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 35
NOTES TO FINANCIAL STATEMENTS 40
REPORT OF INDEPENDENT AUDITORS 46
DIVIDEND REINVESTMENT PLAN 47
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 48
RESULTS OF SHAREHOLDER VOTES 49
TRUSTEE AND OFFICER INFORMATION 50
You have a time-tested partner in Van Kampen.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
OVERVIEW
LETTER TO SHAREHOLDERS
August 20, 2002
Dear Shareholder,
Due to events in the markets and the well-publicized controversies surrounding
certain companies, the recent months have been challenging for many investors.
Against this backdrop, you may be re-evaluating your investments. In this
regard, your financial advisor is a particularly valuable resource. Your advisor
can help you review your current asset allocation and determine whether it
remains appropriate for your goals, risk tolerance and time horizon.
You also have a time-tested partner in Van Kampen. With roots extending to 1927,
our legacy spans other market downturns and periods of uncertainty. While the
causes of turbulence have changed, our generations of experience have taught us
the enduring value of patience, discipline and long-term
focus.
Thank you for your continued trust in Van Kampen. We
appreciate the opportunity to help 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
OVERALL ECONOMIC ACTIVITY DURING 2002'S FIRST AND SECOND QUARTERS CONTINUED TO
DEPICT A GROWING ECONOMY. GROWTH MOVED DRAMATICALLY HIGHER IN THE FIRST QUARTER
AND SUBSIDED DURING THE SECOND QUARTER. MANUFACTURING AND INDUSTRIAL PRODUCTION
CONTINUED TO SHOW SIGNS OF IMPROVEMENT.
CONSISTENT WITH SUCH POSITIVE DEVELOPMENTS, CONSUMER SPENDING REMAINED STRONG--
BUOYED BY RISING INCOMES AND STABILIZING UNEMPLOYMENT--WHILE GOVERNMENT AND
BUSINESS EXPENDITURES ROSE THROUGHOUT MOST OF THE REPORTING PERIOD.
HOWEVER, AS JULY 2002 PROGRESSED, STATISTICAL DATA REFLECTED AN ECONOMY REACTING
TO UNCERTAIN WORLD EVENTS AND DECLINING EQUITY PRICES AT HOME. BY THE END OF THE
MONTH, SOME MARKET OBSERVERS SUGGESTED U.S. ECONOMIC GROWTH MIGHT TAKE A SLOWER
PATH THAN ORIGINALLY PROJECTED BY THE FEDERAL RESERVE BOARD (THE FED).
AGAINST THIS BACKDROP, THE FED TOOK A WAIT-AND-SEE APPROACH AND LEFT INTEREST
RATES AT 1.75 PERCENT DURING ITS REGULARLY SCHEDULED AUGUST 12 MEETING.
2
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 2000--June 30, 2002)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Jun 00 5.7%
Sep 00 1.3%
Dec 00 1.9%
Mar 01 1.3%
Jun 01 -1.6%
Sep 01 -0.3%
Dec 01 2.7%
Mar 02 5.0%
Jun 02 1.1%
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(July 31, 2000--July 31, 2002)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
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 2.70
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
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 July 31, 2002)
-----------------------------------------------------------------------
TOTAL RETURNS
-----------------------------------------------------------------------
One-year total return(1) -8.05%
-----------------------------------------------------------------------
Life-of-Trust average annual total return(1) -1.37%
-----------------------------------------------------------------------
Commencement date 06/24/98
-----------------------------------------------------------------------
DISTRIBUTION RATE
-----------------------------------------------------------------------
Distribution rate as a % of closing common share market
price(2) 6.76%
-----------------------------------------------------------------------
SHARE VALUATIONS
-----------------------------------------------------------------------
Net asset value $7.94
-----------------------------------------------------------------------
Closing common share market price $6.67
-----------------------------------------------------------------------
One-year high common share market price (08/01/01) $7.83
-----------------------------------------------------------------------
One-year low common share market price (07/24/02) $6.20
-----------------------------------------------------------------------
(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--July 31, 2002)
Healthcare 8.0%
---------------------------------------------------------------------
Medical Products & Services 6.0%
---------------------------------------------------------------------
Printing & Publishing 5.8%
---------------------------------------------------------------------
Beverage, Food & Tobacco 5.8%
---------------------------------------------------------------------
Hotel, Motels, Inns & Gaming 5.2%
---------------------------------------------------------------------
TOP TEN HOLDINGS*(+)
(as a percentage of total assets--July 31, 2002)
Allied Waste North America, Inc. 2.1%
---------------------------------------------------------------------
Rite Aid Corp. 2.0%
---------------------------------------------------------------------
Charter Communications Operating, LLC 1.8%
---------------------------------------------------------------------
Community Health Systems, Inc. 1.8%
---------------------------------------------------------------------
Wyndham International, Inc. 1.6%
---------------------------------------------------------------------
Kindred Healthcare, Inc. 1.2%
---------------------------------------------------------------------
Aladdin Gaming, LLC 1.2%
---------------------------------------------------------------------
Ashtead Group, PLC 1.1%
---------------------------------------------------------------------
DaVita, Inc. 1.1%
---------------------------------------------------------------------
Ispat Inland 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 and others affiliated with it may hold positions in or may seek to
perform investment-banking services for the companies listed.
5
CURRENT DISTRIBUTION
(August 31, 1998--July 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
10.680 4.286
10.490 3.883
9.790 3.616
9.380 3.656
7/01 9.040 3.524
8.540 3.367
8.490 2.371
8.340 2.012
7.460 1.726
7.200 1.725
1/02 6.950 1.757
6.790 1.757
6.490 1.777
6.560 1.767
6.350 1.726
6.280 1.685
7/02 6.760 1.695
*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 12 MONTHS ENDED JULY 31,
2002. HOWARD TIFFEN, MANAGING DIRECTOR, IS PRIMARILY RESPONSIBLE FOR THE
DAY-TO-DAY MANAGEMENT OF THE TRUST. HE HAS MORE THAN 30 YEARS OF GLOBAL AND
DOMESTIC INVESTMENT EXPERIENCE AND MANAGES, AS OF JULY 31, 2002, MORE THAN $7
BILLION IN SENIOR LOAN ASSETS. THE FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON
THE TRUST'S PERFORMANCE.
Q HOW WOULD YOU CHARACTERIZE
THE MARKET ENVIRONMENT IN WHICH THE TRUST OPERATED DURING THE LAST 12
MONTHS?
A The period began with the U.S.
economy in the doldrums. The September 11 terrorist attacks made a bad situation
worse, causing a sharp drop in investor confidence. Business activity came to a
standstill nationwide and across industries. The market seemed to recover its
footing toward the end of 2001 as investors' expectations turned to imminent
recovery for the U.S. economy and, as a result, for corporate profits. The
equity markets also appeared to stabilize during that time and through the first
few months of 2002, which provided further support to the credit markets. The
bond markets were very strong in the early part of 2002 as investors sought
attractive yields in what appeared to be a stabilizing environment.
The market suffered another reversal in the spring, when a string of
high-profile accounting scandals began to seriously erode investor confidence in
public companies. This reversal and the slowing U.S. economy had a depressing
effect on the senior loan market. The effects of increasing corporate
defaults--which have tripled over the past two years--and the worst credit
market since the early 1990s pushed the pricing of a number of the trust's loans
lower.
Q HOW DID THE TRUST PERFORM?
A For the 12-month period ended
July 31, 2002, the trust returned -8.05 percent based on market price and not
reflective of any early withdrawal charges. While the trust continued its
uninterrupted record of monthly dividends, the total return for the year
recognizes a decrease in market price from $7.79 per share on July 31, 2001 to
$6.67 per share on July 31, 2002. During the same period, the trust's net asset
value declined from $8.51 per share on July 31, 2001 to $7.94 per share on July
31, 2002. In spite of the decline in the level of defaults, from 5.1 percent as
of July 31, 2001, to 4.1 percent at the end
7
of the current reporting period, the decline in the trust's net asset value was
broadly spread across the portfolio, with the general fall in loan prices
resulting from the perception that risk in corporate debt had increased during
the last part of the period under review. As of July 31, 2002, approximately 98
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. Investment return and principal value will fluctuate and trust shares,
when tendered, 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 The past 12 months have been
difficult for the trust, which was hindered by the slow economy, high corporate
default rates and steadily falling interest rates.
Considering we are in the worst credit market since the early 1990s, we
believe that the senior-secured nature of our loans is working relatively well
for us. Unlike other asset classes, senior loans are differentiated because they
are the first claims on the borrower, which are repaid before any payments are
made to subordinated bonds or equity. In most cases, senior loans are secured by
substantially all the assets of the borrowing company. In addition, senior loans
earn interest at a floating-rate which adjusts to current market levels every 6
weeks or so. All of these factors help to moderate the downside risks associated
with this asset class. These structural advantages also help to explain the
relative stability enjoyed by the asset class as compared to the equities and
bonds. The floating-rate mechanism helps to mitigate interest-rate volatility
and may provide a hedge in the longer run against rising rates or inflation.
We believe that the value of collateral cannot be overemphasized since in
the event of default it represents another source of repayment independent of
the borrower's cash flow. However, it is not infallible. Historically, as
measured in one study by the rating agency Moody's, senior loans have enjoyed
recoveries in the event of default nearly three times higher than recoveries on
unsecured bonds. This study showed senior loan recovery rates of about 80
percent. It is still too early to tell (recoveries can take three or more years
to be realized), but we believe that recovery rates on defaults which have
occurred in the last three years will be somewhat lower, by perhaps as much as
10 percent.
Q WHAT CAN YOU TELL US ABOUT
THE TRUST'S CREDIT QUALITY COMPARED TO THAT OF THE CORPORATE BOND MARKET?
