<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 5
CURRENT DISTRIBUTION 5
Q&A WITH YOUR PORTFOLIO MANAGERS 6
GLOSSARY OF TERMS 10
A FOCUS ON SENIOR LOANS 11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 12
FINANCIAL STATEMENTS 28
NOTES TO FINANCIAL STATEMENTS 33
REPORT OF INDEPENDENT AUDITORS 38
DIVIDEND REINVESTMENT PLAN 39
TRUST OFFICERS AND IMPORTANT ADDRESSES 40
RESULTS OF SHAREHOLDER VOTES 41
</TABLE>
It is times like these when money- management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
August 18, 2000
Dear Shareholder,
Whether you have held your trust for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your trust is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term market volatility and the value of investing for
the long term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is
the theme of a national advertising campaign that we recently kicked off. The
message emphasizes our depth of investment-management history, as well as our
firm belief that with the right investments, anyone can realize life's true
wealth.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH CONTINUED TO BE IMPRESSIVE, WITH THE GROSS DOMESTIC PRODUCT
(GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH, INCREASING AT A 5.3 PERCENT
ANNUALIZED RATE FOR THE REVISED SECOND QUARTER OF 2000. PRODUCTIVITY ALSO
CONTINUED ITS STEADY PACE AND SHOWED NO CLEAR SIGNS OF SLOWING DOWN. LOW
UNEMPLOYMENT AND RISING PRODUCTIVITY WERE THE PRIMARY FACTORS UNDERLYING THE
HEALTHY ECONOMY.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION FEARS MOUNTED BECAUSE OF STRONG CONSUMER SPENDING AND THE TIGHT LABOR
MARKET. ALTHOUGH CONSUMER SPENDING DECREASED SLIGHTLY FOR THE LATTER PART OF THE
SECOND QUARTER, RISING INTEREST RATES DID LITTLE TO REIN IN ROBUST CONSUMER
SPENDING FOR MOST OF THE REPORTING PERIOD, AND THE FACTORS UNDERPINNING CONSUMER
ACTIVITY--RISING WAGES AND LOW UNEMPLOYMENT--REMAINED LARGELY UNCHANGED.
THE JOBLESS RATE HOVERED NEAR LOW LEVELS, AND EXPERIENCED LITTLE CHANGE IN JULY,
WITH UNEMPLOYMENT REACHING A LOW OF 4.0 PERCENT, UNCHANGED FROM THE PREVIOUS
MONTH.
INTEREST RATES AND INFLATION
STRONG GDP NUMBERS PROMPTED THE FEDERAL RESERVE BOARD (THE FED) TO EXERCISE
CAUTION BY RAISING INTEREST RATES TO GUARD AGAINST INFLATION AND TEMPER ECONOMIC
GROWTH. THE CONSUMER PRICE INDEX (CPI) ALSO ROSE DURING THE REPORTING PERIOD.
BOTH GDP AND CPI DATA IN THE EARLY PART OF THE REPORTING PERIOD SUPPORTED THE
FED'S INCREASE OF SHORT-TERM RATES. IN THE LATTER PART OF THE REPORTING PERIOD,
HOWEVER, THE FED STOOD FIRM AND TOOK NO ACTION IN CHANGING INTEREST RATES
BECAUSE OF BELIEFS AND SIGNS THAT THE ECONOMY WAS SLOWING.
WHILE MARKETS EXPERIENCED STRONG VOLATILITY, OBSERVERS BELIEVE THAT MARKET
CONDITIONS MAY STABILIZE IF AND WHEN THE FED GROWS COMFORTABLE WITH THE PACE OF
THE ECONOMY AND DECIDES TO CEASE INTEREST-RATE CHANGES.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.1
Sep 98 3.8
Dec 98 5.9
Mar 99 3.5
Jun 99 2.5
Sep 99 5.7
Dec 99 8.3
Mar 00 4.8
Jun 00 5.3
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(July 31, 1998 -- July 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jul 98 5.50 1.70
5.50 1.60
5.25 1.50
Oct 98 5.00 1.50
4.75 1.50
4.75 1.60
Jan 99 4.75 1.70
4.75 1.60
4.75 1.70
Apr 99 4.75 2.30
4.75 2.10
5.00 2.00
Jul 99 5.00 2.10
5.25 2.30
5.25 2.60
Oct 99 5.25 2.60
5.50 2.60
5.50 2.70
Jan 00 5.50 2.70
5.75 3.20
6.00 3.70
Apr 00 6.00 3.00
6.50 3.10
6.50 3.70
Jul 00 6.50 3.60
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of July 31, 2000)
<TABLE>
<CAPTION>
TOTAL RETURNS
-----------------------------------------------------------------------
<S> <C> <C>
One-year total return based on market price(1) .61%
-----------------------------------------------------------------------
One-year total return based on NAV(2) 4.10%
-----------------------------------------------------------------------
Commencement date 06/24/98
-----------------------------------------------------------------------
DISTRIBUTION RATE
-----------------------------------------------------------------------
Distribution rate as a % of closing common stock
price(3) 9.60%
-----------------------------------------------------------------------
SHARE VALUATIONS
-----------------------------------------------------------------------
Net asset value $9.65
-----------------------------------------------------------------------
Closing common stock price $8.7500
-----------------------------------------------------------------------
One-year high common stock price (08/02/99) $9.5625
-----------------------------------------------------------------------
One-year low common stock price (03/14/00) $7.8750
-----------------------------------------------------------------------
</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 is no guarantee of future results. Distribution rate and
net asset value may fluctuate with market conditions. Investment return,
stock price, and net asset value will fluctuate with market conditions.
Trust shares, when sold, may be worth more or less than their original cost.
4
<PAGE> 6
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(as a percentage of total assets--July 31, 2000)
<TABLE>
<S> <C> <C>
Wyndham International 2.99%
---------------------------------------------------------------------
Telecorp PCS, Inc. 2.04%
---------------------------------------------------------------------
United Artists Theatre Co. 1.61%
---------------------------------------------------------------------
Agrilink Foods, Inc. 1.58%
---------------------------------------------------------------------
Ispat Inland 1.57%
---------------------------------------------------------------------
Nextel Finance Corp. 1.56%
---------------------------------------------------------------------
U.S. Office Products Co. 1.54%
---------------------------------------------------------------------
HMV Media Group 1.31%
---------------------------------------------------------------------
S.C. International Services, Inc. 1.22%
---------------------------------------------------------------------
Metro-Goldwyn-Mayer, Inc. 1.21%
---------------------------------------------------------------------
</TABLE>
CURRENT DISTRIBUTION
(August 31, 1998--July 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN SENIOR INCOME TRUST 3-MONTH TREASURY BILL
------------------------------ ---------------------
<S> <C> <C>
8/98 8.49 4.825
8 4.361
7.85 4.317
7.96 4.482
8.17 4.452
1/99 7.91 4.452
7.76 4.67
8.17 4.475
8.23 4.535
8.17 4.627
8.21 4.779
7/99 8.16 4.745
8.49 4.966
8.81 4.851
8.75 5.088
8.87 5.301
9.9 5.328
1/00 9.53 5.692
8.75 5.781
10.34 5.87
9.4 5.829
9.88 5.619
9.96 5.854
7/00 9.6 6.219
</TABLE>
5
<PAGE> 7
[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN SENIOR
INCOME TRUST ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS
AND INFLUENCED THE TRUST'S RETURN DURING THE 12 MONTHS ENDED JULY 31, 2000. THE
TEAM IS LED BY HOWARD TIFFEN, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE
TRUST SINCE DECEMBER 1999 AND BRINGS MORE THAN 30 YEARS OF GLOBAL AND DOMESTIC
INVESTMENT EXPERIENCE TO VAN KAMPEN'S SENIOR LOAN MANAGEMENT TEAM. THE FOLLOWING
DISCUSSION REFLECTS HIS VIEWS ON THE TRUST'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE
MARKET ENVIRONMENT IN WHICH THE TRUST OPERATED, AND HOW DID THE TRUST
PERFORM IN THAT ENVIRONMENT DURING THE PAST 12 MONTHS?
