Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
TOP FIVE PORTFOLIO INDUSTRIES 6
TOP TEN HOLDINGS 6
CURRENT DISTRIBUTION 7
Q&A WITH YOUR PORTFOLIO MANAGER 8
GLOSSARY OF TERMS 11
A FOCUS ON SENIOR LOANS 12
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 13
FINANCIAL STATEMENTS 34
NOTES TO FINANCIAL STATEMENTS 40
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 45
We are hopeful the year will be filled with peace and prosperity.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
OVERVIEW
LETTER TO SHAREHOLDERS
February 20, 2002
Dear Shareholder,
Last year's market uncertainty continued into the early days of 2002,
reinforcing the importance of a long-term investment strategy. While it is
impossible to predict the market's ups and downs, we at Van Kampen are hopeful
the year will be filled with peace and prosperity.
With a legacy that spans nearly four generations, Van Kampen has helped
investors pursue their goals through social, political and economic change. In
the face of challenges and uncertainty, our core investment philosophy has been
tested and, we believe affirmed. Whether you're new to the Van Kampen family or
revisiting your investment strategy, we encourage you to focus on two
fundamental investing principles:
SEEK FINANCIAL ADVICE BEFORE YOU INVEST. Your financial advisor can help you
develop a tailored investment strategy based on several factors, including your
age, family status and goals. While no portfolio is immune to volatility, your
advisor can help you structure a portfolio designed to address
your long-term financial goals.
EXAMINE YOUR PORTFOLIO AND MODERATE YOUR INVESTMENT
RISK--DIVERSIFY. Consider including a variety of stock and fixed-income funds in
your portfolio, which may improve your long-term performance.
We are grateful for your continued trust in Van Kampen and appreciate the
opportunity to manage your assets. In the new year, we hope you and your loved
ones enjoy life's true wealth--family, friends and life's daily pleasures.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investment Advisory Corp.
1
ECONOMIC SNAPSHOT
THE ECONOMY AND INTEREST RATES
JANUARY 2002 WAS A MONTH MARKED BY SURPRISES. PROMISING CHANGES IN THE RATE OF
UNEMPLOYMENT, MANUFACTURING AND RETAIL SALES LED SOME ANALYSTS TO BELIEVE A
POSSIBLE RECOVERY WAS NEAR. CONSUMER SPENDING, WHICH DRIVES TWO-THIRDS OF U.S.
ECONOMIC GROWTH, CONTINUED TO TREND HIGHER--DESPITE EARLIER PREDICTIONS. ALSO IN
JANUARY, CONSUMER CONFIDENCE ROSE FOR THE SECOND-STRAIGHT MONTH, WHILE
INFLATIONARY PRICE PRESSURES REMAINED SUBDUED.
IN CONTRAST, THESE POSITIVE DEVELOPMENTS WERE TEMPERED BY A NUMBER OF OTHER
DEVELOPMENTS:
- FEDERAL RESERVE BOARD (THE FED) CHAIRMAN, ALAN GREENSPAN, STATED THAT
SUSTAINED RISKS ARE OFTEN PRESENT AT THE START OF A RECOVERY.
- THE GROWING CORPORATE ACCOUNTING SCANDAL IN THE U.S.--AND THE QUESTIONS IT
RAISED IN THE INVESTMENT COMMUNITY WORLDWIDE.
- THE POLITICAL AND ECONOMIC FALLOUT STEMMING FROM INCREASED VIOLENCE ABROAD.
SO AS THE MONTH DREW TO A CLOSE, MANY MARKET OBSERVERS WERE SURPRISED WHEN THE
BUREAU OF LABOR STATISTICS REPORTED THAT GROSS DOMESTIC PRODUCT (GDP)--THE
PRIMARY MEASURE OF ECONOMIC GROWTH--HAD GROWN 1.4 PERCENT DURING THE FOURTH
QUARTER OF 2001. PRIOR TO THE REPORT, MOST HAD EXPECTED THE GDP DATA TO REFLECT
A SHRINKING ECONOMY.
ON THE HEELS OF THIS BETTER-THAN-ANTICIPATED ECONOMIC NEWS, THE FED ENDED ITS
RATE-CUTTING CAMPAIGN AND DID NOT CHANGE INTEREST RATES. THE 11 RATE REDUCTIONS
MADE DURING 2001 HAD BROUGHT THE FEDERAL FUNDS RATE TO 1.75 PERCENT--A 40-YEAR
LOW.
2
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(December 31, 1999--December 31, 2001)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Dec 99 8.3
Mar 00 4.8
Jun 00 5.7
Sep 00 1.3
Dec 00 1.9
Mar 01 1.3
Jun 01 0.3
Sep 01 -1.3
Dec 01 1.4
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(January 31, 2000--January 31, 2002)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
Jan 00 5.50 2.70
5.75 3.20
6.00 3.80
Apr 00 6.00 3.10
6.50 3.20
6.50 3.70
Jul 00 6.50 3.70
6.50 3.40
6.50 3.50
Oct 00 6.50 3.40
6.50 3.40
6.50 3.40
Jan 01 5.50 3.70
5.50 3.50
5.00 2.90
Apr 01 4.50 3.30
4.00 3.60
3.75 3.20
Jul 01 3.75 2.70
3.50 2.70
3.00 2.60
Oct 01 2.50 2.10
2.00 1.90
1.75 1.60
Jan 02 1.75 1.10
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percentage
change of the Consumer Price Index for all urban consumers at the end of each
month.
Source: Bloomberg
3
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of January 31, 2002)
MARKET(1) NAV(2)
---------------------------------------------------------------------------
TOTAL RETURNS
---------------------------------------------------------------------------
Six-month total return -5.51% -0.21%
---------------------------------------------------------------------------
One-year total return -5.90% 2.07%
---------------------------------------------------------------------------
Life-of-Trust average annual total return -0.81% 2.49%
---------------------------------------------------------------------------
Commencement date 06/24/98
---------------------------------------------------------------------------
DISTRIBUTION RATE
---------------------------------------------------------------------------
Distribution rate as a % of closing common share
market price(3) 6.95%
---------------------------------------------------------------------------
SHARE VALUATIONS
---------------------------------------------------------------------------
Net asset value $8.21
---------------------------------------------------------------------------
Closing common share market price $7.08
---------------------------------------------------------------------------
Six-month high common share market price
(08/01/01) $7.83
---------------------------------------------------------------------------
Six-month low common share market price
(09/21/01) $6.51
---------------------------------------------------------------------------
4
(1) Total return based on market assumes an investment at the common share
market price at the beginning of the period indicated, reinvestment of all
distributions for the period in accordance with the Trust's dividend
reinvestment plan, and sale of all shares at the closing common share market
price at the end of the period indicated.
(2) Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
Past performance is no guarantee of future results. Investment return,
common share market price and net asset value will fluctuate and Trust
shares, when sold, may be worth more or less than their original cost. An
investment in the Trust is subject to investment risks, and you could lose
money on your investment in the Trust. As a result of recent market
activity, current performance may vary from the figures shown. For more
up-to-date information, please visit vankampen.com or speak with your
financial advisor.
Market forecasts provided in this report may not necessarily come to pass.
5
PORTFOLIO AT A GLANCE
TOP FIVE PORTFOLIO INDUSTRIES*(+)
(as a percentage of total assets--January 31, 2002)
Health Care 7.4%
---------------------------------------------------------------------
Printing & Publishing 5.9%
---------------------------------------------------------------------
Telecommunications--Wireless 5.8%
---------------------------------------------------------------------
Beverage, Food & Tobacco 5.5%
---------------------------------------------------------------------
Entertainment & Leisure 5.1%
---------------------------------------------------------------------
TOP TEN HOLDINGS*(+)
(as a percentage of total assets--January 31, 2002)
Allied Waste Industries, Inc. 1.99%
---------------------------------------------------------------------
Rite Aid Corp. 1.96%
---------------------------------------------------------------------
Wyndham International, Inc. 1.44%
---------------------------------------------------------------------
Arch Western Resources, LLC 1.33%
---------------------------------------------------------------------
Ashtead Group, PLC 1.29%
---------------------------------------------------------------------
TeleCorp PCS, Inc. 1.25%
---------------------------------------------------------------------
Dade Behring, Inc. 1.25%
---------------------------------------------------------------------
Kindred Healthcare, Inc. 1.20%
---------------------------------------------------------------------
Collections Corp. of America 1.14%
---------------------------------------------------------------------
Ventas Realty Ltd., Inc. 1.13%
---------------------------------------------------------------------
* Excludes short-term investments.
(+) Subject to change daily. All information is provided for informational
purposes only and should not be deemed as a recommendation to buy the
securities mentioned or the securities in the industries shown above. Morgan
Stanley Dean Witter & Co. and others affiliated with it may hold positions
in or may seek to perform investment-banking services for the companies
listed.
