<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Portfolio Management Review...................... 4
Glossary of Terms................................ 8
A Focus on Senior Loans.......................... 9
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 22
Statement of Operations.......................... 23
Statement of Changes in Net Assets............... 24
Statement of Cash Flows.......................... 25
Financial Highlights............................. 26
Notes to Financial Statements.................... 27
Report of Independent Accountants................ 32
Dividend Reinvestment Plan....................... 33
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
August 19, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long-term, in accordance with your individual financial objectives.
Although the worst of the Asian crisis appears to be behind us, new concerns
are always emerging. In the coming months, we'll likely hear more about how the
year 2000 computer problem may affect the markets or that we're overdue for a
correction. While the markets could undoubtedly suffer as a result of these or
any number of other events, we encourage you to focus on your long-term
investment goals. Although nothing is certain, history has shown us that over
time, the markets tend to recover--and most investors want to be positioned to
take advantage of any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 3
ECONOMIC SNAPSHOT
The economy continued to experience impressive growth during the past 12
months, but finally began to show signs of moderating toward the end of the
reporting period.
ECONOMIC GROWTH
The nation's gross domestic product (GDP), which peaked at 6.0 percent in
the fourth quarter of 1998, fell to more sustainable levels in the first and
second quarters of 1999. The unusually strong GDP early in the reporting period
was fueled by an increase in consumer spending, which was attributed to vibrant
consumer confidence as a result of the strong job market. However, economic
growth leveled off in the second quarter of 1999, as did consumer confidence and
retail spending.
EMPLOYMENT ENVIRONMENT
Throughout the reporting period, unemployment remained low, the number of
jobs grew, and wages rose. The labor market remained especially tight in the
service industry and most urban areas. As a result, the cost of labor as
measured by the Employment Cost Index grew at a surprising rate in July, causing
concerns about the potential for higher inflation in the months ahead.
INFLATION AND INTEREST RATES
Inflation remained low during most of the reporting period, although a sharp
increase in oil prices contributed to a spike in April's consumer price index
report (CPI). Following this up-tick, the Federal Reserve raised interest rates
0.25 percent on June 30, partially reversing a series of rate decreases from the
fall of 1998. (Editor's Note: The Fed increased rates an additional 0.25 percent
on August 24.)
ECONOMIC OUTLOOK
We believe the moderate slowdown in growth may continue, bringing the
economy back to historically normal levels. Strong corporate earnings, low
unemployment, and an active housing market should provide some balance against
slower spending and job growth rates.
INTEREST RATES AND INFLATION
July 31, 1997, through July 31, 1999
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jul 1997 6.0 2.2
5.5 2.2
6.25 2.2
Oct 1997 5.75 2.1
5.6875 1.8
6.5 1.7
Jan 1998 5.5625 1.6
5.625 1.4
6.125 1.4
Apr 1998 5.625 1.4
5.6875 1.7
6.0 1.7
Jul 1998 5.5625 1.7
5.9375 1.6
5.75 1.5
Oct 1998 5.25 1.5
4.875 1.5
4.0 1.6
Jan 1999 4.8125 1.7
4.875 1.6
5.125 1.7
Apr 1999 4.9375 2.3
4.5 2.1
4.0 2.0
Jul 1999 4.75 2.1
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JULY 31, 1999
VAN KAMPEN SENIOR INCOME TRUST
(NYSE TICKER SYMBOL--VVR)
<TABLE>
<S> <C>
TOTAL RETURNS
One-year total return based on Market Price(1)............ 2.98%
One-year total return based on NAV(2)..................... 7.91%
Commencement date......................................... 06/24/98
DISTRIBUTION RATE
Distribution rate as of % of closing common stock
price(3)................................................ 8.16%
SHARE VALUATIONS
Net asset value........................................... $ 10.08
Closing common stock price................................ $ 9.5625
High common stock price (08/12/98)........................ $ 10.2500
Low common stock price (04/20/99)......................... $ 8.8750
</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
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN SENIOR INCOME TRUST
We recently spoke with the portfolio management team of the Van Kampen Senior
Income Trust about the key events and economic forces that shaped the markets
during the past year. On July 23, 1999, Dennis J. McDonnell, president and chief
operating officer of Van Kampen Investment Advisory Corp., assumed day-to-day
management responsibilities for the Trust.
Mr. McDonnell has more than 30 years of asset management experience and was
pivotal in Van Kampen's entry into the senior loan business in 1989. He has had
oversight responsibilities for all senior loan fund operations since the Trust's
inception. The following excerpts reflect his views on the Trust's performance
during the 12 months ended July 31, 1999.
Q CAN YOU DESCRIBE THE CONDITIONS OF THE SENIOR LOAN MARKET DURING THE PAST
YEAR?
A The second half of 1998 saw considerable volatility across the financial
markets, but the senior loan market handled the challenging conditions
quite well. Economic turmoil overseas sparked a credit crunch in the
United States, as banks became more cautious about lending to corporations--many
banks feared that a drop in corporate earnings might hinder the borrowers'
ability to repay their loans. This caution contributed to a slowdown in new
issuance of senior loans. The loans that did come to market carried attractive
yields, as banks required borrowing companies to pay a premium in light of the
uncertain economic environment. In addition, the companies that could afford to
pay these premiums were firms that generally displayed strong fundamentals. This
combination of desirable yields and strong issuers resulted in favorable
opportunities to add to our senior loan portfolio.
The Federal Reserve Board responded to market conditions with a series of
interest-rate cuts in late 1998. The market's absorption of these cuts in early
1999 coincided with a general recovery among global economies, and these factors
helped alleviate the U.S. credit crunch and accelerate new issuance in the
senior loan market. Surprisingly healthy economic growth and a mild surge in
inflation prompted the Fed to raise rates in June, adding more opportunities to
find attractive yields in the senior loan market. However, the corporate debt
market (including bonds and bank loans) has been experiencing some deterioration
over the last several months, resulting in an increase in the default rate.
Q HOW DID CHANGING INTEREST RATES AFFECT THE TRUST'S DIVIDEND?
A Senior loans have the ability to adjust their interest payments over time
in conjunction with changes in interest rates--generally, interest rates
on loans in the Trust's portfolio 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 late 1998, many of the Trust's holdings
adjusted their interest rates to reflect the downward trend in
4
<PAGE> 6
short-term rates and the reductions by the Fed. We lowered the Trust's dividend
accordingly last fall. In 1999, however, interest rates have been on the
upswing, so we were able to raise the Trust's dividend back to its original
level of a year ago.
