Invest well. Look ahead. LEAVE YOUR MARK. SM NUVEEN
Investments
NUVEEN
SENIOR INCOME
FUND
NSL
July 31, 2000
ANNUAL REPORT
O HIGH CURRENT INCOME FROM A PORTFOLIO OF
SENIOR, SECURED CORPORATE LOANS
<PAGE>
Highlights Since Inception
As of July 31, 2000
O VERY ATTRACTIVE
INITIAL DIVIDEND
O FOUR SUBSEQUENT
DIVIDEND INCREASES
O LEVERAGING SUCCESSFULLY
COMPLETED
O VERY ATTRACTIVE CURRENT YIELD
AND SINCE-INCEPTION TOTAL
RETURN, AS OF JULY 31, 2000
O TRADING AT A PREMIUM
TO NET ASSET VALUE, AS
OF JULY 31, 2000
CONTENTS
1 Dear Shareholder
3 Portfolio Manager's Comments
5 Performance Overview
6 Report of Independent Auditors
7 Portfolio of Investments
11 Statement of Net Assets
12 Statement of Operations
13 Statement of Changes in Net Assets
14 Statement of Cash Flows
15 Notes to Financial Statements
18 Financial Highlights
20 Build Your Wealth Automatically
21 Fund Information
--------------------------------------------------------------------------------
COMPOUND-YOUR-WEALTH-AUTOMATICALLY
All Nuveen closed-end ETFs let you reinvest dividends and capital gains directly
into additional shares of your Fund. This is a great way to see your investment
grow through the power of compounding.
For more information about Dividend Reinvestment, see the last page of this
report or speak with your financial advisor.
--------------------------------------------------------------------------------
<PAGE>
Photo of: Timothy R. Schwertfeger
Chairman of the Board
Sidebar text: "Building and sustaining wealth requires sound, ongoing advice."
Dear Shareholder
The objective of the Nuveen Senior Income Fund (NSL) is to provide shareholders
with a high level of current income, consistent with preservation of capital. I
am pleased to report that, during the period covered by this report, NSL has
achieved this goal, increasing its monthly dividend four times since the Fund's
inception in October 1999.
These increases were a direct result of NSL's design, which enables the Fund to
adjust its dividend to keep pace with current short-term interest rates.
I encourage you to read the Portfolio Manager's Comments later in this report,
where we take a comprehensive look at short-term rate movements, as well as the
portfolio structure and Fund performance for the period since the Fund's initial
public offering.
We believe that NSL, as an income-oriented investment, continues to be well
positioned to play an important role in your long-term investment program.
Because senior loans of the type in which the Fund invests historically have
demonstrated low correlation with the stock and bond markets, the Fund also can
bring a measure of diversification to your portfolio and help reduce overall
portfolio volatility.
The introduction and initial success of NSL represents another example
of Nuveen's expanding efforts to help investors establish well-diversified
investment programs. With the help of your financial advisor, all of us at
Nuveen Investments are dedicated to providing the services, products,
perspectives, and solutions that you need to better meet your personal and
family goals.
NEW WAYS TO THINK ABOUT WEALTH
Over the past few years, much attention has been directed toward the ways
investors are accumulating wealth. At Nuveen, we believe it is equally important
for investors to focus on preserving that wealth, on the responsibilities that
accompany wealth, and on the legacies we will leave for future generations.
This long-term perspective is key to under standing Nuveen's portfolio
management strategies, our insistence on value, and our determination to provide
investments that can withstand the test of time. It is a philosophy that we
think is well encapsulated in the Nuveen theme: Invest Well. Look Ahead. Leave
Your Mark.(SM)
1
<PAGE>
Sidebar text: "Since 1898, the name Nuveen has been synonymous with quality
invest ments, careful research and prudent management."
INVEST WELL
Building and sustaining the wealth that can result in lasting legacies requires
a well-developed plan, sound ongoing advice, and the discipline to remain
focused on long-term results. With today's abundance of investment products and
offers, it also increasingly requires an experienced and trusted adviser who can
guide you through the opportunities and the pitfalls. With so much potentially
at stake, Nuveen Investments is dedicated to delivering quality products like
the Nuveen Senior Income Fund through the financial advisors who assist you in
making wise investment choices and help you manage your most important financial
assets.
LOOK AHEAD
We urge all our investors to look ahead, not only toward their own goals and
futures, but those of future generations as well. We now stand on the threshold
of a new millennium, anticipating a time of change, discovery, and potential
that may one day make the year 2000 seem as archaic as the year 1900. While we
can not know all that the future will bring, we do know that a well-diversified,
carefully monitored investment program that combines elements of growth, income,
and capital preservation forms a solid foundation that can help us meet whatever
opportunities and challenges the new millennium has to offer.
LEAVE YOUR MARK
With the enormous wealth creation of the past decade and the considerable
intergenerational transfer of wealth that is expected to occur over the next 20
years, investors today have a significant opportunity to shape the financial
future for themselves and their families. These opportunities may include
establishing trusts, endowments, or legacies that can directly affect our
families and com munities for generations to come. All of us at Nuveen are
committed to facilitating and raising the level of dialogue between investors
and their financial advisors in ways that help meet goals that extend far beyond
the boundaries of a single lifespan.
Since 1898, the name Nuveen has been synonymous with quality investments,
careful research, and prudent management. Today, more than ever, the investments
and services we offer through financial advisors are designed for those who
recognize and embrace the need to build and manage wealth. We encourage you to
speak with your financial advisor about the ways in which you can enhance your
investment program with Nuveen products and services that can help you Invest
Well, Look Ahead, and Leave Your Mark.
/S/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
September 15, 2000
2
<PAGE>
NSL - Nuveen Senior Income Fund
Portfolio Manager's Comments
Executive Managing Director Jeffrey Maillet, leader of the Nuveen Senior Income
Fund management team, discusses the recent market environment, Fund performance,
and the strategies used to manage NSL since its inception in October 1999. A
pioneer in the field of senior floating rate loan products, Jeff has 20 years of
experience with this asset class and has managed the purchase of more than 2,000
senior bank issues totaling more than $28 billion.
IN GENERAL, WHAT WAS THE MARKET ENVIRONMENT OVER THE NINE MONTHS ENDED
JULY 31, 2000?
The U.S. is now well into its tenth year of uninterrupted economic expansion,
the longest continuous such expansion in the nation's history. The rapid pace of
this expansion has been of great concern to the Federal Reserve, which continues
to watch carefully for any signs that the booming economy might trigger a
resurgence of inflation. To pre-empt the threat of inflation, the Fed instituted
a series of six short-term interest rate hikes that, between June 1999 and May
2000, increased the federal funds rate from 4.75% to 6.50%, the highest level in
almost a decade.
