.
.
.
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
TOP FIVE PORTFOLIO INDUSTRIES 5
TOP TEN HOLDINGS 5
CURRENT DISTRIBUTION 6
Q&A WITH YOUR PORTFOLIO MANAGER 7
GLOSSARY OF TERMS 10
A FOCUS ON SENIOR LOANS 11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 12
FINANCIAL STATEMENTS 33
NOTES TO FINANCIAL STATEMENTS 38
DIVIDEND REINVESTMENT PLAN 44
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 45
Regardless of the market environment, your investment goals don't go away.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
OVERVIEW
LETTER TO SHAREHOLDERS
February 20, 2003
Dear Shareholder,
During the bull market of the 1990s, many investors ignored what investment risk
really means: the possibility of losing money. Instead, investors came to define
risk as "more reward."
Today, it's clear that for many people, the pendulum has swung to the opposite
extreme. Many are reluctant to enter the market, stick with their long-term
plans, or assume prudent levels of risk. Not knowing what action to take, many
investors are taking none.
Regardless of how you define risk and regardless of the market environment, your
investment goals don't go away. Parents will want to send children to college,
retirees will want to enjoy their golden years, and families will want to
purchase homes. And history bears out that a prudent investment may be one of
the best ways to get there.
How can you reconcile the reality of market risk with the
pursuit of your long-term investment goals?
At Van Kampen, we believe that
diversification and asset allocation are the
best strategies for managing the market's ups and downs.
That's why Van Kampen offers a full range of fund choices. We
encourage you to work with your advisor to make sure that you have an asset
allocation that's suitable for you.
All of us at Van Kampen remain grateful for the trust you have placed in us and
for the opportunity to help you enjoy life's true wealth.
Sincerely,
[SIG]
David M. Swanson
Chief Operating Officer
Van Kampen Investment Advisory Corp.
1
ECONOMIC SNAPSHOT
JANUARY'S ECONOMIC DATA BORE A STRIKING RESEMBLANCE TO THE PREVIOUS 12 MONTHS:
CONSUMERS SPENT, BUSINESSES EXHIBITED GUARDED OPTIMISM, AND GEOPOLITICAL RISKS
DOMINATED THE DAILY HEADLINES.
CONSUMER SPENDING, ALTHOUGH OFF FROM HOLIDAY LEVELS, EDGED SLIGHTLY ABOVE
EXPECTATIONS. ZERO PERCENT FINANCING AND PRICE MARKDOWNS GENERATED ACTIVITY,
WHILE LOW INTEREST RATES CONTINUED TO SPUR CONSUMER SPENDING IN THE AUTOMOTIVE
AND HOUSING INDUSTRIES. DESPITE THEIR WILLINGNESS TO SPEND, CONSUMERS'
CONFIDENCE FALTERED IN JANUARY AS THE CONSUMER CONFIDENCE INDEX HOVERED NEAR
MULTI-YEAR LOWS.
BUSINESS SPENDING FOR THE MONTH ALSO IMPROVED, REGISTERING A SLIGHT INCREASE
FROM LEVELS SEEN DURING THE SECOND HALF OF 2002. EQUALLY ENCOURAGING, THE
MANUFACTURING SECTOR CONTINUED THE EXPANSION THAT BEGAN AT THE END OF 2002'S
THIRD QUARTER.
YET, BY THE END OF JANUARY 2003, THE NEAR-TERM DIRECTION OF THE ECONOMY WAS JUST
AS UNCERTAIN AS IT WAS AT THE BEGINNING OF THE MONTH. THE FEDERAL RESERVE OPEN
MARKET COMMITTEE, WHICH CHOSE TO MAINTAIN ITS CURRENT MONETARY POLICY, STATED AS
MUCH. IN A STATEMENT EXPLAINING ITS CURRENT POLICY, THE COMMITTEE SUGGESTED ONCE
GEOPOLITICAL FACTORS SUBSIDE, THE ECONOMIC CLIMATE SHOULD IMPROVE.
2
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(December 31, 2000--December 31, 2002)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Dec 00 1.1%
Mar 01 -0.6%
Jun 01 -1.6%
Sep 01 -0.3%
Dec 01 2.7%
Mar 02 5.0%
Jun 02 1.3%
Sep 02 4.0%
Dec 02 1.4%
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(January 31, 2001--January 31, 2003)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
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
1.75 1.10
1.75 1.50
Apr 02 1.75 1.60
1.75 1.20
1.75 1.10
Jul 02 1.75 1.50
1.75 1.80
1.75 1.50
Oct 02 1.75 2.00
1.25 2.20
1.25 2.40
Jan 03 1.25 2.60
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, 2003)
-----------------------------------------------------------------------
TOTAL RETURNS
-----------------------------------------------------------------------
Six-month total return(1) 9.93%
-----------------------------------------------------------------------
One-year total return(1) 6.98%
-----------------------------------------------------------------------
Life-of-Trust average annual total return(1) 0.83%
-----------------------------------------------------------------------
Commencement date 06/24/98
-----------------------------------------------------------------------
DISTRIBUTION RATE
-----------------------------------------------------------------------
Distribution rate as a % of closing common share market
price(2) 6.41%
-----------------------------------------------------------------------
SHARE VALUATIONS
-----------------------------------------------------------------------
Net asset value $7.72
-----------------------------------------------------------------------
Closing common share market price $7.09
-----------------------------------------------------------------------
Six-month high common share market price (01/14/03) $7.10
-----------------------------------------------------------------------
Six-month low common share market price (08/15/02) $6.40
-----------------------------------------------------------------------
(1) Total return 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) 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.
An investment in senior loans is subject to certain risks such as loan
defaults and illiquidity due to insufficient collateral backing. Please
consult a prospectus for more information.
Market forecasts provided in this report may not necessarily come to pass.
4
PORTFOLIO AT A GLANCE
TOP FIVE PORTFOLIO INDUSTRIES*(+)
(as a percentage of total assets--January 31, 2003)
Printing & Publishing 7.8%
---------------------------------------------------------------------
Healthcare 7.4%
---------------------------------------------------------------------
Medical Products & Services 7.2%
---------------------------------------------------------------------
Beverage, Food & Tobacco 6.8%
---------------------------------------------------------------------
Entertainment & Leisure 5.1%
---------------------------------------------------------------------
TOP TEN HOLDINGS*(+)
(as a percentage of total assets--January 31, 2003)
Rite Aid Corp. 2.6%
---------------------------------------------------------------------
Allied Waste North America, Inc. 2.3%
---------------------------------------------------------------------
Community Health Systems, Inc. 1.7%
---------------------------------------------------------------------
Wyndham International, Inc. 1.5%
---------------------------------------------------------------------
Charter Communications Operating, LLC 1.5%
---------------------------------------------------------------------
DaVita, Inc. 1.4%
---------------------------------------------------------------------
Nextel Finance Co. 1.2%
---------------------------------------------------------------------
Aladdin Gaming, LLC 1.1%
---------------------------------------------------------------------
Kindred Healthcare, Inc. 1.1%
---------------------------------------------------------------------
Aurora Foods, Inc. 1.1%
---------------------------------------------------------------------
* 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 is a full-service securities firm engaged in securities trading and
brokerage activities, investment banking, research and analysis, financing
and financial advisory services.
5
CURRENT DISTRIBUTION
(August 31, 1998--January 31, 2003)
[INVESTMENT PERFORMANCE GRAPH]
VAN KAMPEN SENIOR INCOME TRUST 3-MONTH TREASURY BILL
------------------------------ ---------------------
8/98 8.49 4.825
8.00 4.361
7.85 4.318
7.96 4.483
8.17 4.452
1/99 7.91 4.452
7.76 4.67
8.17 4.475
8.23 4.535
8.17 4.627
8.21 4.779
7/99 8.16 4.745
8.49 4.967
8.81 4.851
8.75 5.088
8.87 5.301
9.90 5.328
1/00 9.53 5.692
8.75 5.781
10.34 5.871
9.40 5.829
9.88 5.619
9.96 5.855
7/00 9.60 6.219
9.46 6.307
10.01 6.21
10.46 6.389
11.30 6.202
11.58 5.895
1/01 10.66 4.994
10.74 4.859
10.68 4.286
10.49 3.883
9.79 3.616
9.38 3.656
7/01 9.04 3.524
8.54 3.367
8.49 2.371
8.34 2.012
7.46 1.726
7.20 1.725
1/02 6.95 1.757
6.79 1.757
6.49 1.777
6.56 1.767
6.35 1.726
6.28 1.685
7/02 6.76 1.695
6.73 1.675
6.85 1.552
6.97 1.45
6.89 1.215
6.79 1.195
1/03 6.41 1.174
*Source: Bloomberg
6
[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 ENDED JANUARY 31, 2003.
