<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
A Focus on Senior Loans.......................... 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 21
Statement of Operations.......................... 22
Statement of Changes in Net Assets............... 23
Statement of Cash Flows.......................... 24
Financial Highlights............................. 25
Notes to Financial Statements.................... 26
Dividend Reinvestment Plan....................... 31
</TABLE>
VVR SAR 3/99
<PAGE> 2
LETTER TO SHAREHOLDERS
February 19, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your trust.
ECONOMIC OVERVIEW
Despite a difficult six months in many emerging markets, the U.S. economy
remained strong. The nation's gross domestic product (GDP), a measure of
economic health, grew 4.3 percent in 1998, surpassing 1997's growth rate. In the
fourth quarter alone, GDP rose 6.1 percent--surprising most economists, whose
estimates had been much more conservative. This impressive growth suggests that
the U.S. economy remains fundamentally sound, despite a crisis of confidence in
the third quarter as a result of the financial problems abroad. A continuation
of low inflation--only a 1.6 percent increase in the consumer price index in
1998--also helped maintain the health of the domestic economy and kept
inflation-adjusted interest rates attractive.
In the last few months of 1998, the Federal Reserve's interest rate
decreases contributed to the positive financial environment. In response to
declining corporate profits and mounting international concerns, the Fed lowered
interest rates three times, with 0.25 percent cuts in September, October, and
November. These rate cuts, coupled with a wave of corporate mergers and
cost-cutting measures, lent the support needed to foster continued growth
despite the global financial situation.
MARKET REVIEW
Although the economy moved along at a healthy pace, the stock and bond
markets experienced significant volatility in the third quarter of 1998, with
investor concerns about the financial problems in Asia and Latin America
reaching a peak in August. During this time, American and foreign investors
alike pursued a flight to quality--seeking the relative safety of large-company
stocks and government bonds. During this period, investor interest in the senior
loan market increased dramatically as companies issued greater amounts of
Continued on page 2
1
<PAGE> 3
senior loan debt to finance their business transactions in the third and fourth
quarters. In 1998, leveraged lending hit $272 billion, topping the record $194
billion we saw in 1997. The secondary market also experienced strong growth,
with a total volume of $67.3 billion, up from $62 billion the previous year.
OUTLOOK
Our outlook for the domestic economy remains positive, although we expect
that growth may slow somewhat in the coming months. Internationally, we
anticipate that low interest rates and declining inflation should lead to
improvements in troubled areas such as Asia and Latin America.
In the senior loan market, we believe that the banking industry should
remain strong as large-scale mergers and acquisitions continue to generate
short-term corporate capital needs. As a result, we believe there may be a
healthy supply of senior loans with attractive yields going forward.
Additional details about your trust, including a question-and-answer section
with your portfolio manager, are provided in this report. As always, we are
pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG.]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JANUARY 31, 1999
VAN KAMPEN SENIOR INCOME TRUST
(NYSE TICKER SYMBOL--VVR)
<TABLE>
<S> <C>
TOTAL RETURNS
Six-month total return based on Market Price(1)........... (4.32)%
Six-month total return based on NAV(2).................... 4.04%
Commencement date......................................... 06/24/98
DISTRIBUTION RATE
Distribution rate as of % of closing common stock
price(3)................................................ 7.91%
SHARE VALUATIONS
Net asset value............................................ $ 10.09
Closing common stock price................................. $ 9.25
High common stock price (08/12/98)......................... $ 10.25
Low common stock price (01/14/99).......................... $8.9375
</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.
(3)Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
Past performance 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.
3
<PAGE> 5
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
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.
CYCLICAL INDUSTRIES: Industries where earnings tend to rise quickly when the
economy strengthens and fall quickly when the economy weakens. Examples of
cyclical industries include housing, automobiles, and paper. Noncyclical
industries are typically less sensitive to changes in the economy. These
include utilities, grocery stores, and pharmaceuticals.
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.
FLIGHT TO QUALITY: The flow of funds toward relatively safer investments in
times of marketplace uncertainty or fear.
HEDGE FUND: A fund, usually used by wealthy individuals and institutions, that
is allowed to use aggressive strategies that are unavailable to most mutual
funds.
LONDON INTER-BANK OFFER RATE (LIBOR): The interest rate that the largest
international banks charge each other for loans.
NET ASSET VALUE (NAV): The value of a trust share, calculated by deducting a
trust's liabilities from the total assets applicable to common shareholders
in its portfolio and dividing this amount by the number of common shares
outstanding.
SECONDARY MARKET: 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 holders of
subordinated debt, as well as shareholders of preferred and common stock.
Senior loans may share priority status with other senior securities of the
borrower, and such status is not a guarantee that monies to which the Trust
is entitled will be paid.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN SENIOR INCOME TRUST
We recently spoke with the portfolio manager of the Van Kampen Senior Income
Trust about the key events and economic forces that shaped the markets during
the past six months. The Trust's portfolio manager, Jeffrey W. Maillet, senior
vice president of Van Kampen Investment Advisory Corp., has been responsible for
the day-to-day management of the Trust's portfolio since its inception. The
following excerpts reflect his views on the Trust's performance during the six
months ended January 31, 1999.
Q HOW DID CONDITIONS IN THE SENIOR LOAN MARKET AFFECT THE TRUST DURING THE
PAST SIX MONTHS?
A The financial turbulence in the second half of the year precipitated a
modest credit crunch. Between overseas turmoil and the collapse of Long
Term Capital Management, a large U.S. hedge fund, we saw a widening of
credit spreads as investors demanded greater yield compensation for higher-risk
investments. Yet market fundamentals didn't necessarily warrant such caution, as
the economy remained sound and inflation continued to be low. These conditions
created a favorable pricing environment and wider yield spreads for senior
loans. For example, loans that ordinarily might have come to market yielding 175
basis points above LIBOR were coming to market at LIBOR plus 350 basis points.
