SEMIANNUAL REPORT January 31, 2003
Nuveen
Closed-End
Exchange-Traded
Funds
NUVEEN SENIOR
INCOME FUND
NSL
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HIGH CURRENT INCOME
FROM A PORTFOLIO OF
SENIOR CORPORATE LOANS
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Chairman of the Board
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Dear SHAREHOLDER
I am happy to report that during the period covered by this report the Nuveen
Senior Income Fund performed well relative to its peer group and continued to
provide attractive monthly income from a portfolio of senior corporate loans.
The past few years have been difficult ones for many who invest in the equities
or loans issued by corporate America. As we have noted in past reports, your
Fund has not been immune from these larger market forces. Nevertheless, we have
been working through this period by taking a number of steps that we think have
improved the structure of the portfolio and its ability to take advantage of the
limited opportunities the market has presented. We are now beginning to see some
encouraging signs that this work is starting to pay off. More detailed
information on your Fund's management strategies and performance can be found in
the Portfolio Managers' Perspective and on the Performance Overview pages within
this report. Please take the time to read them.
In spite of recent market conditions, we continue to believe that an investment
like your Nuveen Fund also may offer opportunities to reduce the risk of your
overall investment portfolio. This is because the prices of senior loans may
move differently than the prices of the common stocks, mutual funds or other
investments you may own. Since one part of your portfolio may be going up when
another is going down, portfolio diversification may reduce your overall risk.
Your financial advisor can explain the advantages of portfolio diversification
in more detail. I urge you to contact him or her soon for more information on
this important investment strategy.
I also urge you to consider receiving future Fund reports and other Fund
information by e-mail and the Internet. Not only will you be able to receive the
information faster, but this also may help lower your Fund's expenses. Sign up
is quick and easy - see the inside front cover of this report for step-by-step
instructions.
For more than 100 years, Nuveen has specialized in offering quality investments
such as your Nuveen Fund to those seeking to accumulate and preserve wealth. Our
commitment to careful research, constant surveillance and judicious trading by a
seasoned portfolio management team has never been stronger. Our mission
continues to be to assist you and your financial advisor by offering the
investment solutions and services that can help you meet your financial
objectives. We thank you for choosing us as a partner as you work toward that
goal.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
March 17, 2003
1
Nuveen Senior Income Fund (NSL)
Managers' PERSPECTIVE
The Nuveen Senior Income Fund is managed by Gunther Stein, Lenny Mason and
Deepak Gulrajani of Symphony Asset Management, LLC an affiliate of Nuveen
Investments, LLC. This team has more than 30 years of combined investment
management experience, much of it in evaluating and purchasing senior corporate
loans and other high yield debt. Here the team from Symphony reviews the
prevailing economic conditions and performance of NSL for the period ended
January 31, 2003.
WHAT HAS BEEN THE GENERAL MARKET ENVIRONMENT FOR SENIOR CORPORATE DEBT OVER THE
REPORTING PERIOD?
The Fund continued to experience the effects of the general economic slowdown
that has impacted the world's capital markets for the last two years. Continued
lackluster corporate capital spending, lower-than-expected corporate earnings,
decreasing consumer confidence and increasing concerns over a war with Iraq have
all affected the general market environment. In particular, the accounting
scandals and the increased number of distressed securities and defaults has
negatively impacted the leveraged loan market since mid 2002.
However, despite this mood of uncertainty and uneasiness, the leveraged loan
market did manage a modest rebound toward the end of 2002 and into January 2003
as consumer confidence grew and investors' appetites for leverage loans
strengthened. The CSFB Leveraged Loan Index, a benchmark consisting of
approximately $150 billion of tradable term loans with at least one year to
maturity and rated BBB or lower, posted a 1.72% return for the month of November
2002, the highest monthly return in almost eight years.
IN THIS ENVIRONMENT, HOW DID NSL PERFORM?
For the twelve-month period ended January 31, 2003, the Nuveen Senior Income
Fund produced a total return on net asset value (NAV) of 3.91%. This compares
with a 1.99% total return posted by the CSFB Leverage Loan Index.
Overall, the Fund's performance has improved despite the steady decline of
interest rates. This was led by the solid performance of several holdings within
the aerospace, auto and leisure sectors, including Federal Mogul, Tenneco, and
Fitness Holdings Worldwide. However, these results were offset to a certain
degree by subpar performance of some of the Fund's holdings within the
telecommunications, cable and retail sectors as companies in this part of the
economy continued to wrestle with overcapacity concerns and slowing rates of
growth. Specific credits with subpar performance during this period include
Airgate PCS, Micro Warehouse, Century Cable, and Kmart.
2
WHAT STRATEGIES DID YOU EMPLOY IN MANAGING THE FUND?
Our team continues to follow a value-oriented management strategy. We focused on
finding what we judged to be high-quality loans with tangible assets to back
them up. We used a discipline that began with a fundamental approach to
evaluating cash flow and asset quality and then leveraged Symphony's extensive
quantitative evaluation and signaling tools to evaluate specific securities. We
purchased some discounted loans with what we believed was strong asset coverage.
We think this will allow for future price appreciation. We also looked for loans
with higher than average London Interbank Offered Rate (LIBOR) spreads.
Additionally, we focused on improving the overall structure of the Fund's
portfolio by attempting to eliminate positions which we thought had limited
upside potential, significant downside risk or low yields.
WHAT IS YOUR STRATEGY GOING FORWARD?
Our outlook for the senior loan market is guardedly optimistic. While the
foundation for a stronger economy in 2003 has been established, geo-political
shocks remain a threat. Absent a long, difficult battle in Iraq and further
terrorist attacks in the U.S., we feel that the economy should steadily improve
throughout 2003. We generally favor the gaming, consumer products and industrial
segments as asset levels remain strong and profitability is expected to
stabilize.
More generally, we are optimistic about the prospects for an improvement in the
underlying fundamentals of the senior loan market. If the economy continues to
recover, default risks may subside and interest rates may begin to climb, which
may allow leveraged companies to enjoy significant improvements in earnings
power and valuations. This, in turn, may lead to an increase the NAV of the
portfolio.