A It is almost impossible for us to
compare the trust's credit quality with that of a corporate bond fund. Senior
loans and corporate bonds are different asset classes and the differences
between them are probably greater
8
than the similarities. The common theme is that lists of issuers of senior loans
to leveraged companies are very similar to the list of issuers in a typical
high-yield bond fund. The key differences are that the loans are senior and
secured. If a company is reorganized, holders of senior-secured loans will
likely fare much better than holders of junior, unsecured obligations. So
although our loans are made to the same type of companies that would issue
high-yield bonds, those factors dramatically differentiate the two.
Q WHAT KIND OF RECOVERY DO YOU
EXPECT ON DEFAULTED LOANS?
A Investors in defaulted senior loans
have to be very patient. When a company runs into financial difficulties, it may
take several months of work between the company's owners, management and senior
creditors to define what is wrong and how it could be fixed. If the company's
financial condition could be improved by reorganizing under the protection of
the bankruptcy courts, that process may take up to 2 years or more. Once out of
bankruptcy, it is not uncommon for a complete return to health to take an
additional two years. As previously stated, history suggests that recoveries can
run, on average, in the 70 to 80 percent range.
Q WHAT IS YOUR OUTLOOK FOR
THE MARKET?
A We are optimistic that the United
States may experience a sustainable economic recovery and that inflation may
remain in check. This scenario should be positive for the senior-loan asset
class and allow issuers to continue to improve their balance sheets in a lower
interest-rate environment. The trust is typically not adversely affected by
rising interest rates. With most fixed-income funds, rising interest rates mean
lower bond prices and lower returns. With senior-loan funds, however, the
interest that corporations pay on bank loans readjusts soon after interest-rate
changes, which means rising rates don't typically hurt such funds.
Our long-term outlook for the senior loan asset class is positive. Corporate
earnings have exhibited steady improvement and corporate default rates seem, in
our view, to have peaked. We believe that the Fed's strategy will, in time,
begin to favor tighter monetary policy, which could result in higher interest
rates on senior loans. Furthermore, positive credit events and a stronger
economy could lead to improved valuations in the senior-loan market.
We will continue to monitor credit conditions carefully in the senior-loan
sector in general and the credit quality of our portfolio in particular. In
addition, we will continue to scrutinize the financial position of the trust's
borrowers and uphold our strict screening process for credit approval, both for
the positions owned and for potential investments.
9
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU ARE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
DEFAULT: The failure to make required debt payments on time.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. The Federal Reserve Board adjusts the federal
funds rate to affect the direction of interest rates.
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.
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.
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, and such status is not a guarantee that monies to which the investor
is entitled will 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
July 31, 2002
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.(1)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
VARIABLE RATE** SENIOR LOAN INTERESTS 123.1%
AEROSPACE/DEFENSE 4.2%
$ 5,409 Aerostructures Corp.,
Term Loan............... NR BB- 12/31/03 to 09/06/04 $ 5,379,525
1,924 Aircraft Braking Systems
Corp., Term Loan........ NR NR 10/15/05 1,929,907
6,584 Alliant Techsystems,
Inc., Term Loan......... Ba2 BB- 04/20/09 6,652,627
3,669 DeCrane Aircraft
Holdings, Inc., Term
Loan.................... B2 B+ 12/17/06 3,613,570
7,642 DRS Technologies, Inc.,
Term Loan............... Ba3 BB- 09/30/08 7,699,567
9,023 EG&G Technical Services,
Inc., Term Loan......... B1 NR 08/20/07 9,023,374
4,688 Fairchild Corp., Term
Loan.................... B1 B+ 04/30/06 4,618,008
648 Integrated Defense
Technologies, Inc., Term
Loan.................... NR NR 03/04/08 650,806
12,286 United Defense
Industries, Inc., Term
Loan.................... Ba3 BB- 08/13/07 to 08/13/09 12,305,386
8,064 Vought Aircraft
Industries, Inc., Term
Loan.................... NR NR 12/31/06 to 06/30/08 8,096,101
--------------
59,968,871
--------------
AUTOMOTIVE 5.1%
5,865 AMCAN Consolidated
Technologies, Inc., Term
Loan.................... NR NR 03/28/07 5,601,075
2,239 Breed Technologies,
Inc., Term Loan (i)..... NR NR 12/20/04 2,116,233
11,911 Citation Corp., Term
Loan.................... NR B+ 12/01/07 10,600,443
See Notes to Financial Statements
12
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
AUTOMOTIVE (CONTINUED)
$ 7,300 Dura Operating Corp.,
Term Loan............... Ba3 BB 12/31/08 $ 7,353,611
20,218 Federal-Mogul Corp.,
Term Loan (c)........... NR NR 10/05/03 to 02/24/04 20,172,140
8,767 Federal-Mogul Corp.,
Revolving Credit
Agreement (c)........... NR NR 02/24/04 8,723,258
1,445 J.L. French Automotive
Castings, Inc., Term
Loan.................... B1 NR 10/21/06 1,263,951
379 Oshkosh Truck Corp.,
Term Loan............... NR BB+ 01/31/07 381,929
13,796 Safelite Glass Corp.,
Term Loan............... NR NR 09/30/07 13,485,615
2,993 Stoneridge, Inc., Term
Loan.................... Ba3 BB- 04/30/08 3,007,462
--------------
72,705,717
--------------
BANKING 0.7%
10,080 Golden State Bancorp,
Inc., Term Loan......... NR NR 12/20/02 10,029,600
--------------
BEVERAGE, FOOD & TOBACCO 7.6%
19,698 Agrilink Foods, Inc.,
Term Loan............... B1 B+ 09/30/04 to 09/30/05 19,683,474
21,536 Aurora Foods, Inc., Term
Loan.................... B2 B- 06/30/05 to 09/30/06 20,107,530
4,667 B & G Foods, Inc., Term
Loan.................... B1 B+ 03/31/06 4,665,928
947 Cott Beverages, Inc.,
Term Loan............... NR BB 12/31/06 952,076
14,169 Dean Foods Co., Term
Loan.................... Ba2 BB+ 07/15/07 to 07/15/08 14,234,655
2,098 Del Monte Corp., Term
Loan.................... Ba3 B+ 03/31/08 2,113,693
14,269 Doane Pet Care Co., Term
Loan.................... B1 B+ 03/31/05 to 12/31/06 13,994,997
See Notes to Financial Statements
13
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
BEVERAGE, FOOD & TOBACCO (CONTINUED)
$ 3,252 Hartz Mountain Corp.,
Term Loan............... NR NR 12/31/07 $ 3,259,802
5,347 Imperial Sugar Corp.,
Term Loan............... NR NR 12/31/06 4,250,940
1,333 Interstate Brands Corp.,
Term Loan............... Ba1 BBB- 07/19/07 1,340,667
6,003 Land O' Lakes, Inc.,
Term Loan............... Ba2 BBB- 10/10/08 5,590,199
1,401 Luigino's, Inc., Term
Loan.................... B1 BB- 12/31/05 1,400,870
3,999 Mafco Worldwide Corp.,
Term Loan............... NR NR 03/31/06 3,958,570
499 Meow Mix Co., Term
Loan.................... Ba3 BB- 01/31/08 502,491
1,995 National Dairy Holdings,
LP, Term Loan........... Ba2 BB+ 04/29/09 2,005,390
829 New World Pasta Co.,
Term Loan............... B1 B 01/28/06 827,961
960 New World Pasta Co.,
Revolving Credit
Agreement............... B1 B 01/28/05 948,000
5,000 Pinnacle Foods, Inc.,
Term Loan............... Ba3 BB- 05/22/08 5,050,000
3,000 Southern Wine & Spirits
of America, Inc., Term
Loan.................... NR NR 07/02/08 3,015,939
--------------
107,903,182
--------------
BROADCASTING--CABLE 5.8%
6,965 CC VIII Operating, LLC,
Term Loan............... Ba3 BB+ 02/02/08 6,094,375
37,751 Charter Communications
Operating, LLC, Term
Loan (j)................ Ba3 BBB- 09/18/07 to 09/18/08 33,024,994
16,888 Falcon Cable
Communications, LP, Term
Loan.................... Ba3 NR 12/31/07 15,367,625
4,896 Frontiervision Operating
Partners, LP, Term Loan
(c)..................... B2 D 03/31/06 4,103,058
See Notes to Financial Statements
14
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
BROADCASTING--CABLE (CONTINUED)
$ 4,364 Frontiervision Operating
Partners, LP, Revolving
Credit Agreement (c).... B2 D 10/31/05 $ 3,627,273
7,750 Insight Midwest
Holdings, LLC, Term
Loan.................... Ba3 BB+ 06/30/09 to 12/31/09 7,390,974
5,250 MCC Iowa, LLC, Term
Loan.................... NR NR 09/30/10 5,087,250
9,240 Olympus Cable Holdings,
LLC, Term Loan (c)...... B2 D 09/30/10 7,563,596
--------------
82,259,145
--------------
BROADCASTING--DIVERSIFIED 0.6%
3,355 Clear Channel
Communications, Inc.,
Revolving Credit
Agreement............... Baa3 BBB- 06/30/05 3,270,725
1,000 Cumulus Media, Inc.,
Term Loan............... B1 B 03/28/10 1,007,250
4,583 Hughes Electronics
Corp., Term Loan........ Ba3 BB 12/05/02 4,581,184
--------------
8,859,159
--------------
BROADCASTING--RADIO 0.4%
6,250 Citadel Broadcasting
Co., Term Loan.......... NR NR 06/26/09 6,290,625
--------------
BROADCASTING--TELEVISION 0.5%
1,500 Gray Communications