HOWARD TIFFEN, MANAGING DIRECTOR, IS PRIMARILY RESPONSIBLE FOR THE DAY-TO-DAY
MANAGEMENT OF THE TRUST. MR. TIFFEN HAS MANAGED THE TRUST SINCE 1999 AND HAS
WORKED IN THE INVESTMENT INDUSTRY SINCE 1967. 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 environment for the
senior loan asset class has not been favorable over the past six months. There
were several cross-currents affecting the market, with the single greatest
factor being flat corporate performance. Corporations have been largely unable
to produce revenue or profit growth as the economy has been stagnant. Financial
malaise was compounded by the damaging series of corporate governance scandals
that further undermined investor confidence. Default rates reflected this
environment by climbing to near-record levels in the second half of 2002.
This difficult environment had a clear effect on corporations' ability to
raise capital in the markets. Issuance was quite weak until the end of the
period, with activity improving somewhat in January. While investors appeared to
put much of the corporate scandals behind them at that point, the lack of
corporate earning power continued to dampen investors' enthusiasm.
For the six months ended January 31, 2003, the trust produced a total return
of 9.93 percent based on common share market price, and not reflective of any
early withdrawal charges. This return reflects an increase in market price from
$6.67 per share on July 31, 2002 to $7.09 per share on January 31, 2003. Past
performance is no guarantee of future results. As a result of recent market
activity, current performance may vary from the figures shown. 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.
7
Q WHAT KINDS OF SECURITIES DOES
THE TRUST INVEST IN?
A The trust invests in senior secured
loans made to companies by large banks; borrowers such as these also issue debt
in the high yield bond markets. The banks then sell the loans to institutional
investors such as mutual funds. The loans have several key features that make
them attractive investments. The first of these is their place on the capital
structure. Senior secured loans are at the very top of the capital structure,
which means that they will be entitled to repayment before any subordinated
debt, preferred stock or equity. They are also protected by covenants and are
backed by specific collateral. As a result of this protection, they tend to
carry credit ratings roughly one to two levels higher than high yield bonds of
the same borrower in those cases where the loans are rated (which is roughly 60%
of the time).
The structure of these loans gives loan-holders greater influence over the
issuer in the event of financial difficulties relative to other investors in the
capital structure. For example, loan-holders can invoke covenants to bring an
issuing company to the table to discuss restructuring. Restructuring can take
the form of asset sales, the issuance of new junior non-interest-bearing debt,
or other measures that can benefit both the company and its lenders.
The other major benefit to investors in senior loans is that the loans'
coupons are floating rate. They are generally structured to offer a yield
premium over LIBOR, which means that their coupon rate floats with short-term
market rates as they change. As a result, unlike traditional bonds, senior
secured loans tend to increase in value as interest rates rise.
Q WHAT STRATEGIES DID YOU USE IN
MANAGING THE TRUST?
A Given the uncertainties plaguing
the economy and financial markets, we chose to pursue a fairly conservative
series of strategies in order to try to protect shareholder capital while
maintaining the portfolio's yield. In our purchasing activity, we focused on
companies with relatively low fixed costs that we believe are more likely to be
somewhat shielded from the effects of the slow economy. This strategy led us to
avoid companies in sectors such as chemicals and refining that have large fixed
costs and are reliant on rising prices for much of their growth.
In keeping with our long-term strategy, we also continued to emphasize
management strength in the companies in the trust's portfolio. One of the most
unfortunate lessons of the late 1990s was that many management teams that
appeared to be stars were in fact bailed out of bad decisions by overall growth.
Now that the economic environment is more challenging, we believe it is even
more important to find management teams that understand how to operate in a low-
growth, low-inflation environment.
Finally, we moved to try to protect the portfolio from unanticipated
volatility in the market by trading out of many of its lower-coupon securities.
We reinvested the proceeds of those sales in securities with slightly higher
8
coupons that our analysis indicated offered greater return potential relative to
their risk.
Q WHAT IS YOUR OUTLOOK FOR
THE MARKET?
A We anticipate that growth will
continue to be restrained over the coming months. While it is impossible to
identify the precise date, interest rates are likely to begin to rise, though
not until economic activity picks up significantly. Even with moderate growth,
however, default activity is likely to trend back toward historical norms. In
fact, much of the surge in defaults was caused by "fallen angels" such as
WorldCom and Qwest that overwhelmed the usual statistics. Since their fall,
default rates have begun what appears to be a decline back to normal levels. In
this environment, we will continue to focus on earning the highest possible
risk-adjusted returns consistent with the preservation of capital.
9
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CREDIT-QUALITY RISK: The possibility that a debt issuer will fail to pay the
debt's principal or interest in a timely manner.
CREDIT RATING: An evaluation of a bond issuer's credit history and capability of
repaying debt obligations. Standard & Poor's Ratings Group and Moody's Investors
Service are two companies that assign credit ratings. Standard & Poor's ratings
range from a high of AAA to a low of D, Moody's from a high of Aaa to a low of
C.
DEFAULT: The failure to make required debt payments on time.
LONDON INTERBANK OFFERED RATE (LIBOR): The interest rate the largest
international banks charge each other for loans.
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: Where securities are traded after they are initially offered.
SENIOR LOANS: Loans or other debt instruments 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, so this status is not a guarantee that monies to which the investor is
entitled will in fact be paid.
10
A FOCUS ON SENIOR LOANS
The Senior Income Trust invests primarily in adjustable rate senior 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 and pay principal and
interest in U.S. dollars.
11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
VARIABLE RATE** SENIOR LOAN INTERESTS 124.2%
AEROSPACE/DEFENSE 2.5%
$ 2,992 Alliant Techsystems,
Inc., Term Loan (j)..... Ba2 BB- 04/20/09 $ 3,001,612
3,650 DeCrane Aircraft
Holdings, Inc.,
Term Loan............... B2 B+ 12/17/06 2,965,473
10,098 DRS Technologies, Inc.,
Term Loan............... Ba3 BB- 09/30/08 10,164,847
1,809 Integrated Defense
Technologies, Inc., Term
Loan.................... Ba3 BB- 03/04/08 1,795,311
10,032 United Defense
Industries, Inc., Term
Loan.................... Ba3 BB- 08/13/07 to 08/13/09 10,040,303
7,056 Vought Aircraft
Industries, Inc., Term
Loan.................... NR NR 12/31/06 to 06/30/08 6,886,373
--------------
34,853,919
--------------
AUTOMOTIVE 4.7%
3,396 AMCAN Consolidate
Technologies, Inc., Term
Loan.................... NR NR 03/28/07 3,242,922
2,239 Breed Technologies,
Inc., Term Loan (i)..... NR NR 12/20/04 2,116,233
11,881 Citation Corp., Term
Loan.................... NR B+ 12/01/07 10,455,146
20,050 Federal-Mogul Corp.,
Term Loan (c)........... NR NR 10/05/03 to 02/24/04 19,969,748
8,934 Federal-Mogul Corp.,
Revolving Credit
Agreement (c)........... NR NR 02/24/04 8,889,348
7,147 MetoKote Corp., Term
Loan.................... B1 B+ 11/02/05 to 11/14/05 7,029,720
See Notes to Financial Statements
12