Our renewed optimism for the senior loan asset class is based on three key
tenets: 1) an economic recovery may lead to a decrease in default rates, 2)
improved capital market conditions may provide increased liquidity and
refinancings, which may help companies in the leveraged loan universe; and 3) if
an economic recovery does materialize, interest rates may trend higher - a
positive for the asset class as leveraged loans are floating rate instruments.
3
Nuveen Senior Income Fund
Performance
OVERVIEW As of January 31, 2003
NSL
PORTFOLIO STATISTICS
--------------------------------------------------
Share Price $7.51
--------------------------------------------------
Common Share Net Asset Value $7.27
--------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $216,370
--------------------------------------------------
% OF TOTAL
TOP 5 ISSUERS INVESTMENTS
--------------------------------------------------
MGM Grand 3.3%
--------------------------------------------------
Mandalay Resort Group 2.5%
--------------------------------------------------
Fitness Holdings Worldwide, Inc. 2.4%
--------------------------------------------------
HCA, Inc. 2.4%
--------------------------------------------------
Dr. Pepper/Seven UP Bottling Group, Inc. 2.2%
--------------------------------------------------
% OF TOTAL
TOP 5 INDUSTRIES INVESTMENTS
--------------------------------------------------
Hotels, Motels, Inns & Gaming 13.0%
--------------------------------------------------
Beverage, Food & Tobacco 9.3%
--------------------------------------------------
Printing & Publishing 7.9%
--------------------------------------------------
Containers, Packaging & Glass 5.6%
--------------------------------------------------
Automotive 5.2%
--------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
INCEPTION DATE 10/99
--------------------------------------------------
Market NAV
--------------------------------------------------
1-Year 9.32% 3.91%
--------------------------------------------------
Since Inception .58% 1.35%
--------------------------------------------------
Bar Chart:
2002-2003 MONTHLY DIVIDENDS PER SHARE
2/02 0.049
3/02 0.049
4/02 0.049
5/02 0.049
6/02 0.049
7/02 0.049
8/02 0.049
9/02 0.047
10/02 0.047
11/02 0.047
12/02 0.043
1/03 0.043
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
2/1/02 7.4
7.5
7.3
7.46
7.43
7.5
7.42
7.48
7.6
7.72
7.58
7.8
7.71
7.78
7.81
7.76
7.81
7.94
8.01
7.94
7.76
7.65
7.36
7.27
7.1
6.86
7.15
6.94
6.73
6.85
6.9
6.86
6.79
6.84
6.78
6.84
6.65
6.59
6.4
6.43
6.39
6.38
7.04
7.21
7.1
7
7.06
7.1
7.2
7.44
7.7
7.51
1/31/03 7.51
Past performance is not predictive of future results.
4
Shareholder
MEETING REPORT
The Shareholder Meeting was held October 23, 2002, in Chicago at Nuveen's
headquarters.
NSL
----------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Preferred
Common Shares
Shares Series-TH
======================================================================================================================
James E. Bacon
For 28,095,146 1,834
Withhold 711,935 --
----------------------------------------------------------------------------------------------------------------------
Total 28,807,081 1,834
======================================================================================================================
William E. Bennett
For 28,103,695 1,834
Withhold 703,386 --
----------------------------------------------------------------------------------------------------------------------
Total 28,807,081 1,834
======================================================================================================================
Jack B. Evans
For 28,105,680 1,834
Withhold 701,401 --
----------------------------------------------------------------------------------------------------------------------
Total 28,807,081 1,834
======================================================================================================================
Thomas E. Leafstrand
For 28,120,756 1,834
Withhold 686,325 --
----------------------------------------------------------------------------------------------------------------------
Total 28,807,081 1,834
======================================================================================================================
Sheila W. Wellington
For 28,097,336 1,834
Withhold 709,745 --
----------------------------------------------------------------------------------------------------------------------
Total 28,807,081 1,834
======================================================================================================================
William L. Kissick
For -- 1,834
Withhold -- --
----------------------------------------------------------------------------------------------------------------------
Total -- 1,834
======================================================================================================================
Timothy R. Schwertfeger
For -- 1,834
Withhold -- --
----------------------------------------------------------------------------------------------------------------------
Total -- 1,834
======================================================================================================================
5
Nuveen Senior Income Fund (NSL)
Portfolio of
INVESTMENTS January 31, 2003 (Unaudited)
RATINGS*
-----------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
----------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS(1) AND INTEREST
BEARING SECURITIES - 157.6% (93.1% OF TOTAL ASSETS)
AEROSPACE/DEFENSE - 6.2% (3.7% OF TOTAL ASSETS)
$ 4,912 DeCrane Aircraft Holdings, Inc., Term Loan D B2 B+ 12/17/06 $3,990,610
4,194 United Defense Industries, Inc., Term Loan B Ba3 BB- 08/13/09 4,208,292
1,145 Vought Aircraft Industries, Inc., Term Loan A NR NR 06/30/06 1,117,736
321 Vought Aircraft Industries, Inc., Term Loan B NR NR 07/26/07 312,867
161 Vought Aircraft Industries, Inc., Term Loan C NR NR 07/26/08 156,555
3,720 Vought Aircraft Industries, Inc., Term Loan X NR NR 12/31/06 3,645,600
----------------------------------------------------------------------------------------------------------------------------------
13,431,660
----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE - 8.7% (5.1% OF TOTAL ASSETS)
1,224 Federal-Mogul Corporation, Term Loan A (b) NR NR 02/24/04 891,582
5,551 Federal-Mogul Corporation, Term Loan B (b) NR NR 02/24/05 4,071,457
3,246 Metaldyne Company/Metalync Company, LLC, Term Loan D B1 BB- 12/31/09 3,136,387
9,318 MetalForming Technologies, Inc., Term Loan B NR NR 06/30/06 5,590,972
