ANNUAL REPORT July 31, 2002
Nuveen
Closed-End
Exchange-Traded
Funds
NUVEEN SENIOR
INCOME FUND
NSL
[Photo of a girl holding flowers and talking to a boy]
[Photo of a man and girl working with a laptop computer]
HIGH CURRENT INCOME
FROM A PORTFOLIO OF
SENIOR, SECURED
CORPORATE LOANS
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THE NUVEEN
INVESTOR
See Page 5
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TIMOTHY R. SCHWERTFEGER
CHAIRMAN OF THE BOARD
Sidebar quote: "I urge you to consider receiving future Fund reports and other
information electronically... See the inside front cover of this report for
details."
Dear Shareholder
Over the past year, a generally weak economy helped produce an unfavorable
environment for many investments, including senior loan products like your
Nuveen Senior Income Fund. These market conditions, combined with historically
low shorter-term interest rates, had a negative effect on your Fund's
performance. For more detailed information on how your Fund performed, I
encourage you read the portfolio managers' commentary and performance overview
page in this report.
I also urge you to consider receiving future Fund reports and other information
electronically via the Internet and e-mail rather than in hard copy. Not only
will you be able to receive the information faster, but this may also help lower
Fund expenses. Sign up is quick and easy - see the inside front cover of this
report for detailed instructions.
In difficult markets, we believe there are several features of Nuveen Funds that
can help make them an important part of your overall investment portfolio. These
include careful research, constant surveillance and judicious trading by
Nuveen's seasoned portfolio management team, with every action designed to
supplement income, improve Fund structure, better adapt to current market
conditions or increase diversification. Especially in uncertain 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. We thank you for continuing
to choose Nuveen Investments as your partner as you work toward these goals.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
September 16, 2002
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, an affiliate of Nuveen
Investments. 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 fiscal year ended July 31,
2002
WHAT HAS BEEN THE GENERAL MARKET ENVIRONMENT FOR SENIOR CORPORATE DEBT OVER THE
TWELVE MONTHS ENDED JULY 31, 2002?
The two major forces at work during the twelve months ended July 31, 2002, were
the continued slowdown in economic growth and the Federal Reserve's aggressive
approach to easing short-term interest rates. More recently, investor sentiment
started to become more negative during the spring and summer of 2002 as more
publicity about accounting irregularities depressed the valuation in equity and
high yield bond markets. Counterbalancing this negative news, inflation remained
in check and we saw some signs of a building economic recovery.
The continued volatility of both equity and high yield markets impacted the
leveraged loan market. In the second quarter alone, 13 formerly investment-grade
issuers with over $82 billion of par value debt outstanding saw their ratings
fall below BBB, including WorldCom with $25 billion in downgraded debt and Qwest
with $22 billion. This had a negative impact on the leveraged loan market,
especially in the telecommunications, cable and wireless sectors. Pricing for
many stressed and distressed companies also softened as buying decreased and
news of the Adelphia bankruptcy prompted investor concerns over the broader
market.
IN THIS ENVIRONMENT, HOW DID NSL PERFORM?
This has been a tough market environment for all senior loan funds, including
NSL. Share prices, dividends and net asset value all declined during the
reporting period. For the year ended July 31, 2002, the Nuveen Senior Income
Fund produced a total return on net asset value (NAV) of -0.65%. This compares
with the -0.84% total return posted by the CSFB Leverage 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.
The Fund's overall performance benefited from the solid performance of several
holdings, such as Metaldyne Corporation and Tenneco Automotive in the automobile
sector and North American Van Lines in the cargo transportation sector. However,
these results were overshadowed by the weakness across many sectors, especially
the telecommunications companies such as Teligent, Centennial Cellular and
Airgate PCS.
The Fund's total return on share price for the year ended July 31, 2002, was
-21.2% as the share price declined to come more into line with net asset value.
On July 31, 2002, share prices were at a -2.4% discount, compared with a 22.5%
premium to net asset value one year earlier.
Fund dividends also were affected by the weakening economy and the general
decline in short-term interest rates. As short-term interest rates fell, reset
rates for senior loans also trended lower. The result was that the Fund's
portfolio generated less income, which in turn resulted in a series of dividend
reductions for Fund shareholders.
WHAT STRATEGIES DID YOU EMPLOY IN MANAGING THE FUND?
During the reporting period, we focused on a three-pronged strategy: 1) upgrade
loans by purchasing new issues with strong asset
2
protection or swapping for loans of the same issuer with faster amortization
schedules; 2) opportunistically add discount loans having above-average
potential for upside movement in price; and 3) reduce exposure to companies with
inadequate asset protection. Some examples of these included swapping Nextel
Term Loan B and C for Nextel Term Loan A which has faster amortization schedule,
and increasing our Tenneco Automotive position by buying at discount.
We continued to make progress in reducing exposure in loans to companies that we
believed were still vulnerable to negative surprises or continued price pressure
in this uncertain environment, specifically loans that were near par such as
Bally Total Fitness. We also traded out of some positions such as AES
Corporation which no longer fit the size or liquidity parameters that we would
like.
Some of the industry sectors we believed to be well positioned to offer strong
asset protection and to which we continued to be favorably disposed included: 1)
food and beverage/consumer products; 2) industrials; and 3) gaming and lodging.
Industry sectors that we were cautious about included: 1) retail; 2)
non-cellular telecom; 3) finance; and 4) energy.
In every instance, we review credits on an ongoing, case-by-case basis while
keeping an eye on the relative value of both high yield debt and equity.
WHAT IS YOUR STRATEGY GOING FORWARD?
Looking forward, we are cautiously optimistic about the prospects for the
economy, corporate profits and the strength of the senior loan market. While we
believe that the fundamentals will continue to improve, we anticipate volatility
since the technicals may worsen in the near term. However, we feel that the food
and beverage/consumer products, industrials, and gaming and lodging sectors have
strong asset protection. Our plan is to focus on companies with strong asset
protection and we are continuously looking to upgrade the portfolio.
DO YOU EXPECT ANY CHANGES AS A RESULT OF THE RECENT FORMAL CHANGE IN THE FUND'S
SUB-ADVISER?
As noted in the Fund report dated February 28, 2002, the team of portfolio
managers from Symphony identified in the introduction to this discussion has
been handling day-to-day activities of the Fund since October 2001. At that
time, as a convenience to facilitate this process, these individuals also became
employees of Nuveen Senior Loan Asset Management (NSLAM), an affiliate of Nuveen
Investments that was the Fund's investment adviser. On August 2, 2002, the Fund
formally changed its advisory relationships, installing Symphony Asset
Management to act as the Fund's sub-adviser and Nuveen Institutional Advisory
Corp. as the investment adviser to replace NSLAM. This was a simplifying
administrative action that had no effect on the management of the Fund. The
existing portfolio management team remains intact, and we expect there will be
no impact on operations or performance of the Fund going forward.
