
======== ======== ======== =======
Total Return* (a)................ -3.37%** 2.27% 7.09% 2.52%**
Net Assets at End of the Period
(In millions).................. $1,017.2 $1,457.6 $1,472.0 $ 411.4
Ratio of Expenses to Average Net
Assets*........................ 1.68% 1.64% 1.60% 1.70%
Ratio of Net Investment Income to
Average Net Assets*............ 8.60% 7.37% 6.66% 6.33%
Portfolio Turnover (b)........... 10%** 54% 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 N/A 1.61% 1.92%
Ratio of Net Investment Income to
Average Net Assets............. N/A 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-18
36
NOTES TO
FINANCIAL STATEMENTS
January 31, 2001 (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 (the "1940 Act"), 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 accounting principles
generally accepted in the United States of America 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 valuation guidelines established
and periodically reviewed by the Fund's Board of Trustees. Under the valuation
guidelines, Senior Loans and securities for which reliable market quotes are
readily available are valued at the mean of such bid and ask quotes and all
other Senior Loans securities and assets of the Fund are valued at fair value in
good faith following procedures established by the 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
approved by the Board, certain Senior Loans will be valued on the basis of such
indicators. Other Senior Loans will be valued by independent pricing sources
approved by the Fund's Board of Trustees based upon pricing models developed,
maintained and operated by those pricing sources or valued by Van Kampen
Investment Advisory Corp. (the "Adviser") by considering a number of factors
including consideration of market indicators, transactions in instruments which
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 Senior 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 Senior Loan interests in the Fund's
portfolio. The fair value of Senior Loans are reviewed and approved by the
Fund's Valuation Committee
A-19
37
NOTES TO
FINANCIAL STATEMENTS
January 31, 2001 (Unaudited)
consistent with a methodology established by the Fund's Trustees. The Fund and
Trustees will continue to monitor development in the Senior Loan market and will
make modifications to the current valuation methodology as deemed appropriate.
Equity securities are valued on the basis of prices furnished by pricing
services or as determined in good faith by the Adviser under the direction of
the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. 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 are amortized and
discounts are accreted over the stated life of each applicable security. Other
income is comprised primarily of amendment fees. Amendment fees are earned as
compensation for agreeing to changes in loan agreements.
D. FEDERAL INCOME TAXES It is the 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, 2001, for federal income tax purposes the cost of long- and
short-term investments is $1,109,608,636, the aggregate gross unrealized
appreciation is $4,008,705 and the aggregate gross unrealized depreciation is
$101,546,374, resulting in net unrealized depreciation on long- and short-term
investments of $97,537,669.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed at least 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-20
38
NOTES TO
FINANCIAL STATEMENTS
January 31, 2001 (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 DAILY 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, 2001, the Fund recognized expenses of
approximately $165,700 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.
Under a Legal Services agreement, the Adviser provides legal services to the
Fund. The Adviser allocates the cost of such services to each Fund. For the six
months ended January 31, 2001, the Fund recognized expenses of approximately
$29,600 representing Van Kampen Investments or its affiliates (collectively "Van
Kampen") cost of providing legal services to the Fund, which are reported as
part of legal expenses, in the statement of operations.
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, 2001, the Fund recognized expenses for their services of approximately
$432,100. Shareholder servicing 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
A-21
39
NOTES TO
FINANCIAL STATEMENTS
January 31, 2001 (Unaudited)
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 January 31, 2001 and July 31, 2000, paid in surplus aggregated $1,181,582,432
and $1,534,716,501, respectively.
Transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2001 JULY 31, 2000
Beginning Shares.................................... 152,178,276 145,951,374
----------- -----------
Shares Sold....................................... 5,985,842 57,196,384
Shares Issued Through Dividend Reinvestment....... 3,736,676 8,251,082
Shares Repurchased................................ (47,110,049) (59,220,564)
----------- -----------
Net Increase/Decrease in Shares................... (37,387,531) 6,226,902
----------- -----------
Ending Shares....................................... 114,790,745 152,178,276
=========== ===========
4. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $110,515,091 and $541,170,282,
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 shares on the expiration date of the
tender offer. For the six months ended January 31, 2001, 47,110,049 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, 2001, Van Kampen received early withdrawal charges of
approximately $825,000 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 $6,609,600 as of
A-22
40
NOTES TO
FINANCIAL STATEMENTS
January 31, 2001 (Unaudited)
January 31, 2001. 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 September 12, 2001. The
proceeds of any borrowing by the Fund under the revolving credit agreement shall
be used for temporary liquidity purposes and funding of shareholder tender
offers. 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 .50%. 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, 2001, 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)
Canadian Imperial Bank of Commerce.......................... $ 8,626 $ 8,572
Bankers Trust............................................... 16,508 15,609
------- -------
Total....................................................... $25,134 $24,181
======= =======
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 six months ended January 31, 2001, the Fund
paid service fees of approximately $951,400 to Van Kampen.
