<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Glossary of Terms................................ 5
Portfolio of Investments......................... 7
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Statement of Cash Flows.......................... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 18
Report of Independent Accountants................ 23
Dividend Reinvestment Plan....................... 24
</TABLE>
VVR ANR 9/98
<PAGE> 2
LETTER TO SHAREHOLDERS
August 26, 1998
Dear Shareholder,
Recently, we decided to
consolidate all Van Kampen American
Capital funds under the single name
of Van Kampen Funds. This move
accompanies the change in the legal
name of our firm to Van Kampen Funds
Inc. You can be assured that the
change in your trust's name will not
affect its management or daily
operations, and your trust will
continue to trade under its current
ticker symbol. If you have any
questions regarding your investment or our new name, please contact your
financial adviser.
MARKET CONDITIONS
The Van Kampen Senior Income Trust made its debut at a time when investors
have come to expect a lot from the markets. With a high level of employment and
a low rate of inflation preserving the consumer's buying power, consumer
confidence has been high. In general, businesses have enjoyed a steady run of
solid corporate earnings.
The senior loan market, in our opinion, has demonstrated that it can be an
integral part of an expanding economy, both here and abroad. Corporate borrowing
has helped to fuel the business activity that is driving economic growth. In the
trillion-dollar corporate arena, last year's new issue volume of leveraged
senior loans was in the range of $194 billion, ample evidence that corporations
are actively pursuing their goals.
This is not to say that the senior loan market offers any guarantees. As
always, the careful evaluation of corporate credit risk is an absolute
requirement when investing in senior loans, particularly those that involve more
speculative companies. Our approach is to build a senior loan portfolio around a
core of companies offering basic goods and services that are fundamental to the
consumer's everyday life.
The recent currency collapse in Southeast Asia reminds us once again that no
investment environment is without risk. As market participants speculated on the
impact of the Asian financial crisis on American companies and consumers, stock
prices in general have fluctuated sharply in recent weeks and months, spurring
talk of the current bull market's near-term prospects. For a listing of
portfolio holdings (including credit ratings, where applicable), see the
Portfolio of Investments included in this report.
INITIAL OFFERING
Attracting more than $1.8 billion in its initial public offering, the Van
Kampen Senior Income Trust was the largest closed-end fund offering in this
decade--and the second largest in history.
Continued on page two
1
[PHOTO]
DENNIS J. MCDONNELL AND DON G. POWELL
<PAGE> 3
Despite the challenges of managing such a large asset base, we have moved
aggressively to invest the Trust's assets. Our experience in the senior loan
market has helped us establish solid working relationships with a wide network
of lenders and dealers, enabling us to put this money to work quickly and
efficiently.
The size of the Trust actually provides some important advantages in the
senior loan market, which is typically dominated by large institutions. A large
fund, for example, can spread its expenses over a larger asset base, bringing
down its overall expense ratio. In addition, a large fund may facilitate
increased purchasing power, because the purchase of a senior loan interest often
requires the ability to take a sizable position in a particular issue. For a
smaller portfolio, such a purchase would be imprudent, if not impossible,
because it would mean devoting a large portion of its assets to just one
investment.
The Trust's broad asset base has enabled our portfolio management team to
compile a wide variety of senior loans right from the start. As of July 31, the
Trust held 105 issues, representing 35 different industries.
<TABLE>
<S> <C>
TOP FIVE PORTFOLIO SECTORS*
AS OF
JULY 31, 1998
Telecommunications--Personal Communication Systems ...... 11.7%
Finance ................................................. 11.0%
Chemicals/Plastics and Rubber ........................... 7.1%
Health Care ............................................. 7.0%
Printing/Publishing ..................................... 6.6%
</TABLE>
* As a Percentage of Variable Rate Senior Loan Interests
PORTFOLIO STRATEGY
In selecting specific loans for inclusion in the Trust's portfolio, credit
quality has been among our chief concerns. Due to the nature of this portfolio,
we are willing to accept a moderate degree of liquidity risk, but we demand a
higher return potential at the same time. While we tend to consider securities
along a broad return spectrum, we remain sensitive to our investment objective
of relative stability of principal. As a result, we have selected investments
with the portfolio's long-term earnings power in mind.
Even in times of fluctuating markets, attractive opportunities arise. The
recent General Motors strike, for example, enabled us to obtain interests in
certain auto-related issues that might have otherwise been unavailable. These
include senior debt issued by American Axle Manufacturing, Inc., a maker of
driveline systems, and Breed Technologies, Inc., an airbag manufacturer.
Our search for senior loans issued by promising companies in dynamic markets
sometimes leads us beyond American borders. Representative purchases include the
wireless telecommunications firm, BCP SP Ltd., which is structured as a joint
venture between Safra (Brazil) and BellSouth. We believe this is a sound credit
with a solid coupon payable in U.S. dollars.