3
NUVEEN SENIOR INCOME FUND
NSL
Performance
Overview As of July 31, 2002
PORTFOLIO STATISTICS
--------------------------------------------------
Share Price $7.20
--------------------------------------------------
Net Asset Value $7.38
--------------------------------------------------
Common Net Assets ($000) $219,459
--------------------------------------------------
% OF TOTAL
TOP 10 ISSUERS INVESTMENTS
--------------------------------------------------
The Fairchild Corporation 2.89%
--------------------------------------------------
Mandalay Resort Group 2.78%
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Fitness Holdings Worldwide, Inc. 2.51%
--------------------------------------------------
Wyndham International, Inc. 2.36%
--------------------------------------------------
Norwood Promotional Products, Inc. 2.22%
--------------------------------------------------
North American Van Lines, Inc. 2.21%
--------------------------------------------------
Dr. Pepper/Seven Up Bottling Group, Inc. 1.96%
--------------------------------------------------
Dominos Pizza, Inc. 1.91%
--------------------------------------------------
Flowserve Corporation 1.89%
--------------------------------------------------
American Media Operations, Inc. 1.89%
--------------------------------------------------
% OF TOTAL
TOP 10 INDUSTRIES INVESTMENTS
--------------------------------------------------
Hotels, Motels, Inns & Gaming 11.47%
--------------------------------------------------
Beverage, Food & Tobacco 7.36%
--------------------------------------------------
Diversified Manufacturing 6.38%
--------------------------------------------------
Aerospace/Defense 6.28%
--------------------------------------------------
Automotive 4.94%
--------------------------------------------------
Printing & Publishing 4.07%
--------------------------------------------------
Leisure & Entertainment 3.33%
--------------------------------------------------
Non-Durable Consumer Products 3.31%
--------------------------------------------------
Containers, Packaging & Glass 3.25%
--------------------------------------------------
Chemicals, Plastics & Rubber 3.15%
--------------------------------------------------
AVERAGE ANNUALIZED TOTAL RETURN
(INCEPTION DATE 10/99)
--------------------------------------------------
Market NAV
--------------------------------------------------
1-Year - 21.16% - 0.65%
--------------------------------------------------
Since Inception -2.25% 0.73%
--------------------------------------------------
[Bar Chart]
2001-2002 MONTHLY DIVIDENDS PER SHARE1
8/01 0.079
9/01 0.075
10/01 0.067
11/01 0.067
12/01 0.055
1/02 0.049
2/02 0.049
3/02 0.049
4/02 0.049
5/02 0.049
6/02 0.049
7/02 0.049
[Line Chart]
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/01 10.06
10.12
9.97
10.07
10.05
9.82
9.77
8.26
9.14
9.24
8.92
8.6
8.55
8.75
8.23
7.94
7.64
7.88
7.3
7.06
7.37
7.63
7.8
7.65
7.38
7.44
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
7/31/02 6.86
1 The December 2001 bar includes a short-term capital gains distribution of
$0.0021 per share.
4
V1
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THE NUVEEN INVESTOR
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MUNICIPAL BOND SURVEILLANCE - A HIGH PRIORITY AT NUVEEN
The Enron scandal has raised numerous questions about the real value of American
securities. Investors want to know what safeguards are in place to inspire their
trust and ensure their holdings are dependable. The Nuveen Investor recently
spoke with David Blair, Assistant Vice President and Senior Analyst at Nuveen,
about the research and surveillance processes used for the Nuveen municipal
funds.
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Volume one 2002
INSIDE
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5 Municipal Bond Surveillance - A High Priority at Nuveen
6 Is it Time to Rethink Your Bond Strategy?
7 Many Investors Continue to Find Solutions with Professional Advice
8 Fund Reports Available Online
8 ETFConnect: The Source for All Exchange-Traded Funds
(C)2002 Nuveen Investments.
All rights reserved.
HOW DO NUVEEN'S RESEARCH ANALYSTS EVALUATE BONDS PRIOR TO PURCHASE?
We evaluate factors impacting market sectors, issuers and specific bonds and
assign credit ratings to bonds we consider for purchase. We seek to purchase
bonds with stable and improving credit characteristics, which have attractive
prices and yields relative to other bonds in their sectors.
HOW DO YOU CONDUCT YOUR RESEARCH?
We conduct detailed analyses that often involve site visits and discussions with
managers of the projects being financed. Since Nuveen is a major investor with
large buying power, issuers and project managers are willing to listen to us and
respond to our concerns.
IS THE RESEARCH AND ANALYSIS PROCESS ANY DIFFERENT WHEN CONSIDERING HIGH-YIELD
BONDS?
Up to 20 percent of some Nuveen municipal funds can be invested in below
investment grade bonds to help the fund attain a higher yield. This underscores
the need for research. If one of our 16 analysts believes a high-yield bond
should be purchased, a second analyst reviews the issue as well.
HOW DO YOU MONITOR THE VARIOUS BONDS ONCE THEY'VE BEEN PURCHASED?
We have a proprietary database with information and analysis on the bonds Nuveen
holds in its funds. Among other things, we are able to evaluate risk exposure to
sectors, issuers and specific bonds on an on-going basis.
HOW DOES THE RESEARCH DEPARTMENT COMMUNICATE THE INFORMATION GATHERED?
We conduct biweekly meetings within the research department and weekly meetings
with portfolio managers. We also write-up our findings and distribute them with
"buy," "hold" or "sell" recommendations to portfolio managers.
(continued on page 7)
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5
V1
IS IT TIME TO RETHINK YOUR BOND STRATEGY?
Significant stock market losses in recent history have sent many investors
toward bonds as a way to potentially cut their losses and balance equity-
dominated portfolios. While many consider bonds a set-and-forget investment,
there are several circumstances that might prompt you to reassess -- and perhaps
revamp -- your bond holdings.
Tax bracket changes
The Economic Growth and Tax Relief Reconciliation Act of 2001 has dropped tax
brackets a percentage point this year, but a higher salary, large bonus, sale of
assets or retirement may push you into a higher tax bracket for 2002.
If you are in a higher tax bracket and want to generate an income stream without
raising your tax burden, tax-free municipal bonds may be a prudent option. Even
if you are in a lower tax bracket, municipal bonds could make sense. The
question is whether municipal or taxable bonds will deliver a better taxable
yield.
Retirement plans change
Whether you are near retirement or are currently enjoying it, you may want to
consider rebalancing your retirement accounts with less stock and more bonds, to
potentially reduce risk and try to preserve the assets that you have
accumulated. If you are just entering retirement you may want to make tax-free
municipal bonds a part of your portfolio to emphasize income generation and
protection from taxation.
Risk tolerance changes
The recent market volatility and market downturn may have caused many investors
to reevaluate their tolerance for risk. On the other hand, your portfolio might
have performed well over the last few years and you may not need to take on
extra risk to meet your long-term goals. In either situation you could take a
look at your bond portfolio and determine whether you need to make changes to
correspond with your tolerance for risk.
Portfolio changes
If you make significant changes to one or more of your investments, you'll want
to look at your portfolio as a whole, particularly with regard to overall asset
allocation. You may need to do some rebalancing to stay on track with your
investment strategy.
Your financial advisor can help. Regardless of how your circumstances change, he
or she can provide up-to-date information on the bond market and various funds
to help you decide how to maximize your returns consistent with your short- and
long-term financial goals.
No investment is risk free and some investments carry more risk than others. It
is important to know what the risks are, to evaluate them against any potential
rewards, and to determine your tolerance for risk when selecting an investment.
[Photo of a lighthouse at the end of a pier]
[Photo of two children looking at the floor]
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The Nuveen Investor Vol 02.1 NUVEEN
Investments
6
[Photo of clouds]
[Photo of woman and girl looking at photo album]
V1
MANY INVESTORS CONTINUE TO FIND SOLUTIONS WITH PROFESSIONAL ADVICE
For many investors, current financial markets are confusing and frustrating.
According to research conducted for the Forum for Investor Advice*, that's the
number one reason many turn to a financial advisor. They want someone to suggest
ideas and provide consultation, dialogue and professional advice.