Systems, Inc., Term
Loan.................... Ba3 B+ 09/30/09 1,504,688
6,549 Quorum Broadcasting,
Inc., Term Loan......... NR NR 12/31/04 5,861,334
--------------
7,366,022
--------------
See Notes to Financial Statements
15
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
BUILDINGS & REAL ESTATE 1.5%
$12,709 The Macerich Co., Term
Loan.................... NR NR 01/26/03 to 07/26/05 $ 12,709,375
7,000 Ventas, Inc., Term
Loan.................... NR NR 04/17/07 7,030,625
1,131 Ventas, Inc., Revolving
Credit Agreement........ NR NR 04/17/05 1,087,582
--------------
20,827,582
--------------
CHEMICALS, PLASTICS & RUBBER 4.4%
5,000 Berry Plastics Corp.,
Term Loan............... B1 B+ 07/22/10 5,032,290
15,056 GenTek, Inc., Term
Loan.................... Caa2 CCC 04/30/07 to 10/31/07 9,906,966
4,596 GEO Specialty Chemicals,
Inc., Term Loan......... B1 B+ 12/31/07 4,419,273
17,922 Huntsman Corp., Term
Loan.................... Caa2 NR 12/31/02 to 12/31/05 16,027,069
6,089 Huntsman ICI Chemicals,
LLC, Term Loan.......... B2 B+ 06/30/07 to 06/30/08 6,105,108
997 ISP Chemco, Inc., Term
Loan.................... NR BB+ 06/27/08 1,002,647
4,762 Lyondell Chemical Co.,
Term Loan............... Ba3 NR 05/17/06 4,826,817
4,000 Messer Griesheim, Term
Loan.................... Ba3 BB 04/27/09 to 04/27/10 4,032,500
6,078 Nutrasweet Acquisition
Corp., Term Loan........ Ba3 NR 05/25/07 to 05/25/09 6,097,387
5,066 OM Group, Inc., Term
Loan.................... Ba3 BB 04/01/07 5,078,265
411 West American Rubber
Co., LLC, Term Loan..... NR NR 11/09/03 411,162
--------------
62,939,484
--------------
CONSTRUCTION MATERIAL 1.4%
6,648 Brand Scaffold Services,
Inc., Term Loan......... B1 NR 09/30/03 6,598,157
2,985 Dayton Superior Corp.,
Term Loan............... Ba3 BB- 06/02/08 2,983,134
See Notes to Financial Statements
16
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CONSTRUCTION MATERIAL (CONTINUED)
$ 1,853 Magnatrax Corp., Term
Loan.................... NR NR 11/15/05 $ 1,609,062
358 Professional Service
Industries, Inc., Term
Loan.................... NR NR 09/30/02 336,334
8,498 Wilmar Industries, Inc.,
Term Loan............... NR NR 09/29/05 to 09/29/07 8,356,969
--------------
19,883,656
--------------
CONTAINERS, PACKAGING & GLASS 5.6%
4,887 Applied Tech Management
Corp., Term Loan........ B1 NR 04/30/07 4,578,696
8,031 Dr. Pepper/Seven Up
Bottling Group, Inc.,
Term Loan............... NR NR 10/07/07 8,079,680
13,467 Graham Packaging Co.,
Term Loan............... B2 B 01/31/06 to 01/31/07 13,419,362
1,704 Impress Metal Packaging
Holding B.V., Term
Loan.................... NR B 12/31/06 1,695,169
2,888 LLS Corp., Term Loan (a)
(c)..................... NR NR 07/31/06 1,621,813
9,203 Nexpak Corp., Term
Loan.................... NR NR 12/31/05 to 12/31/06 8,006,642
10,466 Owens-Illinois, Inc.,
Term Loan............... NR NR 03/31/04 10,417,481
6,189 Owens-Illinois, Inc.,
Revolving Credit
Agreement............... NR NR 03/31/04 6,033,697
4,791 Packaging Dynamics, Term
Loan.................... NR NR 11/20/05 4,719,404
5,893 Pliant Corp., Term
Loan.................... B2 B+ 05/31/08 5,915,692
1,000 Riverwood International
Corp., Term Loan........ B1 B 03/31/07 1,003,594
1,667 Silgan Holdings, Inc.,
Term Loan............... Ba2 BB- 11/30/08 1,667,708
5,000 Smurfit-Stone Container
Corp., Term Loan........ Ba3 B+ 06/30/09 5,000,000
See Notes to Financial Statements
17
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CONTAINERS, PACKAGING & GLASS (CONTINUED)
$ 4,900 Tekni-Plex, Inc., Term
Loan.................... B1 B+ 06/21/08 $ 4,916,332
2,911 U.S. Can Corp., Term
Loan.................... B2 B 01/04/06 2,729,493
--------------
79,804,763
--------------
DIVERSIFIED MANUFACTURING 2.2%
2,463 EnerSys, Term Loan...... NR NR 11/09/08 2,474,828
14,755 Mueller Group, Inc.,
Term Loan............... B1 B+ 05/31/08 14,803,293
4,640 Neenah Foundry Co., Term
Loan.................... Caa1 B- 09/30/05 4,385,080
9,244 SPX Corp., Term Loan.... Ba2 BB+ 09/30/09 to 03/31/10 9,262,498
504 UCAR International,
Inc., Term Loan......... NR NR 12/31/07 505,578
--------------
31,431,277
--------------
ECOLOGICAL 3.3%
41,088 Allied Waste North
America, Inc.,
Term Loan (j)........... Ba3 BB 07/21/05 to 07/21/07 38,741,544
2,952 Casella Waste Systems,
Inc., Term Loan......... B1 BB- 12/14/06 2,960,124
4,894 Duratek, Inc., Term
Loan.................... NR NR 12/08/06 4,698,410
368 Stericycle, Inc., Term
Loan.................... B1 BB- 09/30/07 370,947
--------------
46,771,025
--------------
EDUCATION & CHILD CARE 0.1%
1,939 TEC Worldwide, Inc.,
Term Loan............... NR NR 02/28/05 1,867,433
--------------
ELECTRONICS 3.7%
6,890 Acterna, LLC, Term
Loan.................... NR B 09/30/07 4,220,228
830 Amphenol Corp., Term
Loan.................... Ba2 BB+ 10/03/04 816,618
3,713 Audio Visual Services
Corp., Term Loan........ NR NR 03/04/04 to 03/04/06 3,560,720
4,178 Automata, Inc., Term
Loan (a) (c)............ NR NR 02/28/03 to 02/28/04 0
See Notes to Financial Statements
18
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
ELECTRONICS (CONTINUED)
$ 1,302 Computer Associates
International, Inc.,
Term Loan............... Baa2 BBB+ 05/26/03 $ 1,256,641
580 Computer Associates
International, Inc.,
Revolving Credit
Agreement............... Baa2 BBB+ 05/26/03 545,010
3,011 General Cable Corp.,
Term Loan............... Ba3 NR 05/25/07 2,727,745
7,000 Kinetic Group, Inc.,
Term Loan............... B1 NR 02/28/06 6,575,782
2,207 Knowles Electronics,
Inc., Term Loan......... B3 CCC 06/29/07 2,093,741
5,762 Rowe International,
Inc., Term Loan (d)..... NR NR 12/31/03 201,707
96 Rowe International,
Inc., Revolving Credit
Agreement (d)........... NR NR 12/31/03 0
12,000 Seagate Technologies,
Inc., Term Loan......... Ba1 BB+ 05/13/07 11,979,000
4,397 Semiconductor Components
Industries, LLC, Term
Loan.................... B2 B 08/04/06 to 08/04/07 4,118,975
4,920 Stratus Technologies,
Inc., Term Loan......... NR NR 02/26/05 4,181,891
2,800 Veridian Corp., Term
Loan.................... Ba3 BB- 06/10/08 2,818,668
9,450 Viasystems, Inc., Term
Loan.................... B3 CC 09/30/05 to 03/31/07 7,355,312
--------------
52,452,038
--------------
ENTERTAINMENT & LEISURE 6.0%
8,983 Bally Total Fitness
Holding Corp., Term
Loan.................... Ba3 B+ 11/10/04 9,005,626
4,843 Bell Sports, Inc., Term
Loan.................... NR NR 03/31/06 to 03/31/07 3,753,547
4,000 Charlotte Hornets NBA
Ltd., Term Loan......... NR NR 06/30/04 4,020,000
See Notes to Financial Statements
19
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
ENTERTAINMENT & LEISURE (CONTINUED)
$ 6,500 Festival Fun Parks, LLC,
Term Loan............... NR NR 06/30/07 to 12/31/07 $ 6,479,688
9,769 Fitness Holdings
Worldwide, Inc., Term
Loan.................... NR B 11/02/06 to 11/02/07 9,231,921
990 KSL Recreational Group,
Inc., Term Loan......... Ba3 B+ 04/30/05 to 04/30/06 987,368
846 KSL Recreational Group,
Inc., Revolving Credit
Agreement............... Ba3 B+ 04/30/04 833,173
19,425 Metro-Goldwyn-Mayer,
Inc., Term Loan......... NR NR 06/30/08 19,446,853
1,993 Panavision, Inc., Term
Loan.................... B3 CCC 03/31/05 1,818,803
2,500 Phoenix Suns, Term
Loan.................... NR NR 03/31/05 2,500,000
4,900 Playcore Wisconsin,
Inc., Term Loan......... NR NR 07/01/07 4,815,618
1,950 Regal Cinemas, Inc.,
Term Loan............... B1 BB- 12/31/07 1,967,306
6,500 Six Flags Theme Parks,
Inc., Term Loan......... Ba2 BB- 06/30/09 6,523,023
3,257 True Temper, Inc., Term
Loan.................... B1 BB- 09/30/05 3,240,246
6,827 WFI Group, Inc., Term
Loan.................... NR NR 07/14/04 6,845,870
4,873 Worldwide Sports &
Recreation, Inc., Term
Loan.................... NR NR 12/31/06 4,677,061
--------------
86,146,103
--------------
FARMING & AGRICULTURE 0.3%
3,981 The Scotts Co., Term
Loan.................... Ba3 BB 12/31/07 4,005,151
--------------
See Notes to Financial Statements
20
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
FINANCE 3.5%
$ 3,500 Alliance Data Systems,
Inc., Term Loan......... NR NR 07/25/05 $ 3,469,375
20,000 Comdisco, Inc., Term
Loan (a) (c) (g)........ NR NR 06/30/02 16,512,500
9,280 Corrections Corp. of
America, Term Loan...... B1 B+ 05/31/06 to 03/31/08 9,351,536
4,818 Outsourcing Solutions,
Term Loan............... B2 NR 06/10/06 4,703,084
7,146 Rent-A-Center, Inc.,
Term Loan............... Ba2 BB- 01/31/06 to 12/31/07 7,153,248
3,990 Rent-Way, Inc., Term
Loan.................... NR CCC 10/10/06 3,889,887
4,912 Risk Management
Assurance Co., Term
Loan.................... NR NR 12/21/06 4,893,663
--------------
49,973,293
--------------
GROCERY 0.3%
4,575 Fleming Cos., Inc., Term
Loan.................... Ba2 BB+ 06/19/08 4,576,908
--------------
HEALTHCARE 7.6%
32,500 Community Health
Systems, Inc., Term
Loan.................... NR NR 07/16/10 32,666,562
10,631 FHC Health Systems,
Inc., Term Loan......... NR NR 04/30/03 to 04/30/06 10,451,222
7,944 Genesis Health Ventures,
Inc., Term Loan......... Ba3 BB- 03/31/07 to 04/02/07 7,978,613
8,421 InteliStaf Group, Inc.,
Term Loan............... NR NR 10/31/05 to 10/31/07 8,397,760