Q WHAT AREAS OF THE MARKET OFFERED THE BEST OPPORTUNITIES?
A We found many opportunities in the telecommunications arena--including
cellular, wireless, and personal communications systems. This segment
constituted the largest industry weighting in the portfolio.
Telecommunications continues to experience a high level of
merger-and-acquisition activity, for which senior loans have helped provide the
financing. In addition to telecommunications, we had a significant position in
printing/publishing.
Q CAN YOU TALK ABOUT SOME OF YOUR LARGEST HOLDINGS?
A Most of the borrowing companies represented in the portfolio provide basic
goods and services to the domestic economy. Senior loans often provide
integral financing for the growth and development of these firms.
Currently, we hold more than 129 issues from 38 industry sectors. Among our ten
largest holdings are:
- Lyondell Petrochemical--An oil refiner and petrochemical maker, Lyondell
used senior loans to help finance its acquisition of ARCO Chemical in
1998.
- Starwood Hotels and Resorts--This hotel operating company's brand names
include Sheraton, Westin, The Luxury Collection, and St. Regis. In July,
Starwood announced plans to acquire Vistana, a developer and operator of
high-quality vacation ownership resorts.
- Outdoor Systems--This out-of-home media company, which operates bulletin,
poster, mall, and transit advertising displays, will reportedly be
acquired by Infinity Broadcasting.
- Wyndham International--This firm's primary business is to own, lease,
manage, and franchise hotel and resort properties.
- Ziff-Davis--This technology media company publishes computing and
Internet-related magazines, including PC Magazine.
When we purchase senior loans for the Trust's portfolio, we seek companies
that we believe can perform well in the long run and make their loan payments on
schedule. Keep in mind, however, that every loan in the portfolio is subject to
credit risk. A senior loan issuer that finds itself unable to make timely
principal and interest payments is subject to the risk of default or bankruptcy,
which would have a negative effect on the Trust's net asset value. For
additional portfolio highlights, please refer to page 10.
5
<PAGE> 7
Q WHAT OTHER STRATEGIES CONTRIBUTED TO THE TRUST'S PERFORMANCE?
A One of the Trust's strategies for maintaining a high level of current
income has been its use of leverage. This process involves borrowing money
at short-term interest rates and investing the proceeds into longer-term
securities, which typically pay higher interest rates. The difference between
the long-term rates earned by the Trust and the short-term rates paid on the
borrowings is passed along to shareholders in the Trust's dividend. While this
strategy tends to magnify market volatility, it has also allowed the Trust to
increase its current income.
During the reporting period, the Trust refinanced its leverage through a
commercial paper program. This program will enable the Trust to use commercial
paper as a form of leverage instead of traditional bank loans. We believe this
program will allow the Trust to borrow money at lower interest rates than its
previous bank-loan leverage and therefore pass on even more income to its
shareholders.
Q WHAT FACTORS WORKED AGAINST THE TRUST?
A The portfolio had significant exposure to the health-care industry, which
underperformed during the reporting period. This exposure negatively
affected the Trust's performance and earnings. The challenges imposed by
managed care and changing Medicare reimbursement policies caused this area of
the market to struggle, and we believe these challenges will continue to have an
impact on the health-care industry into next year. Despite this turbulence, we
feel confident in the management teams of the borrowing companies in which we've
invested, and we expect them to adapt to the new health-care environment.
Another factor that negatively affected the Trust's performance was
defaults in certain senior loan holdings.
Q HOW DID THE TRUST PERFORM DURING THE REPORTING PERIOD?
A During the reporting period, the Trust's market price has traded between
$8.875 and $10.25 per share, closing the reporting period at $9.5625 per
share. The Trust's dividend of $0.065 per share as of July 31, 1999,
represented an annualized distribution rate of 8.16 percent, 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 current market
conditions.
6
<PAGE> 8
Q WHAT IS YOUR OUTLOOK FOR THE SENIOR LOAN MARKET AND FOR THE TRUST?
A Looking forward, there are several factors in place that suggest a
generally favorable environment for senior loans. Strong new issuance
continues to provide an ample supply of loans, and rising interest rates
have begun to create both increased income potential and increased demand for
senior loan products.
Nevertheless, we are mindful of deteriorating credit conditions, which may
adversely affect senior loan valuations. In light of the recent rise in defaults
and bankruptcy filings by corporate borrowers, we expect some weakening in the
quality of some existing positions in the portfolio, which could lead to greater
fluctuation in the Trust's net asset value than has been our previous
experience. During the reporting period, the Trust's net asset value fluctuated
between $10.03 and $10.12 per share. (Editor's note: As of September 14, 1999,
the Trust's net asset value was $10.00. The current dividend of $.067 was
recorded on the ex-date of September 13, 1999.) We expect to keep the Trust
invested in a broad variety of industries and individual loans, in our effort to
limit the effects of problems with a particular issuer or industry.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
7
<PAGE> 9
GLOSSARY OF TERMS
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a
year to establish monetary policy and monitor the economic pulse of the
United States.
FUNDAMENTALS: Characteristics of a company, such as revenue growth, earnings
growth, financial strength, market share, and quality of management.
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.
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.
8
<PAGE> 10
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. If
they are not fully paid, it potentially could have a negative effect on the
Trust's net asset value. 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 undersecured, and circumstances could arise (such as
bankruptcy of a borrower) that could cause the Trust's security interest in the
loan's collateral to be invalidated. This could potentially have a negative
effect on the Trust's net asset value.
CREDIT QUALITY
Many senior loans carry provisions designed to protect the lender in certain
circumstances. In addition, the variable-rate nature of the portfolio is
expected to lessen the fluctuation in the Trust's net asset value. However, the
net asset value will still be subject to the influence of changes in the real or
perceived credit quality of the loans in which the Trust invests. This may
occur, for example, in the event of a sudden or extreme increase in prevailing
interest rates, a default in a loan in which the Trust holds an interest, or a
substantial deterioration in the borrower's creditworthiness. From time to time,
the Trust's net asset value may be more or less than at the time of the
investment.