In recent months, several economic indicators have begun to suggest that the
current tightening cycle could be nearing its end. We think the Fed may now
remain on the sidelines until after it has assessed data from the holiday
season. Ultimately, we believe higher prices for petroleum, rather than the
Fed's tightening, will be more likely to have a substantial braking effect on
the general economy. Oil prices affect almost every aspect of the U.S. economy.
Higher costs in the sector could combine with higher interest rates to provide a
one-two punch to the economic expansion - possibly leading to a sharper slowdown
than the Fed envisioned.
We believe our shareholders have benefited from exposure to the senior loan
market, as it has continued to be extremely vibrant with many opportunities on a
primary offering basis, as well as on the secondary side. The senior loan market
continues its dynamic development - as an example, now traditional banks and
investment banks have teamed up to underwrite new offerings. Almost every
underwriter now also has secondary trading desk support. In fact, the U.S. model
for underwriting/trading of senior loans is now largely implemented in Europe as
well. Additionally, the rating agencies have fully committed resources to the
senior loan market and rate a very high number of the senior loan issues in the
marketplace.
On the less-than-positive side, defaults have continued to increase since
segments of the healthcare industry began to break down in 1998. As is
reminiscent of the early '90s, the high yield debt hangover period from the late
'80s leverage binge is now in full force in 2000, caused by a similar excess
leverage binge in '97 and '98. We believe default rates should continue to rise
through the rest of this year and into 2001 as the economy weakens. It is
expected that those industries, and specifically those issues, which in our
estimation were over-leveraged, will now be subjected to higher levels of price
volatility and in all likelihood greater-than-anticipated principal dilution.
Over the past 13 years, the senior loan market has continued to evolve. It has
become a market that usually identifies winners and losers very quickly with
very efficient pricing.
HOW HAS THIS ENVIRONMENT AFFECTED THE SENIOR LOAN MARKET AND NSL OVER THE PAST
NINE MONTHS?
Overall, senior loans have performed very well, with few of the shocks that the
equity and bond markets have experienced. The weaker issuers have been tested by
the rising rate environment and certain slowing sectors such as automotive,
building, food services, and the entertainment industries. Because of the senior
loan's ability to raise interest rates in correlation with changes in market
rates, we have seen senior secured floating rate loans often perform better than
fixed-income products in a rising rate environment. NSL's net asset value has
remained relatively stable over the past nine months, ending July 2000 at $9.47
per share, compared with an initial NAV of $9.55. During the reporting period,
the NAV fluctuated between a high of $9.66 in March, and a low of $9.41 in July.
In addition, rising interest rates enabled us to increase the Fund's dividend on
four occasions since the Fund's inception in late October 1999. The regular
monthly dividend is now $0.088 per share, up from the initial monthly dividend
of $0.076 per share. As of the end of July, NSL's market yield was 10.97%, based
on a share price of $9.625. (Note: NSL announced another dividend increase on
September 1, 2000, raising the monthly dividend to $0.0900 per share.)
3
<PAGE>
WHERE DID YOU FIND OPPORTUNITIES?
In general, higher interest rates and wider credit spreads enabled us to
purchase high-yielding loans in a broad variety of sectors at very attractive
prices. Our focus remained on companies with strong management, solid industry
fundamentals, brand name recognition, and dominance in terms of market share.
We place special emphasis on the underlying collateral when evaluating senior
loans. We also look very carefully at corporate profit and cash flow. We take a
long-term view of the sustainability of profits and cash flow.
It should also be pointed out that in some areas we have carefully limited our
exposure. These include chemicals, steel, and transportation - all because of
their dependence upon petroleum products and their relatively high percentages
of fixed costs. Additionally, truck and automotive related manufacturers are
being very negatively impacted as domestic and international pressure on those
sectors has combined with very much lower than anticipated sales. Issues in
sectors continuing to post lackluster results, such as retail, construction,
agricultural, and healthcare, also have been avoided.
We also continued to avoid many areas of the healthcare sector, such as
long-term care or certain service/testing providers which have been under
enormous pressure since 1998 from the balanced budget act, reimbursement issues,
and financial constraints. In the current campaign season, political rhetoric
concerning healthcare has heated up, but the positions of the candidates have
yet to be completely articulated. Given this testing environment, we believe
that other sectors offer more potential. Our experienced group of analysts
continues to provide the in-depth credit research that is vital to discovering
and assessing the potential investment value in each of these areas.
HOW HAVE YOU BEEN MANAGING THE PORTFOLIO?
We continued the process of further diversifying the portfolio by
shifting into stronger sectors of the economy. Those industries included
aerospace, broadcasting, diversified manufacturing, electronics, paper
manufacturing, telecommunications, and utilities, to mention a few. Our specific
emphasis has and will always be on credit quality. Our shareholders' investment
also will be protected and nurtured with what we believe are the best practices
as they relate to selection, diversification, due diligence and surveillance of
issues held. We will continue to carefully monitor all industries invested in by
the Fund to provide our investors with the greatest potential long-term
benefits.
Our concerns about the impact of rising petroleum and other commodity
prices, in combination with a higher interest rate environment, promptly led us
to examine our investments in areas where higher oil prices could eventually
influence a company's profitability and credit quality. For example, we recently
sold specific steel, chemical, manufacturing and packaging concerns.
WHAT OTHER ACTIONS HAVE YOU TAKEN?
To enhance the Fund's potential dividend-payment capabilities, we completed a
$150 million private placement commercial paper program and offered $46 million
in Taxable Auctioned Preferred Shares at the end of May 2000. We have
subsequently combined the proceeds raised through these two initiatives with the
Fund's existing portfolio of senior loans. Both of these leveraging strategies
were designed to generate additional incremental income for the Fund's common
shareholders, while lowering the Fund's operational costs. As of July 31, 2000,
these leveraging instruments accounted for less than 35% of the Fund's total
assets.
WHAT IS YOUR OUTLOOK FOR THE MARKET ENVIRONMENT AND FOR NSL IN COMING MONTHS?
Overall, we believe the current environment could remain largely unchanged
through the end of the year, and continue to very much support NSL. With an
element of uncertainty continuing to surround the Fed's interest rate
intentions, we see NSL as a very good investment. The supply of new senior loan
assets, in combination with a significantly developed secondary market for these
assets, should continue to provide good investment opportunities for our
shareholders. We do see, as stated, the strong potential for economic
contraction which, in and of itself, will result in an increase in the
continuation of defaults in the leveraged debt markets. We believe the senior
loan market will be a good place to be over the coming months, since we've seen
that the historic volatility in this asset class often is much less than other
non-investment grade or speculative grade asset classes. The team that pioneered
the asset class actively manages the portfolio. Our efforts will be focused on
taking advantage of opportunities to invest in the strongest sectors of the
senior loan market as a way to potentially increase the Fund's income stream.
