Citigroup
Investments
Corporate
Loan Fund Inc.
Quarterly Report
December 31, 2002 Ticker Symbol: TLI
[GRAPHIC]
LETTER FROM THE CHAIRMAN
[PHOTO]
R. JAY GERKEN
Chairman, President and Chief Executive Officer
Citigroup Investments
Corporate Loan Fund Inc.
Dear Shareholder,
Enclosed herein is the quarterly report for Citigroup Investments Corporate
Loan Fund Inc. ("Fund") for the three months ended December 31, 2002. In this
report, the Fund's manager, Glenn Marchak, summarizes what he believes to be
the period's prevailing economic and market conditions and outlines the Fund's
investment strategy.
As Glenn explains, since the date of our last report, the loan market has
improved significantly. Furthermore, after a challenging month in the financial
markets during October, the default rates of loans dropped, the prices of loans
in the secondary market continued to rise and issuance levels of new loans
during January 2003 increased considerably. Glenn also shares his views about
events that he believes have impacted the loan marketplace, such as the
situation in Iraq, and discusses his outlook for the loan market ahead.
A detailed summary of the Fund's performance can be found in the appropriate
sections that follow. I hope you find this report to be useful and informative.
Sincerely,
/s/ R Jay Gerken
R. Jay Gerken
Chairman, President and
Chief Executive Officer
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Citigroup Investments Corporate Loan Fund Inc.
1
LETTER FROM THE MANAGER
[PHOTO]
GLENN N. MARCHAK
Vice President and Investment Officer
Performance Review/1/
During the three months ended December 31, 2002, the Fund distributed income
dividends to shareholders totaling $0.20 per share. The table below shows the
annualized distribution yield and three-month total return based on the Fund's
December 31, 2002 net asset value ("NAV") per share and its New York Stock
Exchange ("NYSE") closing price./2/
Annualized Three-Month
Price Per Share Distribution Yield/3/ Total Return/3/
----------------- -------------------- --------------
$13.18 (NAV) 6.01% 1.27%
$11.62 (NYSE) 6.82% (0.07)%
The Fund's Lipper Inc. ("Lipper")/4 /peer group of loan participation
closed-end funds returned 1.06% based on NAV for the three months ended
December 31, 2002.
Investment Strategy
The Funds seeks 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.
---------
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 prices 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 the Fund's 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.
Total returns assume the reinvestment of all dividends and/or capital gains
distributions in additional shares. Annualized distribution yield 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
yield assumes a current monthly income dividend rate of $0.066 for twelve
months. This rate is as of December 31, 2002 and is subject to change. The
important difference between a total return and an annualized distribution
yield 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
yield 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 a major independent mutual-fund tracking organization. Average
annual returns are based on the three-month period ended December 31, 2002,
calculated among 40 funds in the loan participation closed-end funds category
with reinvestment of dividends and capital gains, excluding sales charges.
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2002 Quarterly Report to Shareholders
2
Portfolio Manager Market Overview
Since our last report, the loan market has improved considerably. After a very
difficult month in the financial markets in October 2002, loan default rates
dropped significantly, loan prices in the secondary market continued to
increase and new-loan issuance in January 2003 picked up noticeably.
Additionally, the quality of new-loan issuance has remained strong.
Standard and Poor's Leveraged Commentary and Data reported that the lagging
twelve-month default rate decreased from 6.0% in December 2002 to 5.1% in
January 2003, marking the third straight monthly drop in the rate. Since
peaking at 7.4% in June 2002, the default rate has dropped 31%, according to
the report. Based upon our expectations that the U.S. economy will likely
continue to grow at a moderate pace, we anticipate that the default rate will
continue to decline.
New-issuance in the loan market was strong in January 2003 as
merger-and-acquisition and leveraged-buyout activity increased. While acquirers
remain cautious, acquisition prices have become more attractive to buyers and
the capital markets have become more available to issuers. The high-yield/5/
market has seen considerable inflows of capital since our last report and,
coupled with availability of capital in the loan market, has provided acquirers
with capital to fund acquisitions. In addition, capital spending has improved
marginally, which has increased the prospects for borrowings needed to fund
these expenditures. Although we expect that the near-term prospect of war in
Iraq will dampen loan demand somewhat, in the longer term, if these trends
continue, we anticipate an improvement in loan issuance relative to 2002.
The ongoing uncertainty in the financial markets and U.S. economy has continued
to result in a high level of scrutiny by investors on new loan transactions.
While portfolio managers continue to have cash to invest, there has been little
new investment capital entering the loan market, which has mitigated some of
the competition for new loans. In addition, refinancing activity has remained
manageable, which has reduced the need to replace loans taken out by other
capital market products. Although credit spreads/6/ on loans have contracted
somewhat since our last report, they remain attractive in our view by
historical standards. We expect spreads will remain favorable as long as
investors' uncertainties about the outlook for the financial markets, economy
and geopolitical environment remains at current levels.
As investors have maintained credit discipline, credit structures have remained
strong by historical standards. We expect credit structures to remain favorable,
---------
5 High-yield bonds are subject to additional risks such as the increased risk
of default because of the lower credit quality of the issues
6 Credit spread is the difference between the yield of a particular corporate
security and a benchmark security that has the same maturity as that
particular corporate security.
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Citigroup Investments Corporate Loan Fund Inc.
3
as portfolio managers should not quickly forget the lessons learned through the
latest recession and the volatility experienced in the capital markets. As the
economy continues to recover, the credit discipline that has existed, in our
view, should likely drive stronger overall market dynamics going forward.
As companies and investors focus more on strong balance sheets, accounting
accuracy and transparency and less on the pursuit of growth, we feel in this
scenario that a stronger corporate financing environment should likely result.
We expect that business managers will generally be taking lower levels of risk
going forward as the excesses that had entered the system are purged. This may
result in lower price-to-earnings ("P/E")/7/ multiples and stock prices than we
became accustomed 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 say with certainty that the credit markets have
bottomed, if the U.S. economy were to continue to grow at a moderate pace, in
the long run we believe the probability for upside potential in the loan market
would remain greater than the probability of further downside deterioration.