A The reporting period was split in
two by the arrival of the much-anticipated year 2000 transition, which created a
tentative market environment for much of late 1999 and early 2000. Many senior
loan issuers expected market disruptions, so they moved quickly to arrange their
financing before the fourth quarter of 1999. Others preferred to wait until the
dust had settled, delaying their senior loan issuance beyond the first weeks of
January.
As a result, the volume of new senior loan issuance slowed to a trickle in
December and January. This caution may have been a blessing in disguise, as the
senior loans that subsequently came to market were prudently constructed, with
sound capital structures and sensible leverage levels. The relatively low volume
spurred increased competition for suitable senior loans, providing greater
liquidity and support for loan prices.
The second half of the trust's fiscal year began quietly, due in part to
weakness in the high-yield bond market. Many high-yield investors had lingering
concerns over the record level of defaults in this market in 1999. This caution,
coupled with steadily rising interest rates over the period, put the brakes on
new issuance in the high-yield bond market. Because the senior debt market needs
a healthy capital market for junior debt (which includes high-yield bonds), the
lethargic nature of the high-yield market dragged the senior loan market as
well.
It wasn't until April that pools of private capital were pulled together to
provide the mezzanine financing that cushions the type of transaction you find
in the senior loan market. Consequently, the remainder of the reporting period
was healthy and vibrant in terms of new deal flow for senior loans. Pricing was
higher, competition from
6
<PAGE> 8
other institutional buyers had eased, and the market had slightly less
liquidity, enabling us to purchase new senior loans for the trust under
significantly better terms than during the early part of the year.
Finally, steadily rising interest rates since June 1999 have translated into
a higher level of income produced by the portfolio, strengthening the trust's
ability to provide shareholders with an attractive monthly dividend.
For the 12 months ended July 31, 2000, the trust had a total return of 0.61
percent based on market price. This includes a decrease in market price from
$9.5625 per share on July 31, 1999, to $8.7500 per share on July 31, 2000.
The trust continued to provide shareholders with an attractive level of
current income, as its dividend was increased two times during the fiscal year,
reflecting the steady rise in interest rates during the period. Its monthly
dividend of $0.07 per share translates to a distribution rate of 9.60 percent
based on the trust's closing market price on July 31, 2000. Please refer to the
chart and footnotes on page 4 for additional return highlights. As a result of
recent market activity, current performance may vary from the figures shown.
Past performance is no guarantee of future results.
The trust's net asset value declined during the period to $9.65 per share as
of July 31, 2000, down from $10.08 on July 31, 1999. Shares of the trust traded
at a discount to their net asset value throughout the period, although the
discount has narrowed since the beginning of the year to approximately 9.3
percent at the close of the reporting period.
Much of the decline in the trust's net asset value over the period is
associated with defaults that arose among several loans in the portfolio in 1999
and are still being worked out. Historically, nearly every default situation has
resulted in a sudden decline in the perceived value of the defaulted loan,
followed in many cases by a period of gradual recovery, which can take as long
as two years. We are confident in the asset recovery process we have in place
and the highly skilled professional staff we have assembled, and we hope for a
return to greater relative stability in the trust's net asset value over the
long term.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE TRUST DURING THIS PERIOD?
A The alarming rate of defaults that
occurred in the high-yield capital market during the past year continued to
haunt investors. An increase in default activity is normally associated with
recessionary periods, not times of strong business activity, so the truly
puzzling aspect of the default rate is that it spiked during a time of positive
economic growth. This suggests that default patterns are less cyclical than one
might expect, and that specific conditions have complicated the credit picture
for many senior loan and high-yield issuers.
For example, the health-care sector was hit hard by falling Medicare
reimbursements from the federal government. The resulting capital
7
<PAGE> 9
drain pushed five of the seven largest long-term care providers into bankruptcy
by the end of the third fiscal quarter. The trust was negatively affected by
some of its holdings in this industry, including non-accruing senior loans
issued by Integrated Health Services, a provider of post-acute medical and
rehabilitation services, and Vencor Operating, a nursing home operator based in
Louisville, Kentucky.
In 1998 and 1999, we also saw sinking commodities prices--for example, the
price of a barrel of oil reached as low as $12, which contributed to recent
difficulties in the energy sector. These factors, combined with the liquidity
crisis brought about by Russia's default on its debt obligations in August 1998,
created an increasing reluctance to commit capital to the debt markets.
We also had to deal with credit concerns tied to intense competition in the
cinema industry, where overbuilding of new, more luxurious theatres, while
existing theatres were still in service, glutted the market with capacity and
cut into profits. In fact, WestStar Cinemas, one of the trust's non-performing
loans, encountered financial pressures and was sold from the portfolio during
the reporting period.
We will talk later about the increased resources we have deployed to manage
the portfolio. Part of this has been an increased commitment to the still small
but growing secondary market for loans. We have used this to help reduce
exposures and to add new investments to the portfolio at what we think are
attractive values. We have also used the secondary market to lower our exposure
in areas where we believe we should either reduce risk, or where we want to
hedge the outcome from the workout of a difficult investment. Just after the
close of the fiscal year, we sold $2.5 million of the trust's holding in
Iridium, for example, to reduce our exposure to that workout.
Q WHAT SPECIFIC STRATEGIES DID
YOU EMPLOY IN MANAGING THE PORTFOLIO?
A Our chief focus was on increasing
the diversification of the trust's portfolio, as we believe this is one of the
most important defenses against the potential for principal loss due to loan
defaults.
While senior loans do have the inherent strengths of collateral coverage and
senior capital position, we believe the added safeguard of increased
diversification is a key to our strategy. A highly concentrated portfolio may be
more susceptible to negative surprises, so we reduced the percentage of
portfolio assets allocated to each of the trust's top 10 holdings while
increasing the range of the trust's investments across the board. We also
strictly limited the concentration of assets in any one issuer. Of course, there
can be no assurance that this strategy will protect against market decline.
We expanded the trust's portfolio holdings to include more than 200 separate
issues, up from 132 issues in January. The trust's top 10 holdings fell during
the fiscal year from 32.6 to 16.6 percent of total assets. With these changes,
we greatly reduced
8
<PAGE> 10
short-term holdings and the cash position of the portfolio to just 5.3 percent
of net assets as of July 31, 2000, down from 8.4 percent at the beginning of the
reporting period.
Aside from these strategic moves, we nearly doubled the size of our senior
loan staff, adding depth and breadth of experience. Our team, which has grown to
include 18 analysts with an average of 17 years of experience, has been around
long enough to witness several market cycles, giving them a broad understanding
of the dynamics of the senior loan market. In addition, we increased our value
recovery group, establishing a highly experienced senior loan group.
Q WHAT IS YOUR OUTLOOK FOR THE
MARKET AND THE TRUST IN THE MONTHS AHEAD?
A We anticipate a stable to slightly
rising interest-rate environment, as long as economic growth remains steady but
unspectacular and inflation remains in check. Continued relatively modest demand
for new senior loans should help to support yields.
Also, we expect the recent discipline within the senior loan market to
continue, sustaining the supply of senior loans with solid credit structures,
prudent loan covenants, and sensible leverage levels. Default rates have
moderated and, we believe, will remain at reasonable levels more closely aligned
with the market's historical default rate.
We believe the portfolio is well-positioned for the future. The senior loan
asset class should continue to be a defensive investment, an inflation hedge,
and an attractive choice for portfolio diversification.