SPECIAL CONSIDERATIONS
Under normal market conditions, the Trust may invest up to 20 percent of its
assets in senior loans that are not secured by any specific collateral. In
addition, the Trust may invest in senior loans made to non-U.S. borrowers,
although these loans must be U.S.-dollar denominated.
9
<PAGE> 11
PORTFOLIO HIGHLIGHTS
VAN KAMPEN SENIOR INCOME TRUST
TOP FIVE PORTFOLIO INDUSTRIES AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN
INTERESTS
<TABLE>
<S> <C>
AS OF JULY 31, 1999
Hotels, Motels, Inns, & Gaming................. 9.9%
Telecommunications--Cellular................... 8.9%
Telecommunications--PCS........................ 8.6%
Printing & Publishing.......................... 8.0%
Health Care.................................... 7.3%
</TABLE>
TOP FIVE HOLDINGS AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN INTERESTS
<TABLE>
<S> <C>
AS OF JULY 31, 1999
Starwood Hotels & Resorts Worldwide, Inc....... 4.55%
Lyondell Petrochemical......................... 4.34%
Outdoor Systems, Inc........................... 3.92%
BCP SP Ltd..................................... 3.79%
Ispat Inland................................... 3.48%
</TABLE>
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank
Amount Loan Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE RATE** SENIOR LOAN
INTERESTS 133.3%
AEROSPACE/DEFENSE 0.4%
$ 8,223 Aircraft Braking System,
Term Loan................ NR NR 10/15/05 $ 8,221,962
--------------
AUTOMOTIVE 2.8%
24,000 American Axel and
Manufacturing Co., Term
Loan..................... Ba3 BB- 04/30/06 23,994,978
19,048 Breed Technologies, Inc.,
Term Loan................ Caa1 CCC 04/27/06 19,043,842
7,463 Insilco Corp., Term
Loan..................... Ba3 B+ 11/24/05 7,462,500
--------------
50,501,320
--------------
BEVERAGE, FOOD, & TOBACCO 2.8%
39,940 Agrilink Foods, Inc.,
Term Loan................ B1 BB- 09/30/04 to 09/30/05 39,939,788
6,506 Imperial Holly Corp.,
Term Loan................ Ba3 BB 12/31/05 6,505,833
4,638 Southern Foods Group,
Inc., Term Loan.......... Ba3 BB- 02/28/06 4,639,956
--------------
51,085,577
--------------
BROADCASTING--CABLE 2.5%
17,413 Falcon Communications,
Inc., Term Loan.......... NR BB 12/31/07 17,409,300
5,000 Frontiervision Operating
Partners, LP, Term
Loan..................... Ba3 BB 03/31/06 4,998,907
3,495 Rifkin Acquisition
Partners, LLP, Term
Loan..................... B1 NR 03/21/03 3,494,856
19,371 Triax Midwest Associates,
Term Loan................ NR NR 06/30/06 to 06/30/07 19,367,038
--------------
45,270,101
--------------
BROADCASTING--DIVERSIFIED 1.1%
20,000 Emmis Communications
Corp., Term Loan......... Ba3 BB 02/28/07 19,996,574
--------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank
Amount Loan Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BROADCASTING--RADIO 1.1%
$ 11,250 Capstar Radio
Broadcasting Partners,
Inc., Term Loan.......... NR NR 11/30/04 $ 11,249,345
7,950 Capstar Radio
Broadcasting Partners,
Inc., Revolving Credit
Agreement................ NR NR 11/30/04 7,949,993
--------------
19,199,338
--------------
BROADCASTING--TELEVISION
2.0%
8,000 Quoram Broadcasting, Term
Loan..................... Ba1 BB 09/30/07 7,998,997
29,000 Sinclair Broadcasting,
Term Loan................ Ba2 BB- 09/15/05 28,964,986
--------------
36,963,983
--------------
CHEMICALS, PLASTICS & RUBBER
8.5%
8,438 Gentek, Term Loan........ Ba3 BB 04/30/07 8,437,608
9,237 High Performance
Plastics, Inc., Term
Loan..................... NR NR 09/30/03 to 03/31/05 9,239,324
6,675 Huntsman Group Holdings,
Term Loan................ Ba2 BB 09/30/03 6,675,602
104,977 Lyondell Petrochemical
Co., Term Loan........... Ba3 NR 06/30/03 to 05/17/06 104,965,449
17,186 Pioneer Americas
Acquisition Corp., Term
Loan..................... B2 B+ 12/31/06 17,171,260
3,945 Sterling Pulp Chemicals,
Inc., Term Loan.......... B3 BB- 06/30/05 3,945,163
4,554 West American Rubber Co.,
Term Loan................ NR NR 06/30/05 4,554,000
--------------
154,988,406
--------------
CONSTRUCTION MATERIALS 1.3%
24,621 BSI Holdings, Inc., Term
Loan..................... NR NR 09/30/05 24,622,579
--------------
CONTAINERS, PACKAGING AND
GLASS 0.5%
4,971 Packaging Dynamics, LLC,
Term Loan................ NR NR 11/20/05 4,968,500
4,025 RIC Holdings, Inc., Term
Loan..................... B1 B 02/28/03 4,024,981
--------------
8,993,481
--------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank
Amount Loan Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DIVERSIFIED MANUFACTURING
1.0%
$ 8,857 International Wire Group,
Term Loan................ B1 NR 09/30/03 $ 8,856,929
7,792 Intesys Technologies,
Inc., Term Loan.......... NR NR 06/30/04 to 06/30/06 7,791,551
672 Intesys Technologies,
Inc., Revolving Credit
Agreement................ NR NR 06/30/04 671,999
--------------
17,320,479
--------------
ECOLOGICAL 1.6%
30,000 Allied Waste, Term
Loan..................... Ba3 NR 07/23/06 to 07/23/07 30,000,000
--------------
EDUCATION & CHILDCARE
0.2%
3,325 TEC Worldwide, Inc., Term
Loan..................... NR NR 02/28/05 3,324,760