1,811 Tenneco Auto, Inc., Revolver Loan B2 B 11/04/05 1,286,846
4,044 Tenneco Auto, Inc., Term Loan A B2 B 11/04/05 3,772,402
----------------------------------------------------------------------------------------------------------------------------------
18,749,646
----------------------------------------------------------------------------------------------------------------------------------
BEVERAGE, FOOD & TOBACCO - 15.6% (9.1% OF TOTAL ASSETS)
1,995 Agrilink Foods, Inc., Term Loan B Ba3 B+ 08/20/08 1,999,988
1,392 Cott Corporation, Purchase Money Term Loan NR BB 12/31/06 1,397,584
176 Cott Corporation, Working Capital Term Loan NR BB 12/31/06 176,770
3,985 Dean Foods Company, Term Loan B Ba2 BB+ 07/15/08 3,987,727
5,000 Del Monte Corporation, Term Loan B Ba3 BB- 12/20/10 5,041,875
1,000 Dr. Pepper/Seven UP Bottling Group, Inc., Term Loan A NR NR 10/07/06 965,000
7,149 Dr. Pepper/Seven UP Bottling Group, Inc., Term Loan B NR NR 10/07/07 7,054,172
1,894 Eagle Family Foods, Inc., Term Loan B1 B 12/31/05 1,803,643
3,133 Flowers Foods, Inc., Term Loan B Ba2 BBB- 03/26/07 3,146,694
1,970 Interstate Brands Corporation, Term Loan B Ba1 BBB- 07/19/07 1,971,970
3,000 Jack in the Box Inc., Term Loan B Ba2 BB+ 07/22/07 3,020,625
3,142 Merisant Company, Term Loan B Ba3 BB- 03/30/07 3,143,713
----------------------------------------------------------------------------------------------------------------------------------
33,709,761
----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING/CABLE - 3.8% (2.3% OF TOTAL ASSETS)
4,000 Century Cable Holdings, LLC, Discretionary Term Loan (b) NR NR 12/31/09 2,858,000
2,000 Century Cable Holdings, LLC, Revolver (b) NR NR 10/25/10 1,426,000
1,640 Century Cable Holdings, LLC, Revolver (b) NR NR 10/25/10 1,169,320
3,308 Charter Communications Operating, LLC, Incremental Term Loan B2 B 09/18/08 2,789,339
----------------------------------------------------------------------------------------------------------------------------------
8,242,659
----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING/RADIO - 2.5% (1.5% OF TOTAL ASSETS)
3,733 Citadel Broadcasting Company, Term Loan B NR NR 06/26/09 3,752,000
1,737 Emmis Communications Corporation, Term Loan B Ba2 B+ 08/31/09 1,748,633
----------------------------------------------------------------------------------------------------------------------------------
5,500,633
----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING/TELEVISION - 0.9% (0.5% OF TOTAL ASSETS)
2,000 Gray Television, Term Loan B Ba3 B+ 12/31/10 2,010,417
----------------------------------------------------------------------------------------------------------------------------------
BUILDINGS & REAL ESTATE - 3.2% (1.9% OF TOTAL ASSETS)
3,000 D.R. Horton, Inc., Bonds, 7.500% Ba1 BB 12/01/07 3,022,500
1,995 URS Corporation, Term Loan B Ba3 BB- 08/22/08 1,890,263
1,975 Williams Scotsman, Inc., Term Loan B1 BB- 12/31/06 1,968,853
----------------------------------------------------------------------------------------------------------------------------------
6,881,616
----------------------------------------------------------------------------------------------------------------------------------
6
RATINGS*
-----------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
----------------------------------------------------------------------------------------------------------------------------------
CARGO TRANSPORTATION - 3.7% (2.2% OF TOTAL ASSETS)
$ 8,190 North American Van Lines, Inc., Term Loan B B1 B+ 11/18/07 $7,979,824
----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS & RUBBER - 3.8% (2.2% OF TOTAL ASSETS)
4,942 Buckeye Technologies, Inc., Revolver Loan NR NR 03/31/05 4,666,860
1,299 CP Kelco ApS, Inc., Term Loan B B3 B+ 03/31/08 1,250,041
435 CP Kelco ApS, Inc., Term Loan C B3 B+ 09/30/08 418,780
1,990 OM Group, Inc., Term Loan C B2 B+ 04/01/06 1,875,575
----------------------------------------------------------------------------------------------------------------------------------
8,211,256
----------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 2.1% (1.2% OF TOTAL ASSETS)
4,478 Mueller Group, Inc., Term Loan E B1 B+ 06/20/08 4,469,664
----------------------------------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING & GLASS - 9.5% (5.6% OF TOTAL ASSETS)
3,640 Graham Packaging Company, Term Loan B B2 B 01/31/06 3,604,329
3,016 Graham Packaging Company, Term Loan C B2 B 01/31/07 2,986,448
1,990 Greif Bros. Corporation, Term Loan C Ba3 BB 08/23/09 1,995,597
4,846 Smurfit-Stone Container Corporation, Term Loan B Ba3 NR 06/30/09 4,797,692
2,154 Smurfit-Stone Container Corporation, Term Loan C Ba3 NR 06/30/09 2,135,000
1,781 United States Can Company, Term Loan A B2 B 01/04/06 1,540,524
3,956 United States Can Company, Term Loan B B2 B 10/04/08 3,417,553
----------------------------------------------------------------------------------------------------------------------------------
20,477,143
----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING - 8.5% (5.0% OF TOTAL ASSETS)
2,190 Blount, Inc., Term Loan B B3 B 06/30/06 2,154,822
4,049 Dayco Products, LLC, Term Loan B Ba3 BB- 05/31/07 4,004,269
5,805 Flowserve Corporation, Term Loan C Ba3 BB- 06/30/09 5,790,215
1,011 GenTek, Inc., Revolver (b) NR NR 04/30/05 544,997
335 GenTek, Inc., Term Loan A (b) NR NR 04/30/05 192,971
543 GenTek, Inc., Term Loan B (b) NR NR 04/30/07 315,153
2,932 GenTek, Inc., Term Loan C (b) NR NR 10/31/07 1,683,252
5,365 Western Industries Holding, Inc., Term Loan B NR NR 06/23/06 3,621,692
----------------------------------------------------------------------------------------------------------------------------------
18,307,371
----------------------------------------------------------------------------------------------------------------------------------
ECOLOGICAL - 0.3% (0.2% OF TOTAL ASSETS)
630 Stericycle, Inc., Term Loan B B1 BB 09/30/07 632,633
----------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS & ELECTRONIC SERVICES - 1.9% (1.1% OF TOTAL ASSETS)
4,000 Sanmina SCI Corporation, Term Loan B Ba1 BB 12/23/07 4,025,000
----------------------------------------------------------------------------------------------------------------------------------
FARMING & AGRICULTURAL - 1.5% (0.9% OF TOTAL ASSETS)
3,387 Shemin Holdings Corporation, Term Loan B NR NR 01/28/07 3,150,287
----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 7.0% (4.1% OF TOTAL ASSETS)
