NUVEEN Investments
Closed-End Exchange-Traded Funds
Nuveen Senior Income Fund
High current income from a portfolio of senior, secured corporate loans
NSL
July 31, 2001
annual Report
Invest well.
Look ahead.
LEAVE YOUR MARK.
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Photo: Timothy R. Schwertfeger
Chairman of the Board
Sidebar text: A diversified portfolio can leave you well positioned to reduce
overall investment volatility.
Dear Shareholder
The awful events of September 11, 2001, have touched all of us, and our hearts
and thoughts go out to those directly affected by the terrible tragedies in New
York, Washington and Pennsylvania.
In the aftermath of these horrible acts, the financial markets have reacted with
volatility and uncertainty as investors attempt to understand what has happened
and how it might affect the future. The prices of many investments have moved
sharply in recent days, and shares of your Fund have followed this general
trend.
It is too early to tell what the long-term impact will be on the markets or your
Fund, but one thing that is increasingly clear to us is that a diversified
portfolio can leave you well positioned to reduce overall investment volatility.
For example, during the period covered by this report, your Fund continued to
meet its primary objective of providing an attractive monthly income from a
portfolio of carefully researched senior loans. Detailed information on your
Fund can be found in the Manager's Perspective and Performance Overview sections
later in this report. I urge you to take the time to read them.
In addition to providing you with steady income, your Nuveen Fund also features
several characteristics that can help make it an essential part of your overall
investment strategy. These include constant surveillance and judicious trading
by Nuveen's portfolio management team, with every action designed to supplement
income, improve Fund structure, better adapt to current market conditions or
increase diversification. In turbulent times like these, prudent investors
understand the importance of diversification, balance, and risk management, all
attributes your Nuveen Fund can bring to your portfolio.
For more than 100 years, Nuveen has specialized in offering quality investments
to those seeking to accumulate and preserve wealth to estab lish a lasting
legacy. Our mission continues to be to provide assistance to you and your
financial advisor by offering investment services and products that can help you
leave your mark. We thank you for continuing to choose Nuveen Investments as
your partner as you work toward that goal.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
September 24, 2001
Nuveen Senior Income Fund (NSL)
Manager's Perspective
Jeffrey Maillet, manager of the Fund during the period covered by this report,
discusses economic conditions, the market environment, key investment strategies
and the performance of NSL. After completion of the Fund's reporting period,
Jeff announced his intention to leave Nuveen, and he is now working with Company
officials to ensure an orderly and efficient man agement transition. We expect
this process to be completed by November 1, 2001, and we look forward to
introducing the new manager in the next shareholder report.
Q. WHAT WAS THE GENERAL MARKET ENVIRONMENT OVER THE PAST TWELVE MONTHS?
A. First, let's take a look at the Fund's reporting period, which covers the
twelve months ending July 31, 2001. At the beginning of the reporting period,
the Fed had just completed the last of six short-term interest rate hikes that
ended with the federal funds rate at 6.50%, and though the economy was beginning
to show signs of slowing, fundamentals appeared strong. In the months that
followed, our key concern became rising petroleum prices, which we believed
could have greater negative impact on the economy overall than tightened money
supply. As we entered 2001, declines in corporate spending and faltering
financial markets clearly pointed to a weakening economy, making the specter of
rising energy costs all the more worrisome.
As an economic downturn became more apparent, the Fed reversed course and began
reducing interest rates aggressively. So far in 2001, they have reduced rates on
six separate occasions bringing the federal funds rate to 3.50% from 6.50% at
the start of the period. (On September 17 the Fed lowered rates again, bringing
the fed funds rate to 3.00%.) As of yet, interest rate reductions have not
provided a substantial boost to the economy and slowing economic growth has
reduced the underlying credit quality of some borrow ers within the senior loan
market. Reduced availability of capital caused by the turbulence in the
financial markets has forced some companies to suspend or discontinue at least a
portion of operations and raised the possi bility that others would be unable to
avoid a negative credit event. As a result, corporate defaults in the high yield
market have escalated to 7.25% through the first half of the year compared to
4.50% at the beginning of 2001 according to Credit Suisse First Boston. The
slowing economy and rising defaults have made for a relatively difficult period
for the senior loan markets.
It is too early to know how the market or the economy ultimately will react to
the tragic events of September 11. In the first several trading days after the
attacks, we witnessed increased price volatility, with prices and NAVs generally
trending lower. The economic forecasts remain uncertain, but we believe the
country will rebound and that many sectors now under pressure may be strong
performers in the future.
Q. HOW DID THE FUND PERFORM ON A TOTAL RETURN BASIS DURING THE YEAR ENDED JULY
31, 2001, AND WHAT FACTORS INFLUENCED ITS RETURNS?
A. As of July 31, 2001, NSL offered a very attractive dividend yield. This
strong dividend
yield was complemented by a strong stock price, enabling NSL to outperform the
other closed-end senior loan funds on a total return basis over the twelve
months ended July 31 when computed on stock price. As shown in the chart below,
the fund outperformed its peer group average total returns for the one-year and
since inception periods based upon stock price.
Cumulative Total Returns1
On Market Price
--------------------------------------------------------
1-Year Since Inception2
--------------------------------------------------------
Nuveen Senior Income Fund 15.35% 19.07%
Lipper Loan Participation
Funds Category average3 7.06% 11.43%
--------------------------------------------------------
These returns outpaced major stock indices during the one-year period, including
the NASDAQ, which plummeted - 46.05 percent, and the S&P 500, down -14.33
percent. The difficulties experienced in so many financial markets during the
period illustrate why we believe a diversified asset allocation plan that
includes investments like the Nuveen Senior Income Fund may help to reduce an
investor's overall risk.