Continued on page three
2
<PAGE> 4
<TABLE>
<S> <C>
TOP FIVE HOLDINGS*
AS OF
JULY 31, 1998
Lyondell Petrochemicals .................................... 4.8%
American Cellular Wireless, Inc. ........................... 4.8%
BCP SP Ltd. ................................................ 4.4%
Ispat Inland ............................................... 4.1%
Outdoor Systems, Inc. ...................................... 3.9%
</TABLE>
* As a Percentage of Variable Rate Senior Loan Interests
TRUST PERFORMANCE
From the Trust's inception through July 31, 1998, the Trust's stock price
has traded between $10 and $10.4375 per share, closing the reporting period at
$10.0625 per share. The Trust's first dividend of $0.065 per share was declared
on August 3, 1998, and payable on August 31, 1998. This represents an annualized
distribution rate of 7.80 percent, based on the initial offering price of
$10.00.
Our strategy for maintaining this high level of current income will hinge on
our ability to borrow money at low institutional rates and then reinvest the
proceeds in higher-yielding senior loans. As of July 31, the Trust had borrowed
$400 million, which has been used to invest in additional senior loans. While
this strategy--known as leveraging--tends to magnify market volatility to some
extent, we anticipate that it will enable the Trust to offer a higher yield than
similar products that do not use this investment technique.
OUTLOOK
We believe economic growth is likely to be moderate in coming months, with
the impact of the Asian economic crisis becoming much more evident. If worsening
global economic conditions continue, we would expect the Fed to lower short-term
interest rates soon.
While this asset class has little chance of outperforming equity securities
in a bull market, we will seek to assemble an array of senior loan holdings that
have the potential to offer investors a degree of relative stability over an
extended period of time and in a variety of market conditions. Of course, it
would be reckless to predict smooth sailing indefinitely. It is inevitable that
our senior loan portfolios will encounter rough spots from time to time. What
bolsters our confidence is the belief that senior corporate loans have
characteristics--such as their status as senior corporate debt--that can make
them an ideal complement to the more aggressive components of an investor's
portfolio. In addition, we believe our research capabilities are unmatched
within the industry.
We thank you for entrusting a portion of your assets to our care.
Sincerely,
[SIG.]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED JULY 31, 1998
VAN KAMPEN SENIOR INCOME TRUST
(NYSE TICKER SYMBOL--VVR)
TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C>
Cumulative total return based on Market Price(1).......... 0.63%
Cumulative total return based on NAV(2)................... 0.70%
Commencement date......................................... 06/24/98
</TABLE>
SHARE VALUATIONS
<TABLE>
<S> <C>
Net asset value........................................... $ 10.07
Closing common stock price................................ $10.0625
High common stock price (07/22/98)........................ $10.4375
Low common stock price (07/31/98)......................... $ 10.00
</TABLE>
(1)Total return based on market price assumes an investment at the 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 stock price at the end of the period
indicated.
(2)Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
Past performance does not guarantee future results. Distribution rate and net
asset value may fluctuate with market conditions. Investment return, stock price
and net asset value will fluctuate with market conditions. Trust shares, when
sold, may be worth more or less than their original cost.
4
<PAGE> 6
GLOSSARY OF TERMS
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors for
the additional credit risk.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
SECONDARY MARKET: A market where securities are traded after they are initially
offered.
SENIOR LOANS: Loans or other debt securities that are given preference to junior
securities of the borrower. In the event of bankruptcy, payments to holders of
senior loan obligations are given priority over payments to shareholders of
subordinated debt, as well as shareholders of preferred and common stock. Senior
loans may share priority status with other senior securities of the borrower,
and such status is not a guarantee that monies to which the Trust is entitled
will be paid.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
5
<PAGE> 7
A FOCUS ON SENIOR LOANS
The Senior Income Trust invests primarily in senior collateralized loans to
corporations, partnerships, and other business entities that operate in a
variety of industries and geographic locations. Senior loans have a number of
characteristics that, in the opinion of the Trust's management team, are
important to the integrity of the Trust's portfolio. These include:
SENIOR STANDING
With respect to interest payments, senior loans generally have priority over
other classes of loans, preferred stock, or common stocks, though they may have
equal status with other securities of the borrower. This status is not a
guarantee, however, that monies to which the Trust is entitled will be paid. For
more details, please refer to the prospectus.
COLLATERAL BACKING
Senior loans are often secured by collateral that has been pledged by the
borrower under the terms of a loan agreement. Forms of collateral include
accounts receivable or inventory, buildings, and real estate, among others.
Under certain circumstances, collateral might not be entirely sufficient to
satisfy the borrower's obligations in the event of nonpayment of scheduled
interest or principal, and in some instances may be difficult to liquidate on a
timely basis.
Additionally, a decline in the value of the collateral could cause the loan
to become substantially unsecured, and circumstances could arise (such as
bankruptcy of a borrower) that could cause the Trust's security interest in the
loan's collateral to be invalidated.
CREDIT QUALITY
Many senior loans carry provisions designed to protect the lender in certain
circumstances. In addition, the variable-rate nature of the portfolio is
expected to lessen the fluctuation in the Trust's net asset value. However, the
net asset value will still be subject to the influence of changes in the real or
perceived credit quality of the loans in which the Trust invests. This may occur
in the event of a sudden or extreme increase in prevailing interest rates, a
default in a loan in which the Trust holds an interest, or a substantial
deterioration in the borrower's creditworthiness. From time to time, the Trust's
net asset value may be more or less than at the time of the investment.