9
<PAGE> 11
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
DIVERSIFICATION: A method of portfolio allocation and management aimed at
balancing investment risk and return; a balanced portfolio may combine stocks,
bonds, and cash equivalents.
DIVIDEND: A distribution of earnings. Dividends may be in the form of cash,
stock, or property.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic indicator
that measures the change in the cost of purchased goods and services.
LIQUIDITY: The ease with which an investor can buy or sell a security at a
reasonable price.
PORTFOLIO: A collection of securities owned by an individual or an institution
that may include stocks, bonds, and money-market securities.
SECTOR: A group of securities that are similar with respect to industry,
maturity, credit rating, or coupon.
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,
although such status is not a guarantee that monies to which the trust is
entitled will be paid. Senior loans tend to be less liquid than other
securities.
YIELD: The annual rate of return on an investment, expressed as a percentage.
10
<PAGE> 12
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.
11
<PAGE> 13
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
July 31, 2000
THE FOLLOWING PAGES DETAIL THE PORTFOLIO OF INVESTMENTS OF YOUR TRUST AT THE END
OF THE REPORTING PERIOD.(1)
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS
AEROSPACE/DEFENSE 1.0%
$ 9,410 Aerostructures Corp.,
Term Loan.............. NR BB- 09/06/04 $ 9,349,396
5,100 Aircraft Braking
Systems, Inc., Term
Loan................... NR NR 10/15/05 5,055,254
2,494 DeCrane Finance Co.,
Term Loan.............. B2 B+ 12/17/06 2,481,514
--------------
16,886,164
--------------
AUTOMOTIVE 4.0%
18,968 American Axle &
Manufacturing Holdings,
Inc., Term Loan........ Ba3 BB 04/30/06 18,928,869
18,635 Breed Technologies,
Inc., Term Loan (a)
(c).................... NR NR 09/30/00 to 04/27/06 8,571,920
927 Breed Technologies,
Inc., Debtor in
Possession (c)......... NR NR 09/30/00 926,980
4,975 CSK Auto, Inc., Term
Loan................... Ba2 BB- 10/31/03 4,927,324
4,985 Exide Corp., Term
Loan................... Ba3 B+ 03/18/05 4,997,461
7,039 Insilco Corp., Term
Loan................... Ba3 B+ 11/24/05 7,038,601
4,993 J.L. French Automotive
Castings, Inc.,
Term Loan.............. B1 B+ 10/21/06 4,971,540
7,500 Meridian Automotive
Systems, Inc., Term
Loan................... B1 BB- 03/31/07 7,490,852
5,000 Safelite Glass Corp.,
Term Loan (a) (c)...... Caa1 NR 12/23/04 to 12/23/05 2,747,106
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
AUTOMOTIVE (CONTINUED)
$ 440 Safelite Glass Corp.,
Debtor in
Possession (c)......... Caa1 NR 06/08/01 $ 433,180
8,000 Tenneco Automotive,
Inc., Term Loan........ Ba3 BB 11/04/07 to 07/04/08 7,946,496
--------------
68,980,329
--------------
BEVERAGE, FOOD & TOBACCO 3.8%
39,000 Agrilink Foods, Inc.,
Term Loan.............. B1 B+ 09/30/04 to 09/30/05 38,554,889
11,910 Aurora Foods, Inc.,
Term Loan.............. B2 B 09/30/06 11,910,000
10,000 B&G Foods, Inc., Term
Loan................... B1 B+ 03/31/06 9,991,886
5,500 Imperial Sugar Corp.,
Term Loan (c).......... B2 B 12/31/05 5,222,181
--------------
65,678,956
--------------
BROADCASTING--CABLE 2.0%
7,000 CC VIII Operating LLC,
Term Loan.............. Ba3 BB+ 02/02/08 7,002,919
4,900 Fairchild Corp., Term
Loan................... Ba3 BB- 04/30/06 4,864,856
17,300 Falcon Communications,
Inc., Term Loan........ Ba3 BB 12/31/07 17,145,934
5,000 FrontierVision
Operating Partners,
L.P., Term Loan........ Ba2 BB 03/31/06 4,954,381
--------------
33,968,090
--------------
BROADCASTING--DIVERSIFICATION 0.3%
5,000 AMFM, Inc., Term Loan.. Ba1 NR 11/19/01 4,993,750
--------------
BROADCASTING--TELEVISION 2.0%
7,960 Quoram Broadcasting,
Inc., Term Loan........ NR NR 09/30/07 7,959,965
26,500 Sinclair Broadcast
Group, Inc., Term
Loan................... Ba2 BB- 09/15/05 26,502,546
--------------
34,462,511
--------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
BUILDINGS & REAL ESTATE 1.6%
$ 6,012 Crescent Real Estate,
Term Loan.............. NR NR 02/01/04 $ 5,996,907
5,500 Morrison Knudsen Corp.,
Term Loan.............. Ba1 NR 07/07/07 5,496,562
17,412 Prison Realty Trust,
Inc., Term Loan........ B3 B 12/31/02 17,139,870
--------------
28,633,339
--------------
CHEMICALS, PLASTICS & RUBBER 6.0%
4,246 Applied Tech Management
Corp., Term Loan....... B1 NR 04/30/07 4,230,912
8,353 GenTek, Inc., Term
Loan................... Ba3 NR 04/30/07 8,353,937
18,652 Huntsman Group
Holdings, Term Loan.... Ba2 NR 9/30/03 to 04/01/02 18,600,493
3,960 Huntsman ICI Chemicals
LLC, Term Loan......... Ba3 BB 06/30/07 to 06/30/08 3,989,926
17,121 Lyondell Petrochemical
Corp., Term Loan....... Ba3 NR 06/30/05 to 05/17/06 17,521,206
5,000 Nutrasweet Co., Term
Loan................... Ba3 NR 05/25/07 to 05/25/09 4,993,430
13,500 OM Group, Inc., Term
Loan................... NR NR 03/31/07 13,499,916
16,986 Pioneer Americas
Acquisition Corp., Term
Loan................... B3 B 12/31/06 16,983,294
3,732 Sterling Pulp
Chemicals, Inc., Term
Loan................... B3 BB- 06/30/05 3,732,401
8,978 Sybron Corp., Term
Loan................... NR NR 03/28/07 8,949,670
4,531 West American Rubber,
Term Loan.............. NR NR 06/30/05 3,171,700
--------------
104,026,885
--------------
CONSTRUCTION MATERIAL 3.0%
4,975 Brand Scaffold
Services, Inc., Term
Loan................... B1 NR 09/30/03 4,959,355
24,318 BSI Holdings, Inc.,
Term Loan.............. NR NR 09/30/05 24,318,182
12,968 Encompass Services
Corp., Term Loan....... Ba3 BB 05/10/07 12,902,930
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
CONSTRUCTION MATERIAL (CONTINUED)
$ 5,486 Formica Corp., Term
Loan................... B1 B+ 04/30/06 $ 5,494,343
4,988 Mueller Group, Inc.,
Term Loan.............. B1 B+ 08/16/07 4,975,494
--------------
52,650,304
--------------
CONTAINERS, PACKAGING & GLASS 3.8%
9,905 Dr. Pepper/Seven Up
Cos., Inc., Term
