Travelers
Corporate
Loan Fund Inc.
Quarterly Report June 30, 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 report for the Travelers Corporate Loan
Fund Inc. ("Fund") for the nine months ended June 30, 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
$0.61 per share to common shareholders. The table below shows the annualized
distribution rate and nine-month total return based on the Fund's June 30, 2002
net asset value per share ("NAV") and the New York Stock Exchange ("NYSE")
closing price./1/
Annualized Nine-Month
Price Per Share Distribution Rate/2/ Total Return/2/
--------------- -------------------- ---------------
$13.94 (NAV) 5.68% 3.27%
$12.98 (NYSE) 6.10% 6.13%
---------
1NAV is calculated by subtracting total liabilities and outstanding preferred
stock, from the closing value of all securities held by the Fund (plus all
other assets) and dividing the result (total net assets of common
stockholders) by the total number of the Fund's common 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 supply and
demand for the Fund's shares.
2Total returns are based on changes in NAV and the market price, respectively,
and assume the reinvestment of all dividends and/or capital gains
distributions in additional shares. The annualized distribution rate is the
Fund's current monthly income dividend rate, annualized, and then divided by
the NAV or the market price noted in the above chart. The annualized
distribution rate assumes a current monthly income dividend rate of $0.066 for
twelve months. This rate is as of June 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 price 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 July 9, 2002, the Fund declared a regular monthly dividend for July of
$0.066 per share. This is the eighth consecutive month that we have held the
dividend rate steady at $0.066 cents 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")/3/ meeting. Since that
time, the Fed has held rates steady at 1.75% at its four following FOMC
meetings.
We believe that the most likely outcome is that the Fed will hold short-term
interest rates steady for the remainder of the year. Expectations are that
economic growth has slowed in the second quarter from the robust Gross Domestic
Product ("GDP")/4/ growth reported in the first quarter. And while the risks in
the economy have increased since our last report, there are a significant
number of positive economic forces that should support moderate growth for the
remainder of the year.
Unlike fixed-rate investments, interest rates of floating rate 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.
Portfolio Review
Consistent with our original investment mandate, the portfolio is made up
entirely of floating or variable rate corporate loans. As of June 30, 2002, the
Fund had total net assets of approximately $221.4 million that had an average
equivalent rating of Ba3 and was invested in 30 industry sectors with the
largest industry concentration of 12.41% in the media/non-cable industry. We
had interests in loans made to 93 issuers.
---------
3The FOMC is a policy-making body of the Federal Reserve System responsible for
the formulation of a policy designed to promote economic growth, full
employment, stable prices, and a sustainable pattern of international trade
and payments.
4GDP is the market value of goods and services produced by labor and property
in a given country.
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2002 Quarterly Report to Shareholders
2
As of July 26, 2002, the NAV of the Fund was $13.69, a decrease of $0.49 per
share since May 3, 2002, the date of the shareholder letter in our last report.
The decline has principally taken place over the last month as investors have
reacted to the increasing uncertainty in the financial markets and more
specifically, to the uncertainties in the cable and wireless segments of the
corporate loan market. Of the $0.49 reduction in NAV, approximately $0.42 is
attributable to these two industries.
Wireless has accounted for approximately $0.25 of the NAV loss. The wireless
sector has suffered from investor concern over subscriber growth and the
longer-term structure of the industry. While the risks to the sector have
increased, we believe that the sector has suffered disproportionately due to
the higher level of risk aversion investors have had during this volatile
period in the financial markets. Similarly, the cable industry has suffered due
to accounting and valuation concerns brought on in part by the well-publicized
collapse of Adelphia Communications Corp. Cable accounted for approximately
$0.16 of the NAV loss since our last report. Again, we believe that the market
has overreacted to the recent news in this historically stable industry.
Since our last report, we have not sold any of the loans we own in these two
industries, as we believe they continue to possess long-term value. In our
opinion, the market has lost sight of the senior secured lender's strong
position in the capital structure of these typically asset-rich companies. We
believe there can be meaningful recovery in many of these loans as the
financial markets stabilize and investors regain a degree of confidence in the
markets and the economy. This process could take some time and in the interim,
we will be vigilant in monitoring these credits and changing industry dynamics.
Our goal is to maximize value by being patient and riding out the day-to-day
volatility in those credits that we believe possess long-term value.
One key aspect of the Fund's management policy is that its NAV is calculated to
date 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
July 9, 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
holding short-term interest rates steady for the remainder of the year.
On the date of the shareholder letter in our last report, May 3, 2002, the
Fund's share price was $12.92. From that point, the share price rose through
mid-June to $13.18. Since that time, the price dropped steadily to a new
52-week low of $12.06 on July 26, 2002.
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Travelers Corporate Loan Fund Inc.
3
The Fund continues to trade at a wide discount relative to historical levels.
The average discount has increased significantly since the terrorist attacks on
September 11, 2001 ("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 July 26, 2002, the Fund traded at
an 8.81% average discount to its NAV. Over the course of the month of July, the
Fund's discount has continued to widen. As of July 26, the Fund traded at an
11.91% discount to NAV, a very wide level by historical standards.
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. More recently, the discount has widened over the course of the last
month as both the share price and NAV of the Fund have declined, suggesting
investors' perceptions of risk have increased. Over time, we believe the
probabilities lie in a narrowing of the discount as uncertainties abate in the
financial markets and investor confidence improves.