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
AUTOMOTIVE (CONTINUED)
$ 13,139 Safelite Glass Corp.,
Term Loan............... NR NR 09/30/07 $ 12,744,876
1,478 Stoneridge, Inc., Term
Loan.................... Ba3 BB- 04/30/08 1,475,653
--------------
65,923,646
--------------
BEVERAGE, FOOD & TOBACCO 9.1%
12,968 Agrilink Foods, Inc.,
Term Loan............... Ba3 B+ 06/30/08 12,999,919
22,559 Aurora Foods, Inc., Term
Loan.................... B2 B- 06/30/05 to 09/30/06 19,996,059
6,384 B & G Foods, Inc., Term
Loan (j)................ B1 B+ 03/31/06 6,383,668
12,417 Commonwealth Brands,
Inc., Term Loan (j)..... NR NR 08/28/07 12,401,146
784 Cott Beverages, Inc.,
Term Loan............... NR BB 12/31/06 787,612
9,546 Dean Foods Co., Term
Loan (j)................ Ba2 BB+ 07/15/08 9,552,671
10,000 Del Monte Corp., Term
Loan (j)................ Ba3 B+ 12/20/10 10,083,750
14,105 Doane Pet Care Co., Term
Loan.................... B2 B+ 03/31/05 to 12/31/06 13,560,118
3,815 Hartz Mountain Corp.,
Term Loan............... B1 NR 12/31/07 3,823,656
7,080 Land O' Lakes, Inc.,
Term Loan............... B1 BB 10/10/08 6,584,369
3,319 Mafco Worldwide Corp.,
Term Loan............... NR NR 03/31/06 3,285,601
430 Meow Mix Co., Term
Loan.................... Ba3 BB- 01/31/08 431,075
5,792 New World Pasta Co.,
Term Loan............... B3 CCC+ 01/28/06 4,973,614
960 New World Pasta Co.,
Revolving Credit
Agreement............... B3 CCC+ 01/28/05 859,200
4,943 Otis Spunkmeyer, Inc.,
Term Loan............... B1 B+ 01/21/09 4,924,645
7,616 Pinnacle Foods, Inc.,
Term Loan............... Ba3 BB- 05/22/08 7,615,602
See Notes to Financial Statements
13
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
BEVERAGE, FOOD & TOBACCO (CONTINUED)
$ 4,374 Southern Wine & Spirits
of America, Inc., Term
Loan (j)................ NR NR 07/02/08 $ 4,390,413
3,961 Swift & Co.,
Term Loan (j)........... Ba2 BB 09/19/08 3,975,514
--------------
126,628,632
--------------
BROADCASTING--CABLE 5.6%
6,930 CC VIII Operating, LLC,
Term Loan............... B2 B- 02/02/08 5,834,194
33,655 Charter Communications
Operating, LLC, Term
Loan.................... B2 B 09/18/07 to 09/18/08 28,407,282
16,800 Falcon Cable
Communications, LP, Term
Loan.................... B2 NR 12/31/07 14,091,000
4,896 Frontiervision Operating
Partners, LP, Term Loan
(c)..................... NR NR 03/31/06 4,313,596
4,364 Frontiervision Operating
Partners, LP, Revolving
Credit Agreement (c).... NR NR 10/31/05 3,847,274
9,250 Insight Midwest Holdings
LLC, Term Loan.......... Ba3 BB+ 06/30/09 to 12/31/09 8,888,438
5,250 MCC Iowa, LLC, Term
Loan.................... NR NR 09/30/10 5,130,783
9,240 Olympus Cable Holdings,
LLC, Term Loan (c)...... NR NR 09/30/10 7,477,470
--------------
77,990,037
--------------
BROADCASTING--DIVERSIFIED 0.2%
1,000 Cumulus Media, Inc.,
Term Loan............... Ba3 B 03/28/10 1,007,083
1,506 Hughes Electronics
Corp., Term Loan........ Ba3 BB 08/31/03 1,509,286
--------------
2,516,369
--------------
BROADCASTING--RADIO 0.4%
5,000 Citadel Broadcasting
Co., Term Loan (j)...... NR NR 06/26/09 5,025,000
--------------
See Notes to Financial Statements
14
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
BROADCASTING--TELEVISION 0.9%
$ 7,040 Gray Communications
Systems, Inc.,
Term Loan............... Ba3 B+ 12/31/10 $ 7,076,664
6,495 Quorum Broadcasting,
Inc., Term Loan......... NR NR 12/31/04 5,699,121
--------------
12,775,785
--------------
BUILDINGS & REAL ESTATE 1.6%
9,091 Corrections Corp. of
America, Term Loan...... B1 B+ 03/31/06 to 03/31/08 9,100,649
4,943 The Macerich Co., Term
Loan.................... NR NR 07/26/05 4,949,539
6,965 Ventas, Inc., Term
Loan.................... NR NR 04/17/07 6,938,881
1,115 Ventas, Inc., Revolving
Credit Agreement........ NR NR 04/17/05 1,056,626
--------------
22,045,695
--------------
CHEMICALS, PLASTICS & RUBBER 4.6%
8,152 CP Kelco ApS,
Term Loan............... B3 B+ 09/30/06 to 09/30/08 7,823,169
11,225 GenTek, Inc., Term Loan
(c)..................... Caa2 NR 04/30/05 to 10/31/07 6,458,903
3,792 GenTek, Inc., Revolving
Credit Agreement (c).... Caa2 NR 04/30/05 2,218,520
4,596 GEO Specialty Chemicals,
Inc., Term Loan......... B1 B+ 12/31/07 4,244,034
15,797 Huntsman Corp., Term
Loan.................... B3 B+ 03/31/07 13,282,315
12,324 Huntsman ICI Chemicals,
LLC, Term Loan.......... B2 B+ 06/30/07 to 06/30/08 12,084,835
992 ISP Technologies, Inc.,
Term Loan............... NR BB+ 06/27/08 994,304
4,667 Lyondell Chemical Co.,
Term Loan............... Ba3 BB 05/17/06 4,672,514
4,000 Messer Griesheim, Term
Loan.................... Ba2 BB 04/27/09 to 04/27/10 4,022,500
3,215 Nutrasweet Acquisition
Corp., Term Loan........ Ba3 NR 05/25/07 to 05/25/09 3,217,719
See Notes to Financial Statements
15
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CHEMICALS, PLASTICS & RUBBER (CONTINUED)
$ 5,040 OM Group, Inc., Term
Loan.................... B2 B+ 04/01/06 $ 4,750,458
411 West American Rubber
Co., LLC, Term Loan..... NR NR 11/09/03 411,162
--------------
64,180,433
--------------
CONSTRUCTION MATERIAL 0.9%
2,970 Dayton Superior Corp.,
Term Loan............... B2 B+ 06/02/08 2,932,875
2,133 National Waterworks,
Inc., Term Loan (j)..... B1 BB- 11/22/09 2,150,001
8,176 Wilmar Industries, Inc.,
Term Loan............... NR NR 09/29/05 to 09/29/07 8,094,245
--------------
13,177,121
--------------
CONTAINERS, PACKAGING & GLASS 4.5%
4,874 Applied Tech Management
Corp., Term Loan........ B1 NR 04/30/07 4,020,958
10,010 Dr. Pepper/Seven Up
Bottling Group, Inc.,
Term Loan............... NR NR 10/07/06 to 10/07/07 9,833,661
5,988 Graham Packaging Co.,
Term Loan............... B2 B 01/31/06 to 01/31/07 5,932,652
1,693 Impress Metal Packaging
Holding B.V.,
Term Loan............... NR NR 12/31/06 1,659,212
9,226 Nexpak Corp.,
Term Loan............... NR NR 03/31/04 7,657,663
6,787 Owens-Illinois, Inc.,
Term Loan............... B1 BB 03/31/04 6,750,542
7,119 Owens-Illinois, Inc.,
Revolving Credit
Agreement............... B1 BB 03/31/04 6,883,613
4,761 Packaging Dynamics, Term
Loan.................... NR NR 11/20/05 4,725,677
2,078 Pliant Corp., Term
Loan.................... B2 B+ 05/31/08 2,057,837
995 Riverwood International
Corp., Term Loan........ B1 B 03/31/07 993,911
5,000 Smurfit-Stone Container
Corp., Term Loan........ Ba3 NR 06/30/09 4,951,683
See Notes to Financial Statements
16
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CONTAINERS, PACKAGING & GLASS (CONTINUED)
$ 4,875 Tekni-Plex, Inc., Term
Loan.................... B1 B+ 06/21/08 $ 4,797,814
2,745 U.S. Can Corp., Term
Loan.................... B2 B 01/04/06 2,374,503
--------------
62,639,726
--------------
DIVERSIFIED MANUFACTURING 2.3%
2,450 EnerSys, Term Loan...... NR NR 11/09/08 2,425,547
14,682 Mueller Group, Inc.,
Term Loan............... B1 B+ 05/31/08 14,655,868
7,625 Neenah Foundry Co., Term
Loan.................... Caa1 B- 09/30/05 7,090,816
8,428 SPX Corp.,
Term Loan (j)........... Ba2 BB+ 09/30/09 to 03/31/10 8,410,665
--------------
32,582,896
--------------
ECOLOGICAL 3.8%
42,513 Allied Waste North
America, Inc., Term Loan
(j)..................... Ba3 BB 07/21/05 to 07/21/07 42,260,796
360 Allied Waste North
America, Inc., Revolving
Credit Agreement........ Ba3 BB 07/21/05 344,520
4,950 Casella Waste Systems,
Inc., Term Loan (j)..... B1 BB- 05/11/07 4,983,002
4,869 Duratek, Inc.,
Term Loan............... NR NR 12/08/06 4,747,325
--------------
52,335,643
--------------
EDUCATION & CHILD CARE 0.1%
1,663 TEC Worldwide, Inc.,
Term Loan............... NR NR 02/28/05 1,597,507
--------------
ELECTRONICS 4.3%
727 AMI Semiconductor, Inc.,
Term Loan............... Ba3 BB 12/26/06 722,972
808 Amphenol Corp., Term
Loan.................... Ba2 BB+ 05/19/04 790,355
3,713 Audio Visual Services
Corp., Term Loan........ NR NR 03/04/04 to 03/04/06 3,558,923
4,178 Automata, Inc., Term
Loan (a) (k)............ NR NR 02/28/03 to 02/28/04 0
See Notes to Financial Statements
17
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
ELECTRONICS (CONTINUED)
$ 2,155 Computer Associates
International, Inc.,
Revolving Credit