Investors say their advisors are helpful in other key ways, including...
o Saving time. After consultation, investors note that the second most
important reason for using an advisor is to have someone else monitor their
portfolio, reducing the amount of time they spend on investing.
o Help in sorting through information. Investors in the 21st century have
more products from which to choose than in the past. For example, there are
approximately 8,000 mutual funds today, up from 3,000 in 1990.
o Assistance in setting financial goals. According to investors who use a
financial advisor, they are more likely to have a plan for a specific
financial goal than do-it-yourself investors.
o Staying focused. Advisor-assisted investors are more likely than
do-it-yourself investors to have developed a comprehensive investment
program.
o Peace of mind. Investors say their comfort level in all types of markets is
higher when using an advisor for a "second opinion" on an investment
decision.
*The survey of 324 investors was conducted in December of 2000 by Market Facts
and analyzed by New York based Neuwirth Research. Of the 324, 166 said they had
an ongoing relationship with a financial advisor, while 157 described themselves
as do-it-yourselfers.
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(continued from page 5)
HOW ARE PROBLEM BONDS IDENTIFIED AND HANDLED?
We conduct surveillance on our bonds on a regular basis to ensure, among other
things, that deteriorating bonds are identified early. We then discuss any
emerging problems and potential courses of action with the portfolio manager.
HOW MANY ISSUES DOES THE RESEARCH DEPARTMENT FOLLOW?
We follow 12 sectors and 1,500 uninsured bonds, worth about $18 billion of
Nuveen's $45 billion in total municipal assets. The remaining $27 billion in
municipal assets are insured or escrowed (backed by Treasury bonds). For the
insured bonds, we monitor closely on a regular basis the insurers guaranteeing
the bonds.
WILL RESEARCH AND SURVEILLANCE CHANGE IN LIGHT OF PROBLEMS WITH ENRON
SECURITIES?
Overall, our investment process and surveillance have worked well and been
effec-tive. However, we meet as a group on a regular basis and are constantly
evaluating ways to improve the process to respond to issues and the market
environment.
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The Nuveen Investor Vol 02.1 NUVEEN
Investments
7
V1
LOOK AHEAD...
FUND REPORTS AVAILABLE ONLINE
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Nuveen Fund information is now available online. Once you register, you'll
receive an e-mail notice with a link to your Fund's reports and other
information just as soon as it is ready. Registering takes only a few minutes.
If you receive statements from a brokerage firm or financial advisor, go to
WWW.INVESTORDELIVERY.COM. Enter your personal 13-character enrollment number
imprinted on the address sheet of this report near your name. From the options
on the follow-up page, select the New Enrollment-Create screen. Once there,
enter your e-mail address and a personal, four-digit PIN. Hit the Submit button.
Confirm the information you entered is correct, then hit Submit again.
If you receive statements directly from Nuveen, go to WWW.NUVEEN.COM. Select the
Access Your Account tab, then select E-Report Enrollment. Finally, click on the
Enrollment Page. Once there, you'll need to provide your social security number
and e-mail address. Click on Enroll.
After registering, you should receive a confirming e-mail within 24 hours. If
not, repeat these steps to ensure all information is accurate. You can use this
same process if you need to change your registration information or want to
cancel Internet viewing. The e-mail address you provide is strictly confidential
and will only be used to notify you of shareholder information.
--------------------------------------------------------------------------------
The information in this newsletter should not be construed as specific tax or
invest- ment advice. Contact your advisor for infor- mation about your
particular situation.
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ETFCONNECT: THE SOURCE FOR ALL EXCHANGE-TRADED FUNDS
Last fall, Nuveen launched ETFConnect, the industry's first website
featuring all-encompassing information on exchanged-traded funds. Whatever
you're looking for in the world of Index ETFs or Closed-End Exchange-Traded
Funds - prices, NAVs, dividend information, performance histories, new
developments - this is the place. Highlights include Quick Facts sheets for more
than 500 funds, a multi-fund search capability, website links, a list of fund
sponsors, tools for portfolio tracking, and a continually updated education
center. Check out WWW.ETFCONNECT.COM.
[Picture of a www.etfconnect.com web page]
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The Nuveen Investor Vol 02.1 NUVEEN
Investments
8
Trustees
and Officers
The management of the Fund, including general supervision of the duties
performed for the Fund under the Management Agreement, is the responsibility of
the Board of Trustees of the Fund. The number of trustees of the Fund is
currently set at seven, one of whom is an "interested person" (as the term is
defined in the Investment Company Act of 1940) and six of whom are not
interested persons. None of the trustees who are not interested persons of the
Fund have ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the trustees and officers of the
Fund, their principal occupations and other affiliations during the past five
years, the number of portfolios each oversees and other directorships they hold
are set forth below.
YEAR FIRST PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR APPOINTED INCLUDING OTHER DIRECTORSHIPS IN NUVEEN COMPLEX
AND ADDRESS WITH THE FUND AND TERM OF OFFICE DURING PAST 5 YEARS OVERSEEN BY TRUSTEE
---------------------------------------------------------------------------------------------------------------------------
TRUSTEE WHO IS AN INTERESTED PERSON OF THE FUNDS:
---------------------------------------------------------------------------------------------------------------------------
TIMOTHY R. SCHWERTFEGER (1) Chairman of the 1999 (Inception) Chairman and Director (since 1996) 130
3/28/1949 Board, President Term: of The John Nuveen Company, Nuveen
333 W. Wacker Drive and Trustee one year (2) Investments, Nuveen Advisory Corp.
Chicago, IL60606 and Nuveen Institutional Advisory
Corp.; Chairman and Director (since
1997) of Nuveen Asset Management,
Inc.; Director (since 1996) of
Institutional Capital Corporation;
Chairman and Director (since 1999)
of Rittenhouse Financial Services
Inc.; Chief Executive Officer
(since 1999) of Nuveen Senior
Loan Asset Management Inc.
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
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JAMES E. BACON Trustee 1999 (Inception) Treasurer (1997-present), 18
2/27/1931 Term: Cathedral of St. John the Devine
333 W. Wacker Drive one year (2) (New York City); formerly (1992-1999),
Chicago, IL 60606 Director of Lone Star Industries,
Inc.; previously, Director and
Executive Vice President of U.S.
Trust Corporation and Trustee of
United States Trust Company of
New York.
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WILLIAM E. BENNETT Trustee 2001 Private Investor; previously, 18
10/16/1946 Term: President and Chief Executive
333 W. Wacker Drive one year (2) Officer, Draper & Kramer, Inc.
Chicago, IL 60606 (September 1995 - August 1998).
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JACK B. EVANS Trustee 1999 (Inception) President, The Hall-Perrine 18
10/22/1948 Term: Foundation, a private philanthropic
333 W. Wacker Drive one year (2) corporation (since 1996); Director,
Chicago, IL 60606 Federal Reserve Bank of Chicago;
Director, Alliant Energy; Director
and Vice Chairman United Fire &
Casualty Company; formerly President
and Chief Operating Officer, SCI
Financial Group, Inc., a regional
financial services firm.
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WILLIAM L. KISSICK Trustee 1999 (Inception) Emeritus Professor, School of 18
7/29/1932 Term: Medicine and the Wharton School of
333 W. Wacker Drive one year (2) Management and former Chairman,
Chicago, IL 60606 Leonard Davis Institute of Health
Economics, University of
Pennsylvania; Adjunct Professor,
Health Policy and Management,
Yale University.
