UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-21323
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Eaton Vance Limited Duration Income Fund
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(Exact Name of registrant as Specified in Charter)
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
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(Address of Principal Executive Offices)
Alan R. Dynner
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
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(Name and Address of Agent for Services)
(617) 482-8260
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(registrant's Telephone Number)
April 30
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Date of Fiscal Year End
April 30, 2004
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Date of Reporting Period
ITEM 1. REPORTS TO STOCKHOLDERS
[EATON VANCE(R) MANAGEMENT INVESTMENTS LOGO]
[GRAPHIC]
ANNUAL REPORT APRIL 30, 2004
[GRAPHIC]
EATON VANCE LIMITED DURATION INCOME FUND
[GRAPHIC]
EATON VANCE FUNDS
EATON VANCE MANAGEMENT
BOSTON MANAGEMENT AND RESEARCH
EATON VANCE DISTRIBUTORS, INC.
PRIVACY NOTICE
The Eaton Vance organization is committed to ensuring your financial privacy.
This notice is being sent to comply with privacy regulations of the
Securities and Exchange Commission. Each of the above financial institutions
has in effect the following policy with respect to nonpublic personal
information about its customers:
- Only such information received from you, through application forms or
otherwise, and information about your Eaton Vance fund transactions will be
collected.
- None of such information about you (or former customers) will be disclosed
to anyone, except as permitted by law (which includes disclosure to
employees necessary to service your account).
- Policies and procedures (including physical, electronic and procedural
safeguards) are in place that are designed to protect the confidentiality
of such information.
For more information about Eaton Vance's privacy policies, call:
1-800-262-1122
IMPORTANT NOTICE
REGARDING DELIVERY OF
SHAREHOLDER DOCUMENTS
The Securities and Exchange Commission permits funds to deliver only one copy
of shareholder documents, including prospectuses, proxy statements and
shareholder reports, to fund investors with multiple accounts at the same
residential or post office box address. This practice is often called
"householding" and it helps eliminate duplicate mailings to shareholders.
EATON VANCE, OR YOUR FINANCIAL ADVISER, MAY HOUSEHOLD THE MAILING OF YOUR
DOCUMENTS INDEFINITELY UNLESS YOU INSTRUCT EATON VANCE, OR YOUR FINANCIAL
ADVISER, OTHERWISE.
If you would prefer that your Eaton Vance documents not be householded,
please contact Eaton Vance at 1-800-262-1122, or contact your financial
adviser.
Your instructions that householding not apply to delivery of your Eaton Vance
documents will be effective within 30 days of receipt by Eaton Vance or your
financial adviser.
From time to time, funds are required to vote proxies related to the securities
held by the funds. The Eaton Vance Funds or their underlying Portfolios vote
proxies according to a set of policies and procedures approved by the Funds' and
Portfolios' Boards. You may obtain a description of these policies and
procedures without charge, upon request, by calling 1-800-262-1122. This
description is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
EATON VANCE LIMITED DURATION INCOME FUND as of April 30, 2004
LETTER TO SHAREHOLDERS
[PHOTO OF THOMAS E. FAUST JR.]
Thomas E. Faust Jr.
President
We are pleased to welcome shareholders of Eaton Vance Limited Duration Income
Fund with this initial annual shareholder report. Based on share price (traded
on the American Stock Exchange), the Fund had a total return of 0.13% for the
period from inception on May 30, 2003 through April 30, 2004. That return was
the result of a decrease in share price to $17.81 on April 30, 2004 from $19.10
on May 30, 2003, and the reinvestment of $1.345 in regular monthly
dividends.(1)
Based on net asset value, the Fund had a total return of 7.22% for the same
period. That return was the result of a decrease in net asset value per share to
$19.07 on April 30, 2004 from $19.10 on May 30, 2003, and the reinvestment of
all distributions.(1)
Based on the most recent dividend and a share price of $17.81, the Fund had a
market yield of 9.06% at April 30, 2004.(2) On April 30, 2004, the Fund's share
price on the American Stock Exchange traded at a 6.6% discount to its underlying
net asset value.
THE FINANCIAL MARKETS RESPONDED TO SIGNS OF AN ECONOMIC RECOVERY...
The Fund made its debut during a year that provided investors with a host of
challenges and opportunities, as the financial markets responded to growing
economic momentum, rising inflation and ongoing geo-political concerns. The
Fund's primary goal is to provide a high level of current income. The Fund
typically expects to maintain a duration of between two and four years and
invests primarily in three market segments: mortgage-backed securities, senior
floating-rate loans, and non-investment-grade corporate bonds. At April 30,
2004, the Fund's investments (as a percentage of net assets) - including the
effect of leverage were invested 50.6% in mortgage-backed securities (MBS),
48.8% in non-investment grade corporate bonds and 46.8% in senior floating-rate
loans.(3)
The Fund's investment areas each made steps toward recovery during the period.
The loan market recovered from its previous sharp declines. The MBS market
stabilized following the dramatically lower interest rates and unusually high
prepayment rates of 2003. And the non-investment grade bond market - so closely
tied to economic activity - turned in a very strong performance.
THE FUND OFFERS A VERSATILE APPROACH...
A stronger economy can be a mixed blessing for fixed-income investors, as the
potential for inflation and higher interest rates can pose a major threat. With
its blend of asset classes - MBS, floating-rate loans and non-investment grade
bonds - we believe that the Fund offers a versatile fixed-income approach in a
period of economic growth. In the following pages, Scott Page, Payson Swaffield,
Susan Schiff and Michael Weilheimer review the Fund's activities in its first
year of operation.
Sincerely,
/s/ Thomas E. Faust Jr.
Thomas E. Faust Jr.
President
June 9, 2004
FUND INFORMATION
as of April 30, 2004
PERFORMANCE(1)
Average Annual Total Return (by share price,
American Stock Exchange)
Life of Fund (5/30/03) 0.13%
Average Annual Total Return (by net asset value)
Life of Fund (5/30/03) 7.22%
(1) RETURNS ARE HISTORICAL AND ARE CALCULATED BY DETERMINING THE PERCENTAGE
CHANGE IN MARKET VALUE OR NET ASSET VALUE WITH ALL DISTRIBUTIONS
REINVESTED. SHARE PRICE AND NET ASSET VALUE ON 5/30/03 ARE CALCULATED
ASSUMING A PURCHASE PRICE OF $20.00 LESS THE SALES LOAD OF $0.90 PER SHARE
PAID BY THE SHAREHOLDER. PERFORMANCE RESULTS REFLECT THE EFFECT OF LEVERAGE
RESULTING FROM THE FUND'S ISSUANCE OF AUCTION PREFERRED SHARES. FOR
PERFORMANCE AS OF THE MOST RECENT MONTH-END, PLEASE REFER TO
www.eatonvance.com.
(2) THE FUND'S MARKET YIELD IS CALCULATED BY DIVIDING THE MOST RECENT DIVIDEND
PER SHARE BY THE SHARE MARKET PRICE AT THE END OF THE PERIOD AND
ANNUALIZING THE RESULT.
(3) IN THE EVENT OF A RISE IN LONG-TERM INTEREST RATES, THE VALUE OF THE FUND'S
INVESTMENT PORTFOLIO COULD DECLINE, WHICH WOULD REDUCE THE ASSET COVERAGE
FOR ITS AUCTION PREFERRED SHARES.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN SOLD, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE IS FOR THE STATED TIME PERIOD
ONLY; DUE TO MARKET VOLATILITY, THE FUND'S CURRENT PERFORMANCE MAY BE LOWER
OR HIGHER THAN THE QUOTED RETURN.
SHARES ARE NOT INSURED BY THE FDIC AND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF,
OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED. YIELD WILL VARY.
2
EATON VANCE LIMITED DURATION INCOME FUND as of April 30, 2004
MANAGEMENT DISCUSSION
AN INTERVIEW WITH SCOTT H. PAGE, PAYSON F. SWAFFIELD, SUSAN SCHIFF AND MICHAEL
W. WEILHEIMER, VICE PRESIDENTS AND PORTFOLIO MANAGERS OF EATON VANCE LIMITED
DURATION INCOME FUND.
[PHOTO OF SCOTT H. PAGE]
Scott H. Page
Q: SCOTT, HOW WOULD YOU CHARACTERIZE THE LOAN MARKET IN THE PERIOD SINCE THE
FUND'S INCEPTION?
A: MR. PAGE: The loan market has responded well to signs of a stronger
economy. That has been especially true of economically sensitive industrial
and technology companies, which have seen a recovery in orders in response
to increased capital spending. In addition, many companies are now reaping
the benefits of having cut costs and restructured operations during the
economic downturn, moves that left them with leaner operations, stronger
finances and globally more competitive. Moreover, the overall credit
environment has improved in the course of the past year.
Meanwhile, there have been signs that inflation is increasing with the the
stronger economy. Short-term interest rates, which have been near 45-year
lows, have begun to move higher in recent months. The Federal Reserve,
which has maintained a stable monetary policy in recent months, has
recently suggested that it may raise rates if it detects a growing threat
from inflation. An increase in rates should result in higher income returns
for the loan market.
[PHOTO OF PAYSON F. SWAFFIELD]
Payson F. Swaffield
Q: PAYSON, HOW HAS INVESTOR SENTIMENT CHANGED WITHIN THE LOAN MARKET IN THE
PAST YEAR?
A: MR. SWAFFIELD: One major change has been that, as the credit climate has
improved, investor demand has exceeded supply. Investors have been
attracted by loans' short re-set provisions, which provide higher interest
income as short-term interest rates rise. As a result of stronger demand,
credit spreads - the difference between loan interest rates and the
London-Interbank Offered Rate (LIBOR) - have narrowed slightly.
THE VIEWS EXPRESSED IN THIS REPORT ARE THOSE OF THE PORTFOLIO MANAGERS AND ARE
CURRENT ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THESE VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER
CONDITIONS, AND EATON VANCE DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS.
THESE VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE INVESTMENT
DECISIONS FOR AN EATON VANCE FUND ARE BASED ON MANY FACTORS, MAY NOT BE RELIED
ON AS AN INDICATION OF TRADING INTENT ON BEHALF OF ANY EATON VANCE FUND.
[CHART]
FIVE LARGEST SECTOR WEIGHTINGS(1)
By total net assets
Broadcasting & Entertainment 9.3%
Health Care, Education & Childcare 7.5%
Telecommunications 6.7%
Leisure, Amusement & Entertainment 5.5%
Hotels, Motels, Inns & Gaming 5.2%
(1) Five Largest Sector Weightings in aggregate account for 34.2% of the Fund's
net assets, determined by dividing the total market value of the holdings
by the total net assets of the Fund. Five Largest Sector Weightings refer
only to senior floating-rate loan and corporate bond portions of the Fund
and are subject to change.
3
Another change in the loan market in 2004 is that performance has been less
influenced by price movement and more so by interest payments. Following
the recovery from its previous sharp declines, the loan market has
generally improved, and many credits previously priced below par have
returned to or near par. That has kept investors focused on the income
potential of the loan market.
Q: HOW HAVE YOU POSITIONED THE FUND'S LOAN INVESTMENTS?
A: MR. PAGE: We've created a diversified portfolio of loan investments,
including economically sensitive industrial sectors. These companies have
fared very well in the economic recovery. However, we are not market or
credit cycle timers. Therefore, our investments also included defensive
sectors, such as beverages, foods and healthcare. Broadly diversifying on a
sector basis helped to mitigate overall risk.
Our conservative credit approach led us to underweight the telecom sector,
in general, even though this area was among the market's stronger
performers during the past year. While the short-term performance of the
group was impressive, we maintained very strict credit criteria and,
therefore, continue to be very selective within the telecom sector.
[PHOTO OF SUSAN SCHIFF]
Susan Schiff
Q: SUSAN, HOW HAVE INTEREST RATES IMPACTED THE MORTGAGE-BACKED SECURITIES
MARKET IN THE PAST YEAR?
A: MS. SCHIFF: The MBS market has fluctuated widely over the past year. 2003
was one of the worst-performing years on record for the market, due to the
record number of re-financings on the part of homeowners. As homeowners
refinanced to lock in low interest rates, prepayment rates for mortgages
rose to record levels. Soaring prepayment rates caused larger-than-expected
principal losses.
In 2004, the MBS market has stabilized somewhat. With a stronger economy,
interest rates have been rising for the last few months and may quite
possibly head higher in coming months. With a changed interest rate
environment, the wave of refinancings has slowed, resulting in lower
prepayment rates. MBS spreads over Treasury bonds have narrowed in recent
months, a sign of a healthier market. Thus, while the market has seen some
volatility, the trend has improved in 2004.
Q: WHERE IN THE MBS MARKET HAVE YOU FOCUSED THE FUND'S INVESTMENTS?
A: MS. SCHIFF: We have focused the Fund's MBS investments on the seasoned
segment of the market. Last year's spike notwithstanding, seasoned MBS have
had more stable historical prepayment rates, which have contributed to more
attractive performance characteristics. In addition, seasoned MBS have
continued to maintain an attractive yield advantage over Treasury bonds.
Q: WAS LAST YEAR'S PERFORMANCE BY SEASONED MBS A DEPARTURE FROM HISTORICAL
NORMS?
A: MS. SCHIFF: Yes, especially for seasoned MBS. As a result of the sharp rise
in prepayment rates, seasoned MBS ended the year valued at very cheap
levels relative to Treasuries. That was out of line with historical
patterns. So much so that, in my view, seasoned MBS still represent good
value, as spreads remain attractive. While there is no guarantee that past
trends will repeat, we believe it's probable that spreads for seasoned MBS
will revert to their historical patterns and continue to narrow further, as
they have in the first months of 2004. At a minimum, lower prepayment rates
should help the seasoned portion of the market.
4
[PHOTO OF MICHAEL W. WEILHEIMER]
Michael W. Weilheimer
Q: MIKE, HOW HAS THE NON-INVESTMENT GRADE BOND MARKET RESPONDED TO THE
IMPROVED ECONOMY?
A: MR. WEILHEIMER: The non-investment grade bond market saw significant gains
in 2003. That momentum carried through February 2004 before giving up some
ground. Corporate earnings have improved with the economic recovery. With
stronger cash flow, companies have been able to reduce their debt burden
and significantly improve their balance sheets. This trend has created a
much healthier credit environment, as evidenced by the decline in default
rates. Investors have demonstrated greater tolerance for risk and
increasing confidence in the non-investment grade market. Record new issue
volume has met strong demand from investors. In that climate, the
high-yield market has posted impressive gains.
Q: WHERE HAVE YOU FOCUSED THE FUND'S NON-INVESTMENT GRADE INVESTMENTS?
A: MR. WEILHEIMER: We have focused on the B-rated portion of the market, which
is highly sensitive to fluctuations in the economy. Many of these companies
in the industrial and technology-related sectors have enjoyed stronger
sales momentum. Earnings have been further helped by the cost cuts
instituted by many companies in recent years. Not surprisingly, as economic
activity has picked up, these lower-rated bonds have significantly
outperformed their high-rated counterparts. The Fund's largest high-yield
sector weight-ings were broadcasting and entertainment; telecommunications;
hotels, motels, inns and gaming; healthcare, education and childcare; and
utilities.
Q: WHAT HAS BEEN NOTABLE AMONG THE FUND'S NON-INVESTMENT GRADE BOND
INVESTMENTS?