Agreement (j)........... Baa2 BBB+ 05/26/03 $ 2,152,104
4,872 Kinetic Group, Inc.,
Term Loan............... B1 NR 02/28/06 4,507,011
2,177 Knowles Electronics,
Inc., Term Loan......... B3 CCC+ 06/29/07 1,833,037
11,396 Rayovac Corp., Term
Loan.................... Ba3 BB- 09/30/09 11,395,833
6,058 Rowe International,
Inc., Term Loan (d)
(l)..................... NR NR 12/31/03 188,260
96 Rowe International,
Inc., Revolving Credit
Agreement (d)........... NR NR 12/31/03 0
11,940 Seagate Technologies,
Inc., Term Loan......... Ba1 BB+ 05/13/07 11,930,400
9,849 Semiconductor Components
Industries, LLC, Term
Loan.................... B2 B 08/04/06 to 08/04/07 8,817,059
4,888 Stratus Technologies,
Inc., Term Loan......... NR NR 02/26/05 3,934,696
4,162 Veridian Corp., Term
Loan.................... Ba3 BB- 06/30/08 4,177,643
9,431 Viasystems, Inc., Term
Loan.................... B3 D 03/31/06 to 09/30/08 6,306,926
--------------
60,315,219
--------------
ENTERTAINMENT & LEISURE 6.8%
8,891 Bally Total Fitness
Holding Corp., Term
Loan.................... Ba3 B+ 11/10/04 8,579,688
4,699 Bell Sports, Inc., Term
Loan.................... NR NR 03/31/06 to 03/31/07 3,186,720
4,563 Carmike Cinemas, Inc.,
Term Loan............... NR NR 01/15/07 4,513,263
4,000 Charlotte Hornets NBA
Ltd., Term Loan......... NR NR 06/30/04 3,992,500
6,019 Festival Fun Parks, LLC,
Term Loan............... NR NR 06/30/07 to 12/31/07 5,995,602
See Notes to Financial Statements
18
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
ENTERTAINMENT & LEISURE (CONTINUED)
$ 14,053 Fitness Holdings
Worldwide, Inc., Term
Loan.................... NR B 11/02/06 to 11/02/07 $ 13,666,774
6,000 Kerasotes Theatres,
Inc., Term Loan......... NR NR 12/31/08 6,015,000
990 KSL Recreational Group,
Inc., Term Loan......... Ba3 B+ 04/30/05 to 04/30/06 983,270
736 KSL Recreational Group,
Inc., Revolving Credit
Agreement............... Ba3 B+ 04/30/04 722,408
19,425 Metro-Goldwyn-Mayer,
Inc., Term Loan......... NR NR 06/30/08 19,340,016
1,986 Panavision, Inc., Term
Loan.................... Caa1 CCC 03/31/05 1,698,387
5,500 Phoenix Suns,
Term Loan............... NR NR 03/31/05 5,486,250
4,875 Playcore Wisconsin,
Inc., Term Loan......... NR NR 07/01/07 4,748,749
206 Regal Cinemas, Inc.,
Term Loan............... Ba2 BB- 12/31/07 206,477
6,500 Six Flags Theme Parks,
Inc., Term Loan......... Ba2 BB- 06/30/09 6,451,250
5,000 Washington Group
International, Inc.,
Term Loan............... NR NR 10/16/07 5,028,125
4,759 Worldwide Sports &
Recreation, Inc., Term
Loan.................... NR NR 12/31/06 4,335,946
--------------
94,950,425
--------------
FARMING & AGRICULTURE 0.3%
3,711 The Scotts Co., Term
Loan.................... Ba3 BB 12/31/07 3,727,821
--------------
FINANCE 1.8%
3,426 Alliance Data Systems,
Inc., Term Loan (j)..... NR NR 07/25/05 3,391,277
4,818 Outsourcing Solutions,
Term Loan (a)........... Caa1 NR 06/10/06 2,059,481
6,712 Rent-A-Center, Inc.,
Term Loan............... Ba2 BB 01/31/06 to 12/31/07 6,718,907
See Notes to Financial Statements
19
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
FINANCE (CONTINUED)
$ 4,549 Rent-Way, Inc., Term
Loan.................... NR CCC 03/31/03 to 12/31/03 $ 4,300,209
8,285 Risk Management
Assurance Co., Term
Loan.................... NR NR 12/21/06 8,157,951
--------------
24,627,825
--------------
GROCERY 0.3%
5,015 Fleming Cos., Inc., Term
Loan.................... Ba3 BB 06/18/08 4,917,992
--------------
HEALTHCARE 7.5%
32,419 Community Health
Systems, Inc., Term Loan
(j)..................... NR NR 07/16/10 32,312,384
9,645 FHC Health Systems,
Inc., Term Loan......... NR NR 04/30/03 to 04/30/06 9,443,139
3,061 Genesis Health Ventures,
Inc., Term Loan......... Ba3 BB- 03/31/07 to 04/02/07 3,052,908
8,135 InteliStaf Group, Inc.,
Term Loan............... NR NR 10/31/05 to 10/31/07 8,112,640
21,215 Kindred Healthcare,
Inc., Term Loan......... NR NR 04/13/08 20,366,514
10,727 Magellan Health
Services, Inc., Term
Loan.................... Caa1 CCC 02/12/05 to 02/12/06 9,379,228
9,688 Medical Staffing Network
Holdings, Inc.,
Term Loan............... NR NR 10/26/06 9,645,117
6,000 Team Health, Inc., Term
Loan.................... Ba3 B+ 10/31/08 5,865,000
4,548 Triad Hospitals, Inc.,
Term Loan............... Ba3 B+ 09/30/08 4,571,432
1,152 Unilab Corp., Term
Loan.................... B1 BB- 11/23/06 1,154,919
--------------
103,903,281
--------------
See Notes to Financial Statements
20
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
HEALTHCARE & BEAUTY 1.0%
$ 6,154 Mary Kay, Inc., Term
Loan.................... Ba3 BB- 10/03/07 $ 6,183,287
7,915 Revlon Consumer Products
Corp., Term Loan........ B3 B 05/30/05 7,486,408
--------------
13,669,695
--------------
HOME & OFFICE FURNISHINGS,
HOUSEWARES & DURABLE CONSUMER PRODUCTS 1.2%
2,619 Brown Jordan
International, Inc.,
Term Loan............... B1 B 03/31/06 2,448,781
1,958 Formica Corp., Term Loan
(c)..................... NR NR 04/30/06 1,762,502
8,522 Holmes Products Corp.,
Term Loan............... B2 B 02/05/07 7,968,006
1,422 Imperial Home Decor
Group, Inc., Term Loan
(d)..................... NR NR 04/04/06 64,003
3,517 Sleepmaster, LLC, Term
Loan (c)................ NR NR 12/31/06 3,393,466
1,423 Targus Group
International, Inc.,
Term Loan............... NR NR 08/31/06 1,259,684
--------------
16,896,442
--------------
HOTELS, MOTELS, INNS & GAMING 6.3%
26,570 Aladdin Gaming, LLC,
Term Loan (a) (c)....... NR NR 02/25/05 to 02/26/08 21,198,972
3,479 Alliance Gaming Corp.,
Term Loan............... B1 B+ 12/31/06 3,499,029
2,073 Ameristar Casinos, Inc.,
Term Loan............... Ba3 B+ 12/20/06 2,084,629
4,925 Argosy Gaming Co., Term
Loan (j)................ Ba2 BB 07/31/08 4,954,757
6,546 Extended Stay America,
Inc., Term Loan......... Ba3 BB- 01/15/08 6,473,517
4,894 Greektown Casino, LLC,
Term Loan............... NR NR 09/30/04 4,907,146
2,978 Isle of Capri Casinos,
Inc., Term Loan......... Ba2 BB- 04/26/08 2,984,015
See Notes to Financial Statements
21
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
HOTELS, MOTELS, INNS & GAMING (CONTINUED)
$ 3,000 Mandalay Resort Group,
Term Loan............... NR NR 08/22/06 $ 2,974,374
10,500 Scientific Games Corp.,
Term Loan............... Ba3 BB- 12/31/08 10,506,562
35,699 Wyndham International,
Inc., Term Loan......... NR B- 06/30/04 to 06/30/06 28,578,993
--------------
88,161,994
--------------
INSURANCE 2.4%
10,000 Alea Group Holdings,
Term Loan............... NR BBB- 03/31/07 9,975,000
5,343 BRW Acquisition, Inc.,
Term Loan............... NR NR 07/10/06 to 07/10/07 4,701,446
15,106 Fund American Cos.,
Inc., Term Loan......... Baa2 BBB- 03/31/07 15,063,411
3,068 Hilb, Rogal & Hamilton
Co., Term Loan.......... Ba3 BB- 06/30/07 3,087,091
--------------
32,826,948
--------------
MACHINERY 2.0%
4,741 Alliance Laundry
Holdings, LLC,
Term Loan............... B1 B 08/02/07 4,691,546
17,849 Ashtead Group, PLC, Term
Loan.................... NR NR 06/01/07 16,510,293
3,296 Flowserve Corp., Term
Loan.................... Ba3 BB- 06/30/06 to 06/30/09 3,273,648
2,488 Terex Corp., Term
Loan.................... B1 BB- 07/03/09 2,388,000
2,116 Weigh-Tronix, LLC, Term
Loan.................... NR D 09/30/05 1,533,940
--------------
28,397,427
--------------
MEDICAL PRODUCTS & SERVICES 7.6%
11,712 Alliance Imaging, Inc.,
Term Loan............... B1 B+ 06/10/08 11,551,024
5,909 American Home Patient,
Term Loan (c) (g)....... NR NR 12/31/02 3,885,032
9,476 Conmed Corp., Term
Loan.................... Ba3 BB- 12/15/09 9,452,559
20,000 Dade Behring, Inc., Term
Loan.................... B1 B+ 10/01/08 to 10/03/10 19,900,000
25,338 DaVita, Inc., Term
Loan.................... Ba3 BB- 03/31/07 to 03/31/09 25,392,880
See Notes to Financial Statements
22
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
MEDICAL PRODUCTS & SERVICES (CONTINUED)
$ 2,922 Insight Health,
Term Loan............... NR B+ 10/17/08 $ 2,933,396
9,483 Kinetics Concepts, Inc.,
Term Loan............... Ba3 B+ 12/31/04 to 03/31/06 9,496,458
11,648 National Medical Care,
Inc., Term Loan......... Ba1 BB+ 09/30/03 11,633,349
4,238 National Medical Care,