22,464 Kindred Healthcare,
Inc., Term Loan......... NR NR 04/13/08 22,447,570
10,935 Magellan Health
Services, Inc., Term
Loan.................... B2 B 02/12/05 to 02/12/06 10,765,246
4,000 Medical Staffing Network
Holdings, Inc., Term
Loan.................... NR NR 10/26/06 3,982,500
See Notes to Financial Statements
21
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
HEALTHCARE (CONTINUED)
$ 8,000 Team Health, Inc., Term
Loan.................... Ba3 B+ 10/31/08 $ 8,045,000
4,574 Triad Hospitals, Inc.,
Term Loan............... Ba3 B+ 09/30/08 4,616,437
--------------
109,350,910
--------------
HEALTHCARE & BEAUTY 1.1%
7,547 Mary Kay, Inc., Term
Loan.................... Ba3 BB- 10/03/07 7,567,682
8,000 Revlon Consumer Products
Corp., Term Loan........ B3 B 05/30/05 7,921,664
--------------
15,489,346
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER PRODUCTS 1.5%
2,837 Brown Jordan
International, Inc.,
Term Loan............... Ba3 B 03/31/06 2,758,889
1,027 Foamex LP, Term Loan.... B2 BB- 06/30/05 to 06/30/06 1,027,696
1,958 Formica Corp., Term Loan
(c)..................... NR NR 04/30/06 1,795,142
8,556 Holmes Products Corp.,
Term Loan............... B2 B 02/05/07 7,871,537
1,422 Imperial Home Decor
Group, Inc., Term Loan
(d)..................... NR NR 04/04/06 1,329,839
3,517 Sleepmaster, LLC, Term
Loan (c)................ NR NR 12/31/06 3,393,466
1,477 Targus Group
International, Inc.,
Term Loan............... NR NR 12/19/06 1,351,861
2,354 World Kitchen, Inc.,
Revolving Credit
Agreement (c)........... NR NR 04/08/05 1,706,995
--------------
21,235,425
--------------
HOTELS, MOTELS, INNS & GAMING 6.7%
26,570 Aladdin Gaming, LLC,
Term Loan (a) (c)....... NR NR 02/25/05 to 02/26/08 22,251,077
2,084 Ameristar Casinos, Inc.,
Term Loan............... Ba3 B+ 12/20/06 2,097,903
See Notes to Financial Statements
22
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
HOTELS, MOTELS, INNS & GAMING (CONTINUED)
$ 4,950 Argosy Gaming Co., Term
Loan.................... Ba2 BB 07/31/08 $ 4,968,562
9,546 Extended Stay America,
Inc., Term Loan......... Ba3 BB- 01/15/08 9,596,513
2,993 Isle of Capri Casinos,
Inc., Term Loan......... Ba2 BB- 04/26/08 3,009,868
1,750 Las Vegas Sands, Inc.,
Term Loan............... NR B+ 06/04/08 1,770,417
3,000 Mandalay Resort Group,
Term Loan............... NR NR 08/22/06 3,010,314
6,939 Park Place Entertainment
Corp., Term Loan........ NR BBB- 12/31/03 6,813,207
13,696 Scientific Games Corp.,
Term Loan............... Ba3 B+ 09/30/07 13,769,019
34,620 Wyndham International,
Inc., Term Loan......... NR B- 06/30/04 to 06/30/06 29,235,850
--------------
96,522,730
--------------
INSURANCE 1.8%
10,000 Alea Group Holdings,
Term Loan............... NR BBB- 03/31/07 9,975,000
3,083 Hilb, Rogal & Hamilton
Co., Term Loan.......... Ba3 BB- 06/30/07 3,091,042
12,051 White Mountains
Insurance Group, Ltd.,
Term Loan............... NR NR 03/16/06 to 03/31/07 12,085,713
--------------
25,151,755
--------------
MACHINERY 4.1%
7,591 Alliance Laundry
Systems, LLC, Term
Loan.................... B1 B 06/30/05 7,581,205
21,849 Ashtead Group, PLC, Term
Loan.................... NR NR 06/01/07 21,138,874
5,867 Dresser Industries,
Inc., Term Loan......... Ba3 BB- 04/10/09 5,902,552
10,415 Flowserve Corp., Term
Loan.................... Ba3 BB- 06/30/06 to 06/30/09 10,370,036
See Notes to Financial Statements
23
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
MACHINERY (CONTINUED)
$ 2,500 Terex Corp., Term Loan.. Ba3 BB- 06/29/09 $ 2,481,250
8,888 United Rentals (North
America), Inc., Term
Loan.................... Ba3 BB+ 08/31/07 8,923,610
2,382 Weigh Tronix, LLC, Term
Loan.................... NR D 06/30/07 1,726,650
--------------
58,124,177
--------------
MEDICAL PRODUCTS & SERVICES 7.2%
17,075 Alliance Imaging, Inc.,
Term Loan............... B1 B+ 06/10/08 17,110,193
5,909 American Home Patient,
Term Loan (c)........... NR NR 12/31/02 4,520,227
3,188 Conmed Corp., Term
Loan.................... Ba3 BB- 12/30/04 3,166,666
14,927 Dade Behring, Inc., Term
Loan.................... NR NR 06/30/05 to 06/30/07 15,224,968
8,922 Dade Behring, Inc.,
Revolving Credit
Agreement............... NR NR 06/30/05 9,100,525
20,820 DaVita, Inc., Term
Loan.................... Ba3 BB- 03/31/09 20,898,156
5,957 Insight Health, Term
Loan.................... NR B+ 10/17/08 5,990,998
14,225 Kinetics Concepts, Inc.,
Term Loan............... Ba3 B 12/31/04 to 03/31/06 14,224,520
5,175 National Medical Care,
Inc., Term Loan......... Ba1 BB 09/30/03 5,081,203
4,887 National Nephrology
Associates, Inc., Term
Loan.................... B1 B+ 12/31/05 4,850,844
2,244 Rotech Healthcare, Inc.,
Term Loan............... Ba2 BB 03/31/08 2,246,245
--------------
102,414,545
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 1.6%
3,424 CII Carbon, LLC, Term
Loan.................... NR NR 06/25/08 2,739,297
28,870 Ispat Inland, Term
Loan.................... Caa2 B- 07/16/05 to 07/16/06 20,353,680
--------------
23,092,977
--------------
See Notes to Financial Statements
24
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
NATURAL RESOURCES 1.8%
$ 5,000 Arch Western Resources,
LLC, Term Loan.......... Ba1 BB+ 04/18/08 $ 5,029,690
15,000 Ocean Rig ASA--
(Norway), Term Loan..... B3 NR 06/01/08 13,125,000
7,448 Tesoro Petroleum Corp.,
Term Loan............... Ba3 BB+ 12/31/07 7,332,497
780 U.S. Synthetic Corp.,
Term Loan............... NR NR 05/31/05 733,067
--------------
26,220,254
--------------
NON-DURABLE CONSUMER PRODUCTS 2.2%
8,706 American Marketing
Industries, Inc., Term
Loan (a)................ NR NR 04/01/04 4,353,144
799 American Safety Razor
Co., Term Loan.......... B1 B- 04/30/07 671,487
4,947 Arena Brands, Inc., Term
Loan.................... NR NR 06/02/03 4,681,167
7,703 Boyds Collection, Ltd.,
Term Loan............... Ba3 B+ 04/21/05 7,620,898
1,500 Church & Dwight Co.,
Inc., Term Loan......... Ba2 BB 09/30/07 1,512,723
4,573 Danka Business Systems,
PLC, Term Loan.......... NR NR 03/31/04 4,537,439
2,500 Danka Business Systems,
PLC, Revolving Credit
Agreement............... NR NR 03/31/04 2,452,083
2,667 JohnsonDiversey, Inc.,
Term Loan............... Ba3 BB- 11/03/09 2,688,811
3,150 Playtex Products, Inc.,
Term Loan............... Ba3 BB- 05/31/09 3,157,875
--------------
31,675,627
--------------
See Notes to Financial Statements
25
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PAPER & FOREST PRODUCTS 0.4%
$ 2,465 Bear Island Paper Co.,
LLC, Term Loan.......... B3 B- 12/31/05 $ 2,428,487
2,908 Port Townsend Paper
Corp., Term Loan........ NR NR 03/16/05 to 03/16/07 2,833,082
--------------
5,261,569
--------------
PERSONAL & MISCELLANEOUS SERVICES 2.9%
7,880 Coinmach Laundry Corp.,
Term Loan............... B1 BB- 07/25/09 7,938,115
11,627 Encompass Service Corp.,
Term Loan............... B2 B 05/10/07 7,266,719
1,600 Iron Mountain, Inc.,
Term Loan............... Ba3 BB 02/15/08 1,611,600
5,000 Katun Corp., Term Loan.. NR B+ 06/30/09 4,984,375
3,400 Stewart Enterprises,
Inc., Term Loan......... Ba3 BB 06/29/06 3,423,690
1,869 TeleSpectrum Worldwide,
Inc., Term Loan (d)..... NR NR 05/31/05 1,219,255
8,873 The Relizon Co., Term
Loan.................... NR NR 09/30/06 to 12/31/07 8,713,814
1,733 Vicar Operating, Inc.,
Term Loan............... B1 B+ 09/20/08 1,741,321
4,975 Weight Watchers
International, Inc.,
Term Loan............... Ba1 BB- 12/31/07 5,012,313
--------------
41,911,202
--------------
PHARMACEUTICALS 3.1%
1,840 aaiPharma, Inc., Term
Loan.................... NR BB- 03/28/07 1,838,850
1,663 Accredo Health, Inc.,
Term Loan............... Ba2 BB 03/31/09 1,670,812
2,375 Alpharma Operating
Corp., Term Loan........ B1 BB- 10/05/07 to 10/05/08 2,334,411
9,816 Caremark Rx, Inc., Term
Loan.................... Ba2 BB+ 03/31/06 9,856,736
See Notes to Financial Statements
26
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PHARMACEUTICALS (CONTINUED)
$ 5,000 Express Scripts, Inc.,
Term Loan............... Ba1 BBB- 03/31/08 $ 5,013,020
5,475 MedPointe, Inc., Term
Loan.................... B1 B+ 09/30/07 to 09/30/08 5,495,459
19,698 NCS Healthcare, Inc.,
Revolving Credit
Agreement (g)........... NR NR 06/30/02 18,811,839
--------------
45,021,127
--------------
PRINTING & PUBLISHING 7.6%
4,122 21st Century Newspapers,
Term Loan............... NR NR 09/15/05 3,937,428
1,990 Adams Outdoor
Advertising, LP, Term
Loan.................... B1 B+ 02/08/08 2,000,364
6,240 Advanstar
Communications, Inc.,
Term Loan............... B2 B 10/11/07 6,108,960
3,941 American Media
Operations, Inc., Term
Loan.................... Ba3 NR 04/01/07 3,977,544
11,241 American Reprographics
Co., Term Loan.......... NR NR 04/10/08 11,185,280
10,414 CommerceConnect Media,
Inc., Term Loan......... NR NR 12/31/07 9,997,155
2,441 Daily News, LP, Term
Loan.................... NR NR 03/19/08 2,343,603
7,133 Lamar Media Corp., Term
Loan.................... Ba2 BB- 03/01/06 to 02/01/07 7,110,088
4,851 Liberty Group Operating,
Inc., Term Loan......... B1 B 03/31/07 4,850,505
15,000 Morris Communications
Corp., Term Loan........ NR NR 09/30/09 15,044,535
3,750 Network Communications,