Since our last report, asset levels in the Fund have remained at acceptable
levels. Although we have room to add more assets, new loan creation in the
market remains low and we are in a period in which our credit discipline points
us toward more conservative asset selection, as volatility remains high and the
risks to the economy have increased. 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 and the uncertainty and volatility in the
market subsides.
Corporate Loan Market Outlook
Since our last report, the corporate loan market has turned down as uncertainty
and lack of confidence has negatively impacted the financial markets and the
telecommunications and cable industries continue to suffer disproportionately.
Loan prices have generally softened, volatility has increased and credit
spreads have widened. Any hint of weakness results in a strong downward
movement in price as investors' tolerance for risk has diminished. We expect
that this condition will abate as the capital markets recover, although we
expect volatility will continue in the near future. Recovery in the loan market
will likely follow an improvement in confidence in the broader capital markets.
New issuance in the corporate loan market continued at a modest pace. 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 activity have typically been the seeds of loan market activity.
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2002 Quarterly Report to Shareholders
4
All of these activities have been down considerably from prior periods and
increased activity has tended to lag economic recovery. As equity prices have
fallen significantly, prices for merger and acquisition and leveraged buyout
activity are becoming more reasonable. In time, we expect that improved loan
issuance will begin as the economy continues to grow at a moderate pace and
businesses and financiers start to take on increasing levels of risk supported
by the capital markets.
Although cash levels in corporate loan fund portfolios remain relatively high,
the uncertainty in the financial markets has resulted in an increased level of
scrutiny by investors on new transactions. Sources of new investment capital
have slowed, mitigating some of the competition for new loans. In addition, the
wave of refinancing activity experienced in the last several months has slowed,
dramatically reducing the need to replace loans that are taken out by other
capital market products. As a result, pricing dynamics in the loan market have
changed course since our last report. Credit spreads have widened and we expect
they will remain wide as long as the current level of uncertainty remains in
the market. These conditions have also supported the continuation of strong
credit structures in the corporate loan market as investment managers have
maintained their credit discipline. We expect credit structures to remain
favorable, as portfolio managers should not quickly forget the lessons learned
through the latest recession and the volatility experienced more recently in
the capital markets. As the economy recovers, the credit discipline that has
existed should drive stronger overall market dynamics going forward.
The financial markets are going through a difficult period as the corporate
governance issues that have dominated the media have shaken confidence in the
system. The markets have taken on a "shoot first, ask questions later"
mentality. While many important and challenging questions have arisen as a
result of these issues, we believe that we are going through a healthy process
that will wring out excesses that had entered the system and patch weaknesses
that existed. The resulting improvements will result in a stronger system from
which to grow and prosper.
As companies and investors focus more on strong balance sheets, accounting
accuracy and transparency and less on growth for growth's sake, a stronger
corporate environment should result. This may result in lower price/earnings
("P/E")/5/ multiples and stock prices than we became used to in the 1990s, but
should provide for a more sound and less volatile environment for the debt
markets, including the corporate loan market.
---------
5P/E shows the multiple of earnings at which a stock sells, determined by
dividing current price by current earnings per share. Earnings per share for
the P/E ratio is determined by dividing earnings for the past 12 months by the
number of common shares outstanding.
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Travelers Corporate Loan Fund Inc.
5
Investment Strategy
While the economy continues to grow, albeit at a slower pace, we must continue
to maintain our credit discipline as much as ever. Many companies continue to
work their way through the effects of the recession and as the uncertainties
surrounding the economic recovery have increased, we must continue to maintain
a close watch over loans already in the portfolio as well as new loans to be
added.
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
challenging period we continue to emphasize monitoring and conducting remedial
action in the Fund's portfolio. We carefully 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, although loan prices across the market have fallen, the majority of
loans in the portfolio have continued to perform well. The level of risk in the
economy has increased since our last report 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 will be attentive to maintaining the credit discipline that we
have followed in the past.
Though we continue to have room to add new assets, as new issuance has remained
low since our last report, 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.
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2002 Quarterly Report to Shareholders
6
Economic Outlook
Since our last report, the United States economy has continued to grow out of
the recession experienced in 2001 and data continue to suggest the economic
recovery, while slowing, remains on track. However, the risks to this scenario
have increased recently as a result of a sharp downturn in global equity
markets, corporate governance issues, weaker-than-expected economic results in
June, geopolitical and terrorist threats and uncertainty in foreign economies,
particularly Latin America. We expect that the Fed will stay on hold for the
remainder of 2002 based on our expectation for moderate growth for the
remainder of the year.
While growth in the second quarter is expected to slow significantly from the
exceptional 6.1% GDP growth experienced in the first quarter, the economy has
continued to show encouraging signs that moderate growth can be expected for
the rest of 2002 and into 2003. The case for continued growth is supported by
an accommodative Fed policy, fiscal policy stimulus, lean corporate
inventories, consumer spending, an improving employment picture, and an
improving corporate profit picture. The economic recovery continues to benefit
from the fact that in 2001, the Fed reduced interest rates 11 times to 1.75%,
the lowest level in four decades and a new 10-year, $1.35 trillion tax cut was
put in place. The effect of the rate cuts will continue to work its way into
the system for the remainder of 2002.
The June report on industrial production reflects a continuation of the
broad-based recovery in the manufacturing sector as inventory restocking and
auto production drive the index. The Institute for Supply Management ("ISM")/6/
survey for manufacturing was up 0.7% in June after a 0.5% increase in May.