6
CURRENT DISTRIBUTION
(August 31, 1998--January 31, 2002)
[INVESTMENT PERFORMANCE GRAPH]
VAN KAMPEN SENIOR INCOME TRUST 3-MONTH TREASURY BILL
------------------------------ ---------------------
8/98 8.490 4.825
8.000 4.361
7.850 4.318
7.960 4.483
8.170 4.452
1/99 7.910 4.452
7.760 4.670
8.170 4.475
8.230 4.535
8.170 4.627
8.210 4.779
7/99 8.160 4.745
8.490 4.967
8.810 4.851
8.750 5.088
8.870 5.301
9.900 5.328
1/00 9.530 5.692
8.750 5.781
10.340 5.871
9.400 5.829
9.880 5.619
9.960 5.855
7/00 9.600 6.219
9.460 6.307
10.010 6.210
10.460 6.389
11.300 6.202
11.580 5.895
1/01 10.660 4.994
10.740 4.859
10.880 4.286
10.490 3.883
9.790 3.616
9.380 3.656
7/01 9.040 3.524
8.530 3.367
7.790 2.371
7.440 2.012
6.760 1.726
6.550 1.725
1/02 6.950 1.757
Source: *Bloomberg
7
[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGER
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGER OF THE VAN KAMPEN SENIOR INCOME
TRUST ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS
AND INFLUENCED THE TRUST'S RETURN DURING THE SIX MONTHS ENDING JANUARY
31, 2002. HOWARD TIFFEN, PORTFOLIO MANAGER, HAS MANAGED THE TRUST SINCE 1999 AND
BRINGS MORE THAN 30 YEARS OF GLOBAL AND DOMESTIC INVESTMENT EXPERIENCE TO VAN
KAMPEN'S SENIOR LOAN MANAGEMENT TEAM. THE FOLLOWING DISCUSSION REFLECTS HIS
VIEWS ON THE TRUST'S PERFORMANCE.
Q HOW WOULD YOU CHARACTERIZE THE
MARKET ENVIRONMENT IN WHICH THE TRUST OPERATED IN THE LAST SIX MONTHS, AND
HOW DID THE TRUST PERFORM IN THAT ENVIRONMENT?
A The dominant factor in the market
over the bulk of the period was the slowing U.S. economy. The tragic events of
September 11 made a bad economic situation worse. Business activity came to a
standstill nationwide and across industries, and the travel sector was
especially hard hit. Employment, which had been weak to begin with, fell sharply
as companies announced layoffs as part of a general move to cut costs to address
a markedly weaker future. For the third quarter of 2001, gross domestic product
(GDP) fell by 1.3 percent, its largest decline since recession of the early
1990s. In the fourth quarter, however, GDP showed improvement with 1.4 percent
growth.
The Federal Reserve Bank (the "Fed") responded to this economic weakness
decisively. The group initiated a string of interest rate cuts in January of
2001 that continued through the end of the year. The bond market reacted
favorably to the interest rate cuts through October 2001. Rates fell across the
yield curve, with the most dramatic declines happening on the short end of the
yield curve, which is the most responsive to changes in monetary policy. This
shift steepened the curve significantly as short and intermediate-term paper
rallied strongly. That trend only strengthened in the wake of September 11 as
investors flocked to the perceived safety of shorter-duration, lower-risk
assets.
The market shifted in early November, as confidence seemed to slowly return
to the investor psyche. The better tone resulted from a combination of a
stabilization in geopolitical events and a growing belief that the economy was
likely to turn positive in the first half of 2002.
The market for senior secured loans continued to be challenging in this
environment. As we have noted in previous reports, corporate America has
suffered a sort of rolling recession
8
that has affected a string of sectors since mid-1999. Energy was the weak sector
at the beginning of that rolling recession because of weak oil prices, followed
by healthcare when regulatory changes led to cash flow challenges. The next to
be hit was the auto sector, followed by technology and telecommunications. Most
recently, the gaming and leisure sectors suffered over travel concerns stemming
from the events of September 11. Most of these sectors remained mired in credit
weakness, though as 2001 unfolded, energy and healthcare had shown signs of
recovery.
In the secondary market, liquidity suffered during much of the period under
review. This was a particular issue in the weeks following September 11, though
we saw a steady, gradual improvement in liquidity and prices in the months
after.
The unprecedented 11 Federal funds rate cuts last year had a direct and
dramatic impact on short-term borrowing rates. Because the lending rates charged
on the senior loans in which the trust invests are tied to these short-term
rates, the ongoing reductions put significant downward pressure on the
portfolio's dividend throughout the reporting period. The trust's dividend of
$0.041 per share translates to a distribution rate of 6.95 percent, based on the
trust's closing common share market price on January 31, 2002.
For the six months through January 31, 2002, the trust produced a total
return of -5.51 percent based on common share market price. This reflects a
decrease in market price from $7.79 per share on July 31, 2001, to $7.08 per
share on January 31, 2002. As of January 31, 2002, approximately 99 percent of
the trust's senior loan assets had been priced using independent pricing
services. Past performance is no guarantee of future results. As a result of
recent market activity, current performance may vary from the figures shown. The
return above does not reflect the deduction of taxes that a shareholder would
pay on trust distributions or the redemption of trust shares. Investment return
and principal value will fluctuate and trust shares, when sold, may be worth
more or less than their original cost. For more up-to-date information, please
visit vankampen.com or speak with your financial advisor. For additional
performance results, please refer to the chart and footnotes on page 4.
Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE TRUST?
A Given the difficulties faced by so
many sectors in recent years, we instituted a policy several quarters ago that
we continued through the period. The main component of this policy has been a
progressive diversification of the portfolio in order to attempt to reduce the
potential risk of exposure to any one troubled issuer or sector. We have
achieved this through a combination of purchases on the primary market as well
as purchases and sales on the secondary market.
As a result of this policy of diversification, we believe we entered the
period well-positioned to weather further weakness in the market as credit
weakness rotated through various
9
sectors. We were comfortable maintaining what we felt to be appropriate exposure
to most sectors because of the trust's diversification.
We have also maintained our long-term outlook for the asset class, which we
believe is best viewed over a three-to five-year time horizon. This outlook has
led us to avoid short-term judgments and trend-following. Instead, we have
adhered to our process of searching out those companies that we believe will be
best positioned to pay off their debt. The companies we favor generally feature
strong cash flow as well as talented management. The slower economy over the
reporting period only highlighted the need to remain vigilant about these
factors, as investors seemed to increasingly turn to this method of thinking
about the market.
Q WHAT IS YOUR OUTLOOK FOR
THE MARKET?
A We are optimistic that the U.S.
government's monetary and fiscal stimuli could start to have an effect in the
second half of 2002. Unlike previous recent recoveries, however, we believe that
this one will largely be driven by growth in public spending. If this does
occur, then areas like defense and healthcare could outperform relative to
private areas such as telecommunications that are still suffering from
overcapacity. In this scenario, credit quality should begin to show improvement
in the second half of the year as the economy strengthens, consumers begin to
rebuild confidence and jobs start to be won back again. As spending power
increases, the market for consumer durables may begin to show strength again.
That combined with continued progress in profitability, should, in our opinion,
improve debt service capabilities and therefore credit quality.
Historically, the equity market has usually been the first to turnaround in
a recovery, generally followed by the bond market. It usually has taken another
three to six months for improvement to be seen in corporate balance sheets, at
which point the senior secured asset class typically begins to rally. As a
result, it would appear that the asset class may be headed for better times in
the coming year. Just when those might come, however, remains to be seen. In the
interim, we will continue to keep the portfolio diversified and will search for
issuers that meet our credit quality and debt servicing requirements.
10
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets at least eight times
a year to establish monetary policy and monitor the economic pulse of the United
States.
GROSS DOMESTIC PRODUCT (GDP): The total market value of all finished goods and
services produced in a country in a given year.
NET ASSET VALUE (NAV): The value of a trust share, calculated by deducting a
trust's liabilities from the total assets applicable to common shareholders in
its portfolio and dividing this amount by the number of common shares
outstanding.
SECONDARY MARKET: A market where securities are traded after they are initially
offered.
SECTOR: A group of securities that are similar with respect to industry,
maturity, credit rating, or coupon.
SENIOR LOANS: Loans or other debt securities that are given preference to junior
securities of the borrower. In the event of bankruptcy, payments to holders of
senior loan obligations are given priority over payments to holders of
subordinated debt, as well as shareholders of preferred and common stock. Senior
loans may share priority status with other senior securities of the borrower,
and such status is not a guarantee that monies to which the investor is entitled
will be paid.
YIELD CURVE: The pattern that results from viewing the yields of U.S. Treasury
securities maturing in 1, 5, 10, and 30 years. When grouped together and
graphed, a pattern of increasing yield is often reflected as the time to
maturity extends. This pattern creates an upward sloping "curve." A "flat" yield
curve represents little difference between short- and long-term interest rates,
while a "negative" yield curve represents decreasing yields as the time to
maturity extends.
11
A FOCUS ON SENIOR LOANS
The Senior Income Trust invests primarily in senior collateralized loans to
corporations, partnerships, and other business entities that operate in a
variety of industries and geographic locations. Senior loans have a number of
characteristics that, in the opinion of the trust's management team, are
important to the integrity of the trust's portfolio. These include:
SENIOR STANDING
With respect to interest payments, senior loans generally have priority over
other classes of loans, preferred stock, or common stocks, though they may have
equal status with other securities of the borrower. This status is not a
guarantee, however, that monies to which the trust is entitled will be paid. If
they are not fully paid, it potentially could have a negative effect on the
trust's net asset value.
COLLATERAL BACKING
Senior loans are often secured by collateral that has been pledged by the
borrower under the terms of a loan agreement. Forms of collateral include
trademarks, accounts receivable or inventory, buildings, real estate,
franchises, and common and preferred stock in subsidiaries and affiliates. Under
certain circumstances, collateral might not be entirely sufficient to satisfy
the borrower's obligations in the event of nonpayment of scheduled interest or
principal, and in some instances may be difficult to liquidate on a timely
basis.
