UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-08743
Van Kampen Senior Income Trust
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas NY NY 10020
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(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas
New York, NY 10020
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
-----------------------------
Date of fiscal year end: 7/03
-----------
Date of reporting period: 7/31/03
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Item 1. Report to Shareholders
Welcome, Shareholder
In this update, you'll learn about how your trust performed during the
reporting period. The portfolio manager will provide an overview of the
market climate, and discuss some of the factors that helped or hindered
performance during the reporting period. In addition, this report
includes the trust's financial statements and a list of investments, as
well as other information.
Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the trust will achieve its investment
objective. The trust is subject to market risk which is the possibility
that the market values of securities owned by the trust will decline and,
therefore, the value of the trust shares may be less than what you paid
for them. Accordingly, you can lose money investing in this trust.
An investment in senior loans is subject to certain risks such as loan
defaults and illiquidity due to insufficient collateral backing.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Performance Summary
CURRENT DISTRIBUTION
(August 31, 1998--July 31, 2003)
(LINE GRAPH)
SENIOR INCOME TRUST 3-MONTH TREASURY BILL*
------------------- ----------------------
8/98 8.49 4.83
8.00 4.36
7.85 4.32
7.96 4.48
8.17 4.45
1/99 7.91 4.45
7.76 4.67
8.17 4.48
8.23 4.54
8.17 4.63
8.21 4.78
7/99 8.16 4.75
8.49 4.97
8.81 4.85
8.75 5.09
8.87 5.30
9.90 5.33
1/00 9.53 5.69
8.75 5.78
10.34 5.87
9.40 5.83
9.88 5.62
9.96 5.85
7/00 9.60 6.22
9.46 6.31
10.01 6.21
10.46 6.39
11.30 6.20
11.58 5.90
1/01 10.66 4.99
10.74 4.86
10.68 4.29
10.49 3.88
9.79 3.62
9.38 3.66
7/01 9.04 3.52
8.54 3.37
8.49 2.37
8.34 2.01
7.46 1.73
7.20 1.72
1/02 6.95 1.76
6.79 1.76
6.49 1.77
6.56 1.77
6.35 1.73
6.28 1.69
7/02 6.76 1.70
6.73 1.67
6.85 1.55
6.97 1.45
6.89 1.22
6.79 1.20
1/03 6.41 1.17
6.20 1.20
6.00 1.11
5.72 1.11
5.64 1.10
5.46 0.85
7/03 5.33 0.94
* Source: Bloomberg
SENIOR INCOME TRUST
SYMBOL: VVR
-------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS Since 06/24/98
Since Inception 3.33%
5-year 3.27
1-year 25.06
-------------------------------------------
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.
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. Total return assumes an investment at the
common share market price at the beginning of the period, 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. Distribution rate represents the monthly
annualized distributions of the trust at the end of the period and not the
earnings of the trust.
1
Trust Report
FOR THE 12-MONTH PERIOD ENDED JULY 31, 2003
Howard Tiffen, Managing Director, is primarily responsible for the
day-to-day management of Van Kampen Senior Income Trust. The following
discussion reflects his views on the trust's performance.
Q. BEFORE YOU DISCUSS HOW THE TRUST PERFORMED, PLEASE DESCRIBE THE
OVERALL MARKET ENVIRONMENT.
A. The market over the past year can really be divided into two distinct
segments. During the first six months of the reporting period, a stagnant
economy, lack of corporate earning power, and the effects of a series of
corporate-governance scandals resulted in a very difficult environment
for senior loans.
During the latter half of the period, however, the market improved
dramatically. Absolute levels of corporate profitability began to
increase, the number of debt refinancings rose considerably, and default
rates began to subside. As a result, bank loan prices rallied. We believe
this marked improvement was the result of several factors. First,
corporate management has been forced to learn how to better operate in a
low-growth, low-inflation environment, which has led to stronger
corporate valuations. Second, more companies have been able to issue
long-term debt to shore up their balance sheets. And lastly, we began to
see many companies that were in bankruptcy two to three years ago return
to performing status and earn a profit.
Q. HOW DID THE TRUST PERFORM DURING THE REPORTING PERIOD?
A. -- For the year ended July 31, 2003, the trust produced a total return
of 25.06 percent based on common share market price, and not
reflective of any early withdrawal charges. If these charges were
included, performance would be lower. Past performance is no
guarantee of future results.
-- The trust's monthly dividend of $.0348 translated to a distribution
rate of 5.33 percent based on the trust's closing common share
market price of $7.84 on July 31, 2003.
See Performance Summary for additional information.
Q. WHAT FACTORS HELPED PERFORMANCE?
A. -- As mentioned earlier, declining default rates, improved corporate
profitability and increased loan issuance, as well as an overall
improving economy, all contributed to performance.
-- A deeper secondary trading market in senior loans created greater
opportunities for us to capture value. This, coupled with the
2
appreciation of bank loan prices overall, helped boost the trust's
return and net asset value.
-- In addition, our team now includes a total of 24 analysts, who have
an average of 16 years of industry experience. Given that we employ
a bottom-up investment approach, we believe that such a large team
has enabled us to conduct even more in-depth analysis of every
investment candidate as well as all existing portfolio holdings, and
is vital to our ongoing success.
Q. WHAT HINDERED PERFORMANCE DURING THE REPORTING PERIOD?
A. -- Early in the reporting period, flat corporate performance and a low
level of issuance dampened trust returns and left us with few
compelling new investment opportunities. However, we saw marked
improvement here in the last several months.
-- While we have seen default rates decline, they are still at
higher-than-normal levels. The number of issuers in the portfolio
that are in default (defined here as those not paying principal
and/or interest as contractually obligated) has also declined, by
approximately 9 percent since this same period last year.
-- Because senior-loan coupon rates float with short-term market rates,
the near-record low interest rates throughout the entire period also
held the trust back.
TOP TEN INDUSTRIES AS OF 7/31/03
Medical Products & Services 8.4%
Beverage, Food & Tobacco 7.7
Healthcare 7.0
Printing & Publishing 6.9
Entertainment & Leisure 6.3
Hotels, Motels, Inns & Gaming 6.1
Broadcasting--Cable 4.7
Chemicals, Plastics & Rubber 3.8
Automotive 3.8
Telecommunications--Wireless 3.2
Subject to change daily. All percentages are as a percentage of total assets.
Provided for informational purposes only and should not be deemed as a
recommendation to buy securities in the industries shown above. Morgan Stanley
is a full-service securities firm engaged in securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisor services.
3
Q. PLEASE WALK US THROUGH HOW YOU POSITIONED THE TRUST, HIGHLIGHTING KEY
THEMES.
A. We employed a variety of strategies during the period:
-- In an effort to build value and avoid losses in the portfolio, we
made greater use of the secondary market, where we were able to
purchase loans at or below their repayment or recovery values. In
fact, we now have two analysts on our team who are largely dedicated
to this market, conducting transactions daily.
-- We continued to keep the portfolio highly diversified by issuer. As
of July 31, the trust contained a total of 294 issuers. Typically,
each of the trust's ten largest holdings represents less than two
percent of total assets. We believe that a high level of
diversification--not only in this environment but going forward as
well--is instrumental to successful investing in the senior loan
asset class.
-- We strive to manage the trust as defensively as possible, and
therefore, don't typically favor individual sectors. Some sectors
may, however, fall out of favor from time to time. For example, we
have chosen to reduce the trust's exposure to the auto and aerospace
segments because we believe they are likely to deliver poor profits,
and the value of collateral they can offer is also likely to fall.
The trust's exposure to the health-care sector did increase slightly
over the past year. We believe that certain parts of this sector
have seen a significant improvement in business fundamentals, making
some companies in the sector more attractive investments than they
had previously been.
-- We continued with our long-term strategy of focusing on companies
that we believe demonstrate solid management strength--those that
have learned to improve productivity in a low-inflation environment
and keep their costs low.
Q. NOW THAT YOU'VE PROVIDED AN OVERVIEW OF THE TRUST, DO YOU HAVE ANY
CLOSING THOUGHTS FOR THE SHAREHOLDERS?
A. We believe that the turnaround we've seen in the senior loan market as of
late is based upon fundamentally-sound factors that may continue to
positively influence the market. We also anticipate that default rates
may continue their downward trend as the bankruptcies that occurred
between 1999 and 2002 increasingly work their way through the system.
4
While no one can predict with certainty where or when interest rates will
bottom out, we believe it's likely that short-term rates may rise, or at
least remain stable, over the next several months. Such an environment,
coupled with more robust corporate performance, has historically been
quite favorable for senior loans. Going forward, we will continue with
our disciplined investment approach, monitoring the market closely for
opportunities.
