Travelers
Corporate
Loan Fund Inc.
Semi-Annual Report March 31, 2002 Ticker Symbol: TLI
[GRAPHIC]
Travelers
Corporate
Loan Fund Inc.
[PHOTO]
HEATH B. MCLENDON
Chairman
[PHOTO]
GLENN N. MARCHAK
Vice President and Investment Officer
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the Travelers
Corporate Loan Fund Inc. ("Fund") for the six months ended March 31, 2002. In
this report, a summary of the Fund's performance can be found in the appropriate
sections that follow. In addition, we have summarized a review of economic
conditions and our outlook going forward. We hope you find this report useful
and informative.
Performance Update
During the reporting period, the Fund distributed income dividends totaling
$0.41 per share to common shareholders. The table below shows the annualized
distribution rate and six-month total return based on the Fund's March 31, 2002
net asset value per share ("NAV") and the New York Stock Exchange ("NYSE")
closing price./1 /
Annualized Six-Month
Price Per Share Distribution Rate/2/ Total Return/2/
--------------- ------------------- --------------
$14.10 (NAV) 5.62% 2.87%
$13.06 (NYSE) 6.06% 5.16%
---------
1 The NAV is calculated by subtracting total liabilities from the closing value
of all securities held by the Fund (plus all other assets) and dividing the
result (total net assets) by the total number of the Fund's shares
outstanding. The NAV fluctuates with the changes in the market price of the
securities in which the Fund has invested. However, the price at which an
investor may buy or sell shares of the Fund is at their market (NYSE) price as
determined by the supply of and demand for the Fund's shares.
2 Total returns are based on changes in NAV and the market value, respectively.
Total returns assume the reinvestment of all dividends and/or capital gains
distributions in additional shares. Annualized distribution rate is the Fund's
current monthly income dividend rate, annualized, and then divided by the NAV
or the market value noted in this report. The annualized distribution rate
assumes a current monthly income dividend rate of $0.066 for twelve months.
This rate is as of April 30, 2002 and is subject to change. The important
difference between a total return and an annualized distribution rate is that
the total return takes into consideration a number of factors including the
fluctuation of the NAV or the market value during the period reported. The NAV
fluctuation includes the effects of unrealized appreciation or depreciation in
the Fund. Accordingly, since an annualized distribution rate only reflects the
current monthly income dividend rate annualized, it should not be used as the
sole indicator to judge the return you receive from your fund investment. Past
performance is not indicative of future results.
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Travelers Corporate Loan Fund Inc.
1
The Fund's investment objective is to maximize current income consistent with
prudent efforts to preserve capital. The Fund seeks to achieve this objective
by investing primarily in a professionally managed portfolio of interests in
floating or variable rate senior secured corporate loans.
On April 12, 2002 (after the end of the Fund's reporting period), the Fund
declared a regular monthly dividend for April of $0.066 per share. This is the
fifth consecutive month that we have held the dividend rate steady at $0.066
per share. Our dividend strategy has been to attempt to adjust the dividend to
changes in cash flow generated by the loans held in the portfolio. Throughout
2001, we continued to reduce the Fund's dividend in response to reductions in
the Fund's cash flow resulting largely from the series of 11 consecutive
easings of short-term interest rates by the U.S. Federal Reserve Board ("Fed").
The Fed last cut interest rates at its December 11, 2001 Federal Open Market
Committee ("FOMC") meeting. Since that time, the Fed has held rates steady at
1.75% at its three subsequent FOMC meetings. As economic conditions appear to
have stabilized and shown signs of turning up, the odds are now weighted in
favor of the Fed increasing short-term interest rates at some point in 2002.
Unlike fixed-rate investments, interest rates of corporate loans will
periodically adjust in response to changes in short-term interest rates. These
rate adjustments have provided investors with higher income during periods of
rising interest rates and lower income during periods of declining interest
rates.
Since our last report, we have completed the first part of our plan to
diversify our funding sources. We historically had funded the leverage for the
Fund with a revolving credit facility provided by a group of banks. In recent
years, the cost of this form of leverage has generally increased at the same
time that opportunities for entering into these facilities have decreased
within the banking community. As a result, in the second half of 2001, we
embarked on a plan to diversify our funding sources.
On January 18, 2002, the shareholders of the Fund approved a change to the
Fund's investment restriction regarding the issuance of senior securities. Soon
thereafter, the Fund issued $85,000,000 of Auction Rate Cumulative Preferred
Shares ("Preferred Shares"). The Fund closed the Preferred Shares transaction
on March 14, 2002 and received the proceeds of the issuance on the same day.
The revolving credit facility we had previously used to leverage the Fund was
terminated and replaced by the Preferred Shares. The second part of our plan is
to enter into a smaller revolving credit facility. We have entered into
negotiations with a bank to obtain a $25,000,000 revolving credit facility.
The combined use of a revolving credit facility and Preferred Shares will allow
us to diversify our funding sources, and should reduce our funding risk.
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2002 Semi-Annual Report to Shareholders
2
Through a combination of the potential for lower funding rates and the ability
to marginally increase leverage in the Fund, we hope to improve cash flow in
the Fund, all other things being equal.
Portfolio Review
Consistent with our original investment mandate, the portfolio is made up
entirely of floating or variable rate corporate loans. As of March 31, 2002,
the Fund had total net assets of approximately $223 million that had an average
equivalent rating of "Ba3" and was invested in 30 industry sectors with the
largest industry concentration of 10.0% in the media/non-cable industry. We had
interests in loans made to 87 issuers.
Since our last report, the NAV of the Fund has remained relatively stable after
adjusting for the fees and expenses incurred to put the Preferred Shares issue
in place. At the time of our last report dated February 1, 2002, our Fund's NAV
had recovered to $14.26 from the lows reached after the September 11th attacks
on the World Trade Center and Pentagon ("Attack"). The fees and expenses to
implement the Preferred Shares issue totaled approximately $0.12 per share. As
of May 3, 2002 (after the end of the Fund's reporting period), the Fund's NAV
stood at $14.18 per share, a $0.04 per share increase since our last report,
net of Preferred Shares fees and expenses.
One key aspect of the Fund's management policy is that its NAV is calculated on
a "mark-to-market" basis using current market prices for each loan in the Fund
as determined weekly by a third party pricing service.
As noted earlier, the regular monthly dividend was held steady at $0.066 on
April 12, 2002. The Fed has held short-term interest rates steady at 1.75%
since December 11, 2001, and at the March 19, 2002 FOMC meeting changed the
bias from "weakness" to "neutral." We believe that the odds are in favor of the
Fed moving into a period of increasing short-term interest rates that will
begin sometime in the second half of 2002. We also believe that inflation will
remain benign throughout 2002 and, as a result, the Fed will likely make a
decision to increase rates only when economic data confirms the sustainability
of an economic expansion. In that environment, we anticipate that the Fund's
dividend could be favorably affected, all things being equal, as the Fund's
real rate of return could improve should short-term interest rates rise.
Subsequent to the Attack, the share price of the Fund quickly fell to a closing
low of $12.51 per share and a 52-week intra-day low of $12.45 per share. The
share price then showed a high level of volatility for several weeks and then
settled into less volatile trading ranges. From early November 2001 through the
end of 2001, the Fund traded in a range of approximately $12.60 to $12.75.