--------------
ELECTRONICS & ELECTRONIC
SERVICES 4.1%
23,251 Amphenol Corp., Term
Loan..................... Ba3 B+ 05/19/04 to 05/19/06 23,248,441
6,370 Automata, Inc., Term
Loan..................... NR NR 02/28/03 to 02/28/04 6,371,115
4,625 Caribiner International,
Inc., Term Loan.......... NR NR 09/30/03 4,625,259
25,440 Chatham Technologies
Acquisition, Inc., Term
Loan..................... NR NR 08/18/03 to 09/12/05 25,439,906
14,611 Viasystems, Inc., Term
Loan..................... B2 B+ 03/31/04 to 06/30/05 14,607,373
--------------
74,292,094
--------------
ENTERTAINMENT & LEISURE
5.7%
4,241 Hedstrom Corp., Term
Loan..................... B1 B+ 06/30/03 4,235,021
30,000 Metro-Goldwyn Mayer, Term
Loan..................... NR NR 03/31/05 to 03/31/06 29,995,346
2,528 Regal Cinemas, Term
Loan..................... Ba3 BB- 05/27/05 2,527,041
3,649 Regal Cinemas, Revolving
Credit Agreement......... Ba3 BB- 05/27/05 3,646,292
14,900 SFX Entertainment, Inc.,
Term Loan................ B1 B+ 03/31/06 14,896,106
47,520 United Artists Theatre
Co., Term Loan........... B1 B+ 04/21/06 to 04/21/07 47,487,364
--------------
102,787,170
--------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank
Amount Loan Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
FINANCE 6.4%
$ 41,578 Bridge Information
Systems, Inc., Term
Loan..................... NR NR 06/30/03 to 05/29/05 $ 41,567,137
10,267 Bridge Information
Systems, Inc., Revolving
Credit Agreement......... NR NR 05/29/03 10,266,324
6,953 Outsourcing Solutions,
Inc. Term Loan........... B2 BB- 10/15/04 6,951,970
25,000 Paul G. Allen, Term
Loan..................... NR NR 06/10/03 24,999,440
33,343 Ventas Realty Limited,
Inc., Term Loan.......... NR NR 10/30/99 to 04/30/03 32,331,070
--------------
116,115,941
--------------
GROCERY 0.4%
4,964 Eagle Family Foods, Term
Loan..................... B1 B 12/31/05 4,962,829
1,624 Fred Meyer, Inc., Term
Loan..................... Ba2 BB+ 02/28/03 1,624,305
--------------
6,587,134
--------------
HEALTHCARE 9.7%
2,457 Extendicare Health
Services, Inc., Term
Loan..................... Ba3 B+ 12/31/03 2,456,316
14,454 FHC Health Systems, Inc.,
Term Loan................ NR NR 04/30/03 to 04/30/06 14,453,947
1,263 FHC Health Systems, Inc.,
Revolving Credit
Agreement................ NR NR 05/18/03 1,263,157
9,297 Genesis Healthcare
Ventures, Inc., Term
Loan..................... Ba3 B 09/30/03 to 05/30/06 9,299,431
3,243 Genesis Healthcare
Ventures, Inc., Revolving
Credit Agreement......... Ba3 B 05/30/06 3,242,270
44,325 Integrated Health
Services, Inc., Term
Loan..................... Ba3 B- 09/30/04 44,317,847
16,118 Meditrust Corp.,
Revolving Credit
Agreement................ NR NR 07/17/01 16,114,387
15,944 MedPartners, Inc., Term
Loan..................... B1 BB- 05/31/01 15,944,216
8,766 Multicare Companies,
Inc., Term Loan.......... B1 B 09/30/03 to 06/01/05 8,767,234
11,500 Oxford Health Plans,
Inc., Term Loan.......... B3 NR 05/13/03 11,475,690
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank
Amount Loan Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$ 3,034 Sun Healthcare Group,
Inc., Term Loan (a)....... Caa2 NR 11/12/04 $ 2,943,338
12,737 Sun Healthcare Group,
Inc., Revolving Credit
Agreement (a)............. Caa2 NR 11/12/05 12,355,029
11,385 Total Renal Care
Holdings, Inc., Term
Loan...................... Ba2 NR 03/31/08 11,382,263
23,325 Vencor, Inc., Term Loan
(b)....................... Caa2 NR 03/31/03 to 01/15/05 22,161,765
--------------
176,176,890
--------------
HOME & OFFICE FURNISHINGS,
HOUSEWARES & DURABLE
CONSUMER PRODUCTS 1.4%
6,259 Corning Consumer
Products, Inc., Term
Loan...................... B1 NR 04/09/05 to 10/09/06 6,258,663
7,425 Dal-Tile Group, Inc.,
Term Loan................. NR NR 12/31/03 7,424,869
5,000 Imperial Home Decor
Group, Inc., Term Loan.... B1 B 03/13/05 4,999,666
3,620 Intercontinental Art,
Term Loan................. NR NR 12/31/02 3,620,622
3,886 Renters Choice, Inc.,
Term Loan................. Ba3 BB- 01/31/06 to 01/31/07 3,886,135
--------------
26,189,955
--------------
HOTELS, MOTELS, INNS &
GAMING 13.2%
25,550 Aladdin Gaming, LLC, Term
Loan...................... B2 NR 08/26/06 to 02/26/08 25,553,388
28,800 Allegro Resorts Corp.,
Term Loan................. NR NR 02/11/03 28,799,385
110,000 Starwood Hotels and
Resorts, Inc., Term
Loan...................... Ba1 NR 02/23/03 110,029,777
75,000 Wyndham International,
Term Loan................. NR NR 06/30/06 74,995,788
--------------
239,378,338
--------------
MACHINERY 1.8%
4,938 Coinmatch Corp., Term
Loan...................... NR BB 06/30/05 4,937,732
15,000 Ocean Rig (Norway), Term
Loan...................... NR NR 06/01/08 14,996,571
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank
Amount Loan Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
MACHINERY (CONTINUED)
$ 4,950 Thermadyne, LLC, Term
Loan..................... B1 B 05/28/05 to 05/28/06 $ 4,947,498
7,388 Universal Compression,
Inc., Term Loan.......... Ba3 B+ 02/13/04 7,387,121
--------------
32,268,922