Manufacturing output has expanded for six consecutive months, reaching a pace
of 5.7% annualized growth over the last three months.
Consumers have continued to spend. Weekly retailing surveys suggest that July
results will at least hold at June's level and new zero-percent financing
incentives should lift vehicle sales in July. Automakers expect July sales may
be the best this year. Housing has been strong through the first half of the
year and with mortgage rates plunging to the lowest level in 31 years, consumer
spending and the economy may benefit from another wave of mortgage refinancing
and debt consolidation. While the index of existing home sales declined in
June, economists and industry experts said the unusual strength of sales in
earlier months made some cooling inevitable. The Commerce Department reported
that new homes sold in June came in at a record 1.001
---------
6The ISM compiles a composite diffusion index of national manufacturing
conditions. Readings greater than 50% indicate an expanding factory sector.
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Travelers Corporate Loan Fund Inc.
7
million annual pace. The Mortgage Bankers Association of America's index of
loan applications indicates that sales are likely to rise in the future as the
index rose to close to a record in the first week of July. The National
Association of Homebuilders reported that its July housing market index matched
April's reading as the highest this year. Many industry experts and economists
expect sales of new and existing homes to exceed last year's record 6.21
million total.
Consumer spending has been and should continue to be helped by the fact that
incomes continue to rise and the employment picture is gradually improving.
According to Labor Department data, real earnings rose 0.6% in June (the most
in six months) and in the last year, wages and salaries have increased 3.5%.
The Labor Department also reported that initial claims for unemployment
benefits fell by 21,000 to 362,000 in the week of July 20, the lowest in 17
months. Jobless claim readings below 400,000 indicate job creation. The volume
of help-wanted advertising rose in June from the lowest level in almost four
decades, the Conference Board said. Payroll employment growth was 36,000 in
June and 24,000 in May. The latest Employment Outlook Survey conducted by
Manpower Inc. pointed to an acceleration of job growth over the course of the
summer quarter as well as improved hiring breadth across industries.
Continuing productivity gains appear to be improving the corporate profit
picture. Based on the results of 371 companies in the S&P 500 Index ("S&P
500")/7/ that reported as of July 25, U.S. corporate profits rose during the
second quarter, the first increase after five straight quarters of decline.
Improving corporate profits could be the catalyst for improvements in hiring
and capital spending. The improvement in productivity is evident in the fact
that Business Week's flash profit survey for the second quarter indicates
profits were up 14% on just a 1% increase in sales. Productivity rose at a
revised 8.4% annual rate in the first quarter, the fastest since the second
quarter of 1983.
In spite of the significant evidence supporting continued growth, a number of
concerns exist. Corporate governance issues continue to dominate the headlines
and the rout in equities has depressed broad indexes to 1997 levels. These
conditions have led to uncertainty and a lack of confidence, both of which can
threaten economic growth. Consumer confidence has fallen recently. The
University of Michigan's final consumer sentiment index fell to 88.1 in July
after a reading of 92.4 in June. This is the lowest reading since November 1991.
Most of the latest economic data is weaker, even though it predates the recent
sharp fall in equity prices. According to the Commerce Department, durable
goods orders fell by 3.8% in June, the steepest drop in seven months, with
weakness concentrated in capital goods orders. A sharp decline in non-defense
---------
7The S&P 500 is a market-capitalization-weighted measure of 500 widely held
common stocks. Please note that an investor cannot invest directly in an index.
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2002 Quarterly Report to Shareholders
8
capital goods orders in June suggests that a strong recovery in capital
spending may not be under way. Existing home sales, which comprise 85% of the
residential real estate market, declined 11.7% in June, the National
Association of Realtors said. This was the steepest fall for existing home
sales in seven years. To date, housing has been a key engine to the economic
recovery. According to Colliers International, office markets recorded another
quarter of near non-existent demand combined with an influx in sublease space.
In the second quarter, the U.S. downtown vacancy rate rose to its highest level
in more than five years, according to Cushman and Wakefield, Inc. Although the
help-wanted index has improved, it remains at depressed levels.
Fears of a credit crunch are mounting. Financial market volatility jumped to
14-year highs in both the equity and bond markets. If the uncertainty in the
financial markets continues, credit will likely be more costly and harder to
get.
While recent economic data raise concerns about a "double dip" recession, it is
not surprising that economic activity would slow after the robust economic
growth in the first quarter. It is probable that the warm winter and fiscal
stimulus pulled a significant amount of second quarter sales forward into the
first quarter. The recent declines in the equity market and uncertainty
generated by corporate governance and terrorism issues have raised concerns
about consumer spending. Although spending may slow, the consumer has continued
to spend with no sign of retrenchment in sight as the strength in the housing
market and low interest rates have provided a stabilizing offset to the loss in
wealth from the decline in equity prices. Durable goods orders in June were
down significantly. However, the volatility in and frequency of revisions to
durable goods orders data caution against reading too much into one month's
results.
Since our last report, the number of uncertainties in the economic picture has
increased. Corporate scandals, geopolitical issues, terrorist threats, global
equity market weakness and economic problems in Latin America all could have
significant negative effects on the economy and must be watched carefully. In
our view, the most probable scenario is that growth continues at a slow but
steady pace for the remainder of the year and the Fed remains on hold
throughout 2002. The risks to this outcome lie largely with the consumer and it
is too early to tell how the consumer will ultimately react to the significant
number of issues causing the high level of uncertainty and volatility in the
financial markets. If economic data points to resumption of the recession and
capital market activity becomes unstable with a significant need for liquidity,
the Fed could move to lower short-term interest rates in response.