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS 116.0%
AEROSPACE/DEFENSE 0.9%
$ 9,622 K & F Industries, Inc., Term Loan... Ba3 B+ 10/15/05 $ 9,622,562
5,558 Whittaker Corp., Term Loan.......... NR NR 05/30/03 5,557,694
1,700 Whittaker Corp., Revolving Credit... NR NR 05/30/01 1,700,001
--------------
16,880,257
--------------
AUTOMOTIVE 2.2%
19,000 American Axle and Manufacturing,
Inc., Term Loan..................... NR NR 04/30/06 19,000,000
20,000 Breed Technologies, Inc., Term
Loan................................ B1 BB 04/27/06 20,000,194
--------------
39,000,194
--------------
BROADCASTING -- CABLE 3.9%
24,841 Falcon Holdings Group, L.P., Term
Loan................................ Ba3 BB 06/29/07 to 12/31/07 24,838,710
5,000 Frontiervision Operating Partners,
L.P., Term Loan..................... Ba3 BB 03/31/06 5,000,014
22,500 Insight Communication Co., L.P.,
Term Loan........................... NR NR 03/31/05 to 12/31/06 22,497,802
18,616 Triax Midwest Associates, Term
Loan................................ NR NR 06/30/06 to 06/30/07 18,616,402
--------------
70,952,928
--------------
BROADCASTING -- DIVERSIFIED 1.1%
20,000 Emmis Communications Corp., Term
Loan................................ NR NR 02/28/07 19,999,979
--------------
BROADCASTING -- RADIO 0.7%
11,250 Capstar Radio Broadcasting Partners,
Inc., Term Loan..................... NR NR 11/30/04 11,249,980
1,028 Capstar Radio Broadcasting Partners,
Inc., Revolving Credit.............. NR NR 11/30/04 1,027,500
--------------
12,277,480
--------------
BROADCASTING -- TELEVISION 2.4%
43,421 NTL Group (UK), Inc., Term Loan..... NR NR 12/31/05 43,421,166
--------------
CHEMICAL, PLASTIC & RUBBER 8.3%
9,000 General Chemical Group, Inc., Term
Loan................................ NR NR 06/15/06 9,000,029
9,552 High Performance Plastics, Inc.,
Term Loan........................... NR NR 09/30/03 to 03/31/05 9,552,740
9,599 Huntsman Group Holdings, Term
Loan................................ Ba2 NR 09/30/03 9,591,487
100,000 Lyondell Petrochemicals, Term
Loan................................ Ba1 NR 06/30/05 100,038,736
12,387 Pioneer Americas Acquisition Corp.,
Term Loan........................... B2 B+ 12/31/06 12,400,565
5,183 Sterling Chemicals, Inc., Term
Loan................................ Ba3 NR 09/30/04 5,183,312
4,303 Sterling Pulp Chemicals, Inc., Term
Loan................................ Ba3 NR 06/30/05 4,303,207
--------------
150,070,076
--------------
CONSTRUCTION MATERIALS 1.4%
24,924 BSI Holdings, Inc., Term Loan....... NR NR 09/30/05 24,924,242
--------------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
CONTAINERS, PACKAGING & GLASS 0.5%
$ 2,775 RIC Holdings, Inc., Term Loan....... B1 B 02/28/03 $ 2,775,003
5,677 Stronghaven, Inc., Term Loan........ NR NR 04/30/01 to 05/15/04 5,676,918
--------------
8,451,921
--------------
DIVERSIFIED MANUFACTURING 1.1%
8,927 International Wire Group, Inc., Term
Loan................................ B1 NR 09/30/03 8,927,013
10,833 Intesys Technologies, Inc., Term
Loan................................ NR NR 06/30/04 to 06/30/06 10,833,351
763 Intesys Technologies, Inc.,
Revolving Credit.................... NR NR 06/30/04 762,671
--------------
20,523,035
--------------
EDUCATION & CHILD CARE 0.2%
3,500 TEC Worldwide, Inc., Term Loan...... NR NR 02/28/05 3,499,970
--------------
ELECTRIC/ELECTRONICS 3.1%
23,251 Amphenol Corp., Term Loan........... Ba3 B+ 05/19/04 to 05/19/06 23,250,571
6,492 Automata, Inc., Term Loan........... NR NR 02/28/03 to 02/28/04 6,492,328
20,959 Chatham Technologies Acquisition,
Inc., Term Loan..................... NR NR 08/18/03 to 08/18/05 20,954,612
6,000 Wesco Distribution, Inc., Term
Loan................................ Ba2 BB 03/31/06 6,000,000
--------------
56,697,511
--------------
ENTERTAINMENT/LEISURE 5.5%
4,845 Hedstrom Corp., Term Loan........... B1 B+ 06/30/03 4,844,828
30,000 Metro-Goldwyn-Mayer, Inc., Term
Loan................................ Ba1 NR 03/31/05 to 03/31/06 29,999,342
2,553 Regal Cinemas, Inc., Term Loan...... Ba3 BB- 05/27/05 2,553,191
15,000 SFX Entertainment, Inc., Term
Loan................................ B1 BB- 03/31/06 15,000,040
48,000 United Artists Theatre Co., Term
Loan................................ B1 B+ 04/21/06 to 04/21/07 48,003,393
--------------
100,400,794
--------------
FINANCE 12.7%
31,578 Bridge Information Systems, Inc.,
Term Loan........................... NR NR 06/30/03 to 05/27/05 31,577,778
21,875 Meditrust, Term Loan................ NR NR 07/15/99 21,875,379
67,483 Patriot American Hospitality, Inc.,
Term Loan........................... NR NR 03/31/99 to 03/31/03 67,479,402
70,000 Starwood Hotels and Resorts, Inc.,
Term Loan........................... NR NR 02/23/03 70,000,010
40,144 Ventas Realty Ltd., Inc., Term
Loan................................ NR NR 10/30/99 to 04/30/03 40,140,653
--------------
231,073,222
--------------
FOOD/BEVERAGE 0.7%
7,356 Mistic Brands, Inc., Term Loan...... NR NR 06/01/04 to 06/01/05 7,355,624
5,700 Southern Foods Group, Inc., Term
