UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5845
Van Kampen Senior Loan Fund
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas, New York, New York 10020
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 7/31
Date of reporting period: 1/31/04
Item 1. Reports to Shareholders.
The Fund's semi-annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Senior Loan Fund performed during the semiannual period. The portfolio
management team will provide an overview of the market conditions and
discuss some of the factors that affected investment performance during
the reporting period. In addition, this report includes the fund's
financial statements and a list of fund investments as of January 31,
2004.
This material must be preceded or accompanied by a prospectus for the
fund being offered.
Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the fund will achieve its investment
objective. The fund is subject to market risk, which is the possibility
that the market values of securities owned by the fund will decline and,
therefore, the value of the fund shares may be less than what you paid
for them. Accordingly, you can lose money investing in this fund. Please
see the prospectus for more complete information on investment risks.
<Table>
<Caption>
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
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NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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</Table>
Performance Summary
<Table>
<Caption>
B SHARES C SHARES
since 10/04/1989 since 06/13/2003
- -----------------------------------------------------------------------------------
AVERAGE ANNUAL W/O SALES W/O SALES
TOTAL RETURNS CHARGES CHARGES
Since Inception 5.99% 16.43%
10-year 5.09 --
5-year 3.28 --
1-year 17.62 --
6-month 8.03 7.83
- -----------------------------------------------------------------------------------
</Table>
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate and fund shares, when tendered, may be worth more
or less than their original cost.
As a result of recent market activity, current performance may vary from the
figures shown. For more up-to-date information, please visit vankampen.com or
speak with your financial advisor. Average annual total return assumes
reinvestment of all dividends and capital gains and excludes payment of maximum
early withdrawal charge. An early withdrawal charge for Class B shares of 3.00%
will be imposed on most shares accepted by the fund for repurchase within the
first year after purchase and declining thereafter to 0.00% after the fifth
year. An early withdrawal charge for Class C shares of 1.00% will be imposed on
most shares accepted by the fund for repurchase, which have been held for less
than one year.
1
Fund Report
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2004
Van Kampen Senior Loan Fund is managed by the adviser's Senior Loans team, led
by Howard Tiffen, Managing Director.(1)
MARKET OVERVIEW
The six months ended January 31, 2004 were highly favorable for the senior-loan
market. Corporations continued to exhibit strong financial performance, with
marked improvement in balance sheets across most industries. In spite of limited
top-line revenue growth, companies were generally able to reap the benefits of
rising productivity, lower operating costs and low interest rates to boost
profitability. Market leaders were typically those companies that had
proactively restructured their businesses to thrive in an era of lower prices
and greater global competition.
These positive financial results formed the backdrop for a period of strong
performance in both the senior-loan market and its sibling, the high-yield
market. Yield spreads contracted over much of the period, which enabled many
companies to access the senior-loan market at the best terms since 1999. The
market was further boosted by an increase in demand, much of which came from
institutional investors drawn to the attractive yields and improving credit
quality. This was especially evident in the last two months of the period, when
investors began accepting issuance from companies with slightly higher debt
ratios than had previously been the case. The surge of interest in the asset
class led to the easy absorption of the healthy supply of new issuance during
the period.
PERFORMANCE ANALYSIS
The fund returned 8.03 percent for the six months ended January 31, 2004. This
return is for Class B shares, assumes the reinvestment of all distributions, but
does not reflect the deduction of any applicable early withdrawal charges. If
these charges were included, performance would be lower. Past performance is no
guarantee of future results. See Performance Summary for additional information.
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2004
<Table>
<Caption>
- -----------------------------------
CLASS B CLASS C
8.03% 7.83%
- -----------------------------------
</Table>
The performance for the two share classes varies because each has different
expenses. The fund's total return figures assume the reinvestment of all
distributions, but do not reflect the deduction of any applicable sales charges.
Such costs would lower performance. Past performance is no guarantee of future
results.
(1)Team members may change without notice at any time.
2
We remained focused on maintaining a high level of diversification in the fund's
portfolio during the period in order to minimize the risk of over-concentration
in any one sector or security. While we follow a bottom-up security-selection
process and generally do not practice sector rotation, we did move to limit the
portfolio's exposure to certain industries facing ongoing challenges. For
example, we found the textile industry particularly unappealing given the
growing occurrence of import substitution, and we limited the fund's holdings in
this sector. We avoided the auto industry because we believe that with the
industry's continuing re-structuring, weaknesses may become evident throughout
the supply chain. We followed a similar path in telecommunications, where
ongoing problems with overcapacity have yet to be resolved.
Through thorough fundamental research, we identified issuers in several sectors
that offered what we believed to be compelling value relative to our assessment
of their financial prospects. Within the cable industry, for example, prices
remained depressed throughout much of the period in the wake of the Adelphia
reorganization. Our analysis indicated that the market was not properly pricing
the underlying strength of the cable business model. By investing in the
companies' senior secured debt, we were able to capitalize on these pricing
opportunities from a somewhat protected standpoint, relative to investors in
traditional high-yield bonds.
The number of issuers in the portfolio that are in default (defined here as
those not paying principal and/or interest as contractually obligated) has
declined by approximately 18 percent since the beginning of the period. The
process of working out previous defaults had left the portfolio with equity
holdings in several companies. We took advantage of rising prices over the
course of the period to sell several of these holdings and reinvested the
proceeds into interest-bearing notes.
<Table>
TOP 10 INDUSTRIES AS OF 1/31/04
Broadcasting--Cable 7.9%
Printing & Publishing 6.9
Healthcare 6.3
Chemicals, Plastics & Rubber 5.9
Beverage, Food & Tobacco 5.7
Hotels, Motels, Inns & Gaming 5.6
Automotive 4.7
Telecommunications--Wireless 4.7
Entertainment & Leisure 4.4
Medical Products & Services 4.2
</Table>
Subject to change daily. All percentages are as a percentage of total assets.
Provided for informational purposes only and should not be deemed as a
recommendation to buy securities in the industries shown above. Van Kampen is a
wholly owned subsidiary of a global securities firm which is engaged in a wide
range of financial services including, for example, securities trading and
brokerage activities, investment banking, research and analysis, financing and
financial advisory services.
3
ANNUAL HOUSEHOLDING NOTICE
To reduce fund expenses, the fund attempts to eliminate duplicate
mailings to the same address. The fund delivers a single copy of certain
shareholder documents to investors who share an address, even if the
accounts are registered under different names. The fund's prospectuses
and shareholder reports (including annual privacy notices) will be
delivered to you in this manner indefinitely unless you instruct us
otherwise. You can request multiple copies of these documents by either
calling (800) 341-2911 or writing to Van Kampen Investor Services at 1
Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor
Services has received your instructions, we will begin sending individual
copies for each account within 30 days.
PROXY VOTING POLICIES AND PROCEDURES
A description of the trust's policies and procedures with respect to the