Inc., Term Loan......... NR NR 06/27/08 3,759,375
See Notes to Financial Statements
27
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PRINTING & PUBLISHING (CONTINUED)
$ 2,977 Payment Processing
Solutions, Inc., Term
Loan.................... NR NR 06/30/05 $ 2,954,419
7,452 PRIMEDIA, Inc., Term
Loan.................... NR B 06/30/09 5,918,500
12,093 Reader's Digest
Association, Inc., Term
Loan.................... Baa3 BB+ 05/21/07 to 05/20/08 12,103,660
6,239 Trader.com, Term Loan... NR NR 12/31/06 to 12/31/07 6,238,842
7,960 Vertis, Inc., Term
Loan.................... B1 B+ 12/07/05 7,716,390
1,909 Vutek, Inc., Term
Loan.................... B1 NR 07/31/07 1,869,373
1,602 Ziff-Davis Media, Inc.,
Term Loan............... B3 CCC- 03/31/07 1,374,677
--------------
108,490,698
--------------
RESTAURANTS & FOOD SERVICE 0.7%
1,500 AFC Enterprises, Inc.,
Term Loan............... Ba2 BB 05/23/09 1,507,500
1,845 Carvel Corp., Term
Loan.................... NR NR 12/31/06 1,826,550
2,859 Papa Ginos, Inc., Term
Loan.................... NR NR 08/31/07 2,837,647
4,644 S.C. International
Services, Inc., Term
Loan.................... Ba1 NR 03/01/07 4,399,773
--------------
10,571,470
--------------
RETAIL--OIL & GAS 1.1%
7,285 Barjan Products, LLC,
Term Loan............... NR NR 05/31/06 6,956,883
9,247 The Pantry, Inc., Term
Loan.................... B1 B+ 01/31/06 to 07/31/06 9,102,220
--------------
16,059,103
--------------
RETAIL--SPECIALTY 0.7%
3,242 DRL Aquisition, Inc.,
Term Loan............... NR NR 04/30/09 3,231,744
6,129 Home Interiors & Gifts,
Inc., Term Loan......... B3 B 12/31/06 5,883,564
1,581 Josten's, Inc., Term
Loan.................... B1 BB- 05/31/06 1,555,832
--------------
10,671,140
--------------
See Notes to Financial Statements
28
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
RETAIL--STORES 2.8%
$ 1,303 Duane Reade, Inc., Term
Loan.................... Ba2 BB- 02/15/07 $ 1,309,755
37,785 Rite Aid Corp., Term
Loan.................... B2 BB- 06/27/05 37,280,723
1,906 Shoppers Drug Mart
Corp., Term Loan........ Ba1 BBB+ 02/04/09 1,913,029
--------------
40,503,507
--------------
TECHNOLOGY 0.5%
3,120 Advanced Glassfiber
Yarns, LLC, Term Loan... Caa3 CC 09/30/05 3,111,949
4,500 The Titan Corp., Term
Loan.................... Ba3 BB 06/30/09 4,506,750
--------------
7,618,699
--------------
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 0.7%
8,372 Broadwing, Inc., Term
Loan.................... Ba3 BB 11/09/04 to 06/28/07 7,159,507
1,673 McLeodUSA, Inc., Term
Loan.................... Caa2 NR 05/30/08 832,288
7,381 Orius Corp., Term Loan.. NR NR 12/15/06 to 12/15/07 1,199,404
7,500 WCI Capital Corp., Term
Loan (a) (c)............ NR NR 09/30/07 156,248
2,314 WCI Capital Corp.,
Revolving Credit
Agreement (a) (c)....... NR NR 12/31/02 289,220
--------------
9,636,667
--------------
TELECOMMUNICATIONS--LONG DISTANCE 0.2%
6,272 Global Crossing
Holdings, Ltd., Term
Loan (a) (c)............ NR NR 06/30/06 1,011,309
22,651 Pacific Crossing, Ltd.,
Term Loan (a) (c)....... NR NR 07/28/06 2,434,949
--------------
3,446,258
--------------
TELECOMMUNICATIONS--WIRELESS 4.3%
2,909 American Cellular Corp.,
Term Loan............... B3 CCC- 03/31/08 to 03/31/09 1,965,096
4,000 American Tower Corp.,
Term Loan............... B2 BB- 12/31/07 3,398,752
20,053 BCP SP Ltd., Term Loan
(a) (g)................. NR NR 03/31/02 to 03/31/05 8,021,314
See Notes to Financial Statements
29
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TELECOMMUNICATIONS--WIRELESS (CONTINUED)
$ 2,500 Chicago 20MHz, Term
Loan.................... NR NR 10/31/07 $ 2,443,075
8,000 Cricket Communications,
Inc., Term Loan......... NR NR 06/30/07 1,980,000
4,701 Microcell Solutions,
Inc., Term Loan......... NR NR 03/01/06 2,056,680
24,383 Nextel Finance Co., Term
Loan (j)................ Ba3 BB- 12/31/07 to 12/31/08 19,912,989
3,333 Spectrasite
Communications, Inc.,
Term Loan............... B3 CC 12/31/07 2,861,363
3,957 Sygnet Wireless, Inc.,
Term Loan............... NR NR 12/23/06 to 12/23/07 3,531,278
10,647 Triton PCS, Inc., Term
Loan.................... Ba3 BB- 05/04/07 10,087,559
7,333 Western Wireless Corp.,
Term Loan............... B1 B 09/30/08 4,748,333
--------------
61,006,439
--------------
TEXTILES & LEATHER 1.7%
5,338 Galey & Lord, Inc., Term
Loan (c)................ NR NR 04/02/05 to 04/01/06 4,145,931
5,633 Malden Mills Industries,
Inc., Term Loan (a)
(c)..................... NR NR 10/28/06 1,364,765
18,409 Norcross Safety
Products, LLC, Term
Loan.................... NR NR 09/30/04 18,362,592
--------------
23,873,288
--------------
TRANSPORTATION--CARGO 1.6%
4,939 American Commercial
Lines, LLC, Term Loan... B3 B 06/30/06 to 06/30/07 4,674,643
4,896 Atlas Freighter Leasing,
Inc., Term Loan......... NR NR 04/25/05 to 04/25/06 4,442,824
7,418 Evergreen International
Aviation, Inc., Term
Loan.................... NR NR 05/07/03 to 05/07/04 6,935,727
392 Kansas City Southern
Railway Co., Term Loan.. Ba1 BB+ 06/12/08 393,779
See Notes to Financial Statements
30
YOUR TRUST'S INVESTMENTS
July 31, 2002
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TRANSPORTATION--CARGO (CONTINUED)
$ 5,000 RailAmerica, Inc., Term
Loan.................... Ba3 BB 05/23/09 $ 5,023,750
1,920 Roadway Corp., Term
Loan.................... Baa3 BBB 10/10/06 1,912,800
--------------
23,383,523
--------------
TRANSPORTATION--PERSONAL 0.3%
4,827 Motor Coach Industries,
Inc., Term Loan......... B2 B 06/16/05 4,350,030
--------------
TRANSPORTATION--RAIL MANUFACTURING 0.3%
3,399 Helm, Inc., Term Loan... NR NR 10/18/06 3,084,191
3,054 RailWorks Corp., Term
Loan (a) (c)............ NR NR 09/30/06 992,589
--------------
4,076,780
--------------
UTILITIES 1.4%
3,000 Michigan Electric
Transmission Co., Term
Loan.................... Baa2 NR 05/01/07 3,011,250
1,824 Pike Electric, Inc.,
Term Loan............... NR NR 04/18/10 1,839,106
4,667 Southern California
Edison Co., Term Loan... Ba2 NR 03/01/03 to 03/01/05 4,670,917
978 TNP Enterprises, Inc.,
Term Loan............... Ba2 BB+ 03/30/06 978,417
9,000 Westar Energy, Inc.,
Term Loan............... NR NR 06/05/05 8,915,625
335 Westar Energy, Inc.,
Revolving Credit
Agreement............... NR NR 06/06/05 325,788
--------------
19,741,103
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 123.1%....................... 1,760,961,383
--------------
See Notes to Financial Statements
31
YOUR TRUST'S INVESTMENTS
July 31, 2002
BORROWER VALUE
NOTES 2.3%
Alderwoods Group, Inc. ($3,514,000 par, 11.00% to 12.25%
coupon, maturing 01/02/07 to 01/02/09).................... $ 3,517,632
Genesis Health Ventures, Inc. ($6,280,170 par, 7.0375%
coupon, maturing 04/02/07) (h)............................ 6,280,170
PCI Chemicals Canada, Inc. (5,128,666 par, 10.00% coupon,
maturing 12/31/08)........................................ 3,615,710
Pioneer Cos., Inc. ($1,709,555 par, 5.355% coupon, maturing
12/31/06) (h)............................................. 1,151,813
Premcor Refining Group, Inc. ($3,000,000 par, 4.59125%
coupon, maturing 08/23/03) (h)............................ 2,992,500
Rowe International, Inc. ($185,317 par, 15.00% coupon,
maturing 12/31/00) (d) (g)................................ 0
Satelites Mexicanos ($17,091,000 par, 9.06% coupon, maturing
06/30/04), 144A Private Placement (b) (h)................. 14,975,989
--------------
TOTAL NOTES................................................. 32,533,814
--------------
EQUITIES 3.5%
Alderwoods Group (235,977 common shares) (e)................ 1,661,278
Audio Visual Services Corp. (70,205 common shares) (e)
(f)....................................................... 831,227
Breed Technologies, Inc. (416,538 common shares) (e) (f).... 0
Genesis Health Ventures, Inc. (10,483 preferred shares) (e)
(f)....................................................... 1,203,763
Genesis Health Ventures, Inc. (932,290 common shares) (e)... 15,019,192
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)........ 16,890,776
Pioneer Corp of America (331,654 common shares) (e) (f)..... 596,977
Rotech Healthcare, Inc. (484,850 common shares) (e) (f)..... 9,454,575
Rotech Medical Corp. (48,485 common shares) (e)............. 0
Rowe International, Inc. (87,636 common shares) (d) (e)
(f)....................................................... 0
Safelite Glass Corp. (421,447 common shares) (e) (f)........ 3,847,811
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)..................... 641,868
West American Rubber Co., LLC (5.04% Ownership Interest) (e)
(f)....................................................... 0
--------------
TOTAL EQUITIES.............................................. 50,147,467
--------------
TOTAL LONG-TERM INVESTMENTS 128.9%
(Cost $1,990,299,995)..................................... 1,843,642,664
--------------
See Notes to Financial Statements
32
YOUR TRUST'S INVESTMENTS
July 31, 2002
BORROWER VALUE
SHORT TERM INVESTMENTS 0.8%
REPURCHASE AGREEMENT 0.2%
State Street Bank & Trust Co. ($2,500,000 par collateralized
by U.S. Government obligations in a pooled cash account,