Additionally, a decline in the value of the collateral could cause the loan
to become substantially undersecured, and circumstances could arise (such as
bankruptcy of a borrower) that could cause the trust's security interest in the
loan's collateral to be invalidated. This could potentially have a negative
effect on the trust's net asset value.
CREDIT QUALITY
Many senior loans carry provisions designed to protect the lender in certain
circumstances. In addition, the variable-rate nature of the portfolio is
expected to lessen the fluctuation in the trust's net asset value. However, the
net asset value will still be subject to the influence of changes in the real or
perceived credit quality of the loans in which the trust invests. This may
occur, for example, in the event of a sudden or extreme increase in prevailing
interest rates, a default in a loan in which the trust holds an interest, or a
substantial deterioration in the borrower's creditworthiness. From time to time,
the trust's net asset value may be more or less than at the time of the
investment.
SPECIAL CONSIDERATIONS
Under normal market conditions, the trust may invest up to 20 percent of its
assets in senior loans that are not secured by any specific collateral. In
addition, the trust may invest in senior loans made to non-U.S. borrowers,
although these loans must be U.S.-dollar denominated.
12
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.(1)
BANK LOAN
PRINCIPAL RATING+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
VARIABLE RATE** SENIOR LOAN INTERESTS 115.6%
AEROSPACE/DEFENSE 3.8%
$ 6,538 Aerostructures Corp.,
Term Loan............... NR BB- 12/31/03 to 09/06/04 $ 6,434,286
1,943 Aircraft Braking Systems
Corp., Term Loan........ NR NR 10/15/05 1,906,480
4,844 Alliant Techsystems,
Inc., Term Loan......... Ba2 BB- 04/20/09 4,906,477
2,456 DeCrane Aircraft
Holdings, Inc., Term
Loan.................... B2 B+ 12/17/06 2,413,219
7,681 DRS Technologies, Inc.,
Term Loan............... Ba3 BB- 09/30/08 7,750,361
11,715 EG&G Technical Services,
Inc., Term Loan......... B1 NR 08/20/07 11,656,120
4,763 Fairchild Corp., Term
Loan.................... B1 B+ 04/30/06 4,108,375
6,926 Integrated Defense
Technologies, Inc., Term
Loan.................... NR NR 09/15/06 6,857,053
3,561 United Defense
Industries, Inc., Term
Loan.................... B1 BB- 08/13/09 3,577,714
6,236 Vought Aircraft
Industries, Inc., Term
Loan.................... NR NR 12/31/06 to 06/30/08 6,063,684
--------------
55,673,769
--------------
AUTOMOTIVE 3.3%
5,895 AMCAN Technologies,
Inc., Term Loan......... NR NR 03/28/07 5,629,725
3,165 Breed Technologies,
Inc., Term Loan......... NR NR 12/20/04 2,692,383
1,985 Dura Operating Corp.,
Term Loan............... Ba3 BB- 03/31/06 1,986,710
20,450 Federal-Mogul Corp.,
Term Loan (c)........... NR D 10/01/03 to 02/24/04 19,924,820
8,756 Federal-Mogul Corp.,
Revolving Credit
Agreement (c)........... NR D 12/14/02 8,318,330
See Notes to Financial Statements
13
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
AUTOMOTIVE (CONTINUED)
$ 1,448 J.L. French Automotive
Castings, Inc., Term
Loan.................... B1 NR 10/21/06 $ 1,095,339
1 Meridian Automotive
Systems, Inc., Term
Loan.................... NR NR 03/31/07 779
988 Oshkosh Truck Corp.,
Term Loan............... NR BB+ 01/31/07 995,523
8,182 Safelite Glass Corp.,
Term Loan............... NR NR 09/30/07 8,243,624
--------------
48,887,233
--------------
BEVERAGE, FOOD &
TOBACCO 7.0%
19,719 Agrilink Foods, Inc.,
Term Loan............... B1 B+ 09/30/04 to 09/30/05 19,151,832
19,657 Aurora Foods, Inc., Term
Loan.................... B2 B 06/30/05 to 09/30/06 19,560,287
9,460 B & G Foods, Inc., Term
Loan.................... B1 B+ 03/31/06 9,395,189
965 BCB USA Corp., Term
Loan.................... Ba3 NR 12/31/06 971,031
10,000 Dean Foods Co., Term
Loan.................... Baa2 BB+ 07/15/08 10,076,790
2,978 Del Monte Corp., Term
Loan.................... B1 B+ 03/31/08 3,012,238
11,419 Doane Pet Care Co., Term
Loan.................... B1 B+ 03/31/05 to 12/31/06 10,808,089
636 Eagle Family Foods,
Inc., Term Loan......... B1 B 12/31/05 565,915
3,465 Hartz Mountain Corp.,
Term Loan............... B1 NR 12/31/07 3,422,170
5,926 Imperial Sugar Corp.,
Term Loan............... NR NR 12/31/05 4,799,800
10,500 Land O' Lakes, Inc.,
Term Loan............... Ba2 BBB- 10/10/08 10,486,875
1,826 Luigino's, Inc., Term
Loan.................... B1 BB- 12/31/05 1,812,391
See Notes to Financial Statements
14
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
BEVERAGE, FOOD & TOBACCO (CONTINUED)
$ 4,583 Mafco Worldwide Corp.,
Term Loan............... NR NR 03/31/06 $ 4,557,998
5,000 Pinnacle Foods, Inc.,
Term Loan............... Ba3 BB- 06/20/08 5,009,375
--------------
103,629,980
--------------
BROADCASTING--CABLE 4.3%
7,000 CC VIII Operating, LLC,
Term Loan............... Ba3 BB+ 02/02/08 6,914,887
12,500 Charter Communications
Operations II LP, Term
Loan.................... Ba3 BBB- 03/18/08 12,351,563
14,235 Charter Communications,
Inc., Term Loan......... Ba3 BBB- 12/30/08 14,050,415
16,975 Falcon Communications,
LP, Term Loan........... Ba3 NR 12/31/07 16,677,938
4,907 Frontiervision Operating
Partners, LP, Term
Loan.................... Ba2 BB 03/31/06 4,845,292
9,240 Olympus Cable Holdings,
LLC, Term Loan.......... Ba2 BB 09/30/10 9,170,062
--------------
64,010,157
--------------
BROADCASTING--RADIO 0.4%
6,250 Citadel Broadcasting
Co., Term Loan.......... NR NR 06/26/09 6,249,025
--------------
BROADCASTING--TELEVISION 1.0%
1,500 Gray Communications
Systems, Inc., Term
Loan.................... Ba3 B+ 09/30/09 1,501,407
6,589 Quorum Broadcasting,
Inc., Term Loan......... NR NR 09/30/07 6,028,914
5,000 Sinclair Broadcast
Group, Inc., Term
Loan.................... Ba2 BB- 09/30/09 5,030,000
2,000 Telemundo Group, Inc.,
Term Loan............... B1 B+ 05/15/08 2,001,750
--------------
14,562,071
--------------
See Notes to Financial Statements
15
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
BUILDINGS & REAL ESTATE 3.1%
$21,385 Corrections Corp. of
America, Term Loan...... B2 B 12/31/02 $ 21,239,309
4,114 USG Corp., Revolving
Credit Agreement (a)
(c)..................... NR D 06/29/01 to 06/30/05 3,070,838
21,179 Ventas Realty Ltd.,
Inc., Term Loan......... NR NR 12/31/05 to 12/31/07 21,170,252
--------------
45,480,399
--------------
CHEMICALS, PLASTICS & RUBBER 5.3%
4,924 Applied Tech Management
Corp., Term Loan........ B1 NR 04/30/07 4,910,376
1,991 Foamex LP, Term Loan.... B3 B 06/30/05 to 06/30/06 1,938,148
14,152 GenTek, Inc., Term
Loan.................... B1 BB- 04/30/07 to 10/31/07 12,453,375
5,000 GEO Specialty Chemicals,
Inc., Term Loan......... B1 B+ 12/31/07 4,825,000
3,844 Hercules, Inc., Term
Loan.................... Ba1 BB 11/15/05 3,838,467
12,922 Huntsman Corp., Term
Loan.................... Caa2 NR 12/31/02 to 12/31/05 9,674,889
6,425 Huntsman ICI Chemicals,
LLC, Term Loan.......... B2 B+ 06/30/07 to 06/30/08 6,282,951
7,068 Lyondell Chemical Co.,
Term Loan............... Ba3 NR 05/17/06 7,067,999
4,000 Messer Griesheim, Term
Loan.................... Ba3 BB 04/27/09 to 04/27/10 4,023,124
8,480 Nutrasweet Acquisition
Corp., Term Loan........ Ba3 NR 05/25/07 to 05/25/09 8,468,662
4,987 OM Group, Inc., Term
Loan.................... Ba3 BB 04/01/07 5,007,741
6,838 Pioneer Corp. of
America, Term Loan...... NR NR 12/31/06 6,838,221
2,539 Sterling Pulp Chemicals,
Inc., Term Loan......... NR NR 07/10/05 2,488,601
411 West American Rubber
Co., Term Loan.......... NR NR 11/09/03 411,162
--------------
78,228,716
--------------
See Notes to Financial Statements
16
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
CONSTRUCTION MATERIAL 1.6%
$ 4,045 Alderwoods Group, Inc.,
Term Loan............... NR NR 01/02/04 to 01/02/09 $ 4,045,200
9,825 Brand Scaffold Services,
Inc., Term Loan......... B1 NR 09/30/03 9,751,768
3,000 Dayton Superior Corp.,
Term Loan............... Ba3 BB- 06/16/06 2,988,750
1,867 Magnatrax Corp., Term
Loan.................... NR NR 11/15/05 1,670,939
1,073 Professional Service
Industries, Inc., Term
Loan.................... NR NR 09/30/02 1,009,002
4,938 Wilmar Industries, Inc.,
Term Loan............... NR NR 09/29/07 4,443,750
--------------
23,909,409
--------------
CONTAINERS, PACKAGING & GLASS 3.5%
8,031 Dr. Pepper/Seven Up
Bottling Group, Inc.,
Term Loan............... NR NR 10/07/07 8,060,855
15,037 Graham Packaging Co.,
Term Loan............... B2 B 01/31/06 to 01/31/07 14,751,219
5,000 LLS Corp., Term Loan (a)
(c)..................... NR NR 07/31/06 2,812,500
123 LLS Corp., Revolving
Credit Agreement (c).... NR NR 01/24/03 122,503
11,757 Nexpak Corp., Term
Loan.................... NR NR 12/31/05 to 12/31/06 9,405,524
589 Owens-Illinois, Term
Loan.................... NR NR 03/31/04 587,610
4,821 Packaging Dynamics, Term
Loan.................... NR NR 11/20/05 4,435,467
5,893 Pliant Corp., Term
Loan.................... B2 B+ 05/31/08 5,846,203
4,925 Tekni-Plex, Inc., Term
Loan.................... B1 B+ 06/21/08 4,818,290
971 U.S. Can Corp., Term
Loan.................... B2 B 10/04/08 809,632
--------------
51,649,803
--------------
See Notes to Financial Statements
17
