Citigroup
Investments
Corporate
Loan Fund Inc.
Annual Report September 30, 2002 Ticker Symbol: TLI
[GRAPHIC]
Citigroup
Investments
Corporate
Loan Fund Inc.
Dear Shareholder,
Enclosed herein is the annual report for the Citigroup Investments Corporate
Loan
[PHOTO]
R. JAY GERKEN
Chairman
[PHOTO]
GLENN N. MARCHAK
Vice President and Investment Officer
Fund Inc. ("Fund") for the year ended September 30, 2002. In this report, we
summarize what we believe to be the period's prevailing economic and market
conditions and outline our investment strategy. A detailed summary of the
Fund's performance can be found in the appropriate sections that follow. We
hope you find this report to be useful and informative.
Special Notices
New Fund Chairman -- We are pleased to report that R. Jay Gerken, a managing
director of Salomon Smith Barney Inc., has been elected Chairman of the Board,
President and Chief Executive Officer of the Fund replacing Heath B. McLendon,
who has been appointed Chairman of Salomon Smith Barney Inc.'s new Equity
Research Policy Committee. Previously, Jay managed the Smith Barney Growth and
Income Fund for six years; developed and managed the Smith Barney Allocation
Series Inc. from inception in 1996 through the end of 2001, and was responsible
for the investment design and implementation of Citigroup Asset Management's
college savings programs with the states of Illinois and Colorado.
New Fund Name -- On September 3, 2002, Citigroup Investments Corporate Loan
Fund Inc. announced a name change from Travelers Corporate Loan Fund Inc.
effective with the opening of trading on the New York Stock Exchange on
September 16, 2002. The Fund changed its name due to the recent spinoff of
Travelers Property and Casualty by Citigroup. The Fund continues to trade under
the New York Stock Exchange symbol "TLI."
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Citigroup Investments Corporate Loan Fund Inc.
1
Performance Review/1/
During the year ended September 30, 2002, the Fund distributed income dividends
to shareholders totaling $0.81 per share. The table below shows the annualized
distribution rate and twelve-month total return based on the Fund's September
30, 2002 net asset value ("NAV") per share and its New York Stock Exchange
("NYSE") closing price./2/
Twelve-Month
Annualized Total Return
Price Per Share Distribution Yield/3/ As of 9/30/02/3/
--------------- -------------------- ---------------
$13.24 (NAV) 5.98% (0.30)%
$11.83 (NYSE) 6.69% (1.67)%
The Fund's Lipper peer group of loan participation funds/4/ returned negative
0.64% for the year ended September 30, 2002.
On October 15, 2002, the Fund declared a regular monthly dividend for October
of $0.066 per share. This is the 11th 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"). During 2002, the Fed has held short-term
interest rates steady at 1.75%. The combination of stable interest rates and
relatively steady performance of the loans in the portfolio in terms of
interest income has resulted in our being able to maintain the dividend at
$0.066 per share over the first three quarters of 2002.
---------
1 Past performance is not indicative of future results.
2 NAV 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 changes in the market price of 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 of
and demand for the Fund's shares.
3 Total returns are based on changes in NAV or 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 above chart. The annualized distribution
rate assumes a current monthly income dividend rate of $0.066 for twelve
months. This rate is as of September 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.
4 Lipper is an independent mutual-fund tracking organization. Average annual
returns are based on the year ended September 30, 2002, calculated among 43
funds in the loan participation funds category.
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2002 Annual Report to Shareholders
2
A continuing stream of mixed economic results has increased the probability
that the Fed could reduce short-term interest rates. Based on the most recent
economic data, including a mixed employment picture, we believe that the most
likely outcome is that the Fed will cut short-term interest rates before the
end of the year and potentially at the November 6, 2002 Federal Open Market
Committee ("FOMC")/5/ meeting. (This letter was written prior to the FOMC
meeting on November 6, 2002 where the rate was dropped to 1.25%.)
Unlike fixed-rate investments, interest rates of 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.
Investment Strategy
The Fund's investment objective is to maximize current income consistent with
prudent efforts to preserve capital. The Fund seeks to achieve its objective by
investing, under normal market conditions, at least 80% of its total assets in
floating or variable rate collateralized senior loans.
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. In the last quarter, we saw several loans deteriorate more rapidly than
expected as the weak economic environment has taken its toll. We continue to
work hard to identify these conditions before they deteriorate too far.
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 loans held in the
portfolio.
---------
5 The 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
payments.
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Citigroup Investments Corporate Loan Fund Inc.
3
While all components of our investment strategy are important, during this
challenging period we continue to emphasize monitoring and attempt to conduct
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 several loans that have had significant price deterioration. While
we believe some of these loans may have price appreciation in the future, there
are others where we believe much, if not all, of the loss in price could be
permanent. In addition, one loan has recently missed a scheduled interest
payment and other interest payment defaults are possible. Should these defaults
occur, we would evaluate the effect these issues will have on the future cash
flow of the portfolio and adjust the dividend accordingly. In spite of these
difficulties, the majority of loans in the portfolio have continued to pay
interest and principal. Once again, 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 majority of 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, 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 loan asset class.
Portfolio Manager Fund Overview
Consistent with our original investment mandate, the portfolio is made up
entirely of floating or variable rate senior secured corporate loans. As of
September 30, 2002, the Fund had total assets of approximately $214.9 million
that had an average equivalent rating of "Ba3" and was invested in 30 industry
sectors with the largest industry concentration of 10.1% in the
telecommunications industry. We had interests in loans made to 113 issuers.
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2002 Annual Report to Shareholders
4
The credit markets have been experiencing one of the more difficult periods in
the last century. High levels of default and volatility have resulted from a
combination of factors including the recession, the terrorist attacks on
September 11, 2001, the well publicized corporate governance issues and
accounting fraud, a downturn in global equity markets, geopolitical
uncertainties including a potential war in Iraq, difficulty in obtaining
capital, and a general loss of confidence in the capital markets.