A-23
41
REPORT OF INDEPENDENT AUDITORS
To 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 Trust (the "Fund"), including the portfolio of
investments as of July 31, 2000, and the related statements of operations, cash
flows, changes in net assets, and the financial highlights for the year then
ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The Fund's financial statements and financial highlights for the periods
ended prior to July 31, 2000, were audited by other auditors whose report, dated
September 14, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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, 2000, by correspondence with the Fund's
custodian and selling or agent banks. 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
audit provides 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, 2000, the results of its
operations, cash flows, changes in net assets, and financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
As discussed in Note 1A, the portfolio of investments includes certain loan
interests for which, fair values are determined by the Fund's investment adviser
under procedures approved by the Board of Trustees. Determination of fair values
involves subjective judgement, as the actual market value of a particular
security can be established only by negotiations between parties in a
transaction. We have reviewed the procedures established by the Board of
Trustees and applied by the investment adviser in determining the fair values of
such loan interests and inspected the underlying documentation. We believe that,
in the circumstances, the procedures are reasonable and the documentation
appropriate.
DELOITTE & TOUCHE LLP
Chicago, Illinois
September 15, 2000
A-24
42
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
July 31, 2000
THE FOLLOWING PAGES DETAIL THE PORTFOLIO OF INVESTMENTS 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 94.1%
AEROSPACE/DEFENSE 1.8%
$ 4,782 Aerostructures Corp.,
Term Loan............... NR BB- 12/31/03 $ 4,720,699
13,780 Decrane Finance Co.,
Term Loan............... B2 B+ 09/30/05 13,781,452
7,432 Stellex Technologies,
Inc., Term Loan......... Caa1 CCC- 09/30/06 7,431,818
--------------
25,933,969
--------------
AUTOMOTIVE 4.4%
5,042 Breed Technologies,
Inc., Term
Loan (a) (b)............ NR NR 09/30/00 to 04/27/06 2,319,253
648 Breed Technologies,
Inc., Revolving Credit
Agreement (a) (b)....... NR NR 04/27/04 298,073
284 Breed Technologies,
Inc., Debtor In
Possession (b).......... NR NR 09/30/00 284,335
4,985 Exide Corp., Term
Loan.................... Ba3 B+ 03/18/05 4,997,461
12,548 J.L. French Automotive
Castings, Inc., Term
Loan.................... B1 B+ 10/21/06 12,430,776
7,500 Meridian Automotive
Systems, Inc., Term
Loan.................... B1 BB- 03/31/07 7,490,853
9,900 Metalforming
Technologies, Inc., Term
Loan.................... NR NR 06/30/06 9,899,956
4,000 Polypore, Inc., Term
Loan.................... Ba3 B+ 12/31/06 4,000,014
See Notes to Financial Statements
A-25
43
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
AUTOMOTIVE (CONTINUED)
$ 9,947 Safelite Glass Corp.,
Term Loan (a) (b)....... Caa1 NR 12/23/03 to 12/23/05 $ 5,468,191
3,144 Safelite Glass Corp.,
Revolving Credit
Agreement (a) (b)....... Caa1 NR 12/23/03 1,728,394
15,000 Tenneco Automotive,
Inc., Term Loan......... Ba3 BB 11/04/07 to 07/04/08 14,899,680
--------------
63,816,986
--------------
BEVERAGE, FOOD & TOBACCO 2.6%
28,741 Agrilink Foods, Inc.,
Term Loan............... B1 B+ 09/30/04 to 09/30/05 28,740,512
9,250 B & G Foods, Inc., Term
Loan.................... B1 B+ 03/31/06 9,245,946
--------------
37,986,458
--------------
BROADCASTING--CABLE 0.5%
6,975 Fairchild Corp., Term
Loan.................... Ba3 BB- 04/30/06 6,975,039
--------------
BROADCASTING--DIVERSIFIED 1.0%
10,000 Comcorp Broadcasting,
Inc., Term Loan......... NR NR 06/30/07 10,000,024
4,550 White Knight
Broadcasting, Inc., Term
Loan.................... NR NR 06/30/07 4,550,011
--------------
14,550,035
--------------
BROADCASTING--RADIO 0.5%
7,000 Cumulus Media, Inc.,
Term Loan............... B1 B+ 09/30/07 to 02/28/08 7,000,000
--------------
BROADCASTING--TELEVISION 1.2%
7,960 Quoram Broadcasting,
Inc., Term Loan......... NR NR 09/30/07 7,959,965
8,833 Sinclair Broadcast
Group, Inc., Term
Loan.................... Ba2 BB- 09/15/05 8,834,182
--------------
16,794,147
--------------
See Notes to Financial Statements
A-26
44
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
BUILDINGS & REAL ESTATE 1.3%
$ 4,929 Builders FirstSource,
Inc., Term Loan......... NR BB- 12/30/05 $ 4,929,731
1,491 Crescent Real Estate
Equities Co., Term
Loan.................... NR NR 02/01/04 1,483,104
6,000 Morrison Knudsen Corp.,
Term Loan............... Ba1 NR 08/14/00 5,996,250
7,450 Prison Realty Trust,
Inc., Term Loan......... B3 B 12/31/02 7,286,816