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
DIVERSIFIED MANUFACTURING 3.1%
$ 2,066 Actuant Corp., Term
Loan.................... B1 BB- 07/30/08 $ 2,076,744
11,940 Citation Corp., Term
Loan.................... NR B+ 09/30/07 10,059,763
2,475 Enersys, Term Loan...... NR NR 11/09/08 2,450,250
9,240 Mueller Group, Inc.,
Term Loan............... B1 B+ 08/16/05 to 04/17/08 9,197,384
4,640 Neenah Foundry Co., Term
Loan.................... B1 B 09/30/05 4,361,878
9,291 SPX Corp., Term Loan.... Ba2 BB+ 12/31/06 9,293,419
6,247 UCAR International,
Inc., Term Loan......... Ba3 NR 12/31/07 6,167,097
2,500 Walter Industries, Inc.,
Term Loan............... NR NR 10/15/03 2,412,500
--------------
46,019,035
--------------
DIVERSIFIED NATURAL RESOURCES 0.1%
1,990 Potlatch Corp., Term
Loan.................... Baa2 BBB- 06/29/05 1,997,876
--------------
DURABLE CONSUMER PRODUCTS 0.2%
2,986 Home Interiors & Gifts,
Inc., Term Loan......... Caa1 B- 12/31/06 2,631,437
--------------
ECOLOGICAL 3.1%
37,877 Allied Waste North
America, Inc., Term
Loan.................... Ba3 BB 07/21/05 to 07/21/07 37,272,541
3,017 Casella Waste Systems,
Inc., Term Loan......... B1 BB- 12/14/06 3,014,455
4,937 Duratek, Inc., Term
Loan.................... NR NR 12/08/06 4,838,442
2,632 IT Group, Inc., Term
Loan (a) (c)............ NR D 06/11/06 565,895
500 Stericycle, Inc., Term
Loan.................... B1 BB- 09/30/07 502,735
--------------
46,194,068
--------------
EDUCATION & CHILD CARE 0.1%
2,018 TEC Worldwide, Inc.,
Term Loan............... NR NR 02/28/05 1,957,581
--------------
See Notes to Financial Statements
18
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
ELECTRONICS 2.5%
$ 2,992 Acterna, LLC, Term
Loan.................... NR B 09/30/07 $ 2,146,516
6,996 Audio Visual Services
Corp., Term Loan (a) (h)
(i)..................... NR NR 10/01/01 3,043,203
3,105 Audio Visual Services
Corp., Revolving Credit
Agreement (a) (h) (i)... NR NR 10/01/01 to 03/31/02 2,410,667
4,178 Automata, Inc., Term
Loan (a) (c)............ NR NR 02/28/03 to 02/28/04 91,913
3,500 Computer Associates
International, Inc.,
Term Loan............... Baa1 BBB+ 05/26/03 3,493,438
4,583 Kinetic Group, Inc.,
Term Loan............... B1 NR 02/28/06 4,155,557
4,975 ON Semiconductor Corp.,
Term Loan............... NR B+ 08/04/07 3,910,350
5,407 Rowe International,
Inc., Term Loan (a) (d)
(i)..................... NR NR 12/31/00 to 12/31/03 207,086
96 Rowe International,
Inc., Revolving Credit
Agreement (d)........... NR NR 12/31/03 0
3,935 Seagate Technologies,
Inc., Term Loan......... Ba1 BB+ 11/22/06 3,941,276
4,952 Stratus Technologies,
Inc., Term Loan......... NR NR 02/26/05 4,852,885
7,624 Superior Telecom, Inc.,
Term Loan............... B2 B+ 11/27/05 5,154,609
3,934 Viasystems, Inc., Term
Loan.................... B3 CCC 03/31/07 3,156,636
--------------
36,564,136
--------------
ENTERTAINMENT & LEISURE 6.4%
8,670 Bally Total Fitness
Holding Corp., Term
Loan.................... Ba3 B+ 11/10/04 8,692,043
4,963 Bell Sports, Inc., Term
Loan.................... Ba3 NR 03/31/06 to 03/31/07 4,094,238
5,000 Edwards Theatres, Inc.,
Term Loan............... NR NR 06/30/05 4,975,000
See Notes to Financial Statements
19
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
ENTERTAINMENT & LEISURE (CONTINUED)
$ 9,840 Fitness Holdings
Worldwide, Inc., Term
Loan.................... NR B 11/02/06 to 11/02/07 $ 8,298,397
4,966 Loews Cineplex
Entertainment Corp.,
Revolving Credit
Agreement (c)........... NR D 04/06/03 to 05/14/03 4,682,431
18,500 Metro-Goldwyn-Mayer,
Inc., Term Loan......... NR NR 03/31/05 18,326,563
2,341 PCA International, Term
Loan.................... B2 NR 08/25/05 1,942,924
4,925 Playcore Wisconsin,
Inc., Term Loan......... NR NR 07/01/07 4,788,955
8,279 Six Flags Theme Parks,
Inc., Term Loan......... Ba2 BB- 11/05/05 8,328,926
3,838 True Temper, Inc., Term
Loan.................... B1 BB- 09/30/05 3,818,922
15,382 United Artists Theatre,
Inc., Term Loan......... B3 B- 01/24/05 15,277,861
6,933 WFI Group, Inc., Term
Loan.................... Ba2 NR 07/14/04 6,950,667
4,925 Worldwide Sports &
Recreation, Inc., Term
Loan.................... NR NR 12/31/06 4,653,548
--------------
94,830,475
--------------
FARMING & AGRICULTURE 0.3%
3,988 The Scotts Co., Term
Loan.................... Ba3 BB 12/31/07 4,011,395
--------------
FINANCE 2.7%
6,435 Bridge Information
Systems, Inc., Term Loan
(a) (c)................. NR NR 07/07/03 to 06/01/06 2,694,449
2,268 Bridge Information
Systems, Inc., Revolving
Credit Agreement (a)
(c)..................... NR NR 07/07/03 949,781
20,000 Comdisco, Inc., Term
Loan (a) (c)............ NR NR 06/30/02 16,166,660
7,347 Mafco Finance Corp.,
Term Loan............... NR NR 08/14/02 7,277,987
See Notes to Financial Statements
20
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
FINANCE (CONTINUED)
$ 4,888 Outsourcing Solutions,
Term Loan............... B2 NR 06/10/06 $ 4,582,031
4,188 Rent-A-Center, Inc.,
Term Loan............... Ba2 BB- 01/31/06 to 12/31/07 4,169,059
4,925 Risk Management
Assurance Co., Term
Loan.................... NR NR 12/21/06 4,785,374
--------------
40,625,341
--------------
GROCERY 0.1%
307 Fleming Cos., Inc., Term
Loan.................... Ba2 BB+ 07/25/04 302,861
794 Fleming Cos., Inc.,
Revolving Credit
Agreement............... Ba2 BB+ 07/25/03 761,914
--------------
1,064,775
--------------
HEALTHCARE 6.9%
926 American Home Patient,
Term Loan............... NR NR 12/31/02 746,776
13,664 Community Health
Systems, Inc., Term
Loan.................... NR B+ 12/31/05 13,727,829
11,809 FHC Health Systems,
Inc., Term Loan......... NR NR 04/30/03 to 04/30/06 11,255,955
263 FHC Health Systems,
Inc., Revolving Credit
Agreement............... NR NR 05/18/03 248,684
14,155 Genesis Health Ventures,
Inc., Term Loan......... Ba3 BB- 03/30/07 to 04/02/07 14,212,055
33,213 Integrated Health
Services, Inc., Term
Loan (a) (c)............ NR NR 09/30/04 to 12/31/05 18,861,943
7,000 Integrated Health
Services, Inc.,
Revolving Credit
Agreement (a)(c)........ NR NR 09/30/03 3,916,500
1,980 InteliStaf Group, Inc.,
Term Loan............... NR NR 10/31/07 1,968,245
22,464 Kindred Healthcare,
Inc., Term Loan......... NR NR 04/13/08 22,483,131
4,984 Magellan Health
Services, Inc., Term
Loan.................... B1 B+ 02/12/05 to 02/12/06 4,983,866
See Notes to Financial Statements
21
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
HEALTHCARE (CONTINUED)
$ 3,750 Medical Staffing Network
Holdings, Inc., Term
Loan.................... NR NR 11/01/07 $ 3,721,875
6,233 Triad Hospitals, Inc.,
Term Loan............... Ba3 B+ 09/30/08 6,308,143
--------------
102,435,002
--------------
HEALTHCARE & BEAUTY 1.1%
8,000 Mary Kay, Inc., Term
Loan.................... Ba3 B+ 10/03/07 8,000,000
8,000 Revlon Consumer Products
Corp., Term Loan........ B3 B 05/30/02 7,926,664
--------------
15,926,664
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER PRODUCTS 1.3%
702 Formica Corp., Term
Loan.................... Caa1 CCC 04/30/06 584,863
8,642 Holmes Products Corp.,
Term Loan............... B2 BB- 02/05/07 6,978,621
1,422 Imperial Home Decor
Group, Inc., Term Loan
(d)..................... NR NR 04/04/06 1,315,616
5,712 Pillowtex Corp., Term
Loan (c)................ NR NR 01/31/02 to 12/31/04 1,942,061
3,517 Sleepmaster, LLC, Term
Loan (c)................ NR NR 12/31/06 2,901,150
1,481 Targus Group
International, Inc.,
Term Loan............... NR NR 12/20/06 1,440,470
2,932 Winsloew Furniture,
Inc., Term Loan......... Ba3 B 03/31/06 2,770,568
2,390 World Kitchen, Inc.,
Revolving Credit
Agreement............... NR NR 04/08/05 1,732,913
--------------
19,666,262
--------------
See Notes to Financial Statements
22
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
HOTELS, MOTELS, INNS &
GAMING 5.2%
$26,570 Aladdin Gaming, LLC,
Term Loan (a) (c)....... NR NR 02/26/05 to 02/26/08 $ 19,224,102
175 Aladdin Gaming, LLC,
Revolving Credit
Agreement (c)........... NR NR 03/31/02 173,250
4,975 Argosy Gaming Co., Term
Loan.................... Ba2 BB 07/31/08 5,041,332
10,000 Extended Stay America,
Inc., Term Loan......... Ba3 BB- 01/15/08 10,000,890
1,977 Isle of Capri Casinos,
Inc., Term Loan......... Ba2 BB- 03/02/06 to 03/02/07 1,988,642
13,522 Scientific Games Corp.,
Term Loan............... B1 B+ 09/30/07 13,547,556
30,881 Wyndham International,
Inc., Term Loan......... NR NR 06/30/06 26,952,293
--------------
76,928,065
--------------
INSURANCE 0.3%
5,000 White Mountains
Insurance Group, Ltd.,
Term Loan............... NR NR 03/31/07 5,016,665
--------------
MACHINERY 4.4%
6,356 Alliance Laundry
Systems, LLC, Term
Loan.................... B1 B 06/30/05 5,831,492
24,750 Ashtead Group, PLC, Term
Loan.................... NR NR 06/01/07 24,193,125
6,219 Dresser Industries,
Inc., Term Loan......... Ba3 BB- 04/10/09 6,267,337
8,961 Flowserve Corp., Term
Loan.................... B1 BB- 06/30/08 8,976,529
1,000 Joy Global, Inc., Term
Loan.................... Ba2 BB 04/30/05 1,000,000
12,060 NationsRent, Inc., Term
Loan (c)................ NR NR 07/20/06 7,085,446
See Notes to Financial Statements
23
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
MACHINERY (CONTINUED)