While the Fund's dividend remained attractive over the period, declining
interest rates did put pressure of the Fund's earnings, leading to three
dividend reductions since the begin ning of 2001. Due to the short average
days-to-reset for the coupons of the loans held with the Fund, falling interest
rates typically have negatively impacted the distribution rate for the Fund.
However, the securities held within the Fund's portfolio typically yielded a
premium of approximately 250 to 450 basis points over short-term interest rates.
We believe the dividend paid by the Fund should remain relatively attractive in
comparison to other short-term alternatives, which also tend to decline in a
falling interest rate environment.
Increased uncertainty created by the rise in the number of defaults within the
marketplace has placed some negative pressure on the Fund's net asset value. The
Fund started the period with a net asset value of $9.47 on July 31, 2000, and
finished the period at $8.13 as of July 31, 2001. This decline in NAV may be
attributed to escalating default rates in the senior loan arena, which have
created a significant amount of downward pressure on the market in general.
Q. WHAT DIFFERENTIATES YOUR FUND FROM THE OTHER EXCHANGE-TRADED CLOSED-END
SENIOR LOAN FUNDS IN THE MARKET?
A. NSL maintains a very competitive leverage structure. NSL employs a two-tier
leverage approach consisting of both commercial paper and taxable auction rate
preferred shares. The Fund issues commercial paper directly to the market along
with auction rate preferred shares. The innovative structure allows the Fund to
employee a slightly higher degree of leverage than a simple credit facility or
commercial paper alone and is currently a much less expensive alternative. This
typically translates into a higher earning potential for the Fund.
1 Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are
redeemed, they may be worth more or less than their original cost.
2 NSL commenced operations on October 29, 1999.
3 The Lipper Loan Participation Funds category consists of 43 Funds. Both NSL
and Lipper returns assume reinvestment of dividends.
In addition, the fee structure also helps to differentiate the Fund from the
other closed-end senior loan funds available in the market. Under the structure,
Nuveen reimburses 45 bp of the Fund's 85 bp management fee for the first five
years of the Fund's operation. After which, the expense reimbursement will be
gradually phased out for the following five years. This is designed to increase
the opportunity for more income to shareholders in the early years of the Fund's
operations. The lower overall fees, especially when compared to the peer group
of funds, provides a slight advantage over the other Funds in the marketplace.
Q. HOW DO YOU VIEW THE CURRENT DEFAULT RISK WITHIN THE SENIOR LOAN MARKET?
WHAT SECTORS DO YOU FEEL ARE SUSCEPTIBLE TO HIGH DEFAULT RATES?
A. With expected lower economic growth in the U.S. economy, the potential for
defaults in the Senior Loan Market has escalated. As mentioned earlier, average
default rates have increased significantly from the historical aver ages over
the last 18 to 24 months. However, the fact that the Fund invests primarily in
senior secured loans, a particular default does not necessarily indicate a
devastating event for the shareholder. The loans are typically collateralized
and the senior loan holders maintain a priority status in the restructuring and
workout of a defaulted creditor. This can lead to substantially higher recovery
rates on defaulted assets in comparison to many other types of corporate debt
instruments.
Areas that are currently facing increased levels of risk would be the
Competitive Local Exchange Carriers (CLECs) in the telecom sector. Several
companies have lost vender provided financing to build their networks. We feel
the spill over effect of a tough capital market environment has compounded these
problems. However, these factors should be resolved over time. In addition to
the CLECs, steel and auto parts manufacturers have come under pressure recently
with the slowing economy.
Q. WHAT IS YOUR OUTLOOK FOR THE SENIOR LOAN MARKET AND PLANS FOR THE NUVEEN
SENIOR INCOME FUND?
A. In the wake of September 11, we will continue to evaluate various sectors
and credits in an attempt to identify opportu nities that may arise out of the
uncertainty. The supply of attractive new senior loan assets may experi ence a
slight fall off. However, we feel many existing loans now offer a substantial
amount of value given current trading levels. Our efforts will focus on taking
advantage of opportuni ties in the strongest sectors of the senior loan market
while being mindful of the current uncertainty within the market overall.