PROXY VOTING POLICIES AND PROCEDURES
A description of the trust's policies and procedures with respect to the
voting of proxies relating to the trust's portfolio securities is
available without charge, upon request, by calling 1-800-847-2424. This
information is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
5
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS
July 31, 2003
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.(1)
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
VARIABLE RATE** SENIOR LOAN INTERESTS 122.3%
AEROSPACE/DEFENSE 2.3%
$ 1,882 DeCrane Aircraft Holdings,
Inc., Term Loan............ B2 B 12/17/06 $ 1,684,811
10,047 DRS Technologies, Inc.,
Term Loan.................. Ba3 BB- 09/30/08 10,134,488
2,901 ILC Industries, Inc., Term
Loan....................... NR NR 04/11/10 2,879,186
1,716 Integrated Defense
Technologies, Inc., Term
Loan....................... Ba3 BB- 03/04/08 1,713,699
1,500 Transdigm, Inc., Term
Loan....................... B1 B+ 07/22/10 1,516,407
10,032 United Defense Industries,
Inc., Term Loan............ Ba3 BB 08/13/07 to 08/13/09 10,049,190
5,865 Vought Aircraft Industries,
Inc., Term Loan............ Ba3 B+ 12/31/06 to 06/30/08 5,866,178
--------------
33,843,959
--------------
AUTOMOTIVE 4.7%
3,396 AMCAN Consolidate
Technologies, Inc., Term
Loan....................... NR NR 03/28/07 3,242,922
5,534 Citation Corp., Term
Loan....................... NR B 12/01/07 4,496,434
19,801 Federal-Mogul Corp., Term
Loan (c)................... NR NR 10/01/03 to 02/24/04 19,746,039
9,040 Federal-Mogul Corp.,
Revolving Credit Agreement
(c)........................ NR NR 02/24/04 8,994,506
5,500 Goodyear Tire & Rubber Co.,
Term Loan.................. Ba2 BB- 03/31/06 5,472,500
6,945 MetoKote Corp., Term Loan.. B1 B+ 11/02/05 to 11/14/05 6,809,712
12,687 Safelite Glass Corp., Term
Loan....................... NR NR 09/30/07 12,497,066
863 Stoneridge, Inc., Term
Loan....................... Ba3 BB- 04/30/08 862,500
6 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
AUTOMOTIVE (CONTINUED)
$ 4,000 TRW Automotive, Inc., Term
Loan....................... Ba2 BB 02/28/11 $ 4,020,416
2,500 United Components, Inc.,
Term Loan.................. B1 BB- 06/30/10 2,522,395
--------------
68,664,490
--------------
BEVERAGE, FOOD & TOBACCO 10.2%
24,827 Aurora Foods, Inc., Term
Loan....................... B3 CC 09/30/06 24,586,988
5,633 B & G Foods, Inc., Term
Loan....................... B1 B+ 03/31/06 5,635,005
12,902 Birds Eye Foods, Inc., Term
Loan....................... NR B+ 06/30/08 12,945,504
4,988 Burns Philp, Inc., Term
Loan....................... B1 B+ 02/26/09 5,018,672
7,544 Commonwealth Brands, Inc.,
Term Loan.................. NR NR 08/28/07 7,553,929
5,000 Constellation Brands, Inc.,
Term Loan.................. Ba1 BB 11/30/08 5,051,250
245 Cott Beverages, Inc., Term
Loan....................... NR BB+ 12/31/06 245,919
9,498 Dean Foods Co., Term Loan.. Ba1 BB+ 07/15/08 9,548,102
4,388 Del Monte Corp., Term
Loan....................... Ba3 BB- 12/20/10 4,425,165
6,511 Doane Pet Care Co., Term
Loan....................... B1 B 03/31/05 to 12/29/06 6,524,179
9,766 Dole Food Co., Inc., Term
Loan....................... Ba3 BB+ 03/28/08 to 09/28/08 9,847,018
6,532 Hartz Mountain Corp., Term
Loan....................... B1 B 12/31/07 6,536,566
9,750 Land O' Lakes, Inc., Term
Loan....................... B1 BB 10/10/06 to 10/10/08 9,555,455
2,391 Mafco Worldwide Corp., Term
Loan....................... NR NR 03/31/06 2,367,431
418 Meow Mix Co., Term Loan.... Ba3 BB- 01/31/08 418,544
2,500 Merisant Co., Term Loan.... Ba3 BB- 01/11/10 2,518,750
2,000 NBTY, Inc., Term Loan...... Ba2 BB+ 07/25/09 2,022,500
5,000 Nellson Nutraceutical,
Inc., Term Loan............ NR NR 10/04/09 5,043,750
5,762 New World Pasta Co., Term
Loan....................... B3 NR 01/28/06 4,897,363
See Notes to Financial Statements 7
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
BEVERAGE, FOOD & TOBACCO (CONTINUED)
$ 954 New World Pasta Co.,
Revolving Credit
Agreement.................. B3 NR 01/28/05 $ 829,980
4,825 Otis Spunkmeyer, Inc., Term
Loan....................... B1 B+ 02/20/09 4,832,448
10,659 Pinnacle Foods, Inc., Term
Loan....................... Ba3 BB- 05/22/08 10,672,119
4,352 Southern Wine & Spirits of
America, Inc., Term Loan... NR NR 07/02/08 4,375,152
3,941 Swift & Co., Term Loan..... Ba2 BB 09/19/08 3,950,661
--------------
149,402,450
--------------
BROADCASTING--CABLE 6.3%
6,895 CC VIII Operating, LLC,
Term Loan.................. B2 B- 02/02/08 6,496,076
33,498 Charter Communications
Operating, LLC, Term Loan.. B2 B 09/18/07 to 09/18/08 31,549,033
16,712 Falcon Cable
Communications, LP, Term
Loan....................... B2 NR 12/31/07 15,260,602
4,896 Frontiervision Operating
Partners, LP, Term Loan
(c)........................ NR NR 03/31/06 4,659,600
4,364 Frontiervision Operating
Partners, LP, Revolving
Credit Agreement (c)....... NR NR 10/31/05 4,152,729
13,500 Insight Midwest Holdings
LLC, Term Loan............. Ba3 BB+ 06/30/09 to 12/31/09 13,517,808
4,250 MCC Iowa, LLC, Term Loan... NR NR 09/30/10 4,285,122
1,489 Mediacom Illinois, LLC,
Term Loan.................. NR BB+ 12/31/08 1,486,889
2,719 Mediacom Southeast, LLC,
Term Loan.................. Ba3 BB+ 09/30/08 2,725,519
9,240 Olympus Cable Holdings,
LLC, Term Loan (c)......... NR NR 09/30/10 8,203,965
--------------
92,337,343
--------------
8 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
BROADCASTING--DIVERSIFIED 0.9%
$ 1,995 Cumulus Media, Inc., Term
Loan....................... Ba3 B+ 03/28/10 $ 2,008,404
9,000 DirecTV Holdings, LLC, Term
Loan....................... Ba2 BB- 03/06/08 to 03/06/10 8,994,567
1,800 Nexstar Broadcasting, Inc.,
Term Loan.................. NR NR 12/31/10 1,807,743
--------------
12,810,714
--------------
BROADCASTING--RADIO 0.3%
4,807 Citadel Broadcasting Co.,
Term Loan.................. NR NR 06/26/09 4,825,739
--------------
BROADCASTING--TELEVISION 0.9%
7,040 Gray Communications
Systems, Inc., Term Loan... Ba3 B+ 12/31/10 7,101,600
5,950 Quorum Broadcasting, Inc.,
Term Loan.................. NR NR 12/31/04 5,741,633
--------------
12,843,233
--------------
BUILDINGS & REAL ESTATE 3.8%
8,000 AIMCO Properties, L.P.,
Term Loan.................. NR NR 05/30/08 8,035,000
5,950 CB Richard Ellis Services,
Inc., Term Loan............ B1 B+ 07/18/08 5,994,625
7,839 Central Parking Corp., Term
Loan....................... Ba2 BB+ 03/31/10 7,830,520
3,500 Century Maintenance &
Supply, Inc., Term Loan.... NR NR 05/12/10 3,552,500
9,083 Corrections Corp. of
America, Term Loan......... Ba3 BB- 03/31/08 9,138,191
4,750 The Macerich Co., Term
Loan....................... NR NR 07/26/05 4,768,073
6,930 Ventas, Inc., Term Loan.... NR NR 04/17/07 6,912,675
1,567 Ventas, Inc., Revolving
Credit Agreement........... NR NR 04/17/05 1,496,386
2,500 Wackenhut Corrections
Corp., Term Loan........... Ba3 BB- 07/09/09 2,512,500
5,000 WFP Tower Co., L.P., Term
Loan....................... NR NR 03/31/06 4,996,875
--------------
55,237,345
--------------
CHEMICALS, PLASTICS & RUBBER 4.9%
7,985 CP Kelco ApS, Term Loan.... B3 B+ 09/30/06 to 09/30/08 7,981,782
11,225 GenTek, Inc., Term Loan
(c)........................ NR NR 04/30/05 to 10/31/07 7,397,793
See Notes to Financial Statements 9
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
CHEMICALS, PLASTICS & RUBBER (CONTINUED)
$ 3,792 GenTek, Inc., Revolving
Credit Agreement (c)....... NR NR 04/30/05 $ 2,533,284
4,550 GEO Specialty Chemicals,
Inc., Term Loan............ B3 CCC+ 12/31/07 4,178,415
27,951 Huntsman Corp., Term Loan.. B1 BB 03/31/07 25,827,757
12,434 Huntsman ICI Chemicals,
LLC, Term Loan............. B2 B+ 06/30/05 to 06/30/08 12,483,257
987 ISP Technologies, Inc.,
Term Loan.................. NR B- 06/27/08 991,828
3,423 Messer Griesheim, Term
Loan....................... Ba2 BB 04/27/09 to 04/27/10 3,452,184
2,290 Nutrasweet Acquisition
Corp., Term Loan........... Ba3 NR 06/30/06 to 12/31/07 2,220,356
4,000 Rockwood Specialties Group,
Inc., Term Loan............ B1 B+ 07/23/10 4,050,000
411 West American Rubber Co.,
LLC, Term Loan............. NR NR 11/09/03 411,162
--------------
71,527,818
--------------
CONSTRUCTION MATERIAL 0.9%
5,000 Interline Brands, Inc.,
Term Loan.................. B2 B+ 11/30/09 5,018,750
2,091 National Waterworks, Inc.,
Term Loan.................. B1 BB- 11/22/09 2,112,880
1,719 Therma-Tru Corp., Term
Loan....................... Ba3 BB- 02/21/10 1,727,435
3,750 Werner Holding Co., Inc.,
Term Loan.................. Ba3 B+ 06/11/09 3,799,999
--------------
12,659,064
--------------
CONTAINERS, PACKAGING & GLASS 3.5%
9,125 Crown Cork & Seal Co.,
Inc., Term Loan............ Ba3 NR 09/15/08 9,167,778
9,860 Dr. Pepper/Seven Up
Bottling Group, Inc., Term
Loan....................... NR NR 10/07/06 to 10/07/07 9,829,160
981 Impress Metal Packaging
Holding B.V., Term Loan.... NR NR 12/31/06 978,196
374 Jefferson Smurfit Corp.,
Revolving Credit
Agreement.................. NR NR 03/31/05 363,859
11,000 Owens-Illinois, Inc., Term
Loan....................... NR NR 04/01/08 11,041,250
10 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
CONTAINERS, PACKAGING & GLASS (CONTINUED)
$ 4,731 Packaging Dynamics, Term
Loan....................... NR NR 11/20/05 $ 4,719,673