A: MR. WEILHEIMER: The Fund's utility bonds have been especially strong
performers. As recently as 2002, the industry was faced with financial
pressures and bankruptcies. Many companies have since taken steps to
improve their financial footing. The Fund's utility investments included a
mix of power generating companies and pipeline companies that have pared or
restructured debt, issued equity and bought back their own bonds at a
discount in the market. That has greatly improved the companies' balance
sheets.
Increased merger and acquisition activity benefited some of the Fund's
investments in the chemical, consumer product and retailing areas. These
mergers included tenders for outstanding bonds by acquiring companies,
resulting in significant gains for some bonds.
Defensive areas, such as beverages and food, were less robust performers.
These companies' revenues are less tied to overall economic activity and,
therefore, were less influenced by the economic recovery.
5
EATON VANCE LIMITED DURATION INCOME FUND as of April 30, 2004
PORTFOLIO OF INVESTMENTS
SENIOR, FLOATING RATE INTERESTS -- 46.8%(1)
PRINCIPAL
AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
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AEROSPACE & DEFENSE -- 0.4%
ALLIANT TECHSYSTEMS, INC.
$ 3,750,000 Term Loan, Maturing March 31, 2011 $ 3,788,674
UNITED DEFENSE INDUSTRIES, INC.
5,347,671 Term Loan, Maturing October 6, 2005 5,383,960
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$ 9,172,634
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AUTOMOBILE -- 2.5%
ACCURIDE CORP.
$ 4,900,000 Term Loan, Maturing June 13, 2007 $ 5,016,375
COLLINS & AIKMAN PRODUCTS CO.
942,239 Term Loan, Maturing December 31, 2005 955,901
807,018 Revolving Loan, Maturing December 31, 2005 815,088
1,492,982 Term Loan, Maturing December 31, 2005 1,509,779
EXIDE TECHNOLOGIES
4,071,741 Term Loan, Maturing May 15, 2004 4,081,920
FEDERAL MOGUL CORP.
2,000,000 Term Loan, Maturing February 6, 2005 2,020,000
FEDERAL-MOGUL CORP.
5,626,706 Term Loan, Maturing February 24, 2005 5,675,940
HLI OPERATING CO., INC.
5,741,667 Term Loan, Maturing June 3, 2009 5,878,031
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
1,836,600 Term Loan, Maturing November 30, 2006 1,845,783
METALDYNE, INC.
2,643,003 Term Loan, Maturing December 31, 2009 2,650,601
PLASTECH ENGINEERED PRODUCTS, INC.
900,000 Term Loan, Maturing March 31, 2010 914,625
TENNECO AUTOMOTIVE
2,104,839 Term Loan, Maturing December 12, 2009 2,145,620
949,552 Term Loan, Maturing December 12, 2010 967,949
THE GOODYEAR TIRE & RUBBER CO.
10,500,000 Term Loan, Maturing March 31, 2006 10,648,753
TRW AUTOMOTIVE, INC.
2,010,420 Term Loan, Maturing February 27, 2009 2,030,733
3,070,780 Term Loan, Maturing February 27, 2011 3,121,777
UNITED COMPONENTS, INC.
1,713,333 Term Loan, Maturing June 30, 2010 1,737,962
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$ 52,016,837
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BEVERAGE, FOOD AND TOBACCO -- 2.1%
AMERICAN SEAFOOD HOLDINGS, INC.
$ 2,372,375 Term Loan, Maturing March 31, 2009 $ 2,383,248
CONSTELLATION BRANDS, INC.
1,718,750 Term Loan, Maturing November 30, 2008 1,746,144
DEAN FOODS CO.
825,000 Term Loan C, Maturing July 15, 2008 834,110
2,249,998 Term Loan B, Maturing July 15, 2008 2,283,748
DEL MONTE CORP.
2,425,208 Term Loan, Maturing December 20, 2010 2,467,649
DR. PEPPER/SEVEN UP BOTTLING GROUP, INC.
1,940,205 Term Loan, Maturing December 19, 2010 1,976,584
DS WATERS ENTERPRISES, L.P.
3,970,000 Term Loan, Maturing November 7, 2009 3,968,761
INTERSTATE BRANDS CORP.
859,375 Term Loan, Maturing July 19, 2006 842,187
1,217,880 Term Loan B, Maturing July 19, 2007 1,195,806
6,441,078 Term Loan C, Maturing July 19, 2007 6,324,333
MERISANT CO.
6,184,803 Term Loan, Maturing January 31, 2010 6,248,970
MICHAEL FOODS, INC.
2,000,000 Term Loan, Maturing November 20, 2011 2,053,126
PINNACLE FOODS HOLDINGS CORP.
800,734 Term Loan, Maturing November 25, 2010 893,578
3,119,266 Term Loan, Maturing Nobember 25, 2010 3,166,704
REDDY ICE GROUP, INC.
4,378,000 Term Loan, Maturing July 31, 2009 4,425,427
SOUTHERN WINE & SPIRITS OF AMERICA, INC.
4,385,669 Term Loan, Maturing June 28, 2008 4,437,065
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$ 45,247,440
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BROADCASTING & ENTERTAINMENT -- 5.1%
ATLANTIC BROADBAND FINANCE, LLC
$ 435,000 Term Loan, Maturing February 10, 2011 $ 440,642
BRESNAN COMMUNICATIONS, LLC
6,500,000 Term Loan, Maturing September 30, 2010 6,563,375
CANWEST MEDIA, INC.
5,223,077 Term Loan, Maturing May 15, 2009 5,288,365
CEBRIDGE CONNECTIONS, INC.
1,600,000 Term Loan, Maturing February 23, 2010 1,606,000
CHARTER COMMUNICATIONS OPERATING, LLC
15,275,000 Term Loan, Maturing April 27, 2011 15,239,990
CSG SYSTEMS INTERNATIONAL, INC.
3,299,136 Term Loan, Maturing December 31, 2007 3,337,284
SEE NOTES TO FINANCIAL STATEMENTS
6
PRINCIPAL
AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
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BROADCASTING & ENTERTAINMENT (CONTINUED)
CUMULUS MEDIA, INC.
$ 982,556 Term Loan, Maturing March 28, 2010 $ 997,418
DIRECTTV HOLDINGS, LLC
14,866,531 Term Loan, Maturing March 6, 2010 15,128,553
DISCOVERY COMMUNICATIONS, INC.
11,212,121 Revolving Loan, Maturing May 31, 2004 11,212,121
EMMIS COMMUNICATION CORP.
3,731,250 Term Loan, Maturing August 31, 2009 3,739,910
GRAY TELEVISION, INC.
6,284,250 Term Loan, Maturing December 31, 2010 6,369,087
INSIGHT MIDWEST HOLDINGS, LLC
9,975,000 Incremental Term Loan B, Maturing December 31, 2009 10,063,528
1,496,250 Term Loan B, Maturing December 31, 2009 1,509,529
LIONS GATE ENTERTAINMENT, INC.
3,000,000 Term Loan, Maturing December 31, 2008 3,022,500
MCC IOWA, LLC
4,500,000 Term Loan, Maturing September 30, 2010 4,566,096
4,000,000 Term Loan, Maturing March 31, 2010 3,990,624
RAINBOW MEDIA HOLDINGS, LLC
1,994,984 Term Loan, Maturing March 14, 2008 2,013,936
SINCLAIR TELEVISION GROUP, INC.
2,357,998 Incremental Term Loan, Maturing December 31, 2009 2,392,385
2,304,500 Term Loan, Maturing December 31, 2009 2,338,107
SUSQUEHANNA MEDIA CO.
2,000,000 Term Loan, Maturing March 31, 2012 2,025,000
WMG ACQUISITION CORP.
6,650,000 Term Loan, Maturing February 28, 2011 6,747,256
---------------------------------------------------------------------------------------------------------------
$ 108,591,706
---------------------------------------------------------------------------------------------------------------
BUILDINGS AND REAL ESTATE -- 2.6%
AIMCO PROPERTIES, L.P.
$ 5,000,000 Term Loan, Maturing May 30, 2008 $ 5,050,000
3,915,084 Term Loan, Maturing August 31, 2004 3,959,129
BRE/HOMESTEAD, LLC
4,000,000 Term Loan, Maturing January 11, 2006 3,992,500
CORRECTIONS CORP. OF AMERICA
2,461,932 Term Loan, Maturing March 31, 2008 2,496,554
CROWN CASTLE OPERATING CO.
1,990,000 Term Loan, Maturing September 15, 2007 2,025,448
DMB/CHII, LLC
1,882,787 Term Loan, Maturing March 3, 2009 1,887,494
ISTAR FINANCIAL, INC.
7,000,000 Term Loan, Maturing July 24, 2006 6,982,500
LANDSOURCE COMMUNITIES DEVELOPMENT, LLC
$ 1,002,000 Term Loan, Maturing March 31, 2010 $ 1,018,909
LODGIAN CO.
1,000,000 Term Loan, Maturing March 31, 2006 987,500
NCI BUILDING SYSTEMS, INC.
1,927,500 Term Loan, Maturing July 31, 2008 1,947,579
NEWKIRK MASTER, L.P.
1,342,727 Term Loan, Maturing November 24, 2006 1,366,225
NEWKIRK TENDER HOLDINGS, LLC
5,333,333 Term Loan A, Maturing May 25, 2006 5,386,667
1,798,216 Term Loan B, Maturing May 25, 2006 1,816,198
PLY GEM INDUSTRIES, INC.
1,550,000 Term Loan, Maturing February 12, 2011 1,555,813
RLC INDUSTRIES CO.
1,795,500 Term Loan, Maturing February 24, 2010 1,817,944
ST. MARYS CEMENT, INC.
997,500 Term Loan, Maturing December 4, 2010 1,012,463
TOWER FINANCING I, LLC
2,750,000 Term Loan, Maturing July 9, 2008 2,753,437
WFP TOWER A CO. L.P.
4,500,000 Term Loan, Maturing June 12, 2006 4,502,812
WHITEHALL STREET REAL ESTATE L.P. XI & XII
4,000,000 Term Loan, Maturing September 11, 2006 4,000,000
---------------------------------------------------------------------------------------------------------------
$ 54,559,172
---------------------------------------------------------------------------------------------------------------
CARGO TRANSPORT -- 0.5%
QUALITY DISTRIBUTION, LLC
$ 1,994,987 Term Loan, Maturing November 13, 2009 $ 2,016,184
RAILAMERICA, INC.
6,135,424 Term Loan, Maturing May 31, 2009 6,214,418
SIRVA WORLDWIDE, INC.
2,441,176 Term Loan, Maturing December 31, 2010 2,462,537
---------------------------------------------------------------------------------------------------------------
$ 10,693,139
---------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS AND RUBBER -- 1.8%
BRENNTAG AG
$ 2,475,000 Term Loan, Maturing December 9, 2011 $ 2,509,031
CP KELCO US, INC.
1,297,175 Term Loan, Maturing March 31, 2008 1,313,930
424,442 Term Loan, Maturing September 30, 2008 429,924
HERCULES, INC.
840,000 Term Loan, Maturing October 8, 2010 852,075
SEE NOTES TO FINANCIAL STATEMENTS
7
PRINCIPAL
AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS AND RUBBER (CONTINUED)
HUNTSMAN INTERNATIONAL
$ 4,507,084 Term Loan, Maturing June 30, 2007 $ 4,585,679
4,507,325 Term Loan, Maturing June 30, 2008 4,583,386
IMC GLOBAL, INC.
4,721,798 Term Loan, Maturing November 17, 2006 4,743,636
ISP CHEMCO, INC.
1,500,000 Term Loan, Maturing March 27, 2011 1,513,594
KRATON POLYMERS, LLC
3,639,861 Term Loan, Maturing December 5, 2008 3,701,284
NOVEON
6,467,500 Term Loan, Maturing December 31, 2009 6,495,795
ROCKWOOD SPECIALTIES GROUP, INC.
3,980,000 Term Loan, Maturing December 8, 2010 4,012,337
WELLMAN, INC.
750,000 Term Loan, Maturing February 10, 2009 761,094
WESTLAKE CHEMICAL CORP.
2,977,500 Term Loan, Maturing July 31, 2010 3,021,234
---------------------------------------------------------------------------------------------------------------
$ 38,522,999
---------------------------------------------------------------------------------------------------------------
CONTAINERS AND PACKAGING - PAPER -- 1.5%
GRAPHIC PACKAGING INTERNATIONAL, INC.
$ 17,412,500 Term Loan, Maturing August 8, 2009 $ 17,706,336
SOLO CUP CO.
2,964,911 Term Loan, Maturing February 27, 2011 3,017,538
STONE CONTAINER CORP.
9,325,440 Term Loan B, Maturing June 30, 2009 9,407,037
1,849,354 Term Loan C, Maturing June 30, 2009 1,865,536
---------------------------------------------------------------------------------------------------------------
$ 31,996,447
---------------------------------------------------------------------------------------------------------------
CONTAINERS AND PACKAGING - PLASTICS -- 0.4%
BERRY PLASTICS CORP.
$ 4,917,737 Term Loan, Maturing July 22, 2010 $ 4,988,430
CONSOLIDATED CONTAINER HOLDINGS, LLC
3,734,617 Term Loan, Maturing June 30, 2007 3,710,111
---------------------------------------------------------------------------------------------------------------
$ 8,698,541
---------------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING AND GLASS -- 1.3%
CROWN CORK & SEAL AMERICAS, INC.
$ 14,250,000 Term Loan, Maturing September 15, 2008 $ 14,517,187
GRAPHIC PACKAGING INTERNATIONAL, INC.
1,950,000 Term Loan, Maturing August 8, 2008 1,964,625
OWENS-ILLINOIS, INC.
$ 9,500,000 Term Loan, Maturing April 1, 2007 $ 9,544,536
SILGAN HOLDINGS, INC.
1,467,638 Term Loan, Maturing December 31, 2008 1,491,258
TEKNI-PLEX, INC.
967,615 Term Loan, Maturing March 31, 2006 973,663
---------------------------------------------------------------------------------------------------------------
$ 28,491,269
---------------------------------------------------------------------------------------------------------------
DIVERSIFIED NATURAL RESOURCES, PRECIOUS METALS AND MINERALS -- 0.2%
COMPASS MINERALS GROUP, INC.
$ 2,636,158 Term Loan, Maturing November 28, 2009 $ 2,677,074
PEABODY ENERGY CORP.
990,000 Term Loan, Maturing March 31, 2010 998,972
---------------------------------------------------------------------------------------------------------------
$ 3,676,046
---------------------------------------------------------------------------------------------------------------
DIVERSIFIED / CONGLOMERATE MANUFACTURING -- 1.9%
AMSTED INDUSTRIES, INC.
$ 6,451,250 Term Loan, Maturing October 15, 2010 $ 6,576,243
CHART INDUSTRIES, INC.
905,322 Term Loan, Maturing September 15, 2009 897,400
DOUGLAS DYNAMICS HOLDINGS, INC.
300,000 Term Loan, Maturing March 30, 2010 303,750
400,000 Term Loan, Maturing March 30, 2011 405,000
DRESSER, INC.
1,185,035 Term Loan, Maturing March 31, 2007 1,205,773
ENERSYS HOLDINGS, INC.
1,160,000 Term Loan, Maturing March 17, 2011 1,178,609
FLOWSERVE CORP.