--------------
19,695,901
--------------
CHEMICAL, PLASTICS & RUBBER 5.1%
4,247 Applied Tech Management
Corp., Term Loan........ B1 NR 04/30/07 4,231,088
4,962 Georgia Gulf Corp., Term
Loan.................... Ba1 BBB- 11/12/06 4,996,100
4,628 Huntsman Group Holdings,
Term Loan............... Ba2 NR 04/01/02 4,613,284
1,026 Huntsman Group Holdings,
Revolving Credit
Agreement............... Ba2 NR 12/31/02 1,025,812
4,950 Huntsman ICI Chemicals
LLC, Term Loan.......... Ba3 BB 06/30/07 to 06/30/08 4,987,407
14,081 Lyondell Petrochemical
Co., Term Loan.......... Ba3 NR 06/30/05 to 05/17/06 14,447,930
4,975 MetoKote Corp., Term
Loan.................... NR NR 11/02/05 4,975,703
10,000 Nutrasweet Co., Term
Loan.................... Ba3 NR 05/25/07 to 05/25/09 9,988,086
2,993 Om Group, Inc., Term
Loan.................... NR NR 03/31/07 2,999,981
8,025 Pioneer Americas
Acquisition Corp., Term
Loan.................... B3 B 12/31/06 8,024,117
6,220 Sterling Pulp Chemicals,
Inc., Term Loan......... B3 BB- 09/30/04 6,220,670
See Notes to Financial Statements
A-27
45
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CHEMICAL, PLASTICS & RUBBER (CONTINUED)
$ 3,990 Sybron Chemicals, Inc.,
Term Loan............... NR NR 07/31/04 $ 3,977,631
5,713 West American Rubber,
Term Loan............... NR NR 06/30/05 3,999,100
--------------
74,486,909
--------------
CONSTRUCTION MATERIALS 3.4%
875 Dayton Superior Corp.,
Term Loan............... Ba3 BB- 06/01/08 872,920
5,538 Flextek Components,
Inc., Term Loan (a)..... NR NR 08/31/03 3,045,808
8,479 Formica Corp., Term
Loan.................... B1 B+ 04/30/06 8,491,998
7,180 Hexcel Corp., Term
Loan.................... Ba3 BB- 09/14/05 7,171,891
20,731 Magnatrax Corp., Term
Loan.................... NR NR 11/15/05 20,731,053
9,900 Mueller Group, Inc.,
Term Loan............... B1 B+ 08/16/06 to 08/16/07 9,924,750
--------------
50,238,420
--------------
CONTAINERS, PACKAGING & GLASS 3.7%
10,905 Dr. Pepper/Seven-Up
Cos., Inc., Term Loan... NR NR 10/07/07 10,910,363
10,000 Huntsman Packaging
Corp., Term Loan........ B1 BB- 05/31/08 10,031,250
10,000 LLS Corp., Term Loan.... B1 B+ 07/31/06 10,000,534
14,850 Mediapak Corp., Term
Loan.................... NR NR 12/31/05 to 12/31/06 14,851,104
3,894 Stone Container Corp.,
Term Loan............... Ba3 B+ 10/01/03 3,906,148
5,000 Tekni-Plex, Inc., Term
Loan.................... Ba3 B+ 06/26/08 5,028,125
--------------
54,727,524
--------------
DIVERSIFIED MANUFACTURING 1.8%
4,938 Blount, Inc., Term
Loan.................... B1 B+ 09/30/06 4,965,337
12,500 Citation Corp., Term
Loan.................... NR B+ 12/01/07 12,501,694
See Notes to Financial Statements
A-28
46
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
DIVERSIFIED MANUFACTURING (CONTINUED)
$ 3,990 Tritech Precision, Inc.,
Term Loan............... B1 B+ 03/28/07 $ 3,968,996
4,983 UCAR Global Enterprises,
Inc., Term Loan......... Ba3 BB- 12/31/07 4,981,778
--------------
26,417,805
--------------
ECOLOGICAL 2.8%
40,000 Allied Waste Industries,
Inc., Term Loan......... Ba3 BB 07/23/06 to 07/23/07 38,545,600
3,180 Safety-Kleen Corp., Term
Loan (a) (b)............ NR NR 04/03/05 to 04/03/06 2,162,215
--------------
40,707,815
--------------
ELECTRONICS 3.5%
7,131 Amphenol Corp., Term
Loan.................... Ba2 BB 05/19/04 7,031,038
5,355 Dynamic Details, Inc.,
Term Loan............... B1 B+ 04/22/05 5,355,242
9,914 EG&G Technical Services,
Inc., Term Loan......... B1 NR 08/20/07 9,913,772
9,844 Stratus Computers, Inc.,
Term Loan............... NR NR 02/26/05 9,856,055
5,000 Stream International
Holdings, Inc., Term
Loan.................... NR NR 12/31/06 5,000,177
5,928 Superior Telcom, Inc.,
Term Loan............... Ba3 B+ 11/27/05 5,910,433
8,000 Viasystems, Inc., Term
Loan.................... B1 BB- 03/31/07 7,996,248
--------------
51,062,965
--------------
ENTERTAINMENT & LEISURE 4.2%
9,930 Aspen Marketing Group,
Term Loan............... NR NR 06/30/06 9,930,697
15,936 Fitness Holdings
Worldwide, Inc., Term
Loan.................... NR B+ 11/02/06 to 11/02/07 15,789,384
15,000 SFX Entertainment, Inc.,
Term Loan............... B1 NR 06/30/06 15,015,000
See Notes to Financial Statements
A-29
47
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
ENTERTAINMENT & LEISURE (CONTINUED)
$ 17,000 Six Flags Theme Parks,
Inc., Term Loan......... Ba2 B+ 09/30/05 $ 17,111,571
3,185 True Temper Sports,
Inc., Term Loan......... B1 BB- 09/30/05 3,185,171
--------------
61,031,823
--------------
FINANCE 2.8%
7,305 Bridge Information
Systems, Inc., Term
Loan.................... NR NR 05/29/05 7,306,036
16,873 Outsourcing Solutions,
Term Loan............... B2 BB- 06/01/06 16,832,951
10,000 Paul G. Allen, Term
Loan.................... NR NR 06/10/03 9,995,667
6,000 Sovereign Bancorp, Inc.,
Term Loan............... Ba3 NR 11/14/03 6,022,500