2,300 Pliant Corp., Term Loan.... B2 BB- 05/31/08 2,284,404
1,656 Riverwood International
Corp., Term Loan........... B1 B 12/31/06 to 03/31/07 1,655,366
4,352 Smurfit-Stone Container
Corp., Term Loan........... NR NR 06/30/09 4,368,777
4,850 Tekni-Plex, Inc., Term
Loan....................... B1 B+ 06/21/08 4,781,799
1,610 U.S. Can Corp., Term Loan.. B2 NR 01/04/06 1,592,423
--------------
50,782,685
--------------
DIVERSIFIED MANUFACTURING 2.0%
2,438 EnerSys, Term Loan......... NR NR 11/09/08 2,443,672
14,608 Mueller Group, Inc., Term
Loan....................... B1 B+ 05/31/08 14,618,214
7,593 Neenah Foundry Co., Term
Loan (c)................... Caa3 D 09/30/05 7,545,554
5,404 SPX Corp., Term Loan....... Ba2 BBB- 09/30/09 to 03/31/10 5,427,719
--------------
30,035,159
--------------
ECOLOGICAL 2.9%
32,533 Allied Waste North America,
Inc., Term Loan (i)........ Ba3 BB 01/15/10 32,845,810
4,950 Casella Waste Systems,
Inc., Term Loan............ B1 BB- 05/11/07 4,976,606
4,844 Duratek, Inc., Term Loan... NR NR 12/08/06 4,722,827
--------------
42,545,243
--------------
EDUCATION & CHILD CARE 0.1%
863 TEC Worldwide, Inc., Term
Loan....................... NR NR 02/28/05 846,770
--------------
ELECTRONICS 4.8%
599 AMI Semiconductor, Inc.,
Term Loan.................. Ba3 BB 12/26/06 596,990
3,713 Audio Visual Services
Corp., Term Loan........... NR NR 03/04/04 to 03/04/06 3,558,922
4,178 Automata, Inc., Term Loan
(a) (j).................... NR NR 02/28/03 to 02/28/04 0
5,409 Kinetics Group, Inc., Term
Loan....................... B1 NR 02/28/06 4,746,294
6,432 Knowles Electronics, Inc.,
Term Loan.................. B3 CCC+ 06/29/07 6,355,562
See Notes to Financial Statements 11
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
ELECTRONICS (CONTINUED)
$11,125 Rayovac Corp., Term Loan... Ba3 BB- 09/30/09 $ 11,148,173
11,880 Seagate Technologies, Inc.,
Term Loan.................. Ba1 BB+ 05/13/07 11,939,400
16,377 Semiconductor Components
Industries, LLC, Term
Loan....................... B3 B 08/04/06 to 08/04/07 16,270,814
4,669 Stratus Technologies, Inc.,
Term Loan.................. NR NR 02/26/05 4,108,923
4,089 Veridian Corp., Term
Loan....................... Ba3 BB- 06/30/08 4,116,642
8,028 Viasystems, Inc., Term
Loan....................... NR NR 03/31/06 6,964,155
--------------
69,805,875
--------------
ENTERTAINMENT & LEISURE 8.4%
4,520 Bell Sports, Inc., Term
Loan....................... NR NR 12/31/05 3,412,695
6,963 Carmike Cinemas, Inc., Term
Loan....................... NR NR 01/31/07 7,005,221
2,934 Cinemark USA, Inc., Term
Loan....................... Ba3 BB- 03/31/08 2,956,745
5,818 Festival Fun Parks, LLC,
Term Loan.................. NR NR 06/30/07 to 12/31/07 5,794,295
8,657 Fitness Holdings Worldwide,
Inc., Term Loan............ NR B 11/02/06 to 11/02/07 8,597,973
3,716 GT Brands, LLC, Term Loan.. NR NR 09/30/07 3,604,432
5,970 Kerasotes Theatres, Inc.,
Term Loan.................. NR NR 12/31/08 6,014,775
10,527 Loews Cineplex
Entertainment Corp., Term
Loan....................... NR NR 02/29/08 10,500,260
19,425 Metro-Goldwyn-Mayer, Inc.,
Term Loan.................. NR NR 06/30/08 19,455,361
7,500 Mets II, LLC, Term Loan.... NR NR 08/23/05 7,490,625
1,981 Panavision, Inc., Term
Loan....................... B3 CCC 03/31/05 1,948,471
4,850 Playcore Wisconsin, Inc.,
Term Loan.................. NR NR 07/01/07 4,654,471
5,000 Pure Fishing, Term Loan.... NR NR 12/31/09 4,993,750
3,000 Regal Cinemas, Inc., Term
Loan....................... Ba2 BB- 06/30/09 3,033,750
12 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
ENTERTAINMENT & LEISURE (CONTINUED)
$ 2,500 Riddell Sports Group, Inc.,
Term Loan.................. NR NR 06/30/08 $ 2,506,250
6,500 Six Flags Theme Parks,
Inc., Term Loan............ Ba2 BB- 06/30/09 6,496,614
11,500 Vivendi Universal
Entertainment, Term Loan... Ba2 BB+ 06/30/08 11,573,669
5,000 Washington Group
International, Inc., Term
Loan....................... NR NR 10/16/07 5,028,125
3,750 Worldspan, LP, Term Loan... B1 BB- 06/30/07 3,775,781
4,465 Worldwide Sports &
Recreation, Inc., Term
Loan....................... NR NR 12/31/06 4,278,452
--------------
123,121,715
--------------
FARMING & AGRICULTURE 0.4%
2,250 Central Garden & Pet Co.,
Term Loan.................. Ba2 BB+ 05/14/09 2,264,767
3,704 The Scotts Co., Term Loan.. Ba1 BB 12/31/07 3,728,749
--------------
5,993,516
--------------
FINANCE 1.3%
4,818 Outsourcing Solutions, Term
Loan (a) (c)............... Caa1 NR 06/10/06 2,228,094
8,500 Rent-A-Center, Inc., Term
Loan....................... Ba2 BB 05/28/09 8,567,294
8,242 Risk Management Assurance
Co., Term Loan............. NR NR 12/21/06 8,235,996
--------------
19,031,384
--------------
GROCERY 0.4%
4,314 Fleming Cos., Inc., Term
Loan (c)................... NR NR 06/18/08 4,076,350
1,569 Fleming Cos., Inc.,
Revolving Credit Agreement
(c)........................ NR NR 06/18/07 1,492,892
--------------
5,569,242
--------------
HEALTHCARE 6.5%
31,949 Community Health Systems,
Inc., Term Loan............ NR NR 07/16/10 to 01/16/11 32,068,704
8,005 FHC Health Systems, Inc.,
Term Loan.................. B1 NR 04/30/05 to 04/30/06 7,925,238
2,795 Genesis Health Ventures,
Inc., Term Loan............ Ba3 B+ 03/31/07 2,791,564
See Notes to Financial Statements 13
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
HEALTHCARE (CONTINUED)
$ 7,888 InteliStaf Group, Inc.,
Term Loan.................. NR NR 10/31/05 to 10/31/07 $ 7,828,935
16,378 Kindred Healthcare, Inc.,
Term Loan.................. NR NR 04/13/08 16,214,221
10,727 Magellan Health Services,
Inc., Term Loan (c)........ NR D 02/12/05 to 02/12/06 10,547,996
9,034 Medical Staffing Network
Holdings, Inc., Term
Loan....................... NR NR 10/26/06 8,994,072
3,758 Team Health, Inc., Term
Loan....................... Ba3 B+ 10/31/08 3,717,368
4,523 Triad Hospitals, Inc., Term
Loan....................... Ba3 BB 09/30/08 4,557,437
--------------
94,645,535
--------------
HEALTHCARE & BEAUTY 1.0%
3,750 Jafra Cosmetics, Term
Loan....................... NR B+ 05/20/08 3,656,250
1,717 Mary Kay, Inc., Term
Loan....................... Ba3 BB 10/03/07 1,725,582
2,895 Prestige Brands Holdings,
Inc., Term Loan............ NR NR 12/30/08 2,909,475
5,915 Revlon Consumer Products
Corp., Term Loan........... B3 B- 05/30/05 5,767,269
--------------
14,058,576
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES &
DURABLE CONSUMER PRODUCTS 1.4%
1,958 Formica Corp., Term Loan
(c)........................ NR NR 04/30/06 1,899,586
7,083 General Binding Corp., Term
Loan....................... B2 B+ 01/15/08 7,061,198
3,122 Holmes Products Corp., Term
Loan....................... B2 B 02/05/07 3,049,084
1,422 Imperial Home Decor Group,
Inc., Term Loan (a) (d).... NR NR 04/04/06 35,557
3,289 National Bedding Co., Term
Loan....................... B1 B+ 08/31/08 3,302,348
3,567 Sealy Mattress Co., Term
Loan....................... B1 B+ 12/15/04 to 12/15/06 3,553,806
1,410 Targus Group International,
Inc., Term Loan............ NR NR 08/31/06 1,247,818
--------------
20,149,397
--------------
14 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
HOTELS, MOTELS, INNS & GAMING 8.1%
$37,993 Aladdin Gaming, LLC, Term
Loan (a) (c)............... NR NR 02/25/05 to 02/26/08 $ 31,901,385
3,461 Alliance Gaming Corp., Term
Loan....................... B1 BB- 12/31/06 3,472,029
2,906 Ameristar Casinos, Inc.,
Term Loan.................. Ba3 BB- 12/20/06 2,923,384
3,980 Extended Stay America,
Inc., Term Loan............ Ba3 BB- 01/15/08 4,006,325
4,682 Greektown Casino, LLC, Term
Loan....................... NR NR 09/30/04 4,694,728
2,962 Isle of Capri Casinos,
Inc., Term Loan............ Ba2 BB- 04/26/08 2,975,923
13,500 Mandalay Resort Group, Term
Loan....................... NR NR 08/21/06 to 06/30/08 13,484,687
1,760 Mandalay Resort Group,
Revolving Credit
Agreement.................. NR NR 08/21/06 1,689,600
2,190 Park Place Entertainment
Corp., Revolving Credit
Agreement.................. NR BBB- 12/31/03 2,157,567
5,689 Penn National Gaming, Term
Loan....................... B1 B+ 09/01/07 5,712,171
10,448 Scientific Games Corp.,
Term Loan.................. Ba3 BB- 12/31/08 10,486,678
9,000 Thunder Valley Casino, Term
Loan....................... NR NR 12/01/08 9,022,500
30,312 Wyndham International,
Inc., Term Loan............ NR NR 06/30/04 to 06/30/06 25,965,061
--------------
118,492,038
--------------
INSURANCE 1.0%
10,000 Alea Group Holdings, Term
Loan....................... NR BBB- 03/31/07 9,975,000
3,053 Hilb, Rogal & Hamilton Co.,
Term Loan.................. Ba3 BB- 06/30/07 3,083,025
1,800 Infinity Property &
Casualty Corp., Term
Loan....................... Baa3 BBB 06/30/10 1,814,625
--------------
14,872,650
--------------
MACHINERY 1.1%
4,482 Alliance Laundry Holdings,
LLC, Term Loan............. B1 B 08/02/07 4,462,257
139 Alliance Laundry Holdings,
LLC, Revolving Credit
Agreement.................. B1 B 06/02/05 135,417
See Notes to Financial Statements 15
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
MACHINERY (CONTINUED)
$10,051 Ashtead Group, PLC, Term
Loan....................... NR NR 06/01/07 $ 7,714,223
1,606 Flowserve Corp., Term
Loan....................... Ba3 BB- 06/30/09 1,614,514
2,116 Weigh-Tronix, LLC, Term
Loan....................... NR NR 09/30/05 1,639,729
--------------
15,566,140