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.
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Travelers Corporate Loan Fund Inc.
9
Additional Information
The Travelers Corporate Loan Fund is traded on the New York Stock Exchange
under the symbol "TLI." Daily closing prices are available online under symbol
XTLIX and in most newspapers under the New York Stock Exchange listings.
Barron's and The Wall Street Journal's Monday editions carry closed-end fund
tables that provide weekly net asset value per share information. In addition,
the Fund issues a quarterly allocation press release that can be found on most
major financial web sites.
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
July 26, 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 12 through 16 for a list and percentage breakdown of the Fund's holdings.
Also, please note any discussion of the Fund's holdings is as of June 30, 2002
and is subject to change.
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2002 Quarterly Report to Shareholders
10
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 28. 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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Travelers Corporate Loan Fund Inc.
11
Schedule of Investments (unaudited) June 30, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
--------------------------------------------------------------------------------
SENIOR COLLATERALIZED LOANS -- 92.2%
Aerospace/Defense -- 1.8%
$1,507,697 Decrane Aircraft Holdings, Inc. Term B 9/30/05 $ 1,500,158
2,443,821 Decrane Aircraft Holdings, Inc. Term D 12/24/06 2,431,602
--------------------------------------------------------------------------------
3,931,760
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Automotive -- 4.6%
1,330,000 Collins & Aikman Corp. Term B 12/31/05 1,340,331
1,367,783 Dayco Products LLC Term B 9/11/08 1,367,612
1,700,000 Dura Automotive Systems, Inc. Term C 4/24/09 1,716,470
1,942,521 J.L. French Automotive Casting, Inc. Term B 10/21/06 1,770,122
2,100,000 Metaldyne Co. LLC Term D 12/4/08 2,115,750
1,596,000 Stoneridge, Inc. Term B 5/1/09 1,607,970
--------------------------------------------------------------------------------
9,918,255
--------------------------------------------------------------------------------
Building Materials -- 5.2%
1,688,040 Hanley-Wood, Inc. Term B 9/21/07 1,658,499
1,292,633 Magnatrax Corp. Term B 11/15/05 1,108,433
3,744,141 Masonite International Corp. Term C 8/31/08 3,770,660
2,592,527 Panolam Industries International, Inc. Term B 1/31/07 2,462,900
2,561,379 Trussway Holdings Inc. Term B 12/31/06 2,241,206
--------------------------------------------------------------------------------
11,241,698
--------------------------------------------------------------------------------
Chemicals -- 7.1%
2,925,000 Georgia Gulf Corp. Term B 11/10/06 2,944,501
1,392,967 Huntsman International LLC Term B 6/30/07 1,399,134
1,392,967 Huntsman International LLC Term C 6/30/08 1,399,134
7,776,608 Lyondell Petrochemical Co. Term E 5/17/06 7,911,952
1,683,000 Noveon PMD Group, Inc. Term B 9/30/08 1,689,613
--------------------------------------------------------------------------------
15,344,334
--------------------------------------------------------------------------------
Conglomerates -- 2.3%
1,473,728 Gentek, Inc. Term C 10/31/07 1,161,298
3,900,000 SPX Corp. Term B 12/31/06 3,915,358
--------------------------------------------------------------------------------
5,076,656
--------------------------------------------------------------------------------
Consumer Cyclicals -- 0.4%
911,765 Pike Electric, Inc. Term B 4/15/10 920,882
--------------------------------------------------------------------------------
Consumer Products -- 2.4%
757,570 American Safety Razor Co. Term B 4/30/07 636,359
992,500 Armkel, LLC Term B 3/28/09 1,003,976
1,796,042 Holmes Products Corp. Term B 2/5/07 1,652,358
997,500 Meow Mix Inc. Term B 1/31/08 1,002,488
992,500 Shop Vac Corp. Term 7/7/07 987,537
--------------------------------------------------------------------------------
5,282,718
--------------------------------------------------------------------------------
Electric -- 1.9%
4,100,000 Westar Energy, Inc. Term B 6/6/05 4,125,625
--------------------------------------------------------------------------------
See Notes to Financial Statements.