--------------
MINING, STEEL, IRON, &
NON-PRECIOUS METALS 5.2%
9,900 Earle M. Jorgenson, Term
Loan..................... B1 B+ 03/31/04 9,900,299
84,150 Ispat Inland, Term
Loan..................... Ba3 BB 07/16/05 to 07/16/06 84,147,844
--------------
94,048,143
--------------
NATURAL RESOURCES--COAL
2.0%
2,645 Alliance Coal Corp., Term
Loan..................... NR NR 12/31/01 2,644,640
25,000 Arch Western Resources,
LLC, Term Loan........... Ba1 BB+ 05/31/03 24,999,931
9,231 P&L Coal Holdings Corp.,
Term Loan................ NR NR 06/30/06 9,224,105
--------------
36,868,676
--------------
PAPER & FOREST PRODUCTS
2.1%
9,109 Bear Island Paper Co.,
Term Loan................ Ba3 B+ 12/31/05 9,108,163
5,263 Crown Paper Co., Term
Loan..................... B2 B+ 06/30/03 5,262,150
14,850 Le Group Forex, Inc.,
Term Loan................ NR BB 06/30/05 14,850,000
8,833 Pacifica Papers, Inc.,
Term Loan................ Ba2 BB 03/12/06 8,832,958
--------------
38,053,271
--------------
PERSONAL & MISCELLANEOUS
SERVICES 1.7%
7,180 Arena Brands, Inc., Term
Loan..................... NR NR 06/01/02 7,177,587
18,647 Boyds Collection, Term
Loan..................... Ba3 B+ 04/21/05 18,624,132
4,875 Professional Service
Industries, Inc., Term
Loan..................... NR NR 09/16/02 4,875,271
--------------
30,676,990
--------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank
Amount Loan Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PHARMACEUTICALS 0.8%
$ 4,147 Endo Pharmaceuticals,
Inc., Term Loan.......... NR NR 12/31/02 $ 4,146,710
10,890 Roberts Pharmaceutical
Corp., Term Loan......... B1 NR 06/30/03 10,890,000
--------------
15,036,710
--------------
PRINTING & PUBLISHING
10.6%
94,769 Outdoor Systems, Inc.,
Term Loan................ Ba2 BB- 06/30/04 94,768,343
7,422 Penton Media, Inc., Term
Loan..................... Ba3 BB- 05/31/06 7,421,561
9,969 Reiman Publications,
Inc., Term Loan.......... NR NR 12/10/05 9,968,598
11,880 R.H. Donnelley, Inc.,
Term Loan................ NR NR 09/30/05 to 09/30/06 11,878,595
2,053 TWP Capital Corp II, Term
Loan..................... NR NR 10/01/04 2,053,347
14,018 Von Hoffman, Term Loan... B1 B+ 07/01/04 to 07/01/05 14,017,558
52,500 Ziff-Davis, Inc., Term
Loan..................... Ba2 BB- 03/31/05 to 03/31/06 52,487,314
--------------
192,595,316
--------------
RESTAURANTS & FOOD SERVICE
3.6%
1,384 Carvel Corp., Term
Loan..................... NR NR 06/30/00 1,382,250
24,918 Domino's Pizza, Term
Loan..................... B1 B+ 12/21/06 to 12/21/07 24,918,426
8,135 IDF Acquisition, Term
Loan..................... NR NR 01/15/04 to 01/15/06 8,134,759
30,194 S.C. International
Services, Term Loan...... Ba3 NR 03/01/07 30,187,798
--------------
64,623,233
--------------
RETAIL--OFFICE PRODUCTS
3.1%
11,894 Corporate Express, Inc.,
Term Loan................ Ba3 BB- 04/25/05 11,893,919
44,933 U.S. Office Products,
Inc., Term Loan.......... B2 B 06/09/06 44,932,713
--------------
56,826,632
--------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank
Amount Loan Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RETAIL--STORES 1.8%
$ 32,409 HMV Media Group, Inc.,
Term Loan................ B1 BB- 03/28/05 to 03/28/06 $ 32,385,865
--------------
TELECOMMUNICATIONS--CELLULAR
11.9%
79,800 American Cellular
Wireless, Inc., Term
Loan..................... NR NR 06/30/07 79,763,598
91,840 BCP SP Ltd., Term Loan... NR NR 03/16/00 91,679,700
34,606 Cellular, Inc., Financial
Corp. (CommNet), Term
Loan..................... B1 B 09/18/05 to 09/30/07 34,559,879
5,000 Spectrasite
Communications, Term
Loan..................... NR NR 06/30/06 4,998,566
5,000 Sygnet Wireless, Inc.,
Term Loan................ B3 NR 03/31/07 to 12/23/07 4,999,739
--------------
216,001,482
--------------
TELECOMMUNICATIONS--HYBRID
2.2%
9,821 Dynatech Corp., Term
Loan..................... NR B+ 05/21/05 to 05/21/07 9,821,231
20,000 Nextel Finance Co., Term
Loan..................... Ba3 B 09/30/06 19,999,955
10,000 Pacific Crossing Ltd.,
Term Loan................ NR NR 07/28/06 10,000,000
--------------
39,821,186
--------------
TELECOMMUNICATIONS--PERSONAL
COMMUNICATION SYSTEMS 11.5%
11,712 Microcell
Telecommunications, Inc.,
Term Loan................ NR NR 03/01/06 11,712,385
62,420 Omnipoint Communications,
Inc., Term Loan.......... B2 NR 02/01/06 to 02/17/06 63,352,994
6,000 Powertel PCS, Inc., Term
Loan..................... NR NR 12/31/06 6,000,333
50,000 Telecorp PCS, Inc., Term
Loan..................... B2 NR 12/05/07 49,992,693
9,819 Telespectrum Worldwide,
Term Loan................ NR NR 12/31/01 to 12/31/03 9,815,894
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank
Amount Loan Ratings+ Stated
(000) Borrower Moody's S&P Maturity* Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS--PERSONAL
COMMUNICATION SYSTEMS
(CONTINUED)
$ 22,700 Triton PCS, Inc. Term
Loan..................... B1 B 05/04/07 $ 22,699,947
45,000 Voicestream PCS Holdings,
Term Loan................ NR NR 12/31/06 44,999,828
--------------
208,574,074
--------------
TELECOMMUNICATIONS--WIRELESS