dated 07/31/02, to be sold on 08/01/02 at $2,500,122)..... $ 2,500,000
--------------
TIME DEPOSIT 0.6%
State Street Bank & Trust Corp. ($8,366,043 par, 1.25%
coupon, dated 07/31/02, to be sold on 08/01/02 at
$8,366,333)............................................... 8,366,043
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $10,866,043)........................................ 10,866,043
--------------
TOTAL INVESTMENTS 129.7%
(Cost $2,001,166,038)..................................... 1,854,508,707
BORROWINGS (25.9%)......................................... (370,159,000)
LIABILITIES IN EXCESS OF OTHER ASSETS (3.8%)............... (54,389,240)
--------------
NET ASSETS 100.0%.......................................... $1,429,960,467
==============
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. (Bank
loan ratings are unaudited.)
(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 July 31,
2002.
(i) Fixed rate security.
(j) A portion of this security is segregated in connection with unfunded
commitments.
* 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
See Notes to Financial Statements
33
YOUR TRUST'S INVESTMENTS
July 31, 2002
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 or (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
34
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
July 31, 2002
ASSETS:
Total Investments (Cost $2,001,166,038)..................... $1,854,508,707
Cash........................................................ 27,200
Receivables:
Investments Sold.......................................... 8,948,393
Interest and Fees......................................... 7,798,109
Other....................................................... 85,078
--------------
Total Assets............................................ 1,871,367,487
--------------
LIABILITIES:
Payables:
Borrowings................................................ 370,159,000
Investments Purchased..................................... 68,125,990
Investment Advisory Fee................................... 1,279,353
Administrative Fee........................................ 301,024
Distributor and Affiliates................................ 285,456
Accrued Expenses............................................ 527,746
Accrued Interest Expense.................................... 515,349
Trustees' Deferred Compensation and Retirement Plans........ 213,102
--------------
Total Liabilities....................................... 441,407,020
--------------
NET ASSETS.................................................. $1,429,960,467
==============
NET ASSET VALUE PER COMMON SHARE ($1,429,960,467 divided by
180,010,000 shares outstanding)........................... $ 7.94
==============
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............. 5,331,061
Net Unrealized Depreciation................................. (146,657,331)
Accumulated Net Realized Loss............................... (226,182,653)
--------------
NET ASSETS.................................................. $1,429,960,467
==============
See Notes to Financial Statements
35
Statement of Operations
For the Year Ended July 31, 2002
INVESTMENT INCOME:
Interest.................................................... $ 114,495,289
Other....................................................... 5,405,277
-------------
Total Income............................................ 119,900,566
-------------
EXPENSES:
Investment Advisory Fee..................................... 15,425,573
Administrative Fee.......................................... 3,629,547
Legal....................................................... 635,928
Custody..................................................... 586,249
Trustees' Fees and Related Expenses......................... 84,742
Other....................................................... 1,774,874
-------------
Total Operating Expenses................................ 22,136,913
Interest Expense........................................ 7,897,445
-------------
Total Expenses.......................................... 30,034,358
-------------
NET INVESTMENT INCOME....................................... $ 89,866,208
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (87,927,766)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (134,707,185)
End of the Period......................................... (146,657,331)
-------------
Net Unrealized Depreciation During the Period............... (11,950,146)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (99,877,912)
=============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (10,011,704)
=============
See Notes to Financial Statements
36
Statement of Changes in Net Assets
YEAR ENDED YEAR ENDED
JULY 31, 2002 JULY 31, 2001
-------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 89,866,208 $ 143,228,857
Net Realized Loss.................................... (87,927,766) (134,906,805)
Net Unrealized Depreciation During the Period........ (11,950,146) (62,619,290)
-------------- --------------
Change in Net Assets from Operations................. (10,011,704) (54,297,238)
Distributions from Net Investment Income............. (92,687,003) (149,588,160)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.. (102,698,707) (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 $5,331,061
and $8,403,655, respectively)...................... $1,429,960,467 $1,532,659,174
============== ==============
See Notes to Financial Statements
37
Statement of Cash Flows
For the Year Ended July 31, 2002
CHANGE IN NET ASSETS FROM OPERATIONS........................ $(10,011,704)
------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Decrease in Investments at Value.......................... 25,462,244
Decrease in Receivable for Investments Sold............... 16,170,836
Decrease in Interest and Fees Receivables................. 3,615,240
Decrease in Other Assets.................................. 148,071
Increase in Payable for Investments Purchased............. 56,211,490
Decrease in Investment Advisory Fee Payable............... (100,161)
Decrease in Administrative Fee Payable.................... (23,568)
Increase in Distributor and Affiliates Payable............ 232,909
Decrease in Accrued Expenses.............................. (97,676)
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 42,558
------------
Total Adjustments....................................... 101,661,943
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 91,650,239
============
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Bank Borrowings................................... (4,841,000)
Change in Accrued Interest Expense.......................... (742,893)
Cash Dividends Paid......................................... (92,803,333)
------------
Net Cash Used for Financing Activities.................. (98,387,226)
------------
NET DECREASE IN CASH........................................ (6,736,987)
Cash at Beginning of the Period............................. 6,764,187
------------
CASH AT THE END OF THE PERIOD............................... $ 27,200
============
See Notes to Financial Statements
38
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
JUNE 24, 1998
(COMMENCEMENT
YEAR ENDED JULY 31, OF INVESTMENT
----------------------------------------- OPERATIONS) TO
2002 (E) 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.................. .49 .79 .81 .77 .07
Net Realized and Unrealized Gain/Loss.. (.55) (1.10) (.42) -0- .01
-------- -------- -------- -------- --------
Total from Investment Operations........ (.06) (.31) .39 .77 .08
-------- -------- -------- -------- --------
Less:
Distributions from Net Investment
Income............................... .51 .83 .81 .76 -0-
Distributions from Net Realized Gain... -0- -0- .01 -0- -0-
-------- -------- -------- -------- --------
Total Distributions..................... .51 .83 .82 .76 -0-
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE PERIOD...... $ 7.94 $ 8.51 $ 9.65 $ 10.08 $ 10.07
======== ======== ======== ======== ========
Common Share Market Price at End of the
Period................................. $ 6.67 $ 7.79 $ 8.75 $ 9.5625 $10.0625
Total Return (b)........................ -8.05% -1.42% .61% 2.98% .63%**
Net Assets at End of the Period (In
millions).............................. $1,430.0 $1,532.7 $1,736.5 $1,815.1 $1,812.1
Ratio of Operating Expenses to Average
Net Assets*............................ 1.22% 1.63% 1.75% 1.66% 1.18%
Ratio of Interest Expense to Average Net
Assets................................. .44% 2.15% 2.49% 2.37% .28%
Ratio of Net Investment Income to
Average Net Assets*.................... 4.95% 8.90% 8.19% 7.72% 6.94%
Portfolio Turnover (c).................. 65% 55% 57% 28% 3%**
Senior Indebtedness:
Total Borrowing Outstanding (In
thousands)......................... $370,159 $375,000 $700,000 $800,000 $400,000
Asset Coverage Per $1,000 Unit of
Senior Indebtedness (d)............ 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
39
NOTES TO
FINANCIAL STATEMENTS
July 31, 2002
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 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.