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2002 Quarterly Report to Shareholders
12
Schedule of Investments (unaudited) (continued) June 30, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
----------------------------------------------------------------------------------
Entertainment -- 2.7%
$1,000,000 Metro-Goldwyn-Mayer Inc. Term B 6/17/08 $ 1,006,563
3,473,750 Six Flags Theme Parks Inc. Term B 9/30/05 3,495,701
80,000 Washington Football Group, Inc. Term A 10/29/04 80,025
1,290,000 Washington Football Inc. Term C 10/29/04 1,290,404
---------------------------------------------------------------------------------
5,872,693
---------------------------------------------------------------------------------
Environmental -- 2.6%
1,474,431 Allied Waste North America, Inc. Term B 7/21/06 1,464,673
1,769,317 Allied Waste North America, Inc. Term C 7/21/07 1,757,608
2,386,000 Casella Waste Systems, Inc. Term B 12/14/06 2,397,682
---------------------------------------------------------------------------------
5,619,963
---------------------------------------------------------------------------------
Food -- 5.0%
993,750 American Seafoods Group LLC Term B 4/18/09 1,001,203
4,189,500 Dean Foods Co. Term B 7/31/08 4,216,665
900,000 Fleming Co. Term B 6/18/08 901,407
990,000 Flowers Food Inc. Term B 3/26/07 997,920
1,136,929 Michael Foods Inc. Term B 3/22/08 1,148,014
997,500 National Dairy Holdings, L.P. Term B 4/30/09 1,005,397
1,162,314 NSC Operating Co. Term B 5/27/07 1,166,672
500,000 NSC Operating Co. 2nd Lien 5/25/09 500,625
---------------------------------------------------------------------------------
10,937,903
---------------------------------------------------------------------------------
Gaming -- 2.6%
2,200,000 Alliance Gaming Corp. Term B 12/15/06 2,218,333
1,180,699 Ameristar Casinos, Inc. Term B 12/26/06 1,193,716
997,500 Isle of Capri Casinos, Inc. Term B 3/2/06 1,004,981
1,135,299 Scientific Games Corp. Term B 9/30/07 1,141,331
---------------------------------------------------------------------------------
5,558,361
---------------------------------------------------------------------------------
Healthcare -- 2.4%
1,097,250 Caremark Rx Inc. Term B 3/15/06 1,101,822
1,500,000 Kessler Rehabilitation Corp. Term B 7/30/08 1,496,250
2,493,750 Rotech Healthcare Inc. Term B 4/10/08 2,522,323
---------------------------------------------------------------------------------
5,120,395
---------------------------------------------------------------------------------
Home Construction -- 0.9%
1,960,000 Lennar Corp. Term B 5/2/07 1,967,840
---------------------------------------------------------------------------------
Industrial - Other -- 5.4%
1,850,968 Flowserve Corp. Term C 6/30/09 1,873,816
3,825,931 General Cable Corp. Term B 6/7/07 3,555,725
3,731,704 Mueller Group, Inc. Term E 8/12/06 3,756,195
1,000,000 Trimas Corp. Term B 6/6/10 1,011,250
2,327,956 Western Industries Ltd. Term B 6/23/06 1,571,370
---------------------------------------------------------------------------------
11,768,356
---------------------------------------------------------------------------------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
13
Schedule of Investments (unaudited) (continued) June 30, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
--------------------------------------------------------------------------------------------------
Insurance -- 0.6%
$ 1,200,000 Oxford Health Plans, Inc. Term B 6/30/06 $ 1,207,126
-------------------------------------------------------------------------------------------------
Media/Cable -- 9.4%
1,000,000 Block Communications Inc. Term B 5/15/10 1,005,625
2,500,000 Century Cable Holdings Term B 9/28/09 1,889,733
1,995,000 Charter Communications VIII Term B 2/2/08 1,813,234
7,000,000 Charter Communications Operating LLC Term B 3/18/08 6,367,778
1,731,233 Classic Cable, Inc. Term B 1/31/08 1,523,485
865,616 Classic Cable, Inc. Term C 1/31/08 761,742
2,000,000 Insight Midwest LLC Term B 12/31/09 1,971,250
975,000 Regal Cinemas, Inc. Term B 12/31/07 985,969
4,200,000 Videotron Ltee Term B 12/1/09 4,194,750
-------------------------------------------------------------------------------------------------
20,513,566
-------------------------------------------------------------------------------------------------
Media/Non-Cable -- 12.4%
4,176,103 21st Century Newspapers Term B 9/15/05 3,989,485
1,782,857 Advanstar Communications Inc. Term B 10/12/08 1,757,897
4,410,384 American Media Operation Inc. Term C 11/1/07 4,471,027
1,818,738 Canwest Media Inc. Term B 5/15/08 1,832,948
1,136,262 Canwest Media Inc. Term C 5/19/09 1,145,139
500,000 Cumulus Media Inc. Term B 3/22/10 505,188
846,478 Emmis Communications Corp. Term C 1/5/10 845,420
4,000,000 PanAmSat Corp. Term B 12/31/08 4,017,500
3,000,000 Reader's Digest Association Inc. Term B 5/20/08 3,020,001
1,496,250 Susquehanna Media Co. Term B 6/30/08 1,503,731
2,252,095 Trader.com N.V. Term B 12/6/06 2,252,095
1,627,371 Trader.com N.V. Term C 12/6/07 1,627,371
-------------------------------------------------------------------------------------------------
26,967,802
-------------------------------------------------------------------------------------------------
Metals -- 0.4%
866,667 Compass Minerals Group, Inc. Term B 11/28/09 874,611
-------------------------------------------------------------------------------------------------
Other - Financial Institutions -- 1.4%
608,997 Bridge Information Systems, Inc. Multi-Draw 5/29/03 111,142
1,129,439 Bridge Information Systems, Inc. Term B 5/29/05 206,123
2,898,000 Outsourcing Solutions Inc. Term B 6/10/06 2,829,172
-------------------------------------------------------------------------------------------------
3,146,437
-------------------------------------------------------------------------------------------------
Packaging -- 0.9%
995,000 Graphic Packaging Corp. Term B 2/27/07 1,006,194
997,500 Printpack Holdings Inc. Term B 3/27/09 1,009,969
-------------------------------------------------------------------------------------------------
2,016,163
-------------------------------------------------------------------------------------------------
Paper -- 0.5%
1,000,000 Riverwood International Corp. Term B 3/31/07 1,006,250
-------------------------------------------------------------------------------------------------
Pharmaceuticals -- 0.6%
1,243,532 Alpharma Corp. Term B 10/5/08 1,237,703
-------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
14
Schedule of Investments (unaudited) (continued) June 30, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
--------------------------------------------------------------------------------
Railroads -- 1.0%
$1,300,000 Kansas City Southern Railway Co. Term B 12/29/06 $ 1,304,694
800,000 RailAmerica, Inc. Term B 10/14/07 808,834
-------------------------------------------------------------------------------
2,113,528
-------------------------------------------------------------------------------