We were able to obtain some very attractive securities under these
circumstances.
Q WHAT AREAS OF THE MARKET OFFERED THE BEST OPPORTUNITIES?
A We found ample opportunities from a broad range of industries.
Telecommunications--including cellular, satellite, wireless, and personal
communications systems--was the largest industry weighting in the
portfolio. This area has seen a high level of consolidation recently, for which
senior loans have helped provide the financing. The portfolio is composed of
loans from a variety of industries, with greater concentration in health care;
printing and publishing; and chemicals, plastics, and rubber. We favored health
care for its noncyclical nature, as the earnings of companies from this area
traditionally haven't been closely tied to the health of the overall economy.
Q CAN YOU TALK ABOUT SOME OF YOUR LARGEST HOLDINGS?
A Most of the borrowers represented in the portfolio provide basic goods and
services to the domestic economy. Currently, we hold about 140 issues from
more than 35 industry sectors. Some of our largest holdings include:
- - Lyondell Petrochemicals-- This preeminent global chemical company recently
acquired ARCO Chemical, and we invested in senior loans that helped finance
the acquisition.
- - BCP SP--Based in Sao Paulo, this wireless communications company was created
through a joint venture between American-owned BellSouth and Safra, a
Brazilian firm. The portfolio owns senior loans that provided financing for
this deal.
5
<PAGE> 7
- - Starwood Hotels and Resorts, Inc.--A hotel operating and management company,
Starwood boasts more Conde Nast Traveler Gold List winners than any other
hotel company in the world.
- - Omnipoint Communications--Omnipoint develops, manufactures, and markets
wireless communications products and services, and they continue to expand
roaming capabilities throughout the world.
- - Bridge Information Systems--We invested in senior loans that provided the
financing for Bridge, a global market data company, to purchase several Dow
Jones news retrieval and information services.
- - Ispat Inland--This Dutch manufacturer of steel products supplies the
automotive, appliance, electrical, and construction industries through
worldwide operations.
- - Outdoor Systems--This out-of-home media company operates bulletin, poster,
mall, and transit advertising displays in the United States and Canada.
Our holdings represent companies that we believe can perform well in the
long run and make their loan payments on schedule. If you turn to the complete
listing of the Trust's investments on page 10, you'll probably see some familiar
companies whose products or services you use every day. Senior loans often
provide integral financing for the growth and development of these firms. Keep
in mind that not every loan in the portfolio will produce positive results, and
all of the loans are subject to credit risk.
Q CAN THE TRUST INVEST IN SENIOR LOANS THAT ARE USED TO FINANCE CONSTRUCTION
OR REAL ESTATE DEVELOPMENT PROJECTS?
A Yes. The Board of Trustees of the Trust recently authorized these
investments, provided they are consistent with the Trust's overall
investment objectives and policies, as described in the Trust's
prospectus.
Q HOW DOES THE TRUST'S COMPOSITION COMPARE TO OTHER CLOSED-END CORPORATE
DEBT FUNDS IN THE MARKETPLACE?
A Some of our peers invest a portion of their assets in high-yield
bonds--so-called "junk" bonds--to boost their dividend income. We don't
believe it is necessary to invest in junk bonds in order to produce a
competitive dividend and, accordingly, the Trust's portfolio does not currently
include junk bonds.
One of our strategies for maintaining a high level of current income is to
borrow money at low institutional rates and then reinvest the proceeds in
higher-yielding senior loans. We believe this strategy--known as
leveraging--enables the Trust to maintain a higher yield than similar products
that do not use this investment technique.
The risks associated with leveraging include greater volatility of the net
asset value and the market value of the Trust's shares. Also, the interest rates
on the Trust's borrowings may affect the yield to shareholders. In a declining
market, the effect of leverage would result in a greater decrease in the Trust's
net asset value than if the Trust were not leveraged. This decrease would
probably be accompanied by a decline in market price of the common shares.
6
<PAGE> 8
Q HOW DID THE TRUST PERFORM DURING THE REPORTING PERIOD?
A During the reporting period, the Trust's market price has traded between
$8.9375 and $10.2500 per share, closing the reporting period at $9.25 per
share. The Trust's dividend of $0.061 per share as of January 31, 1999,
represents an annualized distribution rate of 7.91 percent(3), based on the
closing market price. Although the Trust is currently trading at a discount to
its net asset value, we believe that the fundamentals for this asset class are
sound and that the Trust's portfolio is well positioned for market conditions.
For additional portfolio highlights, please refer to page 9.
Q HOW DID CHANGING INTEREST RATES AFFECT THE TRUST?
A Our senior loans have the ability to adjust their interest payments over
time in conjunction with changes in interest rates--generally, interest
rates on these loans reset every 30 to 90 days. As a result, the income
generated by the Trust usually reflects the prevailing trend in short-term
interest rates. During the reporting period, many of the Trust's holdings
adjusted their interest rates to reflect the downward trend in short-term rates
and the reductions by the Fed. We lowered the Trust's dividend accordingly.
Despite the falling interest rate environment, the Trust's NAV has remained
relatively consistent--between $9.99 and $10.10 per share during the reporting
period. (Editor's Note: The Board of Trustees approved an increase in the
Trust's monthly dividend, effective March 11, reflecting the fact that the
Trust's earnings have been slightly higher in recent months.)
Q WHAT IS YOUR OUTLOOK FOR THE SENIOR LOAN MARKET AND FOR THE TRUST?
A Most of our loans have tended to be repaid by their issuers in 18 to 24
months, so we are constantly seeking to replenish the portfolio. As such,
strong deal flows in the senior loan market should be a benefit to
shareholders, as we expect plenty of attractive securities to choose from. In
addition, we believe the U.S. banking industry currently may be the strongest in
the world, lending support to the senior loan market.