Portfolio Manager Fund Overview
On January 9, 2003, the Fund declared a regular monthly dividend for January of
$0.066 per share. This is the 14th consecutive month that the dividend rate has
been at this level. During 2002, the Federal Open Market Committee ("FOMC")/8/
held the short-term federal funds rate ("fed funds rate")/9/ steady at 1.75%
until November 6th, at which point the monetary-policy Committee reduced the
rate to 1.25%. At its most recent meeting on January 29, 2003 after the
reporting period concluded, the FOMC held rates at 1.25%. The rate reduction in
November has begun to affect the cash flow of the Fund. 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.
Although interest income from the loans in the Fund was negatively affected by
the most recent rate cut, all things being equal, the Fund has been able to
maintain the dividend at $0.066 as a result of an increase in revenue from fees
earned on loans in which it invested and by using some of the undistributed net
---------
7 The P/E ratio is a stock's price divided by its earnings per share.
8 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
and payments.
9 The fed funds rate is the interest rate that banks with excess reserves at a
Federal Reserve district bank charge other banks that need overnight loans.
The fed funds rate often points to the direction of U.S. interest rates.
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2002 Quarterly Report to Shareholders
4
investment income included in the net assets of the Fund. Over time, we expect
that the dividend could be further affected by the reduction in short-term
interest rates that occurred in November and by the potential impact of the
deterioration of several loans in the Fund.
Consistent with our original investment mandate, the Fund's portfolio is made
up largely of floating or variable rate senior secured corporate loans. As of
December 31, 2002, the Fund had total net assets of approximately $128.9
million that had an average equivalent rating of "Ba3" and was invested in 30
industry sectors, with the largest industry concentration being 10.5% in the
media (non-cable) industry as of total investments. The Fund held interests in
loans made to 102 issuers.
Although the credit markets have improved noticeably since our last report,
they have been experiencing one of the more difficult periods in the last
century. Over the last year, high levels of default and volatility have
resulted from a combination of factors including: the recession and ongoing
economic weakness, continued concern resulting from the terrorist attacks on
September 11, 2001, the well-publicized corporate governance issues and
fraudulent accounting activity, weakness in global equity markets, geopolitical
uncertainties, including a potential war in Iraq, continued tensions in the
Middle East and North Korea's efforts to restart its nuclear weapons program;
generally restrictive capital markets; and a general loss of investor
confidence in the financial markets.
While a healthy degree of caution and uncertainty remains and the threat of war
in Iraq looms, since our last report in September, investor confidence and the
financial markets have improved, as the abnormally high level of investor fear
about the marketplace that existed in October 2002 appears to have subsided to
a noticeable amount. The equity markets improved from the lows of mid-October,
and there was a significant flow of funds into the high-yield bond market
during the fourth quarter of 2002 that carried over into January 2003. Yield
spreads/10/ across the credit markets have contracted considerably, and we have
seen improvement in loan prices.
The Fund performed well since the date of our last shareholder letter, showing
meaningful improvements in NAV, share price and discount to NAV. As of January
28, 2003, the NAV of the Fund was $13.22, an increase of 3.36% (or $0.43 per
share since October 31, 2002). For the period from November 1, 2002 to January
24, 2003, the NAV of the Fund increased by 3.28%, outperforming the S&P/LSTA
Leveraged Loan, Market Value Index, which showed an increase of 2.72% over the
same period. One key aspect of the
---------
10Yield spread is the difference between yields on securities of the same
quality but different maturities or the difference between yields on
securities of the same maturity but different quality.
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Citigroup Investments Corporate Loan Fund Inc.
5
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.
The increase in the Fund's NAV was the result of a strengthening in the
financial markets which led to a broad-based improvement in prices in the loan
market with particular strength in the wireless and cable sectors. In prior
reports, we outlined our belief that the wireless and cable sectors were
undervalued and could increase in price if confidence in the financial markets
improved and risk premiums declined. During the period from October 31, 2002 to
January 24, 2003, two loans in the Fund were up in price for every loan that
was down, and the magnitude of price appreciation was much more significant
than the decline in loans that were down. For example, only two loans were down
more than 5%, while 16 loans were up more than 5%.
Since our last report, we have not seen any material unexpected negative news
pertaining to any of the loans in the Fund's portfolio. As noted in our last
report, there were several credits that deteriorated considerably over that
period. Since that time, one of the credits has been paid down at a
significant-but-expected discount from a sale of the company. The discount was
in line with the price the asset was carried at in the portfolio. Of the other
four credits mentioned in our last report, one continues to be questionable in
terms of the timely payment of interest and future price recovery. The other
three credits increased in price over the period of October 31, 2002 to January
24, 2003 by 5.5%, 9.5% and 19.5%, respectively. We continue to believe these
credits have the potential for further price appreciation and, in our opinion,
expect they will generally be able to pay interest on a timely basis.
The Fund's share price has improved 9.2% since October 31, 2002. At that time,
the Fund closed at $11.29 (NYSE market price) and hit a new 52-week low of
$11.20 during the following week on November 8th. Since that time, the Fund's
share price has steadily improved to $12.33 on January 28, 2003, marking a
10.1% improvement over the 52-week low and 5.3% above the 50-day moving average
trading price.
Recently, the Fund's discount to NAV has narrowed considerably. On January 28,
2003, the discount stood at 6.73% versus 11.73% on the date of our last report.
The discount increased significantly after the terrorist attacks on September
11, 2001 and remained wide throughout 2002. Measured before September 11th,
from the January 1, 2001 to September 10, 2001, the Fund traded at an average
discount of 3.85%. The discount widened immediately after September 11th and,
during 2002, traded at an average of 9.77%, ending 2002 at 11.84%. In January
2003, the discount closed considerably and currently stands at 6.73%. The
average discount for the month of January improved to 8.44% from a fourth
quarter average of 11.97%.