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Travelers Corporate Loan Fund Inc.
3
Since the beginning of 2002, the Fund's share price increased steadily through
mid-March, trading as high as $13.22. Since mid-March, the share price has
softened and as of May 3, the share price closed at $12.92.
The Fund continues to trade at a wide discount relative to historical levels.
The average discount has changed significantly since the Attack. Measured
before the Attack, from January 1, 2001 to September 10, 2001, the Fund traded
at an average discount to NAV of 3.85%. After the Attack, from September 17,
2001 to May 3, 2002, the Fund has traded at an 8.79% average discount to its
NAV. As of May 3 (after the end of the Fund's reporting period), the Fund
traded at an 8.89% discount to NAV, in line with the post-Attack average
discount. We attribute the higher level of discount after the Attack to the
higher level of risk premium required by investors across financial asset
classes to compensate for the perceived level of risk in the economy and
financial markets.
For a period of time since our last report, the level of assets in the Fund had
dropped to lower levels than we would like. However, more recently we have been
able to increase the Fund's assets to more acceptable levels. We expect to be
able to continue to maintain a sufficient level of assets during this period
until new issuance returns to more normalized levels.
Corporate Loan Market Outlook
We are pleased to report that we feel we are seeing the light at the end of the
tunnel in the corporate loan market after a long period of darkness. The
economy has bottomed and has begun to turn up, secondary loan prices are up,
defaults have stabilized and are turning down and the structures of corporate
loans being offered in the market remain strong by historical standards.
Although we remain in a period of higher risk, we believe the tide has turned.
The economic picture has brightened considerably since our last report. We have
seen positive Gross Domestic Product ("GDP") growth for two quarters in a row.
Growth in the first quarter of 2002 exceeded even the most optimistic
estimates. While we expect that growth will slow to a more sustainable level,
we expect the odds are in favor of continuing growth throughout the year.
Defaults in the corporate loan market turned down in March from recent peaks
and remained steady in April, according to the S&P/LSTA (Loan Syndications and
Trading Association) leveraged Loan Index. Prospects are good for a continuing
reduction in the default rate. Secondary market prices remain strong and less
volatile than experienced in the fourth quarter of 2001.
New issuance in the corporate loan market continues to be weak. The economic
picture over the last year has not been conducive to high levels of activity in
the loan market. Capital spending, merger and acquisition and leveraged buyout
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2002 Semi-Annual Report to Shareholders
4
activity are the seeds of loan market activity. All of these activities have
been down considerably from prior periods and increased activity tends to lag
economic recovery. Therefore, as the economy continues to recover, we expect to
see these activities increase, but with some lag. We expect that improved loan
issuance will follow as businesses and financiers begin to take on increasing
levels of risk and the capital markets support their efforts.
As new issuance has been slow, investment managers have found levels of cash
growing. As a result, the demand for new issuance has been high. Recently, we
have seen the credit spreads for loans tighten and refinancing activity
increase as issuers take advantage of lower spreads. We expect that the market
will be subject to tighter spreads for the foreseeable future, as it will take
time for the excess capacity of cash to work its way through the system. On the
positive side, investors have maintained their credit discipline and as a
result, credit structures have remained restrictive. We expect credit
structures to remain favorable, as portfolio managers should not quickly forget
the lessons learned through the latest recession. As the economy recovers in
2002, the credit discipline that has existed should drive stronger overall
market dynamics going forward.
Investment Strategy
While economic conditions have improved and default rates have dropped, we must
continue to maintain our credit discipline as much as ever. Although the risks
have decreased, many companies continue to work their way through the effects
of the recession.
Our strategies for managing the portfolio remain the same as those outlined in
our earlier shareholder reports: to maintain high credit standards when
selecting loans to add to the portfolio; to seek out loans that are priced
appropriately for the credit risk of the loan; to continue to improve the
Fund's diversification at the margin; to attempt to identify negative industry
trends in advance of credit problems; and to monitor all loans to spot weakness
and plan appropriate courses of action. Additionally, we seek to identify
changing economic and financial market factors that could result in an
unacceptably high level of vulnerability for any of the corporate loans held in
the portfolio.
While all components of our investment strategy are important, during this
improving but still challenging period, we continue to emphasize monitoring and
conducting remedial action in the Fund's portfolio. We continually evaluate the
Fund's positions in an effort to improve its risk-return profile wherever
possible.
The Fund has not suffered any payment defaults since our last shareholder
report, and the majority of loans in the portfolio have continued to perform
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Travelers Corporate Loan Fund Inc.
5
well. While improving, the level of risk in this economy remains higher than
normal during these early stages of recovery and as a result, we need to remain
vigilant in identifying weakness as soon as possible. As always, we monitor the
portfolio carefully and while we are confident the portfolio should continue to
perform well, we must be attentive to maintaining the credit discipline that we
have followed in the past.
Though we have room to add new assets, as new issuance has remained low, we
will remain cautious in selecting new loans to add to the portfolio. Having
said that, the selection of loans that come to market for the foreseeable
future should be attractive relative to historical norms, as credit statistics
remain favorable.
Our goal in the Fund remains constant: work hard to optimize the Fund's
diversification and target select opportunities while operating within the
parameters of our high credit standards. While the future is always uncertain,
we seek to bring our shareholders the best combination of quality and price in
the assets we purchase to achieve what we feel are the best risk-adjusted
returns available in the corporate loan asset class.
Economic Outlook
Since our last report, the United States economy has entered a period of
recovery. Although not official, the recession appears to be over and, at this
point, can be considered one of the mildest on record. After one quarter of GDP
decline in the third quarter of 2001, we have seen two consecutive quarters of
growth with the first quarter of 2002 showing exceptional growth. There are
many positive signs that the economy will continue to grow throughout 2002,
although we have recently seen signs of weakness that point to lower levels of
growth than we experienced in the first quarter of 2002.
In a recent speech, Alan Greenspan, Chairman of the Fed, pointed out an issue
as important as the recovery itself. He said, "Much less attention has been
paid to a far more significant event: the impressive ability of the American
economy to withstand a severe decline in equity asset values, a sharp
retrenchment in capital spending and an unprecedented blow from terrorists to
the foundations of our market systems." He summarized, "because of increased
access to real-time information and, more arguably, extensive deregulation and
innovation in financial and other product markets, economic imbalances are more
likely to be readily contained. As a consequence, cyclical episodes overall
should be less severe than they otherwise would be." Although more evidence is
needed, if this trend is true, the risks to our financial system and the
economy could be lower in the future. This may be one of the most important
lessons learned from last year's recession.
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2002 Semi-Annual Report to Shareholders
6
The economy grew at a 5.8% rate in the first quarter of 2002 after a 1.7%
increase in the fourth quarter of 2001. These two quarters of growth follow a
1.3% decline in the third quarter of 2001, the only quarterly GDP decline
during the recession. Growth in the first quarter was the strongest performance
by the economy since the second quarter of 2000. A combined increase in
consumer spending and a change in inventories resulted in all but 0.2% of GDP
growth. Consumer spending increased at a 3.5% annual pace in the first quarter,
down from 6.1% in the fourth quarter of 2001. Consumer spending has continued
at a healthy pace for some time and was a significant contributor to the
mildness of the recession.