Nuveen Senior Income Fund
Performance
Overview As of July 31, 2001
NSL
PORTFOLIO STATISTICS
==================================================
Share Price $9.96
--------------------------------------------------
Net Asset Value $8.13
--------------------------------------------------
Fund Net Assets ($000) $287,641
--------------------------------------------------
% OF TOTAL
TOP 5 ISSUERS INVESTMENTS
==================================================
NRT, Inc. 2.8%
--------------------------------------------------
The Fairchild Corporation 2.7%
--------------------------------------------------
Wyndham International, Inc. 2.6%
--------------------------------------------------
Centennial Cellular Operating Company, LLC 2.5%
--------------------------------------------------
Dominos Pizza, Inc. 2.5%
--------------------------------------------------
% OF TOTAL
TOP 5 INDUSTRIES INVESTMENT
==================================================
Beverage, Food & Tobacco 9.2%
--------------------------------------------------
Diversified Manufacturing 6.1%
--------------------------------------------------
Containers, Packaging & Glass 5.5%
--------------------------------------------------
Hotels, Motels, Inns & Gaming 5.2%
--------------------------------------------------
Insurance 4.9%
--------------------------------------------------
ANNUALIZED TOTAL RETURN
INCEPTION DATE 10/29/99
==================================================
MARKET NAV
--------------------------------------------------
1 Year 15.35% -3.30%
--------------------------------------------------
Inception 10.44% 1.53%
--------------------------------------------------
Bar Chart:
2000-2001 Monthly Dividends Per Share1
Aug 2000 0.088
Sep 2000 0.09
Oct 2000 0.09
Nov 2000 0.09
Dec 2000 0.09
Jan 2001 0.09
Feb 2001 0.09
Mar 2001 0.087
Apr 2001 0.087
May 2001 0.083
Jun 2001 0.079
Jul 2001 0.079
Line Chart:
Share Price Performance
Weekly Closing Price
8/01/00 9.94
9.75
9.88
9.81
9.94
10
9.88
9.94
9.88
10
9.94
9.81
9.88
10
9.94
10
10
10.06
10.19
10.25
10.13
10.19
10.25
10.06
10
10
10.08
10.06
10.16
10.16
10.2
10.15
10.14
10.02
10.04
9.18
9.2
9.45
9.79
9.75
9.9
9.93
9.95
10.05
10.12
10.05
10.08
9.68
9.83
9.9
9.9
7/31/01 9.99
Past performance is not predictive of future results.
1 The December 2000 bar includes a short-term capital gains distribution of
$0.0168 per share.
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, 2001, and the related statement of operations, and cash flows for the
year then ended, and the changes in net assets, and financial highlights for the
year then ended and 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
investments owned as of July 31, 2001, 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
audits provide 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, 2001, the results of its operations,
and cash flows for the year then ended, and changes in net assets, and the
financial highlights for the year then ended and 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 of America.
/s/ KPMG LLP
Chicago, Illinois
September 18, 2001
Nuveen Senior Income Fund (NSL)
Portfolio of
Investments July 31, 2001
RATINGS*
--------------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
------------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS(1) AND INTEREST
BEARING SECURITIES - 133.6%
AEROSPACE/DEFENSE - 6.1% (4.5% OF TOTAL ASSETS)
$ 4,987 DeCrane Aircraft Holdings, Inc., Term Loan D B2 B+ 12/17/06 $ 4,968,657
11,036 The Fairchild Corporation, Term Loan B Ba3 BB- 04/03/06 10,690,901
2,000 Vought Aircraft Industries, Inc., Term Loan A NR NR 06/30/06 1,987,500
------------------------------------------------------------------------------------------------------------------------------------
17,647,058
------------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE - 5.5% (4.0% OF TOTAL ASSETS)
1,327 Federal-Mogul Corporation, Term Loan A Caa1 CCC+ 02/24/04 888,776
3,561 Federal-Mogul Corporation, Term Loan B Caa1 CCC+ 02/24/05 2,232,795
3,996 Metaldyne Corporation/Metalyc Company, LLC, Term Loan B Ba3 BB- 11/28/08 3,687,975
9,439 MetalForming Technologies, Inc., Term Loan B NR NR 06/30/06 8,022,877
1,549 Tenneco Auto, Inc. B2 B+ 09/30/05 1,076,282
------------------------------------------------------------------------------------------------------------------------------------
15,908,705
------------------------------------------------------------------------------------------------------------------------------------
BEVERAGE, FOOD & TOBACCO - 12.6% (9.1% OF TOTAL ASSETS)
1,800 Cott Corporation, Purchase Money Term Loan NR NR 12/31/06 1,814,625
200 Cott Corporation, Working Capital Loan NR NR 12/31/06 201,625
9,278 Dr. Pepper/Seven Up Bottling Group, Inc., Term Loan B NR NR 10/07/07 9,264,613
6,125 Eagle Family Foods, Inc., Term Loan B1 B 12/31/05 5,543,125
4,000 Flowers Foods, Inc., Term Loan B Ba2 BBB- 03/26/07 4,036,000
2,000 Interstate Bakeries Corporation, Term Loan B Ba1 BBB- 07/19/07 2,013,750
3,539 Merisant Company, Term Loan B Ba3 BB- 03/30/07 3,544,646
5,500 Pinnacle Foods Corporation, Term Loan Ba3 BB- 05/22/08 5,486,250
4,000 SC International Services, Inc., SCIS Loans Baa1 NR 03/01/07 4,000,000
------------------------------------------------------------------------------------------------------------------------------------
35,904,634
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING/CABLE - 2.9% (2.1% OF TOTAL ASSETS)
3,000 CC VIII Operating, LLC, Term Loan B Ba3 BB+ 02/02/08 3,003,188
2,000 Century Cable Holdings, LLC, Term Loan B Ba3 BB 12/31/09 2,002,875
3,333 Charter Communications Operating, LLC, Incremental Term Loan Ba3 BB+ 08/18/08 3,314,121