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2002 Quarterly Report to Shareholders
6
We attribute the higher level of discount after September 11th to the increased
level of risk premium sought by investors across financial asset classes to
compensate for the perceived level of risk in the economy and financial
markets. The recent improvement in the Fund's discount and decreasing spreads
across the credit markets, in our opinion, is signaling that investors'
perceptions of risk in the Fund and the credit markets has improved.
Given the current environment, asset levels in the Fund have remained at
reasonably acceptable levels in our opinion, and we expect to be able to
continue to maintain a sufficient level of assets in the Fund for the
foreseeable future. New-loan creation in the market picked up considerably
since the beginning of 2003. We expect that there will be some disruption in
new-loan issuance as the threat of war in Iraq increases. However, on balance,
we anticipate that the new-issue calendar will likely be satisfactory for the
remainder of 2003 given what appears to us to be an improving economic picture.
While we recently have been able to add several new positions to the Fund, we
are in a period in which our credit discipline points us toward more
conservative asset selection.
Portfolio Manager Fund Outlook
While the U.S. 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" remain, we must continue to
maintain a close watch over loans already in the Fund's portfolio, as well as
new loans to be added. We continue to work hard to identify weakness in the
industries and credits in which we invest before they deteriorate too far.
The goals of our investment approaches for managing the Fund 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. 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.
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, we believe the
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Citigroup Investments Corporate Loan Fund Inc.
7
selection of loans that come to market for the foreseeable future should be
attractive relative to historical norms, as credit statistics remain favorable.
In selecting new assets, we try to optimize the Fund's diversification and
target select opportunities while operating within the parameters of our high
credit standards. 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.
At the same time, we look to maximize value in those loans in the portfolio
that we believe possess long-term value by being patient and riding out the
day-to-day volatility in financial markets. As the possibility of war looms on
the horizon, we expect that the financial markets may grow more uncertain and
cautious, potentially leading to greater volatility. As the outcome of the Iraq
situation becomes clearer, a significant uncertainty will be mitigated and
likely lead to an improvement in stability and confidence. We believe the
general recovery of prices in the loan market and in many of the loans in the
portfolio may continue as these conditions improve.
Portfolio Manager Economic Overview and Outlook
The U.S. economy has continued to grow but at a slower pace since our last
report. Our outlook continues to place the highest probability on a scenario of
slow gross domestic product ("GDP")/11/ growth with modest acceleration as the
year progresses. Economic data has remained mixed since our last report and
many of the same uncertainties linger. We expect to continue to receive mixed
signals in the near term, as we feel future growth is likely to remain uneven.
The "peace dividend" we enjoyed for so long has all but disappeared as the
prospect of war in Iraq has increased considerably and terrorist threats and
other geopolitical risks continue to dampen confidence. A significant change in
any of these conditions could have a material effect on the economy. We expect
that armed conflict in Iraq will hold growth at modest levels until a
successful outcome is clearer. After this point, our base case is for a modest
acceleration of growth as the year progresses.
GDP growth for the fourth quarter of 2002 slowed considerably to 0.7%
(according to preliminary estimates) from a 4.0% pace in the third quarter,
according to advance estimates released by the Bureau of Economic Analysis. For
all of 2002, the U.S. economy expanded 2.4%, following 0.3% growth in 2001.
Recent economic data remain mixed. We have seen softness in the U.S.
manufacturing sector and many areas of consumer spending, while at the same
time continued strong activity in housing and autos and modestly improved
business fundamentals.
---------
11GDP is a market value of goods and services produced by labor and property in
a given country.
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2002 Quarterly Report to Shareholders
8
The Bureau of Census reported that factory orders declined 0.8% in November, as
contrasted with an increase of 1.4% in October. According to the U.S. Federal
Reserve Board ("Fed"), December industrial production fell 0.2% compared to a
0.1% rise in November, while capacity utilization fell to 75.4% in December
from 75.6% in November. Overall, the consumer sector (which accounts for
roughly two-thirds of the U.S. economy) was weaker, as the holiday retail
season was widely considered to be disappointing. December retail sales
increased at a meager 1.2% rate according to the Bureau of Census, due mainly
to a late surge in promotion-driven auto sales. Excluding the sales of autos,
retail sales were flat for December and up only 0.3% in November.
On the other hand, new home sales (up 3.5% for December and 7.4% for the year
according to the Bureau of Census) and the resale of existing homes (up 5.2%
for December and 4.9% for the year as reported by the National Association of
Realtors), both hit record levels as housing continued to be a source of
strength. According to the Commerce Department, durable goods orders rose by
0.2% in December, as compared to a 1.3% decline in November. The Conference
Board's Index of Leading Economic Indicators registered three consecutive
monthly increases of 0.1%, 0.5% and 0.2% in December, November and October,
respectively. Corporate profits are improving and productivity continues to
grow. Additionally, business fixed investment rose at a 1.5% annual rate in the
fourth quarter according to the Commerce Department, led by a 5% increase in
spending on equipment and software. This was the first quarterly increase in
two years.
The evidence that the U.S. economy has been experiencing, in the words of Fed
Chairman Alan Greenspan, a "soft patch" is fairly clear. There is a tension
between the forces of deteriorating consumer fundamentals and marginally
improving corporate health. It is unclear how much of the recent slowdown in
GDP can be attributed to one-time or temporary factors such as the West Coast
dock-workers strike and/or declining consumer sentiment associated with the
risk of war in Iraq and other geopolitical concerns. The question remains as to
whether consumer spending will continue to drive economic growth long enough
for a transition to occur from consumer-led to business-led growth.
While in the minority, some economists see a broad pullback by consumers
resulting from the need to increase their savings rate in order to pay down
debt. High energy prices, budget cuts at the state and local level, the
prospect for higher state taxes, deflationary pressures from foreign-based
manufacturers (most notably China), the ongoing cleansing of the excesses of
the late 1990s and continued weakness in the other G-7 economies, are providing
little traction for job creation and are drags on the prospect for economic
growth to accelerate.
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Citigroup Investments Corporate Loan Fund Inc.