4,109,654 Term Loan, Maturing June 30, 2009 4,166,676
JOHNSONDIVERSEY, INC.
641,985 Term Loan, Maturing November 30, 2008 647,904
2,613,946 Term Loan, Maturing November 30, 2009 2,643,081
MUELLER GROUP, INC.
2,500,000 Term Loan, Maturing April 23, 2011 2,525,000
NATIONAL WATERWORKS, INC.
4,339,286 Term Loan, Maturing November 22, 2009 4,397,141
PANOLAM INDUSTRIES, INC.
500,000 Term Loan, Maturing November 24, 2007 503,750
POLYPORE, INC.
3,473,418 Term Loan, Maturing December 31, 2007 3,506,703
SEE NOTES TO FINANCIAL STATEMENTS
8
PRINCIPAL
AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------
DIVERSIFIED / CONGLOMERATE MANUFACTURING (CONTINUED)
SPX CORP.
$ 923,077 Term Loan, Maturing September 30, 2008 $ 928,846
5,910,448 Term Loan, Maturing September 30, 2009 5,992,332
THE MANITOWOC CO.
174,927 Term Loan, Maturing June 30, 2007 176,239
TRIMAS CORP.
4,754,514 Term Loan, Maturing December 31, 2009 4,783,735
---------------------------------------------------------------------------------------------------------------
$ 40,838,182
---------------------------------------------------------------------------------------------------------------
DIVERSIFIED / CONGLOMERATE SERVICE -- 1.2%
ADAMS OUTDOOR ADVERTISING, L.P.
$ 350,000 Term Loan, Maturing April 15, 2012 $ 355,469
ADVANSTAR COMMUNICATIONS, INC.
359,177 Term Loan, Maturing November 17, 2007 361,198
ALDERWOODS GROUP
866,733 Term Loan, Maturing September 28, 2008 880,006
COINMACH LAUNDRY CORP.
4,666,000 Term Loan, Maturing July 25, 2009 4,716,743
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS, INC.
850,343 Term Loan, Maturing December 12, 2008 856,189
1,000,000 Term Loan, Maturing December 12, 2010 1,012,500
GATE GOURMET BORROWER, LLC
1,000,000 Term Loan, Maturing December 31, 2008 1,000,000
GENERAL BINDING CORP.
1,200,000 Term Loan, Maturing January 15, 2008 1,203,750
GEO GROUP
2,887,500 Term Loan, Maturing July 9, 2009 2,921,789
INTERLINE BRANDS, INC.
4,331,250 Term Loan, Maturing November 30, 2009 4,355,613
IRON MOUNTAIN, INC.
1,684,519 Term Loan, Maturing April 2, 2009 1,702,944
NALCO CO.
3,851,538 Term Loan, Maturing November 4, 2010 3,888,448
UNITED RENTALS, INC.
231,667 Term Loan B, Maturing February 14, 2011 234,780
1,158,333 Term Loan, Maturing February 14, 2011 1,173,247
---------------------------------------------------------------------------------------------------------------
$ 24,662,676
---------------------------------------------------------------------------------------------------------------
ECOLOGICAL -- 1.0%
ALLIED WASTE INDUSTRIES, INC.
$ 8,570,711 Term Loan, Maturing January 15, 2009 $ 8,709,316
1,000,000 Term Loan, Maturing January 15, 2010 1,016,875
6,710,229 Term Loan, Maturing July 15, 2010 6,826,456
IESI CORP.
1,990,000 Term Loan, Maturing September 30, 2010 2,023,581
IONICS, INC.
2,355,000 Term Loan, Maturing February 13, 2011 2,386,646
---------------------------------------------------------------------------------------------------------------
$ 20,962,874
---------------------------------------------------------------------------------------------------------------
ELECTRONICS -- 1.1%
AMPHENOL CORP.
$ 3,874,737 Term Loan, Maturing May 6, 2010 $ 3,915,906
COMMUNICATIONS & POWER INDUSTRIES, INC.
2,000,000 Term Loan, Maturing July 23, 2010 2,027,500
FAIRCHILD SEMICONDUCTOR CORP.
7,691,875 Term Loan, Maturing June 19, 2008 7,816,868
GLOBAL CASH ACCESS LLC
675,000 Term Loan, Maturing March 10, 2010 685,547
INVENSYS INTERNATIONAL HOLDINGS, LTD.
3,100,000 Term Loan, Maturing September 5, 2009 3,111,625
750,000 Term Loan, Maturing September 5, 2009 756,562
XEROX CORP.
4,500,000 Term Loan, Maturing September 30, 2008 4,514,625
---------------------------------------------------------------------------------------------------------------
$ 22,828,633
---------------------------------------------------------------------------------------------------------------
FARMING AND AGRICULTURE -- 0.1%
THE SCOTTS CO.
$ 1,498,500 Term Loan, Maturing September 30, 2010 $ 1,521,328
---------------------------------------------------------------------------------------------------------------
$ 1,521,328
---------------------------------------------------------------------------------------------------------------
GROCERY -- 0.1%
THE PANTRY, INC.
$ 2,337,681 Term Loan, Maturing March 12, 2011 $ 2,371,285
---------------------------------------------------------------------------------------------------------------
$ 2,371,285
---------------------------------------------------------------------------------------------------------------
HEALTH CARE - EQUIPMENT AND SUPPLIES -- 0.2%
ALARIS MEDICAL SYSTEMS, INC.
$ 4,228,906 Term Loan, Maturing June 30, 2009 $ 4,286,394
---------------------------------------------------------------------------------------------------------------
$ 4,286,394
---------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
9
PRINCIPAL
AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------
HEALTHCARE, EDUCATION AND CHILDCARE -- 4.0%
ALLIANCE IMAGING, INC.
$ 2,500,000 Term Loan, Maturing June 10, 2008 $ 2,489,845
AMERISOURCE BERGEN CORP.
1,276,471 Term Loan, Maturing March 31, 2005 1,279,662
COMMUNITY HEALTH SYSTEMS, INC.
3,980,000 Incremental Term Loan, Maturing July 5, 2010 4,039,700
4,929,950 Term Loan, Maturing July 5, 2010 5,021,770
CONCENTRA OPERATING CORP.
4,962,500 Term Loan, Maturing June 30, 2009 5,039,007
CONMED CORP.
3,013,642 Term Loan, Maturing December 31, 2007 3,055,079
CROSS COUNTRY HEALTHCARE, INC.
2,262,036 Term Loan, Maturing June 5, 2009 2,318,587
DADE BEHRING HOLDINGS, INC.
2,451,395 Term Loan, Maturing October 3, 2008 2,468,248
789,042 Term Loan, Maturing October 3, 2008 798,905
DAVITA, INC.
18,350,505 Term Loan, Maturing March 31, 2009 18,565,555
DJ ORTHOPEDICS, INC.
987,500 Term Loan, Maturing May 15, 2009 1,001,078
EDUCATE OPERATING CO., LLC
450,000 Term Loan, Maturing March 31, 2011 455,344
EMPI CORP.
997,500 Term Loan, Maturing November 24, 2009 1,008,722
FHC HEALTH SYSTEMS, INC.
1,300,000 Term Loan, Maturing June 1, 2004 1,299,187
1,857,143 Term Loan, Maturing December 18, 2009 1,855,982
FISHER SCIENTIFIC INTERNATIONAL, LLC
7,012,328 Term Loan, Maturing March 31, 2010 7,066,379
FRESENIUS MEDICAL CARE HOLDINGS, INC.
2,982,487 Term Loan, Maturing February 21, 2010 2,989,944
GLOBAL IMAGING SYSTEMS, INC.
1,985,000 Term Loan, Maturing June 25, 2009 2,014,775
KINETIC CONCEPTS, INC.
3,741,500 Term Loan, Maturing October 3, 2009 3,788,269
KNOWLEDGE LEARNING CORP.
1,967,253 Term Loan, Maturing May 15, 2010 1,977,090
LANGUAGE LINE, LLC
3,465,000 Term Loan, Maturing December 31, 2008 3,499,650
MAGELLAN HEALTH SERVICES, INC.
444,444 Term Loan, Maturing August 15, 2008 453,333
534,722 Term Loan, Maturing August 15, 2008 545,417
MULTIPLAN, INC.
$ 535,000 Term Loan, Maturing March 4, 2009 $ 541,687
QUINTILES TRANSNATIONAL CORP.
2,487,500 Term Loan, Maturing September 25, 2009 2,537,250
TEAM HEALTH
2,250,000 Term Loan, Maturing March 23, 2011 2,250,000
TRIAD HOSPITALS HOLDINGS, INC.
2,821,502 Term Loan, Maturing March 31, 2008 2,866,477
VWR INTERNATIONAL, INC.
1,300,000 Term Loan, Maturing April 7, 2011 1,320,475
WEEKLY READER CORP.
1,480,000 Term Loan, Maturing March 18, 2009 1,486,938
---------------------------------------------------------------------------------------------------------------
$ 84,034,355
---------------------------------------------------------------------------------------------------------------
HOME AND OFFICE FURNISHINGS, HOUSEWARES AND DURABLE CONSUMER GOODS -- 0.5%
HOME INTERIORS & GIFTS, INC.
$ 900,000 Term Loan, Maturing March 31, 2011 $ 892,687
SEALY MATTRESS CO.
2,496,228 Term Loan, Maturing April 6, 2012 2,531,332
SIMMONS CO.
979,259 Term Loan, Maturing December 19, 2011 993,540
TEMPUR-PEDIC, INC.
4,962,500 Term Loan, Maturing June 30, 2009 5,005,922
WERNER HOLDING CO.
1,000,000 Term Loan, Maturing June 11, 2009 969,375
---------------------------------------------------------------------------------------------------------------
$ 10,392,856
---------------------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS AND GAMING -- 2.0%
ALLIANCE GAMING CORP.
$ 7,650,000 Term Loan, Maturing September 5, 2009 $ 7,743,238
AMERISTAR CASINOS, INC.
3,317,304 Term Loan, Maturing December 31, 2006 3,349,442
ARGOSY GAMING CO.
992,347 Term Loan, Maturing June 30, 2008 1,002,270
CNL HOSPITALITY PARTNERS, L.P.
5,000,000 Term Loan, Maturing April 2, 2005 5,000,000
EXTENDED STAY AMERICA
2,969,697 Term Loan, Maturing December 31, 2007 2,978,360
ISLE OF CAPRI CASINOS
2,017,215 Term Loan, Maturing April 25, 2008 2,041,349
SEE NOTES TO FINANCIAL STATEMENTS
10
PRINCIPAL
AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS AND GAMING (CONTINUED)
MARINA DISTRICT FINANCE CO.
$ 6,926,516 Term Loan, Maturing December 31, 2007 $ 7,009,849
PENN NATIONAL GAMING, INC.
2,535,208 Term Loan, Maturing July 31, 2006 2,573,236
PINNACLE ENTERTAINMENT, INC.
1,306,667 Term Loan, Maturing December 18, 2009 1,323,817
VAIL RESORTS, INC.
3,960,000 Term Loan, Maturing December 10, 2008 4,007,025
VENETIAN CASINO RESORT, LLC/LAS VEGAS SANDS, INC.
1,965,000 Term Loan, Maturing June 4, 2008 1,994,475
WYNDHAM INTERNATIONAL, INC.
2,489,681 Term Loan, Maturing June 30, 2004 2,449,612
---------------------------------------------------------------------------------------------------------------
$ 41,472,673
---------------------------------------------------------------------------------------------------------------
INSURANCE -- 0.4%
HILB, ROGAL & HOBBS CO.
$ 1,984,848 Term Loan, Maturing June 30, 2007 $ 2,014,621
U.S.I. HOLDINGS CORP.
5,955,000 Term Loan, Maturing August 11, 2008 6,040,603
---------------------------------------------------------------------------------------------------------------
$ 8,055,224
---------------------------------------------------------------------------------------------------------------
LEISURE, AMUSEMENT, ENTERTAINMENT -- 3.1%
AMF BOWLING WORLDWIDE, INC.
$ 2,750,000 Term Loan, Maturing August 27, 2009 $ 2,775,781
AMFAC RESORTS, INC.
2,329,622 Term Loan, Maturing September 30, 2004 2,326,710
2,329,622 Term Loan, Maturing September 30, 2005 2,326,710
BOMBARDIER RECREATIONAL PRODUCTS, INC.
2,100,000 Term Loan, Maturing December 18, 2010 2,115,750
900,000 Term Loan, Maturing December 18, 2010 909,750
CINEMARK, INC.
2,000,000 Term Loan, Maturing March 31, 2011 2,038,750
HOLLYWOOD ENTERTAINMENT CORP.
2,462,121 Term Loan, Maturing March 31, 2008 2,478,536
LOEWS CINEPLEX ENTERTAINMENT CORP.
12,750,458 Term Loan, Maturing September 30, 2006 12,790,303
NEW ENGLAND SPORTS VENTURES, LLC
3,000,000 Term Loan, Maturing February 28, 2005 3,000,000
REGAL CINEMAS, INC.
12,952,288 Term Loan, Maturing June 30, 2009 13,182,191
SIX FLAGS THEME PARKS, INC.
6,338,099 Term Loan, Maturing June 30, 2009 6,412,046
UNIVERSAL CITY DEVELOPMENT PARTNERS, L.P.
$ 7,269,851 Term Loan, Maturing June 30, 2007 $ 7,308,476
VIVENDI UNIVERSAL ENTERTAINMENT, LLP
7,500,000 Term Loan, Maturing June 30, 2008 7,560,937
---------------------------------------------------------------------------------------------------------------
$ 65,225,940
---------------------------------------------------------------------------------------------------------------
MACHINERY (NON-AGRICULTURAL, NON-CONSTRUCTION, NON-ELECTRONIC) -- 0.2%
COLFAX CORP.
$ 2,088,047 Term Loan, Maturing May 30, 2009 $ 2,115,452
REXNORD CORP.
1,828,571 Term Loan, Maturing November 30, 2009 1,848,000
---------------------------------------------------------------------------------------------------------------
$ 3,963,452
---------------------------------------------------------------------------------------------------------------
OIL AND GAS -- 2.0%
CITGO PETROLEUM CO.
$ 5,000,000 Term Loan, Maturing February 27, 2006 $ 5,203,125
COLUMBIA NATURAL RESOURCES, LLC
4,125,000 Revolving Loan, Maturing August 28, 2008 4,114,688
CUMBERLAND FARMS, INC.
2,299,387 Term Loan A, Maturing September 8, 2008 2,299,387
4,435,204 Term Loan B, Maturing September 8, 2008 4,468,468
LA GRANGE ACQUISITION, L.P.
1,000,000 Term Loan, Maturing January 18, 2008 1,000,000
MAGELLAN MIDSTREAM HOLDINGS
3,639,742 Term Loan, Maturing June 17, 2008 3,712,537
MAGELLAN MIDSTREAM PARTNERS, L.P.
1,500,000 Term Loan, Maturing August 6, 2008 1,516,875
SPRAGUE ENERGY CORP.
1,713,115 Revolving Loan, Maturing August 10, 2007 1,708,832
WILLIAMS PRODUCTION RMT CO.
18,361,481 Term Loan, Maturing May 30, 2007 18,568,048
---------------------------------------------------------------------------------------------------------------
$ 42,591,960
---------------------------------------------------------------------------------------------------------------
PERSONAL AND NON-DURABLE CONSUMER PRODUCTS (MANUFACTURING ONLY) -- 0.6%
ARMKEL, LLC
$ 407,189 Term Loan, Maturing March 31, 2009 $ 412,424
CHURCH & DWIGHT CO., INC.