voting of proxies relating to the trust's portfolio securities is
available without charge, upon request, by calling 1-800-847-2424. This
information is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
4
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.(1)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
VARIABLE RATE** SENIOR LOAN INTERESTS 86.9%
AEROSPACE/DEFENSE 1.6%
$ 3,000 Anteon International Corp.,
Term Loan.................. Ba3 BB 12/31/10 $ 3,022,500
2,721 DeCrane Aircraft Holdings,
Inc., Term Loan............ B3 B- 09/30/05 2,523,970
6,010 DRS Technologies, Inc.,
Term Loan.................. Ba3 BB- 11/04/10 6,073,793
1,726 ILC Industries, Inc., Term
Loan....................... NR NR 04/11/10 1,735,047
13,465 The Titan Corp., Term
Loan....................... Ba3 BB- 06/30/09 13,497,014
1,496 TransDigm, Inc., Term
Loan....................... B1 B+ 07/22/10 1,515,187
4,238 Vought Aircraft Industries,
Inc., Term Loan............ Ba3 B+ 12/31/06 to 06/30/08 4,249,149
--------------
32,616,660
--------------
AUTOMOTIVE 4.4%
2,264 AMCAN Consolidate
Technologies, Inc., Term
Loan....................... NR NR 03/28/07 1,935,566
4,744 Citation Corp., Term Loan
(k)........................ NR B- 12/01/05 to 12/01/07 4,234,865
995 Eagle Pitcher Industries,
Term Loan.................. B2 B+ 08/07/09 1,006,194
29,864 Federal-Mogul Corp., Term
Loan (a)................... NR NR 02/04/05 to 02/24/05 29,352,231
3,347 Federal-Mogul Corp.,
Revolving Credit Agreement
(a)........................ NR NR 02/06/05 3,329,962
5,500 Goodyear Tire & Rubber Co.,
Term Loan.................. Ba3 BB+ 03/31/06 5,548,125
12,265 MetoKote Corp., Term Loan.. B1 B+ 11/14/05 12,158,283
2,620 Polypore, Inc., Term
Loan....................... Ba3 BB- 12/31/07 2,645,107
17,889 Safelite Glass Corp., Term
Loan (b)................... NR NR 09/30/07 17,655,079
3,500 Tenneco Automotive, Inc.,
Term Loan.................. B1 B 12/12/10 3,558,335
</Table>
See Notes to Financial Statements 5
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
AUTOMOTIVE (CONTINUED)
$ 7,522 ThermaSys Corp., Term Loan
(d)........................ NR NR 08/25/07 $ 3,723,319
2,783 TRW Automotive, Inc., Term
Loan....................... Ba2 BB 02/28/11 2,831,304
2,475 United Components, Inc.,
Term Loan.................. B1 BB- 06/30/10 2,505,938
--------------
90,484,308
--------------
BEVERAGE, FOOD & TOBACCO 5.7%
23,605 Aurora Foods, Inc., Term
Loan (a)................... NR CC 06/30/05 to 09/30/06 24,134,128
9,788 B & G Foods, Inc., Term
Loan....................... B1 B+ 08/31/09 9,898,083
8,719 Birds Eye Foods, Inc., Term
Loan....................... Ba3 B+ 06/30/08 8,814,796
4,963 Burns Philp Food, Inc.,
Term Loan.................. B1 B+ 02/26/09 5,024,531
4,576 Commonwealth Brands, Inc.,
Term Loan.................. NR NR 08/28/07 to 04/15/08 4,612,159
8,090 Doane Pet Care Co., Term
Loan....................... B1 B- 03/31/05 to 12/29/06 8,127,587
488 Doane Pet Care Co.,
Revolving Credit
Agreement.................. B1 B- 03/31/05 477,396
4,818 Dole Food Co., Inc., Term
Loan....................... Ba3 BB+ 09/28/08 4,894,253
4,000 DS Waters Enterprises, LP,
Term Loan.................. B1 B+ 11/07/09 4,062,500
9,056 Hartz Mountain Corp., Term
Loan....................... B1 NR 12/31/07 9,087,689
8,417 Land O' Lakes, Inc., Term
Loan....................... B1 B+ 10/10/08 8,443,730
3,845 Mafco Worldwide Corp., Term
Loan....................... NR NR 03/31/06 3,806,243
6,000 Michael Foods, Inc., Term
Loan....................... B1 B+ 11/21/10 6,088,752
3,284 New World Pasta Co., Term
Loan....................... NR NR 01/28/06 2,938,815
948 New World Pasta Co.,
Revolving Credit
Agreement.................. NR NR 01/28/05 843,720
2,827 Otis Spunkmeyer, Inc., Term
Loan....................... B1 B+ 02/20/09 2,848,327
</Table>
6 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
BEVERAGE, FOOD & TOBACCO (CONTINUED)
$ 5,505 Pinnacle Foods, Inc., Term
Loan....................... B1 BB- 11/25/10 $ 5,518,369
2,745 Southern Wine & Spirits of
America, Inc., Term Loan... NR NR 07/02/08 2,777,073
4,967 Swift & Co., Term Loan..... Ba2 BB 09/19/08 5,003,793
--------------
117,401,944
--------------
BROADCASTING--CABLE 8.4%
9,604 CC VIII Operating, LLC,
Term Loan.................. B2 B- 02/02/08 9,487,955
61,570 Charter Communications
Operating, LLC, Term Loan.. B2 B 09/18/07 to 09/18/08 60,731,450
37,440 Falcon Cable
Communications, LP, Term
Loan....................... B2 NR 12/31/07 36,613,598
12,432 Frontiervision Operating
Partners, LP, Term Loan
(a)........................ NR NR 09/30/05 to 03/31/06 12,359,193
2,917 Frontiervision Operating
Partners, LP, Revolving
Credit Agreement (a)....... NR NR 10/31/05 2,903,448
2,634 Hilton Head Communications,
LP, Term Loan (a).......... NR NR 03/31/08 2,609,883
10,500 Insight Midwest Holdings,
LLC, Term Loan............. Ba3 BB+ 06/30/09 to 12/31/09 10,544,767
4,250 MCC Iowa, LLC, Term Loan... Ba3 BB+ 09/30/10 4,297,519
1,481 Mediacom Illinois, LLC,
Term Loan.................. Ba3 BB+ 12/31/08 1,488,964
1,569 Mediacom Illinois, LLC,
Revolving Credit
Agreement.................. Ba3 BB+ 06/30/08 1,471,331
735 Mediacom Southeast, LLC,
Term Loan.................. Ba3 BB+ 09/30/08 736,829
1,441 Mediacom Southeast, LLC,
Revolving Credit
Agreement.................. Ba3 BB+ 03/31/08 1,451,513
17,760 Olympus Cable Holdings,
LLC, Term Loan (a)......... NR NR 06/30/10 to 09/30/10 17,549,548
4,680 Parnassos, LP, Term Loan
(a)........................ NR NR 06/30/07 4,620,548
</Table>
See Notes to Financial Statements 7
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
BROADCASTING--CABLE (CONTINUED)
$ 1,320 Parnassos, LP, Revolving
Credit Agreement (a)....... NR NR 06/30/07 $ 1,303,722
5,486 Rainbow Media Holdings,
Inc., Term Loan............ Ba2 BB+ 03/31/09 5,538,244
--------------
173,708,512
--------------
BROADCASTING--DIVERSIFIED 0.6%
955 Comcorp Broadcasting, Inc.,
Term Loan (c).............. NR NR 03/31/03 950,275
7,000 DirecTV Holdings, LLC, Term
Loan....................... Ba2 BB 03/06/10 7,085,316
423 Nexstar Broadcasting, Inc.,
Term Loan.................. Ba3 B+ 12/31/10 427,308
3,422 White Knight Broadcasting,
Inc., Term Loan (c)........ NR NR 03/31/03 3,405,372
--------------
11,868,271
--------------
BROADCASTING--RADIO 0.5%
10,750 Spanish Broadcasting
System, Inc., Term Loan.... B1 B+ 10/30/09 10,884,375
--------------
BROADCASTING--TELEVISION 0.1%
1,077 Mission Broadcasting, Inc.,
Term Loan.................. Ba3 B+ 12/31/10 1,087,692
--------------
BUILDINGS & REAL ESTATE 1.2%
3,000 AIMCO Properties, LP, Term
Loan....................... NR NR 05/30/08 3,031,875
8,431 CB Richard Ellis Services,
Inc., Term Loan............ B1 B+ 12/31/08 8,510,729
5,537 Central Parking Corp., Term
Loan....................... Ba3 BB- 03/31/10 5,613,583
4,699 Corrections Corp. of
America, Term Loan......... Ba3 BB- 03/31/08 4,758,121
1,482 Ventas, Inc., Term Loan.... NR NR 04/17/07 1,489,425
2,438 Wackenhut Corrections
Corp., Term Loan........... Ba3 BB- 07/09/09 2,464,922
--------------
25,868,655
--------------
CHEMICALS, PLASTICS & RUBBER 5.9%
10,387 CP Kelco ApS, Term Loan.... B3 B 09/30/06 to 09/30/08 10,464,705
7,935 GenTek, Inc., Term Loan.... NR NR 11/10/08 7,977,017
23,940 Huntsman ICI Chemicals,
LLC, Term Loan............. B1 B 06/30/07 to 06/30/08 24,216,525
31,247 Huntsman Corp., Term Loan.. B2 B 03/31/07 30,843,614
</Table>
8 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CHEMICALS, PLASTICS & RUBBER (CONTINUED)
$ 3,400 Jet Plastica Industries,
Inc., Term Loan............ NR NR 02/28/05 $ 3,094,275
967 Jet Plastica Industries,
Inc., Revolving Credit
Agreement.................. NR NR 02/28/05 879,781
5,000 Kraton Polymers, LLC, Term
Loan....................... B1 BB- 12/23/10 5,081,250
10,500 LYONDELL-CITGO Refining,
LP, Term Loan.............. NR NR 06/10/04 10,552,500
856 Messer Griesheim, Term
Loan....................... Ba2 BB 04/27/09 to 04/27/10 862,867
17,500 Nalco Co., Term Loan....... B1 BB- 11/04/09 to 11/04/10 17,709,763
4,470 Nutrasweet Acquisition
Corp., Term Loan........... Ba3 NR 06/30/06 to 05/25/09 4,435,200
4,975 Unifrax Corp., Term Loan... B1 B+ 09/04/09 5,027,859
--------------
121,145,356
--------------
CONSTRUCTION MATERIAL 1.3%
11,344 Builders FirstSource, Inc.,
Term Loan.................. NR BB- 12/30/05 11,357,945
1,990 Building Materials Holding
Corp., Term Loan........... Ba2 BB- 08/21/10 1,997,462
4,875 Interline Brands, Inc.,
Term Loan.................. B2 B+ 11/30/09 4,900,901
1,500 Sensus Metering Systems,
Inc., Term Loan............ B2 B+ 12/17/10 1,515,000
2,000 St. Mary's Cement, Inc.,
Term Loan.................. B1 BB- 12/05/09 2,022,500
5,510 Werner Holding Co., Inc.,
Term Loan.................. B1 B 06/11/09 5,340,514
--------------
27,134,322
--------------
CONTAINERS, PACKAGING & GLASS 4.0%
7,006 Crown Cork & Seal Co.,
Inc., Term Loan............ Ba3 BB 09/15/08 7,102,586