The loan market and the Fund have not been exempt from these difficulties. As
of October 31, 2002, the NAV of the Fund was $12.79, a decrease of 90 cents per
share since July 26, 2002, the date of the shareholder letter in our last
report. As opposed to last quarter where the decline in NAV was largely the
result of weakness in the wireless and cable sectors, the decline this quarter
was more broadly based. We believe many of these loans have the potential to
recover as their deterioration in price may be largely due to investor
requirements for an increase in risk premiums, which will subside as investor
confidence returns. However, several of the loans that have had significant
deterioration in price during this quarter, in our opinion, may not recover and
are or may soon be in default with regard to interest payments.
Since the date of the shareholder letter in our last report, 86% of the loans
in the portfolio have declined in value. The decline was generally reflective
of the performance of the broader loan market over the same time period. In
addition to the broad based decline in market prices, the Fund also suffered
from price declines of over 20% in six of the loans in the portfolio. The
decline in these six loans accounted for 54 cents of the 90-cent decline in NAV
since our last report. Although a debt restructuring may be required in certain
cases, we believe that three of these six loans have the potential for price
appreciation and we expect they will generally be able to pay interest on a
timely basis. The potential for recovery in the other three loans are
questionable, in our opinion. We sold one of these loans at a considerable
discount shortly after we became aware of a significant deterioration in
financial condition of the company and resulting drop in price. In our opinion,
the prospects for recovery in price were outweighed by the potential for
further price erosion. We have elected to hold the other two loans for the time
being and continue to evaluate the potential for future price recovery in the
face of a likely restructuring of their debt. Should these loans not make
interest payments to the Fund on a timely basis, the cash flow of the Fund
would be negatively affected and could impact the Fund's dividend.
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Citigroup Investments Corporate Loan Fund Inc.
5
As the financial markets stabilize and investors regain a degree of confidence
in the capital markets and the economy, we believe there can generally be
meaningful recovery of prices in the loan market and in many of the loans in
the portfolio. 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.
On the date of the shareholder letter in our last report, July 26, 2002, the
Fund's share price had hit a new 52-week low of $12.06. Since that time, the
Fund traded in a range of approximately $12.20 to $12.00 until mid September
when the share price began to turn down in response to the continuing decline
in NAV. Since mid October, the Fund has traded in a range of approximately
$11.45 to $11.24, its 52-week low. On October 31, 2002, the Fund closed at
$11.29.
The Fund continues to trade at a wide discount relative to historical levels.
The average discount increased significantly after the terrorist attacks on
September 11, 2001 ("Attack") and more recently, has continued to increase.
Measured before the Attack, from the 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 October 31, 2002, the Fund traded at a 9.12% average
discount to its NAV. Over the course of the month of October, the Fund's
discount continued to widen to an average of 11.79% for the month. As of
October 31, the Fund traded at an 11.73% discount to NAV.
We attribute the higher level of discount after the Attack to the increased
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 widening discount has been accompanied by a decline
in both the share price and NAV of the Fund, suggesting that investors'
perceptions of risk in the Fund 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. However, the healing
process in the capital markets could take some time to complete.
Given the environment, asset levels in the Fund have remained at reasonably
acceptable levels since our last report. New loan creation in the market has
picked up somewhat since Labor Day and we expect a relatively satisfactory new
issue calendar for the remainder of the year. While we have been able to add
several new positions to the portfolio, we are in a period in which our
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2002 Annual Report to Shareholders
6
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 until the
uncertainty and volatility in the capital markets subside.
Portfolio Manager Market Outlook
Since our last report, the loan market has continued to deteriorate as high
levels of uncertainty coupled with weak economic data have had a sustained
negative impact on the financial markets. Loan prices have generally softened,
volatility has remained high and credit spreads remain wide. Any hint of
weakness results in a strong downward movement in price, as investors'
tolerance for risk remains low. We expect that this condition will abate as the
capital markets recover, although we expect volatility will continue in the
near future, as we do not currently see signs of an imminent return of
confidence. Recovery in the loan market will likely follow an improvement in
confidence in the broader capital markets.
New issuance in the loan market improved somewhat after Labor Day but remains
well below the levels we had seen in the past few years. 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. All of these
activities have been down considerably from prior periods and increased
activity has tended to lag economic recovery.
More recently, we have seen more acquisition activity as equity prices have
fallen significantly and prices for mergers and acquisitions and leveraged
buyouts are becoming more reasonable. Should the economy continue to grow at a
moderate pace and businesses and financiers increase capital spending and
merger and acquisition activity supported by the capital markets, new loan
issuance should continue to improve. However, we do not expect issuance to
return to the levels seen in the late 1990s for quite some time as we expect
economic growth will be well below the levels experienced at that time.
The uncertainty in the financial markets has continued to result in a high
level of scrutiny by investors on new transactions. There has been little new
investment capital in the loan market, which has mitigated some of the
competition for new loans. In addition, there has not been much refinancing
activity, dramatically reducing the need to replace loans taken out by other
capital market products. As a result, credit spreads have remained wide and we
expect they will remain wide as long as the current level of uncertainty
remains in the market. In addition, the lower levels of cash in portfolio
managers' hands has led to less liquidity in the secondary market and, as a
result, volatility has increased and loan prices have tended to fall more
quickly at the first sign of trouble.
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Citigroup Investments Corporate Loan Fund Inc.
7
At the same time, these tighter conditions in the loan market have supported
the continuation of strong credit structures 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.
As companies and investors focus more on strong balance sheets and accounting
accuracy and less on growth for growth's sake, a stronger corporate financing
environment should result. We expect that business managers will generally be
taking lower levels of risk going forward as the excesses that entered the
system are purged. This may result in lower price/earnings multiples and stock
prices than we became used to in the 1990s, but should provide for a more sound
and less volatile environment in the future for the debt markets, including the
loan market. While we cannot predict when the markets will bottom, should the
economy continue to grow at a moderate pace, in the long run we believe the
probability for upside potential in the loan market is greater than the
probability of further downside deterioration.
Portfolio Manager Economic Outlook
Since our last report, the economy has continued to grow at a modest pace and
we believe the odds favor that the economy will grow at a moderate pace for the
remainder of the year and into 2003. However, the uncertainties surrounding the
economic outlook have increased. We expect to continue receiving mixed signals
on the economy, as future growth is likely to remain uneven across industry
sectors. Furthermore, event risk is ever present in the system, whether from
armed conflict in the Middle East, terrorist activity or further capital market
volatility. As a result, we remain cautious in our outlook on the economy as a
whole, and would not be surprised if Gross Domestic Product ("GDP")/6/ growth
slowed somewhat during the fourth quarter. Lastly, we believe the recent
weakness in economic data, and particularly in the employment results, have
tipped the scales in favor of a Fed easing by the end of the year.