Going forward, it is inevitable that the senior loan market will encounter
some rough spots. But we are confident that our loans have certain
characteristics--such as their status as senior corporate debt--that can make
them an ideal addition to the more aggressive components of an investor's
portfolio. In addition, our portfolio management team has successfully navigated
senior loan portfolios through a variety of economic conditions, and we believe
we are prepared to handle whatever challenges the economy presents.
[SIG]
Jeffrey W. Maillet
Portfolio Manager
Please see footnotes on page 3
7
<PAGE> 9
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
trademarks, accounts receivable or inventory, buildings, real estate,
franchises, and common and preferred stock in subsidiaries and affiliates. Under
certain circumstances, collateral might not be entirely sufficient to satisfy
the borrower's obligations in the event of nonpayment of scheduled interest or
principal, and in some instances may be difficult to liquidate on a timely
basis.
Additionally, a decline in the value of the collateral could cause the loan
to become substantially 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.
SPECIAL CONSIDERATIONS
Under normal market conditions, the Trust may invest up to 20 percent of its
assets in senior loans that are not secured by any specific collateral. In
addition, the Trust may invest in senior loans made to non-U.S. borrowers,
although these loans must be U.S.-dollar denominated.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN SENIOR INCOME TRUST
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN
INTERESTS
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1999
<S> <C>
Finance....................................... 10.9%
Telecommunications--Cellular.................. 9.1%
Telecommunications--PCS....................... 8.7%
Health Care................................... 8.2%
Printing & Publishing......................... 8.2%
</TABLE>
TOP FIVE HOLDINGS AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN INTERESTS
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1999
<S> <C>
American Cellular Wireless, Inc. .............. 4.02%
Lyondell Petrochemicals........................ 4.02%
Outdoor Systems, Inc. ......................... 3.79%
BCP SP Ltd. ................................... 3.71%
Starwood Hotel and Resorts, Inc. .............. 3.42%
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR
LOAN INTERESTS AEROSPACE
& DEFENSE 0.7%
$ 8,241 K & F Industries, Inc.,
Term Loan.................. Ba3 B+ 10/15/05 $ 8,242,376
3,240 Whittaker Corp., Term
Loan....................... NR NR 05/31/03 3,239,897
1,258 Whittaker Corp., Revolving
Credit..................... NR NR 05/31/01 1,258,092
--------------
12,740,365
--------------
AUTOMOTIVE 3.1%
24,000 American Axel and
Manufacturing Co., Term
Loan....................... B1 B+ 04/30/06 24,005,695
19,250 Breed Technologies, Inc.,
Term Loan.................. B1 BB 04/27/06 19,250,948
6,000 Federal Mogul Corp., Term
Loan....................... Ba2 B+ 12/31/05 6,004,405
7,500 Insilco Corp., Term Loan... Ba3 B+ 11/24/05 7,499,807
--------------
56,760,855
--------------
BEVERAGE, FOOD, & TOBACCO 3.3%
39,980 Agrilink Foods, Inc., Term
Loan....................... B1 BB- 09/30/04 to 09/30/05 39,991,054
8,272 Imperial Holly Corp., Term
Loan....................... Ba3 BB- 03/13/05 8,276,348
7,318 Mistic Brands, Inc., Term
Loan....................... NR NR 06/01/04 to 06/01/05 7,318,724
5,238 Southern Foods Group, Inc.,
Term Loan.................. Ba3 BB- 02/28/06 5,239,770
--------------
60,825,896
--------------
BROADCASTING -- CABLE 2.8%
17,500 Falcon Holdings Group, LP,
Term Loan.................. Ba3 BB- 12/31/07 17,502,170
5,000 Frontiervision Operating
Partners, L.P., Term
Loan....................... Ba3 BB 03/31/06 5,001,087
4,105 Marcus Cable Operating Co.,
LP, Term Loan.............. Ba3 B- 12/31/02 to 04/30/04 4,105,659
941 Marcus Cable Operating Co.,
LP, Revolving Credit....... Ba3 B- 12/31/02 940,995
3,495 Rifkin Acquisition
Partners, LP, Term Loan.... B1 NR 03/21/03 3,496,155
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BROADCASTING -- CABLE
(CONTINUED)
$ 18,355 Triax Midwest Associates,
Term Loan.................. NR NR 06/30/06 to 06/30/07 $ 18,355,124
997 Triax Midwest Associates,
Revolving Credit........... NR NR 06/30/06 996,741
--------------
50,397,931
--------------
BROADCASTING -- DIVERSIFIED 1.1%
20,000 Emmis Communications Corp.,
Term Loan.................. Ba3 BB+ 02/28/07 20,005,892
--------------
BROADCASTING -- RADIO 0.7%
11,250 Capstar Radio Broadcasting
Partners, Inc., Term
Loan....................... NR NR 11/30/04 11,251,229
1,725 Capstar Radio Broadcasting
Partners, Inc., Revolving
Credit..................... NR NR 11/30/04 1,725,125
--------------
12,976,354
--------------
BROADCASTING -- TELEVISION 1.7%
30,000 Sinclair Broadcast Group,
Inc., Term Loan............ Ba2 BB- 09/15/05 30,005,697
--------------
CHEMICALS, PLASTICS & RUBBER 8.6%
8,955 General Chemical Group,
Inc., Term Loan............ NR BB+ 06/15/06 8,955,000
8,349 High Performance Plastics,
Inc., Term Loan............ NR NR 09/30/03 to 03/31/05 8,352,099
1,129 High Performance Plastics,
Inc., Revolving Credit..... NR NR 09/30/03 1,129,149
6,675 Huntsman Group Holdings,
Term Loan.................. Ba2 BB 09/30/03 6,679,079
99,822 Lyondell Petrochemicals,
Term Loan.................. Ba2 BBB- 06/30/99 to
06/30/05 99,871,760
17,337 Pioneer Americas
Acquisition Corp., Term
Loan....................... B2 B+ 12/31/06 17,331,136
5,183 Sterling Chemicals, Inc.,
Term Loan.................. Ba3 NR 09/30/04 5,183,635
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CHEMICALS, PLASTICS
& RUBBER (CONTINUED)
$ 3,980 Sterling Pulp Chemicals,
Inc., Term Loan............ NR NR 06/30/05 $ 3,980,497
4,577 West American Rubber Co.,