18,500 Dr. Pepper/Seven Up
Bottling Group, Inc., Term
Loan....................... B1 NR 12/19/10 18,762,090
1,213 Fleming Packaging Corp.,
Term Loan (a) (d).......... NR NR 08/31/04 192,856
143 Fleming Packaging Corp.,
Revolving Credit Agreement
(a) (c) (d)................ NR NR 03/31/03 22,707
</Table>
See Notes to Financial Statements 9
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
CONTAINERS, PACKAGING & GLASS (CONTINUED)
$12,438 Graphic Packaging
International Corp., Term
Loan....................... B1 B+ 08/09/10 $ 12,631,836
981 Impress Metal Packaging
Holding BV, Term Loan...... NR B 12/31/06 982,486
9,648 Kranson Industries, Inc.,
Term Loan.................. NR NR 12/31/06 9,563,820
12,333 Owens-Illinois, Inc., Term
Loan....................... B1 BB 04/01/07 to 04/01/08 12,450,059
5,452 Packaging Dynamics, Term
Loan....................... NR NR 09/29/08 to 09/29/09 5,463,297
7,283 Pliant Corp., Term Loan.... B3 BB- 05/31/08 7,298,967
183 Pliant Corp., Revolving
Credit Agreement........... B3 BB- 05/31/06 181,489
605 Smurfit-Stone Container
Corp., Term Loan........... NR NR 06/30/09 610,725
502 Smurfit-Stone Container
Corp., Revolving Credit
Agreement.................. NR NR 12/31/05 490,502
3,567 Stone Container Corp., Term
Loan....................... NR NR 06/30/09 3,598,701
1,122 Tekni-Plex, Inc., Term
Loan....................... B1 B+ 06/21/08 1,128,378
2,209 U.S. Can Corp., Term Loan.. B2 B 01/04/06 2,215,586
--------------
82,696,085
--------------
DIVERSIFIED MANUFACTURING 1.2%
995 Amsted Industries, Inc.,
Term Loan.................. B1 BB- 10/15/10 1,001,374
7,494 Chart Industries, Inc, Term
Loan (b)................... NR NR 09/15/09 7,428,614
2,425 EnerSys, Term Loan......... NR NR 11/09/08 2,434,211
13,747 Mueller Group, Inc., Term
Loan....................... B1 B+ 05/31/08 13,829,221
22 Mueller Group, Inc.,
Revolving Credit
Agreement.................. B1 B+ 08/16/05 21,653
--------------
24,715,073
--------------
ECOLOGICAL 1.9%
20,334 Allied Waste North America,
Inc., Term Loan............ Ba3 BB 01/15/10 20,661,695
8,750 Duratek, Inc., Term Loan... B1 BB- 12/16/09 8,766,406
</Table>
10 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
ECOLOGICAL (CONTINUED)
$ 1,886 Environmental Systems
Products Holdings, Inc.,
Term Loan.................. B2 BB- 12/12/08 $ 1,897,560
3,000 Great Lakes Dredge & Dock
Corp., Term Loan........... Ba3 B+ 12/22/10 3,030,000
2,993 IESI Corp., Term Loan...... B1 B+ 09/30/10 3,029,906
1,633 Safety-Kleen Corp., Term
Loan....................... NR NR 12/24/08 1,143,421
--------------
38,528,988
--------------
ELECTRONICS 1.6%
8,605 Audio Visual Services
Corp., Term Loan........... NR NR 03/04/06 8,604,820
2,799 Dynamic Details, Inc., Term
Loan....................... NR NR 04/15/08 2,715,171
3,273 Knowles Electronics, Inc.,
Term Loan.................. B3 CCC+ 06/29/07 3,271,892
5,501 Rayovac Corp., Term Loan... B1 B+ 09/30/09 5,544,322
7,773 Semiconductor Components
Industries, LLC, Term
Loan....................... B3 B 08/04/07 7,806,544
5,033 Viasystems, Inc., Term
Loan....................... NR NR 09/30/08 5,091,622
--------------
33,034,371
--------------
ENTERTAINMENT & LEISURE 3.1%
2,359 Bell Sports, Inc., Term
Loan....................... Ba3 NR 03/31/06 to 03/30/07 2,153,297
6,529 Carmike Cinemas, Inc., Term
Loan....................... B1 NR 01/31/07 6,570,986
1,000 Detroit Red Wings, Inc.,
Term Loan.................. NR NR 08/30/06 1,000,625
2,311 Festival Fun Parks, LLC,
Term Loan.................. NR NR 06/30/07 to 12/31/07 2,301,840
2,500 Fitness Holdings Worldwide,
Inc., Term Loan............ B1 B 07/01/09 2,531,250
1,980 Kerasotes Theatres, Inc.,
Term Loan.................. NR NR 12/31/08 2,004,750
2,823 Loews Cineplex
Entertainment Corp., Term
Loan....................... NR NR 03/31/07 2,822,727
2,333 Mets II, LLC, Term Loan.... NR NR 08/23/05 2,333,333
4,000 New Jersey Basketball, LLC,
Term Loan.................. NR NR 07/16/04 4,015,000
</Table>
See Notes to Financial Statements 11
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
ENTERTAINMENT & LEISURE (CONTINUED)
$ 9,233 Playcore Wisconsin, Inc.,
Term Loan.................. NR NR 07/01/07 $ 9,058,320
4,875 Pure Fishing, Term Loan.... NR NR 12/31/09 4,896,328
2,923 Regal Cinemas, Inc., Term
Loan....................... Ba2 BB- 06/30/09 2,959,721
2,453 Riddell Sports Group, Inc.,
Term Loan.................. NR NR 06/30/08 2,459,258
4,946 Six Flags Theme Parks,
Inc., Term Loan............ Ba2 B+ 06/30/09 4,969,617
200 Six Flags Theme Parks,
Inc., Revolving Credit
Agreement.................. Ba2 B+ 06/30/08 194,000
9,200 Vivendi Universal
Entertainment, Term Loan... Ba2 BB+ 06/30/08 9,283,380
4,226 Worldwide Sports &
Recreation, Inc., Term
Loan....................... NR NR 12/31/06 4,160,197
--------------
63,714,629
--------------
FARMING & AGRICULTURE 0.2%
5,000 The Scotts Co., Term Loan.. Ba1 BB 09/30/10 5,068,305
48 United Industries Corp.,
Revolving Credit
Agreement.................. B1 B+ 01/20/05 47,092
--------------
5,115,397
--------------
FINANCE 0.9%
7,281 Outsourcing Solutions, Term
Loan....................... NR NR 12/09/08 6,916,749
352 Outsourcing Solutions,
Revolving Credit
Agreement.................. NR NR 12/09/08 334,473
6,468 Rent-A-Center, Inc., Term
Loan....................... Ba2 BB 05/28/09 6,553,194
4,824 Risk Management Assurance
Co., Term Loan............. NR NR 12/21/06 4,850,942
--------------
18,655,358
--------------
GROCERY 0.3%
4,606 Fleming Cos., Inc., Term
Loan (a)................... NR NR 06/18/08 4,573,846
1,899 Fleming Cos., Inc.,
Revolving Credit Agreement
(a)........................ NR NR 06/18/07 1,887,911
--------------
6,461,757
--------------
</Table>
12 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
HEALTHCARE 3.7%
$ 1,896 Ameripath, Inc., Term
Loan....................... B1 B+ 03/27/10 $ 1,900,851
3,125 AMN Healthcare Services,
Inc., Term Loan............ Ba2 BB- 10/02/08 3,164,062
1,995 Beverly Enterprises, Inc.,
Term Loan.................. Ba3 BB 10/22/08 2,017,444
24,490 Community Health Systems,
Inc., Term Loan............ NR BB- 07/16/10 to 01/16/11 24,846,141
1,493 Concentra Operating Corp.,
Term Loan.................. B1 B+ 06/30/09 1,511,623
1,857 FHC Health Systems, Inc.,
Term Loan.................. B2 B 10/31/06 1,882,679
1,200 Genesis Healthcare Corp.,
Term Loan.................. Ba3 BB- 12/01/10 1,212,000
8,280 InteliStaf Group, Inc.,
Term Loan.................. NR NR 10/31/05 to 10/31/07 8,217,765
28,164 Kindred Healthcare, Inc.,
Term Loan.................. NR NR 04/13/08 28,146,616
3,758 Team Health, Inc., Term
Loan....................... Ba3 B+ 10/31/08 3,758,475
--------------
76,657,656
--------------
HEALTHCARE & BEAUTY 0.8%
3,563 Jafra Cosmetics
International, Inc., Term
Loan....................... B1 B+ 05/20/08 3,482,344
993 Mary Kay, Inc., Term
Loan....................... Ba2 BB 10/03/07 999,973
2,617 Prestige Brands Holdings,
Inc., Term Loan............ NR NR 12/30/08 2,628,330
8,778 Revlon Consumer Products
Corp., Term Loan........... B3 B- 05/30/05 8,755,660
--------------
15,866,307
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER
PRODUCTS 1.1%
2,079 Formica Corp., Term Loan
(a)........................ NR NR 04/30/06 2,019,448
7,432 General Binding Corp., Term
Loan....................... B2 B+ 01/15/08 7,431,667
2,948 Hunter Fan Co., Term Loan.. NR NR 04/30/10 2,976,975
5,045 Imperial Home Decor Group,
Inc., Term Loan (b) (d).... NR NR 04/04/06 126,121
</Table>
See Notes to Financial Statements 13
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER PRODUCTS
(CONTINUED)
$ 3,069 National Bedding Co., Term
Loan....................... B1 B+ 08/31/08 $ 3,098,364
3,567 Sealy Mattress Co., Term
Loan....................... B1 B+ 12/15/04 to 12/15/06 3,580,111
3,136 Targus Group International,
Inc., Term Loan............ NR NR 08/31/06 3,104,747
--------------
22,337,433
--------------
HOTELS, MOTELS, INNS & GAMING 5.6%
41,792 Aladdin Gaming, LLC, Term
Loan (a) (d)............... NR NR 02/25/05 to 02/26/08 37,822,103
5,700 Alliance Gaming Corp., Term
Loan....................... B1 BB- 09/04/09 5,759,377
3,908 Extended Stay America,
Inc., Term Loan............ Ba3 BB- 01/15/08 3,971,018
3,034 Greektown Casino, LLC, Term
Loan....................... NR NR 12/31/05 3,061,362
2,000 Green Valley Ranch Gaming,
LLC, Term Loan............. B1 B+ 12/22/10 2,025,000
10,500 Mandalay Resort Group, Term
Loan....................... NR NR 06/30/08 10,513,125
1,212 Marina District Finance
Co., Term Loan............. B2 B+ 12/13/07 1,221,778
2,857 Penn National Gaming, Inc.,
Term Loan.................. B1 BB- 09/01/07 2,888,274
14,049 Scientific Games Corp.,
Term Loan.................. Ba3 BB- 12/31/09 14,268,262
3,977 United Auburn Indian
Community, Term Loan....... Ba3 BB- 01/24/09 3,996,718
31,771 Wyndham International,
Inc., Term Loan............ NR NR 04/01/06 to 06/30/06 30,975,748