4,489 Community Health Systems, Inc., Term Loan B NR NR 07/16/09 4,474,022
8,200 HCA, Inc., Bond, 6.910% Ba1 BBB- 06/15/05 8,729,449
1,973 Triad Hospitals, Inc., Term Loan B Ba3 B+ 09/30/08 1,982,714
----------------------------------------------------------------------------------------------------------------------------------
15,186,185
----------------------------------------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS & GAMING - 21.6% (12.8% OF TOTAL ASSETS)
3,970 Alliance Gaming Corporation, LLC, Term Loan B1 BB- 12/31/06 3,993,157
3,927 Ameristar Casino, Inc., Term Loan B Ba3 BB- 12/20/06 3,947,812
2,394 Argosy Gaming Company, Term Loan B Ba2 BB 07/31/06 2,408,387
4,700 Mandalay Resort Group, Bond, 6.750% Ba3 BB- 07/15/03 4,735,250
3,000 Mandalay Resort Group, Term Loan NR NR 08/22/06 2,974,374
1,245 Mandalay Resort Group, Bond, 6.700% Ba2 BB+ 11/15/96 1,250,305
1,000 MGM Grand, Bond, 6.625% Ba1 BBB- 02/01/05 1,035,000
6,933 MGM Grand, Bond, 6.950% Ba1 BBB- 02/01/05 7,192,988
3,670 MGM Grand, Bond, 7.250% Ba1 BBB- 10/15/06 3,780,100
3,359 Park Place Entertainment, Revolver NR BBB- 12/31/03 3,262,927
2,443 Park Place Entertainment, Bond, 7.875% Ba2 BB+ 12/15/05 2,491,860
7
Nuveen Senior Income Fund (NSL) (continued)
Portfolio of INVESTMENTS January 31, 2003 (Unaudited)
RATINGS*
-----------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
----------------------------------------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS & GAMING (continued)
$ 3,393 Pinnacle Entertainment, Bond, 9.500% Caa1 CCC+ 08/01/07 $3,079,148
7,174 Wyndham International, Inc., Increasing Rate Loan NR B- 06/30/04 5,844,842
1,332 Wyndham International, Inc., Term Loan B NR B- 06/30/06 1,055,263
----------------------------------------------------------------------------------------------------------------------------------
47,051,413
----------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 5.4% (3.2% OF TOTAL ASSETS)
9,957 Conseco, Inc., Term Loan (b) NR NR 12/31/03 7,649,937
4,775 GAB Robbins North America, Inc., Term Loan B NR NR 12/01/05 4,058,750
----------------------------------------------------------------------------------------------------------------------------------
11,708,687
----------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT - 4.1% (2.4% OF TOTAL ASSETS)
3,118 Fitness Holdings Worldwide, Inc., Term Loan B NR B 11/02/06 3,032,716
5,957 Fitness Holdings Worldwide, Inc., Term Loan C NR B 11/02/07 5,792,796
----------------------------------------------------------------------------------------------------------------------------------
8,825,512
----------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 1.6% (1.0% OF TOTAL ASSETS)
2,000 Remington Arms Company, Bond, 9.500% B3 NR 12/01/03 2,015,000
1,500 Rexnord, Term Loan B1 B+ 11/25/09 1,511,719
----------------------------------------------------------------------------------------------------------------------------------
3,526,719
----------------------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES/OIL & GAS - 2.9% (1.7% OF TOTAL ASSETS)
4,189 Tesoro Petroleum Corp., Term Loan A Ba3 BB 12/31/06 3,874,623
2,572 Tesoro Petroleum Corp., Term Loan B Ba3 BB 12/31/07 2,378,861
----------------------------------------------------------------------------------------------------------------------------------
6,253,484
----------------------------------------------------------------------------------------------------------------------------------
NON-DURABLE CONSUMER PRODUCTS - 5.1% (3.0% OF TOTAL ASSETS)
7,445 Norwood Promotional Products, Inc., Term Loan A NR NR 02/01/05 6,141,820
5,573 Norwood Promotional Products, Inc., Term Loan B NR NR 02/01/05 919,595
1,459 Norwood Promotional Products, Inc., Term Loan C NR NR 02/01/05 43,763
3,980 Playtex Products, Inc., Term Loan C Ba3 BB- 05/31/09 3,973,160
----------------------------------------------------------------------------------------------------------------------------------
11,078,338
----------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.2% (0.1% OF TOTAL ASSETS)
2,131 California Pollution Control Financing Authority, CanFibre of
Riverside Project, Bonds (a)(b)(d) NR NR 07/01/14 303,213
1,151 California Pollution Control Financing Authority, CanFibre of
Riverside Project, Bonds (a)(b)(d) NR NR 07/01/19 163,735
7,000 CanFibre of Lackawana, LLC, Construction Loan (a)(b)(c)(e) NR NR 12/01/13 --
1,200 CanFibre of Lackawana, LLC, First Stabilization Fund Letter of
Credit (a)(b)(c)(e) NR NR 12/01/13 --
10,000 CanFibre of Riverside, Inc., Equity Contribution Letter of
Credit (a)(b)(c)(d) NR NR 07/01/09 --
533 CanFibre of Riverside, Inc., Working Capital Loan (a)(b)(c)(d) NR NR 12/31/02 --
----------------------------------------------------------------------------------------------------------------------------------
466,948
----------------------------------------------------------------------------------------------------------------------------------
PERSONAL & MISCELLANEOUS SERVICES - 3.8% (2.3% OF TOTAL ASSETS)
3,560 Adams Outdoor Advertising Limited Partnership, Term Loan B B1 B+ 02/01/08 3,572,608
2,000 Lamar Media Corp., Incremental Loan C Ba2 BB- 02/01/07 2,002,750
1,679 Weight Watchers International, Inc., Term Loan B Ba1 BB- 09/30/06 1,688,277
995 Weight Watchers International, Inc., Term Loan C Ba1 BB- 09/30/06 1,000,461
----------------------------------------------------------------------------------------------------------------------------------
8,264,096
----------------------------------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING - 13.2% (7.7% OF TOTAL ASSETS)
6,835 American Media Operations, Inc., Term Loan C Ba3 B+ 04/01/07 6,862,907
2,000 Bell Actimedia, Inc., Term Loan B Ba3 BB- 11/29/09 2,014,583
3,000 Bell Actimedia, Inc., Term Loan C Ba3 BB- 11/29/10 3,019,500
3,700 Dex Media East, LLC, Term Loan B Ba3 BB- 11/08/09 3,729,291
5,000 Media News Group, Term Loan NR NR 12/31/06 4,912,500
3,739 PRIMEDIA, Inc., Term Loan B NR B 06/30/09 3,533,023
4,500 R.H. Donnelley, Term Loan B Ba3 NR 06/30/10 4,534,875
----------------------------------------------------------------------------------------------------------------------------------
28,606,679
----------------------------------------------------------------------------------------------------------------------------------
8
RATINGS*
-----------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS & FOOD SERVICE - 2.3% (1.4% OF TOTAL ASSETS)
$ 4,975 Dominos Pizza, Inc., Term Loan B Ba3 BB- 06/30/08 $4,988,992