The final tally on third quarter GDP of 3.1% showed an increase from the second
quarter's pace of 1.3%. While third quarter growth was somewhat below consensus
expectations, it is noteworthy that GDP growth accelerated and the economic
recovery remained intact. Early in the third quarter, market sentiment had
grown heavy with concern about the potential for a "double dip" recession. News
of several large bankruptcies, revelations of accounting fraud,
---------
6 GDP is a market value of goods and services produced by labor and property in
a given country.
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2002 Annual Report to Shareholders
8
volatility in the stock market both in the U.S and abroad, fears of military
action in the Middle East, weakness in Latin America, Japan and Europe, rising
unemployment and sluggish capital spending all fueled concerns of whether the
U.S. economy would remain on a positive track. Indeed, the economy did
experience some softening in the latter half of the third quarter, as reflected
in the Commerce Department's report of a 5.9% decline in September durable
goods orders and a 1.2% decline in September retail sales and the Conference
Board's report of a sharp drop in consumer confidence to 79.4 in October from
93.7 in September. Despite the recent weakness in manufacturing and retail
sales and declining consumer sentiment, we believe the "double dip" scenario
has been avoided and that the underpinnings for a continuation of the moderate
growth scenario remain in place.
The economy has been driven largely by consumer spending which has been most
evident in the continuing high levels of automobile and housing purchases.
Although consumer confidence has dropped, the consumer continues to spend,
fueled by low interest rates and continuing positive disposable personal
income. The housing market is on course to complete its best year ever in 2002.
Attractive financing deals from auto manufacturers have continued to drive new
car purchases.
The 11 cuts in short-term interest rates by the Fed during 2001 continue to
work their way into the system. In addition, long-term bond yields have
remained low, pushing mortgage rates to 40-year lows. The U.S. consumer has
benefited from lower interest rates through lower payments on floating-rate
credit card and installment debt and reduced monthly mortgage payments by
refinancing long-term, fixed rate mortgages. Applications for mortgage
refinancing reached an all-time record during the third quarter according to
the Mortgage Bankers Association Index. As the processing time for these new
applications has expanded to six to eight weeks, consumers will likely have
fresh cash available for the year-end holiday spending season.
The longer-term question is whether consumer spending will continue to
stimulate economic growth long enough for a transition from consumer-led to
business-led growth to take place. So long as employment does not drop
precipitously, increasing disposable personal income and liquidity provided by
mortgage refinancing should continue to fuel consumer spending in the near
term. Although recent employment data has been weaker, the Bureau of Labor
Statistics reported that average hourly earnings continued to grow at 0.3% in
September and the Commerce Department reported that personal income, wages and
salaries and disposable personal income all continued to grow during September
at 0.4%, 0.6% and 0.5%, respectively. While we expect the level of unemployment
to increase somewhat from the current 5.6%, by
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Citigroup Investments Corporate Loan Fund Inc.
9
historical standards employment levels remain reasonable. We do not expect
unemployment to grow to a level that would seriously endanger the continuation
of moderate economic growth. At the same time, we expect business spending to
gradually improve from the current anemic levels. Improvement in corporate
earnings driven by productivity gains should provide the stimulus for
improvement in spending. According to International Strategy & Investment Group
("ISI"), with nearly 75% of companies in the S&P 500 reporting operating
earnings per share ("EPS"), approximately 59% have reported positive earnings
surprises while only approximately 15% have had negative surprises. ISI also
reports that analysts expect EPS gains of more than 7% year-over-year for the
third quarter of 2002. According to Thomson Financial/First Call, analysts'
estimates for fourth quarter EPS for the S&P 500 are close to 17% greater than
the fourth quarter of 2001 and estimates for 2003 are for 15% EPS growth.
As capacity utilization remains low in the U.S. and productivity continues to
grow, we anticipate that spending on new plant and commercial buildings will
remain weak. However, we expect business managers will continue to cut costs
and push for efficiency gains to fight the impact of a low inflation
environment with minimal pricing power. As a result, spending on higher
efficiency equipment and technology should improve at a moderate pace.
According to the Commerce Department, spending on equipment and software rose
in the third quarter at a 6.5% annual rate, the largest increase since the
second quarter of 2000 and up from 3.3% the second quarter. Business
inventories remain at historically low levels. As business managers gain more
confidence in the economic picture, industrial production should improve as
inventory levels are rebuilt.
As the fallout from excessive leverage and overly optimistic growth assumptions
are gradually wrung out of the system, we see a firm base being formed to
support slow but steady economic growth into 2003. The Fed remains
accommodative and we believe that recent economic data have tipped the odds in
favor of a rate cut before the end of the year. However, a number of potential
risks to the longer-term economic picture remain. The timing and extent of a
recovery in business capital spending is still unclear. The duration and
sustainability of current high levels of consumer spending coupled with the
potential for continued increases in the savings rate are similarly unknown.
Finally, the uncertainties and risks of increased terrorist activity and
expanded conflict in the Middle East continue to hang over the markets. On
balance, we believe in the resilience of the U.S. economy and expect that an
improving economic climate with slow growth and low inflation lie ahead.
We promise to seek the best risk-adjusted returns available from 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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2002 Annual Report to Shareholders
10
Looking for Additional Information?
The Citigroup Investments Corporate Loan Fund Inc. 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 your investment in the Citigroup Investments 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/ R Jay Gerken /s/ Glenn N. Marchak
R. Jay Gerken Glenn N. Marchak
Chairman Vice President and
Investment Officer
October 31, 2002
The information provided in this letter by the portfolio manager represents the
opinion of the portfolio manager and is not intended to be a forecast of future
events, a guarantee of future results or investment advice. Views expressed are
those of the portfolio manager and may differ from those of other portfolio
managers or of the firm as a whole. Furthermore, there is no assurance that
certain securities will remain in or out of the Fund or that the percentage of
the Fund's assets in various sectors will remain the same. Please refer to
pages 13 through 17 for a list and percentage breakdown of the Fund's holdings.