9
We continue to adhere to our belief that the highest probability scenario lies
in slow growth with modest acceleration over time. Once the overhang of war
risk has subsided, we believe several fundamentals underpinning the U.S.
economy should likely provide the fuel for sustainable growth. Those
fundamentals include:
1) Strong Monetary Stimulus. Recent money growth has registered at
approximately 8%. According to the International Strategy and Investment
Group, Inc., consumers continue to see improvement to their cash
position through ongoing growth in disposable personal income and high
levels of home refinancing. In November 2002 the FOMC cut short-term
rates by another half a percentage point. Furthermore, a new tax cut
package may be on the way and the residual benefits of the 2001 tax cuts
are working through the system.
2) Relatively Stable Employment. The Bureau of Labor Statistics reported
that the December unemployment rate held at 6% and the 13-week average
for new unemployment claims reported by the Labor Board continued its
downward drift below the important 400,000 level.
3) Strong Housing Sector. Record levels of new and existing home sales and
the highest rate of housing starts since 1986 have been reported
according to the Commerce Department.
4) Stable Financial Sector. The U.S. banking and financial sectors have
held up well in the face of high credit defaults.
5) Signs of Improvement in Manufacturing. A longer average workweek,
continued growth in productivity, improved price competitiveness from a
weaker dollar, as well as low inventories that may provide the prospect
for strong manufacturing growth once demand picks up.
6) Low Inflation. Inflation was up only 0.1% in December and 2.4% for the
year in 2002.
As previously referenced, the FOMC, at its January meeting, left interest rates
unchanged and indicated that it continued to see the risks to the economy
balanced between slower growth and higher inflation. In its accompanying
statement, the FOMC said "the accommodative stance of monetary policy, coupled
with the ongoing growth in productivity, will provide support to an improving
economic climate over time."
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2002 Quarterly Report to Shareholders
10
We are further encouraged by the prospect of Congress and the President
implementing a compromise plan of tax cuts and other economic incentives for
business investment later this year. We believe that such a push on the fiscal
front, combined with a resolution of the Iraq situation, could provide the
spark needed for moderately accelerating economic growth in the second half of
2003 and into 2004. We believe the probability of further short-term interest
rate cuts by the Fed in the near term are relatively low. As the year
progresses, if economic growth begins to strengthen, we believe the Fed will
likely move quickly to raise rates to a more neutral position.
At the same time, we expect the path to long-lasting growth will likely be
uneven in the near-term with continued mixed signals. Until the outcome of the
situation in Iraq becomes clearer, sustained acceleration in growth is
unlikely. The timing and extent of a recovery in business spending remains
unclear and a sudden change on the geopolitical front could have a major
effect. Most notably, a protracted war in Iraq or a related event that could
lead to a prolonged increase in the price of oil could negatively impact the
economy and many markets in our view. Although we believe they are lower risks
at this time, other geopolitical concerns exist that could turn the economic
tide. In the longer term, the budget deficits being created today could retard
economic growth for years to come through higher interest rates and an
increased cost of capital.
We will continue 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.
Looking for Additional Information?
The Citigroup Investments Corporate Loan Fund Inc. is traded on the New York
Stock Exchange under the symbol "TLI" and its closing market price is available
in most newspapers under the New York Stock Exchange listings. Daily net asset
value closing prices are available online under symbol XTLIX. Barron's and The
Wall Street Journal's Monday editions carry closed-end fund tables that will
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.
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Citigroup Investments Corporate Loan Fund Inc.
11
Thank you for your investment in the Citigroup Investments Corporate Loan Fund
Inc. We look forward to continuing to help you meet your investment objectives.
Sincerely,
/s/ Glenn N. Marchak
Glenn N. Marchak
Vice President and Investment Officer
January 29, 2003
The information provided in this commentary 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 14 through 18 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 December 31,
2002 and are subject to change.
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2002 Quarterly Report to Shareholders
12
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 29. 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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Citigroup Investments Corporate Loan Fund Inc.
13
Schedule of Investments (unaudited) December 31, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
-------------------------------------------------------------------------------
SENIOR COLLATERALIZED LOANS -- 87.3%
Aerospace/Defense -- 2.2%
$1,496,015 Decrane Aircraft Holdings, Inc. Term B 9/30/05 $ 1,215,512
2,431,339 Decrane Aircraft Holdings, Inc. Term D 12/15/06 1,975,463
997,485 Raytheon Aerospace Co. Term B 12/17/07 994,991
600,000 Veridian Corp. Term B 6/10/08 601,275
------------------------------------------------------------------------------
4,787,241
------------------------------------------------------------------------------
Automotive -- 3.9%
1,320,000 Collins & Aikman Corp. Term B 12/31/05 1,316,229
966,948 Dayco Products, LLC Term B 5/31/07 958,246
1,695,750 Dura Operating Corp. Term C 12/31/08 1,692,994
1,721,984 J.L. French Automotive Casting, Inc. Term B 10/21/06 1,489,517
2,097,375 Metaldyne Co. LLC Term D 12/31/09 2,024,841
788,000 Stoneridge, Inc. Term B 4/30/08 788,492
------------------------------------------------------------------------------
8,270,319
------------------------------------------------------------------------------
Building Materials -- 5.1%
1,682,337 Hanley-Wood, Inc. Term B 9/21/07 1,556,162
1,287,777 Magnatrax Corp. Term B 11/15/05 354,139
3,725,150 Masonite International, Corp. Term C 8/31/08 3,729,341
1,000,000 National Waterworks, Inc. Term B 11/22/09 1,003,333
2,449,684 Panolam Industries International, Inc. Term B 11/24/06 2,376,194
2,298,164 Trussway Holdings Inc. Term B 12/31/06 1,781,077
------------------------------------------------------------------------------
10,800,246