--------------
MEDICAL PRODUCTS & SERVICES 9.0%
4,556 Alaris Medical Systems,
Inc., Term Loan............ B1 BB 06/30/09 4,604,531
10,005 Alliance Imaging, Inc.,
Term Loan.................. B1 B+ 06/10/08 9,774,809
2,993 Ameripath, Inc., Term
Loan....................... B1 B+ 03/27/10 3,011,203
11,452 CONMED Corp., Term Loan.... Ba3 BB- 12/15/09 11,574,183
13,782 Dade Behring, Inc., Term
Loan....................... B1 B+ 10/03/08 13,971,377
32,043 DaVita, Inc., Term Loan.... Ba3 BB- 03/31/07 to 03/31/09 32,182,383
5,027 Fisher Scientific
International, Inc., Term
Loan....................... Ba3 BB+ 03/31/10 5,057,564
22,111 Fresenius Medical Care
Holding, Inc., Term Loan... Ba1 BB+ 02/21/10 22,290,904
6,349 InSight Health, Term
Loan....................... NR B+ 10/17/08 6,376,785
9,449 Kinetic Concepts, Inc.,
Term Loan.................. Ba3 BB- 12/31/04 to 03/31/06 9,444,756
4,379 National Nephrology
Associates, Inc., Term
Loan....................... B1 B+ 12/31/05 4,351,567
1,975 Rotech Healthcare, Inc.,
Term Loan.................. Ba2 BB 03/31/08 1,976,919
6,000 Symmetry Medical, Inc.,
Term Loan.................. NR NR 06/30/08 to 06/30/09 6,003,138
--------------
130,620,119
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 2.3%
500 Arch Coal, Inc., Revolving
Credit Agreement........... Ba2 BB 04/18/07 477,500
3,388 CII Carbon, LLC, Term
Loan....................... NR NR 06/25/08 3,015,724
3,064 Fairmount Minerals, Ltd.,
Term Loan.................. NR NR 03/13/09 3,071,763
16 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
MINING, STEEL, IRON & NON-PRECIOUS METALS (CONTINUED)
$31,554 Ispat Inland, Term Loan.... Caa1 B- 07/16/05 to 07/16/06 $ 21,851,164
4,788 Peabody Energy Corp., Term
Loan....................... Ba1 BB+ 03/21/10 4,835,880
--------------
33,252,031
--------------
NATURAL RESOURCES 3.2%
1,250 CITGO Petroleum Corp., Term
Loan....................... NR BB+ 02/27/06 1,290,625
7,500 El Paso Oil & Gas, Term
Loan....................... B3 B+ 12/31/06 7,485,938
1,250 El Paso Oil & Gas,
Revolving Credit
Agreement.................. B3 B+ 06/30/05 1,237,305
10,500 Lyondell-Citgo Refining,
LP, Term Loan.............. Ba3 BB- 06/10/04 9,975,000
15,000 Ocean Rig ASA--(Norway),
Term Loan.................. NR NR 06/01/08 12,600,000
4,500 Pacific Energy Group, LLC,
Term Loan.................. Ba2 BBB- 07/26/09 4,533,750
7,655 Tesoro Petroleum Corp.,
Term Loan.................. Ba3 BB 04/17/07 7,722,454
1,400 U.S. Synthetic Corp., Term
Loan....................... NR NR 05/31/05 1,344,000
--------------
46,189,072
--------------
NON-DURABLE CONSUMER
PRODUCTS 1.1%
2,379 Aero Products
International, Inc., Term
Loan....................... NR NR 12/19/08 2,349,652
1,267 American Safety Razor Co.,
Term Loan.................. NR NR 01/31/05 to 04/30/07 1,236,368
2,985 Amscan Holdings, Inc., Term
Loan....................... B1 BB- 06/15/07 2,999,925
1,376 Church & Dwight Co., Inc.,
Term Loan.................. Ba2 BB 09/30/07 1,385,590
2,640 JohnsonDiversey, Inc., Term
Loan....................... Ba3 BB- 11/03/09 2,652,727
6,777 The Boyds Collection, Ltd.,
Term Loan.................. Ba3 B+ 04/21/05 6,641,292
--------------
17,265,554
--------------
PAPER & FOREST PRODUCTS 0.3%
2,465 Bear Island Paper Co., LLC,
Term Loan.................. B3 B- 12/31/05 2,453,142
2,611 Port Townsend Paper Corp.,
Term Loan.................. NR NR 03/16/05 to 03/16/07 2,402,045
--------------
4,855,187
--------------
See Notes to Financial Statements 17
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
PERSONAL & MISCELLANEOUS SERVICES 2.4%
$ 7,840 Coinmach Laundry Corp.,
Term Loan.................. B1 BB- 07/25/09 $ 7,875,280
3,868 Encompass Service Corp.,
Term Loan (a) (c).......... NR NR 05/10/07 512,548
2,000 Global Imaging Systems,
Inc., Term Loan............ Ba3 BB- 06/25/09 2,025,000
1,925 Info-USA, Inc., Term
Loan....................... Ba3 NR 04/30/07 1,922,594
1,595 Iron Mountain, Inc., Term
Loan....................... Ba3 BB 02/15/08 1,605,456
4,950 Katun Corp., Term Loan..... NR B+ 06/30/09 4,934,531
2,710 Stewart Enterprises, Inc.,
Term Loan.................. Ba3 BB 01/31/06 2,724,260
9,509 The Relizon Co., Term
Loan....................... NR NR 09/30/06 to 12/31/07 9,342,946
3,840 Weight Watchers
International, Inc., Term
Loan....................... Ba1 BB 12/31/07 3,873,353
--------------
34,815,968
--------------
PHARMACEUTICALS 1.5%
848 Alpharma, Inc., Term Loan
(i)........................ B2 BB- 10/05/07 842,577
9,712 Caremark Rx, Inc., Term
Loan....................... Ba2 BBB- 03/31/06 9,733,693
11,913 MedPointe, Inc., Term
Loan....................... B1 B 09/30/07 to 09/30/08 11,221,886
--------------
21,798,156
--------------
PRINTING & PUBLISHING 9.2%
4,962 21st Century Newspapers,
Term Loan.................. NR NR 08/27/08 4,961,538
1,144 Adams Outdoor Advertising
LP, Term Loan.............. B1 B+ 02/08/08 1,149,535
6,100 Advanstar Communications,
Inc., Term Loan (i)........ NR B 04/11/07 to 10/11/07 6,028,468
7,622 American Media Operations,
Inc., Term Loan............ Ba3 B+ 04/01/07 7,661,077
11,127 American Reprographics Co.,
Term Loan.................. NR NR 04/10/08 10,893,648
1,900 Check Printers, Inc., Term
Loan....................... NR NR 06/30/05 1,897,578
17,268 CommerceConnect Media,
Inc., Term Loan............ NR NR 12/31/07 16,577,328
2,010 Daily News, LP, Term Loan.. NR NR 03/19/08 1,927,427
18 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
PRINTING & PUBLISHING (CONTINUED)
$ 9,994 F&W Publications, Inc.,
Term Loan.................. NR NR 12/31/09 $ 9,993,832
3,884 Haights Cross
Communications, LLC, Term
Loan....................... B2 B+ 12/10/06 3,764,824
7,200 Lamar Media Corp., Term
Loan....................... Ba2 BB- 06/30/10 7,230,002
3,570 Liberty Group Operating,
Inc., Term Loan............ B1 B 03/31/07 3,565,519
5,167 Merrill Communications,
LLC, Term Loan............. B3 B 11/23/07 5,064,027
2,500 Moore Corp., Term Loan..... Ba2 BB+ 03/15/10 2,508,203
15,000 Morris Communications
Corp., Term Loan........... NR BB 09/30/09 15,046,875
3,435 Network Communications,
Inc., Term Loan............ NR NR 06/27/08 3,443,380
8,341 PRIMEDIA, Inc., Term Loan.. NR B 06/30/09 8,084,904
6,520 R.H. Donnelley, Inc., Term
Loan....................... Ba3 NR 12/31/08 to 06/30/10 6,633,836
4,764 The Reader's Digest
Association, Inc., Term
Loan....................... Ba1 BB+ 05/21/07 4,710,320
1,895 Vutek, Inc., Term Loan..... B1 NR 07/31/07 1,837,727
9,500 Xerox Corp., Term Loan..... NR BB- 09/30/08 9,428,750
1,598 Ziff-Davis Media, Inc.,
Term Loan.................. NR CCC 03/31/07 1,430,027
--------------
133,838,825
--------------
RESTAURANTS & FOOD SERVICE 0.6%
1,632 Carvel Corp., Term Loan.... NR NR 12/31/06 1,615,841
3,871 Domino's, Inc., Term
Loan....................... B1 B+ 06/25/10 3,912,326
2,672 Papa Ginos, Inc., Term
Loan....................... NR NR 08/31/07 2,665,237
--------------
8,193,404
--------------
RETAIL--OIL & GAS 0.8%
5,000 Barjan Products, LLC, Term
Loan....................... NR NR 05/31/06 2,500,000
9,421 The Pantry, Inc., Term
Loan....................... B1 B+ 03/31/07 9,502,856
--------------
12,002,856
--------------
See Notes to Financial Statements 19
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
RETAIL--SPECIALTY 0.3%
$ 3,209 DRL Acquisition, Inc., Term
Loan....................... NR NR 04/30/09 $ 3,197,340
1,592 Home Interiors & Gifts,
Inc., Term Loan............ B2 B+ 12/31/06 1,577,914
--------------
4,775,254
--------------
RETAIL--STORES 3.1%
4,198 Advance Stores Co., Inc.,
Term Loan.................. Ba3 BB- 11/30/07 4,221,509
5,350 CSK Auto, Inc., Term Loan.. Ba3 BB- 02/15/06 5,403,500
35,000 Rite Aid Corp., Term
Loan....................... B1 BB 04/30/08 35,288,750
--------------
44,913,759
--------------
TECHNOLOGY 0.9%
12,854 The Titan Corp., Term
Loan....................... Ba3 BB- 06/30/09 12,889,240
--------------
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 1.0%
2,684 Cincinnati Bell, Inc., Term
Loan....................... B1 B+ 11/09/04 to 06/28/07 2,709,293
3,000 FairPoint Communications,
Inc., Term Loan............ B1 BB- 03/31/07 3,011,250
1,926 Orius Corp., Term Loan..... NR NR 01/23/09 to 01/23/10 499,278
1,127 Orius Corp., Revolving
Credit Agreement........... NR NR 01/23/05 647,798
5,381 Qwest Corp., Term Loan..... Ba3 B- 06/30/07 5,425,345
1,675 Superior Telecom, Inc.,
Revolving Credit
Agreement.................. NR NR 12/04/03 1,659,297
7,500 WCI Capital Corp., Term
Loan (a) (c)............... NR NR 09/30/07 9,375
2,158 WCI Capital Corp.,
Revolving Credit Agreement
(a) (c) (g)................ NR NR 12/31/02 1,035,884
--------------
14,997,520
--------------
TELECOMMUNICATIONS--LONG DISTANCE 0.1%
20,965 Pacific Crossing, Ltd.,
Term Loan (a) (c).......... NR NR 07/28/06 1,467,578
--------------
20 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
TELECOMMUNICATIONS-WIRELESS 3.8%
$ 7,477 American Cellular Corp.,
Term Loan.................. B3 CC 03/31/08 to 03/31/09 $ 7,410,815
269 American Cellular Corp.,
Revolving Credit
Agreement.................. B3 CC 03/31/07 268,218
14,467 BCP SP Ltd., Term Loan (g)
(k)........................ NR NR 03/31/02 to 03/31/05 4,945,703
2,900 Centennial Cellular Corp.,
Term Loan.................. B3 B 11/30/06 2,809,640