--------------
116,502,765
--------------
INSURANCE 1.4%
5,000 Alea Group Holdings, Term
Loan....................... NR BBB- 03/31/07 5,012,500
4,675 Brera GAB Robins, Inc.,
Term Loan.................. NR NR 12/31/05 4,441,250
8,463 BRW Acquisition, Inc., Term
Loan....................... NR NR 07/10/07 8,335,562
8,250 Conseco, Inc., Term Loan... Caa1 B- 09/10/09 to 09/10/10 8,315,769
1,990 USI Holdings Corp., Term
Loan....................... B1 BB- 08/11/08 2,009,900
--------------
28,114,981
--------------
</Table>
14 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
MACHINERY 1.2%
$ 4,067 Alliance Laundry Holdings,
LLC, Term Loan............. B1 B 08/02/07 $ 4,085,998
6,146 Ashtead Group, PLC, Term
Loan....................... NR NR 06/01/07 5,864,024
10,843 Gleason Corp., Term Loan... NR NR 02/18/08 10,734,157
1,275 Goodman Global Holdings,
Inc., Term Loan............ NR NR 11/21/09 1,290,937
2,207 SWT Finance BV, Term Loan.. NR NR 09/30/05 2,057,732
--------------
24,032,848
--------------
MEDICAL PRODUCTS & SERVICES 2.7%
1,824 Alaris Medical Systems,
Inc., Term Loan............ B1 BB 06/30/09 1,846,334
3,382 Alliance Imaging, Inc.,
Term Loan.................. B1 B+ 06/10/08 3,369,602
10,899 Dade Behring, Inc., Term
Loan....................... B1 BB 11/03/08 11,062,992
7,085 DaVita, Inc., Term Loan.... Ba3 BB 03/31/07 to 03/31/09 7,164,832
2,500 EMPI Corp., Term Loan...... B1 B+ 11/24/09 2,531,250
5,092 Fisher Scientific
International, Inc., Term
Loan....................... Ba3 BB+ 03/31/10 5,128,423
4,606 Fresenius Medical Care
Holding, Inc., Term Loan... Ba1 BB+ 02/21/10 4,670,745
1,621 Hanger Orthopedic, Term
Loan....................... B1 B+ 09/30/09 1,637,654
2,446 InSight Health, Term
Loan....................... B1 B+ 10/17/08 2,458,066
7,463 Kinetics Concepts, Inc.,
Term Loan.................. Ba3 BB- 08/11/10 7,574,438
3,000 Orthofix International NV,
Term Loan.................. Ba2 BB- 12/30/08 3,009,375
737 Rotech Healthcare, Inc.,
Term Loan.................. Ba2 BB 03/31/08 742,380
3,910 Symmetry Medical, Inc.,
Term Loan.................. NR NR 06/30/08 to 06/30/09 3,911,267
--------------
55,107,358
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 3.8%
14,601 Carmeuse Lime, Inc., Term
Loan....................... Ba3 NR 03/31/06 13,286,961
7,310 CII Carbon, LLC, Term
Loan....................... NR NR 06/25/08 7,017,353
</Table>
See Notes to Financial Statements 15
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
MINING, STEEL, IRON & NON-PRECIOUS METALS (CONTINUED)
$ 1,899 Fairmount Minerals, Ltd.,
Term Loan.................. NR NR 03/13/09 $ 1,903,786
55,775 Ispat Inland, Term Loan.... Caa1 B- 07/16/05 to 07/16/06 54,148,094
2,500 Tech Industries, Inc., Term
Loan....................... NR NR 01/14/10 2,506,250
--------------
78,862,444
--------------
NATURAL RESOURCES 1.5%
7,500 El Paso Coastal, Term
Loan....................... B3 NR 12/31/06 7,485,938
500 El Paso Coastal, Revolving
Credit Agreement........... B3 NR 06/30/05 486,875
2,800 La Grange Acquisition, LP,
Term Loan.................. NR NR 01/18/08 2,828,000
20,000 Ocean Rig ASA--(Norway),
Term Loan.................. B3 CCC 06/01/08 18,275,000
1,191 Peabody Energy Corp., Term
Loan....................... Ba1 BB+ 03/21/10 1,206,508
606 U.S. Synthetic Corp., Term
Loan....................... NR NR 05/31/05 578,465
--------------
30,860,786
--------------
NON-DURABLE CONSUMER PRODUCTS 0.2%
1,718 Aero Products
International, Inc., Term
Loan....................... NR NR 12/19/08 1,688,374
2,970 Amscan Holdings, Inc., Term
Loan....................... B1 BB- 06/15/07 2,994,749
--------------
4,683,123
--------------
PAPER & FOREST PRODUCTS 0.2%
3,890 Port Townsend Paper Corp.,
Term Loan.................. NR NR 03/16/07 3,773,300
--------------
PERSONAL & MISCELLANEOUS SERVICES 1.3%
2,644 Alderwoods Group, Inc.,
Term Loan.................. B1 BB- 09/29/08 2,682,504
2,508 Aspen Marketing Group, Term
Loan (b)................... NR NR 09/30/04 1,316,923
7,464 Aspen Marketing Group,
Revolving Credit Agreement
(b)........................ NR NR 09/30/04 3,918,828
2,323 Coinmach Laundry Corp.,
Term Loan.................. B1 BB- 07/25/09 2,347,682
3,139 Encompass Service Corp.,
Term Loan (a) (d).......... Caa1 NR 02/22/06 to 05/10/07 408,066
</Table>
16 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PERSONAL & MISCELLANEOUS SERVICES (CONTINUED)
$ 1,990 Global Imaging Systems,
Inc., Term Loan............ Ba3 BB- 06/25/09 $ 2,002,438
1,775 InfoUSA, Inc., Term Loan... Ba3 BB 04/30/07 1,773,337
4,925 Katun Corp., Term Loan..... NR B+ 06/30/09 4,921,922
740 Stewart Enterprises, Inc.,
Term Loan.................. Ba3 BB 01/31/06 746,112
7,570 The Relizon Co., Term
Loan....................... NR NR 09/30/06 to 12/31/07 7,495,989
--------------
27,613,801
--------------
PHARMACEUTICALS 0.9%
3,388 aaiPharma, Inc., Term
Loan....................... B2 BB- 12/01/09 3,428,431
4,988 Medco Health Solutions,
Term Loan.................. Ba1 BBB 06/30/10 5,065,455
10,167 MedPointe, Inc., Term
Loan....................... B1 B 09/30/07 to 09/30/08 10,175,524
--------------
18,669,410
--------------
PRINTING & PUBLISHING 7.0%
4,936 21st Century Newspapers,
Term Loan.................. NR NR 08/27/08 4,935,897
1,479 Adams Outdoor Advertising,
LP, Term Loan.............. B1 B+ 02/08/08 1,487,335
593 Advanstar Communications,
Inc., Term Loan............ B2 B 10/11/07 594,247
7,500 American Reprographics Co.,
Term Loan.................. B1 BB- 06/18/09 7,612,500
1,492 CanWest Media, Inc., Term
Loan....................... NR B+ 05/15/09 1,508,319
12,944 CommerceConnect Media,
Inc., Term Loan............ NR NR 12/31/07 12,879,712
1,879 Daily News, LP, Term Loan.. NR NR 03/19/08 1,815,386
3,169 Day International Group,
Inc., Term Loan............ B1 B 09/16/09 3,188,352
23,083 Dex Media West, LLC, Term
Loan....................... B1 BB- 11/08/08 to 03/09/10 23,414,891
5,481 F&W Publications, Inc.,
Term Loan.................. NR NR 12/31/09 5,519,010
4,988 Haights Cross
Communications, LLC, Term
Loan....................... B3 B- 08/20/08 5,062,312
7,766 Journal Register Co., Term
Loan....................... Ba1 BB+ 09/29/06 7,730,093
</Table>
See Notes to Financial Statements 17
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
PRINTING & PUBLISHING (CONTINUED)
$ 2,800 Lamar Media Corp., Term
Loan....................... Ba2 BB- 06/30/10 $ 2,829,168
1,381 Liberty Group Operating,
Inc., Term Loan............ B1 B 03/31/07 1,393,051
2,500 MediaNews Group, Inc., Term
Loan....................... NR NR 12/30/10 2,528,125
8,473 Merrill Communications,
LLC, Term Loan............. B3 B 11/23/05 to 11/23/07 8,473,313
10,500 Morris Publishing Group,
LLC, Term Loan............. Ba1 BB 03/31/11 10,611,563
3,417 Network Communications,
Inc., Term Loan............ NR NR 12/27/08 3,425,989
10,243 Primedia, Inc., Term
Loan....................... B3 B 06/30/08 to 06/30/09 10,077,778
6,012 R.H. Donnelley, Inc., Term
Loan....................... Ba3 BB 12/31/08 to 06/30/10 6,088,101
3,130 The Reader's Digest
Association, Inc., Term
Loan....................... Ba1 BB 05/21/07 3,145,253
5,549 Vutek, Inc., Term Loan..... NR NR 07/31/07 5,382,544
10,000 Xerox Corp., Term Loan..... NR BB- 12/31/05 to 09/30/08 10,050,562
5,614 Ziff-Davis Media, Inc.,
Term Loan.................. B3 CCC 03/31/07 5,558,166
--------------
145,311,667
--------------
RETAIL--OIL & GAS 0.6%
4,458 Barjan Products, LLC, Term
Loan....................... NR NR 05/31/06 2,228,944
10,879 The Pantry, Inc., Term
Loan....................... B1 B+ 03/31/07 11,027,684
--------------
13,256,628
--------------
RETAIL--SPECIALTY 0.4%
625 American Blind & Wallpaper
Factory, Inc., Term Loan
(b)........................ NR NR 12/31/05 624,620
3,193 DRL Acquisition, Inc., Term
Loan....................... NR NR 04/30/09 3,185,142
1,739 Home Interiors & Gifts,
Inc., Term Loan............ B2 B+ 12/31/06 1,743,054
1,750 Nebraska Book Co., Inc.,
Term Loan.................. Ba3 B+ 06/30/07 1,765,312
--------------
7,318,128
--------------
</Table>
18 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
RETAIL--STORES 2.4%
$ 3,696 Advance Stores Co., Inc.,
Term Loan.................. Ba3 BB 11/30/06 to 11/30/07 $ 3,741,344
2,500 Alimentation Couche-Tard,
Inc., Term Loan............ Ba2 BB 12/17/10 2,515,625
6,250 CSK Auto, Inc., Term Loan.. Ba3 B+ 06/19/09 6,308,594
3,471 Murray's Discount Auto
Stores, Inc., Term Loan.... NR NR 08/08/09 3,500,355
33,750 Rite Aid Corp., Term
Loan....................... Ba3 BB 04/30/08 34,492,500
--------------
50,558,418
--------------
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 1.1%
7,980 Cincinnati Bell, Inc., Term
Loan....................... B1 B+ 06/30/08 8,084,738
2,000 Fairpoint Communications,
Inc., Term Loan............ B1 BB- 03/31/07 2,007,500
6,812 NATG Holdings, LLC, Term
Loan (b)................... NR NR 01/23/09 to 01/23/10 1,516,504
4,331 NATG Holdings, LLC,