----------------------------------------------------------------------------------------------------------------------------------
RETAIL/CATALOG - 1.1% (0.7% OF TOTAL ASSETS)
4,575 Micro Warehouse, Inc., Term Loan B NR NR 01/31/07 2,401,899
----------------------------------------------------------------------------------------------------------------------------------
RETAIL/SPECIALTY - 1.8% (1.1% OF TOTAL ASSETS)
3,921 Rite Aid Corporation, Term Loan A B2 BB- 06/27/05 3,861,732
----------------------------------------------------------------------------------------------------------------------------------
RETAIL/STORES - 1.6% (0.9% OF TOTAL ASSETS)
4,708 Kmart Corporation, Revolver (a)(b) NR NR 11/29/03 1,641,516
1,765 SDM Corporation, Term Loan F Ba1 BBB+ 02/04/09 1,769,338
----------------------------------------------------------------------------------------------------------------------------------
3,410,854
----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/CELLULAR/PCS - 4.9% (2.9% OF TOTAL ASSETS)
466 Airgate PCS, Inc., Tranche I Loan NR NR 06/06/07 295,640
4,694 Airgate PCS, Inc., Tranche II Loan NR NR 09/30/08 2,862,866
9,000 Centennial Cellular Operating Company, LLC, Term Loan A B3 B 11/30/06 7,339,500
----------------------------------------------------------------------------------------------------------------------------------
10,498,006
----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/COMPETITIVE LOCAL EXCHANGE CARRIER (CLEC)
- 1.3% (0.8% OF TOTAL ASSETS)
3,735 RCN Corporation, Term Loan B Caa1 CCC+ 06/03/07 2,685,465
5,000 WCI Capital Corporation, Term Loan B (a)(b) NR NR 09/30/07 85,938
----------------------------------------------------------------------------------------------------------------------------------
2,771,403
----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/HYBRID - 0.8% (0.5% OF TOTAL ASSETS)
1,950 Nextel Communications, Inc., Term Loan A Ba3 BB- 12/31/07 1,775,719
----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/WIRELESS MESSAGING - 0.6% (0.4% OF
TOTAL ASSETS)
834 Arch Wireless Holding, Inc., Senior Subordinated Secured Notes NR NR 05/15/07 812,739
610 Arch Wireless Holding, Inc., Subordinated Secured Compounding
Notes (a) NR NR 05/15/09 472,564
----------------------------------------------------------------------------------------------------------------------------------
1,285,303
----------------------------------------------------------------------------------------------------------------------------------
TEXTILES & LEATHER - 1.2% (0.7% OF TOTAL ASSETS)
2,632 Norcross Safety Products, LLC, Term Loan NR NR 09/30/04 2,618,768
----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION/RAIL MANUFACTURING - 1.2% (0.7% OF TOTAL ASSETS)
2,537 Kansas City Southern Railway Company, Term Loan B Ba1 BB+ 12/29/06 2,543,593
----------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 3.7% (2.2% OF TOTAL ASSETS)
2,352 AES Corporation, Term Loan C B2 BB 07/15/05 2,225,954
1,783 TNP Enterprises, Inc., Term Loan Ba2 BB+ 03/30/06 1,773,588
3,993 Westar Energy, Term Loan B NR NR 01/01/09 3,928,276
----------------------------------------------------------------------------------------------------------------------------------
7,927,818
----------------------------------------------------------------------------------------------------------------------------------
Total Variable Rate Senior Loan Interests and Interest Bearing
Securities (cost $375,406,448) 340,831,718
------------------------------------------------------------------------------------------------------------------
9
Nuveen Senior Income Fund (NSL) (continued)
Portfolio of INVESTMENTS January 31, 2003 (Unaudited)
MARKET
SHARES (000) DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------------
EQUITIES - 1.9% (1.1% OF TOTAL ASSETS)
BUILDINGS & REAL ESTATE - 1.8% (1.0% OF TOTAL ASSETS)
224 Washington Group International, Inc., Equity Shares (a) $ 3,623,176
6 Washington Group International, Inc., Warrants, Series A (a) 4,874
4 Washington Group International, Inc., Warrants, Series B (a) 4,202
4 Washington Group International, Inc., Warrants, Series C (a) 1,952
-- Washington Group International, Inc., Residual Unsecured Claim (a)(f) 267,530
---------------------------------------------------------------------------------------------------------------------
3,901,734
---------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.0% (0.0% OF TOTAL ASSETS)
CanFibre of Lackawana, LLC, Income Participation Certificates,
13 units (a)(b)(c)(e) --
CanFibre of Riverside, Inc., Income Participation Certificates,
17 units (a)(b)(c)(d) --
---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/COMPETITIVE LOCAL EXCHANGE CARRIER (CLEC)
- 0.0% (0.0% OF TOTAL ASSETS)
Teligent, Inc., Equity Shares, 50 Shares (a) 52,735
---------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/WIRELESS MESSAGING - 0.1%
(0.1% OF TOTAL ASSETS)
99 Arch Wireless Holding, Inc., Equity Shares (a) 188,472
---------------------------------------------------------------------------------------------------------------------
Total Equities (cost $7,995,410) 4,142,941
-----------------------------------------------------------------------------------------------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MATURITY VALUE
---------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 8.2% (4.9% OF TOTAL ASSETS)
$ 17,776 State Street Repurchase Agreement, 1.22%, dated 1/31/03, repurchase 02/03/03 17,776,197
price $17,776,799, collateralized by U.S. Treasury Note
---------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $17,776,197) 17,776,197
-----------------------------------------------------------------------------------------------------
Total Investments (cost $401,178,055) - 167.7% (99.1% of total assets) 362,750,856
-----------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.2% 2,618,880
-----------------------------------------------------------------------------------------------------
Borrowings Payable - (47.6)%+ (103,000,000)
-----------------------------------------------------------------------------------------------------
Taxable Auctioned Preferred Shares, at Liquidation Value - (21.3)% (46,000,000)
-----------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 216,369,736
=====================================================================================================
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.