--------------
40,157,154
--------------
GROCERY 0.5%
7,523 The Pantry, Inc., Term
Loan.................... B1 BB- 01/31/06 7,523,400
--------------
HEALTHCARE 4.5%
6,300 Charles River
Laboratories, Inc., Term
Loan.................... B1 B+ 09/29/07 6,300,000
5,000 Columbia/HCA Healthcare
Corp., Term Loan........ NR NR 09/13/01 4,946,882
14,925 Dade Behring, Inc., Term
Loan.................... Ba3 B+ 06/30/06 to 06/30/07 14,924,193
8,055 LifePoint Hospitals,
Inc., Term Loan......... B1 B+ 11/11/05 8,059,796
9,975 National Nephrology
Associates, Inc., Term
Loan.................... B1 B+ 12/31/05 9,975,373
4,944 Unilab Corp., Term
Loan.................... B1 B+ 11/23/06 4,945,092
18,119 Vencor, Inc., Term
Loan (a) (b)............ NR NR 01/15/05 15,763,783
--------------
64,915,119
--------------
See Notes to Financial Statements
A-30
48
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER
PRODUCTS 2.1%
$ 16,043 Imperial Home Decor
Group, Inc., Term
Loan (a) (b)............ NR NR 03/12/04 to 03/13/06 $ 9,306,205
5,355 Imperial Home Decor
Group, Inc., Revolving
Credit
Agreement (a) (b)....... NR NR 03/12/04 3,103,405
4,913 Medical Arts Press,
Inc., Term Loan......... NR NR 05/16/06 4,912,061
13,402 Rent-A-Center, Inc.,
Term Loan............... Ba3 BB- 01/31/06 to 12/31/07 13,359,207
--------------
30,680,878
--------------
HOTELS, MOTELS, INNS & GAMING 3.5%
10,000 Aladdin Gaming LLC, Term
Loan.................... B2 NR 08/25/06 10,000,007
15,000 Extended Stay America,
Inc., Term Loan......... Ba3 NR 12/31/03 to 06/30/07 14,961,470
9,973 FelCor Lodging LP, Term
Loan.................... Ba2 BB 03/31/04 9,931,774
3,491 Isle Of Capri Casinos,
Inc., Term Loan......... Ba2 BB- 03/02/06 to 03/02/07 3,510,578
5,500 Las Vegas Sands, Inc.,
Term Loan............... NR B+ 07/31/04 5,479,858
7,569 Meditrust Corp.,
Revolving Credit
Agreement............... NR NR 07/17/01 7,569,735
--------------
51,453,422
--------------
INSURANCE 0.3%
5,000 Brera Gab Robins, Inc.,
Term Loan............... NR NR 12/01/05 5,000,104
--------------
MACHINERY 4.0%
3,000 Alliance Laundry Systems
LLC, Term Loan.......... B1 B+ 06/30/05 2,985,000
15,000 Ashtead Group PLC, Term
Loan.................... NR NR 06/01/07 14,913,506
4,970 Coinmach Corp., Term
Loan.................... NR BB- 12/31/04 to 06/30/05 4,951,912
7,323 Gleason Corp., Term
Loan.................... NR NR 02/18/08 7,305,005
See Notes to Financial Statements
A-31
49
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
MACHINERY (CONTINUED)
$ 15,000 Ocean Rig (Norway), Term
Loan.................... NR NR 06/01/08 $ 15,001,271
9,834 Terex Corp., Term
Loan.................... Ba3 BB- 03/06/06 9,844,058
3,000 Weigh-Tronix LLC, Term
Loan.................... NR NR 06/30/07 2,985,000
--------------
57,985,752
--------------
MEDICAL PRODUCTS & SUPPLIES 1.9%
15,000 Alliance Imaging, Inc.,
Term Loan............... B1 NR 11/02/07 to 11/02/08 14,887,500
5,162 Stryker Corp., Term
Loan.................... Ba2 BB 12/04/05 5,186,488
7,860 Wilson Greatbatch, Ltd.,
Term Loan............... NR NR 07/30/04 7,860,229
--------------
27,934,217
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 1.1%
15,770 Ispat Inland, Term
Loan.................... Ba3 BB 07/16/05 to 07/16/06 15,702,066
--------------
NATURAL RESOURCES 0.2%
3,268 P&L Coal Holdings Corp.,
Term Loan............... Ba2 NR 06/30/06 3,263,400
--------------
NON-DURABLE CONSUMER GOODS 0.1%
997 American Safety Razor
Co., Term Loan.......... B1 B+ 04/30/07 994,157
--------------
PAPER & FOREST PRODUCTS 0.6%
8,745 Pacifica Papers, Inc.,
Term Loan............... Ba2 BB 03/12/06 8,788,725
--------------
PERSONAL & MISCELLANEOUS SERVICES 1.6%
917 Boyds Collection, Ltd.,
Term Loan............... Ba3 B+ 04/21/06 911,107
18,762 Davel Financing Co. LLC,
Term Loan (c)........... NR NR 06/23/05 3,002,000
13,500 DIMAC Corp., Term
Loan (b)................ NR NR 06/30/06 to 12/30/06 10,935,000
9,525 Telespectrum Worldwide,
Inc., Term Loan......... NR NR 12/31/01 to 12/31/03 9,527,735
--------------
24,375,842
--------------
See Notes to Financial Statements
A-32
50
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PHARMACEUTICALS 0.6%
$ 8,620 King Pharmaceuticals,
Inc., Term Loan......... B1 BB- 12/18/06 $ 8,631,508
--------------
PRINTING & PUBLISHING 5.1%
5,000 21st Century Newspaper,
Term Loan............... B3 NR 09/15/05 4,981,536
6,380 Advanstar
Communications, Term
Loan.................... Ba3 B+ 04/30/05 6,379,673
4,988 American Reprographics,
Term Loan............... NR NR 03/31/08 4,942,311
5,990 Big Flower Press
Holdings, Inc., Term
Loan.................... B1 NR 12/06/08 6,012,651
4,898 Check Printers, Inc.,
Term Loan............... NR NR 06/30/05 4,897,963
8,500 Commerce Connect Media,
Term Loan............... NR NR 12/31/07 8,457,877
9,950 Haights Cross Comm.