Revolving Credit Agreement
(b)........................ NR NR 01/23/05 2,490,270
6,131 Qwest Corp., Term Loan..... Ba3 B- 06/30/07 6,445,164
3,000 Qwest Services Corp.,
Revolving Credit
Agreement.................. NR CCC+ 05/03/05 2,997,750
7,500 WCI Capital Corp., Term
Loan (a) (d)............... NR NR 09/30/07 18,750
1,747 WCI Capital Corp.,
Revolving Credit Agreement
(a) (d).................... NR NR 12/31/04 146,767
--------------
23,707,443
--------------
TELECOMMUNICATIONS--LONG DISTANCE 0.1%
29,946 Pacific Crossing, Ltd.,
Term Loan (a) (d).......... NR NR 07/28/06 2,096,222
--------------
TELECOMMUNICATIONS--WIRELESS 4.3%
2,175 Centennial Cellular Corp.,
Term Loan.................. B2 B 11/30/06 2,169,033
5,734 Centennial Puerto Rico
Operations Corp., Term
Loan....................... B2 B 05/31/07 to 11/30/07 5,755,655
3,250 Cricket Communications,
Inc., Term Loan (a) (d).... NR NR 06/30/07 2,640,625
3,990 Crown Castle International
Corp., Term Loan........... B1 B- 09/30/10 4,074,788
</Table>
See Notes to Financial Statements 19
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TELECOMMUNICATIONS--WIRELESS (CONTINUED)
$ 7,481 Dobson Cellular Systems,
Inc., Term Loan............ Ba3 B- 03/31/10 $ 7,591,718
3,468 Microcell Solutions, Inc.,
Term Loan.................. NR CCC+ 12/31/08 3,455,755
25,469 Nextel Finance Co., Term
Loan....................... Ba2 BB 12/31/07 to 12/15/10 25,704,843
5,000 Nextel Partners, Inc., Term
Loan....................... B1 B 11/30/10 5,061,250
4,698 Pinnacle Towers, Inc., Term
Loan....................... NR NR 10/31/05 4,711,015
12,446 Rural Cellular Corp., Term
Loan....................... B2 B- 10/03/08 to 04/03/09 12,564,406
3,733 Spectrasite Communications,
Inc., Term Loan............ B1 B+ 12/31/07 3,786,146
2,912 TSI Telecommunication
Services, Inc., Term
Loan....................... Ba3 B+ 12/31/06 2,915,263
9,291 Western Wireless Corp.,
Term Loan.................. B2 B- 03/31/08 to 09/30/08 9,283,761
--------------
89,714,258
--------------
TRANSPORTATION--CARGO 0.9%
7,912 American Commercial Lines,
LLC, Term Loan (a)......... NR NR 07/31/04 to 06/30/07 7,118,004
32 Comcar Industries, Inc.,
Term Loan.................. NR NR 09/30/04 32,266
3,687 Havco Wood Products, Inc.,
Term Loan.................. NR NR 06/30/06 2,304,615
6,294 Pacer International, Inc.,
Term Loan.................. B1 BB- 06/10/10 6,354,435
1,496 Quality Distribution, Inc.,
Term Loan.................. B2 B+ 11/13/09 1,513,083
1,158 United States Shipping,
LLC, Term Loan............. Ba2 BB 09/12/08 1,166,376
--------------
18,488,779
--------------
TRANSPORTATION--PERSONAL 1.1%
14,649 Laidlaw Investments Ltd.,
Term Loan.................. Ba3 BB+ 06/19/09 14,841,247
900 Neoplan USA Corp.,
Revolving Credit Agreement
(b)........................ NR NR 06/30/06 900,000
5,885 Transcore Holdings, Inc.,
Term Loan.................. NR NR 01/05/08 5,943,818
819 United Airlines, Inc., Term
Loan....................... NR NR 07/01/04 822,738
--------------
22,507,803
--------------
</Table>
20 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
BANK LOAN
PRINCIPAL RATINGS+
AMOUNT --------------
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
TRANSPORTATION--RAIL MANUFACTURING 0.1%
$ 2,410 Helm, Inc., Term Loan...... NR NR 10/18/06 $ 2,379,636
1,955 RailWorks Corp., Term Loan
(d)........................ NR NR 11/13/04 733,120
--------------
3,112,756
--------------
UTILITIES 1.6%
7,250 AES Corp., Term Loan....... B2 B+ 04/30/08 7,351,384
878 Allegheny Energy, Inc.,
Term Loan.................. B1 BB- 09/30/04 881,576
5,000 Aquila, Inc., Term Loan.... B2 NR 07/30/04 5,006,250
4,447 Edison Mission Energy,
Revolving Credit Agreement
(c)........................ Ba3 CCC 12/11/03 to 12/11/04 4,402,050
6,500 Midwest Funding, LLC, Term
Loan....................... Ba3 B 12/15/04 6,435,000
5,000 Mission Energy Holdings
Co., Term Loan............. Caa2 CCC 12/11/06 5,055,210
2,418 Pike Electric, Inc., Term
Loan....................... NR NR 04/18/10 2,439,558
828 Westar Energy, Inc., Term
Loan....................... Ba1 BBB- 06/06/05 831,798
10 Westar Energy, Inc.,
Revolving Credit
Agreement.................. Ba1 BBB- 06/05/05 9,800
--------------
32,412,626
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 86.9%........................... 1,796,688,693
--------------
</Table>
<Table>
NOTES 1.3%
Alderwoods Group, Inc. ($1,232,200 par, 12.25% coupon, maturing 01/02/09).... 1,386,225
American Home Patient, Inc. ($814,858 par, 6.79% to 8.57% coupon, maturing
07/01/09).................................................................. 643,930
Commonwealth Brands, Inc. ($1,500,000 par, 5.19% coupon, maturing 08/28/07)
(f)........................................................................ 1,582,500
Dade Behring, Inc. ($5,085,286 par, 11.91% coupon, maturing 10/03/10)........ 5,670,094
Pioneer Cos., Inc. ($1,515,821 par, 4.66% coupon, maturing 12/31/06) (f)..... 1,493,084
Premcor Refining Group, Inc. ($8,500,000 par, 4.34% coupon, maturing
02/11/06) (f).............................................................. 8,592,973
Satelites Mexicanos ($10,312,000 par, 5.63% coupon, maturing 06/30/04) 144A
Private Placement (e) (f).................................................. 8,507,400
--------------
TOTAL NOTES.................................................................. 27,876,206
--------------
</Table>
See Notes to Financial Statements 21
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
DESCRIPTION VALUE
EQUITIES 7.6%
Aspen Marketing (166,871 common shares) (b) (g) (h).......................... $ 0
Audio Visual Services Corp. (137,193 common shares) (g) (h).................. 1,440,526
Best Products Co., Inc. (297,480 common shares) (g).......................... 0
Chart Industries, Inc. (345,454 common shares) (b) (g) (h)................... 9,672,712
Dade Behring Holdings, Inc. (182,281 common shares) (g)...................... 7,063,389
DecorateToday.com (198,600 common shares) (b) (g) (h)........................ 2,778,414
Genesis Healthcare Corp. (753,036 common shares) (g)......................... 16,114,970
Gentek, Inc. (119,649 common shares) (g) (h)................................. 4,672,293
Gentek, Inc. (Warrants for 393 common shares) (g) (h)........................ 0
Havco Wood Products, Inc. (30 common shares) (g) (h)......................... 0
Holmes Group, Inc. (Warrants for 3,118 common shares) (g) (h)................ 14,966
IDT Corp. (22,898 common shares) (g) (h)..................................... 497,345
Imperial Home Decor Group, Inc. (1,816,143 common shares) (b) (g) (h)........ 0
Imperial Home Decor Realty, Inc. (1,816,143 common shares) (b) (g) (h)....... 0
London Fog Industries, Inc. (515,922 common shares) (b) (g) (h).............. 9,544,557
NeighborCare, Inc. (1,727,481 common shares) (g)............................. 39,231,094
Neoplan (2,262 preferred shares) (b) (g) (h)................................. 1,072,776
Neoplan (8,517 common shares) (b) (g) (h).................................... 85
Orius Corp. (1,211,236 common shares) (b) (g) (h)............................ 0
Outsourcing Solutions (159,004 common shares) (g) (h)........................ 5,167,630
Pioneer Cos., Inc. (81,064 common shares) (g)................................ 587,714
RailWorks Corp. (223 preferred shares) (g) (h)............................... 0
RailWorks Corp. (Warrants for 3,935 common shares) (g) (h)................... 0
Rotech Healthcare, Inc. (930,691 common shares) (g).......................... 19,544,511
Rotech Medical Corp. (94,289 common shares) (g) (h).......................... 0
Safelite Glass Corp. (724,479 common shares) (b) (g) (h)..................... 8,121,410
Safelite Realty (48,903 common shares) (b) (g) (h)........................... 0
Safety-Kleen Holdings, Inc. (306,849 common shares) (g) (h).................. 1,215,122
SK Holding Co. (5,227 preferred shares) (g) (h).............................. 126,598
Stellex (33,390 common shares) (g) (h)....................................... 415,372
Targus Group International (Warrants for 66,824 common shares) (g) (h)....... 2,673
Teligent, Inc. (400 common shares) (b) (g) (h)............................... 0
Tembec, Inc. (121,164 common shares) (g) (h)................................. 789,989
Trans World Entertainment Corp. (3,789,962 common shares) (b) (g) (h)........ 28,424,715
West American Rubber Co., LLC (11.39% ownership interest) (g) (h)............ 0
--------------
TOTAL EQUITIES............................................................... 156,498,861
--------------
TOTAL LONG-TERM INVESTMENTS 95.8%
(Cost $2,096,374,551)...................................................... 1,981,063,760
--------------
</Table>
22 See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
DESCRIPTION VALUE
SHORT-TERM INVESTMENTS 3.4%
REPURCHASE AGREEMENT 2.2%
State Street Bank & Trust Corp. ($45,000,000 par collateralized by U.S.