MESSAGING 2.3%
20,000 Iridium Operating LLC,
Term Loan (b)............ NR CC 12/29/00 17,999,951
12,460 Paging Network, Revolving
Credit Agreement......... Ba2 BB 12/31/04 12,453,009
11,000 TSR Wireless LLC, Term
Loan..................... NR NR 06/30/05 11,005,584
--------------
41,458,544
--------------
TEXTILES & LEATHER 2.2%
8,887 American Marketing
Industries, Inc., Term
Loan..................... NR NR 11/30/04 to 11/30/05 8,887,415
8,576 Galey & Lord, Inc., Term
Loan..................... B3 BB- 04/02/05 to 04/01/06 8,580,111
13,895 Norcross Safety Products,
LLC, Term Loan........... NR NR 10/02/05 13,894,548
7,898 Pillowtex Corp., Term
Loan..................... B1 BB 12/31/04 7,901,120
--------------
39,263,194
--------------
TRANSPORTATION--CARGO
1.1%
19,909 American Commercial
Lines, Term Loan......... Ba2 BB 06/26/06 to 06/26/07 19,888,765
--------------
TRANSPORTATION--RAIL
MANUFACTURING 0.1%
1,000 Johnstown America
Industries, Inc., Term
Loan..................... B1 NR 04/29/05 999,862
--------------
UTILITIES 2.6%
48,200 LIR Energy Ltd, Term
Loan..................... NR NR 04/21/99 48,195,996
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 133.3%............ 2,419,602,943
--------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- -------------------------------------------------------------------------------------------
<S> <C>
OTHER LOAN INTERESTS 1.7%
Satelites Mexicanos ($31,674,000 par, 9.06% coupon, maturing
06/30/04) 144A Private Placement (c)........................... $ 31,674,000
--------------
TOTAL LONG-TERM INVESTMENTS 135.0%
(Cost $2,451,716,004).......................................... 2,451,276,943
--------------
SHORT-TERM INVESTMENTS 8.5%
COMMERCIAL PAPER 6.6%
Autoliv Asp, Inc. ($3,737,000 par, maturing 08/20/99, yielding 5.26%) .... $ 3,726,625
CSX Corp. ($15,000,000 par, maturing 08/23/99 to 08/30/99, yielding 5.27%
to 5.31%)................................................................. 14,946,323
Centex Corp. ($4,550,000 par, maturing 08/09/99, yielding 5.25%).......... 4,544,692
Central & South West Corp. ($10,000,000 par, maturing 08/10/99, yielding
5.23%).................................................................... 9,986,925
Comdisco, Inc. ($5,000,000 par, maturing 08/09/99, yielding 5.25%)........ 4,994,167
Cox Communications, Inc. ($8,500,000 par, maturing 08/09/99 to 08/24/99,
yielding 5.22% to 5.35%).................................................. 8,486,753
Rite Aid Corp. ($21,500,000 par, maturing 08/02/99 to 08/17/99, yielding
5.25%).................................................................... 21,475,354
Safeway, Inc. ($17,480,000 par, maturing 08/02/99 to 09/07/99, yielding
5.30%).................................................................... 17,421,883
Sprint Capital Corp. ($10,714,000 par, maturing 08/04/99, yielding
5.25%).................................................................... 10,709,313
TRW, Inc. ($13,329,000 par, maturing 08/20/99, yielding 5.47%)............ 13,296,848
Western Resources, Inc. ($8,378,000 par, maturing 08/03/99 to 08/11/99,
yielding 5.22% to 5.24%).................................................. 8,369,743
Xtra, Inc. ($1,000,000 par, maturing 08/03/99, yielding 5.25%)............ 999,708
--------------
TOTAL COMMERCIAL PAPER.................................................... 118,958,334
--------------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- -------------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM LOAN PARTICIPATIONS 1.9%
Cabot Corp. ($3,763,000 par, maturing 08/02/99, yielding 5.32%)........... $ 3,763,000
Cummins Engine, Inc. ($10,000,000 par, maturing 08/02/99, yielding
5.23%).................................................................... 10,000,000
Englehard Corp. ($5,140,000 par, maturing 08/18/99, yielding 5.27%)....... 5,140,000
Gillette Co. ($1,500,000 par, maturing 08/02/99, yielding 5.16%).......... 1,500,000
Temple Inland, Inc. ($5,000,000 par, maturing 08/03/99, yielding 5.24%)... 5,000,000
Western Resources, Inc. ($10,000,000 par, maturing 08/06/99,
yielding 5.28%)........................................................... 10,000,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS...................................... 35,403,000
--------------
TOTAL SHORT-TERM INVESTMENTS 8.5%
(Cost $154,361,334)..................................................... 154,361,334
--------------
TOTAL INVESTMENTS 143.5%
(Cost $2,606,077,338)................................................... 2,605,638,277
BORROWINGS (44.0%)....................................................... (800,000,000)
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%............................... 9,417,666
--------------
NET ASSETS 100.0%........................................................ $1,815,055,943
==============
</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.
(a) This Senior Loan interest is non-income producing.
(b) Subsequent to the year ended July 31, 1999, this borrower has filed for
protection in federal bankruptcy court.