3,150 Centennial Puerto Rico
Operations Corp., Term
Loan....................... NR B 05/31/07 to 11/30/07 3,062,863
8,000 Cricket Communications,
Inc., Term Loan (a) (c).... NR NR 06/30/07 3,100,000
23,451 Nextel Finance Co., Term
Loan....................... Ba2 BB 12/31/07 to 12/31/08 23,344,049
2,038 Spectrasite Communications,
Inc., Term Loan............ B1 B+ 12/31/07 2,058,830
3,534 Sygnet Wireless, Inc., Term
Loan....................... NR NR 12/23/06 to 12/23/07 3,477,667
1,043 TSI Telecommunication
Services, Inc., Term
Loan....................... Ba3 B+ 12/31/06 1,044,640
3,443 Western Wireless Corp.,
Term Loan.................. B3 B- 09/30/08 3,391,272
--------------
54,913,697
--------------
TEXTILES & LEATHER 0.1%
5,402 Malden Mills Industries,
Inc., Term Loan (a) (c).... NR NR 10/28/06 1,308,902
--------------
TRANSPORTATION--CARGO 1.9%
9,764 American Commercial Lines,
LLC, Term Loan (c)......... NR NR 06/30/06 to 06/30/07 7,937,909
4,380 Atlas Freighter Leasing,
Inc., Term Loan............ NR NR 04/25/05 to 04/25/06 2,655,673
4,872 Comcar Industries, Inc.,
Term Loan.................. NR NR 09/30/04 4,092,781
2,652 Ingram Industries, Inc.,
Term Loan.................. NR NR 07/02/08 2,625,859
7,118 Pacer International, Inc.,
Term Loan.................. B1 BB- 06/10/10 7,179,927
See Notes to Financial Statements 21
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
TRANSPORTATION--CARGO (CONTINUED)
$ 598 Roadway Corp., Term Loan... Baa3 BBB 11/30/06 $ 595,712
3,046 United States Shipping,
LLC, Term Loan............. Ba2 BB 09/12/08 3,054,557
--------------
28,142,418
--------------
TRANSPORTATION--PERSONAL 1.3%
5,996 IAP Newsub, Inc., Term Loan
(a)........................ NR NR 05/29/05 929,438
900 IAP Newsub, Inc., Revolving
Credit Agreement (a)....... NR NR 05/29/05 139,476
9,900 Laidlaw Investments, Ltd.,
Term Loan.................. Ba3 BB+ 06/19/09 9,974,250
4,673 Motor Coach Industries,
Inc., Term Loan............ B2 B 06/16/05 3,936,785
3,810 Transcore Holdings, Inc.,
Term Loan.................. NR NR 10/01/06 3,824,223
--------------
18,804,172
--------------
TRANSPORTATION-RAIL MANUFACTURING 0.2%
3,231 Helm, Inc., Term Loan...... NR NR 10/18/06 3,012,942
1,666 RailWorks Corp., Term
Loan....................... NR NR 11/13/04 624,857
--------------
3,637,799
--------------
UTILITIES 1.1%
750 Allegheny Energy, Inc.,
Term Loan.................. B1 B 09/30/04 750,375
853 Aquila, Inc., Term Loan.... B2 B+ 05/15/06 859,573
27 CMS Energy Corp., Term
Loan....................... B2 BB 09/30/04 27,044
1,050 Consumers Energy Co., Term
Loan....................... Baa3 NR 07/11/04 1,057,219
1,647 Pike Electric, Inc., Term
Loan....................... NR NR 04/18/10 1,658,898
3,125 Southern California Edison
Co., Term Loan............. Ba2 NR 03/01/05 3,137,697
441 TNP Enterprises, Inc., Term
Loan....................... Ba2 BB+ 03/30/06 435,117
22 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
UTILITIES (CONTINUED)
$ 7,695 Westar Energy, Inc., Term
Loan....................... NR NR 06/06/05 $ 7,733,402
10 Westar Energy, Inc.,
Revolving Credit
Agreement.................. NR NR 06/05/05 9,375
--------------
15,668,700
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 122.3%.......................... 1,784,018,291
--------------
NOTES 3.0%
Alderwoods Group, Inc. ($3,283,700 par, 11.00% to 12.25% coupon, maturing
01/02/07 to 01/02/09)...................................................... 3,446,141
American Home Patient, Inc. ($5,562,289 par, 6.785% to 8.57% coupon, maturing
07/01/09).................................................................. 3,782,357
Commonwealth Brands, Inc. ($1,500,000 par, 8.736% coupon, maturing 04/15/08)
(h)........................................................................ 1,537,500
Dade Behring, Inc. ($5,523,042 par, 11.91% coupon, maturing 10/03/10)........ 5,799,194
Genesis Health Ventures, Inc. ($9,217,299 par, 6.114% coupon, maturing
04/02/07) (h).............................................................. 9,217,299
PCI Chemicals Canada, Inc. ($3,353,666 par, 10.00% coupon, maturing
12/31/08).................................................................. 2,900,921
Pioneer Cos., Inc. ($1,624,077 par, 4.60% coupon, maturing 12/31/06) (h)..... 1,388,586
Premcor Refining Group, Inc. ($7,500,000 par, 4.34% coupon, maturing
02/11/06) (h).............................................................. 7,565,625
Satelites Mexicanos ($8,770,000 par, 5.614% coupon, maturing 06/30/04), 144A
Private Placement (b) (h).................................................. 7,761,450
--------------
TOTAL NOTES.................................................................. 43,399,073
--------------
EQUITIES 4.4%
Alderwoods Group, Inc. (152,880 common shares) (e)........................... 1,037,902
American Home Patient, Inc. (Warrants for 68,497 common shares) (c) (e)...... 0
Audio Visual Services Corp. (70,205 common shares) (e) (f)................... 737,153
Comdisco Holdings Co. (350 common shares) (e)................................ 33,250
Dade Behring Holdings, Inc. (512,559 common shares) (e)...................... 12,639,705
Genesis Health Ventures, Inc. (11,631 preferred shares) (e) (f) (k).......... 1,206,716
Genesis Health Ventures, Inc. (932,290 common shares) (e).................... 19,811,163
Holmes Group, Inc. (Warrants for 22,312 common shares) (e)................... 0
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)......................... 11,977,005
Orius Corp. (315,080 common shares) (d) (e) (f).............................. 0
Pioneer Cos., Inc. (269,846 common shares) (e)............................... 863,507
See Notes to Financial Statements 23
PORTFOLIO OF INVESTMENTS
July 31, 2003
DESCRIPTION VALUE
EQUITIES (CONTINUED)
Railworks Corp. (186 preferred shares) (e) (f)............................... $ 0
Railworks Corp. (Warrants for 3,282 common shares) (e) (f)................... 0
Rotech Healthcare, Inc. (478,573 common shares) (e).......................... 11,366,109
Rotech Medical Corp. (48,485 common shares) (e) (f).......................... 0
Safelite Glass Corp. (421,447 common shares) (e) (f)......................... 4,808,710
Safelite Realty (28,448 common shares) (e) (f)............................... 0
Tembec, Inc. (78,468 common shares) (e)...................................... 406,464
West American Rubber Co., LLC (5.04% Ownership Interest) (e) (f)............. 0
--------------
TOTAL EQUITIES 4.4%.......................................................... 64,887,684
--------------
TOTAL LONG-TERM INVESTMENTS 129.7%
(Cost $1,980,267,426)...................................................... 1,892,305,048
--------------
SHORT-TERM INVESTMENTS 1.8%
REPURCHASE AGREEMENT 1.7%
State Street Bank & Trust Corp. ($24,200,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 07/31/03, 0.95%
coupon, to be sold on 08/01/03 at $24,200,639) (i)......................... 24,200,000
--------------
TIME DEPOSIT 0.1%
State Street Bank & Trust Corp. ($2,211,082 par, 0.116% coupon, dated
07/31/03, to be sold on 08/01/03 at $2,211,089) (i)........................ 2,211,082
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $26,411,082)......................................................... 26,411,082
--------------
TOTAL INVESTMENTS 131.5%
(Cost $2,006,678,508)...................................................... 1,918,716,130
BORROWINGS (27.5)%.......................................................... (401,000,000)
LIABILITIES IN EXCESS OF OTHER ASSETS (4.0)%................................ (59,129,807)
--------------
NET ASSETS 100.0%........................................................... $1,458,586,323
==============
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.
24 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
July 31, 2003
(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,
2003.
(i) A portion of this security is designated in connection with unfunded
commitments.
(j) This borrower is currently in liquidation.
(k) Payment-in-kind security.
* Senior Loans in the Trust's portfolio generally are subject to mandatory
and/or optional prepayment. Because of these mandatory prepayment conditions
and because there may be significant economic incentives for a Borrower to
prepay, prepayments of Senior Loans in the Trust's portfolio may occur. As a
result, the actual remaining maturity of Senior Loans held in the Trust's
portfolio may be substantially less than the stated maturities shown.
Although the Trust is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, the Trust estimates that the actual
average maturity of the Senior Loans held in its portfolio will be
approximately 18-24 months.
** Senior Loans in which the Trust invests generally pay interest at rates
which are periodically redetermined by reference to a base lending rate plus
a premium. These base lending rates are generally (i) the lending rate
offered by one or more major European banks, such as the London Inter-Bank
Offered Rate ("LIBOR"), (ii) the prime rate offered by one or more major
United States banks and (iii) the certificate of deposit rate. Senior Loans
are generally considered to be restricted in that the Trust ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
Borrower prior to the disposition of a Senior Loan.