------------------------------------------------------------------------------
Chemicals -- 3.8%
1,869,075 Georgia Gulf Corp. Term C 5/12/09 1,878,420
600,000 Hercules Inc. Term B 12/20/07 600,563
1,392,967 Huntsman International LLC Term B 6/30/07 1,365,978
1,392,967 Huntsman International LLC Term C 6/30/08 1,365,978
1,293,728 Lyondell Petrochemical Co. Term E 5/17/06 1,309,900
1,674,500 Noveon Inc. Term B 9/30/08 1,679,135
------------------------------------------------------------------------------
8,199,974
------------------------------------------------------------------------------
Conglomerates -- 2.0%
1,466,248 Gentek, Inc. Term C 8/9/07 837,227
1,333,313 SPX Corp. Term B 9/30/09 1,329,646
2,222,188 SPX Corp. Term C 3/31/10 2,217,188
------------------------------------------------------------------------------
4,384,061
------------------------------------------------------------------------------
Consumer Cyclicals -- 0.4%
888,235 Pike Electric Inc. Term B 4/15/10 893,972
------------------------------------------------------------------------------
Consumer Products -- 2.0%
745,445 American Safety Razor Co. Term B 1/31/05 676,491
987,500 Armkel, LLC Term B 3/28/09 992,525
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
14
Schedule of Investments (unaudited) (continued) December 31, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
---------------------------------------------------------------------------------
Consumer Products -- 2.0% (continued)
$1,788,886 Holmes Products Corp. Term B 2/5/07 $ 1,650,248
862,500 Meow Mix Inc. Term B 1/31/08 862,500
---------------------------------------------------------------------------------
4,181,764
---------------------------------------------------------------------------------
Electric -- 2.3%
1,000,000 Centerpoint Energy Houston Electric, LLC Term B 11/12/05 1,060,000
4,092,992 Westar Energy, Inc. Term B 6/5/05 3,944,621
---------------------------------------------------------------------------------
5,004,621
---------------------------------------------------------------------------------
Entertainment -- 1.6%
950,000 Regal Cinemas, Inc. Term C 12/31/07 952,969
1,473,684 Six Flags Theme Parks Inc. Term B 6/30/09 1,455,724
900,000 Washington Football Inc. Term C 10/16/07 905,063
---------------------------------------------------------------------------------
3,313,756
---------------------------------------------------------------------------------
Environmental -- 2.4%
1,219,893 Allied Waste North America, Inc. Term B 7/21/06 1,210,090
1,463,872 Allied Waste North America, Inc. Term C 7/21/07 1,452,108
2,362,140 Casella Waste Systems, Inc. Term B 12/14/06 2,368,045
---------------------------------------------------------------------------------
5,030,243
---------------------------------------------------------------------------------
Food -- 6.3%
990,438 American Seafoods Group LLC Term B 3/31/09 994,306
4,179,000 Dean Foods Co. Term B 7/15/08 4,177,174
1,000,000 Del Monte Corp. Term B 12/20/10 1,008,000
2,974,393 Fleming Cos., Inc. Term B 6/18/08 2,913,418
985,000 Flowers Food Inc. Term B 3/26/07 989,720
1,059,653 Michael Foods Inc. Term B 3/22/08 1,064,509
992,500 National Dairy Holdings L.P. Term B 4/30/09 992,294
797,643 NSC Operating Co. Term B 5/27/07 798,973
500,000 NSC Operating Co. 2nd Lien 5/25/09 498,750
---------------------------------------------------------------------------------
13,437,144
---------------------------------------------------------------------------------
Gaming -- 3.5%
2,183,500 Alliance Gaming Corp. Term B 12/31/06 2,193,507
2,169,151 Ameristar Casinos, Inc. Term B 12/21/06 2,177,828
682,316 Greektown Casino, LLC Term C 9/30/04 682,316
992,500 Isle of Capri Casinos, Inc. Term B 4/26/08 994,516
1,333,333 Scientific Games Corp. Term B 9/30/07 1,333,056
---------------------------------------------------------------------------------
7,381,223
---------------------------------------------------------------------------------
Healthcare -- 2.7%
1,094,500 Caremark Rx, Inc. Term B 3/31/06 1,095,412
1,000,000 Community Health Systems Inc. Term B 7/16/10 996,953
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
15
Schedule of Investments (unaudited) (continued) December 31, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
-------------------------------------------------------------------------------
Healthcare -- 2.7% (continued)
$1,500,000 Kessler Rehabilitation Corp. Term B 7/30/08 $ 1,496,250
2,231,407 Rotech Healthcare Inc. Term B 3/31/08 2,232,105
------------------------------------------------------------------------------
5,820,720
------------------------------------------------------------------------------
Home Construction -- 0.9%
1,950,000 Lennar Corp. Term C 5/19/07 1,955,850
------------------------------------------------------------------------------
Industrial - Other -- 5.5%
905,518 Buffets, Inc. Term B 6/30/09 895,105
1,534,909 Flowserve Corp. Term C 6/30/09 1,518,326
3,795,680 General Cable Corp. Term B 5/25/07 3,150,414
3,713,046 Mueller Group, Inc. Term E 5/31/08 3,701,906
997,596 TriMas Corp. Term B 12/31/09 999,872
2,309,976 Western Industries Ltd. Term B 6/23/06 1,559,233
------------------------------------------------------------------------------
11,824,856
------------------------------------------------------------------------------
Insurance -- 1.5%
1,990,000 Hilb, Rogal and Hamilton Co. Term B 6/30/07 1,994,354
1,143,750 Oxford Health Plans, Inc. Term B 6/30/06 1,145,895
------------------------------------------------------------------------------
3,140,249
------------------------------------------------------------------------------
Media/Cable -- 9.3%
997,500 Block Communications Inc. Term B 11/15/09 1,001,241
2,500,000 Century Cable Holdings Term B 12/31/09 1,823,125
6,958,750 Charter Communications Operating LLC Term B 3/17/08 5,816,353
1,980,000 Charter Communications VIII Term B 2/2/08 1,652,217
1,731,233 Classic Cable, Inc. Term B 1/31/08 1,359,018
865,616 Classic Cable, Inc. Term C 1/31/08 679,509
4,000,000 Insight Midwest LLC Term B 12/31/09 3,899,752
3,761,469 Videotron Ltee Term B 12/1/09 3,625,115
------------------------------------------------------------------------------
19,856,330
------------------------------------------------------------------------------
Media/Non-Cable -- 10.5%
1,782,857 Advanstar Communications Inc. Term B 11/17/08 1,622,400
4,361,080 American Media Operation Inc. Term C 4/1/07 4,366,531
1,809,506 Canwest Media Inc. Term B 5/15/08 1,809,930
1,130,494 Canwest Media Inc. Term C 5/15/09 1,130,758
2,900,000 Dex Media East LLC Term B 11/8/09 2,914,198
846,478 Emmis Communications Corp. Term B 8/31/09 850,447
1,500,000 Hollinger International Publishing Inc. Term B 9/30/09 1,500,000
4,000,000 PanAmSat Corp. Term B 12/31/08 3,898,000
2,992,500 The Reader's Digest Association, Inc. Term B 5/20/08 2,917,152
1,488,750 Susquehanna Media Co. Term B 6/30/08 1,496,194