** 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 short-term,
floating 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 January 31, 2003, this issue was non-income
producing.
(b) At or subsequent to January 31, 2003, this issue was under the
protection of the federal bankruptcy court.
(c) Position has a zero cost basis and was acquired as part of a workout
program.
(d) On January 1, 2002, CFRHoldings, Inc. (an entity formed by Nuveen for
the benefit of the Nuveen Funds owning various interests in CanFibre
of Riverside) took possession of the CanFibre of Riverside assets on
behalf of the various Nuveen Funds. CFR Holdings, Inc. has determined
that a sale of the facility is in the best interest of shareholders
and is proceeding accordingly.
(e) In September of 2002, the Erie County Acquisition Corporation, Inc.
(an entity formed by Nuveen for the benefit of the Nuveen Funds owning
various interests in CanFibre of Lackawanna) took possession of the
CanFibre of Lackawanna assets on behalf of the various Nuveen Funds.
Erie County Acquisition Corporation, Inc. had determined that a sale
of the facility was in the best interest of shareholders and
liquidated its remaining assets.
(f) Anticipates future distributions from equities and warrants.
+ Borrowings payable as a percentage of total assets is 28.1%.
See accompanying notes to financial statements.
10
Statement of
ASSETS AND LIABILITIES January 31, 2003 (Unaudited)
--------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $401,178,055) $362,750,856
Cash 14,258
Receivables:
Interest 2,434,887
Investments sold 693,943
Other assets 83,760
--------------------------------------------------------------------------------------------------------
Total assets 365,977,704
--------------------------------------------------------------------------------------------------------
LIABILITIES
Borrowings payable 103,000,000
Management fees payable 123,436
Taxable Auctioned Preferred share dividends payable 37,429
Other liabilities 447,103
--------------------------------------------------------------------------------------------------------
Total liabilities 103,607,968
--------------------------------------------------------------------------------------------------------
Taxable Auctioned Preferred shares, at liquidation value 46,000,000
--------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $216,369,736
========================================================================================================
Common shares outstanding 29,748,210
========================================================================================================
Net asset value per Common share outstanding (net assets applicable
to Common shares, divided by Common shares outstanding) $ 7.27
========================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
--------------------------------------------------------------------------------------------------------
Common shares $.01 par value per share $ 297,482
Paid-in surplus 282,644,688
Undistributed net investment income 420,003
Accumulated net realized gain (loss) from investments (28,565,238)
Net unrealized appreciation (depreciation) of investments (38,427,199)
========================================================================================================
Net assets applicable to Common shares $216,369,736
========================================================================================================
Authorized shares:
Common Unlimited
Taxable Auctioned Preferred Unlimited
========================================================================================================
See accompanying notes to financial statements.
11
Statement of
OPERATIONS Six Months Ended January 31, 2003 (Unaudited)
--------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $10,998,025
Fees 179,902
--------------------------------------------------------------------------------------------------------
Total investment income 11,177,927
--------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 1,546,692
Taxable Auctioned Preferred Shares - auction fees 57,973
Taxable Auctioned Preferred Shares - dividend disbursing agent fees 3,025
Shareholders' servicing agent fees and expenses 5,981
Interest expense 911,102
Commitment fees 166,531
Custodian's fees and expenses 94,685
Trustees' fees and expenses 18,898
Professional fees 162,431
Shareholders' reports - printing and mailing expenses 43,247
Stock exchange listing fees 8,536
Investor relations expense 22,878
Other expenses 25,574
--------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense waivers 3,067,553
Custodian fee credit (1,509)
Expense waivers from the Adviser (818,837)
--------------------------------------------------------------------------------------------------------
Net expenses 2,247,207
--------------------------------------------------------------------------------------------------------
Net investment income 8,930,720
--------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investments (3,461,645)
Change in net unrealized appreciation (depreciation) of investments 24,066
--------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (3,437,579)
--------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO TAXABLE AUCTIONED PREFERRED SHAREHOLDERS
From net investment income (386,884)
--------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations $ 5,106,257
========================================================================================================
See accompanying notes to financial statements.