Loan................................ Ba3 BB- 02/28/06 5,700,004
--------------
13,055,628
--------------
FOOD STORES 0.3%
4,993 Eagle Family Foods, Inc., Term
Loan................................ B1 B+ 12/31/05 4,992,860
--------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
HEALTHCARE 8.1%
$ 4,477 Extendicare Health Services, Inc.,
Term Loan........................... Ba3 B+ 12/31/03 $ 4,477,374
14,737 FHC Health Systems, Inc., Term
Loan................................ NR NR 04/30/03 to 04/30/06 14,736,842
5,829 Genesis Healthcare Ventures, Inc.,
Term Loan........................... Ba3 B+ 09/30/04 to 06/01/05 5,829,291
2,025 Genesis Healthcare Ventures, Inc.,
Revolving Credit.................... Ba3 B+ 09/30/03 2,025,554
20,000 Integrated Health Services, Inc.,
Term Loan........................... Ba3 B+ 09/30/04 20,000,294
48,160 MedPartners, Inc., Term Loan........ Ba3 BB- 05/31/01 48,160,158
5,173 Multicare Companies, Inc., Term
Loan................................ B1 B+ 09/30/03 to 06/01/05 5,172,889
3,000 Oxford Health Plans, Inc., Term
Loan................................ B3 NR 05/15/03 3,000,003
1,985 SMT Health Services, Inc., Term
Loan................................ NR NR 08/31/03 1,984,416
3,169 Sun Healthcare Group, Inc., Term
Loan................................ Ba3 B+ 11/12/03 3,169,153
8,909 Sun Healthcare Group, Inc.,
Revolving Credit.................... Ba3 B+ 11/12/03 8,908,689
29,644 Vencor, Inc., Term Loan............. B1 B+ 10/31/99 to 01/15/05 29,644,452
--------------
147,109,115
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER PRODUCTS 1.1%
6,545 Corning Consumer Products, Co., Term
Loan................................ B1 BB- 04/09/05 to 10/09/06 6,545,455
7,500 Dal-Tile Group, Inc., Term Loan..... NR NR 12/31/03 7,500,006
5,000 Imperial Home Decor Group, Inc.,
Term Loan........................... B1 B+ 03/13/05 5,000,000
--------------
19,045,461
--------------
HOTELS, MOTELS, INNS & GAMING 3.0%
25,550 Aladdin Gaming, LLC, Term Loan...... B2 NR 02/26/06 to 02/26/08 25,550,000
28,800 Allegro Resorts Corp., Term Loan.... NR NR 02/11/03 28,800,121
--------------
54,350,121
--------------
MACHINERY 1.5%
4,988 Coinmatch Corp., Term Loan.......... NR BB 06/30/05 4,987,427
15,000 Ocean Rig (Norway), Term Loan....... NR NR 06/01/08 15,000,700
7,463 Universal Compression, Inc., Term
Loan................................ Ba3 B+ 02/13/04 7,462,390
--------------
27,450,517
--------------
MINING, STEEL, IRON, & NON-PRECIOUS
METALS 5.5%
5,000 Alliance Coal Corp., Term Loan...... NR NR 12/31/01 4,995,821
85,000 Ispat Inland, Term Loan............. Ba3 BB 07/16/05 to 07/16/06 85,000,000
9,231 P&L Coal Holdings Corp., Term
Loan................................ NR NR 06/30/06 9,230,822
--------------
99,226,643
--------------
NON-DURABLE CONSUMER PRODUCTS 0.2%
4,348 Intercontinental Art, Term Loan..... NR NR 12/31/02 4,338,655
--------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
PAPER & FOREST PRODUCTS 1.8%
$ 15,000 Le Group Forex, Inc., Term Loan..... NR BB 06/30/05 $ 15,000,000
17,156 Paper Acquisition Corp., Term
Loan................................ NR NR 06/17/01 17,156,190
--------------
32,156,190
--------------
PERSONAL & MISCELLANEOUS
SERVICES 1.5%
7,706 Arena Brands, Inc., Term Loan....... NR NR 06/01/02 7,706,236
18,647 Boyds Collection Ltd., Term Loan.... Ba3 B+ 04/21/05 18,646,609
--------------
26,352,845
--------------
PHARMACEUTICALS 0.8%
4,147 Endo Pharmaceuticals, Inc., Term
Loan................................ NR NR 12/31/02 4,147,071
11,000 Roberts Pharmaceutical Corp., Term
Loan................................ B1 NR 06/30/03 11,000,000
--------------
15,147,071
--------------
PRINTING/PUBLISHING 7.6%
9,975 Bear Island Paper Co., LLC, Term
Loan................................ Ba3 B+ 12/31/05 9,974,705
32,737 HMV Media Group, Inc., Term Loan.... B1 BB- 03/28/05 to 03/28/06 32,736,741
81,273 Outdoor Systems, Inc., Term Loan.... Ba2 BB- 06/30/04 81,271,952
12,000 R.H. Donnelley Corp., Term Loan..... NR NR 09/30/05 to 09/30/06 12,000,000
2,450 TransWestern Publishing L.P., Term
Loan................................ Ba3 B+ 10/01/04 2,450,195
--------------
138,433,593
--------------
RESTAURANTS & FOOD SERVICE 2.2%
8,562 International Diverse Foods, Inc.,
Term Loan........................... NR NR 01/15/04 to 01/16/06 8,562,133
30,500 S.C International Services, Inc.,
Term Loan........................... Ba3 NR 03/01/07 30,500,000
--------------
39,062,133
--------------
RETAIL -- OFFICE PRODUCTS 3.4%
15,960 Corporate Express, Inc., Term
Loan................................ Ba3 BB- 04/25/05 15,959,504
45,000 U.S. Office Products, Inc., Term
Loan................................ B1 B- 06/09/06 45,000,183
--------------
60,959,687
--------------
TELECOMMUNICATIONS -- CELLULAR 5.8%
91,840 BCP SP Ltd., Term Loan.............. NR NR 03/16/00 91,840,487
13,571 Cellular, Inc., Financial Corp.
(CommNet), Term Loan................ B1 B 09/18/05 to 09/30/07 13,571,134
--------------
105,411,621