------------------------------------------------------------------------------
22,505,610
------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
16
Schedule of Investments (unaudited) (continued) December 31, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
-------------------------------------------------------------------------------------
Metals -- 0.3%
$ 728,835 Compass Minerals Group, Inc. Term B 11/28/09 $ 733,048
-------------------------------------------------------------------------------------
Other - Financial Institutions -- 0.1%
580,581 Bridge Information Systems, Inc. Multi-Draw 3/31/03 94,344
1,055,920 Bridge Information Systems, Inc. Term B 3/31/03 171,587
-------------------------------------------------------------------------------------
265,931
-------------------------------------------------------------------------------------
Packaging -- 1.5%
990,000 Graphic Packaging International Corp. Term B 2/28/09 994,950
992,500 Printpack Holdings Inc. Term B 4/25/09 996,636
350,000 Smurfit-Stone Container Canada, Inc. Term C 6/30/09 346,281
950,000 Stone Container Corp. Term B 6/30/09 939,164
-------------------------------------------------------------------------------------
3,277,031
-------------------------------------------------------------------------------------
Paper -- 0.5%
995,000 Riverwood International Corp. Term B 3/31/07 992,824
-------------------------------------------------------------------------------------
Pharmaceuticals -- 0.5%
1,109,195 Alpharma Corp. Term B 10/5/08 1,078,692
-------------------------------------------------------------------------------------
Railroads -- 1.0%
1,293,500 Kansas City Southern Railway Co. Term B 6/12/08 1,295,117
800,000 RailAmerica, Inc. Term B 5/23/09 797,800
-------------------------------------------------------------------------------------
2,092,917
-------------------------------------------------------------------------------------
Refining -- 2.6%
1,780,783 Dresser Inc. Term B 4/10/09 1,783,964
4,069,085 Tesoro Petroleum Corp. Term B 10/10/07 3,785,946
-------------------------------------------------------------------------------------
5,569,910
-------------------------------------------------------------------------------------
Retailers -- 0.2%
441,177 Shoppers Drug Mart Corp. Term F 2/4/09 442,224
-------------------------------------------------------------------------------------
Technology -- 2.2%
2,842,914 Seagate Technology HDD Holdings, Inc.
(INT) Term B 5/13/07 2,839,869
1,137,086 Seagate Technology Holdings, Inc. (U.S.) Term B 5/13/07 1,135,868
2,248,317 Trend Technologies, Inc. Term B 2/28/07 618,287
-------------------------------------------------------------------------------------
4,594,024
-------------------------------------------------------------------------------------
Telecommunications -- 9.1%
831,845 American Cellular Corp. Term B 3/31/08 582,663
950,680 American Cellular Corp. Term C 3/31/09 665,900
2,841,190 Centennial Cellular Operating Co. Term B 6/5/06 2,182,389
2,840,816 Centennial Cellular Operating Co. Term C 6/5/07 2,191,488
1,000,000 Crown Castle Operating Co. Term B 3/15/08 953,472
999,601 Dobson Operating Co. Term B 12/1/07 834,667
3,462,428 Fairpoint Communications, Inc. Term C 3/31/07 3,289,306
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
17
Schedule of Investments (unaudited) (continued) December 31, 2002
FACE LOAN STATED
AMOUNT SECURITY TYPE MATURITY VALUE*
--------------------------------------------------------------------------------
Telecommunications -- 9.1% (continued)
$1,995,000 Nextel Finance Co. Term B 6/30/08 $ 1,846,087
2,000,000 Nextel Finance Co. Term C 12/31/08 1,850,714
1,964,452 Rural Cellular Corp. Term B 10/3/08 1,717,259
1,964,452 Rural Cellular Corp. Term C 4/3/09 1,717,259
2,000,000 Western Wireless Corp. Term B 9/30/08 1,562,500
-------------------------------------------------------------------------------
19,393,704
-------------------------------------------------------------------------------
Tobacco -- 1.8%
3,766,667 Commonwealth Brands, Inc. Term B 8/28/07 3,757,250
-------------------------------------------------------------------------------
Transportation Services -- 1.6%
1,083,099 Evergreen International Aviation, Inc. Term B 5/7/03 926,049
2,475,000 TravelCenters of America, Inc. Term B 11/30/08 2,486,603
-------------------------------------------------------------------------------
3,412,652
-------------------------------------------------------------------------------
TOTAL SENIOR COLLATERALIZED LOANS
(Cost -- $200,750,529) 186,398,386
-------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE*
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 12.7%
Commercial Paper -- 12.7%
8,000,000 Canadian Imperial Bank of Commerce, 1.330% due 1/16/03 7,995,862
8,800,000 Toyota Motor Credit Corp., 1.310% due 1/8/03 8,798,079
4,700,000 United Healthcare Corp., 1.450% due 1/16/03 4,697,350
5,600,000 Wheels Inc., 1.650% due 1/2/03 5,600,000
-------------------------------------------------------------------------------
TOTAL SHORT-TERM
INVESTMENTS (Cost -- $27,091,291) 27,091,291
-------------------------------------------------------------------------------
TOTAL
INVESTMENTS -- 100% (Cost -- $227,841,820**) $213,489,677
-------------------------------------------------------------------------------
* 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
18
Statement of Assets and Liabilities (unaudited) December 31, 2002
ASSETS:
Investments, at value (Cost -- $200,750,529) $186,398,386
Short-term investments, at value (Cost -- $27,091,291) 27,091,291
Interest receivable 1,323,205
Receivable for securities sold 600,221
------------------------------------------------------------------------------- ------------
Total Assets 215,413,103
------------------------------------------------------------------------------- ------------
LIABILITIES:
Payable to bank 1,099,867
Management fee payable 197,930
Distributions payable to Auction Rate Cumulative Preferred Stockholders 73,304
Dividends payable 36,494
Accrued expenses 114,585
------------------------------------------------------------------------------- ------------
Total Liabilities 1,522,180
------------------------------------------------------------------------------- ------------
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 $128,890,923
------------------------------------------------------------------------------- ------------
NET ASSETS:
Par value of capital shares $ 9,782
Capital paid in excess of par value 144,980,242
Undistributed net investment income 731,170
Accumulated net realized loss from security transactions (2,478,128)
Net unrealized depreciation of investments (14,352,143)
------------------------------------------------------------------------------- ------------
Total Net Assets
(Equivalent to $13.18 a share on 9,781,667 capital shares of $0.001 par value