------------------------------------------------------------------------------------------------------------------------------------
8,320,184
------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING/RADIO - 1.6% (1.2% OF TOTAL ASSETS)
4,667 Citadel Broadcasting Company, Term Loan B NR NR 06/26/09 4,679,793
------------------------------------------------------------------------------------------------------------------------------------
BUILDINGS & REAL ESTATE - 5.8% (4.2% OF TOTAL ASSETS)
10,900 NRT, Inc., Term Loan Ba3 NR 07/31/04 10,745,533
3,000 Washington Group International, Bond (a)(b) C D 07/01/10 345,000
7,960 Washington Group International, Term Loan B (b) Caa3 NR 07/07/07 5,479,135
------------------------------------------------------------------------------------------------------------------------------------
16,569,668
------------------------------------------------------------------------------------------------------------------------------------
CARGO TRANSPORTATION - 3.1% (2.3% OF TOTAL ASSETS)
8,865 North American Van Lines, Term Loan B B1 B+ 11/18/07 8,000,663
865 RailAmerica, Inc., Term Loan B Ba3 BB- 12/31/06 868,981
------------------------------------------------------------------------------------------------------------------------------------
8,869,644
------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS & RUBBER - 1.6% (1.2% OF TOTAL ASSETS)
4,630 Resolution Performance Products, LLC, Term Loan B Ba3 BB- 11/14/08 4,653,509
------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.7% (0.5% OF TOTAL ASSETS)
25,667 California Pollution Control Financing Authority, CanFibre of
Riverside Project, Bonds (a)(b)(c) NR NR 07/01/14 2,043,067
7,000 CanFibre of Lackawana, LLC, Construction Loan (a)(b)(c) NR NR 12/01/13 --
------------------------------------------------------------------------------------------------------------------------------------
Nuveen Senior Income Fund (NSL) (continued)
Portfolio of Investments July 31, 2001
RATINGS*
--------------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS (continued)
$ 1,200 CanFibre of Lackawana, LLC, Letter of Credit (a)(b)(c) NR NR 12/01/13 $ --
10,000 CanFibre of Riverside, Inc., Letter of Credit (a)(b)(c) NR NR 07/01/09 --
533 CanFibre of Riverside, Inc., Working Capital Loan (a)(b)(c) NR NR 12/31/01 --
------------------------------------------------------------------------------------------------------------------------------------
2,043,067
------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING & GLASS - 7.5% (5.5% OF TOTAL ASSETS)
2,598 Graham Packaging Company, Term Loan B B2 B 01/31/06 2,475,241
2,153 Graham Packaging Company, Term Loan C B2 B 01/31/07 2,053,306
3,874 Greif Bros. Corporation, Term Loan B Ba3 BB 02/28/08 3,893,074
2,816 Stone Container Corporation, Term Loan C Ba3 B+ 10/01/03 2,830,077
2,593 Stone Container Corporation, Term Loan D Ba3 B+ 10/01/03 2,606,014
3,960 Tekni-Plex, Inc., Term Loan B B1 B+ 06/21/08 3,818,100
3,989 United States Can Company, Term Loan B B1 BB- 10/04/08 3,956,471
------------------------------------------------------------------------------------------------------------------------------------
21,632,283
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING - 8.3% (6.0% OF TOTAL ASSETS)
3,773 Actuant Corp., Term Loan B B1 BB- 07/30/08 3,767,301
5,418 Blount, Inc., Term Loan B B1 B 06/30/06 4,923,475
4,447 Dayco Products, LLC, Term Loan B Ba3 BB- 05/31/07 4,353,320
2,978 GenTek, Inc., Term Loan C Ba3 BB 10/31/07 2,690,916
UCAR Finance, Inc., Term Loan B Ba3 NR 12/31/07 4,466,985
5,476 Western Industries Holding, Inc., Term Loan B NR NR 06/23/06 3,559,140
------------------------------------------------------------------------------------------------------------------------------------
23,761,137
------------------------------------------------------------------------------------------------------------------------------------
ECOLOGICAL - 2.4% (1.8% OF TOTAL ASSETS)
2,758 Allied Waste North America, Term Loan B Ba3 BB 07/21/06 2,747,104
3,310 Allied Waste North America, Term Loan C Ba3 BB 07/21/07 3,296,524
900 Stericycle, Inc., Term Loan B B1 BB- 11/10/06 905,813
------------------------------------------------------------------------------------------------------------------------------------
6,949,441
------------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS/ELECTRONIC SERVICES - 1.4% (1.0% OF TOTAL ASSETS)
3,980 Seagate Technology Holdings, Inc., Term Loan B NR BB+ 11/22/06 3,941,941
------------------------------------------------------------------------------------------------------------------------------------
FARMING & AGRICULTURAL - 3.1% (2.2% OF TOTAL ASSETS)
3,996 The Scotts Company, Term Loan B Ba3 BB 12/31/07 4,026,495
4,821 Shemin Holdings Corporation, Term Loan B NR NR 01/28/07 4,773,214
------------------------------------------------------------------------------------------------------------------------------------
8,799,709
------------------------------------------------------------------------------------------------------------------------------------
FINANCE & BANKING - 2.6% (1.9% OF TOTAL ASSETS)
8,000 The Finova Group, Inc., Revolver 2003 (a)(b) NR NR 05/16/03 7,426,666
------------------------------------------------------------------------------------------------------------------------------------
GROCERY - 1.7% (1.3% OF TOTAL ASSETS)
4,983 Pathmark Stores, Inc., Term Loan B NR NR 07/15/07 5,005,758
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 2.3% (1.7% OF TOTAL ASSETS)
1,714 Community Health Systems, Inc., Term Loan B NR NR 12/31/03 1,727,054
1,714 Community Health Systems, Inc., Term Loan C NR NR 12/31/04 1,727,277
1,264 Community Health Systems, Inc., Term Loan D NR NR 12/31/05 1,278,619