4
<PAGE>
NSL
Nuveen Senior Income Fund
Performance
OVERVIEW As of July 31, 2000
PORTFOLIO STATISTICS
--------------------------------------------------
Inception Date 10/29/99
--------------------------------------------------
Share Price $9 5/8
--------------------------------------------------
Net Asset Value $9.47
--------------------------------------------------
Fund Net Assets ($000) $326,479
--------------------------------------------------
TOP 5 SENIOR
LOAN HOLDINGS (AS A % OF TOTAL INVESTMENTS)
--------------------------------------------------
Allied Waste North America 3.9%
--------------------------------------------------
The Fairchild Corporation 2.4%
--------------------------------------------------
Level 3 Communications LLC 2.3%
--------------------------------------------------
Centennial Cellular Operating Company LLC 2.3%
--------------------------------------------------
Norwood Promotional Products 2.3%
--------------------------------------------------
TOP 5 INDUSTRIES (AS A % OF TOTAL INVESTMENTS)
--------------------------------------------------
Telecommunications/Competitive Local
Exchange Carrier (CLEC) 6.9%
--------------------------------------------------
Telecommunications/Cellular/PCS 5.8%
--------------------------------------------------
Beverage, Food & Tobacco 4.4%
--------------------------------------------------
Leisure & Entertainment 4.4%
--------------------------------------------------
Ecological 4.1%
--------------------------------------------------
CUMULATIVE TOTAL RETURN NAV SHARE PRICE
--------------------------------------------------
YTD 5.69% 7.78%
--------------------------------------------------
Since Inception 6.20% 3.21%
--------------------------------------------------
Bar Chart:
1999-2000 Monthly Dividends Per Share
Dec 99 0.076
Jan 00 0.076
Feb 00 0.0785
Mar 00 0.082
Apr 00 0.084
May 00 0.084
Jun 00 0.088
Jul 00 0.088
Line Chart:
Share Price Performance
10/29/99 10
10.0625
10
10.0625
10.0625
10
10.0625
10.0625
10.0625
10.0625
10.0625
10.0625
10
10.0625
10.0625
10
10.0625
10.0625
10.0625
10
10
10.0625
10.0625
9.9375
9.9375
10
9.9375
9.9375
10
10
10
10
10
9.875
9.9375
9.9375
9.9375
9.875
9.875
9.9375
9.875
9.0625
9.375
8.9375
9.5
9.5
9.1875
9.4375
9.3125
9.625
9.625
9.5
9.625
9.4375
9.625
9.5625
9.625
9.8125
9.75
9.625
9.5625
9.3125
9.375
9.4375
9.5625
9.3125
9.4375
9.5
9.6875
9.625
9.6875
9.625
9.5
9.4375
9.4375
9.375
9.3125
9.3125
9.25
9.3125
9.1875
9.25
9.1875
8.875
8.9375
9.0625
9.125
9.125
8.875
9.0625
8.9375
8.9375
8.9375
8.875
8.9375
8.8125
8.8125
8.8125
8.9375
9
8.875
8.8125
8.9375
8.9375
8.9375
8.8125
8.8125
8.8125
8.8125
8.75
8.6875
8.6875
8.75
8.75
8.75
8.625
8.6875
8.5
8.5
8.5625
8.6875
8.6875
8.75
8.75
8.8125
8.9375
9
9
9.25
9.125
9.125
9.0625
9.0625
9.125
9.25
9.1875
9.1875
9.1875
9
9.1875
9.1875
9.125
9.25
9.25
9.125
9.1875
9.25
9.375
9.5
9.625
9.5
9.4375
9.3125
9.3125
9.3125
9.625
9.5625
9.4375
9.5
9.5
9.5625
9.5625
9.5
9.375
9.375
9.3125
9.375
9.4375
9.4375
9.5
9.5
9.6875
9.5625
9.5625
9.6875
9.6875
9.5
9.6875
9.5625
9.625
9.5625
9.5625
9.625
9.625
9.6875
9.625
9.6875
9.5625
9.6875
9.625
7/31/00 9.625
Daily Closing Price
Past performance is not predictive of future results.
5
<PAGE>
Report of
INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
NUVEEN SENIOR INCOME FUND:
We have audited the accompanying statement of assets and liabilities of Nuveen
Senior Income Fund (the "Fund"), including the portfolio of investments, as of
July 31, 2000, and the related statement of operations, changes in net assets,
cash flows, and the financial highlights for the period October 29, 1999
(commencement of investment of operations) to July 31, 2000. These financial
statements and financial highlights are the responsibility of the Fund'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 auditing standards generally accepted
in the United States. 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 investments
owned as of July 31, 2000, by correspondence with the 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 the
Nuveen Senior Income Fund as of July 31, 2000, the results of its operations,
changes in net assets, cash flows, and the financial highlights for the period
from October 29, 1999 (commencement of investment operations) to July 31, 2000,
in conformity with accounting principles generally accepted in the United
States.