Term Loan.................. NR NR 06/30/05 4,577,029
--------------
156,059,384
--------------
CONSTRUCTION MATERIALS 1.4%
24,773 BSI Holdings, Inc., Term
Loan....................... NR NR 09/30/05 24,773,304
--------------
CONTAINERS, PACKAGING AND
GLASS 0.4%
5,000 Packaging Dynamics, LLC,
Term Loan.................. NR NR 11/20/05 5,001,795
3,050 RIC Holdings, Inc.,
Revolving Credit........... B1 B 02/28/03 3,050,042
--------------
8,051,837
--------------
DIVERSIFIED MANUFACTURING 1.1%
8,885 International Wire Group,
Term Loan.................. B1 NR 09/30/03 8,884,958
10,821 Intesys Technologies, Inc.,
Term Loan.................. NR NR 06/30/04 to 06/30/06 10,823,292
443 Intesys Technologies, Inc.,
Revolving Credit........... NR NR 06/30/04 442,688
--------------
20,150,938
--------------
EDUCATION & CHILDCARE 0.2%
3,456 TEC Worldwide, Inc., Term
Loan....................... NR NR 02/28/05 3,457,001
--------------
ELECTRONICS & ELECTRONIC
SERVICES 5.0%
23,251 Amphenol Corp., Term
Loan....................... Ba3 B+ 05/19/04 to 05/19/06 23,252,175
6,476 Automata, Inc., Term
Loan....................... NR NR 02/28/03 to 02/28/04 6,479,476
4,875 Caribiner International,
Inc., Term Loan............ NR NR 09/30/03 4,875,786
25,730 Chatham Technologies
Acquisition, Inc., Term
Loan....................... NR NR 08/18/03 to 09/12/05 25,729,537
9,990 Sterling Diagnostic, Term
Loan....................... NR NR 09/30/05 9,993,560
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ELECTRONICS & ELECTRONIC
SERVICES (CONTINUED)
$ 14,657 ViaSystems, Inc., Term
Loan....................... B2 B+ 03/31/04 to 06/30/05 $ 14,660,815
5,983 Westco Distribution, Inc.,
Term Loan.................. Ba2 BB 03/31/06 5,986,215
--------------
90,977,564
--------------
FINANCE 15.0%
41,578 Bridge Information Systems,
Inc., Term Loan............ NR NR 06/30/03 to 05/31/05 41,608,492
7,822 Bridge Information Systems,
Inc., Revolving Credit..... NR NR 05/31/03 7,824,386
6,969 Outsourcing Solutions, Inc.
Term Loan.................. B2 NR 10/15/04 6,970,754
67,450 Patriot American
Hospitality, Inc., Term
Loan....................... NR NR 03/31/99 to 03/31/03 67,483,956
25,000 Paul G. Allen, Term Loan... NR NR 06/10/03 25,000,304
85,000 Starwood Hotels and
Resorts, Inc., Term Loan... Ba1 NR 02/23/03 84,986,090
38,056 Ventas Realty Limited,
Inc., Term Loan............ NR NR 10/30/99 to 04/30/03 38,046,224
--------------
271,920,206
--------------
GROCERY 1.1%
4,979 Eagle Family Foods, Term
Loan....................... B1 B+ 12/31/05 4,981,223
14,654 Fred Meyer, Inc., Term
Loan....................... Ba2 BB+ 02/28/03 14,654,299
--------------
19,635,522
--------------
HEALTHCARE 11.3%
2,505 Extendicare Health
Services, Inc., Term
Loan....................... Ba3 B+ 12/31/03 2,505,474
14,662 FHC Health Systems, Inc.,
Term Loan.................. NR NR 04/30/03 to 04/30/06 14,663,348
11,218 Genesis Healthcare
Ventures, Inc., Term
Loan....................... Ba3 B+ 09/30/03 to 06/01/05 11,147,796
2,916 Genesis Healthcare
Ventures, Inc., Revolving
Credit..................... Ba3 B+ 09/30/03 3,066,542
44,550 Integrated Health Services,
Inc., Term Loan............ Ba3 B+ 09/30/04 44,560,400
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$ 21,875 Meditrust, Term Loan....... NR NR 07/15/99 $ 21,875,739
41,962 MedPartners, Inc., Term
Loan....................... B1 BB- 05/31/01 41,975,709
7,546 Multicare Companies, Inc.,
Term Loan.................. B1 B+ 09/30/03 to 06/01/05 7,469,099
1,189 Multicare Companies, Inc.,
Revolving Credit........... B1 B+ 09/30/04 1,189,246
3,000 Oxford Health Plans, Inc.,
Term Loan.................. B3 B- 05/15/03 3,000,626
1,975 SMT Health Services, Inc.,
Term Loan.................. NR NR 08/31/03 1,974,998
3,169 Sun Healthcare Group, Inc.,
Term Loan.................. Ba3 B 11/12/03 3,170,798
12,827 Sun Healthcare Group, Inc.,
Revolving Credit........... Ba3 B 11/12/03 12,827,214
11,385 Total Renal Care Holdings,
Inc., Term Loan............ Ba2 NR 03/31/08 11,388,354
23,908 Vencor, Inc., Term Loan.... B1 B- 03/31/03 to 01/15/05 23,911,993
--------------
204,727,336
--------------
HOME & OFFICE FURNISHINGS,
HOUSEWARES & DURABLE
CONSUMER PRODUCTS 1.4%
5,000 Corning Consumer Products,
Inc., Term Loan............ B1 BB- 10/09/06 5,000,000
618 Corning Consumer Products,
Inc., Revolving Credit..... B1 BB- 04/09/05 618,194
7,455 Dal-Tile Group, Inc., Term
Loan....................... NR NR 12/31/03 7,459,526
5,000 Imperial Home Decor Group,
Inc., Term Loan............ B1 B+ 03/13/05 5,002,127
4,006 Intercontinental Art, Term
Loan....................... NR NR 12/31/02 4,009,618
4,008 Renters Choice, Inc., Term
Loan....................... Ba3 BB- 01/31/06 to 01/31/07 4,008,310
--------------
26,097,775
--------------
HOTELS, MOTELS, INNS
& GAMING 3.0%
25,550 Alladin Gaming, LLC, Term
Loan....................... B2 NR 02/26/06 to 02/26/08 25,560,516
28,800 Allegro Resorts Corp., Term
Loan....................... NR NR 02/11/03 28,814,786
--------------
54,375,302
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LEISURE & ENTERTAINMENT 5.5%
$ 4,586 Hedstrom Corp., Term
Loan....................... B1 B+ 06/30/03 $ 4,588,233
30,000 Metro-Goldwyn-Mayer, Term
Loan....................... NR NR 03/31/05 to 03/31/06 30,008,895
2,553 Regal Cinemas, Term Loan... Ba3 BB- 05/27/05 2,553,892
14,900 SFX Entertainment, Inc.,
Term Loan.................. B1 B+ 03/31/06 14,960,620
47,760 United Artists Theatre Co.,
Term Loan.................. B1 B+ 04/21/06 to 04/21/07 47,790,797
--------------
99,902,437
--------------
MACHINERY 1.8%
4,963 Coinmatch Corp., Term
Loan....................... NR BB 06/30/05 4,963,320
15,000 Ocean Rig (Norway), Term
Loan....................... NR NR 06/01/08 15,004,423
4,975 Thermadyne, LLC, Term
Loan....................... B1 B 05/28/05 to 05/28/06 4,977,680