(c) 144A Securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
* 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
21
<PAGE> 23
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,606,077,338)..................... $2,605,638,277
Receivables:
Interest.................................................. 17,077,519
Prepayments............................................... 630,295
Prepaid Debt Issuance Cost.................................. 979,927
Unamortized Organizational Costs............................ 31,210
Other....................................................... 186,131
--------------
Total Assets............................................ 2,624,543,359
--------------
LIABILITIES:
Payables:
Borrowings................................................ 800,000,000
Custodian Bank............................................ 2,721,613
Investment Advisory Fee................................... 1,888,050
Administrative Fee........................................ 444,247
Income Distributions...................................... 156,850
Affiliates................................................ 89,150
Organizational Costs...................................... 40,000
Accrued Interest Expense.................................... 3,583,675
Accrued Expenses............................................ 491,006
Trustees' Deferred Compensation and Retirement Plans........ 72,825
--------------
Total Liabilities....................................... 809,487,416
--------------
NET ASSETS.................................................. $1,815,055,943
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 180,010,000 shares issued and
outstanding).............................................. $ 1,800,100
Paid in Surplus............................................. 1,795,981,867
Accumulated Undistributed Net Investment Income............. 16,412,624
Accumulated Net Realized Gain............................... 1,300,413
Net Unrealized Depreciation................................. (439,061)
--------------
NET ASSETS.................................................. $1,815,055,943
==============
NET ASSET VALUE PER COMMON SHARE
($1,815,055,943 divided by 180,010,000 shares
outstanding)............................................ $ 10.08
==============
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
STATEMENT OF OPERATIONS
For the Year Ended July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $208,034,741
Fees........................................................ 5,070,463
------------
Total Income.......................................... 213,105,204
------------
EXPENSES:
Investment Advisory Fee..................................... 21,788,274
Administrative Fee.......................................... 5,126,653
Legal....................................................... 410,622
Custody..................................................... 307,201
Trustees' Fees and Related Expenses......................... 117,988
Shareholder Services........................................ 31,178
Amortization of Organizational Costs........................ 8,001
Other....................................................... 2,382,883
------------
Total Operating Expenses................................ 30,172,800
Interest Expense........................................ 42,920,707
------------
Total Expenses.......................................... 73,093,507
------------
NET INVESTMENT INCOME....................................... $140,011,697
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 1,521,075
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,373,440
End of the Period......................................... (439,061)
------------
Net Unrealized Depreciation During the Period............... (1,812,501)
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (291,426)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $139,720,271
============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended July 31, 1999 and the Period June 24, 1998 (Commencement of
Investment Operations) to July 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
July 31, 1999 July 31, 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income......................... $ 140,011,697 $ 12,810,456
Net Realized Gain............................. 1,521,075 139,358
Net Unrealized Appreciation/Depreciation
During the Period........................... (1,812,501) 1,373,440
---------------- --------------
Change in Net Assets from Operations.......... 139,720,271 14,323,254
---------------- --------------
Distributions from Net Investment Income...... (136,447,562) -0-
Distributions from Net Realized Gain.......... (360,020) -0-
---------------- --------------
Total Distributions....................... (136,807,582) -0-
---------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................. 2,912,689 -0-
---------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold..................... -0- 1,797,720,000
---------------- --------------
TOTAL INCREASE IN NET ASSETS.................. 2,912,689 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 $16,412,624 and
$12,810,456, respectively).................. $ 1,815,055,943 $1,812,143,254
================ ==============
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
STATEMENT OF CASH FLOWS
For the Year Ended July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 139,720,271
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (404,531,569)
Increase in Interest Receivable........................... (5,499,452)
Increase in Receivable for Investments Sold............... (124,477)
Decrease in Unamortized Organizational Costs.............. 8,000
Increase in Other Assets.................................. (121,388)
Increase in Investment Advisory Fees Payable.............. 584,294
Increase in Administrative Fees Payable................... 121,042
Decrease in Affiliates Payable............................ (671)
Increase in Accrued Expenses.............................. 1,176,680
Increase in Trustees' Deferred Compensation and Retirement
Plans Payable........................................... 67,899
-------------
Total Adjustments....................................... (408,319,642)
-------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (268,599,371)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Bank Borrowings................................... 400,000,000
Change in Intra-day Credit Line with Custodian Bank......... 2,721,613
Change in Debt Issuance Cost................................ 88,608
Cash Dividends Paid......................................... (136,290,712)
Capital Gains Distribution Paid............................. (360,020)
-------------
Net Cash Provided by Financing Activities................. 266,159,489
-------------
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
25
<PAGE> 27
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 24, 1998
(Commencement
of Investment
Year Ended Operations) to
July 31, 1999 July 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period (a)...... $ 10.067 $ 9.987
-------- --------
Net Investment Income........................... .778 .071
Net Realized and Unrealized Gain/Loss........... (.002) .009
-------- --------
Total from Investment Operations.................. .776 .080
-------- --------
Less:
Distributions from Net Investment Income........ .758 -0-
Distributions from Net Realized Gains........... .002 -0-
-------- --------
Total Distributions............................... .760 -0-
-------- --------
Net Asset Value, End of the Period................ $ 10.083 $ 10.067
======== ========
Market Price Per Share at End of the Period....... $ 9.5625 $10.0625
Total Investment Return at Market Price (b)....... 2.98% 0.63%**
Total Return at Net Asset Value (c)............... 7.91% 0.70%**
Net Assets at End of the Period (In millions)..... $1,815.1 $1,812.1
Ratio of Operating Expenses to Average Net
Assets*......................................... 1.66% 1.18%
Ratio of Interest Expenses to Average Net
Assets.......................................... 2.37% 0.28%
Ratio of Net Investment Income to Average Net
Assets*......................................... 7.72% 6.94%
Portfolio Turnover (d)............................ 28% 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.
(d) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interest.
See Notes to Financial Statements
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
- --------------------------------------------------------------------------------
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 and Other Loan interests (collectively "Loan interests") totaling
$2,451,276,943 (135.0% of net assets) is determined 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 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 Loan interests, the Adviser considers market quotations and transactions
in instruments that the Adviser believes may be comparable to such Loan
interests. In determining the relationship between such instruments and the 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 secondary market
transactions in Loan interests have occurred, the Adviser also considers pricing
information derived from such secondary market transactions in valuing Loan
interests. Because of uncertainty in the nature of the valuation process, the
estimated value of a Loan interest may differ significantly from the value that
would have been used had there been reliable market activity for that Loan
interest. Short-term
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
securities with remaining maturities of 60 days or less are valued at amortized
cost. Short-term loan participations are valued at cost in the absence of any
indication of impairment.
B. SECURITY TRANSACTIONS--Investment transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Facility
fees received are treated as market discounts. Market premiums and discounts are
amortized over the stated life of each applicable security. Other income is
comprised primarily of amendment fees. Amendment fees are earned as compensation
for agreeing to changes in loan agreements.
D. ORGANIZATIONAL EXPENSES--The Trust has agreed to reimburse Van Kampen Funds
Inc. or its affiliates (collectively "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, AICPA
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 in August 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.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of wash sales.
At July 31, 1999, for federal income tax purposes cost of long- and
short-term investments is $2,606,078,408, the aggregate gross unrealized
appreciation is $6,517,818 and the aggregate gross unrealized depreciation is
$6,957,949 resulting in net unrealized depreciation of $440,131.
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
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.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1999 fiscal year have been identified and appropriately
reclassified. Permanent differences relating to expenses which are not
deductible for tax purposes totaling $38,033 were reclassified from capital to
accumulated undistributed net investment income.
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 year ended July 31, 1999, the Trust recognized expenses of
approximately $246,400 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 year ended July 31, 1999, the Trust recognized expenses of
approximately $35,000 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.