/S/ KPMG LLP
Chicago, Illinois
September 18, 2000
6
<PAGE>
Nuveen Senior Income Fund (NSL)
Portfolio of
INVESTMENTS July 31, 2000
<TABLE>
<CAPTION>
RATINGS*
---------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE RATE SENIOR LOAN INTERESTS*** - 120.2%
AEROSPACE/DEFENSE - 3.2%
$ 11,209 The Fairchild Corporation, Term Loan B Ba3 BB- 04/03/06 $ 10,508,037
----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE - 2.9%
9,900 MetalForming Technologies, Inc., Term Loan B NR NR 06/30/06 9,603,000
----------------------------------------------------------------------------------------------------------------------------------
BEVERAGE, FOOD & TOBACCO - 5.8%
9,429 American Bottling Group, Inc., Term Loan B NR NR 10/07/07 9,442,500
6,161 Eagle Family Foods, Inc., Term Loan B1 B 12/31/05 5,698,661
1,071 Snapple Beverage (Mistic), Term Loan B B1 B+ 03/01/06 1,076,087
2,613 Snapple Beverage (Mistic), Term Loan C B1 B+ 03/01/07 2,625,652
----------------------------------------------------------------------------------------------------------------------------------
18,842,900
----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING/CABLE - 0.9%
3,000 CC VIII Operating, LLC, Term Loan B Ba3 BB+ 02/02/08 3,007,500
----------------------------------------------------------------------------------------------------------------------------------
BUILDINGS & REAL ESTATE - 5.2%
8,000 Morrison Knudsen Corporation, Term Loan B Ba1 NR 07/07/07 7,990,000
9,000 NRT, Inc., Term Loan Ba3 NR 07/31/04 8,943,750
----------------------------------------------------------------------------------------------------------------------------------
16,933,750
----------------------------------------------------------------------------------------------------------------------------------
CARGO TRANSPORTATION - 3.0%
8,955 North American Van Lines, Term Loan B B1 B+ 11/18/07 8,722,730
995 RailAmerica, Inc., Term Loan B Ba3 BB- 12/31/06 1,001,841
----------------------------------------------------------------------------------------------------------------------------------
9,724,571
----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS, & RUBBER - 0.9%
3,000 Huntsman Packaging Corporation, Term Loan B B1 BB- 05/31/08 3,011,250
----------------------------------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING & GLASS - 4.1%
2,625 Graham Packaging Holdings, Term Loan B B1 B+ 01/31/06 2,615,571
2,175 Graham Packaging Holdings, Term Loan C B1 B+ 01/31/07 2,167,187
1,890 Stone Container Corporation, Term Loan F Ba3 B+ 12/31/05 1,894,812
1,342 Stone Container Corporation, St Laurent, Term Loan G Ba3 B+ 12/31/06 1,342,505
1,432 Stone Container Corporation, St Laurent, Term Loan H Ba3 B+ 12/31/06 1,432,895
4,000 Tekni-Plex, Inc., Term Loan B Ba3 B+ 06/21/08 4,015,000
----------------------------------------------------------------------------------------------------------------------------------
13,467,970
----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING - 4.4%
3,980 SPX Corporation, Term Loan B Ba2 BB+ 12/31/06 3,994,925
4,983 UCAR Finance, Inc., Term Loan B Ba3 BB- 12/31/07 5,008,250
5,517 Western Industries Holding, Inc., Term Loan B NR NR 06/23/06 5,507,054
----------------------------------------------------------------------------------------------------------------------------------
14,510,229
----------------------------------------------------------------------------------------------------------------------------------
ECOLOGICAL - 5.5%
7,955 Allied Waste North America, Term Loan B Ba3 BB 07/21/06 7,669,508
9,545 Allied Waste North America, Term Loan C Ba3 BB 07/21/07 9,203,409
936 Stericycle, Inc., Term Loan B B1 BB- 11/10/06 940,472
----------------------------------------------------------------------------------------------------------------------------------
17,813,389
----------------------------------------------------------------------------------------------------------------------------------
7
<PAGE>
<CAPTION>
Nuveen Senior Income Fund (NSL) (continued)
Portfolio of INVESTMENTS July 31, 2000
RATINGS*
---------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P Maturity** VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ELECTRONIC SERVICES - 2.7%
$ 4,184 Semiconductor Components Industries, LLC, Term Loan B NR BB- 08/04/06 $ 4,213,685
4,505 Semiconductor Components Industries, LLC, Term Loan C NR BB- 08/04/07 4,537,815
----------------------------------------------------------------------------------------------------------------------------------
8,751,500
----------------------------------------------------------------------------------------------------------------------------------
FARMING & AGRICULTURAL - 3.0%
2,487 Scotts Company, Term Loan B Ba3 BB 06/30/06 2,500,028
2,484 Scotts Company, Term Loan C Ba3 BB 06/30/07 2,497,766
4,964 Shemin Holdings Corporation, Term Loan B NR NR 01/28/07 4,951,875
----------------------------------------------------------------------------------------------------------------------------------
9,949,669
----------------------------------------------------------------------------------------------------------------------------------
FINANCE & BANKING - 5.0%
3,652 Bridge Information Systems, Inc., Additional Term Loan B NR NR 07/07/05 3,287,223
3,662 Bridge Information Systems, Inc., Term Loan B NR NR 07/07/05 3,295,462
3,662 Bridge Information Systems, Inc., Tranche B 1999-3 NR NR 03/05/06 3,295,462
6,500 Sovereign Bancorp, Term Loan B Ba3 NR 11/14/03 6,532,500
----------------------------------------------------------------------------------------------------------------------------------
16,410,647
-----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 3.0%
1,807 Community Health Systems, Inc., Term Loan B NR NR 12/31/03 1,780,036
1,807 Community Health Systems, Inc., Term Loan C NR NR 12/31/04 1,784,554
1,343 Community Health Systems, Inc., Term Loan D NR NR 12/31/05 1,329,429
4,975 Healthtrust, Inc. (Lifepoint), Term Loan B B1 B+ 11/11/05 4,987,438
----------------------------------------------------------------------------------------------------------------------------------
9,881,457
----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE & BEAUTY AIDS - 1.5%
4,988 Bergen Brunswig Corporation, Term Loan B Ba3 BB 03/31/06 4,987,500
----------------------------------------------------------------------------------------------------------------------------------
HOME & OFFICE FURNISHINGS/HOUSEWARES - 2.8%
9,900 World Kitchen, Inc., Term Loan C B1 BB- 04/09/07 9,108,000
----------------------------------------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS & GAMING - 4.5%
2,660 Isle of Capri Casinos, Inc., Term Loan B Ba2 BB- 03/02/06 2,676,625
2,327 Isle of Capri Casinos, Inc., Term Loan C Ba2 BB- 03/02/07 2,342,047
10,000 Wyndham International, Inc., Term Loan B NR NR 06/30/06 9,754,167
----------------------------------------------------------------------------------------------------------------------------------
14,772,839
-----------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 1.5%
5,000 GAB Robbins North America, Inc., Term Loan B NR NR 12/01/05 4,975,000
-----------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT - 5.8%
3,433 24 Hour Fitness (Fitness Holdings Worldwide), Term Loan B NR B+ 11/02/06 3,372,741
6,527 24 Hour Fitness (Fitness Holdings Worldwide), Term Loan C NR B+ 11/02/07 6,412,959
3,973 Bally Total Fitness, Term Loan B1 B+ 11/10/04 3,962,572
5,000 Six Flags Theme Parks, Inc., Term Loan B Ba2 B+ 09/30/05 5,029,688
----------------------------------------------------------------------------------------------------------------------------------
18,777,960
----------------------------------------------------------------------------------------------------------------------------------
NON-DURABLE CONSUMER PRODUCTS - 4.3%
3,990 Merisant Company, Term Loan B Ba3 BB- 03/31/07 3,999,975