The manufacturing sector has been expanding in recent months after a year and a
half slump. One of the key ingredients of economic expansion through 2002 will
be the rebuilding of inventories by businesses. During the recession, we saw
businesses reduce inventories significantly by cutting production and making
sales from existing stocks. Businesses increased production during the first
quarter to meet demand and while inventories continued to decline, the rate of
decline was significantly less than it had been in late 2001. Other factors
pointing to continuing economic growth include an increase in factory orders;
productivity growth has remained strong; government spending, particularly
defense spending, has been strong; homebuilding has continue to surprise on the
upside; and the Fed's current rate policy remains stimulative.
After lowering short-term interest rates 11 times last year, the Fed kept
short-term interest rates steady at 1.75%, a 40-year low, at its two last
meetings on January 30 and March 19. Additionally, on March 19, the Fed changed
its bias from "weakness" to "neutral." Steady rates and an improvement in the
bias indicate the Fed's recognition of the improvement in the economy and the
likely sustainability of growth at some level. We expect that the Fed will hold
rates steady again at its upcoming May 7 meeting. However, concerns remain as
to the strength of the recovery going forward. Alan Greenspan has pointed out
that "we are aware of ... a very strong recovery currently under way as a
consequence of the dramatic reduction in the degree of inventory liquidation.
But the crucial issue is whether final demand, which has been growing very
modestly, continues to grow and indeed accelerates ... before the very strong
impetus coming from the swing in inventories dissipates. We're nowhere near a
judgment on that and cannot be."
While the economy continues to grow, recent economic data has pointed to a
decline in the rate of growth from the level in the first quarter. The
unemployment rate in April was 6.0%, the highest in 7 1/2 years, up from 5.7%
in March. Consumer confidence, while still high enough to suggest consumers
will contribute to economic growth, has turned down. Other economic reports
pointing to slower growth show that personal spending has slowed; the
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Travelers Corporate Loan Fund Inc.
7
consumer savings rate has been rising; the services sector, while still
expanding, has seen a slowing in growth; business profits are weak;
construction spending was down more in March than expected; and energy prices
are rising.
A question remains as to how strong consumer spending will be going forward as
warm winter temperatures, tax rebates and incentives to purchase goods may have
accelerated sales rather than created new demand. Further, tensions in the
Middle East, war in Afghanistan, questions regarding corporate governance
exemplified by the Enron scandal and other macro issues continue to weigh on
consumer spending. Ultimately, the consumer will drive business spending to a
large degree, as consumer spending comprises two thirds of the economy.
Corporate profits remain weak and businesses have very little pricing power.
With little pricing power, it may be difficult for businesses to generate the
level of profits necessary to drive renewed capital spending and strong job
formation. Capital spending will also be held back by low capacity utilization
rates. A steep cutback in capital spending by businesses was the driving force
behind last year's recession. The latest weakness in economic data is reflected
in the recent drop in stock market valuations and the financial markets'
reduced expectations for short-term rate increases by the Fed. The financial
markets are currently expecting short-term interest rates to rise by 75 basis
points/3/ to 2.50% by year-end versus an expectation of a 150 basis point
increase 10 weeks ago.
The risk to the economic picture continues to lie with the consumer. While we
expect the Fed to increase short-term interest rates during 2002, we do not
expect rates will increase until evidence of sustained economic growth at
levels that could threaten price and wage stability is evident. As the Fed has
pointed out, we do not yet know if final demand will continue to grow and how
much it could accelerate. We do not expect a rate increase would occur until
the second half of 2002. Inflation remains benign and there is no evidence that
it will accelerate appreciably in the near future, thereby reducing pressure on
the Fed to change its interest rate policy. While first quarter GDP was far
above expectations, recent economic data have pointed to a slower level of
growth for the remainder of the year. Many uncertainties in the economic
picture remain, particularly the question of what will drive demand once the
inventory-rebuilding story has run its course, as the prospects for consumer
and capital spending also remain uncertain. While the financial markets have
reduced their expectation for future short-term rate increases by the Fed to
levels more in line with current conditions, if consumer spending does not
increase from current levels, we believe that short-term interest rate
increases in 2002 could be lower than currently anticipated or delayed as
pressures on the consumer remain.
---------
3 A basis point is 0.01%, or one one-hundredth of a percent.
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2002 Semi-Annual Report to Shareholders
8
We continue to expect that longer term growth will remain moderate as the
elimination of the budget surplus, the end of the "Peace Dividend" and high
consumer debt levels coupled with the prospects for a higher consumer savings
rate could remain a drag on the economy for some time. In addition, the
potential for new terrorist threats and higher energy prices from a disruption
in the oil supply from the Middle East remain significant downside risks.
We promise to seek the best risk-adjusted returns available from corporate
loans and to work hard to seek to provide you with a stable, long-term
investment with competitive rates of return.
Thank you for investing in the Travelers Corporate Loan Fund Inc. We look
forward to seeking to achieve our objectives of maximizing current income
consistent with prudent efforts to preserve capital.
Sincerely,
/s/ Heath B. McLendon /s/ Glenn N. Marchak
Heath B. McLendon Glenn N. Marchak
Chairman Vice President and
Investment Officer
May 3, 2002
The information provided in this letter represents the opinion of the manager
and is not intended to be a forecast of future events, a guarantee of future
results nor investment advice. Further, there is no assurance that future
corporate loans will remain in or out of the Fund or the percentage of the
Fund's assets held in various sectors will remain the same. Please refer to
pages 11 through 15 for a list and percentage breakdown of the Fund's holdings.
Also, please note any discussion of the Fund's holdings is as of March 31, 2002
and is subject to change.
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Travelers Corporate Loan Fund Inc.
9
Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors may reinvest their dividends in an effort to
take advantage of what can be one of the most effective wealth-building tools
available today? When the Fund achieves its objectives, systematic
investments by shareholders put time to work for them through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend Reinvestment
Plan ("Plan") which is a convenient, simple and efficient way to reinvest
your dividends and capital gains, if any, in additional shares of the Fund.
Below is a summary of how the Plan works.
Plan Summary
If you participate in the Dividend Reinvestment Plan, your dividends and
capital gains distributions will be reinvested automatically in additional
shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a
cash dividend is determined in the following manner. If the market price of
the common stock is equal to or higher than the net asset value ("NAV") per
share as of the determination date (defined as the fourth New York Stock
Exchange trading day preceding the payment for the dividend or distribution),
plan participants will be issued new shares of common stock at a price per
share equal to the greater of: (a) the NAV per share on the valuation date or
(b) 95% of the market price per share on the valuation date.
If the market price is less than the NAV per share as of the determination
date, PFPC Global Fund Services ("Plan Agent") will buy common stock for your
account in the open market. If the Plan Agent begins to purchase additional
shares in the open market and the market price of the shares subsequently
exceeds the NAV per share, before the purchases are completed, the Plan Agent
will cease making open-market purchases and have the Fund issue the remaining
dividend or distribution in shares at a price per share equal to the greater
of either the NAV per share on the valuation date or 95% of the market price
at which the Fund issues the remaining shares.
A more complete description of the current Plan appears in the section of
this report beginning on page 26. To find out more detailed information about
the Plan and about how you can participate, please call PFPC Global Fund
Services at (800) 331-1710.