Refining -- 3.0%
1,984,975 Dresser Inc. Term B 4/10/09 1,998,002
4,475,087 Tesoro Petroleum Corp. Term B 10/18/07 4,462,221
-------------------------------------------------------------------------------
6,460,223
-------------------------------------------------------------------------------
Retailers -- 0.2%
476,471 Shoppers Drug Mart Corp. Term F 5/22/09 479,449
-------------------------------------------------------------------------------
Technology -- 2.8%
4,000,000 Suez Acquisition Co. Term B 11/22/06 4,018,000
2,248,317 Trend Technologies, Inc. Term B 3/9/07 2,012,244
-------------------------------------------------------------------------------
6,030,244
-------------------------------------------------------------------------------
Telecommunications -- 9.9%
841,629 American Cellular Corp. Term B 3/31/08 621,754
961,862 American Cellular Corp. Term C 3/31/09 710,576
2,855,929 Centennial Cellular Operating Co. Term B 5/1/07 2,058,411
2,855,612 Centennial Cellular Operating Co. Term C 11/30/07 2,058,183
1,000,000 Crown Castle Operating Co. Term B 3/31/08 961,750
1,002,476 Dobson Operating Co. Term B 1/7/08 899,221
3,480,603 Fairpoint Communications Term C 3/30/07 3,397,939
3,750,000 Nextel Finance Co. Term B 6/30/08 2,967,188
3,750,000 Nextel Finance Co. Term C 12/31/08 2,967,188
1,964,452 Rural Cellular Corp. Term B 10/3/08 1,718,896
1,964,452 Rural Cellular Corp. Term C 4/3/09 1,718,896
2,000,000 Western Wireless Corp. Term B 9/30/08 1,460,000
-------------------------------------------------------------------------------
21,540,002
-------------------------------------------------------------------------------
Tobacco -- 0.2%
525,057 Commonwealth Brands, Inc. Term B 12/31/04 528,995
-------------------------------------------------------------------------------
Transportation Services -- 1.6%
1,079,440 Evergreen International Aviation, Inc. Term B 4/28/04 1,052,454
2,493,750 TravelCenters of America, Inc. Term B 11/14/08 2,511,675
-------------------------------------------------------------------------------
3,564,129
-------------------------------------------------------------------------------
TOTAL SENIOR COLLATERALIZED LOANS (Cost -- $209,611,084) 200,373,667
-------------------------------------------------------------------------------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
15
Schedule of Investments (unaudited) (continued) June 30, 2002
FACE
AMOUNT SECURITY VALUE*
------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.8%
Commercial Paper -- 7.8%
$10,400,000 Kinder Morgan Energy, 2.100% due 7/1/02 $ 10,400,000
Phillips Petroleum Co., 2.000% due
3,900,000 7/2/02 3,899,783
2,700,000 UBS Financial Inc., 1.940% due 7/1/02 2,700,000
------------------------------------------------------------------------
TOTAL SHORT-TERM
INVESTMENTS (Cost -- $16,999,783) 16,999,783
------------------------------------------------------------------------
TOTAL
INVESTMENTS -- 100% (Cost -- $226,610,867**) $217,373,450
------------------------------------------------------------------------
* 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
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
Term F -- Term Loan F
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
16
Statement of Assets and Liabilities (unaudited) June 30, 2002
ASSETS:
Investments, at value (Cost -- $226,610,867) $217,373,450
Cash 2,981,133
Interest receivable 1,344,089
Receivable for securities sold 103,877
------------------------------------------------------------------------------- ------------
Total Assets 221,802,549
------------------------------------------------------------------------------- ------------
LIABILITIES:
Management fee payable 191,907
Preferred stock dividend payable 127,832
Dividends payable 105,813
Interest payable 4,482
Accrued expenses 4,650
------------------------------------------------------------------------------- ------------
Total Liabilities 434,684
------------------------------------------------------------------------------- ------------
Series A and B Auction Rate Cumulative Preferred Stock (1,700 shares authorized
and issued at $25,000 per share for each Series) (Note 5) 85,000,000
------------------------------------------------------------------------------- ------------
Total Net Assets $136,367,865
------------------------------------------------------------------------------- ------------
NET ASSETS:
Par value of capital shares $ 9,782
Capital paid in excess of par value 145,083,964
Undistributed net investment income 751,054
Accumulated net realized loss from security transactions (239,518)
Net unrealized depreciation of investments (9,237,417)
------------------------------------------------------------------------------- ------------
Total Net Assets
(Equivalent to $13.94 a share on 9,781,667 capital shares of $0.001 par value
outstanding; 150,000,000 capital shares authorized) $136,367,865
------------------------------------------------------------------------------- ------------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
17
Statement of Operations (unaudited)
For the Nine Months Ended June 30, 2002
INVESTMENT INCOME:
Interest $ 9,357,030
Less: Interest expense (768,713)
----------------------------------------------------------------------------- -----------
Total Investment Income 8,588,317
----------------------------------------------------------------------------- -----------
EXPENSES:
Management fee (Note 2) 1,639,341
Audit and legal 79,050
Shareholder and system servicing fees 77,477
Shareholder communications 69,951
Directors' fees 43,807
Auction fees 35,538
Registration fees 19,121
Custody 5,351
Other 69,133
----------------------------------------------------------------------------- -----------
Total Expenses 2,038,769
----------------------------------------------------------------------------- -----------
Net Investment Income 6,549,548
----------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions (excluding short-term securities):
Proceeds from sales 84,057,601
Cost of securities sold 84,020,491
----------------------------------------------------------------------------- -----------
Net Realized Gain 37,110
----------------------------------------------------------------------------- -----------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (8,209,257)
End of period (9,237,417)
----------------------------------------------------------------------------- -----------
Increase in Net Unrealized Depreciation (1,028,160)
----------------------------------------------------------------------------- -----------
Net Loss on Investments (991,050)
----------------------------------------------------------------------------- -----------
Distributions Paid to Auction Rate Cumulative Preferred Stockholders
From Net Investment Income (491,836)
----------------------------------------------------------------------------- -----------
Increase in Net Assets From Operations $ 5,066,662