$ 8,933 United Rentals (North
America), Inc., Term
Loan.................... Ba3 BB+ 08/31/07 $ 9,007,310
2,816 Weigh-Tronix, LLC, Term
Loan.................... NR NR 06/30/07 2,506,001
--------------
64,867,240
--------------
MEDICAL PRODUCTS & SUPPLIES 3.8%
17,075 Alliance Imaging, Inc.,
Term Loan............... B1 B+ 11/02/07 to 11/02/08 17,174,223
998 Conmed Corp., Term
Loan.................... B1 BB- 12/30/04 989,820
24,243 Dade Behring, Inc., Term
Loan.................... NR NR 06/30/05 to 06/30/07 23,414,346
1,035 DaVita, Inc, Term
Loan.................... Ba2 BB- 03/31/06 1,042,601
4,988 Insight Health, Term
Loan.................... NR B+ 10/17/08 4,984,383
3,771 Kinetics Concepts, Inc.,
Term Loan............... Ba3 B 12/31/04 to 03/31/06 3,769,263
4,913 National Nephrology
Associates, Inc., Term
Loan.................... B1 B+ 12/31/05 4,875,656
--------------
56,250,292
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 1.8%
3,442 CII Carbon, LLC, Term
Loan.................... NR NR 07/31/08 2,065,173
6,680 Earle M. Jorgensen, Term
Loan.................... B1 B+ 03/31/04 6,563,072
29,021 Ispat Inland, Term
Loan.................... Caa2 CCC 07/16/05 to 07/16/06 17,630,158
--------------
26,258,403
--------------
NATURAL RESOURCES 3.4%
25,000 Arch Western Resources,
LLC, Term Loan.......... Ba1 NR 06/01/03 24,835,950
19,975 Ocean Rig ASA (Norway),
Term Loan............... B3 NR 12/29/06 to 06/01/08 17,677,125
4,975 Port Arthur Coker Co.,
Term Loan............... Ba3 NR 07/15/07 4,965,672
3,000 Premcor Refining Group,
Inc., Term Loan......... Ba3 BB- 08/23/03 2,988,750
--------------
50,467,497
--------------
See Notes to Financial Statements
24
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
NON-DURABLE CONSUMER PRODUCTS 1.6%
$ 8,706 American Marketing
Industries, Inc., Term
Loan (a)................ NR NR 11/30/04 to 11/30/05 $ 4,353,144
804 American Safety Razor
Co., Term Loan.......... B1 B 04/30/07 776,553
5,710 Arena Brands, Inc., Term
Loan.................... NR NR 06/01/02 5,650,270
9,273 Boyds Collection, Ltd.,
Term Loan............... Ba3 B+ 04/21/05 8,730,847
2,190 GFSI, Inc., Term Loan... Ba3 NR 12/31/02 2,058,514
1,970 Playtex Products, Inc.,
Term Loan............... Ba2 BB- 05/31/09 1,986,336
--------------
23,555,664
--------------
PAPER & FOREST PRODUCTS 0.4%
2,465 Bear Island Paper Co.,
LLC, Term Loan.......... B1 B+ 12/31/05 2,366,851
2,947 Port Townsend Paper
Corp., Term Loan........ NR NR 03/16/05 to 03/16/07 2,871,427
--------------
5,238,278
--------------
PERSONAL & MISCELLANEOUS SERVICES 2.5%
2,000 Adams Outdoor
Advertising LP, Term
Loan.................... B1 B+ 02/08/08 2,018,126
1,500 Church & Dwight Co.,
Inc., Term Loan......... Ba2 BB 09/30/07 1,511,813
11,803 Encompass Service Corp.,
Term Loan............... Ba3 BB- 05/10/07 9,442,192
2,733 Iron Mountain, Inc.,
Term Loan............... NR BB 02/28/06 2,760,709
342 Service Corp.
International, Revolving
Credit Agreement........ B1 BB- 06/25/02 334,947
4,157 Stewart Enterprises,
Inc., Term Loan......... Ba3 BB 06/30/06 4,181,132
10,205 Telespectrum Worldwide,
Inc., Term Loan (a)..... NR NR 07/01/02 4,694,310
6,000 The Relizon Co., Term
Loan.................... NR NR 12/31/07 5,733,750
See Notes to Financial Statements
25
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
PERSONAL & MISCELLANEOUS SERVICES (CONTINUED)
$ 1,744 Veterinary Centers of
America, Term Loan...... NR NR 09/30/08 $ 1,754,426
5,000 Weight Watchers
International, Inc.,
Term Loan............... Ba1 BB- 12/31/07 5,043,750
--------------
37,475,155
--------------
PHARMACEUTICALS 1.7%
6,964 AdvancePCS, Inc., Term
Loan.................... Ba3 BB 10/02/07 7,009,469
4,963 Caremark Rx, Inc., Term
Loan.................... Ba3 BB 03/15/06 5,013,678
3,995 MedPointe, Inc., Term
Loan.................... B1 B+ 09/30/08 3,981,269
9,958 NCS Healthcare,
Revolving Credit
Agreement............... NR NR 06/30/02 9,186,228
--------------
25,190,644
--------------
PRINTING & PUBLISHING 7.4%
4,702 21st Century Newspapers,
Term Loan............... NR NR 09/15/05 4,396,114
6,240 Advanstar
Communications, Inc.,
Term Loan............... B1 B+ 10/11/07 5,764,200
4,958 American Media
Operations, Inc., Term
Loan.................... Ba3 B+ 04/01/07 4,990,390
11,299 American Reprographics
Co., Term Loan.......... NR NR 04/10/08 11,072,949
7,960 CommerceConnect Media,
Inc., Term Loan......... NR NR 12/31/07 7,840,600
4,500 Goss Graphics Corp.,
Term Loan (a) (c)....... NR NR 09/30/03 315,000
28 Goss Graphics Corp.,
Revolving Credit
Agreement (c)........... NR NR 03/17/02 27,439
800 Lamar Media Corp., Term
Loan.................... Ba2 BB- 02/01/07 805,334
4,875 Liberty Group Operating,
Inc., Term Loan......... B1 B 03/31/07 4,777,747
3,214 Medical Arts Press,
Inc., Term Loan......... NR NR 05/16/06 3,157,646
See Notes to Financial Statements
26
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
PRINTING & PUBLISHING (CONTINUED)
$15,000 Morris Communications
Corp., Term Loan........ NR NR 09/30/09 $ 15,107,820
2,992 Payment Processing
Solutions, Inc., Term
Loan.................... NR NR 06/30/05 2,969,806
5,482 Penton Media, Inc., Term
Loan.................... B2 B 06/30/07 4,577,055
3,980 PRIMEDIA, Inc., Term
Loan.................... NR BB- 06/30/09 3,716,325
9,158 Reiman Publications,
LLC, Term Loan.......... NR NR 12/01/05 9,226,327
4,799 Trader.com, Term Loan... NR NR 12/31/06 to 12/31/07 4,679,131
11,677 Vertis, Inc., Term
Loan.................... B1 B+ 12/06/05 9,750,070
13,546 Von Hoffman Press, Inc.,
Term Loan............... B1 B+ 07/01/04 to 07/01/05 13,173,333
1,924 Vutek, Inc., Term
Loan.................... B1 NR 12/30/07 1,904,531
1,615 Ziff-Davis Media, Inc.,
Term Loan............... B3 CCC- 03/31/07 1,240,483
--------------
109,492,300
--------------
RESTAURANTS & FOOD SERVICE 1.3%
1,845 Carvel Corp., Term
Loan.................... NR NR 12/31/06 1,835,775
9,660 Domino's Pizza, Inc.,
Term Loan............... B1 B+ 12/21/06 to 12/21/07 9,790,768
2,953 Papa Ginos, Inc., Term
Loan.................... NR NR 08/31/07 2,938,006
4,668 S.C. International
Services, Inc., Term
Loan.................... Ba1 NR 03/01/07 4,384,888
--------------
18,949,437
--------------
RETAIL--OIL & GAS 2.1%
7,322 Barjan Products, LLC,
Term Loan............... NR NR 05/31/06 6,919,158
4,612 Kwik Trip, Term Loan.... NR NR 07/27/07 4,647,037
10,000 Tesoro Petroleum Corp.,
Term Loan............... Ba2 BBB- 12/31/07 10,058,330
9,295 The Pantry, Inc., Term
Loan.................... B1 BB- 01/31/06 to 07/31/06 9,258,358
--------------
30,882,883
--------------
See Notes to Financial Statements
27
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
RETAIL--SPECIALTY 1.3%
$11,498 Hollywood Entertainment
Corp., Revolving Credit
Agreement............... NR CCC 09/05/02 $ 11,426,367
7,474 Josten's, Inc., Term
Loan.................... B1 BB- 05/31/06 to 05/31/08 7,439,159
--------------
18,865,526
--------------
RETAIL--STORES 3.1%
2,985 Duane Reade, Inc., Term
Loan.................... Ba3 BB- 02/15/07 2,991,218
6,746 HMV Media Group, PLC,
Term Loan............... B1 B+ 03/30/06 to 09/30/06 6,695,433
37,127 Rite Aid Corp., Term
Loan.................... B1 BB- 06/27/05 36,551,169
--------------
46,237,820
--------------
TELECOMMUNICATIONS--HYBRID 0.2%
2,500 Chicago 20MHz, Term
Loan.................... NR NR 10/31/07 2,512,500
--------------
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 1.0%
11,000 Broadwing, Inc., Term