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2002 Semi-Annual Report to Shareholders
10
Schedule of Investments (unaudited) March 31, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
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SENIOR COLLATERALIZED LOANS -- 82.1%
Aerospace/Defense -- 2.3%
$2,764,819 Decrane Aircraft Holdings, Inc. Term B 9/30/05 $ 2,695,698
2,450,062 Decrane Aircraft Holdings, Inc. Term D 12/24/06 2,388,811
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5,084,509
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Automotive -- 6.0%
1,333,333 Collins & Aikman Corp. Term B 6/30/05 1,340,556
2,969,697 Dura Automotive Systems, Inc. Term B 3/31/06 2,972,016
1,945,118 J.L. French Automotive Casting, Inc. Term B 10/21/06 1,682,527
1,367,783 Mark IV Industries, Inc. Term B 9/11/08 1,366,074
1,854,256 Metaldyne Co. LLC Term B 11/28/08 1,765,406
4,633,074 Stoneridge, Inc. Term B 12/31/05 4,370,532
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13,497,111
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Building Materials -- 3.3%
1,690,891 Hanley-Wood, Inc. Term B 9/21/07 1,661,301
1,297,490 Onex ABCO LP Term B 11/15/05 1,187,203
2,592,527 Panolam Industries International, Inc. Term B 1/31/07 2,391,606
2,570,966 Trussway Holdings Inc. Term B 12/31/06 2,159,611
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7,399,721
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Chemicals -- 6.8%
2,932,500 Georgia Gulf Corp. Term B 11/10/06 2,948,385
1,392,967 Huntsman International LLC Term B 6/30/07 1,379,399
1,392,967 Huntsman International LLC Term C 6/30/08 1,379,399
7,813,412 Lyondell Petrochemical Co. Term E 5/17/06 7,917,838
1,691,500 Noveon, Inc. Term B 9/30/08 1,695,023
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15,320,044
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Conglomerates -- 2.2%
1,481,250 Gentek, Inc. Term C 10/31/07 1,087,485
3,910,000 SPX Corp. Term B 12/31/06 3,910,000
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4,997,485
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Consumer Products -- 2.8%
759,513 American Safety Razor Co. Term B 4/30/07 713,942
997,500 Armkel, LLC Term B 3/28/09 1,008,473
1,799,619 Holmes Products Corp. Term B 2/5/07 1,520,678
1,000,000 Meow Mix Inc. Term B 2/4/08 1,005,000
995,000 Shop Vac Corp. Term 7/7/07 990,025
997,500 Tesoro Petroleum Corp. Term B 10/18/07 999,683
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6,237,801
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Electric -- 1.6%
3,646,667 Western Resources, Inc. Term 3/17/03 3,629,002
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See Notes to Financial Statements.
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Travelers Corporate Loan Fund Inc.
11
Schedule of Investments (unaudited) (continued) March 31, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
------------------------------------------------------------------------------
Entertainment -- 2.2%
$3,491,250 Six Flags Theme Parks Inc. Term B 9/30/05 $ 3,521,798
80,000 Washington Football Group, Inc. Term A 10/29/04 80,000
1,300,000 Washington Football Inc. Term C 10/29/04 1,303,250
------------------------------------------------------------------------------
4,905,048
------------------------------------------------------------------------------
Environmental -- 2.5%
1,474,431 Allied Waste North America, Inc. Term B 7/21/06 1,470,583
1,769,317 Allied Waste North America, Inc. Term C 7/21/07 1,764,700
2,438,000 Casella Waste System, Inc. Term B 12/14/06 2,443,486
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5,678,769
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Food -- 3.6%
785,356 Buffets, Inc. Term B 3/5/06 786,992
3,196,000 Dean Foods Co. Term B 7/31/08 3,224,249
995,000 Flowers Food Inc. Term B 3/26/07 1,002,836
1,175,158 Michael Foods Inc. Term B 3/22/08 1,185,991
1,283,825 NSC Operating Co. Term B 5/27/07 1,284,894
500,000 NSC Operating Co. 2nd Lien 5/25/09 497,657
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7,982,619
------------------------------------------------------------------------------
Gaming -- 2.7%
2,200,000 Alliance Gaming Corp. Term B 12/15/06 2,222,000
636,702 Ameristar Casinos, Inc. Term B 12/26/06 643,865
545,744 Ameristar Casinos, Inc. Term C 12/26/07 551,884
798,843 Isle of Capri Casinos, Inc. Term B 3/2/06 801,482
693,846 Isle of Capri Casinos, Inc. Term C 3/2/07 696,139
1,141,077 Scientific Games Corp. Term B 9/30/07 1,146,306
------------------------------------------------------------------------------
6,061,676
------------------------------------------------------------------------------
Healthcare -- 1.2%
1,237,500 Caremark Rx Inc. Term B 3/15/06 1,244,075
1,500,000 Kessler Rehabilitation Corp. Term B 7/30/08 1,496,250
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2,740,325
------------------------------------------------------------------------------
Home Construction -- 0.9%
1,965,000 Lennar Corp. Term B 5/2/07 1,975,071
------------------------------------------------------------------------------
Independent Energy -- 1.4%
3,180,077 Heating Oil Partners LP Term 9/30/03 3,180,077
------------------------------------------------------------------------------
Industrial - Other -- 4.8%
2,426,508 Flowserve Corp. Term B 6/30/08 2,436,175
1,830,577 General Cable Corp. Term B 5/27/07 1,765,592
1,000,000 Graphic Packaging Corp. Term B 2/25/09 1,011,250
1,462,500 Mueller Group, Inc. Term B 8/16/06 1,463,872
1,462,500 Mueller Group, Inc. Term C 8/16/07 1,463,872
See Notes to Financial Statements.