----------------------------------------------------------------------------- -----------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
18
Statements of Changes in Net Assets
For the Nine Months Ended June 30, 2002 (unaudited)
and the Year Ended September 30, 2001
2002 2001
----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 6,549,548 $ 11,903,373
Net realized gain (loss) 37,110 (276,628)
Increase in net unrealized depreciation (1,028,160) (8,779,404)
Distributions paid to Auction Rate Cumulative Preferred
Stockholders from net investment income (491,836) --
----------------------------------------------------------- ------------ ------------
Increase in Net Assets From Operations 5,066,662 2,847,341
----------------------------------------------------------- ------------ ------------
DISTRIBUTIONS PAID TO COMMON STOCK
SHAREHOLDERS FROM:
Net investment income (5,957,035) (12,370,409)
Net realized gains -- (218,597)
----------------------------------------------------------- ------------ ------------
Decrease in Net Assets From Distributions to Shareholders (5,957,035) (12,589,006)
----------------------------------------------------------- ------------ ------------
FUND SHARE TRANSACTIONS:
Underwriting commissions and expenses for the issuance of
Auction Rate Cumulative Preferred Stock (Note 5) (1,135,600) --
----------------------------------------------------------- ------------ ------------
Decrease in Net Assets From Fund Share Transactions (1,135,600) --
----------------------------------------------------------- ------------ ------------
Decrease in Net Assets (2,025,973) (9,741,665)
NET ASSETS:
Beginning of period 138,393,838 148,135,503
----------------------------------------------------------- ------------ ------------
End of period* $136,367,865 $138,393,838
----------------------------------------------------------- ------------ ------------
* Includes undistributed net investment income of: $751,054 $650,377
----------------------------------------------------------- ------------ ------------
See Notes to Financial Statements.
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
19
Statement of Cash Flows (unaudited)
For the Nine Months Ended June 30, 2002
CASH FLOWS USED BY OPERATING AND INVESTING ACTIVITIES:
Interest and dividends received $ 9,433,435
Operating expenses paid (2,143,447)
Net short-term purchases (16,309,915)
Purchases of portfolio securities (87,407,663)
Proceeds from disposition of long-term securities 83,928,041
Interest paid on bank loans (791,998)
---------------------------------------------------------------- ------------
Net Cash Flows Used By Operating and Investing Activities (13,291,547)
---------------------------------------------------------------- ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Redemption of Bank Loan (61,700,000)
Issuance of Auction Rate Cumulative Preferred Stock 85,000,000
Underwriting and Issuance expenses related to Auction Rate
Cumulative Preferred Stock (1,135,600)
Cash dividends paid on Auction Rate Cumulative Preferred Stock (364,004)
Cash dividends paid on Common Stock (6,100,743)
---------------------------------------------------------------- ------------
Net Cash Flows Provided By Financing Activities 15,699,653
---------------------------------------------------------------- ------------
NET INCREASE IN CASH 2,408,106
Cash, Beginning of period 573,027
---------------------------------------------------------------- ------------
Cash, End of period $ 2,981,133
---------------------------------------------------------------- ------------
RECONCILIATION OF INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH FLOWS USED BY
OPERATING AND INVESTING ACTIVITIES:
Increase in Net Assets From Operations $ 5,066,662
---------------------------------------------------------------- ------------
Amortization of discount on securities (64,839)
Decrease in investments, at value (18,387,724)
Decrease in interest payable for money borrowed (103,877)
Increase in dividends and interest receivable (165,642)
Decrease in interest payable (23,285)
Decrease in accrued expenses (104,678)
Increase in distribution to preferred shareholders 491,836
---------------------------------------------------------------- ------------
Total Adjustments (18,358,209)
---------------------------------------------------------------- ------------
Net Cash Flows Used By Operating and Investing Activities $(13,291,547)
---------------------------------------------------------------- ------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
20
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)
dividends and distributions to shareholders are recorded monthly by the Fund on
the ex-dividend date for the shareholders of Common Stock based on net
investment income. The holders of the Auction Rate Preferred Stock shall be
entitled to receive dividends in accordance with an auction that will normally
be held monthly and out of funds legally available to shareholders; (j) the net
asset value of the Fund's Common Stock is determined by dividend the value of
the net assets available to Common Stock by the total number of shares of
common stock outstanding. For the purpose of determining the net asset value
per share of the common stock, the value of the Fund's net assets shall be
deemed to equal the value of the Fund's assets less (1) the Fund's liabilities,
(2) the aggregate liquidation value (i.e., $25,000 per outstanding share) of
the Auction Rate Cumulative Preferred Stock and (3) accumulated and unpaid
dividends on the outstanding Auction Rate Cumulative Preferred Stock issue; (k)
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
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
21
Notes to Financial Statements (unaudited) (continued)
markets and any other parameters used in determining these estimates could
cause actual results to differ; and (i) 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 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.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
22
Notes to Financial Statements (unaudited) (continued)
3. Investments
During the nine months ended June 30, 2002, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
-----------------------------------------------------------------------
Purchases $87,407,663
-----------------------------------------------------------------------
Sales 84,057,601
-----------------------------------------------------------------------
At June 30, 2002, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
--------------------------------------------------------------------------------
Gross unrealized appreciation $ 941,936
Gross unrealized depreciation (10,179,353)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (9,237,417)
--------------------------------------------------------------------------------
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 nine months ended
June 30, 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.