Loan.................... Ba1 BB+ 12/30/06 to 06/28/07 10,752,045
1,800 McLeodUSA, Inc., Term
Loan (c)................ Caa2 D 05/30/08 1,114,999
7,381 Orius Corp., Term
Loan.................... NR CC 12/14/06 to 12/15/07 2,011,309
7,500 WCI Capital Corp. Inc.,
Term Loan (a) (c)....... NR NR 09/30/07 106,875
2,500 WCI Capital Corp. Inc.,
Revolving Credit
Agreement (a) (c)....... NR NR 01/10/03 625,000
--------------
14,610,228
--------------
TELECOMMUNICATIONS--LONG DISTANCE 1.0%
3,772 Global Crossing
Holdings, Ltd., Term
Loan (a) (c)............ Caa2 D 06/30/06 1,133,862
22,651 Pacific Crossing, Ltd.,
Term Loan............... NR NR 07/28/06 13,175,158
--------------
14,309,020
--------------
See Notes to Financial Statements
28
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
TELECOMMUNICATIONS--WIRELESS 7.3%
$ 3,589 American Cellular Corp.,
Term Loan............... Ba3 BB- 03/31/08 to 03/31/09 $ 3,536,559
7,500 American Tower Corp.,
Term Loan............... B1 BB- 12/31/07 6,760,545
19,371 BCP SP Ltd., Term
Loan.................... NR NR 03/31/02 to 03/31/05 17,565,745
8,000 Cricket, Term Loan...... NR NR 06/30/07 6,035,000
4,712 Microcell Solutions,
Inc., Term Loan......... NR NR 03/01/06 4,170,460
21,745 Nextel Finance Co., Term
Loan.................... Ba2 BB- 06/30/08 to 12/31/08 19,358,892
5,000 Spectrasite
Communications, Inc.,
Term Loan............... B3 B+ 12/31/07 4,287,190
4,045 Sygnet Wireless, Inc.,
Term Loan............... NR NR 03/23/07 to 12/23/07 3,884,903
23,500 TeleCorp PCS, Inc., Term
Loan.................... B2 NR 05/17/09 to 04/02/10 23,452,949
10,700 Triton PCS, Inc., Term
Loan.................... Ba3 BB- 05/04/07 10,684,399
9,000 Western Wireless Corp.,
Term Loan............... Ba2 BB- 09/30/08 8,212,500
--------------
107,949,142
--------------
TEXTILES & LEATHER 2.2%
8,146 Galey & Lord, Inc., Term
Loan (g)................ Caa2 B 04/02/05 to 04/01/06 5,640,904
11,008 Glenoit Corp., Term Loan
(c)..................... NR NR 12/31/03 to 06/30/04 7,210,055
5,633 Malden Mills Industries,
Inc., Term Loan
(c)(a).................. NR NR 10/28/06 1,070,183
17,000 Norcross Safety
Products, LLC, Term
Loan.................... NR NR 10/02/05 16,107,838
998 The William Carter Co.,
Term Loan............... Ba3 BB- 09/30/08 1,000,617
868 U.S. Synthetic Corp.,
Term Loan............... NR NR 05/31/05 825,000
--------------
31,854,597
--------------
See Notes to Financial Statements
29
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BANK
PRINCIPAL LOANRATING+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
TRANSPORTATION--CARGO 1.5%
$ 5,304 American Commercial
Lines, LLC, Term Loan... B3 B+ 06/30/06 to 06/30/07 $ 4,873,248
5,062 Atlas Freighter Leasing,
Inc., Term Loan......... NR NR 04/25/05 to 04/25/06 4,985,705
7,682 Evergreen International
Aviation, Inc., Term
Loan.................... NR NR 05/31/02 to 05/07/04 6,588,769
6,230 Kansas City Southern
Railway Co., Term
Loan.................... Ba1 BB+ 12/30/05 to 12/29/06 6,249,777
--------------
22,697,499
--------------
TRANSPORTATION--PERSONAL 0.3%
4,904 Motor Coach Industries,
Inc., Term Loan......... B2 B 06/16/06 3,824,933
--------------
TRANSPORTATION--RAIL MANUFACTURING 0.3%
3,427 Helm, Inc., Term Loan... NR NR 10/10/06 3,049,733
3,054 RailWorks Corp., Term
Loan (a) (c)............ NR NR 09/30/06 1,924,097
--------------
4,973,830
--------------
UTILITIES 0.3%
4,407 Western Resources, Inc.,
Term Loan............... NR NR 03/17/03 4,399,159
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 115.6%....................... 1,709,011,386
--------------
FIXED INCOME SECURITIES 1.6%
Satelites Mexicanos ($26,036,000 par, 9.06% coupon, maturing 06/30/04),
144A Private Placement (b)................................................ 23,855,485
--------------
See Notes to Financial Statements
30
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
BORROWER VALUE
EQUITIES 3.2%
Alderwoods Group, Inc. (239,607 common shares) (e).......... $ 3,102,910
Breed Technologies, Inc. (416,538 common shares) (e)........ 1,195,464
Genesis Health Ventures, Inc. (10,483 preferred shares) (e)
(f)....................................................... 1,259,742
Genesis Health Ventures, Inc. (932,291 common shares) (e)
(f)....................................................... 14,916,656
Imperial Home Decor Group, Inc. (512,023 common shares) (d)
(e) (f)................................................... 0
Imperial Home Decor Realty, Inc. (512,023 common shares) (d)
(e) (f)................................................... 0
Kindred Healthcare, Inc. (499,875 common shares) (e) (f).... 19,840,039
Pioneer Corp of America (331,654 common shares) (e) (f)..... 951,847
Rowe International, Inc. (87,636 common shares) (d) (e)
(f)....................................................... 0
Safelite Glass Corp. (122,963 common shares) (e) (f)........ 837,378
Safelite Realty (8,300 common shares) (e) (f)............... 0
Tembec, Inc. (70,560 common shares) (e)..................... 540,490
United Artists Theatre, Inc. (396,242 common shares) (e)
(f)....................................................... 5,151,146
West American Rubber Co., LLC (5.04% Ownership Interest) (e)
(f)....................................................... 0
--------------
TOTAL EQUITIES.............................................. 47,795,672
--------------
TOTAL LONG-TERM INVESTMENTS 120.4%
(Cost $1,931,088,586)..................................... 1,780,662,543
--------------
SHORT-TERM INVESTMENTS 4.5%
COMMERCIAL PAPER 2.1%
Conagra, Inc. ($8,000,000 par, maturing 02/06/02, yielding
1.99%).................................................... 7,997,789
General Mills, Inc. ($13,500,000 par, maturing 02/06/02,
yielding 2.01%)........................................... 13,496,231
Kellogg Co. ($9,500,000 par, maturing 02/08/02, yielding
2.0%)..................................................... 9,496,306
--------------
TOTAL COMMERCIAL PAPER...................................... 30,990,326
--------------
SHORT-TERM LOAN PARTICIPATIONS 2.1%
Conagra, Inc. ($2,000,000 par, maturing 02/01/02, yielding
2.15%).................................................... 2,000,000
Sprint Capital Corp. ($13,500,000 par, maturing 02/01/02,
yielding 2.16%)........................................... 13,500,000
Viacom, Inc. ($15,000,000 par, maturing 02/01/02, yielding
2.0%)..................................................... 15,000,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS........................ 30,500,000
--------------
TIME DEPOSIT 0.3%
State Street Bank & Trust Corp. ($4,206,999 par, 0.75%
coupon, dated 1/31/02, to be sold on 02/01/02 at
$4,207,087)............................................... 4,206,999
--------------
TOTAL SHORT-TERM INVESTMENTS 4.5%
(Cost $65,697,324)........................................ 65,697,325
--------------
TOTAL INVESTMENTS 124.9%
(Cost $1,996,785,910)..................................... 1,846,359,868
See Notes to Financial Statements
31
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
VALUE
BORROWINGS (25.0%)......................................... $ (370,000,000)
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1%................. 1,679,991
--------------
NET ASSETS 100.0%.......................................... $1,478,039,859
==============
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) 144A Securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally
transactions with qualified institutional buyers.