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2002 Semi-Annual Report to Shareholders
12
Schedule of Investments (unaudited) (continued) March 31, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
------------------------------------------------------------------------------
Industrial - Other -- 4.8% (continued)
$ 982,500 Mueller Group, Inc. Term D 8/16/07 $ 987,003
2,335,448 Western Industries Ltd. Term B 6/23/06 1,576,427
-----------------------------------------------------------------------------
10,704,191
-----------------------------------------------------------------------------
Insurance -- 0.6%
1,256,250 Oxford Health Plans, Inc. Term B 6/30/06 1,262,139
-----------------------------------------------------------------------------
Lodging -- 0.7%
1,500,000 Starwood Hotels & Resorts
Worldwide, Inc. IRN 2/23/03 1,504,688
-----------------------------------------------------------------------------
Media/Cable -- 7.8%
2,500,000 Century Cable Holdings Term B 9/28/09 2,435,477
9,000,000 Charter Communications Operating
LLC Term B 3/18/08 8,739,749
1,731,233 Classic Cable, Inc. Term B 1/31/08 1,389,314
865,616 Classic Cable, Inc. Term C 1/31/08 694,657
2,000,000 Insight Midwest LLC Term B 12/31/09 2,013,542
1,000,000 Regal Cinemas, Inc. Term B 1/29/08 1,010,625
1,200,000 Videotron Ltee Term B 12/1/09 1,203,000
-----------------------------------------------------------------------------
17,486,364
-----------------------------------------------------------------------------
Media/Non-Cable -- 10.0%
4,187,007 21st Century Newspapers Term B 9/15/05 3,999,902
1,782,857 Advanstar Communications Inc. Term B 10/12/08 1,746,086
4,421,522 American Media Operation Inc. Term B 4/1/07 4,450,814
1,827,970 Canwest Media Inc. Term B 5/15/08 1,846,903
1,142,030 Canwest Media Inc. Term C 5/15/09 1,153,858
500,000 Cumulus Media Inc. Term B 3/22/10 505,521
940,532 Emmis Communications Corp. Term B 2/28/07 947,105
3,000,000 PanAmSat Corp. Term B 2/25/09 2,995,626
1,500,000 Susquehanna Media Co. Term B 6/30/08 1,505,625
1,671,578 Trader.com N.V. Term B 12/6/06 1,663,220
1,207,888 Trader.com N.V. Term C 12/6/07 1,201,848
440,147 Young Broadcasting, Inc. Term B 12/31/06 442,952
-----------------------------------------------------------------------------
22,459,460
-----------------------------------------------------------------------------
Metals -- 0.5%
1,000,000 Compass Minerals Group, Inc. Term B 11/28/09 1,013,125
-----------------------------------------------------------------------------
Other - Energy -- 0.3%
675,000 Westmoreland Mining LLC Term 6/30/02 675,000
-----------------------------------------------------------------------------
Other - Financial Institutions -- 1.5%
608,638 Bridge Information Systems, Inc. Multi-Draw 5/29/03 261,714
1,128,773 Bridge Information Systems, Inc. Term B 5/29/05 485,372
2,932,500 Outsourcing Solutions Inc. Term B 6/10/06 2,727,225
-----------------------------------------------------------------------------
3,474,311
-----------------------------------------------------------------------------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
13
Schedule of Investments (unaudited) (continued) March 31, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
--------------------------------------------------------------------------
Paper -- 0.4%
$ 992,500 Norske Skog Canada Finance Ltd. Term B 8/14/07 $ 1,003,666
--------------------------------------------------------------------------
Pharmaceuticals -- 0.6%
1,337,500 Alpharma Corp. Term B 10/5/08 1,287,344
--------------------------------------------------------------------------
Railroads -- 1.4%
1,980,000 Kansas City Southern Railway Co. Term B 12/29/06 1,992,221
854,994 RailAmerica, Inc. Term B 12/31/06 858,734
284,449 RailAmerica, Inc. Term C 12/31/06 286,582
--------------------------------------------------------------------------
3,137,537
--------------------------------------------------------------------------
Refining -- 0.4%
992,500 Dresser Inc. Term B 4/10/09 1,000,564
--------------------------------------------------------------------------
Technology -- 2.0%
2,462,500 Suez Acquisition Co. Term B 11/22/06 2,474,812
2,259,798 Trend Technologies, Inc. Term B 3/9/07 2,022,519
--------------------------------------------------------------------------
4,497,331
--------------------------------------------------------------------------
Telecommunications -- 9.7%
845,891 American Cellular Corp. Term B 3/31/08 766,377
966,732 American Cellular Corp. Term C 3/31/09 875,860
1,000,000 CBD Media Inc. Term B 3/8/09 1,009,583
2,863,298 Centennial Cellular Operating Co. Term B 5/1/07 2,207,723
2,863,010 Centennial Cellular Operating Co. Term C 11/30/07 2,207,501
1,000,000 Crown Castle Operating Co. Term B 3/31/08 983,750
1,007,617 Dobson Operating Co. Term B 1/7/08 973,107
992,268 Fairpoint Communications Term C 3/30/07 971,182
3,750,000 Nextel Finance Co. Term B 6/30/08 3,180,626
3,750,000 Nextel Finance Co. Term C 12/31/08 3,180,626
1,996,031 Rural Cellular Corp. Term B 10/3/08 1,821,794
1,996,031 Rural Cellular Corp. Term C 4/3/09 1,821,794
2,000,000 Western Wireless Corp. Term B 9/30/08 1,770,000
--------------------------------------------------------------------------
21,769,923
--------------------------------------------------------------------------
Tobacco -- 0.3%
705,057 Commonwealth Brands, Inc. Term B 12/31/04 706,819
--------------------------------------------------------------------------
Transportation Services -- 1.6%
Evergreen International Aviation,
1,079,440 Inc. Term B 4/28/04 995,784
2,500,000 TravelCenters of America, Inc. Term B 11/14/08 2,518,750
--------------------------------------------------------------------------
3,514,534
--------------------------------------------------------------------------
TOTAL SENIOR COLLATERALIZED
LOANS (Cost -- $191,791,058) 184,186,25
--------------------------------------------------------------------------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
2002 Semi-Annual Report to Shareholders
14
Schedule of Investments (unaudited) (continued) March 31, 2002
FACE
AMOUNT SECURITY VALUE
-----------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 17.9%
Commercial Paper -- 17.9%
$8,000,000 American Electric Power Co. Inc., 2.450% due 4/1/02 $ 7,998,367
6,500,000 American Honda Finance Corp., 1.800% due 4/22/02 6,492,200
6,690,000 DaimlerChrysler NA Corp., 2.250% due 4/4/02 6,687,491
6,500,000 Falcon Asset Securitization Co., 1.810% due 4/18/02 6,493,464
5,000,000 Parker-Hannifin Corp., 1.800% due 4/9/02 4,997,250
6,500,000 Potomac Electric Power Co., 1.890% due 4/3/02 6,498,294
1,000,000 Wheels Inc., 2.050% due 4/1/02 999,829
-----------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (Cost -- $40,166,895) 40,166,895
-----------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100% (Cost -- $231,957,953**) $224,353,149
-----------------------------------------------------------------------------------
* Market value is determined using current market prices which are supplied
weekly by an independent third party pricing service.
** Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviations used in this schedule:
------------------------------------
2nd Lien -- Subordinate Loan to 1st Lien
IRN -- Increasing Rate Note
Multi-Draw -- Multi-Draw Term Loan
Term -- Term Loan
Term A -- Term Loan A
Term B -- Term Loan B
Term C -- Term Loan C
Term D -- Term Loan D
Term E -- Term Loan E
See Notes to Financial Statements.