1,672,350 Term Loan, Maturing September 30, 2007 1,697,435
MARY KAY COSMETICS, INC.
2,637,998 Term Loan, Maturing September 30, 2007 2,664,378
SEE NOTES TO FINANCIAL STATEMENTS
11
PRINCIPAL
AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------
PERSONAL AND NON-DURABLE CONSUMER PRODUCTS (MANUFACTURING ONLY) (CONTINUED)
PRESTIGE BRANDS, INC.
$ 1,775,000 Term Loan B, Maturing April 7, 2011 $ 1,792,750
2,000,000 Term Loan C, Maturing April 7, 2011 2,025,000
RAYOVAC CORP.
4,290,739 Term Loan, Maturing September 30, 2009 4,333,646
---------------------------------------------------------------------------------------------------------------
$ 12,925,633
---------------------------------------------------------------------------------------------------------------
PERSONAL TRANSPORTATION -- 0.5%
LAIDLAW INTERNATIONAL, INC.
$ 8,673,639 Term Loan, Maturing June 19, 2009 $ 8,839,887
NFIL HOLDINGS CORP.
535,714 Term Loan, Maturing February 27, 2010 544,420
1,714,286 Term Loan, Maturing February 27, 2010 1,738,929
---------------------------------------------------------------------------------------------------------------
$ 11,123,236
---------------------------------------------------------------------------------------------------------------
PERSONAL, FOOD AND MISCELLANEOUS -- 0.8%
AFC ENTERPRISES, INC.
$ 1,485,765 Term Loan, Maturing May 23, 2009 $ 1,490,965
ATKINS NUTRITIONALS, INC.
1,965,000 Term Loan, Maturing November 26, 2009 1,969,913
BUFFETS, INC.
418,182 Term Loan, Maturing June 28, 2009 419,227
4,171,364 Term Loan, Maturing June 28, 2009 4,188,049
CKE RESTAURANTS, INC.
405,477 Term Loan, Maturing April 1, 2008 405,477
DOMINO'S, INC.
7,790,353 Term Loan, Maturing June 25, 2010 7,904,778
JACK IN THE BOX, INC.
1,496,250 Term Loan, Maturing January 8, 2011 1,522,434
---------------------------------------------------------------------------------------------------------------
$ 17,900,843
---------------------------------------------------------------------------------------------------------------
PRINTING AND PUBLISHING -- 2.9%
AMERICAN ACHIEVEMENT CORP.
$ 700,000 Term Loan, Maturing March 25, 2011 $ 710,719
AMERICAN MEDIA OPERATIONS, INC.
2,360,799 Term Loan, Maturing April 1, 2007 2,391,048
CBD MEDIA, LLC
918,750 Term Loan, Maturing December 31, 2009 930,522
DEX MEDIA EAST, LLC
875,589 Term Loan, Maturing November 8, 2008 888,813
5,331,019 Term Loan, Maturing May 8, 2009 5,420,980
DEX MEDIA WEST, LLC
$ 2,447,904 Term Loan, Maturing September 9, 2009 $ 2,486,919
9,486,817 Term Loan, Maturing March 9, 2010 9,653,681
HOLLINGER INTERNATIONAL PUBLISHING, INC.
2,938,905 Term Loan, Maturing September 30, 2009 2,978,398
JOSTENS, INC.
3,791,103 Term Loan, Maturing July 15, 2010 3,831,857
JOURNAL REGISTER CO.
1,917,590 Term Loan, Maturing September 30, 2006 1,912,796
LIBERTY GROUP OPERATING, INC.
4,996,923 Term Loan, Maturing April 30, 2007 5,040,646
MERRILL CORP.
2,451,595 Term Loan, Maturing November 15, 2007 2,454,659
MORRIS PUBLISHING GROUP, LLC
7,500,000 Term Loan, Maturing March 31, 2011 7,599,375
NEBRASKA BOOK CO.
960,000 Term Loan, Maturing March 4, 2011 975,000
R.H. DONNELLEY, INC.
4,950,741 Term Loan, Maturing June 30, 2010 5,029,953
SUN MEDIA CORP.
2,818,680 Term Loan, Maturing February 7, 2009 2,849,951
THE READER'S DIGEST ASSOCIATION, INC.
3,661,035 Term Loan, Maturing May 20, 2008 3,696,214
TRANSWESTERN PUBLISHING COMPANY, LLC
925,000 Term Loan B, Maturing February 25, 2011 937,333
1,600,000 Term Loan, Maturing February 25, 2011 1,619,000
---------------------------------------------------------------------------------------------------------------
$ 61,407,864
---------------------------------------------------------------------------------------------------------------
RETAIL - FOOD AND DRUG -- 0.1%
GENERAL NUTRITION CENTERS, INC.
$ 1,995,000 Term Loan, Maturing December 5, 2009 $ 2,011,209
---------------------------------------------------------------------------------------------------------------
$ 2,011,209
---------------------------------------------------------------------------------------------------------------
RETAIL STORES -- 1.3%
CSK AUTO, INC.
$ 4,000,000 Term Loan, Maturing June 20, 2009 $ 4,055,000
FTD, INC.
1,000,000 Term Loan, Maturing February 28, 2011 1,014,375
ORIENTAL TRADING CO.
5,534,572 Term Loan, Maturing August 4, 2010 5,572,622
PETCO ANIMAL SUPPLIES, INC.
992,474 Term Loan, Maturing October 2, 2008 1,009,842
SEE NOTES TO FINANCIAL STATEMENTS
12
PRINCIPAL
AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------------------------------------------------------------------------------------------------------
RETAIL STORES (CONTINUED)
RENT-A-CENTER, INC.
$ 2,977,500 Term Loan, Maturing May 28, 2009 $ 3,021,418
RITE AID CORP.
12,650,000 Term Loan, Maturing April 30, 2008 12,972,575
---------------------------------------------------------------------------------------------------------------
$ 27,645,832
---------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.6%
CENTENNIAL CELLULAR OPERATING CO., LLC
$ 2,850,000 Term Loan, Maturing February 9, 2011 $ 2,856,871
CINCINNATI BELL, INC.
10,015,024 Term Loan, Maturing June 30, 2008 10,165,249
CONSOLIDATED COMMUNICATIONS, INC.
2,125,000 Term Loan, Maturing October 14, 2011 2,146,250
DOBSON CELLULAR SYSTEMS, INC.
995,000 Term Loan, Maturing March 31, 2010 995,174
NEXTEL FINANCE CO.
12,460,041 Term Loan, Maturing December 15, 2010 12,609,648
QWEST CORP.
17,500,000 Term Loan, Maturing June 4, 2007 18,248,370
SPECTRASITE COMMUNICATIONS, INC.
2,288,452 Term Loan, Maturing June 30, 2006 2,319,918
WESTERN WIRELESS CORP.
6,333,592 Term Loan, Maturing September 30, 2008 6,363,283
---------------------------------------------------------------------------------------------------------------
$ 55,704,763
---------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - WIRELESS -- 0.3%
AMERICAN TOWER, L.P.
$ 4,816,770 Term Loan, Maturing December 31, 2007 $ 4,848,079
SBA SENIOR FINANCE, INC.
1,518,314 Term Loan, Maturing October 31, 2008 1,529,938
---------------------------------------------------------------------------------------------------------------
$ 6,378,017
---------------------------------------------------------------------------------------------------------------
TEXTILES AND LEATHER -- 0.1%
ST. JOHN KNITS INTERNATIONAL, INC.
$ 2,928,270 Term Loan, Maturing July 31, 2007 $ 2,938,794
---------------------------------------------------------------------------------------------------------------
$ 2,938,794
---------------------------------------------------------------------------------------------------------------
UTILITIES -- 1.4%
ALLEGHENY ENERGY SUPPLY CO., LLC
$ 4,600,000 Term Loan, Maturing March 8, 2011 $ 4,627,793
CALPINE GENERATING CO., LLC
2,500,000 Term Loan, Maturing April 1, 2009 2,504,298
CENTERPOINT ENERGY, INC.
$ 7,683,243 Term Loan, Maturing October 7, 2006 $ 7,862,716
COGENTRIX DELAWARE HOLDINGS, INC.
1,750,000 Term Loan, Maturing February 26, 2009 1,760,938
NRG ENERGY, INC.
1,692,839 Term Loan, Maturing June 23, 2010 1,747,063
3,011,620 Term Loan, Maturing June 23, 2010 3,108,368
NUI UTILITIES, INC.
2,437,500 Term Loan, Maturing November 24, 2004 2,456,780
PACIFIC ENERGY GROUP, LLC
3,000,000 Term Loan, Maturing July 26, 2009 3,019,689
TETON POWER FUNDING, LLC
1,500,000 Term Loan, Maturing March 12, 2011 1,515,000
---------------------------------------------------------------------------------------------------------------
$ 28,602,645
---------------------------------------------------------------------------------------------------------------
TOTAL SENIOR, FLOATING RATE INTERESTS
(IDENTIFIED COST $981,728,214) $ 991,512,898
---------------------------------------------------------------------------------------------------------------
MORTGAGE PASS-THROUGHS -- 50.6%
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.:
$ 1,796 6.00%, with maturity at 2026 $ 1,859,719
42,402 6.50%, with various maturities to 2025 44,530,341
37,071 7.00%, with various maturities to 2027 39,474,113
2,216 7.13%, with maturity at 2023 2,366,945
79,280 7.50%, with various maturities to 2028 85,376,163
3,189 7.65%, with maturity at 2022 3,469,544
760 7.70%, with maturity at 2022 828,578
41,216 8.00%, with various maturities to 2030 44,900,581
15,309 8.50%, with various maturities to 2024 16,865,049
464 8.75%, with maturity at 2010 501,532
10,837 9.00%, with various maturities to 2023 12,020,286
13,482 9.50%, with various maturities to 2025 15,161,211
6,362 10.00%, with various maturities to 2022 7,311,462
2,673 10.50%, with various maturities to 2021 3,098,084
251 11.00%, with maturity at 2015 288,419
448 11.50%, with various maturities to 2020 524,153
290 12.00%, with maturity at 2019 342,801
1,566 12.50%, with various maturities to 2015 1,867,683
701 13.00%, with maturity at 2015 851,661
66 13.50%, with maturity at 2014 79,515
218 14.00%, with maturity at 2014 271,361
---------------------------------------------------------------------------------------------------------------
$ 281,989,201
---------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
13
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSN.:
$ 1,840 6.00%, with maturity at 2023 $ 1,902,194
128,257 6.50%, with various maturities to 2029(2) 134,422,418
1,571 6.75%, with maturity at 2023 1,667,917
87,667 7.00%, with various maturities to 2028 93,211,122
17,250 7.50%, with various maturities to 2026 18,541,839
32,631 8.00%, with various maturities to 2028 35,494,837
302 8.25%, with maturity at 2018 328,851
20,364 8.50%, with various maturities to 2027 22,374,703
3,290 8.616%, with maturity at 2029 3,621,325
30,175 9.00%, with various maturities to 2026 33,598,103
1,966 9.176%, with maturity at 2024 2,212,143
13,262 9.50%, with various maturities to 2030 14,870,985
6,505 10.00%, with various maturities to 2021 7,489,125
5,695 10.233%, with maturity at 2019 6,516,466
2,907 10.50%, with various maturities to 2025 3,377,584
2,502 11.00%, with various maturities to 2020 2,919,715
276 11.25%, with maturity at 2016 323,649
6,431 11.50%, with various maturities to 2021 7,567,905
46 11.75%, with maturity at 2014 54,482
941 12.00%, with various maturities to 2016 1,121,684
753 12.50%, with various maturities to 2015 901,988
815 13.00%, with various maturities to 2015 988,368
318 13.50%, with various maturities to 2017 392,191
102 14.50%, with maturity at 2014 127,972
---------------------------------------------------------------------------------------------------------------
$ 394,027,566
---------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSN.:
$ 11,445 6.00%, with maturity at 2024 $ 11,867,875
107,521 6.50%, with various maturities to 2024(2) 113,018,135
20,298 7.00%, with various maturities to 2024 21,621,240
21,429 8.00%, with various maturities to 2025 23,349,843
5,798 8.50%, with various maturities to 2022 6,383,041
25,633 9.00%, with various maturities to 2025 28,579,866
37,350 9.50%, with various maturities to 2026 42,086,040
2,503 10.00%, with maturity at 2019 2,900,305
---------------------------------------------------------------------------------------------------------------
$ 249,806,345
---------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS:
$ 1,567 Federal Home Loan Mortgage Corp., Series 1289,
Class PV, 7.50%, 6/15/22 $ 1,661,546
8,928 Federal Home Loan Mortgage Corp., Series 1497,
Class K, 7.00%, 4/15/23 9,457,918
13,779 Federal Home Loan Mortgage Corp., Series 1529,
Class Z, 7.00%, 6/15/23 14,628,996
$ 19,933 Federal Home Loan Mortgage Corp., Series 1730,
Class Z, 7.00%, 5/15/24 $ 21,163,485
1,613 Federal National Mortgage Assn., Series 1988-14,
Class I, 9.20%, 6/25/18 1,791,677
1,518 Federal National Mortgage Assn., Series 1989-1,
Class D, 10.30%, 1/25/19 1,720,425
3,216 Federal National Mortgage Assn., Series 1989-34,
Class Y, 9.85%, 7/25/19 3,635,108
3,635 Federal National Mortgage Assn., Series 1990-43,
Class Z, 9.50%, 4/25/20 4,062,306
1,221 Federal National Mortgage Assn., Series 1991-98,
Class J, 8.00%, 8/25/21 1,324,886
700 Federal National Mortgage Assn., Series 1992-103,
Class Z, 7.50%, 6/25/22 751,106
1,330 Federal National Mortgage Assn., Series 1992-113,
Class Z, 7.50%, 7/25/22 1,427,740
5,534 Federal National Mortgage Assn., Series 1993-16,
Class Z, 7.50%, 2/25/23 5,933,081
4,808 Federal National Mortgage Assn., Series 1993-22,
Class PM, 7.40%, 2/25/23 5,143,327
6,892 Federal National Mortgage Assn., Series 1993-25,
Class J, 7.50%, 3/25/23 7,389,915
16,166 Federal National Mortgage Assn., Series 1993-30,
Class PZ, 7.50%, 3/25/23 17,332,617
11,761 Federal National Mortgage Assn., Series 1994-89,
Class ZQ, 8.00%, 7/25/24 12,702,087
13,164 Federal National Mortgage Assn., Series 2001-37,
Class GA, 8.00%, 7/25/16 14,216,652
8,304 Federal National Mortgage Assn., Series G93-29,
Class Z, 7.00%, 8/25/23 8,797,001
9,000 Government National Mortgage Assn.,
Series 2002-45, Class PG, 6.00%, 3/17/32 9,331,875
4,349 Merrill Lynch Trust, Series 45, Class Z,
9.10%, 9/20/20 4,625,447
---------------------------------------------------------------------------------------------------------------
$ 147,097,195
---------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE PASS-THROUGHS
(IDENTIFIED COST $1,085,039,758) $ 1,072,920,307
---------------------------------------------------------------------------------------------------------------
CORPORATE BONDS & NOTES -- 48.8%
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE -- 1.1%
ARMOR HOLDINGS, INC., SR. SUB. NOTES
$ 1,895 8.25%, 8/15/13 $ 2,079,762
SEE NOTES TO FINANCIAL STATEMENTS
14
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE (CONTINUED)
BE AEROSPACE, SR. NOTES
$ 1,045 8.50%, 10/1/10 $ 1,139,050
DUNLOP STAND AERO HOLDINGS, SR. NOTES
5,680 11.875%, 5/15/09 6,035,000
1,700 11.875%, 5/15/09(3) 1,806,250
GENCORP, INC., SR. SUB. NOTES
3,000 9.50%, 8/15/13 3,150,000
SEQUA CORP.