Also, please note that any discussion of the Fund's holdings, the Fund's
performance, and the portfolio manager's views are as of September 30, 2002 and
are subject to change.
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Citigroup Investments Corporate Loan Fund Inc.
11
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 33. 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 Annual Report to Shareholders
12
Schedule of Investments September 30, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
--------------------------------------------------------------------------------
SENIOR COLLATERALIZED LOANS -- 92.9%
Aerospace/Defense -- 2.1%
$1,499,909 Decrane Aircraft Holdings, Inc. Term B 10/31/07 $ 1,462,411
2,431,339 Decrane Aircraft Holdings, Inc. Term D 12/15/06 2,370,555
600,000 Veridian Corp. Term B 6/10/08 602,063
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4,435,029
-------------------------------------------------------------------------------
Automotive -- 4.4%
1,323,333 Collins & Aikman Corp. Term B 12/31/05 1,329,241
1,367,783 Dayco Products, LLC Term B 5/31/07 1,367,612
1,695,750 Dura Operating Corp. Term C 12/31/08 1,700,625
1,937,327 J.L. French Automotive Casting, Inc. Term B 10/21/06 1,675,788
2,100,000 Metaldyne Co. LLC Term D 12/31/09 2,059,749
1,112,000 Stoneridge, Inc. Term B 7/21/03 1,114,780
-------------------------------------------------------------------------------
9,247,795
-------------------------------------------------------------------------------
Building Materials -- 5.2%
1,685,187 Hanley-Wood, Inc. Term B 9/30/07 1,655,698
1,287,777 Magnatrax Corp. Term B 11/15/05 1,047,392
3,734,780 Masonite International Corp. Term C 8/31/08 3,740,849
2,449,684 Panolam Industries International, Inc. Term B 11/24/06 2,376,194
2,302,354 Trussway Holdings Inc. Term B 5/19/06 2,014,559
-------------------------------------------------------------------------------
10,834,692
-------------------------------------------------------------------------------
Chemicals -- 6.1%
2,922,075 Georgia Gulf Corp. Term C 5/12/09 2,929,380
1,392,967 Huntsman International LLC Term B 6/30/07 1,392,096
1,392,967 Huntsman International LLC Term C 6/30/08 1,392,386
5,250,665 Lyondell Petrochemical Co. Term E 5/19/06 5,246,291
1,674,500 Noveon, Inc. Term B 9/30/08 1,679,433
-------------------------------------------------------------------------------
12,639,586
-------------------------------------------------------------------------------
Conglomerates -- 2.3%
1,466,248 Gentek, Inc. Term C 8/9/07 920,070
1,458,844 SPX Corp. Term B 9/30/09 1,457,601
2,431,406 SPX Corp. Term C 3/31/10 2,430,993
-------------------------------------------------------------------------------
4,808,664
-------------------------------------------------------------------------------
Consumer Cyclicals -- 0.4%
894,118 Pike Electric Inc. Term B 4/15/10 900,638
-------------------------------------------------------------------------------
Consumer Products -- 2.5%
755,628 American Safety Razor Co. Term B 1/31/05 678,176
990,000 Armkel, LLC Term B 10/31/02 998,132
1,796,042 Holmes Products Corp. Term B 11/15/07 1,656,848
872,500 Meow Mix Inc. Term B 1/31/08 874,681
987,500 Shop Vac Corp. Term 6/30/07 982,563
-------------------------------------------------------------------------------
5,190,400
-------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
13
Schedule of Investments (continued) September 30, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
----------------------------------------------------------------------------------
Electric -- 1.9%
$4,100,000 Westar Energy, Inc. Term B 6/5/05 $ 3,971,875
---------------------------------------------------------------------------------
Entertainment -- 1.8%
1,000,000 Metro-Goldwyn-Mayer Inc. Term B 6/30/08 999,125
1,473,684 Six Flags Theme Parks Inc. Term B 6/30/09 1,469,309
80,000 Washington Football Group, Inc. Term A 10/3/02 80,075
1,260,000 Washington Football Inc. Term C 10/3/02 1,263,544
---------------------------------------------------------------------------------
3,812,053
---------------------------------------------------------------------------------
Environmental -- 2.6%
1,464,159 Allied Waste North America, Inc. Term B 6/22/07 1,416,704
1,756,991 Allied Waste North America, Inc. Term C 6/22/08 1,701,301
2,386,000 Casella Waste Systems, Inc. Term B 12/14/06 2,393,456
---------------------------------------------------------------------------------
5,511,461
---------------------------------------------------------------------------------
Food -- 6.5%
990,438 American Seafoods Group LLC Term B 4/11/09 996,422
4,184,250 Dean Foods Co. Term B 7/15/08 4,188,957
3,890,250 Fleming Cos., Inc. Term B 6/19/08 3,790,562
987,500 Flowers Food Inc. Term B 3/26/07 993,672
1,136,929 Michael Foods Inc. Term B 3/22/08 1,145,220
995,000 National Dairy Holdings L.P. Term B 4/30/09 995,829
970,460 NSC Operating Co. Term B 5/27/07 972,886
500,000 NSC Operating Co. 2nd Lien 5/25/09 500,313
---------------------------------------------------------------------------------
13,583,861
---------------------------------------------------------------------------------
Gaming -- 2.7%
2,189,000 Alliance Gaming Corp. Term B 12/31/06 2,205,418
1,174,702 Ameristar Casinos, Inc. Term B 12/21/06 1,182,925
995,000 Isle of Capri Casinos, Inc. Term B 4/26/08 998,342
1,132,410 Scientific Games Corp. Term B 9/30/07 1,135,949
---------------------------------------------------------------------------------
5,522,634
---------------------------------------------------------------------------------
Healthcare -- 2.9%
1,094,500 Caremark Rx, Inc. Term B 3/31/06 1,097,236
1,000,000 Community Health Systems Inc. Term B 7/16/10 1,002,679
1,500,000 Kessler Rehabilitation Corp. Term B 7/30/08 1,496,250
2,425,000 Rotech Healthcare Inc. Term B 3/31/08 2,390,900
---------------------------------------------------------------------------------
5,987,065
---------------------------------------------------------------------------------
Home Construction -- 0.9%
1,955,000 Lennar Corp. Term C 5/19/07 1,961,598
---------------------------------------------------------------------------------
Industrial - Other -- 5.5%
997,500 Buffets, Inc. Term B 6/30/09 999,526
1,720,006 Flowserve Corp. Term C 5/9/08 1,713,095
3,806,461 General Cable Corp. Term B 5/25/07 2,575,706
3,722,375 Mueller Group, Inc. Term E 6/21/08 3,724,701
1,000,000 TriMas Corp. Term B 12/31/09 1,003,750
2,309,976 Western Industries Ltd. Term B 6/23/06 1,559,233
---------------------------------------------------------------------------------
11,576,011
---------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
14
Schedule of Investments (continued) September 30, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
------------------------------------------------------------------------------------
Insurance -- 1.5%
$1,995,000 Hilb, Rogal and Hamilton Co. Term B 6/30/07 $ 1,999,988
1,143,750 Oxford Health Plans, Inc. Term B 6/30/06 1,145,895
-----------------------------------------------------------------------------------
3,145,883