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
15
Statement of Assets and Liabilities (unaudited) March 31, 2002
ASSETS:
Investments, at value (Cost -- $191,791,058) $184,186,254
Short-term investments, at value (Cost -- $40,166,895) 40,166,895
Dividends and interest receivable 1,183,566
--------------------------------------------------------------------- ------------
Total Assets 225,536,715
--------------------------------------------------------------------- ------------
LIABILITIES:
Payable to bank 1,930,444
Payable for Auction Rate Cumulative Preferred Shares offering costs 244,819
Dividends payable 188,553
Management fee payable 165,987
Interest payable 4,482
Accrued expenses 7,322
--------------------------------------------------------------------- ------------
Total Liabilities 2,541,607
--------------------------------------------------------------------- ------------
Total Net Assets $222,995,108
--------------------------------------------------------------------- ------------
NET ASSETS:
Par value of capital shares $ 9,782
Capital paid in excess of par value 145,083,964
Auction Rate Cumulative Preferred Shares 85,000,000
Undistributed net investment income 830,997
Accumulated net realized loss from security transactions (324,831)
Net unrealized depreciation of investments (7,604,804)
--------------------------------------------------------------------- ------------
Total Net Assets $222,995,108
--------------------------------------------------------------------- ------------
Per Share
NET ASSET VALUE, COMPRISED OF: ----------
Auction Rate Cumulative Preferred Shares
redemption value -- Series A $25,000.00 $ 42,500,000
Undeclared dividends on Auction Rate Cumulative
Preferred Shares -- Series A 18.75 31,875
------------------------------------------------- ---------- ------------
Total Allocated to Auction Rate Cumulative
Preferred Shares -- Series A 25,018.75 42,531,875
------------------------------------------------- ---------- ------------
Auction Rate Cumulative Preferred Shares
redemption value -- Series B 25,000.00 42,500,000
Undeclared dividends on Auction Rate Cumulative
Preferred Shares -- Series B 18.75 31,875
------------------------------------------------- ---------- ------------
Total Allocated to Auction Rate Cumulative
Preferred Shares -- Series B $25,018.75 42,531,875
------------------------------------------------- ---------- ------------
Total Allocated to Preferred Shares 85,063,750
------------------------------------------------- ---------- ------------
Common Stock (9,781,667 shares outstanding) $14.10 137,931,358
------------------------------------------------- ---------- ------------
Total Net Assets $222,995,108
------------------------------------------------- ---------- ------------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
2002 Semi-Annual Report to Shareholders
16
Statement of Operations (unaudited)
For the Six Months Ended March 31, 2002
INVESTMENT INCOME:
Interest $ 6,212,455
Less: Interest expense (759,192)
----------------------------------------------------------------------------- -----------
Total Investment Income 5,453,263
----------------------------------------------------------------------------- -----------
EXPENSES:
Management fee (Note 2) 1,034,183
Audit and legal 47,084
Shareholder communications 42,866
Shareholder and system servicing fees 37,911
Directors' fees 29,385
Registration fees 11,457
Custody 3,548
Other 45,944
----------------------------------------------------------------------------- -----------
Total Expenses 1,252,378
----------------------------------------------------------------------------- -----------
Net Investment Income 4,200,885
----------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions (excluding short-term securities):
Proceeds from sales 31,274,916
Cost of securities sold 31,323,119
----------------------------------------------------------------------------- -----------
Net Realized Loss (48,203)
----------------------------------------------------------------------------- -----------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (8,209,257)
End of period (7,604,804)
----------------------------------------------------------------------------- -----------
Decrease in Net Unrealized Depreciation 604,453
----------------------------------------------------------------------------- -----------
Net Gain on Investments 556,250
----------------------------------------------------------------------------- -----------
Increase in Net Assets From Operations $ 4,757,135
----------------------------------------------------------------------------- -----------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
17
Statements of Changes in Net Assets
For the Six Months Ended March 31, 2002 (unaudited)
and the Year Ended September 30, 2001
2002 2001
--------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 4,200,885 $ 11,903,373
Net realized loss (48,203) (276,628)
(Increase) decrease in net unrealized depreciation 604,453 (8,779,404)
-------------------------------------------------------------------------------------------
Increase in Net Assets from Operations 4,757,135 2,847,341
-------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (4,020,265) (12,370,409)
Net realized gains -- (218,597)
-------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (4,020,265) (12,589,006)
-------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Proceeds from sale of shares (net of underwriting commissions
and expenses of $285,600) 83,864,400 --
-------------------------------------------------------------------------------------------
Increase in Net Assets from Fund Share Transactions 83,864,400 --
-------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 84,601,270 (9,741,665)
NET ASSETS:
Beginning of period 138,393,838 148,135,503
-------------------------------------------------------------------------------------------
End of period* $222,995,108 $138,393,838
-------------------------------------------------------------------------------------------
* Includes undistributed net investment income of: $830,997 $650,377
-------------------------------------------------------------------------------------------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
2002 Semi-Annual Report to Shareholders
18
Statement of Cash Flows (unaudited)
For the Six Months Ended March 31, 2002
CASH FLOWS USED BY OPERATING AND INVESTING ACTIVITIES:
Interest and dividends received $ 6,207,336
Operating expenses paid (1,135,485)
Interest paid on bank loans (782,477)
Net short-term purchases (39,477,032)
Purchases of portfolio securities (16,673,896)
Proceeds from disposition of long-term securities 31,274,916
-------------------------------------------------------------------------------
Net Cash Flows Used By Operating and Investing Activities (20,586,638)
-------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Redemption of Bank Loan (61,700,000)
Issuance of Auction Rate Cumulative Preferred Shares 85,000,000
Issuance expenses related to Auction Rate Cumulative Preferred
Shares (1,135,600)
Cash dividends paid on Common Stock (4,081,233)
-------------------------------------------------------------------------------
Net Cash Flows Provided By Financing Activities 18,083,167
-------------------------------------------------------------------------------
NET DECREASE IN CASH (2,503,471)
Cash, Beginning of period 573,027
-------------------------------------------------------------------------------
Payable to Bank, End of period $ (1,930,444)
-------------------------------------------------------------------------------
RECONCILIATION OF INCREASE IN NET ASSETS FROM OPERATIONS TO NET
CASH FLOWS USED BY OPERATING AND INVESTING ACTIVITIES:
Increase in Net Assets From Operations $ 4,757,135
-------------------------------------------------------------------------------
Amortization of discount on securities 47,356
Increase in investments, at value (25,479,618)
Decrease in interest payable for money borrowed (23,285)
Increase in dividends and interest receivable (5,119)
Increase in accrued expenses 116,893
-------------------------------------------------------------------------------
Total Adjustments (25,343,773)
-------------------------------------------------------------------------------
Net Cash Flows Used By Operating and Investing Activities $(20,586,638)
-------------------------------------------------------------------------------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
19
Notes to Financial Statements (unaudited)
1. Significant Accounting Policies
The Travelers Corporate Loan Fund Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) U.S. government
agencies and obligations are valued at the mean between the bid and ask prices;
(c) securities, excluding senior collateralized loans, for which market
quotations are not available will be valued in good faith at fair value by or
under the direction of the Board of Trustees; (d) securities maturing within 60
days are valued at cost plus accreted discount, or minus amortized premium,
which approximates value; (e) gains or losses on the sale of securities are
calculated by using the specific identification method; (f) interest income,
adjusted for amortization of premium and accretion of discount, is recorded on
an accrual basis; (g) the Fund intends to comply with the applicable provisions
of the Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies to make distributions of taxable income sufficient to
relieve it from substantially all Federal income and excise taxes; (h) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from accounting principles
generally accepted in the United States of America. At September 30, 2001,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, a portion of undistributed net investment
loss amounting to $49,775 was reclassified to paid-in capital. Net investment
income, net realized gains and net assets were not affected by this change; (i)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ; and (j) collateralized senior loans will be valued at readily
ascertainable market values and in the absence of these market values the loans
are valued at fair value. Fair value is determined in accordance with
guidelines established by the Fund's Board of Directors. In valuing a loan,
Smith Barney Fund Management LLC ("SBFM"), the Fund's investment advisor, with
the assistance of the Travelers Asset Management International Company LLC
("TAMIC"), the sub-advisor, will consider among other factors: (1) the
creditworthiness of the borrower and any party interpositioned between the Fund
and the borrower; (2) the current interest rate, period until next interest
rate reset and maturity date of the collateralized senior loan; (3) recent
market prices for similar loans, if any; and (4) recent prices in the market for
-------------------------------------------------------------------------------
2002 Semi-Annual Report to Shareholders
20
Notes to Financial Statements (unaudited) (continued)
instruments with similar quality, rate, period until next interest rate reset,
maturity, terms and conditions; SBFM may also consider prices or quotations, if
any, provided by banks, dealers or pricing services which may represent the
prices at which secondary market transactions in the collateralized senior
loans held by the Fund have or could have occurred. However, because the
secondary market has not yet fully developed, SBFM will not rely solely on such
prices or quotations.