40
NOTES TO
FINANCIAL STATEMENTS
July 31, 2002
Equity securities are valued on the basis of prices furnished by pricing
services or at fair value 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.
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 fixed income securities. The cumulative
effect of this accounting change had no impact on total net assets of the
Portfolio, but resulted in a $251,799 reduction in cost of securities and
corresponding $251,799 increase in net unrealized appreciation based on
securities held by the Trust on August 1, 2001.
The effect of this change for the year ended July 31, 2002 was to decrease
net investment income by $119,589; increase net unrealized depreciation by
$71,798, and decrease net realized loss by $191,387. 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
41
NOTES TO
FINANCIAL STATEMENTS
July 31, 2002
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.
At July 31, 2002, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $2,045,607,056
--------------
Gross tax unrealized appreciation........................... $ 28,360,927
Gross tax unrealized depreciation........................... (219,459,276)
--------------
Net tax unrealized depreciation on investments.............. $ (191,098,349)
==============
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 during 2002 and 2001 was as follows:
2002 2001
Distributions paid from:
Ordinary income........................................ $92,687,003 $149,588,160
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 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 other losses that were
recognized for book purposes but not tax purposes at the end of the fiscal year.
42
NOTES TO
FINANCIAL STATEMENTS
July 31, 2002
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 year ended July 31, 2002, the Trust recognized expenses of
approximately $182,800 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
year ended July 31, 2002, the Trust recognized expenses of approximately $64,800
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.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
During the period, the Trust owned shares of the following affiliated
companies. Affiliated companies are defined by the Investment Company Act of
43
NOTES TO
FINANCIAL STATEMENTS
July 31, 2002
1940 as those companies in which a fund holds 5% or more of the outstanding
voting securities.
INTEREST/
PAR/ REALIZED DIVIDEND VALUE
NAME SHARES* GAIN/(LOSS) INCOME 7/31/02 COST
Imperial Home Decor
Group, Inc., Term
Loan................... $ 1,422,288 $ 0 $106,035 $1,329,839 $1,367,833
Imperial Home Decor
Group, Inc., Common
Stock.................. 512,023 0 0 0 522,263
Imperial Home Decor
Reality, Inc., Common
Stock.................. 512,023 0 0 0 0
Rowe International, Inc.,
Term Loan.............. 5,762,338 795 583,427 201,707 5,151,641
Rowe International, Inc.,
Revolving Credit
Agreement.............. 95,625 0 5,269 0 93,335
Rowe International,
Inc. .................. 185,317 0 25,360 0 185,317
Rowe International, Inc.,
Common Stock........... 87,636 0 0 0 0
Telespectrum Worldwide,
Inc., Term Loan........ 1,869,163 0 42,058 1,219,255 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 July 31, 2002, 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 $1,367,017,743 and
$1,152,288,586, respectively.
4. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $59,492,300 as of July
31, 2002. The Trust intends to reserve against such contingent obligations by
segregating cash, liquid securities and liquid Senior Loans as a reserve.
44
NOTES TO
FINANCIAL STATEMENTS
July 31, 2002
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.
At July 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)
Goldman Sachs Credit Partners, L.P. ........................ $10,631 $10,451,222
JP Morgan Chase Bank........................................ 20,000 16,512,500
------- -----------
Total....................................................... $30,631 $26,963,722
======= ===========
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 a $500 million revolving credit agreement with
VVR Funding LLC, a Delaware limited liability company whose sole purpose is the
issuance of commercial paper, which will terminate on September 30, 2002. 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 year ended July 31, 2002, the average daily balance
of borrowings under the revolving credit agreement was $334 million with a
weighted average interest rate of 2.35%.
45
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Van Kampen Senior Income Trust
We have audited the accompanying statement of assets and liabilities of Van
Kampen Senior Income Trust (the "Trust"), including the portfolio of
investments, as of July 31, 2002, the related statements of operations and cash
flows for the year then ended, the statements of changes in net assets for each
of the two years in the period then ended, and the financial highlights for each
of the three years in the period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The Trust's financial highlights for
the periods ended prior to July 31, 2000 were audited by other auditors whose
report, dated September 14, 1999, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2002, by correspondence with the Trust's
custodian, brokers, and selling or agent banks; where replies were not received,
we performed alternative auditing procedures. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Senior Income Trust as of July 31, 2002, the results of its operations,
cash flows, the changes in its net assets and the financial highlights for the
respective stated periods, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
September 6, 2002
46
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
47
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
REVISED POLICY ON INVESTMENTS IN STRUCTURED NOTES
The Board of Van Kampen Senior Income Trust has revised the Trust's policy to
invest up to 5% of its total assets in various structured note investments by
expanding the universe of the types of structured notes in which the Trust can
invest. This replaces the former policy of the Trust to invest only in
structured notes where the rates of return are determined by reference to the
total rate of return on one or more senior loans referenced in such notes.
Interest on structured note investments may now be based on a spread over an
index or a benchmark interest rate, or other reference indicator, that may or
may not correlate to the total rate of return on one or more Senior Loans
referenced in such notes.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
48
RESULTS OF
SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 12, 2002, where
shareholders voted on the election of trustees.
With regards to the election of the following trustees by the shareholders of
the Trust:
# OF SHARES
------------------------
IN FAVOR WITHHELD
--------------------------------------------------------------------------------------
David C. Arch............................................... 172,266,302 2,188,919
Howard J Kerr............................................... 172,196,426 2,258,795
The other trustees of the Trust whose terms did not expire in 2002 are Hugo F.
Sonnenschein, Rod Dammeyer, Theodore A. Myers, Richard F. Powers, III, and Wayne
W. Whalen.
49
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Trust and their
principal occupations for the last five years, other directorships held by the
trustees and their affiliations, if any, with Van Kampen Investments Inc. ("Van
Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory Corp."),
Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds Inc.
(the "Distributor"), Van Kampen Advisors Inc., Van Kampen Exchange Corp. and Van
Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and Asset
Management sometimes are referred to herein collectively as the "Advisers." For
purposes hereof, the term "Fund Complex" includes each of the investment
companies advised by the Advisers. Trustees serve three year terms or until
their successors are duly elected and qualified. Officers are annually elected
by the trustees.
INDEPENDENT TRUSTEES:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
David C. Arch (57) Trustee Trustee Mr. Arch is Chairman and Chief Executive 37
Blistex Inc. since 1998 Officer of Blistex Inc., a consumer health
1800 Swift Drive care products manufacturer, and former
Oak Brook, IL 60523 Director of the World Presidents
Organization-Chicago Chapter. Mr. Arch is also
a Trustee or Managing General Partner of other
investment companies advised by the Advisers.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
David C. Arch (57) Mr. Arch is a member of
Blistex Inc. the Board of Directors of
1800 Swift Drive the Heartland Alliance, a
Oak Brook, IL 60523 non-profit organization
serving human needs based
in Chicago.