7,425 Universal Compression,
Inc., Term Loan............ Ba3 B+ 02/13/04 7,425,463
--------------
32,370,886
--------------
MINING, STEEL, IRON, & NON-PRECIOUS METALS 5.9%
3,443 Alliance Coal Corp., Term
Loan....................... NR NR 12/31/01 3,442,112
9,950 Earle M Jorgenson, Term
Loan....................... B1 B+ 03/31/04 9,949,875
84,575 Ispat Inland, Term Loan.... Ba3 BB 07/16/05 to 07/16/06 84,575,000
9,231 P&L Coal Holdings Corp.,
Term Loan.................. Ba2 NR 06/30/06 9,232,285
--------------
107,199,272
--------------
NATURAL RESOURCES -- COAL 1.4%
25,000 Arch Western Resources,
LLC, Term Loan............. Ba1 BB+ 05/31/03 25,004,035
--------------
PAPER & FOREST PRODUCTS 2.1%
5,910 Crown Paper Co., Term
Loan....................... Ba3 BB 06/30/03 5,914,439
14,925 Le Group Forex, Inc., Term
Loan....................... NR BB 06/30/05 14,932,771
17,156 Pacifica Papers, Inc., Term
Loan....................... NR NR 06/17/01 17,156,300
--------------
38,003,510
--------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERSONAL & MISCELLANEOUS SERVICES 1.7%
$ 7,443 Arena Brands, Inc., Term
Loan....................... NR NR 06/01/02 $ 7,443,045
18,647 Boyds Collection Ltd., Term
Loan....................... Ba3 B+ 04/21/05 18,650,433
5,625 Professional Service
Industries, Inc., Term
Loan....................... NR NR 09/16/02 5,628,243
--------------
31,721,721
--------------
PHARMACEUTICALS 0.8%
4,147 Endo Pharmaceuticals, Inc.,
Term Loan.................. NR NR 12/31/02 4,149,687
10,945 Roberts Pharmaceutical
Corp., Term Loan........... B1 NR 06/30/03 10,954,777
--------------
15,104,464
--------------
PRINTING & PUBLISHING 11.3%
9,900 Bear Island Paper Co., Term
Loan....................... Ba3 B+ 12/31/05 9,902,687
94,080 Outdoor Systems, Inc., Term
Loan....................... Ba2 BB- 06/30/04 94,081,336
10,000 Penton Media, Inc., Term
Loan....................... Ba3 BB- 05/31/06 10,000,000
10,000 Reiman Publications, Term
Loan....................... NR NR 12/10/05 10,000,479
11,940 R.H. Donnelley, Inc., Term
Loan....................... NR BB 09/30/05 to 09/30/06 11,941,245
2,096 TransWestern Publishing
L.P., Term Loan............ Ba3 B+ 10/01/04 2,096,682
14,091 Von Hoffman Press, Inc.,
Term Loan.................. B1 B+ 07/01/04 to 07/01/05 14,098,838
52,500 Ziff-Davis, Inc., Term
Loan....................... Ba2 BB- 03/31/05 to 03/31/06 52,510,221
--------------
204,631,488
--------------
RESTAURANTS & FOOD SERVICE 3.6%
1,384 Carvel Corp., Term Loan.... NR NR 06/30/00 1,383,883
25,000 Domino's Pizza, Term
Loan....................... B1 B+ 12/21/06 to 12/21/07 25,011,734
8,412 IDF Acquisition, Term
Loan....................... NR NR 01/31/04 to 01/31/06 8,412,294
30,347 SC International Services,
Term Loan.................. Ba3 B 03/01/07 30,353,303
--------------
65,161,214
--------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RETAIL -- OFFICE PRODUCTS 3.4%
$ 15,880 Corporate Express, Inc.,
Term Loan.................. Ba3 BB- 04/25/05 $ 15,880,000
44,978 U.S. Office Products, Inc.,
Term Loan.................. B2 B- 06/09/06 44,979,145
--------------
60,859,145
--------------
RETAIL -- STORES 1.8%
32,737 HMV Media Group, Inc., Term
Loan....................... B1 BB- 03/28/05 to 03/28/06 32,747,362
--------------
TELECOMMUNICATIONS -- CELLULAR 12.4%
100,000 American Cellular Wireless,
Inc., Term Loan............ B2 NR 06/30/07 99,939,376
91,840 BCP SP Ltd., Term Loan..... NR NR 03/31/00 92,164,383
33,315 Cellular, Inc., Financial
Corp. (CommNet), Term
Loan....................... B1 B 09/18/05 to 09/30/07 33,300,747
857 Cellular, Inc., Financial
Corp. (CommNet), Revolving
Credit..................... B1 B 09/18/05 857,338
--------------
226,261,844
--------------
TELECOMMUNICATIONS -- HYBRID 2.6%
7,447 Atlantic Crossing, Term
Loan....................... NR NR 11/30/02 7,445,777
9,893 Dynatech Corp., Term
Loan....................... NR B+ 05/31/05 to 03/31/07 9,898,539
20,000 Nextel Finance Co., Term
Loan....................... Ba3 B- 09/30/06 20,000,958
10,000 Pacific Crossing Ltd., Term
Loan....................... NR NR 07/28/06 10,000,000
--------------
47,345,274
--------------
TELECOMMUNICATIONS
-- PERSONAL COMMUNICATION
SYSTEMS 11.9%
16,000 Cox Communications, Inc.,
Term Loan.................. Baa2 NR 08/31/06 to 01/31/07 16,001,060
1,800 Cox Communications, Inc.,
Revolving Credit........... Baa2 NR 08/31/06 1,800,366
11,712 Microcell
Telecommunications, Inc.,
Term Loan.................. NR NR 03/01/06 11,728,354
62,686 Omnipoint Communications
Corp., Term Loan........... B2 B 02/17/06 62,700,423
6,000 Powertel PCS, Inc., Term
Loan....................... NR NR 12/31/06 6,003,403
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS --
PERSONAL COMMUNICATION
SYSTEMS (CONTINUED)
$ 50,000 Telecorp PCS, Inc., Term
Loan....................... NR NR 12/05/07 $ 50,020,944
22,700 Triton PCS, Inc. Term
Loan....................... B1 B 05/04/07 22,707,703
45,000 Western PCS Corp., Term
Loan....................... NR NR 12/31/06 45,002,587
--------------
215,964,840
--------------
TELECOMMUNICATIONS
-- WIRELESS MESSAGING 1.9%
5,000 Iridium Operating LLC, Term
Loan....................... NR B 12/29/00 4,874,332
6,349 MobilMedia Communications,
Inc., Term Loan............ Caa3 D 06/30/02 6,348,563
1,025 MobilMedia Communications,
Inc., Revolving Credit..... Caa3 D 06/30/02 1,025,081
11,480 Paging Network, Revolving
Credit..................... Ba2 BB 12/31/04 11,482,428
11,000 TSR Wireless, Inc., Term
Loan....................... NR NR 06/30/05 10,996,790
--------------
34,727,194
--------------
TEXTILES & LEATHER 2.2%
8,932 American Marketing
Industries, Inc., Term
Loan....................... NR NR 11/30/04 to 11/30/05 8,934,447
9,569 Galey & Lord, Inc., Term
Loan....................... B1 BB- 04/02/05 to 04/01/06 9,577,027
13,965 Norcross Safety Products,