-----------------------------------------------------------------------------------
Media/Cable -- 10.3%
997,500 Block Communications Inc. Term B 11/15/09 1,001,864
2,500,000 Century Cable Holdings Term B 12/31/09 1,807,812
6,965,044 Charter Communications Operating LLC Term B 3/17/08 6,112,550
1,985,000 Charter Communications VIII Term B 1/2/08 1,711,070
1,731,233 Classic Cable, Inc. Term B 1/31/08 1,384,986
865,616 Classic Cable, Inc. Term C 1/31/08 692,493
4,000,000 Insight Midwest LLC Term B 12/31/09 3,831,112
975,000 Regal Cinemas, Inc. Term C 12/31/07 977,438
4,194,240 Videotron Ltee Term B 12/1/09 4,021,228
-----------------------------------------------------------------------------------
21,540,553
-----------------------------------------------------------------------------------
Media/Non-Cable -- 8.9%
1,782,857 Advanstar Communications Inc. Term B 11/17/08 1,651,371
4,372,149 American Media Operation Inc. Term C 4/1/07 4,406,308
1,818,738 Canwest Media Inc. Term B 5/15/08 1,827,690
1,136,262 Canwest Media Inc. Term C 5/15/09 1,141,854
500,000 Cumulus Media Inc. Term B 3/22/10 503,313
846,478 Emmis Communications Corp. Term B 8/31/09 849,229
4,000,000 PanAmSat Corp. Term B 12/31/08 3,862,000
2,992,500 The Reader's Digest Association, Inc. Term B 2/20/03 2,931,402
1,492,500 Susquehanna Media Co. Term B 6/30/08 1,499,963
-----------------------------------------------------------------------------------
18,673,130
-----------------------------------------------------------------------------------
Metals -- 0.4%
795,501 Compass Minerals Group, Inc. Term B 11/28/09 800,141
-----------------------------------------------------------------------------------
Other - Financial Institutions -- 1.0%
580,581 Bridge Information Systems, Inc. Multi-Draw 3/31/03 89,990
1,076,740 Bridge Information Systems, Inc. Term B 3/31/03 166,895
2,890,500 Outsourcing Solutions Inc. Term B 6/10/06 1,734,300
-----------------------------------------------------------------------------------
1,991,185
-----------------------------------------------------------------------------------
Packaging -- 2.0%
897,750 Berry Plastics Corp. Term B 7/22/10 904,109
992,500 Graphic Packaging International Corp. Term B 2/28/09 997,463
995,000 Printpack Holdings Inc. Term B 4/25/09 1,001,841
350,000 Smurfit-Stone Container Canada, Inc. Term C 6/30/09 348,833
950,000 Stone Container Corp. Term B 6/30/09 946,834
-----------------------------------------------------------------------------------
4,199,080
-----------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
15
Schedule of Investments (continued) September 30, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
--------------------------------------------------------------------------------
Paper -- 0.5%
$ 995,000 Riverwood International Corp. Term B 12/31/02 $ 994,690
--------------------------------------------------------------------------------
Pharmaceuticals -- 0.5%
1,240,407 Alpharma Corp. Term B 10/2/08 1,111,715
--------------------------------------------------------------------------------
Railroads -- 1.0%
1,296,750 Kansas City Southern Railway Co. Term B 6/12/08 1,300,352
800,000 RailAmerica, Inc. Term B 5/23/09 801,300
--------------------------------------------------------------------------------
2,101,652
--------------------------------------------------------------------------------
Refining -- 2.7%
1,780,783 Dresser Inc. Term B 4/10/09 1,790,164
4,463,843 Tesoro Petroleum Corp. Term B 10/10/07 3,889,520
--------------------------------------------------------------------------------
5,679,684
--------------------------------------------------------------------------------
Retailers -- 0.2%
476,471 Shoppers Drug Mart Corp. Term F 2/4/09 478,406
--------------------------------------------------------------------------------
Technology -- 2.4%
2,857,200 Seagate Technology HDD Holdings,
Inc. (INT) Term B 5/13/07 2,853,117
1,142,800 Seagate Technology Holdings, Inc. (U.S.) Term B 5/13/07 1,141,167
2,248,317 Trend Technologies, Inc. Term B 2/28/07 899,327
--------------------------------------------------------------------------------
4,893,611
--------------------------------------------------------------------------------
Telecommunications -- 10.1%
839,499 American Cellular Corp. Term B 3/31/08 558,734
959,427 American Cellular Corp. Term C 3/31/09 638,553
2,848,560 Centennial Cellular Operating Co. Term B 6/5/06 1,956,960
2,848,214 Centennial Cellular Operating Co. Term C 6/5/07 1,955,775
1,000,000 Crown Castle Operating Co. Term B 3/15/08 918,750
999,601 Dobson Operating Co. Term B 12/1/07 872,652
3,471,515 Fairpoint Communications Term C 3/31/07 3,245,867
3,750,000 Nextel Finance Co. Term B 6/30/08 3,232,616
3,750,000 Nextel Finance Co. Term C 12/31/08 3,232,616
1,964,452 Rural Cellular Corp. Term B 10/3/08 1,578,109
1,964,452 Rural Cellular Corp. Term C 4/3/09 1,578,109
2,000,000 Western Wireless Corp. Term B 9/30/08 1,258,334
--------------------------------------------------------------------------------
21,027,075
--------------------------------------------------------------------------------
Tobacco -- 1.9%
3,966,667 Commonwealth Brands, Inc. Term B 8/28/07 3,959,229
--------------------------------------------------------------------------------
Transportation Services -- 1.7%
1,079,440 Evergreen International Aviation, Inc. Term B 5/7/03 1,009,277
2,481,250 TravelCenters of America, Inc. Term B 11/30/08 2,494,433
--------------------------------------------------------------------------------
3,503,710
--------------------------------------------------------------------------------
TOTAL SENIOR COLLATERALIZED LOANS (Cost -- $210,207,829) 194,083,106
--------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
16
Schedule of Investments (continued) September 30, 2002
FACE
AMOUNT SECURITY VALUE*
----------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 7.1%
Commercial Paper -- 7.1%
$ 4,500,000 Safeway Inc., 2.050% due 10/1/02 $ 4,500,000
10,400,000 UBS Finance Inc. Years 3+4, 1.760% due
10/2/02 10,399,492
----------------------------------------------------------------------------
TOTAL SHORT-TERM
INVESTMENTS (Cost -- $14,899,492) 14,899,492
----------------------------------------------------------------------------
TOTAL
INVESTMENTS -- 100% (Cost -- $225,107,321**) $208,982,598
----------------------------------------------------------------------------
* 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.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
17
Statement of Assets and Liabilities September 30, 2002
ASSETS:
Investments, at value (Cost -- $225,107,321) $208,982,598
Cash 121,107
Paydown receivable 4,491,821
Interest receivable 1,303,145
------------------------------------------------------------------------------- ------------
Total Assets 214,898,671
------------------------------------------------------------------------------- ------------
LIABILITIES:
Management fee payable 187,562
Preferred stock dividend payable 44,030
Interest payable 4,482
Dividends payable 1,703
Accrued expenses 102,780