Government Obligations in a pooled cash account, 0.93% coupon, dated
01/30/04, to be sold on 02/02/04 at $45,003,488) (i)....................... $ 45,000,000
U.S. GOVERNMENT AGENCY OBLIGATIONS 1.2%
Federal Home Loan Bank Discount Note ($25,000,000 par, yielding 0.99%,
maturing 03/19/04) (i)..................................................... 24,968,014
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $69,968,014)......................................................... 69,968,014
--------------
TOTAL INVESTMENTS 99.2%
(Cost $2,166,342,565)...................................................... 2,051,031,774
ASSETS IN EXCESS OF OTHER LIABILITIES 0.8%.................................. 16,401,388
--------------
NET ASSETS 100.0%........................................................... $2,067,433,162
==============
</Table>
NR--Not rated
+ Bank Loans rated below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered to be below investment grade.
(1) Industry percentages are calculated as a percentage of net assets.
(a) This borrower has filed for protection in federal bankruptcy court.
(b) Affiliated company. See Notes to Financial Statements.
(c) This borrower is in the process of restructuring or amending the terms of
this loan.
(d) This Senior Loan interest is non-income producing.
(e) 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.
See Notes to Financial Statements 23
PORTFOLIO OF INVESTMENTS
January 31, 2004 (Unaudited)
(f) Variable rate security. Interest rate shown is that in effect at January 31,
2004.
(g) Non-income producing security as this stock currently does not declare
dividends.
(h) Restricted security.
(i) A portion of this security is segregated in connection with unfunded loan
commitments.
(k) Payment-in-kind security.
* 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.
Although the Fund is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, 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 or (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.
24 See Notes to Financial Statements
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
January 31, 2004 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $2,166,342,565)..................... $ 2,051,031,774
Cash........................................................ 15,071,373
Receivables:
Investments Sold.......................................... 21,122,221
Interest and Fees......................................... 8,636,764
Fund Shares Sold.......................................... 970,107
Other....................................................... 23,247
---------------
Total Assets............................................ 2,096,855,486
---------------
LIABILITIES:
Payables:
Investments Purchased..................................... 23,242,412
Investment Advisory Fee................................... 1,732,371
Income Distributions...................................... 1,300,671
Administrative Fee........................................ 455,887
Distributor and Affiliates................................ 430,837
Fund Shares Repurchased................................... 208,926
Accrued Expenses............................................ 1,069,526
Trustees' Deferred Compensation and Retirement Plans........ 981,694
---------------
Total Liabilities....................................... 29,422,324
---------------
NET ASSETS.................................................. $ 2,067,433,162
===============
NET ASSETS CONSIST OF:
Capital..................................................... $ 3,223,152,432
Accumulated Undistributed Net Investment Income............. (4,003,204)
Net Unrealized Depreciation................................. (115,310,791)
Accumulated Net Realized Loss............................... (1,036,405,275)
---------------
NET ASSETS.................................................. $ 2,067,433,162
===============
NET ASSET VALUE PER COMMON SHARE:
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $1,811,230,598 and 205,611,396 shares of
beneficial interest issued and outstanding)............. $ 8.81
===============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $256,202,564 and 29,094,637 shares of
beneficial interest issued and outstanding)............. $ 8.81
===============
</Table>
See Notes to Financial Statements 25
Statement of Operations
For the Six Months Ended January 31, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $ 51,090,226
Dividends................................................... 2,039,310
Other....................................................... 2,911,662
-------------
Total Income............................................ 56,041,198
-------------
EXPENSES:
Investment Advisory Fee..................................... 10,231,590
Administrative Fee.......................................... 2,692,524
Shareholder Services........................................ 1,183,293
Legal....................................................... 476,473
Custody..................................................... 322,659
Service Fees -- Class C..................................... 194,141
Trustees' Fees and Related Expenses......................... 122,664
Other....................................................... 1,051,032
-------------
Total Expenses.......................................... 16,274,376
Less Credits Earned on Cash Balances.................... 14,153
-------------
Net Expenses............................................ 16,260,223
-------------
NET INVESTMENT INCOME....................................... $ 39,780,975
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (26,137,824)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (266,697,299)
End of the Period......................................... (115,310,791)
-------------
Net Unrealized Appreciation During the Period............... 151,386,508
-------------
NET REALIZED AND UNREALIZED GAIN............................ $ 125,248,684
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 165,029,659
=============
</Table>
26 See Notes to Financial Statements
Statements of Changes in Net Assets
(Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JANUARY 31, 2004 JULY 31, 2003
----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 39,780,975 $ 91,410,098
Net Realized Loss...................................... (26,137,824) (180,662,448)
Net Unrealized Appreciation During the Period.......... 151,386,508 202,756,414
-------------- --------------
Change in Net Assets from Operations................... 165,029,659 113,504,064
-------------- --------------
Distributions from Net Investment Income:
Class B Shares....................................... (31,191,472) (79,942,206)
Class C Shares....................................... (4,055,471) (1,067,561)
-------------- --------------
(35,246,943) (81,009,767)
-------------- --------------
Return of Capital Distribution:
Class B Shares....................................... -0- (7,501,943)
Class C Shares....................................... -0- -0-
-------------- --------------
-0- (7,501,943)
-------------- --------------
Total Distributions.................................... (35,246,943) (88,511,710)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 129,782,716 24,992,354
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.............................. 33,248,033 267,313,569
Net Asset Value of Shares Issued Through Dividend
Reinvestment......................................... 18,523,279 44,870,091
Cost of Shares Repurchased............................. (236,280,773) (773,706,504)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..... (184,509,461) (461,522,844)
-------------- --------------
TOTAL DECREASE IN NET ASSETS........................... (54,726,745) (436,530,490)
NET ASSETS:
Beginning of the Period................................ 2,122,159,907 2,558,690,397
-------------- --------------
End of the Period (Including accumulated undistributed
net investment income of ($4,003,204) and
($8,537,236), respectively).......................... $2,067,433,162 $2,122,159,907
============== ==============
</Table>
See Notes to Financial Statements 27
Statement of Cash Flows
For the Six Months Ended January 31, 2004 (Unaudited)
<Table>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 165,029,659
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash provided by Operating Activities:
Decrease in Investments at Value............................ 113,690,097
Increase in Interest and Fees Receivables................... (470,929)
Decrease in Receivable for Investments Sold................. 656,252
Decrease in Other Assets.................................... 7,283
Decrease in Investment Advisory Fee Payable................. (46,359)
Decrease in Administrative Fee Payable...................... (12,200)
Decrease in Distributor and Affiliates Payable.............. (118,620)
Decrease in Payable for Investments Purchased............... (44,013,337)
Decrease in Accrued Expenses................................ (416,296)
Increase in Trustees' Deferred Compensation and Retirement
Plans..................................................... 96,392
-------------
Total Adjustments........................................... 69,372,283
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 234,401,942
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 33,719,006
Change in Intra-day Credit Line with Custodian Bank......... (242,280)
Payments on Shares Repurchased.............................. (236,232,202)
Cash Dividends Paid......................................... (16,575,093)
-------------
Net Cash Used for Financing Activities...................... (219,330,569)
-------------
NET INCREASE IN CASH........................................ 15,071,373
Cash at Beginning of the Period............................. -0-
-------------
CASH AT THE END OF THE PERIOD............................... $ 15,071,373
=============
</Table>
28 See Notes to Financial Statements
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED JULY 31,
CLASS B SHARES JANUARY 31, --------------------------------------------------------
2004 (c) 2003 (c) 2002 (c) 2001 (c) 2000 1999
----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $ 8.29 $ 8.09 $ 8.61 $ 9.50 $ 9.85 $ 9.98
-------- -------- -------- -------- -------- --------
Net Investment Income.... .16 .33 .41 .66 .68 .64
Net Realized and
Unrealized Gain/Loss... .50 .19 (.55) (.86) (.36) (.13)
-------- -------- -------- -------- -------- --------
Total from Investment
Operations............... .66 .52 (.14) (.20) .32 .51
-------- -------- -------- -------- -------- --------
Less:
Distributions from Net
Investment Income...... .14 .29 .38 .69 .67 .64
Return of Capital
Distributions.......... -0- .03 -0- -0- -0- -0-
-------- -------- -------- -------- -------- --------
Total Distributions........ .14 .32 .38 .69 .67 .64
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD................... $ 8.81 $ 8.29 $ 8.09 $ 8.61 $ 9.50 $ 9.85
======== ======== ======== ======== ======== ========
Total Return (a)........... 8.03%* 6.58% -1.61% -2.11% 3.15% 5.23%
Net Assets at End of the
Period (In millions)..... $1,811.2 $1,876.1 $2,558.7 $3,989.7 $6,458.0 $8,136.4
Ratio of Expenses to
Average Net Assets....... 1.49% 1.54% 1.43% 1.43% 1.34% 1.35%
Ratio of Net Investment
Income to Average Net
Assets................... 3.71% 4.21% 4.85% 7.34% 6.97% 6.48%
Portfolio Turnover (b)..... 41%* 49% 36% 42% 36% 44%
</Table>
(a) Total return assumes an investment at the beginning of the period indicated,
reinvestment of all distributions for the period and tender of all shares at
the end of the period indicated, excluding payment of the 3% imposed on most
shares accepted by the Fund for repurchase within the first year and
declining to 0% after the fifth year. If the early withdrawal charge was
included, total return would be lower.