LLC, Term Loan............. NR NR 10/02/05 13,965,000
7,938 Pillowtex Corp., Term
Loan....................... Ba2 BB 12/31/04 7,941,970
--------------
40,418,444
--------------
TRANSPORTATION -- CARGO 1.1%
19,954 American Commercial Lines,
Term Loan.................. Ba2 BB 06/26/06 to 06/26/07 19,961,606
--------------
TRANSPORTATION
-- RAIL MANUFACTURING 0.2%
3,587 Johnstown America
Industries, Inc., Term
Loan....................... B1 BB- 03/31/03 3,587,522
--------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Bank Loan Rating+ Stated
(000) Borrower Moody's S&P's Maturity* Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES 3.3%
$ 60,250 LIR Energy Limited, Term
Loan....................... NR BB 04/21/99 $ 60,250,212
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 136.8%................. 2,485,161,629
--------------
FIXED INCOME SECURITIES 1.7%
Satelites Mexicanos ($29,970,000 par, 9.06% coupon, maturing
06/30/04)......................................................... 30,007,463
--------------
TOTAL LONG-TERM INVESTMENTS 138.5%
(Cost $2,511,021,486)............................................... 2,515,169,092
--------------
SHORT-TERM INVESTMENTS 3.6%
COMMERCIAL PAPER 1.9%
Ashland Oil Corp. ($8,350,000 par, maturing 02/01/99,
yielding 4.90%)..................................................... 8,350,000
Cox Communications Corp. ($1,000,000 par, maturing 02/08/99,
yielding 5.00%)..................................................... 999,028
McKesson Corp. ($7,500,000 par, maturing 02/02/99, yielding
5.00%).............................................................. 7,498,958
Rite Aid Corp. ($5,000,000 par, maturing 02/23/99, yielding
5.00%).............................................................. 4,984,722
Texas Utilities Co. ($13,689,000 par, maturing 02/04/99 to 02/25/99,
yielding 4.93% to 5.02%)............................................ 13,676,287
--------------
TOTAL COMMERCIAL PAPER.............................................. 35,508,995
--------------
SHORT-TERM LOAN PARTICIPATIONS 1.7%
Anadarko Petroleum and Gas Corp. ($3,250,000 par, maturing 02/08/99,
yielding 4.94%)..................................................... 3,250,000
Centex Corp. ($3,800,000 par, maturing 02/25/99, yielding 5.03%).... 3,800,000
Enron Oil and Gas Corp. ($10,000,000 par, maturing 02/01/99 to
02/02/99, yielding 4.96%)........................................... 10,000,000
Ralston Purina Corp. ($8,750,000 par, maturing 02/01/99, yielding
4.95%).............................................................. 8,750,000
Xtra Corp. ($4,850,000 par, maturing 02/16/99, yielding 5.06%)...... 4,850,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS................................ 30,650,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $66,158,995).................................................. 66,158,995
--------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- --------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS 142.1%
(Cost $2,577,180,481)........................................... $2,581,328,087
LIABILITIES IN EXCESS OF OTHER ASSETS 42.1%.................... (765,105,809)
--------------
NET ASSETS 100.0%.............................................. $1,816,222,278
==============
</TABLE>
NR = Not Rated
+ Bank loans rated below Baa by Moody's Investor Services, 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 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
20
<PAGE> 22
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,577,180,481)..................... $2,581,328,087
Receivables:
Interest.................................................. 28,542,775
Investments Sold.......................................... 19,111,341
Unamortized Organizational Costs............................ 35,178
Other....................................................... 1,566,218
--------------
Total Assets............................................ 2,630,583,599
--------------
LIABILITIES:
Payables:
Bank Borrowings........................................... 800,000,000
Custodian Bank............................................ 9,431,798
Investment Advisory Fee................................... 1,886,738
Administrative Fee........................................ 443,938
Income Distributions...................................... 103,129
Affiliates................................................ 89,413
Organizational Costs...................................... 40,000
Accrued Expenses............................................ 2,336,200
Trustees' Deferred Compensation and Retirement Plans........ 30,105
--------------
Total Liabilities....................................... 814,361,321
--------------
NET ASSETS.................................................. $1,816,222,278
==============
NET ASSETS CONSIST OF:
Common Shares ($.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............. 14,234,616
Net Unrealized Appreciation................................. 4,147,606
Accumulated Net Realized Gain............................... 20,056
--------------
NET ASSETS.................................................. $1,816,222,278
==============
NET ASSET VALUE PER COMMON SHARE
($1,816,222,278 divided by 180,010,000 shares
outstanding)............................................ $ 10.09
==============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
STATEMENT OF OPERATIONS
For the Six Months Ended January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $103,646,942
Fees........................................................ 1,529,612
------------
Total Income.......................................... 105,176,554
------------
EXPENSES:
Investment Advisory Fee..................................... 10,780,247
Administrative Fee.......................................... 2,536,529
Legal....................................................... 199,272