2,000 Triad Hospitals, Inc., Term Loan B Ba3 B+ 09/30/08 2,022,000
------------------------------------------------------------------------------------------------------------------------------------
6,754,950
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE & BEAUTY AIDS - 1.8% (1.3% OF TOTAL ASSETS)
4,988 Advance PCS, Term Loan B Ba3 BB 10/02/07 5,037,375
------------------------------------------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS & GAMING - 7.0% (5.1% OF TOTAL ASSETS)
4,000 Alliance Gaming Corporation, LLC, Term Loan B1 B+ 12/31/06 4,012,500
3,077 Isle of Capri Casinos, Inc., Term Loan B Ba2 BB- 03/02/06 3,077,617
2,692 Isle of Capri Casinos, Inc., Term Loan C Ba2 BB- 03/02/07 2,692,915
2,940 Wyndham International, Inc., Increasing Rate Loan NR NR 06/30/04 2,904,170
7,563 Wyndham International, Inc., Term Loan B NR NR 06/30/06 7,420,178
------------------------------------------------------------------------------------------------------------------------------------
20,107,380
------------------------------------------------------------------------------------------------------------------------------------
RATINGS*
--------------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 6.7% (4.9% OF TOTAL ASSETS)
$ 10,000 Conseco, Inc., Term Loan NR NR 12/31/03 $ 9,374,167
4,925 GAB Robbins North America, Inc., Term Loan B NR NR 12/01/05 4,801,875
5,000 Tack Holdings Corp., Term Loan B NR NR 03/31/07 5,015,625
------------------------------------------------------------------------------------------------------------------------------------
19,191,667
------------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT - 6.4% (4.7% OF TOTAL ASSETS)
3,920 Bally Total Fitness Holding Corporation, Term Loan B1 B+ 11/10/04 3,939,600
3,405 Fitness Holdings Worldwide, Inc., Term Loan B NR B 11/02/06 3,217,954
6,475 Fitness Holdings Worldwide, Inc., Term Loan C NR B 11/02/07 6,118,646
5,000 Six Flags Theme Parks, Inc., Term Loan B Ba2 BB- 09/30/05 5,055,000
------------------------------------------------------------------------------------------------------------------------------------
18,331,200
------------------------------------------------------------------------------------------------------------------------------------
NON-DURABLE CONSUMER PRODUCTS - 4.6% (3.4% OF TOTAL ASSETS)
4,473 Hartz Mountain Corporation, Term Loan B1 BB- 12/31/07 4,495,201
5,138 Norwood Promotional Products, Inc., Term Loan B NR NR 05/31/06 4,623,869
4,595 Norwood Promotional Products, Inc., Term Loan C NR NR 11/30/06 4,135,210
------------------------------------------------------------------------------------------------------------------------------------
13,254,280
------------------------------------------------------------------------------------------------------------------------------------
PERSONAL & MISCELLANEOUS SERVICES - 1.4% (1.0% OF TOTAL ASSETS)
4,069 Weight Watchers International, Inc., Transferable Loan
Certificate Facility Ba2 B+ 09/30/06 4,106,677
------------------------------------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING - 4.5% (3.3% OF TOTAL ASSETS)
6,983 American Media Operations, Inc., Term Loan B-1 Ba3 B+ 04/01/07 7,032,687
5,000 PRIMEDIA, Inc., Term Loan B NR BB- 06/30/09 4,961,875
1,000 Transwestern Publishing Company, LLC, Term Loan B Ba3 B+ 06/27/08 1,009,583
------------------------------------------------------------------------------------------------------------------------------------
13,004,145
------------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS & FOOD SERVICE - 3.3% (2.4% OF TOTAL ASSETS)
4,752 Dominos Pizza, Inc., Term Loan B B1 B+ 12/21/06 4,791,443
4,765 Dominos Pizza, Inc., Term Loan C B1 B+ 12/21/07 4,804,395
------------------------------------------------------------------------------------------------------------------------------------
9,595,838
------------------------------------------------------------------------------------------------------------------------------------
RETAIL/CATALOG - 1.6% (1.1% OF TOTAL ASSETS)
4,659 Micro Warehouse, Inc., Term Loan B B1 BB- 01/31/07 4,524,770
------------------------------------------------------------------------------------------------------------------------------------
RETAIL/SPECIALTY - 1.4% (1.0% OF TOTAL ASSETS)
4,000 Rite Aid Corporation, Term Loan B1 BB- 06/27/05 4,002,833
------------------------------------------------------------------------------------------------------------------------------------
RETAIL/STORES - 4.1% (3.0% OF TOTAL ASSETS)
2,840 HMV Media Group PLC, Term Loan C B2 B+ 03/28/06 2,659,328
1,958 HMV Media Group PLC, Term Loan D B2 B+ 08/28/06 1,832,780
3,027 Rent-A-Center, Term Loan D Ba2 BB- 12/31/07 3,035,796
2,182 SDM Corporation, Term Loan C Ba3 BB 02/04/08 2,190,244
2,182 SDM Corporation, Term Loan E Ba3 BB 02/04/09 2,190,244
------------------------------------------------------------------------------------------------------------------------------------
11,908,392
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/CELLULAR/PCS - 5.1% (3.7% OF TOTAL ASSETS)
484 Airgate PCS, Inc., Tranche 1 Loan NR NR 06/06/07 480,086
1,863 Airgate PCS, Inc., Tranche 2 Loan NR NR 09/30/08 1,825,570
1,263 American Cellular Corporation, Term Loan B Ba3 BB- 03/31/08 1,246,100
1,443 American Cellular Corporation, Term Loan C Ba3 BB- 03/31/09 1,424,114
10,000 Centennial Cellular Operating Company, LLC, Term Loan A B1 B+ 11/30/06 9,790,178
------------------------------------------------------------------------------------------------------------------------------------
14,766,048