5,254 Norwood Promotional Products, Term Loan B NR NR 05/31/06 5,233,975
4,682 Norwood Promotional Products, Term Loan C NR NR 11/30/06 4,664,795
----------------------------------------------------------------------------------------------------------------------------------
13,898,745
----------------------------------------------------------------------------------------------------------------------------------
PERSONAL & Miscellaneous Services - 1.3%
4,279 Weight Watchers International, Inc., TLC Facility Ba2 B+ 09/30/06 4,299,893
----------------------------------------------------------------------------------------------------------------------------------
8
<PAGE>
<CAPTION>
RATINGS*
---------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRINTING & PUBLISHING - 2.2%
$ 7,000 American Media Operations, Inc., Term Loan B-1 Ba3 B+ 04/01/07 $ 7,035,000
----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS & FOOD SERVICE - 3.0%
4,856 Dominos Pizza, Inc., Term Loan B B1 B+ 12/21/06 4,875,737
4,864 Dominos Pizza, Inc., Term Loan C B1 B+ 12/21/07 4,883,379
----------------------------------------------------------------------------------------------------------------------------------
9,759,116
----------------------------------------------------------------------------------------------------------------------------------
RETAIL/CATALOG - 1.5%
4,988 Micro Warehouse, Inc., Term Loan B B1 BB- 01/31/07 4,937,625
----------------------------------------------------------------------------------------------------------------------------------
RETAIL/SPECIALTY - 1.5%
4,950 NationsRent, Inc., Term Loan B B1 BB- 07/20/06 4,925,250
----------------------------------------------------------------------------------------------------------------------------------
RETAIL/STORES - 5.4%
5,860 HMV Media Group PLC, Term Loan C B1 BB- 03/28/06 5,493,939
4,039 HMV Media Group PLC, Term Loan D B1 BB- 08/28/06 3,786,364
4,000 Rent-A-Center, Inc., Term Loan D Ba3 BB- 12/31/07 3,994,000
2,250 SDM Corporation, Term Loan C Ba3 BB 02/04/08 2,254,922
2,250 SDM Corporation, Term Loan E Ba3 BB 02/04/09 2,254,922
----------------------------------------------------------------------------------------------------------------------------------
17,784,147
----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/CELLULAR/PCS - 7.8%
1,750 American Cellular Corporation, Term Loan B Ba3 B+ 03/31/08 1,751,458
2,000 American Cellular Corporation, Term Loan C Ba3 B+ 03/31/09 2,001,667
10,000 Centennial Cellular Operating Company LLC, Term Loan A B1 B+ 11/30/06 9,918,750
3,000 Cook Inlet/Voicestream Operating Company, LLC, Term Loan B B2 B 12/31/08 2,992,500
8,500 Voicestream PCS Holding LLC, Term Loan B B1 B+ 02/25/09 8,455,729
-----------------------------------------------------------------------------------------------------------------------------------
25,120,104
----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/COMPETITIVE LOCAL EXCHANGE CARRIER (CLEC) - 9.2%
10,000 Level 3 Communications LLC, Term Loan B B1 B+ 01/15/08 10,035,417
5,000 McLeod USA, Inc., Term Loan B Ba2 BB- 05/30/08 5,009,375
5,000 RCN Corporation, Term Loan B B1 B+ 06/03/07 4,933,333
5,000 Teligent, Inc., Delayed Term Loan B3 B- 06/30/06 4,825,000
5,000 WCI Capital Corporation (Winstar), Term Loan B B2 B+ 09/30/07 4,987,500
----------------------------------------------------------------------------------------------------------------------------------
29,790,625
----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/HYBRID - 2.8%
4,000 Nextel Finance Company, Term Loan D Ba2 BB- 03/31/09 3,980,000
5,000 Nextel Partners Operating Company, Term Loan B B2 B- 01/29/08 5,042,188
----------------------------------------------------------------------------------------------------------------------------------
9,022,188
----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/SATELLITE - 1.4%
5,000 Satelites Mexicanos SA DE CV, Bond B1 B+ 06/30/04 4,625,000
----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/WIRELESS MESSAGING - 3.5%
8,106 Arch Paging, Inc., Term Loan C B2 B 06/30/06 7,504,458
4,000 Crown Castle Operating Company, Term Loan B Ba3 BB- 03/30/08 4,015,000
----------------------------------------------------------------------------------------------------------------------------------
11,519,458
----------------------------------------------------------------------------------------------------------------------------------
TEXTILES & LEATHER - 3.0%
9,825 Norcross Safety Products LLC, Term Loan NR NR 09/30/04 9,751,380
----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION/PERSONAL - 1.5%
2,497 Avis Rent a Car, Inc., Term Loan B Ba1 BB+ 06/30/06 2,499,837
2,497 Avis Rent a Car, Inc., Term Loan C Ba1 BB+ 06/30/07 2,499,837
----------------------------------------------------------------------------------------------------------------------------------
4,999,674
----------------------------------------------------------------------------------------------------------------------------------
9
<PAGE>
<CAPTION>
Nuveen Senior Income Fund (NSL) (continued)
Portfolio of INVESTMENTS July 31, 2000
RATINGS*
---------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TRANSPORTATION/RAIL MANUFACTURING - 1.2%
$ 4,000 Kansas City Southern Railway Company, Term Loan B Ba1 BB+ 12/29/06 $ 4,021,667
----------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 4.9%
4,000 AES EDC Funding LLC, Loans NR NR 09/12/01 3,995,050
4,000 AES Texas Funding II LLC, Loans NR NR 04/24/01 4,005,050
3,990 TNP Enterprises, Inc., Term Loan Ba2 BB+ 03/30/06 3,990,050
4,000 Western Resources, Inc., Term Loan B NR NR 03/17/03 4,016,300
----------------------------------------------------------------------------------------------------------------------------------
16,006,450
----------------------------------------------------------------------------------------------------------------------------------
Total Variable Rate Senior Loan Interests (cost $396,681,056) 392,533,490
-------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 11.9%
COMMERCIAL PAPER:
8,793 American Electric Power, yielding 6.75% 08/01/00 8,793,000
10,000 Dial Corporation, yielding 6.75% 08/04/00 9,994,375
10,000 Illinois Power Company, yielding 6.77% 08/01/00 10,000,000
10,000 Texas Utilities Company, yielding 6.68% 08/01/00 10,000,000
----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $38,787,375) 38,787,375
------------------------------------------------------------------------------------------------------------------
Total Investments (cost $435,468,431) - 132.1% 431,320,865
------------------------------------------------------------------------------------------------------------------
Borrowings Payable - (32.2)%+ (105,000,000)
------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.1% 157,786
------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 326,478,651
==================================================================================================================
NR Not rated.
* Bank loans rated below Baa by Moody's Investor Service,
Inc. or BBB by Standard & Poor's Group are considered
to be below investment grade. Ratings are not covered
by the Report of Independent Auditors.
** Senior Loans in the Fund'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 Fund's portfolio may occur. As a result, the
actual remaining maturity of Senior Loans held in the
Fund's portfolio may be substantially less than the
stated maturities shown. The Fund 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 Fund 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 Fund ordinarily is contractually
obligated to receive approval from the Agent Bank
and/or borrower prior to the disposition of a Senior
Loan.
+ Borrowings payable based on total assets equals
(24.1)%.
See accompanying notes to financial statements.