See Notes to Financial Statements 25
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
July 31, 2003
ASSETS:
Total Investments (Cost $2,006,678,508)..................... $1,918,716,130
Receivables:
Investments Sold.......................................... 23,413,773
Interest and Fees......................................... 7,229,248
Other....................................................... 179,048
--------------
Total Assets............................................ 1,949,538,199
--------------
LIABILITIES:
Payables:
Borrowings................................................ 401,000,000
Investments Purchased..................................... 86,933,072
Investment Advisory Fee................................... 1,343,379
Administrative Fee........................................ 316,089
Distributor and Affiliates................................ 74,396
Custodian Bank............................................ 68,362
Accrued Expenses............................................ 544,396
Accrued Interest Expense.................................... 356,762
Trustees' Deferred Compensation and Retirement Plans........ 315,420
--------------
Total Liabilities....................................... 490,951,876
--------------
NET ASSETS.................................................. $1,458,586,323
==============
NET ASSET VALUE PER COMMON SHARE ($1,458,586,323 divided by
180,010,000 shares outstanding)........................... $ 8.10
==============
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............. 1,189,293
Net Unrealized Depreciation................................. (87,962,378)
Accumulated Net Realized Loss............................... (252,109,982)
--------------
NET ASSETS.................................................. $1,458,586,323
==============
26 See Notes to Financial Statements
Statement of Operations
For the Year Ended July 31, 2003
INVESTMENT INCOME:
Interest.................................................... $ 108,915,548
Dividends................................................... 112,275
Other....................................................... 5,575,696
-------------
Total Income............................................ 114,603,519
-------------
EXPENSES:
Investment Advisory Fee..................................... 15,923,642
Administrative Fee.......................................... 3,746,739
Legal....................................................... 1,142,132
Custody..................................................... 511,487
Trustees' Fees and Related Expenses......................... 118,547
Other....................................................... 793,663
-------------
Total Operating Expenses................................ 22,236,210
Interest Expense........................................ 8,673,475
-------------
NET INVESTMENT INCOME....................................... $ 83,693,834
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (33,874,642)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (146,657,331)
End of the Period......................................... (87,962,378)
-------------
Net Unrealized Appreciation During the Period............... 58,694,953
-------------
NET REALIZED AND UNREALIZED GAIN............................ $ 24,820,311
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 108,514,145
=============
See Notes to Financial Statements 27
Statements of Changes in Net Assets
YEAR ENDED YEAR ENDED
JULY 31, 2003 JULY 31, 2002
-------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................................... $ 83,693,834 $ 89,866,208
Net Realized Loss......................................... (33,874,642) (87,927,766)
Net Unrealized Appreciation/Depreciation During the
Period.................................................. 58,694,953 (11,950,146)
-------------- --------------
Change in Net Assets from Operations...................... 108,514,145 (10,011,704)
Distributions from Net Investment Income.................. (79,888,289) (92,687,003)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....... 28,625,856 (102,698,707)
NET ASSETS:
Beginning of the Period................................... 1,429,960,467 1,532,659,174
-------------- --------------
End of the Period (Including accumulated undistributed net
investment income of $1,189,293 and $5,331,061,
respectively)........................................... $1,458,586,323 $1,429,960,467
============== ==============
28 See Notes to Financial Statements
Statement of Cash Flows
For the Year Ended July 31, 2003
CHANGE IN NET ASSETS FROM OPERATIONS........................ $108,514,145
------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (64,207,423)
Decrease in Interest and Fees Receivables................. 568,861
Increase in Receivable for Investments Sold............... (14,465,380)
Increase in Other Assets.................................. (93,970)
Increase in Investment Advisory Fee Payable............... 64,026
Increase in Administrative Fee Payable.................... 15,065
Decrease in Distributor and Affiliates Payable............ (211,060)
Increase in Payable for Investments Purchased............. 18,807,082
Increase in Accrued Expenses.............................. 16,650
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 102,318
------------
Total Adjustments....................................... (59,403,831)
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 49,110,314
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Bank Borrowings................................... 30,841,000
Change in Intra-day Credit Line with Custodian Bank......... 68,362
Change in Accrued Interest Expense.......................... (158,587)
Cash Dividends Paid......................................... (79,888,289)
------------
Net Cash Used for Financing Activities.................. (49,137,514)
------------
Net Decrease in Cash........................................ (27,200)
Cash at Beginning of the Period............................. 27,200
------------
CASH AT THE END OF THE PERIOD............................... $ -0-
============
See Notes to Financial Statements 29
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
JUNE 24, 1998
(COMMENCEMENT OF
YEAR ENDED JULY 31, INVESTMENT
---------------------------------------------------- OPERATIONS) TO
2003 2002 (e) 2001 2000 1999 JULY 31, 1998
-----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD (a)............................ $ 7.94 $ 8.51 $ 9.65 $ 10.08 $ 10.07 $ 9.99
-------- -------- -------- -------- -------- --------
Net Investment Income................. .46 .49 .79 .81 .77 .07
Net Realized and Unrealized
Gain/Loss........................... .14 (.55) (1.10) (.42) -0- .01
-------- -------- -------- -------- -------- --------
Total from Investment Operations....... .60 (.06) (.31) .39 .77 .08
-------- -------- -------- -------- -------- --------
Less:
Distributions from Net Investment
Income.............................. .44 .51 .83 .81 .76 -0-
Distributions from Net Realized
Gain................................ -0- -0- -0- .01 -0- -0-
-------- -------- -------- -------- -------- --------
Total Distributions.................... .44 .51 .83 .82 .76 -0-
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE PERIOD..... $ 8.10 $ 7.94 $ 8.51 $ 9.65 $ 10.08 $ 10.07
======== ======== ======== ======== ======== ========
Common Share Market Price at End of the
Period................................ $ 7.84 $ 6.67 $ 7.79 $ 8.75 $ 9.5625 $10.0625
Total Return (b)....................... 25.06% -8.05% -1.42% .61% 2.98% .63%**
Net Assets at End of the Period (In
millions)............................. $1,458.6 $1,430.0 $1,532.7 $1,736.5 $1,815.1 $1,812.1
Ratio of Operating Expenses to Average
Net Assets excluding Borrowings*...... 1.59% 1.48% 1.63% 1.75% 1.66% 1.18%
Ratio of Interest Expense to Average
Net Assets excluding Borrowings....... .62% .53% 2.15% 2.49% 2.37% .28%
Ratio of Gross Expense to Average Net
Assets excluding Borrowings*.......... 2.21% 2.01% 3.78% 4.24% 4.03% 1.46%
Ratio of Net Investment Income to
Average Net Assets excluding
Borrowings*........................... 5.98% 6.02% 8.90% 8.19% 7.72% 6.94%
Portfolio Turnover (c)................. 78% 65% 55% 57% 28% 3%**
SUPPLEMENTAL RATIOS:
Ratio of Operating Expenses to Average
Net Assets including Borrowings*...... 1.19% 1.22% 1.20% 1.24% 1.18% N/A
Ratio of Interest Expense to Average
Net Assets including Borrowings....... .46% .44% 1.58% 1.77% 1.67% N/A
Ratio of Gross Expense to Average Net
Assets including Borrowings*.......... 1.65% 1.66% 2.78% 3.01% 2.85% N/A
Ratio of Net Investment Income to
Average Net Assets including
Borrowings*........................... 4.47% 4.95% 6.55% 5.83% 5.46% N/A
SENIOR INDEBTEDNESS:
Total Borrowing Outstanding (In
thousands)............................ $401,000 $370,159 $375,000 $700,000 $800,000 $400,000
Asset Coverage Per $1,000 Unit of
Senior Indebtedness (d)............... 4,637 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 asset applicable to common shares 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.
NA--Not Applicable
30 See Notes to Financial Statements
NOTES TO
FINANCIAL STATEMENTS
July 31, 2003
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Senior Income Trust (the "Trust") is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Trust's investment objective is to provide a high level of
current income, consistent with preservation of capital. The Trust seeks to
achieve its objective by investing primarily in a portfolio of interests in
floating or variable rate senior loans to corporations, partnerships and other
entities which operate in a variety of industries and geographical regions. The
Trust borrows money for investment purposes which will create the opportunity
for enhanced return, but also should be considered a speculative technique and
may increase the Trust's volatility. The Trust commenced investment operations
on June 24, 1998.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION The Trust's Senior Loans are valued by the Trust following
valuation guidelines established and periodically reviewed by the Trust's Board
of Trustees. Under the valuation guidelines, Senior Loans for which reliable
market quotes are readily available are valued at the mean of such bid and ask
quotes. Where reliable market quotes are not readily available, Senior Loans are
valued, where possible, using independent market indicators provided by
independent pricing sources approved by the Board of Trustees. Other Senior
Loans are valued by independent pricing sources approved by the Board of
Trustees based upon pricing models developed, maintained and operated by those
pricing sources or valued by Van Kampen Investment Advisory Corp. (the
"Adviser") by considering a number of factors including consideration of market
indicators, transactions in instruments which the Adviser believes may be
comparable (including comparable credit quality, interest rate, interest rate
redetermination period and maturity), the credit worthiness of the Borrower, the
current interest rate, the period until next interest rate redetermination and
the maturity of such Senior Loan. Consideration of comparable instruments may
include commercial paper, negotiable certificates of deposit and short-term
variable rate securities which have adjustment periods comparable to the Senior
Loans in the Trust's portfolio. The fair value of Senior Loans are reviewed and
approved by the Trust's Valuation Committee and the Board of Trustees.
Equity securities are valued on the basis of prices furnished by pricing
services or as determined in good faith by the Adviser under the direction of
the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. Short-term loan
participations are valued at cost in the absence of any indication of
impairment.
The Trust may invest in repurchase agreements, which are short-term
investments in which the Trust acquires ownership of a debt security and the
seller agrees to repurchase the
31
NOTES TO
FINANCIAL STATEMENTS
July 31, 2003
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 which are recorded when received. Amendment fees are earned as
compensation for agreeing to changes in loan agreements.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At July 31, 2003, the Trust had an accumulated capital loss carryforward
for tax purposes of $179,582,840, which will expire between July 31, 2009 and
2011.
At July 31, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $2,037,050,569
==============
Gross tax unrealized appreciation........................... $ 13,246,616
Gross tax unrealized depreciation........................... (131,581,055)
--------------
Net tax unrealized depreciation on investments.............. $ (118,334,439)
==============
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.
32
NOTES TO
FINANCIAL STATEMENTS
July 31, 2003
The tax character of distributions paid for the years ended July 31, 2003
and 2002 was as follows:
2003 2002
Distributions paid from:
Ordinary income........................................... $79,888,289 $92,687,003
Long-term capital gain.................................... -0- -0-
----------- -----------
$79,888,289 $92,687,003
=========== ===========
Due to inherent differences in the recognition of income, expenses and
realized gains/ losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. A permanent difference
related to book to tax amortization differences totaling $7,947,313 has been
reclassified from accumulated undistributed net investment income to accumulated
net realized loss.
As of July 31, 2003, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income............................... $2,873,430
Net realized gains and losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses resulting from wash
sale transactions, other losses that were recognized for book purposes but not
tax purposes at the end of the fiscal year and post October losses which are not
realized for tax purposes until the first day of the following year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee of .85%
of the average daily managed assets. Managed assets are defined as the gross
asset value of the Trust minus the sum of accrued liabilities, other than the
aggregate amount of borrowings undertaken by the Trust. In addition, the Trust
will pay a monthly administrative fee to Van Kampen Investments Inc., the
Trust's Administrator, at an annual rate of .20% of the average daily managed
assets of the Trust. The administrative services provided by the Administrator
include 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, 2003, the Trust recognized expenses of
approximately $366,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
33
NOTES TO
FINANCIAL STATEMENTS
July 31, 2003
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, 2003, the Trust recognized expenses of approximately $44,400
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 upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
During the period, the Trust owned shares of the following affiliated
companies. Affiliated companies are defined by the Investment Company Act of
1940, as amended, as those companies in which a fund holds 5% or more of the
outstanding voting securities.
INTEREST/
PAR/ REALIZED DIVIDEND MARKET VALUE
NAME SHARES* GAIN/(LOSS) INCOME 7/31/03 COST
Imperial Home Decor Group,
Inc., Term Loan............. 1,422,288 0 42,945 $35,557 $1,367,833
Imperial Home Decor Group,
Inc., Common Stock.......... 512,023 0 0 0 522,263
Imperial Home Decor Realty,
Inc., Common Stock.......... 512,023 0 0 0 0
* Shares were acquired through the restructuring of Senior loan interests.
At July 31, 2003, Van Kampen owned 10,000 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $1,454,534,579 and
$1,439,851,690, respectively.
4. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $32,633,732 as of July
31, 2003. The Trust intends to reserve against such contingent obligations by
designating cash, liquid securities and liquid Senior Loans as a reserve.
5. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Senior Loan interest to corporations,
partnerships, and other entities.
34
NOTES TO
FINANCIAL STATEMENTS
July 31, 2003
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 Fund and the borrower.
At July 31, 2003, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Trust on a participation
basis.
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
Goldman Sachs Credit Partners, L.P. ........................ $ 9,509 $9,343
Credit Suisse First Boston.................................. 598 596
------- ------
Total....................................................... $10,107 $9,939
======= ======
6. BORROWINGS
In accordance with its investment policies, the Trust may borrow money for
investment purposes in an amount up to approximately 33 1/3% of the Trust's
total assets.
The Trust had entered into an $500 million revolving credit agreement with
VVR Funding LLC, a Delaware limited liability company whose sole purpose was the
issuance of commercial paper, which was terminated on September 25, 2002. As of
September 25, 2002, the Trust has entered into a $700 million revolving credit
and security agreement, which will terminate on September 23, 2003. Annual
commitment fees of .13% are charged on the unused portion of the credit line.