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At July 31, 1999 and 1998, paid in surplus aggregated $1,795,981,867 and
$1,796,019,900, respectively. Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Period Ended Period Ended
July 31, 1999 July 31, 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares................................... 180,010,000 10,000
Shares Sold........................................ -0- 180,000,000
------------- -------------
Ending Shares...................................... 180,010,000 180,010,000
============= =============
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $1,029,799,801 and $681,807,533
respectively.
5. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $75,630,723 as of July
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.
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.
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
At July 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..................................... $15,717 $15,717
Goldman Sachs Credit......................... 9,111 9,107
Bankers Trust................................ 3,621 3,621
Toronto Dominion............................. 362 362
------- -------
$28,811 $28,807
======= =======
</TABLE>
7. BORROWINGS
In accordance with its investment policies, the Trust may borrow money for
investment purposes in an amount up to approximately 33 1/3% of the Trust's
total assets.
On June 17, 1999, the Trust entered into an $800 million commercial paper
program with VVR Funding LLC, a Delaware limited liability company whose sole
purpose is the issuance of commercial paper. VVR has the authority to issue a
maximum of $800 million of commercial paper, at a discount, with maturities of
up to 180 days, the proceeds of which are used to make advances to the Trust.
This line of credit is secured by the assets of the Trust. From June 17, 1999 to
July 31, 1999 the daily balance of borrowings under the revolving credit
agreement was $800 million with an average interest rate of 5.18%.
Prior to June 17, 1999 the Trust had a revolving credit agreement with
Nationsbank. The Trust paid $1,000,000 in fees in connection with obtaining the
agreement. These Prepaid fees were amortized into expense over the term of the
agreement. The average daily balance of borrowings under the revolving credit
agreement was $743,656,667 with an average interest rate of 5.79%.
31
<PAGE> 33
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, 1999, the related statement of operations and cash flows for the
year then ended, the statement of changes in net assets for the year then ended
and for the period from June 24, 1998 (commencement of investment operations) to
July 31, 1998, and the financial highlights for each of the periods presented.
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, 1999, 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, 1999, the results of its operations
and cash flows for the year then ended, the changes in its net assets for the
year then ended and for the period from June 24, 1998 (commencement of
investment operations) to July 31, 1998, and the financial highlights for each
of the period presented, in conformity with generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
September 14, 1999
32
<PAGE> 34
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders who are participants in the Plan may have all distributions
of dividends and capital gains automatically reinvested in Common Shares of the
Trust. Common Shareholders who elect not to participate in the Plan will receive
all distributions of dividends and capital gains in cash paid by check mailed
directly to the Common Shareholder by the Trust's dividend disbursing agent.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for
the Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or capital gains distribution paid subsequent to written
notice of the change sent to all Common Shareholders of the Trust at least 90
days before the record date for the dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent, with the written consent of the
Trust, by providing at least 90 days written notice to all Participants in the
Plan.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
You may withdraw from the Plan at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company. If you withdraw, you will receive,
without charge, a share certificate issued in your name for all full Common
Shares credited to your account under the Plan, and a cash payment will be made
for any fractional Common Share credited to your account under the Plan. You may
again elect to participate in the Plan at any time by calling 1-800-341-2929 or
writing to the Trust at:
2800 Post Oak Blvd., Houston, TX 77056, Attn: Closed-End Funds
33
<PAGE> 35
VAN KAMPEN FUNDS
GROWTH
Aggressive Equity
Aggressive Growth
American Value
Emerging Growth
Enterprise
Equity Growth
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
34
<PAGE> 36
VAN KAMPEN SENIOR INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*
STEVEN MULLER
THEODORE A. MYERS
RICHARD F. POWERS, III*--Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and
Chief Investment Officer
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*
MICHAEL SANTO*
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
CUSTODIAN AND TRANSFER AGENT
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.
35
<PAGE> 37
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 16, 1999, where
shareholders voted on the election of trustees and the selection of independent
public accountants.
1) With regard to the election of the following trustees by the common
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
----------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------
<S> <C> <C>
David C. Arch.................................... 93,159,334 789,647
Howard J Kerr.................................... 93,158,239 790,747
Dennis J. McDonnell.............................. 93,161,839 787,147
</TABLE>
The other trustees of the Trust whose terms did not expire in 1999 are Rod
Dammeyer, Steven Muller, Theodore A. Myers, Hugo F. Sonnenschein and Wayne W.
Whalen.
2) With regard to the ratification of KPMG LLP as independent public
accountants for the Trust, 92,873,749 shares voted in favor of the proposal,
504,329 shares voted against and 570,909 shares abstained.
36
<PAGE> 38
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.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> SENIOR INCOME TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JUL-31-1999
<INVESTMENTS-AT-COST> 2,606,077,338
<INVESTMENTS-AT-VALUE> 2,605,638,277
<RECEIVABLES> 17,707,814
<ASSETS-OTHER> 1,197,268
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,624,543,359
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 800,000,000
<OTHER-ITEMS-LIABILITIES> 9,487,416
<TOTAL-LIABILITIES> 809,487,416
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,797,781,967
<SHARES-COMMON-STOCK> 180,010,000
<SHARES-COMMON-PRIOR> 180,010,000
<ACCUMULATED-NII-CURRENT> 16,412,624
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,300,413
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (439,061)
<NET-ASSETS> 1,815,055,943
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 208,034,741
<OTHER-INCOME> 5,070,463
<EXPENSES-NET> (73,093,507)
<NET-INVESTMENT-INCOME> 140,011,697
<REALIZED-GAINS-CURRENT> 1,521,075
<APPREC-INCREASE-CURRENT> (1,812,501)
<NET-CHANGE-FROM-OPS> 139,720,271
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (136,447,562)
<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> 2,912,689
<ACCUMULATED-NII-PRIOR> 12,810,456
<ACCUMULATED-GAINS-PRIOR> 139,358
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 21,788,274
<INTEREST-EXPENSE> 42,920,707
<GROSS-EXPENSE> 73,093,507
<AVERAGE-NET-ASSETS> 1,813,284,080
<PER-SHARE-NAV-BEGIN> 10.067
<PER-SHARE-NII> 0.778
<PER-SHARE-GAIN-APPREC> (0.002)
<PER-SHARE-DIVIDEND> (0.758)
<PER-SHARE-DISTRIBUTIONS> (0.002)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.083
<EXPENSE-RATIO> 1.66
</TABLE>