------------------------------------------------------------------------------- ------------
Total Liabilities 340,557
------------------------------------------------------------------------------- ------------
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 $129,558,114
------------------------------------------------------------------------------- ------------
NET ASSETS:
Par value of capital shares $ 9,782
Capital paid in excess of par value 144,980,242
Undistributed net investment income 960,832
Accumulated net realized loss from security transactions (268,019)
Net unrealized depreciation of investments (16,124,723)
------------------------------------------------------------------------------- ------------
Total Net Assets
(Equivalent to $13.24 a share on 9,781,667 capital shares of $0.001 par value
outstanding; 150,000,000 capital shares authorized) $129,558,114
------------------------------------------------------------------------------- ------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
18
Statement of Operations For the Year Ended September 30, 2002
INVESTMENT INCOME:
Interest $ 12,447,207
Less: Interest expense (See Note 4) (784,466)
----------------------------------------------------------------------------- ------------
Total Investment Income 11,662,741
----------------------------------------------------------------------------- ------------
EXPENSES:
Management fee (Note 2) 2,218,210
Audit and legal 115,805
Auction fees 104,160
Shareholder communications 97,097
Shareholder and system servicing fees 90,611
Directors' fees 54,512
Custody 26,804
Registration fees 26,078
Other 78,439
----------------------------------------------------------------------------- ------------
Total Expenses 2,811,716
----------------------------------------------------------------------------- ------------
Net Investment Income 8,851,025
----------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions (excluding short-term securities):
Proceeds from sales 112,215,680
Cost of securities sold 111,990,978
----------------------------------------------------------------------------- ------------
Net Realized Gain 224,702
----------------------------------------------------------------------------- ------------
Change in Net Unrealized Depreciation of Investments:
Beginning of year (8,209,257)
End of year (16,124,723)
----------------------------------------------------------------------------- ------------
Increase in Net Unrealized Depreciation (7,915,466)
----------------------------------------------------------------------------- ------------
Net Loss on Investments (7,690,764)
----------------------------------------------------------------------------- ------------
Distributions Paid to Auction Rate Cumulative Preferred Stockholders
From Net Investment Income (911,398)
----------------------------------------------------------------------------- ------------
Increase in Net Assets From Operations $ 248,863
----------------------------------------------------------------------------- ------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
19
Statements of Changes in Net Assets
For the Years Ended September 30,
2002 2001
------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,851,025 $ 11,903,373
Net realized gain (loss) 224,702 (276,628)
Increase in net unrealized depreciation (7,915,466) (8,779,404)
Distributions paid to Auction Rate
Cumulative Preferred Stockholders
from net investment income (911,398) --
-------------------------------------------------- --------------- ---------------
Increase in Net Assets From Operations 248,863 2,847,341
-------------------------------------------------- --------------- ---------------
DISTRIBUTIONS PAID TO COMMON STOCK
SHAREHOLDERS FROM:
Net investment income (7,893,805) (12,370,409)
Net realized gains -- (218,597)
-------------------------------------------------- --------------- ---------------
Decrease in Net Assets From
Distributions to Shareholders (7,893,805) (12,589,006)
-------------------------------------------------- --------------- ---------------
FUND SHARE TRANSACTIONS:
Underwriting commissions and expenses for the
issuance of Auction Rate Cumulative Preferred
Stock (Note 5) (1,190,782) --
-------------------------------------------------- --------------- ---------------
Decrease in Net Assets From Fund
Share Transactions (1,190,782) --
-------------------------------------------------- --------------- ---------------
Decrease in Net Assets (8,835,724) (9,741,665)
NET ASSETS:
Beginning of year 138,393,838 148,135,503
-------------------------------------------------- --------------- ---------------
End of year* $129,558,114 $138,393,838
-------------------------------------------------- --------------- ---------------
* Includes undistributed net investment income of: $960,832 $650,377
-------------------------------------------------- --------------- ---------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
20
Statement of Cash Flows For the Year Ended September 30, 2002
CASH FLOWS PROVIDED BY (USED BY) OPERATING
AND INVESTING ACTIVITIES:
Interest and dividends received $ 12,509,017
Operating expenses paid (2,822,609)
Net short-term purchases (14,209,624)
Net long-term purchases (115,945,039)
Proceeds from disposition of long-term securities 107,723,859
Interest paid on bank loans (807,751)
----------------------------------------------------------------------- -------------
Net Cash Used by Operating and Investing Activities (13,552,147)
----------------------------------------------------------------------- -------------
CASH FLOWS PROVIDED BY (USED 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 (1,190,782)
Cash dividends paid on Auction Rate Cumulative Preferred Stock (867,368)
Cash dividends paid on Common Stock (8,141,623)
----------------------------------------------------------------------- -------------
Net Cash Provided by Financing Activities 13,100,227
----------------------------------------------------------------------- -------------
NET DECREASE IN CASH (451,920)
Cash, Beginning of year 573,027
----------------------------------------------------------------------- -------------
Cash, End of year $ 121,107
----------------------------------------------------------------------- -------------
RECONCILIATION OF INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH USED BY
OPERATING AND INVESTING ACTIVITIES:
Increase in Net Assets From Operations $ 248,863
----------------------------------------------------------------------- -------------
Amortization of discount on securities (77,840)
Decrease in investments, at value (9,983,871)
Increase in dividends and interest receivable (124,698)
Decrease in interest payable (23,285)
Increase in paydown receivable (4,491,821)
Decrease in accrued expenses (10,893)
Increase in distribution to preferred shareholders 911,398
----------------------------------------------------------------------- -------------
Total Adjustments (13,801,010)
----------------------------------------------------------------------- -------------
Net Cash Flows Used By Operating and Investing Activities $ (13,552,147)