Loan................... NR NR 10/07/07 9,909,864
10,220 Graham Packaging Co.,
Term Loan.............. B1 B+ 01/31/06 to 01/31/07 10,203,768
6,000 Huntsman Packaging
Corp., Term Loan....... B1 BB- 05/31/08 6,018,750
25,739 Mediapak Corp., Term
Loan................... NR NR 12/31/05 to 12/31/06 25,741,914
4,911 Packaging Dynamics,
Term Loan.............. NR NR 11/20/05 4,911,149
3,650 RIC Holdings, Inc.,
Revolving Credit
Agreement.............. NR NR 02/28/03 3,650,008
5,000 Tekni-Plex, Inc., Term
Loan................... Ba3 B+ 06/26/08 5,028,125
--------------
65,463,578
--------------
DIVERSIFIED MANUFACTURING 2.3%
3,490 CII Carbon LLC, Term
Loan................... NR NR 06/25/08 3,467,920
12,500 Citation Corp., Term
Loan................... NR B+ 12/01/07 12,501,694
11,940 SPX Corp., Term Loan... Ba2 BB+ 12/31/06 11,989,253
5,985 Tritech Precision,
Inc., Term Loan........ B1 B+ 03/28/07 5,953,494
6,977 UCAR International,
Inc., Term Loan........ Ba3 BB- 12/31/07 6,974,490
--------------
40,886,851
--------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
ECOLOGICAL 2.4%
$30,000 Allied Waste
Industries, Inc., Term
Loan................... Ba3 BB 07/23/06 to 07/23/07 $ 28,909,200
4,949 IT Group, Inc., Term
Loan................... B1 BB 06/11/06 4,893,763
7,491 Stericycle, Inc., Term
Loan................... B1 BB- 11/10/06 7,524,942
--------------
41,327,905
--------------
EDUCATION & CHILDCARE 0.2%
2,975 TEC Worldwide, Inc.,
Term Loan.............. NR NR 02/28/05 2,974,836
--------------
ELECTRONICS 5.0%
19,697 Amphenol Corp., Term
Loan................... Ba2 BB 05/19/04 to 05/19/06 19,493,326
6,348 Automata, Inc., Term
Loan (a) (c)........... NR NR 02/28/03 to 02/28/04 2,475,586
3,608 Caribiner
International, Inc.,
Term Loan.............. NR NR 09/30/03 3,355,432
20,612 Chatham Technologies
Acquisition, Inc., Term
Loan (c)............... NR NR 08/18/03 to 09/12/05 19,993,318
5,000 Computer Associates
International, Inc.,
Term Loan.............. Baa1 BBB+ 05/26/04 5,002,083
9,914 EG&G Technical
Services, Inc., Term
Loan................... B1 NR 08/20/07 9,913,772
4,783 Rowe International,
Term Loan.............. NR NR 12/31/03 4,257,227
81 Rowe International,
Revolving Credit
Agreement.............. NR NR 12/31/03 72,341
5,000 Semiconductor
Components Industries
LLC, Term Loan......... NR NR 08/04/07 5,005,000
9,980 Superior Telecom, Inc.,
Term Loan.............. Ba3 B+ 11/27/05 9,949,847
7,000 Viasystems, Inc., Term
Loan................... B1 BB- 03/31/07 6,996,717
--------------
86,514,649
--------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
ENTERTAINMENT & LEISURE 7.0%
$ 4,966 Bally Total Fitness
Holding Corp., Term
Loan................... B1 B+ 11/10/04 $ 4,966,969
9,960 Fitness Holdings
Worldwide, Inc., Term
Loan................... NR B+ 11/02/06 to 11/02/07 9,868,184
30,000 Metro-Goldwyn-Mayer,
Inc., Term Loan........ Baa3 BBB- 03/31/05 to 03/31/06 29,472,300
5,000 Playcore Wisconsin,
Inc., Term Loan........ NR NR 07/01/07 4,981,426
14,900 SFX Entertainment,
Inc., Term Loan........ B1 NR 06/30/06 14,914,900
8,000 Six Flags Theme Parks,
Inc., Term Loan........ Ba2 B+ 09/30/05 8,052,504
40,000 United Artists Theatres
Co., Term Loan (d)..... Caa3 D 04/21/06 to 04/21/07 39,253,292
10,240 WFI Group, Inc., Term
Loan................... Baa3 NR 07/14/04 10,239,995
--------------
121,749,570
--------------
FARMING & AGRICULTURE 0.3%
4,987 Doane Pet Care Co.,
Term Loan.............. B1 B+ 12/31/05 5,009,239
--------------
FINANCE 5.6%
28,939 Bridge Information
Systems, Inc., Term
Loan................... NR NR 06/30/03 to 05/29/05 28,942,531
6,100 Bridge Information
Systems, Inc.,
Revolving Credit
Agreement.............. NR NR 05/29/03 6,083,428
4,963 Outsourcing Solutions,
Term Loan.............. B2 BB- 06/01/06 4,950,868
25,000 Paul G. Allen, Term
Loan................... NR NR 06/10/03 24,978,789
10,000 Sovereign Bancorp,
Inc., Term Loan........ Ba3 NR 11/14/03 10,037,500
23,500 Ventas Realty, Term
Loan (c)............... NR NR 12/31/02 to 12/31/07 22,880,977
--------------
97,874,093
--------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
GROCERY 1.1%
$ 4,936 Eagle Family Foods,
Inc., Term Loan........ B1 B 12/31/05 $ 4,938,295
1,650 Fred Meyer, Inc., Term
Loan................... Baa3 NR 02/28/03 1,610,939
11,947 The Pantry, Inc., Term
Loan................... B1 NR 01/31/06 to 07/31/06 11,942,418
--------------
18,491,652
--------------
HEALTHCARE 9.0%
7,580 Caremark Rx, Inc., Term
Loan................... B1 BB- 05/31/01 7,582,308
3,150 Charles River
Laboratories, Inc.,
Term Loan.............. B1 B+ 09/29/07 3,150,000
5,000 Columbia/HCA Healthcare
Corp., Term Loan....... Ba2 BB+ 09/13/01 5,000,007
14,921 Community Health
Systems, Term Loan..... NR NR 12/31/05 14,802,073
18,424 Dade Behring, Inc.,
Term Loan.............. Ba3 B+ 6/30/05 to 06/30/07 18,426,874
13,617 FHC Health Systems,
Inc., Term Loan........ NR NR 04/30/03 to 04/30/06 13,617,105
1,368 FHC Health Systems,
Inc., Revolving Credit
Agreement.............. NR NR 05/18/03 1,368,422
8,462 Genesis Healthcare
Ventures, Inc., Term
Loan (a) (c)........... Caa2 NR 09/30/04 to 05/30/06 6,685,384
3,146 Genesis Healthcare
Ventures, Inc.,
Revolving Credit
Agreement (a) (c)...... Caa2 NR 05/30/06 2,485,476
44,213 Integrated Health
Services, Inc., Term
Loan (a) (c)........... Caa2 NR 09/30/04 28,738,125
6,540 Multicare Companies,
Inc., Term Loan (a)
(c).................... Caa3 NR 09/30/03 to 06/01/05 4,577,933
1,407 Multicare Companies,
Inc., Revolving Credit
Agreement (a) (c)...... Caa3 NR 10/09/03 984,761
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$ 4,988 National Nephrology
Associates, Inc., Term
Loan................... B1 B+ 12/31/05 $ 4,987,686
3,797 Quest Diagnostics,
Inc., Term Loan........ Ba3 BB 06/30/05 3,781,288
2,904 Sun Healthcare Group,
Inc., Term Loan (a)
(c).................... NR NR 11/12/04 2,119,819
12,413 Sun Healthcare Group,
Inc., Revolving Credit
Agreement (a) (c)...... NR NR 11/12/05 9,061,338
9,509 Tenet Healthcare Corp.