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THOMAS E. LEAFSTRAND Trustee 1999 (Inception) Retired; previously, Vice President 18
11/11/1931 Term: in charge of Municipal Underwriting
333 W. Wacker Drive one year (2) and Dealer Sales at The Northern
Chicago, IL 60606 Trust Company.
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SHEILA W. WELLINGTON Trustee 1999 (Inception) President (since 1993) of Catalyst 18
2/24/1932 Term: (a not-for-profit organization
333 W. Wacker Drive one year (2) focusing on women's leadership
Chicago, IL 60606 development in business and the
professions).
9
Trustees
and Officers (continued)
YEAR FIRST PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR INCLUDING OTHER DIRECTORSHIPS IN NUVEEN COMPLEX
AND ADDRESS WITH THE FUND APPOINTED (3) DURING PAST 5 YEARS OVERSEEN BY OFFICER
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OFFICERS OF THE FUNDS:
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MICHAEL T. ATKINSON Vice President 2002 Vice President (since January 2002), 130
2/3/1966 formerly, Assistant Vice President
333 W. Wacker Drive (since 2000), previously, Associate
Chicago, IL 60606 of Nuveen Investments.
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PETER H. D'ARRIGO Vice President and 1999 Vice President of Nuveen Investments 130
11/28/1967 Treasurer (since 1999), prior thereto,
333 W. Wacker Drive Assistant Vice President (from 1997);
Chicago, IL 60606 Vice President and Treasurer (since
1999) of Nuveen Senior Loan Asset
Management Inc.; Chartered
Financial Analyst.
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SUSAN M. DESANTO Vice President 2001 Vice President of Nuveen Advisory 130
9/8/1954 Corp. (since 2001); previously, Vice
333 W. Wacker Drive President of Van Kampen Investment
Chicago, IL 60606 Advisory Corp. (since 1998); prior
thereto, Assistant Vice President
of Van Kampen Investment Advisory
Corp.
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JESSICA R. DROEGER Vice President 2002 Vice President (since January 2002), 130
9/24/1964 Assistant General Counsel and
333 W. Wacker Drive Assistant Secretary (since 1998),
Chicago, IL 60606 formerly Assistant Vice President
of Nuveen Investments; Vice President
(since January 2002) and Assistant
Secretary (since 1998), formerly
Assistant Vice President of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory Corp.; prior
thereto, Associate at the law firm
D'Ancona Partners LLC.
--------------------------------------------------------------------------------------------------------------------------
LORNA C. FERGUSON Vice President 1999 Vice President of Nuveen 130
10/24/1945 Investments; Vice President
333 W. Wacker Drive (since 1998) of Nuveen Advisory
Chicago, IL 60606 Corp. and Nuveen Institutional
Advisory Corp.
--------------------------------------------------------------------------------------------------------------------------
WILLIAM M. FITZGERALD Vice President 1999 Managing Director (since 2002) of 130
3/2/1964 Nuveen Investments; Managing
333 W. Wacker Drive Director of Nuveen Advisory Corp.
Chicago, IL 60606 and Nuveen Institutional Advisory
Corp. (since 2001); prior thereto,
Vice President of Nuveen Advisory
Corp.; Chartered Financial Analyst.
--------------------------------------------------------------------------------------------------------------------------
STEPHEN D. FOY Vice President and 1999 Vice President of Nuveen Investments 130
5/31/1954 Controller and (since 1998) The John Nuveen
333 W. Wacker Drive Company; Vice President (since 1999)
Chicago, IL 60606 of Nuveen Senior Loan Asset
Management Inc.; Certified Public
Accountant.
10
YEAR FIRST PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR INCLUDING OTHER DIRECTORSHIPS IN NUVEEN COMPLEX
AND ADDRESS WITH THE FUND APPOINTED (3) DURING PAST 5 YEARS OVERSEEN BY OFFICER
--------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
--------------------------------------------------------------------------------------------------------------------------
DAVID J. LAMB Vice President 2000 Vice President (since 2000) 130
3/22/1963 Nuveen Investments, previously
333 W. Wacker Drive Assistant Vice President (since 1999);
Chicago, IL 60606 prior thereto, Associate of Nuveen
Investments; Certified Public
Accountant.
--------------------------------------------------------------------------------------------------------------------------
TINA M. LAZAR Vice President 2002 Vice President (since 1999), 130
8/27/1961 previously, Assistant Vice President
333 W. Wacker Drive (since 1993) of Nuveen Investments.
Chicago, IL 60606
--------------------------------------------------------------------------------------------------------------------------
LARRY W. MARTIN Vice President and 1999 Vice President, Assistant Secretary 130
7/27/1951 Assistant Secretary and Assistant General Counsel of
333 W. Wacker Drive Nuveen Investments; Vice President
Chicago, IL 60606 and Assistant Secretary of Nuveen
Advisory Corp. and Nuveen Institutional
Advisory Corp.; Vice President and
Assistant Secretary of The John
Nuveen Company and Nuveen Asset
Management, Inc.; Vice President
and Assistant Secretary (since 1999)
of Nuveen Senior Loan Asset
Management Inc.
--------------------------------------------------------------------------------------------------------------------------
EDWARD F. NEILD, IV Vice President 1999 Managing Director (since January 130
7/7/1965 2002) of Nuveen Investments; Managing
333 W. Wacker Drive Director (since 1997) of Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen
Institutional Advisory Corp.;
Chartered Financial Analyst.
--------------------------------------------------------------------------------------------------------------------------
GIFFORD R. ZIMMERMAN Vice President and 1999 Managing Director (since January 2002, 130
9/9/1956 Secretary formerly Vice President), Assistant
333 W. Wacker Drive Secretary and Associate General Counsel
Chicago, IL 60606 (formerly Assistant General Counsel)
of Nuveen Investments; Managing Director
(since January 2002, formerly Vice
President) and Assistant Secretary of
Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.; Vice
President and Assistant Secretary of The
John Nuveen Company; Managing Director
(since January 2002, formerly Vice
President) and Assistant Secretary (since
1999) of Nuveen Senior Loan Asset
Management Inc.; Chartered Financial
Analyst.
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and director of
Nuveen Institutional Advisory Corp.
(2) Trustees are elected each year by shareholders and serve a one year term
until his/her successor is elected.
(3) Officers serve one year terms through July of each year.
11
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, 2002, and the related statements of operations and cash flows for the
year then ended, and the statements of changes in net assets for each of the two
years in the period then ended and financial highlights for each of the two
years in the period 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, 2002, 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, 2002, the results of its operations and
cash flows for the year then ended and changes in its net assets, for each of
the two years in the period then ended, and the financial highlights for each of
the two years in the period then ended and for the period from October 29, 1999
to July 31, 2000, in conformity with accounting principles generally accepted in
the United States of America.