Operating Co., Term
Loan.................... B2 B+ 12/10/06 9,951,490
5,000 Liberty Group Operating,
Inc., Term Loan......... B1 B 03/31/07 4,987,828
6,429 Penton Media, Inc., Term
Loan.................... Ba3 BB- 06/30/07 6,428,789
4,980 Reiman Publications,
Inc., Term Loan......... NR NR 12/10/05 4,999,492
4,081 TWP LP, Term Loan....... Ba3 B+ 10/01/04 4,080,543
6,000 Vutek, Inc., Term
Loan.................... NR NR 06/30/07 5,962,500
2,495 Ziff-Davis Media, Inc.,
Term Loan............... Ba3 B+ 03/31/07 2,499,050
--------------
74,581,703
--------------
RESTAURANTS & FOOD SERVICE 0.6%
3,120 Americas Favorite
Chicken, Inc., Term
Loan.................... Ba3 BB- 06/30/02 3,120,307
1,384 Carvel Corp., Term
Loan.................... NR NR 06/30/01 1,383,744
4,354 Domino's Pizza, Term
Loan.................... B1 B+ 12/21/06 to 12/21/07 4,372,268
--------------
8,876,319
--------------
See Notes to Financial Statements
A-33
51
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
RETAIL--OFFICE PRODUCTS 1.0%
$ 6,540 Buhrmann U.S., Inc.,
Term Loan............... Ba3 BB- 10/26/07 $ 6,556,445
8,804 U.S. Office Products
Co., Term Loan.......... Caa1 CCC+ 06/09/06 8,363,623
--------------
14,920,068
--------------
RETAIL--OIL & GAS 1.8%
7,433 Barjan Products LLC,
Term Loan............... NR NR 05/31/06 7,396,501
5,000 Kwik Trip, Inc., Term
Loan.................... NR NR 07/27/07 4,987,500
5,000 Port Arthur Coker Co.,
Term Loan............... Ba3 NR 07/15/07 4,743,876
9,288 Superior Energy
Services, Inc., Term
Loan.................... Ba3 BB- 06/30/06 9,288,760
--------------
26,416,637
--------------
RETAIL--STORES 2.5%
14,738 Duane Reade, Inc., Term
Loan.................... B1 B+ 02/15/06 14,738,547
7,087 Kirklands, Holdings,
Term Loan............... NR NR 06/30/02 7,087,096
14,000 Rite Aid Corp., Term
Loan.................... Ba3 B 08/01/02 13,930,003
--------------
35,755,646
--------------
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 2.2%
2,973 Alaska Communications
Systems Holdings, Inc.,
Term Loan............... B1 BB 11/14/07 to 05/14/08 2,974,559
5,000 Cincinnati Bell, Inc.,
Term Loan............... Ba1 NR 12/30/06 5,010,115
7,000 McLeodUSA, Inc., Term
Loan.................... Ba2 BB- 05/31/08 7,015,624
11,743 Orius Corp., Term
Loan.................... NR B+ 12/14/06 11,744,126
5,000 Rural Cellular Corp.,
Term Loan............... B1 B+ 10/03/08 to 04/03/09 4,994,375
--------------
31,738,799
--------------
TELECOMMUNICATIONS--LONG DISTANCE 1.6%
24,000 Pacific Crossing, Ltd.,
Term Loan............... NR NR 07/28/06 24,000,000
--------------
See Notes to Financial Statements
A-34
52
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TELECOMMUNICATIONS--PAGING 0.8%
$ 10,973 TSR Wireless LLC, Term
Loan.................... NR NR 06/30/05 $ 10,972,500
--------------
TELECOMMUNICATIONS--WIRELESS 7.2%
5,000 American Cellular Corp.,
Term Loan............... Ba3 B+ 03/31/08 to 03/31/09 5,000,390
15,000 BCP SP Ltd., Term Loan.. NR NR 03/31/00 to 03/31/05 14,851,437
5,000 Crown Castle
International Corp.,
Term Loan............... Ba3 BB- 03/15/08 5,015,180
53,996 Iridium Operating LLC,
Term Loan (a) (b)....... NR D 12/29/00 11,879,117
19,500 Nextel Finance Co., Term
Loan.................... Ba2 BB- 06/30/08 to 03/31/09 19,554,599
15,000 Nextel Partners, Inc.,
Term Loan............... Ba2 B- 07/29/08 15,081,255
5,000 Telecorp PCS, Inc., Term
Loan.................... B2 NR 12/05/07 4,994,790
23,250 VoiceStream Wireless
Corp., Term Loan........ B1 B+ 02/25/08 to 02/25/09 23,147,950
5,000 Western Wireless Corp.,
Term Loan............... Ba2 BB 09/30/08 5,021,250
--------------
104,545,968
--------------
TEXTILES & LEATHER 3.7%
8,113 American Marketing
Industries, Inc., Term
Loan.................... NR NR 11/30/04 to 11/30/05 8,114,153