--------------
TELECOMMUNICATIONS -- HYBRID 2.3%
11,520 Atlantic Crossing, Term Loan........ NR NR 11/30/02 11,520,083
9,964 Dynatech Corp., Term Loan........... NR B+ 05/31/05 to 03/31/07 9,964,286
20,000 Nextel Finance Co., Term Loan....... Ba3 B- 03/31/03 19,992,482
--------------
41,476,851
--------------
TELECOMMUNICATIONS -- PERSONAL COMMUNICATION SYSTEMS 13.6%
10,500 Cox Communications, Inc., Term
Loan................................ Baa2 NR 08/31/06 to 01/31/07 10,499,832
11,712 Microcell Telecommunications, Inc.,
Term Loan........................... NR NR 03/01/06 11,723,652
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan Ratings+
Amount Moody's S&P Stated
(000) Borrower (Unaudited) Maturity* Value
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
TELECOMMUNICATIONS -- PERSONAL COMMUNICATION SYSTEMS (CONTINUED)
$ 62,995 Omnipoint Communications, Inc., Term
Loan................................ B2 B 12/31/04 to 02/17/06 $ 62,994,988
55,000 Sprint Spectrum L.P., Term Loan..... Ba1 NR 01/31/02 54,993,750
5,000 Sprint, Northern Telecom Vendor
Facility, Term Loan................. NR NR 03/31/05 5,001,091
50,000 Telecorp PCS, Inc., Term Loan....... NR NR 12/05/07 50,000,088
11,350 Triton PCS, Inc. Term Loan.......... B1 B 05/04/07 11,350,000
40,000 Western PCS Corp., Term Loan........ NR NR 12/31/06 40,002,713
--------------
246,566,114
--------------
TELECOMMUNICATIONS -- WIRELESS 6.7%
100,000 American Cellular Wireless, Inc.,
Term Loan........................... B2 NR 06/30/07 100,008,809
5,000 Iridium Operating LLC, Term Loan.... B2 B 12/31/98 5,000,182
4,490 Metrocall, Inc., Term Loan.......... B1 B 12/31/04 4,490,437
11,000 TSR Wireless, LLC, Term Loan........ NR NR 06/30/05 11,000,000
--------------
120,499,428
--------------
TEXTILES & LEATHER 1.5%
8,977 American Marketing Industries, Inc.,
Term Loan........................... NR NR 11/30/04 to 11/30/05 8,977,493
9,975 Galey & Lord, Inc., Term Loan....... B1 BB- 04/02/05 to 04/01/06 9,975,261
7,980 Pillowtex Corp., Term Loan.......... Ba2 BB 12/31/04 7,976,682
--------------
26,929,436
--------------
TRANSPORTATION -- CARGO 1.1%
20,000 American Commercial Lines, LLC, Term
Loan................................ Ba2 BB 06/26/06 to 06/26/07 20,000,000
--------------
UTILITIES 3.3%
60,250 LIR Energy Ltd., Term Loan.......... NR NR 04/21/99 60,250,000
--------------
TOTAL VARIABLE RATE ** SENIOR LOAN INTERESTS 116.0%
(Cost $2,099,613,303).......................................................... 2,100,986,744
--------------
SHORT-TERM INVESTMENTS 5.5%
EURODOLLAR BONDS 0.9%
State Street Bank & Trust Eurodollar ($17,311,000 par, maturing 08/03/98,
yielding 5.25%)................................................................ 17,311,000
--------------
COMMERCIAL PAPER 3.5%
Case Credit Corp. ($10,000,000 par, maturing 08/07/98, yielding 5.70%)......... 9,990,500
CSX Corp. ($15,000,000 par, maturing 08/21/98, yielding 5.68%)................. 14,952,667
Tandy Corp. ($7,000,000 par, maturing 08/18/98, yielding 5.70%)................ 6,981,158
Texas Utilities Co. ($16,400,000 par, maturing 08/05/98, yielding 5.80%)....... 16,389,431
Western Resources, Inc. ($15,000,000 par, maturing 08/03/98, yielding 5.75%)... 14,995,208
--------------
TOTAL COMMERCIAL PAPER......................................................... 63,308,964
--------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Borrower Value
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
SHORT-TERM LOAN PARTICIPATIONS 1.1%
Alltel Corp. ($15,000,000 par, maturing 08/07/98, yielding 5.66%)........ $ 15,000,000
Western Atlas, Inc. ($4,500,000 par, maturing 08/13/98, yielding
5.71%)................................................................... 4,500,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS..................................... 19,500,000
--------------
TOTAL SHORT-TERM INVESTMENTS 5.5%
(Cost $100,119,964)...................................................... 100,119,964
--------------
TOTAL INVESTMENTS 121.5%
(Cost $2,199,733,268).................................................... 2,201,106,708
LIABILITIES IN EXCESS OF OTHER ASSETS (21.5%)........................... (388,963,454)
--------------
NET ASSETS 100.0%....................................................... $1,812,143,254
------------
</TABLE>
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.
* 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 prime rate offered
by one or more major United States banks, (ii) the lending rate offered by
one or more major European banks, such as the London Inter-Bank Offered Rate
("LIBOR") 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
12
<PAGE> 14
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,199,733,268)..................... $2,201,106,708
Cash........................................................ 2,439,882
Receivables:
Interest.................................................. 11,578,067
Investments Sold.......................................... 505,818
Unamortized Organizational Costs............................ 39,210