/s/ KPMG LLP
Chicago, Illinois
September 19, 2002
12
Nuveen Senior Income Fund (NSL)
Portfolio of
Investments July 31, 2002
RATINGS*
-------------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
-----------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS(1) AND INTEREST
BEARING SECURITIES - 146.7%
AEROSPACE/DEFENSE - 10.5% (6.2% OF TOTAL ASSETS)
$ 4,937 DeCrane Aircraft Holdings, Inc., Term Loan D B2 B+ 12/17/06 $ 4,862,748
10,802 The Fairchild Corporation, Term Loan B B1 B+ 04/30/06 10,640,167
2,137 United Defense Industries, Inc., Term Loan B Ba3 BB- 08/13/09 2,143,823
1,145 Vought Aircraft Industries, Inc., Term Loan A NR NR 06/30/06 1,140,992
459 Vought Aircraft Industries, Inc., Term Loan B NR NR 07/26/07 460,899
161 Vought Aircraft Industries, Inc., Term Loan C NR NR 07/26/08 161,247
3,720 Vought Aircraft Industries, Inc., Term Loan X NR NR 12/31/06 3,731,625
-----------------------------------------------------------------------------------------------------------------------------------
23,141,501
-----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE - 8.3% (4.9% OF TOTAL ASSETS)
1,224 Federal-Mogul Corporation, Term Loan A (b) NR NR 02/24/04 792,857
5,551 Federal-Mogul Corporation, Term Loan B (b) NR NR 02/24/05 3,594,094
2,500 Metaldyne Company/Metalync Company, LLC, Term Loan D B1 BB- 12/31/09 2,501,043
9,342 MetalForming Technologies, Inc., Term Loan B NR NR 06/30/06 5,698,843
285 Tenneco Auto, Inc., Revolver Loan B2 B 11/04/05 156,275
3,845 Tenneco Auto, Inc., Term Loan A B2 B 11/04/05 3,616,616
995 Tenneco Auto, Inc., Term Loan B B2 B 11/04/07 931,131
995 Tenneco Auto, Inc., Term Loan C B2 B 05/04/08 931,131
-----------------------------------------------------------------------------------------------------------------------------------
18,221,990
-----------------------------------------------------------------------------------------------------------------------------------
BEVERAGE, FOOD & TOBACCO - 12.4% (7.3% OF TOTAL ASSETS)
1,703 Cott Corporation, Purchase Money Term Loan NR BB 12/31/06 1,711,624
190 Cott Corporation, Working Capital Term Loan NR BB 12/31/06 191,108
1,995 Dean Foods Company, Term Loan B Ba2 BB+ 07/15/08 2,005,530
7,168 Dr. Pepper/Seven Up Bottling Group, Inc., Term Loan B NR NR 10/07/07 7,211,272
1,900 Eagle Family Foods, Inc., Term Loan B1 B 12/31/05 1,822,007
3,149 Flowers Foods, Inc., Term Loan B Ba2 BBB- 03/26/07 3,172,178
1,980 Interstate Brands Corporation, Term Loan B Ba1 BBB- 07/19/07 1,990,643
3,445 Merisant Company, Term Loan B Ba3 BB- 03/30/07 3,473,808
5,500 Pinnacle Foods Corporation, Term Loan Ba3 BB- 05/22/08 5,555,000
-----------------------------------------------------------------------------------------------------------------------------------
27,133,170
-----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING/CABLE - 3.0% (1.7% OF TOTAL ASSETS)
2,000 Century Cable Holdings, LLC, Discretionary Term Loan (b) Caa1 D 12/31/09 1,378,181
3,325 Charter Communications Operating, LLC, Incremental Term Loan Ba3 BBB- 09/18/08 2,927,662
2,494 Charter Communications Operating, LLC, Term Loan B Ba3 BBB- 03/18/08 2,178,135
-----------------------------------------------------------------------------------------------------------------------------------
6,483,978
-----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING/RADIO - 2.1% (1.3% OF TOTAL ASSETS)
4,667 Citadel Broadcasting Company, Term Loan B NR NR 06/26/09 4,697,000
-----------------------------------------------------------------------------------------------------------------------------------
BUILDINGS & REAL ESTATE - 1.8% (1.1% OF TOTAL ASSETS)
3,990 Williams Scotsman, Inc., Term Loan B1 BB- 12/31/06 3,992,494
-----------------------------------------------------------------------------------------------------------------------------------
13
Nuveen Senior Income Fund (NSL) (continued)
Portfolio of Investments July 31, 2002
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 $ 8,153,855
-----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS & RUBBER - 5.3% (3.1% OF TOTAL ASSETS)
4,965 Buckeye Technologies, Inc., Revolver Loan NR NR 03/31/05 4,665,116
1,923 Ineos US Finance, LLC, Term Loan C Ba3 BB 06/30/09 1,917,381
2,000 OM Group, Inc., Term Loan C Ba3 BB 04/01/07 2,005,000
3,000 Resolution Performance Products, LLC, Term Loan B B1 BB- 11/14/08 3,015,626
-----------------------------------------------------------------------------------------------------------------------------------
11,603,123
-----------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 2.1% (1.2% OF TOTAL ASSETS)
4,500 Mueller Group, Inc., Term Loan E B1 B+ 06/20/08 4,514,625
-----------------------------------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING & GLASS - 5.5% (3.2% OF TOTAL ASSETS)
3,660 Graham Packaging Company, Term Loan B B2 B 01/31/06 3,646,172
3,032 Graham Packaging Company, Term Loan C B2 B 01/31/07 3,021,118
1,543 Greif Bros. Corporation, Term Loan B Ba3 BB 02/28/08 1,549,579
3,967 United States Can Company, Term Loan B B2 B 10/04/08 3,768,297
-----------------------------------------------------------------------------------------------------------------------------------
11,985,166
-----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING - 10.7% (6.3% OF TOTAL ASSETS)
2,218 Blount, Inc., Term Loan B B3 B 06/30/06 2,185,545
5,719 Dayco Products, LLC, Term Loan B Ba3 BB- 05/31/07 5,727,292
7,000 Flowserve Corporation, Term Loan C Ba3 BB- 06/30/09 6,976,375
2,940 GenTek, Inc., Term Loan C Caa2 CC 10/31/07 1,934,504
3,000 Trimas Corporation, Term Loan B B1 BB- 12/31/09 3,022,970
5,414 Western Industries Holding, Inc., Term Loan B NR NR 06/23/06 3,654,731
-----------------------------------------------------------------------------------------------------------------------------------
23,501,417
-----------------------------------------------------------------------------------------------------------------------------------
ECOLOGICAL - 0.3% (0.2% OF TOTAL ASSETS)
737 Stericycle, Inc., Term Loan B B1 BB- 09/30/07 741,893
-----------------------------------------------------------------------------------------------------------------------------------
FARMING & AGRICULTURAL - 1.8% (1.0% OF TOTAL ASSETS)
3,908 Shemin Holdings Corporation, Term Loan B NR NR 01/28/07 3,864,464
-----------------------------------------------------------------------------------------------------------------------------------
FINANCE & BANKING - 0.3% (0.2% OF TOTAL ASSETS)
2,368 Finova Group, Inc., Bond NR NR 11/15/09 686,720
-----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 3.0% (1.8% OF TOTAL ASSETS)
4,500 Community Health Systems, Inc., Term Loan B NR NR 07/16/09 4,523,063
1,984 Triad Hospitals, Inc., Term Loan B Ba3 B+ 09/30/08 2,002,233
-----------------------------------------------------------------------------------------------------------------------------------
6,525,296
-----------------------------------------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS & GAMING - 19.2% (11.4% OF TOTAL ASSETS)
3,990 Alliance Gaming Corporation, LLC, Term Loan B1 B+ 12/31/06 4,023,249
2,944 Ameristar Casino, Inc., Term Loan B Ba3 B+ 12/20/06 2,963,756
1,909 Extended Stay America, Inc., Term Loan B Ba3 BB- 01/15/08 1,919,302
5,800 Harrah's Entertainment, Inc., Bond Ba1 BB+ 12/15/05 5,974,000
5,000 Las Vegas Sands, Inc., Term Loan B NR B+ 06/04/08 5,058,333
3,200 Mandalay Resort Group, Bond Ba3 BB- 07/15/03 3,224,000
7,000 Mandalay Resort Group, Term Loan NR NR 08/22/06 7,024,063
3,469 Park Place Entertainment, Revolver NR BBB- 08/23/06 3,378,863
7,674 Wyndham International, Inc., Increasing Rate Loan NR B- 06/30/04 6,652,612
2,435 Wyndham International, Inc., Term Loan B NR B- 06/30/06 2,048,573