1,645 GFSI, Inc., Term Loan... Ba3 NR 03/31/04 1,628,674
18,955 Glenoit Corp., Term
Loan (c)................ Caa1 D 12/31/03 to 06/30/04 16,682,696
5,400 Humphrey's, Inc., Term
Loan.................... NR NR 01/15/03 3,832,952
3,370 Jo-Ann Fabrics Corp.,
Term Loan............... Ba3 BB- 06/30/05 3,353,361
4,968 Norcorp, Inc., Term
Loan.................... NR NR 05/30/06 to 11/30/06 4,968,252
See Notes to Financial Statements
A-35
53
YOUR FUND'S INVESTMENTS
July 31, 2000
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TEXTILES & LEATHER (CONTINUED)
$ 13,755 Norcross Safety
Products, Term Loan..... NR NR 10/02/05 $ 13,750,181
2,000 Sleepmaster LLC, Term
Loan.................... B1 BB- 12/31/06 1,992,507
--------------
54,322,776
--------------
TRANSPORTATION--CARGO 2.6%
4,903 Atlas Freighter Leasing,
Term Loan............... NR NR 04/20/05 to 04/20/06 4,884,325
3,936 Evergreen International
Aviation, Inc., Term
Loan.................... NR NR 05/02/04 3,901,303
3,783 Gemini Leasing, Inc.,
Term Loan............... B1 NR 08/12/05 3,783,888
16,915 North American Van
Lines, Inc., Term
Loan.................... B1 B+ 11/18/07 16,915,000
8,018 OmniTrax Railroads LLC,
Term Loan............... NR NR 05/14/05 8,019,343
--------------
37,503,859
--------------
TRANSPORTATION--PERSONAL 2.1%
9,973 Avis Rent A Car, Inc.,
Term Loan............... Ba3 BB+ 06/30/06 to 06/30/07 9,982,030
19,976 Motor Coach Industries
International, Inc.,
Term Loan............... Ba3 BB- 06/15/06 19,979,456
--------------
29,961,486
--------------
TRANSPORTATION--RAIL MANUFACTURING 0.2%
2,993 RailWorks Corp., Term
Loan.................... B1 BB- 09/30/06 3,014,955
--------------
UTILITIES 1.1%
10,000 AES Texas Funding LLC,
Term Loan............... Ba1 NR 04/24/01 10,001,126
6,000 Western Resources, Inc.,
Term Loan............... NR NR 03/17/03 6,025,500
--------------
16,026,626
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 94.1%
(Cost $1,456,565,453).................................................... 1,371,468,882
--------------
See Notes to Financial Statements
A-36
54
YOUR FUND'S INVESTMENTS
July 31, 2000
DESCRIPTION VALUE
COMMERCIAL PAPER 5.4%
Armstrong World Industries, Inc. ($10,000,000 par, maturing 08/09/00,
yielding 6.67%).............................................................. $ 9,985,178
Ashland, Inc. ($20,000,000 par, maturing 08/04/00, yielding 6.67%)........... 19,988,883
Bridgestone/Firestone, Inc. ($2,300,000 par, maturing 08/02/00, yielding
6.50%)....................................................................... 2,299,585
Federated Department Stores, Inc. ($10,000,000 par, maturing 08/02/00,
yielding 6.67%).............................................................. 9,998,147
Hunt (J.B.) Transportation Services, Inc. ($5,000,000 par, maturing 08/03/00,
yielding 6.70%).............................................................. 4,998,139
Mallinckrodt, Inc. ($11,500,000 par, maturing 08/01/00, yielding 6.75%)...... 11,500,000
Temple Inland, Inc. ($3,400,000 par, maturing 08/01/00, yielding 6.78%)...... 3,400,000
Texas Utilities Co. ($10,000,000 par, maturing 08/01/00, yielding 6.68%)..... 10,000,000
Xtra, Inc. ($6,000,000 par, maturing 08/07/00, yielding 6.70%)............... 5,993,300
--------------
TOTAL COMMERCIAL PAPER 5.4%
(Cost $78,163,232)......................................................... 78,163,232
--------------
TOTAL INVESTMENTS 99.5%
(Cost $1,534,728,685)...................................................... 1,449,632,114
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%.................................. 7,976,494
--------------
NET ASSETS 100.0%........................................................... $1,457,608,608
==============
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.