Revolving Credit
Agreement.............. Ba1 BB+ 01/31/02 9,508,743
23,000 Vencor, Inc., Term Loan
(a) (c)................ NR NR 03/31/03 to 01/15/05 20,257,201
--------------
157,134,543
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER
PRODUCTS 2.5%
7,365 Dal-Tile Group, Inc.,
Term Loan.............. NR NR 12/31/03 7,219,276
9,432 Holmes Products Corp.,
Term Loan.............. B1 B+ 02/05/07 9,409,003
3,732 Imperial Home Decor
Group, Inc., Term Loan
(a) (c)................ NR NR 03/12/04 to 03/13/06 2,465,099
1,246 Imperial Home Decor
Group, Inc., Revolving
Credit Agreement (a)
(c).................... NR NR 03/12/04 722,702
4,912 Medical Arts Press,
Inc., Term Loan........ NR NR 05/16/06 4,912,635
10,344 Rent A Center, Inc.,
Term Loan.............. Ba3 BB- 01/31/06 to 12/31/07 10,331,460
4,900 World Kitchen, Inc.,
Term Loan.............. B1 BB- 10/09/06 4,896,512
3,873 World Kitchen, Inc.,
Revolving Credit
Agreement.............. B1 BB- 04/09/05 3,499,055
--------------
43,455,742
--------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
HOTELS, MOTELS, INNS & GAMING 9.6%
$25,550 Aladdin Gaming LLC,
Term Loan.............. B2 NR 08/26/06 to 02/26/08 $ 25,550,017
26,800 Allegro Resorts Corp.,
Term Loan.............. NR NR 02/11/03 26,874,946
5,000 Extended Stay America,
Inc., Term Loan........ Ba3 NR 06/30/07 5,000,018
14,960 FelCor Lodging Trust,
Inc., Term Loan........ Ba2 BB 03/31/04 14,897,662
998 Isle of Capri Casinos,
Inc., Term Loan........ Ba2 BB- 03/02/06 to 03/02/07 1,003,022
17,661 Meditrust, Inc.,
Revolving Credit
Agreement.............. NR NR 07/17/01 17,662,715
2,375 Starwood Hotels and
Resorts, Inc., Term
Loan................... Ba1 NR 02/23/03 2,383,906
75,000 Wyndham International,
Term Loan.............. NR NR 06/30/06 73,143,750
--------------
166,516,036
--------------
MACHINERY 3.7%
25,000 Ashtead Group PLC, Term
Loan................... NR NR 06/01/07 24,874,945
4,888 Coinmach Corp., Term
Loan................... NR BB- 06/30/05 4,872,989
15,000 Ocean Rig (Norway),
Term Loan.............. NR NR 06/01/08 15,001,271
4,782 Thermadyne LLC, Term
Loan................... B1 B 05/28/05 to 05/28/06 4,779,077
11,935 United Rentals (North
America), Inc., Term
Loan................... Ba2 BB+ 06/30/05 to 06/30/09 11,790,296
2,800 Weigh-Tronix LLC, Term
Loan................... NR NR 06/30/07 2,852,341
--------------
64,170,919
--------------
MEDICAL PRODUCTS & SUPPLIES 2.4%
25,000 Alliance Imaging, Inc.,
Term Loan.............. B1 NR 11/02/07 24,812,500
16,616 Total Renal Care
Holdings, Inc., Term
Loan (c)............... B1 NR 03/31/08 16,616,764
--------------
41,429,264
--------------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
MINING, STEEL, IRON AND NON-PRECIOUS METALS 2.8%
$ 9,800 Earle M Jorgenson, Term
Loan................... B1 NR 03/31/04 $ 9,709,667
38,528 Ispat Inland, Term
Loan................... Ba3 BB 07/16/05 to 07/16/06 38,363,566
--------------
48,073,233
--------------
NATURAL RESOURCES--COAL 1.9%
25,000 Arch Western Resources
LLC, Term Loan......... Ba2 NR 05/31/03 25,000,959
8,000 P&L Coal Holdings
Corp., Term Loan....... Ba2 NR 06/30/06 8,756,077
--------------
33,757,036
--------------
NON-DURABLE CONSUMER 0.1%
997 American Safety Razor
Co., Term Loan......... B1 B+ 04/30/07 994,157
--------------
PAPER AND FOREST PRODUCTS 0.9%
2,641 Bear Island Paper Co.,
Term Loan.............. B1 B+ 12/31/05 2,641,305
5,000 Crown Paper Co., Term
Loan (c)............... Caa1 NR 06/30/03 5,003,625
8,745 Pacifica Papers, Inc.,
Term Loan.............. Ba2 BB 03/12/06 8,788,725
--------------
16,433,655
--------------
PERSONAL & MISCELLANEOUS SERVICES 2.2%
6,565 Arena Brands, Inc.,
Term Loan.............. NR NR 06/01/02 6,566,663
18,647 Boyds Collection, Ltd.,
Term Loan.............. Ba3 B+ 04/21/05 18,647,986
3,220 Professional Service
Industries, Inc., Term
Loan................... NR NR 09/16/02 3,220,218
9,525 Telespectrum Worldwide,
Term Loan.............. NR NR 12/31/01 to 12/31/03 9,526,501
--------------
37,961,368
--------------
PHARMACEUTICALS 1.8%
17,955 Bergen Brunswig Corp.,
Term Loan.............. NR BB 03/31/06 17,849,865
3,599 Endo Pharmaceuticals,
Inc., Term Loan........ NR NR 12/31/02 3,596,471
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
PHARMACEUTICALS (CONTINUED)
$ 2,455 King Pharmaceuticals,
Inc., Term Loan........ B1 BB- 12/18/06 $ 2,457,883
7,000 Shire Pharmaceuticals,
Inc., Term Loan........ Ba1 NR 11/19/04 7,000,456
--------------
30,904,675
--------------
PRINTING & PUBLISHING 6.6%
4,775 21ST Century Newspaper,
Inc., Term Loan........ B3 NR 09/15/05 4,757,367
11,400 American Reprographics,
Term Loan.............. NR NR 03/31/08 11,363,473
23,991 Big Flower Press
Holdings, Inc., Term
Loan................... B1 NR 12/06/05 23,991,677
8,000 Commerceconnect, Term
Loan................... NR NR 12/31/07 7,960,355
5,000 Liberty Group
Operating, Inc., Term
Loan................... B1 B 03/31/07 4,987,828
7,481 Mail-Well Corp., Term
Loan................... Ba2 BB 02/22/07 7,491,218
8,571 Penton Media, Inc.,
Term Loan.............. Ba3 BB- 06/30/07 8,571,718
9,960 Reiman Publications,
Term Loan.............. NR NR 12/10/05 9,998,984
9,731 R.H. Donnelley, Inc.,
Term Loan.............. NR NR 09/30/05 to 09/30/06 9,688,592
5,000 Trader.com, Term
Loan................... NR NR 12/31/06 to 12/31/07 4,950,000
2,000 TWP Capital Corp., Term
Loan................... NR NR 10/01/04 1,999,625
13,800 Von Hoffman Press,
Inc., Term Loan........ B1 B+ 07/01/04 to 07/01/05 13,735,600
2,000 Vutek, Inc., Term
Loan................... NR NR 06/30/07 1,987,500
4,159 Ziff-Davis Media, Inc.,
Term Loan.............. Ba3 B+ 03/31/07 4,165,084
--------------
115,649,021
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
RESTAURANTS & FOOD SERVICE 3.9%
$ 1,384 Carvel Corp., Term
Loan................... NR NR 06/30/01 $ 1,383,744
24,270 Domino's Pizza, Term
Loan................... B1 B+ 12/21/06 to 12/21/07 24,319,461
30,000 S.C. International
Services, Inc., Term
Loan................... Ba3 NR 03/01/07 29,891,715
12,743 Shoney's, Inc., Term
Loan................... B2 NR 04/30/02 12,742,703
--------------
68,337,623
--------------
RETAIL--OFFICE PRODUCTS 2.9%
12,146 Buhrmann U.S., Inc.,
Term Loan.............. Ba3 BB- 10/26/07 12,176,254
39,617 U.S. Office Products
Co., Term Loan......... NR NR 06/09/06 37,636,307
--------------
49,812,561
--------------
RETAIL--OIL AND GAS 1.0%
7,500 Barjan Products LLC,
Term Loan.............. NR NR 05/31/06 7,396,502
5,000 Kwik Trip, Inc., Term
Loan................... NR NR 07/27/07 4,987,500
5,000 Port Authur Coker Co.,
Term Loan.............. Ba3 NR 07/15/07 4,743,875
--------------
17,127,877
--------------
RETAIL--SPECIALTY 1.0%
8,000 Josten's, Inc., Term
Loan................... B1 BB- 05/31/08 8,025,832
4,990 Mitchell's Management,
Term Loan.............. NR NR 12/31/07 4,940,387
4,938 Petco Animal Supply,
Term Loan.............. NR NR 04/29/06 4,943,766