(c) This borrower has filed for protection in federal bankruptcy court.
(d) Affiliated company. See Notes to Financial Statements.
(e) Non-income producing security as this stock currently does not declare
dividends.
(f) Restricted Security
(g) Subsequent to January 31, 2002, this borrower has filed for protection in
federal bankruptcy court.
(h) Subsequent to January 31, 2002, this borrower has emerged from bankruptcy.
(i) The borrower is in the process of restructuring or amending the terms of
this loan.
See Notes to Financial Statements
32
YOUR TRUST'S INVESTMENTS
January 31, 2002 (Unaudited)
* Senior Loans in the Trust's portfolio generally are subject to mandatory
and/or optional prepayment. Because of these mandatory prepayment conditions
and because there may be significant economic incentives for a Borrower to
prepay, prepayments of Senior Loans in the Trust's portfolio may occur. As a
result, the actual remaining maturity of Senior Loans held in the Trust's
portfolio may be substantially less than the stated maturities shown.
Although the Trust is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, the Trust estimates that the actual
average maturity of the Senior Loans held in its portfolio will be
approximately 18-24 months.
** Senior Loans in which the Trust invests generally pay interest at rates which
are periodically redetermined by reference to a base lending rate plus a
premium. These base lending rates are generally (i) the lending rate offered
by one or more major European banks, such as the London Inter-Bank Offered
Rate ("LIBOR"), (ii) the prime rate offered by one or more major United
States banks and (iii) the certificate of deposit rate. Senior Loans are
generally considered to be restricted in that the Trust ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
borrower prior to the disposition of a Senior Loan.
See Notes to Financial Statements
33
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
January 31, 2002 (Unaudited)
ASSETS:
Total Investments (Cost $1,996,785,910)..................... $1,846,359,868
Cash........................................................ 763,206
Receivables:
Investments Sold.......................................... 11,003,852
Interest.................................................. 10,800,961
Other....................................................... 78,131
--------------
Total Assets............................................ 1,869,006,018
--------------
LIABILITIES:
Payables:
Borrowings................................................ 370,000,000
Investments Purchased..................................... 17,916,374
Investment Advisory Fee................................... 1,349,306
Administrative Fee........................................ 317,484
Affiliates................................................ 20,087
Accrued Interest Expense.................................... 690,244
Accrued Expenses............................................ 482,906
Trustees' Deferred Compensation and Retirement Plans........ 189,758
--------------
Total Liabilities....................................... 390,966,159
--------------
NET ASSETS.................................................. $1,478,039,859
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 180,010,000 shares issued and
outstanding).............................................. $ 1,800,100
Paid in Surplus............................................. 1,795,669,290
Accumulated Undistributed Net Investment Income............. 6,181,171
Net Unrealized Depreciation................................. (150,426,042)
Accumulated Net Realized Loss............................... (175,184,660)
--------------
NET ASSETS.................................................. $1,478,039,859
==============
NET ASSET VALUE PER COMMON SHARE ($1,478,039,859 divided by
180,010,000 shares outstanding)........................... $ 8.21
==============
See Notes to Financial Statements
34
Statement of Operations
For the Six Months Ended January 31, 2002 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 62,144,369
Fees........................................................ 2,872,910
-------------
Total Income............................................ 65,017,279
-------------
EXPENSES:
Investment Advisory Fee..................................... 7,941,259
Administrative Fee.......................................... 1,868,532
Custody..................................................... 303,829
Legal....................................................... 291,886
Trustees' Fees and Related Expenses......................... 41,902
Other....................................................... 872,299
-------------
Total Operating Expenses................................ 11,319,707
Interest Expense........................................ 4,970,208
-------------
Total Expenses.......................................... 16,289,915
-------------
NET INVESTMENT INCOME....................................... $ 48,727,364
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (36,929,773)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (134,717,871)
End of the Period......................................... (150,426,042)
-------------
Net Unrealized Depreciation During the Period............... (15,708,171)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (52,637,944)
=============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (3,910,580)
=============
See Notes to Financial Statements
35
Statements of Changes in Net Assets
For the Six Months Ended January 31, 2002 and the Year Ended July 31, 2001
(Unaudited)
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2002 JULY 31, 2001
----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 48,727,364 $ 143,228,857
Net Realized Loss.................................. (36,929,773) (134,906,805)
Net Unrealized Depreciation During the Period...... (15,708,171) (62,619,290)
-------------- --------------
Change in Net Assets from Operations............... (3,910,580) (54,297,238)
Distributions from Net Investment Income........... (50,708,735) (149,588,160)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (54,619,315) (203,885,398)
NET ASSETS:
Beginning of the Period............................ 1,532,659,174 1,736,544,572
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of $6,181,171
and $8,403,655, respectively).................... $1,478,039,859 $1,532,659,174
============== ==============
See Notes to Financial Statements
36
Statement of Cash Flows
For the Six Months Ended January 31, 2002 (Unaudited)
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ (3,910,580)
------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Decrease in Investments at Value.......................... 33,611,083
Decrease in Receivable for Investments Sold............... 14,115,377
Decrease in Interest Receivables.......................... 612,388
Decrease in Other Assets.................................. 155,018
Increase in Payable for Investments Purchased............. 6,001,874
Decrease in Investment Advisory Fee Payable............... (30,208)
Decrease in Administrative Fee Payable.................... (7,108)
Decrease in Affiliates Payable............................ (32,460)
Decrease in Accrued Expenses.............................. (142,516)
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 19,214
------------
Total Adjustments....................................... 54,302,662
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 50,392,082
============
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Bank Borrowings................................... (5,000,000)
Change in Accrued Interest Expense.......................... (567,998)
Cash Dividends Paid......................................... (50,825,065)
------------
Net Cash Used for Financing Activities.................. (56,393,063)
------------
NET DECREASE IN CASH........................................ (6,000,981)
Cash at Beginning of the Period............................. 6,764,187
------------
Cash at the End of the Period............................... $ 763,206
============
See Notes to Financial Statements
37
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX JUNE 24, 1998
MONTHS (COMMENCEMENT
ENDED YEAR ENDED JULY 31, OF INVESTMENT
JANUARY 31, ------------------------------ OPERATIONS) TO
2002(F) 2001 2000 1999 JULY 31, 1998
-------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD (A)........ $ 8.51 $ 9.65 $ 10.08 $ 10.07 $ 9.99
-------- -------- -------- -------- --------
Net Investment Income.... .26 .79 .81 .77 .07
Net Realized and
Unrealized Gain/Loss... (.28) (1.10) (.42) -0- .01
-------- -------- -------- -------- --------
Total from Investment
Operations............... (.02) (.31) .39 .77 .08
-------- -------- -------- -------- --------
Less:
Distributions from Net
Investment Income...... .28 .83 .81 .76 -0-
Distributions from Net
Realized Gain.......... -0- -0- .01 -0- -0-
-------- -------- -------- -------- --------
Total Distributions........ .28 .83 .82 .76 -0-
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD................... $ 8.21 $ 8.51 $ 9.65 $ 10.08 $ 10.07
======== ======== ======== ======== ========
Common Share Market Price
at End of the Period..... $ 7.08 $ 7.79 $ 8.75 $ 9.5625 $10.0625
Total Investment Return at
Common Share Market Price
(b)...................... -5.51%** -1.42% .61% 2.98% .63%**
Total Return at Net Asset
Value (c)................ -.21%** -3.19% 4.10% 7.91% .70%**
Net Assets at End of the
Period (In millions)..... $1,478.0 $1,532.7 $1,736.5 $1,815.1 $1,812.1
Ratio of Operating Expenses
to Average Net Assets.... 1.21% 1.63% 1.75% 1.66% 1.18%*
Ratio of Interest Expense
to Average Net Assets.... .53% 2.15% 2.49% 2.37% .28%
Ratio of Net Investment
Income to Average Net
Assets................... 5.22% 8.90% 8.19% 7.72% 6.94%*
Portfolio Turnover (d)..... 31%** 55% 57% 28% 3%**
SENIOR INDEBTEDNESS:
Total Borrowing Outstanding
(In thousands)........... $370,000 $375,000 $700,000 $800,000 $400,000
Asset Coverage Per
$1,000 Unit of Senior
Indebtedness (e)......... 4,999 5,087 3,481 3,269 5,530
See Notes to Financial Statements
38
* If certain expenses had not been voluntarily assumed by Van Kampen, total
return would have been lower and the Ratio of Operating Expenses to Average
Net Assets and the Ratio of Net Investment Income to Average Net Assets would
have been 1.21% and 6.90% for the period ended July 31, 1998.