-----------------------------------------------------------------------------------------------------------------------------------
42,266,751
-----------------------------------------------------------------------------------------------------------------------------------
14
RATINGS*
-------------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
-----------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 5.2% (3.1% OF TOTAL ASSETS)
$ 9,957 Conseco, Inc., Term Loan NR NR 12/31/03 $ 6,687,474
4,825 GAB Robbins North America, Inc., Term Loan B NR NR 12/01/05 4,656,125
-----------------------------------------------------------------------------------------------------------------------------------
11,343,599
-----------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT - 5.6% (3.3% OF TOTAL ASSETS)
3,378 Fitness Holdings Worldwide, Inc., Term Loan B NR B 11/02/06 3,191,898
6,422 Fitness Holdings Worldwide, Inc., Term Loan C NR B 11/02/07 6,069,102
3,000 Six Flags Theme Parks, Inc., Term Loan B Ba2 BB- 06/30/09 3,010,625
-----------------------------------------------------------------------------------------------------------------------------------
12,271,625
-----------------------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES/OIL & GAS - 3.1% (1.8% OF TOTAL ASSETS)
6,957 Tesoro Petroleum Corp., Term Loan B Ba3 BB+ 12/31/07 6,849,386
-----------------------------------------------------------------------------------------------------------------------------------
NON-DURABLE CONSUMER PRODUCTS - 5.6% (3.3% OF TOTAL ASSETS)
7,707 Norwood Promotional Products, Inc., Term Loan A NR NR 02/01/05 7,128,752
5,207 Norwood Promotional Products, Inc., Term Loan B NR NR 02/01/05 989,381
1,459 Norwood Promotional Products, Inc., Term Loan C NR NR 02/01/05 80,231
4,000 Playtex Products, Inc., Term Loan C Ba3 BB- 05/31/09 4,010,000
-----------------------------------------------------------------------------------------------------------------------------------
12,208,364
-----------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.7% (1.0% OF TOTAL ASSETS)
16,667 California Pollution Control Financing Authority, CanFibre of NR NR 07/01/14 2,371,667
Riverside Project, Bonds (a)(b)(d)
9,000 California Pollution Control Financing Authority, CanFibre of NR NR 07/01/19 1,280,700
Riverside Project, Bonds (a)(b)(d)
7,000 CanFibre of Lackawana, LLC, Construction Loan (a)(b)(c) NR NR 12/01/13 --
1,200 CanFibre of Lackawana, LLC, First Stabilization Fund Letter NR NR 12/01/13 --
of Credit (a)(b)(c)
10,000 CanFibre of Riverside, Inc., Equity Contribution Letter NR NR 07/01/09 --
of Credit (a)(b)(c)(d)
533 CanFibre of Riverside, Inc., Working Capital Loan (a)(b)(c)(d) NR NR 12/31/02 --
-----------------------------------------------------------------------------------------------------------------------------------
3,652,367
-----------------------------------------------------------------------------------------------------------------------------------
PERSONAL & MISCELLANEOUS SERVICES - 4.1% (2.4% OF TOTAL ASSETS)
3,980 Adams Outdoor Advertising Limited Partnership, Term Loan B B1 B+ 02/01/08 4,000,730
2,000 Lamar Media Corp., Incremental Loan C Ba2 BB- 02/01/07 2,012,250
1,853 Weight Watchers International, Inc., Term Loan B Ba1 BB- 09/30/06 1,866,654
1,098 Weight Watchers International, Inc., Term Loan C Ba1 BB- 09/30/06 1,106,166
-----------------------------------------------------------------------------------------------------------------------------------
8,985,800
-----------------------------------------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING - 6.8% (4.1% OF TOTAL ASSETS)
6,887 American Media Operations, Inc., Term Loan C Ba3 B+ 04/01/07 6,951,990
5,000 Media News Group, Term Loan NR NR 12/31/06 4,928,125
3,955 PRIMEDIA, Inc., Term Loan B NR B 06/30/09 3,140,948
-----------------------------------------------------------------------------------------------------------------------------------
15,021,063
-----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS & FOOD SERVICE - 3.2% (1.9% OF TOTAL ASSETS)
7,000 Dominos Pizza, Inc., Term Loan B Ba3 BB- 06/30/08 7,026,250
-----------------------------------------------------------------------------------------------------------------------------------
15
Nuveen Senior Income Fund (NSL) (continued)
Portfolio of Investments July 31, 2002
RATINGS*
-------------------
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MOODY'S S&P MATURITY** VALUE
-----------------------------------------------------------------------------------------------------------------------------------
RETAIL/CATALOG - 1.4% (0.9% OF TOTAL ASSETS)
$ 4,587 Micro Warehouse, Inc., Term Loan B NR NR 01/31/07 $ 3,153,409
-----------------------------------------------------------------------------------------------------------------------------------
RETAIL/SPECIALTY - 1.8% (1.1% OF TOTAL ASSETS)
3,964 Rite Aid Corporation, Term Loan B2 BB- 06/27/05 3,910,877
-----------------------------------------------------------------------------------------------------------------------------------
RETAIL/STORES - 2.2% (1.3% OF TOTAL ASSETS)
4,605 Kmart Corporation, Revolver (a)(b) NR NR 12/06/02 2,946,714
1,906 SDM Corporation, Term Loan F Ba1 BBB+ 02/04/09 1,913,030
-----------------------------------------------------------------------------------------------------------------------------------
4,859,744
-----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/CELLULAR/PCS - 4.6% (2.7% OF TOTAL ASSETS)
484 Airgate PCS, Inc., Tranche I Loan NR NR 06/06/07 399,064
4,228 Airgate PCS, Inc., Tranche II Loan NR NR 09/30/08 3,350,163
9,500 Centennial Cellular Operating Company, LLC, Term Loan A B1 B+ 11/30/06 6,325,418
-----------------------------------------------------------------------------------------------------------------------------------
10,074,645
-----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/COMPETITIVE LOCAL EXCHANGE CARRIER (CLEC) - 1.2% (0.7% OF TOTAL ASSETS)
3,750 RCN Corporation, Term Loan B Caa1 CCC+ 06/03/07 2,493,750
4,688 Teligent, Inc., Delayed Term Loan (a)(b) NR NR 06/30/06 124,999
5,000 WCI Capital Corporation, Term Loan B (a)(b) NR NR 09/30/07 104,165
-----------------------------------------------------------------------------------------------------------------------------------
2,722,914
-----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/HYBRID - 1.8% (1.1% TOTAL ASSETS)
5,000 Nextel Communications, Inc., Term Loan A Ba3 BB- 12/31/07 4,027,085
-----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/WIRELESS MESSAGING - 0.4% (0.2% OF TOTAL ASSETS)
1,094 Arch Wireless Holding, Inc., Senior Subordinated Secured Notes NR NR 05/15/07 738,166
578 Arch Wireless Holding, Inc., Subordinated Secured Compounding NR NR 05/15/09 89,557
Notes (a)
-----------------------------------------------------------------------------------------------------------------------------------
827,723
-----------------------------------------------------------------------------------------------------------------------------------
TEXTILES & LEATHER - 1.7% (1.0% OF TOTAL ASSETS)
3,648 Norcross Safety Products, LLC, Term Loan NR NR 09/30/04 3,639,155
-----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION/RAIL MANUFACTURING - 1.2% (0.7% OF TOTAL ASSETS)
2,550 Kansas City Southern Railway Company, Term Loan B Ba1 BB+ 12/29/06 2,560,200
-----------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 5.1% (3.0% OF TOTAL ASSETS)
3,150 AES EDC Funding II, LLC, Term Loan NR NR 10/06/03 2,311,313
3,910 TNP Enterprises, Inc., Term Loan Ba2 BB+ 03/30/06 3,913,666
5,000 Westar Energy, Term Loan B NR NR 01/01/09 4,953,121
-----------------------------------------------------------------------------------------------------------------------------------
11,178,100