(Unaudited)
1 Industry percentages are calculated as a percentage of net assets.
(a) This Senior Loan interest is non-income producing.
(b) This Borrower has filed for protection in federal bankruptcy court.
(c) Subsequent to July 31, 2000, this borrower has filed for protection in
federal bankruptcy court.
See Notes to Financial Statements
A-37
55
YOUR FUND'S INVESTMENTS
July 31, 2000
* 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-38
56
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
July 31, 2000
ASSETS:
Total Investments (Cost $1,534,728,685)..................... $1,449,632,114
Receivables:
Interest.................................................. 11,031,886
Fund Shares Sold.......................................... 2,678,181
Prepaid Expenses............................................ 516,136
Other....................................................... 33,624
--------------
Total Assets.......................................... 1,463,891,941
==============
LIABILITIES:
Payables:
Income Distributions...................................... 1,880,672
Custodian Bank............................................ 1,527,645
Investment Advisory Fee................................... 1,233,040
Distributor and Affiliates................................ 374,049
Administrative Fee........................................ 344,154
Fund Shares Repurchased................................... 51,789
Initial Offering and Registration Costs................... 41,558
Accrued Expenses............................................ 764,381
Trustees' Deferred Compensation and Retirement Plans........ 66,045
--------------
Total Liabilities..................................... 6,283,333
--------------
NET ASSETS.................................................. $1,457,608,608
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 152,178,276 shares issued and
outstanding).............................................. $ 1,521,783
Paid in Surplus............................................. 1,534,716,501
Accumulated Undistributed Net Investment Income............. 3,604,417
Accumulated Net Realized Gain............................... 2,862,478
Net Unrealized Depreciation................................. (85,096,571)
--------------
NET ASSETS.................................................. $1,457,608,608
==============
NET ASSET VALUE PER COMMON SHARE ($1,457,608,608 divided by
152,178,276 shares outstanding)........................... $ 9.58
==============
See Notes to Financial Statements
A-39
57
Statement of Operations
For the Year Ended July 31, 2000
INVESTMENT INCOME:
Interest.................................................... $140,920,030
Fees........................................................ 33,586
Other....................................................... 2,077,389
------------
Total Income............................................ 143,031,005
------------
EXPENSES:
Investment Advisory Fee..................................... 15,073,901
Administrative Fee.......................................... 3,966,816
Service Fee................................................. 2,380,090
Shareholder Services........................................ 1,159,712
Custody..................................................... 674,541
Legal....................................................... 622,791
Amortization of Organizational Costs........................ 102,254
Trustees' Fees and Related Expenses......................... 76,608
Other....................................................... 2,002,678
------------
Total Expenses.......................................... 26,059,391
------------
NET INVESTMENT INCOME....................................... $116,971,614
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 3,089,393
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (911,892)
End of the Period......................................... (85,096,571)
------------
Net Unrealized Depreciation During the Period............... (84,184,679)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(81,095,286)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 35,876,328
============
See Notes to Financial Statements
A-40
58
Statement of Changes in Net Assets
For the Years Ended July 31, 2000 and 1999
YEAR ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999
--------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 116,971,614 $ 58,912,884
Net Realized Gain................................ 3,089,393 891,210
Net Unrealized Depreciation During the Period.... (84,184,679) (1,472,606)
-------------- --------------
Change in Net Assets from Operations............. 35,876,328 58,331,488
-------------- --------------
Distributions from Net Investment Income......... (116,807,793) (56,436,224)
Distributions from Net Realized Gain............. (1,076,619) (39,076)
-------------- --------------
Total Distributions.......................... (117,884,412) (56,475,300)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... (82,008,084) 1,856,188
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 568,093,865 1,133,265,976
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................... 81,211,399 39,411,306
Cost of Shares Repurchased....................... (581,641,209) (114,016,137)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... 67,664,055 1,058,661,145
-------------- --------------
TOTAL INCREASE/DECREASE IN NET ASSETS............ (14,344,029) 1,060,517,333
NET ASSETS:
Beginning of the Period.......................... 1,471,952,637 411,435,304
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of
$3,604,417 and $3,303,975, respectively)....... $1,457,608,608 $1,471,952,637
============== ==============
See Notes to Financial Statements
A-41
59
Statement of Cash Flows
For the Year Ended July 31, 2000
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 35,876,328
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Decrease in Investments at Value.......................... 1,117,270
Increase in Interest Receivable........................... (3,545,844)
Decrease in Receivable for Funding Fee.................... 250,000
Increase in Prepaid Expenses.............................. (267,501)
Decrease in Unamortized Organizational Costs.............. 102,254
Increase in Other Assets.................................. (20,882)
Increase in Investment Advisory Fees Payable.............. 38,183
Increase in Administrative Fees Payable................... 10,048
Increase in Distributor & Affiliates Payable.............. 52,836
Increase in Accrued Expenses.............................. 501,409
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 31,603
-------------
Total Adjustments....................................... (1,730,624)
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 34,145,704
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 584,707,828
Change in Intra-day Credit Line with Custodian Bank......... (565,467)
Payments on Shares Repurchased.............................. (581,589,420)
Cash Dividends Paid......................................... (35,622,026)
Capital Gain Distributions Paid............................. (1,076,619)
-------------
Net Cash Provided by Financing Activities................. (34,145,704)