12
Statement of
CHANGES IN NET ASSETS (Unaudited)
SIX MONTHS ENDED YEAR ENDED
1/31/03 7/31/02
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 8,930,720 $ 20,176,893
Net realized gain (loss) from investments (3,461,645) (7,840,668)
Change in net unrealized appreciation (depreciation) of investments 24,066 (13,369,708)
Distributions to Taxable Auctioned Preferred Shareholders:
From net investment income (386,884) (1,058,165)
From accumulated net realized gains from investments -- (5,696)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares from operations 5,106,257 (2,097,344)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (8,210,475) (20,328,659)
From accumulated net realized gains from investments -- (61,397)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from distributions to Common shareholders (8,210,475) (20,390,056)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares issued to shareholders due to reinvestment of distributions 15,400 304,528
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares (3,088,818) (22,182,872)
Net assets applicable to Common shares at the beginning of period 219,458,554 241,641,426
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $216,369,736 $219,458,554
====================================================================================================================================
Undistributed net investment income at the end of period $ 420,003 $ 86,642
====================================================================================================================================
Statement of
CASH FLOWS Six Months Ended January 31, 2003 (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS $ 5,106,257
------------------------------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile the Change in Net Assets Applicable to Common Shares from Operations
to Net Cash provided by Operating Activities:
Decrease in investments at value due to net dispositions and change in depreciation 5,866,652
Increase in interest receivable (643,152)
Increase in receivable from investments sold (693,943)
Decrease in other assets 60,751
Decrease in management fees payable (2,707)
Increase in Taxable Auctioned Preferred share dividends payable 23,447
Decrease in other liabilities (55,880)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,661,425
------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to Common shareholders (9,652,243)
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 9,182
Cash at the beginning of period 5,076
------------------------------------------------------------------------------------------------------------------------------------
CASH AT THE END OF PERIOD $ 14,258
====================================================================================================================================
See accompanying notes to financial statements.
13
Notes to
FINANCIAL STATEMENTS (Unaudited)
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's Common shares are listed on the New York Stock
Exchange and trade under the ticker symbol "NSL". The Fund was organized as a
Massachusetts business trust on August 13, 1999.
The Fund seeks to provide a high level of current income 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, bonds and other securities in the Fund's investment
portfolio are generally provided by one or more independent pricing services
approved by the Fund's Board of Trustees. The pricing services typically value
exchange-listed securities at the last sale price on that day; and value senior
loans, bonds and other securities traded in the over-the-counter market at the
mean of the highest bona fide bid and lowest bona fide ask prices when current
quotations are readily available. The pricing services value senior loans, bonds
and other securities for which current quotations are not readily available at
fair value using a wide range of market data and other information and analysis,
including the obligor's credit characteristics considered relevant by such
pricing service to determine valuations. The Board of Trustees of the Fund has
approved procedures which permit Nuveen Institutional Advisory Corp. (the
"Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc. (formerly, The
John Nuveen Company), to determine the fair value of securities for which the
applicable pricing service or services is not providing a price, using market
data and other factors such as the obligor's credit characteristics, and to
override the price provided by the independent pricing service in certain
limited circumstances. Short-term investments which mature within 60 days are
valued at amortized cost, which approximates market value.
The senior loans in which the Fund primarily 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 for senior loans, the value of a senior loan,
determined as described above, may differ significantly from the value that
would have been determined 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, which includes the amortization of premiums and accretion of
discounts, is recorded on an accrual basis. Interest income also includes
paydown gains and losses on mortgage and asset-backed securities. 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 evaluating 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.
14
Dividends and Distributions to Common Shareholders
The Fund intends to declare and pay monthly income distributions to Common
shareholders. 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.
Distributions to Common shareholders of net investment income and net realized
capital gains, if any, 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.
Taxable Auctioned Preferred Shares
The Fund has issued and outstanding 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 pursuant to a dutch auction
process by the auction agent, and is payable at or near the end of each rate
period.
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 six months ended January 31, 2003.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral by the Fund may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
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 applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
During the six months ended January 31, 2003, 2,197 Common shares were issued to
shareholders due to reinvestment of distributions.
During the fiscal year ended July 31, 2002, 36,948 Common shares were issued to
shareholders due to reinvestment of distributions.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) during the
six months ended January 31, 2003, aggregated 123,272,535 and 102,660,643,
respectively.
15
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and federal income tax purposes are
primarily due to the treatment of paydown gains and losses on mortgage and
asset-backed securities and timing differences in recognizing certain gains and
losses on security transactions.
At January 31, 2003, the cost of investments owned was $401,270,371.
The net unrealized depreciation of investments at January 31, 2003, aggregated
$38,519,515 of which $1,583,752 related to appreciated securities and
$40,103,267 related to depreciated securities.
The tax components of undistributed ordinary income and net realized gains at
July 31, 2002, the Fund's last fiscal year end, were as follows:
--------------------------------------------------------------------------------
Undistributed ordinary income * $1,558,180
Undistributed net long-term capital gains --
================================================================================
The tax character of distributions paid during the fiscal year ended July 31,
2002, the Fund's last fiscal year end, were designated for purposes of the
dividends paid deduction as follows:
--------------------------------------------------------------------------------
Distributions from ordinary income * $22,353,020
Distributions from net long-term capital gains --
================================================================================
* Ordinary income consists of taxable income derived from dividends, interest
and net short-term capital gains, if any.
At July 31, 2002, the Fund's last fiscal year end, the Fund had an unused
capital loss carryforward of $18,283,863 available to be applied against future
capital gains, if any. If not applied, the carryforward will expire in the year
2010.
The Fund has elected to defer net realized losses from investments incurred from
November 1, 2001 through July 31, 2002 ("post-October losses") in accordance
with Federal income tax regulations. The Fund has $6,727,415 of post-October
losses that are treated as having arisen in the following fiscal year.
5. 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" means 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 Adviser has entered
into a Sub-Advisory Agreement with Symphony Asset Management ("Symphony"), an
indirect wholly owned subsidiary of Nuveen Investments, Inc. (formerly, The John
Nuveen Company), under which Symphony manages the investment portfolio of the
Fund. Symphony is compensated for its services to the Fund from the management
fee paid to the Adviser.
16
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 or its affiliates.