10
</TABLE>
<PAGE>
Statement of
NET ASSETS July 31, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at market value (cost $435,468,431) $431,320,865
Cash 16,619
Interest receivable 3,884,804
Other assets 393,580
------------------------------------------------------------------------------------------------------------------
Total assets 435,615,868
------------------------------------------------------------------------------------------------------------------
LIABILITIES
Borrowings payable 105,000,000
Management fees 146,041
Other liabilities 1,351,295
Taxable Auctioned Preferred Share dividends payable 32,615
Common Share dividends payable 2,607,266
------------------------------------------------------------------------------------------------------------------
Total liabilities 109,137,217
------------------------------------------------------------------------------------------------------------------
Net assets $326,478,651
==================================================================================================================
Taxable Auctioned Preferred Shares, at liquidation value $ 46,000,000
==================================================================================================================
Taxable Auctioned Preferred Shares outstanding 1,840
==================================================================================================================
Common Shares outstanding 29,628,043
==================================================================================================================
Net asset value per Common Share outstanding (net assets less
Preferred Shares at liquidation value, divided by
Common Shares outstanding) $ 9.47
==================================================================================================================
See accompanying notes to financial statements.
11
</TABLE>
<PAGE>
Statement of
OPERATIONS
For the Period October 29, 1999 (commencement of operations) through
July 31, 2000
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest $28,566,126
Fees 277,340
-------------------------------------------------------------------------------------------------------------------
Total investment income 28,843,466
-------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 2,401,063
Taxable Auctioned Preferred Shares - auction fees 19,219
Taxable Auctioned Preferred Shares - dividend disbursing agent fees 1,671
Shareholders' servicing agent fees and expenses 294,667
Interest expense 4,305,660
Custodian's fees and expenses 396,180
Trustees' fees and expenses 22,584
Professional fees 210,655
Shareholders' reports - printing and mailing expenses 56,092
Other expenses 358,533
-------------------------------------------------------------------------------------------------------------------
Total expenses before expense waivers 8,066,324
Expense waivers (1,271,151)
-------------------------------------------------------------------------------------------------------------------
Net expenses 6,795,173
-------------------------------------------------------------------------------------------------------------------
Net investment income 22,048,293
-------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain from investment transactions 511,950
Change in net unrealized appreciation (depreciation) of investments (4,147,566)
-------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (3,635,616)
-------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $18,412,677
===================================================================================================================
</TABLE>
12
<PAGE>
Statement of
CHANGES IN NET ASSETS
For the Period October 29, 1999 (commencement of operations) through
July 31, 2000
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
<S> <C>
OPERATIONS
Net investment income $ 22,048,293
Net realized gain from investment transactions 511,950
Change in net unrealized appreciation (depreciation) of investments (4,147,566)
-------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 18,412,677
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From undistributed net investment income:
Common Shareholders (19,441,723)
Taxable Auctioned Preferred Shareholders (506,360)
-------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (19,948,083)
-------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common Shares:
Net proceeds from sale of shares 282,383,896
Net proceeds from shares issued to shareholders due to reinvestment of distributions 166,495
Taxable Auctioned Preferred Shares:
Net proceeds from sale of shares 45,363,582
-------------------------------------------------------------------------------------------------------------------
Net increase in net assets from capital share transactions 327,913,973
-------------------------------------------------------------------------------------------------------------------
Net increase in net assets 326,378,567
Net assets at the beginning of period 100,084
-------------------------------------------------------------------------------------------------------------------
Net assets at the end of period $326,478,651
===================================================================================================================
Undistributed net investment income at the end of period $ 2,174,476
===================================================================================================================
</TABLE>
13
<PAGE>
Statement of
CASH FLOWS
For the Period October 29, 1999 (commencement of operations) through
July 31, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS $ 18,412,677
------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile the Change in Net Assets from Operations to Net Cash
used for Operating Activities:
Increase in investments at value (431,320,865)
Increase in interest receivable (3,884,804)
Increase in other assets (242,580)
Increase in management fees 146,041
Increase in other liabilities 1,351,295
------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (415,538,236)
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 105,000,000
Debt issuance costs paid (151,000)
Proceeds from Common Shares sold 282,383,896
Proceeds from Taxable Auctioned Preferred Shares sold 45,363,582
Cash dividends paid to Common Shareholders (16,667,962)
Cash dividends paid to Taxable Auctioned Preferred Shareholders (473,745)
------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 415,454,771
------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (83,465)
Cash at the beginning of period 100,084
------------------------------------------------------------------------------------------------------------
CASH AT THE END OF PERIOD $ 16,619
============================================================================================================
</TABLE>
14
<PAGE>
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Senior Income Fund (the "Fund") is a non-diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund is listed on the New York Stock Exchange and trades
under the ticker symbol "NSL". The Fund was organized as a Massachusetts
business Trust on August 13, 1999. Prior to commencement of operations on
October 29, 1999, the Fund had no operations other than those related to
organizational matters and the initial capital contribution of $100,084 by
Nuveen Senior Loan Asset Management Inc. (the "Adviser"), a wholly owned
subsidiary of The John Nuveen Company.
The Fund seeks to provide a high level of current income, consistent with
preservation of capital by investing primarily in senior secured loans whose
interest rates float or adjust periodically based on a benchmark interest rate
index. The Fund seeks to increase the income available for distribution to
Common Shareholders by utilizing financial leverage.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with
accounting principles generally accepted in the United States.
Investment Valuation
The prices of senior loans in the Fund's investment portfolio are provided by
independent pricing services approved by the Fund's Board of Trustees. The
pricing service providers typically value senior loans at the mean of the
highest bona fide bid and lowest bona fide ask prices when current quotations
are readily available. Senior loans for which current quotations are not readily
available are valued at fair value using a wide range of market data and other
information and analysis, including credit characteristics considered relevant
by such pricing service providers to determine valuations.The Board of Trustees
of the Fund has approved procedures which permit the Adviser to override the
price provided by the independent pricing service in the event that the Adviser
is in possession of material information related to the senior loan or borrower
or its affiliates which it believes the pricing service may not be aware. During
the period October 29, 1999 (commencement of operations) through July 31, 2000,
there were three occasions where the Adviser overrode the value provided by a
pricing service on two senior loans. Short-term investments which mature within
60 days are valued at amortized cost, which approximates market value.
The senior loans in which the Fund invests are generally not listed on any
exchange and the secondary market for those senior loans is comparatively
illiquid relative to markets for other fixed income securities. Because of the
comparatively illiquid markets, the value of a senior loan may differ
significantly from the value that would have been used had there been an active
market for that senior loan.
Investment Transactions
Investment transactions are recorded on a trade date basis.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts when required for federal
income tax purposes. Facility fees on senior loans purchased are treated as
market discounts. Market premiums and discounts are amortized over the expected
life of each respective borrowing. Fees consists primarily of amendment fees.