5,000 8.875%, 4/1/08 5,475,000
TITAN CORP., SR. SUB. NOTES
2,000 8.00%, 5/15/11(3) 2,290,000
VOUGHT AIRCRAFT, INC., SR. NOTES
1,000 8.00%, 7/15/11(3) 1,020,000
---------------------------------------------------------------------------------------------------------------
$ 22,995,062
---------------------------------------------------------------------------------------------------------------
AIRLINES -- 0.8%
AMERICAN AIRLINES
$ 3,000 7.80%, 10/1/06 $ 2,850,054
525 8.608%, 4/1/11 494,444
AMR CORP., DEBS.
2,970 9.00%, 8/1/12 2,524,500
CONTINENTAL AIRLINES
475 8.00%, 12/15/05 453,625
DELTA AIR LINES
6,000 7.70%, 12/15/05 4,650,000
DELTA AIR LINES, SERIES 00-1
3,910 7.779%, 11/18/05 3,287,977
DELTA AIR LINES, SERIES 02-1
643 7.779%, 1/2/12 467,019
NORTHWEST AIRLINES, INC., SR. NOTES
3,465 9.875%, 3/15/07 2,910,600
---------------------------------------------------------------------------------------------------------------
$ 17,638,219
---------------------------------------------------------------------------------------------------------------
APPAREL -- 0.5%
J CREW OPERATING CORP., SR. SUB. NOTES
$ 2,220 10.375%, 10/15/07 $ 2,233,875
PERRY ELLIS INTERNATIONAL, INC., SR. SUB. NOTES, SERIES B
3,795 8.875%, 9/15/13 4,022,700
PHILLIPS VAN-HEUSEN, SR. NOTES
1,175 7.25%, 2/15/11(3) 1,186,750
2,500 8.125%, 5/1/13 2,637,500
---------------------------------------------------------------------------------------------------------------
$ 10,080,825
---------------------------------------------------------------------------------------------------------------
AUTOMOBILE -- 1.9%
DANA CORP.
$ 8,375 10.125%, 3/15/10 $ 9,631,250
KEYSTONE AUTOMOTIVE OPERATIONS, INC., SR. SUB. NOTES
1,020 9.75%, 11/1/13(3) 1,122,000
METALDYNE CORP.
2,855 11.00%, 6/15/12(3) 2,441,025
METALDYNE, INC., SR. NOTES
1,215 10.00%, 11/1/13(3) 1,184,625
SONIC AUTOMOTIVE, INC., SR. SUB. NOTES
1,600 8.625%, 8/15/13 1,732,000
TENNECO AUTOMOTIVE, GLOBAL SHARES, SERIES B
10,430 10.25%, 7/15/13 12,072,725
TENNECO AUTOMOTIVE, INC., SERIES B
2,470 11.625%, 10/15/09 2,717,000
TRW AUTOMOTIVE, INC., SR. NOTES
2,230 9.375%, 2/15/13 2,564,500
TRW AUTOMOTIVE, INC., SR. SUB. NOTES
3,900 11.00%, 2/15/13 4,660,500
UNITED COMPONENTS, INC., SR. SUB. NOTES
990 9.375%, 6/15/13 1,059,300
---------------------------------------------------------------------------------------------------------------
$ 39,184,925
---------------------------------------------------------------------------------------------------------------
BEVERAGE, FOOD AND TOBACCO -- 1.0%
MERISANT CO., SR. NOTES
$ 5,815 9.50%, 7/15/13(3) $ 6,163,900
MICHAEL FOODS, SR. SUB. NOTES
3,030 8.00%, 11/15/13(3) 3,200,437
PINNACLE FOODS HOLDINGS CORP., SR. SUB. NOTES
1,250 8.25%, 12/1/13(3) 1,310,937
2,585 8.25%, 12/1/13(3) 2,711,019
REDDY ICE GROUP, INC., SR. SUB. NOTES
2,535 8.875%, 8/1/11 2,737,800
TABLETOP HOLDINGS, INC., SR. SUB. NOTES, (0% UNTIL 2008)
3,655 0.00%, 5/15/14(3) 2,394,025
WH HOLDINGS LTD. AND WH CAPITAL CORP., SR. NOTES
1,635 9.50%, 4/1/11(3) 1,745,362
---------------------------------------------------------------------------------------------------------------
$ 20,263,480
---------------------------------------------------------------------------------------------------------------
BROADCASTING & ENTERTAINMENT -- 4.2%
CABLEVISION SYSTEMS CORP., SR. NOTES
$ 5,840 8.00%, 4/15/12(3) $ 5,883,800
CANWEST MEDIA, INC., SR. SUB. NOTES
11,000 10.625%, 5/15/11 12,512,500
SEE NOTES TO FINANCIAL STATEMENTS
15
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
BROADCASTING & ENTERTAINMENT (CONTINUED)
CHARTER COMMUNICATION HOLDINGS, SR. DISC. NOTES
$ 2,540 13.50%, 1/15/11 $ 1,892,300
CHARTER COMMUNICATIONS HOLDINGS, LLC, SR. NOTES
2,520 10.25%, 1/15/10 2,167,200
CORUS ENTERTAINMENT, INC., SR. SUB. NOTES
880 8.75%, 3/1/12 974,600
CSC HOLDINGS, INC., SR. NOTES
2,970 7.875%, 12/15/07 3,177,900
5,000 8.125%, 7/15/09 5,362,500
CSC HOLDINGS, INC., SR. SUB. NOTES
6,605 10.50%, 5/15/16 7,628,775
ECHOSTAR DBS CORP., SR. NOTES
10,000 4.41%, 10/1/08(3) 10,450,000
INSIGHT COMMUNICATIONS, SR. DISC. NOTES
5,830 12.25%, 2/15/11 5,042,950
INSIGHT MIDWEST HOLDINGS, LLC, SR. NOTES
8,240 10.50%, 11/1/10 9,022,800
MUZAK HOLDINGS LLC
1,310 9.875%, 3/15/09 1,264,150
MUZAK LLC/MUZAK FINANCE, SR. NOTES
7,365 10.00%, 2/15/09 7,585,950
NEXSTAR FINANCE HOLDINGS LLC, INC.
330 12.00%, 4/1/08 371,250
NEXSTAR FINANCE HOLDINGS LLC, INC., SR. DISC. NOTES
3,450 11.375%, 4/1/13 2,570,250
PAXSON COMMUNICATIONS CORP.
7,110 10.75%, 7/15/08 7,536,600
3,000 3.89%, 1/15/10(3) 3,045,000
PEGASUS COMMUNICATIONS CORP., SR. NOTES
1,515 11.25%, 1/15/10(3) 1,045,350
PEGASUS SATELLITE
2,000 12.375%, 8/1/06 1,410,000
---------------------------------------------------------------------------------------------------------------
$ 88,943,875
---------------------------------------------------------------------------------------------------------------
BUILDING AND CONSTRUCTION -- 0.9%
DAYTON SUPERIOR CORP., SR. NOTES
$ 7,000 10.75%, 9/15/08 $ 7,035,000
KOPPERS, INC., SR. NOTES
1,835 9.875%, 10/15/13(3) 2,018,500
PLY GEM INDUSTRIES, INC., SR. SUB. NOTES
2,625 9.00%, 2/15/12(3) 2,703,750
WCI COMMUNITIES, INC., SR. SUB. NOTES
6,000 7.875%, 10/1/13 6,300,000
---------------------------------------------------------------------------------------------------------------
$ 18,057,250
---------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS -- 0.2%
NORTEK HOLDINGS, INC., SR. NOTES, (0% UNTIL 2007)
$ 4,145 10.00%, 5/15/11(3) $ 3,119,112
US CONCRETE, INC., SR. SUB. NOTES
1,675 8.375%, 4/1/14(3) 1,683,375
---------------------------------------------------------------------------------------------------------------
$ 4,802,487
---------------------------------------------------------------------------------------------------------------
BUILDINGS AND REAL ESTATE -- 0.1%
CB RICHARD ELLIS SERVICES, INC., SR. SUB. NOTES
$ 2,600 11.25%, 6/15/11 $ 2,938,000
---------------------------------------------------------------------------------------------------------------
$ 2,938,000
---------------------------------------------------------------------------------------------------------------
BUSINESS SERVICES -- 0.8%
AFFINITY GROUP, INC., SR. SUB. NOTES
$ 3,450 9.00%, 2/15/12(3) $ 3,657,000
MOBILE MINI, INC.
2,925 9.50%, 7/1/13 3,290,625
NORCROSS SAFETY PRODUCTS LLC/NORCROSS CAPITAL CORP., SR. SUB. NOTES, SERIES B
4,660 9.875%, 8/15/11 5,009,500
WILLIAMS SCOTSMAN, INC.
3,000 9.875%, 6/1/07 3,000,000
WILLIAMS SCOTSMAN, INC., SR. NOTES
1,375 10.00%, 8/15/08 1,512,500
---------------------------------------------------------------------------------------------------------------
$ 16,469,625
---------------------------------------------------------------------------------------------------------------
CARGO TRANSPORT -- 0.1%
QUALITY DISTRIBUTION LLC/QD CAPITAL CORP.
$ 1,045 9.00%, 11/15/10(3) $ 1,050,225
---------------------------------------------------------------------------------------------------------------
$ 1,050,225
---------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS AND RUBBER -- 2.8%
ACETEX CORP., SR. NOTES
$ 3,000 10.875%, 8/1/09 $ 3,315,000
AVECIA INVESTMENTS LTD.
1,212 11.00%, 7/1/09 969,600
EQUISTAR CHEMICAL, SR. NOTES
7,000 10.625%, 5/1/11 7,875,000
HUNTSMAN ADVENTURE MATERIALS, SR. NOTES
905 11.00%, 7/15/10(3) 1,031,700
HUNTSMAN INTERNATIONAL
6,000 9.875%, 3/1/09 6,705,000
HUNTSMAN LLC
5,000 11.625%, 10/15/10 5,525,000
SEE NOTES TO FINANCIAL STATEMENTS
16
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
CHEMICALS, PLASTICS AND RUBBER (CONTINUED)
IMC GLOBAL, INC.
$ 6,775 11.25%, 6/1/11 $ 7,892,875
LYONDELL CHEMICAL CO.
5,000 9.50%, 12/15/08 5,250,000
4,790 9.50%, 12/15/08 5,029,500
LYONDELL CHEMICAL CO., SERIES B
2,680 9.875%, 5/1/07 2,827,400
OM GROUP, INC.
11,025 9.25%, 12/15/11 11,355,750
ROCKWOOD SPECIALTIES GROUP, SR. SUB. NOTES
1,185 10.625%, 5/15/11 1,267,950
---------------------------------------------------------------------------------------------------------------
$ 59,044,775
---------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES -- 0.3%
DIGITALNET, INC., SR. NOTES
$ 5,178 9.00%, 7/15/10 $ 5,592,240
---------------------------------------------------------------------------------------------------------------
$ 5,592,240
---------------------------------------------------------------------------------------------------------------
COMPUTERS - INTEGRATED SYSTEMS -- 0.0%
ACTIVANT SOLUTIONS, INC., SR. NOTES
$ 1,000 10.50%, 6/15/11 $ 1,042,500
---------------------------------------------------------------------------------------------------------------
$ 1,042,500
---------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS -- 0.5%
AMERICAN ACHIEVEMENT CORP., SR. SUB. NOTES
$ 720 8.25%, 4/1/12(3) $ 738,000
AMSCAN HOLDINGS, INC., SR. SUB. NOTES
6,820 9.875%, 12/15/07 6,966,194
FEDDERS NORTH AMERICA, INC., SR. NOTES
2,360 9.875%, 3/1/14(3) 2,301,000
JOSTENS HOLDING CORP., SR. DISC. NOTES
1,250 10.25%, 12/1/13 843,750
---------------------------------------------------------------------------------------------------------------
$ 10,848,944
---------------------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING AND GLASS -- 1.9%
ANCHOR GLASS CONTAINER CORP.
$ 5,000 11.00%, 2/15/13 $ 5,800,000
CROWN EURO HOLDINGS SA
20,495 10.875%, 3/1/13 23,979,150
GRAPHIC PACKAGING INTERNATIONAL CORP., SR. SUB. NOTES
3,265 9.50%, 8/15/13 3,689,450
PLIANT CORP., SR. DISC. NOTES
$ 2,775 11.125%, 6/15/09(3) $ 2,331,000
SOLO CUP CO., SR. SUB. NOTES
2,725 8.50%, 2/15/14(3) 2,820,375
US CAN CORP., SR. NOTES
1,230 10.875%, 7/15/10 1,297,650
---------------------------------------------------------------------------------------------------------------
$ 39,917,625
---------------------------------------------------------------------------------------------------------------
DIVERSIFIED / CONGLOMERATE MANUFACTURING -- 0.9%
AMSTED INDUSTRIES, INC., SR. NOTES
$ 7,150 10.25%, 10/15/11(3) $ 8,115,250
DRESSER, INC.
9,200 9.375%, 4/15/11 9,982,000
NATIONAL WATERWORKS, INC., SERIES B
1,500 10.50%, 12/1/12 1,695,000
---------------------------------------------------------------------------------------------------------------
$ 19,792,250
---------------------------------------------------------------------------------------------------------------
DIVERSIFIED / CONGLOMERATE SERVICE -- 1.1%
ADVANSTAR COMMUNICATIONS, INC.
$ 6,468 8.68%, 8/15/08 $ 6,790,875
6,980 10.75%, 8/15/10 7,660,550
NALCO CO., SR. NOTES
3,150 7.75%, 11/15/11(3) 3,331,125
NALCO CO., SR. SUB. NOTES
2,960 8.875%, 11/15/13(3) 3,137,600
NALCO FINANCE HOLDINGS, INC., SR. NOTES, (0% UNTIL 2009)
3,750 0.00%, 2/1/14(3) 2,381,250
---------------------------------------------------------------------------------------------------------------
$ 23,301,400
---------------------------------------------------------------------------------------------------------------
ELECTRONICS -- 1.1%
DANKA BUSINESS SYSTEMS, SR. NOTES
$ 2,350 11.00%, 6/15/10 $ 2,408,750
HEXCEL CORP.
1,520 9.875%, 10/1/08 1,683,400
HEXCEL CORP., SR. SUB. NOTES
525 9.75%, 1/15/09 553,875
SANMINA-SCI CORP., SR. NOTES
5,000 10.375%, 1/15/10 5,875,000
WESCO DISTRIBUTION INC.
5,000 9.125%, 6/1/08 5,150,000
XEROX CORP.