----------------------------------------------------------------------- -------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
21
Notes to Financial Statements
1. Significant Accounting Policies
The Citigroup Investments Corporate Loan Fund Inc. ("Fund"), formerly known as
Travelers Corporate Loan Fund Inc., 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 asked
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, 2002,
reclassifications were made to the Fund's capital accounts to reflect the
permanent book/tax differences and income and gains available for distributions
under income tax regulations. Accordingly, a portion of undistributed net
investment income amounting to $48,540 were reclassified to paid-in capital.
Net investment income, net realized gains and net assets were not affected by
these changes; (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 dividing 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
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
22
Notes to Financial Statements (continued)
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 (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-adviser, 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. For purposes of calculating the advisory fee, the
liquidation value of any preferred stock of the Fund is not deducted in
determining the Fund's average daily net 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.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
23
Notes to Financial Statements (continued)
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
3. Investments
During the year ended September 30, 2002, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
------------------------------------------------------------------------
Purchases $115,945,039
------------------------------------------------------------------------
Sales 112,215,680
------------------------------------------------------------------------
At September 30, 2002, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
--------------------------------------------------------------------------------
Gross unrealized appreciation $ 410,274
Gross unrealized depreciation (16,534,997)
--------------------------------------------------------------------------------
Net unrealized depreciation $(16,124,723)
--------------------------------------------------------------------------------
4. Commitments
The Fund had 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 matured on January 29, 2002 and the three year revolving credit
agreement matured on February 1, 2002. Both of these agreements were extended
for two months after maturity dates. Borrowing rates under both of these
agreements are based on a fixed spread over LIBOR or the Prime Rate. The Fund
paid 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 year ended
September 30, 2002, interest expense related to a bank loan totaled $701,694.
Interest expense also includes commitment fees and facility fees of $82,772.
The average dollar amount of the borrowing was $59,057,415 and the average
interest rate was 2.42%.
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 24, 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
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
24
Notes to Financial Statements (continued)
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.
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 $340,782
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 ranged from 1.85% and 2.05% for the
year ended September 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. Capital Shares
At September 30, 2002, the Fund had 150,000,000 shares of capital stock
authorized, ("Common Stock") with a par value of $0.001 per share.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
25
Notes to Financial Statements (continued)
7. Capital Loss Carryforward
At September 30, 2002, the Fund had, for Federal income tax purposes,
approximately $268,000 of unused capital loss carryforwards available to offset
future capital gains through September 30, 2010. 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. The amount and year of expiration for
each carryforward loss is indicated below:
2009 2010
---------------------------------------------------------------------------------------
Capital Loss Carryforwards $44,000 $224,000
----------------------------------------------------------------------------- --------
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
26
Financial Highlights
For a share of capital stock outstanding throughout each year ended September
30, unless otherwise noted:
2002 2001 2000 1999/(1)/
---------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $14.15 $15.14 $15.19 $15.00
--------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.90 1.22 1.40 0.97
Net realized and unrealized gain (loss) (0.79) (0.93) 0.02 0.09
Distributions paid to Auction Rate
Cumulative Preferred Stockholders from
net investment income (0.09) -- -- --
--------------------------------------------------------------------------------------
Total Income From Operations 0.02 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 (0.81) (1.26) (1.44) (0.85)
Net realized gains -- (0.02) (0.03) --
--------------------------------------------------------------------------------------
Total Distributions (0.81) (1.28) (1.47) (0.85)
--------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.24 $14.15 $15.14 $15.19
--------------------------------------------------------------------------------------
Total Return, Based on Market Value (1.67)% (4.33)% 13.35% 1.68%++
--------------------------------------------------------------------------------------
Total Return, Based on Net Asset Value (0.30)% 2.44% 10.55% 7.45%++
--------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $129,558 $138,394 $148,136 $148,548
--------------------------------------------------------------------------------------
Ratios to Average Net Assets/(2)/:
Net investment income 6.48% 8.31% 9.20% 7.48%+
Interest expense 0.57 2.75 3.04 1.68+
Auction fees 0.08 -- -- --
Organization expense -- -- -- 0.24+
Operating expenses 1.98 1.82 1.70 1.63+
Total expenses 2.63 4.57 4.74 3.55+
--------------------------------------------------------------------------------------
Portfolio Turnover Rate 57% 23% 59% 53%
--------------------------------------------------------------------------------------
Market Value, End of Year $11.83 $12.82 $14.6875 $14.375
--------------------------------------------------------------------------------------
(1) For the period from November 20, 1998 (commencement of operations) to
September 30, 1999.
(2) Calculated on basis of average net assets of common shareholders. Ratios do
not reflect the effect of dividend payments to preferred shareholders.
* 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.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
27
Independent Auditors' Report
To the Shareholders and Board of Directors of
Citigroup Investments Corporate Loan Fund Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Citigroup Investments Corporate Loan Fund Inc.