--------------
17,909,985
--------------
RETAIL--STORES 2.7%
32,100 HMV Media Group, Inc.,
Term Loan.............. B1 BB- 03/28/05 to 03/28/06 32,087,708
16,000 Rite Aid Corp., Term
Loan................... Ba3 B 08/01/02 15,920,004
--------------
48,007,712
--------------
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 3.2%
$ 5,000 Cincinnati Bell, Inc.,
Term Loan.............. Ba1 NR 12/30/06 $ 5,010,115
22,000 Dynatech Corp. LLC,
Term Loan.............. NR B+ 09/30/07 21,883,594
6,000 McLeodUSA, Inc., Term
Loan................... Ba2 BB- 05/31/08 6,013,392
10,000 Orius Corp., Term
Loan................... NR B+ 12/14/06 to 12/15/07 9,925,754
12,500 Winstar Communications,
Inc., Term Loan........ B2 B+ 09/30/07 12,191,412
--------------
55,024,267
--------------
TELECOMMUNICATIONS--LONG DISTANCE 0.6%
10,000 Pacific Crossing Ltd.,
Term Loan.............. NR NR 07/28/06 10,000,000
--------------
TELECOMMUNICATIONS--PAGING 1.3%
12,700 Paging Network, Inc.,
Revolving Credit
Agreement.............. B2 CC 12/31/04 11,736,869
10,973 TSR Wireless LLC, Term
Loan................... NR NR 06/30/05 10,972,500
--------------
22,709,369
--------------
TELECOMMUNICATIONS--WIRELESS 12.6%
5,000 American Cellular
Corp., Term Loan....... Ba3 B+ 03/31/08 to 03/31/09 5,000,390
7,500 American Tower Corp.,
Term Loan.............. B1 BB- 01/06/08 7,533,240
25,000 BCP SP Ltd., Term
Loan................... NR NR 3/31/02 to 03/31/05 24,789,604
19,635 Iridium Operating LLC,
Term Loan (a) (c)...... NR D 12/29/00 4,319,679
11,712 Microcell
Telecommunications,
Inc., Term Loan........ NR NR 03/01/06 11,713,510
38,000 Nextel Finance Co.,
Term Loan.............. Ba2 BB- 06/30/08 to 03/31/09 38,023,370
5,800 Powertel PCS, Inc.,
Term Loan.............. NR NR 12/31/06 5,752,359
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
TELECOMMUNICATIONS--WIRELESS (CONTINUED)
$ 5,000 Spectrasite
Communications, Term
Loan................... NR NR 06/30/06 $ 5,011,250
4,211 Sygnet Wireless, Inc.,
Term Loan.............. B3 NR 03/31/07 to 12/23/07 4,214,874
50,000 Telecorp PCS, Inc.,
Term Loan.............. B2 NR 12/05/07 49,947,900
22,700 Triton PCS, Inc., Term
Loan................... B1 B 05/04/07 22,700,488
25,000 Voicestream PCS
Holdings, Inc., Term
Loan................... B1 B+ 02/25/08 to 02/25/09 24,873,170
14,500 Western Wireless Corp.,
Term Loan.............. Ba2 BB 09/30/08 14,561,625
--------------
218,441,459
--------------
TEXTILES & LEATHER 2.6%
8,800 American Marketing
Industries, Inc., Term
Loan................... NR NR 11/30/04 to 11/30/05 8,798,480
8,500 Galey & Lord, Inc.,
Term Loan.............. Caa2 BB- 04/02/05 to 04/01/06 7,290,740
6,000 Malden Mills
Industries, Inc., Term
Loan................... B1 NR 10/28/06 6,000,498
13,755 Norcross Safety
Products, Term Loan.... NR NR 10/02/05 13,746,273
7,800 Pillowtex Corp., Term
Loan (c)............... B3 CCC 12/31/04 7,741,731
1,500 Sleepmaster LLC, Term
Loan................... B1 BB- 12/31/06 1,494,381
--------------
45,072,103
--------------
TRANSPORTATION--CARGO 3.8%
16,900 American Commercial
Lines LLC.............. Ba2 BB- 06/26/06 to 06/26/07 16,873,712
6,900 Atlas Freighter
Leasing, Term Loan..... NR NR 04/20/05 to 04/20/06 6,834,568
9,280 Evergreen International
Aviation, Inc., Term
Loan................... NR NR 05/31/02 to 05/02/04 9,198,929
15,500 Kansas City Southern
Railway Co., Term
Loan................... Ba1 NR 12/30/05 15,580,275
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BANK LOAN
PAR RATINGS+
AMOUNT -------------- STATED
(000) BORROWER MOODY'S S&P MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
TRANSPORTATION--CARGO (CONTINUED)
$12,935 North American Van
Lines, Inc., Term
Loan................... B1 B+ 11/18/07 $ 12,935,000
4,975 RailAmerica, Inc., Term
Loan................... Ba3 BB- 12/31/06 5,002,362
--------------
66,424,846
--------------
TRANSPORTATION--PERSONAL 0.8%
5,000 Avis Group Holdings,
Inc., Term Loan........ Ba3 BB+ 06/30/06 5,001,016
9,900 NationsRent, Inc., Term
Loan................... B1 BB- 07/20/06 9,813,375
--------------
14,814,391
--------------
TRANSPORTATION--MANUFACTURING 0.5%
7,980 RailWorks Corp., Term
Loan................... B1 BB- 09/30/06 7,980,030
--------------
UTILITIES 0.9%
10,000 AES Texas Funding LLC,
Term Loan.............. NR NR 04/24/01 10,001,126
6,000 Western Resources,
Inc., Term Loan........ NR NR 03/17/03 5,985,008
--------------
15,986,134
--------------
TOTAL VARIABLE RATE**
SENIOR LOAN INTERESTS 132.7%........................................... 2,304,700,707
FIXED INCOME SECURITIES 1.5%
Satelites Mexicanos ($26,121,000 par, 9.06% coupon, maturing 06/30/04)
144A Private Placement (b).............................................. 26,155,893
--------------
TOTAL LONG-TERM INVESTMENTS 134.2%
(Cost $2,403,196,294)................................................. 2,330,856,600
--------------
COMMERCIAL PAPER 5.4%
Armstrong World Industry ($11,000,000 par, maturing 08/01/00, yielding
7.00%)................................................................ 11,000,000
Bridgestone/Firestone, Inc. ($5,500,000 par, maturing 08/02/00, yielding
6.50%).................................................................. 5,499,007
Glencore Funding, Inc. ($8,000,000 par, maturing 08/02/00, yielding
6.75%).................................................................. 7,998,500
J B Hunt Transportation Services, Inc. ($8,000,000 par, maturing
08/02/00, yielding 6.65%)............................................... 7,998,522
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
YOUR TRUST'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
BORROWER VALUE
<C> <S> <C> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
Mallinckrodt Group, Inc. ($18,029,000 par, maturing 08/01/00, yielding
6.75% )................................................................. $ 18,029,000
Texas Utilities Co. ($18,500,000 par, maturing 08/01/00 to 08/03/00,
yielding 6.68%)......................................................... 18,496,846
Tyson Foods, Inc. ($10,000,000 par, maturing 08/04/00, yielding
6.65%).................................................................. 9,994,458
Visteon Corp. ($10,000,000 par, maturing 08/03/00, yielding 6.66%)...... 9,996,300
Xtra, Inc. ($5,000,000 par, maturing 08/04/00, yielding 6.67%).......... 4,997,221
--------------
TOTAL COMMERCIAL PAPER 5.4%
(Cost $94,009,854).................................................... 94,009,854
--------------
TOTAL INVESTMENTS 139.6%
(Cost $2,497,206,148)................................................. 2,424,866,454
BORROWINGS (40.3%)..................................................... (700,000,000)
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7%............................. 11,678,118
--------------
NET ASSETS 100.0%...................................................... $1,736,544,572
==============
</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.