------------------------------------------------------------------------------------------------------------------------------------
Nuveen Senior Income Fund (NSL) (continued)
Portfolio of Investments July 31, 2001
RATINGS*
--------------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/COMPETITIVE LOCAL EXCHANGE CARRIER
(CLEC) - 1.9% (1.4% OF TOTAL ASSETS)
$ 5,000 RCN Corporation, Term Loan B B2 B+ 06/03/07 $ 3,777,083
5,000 Teligent, Inc., Delayed Term Loan (a)(b) Caa2 D 06/30/06 911,112
5,000 WCI Capital Corporation, Term Loan B (a)(b) NR D 09/30/07 901,785
------------------------------------------------------------------------------------------------------------------------------------
5,589,980
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/HYBRID - 1.7% (1.2% OF TOTAL ASSETS)
5,000 Nextel Partners Operating Company, Term Loan B B1 B- 01/29/08 4,887,500
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/SATELLITE - 1.6% (1.2% OF TOTAL ASSETS)
4,991 Satelites Mexicanos, SA DE CV, Loan B1 B+ 06/30/04 4,672,824
------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/WIRELESS MESSAGING - 0.8% (0.5% OF TOTAL ASSETS)
7,231 Arch Wireless Holding, Inc., Term Loan C NR CC 06/30/06 2,162,189
------------------------------------------------------------------------------------------------------------------------------------
TEXTILES & LEATHER - 3.2% (2.4% OF TOTAL ASSETS)
9,725 Norcross Safety Products, LLC, Term Loan NR NR 09/30/04 9,336,000
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION/RAIL MANUFACTURING - 1.4% (1.0% OF TOTAL ASSETS)
3,980 Kansas City Southern Railway Company, Term Loan B Ba1 BB+ 12/29/06 4,013,995
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 5.9% (4.3% OF TOTAL ASSETS)
7,000 AES EDC Funding II, LLC, Term Loan NR NR 10/06/03 6,969,920
2,008 AES Texas Funding III, LLC, Term Loan NR NR 03/31/02 2,005,810
3,950 TNP Enterprises, Inc., Term Loan Ba2 BB+ 03/30/06 3,967,280
3,960 Western Resources, Inc., Term Loan B NR NR 03/17/03 3,972,870
------------------------------------------------------------------------------------------------------------------------------------
16,915,880
--------------------------------------------------------------------------------------------------------------------
Total Variable Rate Senior Loan Interests and Interest Bearing Securities (cost $409,358,677) 384,277,120
--------------------------------------------------------------------------------------------------------------------
EQUITIES - 0.0%
CanFibre of Lackawana LLC, Income Participation Certificates, 13 units (a)(b)(c) --
CanFibre of Riverside, Inc., Income Participation Certificates, 17 units (a)(b)(c) --
------------------------------------------------------------------------------------------------------------------------------------
Total Equities (cost $0) --
--------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.1%
COMMERCIAL PAPER:
2,146 Earthgrains Co., yielding 4.00% P2 A2 08/01/01 2,146,000
4,000 Illinois Power, yielding 3.95% P2 A2 08/01/01 4,000,000
------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $6,146,000) 6,146,000
--------------------------------------------------------------------------------------------------------------------
Total Investments (cost $415,504,677) - 135.7% 390,423,120
--------------------------------------------------------------------------------------------------------------------
Borrowings Payable - (35.8)%+ (103,000,000)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.1% 218,306
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 287,641,426
====================================================================================================================
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.
(1) 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.
(a) At or subsequent to July 31, 2001, this issue was
non-incoming producing.
(b) At or subsequent to July 31, 2001, this issue was under
the protection of the federal bankruptcy court.
(c) Each of these positions have a zero cost basis and were
acquired as part of a workout program.
+ Borrowings payable as a percentage of total gross
assets is 26.1%.
See accompanying notes to financial statements.
Statement of
Net Assets July 31, 2001
--------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $415,504,677) $390,423,120
Cash 11,352
Interest receivable 3,381,269
Other assets 72,832
--------------------------------------------------------------------------------
Total assets 393,888,573
--------------------------------------------------------------------------------
LIABILITIES
Borrowings payable 103,000,000
Management fees 132,226
Taxable Auctioned Preferred Share dividends payable 23,624
Common Share dividends payable 2,346,674
Other liabilities 744,623
--------------------------------------------------------------------------------
Total liabilities 106,247,147
--------------------------------------------------------------------------------
Net assets $287,641,426
================================================================================
Taxable Auctioned Preferred Shares, at liquidation value $ 46,000,000
================================================================================
Taxable Auctioned Preferred Shares outstanding 1,840
================================================================================
Common Shares outstanding 29,709,065
================================================================================
Net asset value per Common Share outstanding (net assets
less Preferred Shares at liquidation value, divided by
Common Shares outstanding) $ 8.13
================================================================================
See accompanying notes to financial statements.