3,000 9.75%, 1/15/09 3,420,000
SEE NOTES TO FINANCIAL STATEMENTS
17
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
ELECTRONICS (CONTINUED)
XEROX CORP., SR. NOTES
$ 1,855 7.125%, 6/15/10 $ 1,892,100
1,485 7.625%, 6/15/13 1,522,125
---------------------------------------------------------------------------------------------------------------
$ 22,505,250
---------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES -- 0.1%
POSTER FINANCIAL GROUP, INC.
$ 1,510 8.75%, 12/1/11(3) $ 1,593,050
---------------------------------------------------------------------------------------------------------------
$ 1,593,050
---------------------------------------------------------------------------------------------------------------
FOODS -- 0.5%
B&G FOODS, INC.
$ 4,000 9.625%, 8/1/07 $ 4,148,320
BURNS PHILIP CAPITAL PROPERTY LTD.
2,000 9.50%, 11/15/10 2,170,000
UAP HOLDING CORP., SR. DISC. NOTES, (0% UNTIL 2008)
5,535 0.00%, 7/15/12(3) 4,559,456
---------------------------------------------------------------------------------------------------------------
$ 10,877,776
---------------------------------------------------------------------------------------------------------------
GAMING -- 0.0%
GLOBAL CASH ACCESS LLC/GLOBAL CASH FINANCE CORP., SR. SUB. NOTES
$ 700 8.75%, 3/15/12(3) $ 731,500
---------------------------------------------------------------------------------------------------------------
$ 731,500
---------------------------------------------------------------------------------------------------------------
HEALTHCARE, EDUCATION AND CHILDCARE -- 3.5%
ALARIS MEDICAL SYSTEMS, INC., SR. SUB. NOTES
$ 645 7.25%, 7/1/11 $ 667,575
ARDENT HEALTH SERVICES, SR. SUB. NOTES
6,995 10.00%, 8/15/13 7,694,500
CONCENTRA OPERATING CORP., SR. NOTES
7,000 9.50%, 8/15/10 7,805,000
MEDQUEST, INC.
6,000 11.875%, 8/15/12 6,840,000
NATIONAL NEPHROLOGY ASSOCIATION, SR. SUB. NOTES
2,000 9.00%, 11/1/11(3) 2,330,000
PACIFICARE HEALTH SYSTEM
7,017 10.75%, 6/1/09 8,192,347
QUINTILES TRANSNATIONAL CORP., SR.SUB. NOTES
9,690 10.00%, 10/1/13(3) 10,077,600
ROTECH HEALTHCARE, INC.
7,105 9.50%, 4/1/12 7,602,350
TENET HEALTHCARE CORP.
$ 7,365 7.375%, 2/1/13 $ 6,702,150
VANGUARD HEALTH SYSTEMS
10,000 9.75%, 8/1/11 10,900,000
VWR INTERNATIONAL, INC., SR. NOTES
1,400 6.875%, 4/15/12(3) 1,452,500
VWR INTERNATIONAL, INC., SR. SUB. NOTES
3,270 8.00%, 4/15/14(3) 3,417,150
---------------------------------------------------------------------------------------------------------------
$ 73,681,172
---------------------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS AND GAMING -- 3.2%
CHUKCHANSI EDA, SR. NOTES
$ 800 14.50%, 6/15/09(3) $ 1,000,000
EXTENDED STAY AMERICA, SR. SUB. NOTES
2,000 9.15%, 3/15/08 2,080,000
FELCOR LODGING
6,300 10.00%, 9/15/08 6,756,750
HOST MARRIOTT L.P., SERIES I
7,000 9.50%, 1/15/07 7,805,000
INN OF THE MOUNTAIN GODS, SR. NOTES
5,230 12.00%, 11/15/10(3) 5,753,000
JOHN Q HAMONS HOTELS/FINANCE, SERIES B
3,500 8.875%, 5/15/12 3,867,500
MAJESTIC STAR CASINO LLC
5,975 9.50%, 10/15/10 6,288,687
MTR GAMING GROUP, SERIES B
2,500 9.75%, 4/1/10 2,668,750
OED CORP./DIAMOND JO LLC
3,830 8.75%, 4/15/12(3) 3,762,975
PENN NATIONAL GAMING, INC.
945 11.125%, 3/1/08 1,053,675
SUN INTERNATIONAL HOTELS, SR. SUB. NOTES
4,000 8.875%, 8/15/11 4,460,000
TRUMP HOLDINGS AND FUNDING, SR. NOTES
4,660 11.625%, 3/15/10 4,741,550
VENETIAN CASINO RESORT, LLC/LAS VEGAS SANDS, INC.
5,995 11.00%, 6/15/10 7,044,125
WATERFORD GAMING LLC, SR. NOTES
9,406 8.625%, 9/15/12(3) 10,111,450
---------------------------------------------------------------------------------------------------------------
$ 67,393,462
---------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
18
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 0.4%
NEW ASAT (FINANCE) LTD., SR. NOTES
$ 2,490 9.25%, 2/1/113 $ 2,639,400
STRATUS TECHNOLOGIES, INC., SR. NOTES
5,060 10.375%, 12/1/08(3) 5,060,000
---------------------------------------------------------------------------------------------------------------
$ 7,699,400
---------------------------------------------------------------------------------------------------------------
LEISURE, AMUSEMENT, ENTERTAINMENT -- 2.4%
AMF BOWLING WORLDWIDE, SR. SUB. NOTES
$ 1,865 10.00%, 3/1/10(3) $ 1,944,262
INTRAWEST CORP., SR. NOTES
3,910 7.50%, 10/15/13 4,017,525
PREMIER ENTERTAINMENT BILOXI LLC/PREMIER FINANCE BILOXI CORP.
475 10.75%, 2/1/12(3) 515,375
ROYAL CARIBBEAN CRUISES, DEBS.
4,605 7.50%, 10/15/27 4,501,387
ROYAL CARIBBEAN CRUISES, SR. NOTES
12,195 8.75%, 2/2/11 13,810,837
SIX FLAGS THEME PARKS, INC., SR. NOTES
1,000 8.875%, 2/1/10 1,022,500
5,920 9.75%, 4/15/13 6,267,800
SIX FLAGS, INC., SR. NOTES
3,755 9.625%, 6/1/14(3) 3,952,137
TRUE TEMPER SPORTS, INC., SR. SUB. NOTES
700 8.375%, 9/15/11(3) 721,000
UNIVERSAL CITY DEVELOPMENT, SR. NOTES
12,500 11.75%, 4/1/10 14,500,000
---------------------------------------------------------------------------------------------------------------
$ 51,252,823
---------------------------------------------------------------------------------------------------------------
MACHINERY -- 1.1%
CASE NEW HOLLAND, INC., SR. NOTES
$ 7,135 9.25%, 8/1/11(3) $ 7,991,200
MANITOWOC CO., INC. (THE)
1,500 10.50%, 8/1/12 1,717,500
TEREX CORP.
8,645 10.375%, 4/1/11 9,876,913
THERMADYNE HOLDINGS CORP., SR. SUB. NOTES
4,575 9.25%, 2/1/14(3) 4,666,500
---------------------------------------------------------------------------------------------------------------
$ 24,252,113
---------------------------------------------------------------------------------------------------------------
MANUFACTURING -- 0.9%
AEARO CO. I, SR. SUB. NOTES
$ 1,665 8.25%, 4/15/12(3) $ 1,714,950
AVONDALE MILLS, INC., SR. SUB. NOTES
$ 3,700 10.25%, 7/1/13 $ 2,164,500
GENERAL CABLE CORP., SR. NOTES
1,510 9.50%, 11/15/10(3) 1,661,000
OXFORD INDUSTRIES, INC., SR. NOTES
9,500 8.875%, 6/1/11(3) 10,188,750
TEKNI-PLEX, INC., SR. NOTES
1,755 8.75%, 11/15/13(3) 1,737,450
TRINITY INDUSTRIES, INC., SR. NOTES
2,380 6.50%, 3/15/14(3) 2,326,450
---------------------------------------------------------------------------------------------------------------
$ 19,793,100
---------------------------------------------------------------------------------------------------------------
MEDICAL PRODUCTS -- 0.1%
INVERNESS MEDICAL INNOVATIONS, INC., SR. SUB. NOTES
$ 2,520 8.75%, 2/15/12(3) $ 2,589,300
---------------------------------------------------------------------------------------------------------------
$ 2,589,300
---------------------------------------------------------------------------------------------------------------
METALS - INDUSTRIAL -- 0.3%
AK STEEL CORP.
$ 2,000 7.75%, 6/15/12 $ 1,810,000
INTERNATIONAL STEEL GROUP, INC., SR. NOTES
465 6.50%, 4/15/14(3) 448,725
ISPAT INLAND ULC, SR. NOTES
2,380 9.75%, 4/1/14(3) 2,439,500
MUELLER GROUP, INC., SR. SUB. NOTES
2,325 10.00%, 5/1/12(3) 2,447,063
---------------------------------------------------------------------------------------------------------------
$ 7,145,288
---------------------------------------------------------------------------------------------------------------
OIL AND GAS -- 1.6%
CONTINENTAL RESOURCES
$ 2,770 10.25%, 8/1/08 $ 2,873,875
DYNEGY HOLDINGS, INC., SR. NOTES
4,845 6.875%, 4/1/11 4,166,700
10,670 10.125%, 7/15/13(3) 11,737,000
GULFTERRA ENERGY PARTNER, SERIES B
1,233 8.50%, 6/1/10 1,380,960
SONAT, INC.
5,000 7.625%, 7/15/11 4,350,000
WILLIAMS COS., INC., SR. NOTES
8,575 8.625%, 6/1/10 9,475,375
---------------------------------------------------------------------------------------------------------------
$ 33,983,910
---------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
19
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
OIL AND GAS - EQUIPMENT AND SERVICES -- 0.6%
DYNEGY HOLDINGS, INC., SR. NOTES
$ 380 8.75%, 2/15/12 $ 358,150
HANOVER COMPRESSOR CO., SUB. NOTES
4,650 0.00%, 3/31/07 3,603,750
PARKER DRILLING CO., SR. NOTES
910 9.625%, 10/1/13 987,350
PETRO STOPPING CENTERS LP / PETRO FINANCIAL CORP., SR. NOTES
1,795 9.00%, 2/15/12(3) 1,884,750
PREMCOR REFINING GROUP, SR. SUB. NOTES
1,265 7.75%, 2/1/12 1,331,413
TRANSMONTAIGNE, INC., SR. SUB. NOTES
4,000 9.125%, 6/1/10(3) 4,140,000
---------------------------------------------------------------------------------------------------------------
$ 12,305,413
---------------------------------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 2.1%
CARAUSTAR INDUSTRIES, INC., SR. SUB. NOTES
$ 230 9.875%, 4/1/11 $ 235,750
GEORGIA-PACIFIC CORP.
15,225 9.50%, 12/1/11 18,422,250
MDP ACQUISITIONS/JSG FUNDING PLC, SR. NOTES
17,180 9.625%, 10/1/12 19,413,400
NEWARK GROUP, INC., SR. SUB. NOTES
2,785 9.75%, 3/15/14(3) 2,743,225
NORSKE SKOG CANADA LTD., SR. NOTES
3,380 7.375%, 3/1/14(3) 3,481,400
---------------------------------------------------------------------------------------------------------------
$ 44,296,025
---------------------------------------------------------------------------------------------------------------
PERSONAL AND NON-DURABLE CONSUMER PRODUCTS (MANUFACTURING ONLY) -- 0.4%
RAYOVAC CORP., SR. SUB. NOTES
$ 8,835 8.50%, 10/1/13 $ 9,497,625
---------------------------------------------------------------------------------------------------------------
$ 9,497,625
---------------------------------------------------------------------------------------------------------------
PRINTING AND PUBLISHING -- 1.6%
AMERICAN COLOR GRAPHICS
$ 115 10.00%, 6/15/10 $ 99,475
AMERICAN MEDIA OPERATIONS, INC.
4,040 8.875%, 1/15/11 4,110,700
AMERICAN MEDIA, INC., SERIES B
3,845 10.25%, 5/1/09 4,056,475
CBD MEDIA/CBD FINANCE
4,200 8.625%, 6/1/11 4,504,500
DEX MEDIA WEST LLC, SR. NOTES
$ 1,835 8.50%, 8/15/10(3) $ 2,000,150
DEX MEDIA WEST LLC, SR. SUB. NOTES
7,705 9.875%, 8/15/13(3) 8,475,500
HOLLINGER PARTICIPATION TRUST, SR. NOTES, (PIK)
1,640 12.125%, 11/15/10(3) 1,916,750
LIBERTY GROUP OPERATING, INC.
1,380 9.375%, 2/1/08 1,397,250
R.H. DONNELLEY, INC., SR. SUB. NOTES
6,120 10.875%, 12/15/12 7,313,400
---------------------------------------------------------------------------------------------------------------
$ 33,874,200
---------------------------------------------------------------------------------------------------------------
REITS -- 0.2%
CB RICHARD ELLIS SERVICES, INC., SR. NOTES
$ 2,640 9.75%, 5/15/10 $ 2,956,800
OMEGA HEALTHCARE INVESTORS, INC., SR. NOTES
1,165 7.00%, 4/1/14(3) 1,194,125
---------------------------------------------------------------------------------------------------------------
$ 4,150,925
---------------------------------------------------------------------------------------------------------------
RETAIL STORES -- 0.9%
CSK AUTO, INC., SR. NOTES
$ 450 7.00%, 1/15/14(3) $ 445,500
GENERAL NUTRITION CENTER, SR. SUB. NOTES
1,250 8.50%, 12/1/10(3) 1,312,500
HOME INTERIORS & GIFTS
1,835 10.125%, 6/1/08 1,864,819
JO-ANN STORES, INC., SR. SUB. NOTES
950 7.50%, 3/1/12(3) 973,750
MOTHERS WORK, INC.
1,100 11.25%, 8/1/10 1,163,250
PAYLESS SHOESOURCE, INC., SR. SUB. NOTES
2,045 8.25%, 8/1/13 2,065,450
PCA LLC/PCA FINANCE CORP., SR. NOTES
8,000 11.875%, 8/1/09 9,000,000
PENNY (JC) CO., INC.
1,875 8.00%, 3/1/10 2,146,875
---------------------------------------------------------------------------------------------------------------
$ 18,972,144
---------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS -- 0.7%
AMKOR TECHNOLOGIES, INC., SR. SUB. NOTES
$ 9,000 10.50%, 5/1/09 $ 9,517,500
CHIPPAC INTERNATIONAL LTD.
520 12.75%, 8/1/09 566,800
SEE NOTES TO FINANCIAL STATEMENTS
20
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (CONTINUED)
ON SEMICONDUCTOR CORP.
$ 1,300 13.00%, 5/15/08 $ 1,573,000
ON SEMICONDUCTOR CORP., SR. NOTES
2,601 12.00%, 3/15/10 3,225,240
---------------------------------------------------------------------------------------------------------------
$ 14,882,540
---------------------------------------------------------------------------------------------------------------
SERVICES -- 0.3%
KINDERCARE LEARNING CENTERS, INC., SR. SUB. NOTES
$ 5,375 9.50%, 2/15/09 $ 5,486,961
---------------------------------------------------------------------------------------------------------------
$ 5,486,961
---------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 3.8%
ALAMOSA DELAWARE, INC., SR. NOTES
$ 1,690 8.50%, 1/31/12(3) $ 1,643,525
ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC.