Other....................................................... 1,133,278
--------------
Total Assets............................................ 2,216,802,963
--------------
LIABILITIES:
Payables:
Bank Borrowings........................................... 400,000,000
Investment Advisory Fee................................... 1,303,756
Administrative Fee........................................ 323,205
Distributor and Affiliates................................ 89,821
Organizational Costs...................................... 40,000
Accrued Expenses............................................ 2,898,001
Trustees' Deferred Compensation and Retirement Plans........ 4,926
--------------
Total Liabilities....................................... 404,659,709
--------------
NET ASSETS.................................................. $1,812,143,254
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 180,010,000 shares issued and
outstanding).............................................. $ 1,800,100
Paid in Surplus............................................. 1,796,019,900
Accumulated Undistributed Net Investment Income............. 12,810,456
Net Unrealized Appreciation................................. 1,373,440
Accumulated Net Realized Gain............................... 139,358
--------------
NET ASSETS.................................................. $1,812,143,254
==============
NET ASSET VALUE PER COMMON SHARE
($1,812,143,254 divided by 180,010,000 shares
outstanding)............................................ $ 10.07
==============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF OPERATIONS
For the Period June 24, 1998
(Commencement of Investment Operations) to July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 15,375,181
Fees........................................................ 119,005
------------
Total Income.......................................... 15,494,186
------------
EXPENSES:
Investment Advisory Fee..................................... 1,559,786
Administrative Fee.......................................... 367,008
Custody..................................................... 66,608
Shareholder Services........................................ 59,597
Legal....................................................... 38,988
Trustees' Fees and Expenses................................. 8,990
Amortization of Organizational Costs........................ 789
Other....................................................... 138,494
------------
Total Operating Expenses.............................. 2,240,260
Less Investment Advisory Fee Waived................... 69,863
------------
Net Operating Expenses................................ 2,170,397
Interest Expense...................................... 513,333
------------
NET INVESTMENT INCOME....................................... $ 12,810,456
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 139,358
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 0
End of the Period......................................... 1,373,440
------------
Net Unrealized Appreciation During the Period............... 1,373,440
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 1,512,798
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 14,323,254
============
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
For the Period June 24, 1998
(Commencement of Investment Operations) to July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period Ended
July 31, 1998
- ----------------------------------------------------------------------------
<S> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 12,810,456
Net Realized Gain........................................... 139,358
Net Unrealized Appreciation During the Period............... 1,373,440
--------------
Change in Net Assets from Operations........................ 14,323,254
--------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 1,797,720,000
--------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 1,797,720,000
--------------
TOTAL INCREASE IN NET ASSETS................................ 1,812,043,254
NET ASSETS:
Beginning of the Period..................................... 100,000
--------------
End of the Period (Including undistributed net investment
income of $12,810,456).................................... $1,812,143,254
==============
</TABLE>
15
<PAGE> 17
STATEMENT OF CASH FLOWS
For the Period June 24, 1998
(Commencement of Investment Operations) to July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 14,323,254
----------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (2,201,106,708)
Increase in Interest Receivable........................... (11,578,067)
Increase in Receivable for Investments Sold............... (505,818)
Increase in Unamortized Organizational Costs.............. (39,210)
Increase in Other Assets.................................. (1,133,278)
Increase in Bank Borrowings............................... 400,000,000
Increase in Investment Advisory Fees...................... 1,303,756