Inc., Revolving Credit
Agreement............... Ba1 BB+ 09/30/03 4,232,203
4,863 National Nephrology
Associates, Inc., Term
Loan.................... B1 B+ 12/31/05 4,826,031
2,008 Rotech Healthcare, Inc.,
Term Loan............... Ba2 BB 03/31/08 2,012,032
--------------
105,314,964
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 1.7%
3,406 CII Carbon, LLC, Term
Loan.................... NR NR 06/25/08 2,384,401
28,720 Ispat Inland, Term
Loan.................... Caa1 B- 07/16/05 to 07/16/06 17,985,964
3,925 Koppers Industries,
Inc., Term Loan......... Ba2 NR 11/30/04 3,866,367
--------------
24,236,732
--------------
NATURAL RESOURCES 2.3%
5,000 Lyondell-Citgo Refining,
LP, Term Loan........... Ba3 BB 06/10/04 4,750,000
15,000 Ocean Rig ASA--
(Norway), Term Loan..... NR NR 06/01/08 13,275,000
4,500 Pacific Energy Group,
LLC, Term Loan.......... Ba2 BBB- 07/26/09 4,514,062
8,797 Tesoro Petroleum Corp.,
Term Loan............... Ba3 BB 12/31/06 to 12/31/07 8,070,983
765 U.S. Synthetic Corp.,
Term Loan............... NR NR 05/31/05 707,542
--------------
31,317,587
--------------
See Notes to Financial Statements
23
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
NON-DURABLE CONSUMER PRODUCTS 1.7%
$ 2,427 Aero Products
International, Inc.,
Term Loan............... NR NR 12/19/08 $ 2,421,117
8,314 American Marketing
Industries, Inc., Term
Loan (a)................ NR NR 04/01/04 2,078,427
1,433 American Safety Razor
Co., Term Loan.......... B1 B- 04/30/05 to 04/30/07 1,312,064
3,000 Amscan Holdings, Inc.,
Term Loan............... B1 BB- 06/15/07 2,977,500
4,568 Arena Brands, Inc., Term
Loan.................... NR NR 06/02/03 4,479,297
6,117 Boyds Collection, Ltd.,
Term Loan............... Ba3 B+ 04/21/05 6,055,713
1,493 Church & Dwight Co.,
Inc., Term Loan (j)..... Ba2 BB 09/30/07 1,501,983
2,653 JohnsonDiversey, Inc.,
Term Loan............... Ba3 BB- 11/03/09 2,665,979
--------------
23,492,080
--------------
PAPER & FOREST PRODUCTS 0.3%
2,465 Bear Island Paper Co.,
LLC, Term Loan.......... B3 B- 12/31/05 2,305,214
2,764 Port Townsend Paper
Corp., Term Loan........ NR NR 03/16/05 to 03/16/07 2,239,968
--------------
4,545,182
--------------
PERSONAL & MISCELLANEOUS SERVICES 2.4%
7,840 Coinmach Laundry Corp.,
Term Loan (j)........... B1 BB- 07/25/09 7,846,123
11,228 Encompass Service Corp.,
Term Loan (a) (c)....... Caa1 D 05/10/07 2,919,262
1,598 Iron Mountain, Inc.,
Term Loan............... Ba3 BB 02/15/08 1,603,229
4,975 Katun Corp.,
Term Loan............... NR B+ 06/30/09 4,959,453
2,089 Stewart Enterprises,
Inc., Term Loan......... Ba3 BB 06/29/06 2,098,742
1,869 TeleSpectrum Worldwide,
Inc., Term Loan (d)..... NR NR 05/31/05 1,205,610
See Notes to Financial Statements
24
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PERSONAL & MISCELLANEOUS SERVICES (CONTINUED)
$ 8,201 The Relizon Co., Term
Loan.................... NR NR 09/30/06 to 12/31/07 $ 7,734,397
4,508 Weight Watchers
International, Inc.,
Term Loan............... Ba1 BB- 12/31/07 4,533,337
--------------
32,900,153
--------------
PHARMACEUTICALS 1.7%
960 aaiPharma, Inc., Term
Loan.................... B2 BB- 03/28/07 960,600
1,022 Alpharma, Inc., Term
Loan.................... B2 BB- 10/05/07 998,731
9,762 Caremark Rx, Inc., Term
Loan (j)................ Ba2 BB+ 03/31/06 9,769,750
11,913 MedPointe, Inc., Term
Loan.................... B1 B 09/30/07 to 09/30/08 11,514,992
--------------
23,244,073
--------------
PRINTING & PUBLISHING 10.5%
4,987 21st Century Newspapers,
Term Loan............... NR NR 08/27/08 4,987,179
1,780 Adams Outdoor
Advertising LP, Term
Loan (j)................ B1 B+ 02/08/08 1,786,305
6,240 Advanstar
Communications, Inc.,
Term Loan............... B2 B 10/11/07 5,928,000
7,661 American Media
Operations, Inc., Term
Loan (j)................ Ba3 NR 04/01/07 7,697,670
11,184 American Reprographics
Co., Term Loan.......... NR NR 04/10/08 11,100,166
15,257 CommerceConnect Media,
Inc., Term Loan......... NR NR 12/31/07 14,647,011
2,128 Daily News, LP, Term
Loan.................... NR NR 03/19/08 2,014,916
12,302 Danka Business Systems,
PLC, Term Loan.......... NR NR 03/31/04 12,194,677
7,438 F&W Publications, Inc.,
Term Loan............... NR NR 12/31/09 7,400,313
2,667 Lamar Media Corp., Term
Loan.................... Ba2 BB- 03/01/06 2,633,333
See Notes to Financial Statements
25
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PRINTING & PUBLISHING (CONTINUED)
$ 3,588 Liberty Group Operating,
Inc., Term Loan......... B1 B 03/31/07 $ 3,583,898
15,000 Morris Communications
Corp., Term Loan........ NR NR 09/30/09 15,025,785
3,731 Network Communications,
Inc., Term Loan......... NR NR 06/27/08 3,740,578
2,671 Payment Processing
Solutions, Inc.,
Term Loan............... NR NR 06/30/05 2,650,654
7,045 PRIMEDIA, Inc., Term
Loan.................... NR B 06/30/09 6,657,282
7,104 R.H. Donnelley, Inc.,
Term Loan............... Ba3 NR 12/31/08 to 06/30/10 7,138,894
11,779 The Reader's Digest
Association, Inc., Term
Loan.................... Baa3 BB+ 05/21/07 to 05/20/08 11,583,657
6,873 Vertis, Inc., Term
Loan.................... B1 B+ 12/07/05 6,735,235
1,904 Vutek, Inc., Term
Loan.................... B1 NR 07/31/07 1,847,170
11,000 Xerox Corp.,
Term Loan............... NR B+ 04/30/05 10,617,288
3,973 Xerox Corp., Revolving
Credit Agreement........ NR B+ 04/30/05 3,650,500
1,598 Ziff-Davis Media, Inc.,
Term Loan............... B3 CCC- 03/31/07 1,366,115
--------------
144,986,626
--------------
REAL ESTATE 0.7%
10,000 Wackenhut Corrections
Corp., Term Loan........ Ba3 BB 12/12/08 9,993,750
--------------
RESTAURANTS & FOOD SERVICE 1.5%
1,723 Carvel Corp.,
Term Loan............... NR NR 12/31/06 1,706,145
11,938 Domino's, Inc., Term
Loan.................... Ba3 BB- 06/30/08 11,971,086
See Notes to Financial Statements
26
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
RESTAURANTS & FOOD SERVICE (CONTINUED)
$ 2,766 Papa Ginos, Inc., Term
Loan.................... NR NR 08/31/07 $ 2,705,017
4,619 S.C. International
Services, Inc.,
Term Loan............... Ba1 NR 03/01/07 3,868,531
--------------
20,250,779
--------------
RETAIL--OIL & GAS 1.2%
7,929 Barjan Products, LLC,
Term Loan............... NR NR 05/31/06 6,937,868
9,198 The Pantry, Inc., Term
Loan.................... B1 B+ 01/31/06 to 07/31/06 9,079,004
--------------
16,016,872
--------------
RETAIL--SPECIALTY 1.4%
3,226 DRL Acquisition, Inc.,
Term Loan............... NR NR 04/30/09 3,213,529
6,100 Home Interiors & Gifts,
Inc., Term Loan......... B2 B 12/31/06 5,871,150
10,826 Jostens, Inc.,
Term Loan............... B1 BB- 05/31/06 to 12/31/09 10,825,576
48 Jostens, Inc., Revolving
Credit Agreement........ B1 BB- 05/31/06 47,125
--------------
19,957,380
--------------
RETAIL--STORES 3.6%
1,296 Duane Reade, Inc., Term
Loan.................... Ba2 BB- 02/15/07 1,299,357
48,880 Rite Aid Corp., Term
Loan.................... B2 BB- 06/27/05 48,146,986
--------------
49,446,343
--------------
TECHNOLOGY 0.8%
3,500 DigitalNet Holdings,
Inc., Term Loan......... B1 B+ 11/26/07 3,421,250
7,956 The Titan Corp., Term
Loan.................... Ba3 BB- 06/30/09 7,956,259
--------------
11,377,509
--------------
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 0.7%
8,354 Broadwing, Inc., Term
Loan.................... B1 B- 11/09/04 to 06/28/07 7,869,364
2,253 Orius Corp., Term
Loan.................... Caa2 NR 01/23/09 to 01/23/10 618,964
1,127 Orius Corp., Revolving
Credit Agreement........ Caa2 NR 01/23/05 873,179
See Notes to Financial Statements
27
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS (CONTINUED)
$ 7,500 WCI Capital Corp., Term
Loan (a) (c)............ NR NR 09/30/07 $ 128,910
2,158 WCI Capital Corp.,
Revolving Credit
Agreement (a) (c)....... NR NR 12/30/03 377,666
--------------
9,868,083
--------------
TELECOMMUNICATIONS--LONG DISTANCE 0.1%
20,965 Pacific Crossing, Ltd.,
Term Loan (a) (c)....... NR NR 07/28/06 1,118,148
--------------
TELECOMMUNICATIONS--PAGING 0.6%
7,750 Arch Western Resources,
LLC, Term Loan (j)...... Ba1 BB+ 04/18/08 7,754,844
--------------
TELECOMMUNICATIONS--WIRELESS 4.0%
2,841 American Cellular Corp.,