5,000 9.875%, 8/15/11 5,150,000
AMERICAN TOWER, L.P., SR. NOTES
9,535 9.375%, 2/1/09 10,273,963
AVAYA, INC.
1,300 11.125%, 4/1/09 1,540,500
CENTENNIAL CELLULAR OPERATING CO./CENTENNIAL COMMUNICATIONS CORP., SR. NOTES
5,260 10.125%, 6/15/13 5,444,100
CINCINNATI BELL, INC., SR. SUB. NOTES
1,885 8.375%, 1/15/14 1,790,750
CROWN CASTLE OPERATING CO., SR. NOTES
5,000 10.75%, 8/1/11 5,700,000
DOBSON COMMUNICATIONS CORP., SR. NOTES
3,995 10.875%, 7/1/10 3,545,563
INMARSAT FINANCE PLC
1,395 7.625%, 6/30/12(3) 1,429,875
MARCONI CORP. PLC, SERIES A
2,656 8.00%, 4/30/08(3) 2,915,985
NEXTEL COMMUNICATIONS, INC., SR. NOTES
6,225 7.375%, 8/1/15 6,497,344
NEXTEL PARTNERS, INC., SR. NOTES
1,918 12.50%, 11/15/09 2,253,650
1,805 11.00%, 3/15/10 2,048,675
2,250 8.125%, 7/1/11 2,295,000
NORTEL NETWORKS LTD.
2,000 6.125%, 2/15/06 1,987,500
NTL CABLE PLC, SR. NOTES
1,190 8.75%, 4/15/14(3) 1,234,625
QWEST CAPITAL FUNDING
$ 3,405 7.90%, 8/15/10 $ 2,928,300
QWEST CORP.
10,635 13.50%, 12/15/10(3) 12,389,775
2,000 8.875%, 3/15/12(3) 2,135,000
TRITON PCS, INC.
2,765 8.50%, 6/1/13 2,889,425
TSI TELECOMMUNICATION, SERIES B
2,000 12.75%, 2/1/09 2,190,000
WESTERN WIRELESS, SR. NOTES
2,285 9.25%, 7/15/13 2,359,263
---------------------------------------------------------------------------------------------------------------
$ 80,642,818
---------------------------------------------------------------------------------------------------------------
TOBACCO -- 0.1%
NORTH ATLANTIC TRADING CO., SR. NOTES
$ 2,450 9.25%, 3/1/12(3) $ 2,492,875
---------------------------------------------------------------------------------------------------------------
$ 2,492,875
---------------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 0.1%
OMI CORP., SR. NOTES
$ 2,995 7.625%, 12/1/13 $ 3,114,800
---------------------------------------------------------------------------------------------------------------
$ 3,114,800
---------------------------------------------------------------------------------------------------------------
UTILITIES -- 3.1%
AES CORP., SR. NOTES
$ 4,500 8.75%, 6/15/08 $ 4,702,500
6,000 9.50%, 6/1/09 6,450,000
6,965 8.75%, 5/15/13(3) 7,609,263
945 9.00%, 5/15/15(3) 1,034,775
CALPINE CORP., SR. NOTES
3,450 8.25%, 8/15/05 3,243,000
1,830 7.625%, 4/15/06 1,528,050
1,020 10.50%, 5/15/06 923,100
13,145 8.50%, 7/15/10(3) 11,699,050
EL PASO CORP., SR. NOTES
990 7.00%, 5/15/11 846,450
ILLINOIS POWER
2,430 7.50%, 6/15/09 2,709,450
NRG ENERGY, INC., SR. NOTES
8,070 8.00%, 12/15/13(3) 8,170,875
ORION POWER HOLDINGS, INC., SR. NOTES
12,415 12.00%, 5/1/10 15,332,525
SEE NOTES TO FINANCIAL STATEMENTS
21
PRINCIPAL AMOUNT
(000'S OMITTED) SECURITY VALUE
---------------------------------------------------------------------------------------------------------------
UTILITIES (CONTINUED)
RELIANT ENERGY, INC.
$ 1,770 9.25%, 7/15/10 $ 1,902,750
---------------------------------------------------------------------------------------------------------------
$ 66,151,788
---------------------------------------------------------------------------------------------------------------
WASTE MANAGEMENT -- 0.1%
WASTE SERVICES, INC., SR. SUB. NOTES
$ 1,125 9.50%, 4/15/14(3) $ 1,158,750
---------------------------------------------------------------------------------------------------------------
$ 1,158,750
---------------------------------------------------------------------------------------------------------------
WIRELESS COMMUNICATION SERVICES -- 0.5%
LCI INTERNATIONAL, INC., SR. NOTES
$ 3,150 7.25%, 6/15/07 $ 2,787,750
LEVEL 3 FINANCING, INC., SR. NOTES
35 10.75%, 10/15/11(3) 31,150
ONO FINANCE PLC
490 13.00%, 5/1/09 526,138
RURAL CELLULAR CORP.
2,000 5.61%, 3/15/10(3) 2,055,000
RURAL CELLULAR CORP., SR. NOTES
2,095 8.25%, 3/15/12(3) 2,173,563
TELEMIG CELULAR SA/AMAZONIA CELULAR SA
1,755 8.75%, 1/20/09(3) 1,676,025
UBIQUITEL OPERATING CO., SR. NOTES
1,420 9.875%, 3/1/11(3) 1,427,100
---------------------------------------------------------------------------------------------------------------
$ 10,676,726
---------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES
(IDENTIFIED COST $987,398,030) $ 1,033,165,441
---------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.2%
PRINCIPAL MATURITY
AMOUNT DATE BORROWER RATE AMOUNT
---------------------------------------------------------------------------------------------------------------
$ 47,211,000 05/03/04 Investors Bank & Trust
Company Time Deposit 1.07% $ 47,211,000
---------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(AT AMORTIZED COST) $ 47,211,000
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 148.4%
(IDENTIFIED COST $3,101,377,002) $ 3,144,809,646
---------------------------------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES -- (3.6)% $ (75,851,278)
---------------------------------------------------------------------------------------------------------------
AUCTION PREFERRED SHARES PLUS
CUMULATIVE UNPAID
DIVIDENDS -- (44.8)% $ (950,049,307)
---------------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON
SHARES -- 100.0% $ 2,118,909,061
---------------------------------------------------------------------------------------------------------------
(1) Senior floating-rate interests often require prepayments from excess cash
flows or permit the borrower to repay at its election. The degree to
which borrowers repay, whether as a contractual requirement or at their
election, cannot be predicted with accuracy. As a result, the actual
remaining maturity may be substantially less than the stated maturities
shown. However, it is anticipated that the senior floating-rate interests
will have an expected average life of approximately two to four years.
(2) A portion of this security is on loan at April 30, 2004.
(3) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
Note: At April 30, 2004, the Fund had unfunded commitments amounting to
$11,499,612 under various credit agreements.
SEE NOTES TO FINANCIAL STATEMENTS
22
EATON VANCE LIMITED DURATION INCOME FUND as of April 30, 2004
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 30, 2004
ASSETS
Investments, at value (identified cost, $3,101,377,002) $ 3,144,809,646
Cash 8,149,393
Receivable for investments sold 5,814,023
Interest receivable 34,316,987
Prepaid expenses 3,140
---------------------------------------------------------------------------------
TOTAL ASSETS $ 3,193,093,189
---------------------------------------------------------------------------------
LIABILITIES
Collateral for securities loaned $ 123,955,543
Payable to affiliate for Trustees' fees 2,589
Accrued expenses 176,689
---------------------------------------------------------------------------------
TOTAL LIABILITIES $ 124,134,821
---------------------------------------------------------------------------------
AUCTION PREFERRED SHARES (38,000 SHARES OUTSTANDING)
AT LIQUIDATION VALUE PLUS CUMULATIVE UNPAID DIVIDENDS 950,049,307
---------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 2,118,909,061
---------------------------------------------------------------------------------
SOURCES OF NET ASSETS
Common Shares, $0.01 par value, unlimited number of shares
authorized, 111,114,946 shares issued and outstanding $ 1,111,149
Additional paid-in capital 2,110,540,040
Accumulated distributions in excess of net realized gain
(computed on the basis of identified cost) (46,996,625)
Accumulated undistributed net investment income 10,821,853
Net unrealized appreciation (computed on the basis of
identified cost) 43,432,644
---------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES $ 2,118,909,061
---------------------------------------------------------------------------------
NET ASSET VALUE PER COMMON SHARE
($2,118,909,061 DIVIDED BY 111,114,946 COMMON SHARES ISSUED
AND OUTSTANDING) $ 19.07
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED
APRIL 30, 2004(1)
INVESTMENT INCOME
Interest $ 132,048,836
Securities lending income, net 2,598,619
---------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME $ 134,647,455
---------------------------------------------------------------------------------
EXPENSES
Investment adviser fee $ 20,499,825
Trustees' fees and expenses 18,127
Preferred shares remarketing agent fee 1,795,891
Custodian fee 542,719
Printing and postage 272,953
Legal and accounting services 129,317
Transfer and dividend disbursing agent fees 61,628
Amortization of organization expenses 7,500
Miscellaneous 136,906
---------------------------------------------------------------------------------
TOTAL EXPENSES $ 23,464,866
---------------------------------------------------------------------------------
Deduct --
Reduction of investment adviser fee $ 5,474,120
---------------------------------------------------------------------------------
TOTAL EXPENSE REDUCTIONS $ 5,474,120
---------------------------------------------------------------------------------
NET EXPENSES $ 17,990,746
---------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 116,656,709
---------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) --
Investment transactions (identified cost basis) $ 4,765,139
---------------------------------------------------------------------------------
NET REALIZED GAIN $ 4,765,139
---------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) --
Investments (identified cost basis) $ 43,432,644
---------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $ 43,432,644
---------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN $ 48,197,783
---------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS $ (8,280,107)
---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 156,574,385
---------------------------------------------------------------------------------
(1) For the period from the start of business, May 30, 2003, to April 30,
2004.
SEE NOTES TO FINANCIAL STATEMENTS
23
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) PERIOD ENDED
IN NET ASSETS APRIL 30, 2004(1)
---------------------------------------------------------------------------------
From operations --
Net investment income $ 116,656,709
Net realized gain 4,765,139
Net change in unrealized appreciation (depreciation) 43,432,644
Distributions to preferred shareholders (8,280,107)
---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 156,574,385
---------------------------------------------------------------------------------
Distributions to common shareholders --
From net investment income $ (149,316,513)
---------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS $ (149,316,513)
---------------------------------------------------------------------------------
Capital share transactions --
Proceeds from sale of common shares(2) $ 2,120,100,000
Reinvestment of distributions to common shareholders 2,116,452
Offering costs and preferred shares underwriting discounts (10,665,263)
---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS $ 2,111,551,189
---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS $ 2,118,809,061
---------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES
At beginning of period $ 100,000
---------------------------------------------------------------------------------
AT END OF PERIOD $ 2,118,909,061
---------------------------------------------------------------------------------
ACCUMULATED DISTRIBUTIONS IN EXCESS
OF NET INVESTMENT INCOME INCLUDED
IN NET ASSETS APPLICABLE TO COMMON SHARES
---------------------------------------------------------------------------------
AT END OF PERIOD $ 10,821,853
---------------------------------------------------------------------------------
(1) For the period from the start of business, May 30, 2003, to April 30, 2004.
(2) Proceeds from sales of shares net of sales load paid of $99,900,000.
SEE NOTES TO FINANCIAL STATEMENTS
24
FINANCIAL HIGHLIGHTS
Selected data for a common share outstanding during the period
PERIOD ENDED
APRIL 30, 2004(1)(2)
--------------------------------------------------------------------------------------------------
Net asset -- Beginning of period (Common shares)(3) $ 19.100
--------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS
Net investment income $ 1.061(9)
Net realized and unrealized gain 0.426(9)
Distributions to preferred shareholders from net investment income (0.075)
--------------------------------------------------------------------------------------------------
TOTAL INCOME FROM OPERATIONS $ 1.412
--------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income $ (1.345)
--------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS $ (1.345)
--------------------------------------------------------------------------------------------------
PREFERRED AND COMMON SHARES OFFERING COSTS CHARGED TO PAID-IN CAPITAL $ (0.011)
--------------------------------------------------------------------------------------------------
PREFERRED SHARES UNDERWRITING DISCOUNTS $ (0.086)
--------------------------------------------------------------------------------------------------
NET ASSET VALUE -- END OF PERIOD (COMMON SHARES $ 19.070
--------------------------------------------------------------------------------------------------
MARKET VALUE -- END OF PERIOD (COMMON SHARES) $ 17.810
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN ON NET ASSET VALUE(4) 7.22%
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN ON MARKET VALUE(4) 0.13%
--------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
25
Selected data for a common share outstanding during the period
PERIOD ENDED
APRIL 30, 2004(1)
---------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA+ ++
Net assets applicable to common shares, end of period (000's omitted) $ 2,118,909
Ratios (As a percentage of average net assets applicable to common shares):
Net expenses(5) 0.93%(6)
Net investment income(5) 6.02%(6)
Portfolio Turnover 72%
---------------------------------------------------------------------------------------------------
+ The operating expenses of the Fund reflect a reduction of the investment
adviser fee. Had such action not been taken, the ratios and net investment
income per share would have been as follows:
Ratios (As a percentage of average net assets applicable to common shares):
Expenses(5) 1.21%(6)
Net investment income(5) 5.74%(6)
Net investment income per share $ 1.012
---------------------------------------------------------------------------------------------------
++ The ratios reported are based on net assets applicable solely to common
shares. The ratios based on net assets, including amounts related to
preferred shares, are as follows:
Ratios (As a percentage of average total net assets):
Net expenses 0.67%(6)
Net investment income 4.37%(6)
---------------------------------------------------------------------------------------------------
+ The operating expenses of the Fund reflect a reduction of the investment
adviser fee. Had such action not been taken, the ratios and net investment
income per share would have been as follows:
Ratios (As a percentage of average total net assets):
Expenses 0.88%(6)
Net investment income 4.16%(6)
---------------------------------------------------------------------------------------------------
Senior Securities:
Total preferred shares outstanding 38,000
Asset coverage per preferred share(7) $ 80,762
Involuntary liquidation preference per preferred share(8) $ 25,000
Approximate market value per preferred share(8) $ 25,000
---------------------------------------------------------------------------------------------------
(1) For the period from the start of business, May 30, 2003, to April 30, 2004.
(2) Computed using average common shares outstanding.
(3) Net asset value at beginning of period reflects the deduction of the sales
load of $0.900 per share paid by the shareholder from the $20.000 offering
price.
(4) Total investment return on net asset value is calculated assuming a purchase
at the offering of $20.000 less the sales load of $0.900 per share paid by
the shareholder on the first day and a sale at the net asset value on the
last day of the period reported. Total investment return on market value is
calculated assuming a purchase at the offering price of $20.000 less the
sales load of $0.900 per share paid by on the first day and a sale at the
current market price on the last day of the period reported Total investment
return on net asset value and total investment return on market value are
not computed on an annualized basis.
(5) Ratios do not reflect the effect of dividend payments to preferred
shareholders. Ratios to average net assets applicable to common shares
reflect the Fund's leveraged capital structure.
(6) Annualized.