-------------
NET INCREASE IN CASH........................................ -0 -
Cash at Beginning of the Period............................. -0 -
-------------
CASH AT END OF THE PERIOD................................... $ -0 -
=============
See Notes to Financial Statements
A-42
60
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
MARCH 27, 1998
(COMMENCEMENT
YEAR ENDED JULY 31, OF INVESTMENT
------------------------- OPERATIONS) TO
2000 1999 JULY 31, 1998
-------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD..... $ 10.09 $ 10.04 $ 10.00
-------- -------- -------
Net Investment Income...................... .72 .65 .21
Net Realized and Unrealized Gain/Loss...... (.50) .04 .04
-------- -------- -------
Total from Investment Operations............. .22 .69 .25
-------- -------- -------
Less:
Distributions from Net Investment Income... .72 .64 .21
Distributions from Realized Gain........... .01 -0- -0-
-------- -------- -------
Total Distributions.......................... .73 .64 .21
-------- -------- -------
NET ASSET VALUE, END OF THE PERIOD........... $ 9.58 $ 10.09 $ 10.04
======== ======== =======
Total Return* (a)............................ 2.27% 7.09% 2.52%**
Net Assets at End of the Period (In
millions).................................. $1,457.6 $1,472.0 $ 411.4
Ratio of Expenses to Average Net Assets*..... 1.64% 1.60% 1.70%
Ratio of Net Investment Income to Average Net
Assets*.................................... 7.37% 6.66% 6.33%
Portfolio Turnover (b)....................... 54% 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-43
61
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
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 accounting principles
generally accepted in the United States of America 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, which approximates market value. Short-term loan
participations are valued at cost in the absence of any indication of
impairment.
A-44
62
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
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 are amortized and
discounts are accreted 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 July 31, 2000, for federal income tax purposes the cost of long- and
short-term investments is $1,534,731,336, the aggregate gross unrealized
appreciation is $6,537,395 and the aggregate gross unrealized depreciation is
$91,636,617, resulting in net unrealized depreciation on long- and short-term
investments of $85,099,222.
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 at least 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 2000 fiscal year have been identified and appropriately
reclassified. A permanent difference of $136,621 relating to expenses not
A-45
63
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
deductible for tax purposes has 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 DAILY 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, 2000, the Fund recognized expenses of
approximately $284,100 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 year ended July 31, 2000, the Fund recognized expenses of
approximately $22,500 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, 2000,
the Fund recognized expenses for their services of approximately $887,100.
Shareholder servicing 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
A-46
64
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
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, 2000 and July 31, 1999, paid in surplus aggregated $1,534,716,501
and $1,467,251,336 respectively.
Transactions in common shares were as follows:
YEAR ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999
Beginning Shares....................................... 145,951,374 40,992,495
----------- -----------
Shares Sold.......................................... 57,196,384 112,343,843
Shares Issued Through Dividend Reinvestment.......... 8,251,082 3,904,175
Shares Repurchased................................... (59,220,564) (11,289,139)
----------- -----------
Net Increase in Shares............................... 6,226,902 104,958,879
----------- -----------
Ending Shares.......................................... 152,178,276 145,951,374
=========== ===========
4. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $1,004,256,377 and $702,218,160,
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 shares on the expiration date of the
tender offer. For the year ended July 31, 2000, 59,220,564 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, 2000, Van Kampen received early withdrawal charges of approximately
$1,278,800 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 $9,631,900 as of July
31,
A-47
65
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
2000. 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 September 12, 2001. The
proceeds of any borrowing by the Fund under the revolving credit agreement shall
be used for temporary liquidity purposes and funding of shareholder tender
offers. 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 .50%. 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 July 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)
Chase Securities, Inc. ..................................... $ 66,879 $ 64,546
Bankers Trust............................................... 65,217 65,195
Toronto Dominion............................................ 34,250 34,186
Canadian Imperial Bank of Commerce.......................... 26,279 26,296
Bank of America............................................. 20,654 20,693
Morgan Guaranty Trust....................................... 19,983 20,011
Lehman Brothers............................................. 15,688 15,502
Bank of New York............................................ 15,000 14,914
ABN Amro.................................................... 15,000 14,851
Bank One.................................................... 14,078 14,013
Fleet National Bank......................................... 11,055 11,045
Credit Suisse............................................... 10,985 10,994
Union Bank.................................................. 10,975 10,952
IBJ Schroder Bank........................................... 10,000 9,974
A-48
66
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (CONTINUED) (000) (000)
GE Capital.................................................. 9,000 8,948
Industrial Bank of Japan.................................... 5,000 4,987
Deutsche Bank............................................... 5,000 4,744
Citibank.................................................... 5,000 4,988
Bank of Nova Scotia......................................... 4,913 4,912
Heller Finance.............................................. 4,247 4,231
National City Bank.......................................... 2,993 3,000
First Union................................................. 2,000 1,993
UBS AG...................................................... 1,491 1,483
-------- --------
Total....................................................... $375,687 $372,458
======== ========
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, 2000, the Fund paid
service fees of approximately $2,380,100 to Van Kampen.
A-49