Term Loan............... B3 CC 03/31/08 to 03/31/09 2,065,977
4,000 American Tower Corp.,
Term Loan............... B2 BB- 12/31/07 3,804,168
21,028 BCP SP Ltd., Term Loan
(a) (g) (l)............. NR NR 03/31/02 to 03/31/05 6,308,369
1,500 Centennial Cellular
Corp., Term Loan........ B3 B 11/30/06 1,223,250
8,000 Cricket Communications,
Inc., Term Loan (a)..... NR NR 06/30/08 1,940,000
23,739 Nextel Finance Co., Term
Loan.................... Ba3 BB- 12/31/07 to 12/31/08 22,220,045
3,325 Spectrasite
Communications, Inc.,
Term Loan............... B3 CC 12/31/07 2,969,328
3,824 Sygnet Wireless, Inc.,
Term Loan............... NR NR 12/23/06 to 12/23/07 3,414,762
8,784 Triton PCS, Inc., Term
Loan.................... Ba3 BB- 05/04/07 8,234,550
4,156 Western Wireless Corp.,
Term Loan............... B3 B 09/30/08 3,395,810
--------------
55,576,259
--------------
See Notes to Financial Statements
28
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TEXTILES & LEATHER 1.5%
$ 1,073 Galey & Lord, Inc., Term
Loan (c)................ NR NR 04/02/05 to 04/01/06 $ 844,719
5,402 Malden Mills Industries,
Inc., Term Loan (a)
(c)..................... NR NR 10/28/06 1,308,902
18,313 Norcross Safety
Products, LLC, Term
Loan.................... B1 NR 09/30/04 18,221,420
--------------
20,375,041
--------------
TRANSPORTATION--CARGO 1.9%
9,764 American Commercial
Lines, LLC, Term Loan... Caa1 CCC+ 06/30/06 to 06/30/07 7,903,736
4,380 Atlas Freighter Leasing,
Inc., Term Loan......... NR NR 04/25/05 to 04/25/06 3,065,550
7,241 Evergreen International
Aviation, Inc.,
Term Loan............... NR NR 05/07/03 6,191,471
2,666 Ingram Industries, Inc.,
Term Loan............... NR NR 07/02/08 2,642,453
2,000 RailAmerica, Inc., Term
Loan.................... Ba3 BB 05/23/09 1,998,500
1,146 Roadway Corp., Term
Loan.................... Baa3 BBB 11/30/06 1,142,113
3,359 United States Shipping,
LLC, Term Loan.......... Ba2 BB 09/12/08 3,368,102
--------------
26,311,925
--------------
TRANSPORTATION--PERSONAL 0.6%
4,750 Motor Coach Industries,
Inc., Term Loan......... B2 B 06/16/06 3,732,436
3,990 Transcore Holdings,
Inc., Term Loan......... NR NR 10/01/06 3,999,975
--------------
7,732,411
--------------
TRANSPORTATION-RAIL MANUFACTURING 0.3%
3,247 Helm, Inc., Term Loan... NR NR 10/18/06 3,003,647
2,888 RailWorks Corp., Term
Loan (a)................ NR NR 11/13/04 1,082,893
--------------
4,086,540
--------------
UTILITIES 2.0%
5,755 AES Corp., Term Loan.... B2 NR 12/12/05 5,582,373
4,800 Consumers Energy Co.,
Term Loan............... Ba1 NR 07/11/04 4,824,000
See Notes to Financial Statements
29
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
UTILITIES (CONTINUED)
$ 2,985 Michigan Electric
Transmission Co., Term
Loan.................... Baa2 NR 05/01/07 $ 2,981,269
1,759 Pike Electric, Inc.,
Term Loan............... NR NR 04/18/10 1,769,450
3,583 Southern California
Edison Co., Term Loan... Ba2 NR 03/01/03 to 03/01/05 3,578,464
446 TNP Enterprises, Inc.,
Term Loan............... Ba2 BB+ 03/30/06 443,397
8,985 Westar Energy, Inc.,
Term Loan............... NR NR 06/05/05 8,838,614
10 Westar Energy, Inc.,
Revolving Credit
Agreement............... NR NR 06/05/05 9,375
--------------
28,026,942
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 124.2%........................ 1,724,597,701
--------------
NOTES 2.6%
Alderwoods Group, Inc. --($3,462,800 par, 11.00% to 12.25%
coupon, maturing 01/02/07 to 01/02/09).................... 3,322,511
Comdisco Holdings Co. ($1,385,102 par, 11.00% coupon,
maturing 08/15/05) (a).................................... 1,378,176
Dade Behring, Inc. ($7,575,042 par, 11.91% coupon, maturing
10/03/10)................................................. 7,953,794
Genesis Health Ventures, Inc. ($9,217,369 par, 6.38% coupon,
maturing 04/02/07) (h).................................... 8,710,414
PCI Chemicals Canada, Inc. ($5,128,666 par, 10.00% coupon,
maturing 12/31/08)........................................ 3,564,423
Pioneer Cos., Inc. ($1,709,555 par, 4.90% coupon, maturing
12/31/06) (h)............................................. 1,171,045
Premcor Refining Group, Inc. ($3,000,000 par, 4.13% coupon,
maturing 08/23/03) (h).................................... 2,977,500
Rowe International ($185,317 par, 15.00% coupon, maturing
11/15/01) (d) (g)......................................... 0
Satelites Mexicanos ($9,705,000 par, 5.918% coupon, maturing
06/30/04), 144A Private Placement (b) (h)................. 7,545,638
--------------
TOTAL NOTES................................................. 36,623,501
--------------
See Notes to Financial Statements
30
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BORROWER VALUE
EQUITIES 3.8%
Alderwoods Group, Inc. (235,977 common shares) (e).......... $ 1,191,684
American Home Patient, Inc. (Warrants for 68,497 common
shares) (c) (e)........................................... 0
Audio Visual Services Corp. (70,205 common shares) (e)
(f)....................................................... 737,152
Breed Technologies, Inc. (416,538 common shares) (e) (f).... 0
Comdisco Holdings Co. (20,412 common shares) (e)............ 2,204,496
Dade Behring Holdings, Inc. (633,102 common shares) (e)..... 11,712,387
Genesis Health Ventures, Inc. (10,483 preferred shares) (e)
(f)....................................................... 885,813
Genesis Health Ventures, Inc. (932,290 common shares) (e)... 14,683,568
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)........ 8,487,878
Pioneer Cos., Inc. (331,654 common shares) (e) (f).......... 829,135
Rotech Healthcare, Inc. (484,850 common shares) (e)......... 7,878,813
Rotech Medical Corp. (48,485 common shares) (e) (f)......... 0
Rowe International, Inc. (87,636 common shares) (d) (e)
(f)....................................................... 0
Safelite Glass Corp. (421,447 common shares) (e) (f)........ 3,093,421
Safelite Realty (28,448 common shares) (e) (f).............. 0
TeleSpectrum Worldwide, Inc. (11,618,775 common shares) (d)
(e) (f)................................................... 0
TeleSpectrum Worldwide, Inc. (8,307 preferred shares) (d)
(e) (f)................................................... 0
Tembec, Inc. (78,468 common shares) (e)..................... 546,922
West American Rubber Co., LLC (5.04% Ownership Interest) (e)
(f)....................................................... 0
--------------
TOTAL EQUITIES.............................................. 52,251,269
--------------
TOTAL LONG-TERM INVESTMENTS 130.5%
(Cost $1,995,421,830)..................................... 1,813,472,471
--------------
SHORT-TERM INVESTMENTS 1.4%
REPURCHASE AGREEMENT 1.2%
State Street Bank & Trust Corp. ($16,200,000 par
collateralized by U.S. Government obligations in a pooled
cash account, dated 01/31/03, to be sold on 02/03/03 at
$16,201,593) (j).......................................... 16,200,000
--------------
TIME DEPOSIT 0.2%
State Street Bank & Trust Corp. ($2,731,958 par, .25%
coupon, dated 01/31/03, to be sold on 02/03/02 at
$2,732,015) (j)........................................... 2,731,958
--------------
TOTAL SHORT-TERM INVESTMENTS 1.4%
(Cost $18,931,958)........................................ 18,931,958
--------------
TOTAL INVESTMENTS 131.9%
(Cost $2,014,353,788)..................................... 1,832,404,429
See Notes to Financial Statements
31
YOUR TRUST'S INVESTMENTS
January 31, 2003 (Unaudited)
BORROWER VALUE
BORROWINGS (30.6)%.......................................... $ (425,000,000)
LIABILITIES IN EXCESS OF OTHER ASSETS (1.3)%............... (18,113,806)
--------------
NET ASSETS 100.0%.......................................... $1,389,290,623
==============
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) The borrower is in the process of restructuring or amending the terms of
this loan.
(h) Variable rate security. Interest rate shown is that in effect at January 31,
2003.
(i) Fixed rate security.
(j) A portion of this security is segregated in connection with unfunded
commitments.
(k) This borrower is currently in liquidation.
(l) Payment-in-kind security.