Increase in Administrative Fees........................... 323,205
Increase in Distributor & Affiliates Payable.............. 89,821
Increase in Accrued Expenses.............................. 2,898,001
Increase in Organizational Costs Payable.................. 40,000
Increase in Deferred Compensation and Retirement Plans
Expenses................................................ 4,926
----------------
Total Adjustments....................................... (1,809,703,372)
----------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (1,795,380,118)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 1,797,720,000
----------------
Net Cash Provided by Financing Activities................. 1,797,720,000
----------------
NET INCREASE IN CASH........................................ 2,339,882
Cash at Beginning of the Period............................. 100,000
----------------
CASH AT THE END OF THE PERIOD............................... $ 2,439,882
================
</TABLE>
16
<PAGE> 18
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Trust outstanding throughout the period indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 24, 1998
(Commencement
of Investment
Operations) to
July 31, 1998
<S> <C>
- ---------------------------------------------------------------------------
Net Asset Value, Beginning of the Period (a)................ $ 9.987
--------
Net Investment Income....................................... 0.071
Net Realized and Unrealized Gain............................ 0.009
--------
Total from Investment Operations............................ 0.080
--------
Net Asset Value, End of the Period.......................... $ 10.067
========
Market Price Per Share at End of the Period................. $10.0625
Total Investment Return at Market Price (b)................. 0.63%**
Total Return at Net Asset Value (c)......................... 0.70%**
Net Assets at End of the Period (In millions)............... $1,812.1
Ratio of Operating Expenses to Average Net Assets*.......... 1.18%
Ratio of Interest Expenses to Average Net Assets............ 0.28%
Ratio of Net Investment Income to Average Net Assets*....... 6.94%
Portfolio Turnover.......................................... 3%**
* If certain expenses had not been assumed by Van Kampen, Total Return
would have been lower and the ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets........... 1.21%
Ratio of Net Investment Income to Average Net Assets........ 6.90%
</TABLE>
** Non-Annualized
(a) Net Asset Value at June 24, 1998 of $10.00 is adjusted for common share
offering costs of $.013.
(b) Total Investment Return at Market price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends
in accordance with the Trust's dividend reinvestment plan.
(c) Total Return and Net Asset Value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based on NAV.
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
July 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Senior Income Trust, formerly known as Van Kampen American Capital
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 graphical 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 generally accepted
accounting principles 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 value of the Trust's Variable Rate Senior Loan
interests, totaling $2,100,986,744 (116.0% of net assets) is determined in the
absence of actual market values by Van Kampen Investment Advisory Corp. (the
"Adviser") following guidelines and procedures established, and periodically
reviewed, by the Board of Trustees. The value of a Variable Rate Senior Loan
interest in the Trust's portfolio is determined with reference to changes in
market interest rates and to the creditworthiness of the underlying obligor. In
valuing Variable Rate Senior Loan interests, the Adviser considers market
quotations and transactions in instruments that the Adviser believes may be
comparable to such Variable Rate Senior Loan interests. In determining the
relationship between such instruments and the Variable Rate Senior Loan
interest, the Adviser considers such factors as the creditworthiness of the
underlying obligor, the current interest rate, the interest rate redetermination
period and the maturity date. To the extent that reliable market transactions in
Variable Rate Senior Loan interest have occurred, the Adviser also considers
pricing information derived from such secondary market transactions in valuing
Variable Rate Senior Loan interests. Because of uncertainty inherent in the
valuation process, the estimated value of a Variable Rate Senior Loan interest
may differ significantly from the value that would have been used had there been
market activity for that Variable
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
Rate Senior Loan interest. Short-term securities with remaining maturities of 60
days or less are valued at amortized cost.
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 discounts are amortized
over the stated life of each applicable security.