** Non-Annualized
(a) Net asset value on June 24, 1998 of $10.00 is adjusted for common share
offering costs of $.013.
(b) Total return based on common share market price assumes an investment at the
common share market price at the beginning of the period indicated,
reinvestment of all distributions for the period in accordance with the
Trust's dividend reinvestment plan, and sale of all shares at the closing
common share market price at the end of the period indicated.
(c) Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(d) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interest.
(e) Calculated by subtracting the Trust's total liabilities (not including the
Borrowings) from the Trust's total assets and dividing by the total number
of senior indebtedness units, where one unit equals $1,000 of senior
indebtedness.
(f) As required, effective August 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on fixed income securities. The effect of this change for
the six-months ended January 31, 2002 was to decrease net investment income
per share by $.01 and increase net realized and unrealized gains and losses
per share by $.01. The change had no effect on the ratio of net investment
income to average net assets. Per shares, ratios and supplemental data for
periods prior to January 31, 2002 have not been restated to reflect this
change in presentation.
See Notes to Financial Statements
39
NOTES TO
FINANCIAL STATEMENTS
January 31, 2002 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Senior Income Trust (the "Trust") is registered as a non-diversified
closed-end management investment company under the Investment Company Act of
1940 (the "1940 Act"), as amended. The Trust's investment objective is to
provide a high level of current income, consistent with preservation of capital.
The Trust seeks to achieve its objective by investing primarily in a portfolio
of interests in floating or variable rate senior loans to corporations,
partnerships and other entities which operate in a variety of industries and
geographical regions. The Trust borrows money for investment purposes which will
create the opportunity for enhanced return, but also should be considered a
speculative technique and may increase the Trust's volatility. The Trust
commenced investment operations on June 24, 1998.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with 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 Trust's Senior Loans are valued by the Trust following
valuation guidelines established and periodically reviewed by the Trust's Board
of Trustees. Under the valuation guidelines, Senior Loans for which reliable
market quotes are readily available are valued at the mean of such bid and ask
quotes. Where reliable market quotes are not readily available, Senior Loans are
valued, where possible, using independent market indicators provided by
independent pricing sources approved by the Board of Trustees. Other Senior
Loans are valued by independent pricing sources approved by the 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. 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
Loans in the Trust's portfolio. The fair value of Senior
40
NOTES TO
FINANCIAL STATEMENTS
January 31, 2002 (Unaudited)
Loans are reviewed and approved by the Trust's Valuation Committee and the Board
of Trustees.
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 senior loan,
note, or fixed income security. Other income is comprised primarily of amendment
fees. Amendment fees are earned as compensation for agreeing to changes in loan
agreements.
As required, effective August 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on fixed income securities. Prior to August 1, 2001, the
Trust did not amortize premiums on senior loans, notes, or fixed income
securities. The cumulative effect of this accounting change had no impact on
total net assets of the Portfolio, but resulted in a $241,113 reduction in cost
of securities and a corresponding $241,113 decrease in net unrealized
depreciation based on securities held by the Trust on July 31, 2001.
The effect of this change for the six months ended January 31, 2002 was to
decrease net investment income by $48,542; increase net unrealized depreciation
by $62,242, and decrease net realized loss by $110,784. The statement of changes
in net assets and financial highlights for prior periods have not been restated
to reflect this change in presentation.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At July 31, 2001, the Trust had an accumulated capital loss carryforward
for tax purposes of
41
NOTES TO
FINANCIAL STATEMENTS
January 31, 2002 (Unaudited)
$4,851,995, which will expire on July 31, 2009. Net realized gains or losses may
differ for financial and tax reporting purposes primarily as a result of the
deferral of losses relating to wash sale transactions, post October losses which
may not be recognized for tax purposes until the first day of the following
fiscal year and losses that were recognized for book purposes but not for tax
purposes at the end of the fiscal year.
At January 31, 2002, for federal income tax purposes cost of long- and
short-term investments is $2,013,889,114, the aggregate gross unrealized
appreciation is $33,844,608 and the aggregate gross unrealized depreciation is
$201,373,854, resulting in net unrealized depreciation on long- and short-term
investments of $167,529,246.
E. DISTRIBUTION OF INCOME AND GAINS The Trust intends to declare and pay monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are to be distributed at least annually to common shareholders.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee of .85%
of the average daily managed assets. Managed assets are defined as the gross
asset value of the Trust minus the sum of accrued liabilities, other than the
aggregate amount of borrowings undertaken by the Trust. In addition, the Trust
will pay a monthly administrative fee to Van Kampen Investments Inc., the
Trust's Administrator, at an annual rate of .20% of the average daily managed
assets of the Trust. The administrative services provided by the Administrator
include monitoring the provisions of the loan agreements and any agreements with
respect to participations and assignments, record keeping responsibilities with
respect to interests in Variable Rate Senior Loans in the Trust's portfolio and
providing certain services to the holders of the Trust's securities.
For the six months ended January 31, 2002, the Trust recognized expenses of
approximately $92,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
Under a Legal Services agreement, the Adviser provides legal services to the
Trust. The Adviser allocates the cost of such services to each trust. For the
six months ended January 31, 2002, the Trust recognized expenses of
approximately $18,800 representing Van Kampen Investments Inc.'s or its
affiliates' (collectively "Van Kampen") cost of providing legal services to the
Trust, which are reported as "Legal" expenses in the Statement of Operations.
42
NOTES TO
FINANCIAL STATEMENTS
January 31, 2002 (Unaudited)
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
During the period, the Trust owned shares of the following affiliated
companies. Affiliated companies are defined by the 1940 Act as those companies
in which a trust holds 5% or more of the outstanding voting securities.
REALIZED DIVIDEND MARKET VALUE
NAME SHARES* GAIN/(LOSS) INCOME 1/31/02
Imperial Home Decor Group, Inc......... 512,023 0 0 0
Imperial Home Decor Realty, Inc........ 512,023 0 0 0
Rowe International Inc. ............... 87,636 0 0 0
* Shares acquired through the restructuring of Senior Loan interests.
3. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $597,457,163 and $550,196,379,
respectively.
4. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $35,973,900 as of
January 31, 2002. The Trust generally will maintain with its custodian
short-term investments and/or cash having an aggregate value at least equal to
the amount of unfunded loan commitments.
5. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States and foreign corporations, partnerships, and other entities. When
the Trust purchases a participation of a Senior Loan interest, the Trust
typically enters into a contractual agreement with the lender or other third
party selling the participation, but not with the borrower directly. As such,
the Trust assumes the
43
NOTES TO
FINANCIAL STATEMENTS
January 31, 2002 (Unaudited)
credit risk of the borrower, selling participant or other persons
interpositioned between the Trust and the borrower.
At January 31, 2002, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Trust on a participation
basis.
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
Chase Securities, Inc....................................... $23,500 $23,453
Banker's Trust Company...................................... 20,000 16,167
Wachovia.................................................... 12,072 11,505
Bank of America............................................. 5,000 2,813
------- -------
Total....................................................... $60,572 $53,938
======= =======
6. BORROWINGS
In accordance with its investment policies, the Trust may borrow money for
investment purposes in an amount up to approximately 33 1/3% of the Trust's
total assets.
The Trust has entered into an $800 million revolving credit agreement with
VVR Funding LLC, a Delaware limited liability company whose sole purpose is the
issuance of commercial paper. VVR has the authority to issue a maximum of $800
million of commercial paper, at a discount, with maturities of up to 180 days,
the proceeds of which are used to make advances to the Trust. This revolving
credit agreement is secured by the assets of the Trust. For the six months ended
January 31, 2002, the average daily balance of borrowings under the revolving
credit agreement was $355 million with a weighted average interest rate of
2.73%.
44
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN SENIOR INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
45
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2002 Van Kampen Funds Inc. All rights reserved.
VVR SAR 3/02 Member NASD/SIPC.
5528C02-AS-3/02