6. COMMITMENTS
Pursuant to the terms of certain of the variable rate senior loan agreements,
the Fund had unfunded loan commitments of approximately $4.9 million as of
January 31, 2003. The Fund generally will maintain with its custodian, cash,
liquid securities and/or liquid senior loans having an aggregate value at least
equal to the amount of unfunded loan commitments.
7. 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 January 31, 2003, the Fund
held participation commitments with Bear, Stearns &Co. Inc. and Morgan Stanley.
At January 31, 2003, the par values of the commitments were $2 million and $1.64
million, respectively, while the market values were $1.4 million and $1.2
million, respectively.
8. 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, LLC, a Delaware limited liability company whose sole
purpose is the issuance of commercial paper. Nuveen Funding, LLC 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 six months ended January 31, 2003, the average daily balance of
borrowings under the commercial paper program agreement was $103 million with an
average interest rate of 1.75%.
The Fund has entered into a $155 million revolving credit agreement with
Deutsche Bank AG which expires May 2003. 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 six months ended January 31, 2003, there were no borrowings
under the revolving credit agreement and, therefore, there was no outstanding
revolving credit balance at January 31, 2003.
Cash paid for interest during the six months ended January 31, 2003, was
$944,759.
9. SUBSEQUENT EVENT - DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Fund declared a dividend distribution of $.0430 per Common share from its
net investment income which was paid on March 3, 2003, to shareholders of record
on February 15, 2003.
17
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
--------------------------------------------------------------- ----------------------------
Distributions Distributions
from Net from Net
Beginning Net Investment Capital Investment Capital
Common Realized/ Income to Gains to Income to Gains to
Share Net Unrealized Preferred Preferred Common Common
Net Asset Investment Investment Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
============================================================================================================================
Year Ended 7/31:
2003(b) $7.38 $ .30 $ (.12) $(.01) $-- $ .17 $ (.28) $-- $ (.28)
2002 8.13 .68 (.71) (.04) -- (.07) (.68) -- (.68)
2001 9.47 1.09 (1.29) (.09) -- (.29) (1.03) (.02) (1.05)
2000(a) 9.55 .75 (.12) (.02) -- .61 (.66) -- (.66)
Total Returns
----------------
Based
on
Ending Common
Common Based Share
Share Ending on Net
Offering Net Asset Market Market Asset
Costs Value Value Value** Value**
=====================================================================
Year Ended 7/31:
2003(b) $ -- $7.27 $7.5100 8.51% 2.39%
2002 -- 7.38 7.2000 (21.16) (.65)
2001 -- 8.13 9.9600 15.35 (3.30)
2000(a) (.03) 9.47 9.6250 3.21 6.20
Ratios/Supplemental Data
-----------------------------------------------------------------------------
Before Credit/Waiver After Credit/Waiver***
------------------------- ------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Asset Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
================================================================================================
Year Ended 7/31:
2003(b) $216,370 2.87%* 7.59%* 2.10%* 8.36%* 30%
2002 219,459 3.12 8.20 2.37 8.95 64
2001 241,641 4.32 11.74 3.62 12.44 52
2000(a) 280,479 3.81* 9.82* 3.21* 10.42* 40
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in stock price per share. Total Return on Common Share Net Asset
Value is the combination of reinvested dividend income, reinvested capital
gains distributions, if any, and changes in Common net asset value per
share. Total returns are not annualized.
*** After custodian fee credit and expense waivers from the investment adviser,
where applicable.
+ 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 Applicable to Common Shares and each Ratio of Net
Investment Income to Average Net Assets Applicable to Common Shares
includes the effect of the interest expense paid on bank borrowings as
follows:
Ratio of Interest
Expense
to Average
Net Assets
Applicable to
Common Shares
-----------------
2003(b) .85%*
2002 1.09
2001 2.19
2000(a) 2.04*
(a) For the period October 29, 1999 (commencement of operations) through July
31, 2000.
(b) For the six months ended January 31, 2003.
See accompanying notes to financial statements.
18-19 SPREAD
Build Your Wealth
AUTOMATICALLY
SIDEBAR TEXT: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET
UP YOUR REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End 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 compounding. It
is important to note that an automatic reinvestment 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 95% of
the then-current market price or at net asset value, whichever is higher. 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.
20
Fund
INFORMATION
BOARD OF TRUSTEES
James E. Bacon
William E. Bennett
Jack B. Evans
William L. Kissick
Thomas E. Leafstrand
Timothy R. Schwertfeger
Sheila W. Wellington
FUND MANAGER
Nuveen Institutional
Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
FUND SUB-ADVISER
Symphony Asset
Management, LLC
555 California St.
Suite 2975
San Francisco, CA 94104
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler
Chicago, IL
INDEPENDENT AUDITORS
KPMG LLP
Chicago, IL
GLOSSARY OF TERMS USED IN THIS REPORT
Average Annual Total Return: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return (including change in NAV and reinvested dividends) that
would have been necessary on an annual basis to equal the investment's actual
performance over the time period being considered.
Net Asset Value (NAV): A fund's NAV is calculated by subtracting the liabilities
of the fund from its total assets and then dividing the remainder by the number
of shares outstanding. Fund NAVs are calculated at the end of each business day.
----------
The Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the six-month period ended January 31, 2003. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
21
Serving Investors
FOR GENERATIONS
PHOTO OF: John Nuveen, Sr.
For over a century, generations of Americans have relied on Nuveen Investments
to help them grow and keep the money they've earned. Financial advisors,
investors and their families have associated Nuveen Investments with quality,
expertise and dependability since 1898. That is why financial advisors have
entrusted the assets of more than 1.3 million investors to Nuveen.
With the know-how that comes from a century of experience, Nuveen continues to
build upon its reputation for quality. Now, financial advisors and investors can
count on Nuveen Investments to help them design customized solutions that meet
the far-reaching financial goals unique to family wealth strategies - solutions
that can translate into legacies.
To find out more about how Nuveen Investments' products and services can help
you preserve your financial security, talk with your financial advisor, or call
us at (800) 257-8787 for more information, including a prospectus where
applicable. Please read that information carefully before you invest.
Logo: NUVEEN Investments
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333 West Wacker Drive o Chicago o Illinois 60606
WWW.NUVEEN.COM
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