-----------------------------------------------------------------------------------------------------------------------------------
Total Variable Rate Senior Loan Interests and Interest Bearing
Securities (cost $356,715,233) 321,825,749
-------------------------------------------------------------------------------------------------------------------
16
MARKET
SHARES (000) DESCRIPTION VALUE
-----------------------------------------------------------------------------------------------------------------------------------
EQUITIES - 2.0%
BUILDINGS & REAL ESTATE - 2.0% (1.2% OF TOTAL ASSETS)
222 Washington Group International, Inc., Equity Shares (a) $ 4,012,369
3 Washington Group International, Inc., Warrants, Series A (a) 7,351
3 Washington Group International, Inc., Warrants, Series B (a) 6,722
2 Washington Group International, Inc., Warrants, Series C (a) 3,224
Washington Group International, Inc., Residual Unsecured Claim (a)(e) 300,774
-----------------------------------------------------------------------------------------------------------------------------------
4,330,440
-----------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS - 0.0% (0.0% OF TOTAL ASSETS)
CanFibre of Lackawana, LLC, Income Participation Certificates, 13 units (a)(b)(c) --
CanFibre of Riverside, Inc., Income Participation Certificates, 17 units (a)(b)(c)(d) --
-----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS/WIRELESS MESSAGING - 0.0% (0.0% OF TOTAL ASSETS)
84 Arch Wireless Holding, Inc., Equity Shares (a) 44,594
-----------------------------------------------------------------------------------------------------------------------------------
Total Equities (cost $7,936,815) 4,375,034
-------------------------------------------------------------------------------------------------------------------
SHARES/
PRINCIPAL STATED MARKET
AMOUNT (000) DESCRIPTION MATURITY** VALUE
-----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 19.3%
2,417 JPMorgan Prime Funding Account, Money Market Fund, 1.33% 2,416,725
$ 40,000 State Street Treasury Repurchase Agreement, 1.73%, dated 07/31/02, 08/01/02 40,000,000
repurchase price $40,802,628, collateralized by U.S. Treasury Bonds
-----------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Investments (cost $42,416,725) 42,416,725
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $407,068,773) - 168.0% 368,617,508
-------------------------------------------------------------------------------------------------------------------
Borrowings Payable - (46.9)%+ (103,000,000)
-------------------------------------------------------------------------------------------------------------------
Other Assets Less Other Liabilities - (0.1)% (158,954)
-------------------------------------------------------------------------------------------------------------------
Taxable Auctioned Preferred Shares, at Liquidation Value - (21.0)% (46,000,000)
-------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $219,458,554
===================================================================================================================
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 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 July 31, 2002, this issue was
non-income producing.
(b) At or subsequent to July 31, 2002, 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) Anticipates future distributions from equities and
warrants.
+ Borrowings payable as a percentage of total gross
assets is 27.8%.
See accompanying notes to financial statements.
17
Statement of
Assets and Liabilities July 31, 2002
--------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $407,068,773) $ 368,617,508
Cash 5,076
Interest receivable 1,791,735
Other assets 144,511
--------------------------------------------------------------------------------
Total assets 370,558,830
--------------------------------------------------------------------------------
LIABILITIES
Borrowings payable 103,000,000
Management fees payable 126,143
Taxable Auctioned Preferred Share dividends payable 13,982
Common Share dividends payable 1,457,168
Other liabilities 502,983
--------------------------------------------------------------------------------
Total liabilities 105,100,276
--------------------------------------------------------------------------------
Taxable Auctioned Preferred Shares, at liquidation value $ 46,000,000
================================================================================
Net assets applicable to Common Shares $ 219,458,554
================================================================================
Common Shares outstanding 29,746,013
================================================================================
Net asset value per Common Share outstanding
(net assets applicable to Common Shares,
divided by Common Shares outstanding) $ 7.38
================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
--------------------------------------------------------------------------------
Common Shares, $.01 par value per share $ 297,460
Paid-in surplus 282,629,310
Balance of undistributed net investment income 86,642
Accumulated net realized gain (loss) from
investment transactions (25,103,593)
Net unrealized appreciation (depreciation) of investments (38,451,265)
================================================================================
Net assets applicable to Common Shares $ 219,458,554
================================================================================
Authorized shares:
Common Unlimited
Taxable Auctioned Preferred Unlimited
================================================================================
See accompanying notes to financial statements.
18
Statement of
Operations Year Ended July 31, 2002
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 24,842,991
Fees 686,541
--------------------------------------------------------------------------------
Total investment income 25,529,532
--------------------------------------------------------------------------------
EXPENSES
Management fees 3,185,286
Taxable Auctioned Preferred Shares - auction fees 115,000
Taxable Auctioned Preferred Shares - dividend disbursing
agent fees 6,000
Shareholders' servicing agent fees and expenses 12,572
Interest expense 2,448,579
Custodian's fees and expenses 351,668
Trustees' fees and expenses 45,560
Professional fees 298,711
Shareholders' reports - printing and mailing expenses 77,900
Stock exchange listing fees 23,113
Investor relations expense 56,163
Other expenses 418,416
--------------------------------------------------------------------------------
Total expenses 7,038,968
Expense waivers from the Adviser (1,686,329)
--------------------------------------------------------------------------------
Net expenses 5,352,639
--------------------------------------------------------------------------------
Net investment income 20,176,893
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investments (7,840,668)
Change in net unrealized appreciation (depreciation)
of investments (13,369,708)
--------------------------------------------------------------------------------
Net gain (loss) from investments (21,210,376)
--------------------------------------------------------------------------------
DISTRIBUTIONS TO TAXABLE AUCTIONED PREFERRED SHAREHOLDERS
From undistributed net investment income (1,058,165)
From accumulated net realized gains from investments (5,696)
--------------------------------------------------------------------------------
Decrease in net assets applicable to Common Shares from
distributions to Taxable Auctioned
Preferred Shareholders (1,063,861)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to
Common Shares from operations $ (2,097,344)
================================================================================
See accompanying notes to financial statements.