50
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
Rod Dammeyer (61) Trustee Trustee Mr. Dammeyer is President of CAC, llc., a 37
CAC, llc. since 1998 private company offering capital investment
676 North Michigan Avenue and management advisory services. Mr. Dammeyer
Suite 2800 is also a Trustee or Managing General Partner
Chicago, IL 60611 of other investment companies advised by the
Advisers. Prior to February 2001, Mr. Dammeyer
was Vice Chairman and Director of Anixter
International, Inc. and IMC Global Inc. Prior
to July 2000, Mr. Dammeyer was a Managing
Partner of Equity Group Corporate Investment
(EGI), a company that makes private
investments in other companies. Prior to 1997,
Mr. Dammeyer was President, Chief Executive
Officer and a Director of Great American
Management & Investment, Inc., a diversified
manufacturing company.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (61) Mr. Dammeyer is a member
CAC, llc. of the Board of Directors
676 North Michigan Avenue of TeleTech Holdings
Suite 2800 Inc., Stericycle, Inc.,
Chicago, IL 60611 GATX Corporation,
Therasence, Inc. and
Peregrine Systems Inc.
and a member of the Board
of Trustees of the
University of Chicago
Hospitals and Health
Systems. Prior to July
2000, Mr. Dammeyer was a
member of the Board of
Directors of Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM). Prior to April
1999, Mr. Dammeyer was a
Director of Metal
Management, Inc. Prior to
1998, Mr. Dammeyer was a
Director of Lukens, Inc.,
Capsure Holdings Corp.,
Revco D.S., Inc., the
Chase Manhattan
Corporation National
Advisory Board and Sealy,
Inc. Prior to 1997, Mr.
Dammeyer was a Director
of Flacon Building
Products, Inc.
51
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
Howard J Kerr (66) Trustee Trustee Mr. Kerr is a Trustee or Managing General 37
736 North Western Avenue since 1998 Partner of other investment companies advised
P.O. Box 317 by the Advisers. Prior to 1998, Mr. Kerr was
Lake Forest, IL 60045 the President and Chief Executive Officer of
Pocklington Corporation, Inc., an Investment
holding company.
Theodore A. Myers (72) Trustee Trustee Mr. Myers is a financial consultant. Mr. Myers 37
550 Washington Avenue since 1998 is also a Trustee or Managing General Partner
Glencoe, IL 60022 of other investment companies advised by the
Advisers. Prior to 1998, Mr. Myers was a
Senior Financial Advisor (and, prior to 1997,
an Executive Vice President, Chief Financial
Officer and Director) of Qualitech Steel
Corporation, a producer of high quality
engineered steels for automotive,
transportation and capital goods industries.
Prior to 1997, Mr. Myers was a member of the
Arthur Andersen Chief Financial Officers'
Committee.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Howard J Kerr (66) Mr. Kerr is a Director of
736 North Western Avenue Canbra Foods, Ltd., a
P.O. Box 317 Canadian oilseed
Lake Forest, IL 60045 crushing, refining,
processing and packaging.
operation, and the Marrow
Foundation.
Theodore A. Myers (72) Mr. Myers is a Director
550 Washington Avenue of Met Life Investors
Glencoe, IL 60022 (formerly known as COVA
Financial Life
Insurance). Prior to
1997, Mr. Myers was a
Director of McLouth
Steel.
52
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
Hugo F. Sonnenschein (61) Trustee Trustee Mr. Sonnenschein is President Emeritus and 37
1126 E. 59th Street since 1998 Honorary Trustee of the University of Chicago
Chicago, IL 60637 and the Hutchinson Distinguished Service
Professor in the Department of Economics at
the University of Chicago. Prior to July 2000,
Mr. Sonnenschein was President of the
University of Chicago. Mr. Sonnenschein is a
member of the Board of Trustees of the
University of Rochester and a member of its
investment committee. Mr. Sonnenschein is a
member of the National Academy of Sciences,
the American Philosophical Society, and a
fellow of the American Academy of Arts and
Sciences. Mr. Sonnenschein is also a Trustee
or Managing General Partner of other
investment companies advised by the Advisers.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Hugo F. Sonnenschein (61)
1126 E. 59th Street
Chicago, IL 60637
53
INTERESTED TRUSTEES*:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
Richard F. Powers, III* Chairman Trustee Mr. Powers is Chairman, Director, President, 98
(56) since 1999 Chief Executive Officer and Managing Director
1 Parkview Plaza of Van Kampen; Chairman, Director, Chief
Oakbrook Terrace, IL Executive Officer and Managing Director of the
60181 Advisers, Distributor, Van Kampen Advisors
Inc. and Van Kampen Management Inc.; Director
of other subsidiaries of Van Kampen; and Chief
Sales and Marketing Officer of Morgan Stanley
Asset Management Inc. Mr. Powers is also
Chairman of the Board, Trustee/Director and
President of funds in the Fund Complex. Prior
to May 1998, Mr. Powers was Executive Vice
President; and Director of Marketing of Morgan
Stanley and Director of Dean Witter Discover &
Co. and Dean Witter Realty. Prior to 1996, Mr.
Powers was Director of Dean Witter Reynolds
Inc.
Wayne W. Whalen* (63) Trustee Trustee Mr. Whalen is a Partner in the law firm of 98
333 West Wacker Drive since 1998 Skadden, Arps, Slate, Meagher & Flom
Chicago, IL 60606 (Illinois), legal counsel to certain funds
advised by the Advisers. Mr. Whalen is a
Trustee, Director or Managing General Partner
of other funds advised by the Advisers.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III*
(56)
1 Parkview Plaza
Oakbrook Terrace, IL
60181
Wayne W. Whalen* (63)
333 West Wacker Drive
Chicago, IL 60606
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person to certain of the funds
in the Fund Complex by reason of his firm currently acting as legal counsel to
such funds in the Fund Complex. Mr. Powers is an interested person of such
funds in the Fund Complex and the Advisers by reason of their positions with
Morgan Stanley or its affiliates.
54
OFFICERS:
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Stephen L. Boyd (61) Vice President Officer Managing Director and Chief Investment Officer of Van Kampen
2800 Post Oak Blvd. since 1998 Investments, and Managing Director and President of the
45th Floor Advisers and Van Kampen Advisors Inc. Executive Vice
Houston, TX 77056 President and Chief Investment Officer of funds in the Fund
Complex. Prior to December 2000, Executive Vice President
and Chief Investment Officer of Van Kampen Investments, and
President and Chief Operating Officer of the Advisers. Prior
to April 2000, Executive Vice President and Chief Investment
Officer for Equity Investments of the Advisers. Prior to
October 1998, Vice President and Senior Portfolio Manager
with AIM Capital Management, Inc. Prior to February 1998,
Senior Vice President and Portfolio Manager of Van Kampen
American Capital Asset Management, Inc., Van Kampen American
Capital Investment Advisory Corp. and Van Kampen American
Capital Management, Inc.
Joseph J. McAlinden (59) Chief Investment Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas Officer since 2002 Stanley Investment Advisors Inc. and Director of Morgan
New York, NY 10020 Stanley Trust for 5 years.
55
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
A. Thomas Smith III (45) Vice President and Officer Managing Director and Director of Van Kampen Investments,
1221 Avenue of Americas Secretary since 1999 Director of the Advisers, Van Kampen Advisors Inc., the
New York, NY 10020 Distributor, Investor Services and certain other
subsidiaries of Van Kampen Investments. Managing Director
and General Counsel-Mutual Funds of Morgan Stanley
Investment Advisors, Inc. Vice President or Principal Legal
Officer and Secretary of funds in the Fund Complex. Prior to
July 2001, Managing Director, General Counsel, Secretary and
Director of Van Kampen Investments, the Advisers, the
Distributor, Investor Services, and certain other
subsidiaries of Van Kampen Investments. Prior to December
2000, Executive Vice President, General Counsel, Secretary
and Director of Van Kampen Investments, the Advisers, Van
Kampen Advisors Inc., the Distributor, Investor Services and
certain other subsidiaries of Van Kampen Investments. Prior
to January 1999, Vice President and Associate General
Counsel to New York Life Insurance Company ("New York
Life"), and prior to March 1997, Associate General Counsel
of New York Life. Prior to December 1993, Assistant General
Counsel of The Dreyfus Corporation. Prior to August 1991,
Senior Associate, Willkie Farr & Gallagher. Prior to January
1989, Staff Attorney at the Securities and Exchange
Commission, Division of Investment Management, Office of
Chief Counsel.
John R. Reynoldson (49) Vice President Officer Executive Director of the Advisers and Van Kampen Advisors
1 Parkview Plaza since 2000 Inc. Vice President of funds in the Fund Complex. Prior to
Oakbrook Terrace, IL 60181 July 2001, Principal and Co- head of the Fixed Income
Department of the Advisers and Van Kampen Advisors Inc.
Prior to December 2000, Senior Vice President of the
Advisers and Van Kampen Advisors Inc. Prior to May 2000, he
managed the investment grade taxable group for the Advisers
since July 1999. From July 1988 to June 1999, he managed the
government securities bond group for Asset Management. Mr.
Reynoldson has been with Asset Management since April 1987.
John L. Sullivan (47) Vice President, Officer Executive Director of Van Kampen Investments, the Advisers
1 Parkview Plaza Chief Financial since 1998 and Van Kampen Advisors Inc. Vice President, Chief Financial
Oakbrook Terrace, IL 60181 Officer and Officer and Treasurer of funds in the Fund Complex. Head of
Treasurer Fund Accounting for Morgan Stanley Investment Management.
56
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
John H. Zimmermann, III (44) Vice President Officer Managing Director and Director of Van Kampen Investments,
Harborside Financial Center since 2000 and Managing Director, President and Director of the
Plaza 2 - 7th Floor Distributor. Vice President of funds in the Fund Complex.
Jersey City, NJ 07311 Prior to December 2000, President of Van Kampen Insurance
Agency of Illinois Inc., and Senior Vice President and
Director of Van Kampen Investments. From November 1992 to
December 1997, Mr. Zimmermann was Senior Vice President of
the Distributor.
57
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)2002 Van Kampen Funds Inc. All rights reserved.
VVR ANR 9/02 Member NASD/SIPC.
7498I02-AS-9/02