("Fund"), formerly known as Travelers Corporate Loan Fund Inc., as of September
30, 2002, and the related statements of operations and cash flows for the year
then ended, and the statements of changes in net assets for each of the years
in the two-year period then ended and financial highlights for each of the
years in the three-year period then ended and for the period from November 20,
1998 (Commencement of Operations) to September 30, 1999. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of September 30, 2002 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of September 30, 2002, the results of its operations and its cash flows
for the year then ended, and the changes in its net assets for each of the
years in the two-year period then ended and financial highlights for each of
the years in the three-year period then ended and for the period from November
20, 1998 to September 30, 1999, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
New York, New York
November 13, 2002
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
28
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 63,105
Involuntary Liquidating Preference Per Share 25,000
Average Market Value Per Share/(3)/ 25,000
------------------------------------------------------------------------------
(1) As of September 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.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
29
Additional Information (unaudited)
Information about Directors and Officers
The business and affairs of the Citigroup Investments Corporate Loan Fund Inc.
("Fund") are managed under the direction of the Board of Directors. Information
pertaining to the Directors and Officers of the Fund is set forth below.
Number of
Portfolios
Term of Principal in Fund Other
Position(s) Office* and Occupation(s) Complex Directorships
Name, Address Held with Length of During Past Overseen by Held by
and Age Fund Time Served 5 Years Director Director
----------------------------------------------------------------------------------------------
Non-Interested Directors:
Allan J. Bloostein Director Since President, Allan J. 35 Director of
27 West 67th Street 1998 Bloostein Taubinan
New York, NY 10023 Associates Realty
Age 72 Corporation;
Director of
May
Department
Stores
Dwight B. Crane Director Since Professor, 51 None
Harvard Business School 1998 Harvard Business
Soldiers Field Road School
Horgan Hall #375
Boston, MA 02163
Age 64
Paulo M. Cucchi Director Since Vice President 7 None
Drew University 2001 and Dean of
108 Brothers College College of Liberal
Madison, NJ 07940 Arts at Drew
Age 60 University
Robert A. Frankel Director Since Managing Partner 24 None
8 John Walsh Blvd. 1998 of Robert A.
Peekskill, NY 10566 Frankel
Age 75 Management
Consultants
Dr. Paul Hardin Director Since Chancellor 36 None
12083 Morehead 2001 Emeritus and
Chapel Hill, NC 27514 Professor of Law
Age 71 at the University
of North Carolina
at Chapel Hill
William R. Hutchinson Director Since President, WR 7 Director of
535 N. Michigan 1998 Hutchinson & Associate
Suite 1012 Associates, Inc.; Bank
Chicago, IL 60611 formerly Group and Associated
Age 59 Vice President, Banc-Corp
Mergers &
Acquisitions BP
Amoco
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
30
Additional Information (unaudited) (continued)
Number of
Portfolios
Term of Principal in Fund Other
Position(s) Office* and Occupation(s) Complex Directorships
Name, Address Held with Length of During Past Overseen by Held by
and Age Fund Time Served 5 Years Director Director
-----------------------------------------------------------------------------------------------------
Non-Interested Directors (continued):
George M. Pavia Director Since Senior Partner, 8 None
600 Madison Avenue 2001 Pavia & Harcourt
New York, NY 10022 Attorneys
Age 73
Interested Directors:
R. Jay Gerken Chairman/ Since Managing 222 None
Salomon Smith Barney Inc. President 2002 Director of SSB
("SSB") and Chief
125 Broad Street Executive
9th Floor Officer
New York, NY 10004
Age 51
---------
* Directors are elected for a term of three years.
Officers:
Lewis E. Daidone Senior Vice Since Managing N/A N/A
SSB President 1998 Director of SSB;
125 Broad Street and Chief Chief Financial
11th Floor Administrative Officer of the
New York, NY 10004 Officer Smith Barney
Age 44 Mutual Funds;
Director and
Senior Vice
President of Smith
Barney Fund
Management LLC
("SBFM") and
Travelers
Investment
Adviser, Inc.
("TIA")
Richard L. Peteka Chief Since Director and Head N/A N/A
SSB Financial 2002 of Internal Control
125 Broad Street, 11th Floor Officer for Citigroup
New York, NY 10004 and Asset
Age 41 Treasurer Management U.S.
Mutual Fund
Administration
from 1999-2002;
Vice President,
Head of Mutual
Fund
Administration
and Treasurer at
Oppenheimer
Capital from
1996-1999
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
31
Additional Information (unaudited) (continued)
Number of
Portfolios
Term of Principal in Fund Other
Position(s) Office and Occupation(s) Complex Directorships
Name, Address Held with Length of During Past Overseen by Held by
and Age Fund Time Served 5 Years Director Director
-------------------------------------------------------------------------------------------
Officers (continued):
Glenn N. Marchak Vice Since Senior Vice N/A N/A
388 Greenwich Street President 1998 President of the
34th Floor and Travelers Asset
New York, NY 10013 Investment Management
Age 51 Officer International
Company LLC
("TAMIC");
Managing
Director of SSB
from 1997 to
1998
Kaprel Ozsolak Controller Since Vice President N/A N/A
SSB 2002 of SSB
125 Broad Street
9th Floor
New York, NY 10004
Age 36
Christina T. Sydor Secretary Since Managing N/A N/A
SSB 1998 Director of SSB;
300 First Stamford Place General Counsel
Stamford, CT 06902 and Secretary of
Age 51 SBFM and TIA
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
32
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
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
33
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.
--------------------------------------------------------------------------------
2002 Annual Report to Shareholders
34
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.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
35
Directors
Allan J. Bloostein
Dwight B. Crane
Paolo M. Cucchi
Robert A. Frankel
Paul Hardin
William R. Hutchinson
R. Jay Gerken, Chairman
George M. Pavia
Officers
R. Jay Gerken
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Chief Administrative Officer
Richard L. Peteka
Chief Financial Officer and Treasurer
Glenn N. Marchak
Vice President and
Investment Officer
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 Citigroup Investments
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.
Citigroup Investments Corporate Loan Fund Inc.
125 Broad Street
10th Floor, MF-2
New York, New York 10004
FD01804 11/02 02-4085