Custody..................................................... 128,114
Shareholder Services........................................ 56,149
Trustees' Fees and Expenses................................. 45,948
Amortization of Organizational Costs........................ 4,033
Other....................................................... 679,095
------------
Total Operating Expenses................................ 14,429,387
Interest Expense........................................ 21,279,228
------------
Total Expenses.......................................... 35,708,615
------------
NET INVESTMENT INCOME....................................... $ 69,467,939
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 240,718
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,373,440
End of the Period......................................... 4,147,606
------------
Net Unrealized Appreciation During the Period............... 2,774,166
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 3,014,884
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 72,482,823
============
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended January 31, 1999 and the Period June 24, 1998
(Commencement of Investment Operations) to July 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Period Ended
January 31, 1999 July 31, 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income......................... $ 69,467,939 $ 12,810,456
Net Realized Gain............................. 240,718 139,358
Net Unrealized Appreciation During the
Period...................................... 2,774,166 1,373,440
---------------- --------------
Change in Net Assets from Operations.......... 72,482,823 14,323,254
---------------- --------------
Distributions from Net Investment Income...... 68,043,779 -0-
Distributions from Net Realized Gain.......... 360,020 -0-
---------------- --------------
Total Distributions........................... 68,403,799 -0-
---------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................. 4,079,024 -0-
---------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold..................... -0- 1,797,720,000
---------------- --------------
TOTAL INCREASE IN NET ASSETS.................. 4,079,024 1,812,043,254
NET ASSETS:
Beginning of the Period....................... 1,812,143,254 100,000
---------------- --------------
End of the Period (Including undistributed net
investment income of $14,234,616 and
$12,810,456, respectively).................. $ 1,816,222,278 $1,812,143,254
================ ==============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
STATEMENT OF CASH FLOWS
For the Six Months Ended January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 72,482,823
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (380,221,379)
Increase in Interest Receivable........................... (16,964,708)
Increase in Receivable for Investments Sold............... (18,605,523)
Decrease in Unamortized Organizational Costs.............. 4,032
Increase in Other Assets.................................. (432,940)
Increase in Bank Borrowings............................... 400,000,000
Increase in Investment Advisory Fees...................... 582,982
Increase in Administrative Fees........................... 120,733
Decrease in Affiliates Payable............................ (408)
Decrease in Accrued Expenses.............................. (561,801)
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 25,179
-------------
Total Adjustments....................................... (16,053,833)
-------------
NET CASH USED FOR OPERATING ACTIVITIES...................... 56,428,990
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Intra-day Credit Line with Custodian Bank....... 9,431,798
Cash Dividends Paid......................................... (67,940,650)
Capital Gains Distribution Paid............................. (360,020)
-------------
Net Cash Provided by Financing Activities................. (58,868,872)
-------------
NET DECREASE IN CASH........................................ (2,439,882)
Cash at Beginning of the Period............................. 2,439,882
-------------
CASH AT THE END OF THE PERIOD............................... $ -0-
=============
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 24, 1998
Six Months (Commencement
Ended of Investment
January 31, Operations) to
1999 July 31, 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period (a).......... $ 10.067 $ 9.987
----------- --------
Net Investment Income............................... .386 .071
Net Realized and Unrealized Gain.................... .017 .009
----------- --------
Total from Investment Operations...................... .403 .080
----------- --------
Less:
Distributions from Net Investment Income............ .378 -0-
Distributions from Net Realized Gains............... .002 -0-
----------- --------
Total Distributions................................... .380 -0-
----------- --------
Net Asset Value, End of the Period.................... $ 10.090 $ 10.067
=========== ========
Market Price Per Share at End of the Period........... $ 9.25 $10.0625
Total Investment Return at Market Price (b)........... (4.32%)** 0.63%**
Total Return at Net Asset Value (c)................... 4.04%** 0.70%**
Net Assets at End of the Period (In millions)......... $ 1,816.2 $1,812.1
Ratio of Operating Expenses to Average Net Assets*.... 1.58% 1.18%
Ratio of Interest Expenses to Average Net Assets...... 2.33% 0.28%
Ratio of Net Investment Income to Average Net
Assets*............................................. 7.60% 6.94%
Portfolio Turnover.................................... 12%** 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..... N/A 1.21%
Ratio of Net Investment Income to Average Net
Assets.............................................. N/A 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.