(b) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interests.
(c) Based on average shares outstanding.
* Non-annualized
See Notes to Financial Statements 29
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
JUNE 13, 2003
SIX MONTHS (COMMENCEMENT OF
ENDED INVESTMENT
CLASS C SHARES JANUARY 31, OPERATIONS) TO
2004 (c) JULY 31, 2003 (c)
-------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $ 8.29 $ 8.16
------ ------
Net Investment Income.................................... .15 .04
Net Realized and Unrealized Gain......................... .50 .12
------ ------
Total from Investment Operations........................... .65 .16
Less Distributions from Net Investment Income.............. .13 .03
------ ------
NET ASSET VALUE, END OF THE PERIOD......................... $ 8.81 $ 8.29
====== ======
Total Return (a)........................................... 7.83%* 2.02%*
Net Assets at End of the Period (In millions).............. $256.2 $246.1
Ratio of Expenses to Average Net Assets.................... 1.64% 1.56%
Ratio of Net Investment Income to Average Net Assets....... 3.55% 3.89%
Portfolio Turnover (b)..................................... 41%* 49%
</Table>
(a) Total return assumes an investment at the beginning of the period indicated,
reinvestment of all distributions for the period and tender of all shares at
the end of the period indicated, excluding payment of the 1% imposed on most
shares accepted by the Fund for repurchase which have been held for less
than one year. If the early withdrawal charge was included, total return
would be lower.
(b) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interests.
(c) Based on average shares outstanding.
* Non-annualized
30 See Notes to Financial Statements
NOTES TO
FINANCIAL STATEMENTS
January 31, 2004 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Senior Loan Fund (the "Fund") is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Fund invests primarily in adjustable rate Senior Loans.
Senior Loans are business loans that have a senior right to payment and are made
to borrowers that may be corporations, partnerships, or other entities. These
borrowers operate in a variety of industries and geographic regions. The Fund
commenced investment operations on October 4, 1989. In June 2003, the Fund
completed a transaction in which it redesignated its shares issued before June
13, 2003 as Class B Shares and issued new Class C Shares to the shareholders of
Van Kampen Senior Floating Rate Fund in exchange for the assets and liabilities
of that fund. Effective November 30, 2003, the Fund's investment adviser, Van
Kampen Investment Advisory Corp. merged into Van Kampen Asset Management.
The following is a summary of significant accounting policies consistently
followed by the Fund 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 Fund's Senior Loans are valued by the Fund following
valuation guidelines established and periodically reviewed by the Fund's Board
of Trustees. Under the valuation guidelines, Senior Loans for which reliable
market quotes are readily available are valued at the mean of such bid and ask
quotes. Where reliable market quotes are not readily available, Senior Loans are
valued, where possible, using independent market indicators provided by
independent pricing sources approved by the Board of Trustees. Other Senior
Loans are valued by independent pricing sources approved by the Board of
Trustees based upon pricing models developed, maintained and operated by those
pricing sources or valued by Van Kampen Asset Management (the "Adviser") by
considering a number of factors including consideration of market indicators,
transactions in instruments which the Adviser believes may be comparable
(including comparable credit quality, interest rate redetermination period and
maturity), the credit worthiness of the Borrower, the current interest rate, the
period until the next interest rate redetermination and the maturity of such
Senior Loans. 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 Senior Loans in the
Fund's portfolio. The fair value of Senior Loans are reviewed and approved by
the Fund's Valuation Committee and Board of Trustees.
Equity securities are valued on the basis of prices furnished by pricing
services or at fair value as determined in good faith by the Adviser under the
direction of the Board of Trustees.
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. The Fund may invest in repurchase
31
NOTES TO
FINANCIAL STATEMENTS
January 31, 2004 (Unaudited)
agreements, which are short-term investments in which the Fund acquires
ownership of a debt security and the seller agrees to repurchase the security at
a future time and specified price. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.
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 Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Facility fees on senior loans
purchased are treated as market discounts. Market premiums are amortized and
discounts are accreted over the stated life of each applicable senior loan, note
or other fixed-income security.
Other income is comprised primarily of amendment fees which are recorded
when received. Amendment fees are earned as compensation for agreeing to changes
in loan agreements. Income, expenses and realized and unrealized gains or losses
are allocated on a pro-rata basis to each class of shares except for service
fees, which are applicable only to Class C shares.
D. FEDERAL INCOME TAXES It is the Fund'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.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At July 31, 2003, the Fund had an accumulated capital loss carryforward
for tax purposes of $727,526,397, which will expire between July 31, 2004 and
July 31, 2011. Of this amount, $3,643,444 will expire on July 31, 2004.
At January 31, 2004, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $2,166,561,372
==============
Gross tax unrealized appreciation........................... 56,079,661
Gross tax unrealized depreciation........................... (171,609,259)
--------------
Net tax unrealized depreciation on investments.............. $ (115,529,598)
==============
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed at least annually. Distributions from net realized gains for book
purposes may include short-term capital gains, which are included as ordinary
income for tax purposes.
32
NOTES TO
FINANCIAL STATEMENTS
January 31, 2004 (Unaudited)
The tax character of distributions paid during the year ended July 31, 2003
was as follows:
<Table>
<Caption>
2003
Distributions paid from:
Ordinary income........................................... $81,734,653
Return of Capital......................................... 7,501,943
-----------
$89,236,596
===========
</Table>
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses related to wash sale
transactions.
F. CREDITS EARNED ON CASH BALANCES During the six months ended January 31, 2004,
the Fund's custody fee was reduced by $14,153 as a result of credits earned on
cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $4.0 billion.......................................... .950%
Next $3.5 billion........................................... .900%
Next $2.5 billion........................................... .875%
Over $10 billion............................................ .850%
</Table>
In addition, the Fund will pay a monthly administrative fee to Van Kampen
Funds Inc., the Fund's Administrator, at an annual rate of .25% of the average
daily net assets of the Fund. The administrative services 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 Senior Loans in the Fund's
portfolio and providing certain services to the holders of the Fund's
securities.
For the six months ended January 31, 2004, the Fund recognized expenses of
approximately $244,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a Trustee of the
Fund is an affiliated person.
Under a Legal Services agreement, the Adviser provides legal services to the
Fund. The Adviser allocates the cost of such services to each Fund. For the six
months ended January 31, 2004, the Fund recognized expenses of approximately
$38,000 representing Van Kampen Investments Inc.'s or its affiliates
(collectively "Van Kampen") cost of providing legal services to the Fund, which
are reported as "Legal" expenses in the Statement of Operations.
Van Kampen Investor Services Inc. (VKIS), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
January 31, 2004, the
33
NOTES TO
FINANCIAL STATEMENTS
January 31, 2004 (Unaudited)
Fund recognized expenses for these services of approximately $986,400
representing transfer agency fees paid to VKIS. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees.
Certain officers and Trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or Trustees who are
officers of Van Kampen.
The Fund 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 upon retirement for a
ten-year period and are based upon each Trustee's years of service to the Fund.
The maximum annual benefit per Trustee under the plan is $2,500.
During the period, the Fund owned shares of the following affiliated
companies. Affiliated companies are defined by the Investment Company Act of
1940, as amended, as those companies in which a Fund holds 5% or more of the
outstanding voting securities.
<Table>
<Caption>
INTEREST/ MARKET
PAR/ REALIZED DIVIDEND VALUE
NAME SHARES* GAIN/(LOSS) INCOME 1/31/04 COST
American Blind & Wallpaper
Factory, Inc.--Term
Loan..................... $ 624,620 $ -0- $ 42,663 $ 624,620 $ 624,620
Aspen Marketing Group--
Term Loan................ $ 2,508,426 1,003,370 61,291 1,316,923 2,508,426
Aspen Marketing
Group--Revolver.......... $ 7,464,434 124,407 194,788 3,918,828 4,636,243
Aspen Marketing Group--
Common Shares............ 166,871 -0- -0- -0- 3,865,366
Chart Industries, Inc.--
Term Loan................ $ 7,494,188 (157,858) 33,688 7,428,614 9,137,754
Chart Industries, Inc.--
Common Shares............ 345,454 -0- -0- 9,672,712 7,339,580
DecorateToday.com--Common
Shares................... 198,600 -0- -0- 2,778,414 3,505,909
Imperial Home Decor Group,
Inc.--Term Loan.......... $ 5,044,842 -0- -0- 126,121 5,015,112
Imperial Home Decor Group,
Inc.--Common Shares...... 1,816,143 -0- -0- -0- 1,852,465
Imperial Home Decor Realty,
Inc.--Common Shares...... 1,816,143 -0- -0- -0- -0-
London Fog Industries,
Inc.--Common Shares...... 515,922 -0- 1,960,504 9,544,557 33,576,536
Neoplan USA
Corp.--Revolver.......... $ 900,000 -0- 4,324 900,000 900,000
Neoplan USA Corp.--Common
Shares................... 8,517 -0- -0- 85 85
</Table>
34
NOTES TO
FINANCIAL STATEMENTS
January 31, 2004 (Unaudited)
<Table>
<Caption>
INTEREST/ MARKET
PAR/ REALIZED DIVIDEND VALUE
NAME SHARES* GAIN/(LOSS) INCOME 1/31/04 COST
Neoplan USA Corp.--
Preferred Shares......... 2,262 $ -0- $ -0- $ 1,072,776 $ 1,074,522
NATG Holdings LLC--Term
Loan..................... $ 6,812,206 375,201 214,481 1,516,504 2,611,742
NATG Holdings LLC--
Revolver................. $ 4,330,904 -0- 72,644 2,490,270 3,418,256
Orius Corp.--Common
Shares................... 1,211,236 -0- -0- -0- -0-
Safelite Glass Corp.--Term
Loan..................... $17,889,124 -0- 450,671 17,655,079 17,849,775
Safelite Glass Corp.--
Common Shares............ 724,479 -0- -0- 8,121,410 3,912,187
Safelite Glass Realty--
Common Shares............ 48,903 -0- 268,966 -0- -0-
Teligent, Inc.--Common
Shares................... 400 -0- -0- -0- -0-
Trans World Entertainment
Corp.--Common Shares..... 3,789,962 -0- -0- 28,424,715 69,498,017
</Table>
* Shares were acquired through the restructuring of senior loan interests.