Amendment fees are earned as compensation for reviewing and accepting changes to
the original credit agreement.
Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its net
investment income, in addition to any significant amounts of net realized
capital gains from investment transactions. The Fund currently considers
significant net realized capital gains as amounts in excess of $.01 per share.
Net realized capital gain distributions are subject to federal taxation.
Dividends and Distributions to Shareholders
The Fund intends to declare and pay monthly distributions to Common
Shareholders. Generally payment is made or reinvestment is credited to
shareholder accounts on the first business day after month-end. Net realized
capital gains from investment transactions, if any, are distributed to
shareholders not less frequently than annually. Furthermore, capital gains are
distributed only to the extent they exceed available capital loss carryforwards.
15
<PAGE>
Notes to
FINANCIAL STATEMENTS (continued)
Distributions to shareholders of net investment income, and net realized capital
gains are recorded on the ex-dividend date. The amount and timing of
distributions are determined in accordance with federal income tax regulations,
which may differ from accounting principles generally accepted in the United
States. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income and/or distributions in excess of net realized gains
from investment transactions, where applicable. Permanent differences between
financial and tax basis reporting for the fiscal year have been identified and
appropriately reclassified. Permanent differences relating to expenses which are
not deductible for tax purposes totaling $74,266 were reclassified from
undistributed net investment income to capital.
Taxable Auctioned Preferred Shares
On May 30, 2000, the Fund issued 1,840 Series Th $25,000 stated value Taxable
Auctioned Preferred Shares. The dividend rate paid on the Taxable Auctioned
Preferred Shares may change every 28 days, as set by the auction agent.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments including
futures, forward, swap and option contracts, and other financial instruments
with similar characteristics. Although the Fund is authorized to invest in such
financial instruments, and may do so in the future, it did not make any such
investments during the period October 29, 1999 (commencement of
operations)through July 31, 2000.
Organization and Offering Costs
Costs incurred by the Fund in connection with its organization and offering of
Common and Taxable Auctioned Preferred Shares are estimated to be $932,523.
These costs were recorded as a reduction of the proceeds from the sale of the
shares.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results may differ from those estimates.
2. FUND SHARES
During the period October 29, 1999 (commencement of operations)through July 31,
2000, 29,600,000 Common Shares and 1,840 Preferred Shares were sold and 17,563
Common Shares were issued to shareholders due to reinvestment of distributions.
3. DISTRIBUTIONS TO SHAREHOLDERS
The Fund declared a dividend distribution of $.0880 per share from its net
investment income which was paid on September 1, 2000, to shareholders of record
on August 15, 2000.
4. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) during the
period October 29, 1999 (commencement of operations)through July 31, 2000,
aggregated $533,073,190 and $137,842,178, respectively.
At July 31, 2000, the identified cost of investments owned for federal income
tax purposes was $435,468,431.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At July 31, 2000, net unrealized depreciation of senior loans for federal income
tax purposes aggregated $4,147,566 of which $930,347 related to appreciated
senior loans and $5,077,913 related to depreciated senior loans.
6. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Fund's investment management agreement with the Adviser, the Fund pays
an annual management fee, payable monthly, of .8500 of 1%, reduced on managed
assets of $1 billion or more, which is based upon the average daily managed
assets of the Fund. "Managed assets" shall mean the average daily gross asset
value of the Fund, minus the sum of the Fund's accrued and unpaid dividends on
any outstanding Taxable Auctioned Preferred Shares and accrued liabilities
(other than the principal amount of any borrowings incurred, commercial paper or
notes issued by the Fund and the liquidation preference of any outstanding
Taxable Auctioned Preferred Shares).
16
<PAGE>
The Adviser has agreed to waive part of its management fees or reimburse certain
expenses of the Fund in an amount equal to .45% of the average daily managed
assets for the period October 29, 1999 (commencement of operations) through
October 31, 2004, .35% of the average daily managed assets for the year ended
October 31, 2005, .25% of the average daily managed assets for the year ended
October 31, 2006, .15% of the average daily managed assets for the year ended
October 31, 2007, .10% of the average daily managed assets for the year ended
October 31, 2008, and .05% of the average daily managed assets for the year
ended October 31, 2009. The Adviser has not agreed to reimburse the Fund for any
portion of its fees and expenses beyond October 31, 2009.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Fund pays no
compensation directly to those of its Trustees who are affiliated with the
Adviser or to their officers, all of whom receive remuneration for their
services to the Fund from the Adviser.
<TABLE>
7. COMPOSITION OF NET ASSETS
At July 31, 2000, net assets consisted of:
<CAPTION>
---------------------------------------------------------------------------------------------------------
<S> <C>
Taxable Auctioned Preferred Shares, $25,000 stated value per share, at liquidation value $ 46,000,000
Common Shares, $.01 par value per share 296,280
Paid-in surplus 281,643,511
Undistributed net investment income 2,174,476
Accumulated net realized gain from investment transactions 511,950
Net unrealized appreciation (depreciation) of investments (4,147,566)
---------------------------------------------------------------------------------------------------------
Net assets $326,478,651
=========================================================================================================
Authorized shares:
Common Unlimited
Preferred Unlimited
=========================================================================================================
</TABLE>
8. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Fund may have unfunded loan commitments. There were no such unfunded loan
commitments as of July 31, 2000. The Fund generally will maintain with its
custodian short-term investments and/or cash having an aggregate value at least
equal to the amount of unfunded loan commitments.
9. SENIOR LOAN PARTICIPATION COMMITMENTS
The Fund invests primarily in assignments, participations, 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. If the Fund
purchases a participation of a Senior Loan Interest, the Fund would typically
enter into a contractual agreement with the lender or other third party selling
the participation, but not with the borrower directly. As such, the Fund assumes
the credit risk of the Borrower, Selling Participant or other persons
interpositioned between the Fund and the Borrower. There were no such
participation commitments as of July 31, 2000.
10. BORROWINGS
In accordance with its current investment policies, the Fund may utilize
financial leverage for investment purposes in an amount currently anticipated to
represent approximately 40% of the Fund's total assets, and in no event
exceeding 50% of the Fund's total assets.
On May 23, 2000, the Fund entered into a $150 million commercial paper program
with Nuveen Funding, L.L.C., a Delaware limited liability company whose sole
purpose is the issuance of commercial paper. Nuveen Funding, L.L.C. has the
authority to issue a maximum of $150 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 Fund. This line of credit is secured by the assets of the Fund.
From May 23, 2000 to July 31, 2000 the daily balance of borrowings under the
commercial paper program agreement was $105 million with an average interest
rate of 6.79%.