19
Statement of
Changes in Net Assets
YEAR ENDED YEAR ENDED
7/31/02 7/31/01
----------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 20,176,893 $ 32,357,125
Net realized gain (loss) from investments (7,840,668) (17,495,522)
Change in net unrealized appreciation (depreciation) of investments (13,369,708) (20,933,991)
Distributions to Taxable Auctioned Preferred Shareholders:
From undistributed net investment income (1,058,165) (2,582,741)
From accumulated net realized gains from investments (5,696) (14,027)
----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to
Common Shares from operations (2,097,344) (8,669,156)
----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From undistributed net investment income (20,328,659) (30,435,376)
From accumulated net realized gains from investments (61,397) (497,923)
----------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common Shares
from distributions to Common Shareholders (20,390,056) (30,933,299)
----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common Shares issued to shareholders
due to reinvestment of distributions 304,528 765,230
----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common Shares (22,182,872) (38,837,225)
Net assets applicable to Common Shares at the beginning of year 241,641,426 280,478,651
----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Shares at the end of year $219,458,554 $241,641,426
================================================================================================================
Balance of undistributed net investment income at the end of year $ 86,642 $ 1,596,263
================================================================================================================
Statement of
Cash Flows Year Ended July 31, 2002
----------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS $ (2,097,344)
----------------------------------------------------------------------------------------------------------------
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 21,805,612
Decrease in interest receivable 1,589,534
Increase in other assets (71,679)
Decrease in management fees payable (6,083)
Decrease in Taxable Auctioned Preferred Share dividends payable (9,642)
Decrease in other liabilities (241,640)
----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,968,758
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to Common Shareholders (20,975,034)
----------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (6,276)
Cash at the beginning of year 11,352
----------------------------------------------------------------------------------------------------------------
CASH AT THE END OF YEAR $ 5,076
================================================================================================================
See accompanying notes to financial statements.
20
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'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 invests 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 Senior Loan Asset Management Inc. (the
"Adviser"), a wholly owned subsidiary of 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 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
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.
Dividends and Distributions to Common 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.
21
Notes to
Financial Statements (continued)
Distributions to Common 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.
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 fiscal year ended July 31, 2002.
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.
Change in Accounting Policy
Effective August 1, 2001, the Fund adopted the provisions of the new AICPA Audit
and Accounting Guide for Investment Companies and began presenting paydown gains
and losses on mortgage and asset-backed securities as interest income. Prior to
August 1, 2001, the Fund presented paydown gains and losses on mortgage and
asset-backed securities together with realized gain/loss from investment
transactions. This change in accounting has no impact on the total net assets
applicable to Common Shares or Common Share net asset value of the Fund. The
effect of this change for the fiscal year ended July 31, 2002, was to increase
interest income by $299,690 and decrease realized gain/loss by the same amount.
The Statement of Changes in Net Assets and Financial Highlights for the prior
periods have not been restated to reflect this change in presentation.
Classification and Measurement of Redeemable Securities
The Fund has adopted the classification requirement of EITF D-98, Classification
and Measurement of Redeemable Securities. EITFD-98 requires that Taxable
Auctioned Preferred Shares, at liquidation value, be presented separately in the
Statement of Assets and Liabilities. Accordingly, certain reclassifications have
been made to the financial statements and financial highlights for all prior
periods presented. The adoption of EITF D-98 had no impact on the Fund's Common
Share net asset value.
2. FUND SHARES
During the fiscal year ended July 31, 2002, 36,948 Common Shares were issued to
shareholders due to reinvestment of distributions.
During the fiscal year ended July 31, 2001, 81,022 Common Shares were issued to
shareholders due to reinvestment of distributions.
3. SUBSEQUENT EVENT - DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Fund declared a dividend distribution of $.0490 per Common Share from its
net investment income which was paid on September 3, 2002, to shareholders of
record on August 15, 2002.
The Fund also declared a dividend distribution of $.0470 per Common Share from
its net investment income which will be paid on October 1, 2002, to shareholders
of record on September 15, 2002.
4. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) during the
fiscal year ended July 31, 2002, aggregated $218,989,627 and $258,878,543,
respectively.
22
5. INCOME TAX INFORMATION
The following information is presented on an income tax basis as of July 31,
2002. 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-back securities discussed in Footnote 1-Change in Accounting
Policy and timing differences in recognizing certain gains and losses on
security transactions.
The cost of investments owned was $407,161,089.
The net unrealized depreciation of investments aggregated $38,543,581 of which
$4,200,724 related to appreciated securities and $42,744,305 related to
depreciated securities.
The tax components of undistributed ordinary income and realized gains at July
31, 2002, were as follows:
--------------------------------------------------------------------------------
Undistributed ordinary income * $1,558,180
Undistributed long-term capital gains --
================================================================================
The tax character of distributions paid during the fiscal year ended July 31,
2002, were designated for purposes of the dividends paid deduction as follows:
--------------------------------------------------------------------------------
Distributions from ordinary income * $22,353,020
Distributions from long-term capital gains --
================================================================================
* Ordinary income consists of taxable income derived from dividends,
interest, market discount accretion and short-term capital gains, if any.
At July 31, 2002, 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.
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" 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 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. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Fund had unfunded loan commitments of approximately $3.9 million as of July
31, 2002. 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.
23
Notes to
Financial Statements (continued)
8. 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, 2002, the Fund
held one participation commitment with Lehman Commercial Paper Inc. At July 31,
2002, the par value of this commitment is $4.6 million while the market value is
$2.9 million.
9. 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, 2002, the average daily balance of borrowings
under the commercial paper program agreement was approximately $103 million with
an average interest rate of 2.38%.
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 fiscal year ended July 31, 2002, there were no borrowings
under the revolving credit agreement and, therefore, there was no outstanding
revolving credit balance at July 31, 2002.
Cash paid for interest during the fiscal year ended July 31, 2002, was
$2,620,605.
10. SUBSEQUENT EVENT - ADVISER AND SUB-ADVISER
Effective August 2, 2002, the Fund named Nuveen Institutional Advisory Corp.
("NIAC") as the Fund's Adviser and Symphony Asset Management ("Symphony") as the
Fund's sub-adviser, replacing Nuveen Senior Loan Asset Management Inc.
("NSLAM"). NIAC and Symphony are wholly owned subsidiaries of The John Nuveen
Company. The Fund's portfolio managers, formerly employees of NSLAM are also
employees of Symphony and remain the managers of the Fund. This change was made
for administrative purposes and has no impact on the management of the Fund.
24
Financial
Highlights
25
Financial
Highlights
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:
2002(b) $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:
2002(b) $ -- $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 Waiver After 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 Assets 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:
2002(b) $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 gain 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 gain
distributions, if any, and changes in Common net asset value per share.
Total returns are not annualized.
*** After expense waivers from the 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 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
-------------------------
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) As required, effective August 1, 2001, the Fund has adopted the provisions
of the new AICPA Audit and Accounting Guide for Investment Companies and
began presenting paydown gains and losses on mortgage and asset-backed
securities as interest income. The effect of this change for the fiscal
year ended July 31, 2002, was to increase net investment income per share
with a corresponding decrease in net realized/unrealized investment gain
(loss) per share by $.01 and increase each of the ratios of net investment
income to average net assets by .13%. The Financial Highlights for the
prior periods have not been restated to reflect this change in
presentation.
See accompanying notes to financial statements.
26-27 spread
Build Your Wealth
Automatically
Sidebar text: Nuveen makes reinvesting easy. A phone call is all it takes toset
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 market price or at net asset value on the payable date, whichever is higher.
If the shares are trading at less than net asset value on the valuation date,
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.
28
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
555 California Street, Suite 2975
San Francisco, CA 94104
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND SHAREHOLDER SERVICES
EquiServe
Nuveen Investor Services
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler
Chicago, IL
INDEPENDENT AUDITORS
Ernst & Young LLP
Chicago, IL
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 period ended July 31, 2002. Any future repurchases
will be reported to shareholders in the next annual or semiannual report.
29
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
Nuveen Investments o 333 West Wacker Drive
Chicago, IL 60606 o www.nuveen.com EAN-B-0702