outstanding; 150,000,000 capital shares authorized) $128,890,923
------------------------------------------------------------------------------- ------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
19
Statement of Operations (unaudited)
For the Three Months Ended December 31, 2002
INVESTMENT INCOME:
Interest $ 2,869,096
Less: Interest expense (Note 4) (11,061)
----------------------------------------------------------------------------- ------------
Total Investment Income 2,858,035
----------------------------------------------------------------------------- ------------
EXPENSES:
Management fee (Note 2) 568,888
Auction fees (Note 5) 54,883
Audit and legal 44,748
Shareholder communications 29,538
Shareholder and system servicing fees 16,948
Directors' fees 14,348
Registration fees 7,659
Custody 4,880
Other 26,543
----------------------------------------------------------------------------- ------------
Total Expenses 768,435
----------------------------------------------------------------------------- ------------
Net Investment Income 2,089,600
----------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions (excluding short-term securities):
Proceeds from sales 24,437,968
Cost of securities sold 26,648,077
----------------------------------------------------------------------------- ------------
Net Realized Loss (2,210,109)
----------------------------------------------------------------------------- ------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (16,124,723)
End of period (14,352,143)
----------------------------------------------------------------------------- ------------
Decrease in Net Unrealized Depreciation 1,772,580
----------------------------------------------------------------------------- ------------
Net Loss on Investments (437,529)
----------------------------------------------------------------------------- ------------
Distributions Paid to Auction Rate Cumulative Preferred Stockholders
From Net Investment Income (382,476)
----------------------------------------------------------------------------- ------------
Increase in Net Assets From Operations $ 1,269,595
----------------------------------------------------------------------------- ------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
20
Statements of Changes in Net Assets
For the Three Months Ended December 31, 2002 (unaudited) and the Year Ended
September 30, 2002
December 31 September 30
---------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,089,600 $ 8,851,025
Net realized gain (loss) (2,210,109) 224,702
(Increase) decrease in net unrealized depreciation 1,772,580 (7,915,466)
Distributions paid to Auction Rate Cumulative
Preferred Stockholders from net investment income (382,476) (911,398)
---------------------------------------------------- ------------ ------------
Increase in Net Assets From Operations 1,269,595 248,863
---------------------------------------------------- ------------ ------------
DISTRIBUTIONS PAID TO COMMON STOCK
SHAREHOLDERS FROM:
Net investment income (1,936,786) (7,893,805)
---------------------------------------------------- ------------ ------------
Decrease in Net Assets From Distributions
Paid to Common Stock Shareholders (1,936,786) (7,893,805)
---------------------------------------------------- ------------ ------------
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 (667,191) (8,835,724)
NET ASSETS:
Beginning of period 129,558,114 138,393,838
---------------------------------------------------- ------------ ------------
End of period* $128,890,923 $129,558,114
---------------------------------------------------- ------------ ------------
* Includes undistributed net investment income of: $731,170 $960,832
---------------------------------------------------- ------------ ------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
21
Statement of Cash Flows (unaudited)
For the Three Months Ended December 31, 2002
CASH FLOWS PROVIDED (USED) BY OPERATING
AND INVESTING ACTIVITIES:
Interest received $ 2,964,925
Operating expenses paid (746,262)
Net short-term purchases (12,191,799)
Net long-term purchases (17,306,666)
Proceeds from disposition of long-term securities 28,329,568
Cash dividends paid on Auction Rate Cumulative Preferred Stock (353,202)
Interest paid on bank loans (15,543)
---------------------------------------------------------------- ------------
Net Cash Provided By Operating and Investing Activities 681,021
---------------------------------------------------------------- ------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Cash dividends paid on Common Stock (1,901,995)
---------------------------------------------------------------- ------------
Net Cash Used By Financing Activities (1,901,995)
---------------------------------------------------------------- ------------
NET DECREASE IN CASH (1,220,974)
Cash, Beginning of period 121,107
---------------------------------------------------------------- ------------
Payable to Bank, End of period $ (1,099,867)
---------------------------------------------------------------- ------------
RECONCILIATION OF INCREASE IN NET ASSETS FROM
OPERATIONS TO NET CASH FLOWS PROVIDED (USED) BY
OPERATING AND INVESTING ACTIVITIES:
Increase in Net Assets From Operations $ 1,269,595
---------------------------------------------------------------- ------------
Accretion of discount on securities (17,046)
Increase in investments, at value (4,490,033)
Increase in interest receivable (20,060)
Decrease in interest payable (4,482)
Decrease in receivable for securities sold 3,891,600
Increase in accrued expenses 22,173
Increase in preferred dividends payable 29,274
---------------------------------------------------------------- ------------
Total Adjustments (588,574)
---------------------------------------------------------------- ------------
Net Cash Flows Provided By Operating and Investing Activities $ 681,021
---------------------------------------------------------------- ------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
22
Notes to Financial Statements (unaudited)
1. Significant Accounting Policies
The Citigroup Investments 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 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 Directors; (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 was 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 regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment,
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
23
Notes to Financial Statements (unaudited) (continued)
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. For purposes of
calculating the sub-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.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
24
Notes to Financial Statements (unaudited) (continued)
All officers and one Director of the Fund are employees of Citigroup or its
affiliates.