Facility fees and upfront fees, incurred by the Fund on loan agreements, are
amortized over the term of the loan.
2. Management Agreement and Transactions with Affiliated Persons
SBFM, a subsidiary of Salomon Smith Barney Holdings Inc., which, in turn, is a
wholly-owned subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser for the Fund. The Fund pays SBFM a management fee for its investment
advisory and administration services calculated at an annual rate of 1.05% of
the average daily assets. This fee is calculated daily and paid monthly.
SBFM has entered into a sub-investment advisory agreement with TAMIC, another
wholly-owned indirect subsidiary of Citigroup. Pursuant to a sub-advisory
agreement, TAMIC is responsible for certain investment decisions related to the
Fund. SBFM pays TAMIC a fee of 0.50% of the value of the Fund's average daily
assets for the services TAMIC provides as sub-adviser. This fee is calculated
daily and paid monthly.
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
3. Investments
During the six months ended March 31, 2002, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
-----------------------------------------------------------------------
Purchases $16,782,843
-----------------------------------------------------------------------
Sales 31,274,916
-----------------------------------------------------------------------
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
21
Notes to Financial Statements (unaudited) (continued)
At March 31, 2002, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
-------------------------------------------------------------------------------
Gross unrealized appreciation $ 1,352,614
Gross unrealized depreciation (8,957,418)
-------------------------------------------------------------------------------
Net unrealized depreciation $(7,604,804)
-------------------------------------------------------------------------------
4. Commitments
The Fund has entered into a 364 day revolving credit agreement and a three year
revolving credit agreement to borrow up to an aggregate of $73.5 million from a
syndicate of major financial institutions. The 364 day revolving credit
agreement was renewed on January 30, 2001. The 364 day revolving credit
agreement matures on January 29, 2002 and the three year revolving credit
agreement matures on February 1, 2002. Borrowing rates under both of these
agreements are based on a fixed spread over LIBOR or the Prime Rate. The Fund
pays a facility fee quarterly at 0.10% and 0.15% per annum for the 364 day and
three year revolving credit agreements, respectively. For the six months ended
March 31, 2002, interest expense related to a bank loan totaled $701,694. The
average dollar amount of the borrowing was $59,057,415 and the average interest
rate was 2.35%.
These agreements were not renewed, however, they were given an extension period
of two months. On March 14, 2002, the Fund's $73,500,000 line of credit was
extinguished and interest on the bank loan ceased to accrue.
5. Auction Rate Cumulative Preferred Shares
On March 14, 2002, the Fund issued 1,700 shares of Series A and 1,700 shares of
Series B, respectively, of Auction Rate Cumulative Preferred Shares ("ARCPS").
The underwriting discount of $850,000 and offering expenses of $285,600
associated with the ARCPS offering were recorded as a reduction of the capital
paid in excess of par value of common stock. The ARCPS' dividends are
cumulative at a rate determined at an auction and the dividend period will
typically be 28 days. The dividend rate was 1.8% for the six months ended
March 31, 2002.
The ARCPS are redeemable under certain conditions by the Fund, or subject to
mandatory redemption (if the Fund is in default of certain coverage
requirements) at a redemption price equal to $25,000 per share plus accumulated
and unpaid dividends. The ARCPS have a liquidation preference of $25,000 per
share plus accumulated and unpaid dividends. The Fund is required to maintain
certain asset coverages with respect to the ARCPS under the Investment Company
Act of 1940.
-------------------------------------------------------------------------------
2002 Semi-Annual Report to Shareholders
22
Notes to Financial Statements (unaudited) (continued)
Salomon Smith Barney Inc., another subsidiary of Citigroup also currently acts
as a broker/dealer in connection with the auction of ARCPS. After each auction,
the auction agent will pay to each broker/dealer, from monies the Fund provides
a participation fee at the annual rate of 0.25% of the purchase price of the
ARCPS that the broker/dealer places at the auction.
6. Offering Costs
Offering costs of $607,394 were incurred at the inception of the Fund. Of this
amount, $382,394 was paid by SBFM. The balance of $225,000 was paid by the Fund.
7. Capital Shares
At March 31, 2002, the Fund had 150,000,000 shares of capital stock authorized,
("Common Stock") with a par value of $0.001 per share.
8. Capital Loss Carryforward
At September 30, 2001, the Fund had, for Federal income tax purposes,
approximately $44,000 of unused capital loss carryforwards available to offset
future capital gains through September 30, 2009. To the extent that these
carryforward losses are used to offset capital gains, it is possible that the
gains so offset will not be distributed.
--------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
23
Financial Highlights
For a share of capital stock outstanding throughout each year ended September
30, unless otherwise noted:
2002/(1)/ 2001 2000 1999/(2)/
-----------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $14.15 $15.14 $15.19 $15.00
----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.43 1.22 1.40 0.97
Net realized and unrealized gain (loss) 0.05 (0.93) 0.02 0.09
----------------------------------------------------------------------------------------
Total Income From Operations 0.48 0.29 1.42 1.06
----------------------------------------------------------------------------------------
Offering Costs on Issuance of Common Stock -- -- -- (0.02)
----------------------------------------------------------------------------------------
Underwriting commission and expenses of
issuance of Auction Rate Cumulative
Preferred Shares (0.12) -- -- --
----------------------------------------------------------------------------------------
Less Distributions To:
Common Stock Shareholders From Net
Investment Income (0.41) (1.26) (1.44) (0.85)
Change in undeclared dividends on Auction
Rate Cumulative Preferred Shares:
Series A (0.00)* -- -- --
Series B (0.00)* -- -- --
Net realized gains -- (0.02) (0.03) --
----------------------------------------------------------------------------------------
Total Distributions (0.41) (1.28) (1.47) (0.85)
----------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.10 $14.15 $15.14 $15.19
----------------------------------------------------------------------------------------
Total Return, Based on Market Value 5.16%++ (4.33)% 13.35% 1.68%++
----------------------------------------------------------------------------------------
Total Return, Based on Net Asset Value 2.87%++ 2.44% 10.55% 7.45%++
----------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $222,995 $138,394 $148,136 $148,548
----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 5.84%+ 8.31% 9.20% 7.48%+
Interest expense 1.06+ 2.75 3.04 1.68+
Organization expense -- -- -- 0.24+
Operating expenses 1.74+ 1.82 1.70 1.63+
Total expenses 2.80+ 4.57 4.74 3.55+
----------------------------------------------------------------------------------------
Portfolio Turnover Rate 9% 23% 59% 53%
----------------------------------------------------------------------------------------
Market Value, End of Period $13.06 $12.82 $14.6875 $14.375
----------------------------------------------------------------------------------------
(1) For the six months ended March 31, 2002 (unaudited).