(Unaudited)
1 Industry percentages are calculated as a percentage of net assets.
(a) This Senior Loan is non-income producing.
(b) 144A Securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally
transactions with qualified institutional buyers.
(c) This borrower has filed for protection in federal bankruptcy court.
(d) Subsequent to July 31, 2000, this borrower has filed for protection in
federal bankruptcy court.
* 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
27
<PAGE> 29
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
July 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,497,206,148)..................... $2,424,866,454
Interest Receivable......................................... 20,157,800
Other....................................................... 170,255
--------------
Total Assets............................................ 2,445,194,509
--------------
LIABILITIES:
Payables:
Borrowings................................................ 700,000,000
Investment Advisory Fee................................... 1,813,190
Custodian Bank............................................ 1,385,327
Administrative Fee........................................ 440,705
Affiliates................................................ 202,174
Accrued Interest Expense.................................... 4,052,269
Accrued Expenses............................................ 641,125
Trustees' Deferred Compensation and Retirement Plans........ 115,147
--------------
Total Liabilities....................................... 708,649,937
--------------
NET ASSETS.................................................. $1,736,544,572
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 180,010,000 shares issued and
outstanding).............................................. $ 1,800,100
Paid in Surplus............................................. 1,795,855,431
Accumulated Undistributed Net Investment Income............. 14,576,817
Accumulated Net Realized Loss............................... (3,348,082)
Net Unrealized Depreciation................................. (72,339,694)
--------------
NET ASSETS.................................................. $1,736,544,572
==============
NET ASSET VALUE PER COMMON SHARE ($1,736,544,572 divided by
180,010,000 shares outstanding)........................... $ 9.65
==============
</TABLE>
See Notes to Financial Statements
28
<PAGE> 30
Statement of Operations
For the Year Ended July 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $216,037,564
Fees........................................................ 4,142,207
------------
Total Income............................................ 220,179,771
------------
EXPENSES:
Investment Advisory Fee..................................... 21,164,948
Administrative Fee.......................................... 4,979,988
Custody..................................................... 688,592
Legal....................................................... 737,416
Trustees' Fees and Related Expenses......................... 109,675
Other....................................................... 3,240,501
------------
Total Operating Expenses................................ 30,921,120
Interest Expense........................................ 44,144,314
------------
Total Expenses.......................................... 75,065,434
------------
NET INVESTMENT INCOME....................................... $145,114,337
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (3,054,917)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (439,061)
End of the Period......................................... (72,339,694)
------------
Net Unrealized Depreciation During the Period............... (71,900,633)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(74,955,550)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 70,158,787
============
</TABLE>
See Notes to Financial Statements
29
<PAGE> 31
Statement of Changes in Net Assets
For the Years Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999
---------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 145,114,337 $ 140,011,697
Net Realized Gain/Loss........................... (3,054,917) 1,521,075
Net Unrealized Depreciation During the Period.... (71,900,633) (1,812,501)
-------------- --------------
Change in Net Assets from Operations............. 70,158,787 139,720,271
-------------- --------------
Distributions from Net Investment Income......... (147,076,580) (136,447,562)
Distributions from Net Realized Gain............. (1,593,578) (360,020)
-------------- --------------
Total Distributions.......................... (148,670,158) (136,807,582)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... (78,511,371) 2,912,689
NET ASSETS:
Beginning of the Period.......................... 1,815,055,943 1,812,143,254
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of
$14,576,817 and $16,412,624, respectively)..... $1,736,544,572 $1,815,055,943
============== ==============
</TABLE>
See Notes to Financial Statements
30
<PAGE> 32
Statement of Cash Flows
For the Year Ended July 31, 2000
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 70,158,787
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Decrease in Investments at Value.......................... 180,771,823
Increase in Interest Receivable........................... (3,080,281)
Decrease in Receivable for Investments Sold............... 630,295
Decrease in Unamortized Organizational Costs.............. 31,210
Decrease in Other Assets.................................. 15,876
Decrease in Investment Advisory Fees Payable.............. (74,860)
Decrease in Administrative Fees Payable................... (3,542)
Increase in Payable for Investments Purchased............. -0-
Increase in Affiliates Payable............................ 113,024
Increase in Accrued Expenses.............................. 110,119
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 42,322
-------------
Total Adjustments....................................... 178,555,986
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 248,714,773
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Bank Borrowings................................... (100,000,000)
Change in Intra-day Credit Line with Custodian Bank......... (1,336,286)
Change in Debt Issuance Cost................................ 979,927
Change in Accrued Interest Expense.......................... 468,594
Cash Dividends Paid......................................... (147,233,430)
Capital Gain Dividends Paid................................. (1,593,578)
-------------
Net Cash Used for Financing Activities.................... (248,714,773)
-------------
NET DECREASE IN CASH........................................ -0-
Cash at Beginning of the Period............................. -0-
-------------
CASH AT THE END OF THE PERIOD............................... $ -0-
=============
</TABLE>
See Notes to Financial Statements
31
<PAGE> 33
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
JUNE 24, 1998
YEAR YEAR (COMMENCEMENT
ENDED ENDED OF INVESTMENT
JULY 31, JULY 31, OPERATIONS) TO
2000 1999 JULY 31, 1998
------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD (a)....... $ 10.08 $ 10.07 $ 9.99
-------- -------- --------
Net Investment Income............................ .81 .77 .07
Net Realized and Unrealized Gain/Loss............ (.42) -0- .01
-------- -------- --------
Total from Investment Operations................... .39 .77 .08
-------- -------- --------
Less:
Distributions from Net Investment Income......... .81 .76 -0-
Distributions from Net Realized Gains............ .01 -0- -0-
-------- -------- --------
Total Distributions................................ .82 .76 -0-
-------- -------- --------
NET ASSET VALUE, END OF THE PERIOD................. $ 9.65 $ 10.08 $ 10.07
======== ======== ========
Market Price Per Share at End of the Period........ $ 8.7500 $ 9.5625 $10.0625
Total Investment Return at Market Price (b)........ .61% 2.98% 0.63%**
Total Return at Net Asset Value (c)................ 4.10% 7.91% 0.70%**
Net Assets at End of the Period (In millions)...... $1,736.5 $1,815.1 $1,812.1
Ratio of Operating Expenses to Average Net
Assets*.......................................... 1.75% 1.66% 1.18%
Ratio of Interest Expenses to Average Net Assets... 2.49% 2.37% 0.28%
Ratio of Net Investment Income to Average Net
Assets*.......................................... 8.19% 7.72% 6.94%
Portfolio Turnover (d)............................. 57% 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 N/A 1.21%
Ratio of Net Investment Income to Average Net
Assets........................................... N/A 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 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.
(c) 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.
(d) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interest.