3. Investments
During the three months ended December 31, 2002, the aggregate cost of
purchases and proceeds from sales of investments (including maturities, but
excluding short-term securities) were as follows:
-----------------------------------------------------------------------
Purchases $17,306,666
-----------------------------------------------------------------------
Sales 24,437,968
-----------------------------------------------------------------------
At December 31, 2002, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
--------------------------------------------------------------------------------
Gross unrealized appreciation $ 438,915
Gross unrealized depreciation (14,791,058)
--------------------------------------------------------------------------------
Net unrealized depreciation $(14,352,143)
--------------------------------------------------------------------------------
4. Commitments
On May 24, 2002, the Fund entered into 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 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 1.52% and 2.05% for the
three months ended December 31, 2002.
The ARCPS are redeemable under certain conditions by the Fund, or subject to
mandatory redemption (if the Fund is in default of certain coverage
requirements) at a redemption price equal to $25,000 per share plus accumulated
and unpaid dividends. The ARCPS have a liquidation preference
--------------------------------------------------------------------------------
Citigroup Investments Corporate Loan Fund Inc.
25
Notes to Financial Statements (unaudited) (continued)
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. ("SSB"), 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.
For the three months ended December 31, 2002, SSB did not receive any fees as
the broker/dealer.
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. Asset Maintenance and Asset Coverage Requirements
The Fund is required to maintain certain asset coverages with respect to the
ARCPS. If the Fund fails to maintain these coverages and does not cure any such
failure within the required time period, the Fund is required to redeem a
requisite number of the ARCPS in order to meet the applicable requirement.
Additionally, failure to meet the foregoing asset requirements would restrict
the Fund's ability to pay dividends.
7. Capital Shares
At December 31, 2002, the Fund had 150,000,000 shares of capital stock
authorized, ("Common Stock") with a par value of $0.001 per share.
8. Capital Loss Carryforward
At September 30, 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 Quarterly Report to Shareholders
26
Financial Highlights
For a share of capital stock outstanding throughout each year ended September
30, unless otherwise noted:
2002/(1)/ 2002 2001 2000 1999/(2)/
----------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $13.24 $14.15 $15.14 $15.19 $15.00
---------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.21 0.90 1.22 1.40 0.97
Net realized and unrealized
gain (loss) (0.03) (0.79) (0.93) 0.02 0.09
Distributions paid to Auction Rate
Cumulative Preferred
Stockholders from net
investment income (0.04) (0.09) -- -- --
---------------------------------------------------------------------------------------------
Total Income From Operations 0.14 0.02 0.29 1.42 1.06
---------------------------------------------------------------------------------------------
Offering Costs on Issuance of
Common Stock -- -- -- -- (0.02)
---------------------------------------------------------------------------------------------
Underwriting Commissions and
Expenses for the Issuance of
Auction Rate Cumulative
Preferred Stock -- (0.12) -- -- --
---------------------------------------------------------------------------------------------
Distributions Paid to Common
Stock Shareholders From:
Net investment income (0.20) (0.81) (1.26) (1.44) (0.85)
Net realized gains -- -- (0.02) (0.03) --
---------------------------------------------------------------------------------------------
Total Distributions (0.20) (0.81) (1.28) (1.47) (0.85)
---------------------------------------------------------------------------------------------
Net Asset Value, End of Period $13.18 $13.24 $14.15 $15.14 $15.19
---------------------------------------------------------------------------------------------
Total Return,
Based on Market Value (0.07)%++ (1.67)% (4.33)% 13.35% 1.68%++
---------------------------------------------------------------------------------------------
Total Return,
Based on Net Asset Value 1.27%++ (0.30)% 2.44% 10.55% 7.45%++
---------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $128,891 $129,558 $138,394 $148,136 $148,548
---------------------------------------------------------------------------------------------
Ratios to Average Net Assets/(3)/:
Net investment income 6.51%+ 6.48% 8.31% 9.20% 7.48%+
Interest expense 0.03+ 0.57 2.75 3.04 1.68+
Auction fees 0.17+ 0.08 -- -- --
Organization expense -- -- -- -- 0.24+
Operating expenses 2.23+ 1.98 1.82 1.70 1.63+
Total expenses 2.43+ 2.63 4.57 4.74 3.55+
---------------------------------------------------------------------------------------------
Portfolio Turnover Rate 9% 57% 23% 59% 53%
---------------------------------------------------------------------------------------------
Market Value, End of Period $11.62 $11.83 $12.82 $14.6875 $14.375
---------------------------------------------------------------------------------------------
(1) For the three months ended December 31, 2002 (unaudited).
(2) For the period from November 20, 1998 (commencement of operations) to
September 30, 1999.
(3) Calculated on the basis of average net assets of common shareholders.
Ratios do not reflect the effect of dividend payments to preferred
shareholders.
++ 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
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 62,909
Involuntary Liquidating Preference Per Share/(3)/ 25,000
Average Market Value Per Share/(3)/ 25,000
------------------------------------------------------------------------------
(1) As of December 31, 2002.
(2) On March 14, 2002, the Fund issued 3,400 shares of Auction Rate Cumulative
Preferred Stock at $25,000 a share.
(3) Excludes accrued interest or accumulated undeclared dividends.
--------------------------------------------------------------------------------
2002 Quarterly Report to Shareholders
28
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.
29
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 Quarterly Report to Shareholders
30
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.
31
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
399 Park Avenue
New York, New York 10022
Sub-Investment Adviser
Travelers Asset Management International Company LLC
242 Trumbull Street
Hartford, Connecticut 06115
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
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 2/03 03-4523