35
NOTES TO
FINANCIAL STATEMENTS
January 31, 2004 (Unaudited)
3. CAPITAL TRANSACTIONS
At January 31, 2004, capital aggregated $2,812,657,377 and $410,495,055 for
Classes B and C, respectively. For the six months ended January 31, 2004,
transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class B................................................... 1,483,277 $ 12,668,853
Class C................................................... 2,403,959 20,579,180
----------- -------------
Total Sales................................................. 3,887,236 $ 33,248,033
=========== =============
Dividend Reinvestment:
Class B................................................... 1,937,700 $ 16,604,536
Class C................................................... 224,021 1,918,743
----------- -------------
Total Dividend Reinvestment................................. 2,161,721 $ 18,523,279
=========== =============
Repurchases:
Class B................................................... (24,064,524) $(208,353,271)
Class C................................................... (3,219,741) (27,927,502)
----------- -------------
Total Repurchases........................................... (27,284,265) $(236,280,773)
=========== =============
</Table>
At July 31, 2003, capital aggregated $2,991,737,259 and $415,924,634 for
Classes B and C, respectively. For the year ended July 31, 2003, transactions
were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class B................................................... 1,819,593 $ 14,406,804
Class C................................................... 31,027,158 252,906,765
----------- -------------
Total Sales................................................. 32,846,751 $ 267,313,569
=========== =============
Dividend Reinvestment:
Class B................................................... 5,643,216 $ 44,419,861
Class C................................................... 54,622 450,230
----------- -------------
Total Dividend Reinvestment................................. 5,697,838 $ 44,870,091
=========== =============
Repurchases:
Class B................................................... (97,344,162) $(762,180,622)
Class C................................................... (1,395,382) (11,525,882)
----------- -------------
Total Repurchases........................................... (98,739,544) $(773,706,504)
=========== =============
</Table>
On June 13, 2003, the Fund acquired all of the assets and liabilities of the
Van Kampen Senior Floating Rate Fund (the "VKSFR Fund") through a tax-free
reorganization approved by VKSFR Fund shareholders on June 3, 2003. The Fund
issued 30,644,607 shares of Class C valued at $249,753,514 in exchange for VKSFR
Fund's net assets. Fund shares held prior to
36
NOTES TO
FINANCIAL STATEMENTS
January 31, 2004 (Unaudited)
the acquisition were renamed Class B Shares. The shares of the VKSFR Fund were
converted into Class C shares at a ratio of 1.089 to 1. Included in these net
assets was a capital loss carryforward of $88,912,248, amortization differences
of $49,259,549 and wash sales of $1,603, which is included in accumulated net
realized loss. Also included in these net assets was a deferred compensation
balance of $102,698 and non-accrual interest income of $667,659, which are
included in accumulated undistributed net investment income. Net unrealized
depreciation of VKSFR Fund as of June 13, 2003 was $35,149,764. Shares issued in
connection with this reorganization are included in proceeds from shares sold
for the year ended July 31, 2003. Combined net assets on the day of
reorganization were $2,213,412,834.
4. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $826,717,759 and $1,045,702,543,
respectively.
5. TENDER OF SHARES
The Board of Trustees currently intends, each quarter, to consider authorizing
the Fund to make tender offers for all or a portion of its then outstanding
common shares at the net asset value of the shares on the expiration date of the
tender offer. For the six months ended January 31, 2004, 27,284,265 shares were
tendered and repurchased by the Fund.
6. EARLY WITHDRAWAL CHARGE
An early withdrawal charge to recover offering expenses will be imposed in
connection with most Class B Shares held for less than five years and Class C
Shares held less than one year which are accepted by the Fund for repurchase
pursuant to tender offers. The early withdrawal charge will be payable to Van
Kampen. Any early withdrawal charge which is required to be imposed will be made
in accordance with the following schedule.
<Table>
<Caption>
WITHDRAWAL WITHDRAWAL
CHARGE CHARGE
---------- ----------
YEAR OF REDEMPTION CLASS B CLASS C
First................................................... 3.0% 1.0%
Second.................................................. 2.5% --
Third................................................... 2.0% --
Fourth.................................................. 1.5% --
Fifth................................................... 1.0% --
Sixth and following..................................... 0.0% --
</Table>
For the six months ended January 31, 2004, Van Kampen received early
withdrawal charges of approximately $374,600, in connection with tendered shares
of the Fund.
7. COMMITMENTS/BORROWINGS
Pursuant to the terms of certain of the Senior Loan agreements, the Fund had
unfunded loan commitments of approximately $69,313,100 as of January 31, 2004.
The Fund generally will
37
NOTES TO
FINANCIAL STATEMENTS
January 31, 2004 (Unaudited)
maintain with its custodian short-term investments having an aggregate value at
least equal to the amount of unfunded loan commitments.
The Fund has entered into a revolving credit agreement for an aggregate of
$300,000,000, which will terminate on November 12, 2004. The proceeds of any
borrowing by the Fund under the revolving credit agreement shall be used for
temporary liquidity purposes and funding of shareholder tender offers. Annual
commitment fees of .13% are charged on the unused portion of the credit line.
For the six months ended January 31, 2004, the Fund recognized commitment fee
expenses of approximately $287,600. Borrowings under this facility will bear
interest at the Eurodollar rate plus 1.00%.
8. SENIOR LOAN PARTICIPATION COMMITMENTS
The Fund invests primarily in participations, assignments, or acts as a party to
the primary lending syndicate of a Senior Loan interest to corporations,
partnerships, and other entities. When the Fund purchases a participation of a
Senior Loan interest, the Fund 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 Fund assumes the credit risk of the borrower,
selling participant or other persons interpositioned between the Fund and the
borrower.
At January 31, 2004, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Fund on a participation
basis.
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
JP Morgan Chase............................................. $4,000 $3,980
Bank of America............................................. 3,977 3,997
Goldman Sachs............................................... 573 573
------ ------
Total....................................................... $8,550 $8,550
====== ======
</Table>
9. SERVICE PLAN
For Class C, the Fund has adopted a Service Plan (the "Plan") designed to meet
the service fee requirements of the sales charge rule of the National
Association of Securities Dealers, Inc. The Plan governs payments for personal
services and/or the maintenance of shareholder accounts.
Annual fees under the Plan of .15% (.25% maximum) of average daily net
assets are accrued daily and paid quarterly for Class C. Included in the fees
for the six months ended January 31, 2004, are payments made to Morgan Stanley
DW Inc., an affiliate of the Advisor, or approximately $178,800.
10. LITIGATION
On September 28, 2001 and October 11, 2001, separate complaints were filed in
the United States District Court for the Northern District of Illinois each by a
shareholder of the Fund
38
NOTES TO
FINANCIAL STATEMENTS
January 31, 2004 (Unaudited)
against the Fund, the Adviser, Van Kampen Funds Inc. and certain directors and
officers of the Fund. The respective complaints, framed as class actions, allege
misstatements and omissions in the Fund's registration statements in violation
of the federal securities laws. The separate complaints were consolidated on or
about December 15, 2001, and the class was certified on or about August 26,
2002. The consolidated action is entitled Abrams et al. v. Van Kampen Funds,
Inc., et al., No. 01 C 7538 (N.D. Ill., Hart J.).
39
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN SENIOR LOAN FUND
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1221 Avenue of the Americas
New York, New York 10020
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 947
Jersey City, New Jersey 07303-0947
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02110
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
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
40
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "cookies") may be
placed on your computer to help us to recognize you and to facilitate
transactions you initiate. We do not disclose any nonpublic personal information
about you or any of our former customers to anyone, except as permitted by law.
For instance, so that we may continue to offer you Van Kampen investment
products and services that meet your investing needs, and to effect transactions
that you request or authorize, we may disclose the information we collect to
companies that perform services on our behalf, such as printers and mailers that
assist us in the distribution of investor materials. These companies will use
this information only for the services for which we hired them, and are not
permitted to use or share this information for any other purpose. To protect
your nonpublic personal information internally, we permit access to it only by
authorized employees, and maintain physical, electronic and procedural
safeguards to guard your nonpublic personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc.,
Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the many
Van Kampen mutual funds and Van Kampen unit investment trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
(VAN KAMPEN INVESTMENTS LOGO)
Copyright (C)2004 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC. 59 359
SLF SAR 3/04 13909C04-AS-3/04
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved.]
Item 9. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) Code of Ethics -- Not applicable for semi-annual reports.
(b)(1) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(b)(2) A certification for the Principal
Financial Officer of the registrant is attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen Senior Loan Fund
---------------------------------------
By: /s/ Ronald E. Robison
----------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: March 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
----------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: March 19, 2004
By: /s/ John L. Sullivan
----------------------
Name: John L. Sullivan
Title: Principal Financial Officer
Date: March 19, 2004