See Notes to Financial Statements
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Senior Income Trust (the "Trust"), is registered as a non-diversified
closed-end management investment company under the Investment Company Act of
1940, as amended. The Trust's investment objective is to provide a high level of
current income, consistent with preservation of capital. The Trust seeks to
achieve its objective by investing primarily in a portfolio of interests in
floating or variable rate senior loans to corporations, partnerships and other
entities which operate in a variety of industries and 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 $2,485,161,629 (136.8% 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
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
from the value that would have been used had there been market activity for that
Variable 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 January 31, 1999, for federal income tax purposes cost of long- and
short-term investments is $2,577,180,784, the aggregate gross unrealized
appreciation is $6,533,525 and the aggregate gross unrealized depreciation is
$2,386,222 resulting in net unrealized appreciation of $4,147,303.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
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 six months ended January 31, 1999, the Trust recognized expenses of
approximately $170,800 representing legal services provided by Skadden, Arps,
Slate, Meagher, & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the six months ended January 31, 1999, the Trust recognized expenses of
approximately $28,000 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 Trust. The maximum
annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $694,636,643 and $284,775,731,
respectively.
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
4. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $48,297,869 as of
January 31, 1999. The Trust generally will maintain with its custodian
short-term investments and/or cash having an aggregate value at least equal to
the amount of unfunded loan commitments.
5. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States and foreign corporations, partnerships, and other entities. When
the Trust purchases a participation of a Senior Loan interest, the Trust
typically enters into a contractual agreement with the lender or other third
party selling the participation, but not with the borrower directly. As such,
the Trust assumes the credit risk of the Borrower, Selling Participant or other
persons interpositioned between the Trust and the Borrower.
At January 31, 1999, 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..................................... $14,662 $14,663
Toronto Dominion............................. 13,175 13,176
Goldman Sachs Credit......................... 8,000 8,002
Bankers Trust................................ 4,006 4,010
------- -------
$39,843 $39,851
======= =======
</TABLE>
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. 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 fully drawn and expires on August 24, 1999. Tranche B of the
facility, totaling $400 million, is fully drawn and expires on August 26, 2001.
Interest is charged on both tranches 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.
30
<PAGE> 32
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
31
<PAGE> 33
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
A. THOMAS SMITH, III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer, and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
JEFFREY W. MAILLET*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
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 LLP
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., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
32
<PAGE> 34
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Trust could be adversely affected if the computer systems
used by the Trust's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Trust. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Trust may invest that, in turn, may adversely affect
the net asset value of the Trust. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Trust's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> SENIOR INCOME TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<INVESTMENTS-AT-COST> 2,577,180,481
<INVESTMENTS-AT-VALUE> 2,581,328,087
<RECEIVABLES> 47,654,116
<ASSETS-OTHER> 1,601,396
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,630,583,599
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 800,000,000
<OTHER-ITEMS-LIABILITIES> 14,361,321
<TOTAL-LIABILITIES> 814,361,321
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,797,820,000
<SHARES-COMMON-STOCK> 180,010,000
<SHARES-COMMON-PRIOR> 180,010,000
<ACCUMULATED-NII-CURRENT> 14,234,616
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,056
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,147,606
<NET-ASSETS> 1,816,222,278
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 103,646,942
<OTHER-INCOME> 1,529,612
<EXPENSES-NET> (35,708,615)
<NET-INVESTMENT-INCOME> 69,467,939
<REALIZED-GAINS-CURRENT> 240,718
<APPREC-INCREASE-CURRENT> 2,774,166
<NET-CHANGE-FROM-OPS> 72,482,823
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (68,043,779)
<DISTRIBUTIONS-OF-GAINS> (360,020)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,079,024
<ACCUMULATED-NII-PRIOR> 12,810,456
<ACCUMULATED-GAINS-PRIOR> 139,358
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,780,247
<INTEREST-EXPENSE> 21,279,228
<GROSS-EXPENSE> 35,708,615
<AVERAGE-NET-ASSETS> 1,812,019,137
<PER-SHARE-NAV-BEGIN> 10.067
<PER-SHARE-NII> 0.386
<PER-SHARE-GAIN-APPREC> 0.017
<PER-SHARE-DIVIDEND> (0.378)
<PER-SHARE-DISTRIBUTIONS> (0.002)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.090
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 704,864,855.00
<AVG-DEBT-PER-SHARE> 3.92
</TABLE>