* 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
32
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
January 31, 2003 (Unaudited)
ASSETS:
Total Investments (Cost $2,014,353,788)..................... $1,832,404,429
Cash........................................................ 2,533,077
Receivables:
Investments Sold.......................................... 13,405,246
Interest and Fees......................................... 8,181,315
Other....................................................... 65,206
--------------
Total Assets............................................ 1,856,589,273
--------------
LIABILITIES:
Payables:
Borrowings................................................ 425,000,000
Investments Purchased..................................... 39,063,499
Investment Advisory Fee................................... 1,313,867
Administrative Fee........................................ 309,145
Distributor and Affiliates................................ 89,502
Accrued Expenses............................................ 806,433
Accrued Interest Expense.................................... 485,609
Trustees' Deferred Compensation and Retirement Plans........ 230,595
--------------
Total Liabilities....................................... 467,298,650
--------------
NET ASSETS.................................................. $1,389,290,623
==============
NET ASSET VALUE PER COMMON SHARE ($1,389,290,623 divided by
180,010,000 shares outstanding)........................... $ 7.72
==============
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............. 7,442,685
Net Unrealized Depreciation................................. (181,949,359)
Accumulated Net Realized Loss............................... (233,672,093)
--------------
NET ASSETS.................................................. $1,389,290,623
==============
See Notes to Financial Statements
33
Statement of Operations
For the Six Months Ended January 31, 2003 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 56,851,345
Other....................................................... 2,555,587
-------------
Total Income............................................ 59,406,932
-------------
EXPENSES:
Investment Advisory Fee..................................... 8,018,156
Administrative Fee.......................................... 1,886,625
Credit Line................................................. 924,862
Legal....................................................... 671,472
Custody..................................................... 265,326
Trustees' Fees and Related Expenses......................... 23,993
Other....................................................... 455,133
-------------
Total Operating Expenses................................ 12,245,567
Interest Expense........................................ 4,079,536
-------------
NET INVESTMENT INCOME....................................... $ 43,081,829
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (7,489,440)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (146,657,331)
End of the Period......................................... (181,949,359)
-------------
Net Unrealized Depreciation During the Period............... (35,292,028)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (42,781,468)
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 300,361
=============
See Notes to Financial Statements
34
Statements of Changes in Net Assets
(Unaudited)
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2003 JULY 31, 2002
---------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 43,081,829 $ 89,866,208
Net Realized Loss.................................. (7,489,440) (87,927,766)
Net Unrealized Depreciation During the Period...... (35,292,028) (11,950,146)
-------------- --------------
Change in Net Assets from Operations............... 300,361 (10,011,704)
Distributions from Net Investment Income........... (40,970,205) (92,687,003)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (40,669,844) (102,698,707)
NET ASSETS:
Beginning of the Period............................ 1,429,960,467 1,532,659,174
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of $7,442,685
and $5,331,061, respectively).................... $1,389,290,623 $1,429,960,467
============== ==============
See Notes to Financial Statements
35
Statement of Cash Flows
For the Six Months Ended January 31, 2003 (Unaudited)
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 300,361
------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Decrease in Investments at Value.......................... 22,104,278
Increase in Interest and Fees Receivables................. (383,206)
Increase in Receivable for Investments Sold............... (4,456,853)
Decrease in Other Assets.................................. 19,872
Increase in Investment Advisory Fee Payable............... 34,514
Increase in Administrative Fee Payable.................... 8,121
Decrease in Distributor and Affiliates Payable............ (195,954)
Decrease in Payable for Investments Purchased............. (29,062,491)
Increase in Accrued Expenses.............................. 278,687
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 17,493
------------
Total Adjustments....................................... (11,635,539)
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... (11,335,178)
============
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Bank Borrowings................................... 54,841,000
Change in Accrued Interest Expense.......................... (29,740)
Cash Dividends Paid......................................... (40,970,205)
------------
Net Cash Used for Financing Activities.................. 13,841,055
------------
NET INCREASE IN CASH........................................ 2,505,877
Cash at Beginning of the Period............................. 27,200
------------
CASH AT THE END OF THE PERIOD............................... $ 2,533,077
============
See Notes to Financial Statements
36
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
JUNE 24, 1998
SIX MONTHS (COMMENCEMENT
ENDED YEAR ENDED JULY 31, OF INVESTMENT
JANUARY 31, ----------------------------------------- OPERATIONS) TO
2003 2002 (E) 2001 2000 1999 JULY 31, 1998
------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD (A).......... $ 7.94 $ 8.51 $ 9.65 $ 10.08 $ 10.07 $ 9.99
-------- -------- -------- -------- -------- --------
Net Investment Income...... .24 .49 .79 .81 .77 .07
Net Realized and Unrealized
Gain/Loss................ (.23) (.55) (1.10) (.42) -0- .01
-------- -------- -------- -------- -------- --------
Total from Investment
Operations................. .01 (.06) (.31) .39 .77 .08
-------- -------- -------- -------- -------- --------
Less:
Distributions from Net
Investment Income........ .23 .51 .83 .81 .76 -0-
Distributions from Net
Realized Gain............ -0- -0- -0- .01 -0- -0-
-------- -------- -------- -------- -------- --------
Total Distributions......... .23 .51 .83 .82 .76 -0-
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD..................... $ 7.72 $ 7.94 $ 8.51 $ 9.65 $ 10.08 $ 10.07
======== ======== ======== ======== ======== ========
Common Share Market Price at
End of the Period.......... $ 7.09 $ 6.67 $ 7.79 $ 8.75 $ 9.5625 $10.0625
Total Return (b)............ 9.93%** -8.05% -1.42% .61% 2.98% .63%**
Net Assets at End of the
Period (In millions)....... $1,389.3 $1,430.0 $1,532.7 $1,736.5 $1,815.1 $1,812.1
Ratio of Operating Expenses
to Average Net Assets*..... 1.30% 1.22% 1.63% 1.75% 1.66% 1.18%
Ratio of Interest Expense to
Average Net Assets......... .43% .44% 2.15% 2.49% 2.37% .28%
Ratio of Net Investment
Income to Average Net
Assets*.................... 4.57% 4.95% 8.90% 8.19% 7.72% 6.94%
Portfolio Turnover (c)...... 34%** 65% 55% 57% 28% 3%**
SENIOR INDEBTEDNESS:
Total Borrowing
Outstanding (In
thousands)............. $425,000 $370,159 $375,000 $700,000 $800,000 $400,000
Asset Coverage Per $1,000
Unit of Senior
Indebtedness (d)....... 4,269 4,863 5,087 3,481 3,269 5,530
* 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) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interest.