This revolving credit agreement is secured by the assets of the Trust. For the
year ended July 31, 2003, the average daily balance of borrowings under the
revolving credit agreement was $472,686,578 with a weighted average interest
rate of 1.35%.
35
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, 2003, the related statements of operations and cash
flows for the year then ended, the statements of changes in net assets for the
two years then ended, and the financial highlights for each of the four 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, 2003, by correspondence with the Trust's
custodian, brokers, and selling or agent banks; where replies were not received,
we performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Senior Income Trust as of July 31, 2003, 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 4, 2003
36
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
37
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN SENIOR INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
38
RESULTS OF
SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 24, 2003, 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
------------------------------------------------------------------------------------------
Rod Dammeyer............................................ 170,916,332 3,045,612
Wayne W. Whalen......................................... 170,237,280 3,724,664
The other trustees of the Trust whose terms did not expire in 2003 are David C.
Arch, Howard J Kerr, Theodore A. Myers, Richard F. Powers III and Hugo F.
Sonnenschein.
39
TRUSTEES AND OFFICERS
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 executive officers of the Trust
and their principal occupations during the last five years, other directorships
held by 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." The term "Fund Complex" includes each of the investment companies
advised by the Advisers or their affiliates as of the date of this Statement of
Additional Information. Trustees serve until reaching their retirement age 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 OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (58) Trustee Trustee Chairman and Chief 91 Trustee/Director/Managing
Blistex Inc. since 1998 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Former
Director of the World
Presidents
Organization-Chicago
Chapter. Director of the
Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago.
40
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 OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (62) Trustee Trustee President of CAC, llc., a 91 Trustee/Director/Managing
CAC, llc. since 1998 private company offering General Partner of funds
4350 LaJolla Village Drive capital investment and in the Fund Complex.
Suite 980 management advisory Director of TeleTech
San Diego, CA 92122-6223 services. Prior to July Holdings Inc.,
2000, Managing Partner of Stericycle, Inc.,
Equity Group Corporate TheraSense, Inc., GATX
Investment (EGI), a Corporation, Arris Group,
company that makes Inc. and Trustee of the
private investments in University of Chicago
other companies. Hospitals and Health
Systems. Prior to May
2002, Director of
Peregrine Systems Inc.
Prior to February 2001,
Vice Chairman and
Director of Anixter
International, Inc. and
IMC Global Inc. Prior to
July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM). Prior to April
1999, Director of Metal
Management, Inc.
Howard J Kerr (67) Trustee Trustee Prior to 1998, President 91 Trustee/Director/Managing
736 North Western Avenue since 1998 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation
41
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 OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Theodore A. Myers (73) Trustee Trustee Financial consultant, 36 Director of Met Life
550 Washington Avenue since 1998 Trustee or Managing Investors (formerly knows
Glencoe, IL 60022 General Partner of other as COVA Financial Life
funds in the Closed-End Insurance). Prior to
Fund Complex. Prior to 1997, Director of McLouth
1998, Senior Financial Steel.
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, member of
the Arthur Andersen Chief
Financial Officers'
Advisory Committee.
Hugo F. Sonnenschein (62) Trustee Trustee President Emeritus and 91 Trustee/Director/Managing
1126 E. 59th Street since 1998 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
42
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 OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (57) Trustee Trustee Advisory Director of 91 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (64) Trustee Trustee Partner in the law firm 91 Trustee/Director/Managing
333 West Wacker Drive since 1998 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom in the Fund Complex.
(Illinois), legal counsel
to funds in the Fund
Complex.
---------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of certain funds in the
Fund Complex by reason of his firm currently acting as legal counsel to such
funds in the Fund Complex. Messrs. Merin and Powers are interested persons of
funds in the Fund Complex and the Advisers by reason of their current or
former positions with Morgan Stanley or its affiliates.
43
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 (62) Vice President Officer Managing Director of Global Research Investment Management.
2800 Post Oak Blvd. since 1998 Vice President of funds in the Fund Complex. Prior to
45th Floor December 2002, Chief Investment Officer of Van Kampen
Houston, TX 77056 Investments and President and Chief Operations Officer of
the Advisers and Van Kampen Advisors Inc. Prior to May 2002,
Executive Vice President and Chief Investment Officer of
funds in the Fund Complex. Prior to May 2001, Managing
Director and Chief Investment Officer of Van Kampen
Investments, and Managing Director and President of the
Advisers and Van Kampen Advisors Inc. 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.
Stefanie V. Chang (36) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Joseph J. McAlinden (60) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Investment Officer Management Inc. and Morgan Stanley Investments LP and
Director of Morgan Stanley Trust for over 5 years. Executive
Vice President and Chief Investment Officer of funds in the
Fund Complex. Managing Director and Chief Investment Officer
of Van Kampen Investments, the Advisers and Van Kampen
Advisors Inc. since December 2002.
John R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Advisers
1 Parkview Plaza since 2000 and Van Kampen Advisors Inc. Vice President of funds in the
P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of
Oakbrook Terrace, IL 60181 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, Senior Vice President of the investment grade taxable
group for the Advisers. Prior to June 1999, Senior Vice
President of the government securities bond group for Asset
Management.
44
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
Ronald E. Robison (64) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services.
1221 Avenue of the Americas President and since 2003 Executive Vice President and Principal Executive Officer of
New York, NY 10020 Principal Executive funds in the Fund Complex. Chief Global Operations Officer
Officer and Managing Director of Morgan Stanley Investment
Management Inc. Managing Director of Morgan Stanley.
Managing Director and Director of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services Company Inc. Chief
Executive Officer and Director of Morgan Stanley Trust. Vice
President of the Morgan Stanley Funds.
A. Thomas Smith III (46) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and
1221 Avenue of the Americas Secretary since 1999 Director of Van Kampen Investments, Director of the
New York, NY 10020 Advisers, Van Kampen Advisors Inc., the 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 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 L. Sullivan (48) Vice President, Chief Officer Director and Managing Director of Van Kampen Investments,
1 Parkview Plaza Financial Officer and since 1998 the Advisers, Van Kampen Advisors Inc. and certain other
P.O. Box 5555 Treasurer subsidiaries of Van Kampen Investments. Vice President,
Oakbrook Terrace, IL 60181 Chief Financial Officer and Treasurer of funds in the Fund
Complex. Head of Fund Accounting for Morgan Stanley
Investment Management. Prior to December 2002, Executive
Director of Van Kampen Investments, the Advisers and Van
Kampen Advisors Inc.
Howard Tiffen (55) Vice President Officer Managing Director of the Advisers and Van Kampen Advisors
1 Parkview Plaza since 2000 Inc. Vice President of the senior loan funds advised by the
P.O. Box 5555 Adviser. Prior to 1999, senior portfolio manager for Pilgrim
Oakbrook Terrace, IL 60181 Investments. Associate of the Chartered Institute of Bankers
and a member of the Economic Club of Chicago.
45
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "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 System Inc. and Van Kampen Exchange Corp., as well as the many
Van Kampen mutual funds and Van Kampen unit investment trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
(VAN KAMPEN INVESTMENTS LOGO)
Copyright (C)2003 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC.
VVR ANR 9/03 12027I03-AS-9/03
Item 2. Code of Ethics.
(a) The Trust has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Trust or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit 10A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that it has one "audit committee
financial expert" serving on its audit committee, each of whom is "independent"
Trustee: Theodore A. Myers. Under applicable securities laws, a person who is
determined to be an audit committee financial expert will not be deemed an
"expert" for any purpose, including without limitation for the purposes of
Section 11 of the Securities Act of 1933, as a result of being designated or
identified as an audit committee financial expert. The designation or
identification of a person as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities that are greater
than the duties, obligations, and liabilities imposed on such person as a member
of the audit committee and Board of Trustees in the absence of such designation
or identification.
Item 4. Principal Accountant Fees and Services.
Applicable only for reports covering fiscal years ending on or after December
15, 2003.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Trust's and its investment advisor's Proxy Voting Policies and Procedures
are as follows:
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I. POLICY STATEMENT
Introduction - Morgan Stanley Investment Management's ("MSIM") policies and
procedures for voting proxies with respect to securities held in the accounts of
clients applies to those MSIM entities that provide discretionary Investment
Management services and for which a MSIM entity has the authority to vote their
proxies. The policies and procedures and general guidelines in this section will
be reviewed and, as necessary, updated periodically to address new or revised
proxy voting issues. The MSIM entities covered by these policies and procedures
currently include the following: Morgan Stanley Investment Advisors Inc., Morgan
Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan
Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan
Stanley Investment Management Limited, Morgan Stanley Investment Management
Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan
Stanley Investment Management Private Limited, Morgan Stanley Investments LP,
Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP,
Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van
Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as
the "MSIM Affiliates").
Each MSIM Affiliate will vote proxies as part of its authority to manage,
acquire and dispose of account assets. With respect to the MSIM registered
management investment companies (Van Kampen, Institutional and Advisor
Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote
proxies pursuant to authority granted under its applicable investment advisory
agreement or, in the absence of such authority, as authorized by its Board of
Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named
fiduciary" for an ERISA account has reserved the authority for itself, or in the
case of an account not governed by ERISA, the Investment Management Agreement
does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in
a prudent and diligent manner, vote proxies in the best interests of clients,
including beneficiaries of and participants in a client's benefit plan(s) for
which we manage assets, consistent with the objective of maximizing long-term
investment returns ("Client Proxy Standard"). In certain situations, a client or
its fiduciary may provide a MSIM Affiliate with a statement of proxy voting
policy. In these situations, the MSIM Affiliate will comply with the client's
policy unless to do so would be inconsistent with applicable laws or regulations
or the MSIM Affiliate's fiduciary responsibility.
Proxy Research Services - To assist the MSIM Affiliates in their responsibility
for voting proxies and the overall global proxy voting process, Institutional
Shareholder Services ("ISS") and the Investor Responsibility Research Center
("IRRC") have been retained as
experts in the proxy voting and corporate governance area. ISS and IRRC are
independent advisers that specialize in providing a variety of fiduciary-level
proxy-related services to institutional investment managers, plan sponsors,
custodians, consultants, and other institutional investors. The services
provided to MSIM Affiliates include in-depth research, global issuer analysis,
and voting recommendations. In addition to research, ISS provides vote
execution, reporting, and recordkeeping. MSIM's Proxy Review Committee (see
Section IV.A. below) will carefully monitor and supervise the services provided
by the proxy research services.
Voting Proxies for certain Non-US Companies - While the proxy voting process is
well established in the United States and other developed markets with a number
of tools and services available to assist an investment manager, voting proxies
of non-US companies located in certain jurisdictions, particularly emerging
markets, may involve a number of problems that may restrict or prevent a MSIM
Affiliate's ability to vote such proxies. These problems include, but are not
limited to: (i) proxy statements and ballots being written in a language other
than English; (ii) untimely and/or inadequate notice of shareholder meetings;
(iii) restrictions on the ability of holders outside the issuer's jurisdiction
of organization to exercise votes; (iv) requirements to vote proxies in person,
(v) the imposition of restrictions on the sale of the securities for a period of
time in proximity to the shareholder meeting; and (vi) requirements to provide
local agents with power of attorney to facilitate the MSIM Affiliate's voting
instructions. As a result, clients' non-U.S. proxies will be voted on a best
efforts basis only, consistent with the Client Proxy Standard. ISS has been
retained to provide assistance to the MSIM Affiliates in connection with voting
their clients' non-US proxies.