D. ORGANIZATIONAL EXPENSES--The Trust has agreed to reimburse Van Kampen Funds
Inc. or its affiliates ("Van Kampen") for costs incurred in connection with the
Trust's organization and initial registration in the amount of $40,000. These
costs normally are amortized over a 60 month period beginning on the date of the
Trust's initial public offering of its shares. However, Statement of Position
98-5, which is effective for fiscal years beginning after December 15, 1998,
requires that unamortized organizational costs on the Trust's statement of
assets and liabilities be written off. Therefore, the Trust will write off the
remaining unamortized organizational costs as of August 1, 1999. The Adviser has
agreed that in the event any of the initial shares of the Trust originally
purchased by Van Kampen are redeemed, the Trust will be reimbursed for any
unamortized organizational expenses in the same proportion as the number of
shares redeemed bears to the number of initial shares held at the time of
redemption.
E. 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.
At July 31, 1998, for federal income tax purposes cost of long- and
short-term investments is $2,199,733,268, the aggregate gross unrealized
appreciation is $3,967,403 and the aggregate gross unrealized depreciation is
$2,593,963 resulting in net unrealized appreciation of $1,373,440.
F. 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 annually to common shareholders.
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
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 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 managed assets
of the Trust. The administrative services to be provided by the Administrator
include monitoring the provisions of the loan agreements and any agreements with
respect to participations and assignments, record keeping responsibilities with
respect to interests in Variable Rate Senior Loans in the Trust's portfolio and
providing certain services to the holders of the Trust's securities.
For the period ended July 31, 1998, the Trust recognized expenses of
approximately $25,300 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.
For the period ended July 31, 1998, the Trust recognized expenses of
approximately $13,600 representing Van Kampen's cost of providing legal services
to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At July 31, 1998, paid in surplus aggregated $1,796,019,900. Transactions in
common shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
JULY 31, 1998
- -------------------------------------------------------------------------
<S> <C>
Beginning Shares........................................ 10,000
Shares Sold............................................. 180,000,000
-----------
Ending Shares........................................... 180,010,000
===========
</TABLE>
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $2,152,634,268 and $53,228,379,
respectively.
5. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Fund had unfunded loan commitments of approximately $101,497,700 as of July
31, 1998. The Fund generally will maintain with its custodian short-term
investments and/or cash having an aggregate value at least equal to the amount
of unfunded loan commitments.
6. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States and foreign corporations, partnerships, and other entities. When
the Trust purchases a participation of a Senior Loan interest, the Trust
typically enters into a contractual agreement with the lender or other third
party selling the participation, but not with the borrower directly. As such,
the Trust assumes the credit risk of the Borrower, Selling Participant or other
persons interpositioned between the Trust and the Borrower.
At July 31, 1998, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Trust on a participation
basis.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
- ---------------------------------------------------------------------------
<S> <C> <C>
Wachovia........................................ $14,737 $14,737
Bank of America................................. 5,000 5,001
Chase Securities................................ 5,000 5,000
Goldman Sachs Credit............................ 4,444 4,444
Bankers Trust................................... 4,348 4,339
------- -------
$33,529 $33,521
======= =======
</TABLE>
7. BORROWINGS
In accordance with its investment policies, the Trust may borrow money from
banks for investment purposes in an amount up to approximately 33 1/3% of the
Trust's total assets.
The Trust has entered into an $800 million revolving credit agreement in two
tranches with Nationsbank. The Trust paid $1,000,000 in fees in connection with
obtaining the agreement. These Prepaid fees are being amortized into expense
over the term of each of the tranches. Tranche A of the facility, totaling $400
million, is unfunded and expires on
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1998
- --------------------------------------------------------------------------------
August 24, 1999. Tranche B of the facility, totaling $400 million, is fully
drawn and expires on August 26, 2001. Interest is charged at a rate of LIBOR
plus .50%. An unused commitment fee of .10% for Tranche A and .125% for Tranche
B is charged on the unused portion of the facility.
8. SUBSEQUENT EVENT
On August 31, 1998, the Trust paid a dividend of $0.065 per share to all
shareholders of record as of August 14, 1998.
9. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position our business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Trust but we do not
anticipate that the move to Year 2000 will have a material impact on our ability
to continue to provide the Trust with service at current levels. In addition, it
is possible that the securities markets in which the Trust invests may be
detrimentally affected by computer failures throughout the financial services
industry beginning January 1, 2000. Improperly functioning trading systems may
result in settlement problems and liquidity issues.
22
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders 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, 1998, and the related statements of operations, cash flows and
changes in net assets and financial highlights for the period from June 24, 1998
(commencement of investment operations) to July 31, 1998. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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, 1998, by correspondence with the custodian 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Senior Income Trust as of July 31, 1998, the results of its operations,
cash flows, the changes in its net assets and financial highlights for the
period from June 24, 1998 (commencement of investment operations) to July 31,
1998 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
September 4, 1998
23
<PAGE> 25
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 distributions 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., Houston, TX 77056, Attn: Closed-End Funds
24
<PAGE> 26
VAN KAMPEN SENIOR INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
JEFFREY W. MAILLET*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the
Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1998
All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
25
<TABLE> <S> <C>
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<NAME> SENIOR INCOME TRUST
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