N/A=Not Applicable
See Notes to Financial Statements
32
<PAGE> 34
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Senior Income Trust (the "Trust"), is registered as a non-diversified
closed-end management investment company under the Investment Company Act of
1940, as amended. The Trust's investment objective is to provide a high level of
current income, consistent with preservation of capital. The Trust seeks to
achieve its objective by investing primarily in a portfolio of interests in
floating or variable rate senior loans to corporations, partnerships and other
entities which operate in a variety of industries and geographical regions. The
Trust borrows money for investment purposes which will create the opportunity
for enhanced return, but also should be considered a speculative technique and
may increase the Trust's volatility. The Trust commenced investment operations
on June 24, 1998.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION The Trust's Variable Rate Senior Loan interests and Other
Loan interests (collectively "Loan interests") are valued by the Trust following
guidelines established and periodically reviewed by the Trust's Board of
Trustees. Subject to criteria established by the Trust's Board of Trustees about
the availability and reliability of market indicators obtained from independent
pricing sources, certain Loan interests are valued at the mean of bid and ask
market indicators supplied by independent pricing sources approved by the
Trust's Board of Trustees. All other Loan interests are valued by considering a
number of factors including consideration of market indicators, transactions in
instruments which Van Kampen Investment Advisory Corp. (the "Adviser") believes
may be comparable (including comparable credit quality, interest rate, interest
rate redetermination period and maturity), the credit worthiness of the
borrower, the current interest rate, the period until next interest rate
redetermination and the maturity of such Loan interests. Consideration of
comparable instruments may include commercial paper, negotiable certificates of
deposit and short-term variable rate securities which have adjustment periods
comparable to the Loan interests in the Trust's portfolio. The fair value of
Loan interests are reviewed and approved by the Trust's Valuation Committee and
by the Trust's Board of Trustees. The fair value of a Loan interest may differ
significantly from the market value that would have been used had there been a
ready and reliable market for that Loan interest.
33
<PAGE> 35
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
Short-term securities with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. Short-term loan
participations are valued at cost in the absence of any indication of
impairment.
B. SECURITY TRANSACTIONS Investment transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Facility
fees received are treated as market discounts. Market premiums are amortized and
discounts are accreted over the stated life of each applicable 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 wrote
off the remaining unamortized organizational costs in August 1999.
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 post October losses and the deferral of losses
relating to wash sale transactions.
At July 31, 2000, for federal income tax purposes cost of long- and
short-term investments is $2,497,207,543, the aggregate gross unrealized
appreciation is $12,643,036 and the aggregate gross unrealized depreciation is
$84,984,125 resulting in net unrealized depreciation on long- and short-term
investments of $72,341,089.
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 at least annually to common shareholders.
34
<PAGE> 36
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
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 2000 fiscal year have been identified and appropriately
reclassified. Permanent differences relating to expenses which are not
deductible for tax purposes totaling $126,436 were reclassified from accumulated
undistributed net investment income to capital.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee of .85%
of the average daily managed assets. Managed assets are defined as the gross
asset value of the Trust minus the sum of accrued liabilities, other than the
aggregate amount of borrowings undertaken by the Trust. In addition, the Trust
will pay a monthly administrative fee to Van Kampen Investments Inc., the
Trust's Administrator, at an annual rate of .20% of the average daily managed
assets of the Trust. The administrative services 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, 2000, the Trust recognized expenses of
approximately $112,100 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, 2000, the Trust recognized expenses of
approximately $37,700 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.
35
<PAGE> 37
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
3. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $1,306,495,374 and $1,348,600,854
respectively.
4. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $52,544,300 as of July
31, 2000. 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 July 31, 2000, 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.................................................... $14,986 $14,986
Lehman Commercial Paper..................................... 12,437 12,165
Goldman Sachs Credit........................................ 5,257 5,257
------- -------
$32,680 $32,408
======= =======
</TABLE>
6. BORROWINGS
In accordance with its investment policies, the Trust may borrow money for
investment purposes in an amount up to approximately 33 1/3% of the Trust's
total assets.
The Trust has entered into an $800 million revolving credit agreement 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,
36
<PAGE> 38
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
the proceeds of which are used to make advances to the Trust. This revolving
credit agreement is secured by the assets of the Trust. For the period ended
July 31, 2000, the average daily balance of borrowings under the revolving
credit agreement was $737 million with a weighted average interest rate of
5.99%.
37
<PAGE> 39
REPORT OF INDEPENDENT AUDITORS
To 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, 2000, and the related statements of operations,
changes in net assets, cash flows and the financial highlights for the year then
ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The Trust's financial statements and financial highlights for the periods
ended prior to July 31, 2000, were audited by other auditors whose report, dated
September 14, 1999, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2000, by correspondence with the Trust's
custodian and selling or agent banks. 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, 2000, the results of its operations,
cash flows, changes in net assets, and financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note 1A, the portfolio of investments includes certain loan
interests for which, fair values are determined by the Trust's investment
adviser under procedures approved by the Board of Trustees. Determination of
fair values involves subjective judgment, as the actual market value of a
particular security can be established only by negotiations between parties in a
transaction. We have reviewed the procedures established by the Board of
Trustees and applied by the investment adviser in determining the fair values of
such loan interests and inspected the underlying documentation. We believe that,
in the circumstances, the procedures are reasonable and the documentation
appropriate.
DELOITTE & TOUCHE LLP
Chicago, Illinois
September 15, 2000
38
<PAGE> 40
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders who are participants in the Plan may have all distributions
of dividends and capital gains automatically reinvested in Common Shares of the
Trust. Common Shareholders who elect not to participate in the Plan will receive
all distributions of dividends and capital gains in cash paid by check mailed
directly to the Common Shareholder by the Trust's dividend disbursing agent.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for
the Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or capital gains distribution paid subsequent to written
notice of the change sent to all Common Shareholders of the Trust at least 90
days before the record date for the dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent, with the written consent of the
Trust, by providing at least 90 days written notice to all Participants in the
Plan.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
You may withdraw from the Plan at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company. If you withdraw, you will receive,
without charge, a share certificate issued in your name for all full Common
Shares credited to your account under the Plan, and a cash payment will be made
for any fractional Common Share credited to your account under the Plan. You may
again elect to participate in the Plan at any time by calling 1-800-341-2929 or
writing to the Trust at:
2800 Post Oak Blvd.
Attn: Closed-End Funds
Houston, TX 77056
39
<PAGE> 41
TRUST OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN SENIOR INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
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
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 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 AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
For federal income tax purposes, the following is furnished with respect to
the distributions paid by the Trust during its taxable year ended July 31,
2000. The Trust designated and paid $176,445 as a 20% rate gain distribution.
In January 2000, the Trust provided tax information to shareholders for the
1999 calendar year.
* "Interested" persons of the Trust, as defined in the Investment Company Act
of 1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
40
<PAGE> 42
RESULTS OF
SHAREHOLDER VOTES
An Annual Meeting of the Shareholders of the Trust was held on June 21, 2000,
where shareholders voted on the election of trustees and the ratification of
Deloitte & Touche LLP as the independent auditors.
1) With regard to the election of the following trustees by the shareholders of
the Trust:
<TABLE>
<CAPTION>
# OF SHARES
--------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
Rod Dammeyer....................................... 172,805,436 3,040,801
Wayne W. Whalen.................................... 172,858,062 2,988,175
</TABLE>
The other trustees whose terms did not expire in 2000 are David C. Arch, Howard
J Kerr, Theodore A. Myers, Richard F. Powers, III, and Hugo F. Sonnenschein.
2) With regard to the ratification of Deloitte & Touche LLP as independent
auditors for the Trust, 173,039,235 shares voted for the proposal, 1,426,180
shares voted against and 1,380,822 shares abstained.
41