At May 31, 2002, the Fund entered into a 364 revolving credit agreement and a
three year revolving credit agreement to borrow up to an aggregate of $25
million from the National Australia Bank Limited. This agreement terminates on
May 31, 2005. The Fund pays a facility fee quarterly at 0.15% per annum for the
364 day and three year revolving credit agreements, respectively.
-------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
23
Notes to Financial Statements (unaudited) (continued)
5. Auction Rate Cumulative Preferred Stock
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 Stock ("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 rates were 1.95% and 1.98% for the nine
months ended June 30, 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.
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.
Under Emerging Issues Task Force ("EITF") announcement Topic D-98,
Classification and Measurement of Redeemable Securities, which was issued on
July 19, 2001, preferred securities that are redeemable for cash or other
assets are to be classified outside of permanent equity to the extent that the
redemption is at a fixed or determinable price and at the option of the holder
or upon the occurrence of an event that is not solely within the control of the
issuer.
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 June 30, 2002, the Fund had 150,000,000 shares of capital stock authorized,
("Common Stock") with a par value of $0.001 per share.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
24
Notes to Financial Statements (unaudited) (continued)
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.
25
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 0.67 1.22 1.40 0.97
Net realized and unrealized gain (loss) (0.10) (0.93) 0.02 0.09
Distributions paid to Auction Rate
Cumulative Preferred Stockholders from
net investment income (0.05) -- -- --
---------------------------------------------------------------------------------------
Total Income From Operations 0.52 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 Stock (0.12) -- -- --
---------------------------------------------------------------------------------------
Less Distributions To Common Stock
Shareholders From:
Net investment income (0.61) (1.26) (1.44) (0.85)
Net realized gains -- (0.02) (0.03) --
---------------------------------------------------------------------------------------
Total Distributions (0.61) (1.28) (1.47) (0.85)
---------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.94 $14.15 $15.14 $15.19
---------------------------------------------------------------------------------------
Total Return, Based on Market Value 6.13%++ (4.33)% 13.35% 1.68%++
---------------------------------------------------------------------------------------
Total Return, Based on Net Asset Value 3.27%++ 2.44% 10.55% 7.45%++
---------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $136,368 $138,394 $148,136 $148,548
---------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 6.34%+ 8.31% 9.20% 7.48%+
Interest expense 0.74+ 2.75 3.04 1.68+
Auction fees 0.03+ -- -- --
Organization expense -- -- -- 0.24+
Operating expenses 1.20+ 1.82 1.70 1.63+
Total expenses 1.97+ 4.57 4.74 3.55+
---------------------------------------------------------------------------------------
Portfolio Turnover Rate 43% 23% 59% 53%
---------------------------------------------------------------------------------------
Market Value, End of Period $12.98 $12.82 $14.6875 $14.375
---------------------------------------------------------------------------------------
(1) For the nine months ended June 30, 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 Quarterly Report to Shareholders
26
Other Financial Information (unaudited)
The table below sets out information with respect to Auction Rate Cumulative
Preferred Stock:
2002/(1)/
--------------------------------------------------------------------------------
Auction Rate Cumulative Preferred Stock/(2)/:
Total Amount Outstanding (000s) $85,000
Asset Coverage Per Share 65,000
Involuntary Liquidating Preference Per Share 25,000
Average Market Value Per Share/(3)/ 25,000
------------------------------------------------------------------------------
(1) As of June 30, 2002.
(2) On March 14, 2002, the Fund issued 3,400 shares of Auction Rate Cumulative
Preferred Stock at $25,000 a share, for Series A & B, respectively.
(3) Excludes accrued interest or accumulated undeclared dividends.
--------------------------------------------------------------------------------
Travelers Corporate Loan Fund Inc.
27
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
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2002 Quarterly Report to Shareholders
28
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.
29
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 Quarterly Report to Shareholders
30
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 Chief Administrative Officer
Glenn N. Marchak
Vice President and
Investment Officer
Richard L. Peteka
Chief Financial Officer and Treasurer
Kaprel Ozsolak
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
State Street Bank and 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
FD01804 8/02 02-3700