(d) 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.
(e) 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 year ended July 31, 2002 was to decrease the ratio of net investment
income to average net assets by .01%. Net investment income per share and
net realized and unrealized gains and losses per share were unaffected by
the adjustments. Per share, ratios and supplemental data for the periods
prior to July 31, 2002 have not been restated to reflect this change in
presentation.
See Notes to Financial Statements
37
NOTES TO
FINANCIAL STATEMENTS
January 31, 2003 (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, 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 Loans are reviewed and
approved by the Trust's Valuation Committee and the Board of Trustees.
38
NOTES TO
FINANCIAL STATEMENTS
January 31, 2003 (Unaudited)
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.
The Trust may invest in repurchase agreements, which are short-term
investments in which the Trust acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
Repurchase agreements are fully collateralized by the underlying debt security.
The Trust will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Trust.
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 other fixed income security. Other income is comprised primarily of
amendment fees. Amendment fees are earned as compensation for agreeing to
changes in loan agreements.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At July 31, 2002, the Trust had an accumulated capital loss carryforward
for tax purposes of $127,568,090, which will expire between July 31, 2009 and
2010.
39
NOTES TO
FINANCIAL STATEMENTS
January 31, 2003 (Unaudited)
At January 31, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $2,059,820,314
--------------
Gross tax unrealized appreciation........................... $ 13,493,878
Gross tax unrealized depreciation........................... (231,597,279)
--------------
Net tax unrealized depreciation on investments.............. $ (218,103,401)
==============
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.
Distributions from net realized gains for book purposes may include short term
capital gains, which are included as ordinary income for tax purposes.
The tax character of distributions paid for the year ended July 31, 2002 was
as follows:
2002
Distributions paid from:
Ordinary income........................................... $92,687,003
As of July 31, 2002, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income............................... $2,558,782
Net realized gains and losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses resulting from wash
sale transactions and other losses that were recognized for book purposes but
not tax purposes at the end of the fiscal year.
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
40
NOTES TO
FINANCIAL STATEMENTS
January 31, 2003 (Unaudited)
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, 2003, the Trust recognized expenses of
approximately $301,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
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, 2003, the Trust recognized expenses of
approximately $31,500 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.
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 deter all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
During the period, the Trust owned shares of the following affiliated
companies. Affiliated companies are defined by the Investment Company Act of
1940 as those companies in which a fund holds 5% or more of the outstanding
voting securities.
INTEREST/
PAR/ REALIZED DIVIDEND MARKET VALUE
NAME SHARES* GAIN/(LOSS) INCOME 1/31/03 COST
Imperial Home Decor Group,
Inc., Term Loan.......... $ 1,422,288 $-0- $ 46,891 $ 64,003 $1,367,833
Imperial Home Decor Group,
Inc., Common Stock....... 512,023 -0- -0- -0- 522,263
Imperial Home Decor
Realty, Inc., Common
Stock.................... 512,023 -0- -0- -0- -0-
Rowe International, Inc.,
Term Loan................ $ 6,057,575 -0- 161,538 188,260 5,416,294
41
NOTES TO
FINANCIAL STATEMENTS
January 31, 2003 (Unaudited)
INTEREST/
PAR/ REALIZED DIVIDEND MARKET VALUE
NAME SHARES* GAIN/(LOSS) INCOME 1/31/03 COST
Rowe International, Inc.,
Revolving Credit
Agreement................ 95,625 $-0- $ 2,967 $ -0- $ 93,335
Rowe International,
Inc. .................... 185,317 -0- 14,013 -0- 185,317
Rowe International, Inc.,
Common Stock............. 87,636 -0- -0- -0- -0-
Telespectrum Worldwide,
Inc., Term Loan.......... $ 1,869,163 -0- 81,553 1,205,610 1,108,323
Telespectrum Worldwide,
Inc., Common & Preferred
Stock.................... 11,627,082 -0- -0- -0- -0-
* Shares were acquired through the restructuring of Senior loan interests.
At January 31, 2003, Van Kampen owned 10,000 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $623,009,441 and $643,583,398,
respectively.
4. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $67,735,100 as of
January 31, 2003. 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 credit risk of the borrower, selling participant or other
persons interpositioned between the Trust and the borrower.
42
NOTES TO
FINANCIAL STATEMENTS
January 31, 2003 (Unaudited)
At January 31, 2003, 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)
Goldman Sachs Credit Partners, L.P. ........................ $17,846 $17,177,536
Credit Suisse First Boston.................................. 1,146 1,142,113
------- -----------
Total....................................................... $18,992 $18,319,649
======= ===========
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 had entered into an $500 million revolving credit agreement with
VVR Funding LLC, a Delaware limited liability company whose sole purpose is the
issuance of commercial paper, which was terminated on September 25, 2002. As of
September 25, 2002, the Trust has entered into a $700 million revolving credit
and security agreement. This revolving credit agreement is secured by the assets
of the Trust. For the six months ended January 31, 2003, the average daily
balance of borrowings under the revolving credit agreement was $483,891,790 with
a weighted average interest rate of 1.67%.
43
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders who are participants in the Plan may have all distributions
of dividends and capital gains automatically reinvested in Common Shares of the
Trust. Common Shareholders who elect not to participate in the Plan will receive
all distributions of dividends and capital gains in cash paid by check mailed
directly to the Common Shareholder by the Trust's dividend disbursing agent.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for
the Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or capital gains distribution paid subsequent to written
notice of the change sent to all Common Shareholders of the Trust at least 90
days before the record date for the dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent, with the written consent of the
Trust, by providing at least 90 days written notice to all Participants in the
Plan.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
You may withdraw from the Plan at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company. If you withdraw, you will receive,
without charge, a share certificate issued in your name for all full Common
Shares credited to your account under the Plan, and a cash payment will be made
for any fractional Common Share credited to your account under the Plan. You may
again elect to participate in the Plan at any time by calling 1-800-341-2929 or
writing to the Trust at:
2800 Post Oak Blvd.
Attn: Closed-End Funds
Houston, TX 77056
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 ADVISOR
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 ACCOUNTANTS
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
www.vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2003 Van Kampen Funds Inc. All rights reserved.
VVR SAR 3/03 Member NASD/SIPC.
10137C03-AS-3/03