The Fund has entered into a $155 million revolving credit agreement with
Deutsche Bank AG which expires May 22, 2001. The Fund paid $200,000 in fees in
connection with obtaining the agreement. These Prepaid fees are being amortized
into expense over the term of the agreement. Interest is charged at a rate of
either the Fed Funds rate plus .50%, LIBOR plus .50% or the Prime Rate. An
unused commitment fee of .125% is charged on the unused portion of the facility.
The average daily balance of borrowings under the revolving credit agreement
from December 20, 1999 through July 31, 2000 was $72,347,000 with an average
interest rate of 6.59%. There was no outstanding revolving credit balance at
July 31, 2000.
Cash paid for interest during the period October 29, 1999 (commencement of
operations) through July 31, 2000, was $3,695,456.
17
<PAGE>
Financial
HIGHLIGHTS
<TABLE>
<CAPTION>
Selected data for a Common Share outstanding throughout the period October 29, 1999
(commencement of operations) through July 31, 2000:
--------------------------------- -------------------------------------------------------
Investment Operations Less Distributions
------------------------------------------------------------------------------------------------------------------------------
Net Net
Net Investment Investment Capital Capital
Realized/ Income to Income to Gains to Gains to
Beginning Net Unrealized Common Preferred Common Preferred Organization
Net Asset Investment Investment Share- Share- Share- Share- and Offering
Value Income Gain (Loss) Total holders holders+ holders holders+ Total Costs
------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 (a) $ 9.55 $ .75 $ (.12) $ .63 $ (.66) $ (.02) $ -- $ -- $ (.68) $ (.03)
------------------------------------------------------------------------------------------------------------------------------
18
<PAGE>
<CAPTION>
Ratios/Supplemental Data
-----------------------------------------------------------------------------------
Total Returns Before Waiver After Waiver***
----------------- --------------------------------------------------- ----------------------
Ratio of Net Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment Ratio of Investment
Expenses Income to Expenses Income to Expenses Income to
Based to Average Average to Average Average to Average Average
Ending Based on Ending Net Assets Net Assets Total Total Net Assets Net Assets
Net Ending on Net Net Applicable Applicable Net Assets Net Assets Applicable Applicable
Asset Market Market Asset Assets to Common to Common Including Including to Common to Common
Value Value Value** Value** (000) Shares++ Shares++ Preferred++ Preferred++ Shares++ Shares++
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9.47 $ 9.6250 3.21% 6.20% $326,479 3.81%* 9.82%* 3.67%* 9.47%* 3.21%* 10.42%*
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
--------------------------------------
After Waiver***
--------------------------
Ratio of Net
Ratio of Investment
Expenses to
to Average Average
Total Total
Net Assets Net Assets Portfolio
Including Including Turnover
Preferred++ Preferred++ Rate
--------------------------------------
<S> <C> <C>
3.10%* 10.04%* 40%
--------------------------------------
* Annualized.
** Total Return on Market Value is the combination of reinvested dividend
income, reinvested capital gain distributions, if any, and changes in stock
price per share. Total Return on Net Asset Value is the combination of
reinvested dividend income, reinvested capital gain distributions, if any,
and changes in net asset value per share. Total returns are not annualized.
*** After expense waivers by the investment adviser.
+ The amounts shown are based on Common Share equivalents.
++ Ratios do not reflect the effect of dividend payments to Taxable Auctioned
Preferred Shareholders; income ratios reflect income earned on assets
attributable to Taxable Auctioned Preferred Shares. Each Ratio of Expenses
to Average Net Assets and each Ratio of Net Investment Income to Average
Net Assets includes the effect of the interest expense paid on bank
borrowings of 2.04% based on Average Net Assets Applicable to Common Shares
and 1.96% based on Average Total Net Assets Including Preferred.
(a) For the period October 29, 1999 (commencement of operations) through
July 31, 2000.
See accompanying notes to financial statements.
</TABLE>
19
<PAGE>
Build Your Wealth
AUTOMATICALLY
Sidebar text:
NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR
REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS DIVIDEND REINVESTMENT PLAN
Your Nuveen Exchange-Traded Fund allows you to conveniently reinvest dividends
and/or capital gains distributions in additional fund shares.
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvest ment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at a price
equal to or greater than (i) net asset value or (ii) 95% of the market price on
that date. If the shares are trading at less than net asset value, shares for
your account will be purchased on the open market. Dividends and distributions
received to purchase shares in the open market will normally be invested shortly
after the dividend payment date. No interest will be paid on dividends and
distributions awaiting reinvestment. Because the market price of shares may
increase before purchases are completed, the average purchase price per share
may exceed the market price at the time of valuation, resulting in the
acquisition of fewer shares than if the dividend or distribution had been paid
in shares issued by the Fund. A pro rata portion of any applicable brokerage
commissions on open market purchases will be paid by Plan participants. These
commissions usually will be lower than those charged on individual transactions.
FLEXIBILITY
You may change your distribution option or with draw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less broker age commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Just ask your investment advisor if
the firm will participate on your behalf. If not, it's easy to have the shares
registered in your name and to apply for a reinvestment account directly.
Participants whose shares are registered in the name of one firm may not be able
to transfer the shares to another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
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Fund
INFORMATION
BOARD OF TRUSTEES
James E. Bacon
Jack B. Evans
William T. Kissick
Thomas E. Leafstrand
Timothy R. Schwertfeger
Sheila W. Wellington
FUND MANAGER
Nuveen Senior Loan Asset
Management Inc.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
Chase Bank of Texas
600 Travis Street
Houston, TX 77002
TRANSFER AGENT AND
SHAREHOLDER SERVICES
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler
Chicago, IL
INDEPENDENT AUDITORS
KPMG LLP
Chicago, IL
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Serving Investors
FOR GENERATIONS
PHOTO OF: John Nuveen, Sr.
For over a century, generations of Americans have relied on Nuveen Investments
to help them grow and keep the money they've earned. Financial advisors,
investors and their families have associated Nuveen Investments with quality,
expertise and dependability since 1898. That is why financial advisors have
entrusted the assets of more than 1.3 million investors to Nuveen.
With the know-how that comes from a century of experience, Nuveen continues to
build upon its reputation for quality. Now, financial advisors and investors can
count on Nuveen Investments to help them design customized solutions that meet
the far-reaching financial goals unique to family wealth strategies - solutions
that can translate into legacies.
To find out more about how Nuveen Investments' products
and services can help you preserve your financial security, talk with your
financial advisor, or call us at (800) 257-8787 for more information, including
a prospectus where applicable. Please read that information carefully before you
invest.
LOGO:Invest well. Look ahead. LEAVE YOUR MARK.(sm) NUVEEN Investments
Nuveen Investments o 333 West Wacker Drive FAN-2-7-00
Chicago, IL 60606 o www.nuveen.com
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