II. GENERAL PROXY VOTING GUIDELINES
To ensure consistency in voting proxies on behalf of its clients, MSIM
Affiliates will follow (subject to any exception set forth herein) these Proxy
Voting Policies and Procedures, including the guidelines set forth below. These
guidelines address a broad range of issues, including board size and
composition, executive compensation, anti-takeover proposals, capital structure
proposals and social responsibility issues and are meant to be general voting
parameters on issues that arise most frequently. The MSIM Affiliates, however,
may vote in a manner that is contrary to the following general guidelines,
pursuant to the procedures set forth in Section IV. below, provided the vote is
consistent with the Client Proxy Standard.
III. GUIDELINES
A. MANAGEMENT PROPOSALS
1. When voting on routine ballot items the following proposals are
generally voted in support of management, subject to the review
and approval of the Proxy Review Committee, as appropriate.
- Selection or ratification of auditors.
- Approval of financial statements, director and auditor
reports.
- Election of Directors.
- Limiting Directors' liability and broadening indemnification
of Directors.
- Requirement that a certain percentage (up to 66 2/3%) of its
Board's members be comprised of independent and unaffiliated
Directors.
- Requirement that members of the company's compensation,
nominating and audit committees be comprised of independent
or unaffiliated Directors.
- Recommendations to set retirement ages or require specific
levels of stock ownership by Directors.
- General updating/corrective amendments to the charter.
- Elimination of cumulative voting.
- Elimination of preemptive rights.
- Provisions for confidential voting and independent tabulation
of voting results.
- Proposals related to the conduct of the annual meeting except
those proposals that relate to the "transaction of such other
business which may come before the meeting."
2. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on a shareholder,
are generally voted in support of management, subject to the
review and approval of the Proxy Review Committee, as
appropriate.
Capitalization changes
- Capitalization changes that eliminate other classes of stock
and voting rights.
- Proposals to increase the authorization of existing classes
of common stock (or securities convertible into common stock)
if: (i) a clear and legitimate business purpose is stated;
(ii) the number of shares requested is reasonable in relation
to the purpose for which authorization is requested; and
(iii) the authorization does not exceed 100% of shares
currently authorized and at least 30% of the new
authorization will be outstanding.
- Proposals to create a new class of preferred stock or for
issuances of preferred stock up to 50% of issued capital.
- Proposals for share repurchase plans.
- Proposals to reduce the number of authorized shares of common
or preferred stock, or to eliminate classes of preferred
stock.
- Proposals to effect stock splits.
- Proposals to effect reverse stock splits if management
proportionately reduces the authorized share amount set forth
in the corporate charter. Reverse stock splits that do not
adjust proportionately to the authorized share amount will
generally be approved if the resulting increase in authorized
shares coincides with the proxy guidelines set forth above
for common stock increases.
Compensation
- Director fees, provided the amounts are not excessive
relative to other companies in the country or industry.
- Employee stock purchase plans that permit discounts up to
15%, but only for grants that are part of a broad based
employee plan, including all non-executive employees.
- Establishment of Employee Stock Option Plans and other
employee ownership plans.
Anti-Takeover Matters
- Modify or rescind existing supermajority vote requirements to
amend the charters or bylaws.
- Adoption of anti-greenmail provisions provided that the
proposal: (i) defines greenmail; (ii) prohibits buyback
offers to large block holders not made to all shareholders or
not approved by disinterested shareholders; and (iii)
contains no anti-takeover measures or other provisions
restricting the rights of shareholders.
3. The following non-routine proposals, which potentially may have a
substantive financial or best interest impact on the shareholder,
are generally voted against (notwithstanding management support),
subject to the review and approval of the Proxy Review Committee,
as appropriate.
- Capitalization changes that add classes of stock which
substantially dilute the voting interests of existing
shareholders.
- Proposals to increase the authorized number of shares of
existing classes of stock that carry preemptive rights or
supervoting rights.
- Creation of "blank check" preferred stock.
- Changes in capitalization by 100% or more.
- Compensation proposals that allow for discounted stock
options that have not been offered to employees in general.
- Amendments to bylaws that would require a supermajority
shareholder vote to pass or repeal certain provisions.
- Proposals to indemnify auditors.
4. The following types of non-routine proposals, which potentially
may have a potential financial or best interest impact on an
issuer, are voted as determined by the Proxy Review Committee.
Corporate Transactions
- Mergers, acquisitions and other special corporate
transactions (i.e., takeovers, spin-offs, sales of assets,
reorganizations, restructurings and recapitalizations) will
be examined on a case-by-case basis. In all cases, ISS and
IRRC research and analysis will be used along with MSIM
Affiliates' research and analysis, based on, among other
things, MSIM internal company-specific knowledge.
- Change-in-control provisions in non-salary compensation
plans, employment contracts, and severance agreements that
benefit management and would be costly to shareholders if
triggered.
- Shareholders rights plans that allow appropriate offers to
shareholders to be blocked by the board or trigger provisions
that prevent legitimate offers from proceeding.
- Executive/Director stock option plans. Generally, stock
option plans should meet the following criteria:
(i) Whether the stock option plan is incentive based;
(ii) For mature companies, should be no more than 5% of the
issued capital at the time of approval;
(iii) For growth companies, should be no more than 10% of the
issued capital at the time of approval.
Anti-Takeover Provisions
- Proposals requiring shareholder ratification of poison pills.
- Anti-takeover and related provisions that serve to prevent
the majority of shareholders from exercising their rights or
effectively deter the appropriate tender offers and other
offers.
B. SHAREHOLDER PROPOSALS
1. The following shareholder proposals are generally supported,
subject to the review and approval of the Proxy Review Committee,
as appropriate:
- Requiring auditors to attend the annual meeting of
shareholders.
- Requirement that members of the company's compensation,
nominating and audit committees be comprised of independent
or unaffiliated Directors.
- Requirement that a certain percentage of its Board's members
be comprised of independent and unaffiliated Directors.
- Confidential voting.
- Reduction or elimination of supermajority vote requirements.
2. The following shareholder proposals will be voted as determined by
the Proxy Review Committee.
- Proposals that limit tenure of directors.
- Proposals to limit golden parachutes.
- Proposals requiring directors to own large amounts of stock
to be eligible for election.
- Restoring cumulative voting in the election of directors.
- Proposals that request or require disclosure of executive
compensation in addition to the disclosure required by the
Securities and Exchange Commission ("SEC") regulations.
- Proposals that limit retirement benefits or executive
compensation.
- Requiring shareholder approval for bylaw or charter
amendments.
- Requiring shareholder approval for shareholder rights plan or
poison pill.
- Requiring shareholder approval of golden parachutes.
- Elimination of certain anti-takeover related provisions.
- Prohibit payment of greenmail.
3. The following shareholder proposals are generally not supported,
subject to the review and approval of the Committee, as
appropriate.
- Requirements that the issuer prepare reports that are costly
to provide or that would require duplicative efforts or
expenditures that are of a non-business nature or would
provide no pertinent information from the perspective of
institutional shareholders.
- Restrictions related to social, political or special interest
issues that impact the ability of the company to do business
or be competitive and that have a significant financial or
best interest impact to the shareholders.
- Proposals that require inappropriate endorsements or
corporate actions.
IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible for
creating and implementing MSIM's Proxy Voting Policy and
Procedures and, in this regard, has expressly adopted them.
Following are some of the functions and responsibilities of the
Committee.
(a) The Committee, which will consist of members designated by
MSIM's Chief Investment Officer, is responsible for
establishing MSIM's proxy voting policies and guidelines and
determining how MSIM will vote proxies on an ongoing basis.
(b) The Committee will periodically review and have the authority
to amend as necessary MSIM's proxy voting policies and
guidelines (as expressed in these Proxy Voting Policy and
Procedures) and establish and direct voting positions
consistent with the Client Proxy Standard.
(c) The Committee will meet at least monthly to (among other
matters): (1) address any outstanding issues relating to
MSIM's Proxy Voting Policy and Procedures; and (2) generally
review proposals at upcoming shareholder meetings of MSIM
portfolio
companies in accordance with this Policy and Procedures
including, as appropriate, the voting results of prior
shareholder meetings of the same issuer where a similar
proposal was presented to shareholders. The Committee, or
its designee, will timely communicate to ISS MSIM's Proxy
Voting Policy and Procedures (and any amendments to them
and/or any additional guidelines or procedures it may
adopt).
(d) The Committee will meet on an ad hoc basis to (among other
matters): (1) authorize "split voting" (i.e., allowing
certain shares of the same issuer that are the subject of the
same proxy solicitation and held by one or more MSIM
portfolios to be voted differently than other shares) and/or
"override voting" (i.e., voting all MSIM portfolio shares in
a manner contrary to the Procedures); (2) review and approve
upcoming votes, as appropriate, for matters for which
specific direction has been provided in Sections I, II, and
III above; and (3) determine how to vote matters for which
specific direction has not been provided in Sections I, II
and III above. Split votes will generally not be approved
within a single Global Investor Group team. The Committee may
take into account ISS recommendations and the research
provided by IRRC as well as any other relevant information
they may request or receive.
(e) In addition to the procedures discussed above, if the
Committee determines that an issue raises a potential
material conflict of interest, or gives rise to the
appearance of a potential material conflict of interest, the
Committee will designate a special committee to review, and
recommend a course of action with respect to, the conflict(s)
in question ("Special Committee"). The Special Committee may
request the assistance of the Law and Compliance Departments
and will have sole discretion to cast a vote. In addition to
the research provided by ISS and IRRC, the Special Committee
may request analysis from MSIM Affiliate investment
professionals and outside sources to the extent it deems
appropriate.
(f) The Committee and the Special Committee, or their
designee(s), will document in writing all of their decisions
and actions, which documentation will be maintained by the
Committee and the Special Committee, or their designee(s) for
a period of at least 6 years. To the extent these decisions
relate to a security held by a MSIM U.S. registered
investment company, the Committee and Special Committee, or
their designee(s), will report their decisions to each
applicable Board of Trustees/Directors of those investment
companies at each Board's next regularly Scheduled Board
meeting. The report will contain information concerning
decisions made by the Committee and Special Committee during
the most
recently ended calendar quarter immediately preceding the
Board meeting.
(g) The Committee and Special Committee, or their designee(s),
will timely communicate to applicable PMs, the Compliance
Departments and, as necessary to ISS, decisions of the
Committee and Special Committee so that, among other things,
ISS will vote proxies consistent with their decisions.
Item 8. [Reserved.]
Item 9. Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal half-year that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of
EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen Senior Income Trust
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By: /s/ Ronald E. Robison
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Name: Ronald E. Robison
Title: Principal Executive Officer
Date: September 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
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Name: Ronald E. Robison
Title: Principal Executive Officer
Date: September 22, 2003
By: /s/ John L. Sullivan
----------------------------------------------------------------------
Name: John L. Sullivan
Title: Principal Financial Officer
Date: September 22, 2003