(2) For the period from November 20, 1998 (commencement of operations) to
September 30, 1999.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
--------------------------------------------------------------------------------
2002 Semi-Annual Report to Shareholders
24
Other Financial Information (unaudited)
The table below sets out information with respect to Auction Rate Cumulative
Preferred Shares:
2002/(1)/
-------------------------------------------------------------------------------
Auction Rate Cumulative Preferred Shares/(2)/:
Total Amount Outstanding (000s) $85,000
Asset Coverage Per Share 65,568
Involuntary Liquidating Preference Per Share 25,000
Average Market Value Per Share/(3)/ 25,000
------------------------------------------------------------------------------
(1) As of March 31, 2002.
(2) On March 14, 2002, the Fund issued 3,400 shares of Auction Rate Cumulative
Preferred Shares at $25,000 a share.
(3) Excludes accrued interest or accumulated undeclared dividends.
--------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
25
Dividend Reinvestment Plan (unaudited)
Pursuant to the Plan, shareholders whose Common Stock is registered in their
own names will be deemed to have elected to have all distributions reinvested
automatically in additional Common Stock of the Fund by PFPC Global Fund
Services ("Plan Agent"), as agent under the Plan, unless such shareholders
elect to receive distributions in cash. Shareholders who elect to receive
distributions in cash will receive all distributions in cash paid by check in
U.S. dollars mailed directly to the shareholder by PFPC Global Fund Services,
as dividend paying agent. In the case of shareholders such as banks, brokers or
nominees, which hold Common Stock for others who are the beneficial owners, the
Plan Agent will administer the Plan on the basis of the number of shares of
Common Stock certified from time to time by the record shareholders as
representing the total amount registered in the record shareholder's name and
held for the account of beneficial owners that have not elected to receive
distributions in cash. Investors that own shares of Common Stock registered in
the name of a bank, broker or other nominee should consult with such nominee as
to participation in the Plan through such nominee, and may be required to have
their shares registered in their own names in order to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
Unless the Board of Directors of the Fund declares a dividend or capital gains
distribution payable only in cash, non-participants in the Plan will receive
cash and participants in the Plan will receive shares of Common Stock of the
Fund, to be issued by the Fund or purchased by the Plan Agent in the open
market as outlined below. Whenever the market price per share of Common Stock
is equal to or exceeds the net asset value per share as of the determination
date (defined as the fourth New York Stock Exchange trading day preceding the
payment date for the dividend or distribution), participants will be issued new
shares of Common Stock at a price per share equal to the greater of: (a) the
net asset value per share on the valuation date or (b) 95% of the market price
per share on the valuation date. Except as noted below, the valuation date
generally will be the dividend or distribution payment date. If net asset value
exceeds the market price of the Fund's shares of Common Stock as of the
determination date, the Plan Agent will, as agent for the participants, buy
shares in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts as soon as practicable commencing on the trading day
following the determination date and generally terminating no later than 30
days after the dividend or distribution payment date. If, before the Plan Agent
has completed its purchases, the market price exceeds the net asset value of a
share of Common Stock, the average per share purchase price paid by the Plan
Agent may exceed the net asset value of the Fund's shares, resulting in the
acquisition of fewer shares than if the dividend or capital gains distribution
had been paid in shares of Common Stock issued by the Fund. Because of the
foregoing difficulty with respect to open-market purchases, the Plan provides
that if the
-------------------------------------------------------------------------------
2002 Semi-Annual Report to Shareholders
26
Dividend Reinvestment Plan (unaudited) (continued)
Plan Agent is unable to invest the full dividend amount in open-market
purchases during the permissible purchase period or if the market discount
shifts to a market premium during such purchase period, the Plan Agent will
cease making open-market purchases and will receive the uninvested portion of
the dividend amount in newly issued shares of Common Stock (in which case the
valuation date will be the date such shares are issued) at a price per share
equal to the greater of (a) the net asset value per share on the valuation date
or (b) 95% of the market price per share on the valuation date.
A shareholder may elect to withdraw from the Plan at any time upon written
notice to the Plan Agent or by calling the Plan Agent at 1-800-331-1710. When a
participant withdraws from the Plan, or upon termination of the Plan as
provided below, certificates for whole shares of Common Stock credited to his
or her account under the Plan will be issued and a cash payment will be made
for any fractional shares credited to such account. An election to withdraw
from the Plan will, until such election is changed, be deemed to be an election
by a shareholder to take all subsequent dividends and distributions in cash.
Elections will be effective immediately if notice is received by the Plan Agent
not less than ten days prior to any dividend or distribution record date;
otherwise such termination will be effective after the investment of the then
current dividend or distribution. If a withdrawing shareholder requests the
Plan Agent to sell the shareholder's shares upon withdrawal from participation
in the Plan, the withdrawing shareholder will be required to pay a $5.00 fee
plus brokerage commissions.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the accounts, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in noncertificated form in
the name of the participant, and each shareholder's proxy will include those
shares of Common Stock purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions. The Plan Agent's fee for the handling of reinvestment of
dividends and distributions will be paid by the Fund. There will be no
brokerage charges with respect to shares of Common Stock issued directly by the
Fund as a result of dividends or capital gains distributions payable either in
shares or in cash. However, each participant will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of dividends or capital gains
distributions.
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Travelers Corporate Loan Fund Inc.
27
Dividend Reinvestment Plan (unaudited) (continued)
The automatic reinvestment of dividends and distributions will not relieve
participants of any U.S. federal income tax that may be payable on such
dividends or distributions.
Experience under the Plan may indicate that changes thereto may be desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid: (i) subsequent to notice of the
change sent to all participants at least 30 days before the record date for
such dividend or distribution or (ii) otherwise in accordance with the terms of
the Plan. The Plan also may be amended or terminated by the Plan Agent, with
the Board of Directors' prior written consent, on at least 30 days' prior
written notice to all participants. All correspondence concerning the Plan
should be directed by mail to PFPC Global Fund Services, P.O. Box 8030, Boston,
Massachusetts 02266-8030 or by telephone at (800) 331-1710.
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2002 Semi-Annual Report to Shareholders
28
Directors
Allan J. Bloostein
Dwight B. Crane
Paolo M. Cucchi
Robert A. Frankel
Paul Hardin
William R. Hutchinson
Heath B. McLendon, Chairman
George M. Pavia
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Glenn N. Marchak
Vice President and
Investment Officer
Irving P. David
Controller
Christina T. Sydor
Secretary
[LOGO]
TLI
Listed
NYSE
THE NEW YORK STOCK EXCHANGE
Investment Adviser
Smith Barney Fund Management LLC
Sub-Investment Adviser
Travelers Asset Management International Company LLC
Custodian
PFPC Trust Company
Transfer Agent
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
This report is intended only for shareholders of Travelers Corporate Loan Fund
Inc. It is not a Prospectus, circular or representation intended for use in the
purchase or sale of shares of the Fund or any securities mentioned in this
report.
Travelers Corporate
Loan Fund Inc.
125 Broad Street
10th Floor, MF-2
New York, New York 10004
FD01642 5/02