Statement of
Operations Year Ended July 31, 2001
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 41,399,916
Fees 369,549
--------------------------------------------------------------------------------
Total investment income 41,769,465
--------------------------------------------------------------------------------
EXPENSES
Management fees 3,431,264
Taxable Auctioned Preferred Shares - auction fees 115,001
Taxable Auctioned Preferred Shares - dividend disbursing
agent fees 10,001
Shareholders' servicing agent fees and expenses 161,586
Interest expense 5,701,723
Custodian's fees and expenses 380,909
Trustees' fees and expenses 41,421
Professional fees 349,052
Shareholders' reports - printing and mailing expenses 106,067
Stock exchange listing fees 43,798
Investor relations expense 75,955
Other expenses 813,189
--------------------------------------------------------------------------------
Total expenses 11,229,966
Expense waivers from the Adviser (1,817,626)
--------------------------------------------------------------------------------
Net expenses 9,412,340
--------------------------------------------------------------------------------
Net investment income 32,357,125
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investment transactions (17,495,522)
Change in net unrealized appreciation (depreciation)
of investments (20,933,991)
--------------------------------------------------------------------------------
Net gain (loss) from investments (38,429,513)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $ (6,072,388)
================================================================================
See accompanying notes to financial statements.
Statement of
Changes in Net Assets
10/29/99
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
7/31/01 THROUGH 7/31/00
------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 32,357,125 $ 22,048,293
Net realized gain (loss) from investment transactions (17,495,522) 511,950
Change in net unrealized appreciation (depreciation) of investments (20,933,991) (4,147,566)
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (6,072,388) 18,412,677
------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From undistributed net investment income:
Common Shareholders (30,435,376) (19,441,723)
Taxable Auctioned Preferred Shareholders (2,582,741) (506,360)
From accumulated net realized gains from investment transactions:
Common shareholders (497,923) --
Taxable Auctioned Preferred Shareholders (14,027) --
------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (33,530,067) (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 765,230 166,495
Taxable Auctioned Preferred Shares:
Net proceeds from sale of shares -- 45,363,582
------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from capital share transactions 765,230 327,913,973
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (38,837,225) 326,378,567
Net assets at the beginning of period 326,478,651 100,084
------------------------------------------------------------------------------------------------------------------------
Net assets at the end of period $287,641,426 $326,478,651
========================================================================================================================
Balance of undistributed net investment income at the end of period $ 1,596,263 $ 2,174,476
========================================================================================================================
See accompanying notes to financial statements.
Statement of
Cash Flows Year Ended July 31, 2001
--------------------------------------------------------------------------------
CHANGE IN NET ASSETS FROM OPERATIONS $ (6,072,388)
--------------------------------------------------------------------------------
Adjustments to Reconcile the Change in Net Assets
from Operations to Net Cash provided by Operating Activities:
Decrease in investments at value 40,897,745
Decrease in interest receivable 503,535
Decrease in other assets 320,748
Decrease in management fees (13,815)
Decrease in other liabilities (606,672)
--------------------------------------------------------------------------------
Net cash provided by operating activities 35,029,153
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank borrowings (2,000,000)
Cash distributions paid to Common Shareholders (30,428,661)
Cash distributions paid to Taxable Auctioned
Preferred Shareholders (2,605,759)
--------------------------------------------------------------------------------
Net cash used for financing activities (35,034,420)
--------------------------------------------------------------------------------
NET DECREASE IN CASH (5,267)
Cash at the beginning of year 16,619
--------------------------------------------------------------------------------
CASH AT THE END OF YEAR $ 11,352
--------------------------------------------------------------------------------
See accompanying notes to financial statements.
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 and bonds 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 and bonds
at the mean of the highest bona fide bid and lowest bona fide ask prices when
current quotations are readily available. Senior loans and bonds 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. There were no senior loan price overrides during the fiscal
year ended July 31, 2001; however, the Adviser did override one bond price
during the fiscal year ended July 31, 2001. 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. 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 substantially all
of its net investment income to its shareholders. Therefore, no federal income
tax provision is required.
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.
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. During the fiscal year ended July 31, 2001,
permanent differences relating to expenses which are not deductible for tax
purposes totaling $82,779 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 fiscal year ended July 31, 2001.
Offering Costs
Costs incurred by the Fund in connection with its offering of Common and Taxable
Auctioned Preferred Shares 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.
Audit Guide
In November 2000, the American Institute of Certified Public Accountants (AICPA)
issued a revised version of the AICPA Audit and Accounting Guide for Investment
Companies (the "Guide"). The Guide is effective for annual financial statements
issued for fiscal years beginning after December 15, 2000. It is not anticipated
that the adoption of the Guide will have a significant effect on the financial
statements.
2. FUND SHARES
During the fiscal year ended July 31, 2001, 81,022 Common Shares were issued to
shareholders due to reinvestment of distributions.
During the period October 29, 1999 (commencement of operations)through July 31,
2000, 29,600,000 Common Shares and 1,840 Taxable Auctioned Preferred Shares were
sold and 17,563 Common Shares were issued to shareholders due to reinvestment of
distributions.
3. DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Fund declared a dividend distribution of $.0790 per Common Share from its
net investment income which was paid on September 4, 2001, to shareholders of
record on August 15, 2001.
The Fund also declared a dividend distribution of $.0750 per Common Share from
its net investment income which will be paid on October 1, 2001, to shareholders
of record on September 15, 2001.
4. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) during the
fiscal year ended July 31, 2001, aggregated $227,246,684 and $198,578,912,
respectively.
At July 31, 2001, the identified cost of investments owned for federal income
tax purposes was $433,067,293.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At July 31, 2001, net unrealized depreciation of investments for federal income
tax purposes aggregated $42,644,173 of which $3,151,636 related to appreciated
investments and $45,795,809 related to depreciated investments.
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%, 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).
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.
7. COMPOSITION OF NET ASSETS
At July 31, 2001, net assets consisted of:
--------------------------------------------------------------------------------
Taxable Auctioned Preferred Shares, $25,000 stated
value per share, at liquidation value $ 46,000,000
Common Shares, $.01 par value per share 297,091
Paid-in surplus 282,325,151
Balance of undistributed net investment income 1,596,263
Accumulated net realized gain (loss) from investment transactions (17,495,522)
Net unrealized appreciation (depreciation) of investments (25,081,557)
--------------------------------------------------------------------------------
Net assets $287,641,426
================================================================================
Authorized shares:
Common Unlimited
Preferred Unlimited
================================================================================
8. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Fund had unfunded loan commitments of $4.6 million as of July 31, 2001. 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
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. At July 31, 2001, the Fund
held one participation commitment with Chase Manhattan Bank. At July 31, 2001,
the par value of this commitment is $10 million while the market value is $9.4
million.
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.
For the fiscal year ended July 31, 2001, the average daily balance of borrowings
under the commercial paper program agreement was $97.5 million with an average
interest rate of 5.85%.
The Fund has entered into a $155 million revolving credit agreement with
Deutsche Bank AG which expires May 2002. Interest on borrowings 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. During the fiscal year ended July 31, 2001, there were no borrowings
under the revolving credit agreement and, therefore, there was no outstanding
revolving credit balance at July 31, 2001.
Cash paid for interest during the fiscal year ended July 31, 2001, was
$5,970,159.
Financial
Highlights
Selected data for a Common Share outstanding throughout each period:
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
Net Asset Investment Investment Share- Share- Share- Share-
Value Income Gain (Loss) Total holders holders+ holders holders+ Total
====================================================================================================================================
Year Ended 7/31:
2001 $9.47 $1.09 $(1.29) $(.20) $(1.03) $(.09) $(.02) $-- $(1.14)
2000(a) 9.55 .75 (.12) .63 (.66) (.02) -- -- (.68)
====================================================================================================================================
Total Returns
-----------------
Based
Ending Based on
Net Ending on Net
Offering Asset Market Market Asset
Costs Value Value Value** Value**
=========================================================================================================
Year Ended 7/31:
2001 $-- $8.13 $9.9600 15.35% (3.30)%
2000(a) (.03) 9.47 9.6250 3.21 6.20
=========================================================================================================
Ratios/Supplemental Data
-----------------------------------------------------------------------------------
Before Waiver
----------------------------------------------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Expenses Income to Expenses Income to
to Average Average to Average Average
Ending Net Assets Net Assets Total Total
Net Applicable Applicable Net Assets Net Assets
Assets to Common to Common Including Including
(000) Shares++ Shares++ Preferred++ Preferred++
===============================================================================================================
Year Ended 7/31:
2001 $287,641 4.32% 11.74% 3.67% 9.98%
2000(a) 326,479 3.81* 9.82* 3.67* 9.47*
===============================================================================================================
Ratios/Supplemental Data
------------------------------------------------------------------------------
After Waiver***
---------------------------------------------------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Expenses Income to Expenses Income to
to Average Average to Average Average
Net Assets Net Assets Total Total
Applicable Applicable Net Assets Net Assets Portfolio
to Common to Common Including Including Turnover
Shares++ Shares++ Preferred++ Preferred++ Rate
===========================================================================================================
Year Ended 7/31:
2001 3.62% 12.44% 3.08% 10.57% 52%
2000(a) 3.21* 10.42* 3.10* 10.04* 40
===========================================================================================================
* Annualized.
** Total Investment 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 from 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 2.19% and 2.04% based on Average Net Assets Applicable to
Common Shares for the fiscal year ended July 31, 2001 and for the period
October 29, 1999 (commencement of operations) through July 31, 2000,
respectively, and 1.86% and 1.96% based on Average Total Net Assets
Including Preferred for the fiscal year ended July 31, 2001 and for the
period October 29, 1999 (commencement of operations) through July 31, 2000,
respectively.
(a) For the period October 29, 1999 (commencement of operations) through July
31, 2000.
See accompanying notes to financial statements.
Build Your Wealth
Automatically
NUVEEN 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 tax-free
compounding. Just like dividends or distributions in cash, there may be times
when income or capital gains taxes may be payable on dividends or distrib utions
that are reinvested.
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 the
then-current market price. 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 withdraw 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 brokerage 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. Ask your investment advisor if his
or her firm will participate on your behalf. 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.
Sidebar text: Nuveen makes reinvesting easy. A phone call is all it takes to set
up your reinvestment account.
Fund
Information
BOARD OF TRUSTEES
James E. Bacon
William E. Bennett
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
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.
Invest well. Look ahead. LEAVE YOUR MARK.(SM)
NUVEEN Investments
Nuveen Investments o 333 West Wacker Drive
Chicago, IL 60606 o www.nuveen.com FAN-2-7-01