(7) Calculated by subtracting the Fund's total liabilities (not including the
preferred shares) from the Fund's total assets, and dividing this by the
number of preferred shares outstanding.
(8) Plus accumulated and unpaid dividends.
(9) For federal income tax purposes, net investment income per share was $1.531
and net realized and unrealized loss per share was $0.044. Computed using
average common shares outstanding.
SEE NOTES TO FINANCIAL STATEMENTS
26
EATON VANCE LIMITED DURATION INCOME FUND as of April 30, 2004
NOTES TO FINANCIAL STATEMENTS
1 SIGNIFICANT ACCOUNTING POLICIES
Eaton Vance Limited Duration Income Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified closed-end
management investment company. The Fund, which was organized as a
Massachusetts business trust on March 12, 2003, seeks to provide a high
level of current income. The Fund may, as a secondary objective, also seek
capital appreciation to the extent consistent with its primary goal of high
current income. The Fund pursues its objectives by investing primarily in,
mortgage-backed securities (MBS) issued, backed or otherwise guaranteed by
the U.S. government or its agencies or instrumentalities; senior, secured
floating rate loans made to corporate and other business entities (Senior
Loans); and corporate bonds of below investment grade quality
(Non-Investment Grade Bonds). The following is a summary of significant
accounting policies of the Fund. The policies are in conformity with
accounting principles generally accepted in the United States of America.
A INVESTMENT VALUATION -- Mortgage backed, pass-through securities are
valued using an independent matrix pricing system applied by the adviser
which takes into account closing bond valuations, yield differentials,
anticipated prepayments and interest rates provided by dealers. Debt
securities (other than seasoned mortgage backed, pass-through securities)
are normally valued on the basis of valuations furnished by dealers or a
pricing service. Certain senior loans are deemed to be liquid because
reliable market quotations are readily available for them. Liquid senior
loans are valued on the basis of prices furnished by a pricing service.
Other senior loans are valued at fair value by the Fund's investment
adviser, Eaton Vance Management (EVM), under procedures established by the
Trustees as permitted by Section 2(a)(41) of the Investment Company Act of
1940. Such procedures include the consideration of relevant factors, data
and information relating to fair value, including (i) the characteristics of
and fundamental analytical data relating to the Senior Loan, including the
cost, size, current interest rate, period until next interest rate reset,
maturity and base lending rate of the Senior Loan, the terms and conditions
of the Senior Loan and any related agreements, and the position of the
Senior Loan in the Borrower's debt structure; (ii) the nature, adequacy and
value of the collateral, including the Fund's rights, remedies and interests
with respect to the collateral; (iii) the creditworthiness of the Borrower,
based on an evaluation of its financial condition, financial statements and
information about the Borrower's business, cash flows, capital structure and
future prospects; (iv) information relating to the market for the Senior
Loan including price quotations for and trading in the Senior Loan, and
interests in similar Senior Loans and the market environment and investor
attitudes towards the Senior Loan and interests in similar Senior Loans; (v)
the experience, the reputation, stability and financial condition of the
agent and any intermediate participant in the Senior Loan; and (vi) general
economic and market conditions affecting the fair value of the Senior Loan.
Other portfolio's securities (other than short-term obligations, but
including listed issues) may be valued on the basis of prices furnished by
one or more pricing services which determine prices for normal,
institutional-size trading units of such securities which may use market
information, transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders. In certain circumstances, portfolio securities will
be valued at the last sales price on the exchange that is the primary market
for such securities, or the last quoted bid price for those securities for
which the over-the-counter market is the primary market or for listed
securities in which there were no sales during the day. The value of
interest rate swaps will be based on dealer quotations. Short-term
obligations which mature in 60 days or less, are valued at amortized cost,
if their original term to maturity when acquired by the Fund was 60 days or
less or are valued at amortized cost using their value on the 61st day prior
to maturity, if their original term to maturity when acquired by the Fund
was more than 60 days, unless in each case this is determined not to
represent fair value. OTC options are valued at the mean between the bid and
asked price provided by dealers. Financial futures contracts listed on
commodity exchanges and exchange traded options are valued at closing
settlement prices. Securities for which there is no such quotation or
valuation are valued at fair value using methods determined in good faith by
or at the direction of the Trustees. Repurchase agreements are valued at
cost plus accrued interest. Other portfolio securities for which there are
no quotations or valuations are valued at fair value as determined in good
faith by or on behalf of the Trustees.
B INCOME -- Interest income from Senior Loans is recorded on the accrual
basis at the then-current interest rate, while all other interest income is
determined on the basis of interest accrued, adjusted for amortization of
premium or accretion of discount. Dividend income is recorded on the
ex-dividend date for dividends received in cash and/or securities.
C FEDERAL TAXES -- The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to
27
shareholders each year all of its taxable income, including any net realized
gain on investments. Accordingly, no provision for federal income or excise
tax is necessary. At April 30, 2004, the Fund, for federal income tax
purposes, had a capital loss carryover of $26,481,368 which will reduce the
Fund's taxable income arising from future net realized gains on investments,
if any, to the extent permitted by the Internal Revenue Code, and thus will
reduce the amount of the distributions to shareholders which would otherwise
be necessary to relieve the Fund of any liability for federal income or
excise tax. Such capital loss carryover will expire on April 30, 2012.
At April 30, 2004, net capital losses of $17,668,020 attributable to
security transactions incurred after October 31, 2003, are treated as
arising on the first day of the Fund's taxable year ending April 30, 2005.
At April 30, 2004 the undistributed ordinary income on a tax basis was
$10,821,853 and differed from accumulated net investment loss due to the
different treatment for paydown gains/losses on mortgage-backed securities
and premium amortization. All distributions in the year ended April 30, 2004
were from ordinary income for tax purposes.
D INVESTMENT TRANSACTIONS -- Investment transactions are recorded on a trade
date basis. Realized gains and losses from such transactions are determined
using the specific identification method. Securities purchased or sold on a
when-issued or delayed delivery basis may be settled a month or more after
the transaction date. The securities so purchased are subject to market
fluctuations during this period. To the extent that when-issued or delayed
delivery purchases are outstanding, the Fund instructs the custodian to
segregate assets in a separate account, with a current value at least equal
to the amount of its purchase commitments.
E OFFERING COSTS -- Costs incurred by the Fund in connection with the
offering of the common shares and preferred shares were recorded as a
reduction of capital paid in excess of par applicable to common shares.
F EXPENSE REDUCTION -- Investors Bank & Trust Company (IBT) serves as
custodian of the Fund. Pursuant to the custodian agreement, IBT receives a
fee reduced by credits which are determined based on the average daily cash
balances the Fund maintains with IBT. All significant credit balances used
to reduce the Fund's custodian fees are reported as a reduction of expenses
on the Statement of Operations
G WRITTEN OPTIONS -- Upon the writing of a call or a put option, an amount
equal to the premium received by the Fund is included in the Statement of
Assets and Liabilities as a liability. The amount of the liability is
subsequently marked-to-market to reflect the current value of the option
written in accordance with the Fund's policies on investment valuations
discussed above. Premiums received from writing options which expire are
treated as realized gains. Premiums received from writing options which are
exercised or are closed are added to or offset against the proceeds or
amount paid on the transaction to determine the realized gain or loss. If a
put option is exercised, the premium reduces the cost basis of the
securities purchased by the Fund. The Fund, as writer of an option, may have
no control over whether the underlying securities may be sold (call) or
purchased (put) and, as a result, bears the market risk of an unfavorable
change in the price of the securities underlying the written option.
H PURCHASED OPTIONS -- Upon the purchase of a call or put option, the
premium paid by the Fund is included in the Statement of Assets and
Liabilities as an investment. The amount of the investment is subsequently
marked-to-market to reflect the current market value of the option
purchased, in accordance with the Fund's policies on investment valuations
discussed above. If an option which the Fund has purchased expires on the
stipulated expiration date, the Fund will realize a loss in the amount of
the cost of the option. If the Fund enters into a closing sale transaction,
the Fund will realize a gain or loss, depending on whether the sales
proceeds from the closing sale transaction are greater or less than the cost
of the option. If a Fund exercises a put option, it will realize a gain or
loss from the sale of the underlying security, and the proceeds from such
sale will be decreased by the premium originally paid. If the Fund exercises
a call option, the cost of the security which the Fund purchases upon
exercise will be increased by the premium originally paid.
I FINANCIAL FUTURES CONTRACTS -- Upon entering into a financial futures
contract, the Fund is required to deposit an amount (initial margin) either
in cash or securities equal to a certain percentage of the purchase price
indicated in the financial futures contract. Subsequent payments are made or
received by the Fund (margin maintenance) each day, dependent on the daily
fluctuations in the value of the underlying securities, and are recorded for
book purposes as unrealized gains or losses by the Fund.
If the Fund enters into a closing transaction, the Fund will realize, for
book purposes, a gain or loss equal to the difference between the value of
the financial futures
28
contract to sell and the financial futures contract to buy. The Fund's
investment in financial futures contracts is designed only to hedge against
anticipated future changes in interest rates. Should interest rates move
unexpectedly, the Fund may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
J REVERSE REPURCHASE AGREEMENTS -- The Fund may enter into reverse
repurchase agreements. Under such an agreement, the Fund temporarily
transfers possession, but not ownership, of a security to a counterparty, in
return for cash. At the same time, the Fund agrees to repurchase the
security at an agreed-upon price and time in the future. The Fund may enter
into reverse repurchase agreements for temporary purposes, such as to fund
withdrawals, or for use as hedging instruments where the underlying security
is denominated in a foreign currency. As a form of leverage, reverse
repurchase agreements may increase the risk of fluctuation in the market
value of the Fund's assets or in its yield. Liabilities to counterparties
under reverse repurchase agreements are recognized in the Statement of
Assets and Liabilities at the same time at which cash is received by the
Fund. The securities underlying such agreements continue to be treated as
owned by the Fund and remain in the Portfolio of Investments. Interest
charged on amounts borrowed by the Fund under reverse repurchase agreements
is accrued daily.
K TOTAL RETURN SWAPS -- The Fund may enter into swap agreements to enhance
return, to hedge against fluctuations in securities prices or interest rates
or as substitution for the purchase or sale of securities. Pursuant to these
agreements, the Fund makes monthly payments at a rate equal to a
predetermined spread to the one-month LIBOR. In exchange, the Fund receives
payments based on the rate of return of a benchmark industry index. During
the term of the outstanding swap agreement, changes in the underlying value
of the swap are recorded as unrealized gains and losses. Payments received
or made at the end of the measurement period are recorded as realized gains
and losses. The value of the swap is determined by changes in the
relationship between the rate of interest and the benchmark industry index.
The Fund is exposed to credit loss in the event of non-performance by the
swap counterparty. However, the Fund does not anticipate non-performance by
the counterparty. Risk may also arise from the unanticipated movements in
value of interest rates or the index.
L OTHER -- Investment transactions are accounted for on the date the
securities are purchased or sold. Realized gains and losses are computed
based on the specific identification of securities sold.
M USE OF ESTIMATES -- The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expense during
the reporting period. Actual results could differ from those estimates.
N INDEMNIFICATIONS -- Under the Fund's organizational documents, its
officers and Trustees may be indemnified against certain liabilities and
expenses arising out of the performance of their duties to the Fund, and
shareholders are indemnified against personal liability for obligations of
the Fund. Additionally, in the normal course of business, the Fund enters
into agreements with service providers that may contain indemnification
clauses. The Fund's maximum exposure under these arrangements is unknown as
this would involve future claims that may be made against the Fund that have
not yet occurred.
2 AUCTION PREFERRED SHARES (APS)
The Fund issued 7,600 shares of Auction Preferred Shares Series A, 7,600
shares of Auction Preferred Shares Series B, 7,600 shares of Auction
Preferred Shares Series C, 7,600 shares of Auction Preferred Shares Series
D, and 7,600 shares of Auction Preferred Shares Series E on July 25, 2003 in
a public offering. The underwriting discount and other offering costs were
recorded as a reduction of the capital of the common shares. Dividends on
the APS, which accrue daily, are cumulative at a rate which was established
at the offering of the APS and have been reset every 7 days thereafter by an
auction. Dividend rates ranged from 1.02% to 1.59% for Series A Shares, from
1.02% to 1.59% for Series B Shares, from 1.03% to 1.59% for Series C Shares,
from 1.03% to 1.59% for Series D Shares and from 1.02% to 1.59% for Series E
Shares, during the period from the commencement of the offering, July 25,
2003, to April 30, 2004.
The APS are redeemable at the option of the Fund, at a redemption price
equal to $25,000 per share, plus accumulated and unpaid dividends on any
dividend payment date. The APS are also subject to mandatory redemption at a
redemption price equal to $25,000 per share, plus accumulated and unpaid
dividends, if the Fund is in default for an extended period on its asset
maintenance requirements with respect to the APS. If the dividends on the
APS shall remain unpaid in an amount
29
equal to two full years' dividends, the holders of the APS as a class have
the right to elect a majority of the Board of Trustees. In general, the
holders of the APS and the common shares have equal voting rights of one
vote per share, except that the holders of the APS, as a separate class,
have the right to elect at least two members of the Board of Trustees. The
APS have a liquidation preference of $25,000 per share, plus accumulated and
unpaid dividends. The Fund is required to maintain certain asset coverage
with respect to the APS as defined in the Fund's By-Laws and the Investment
Company Act of 1940. The Fund pays an annual fee equivalent to 0.25% of the
preferred shares' liquidation value for the remarketing efforts associated
with the preferred auctions.
3 DISTRIBUTION TO SHAREHOLDERS
The Fund intends to make monthly distributions of net investment income,
after payment of any dividends on any outstanding Auction Preferred Shares.
Distributions are recorded on the ex-dividend date. Distributions to
preferred shareholders are recorded daily and are payable at the end of each
dividend period. Each dividend payment period for the Auction Preferred
Shares is generally seven days. The applicable dividend rate for the Auction
Preferred Shares on April 30, 2004 was 1.12%, 1.09%, 1.15%, 1.18% and 1.10%,
for Series A, Series B, Series C, Series D and Series E Shares,
respectively. For the period from the commencement of the offering, July 25,
2003, to April 30, 2004, the Fund paid dividends to Auction Preferred
shareholders amounting to $1,649,266, $1,643,300, $1,658,941, $1,666,304,
and $1,662,296 for Series A, Series B, Series C, Series D and Series E
Shares, respectively, representing an average APS dividend rate for such
period of 1.13%, 1.13%, 1.14%, 1.15% and 1.14%, respectively.
The Fund distinguishes between distribution on a tax basis and a financial
reporting basis. Accounting principles generally accepted in the United
States of America require that only distributions in excess of tax basis
earnings and profits be reported in the financial statements as a return of
capital. Permanent differences between book and tax accounting relating to
distributions are reclassified to paid in capital. These differences relate
primarily to the different treatment for paydown gain/losses on
mortgage-backed securities and the method for amortizing premiums.
4 INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The investment adviser fee, computed at an annual rate of 0.75% of the
Fund's weekly gross assets, was earned by Eaton Vance Management (EVM), as
compensation for management and investment advisory services rendered to the
Fund. For the period from the start of business, May 30, 2003, to April 30,
2004 the fee was equivalent to 0.75% (annualized) of the Fund's average
weekly gross assets for such period and amounted to $20,499,825.
In addition, the Adviser has contractually agreed to reimburse the Fund for
fees and other expenses in the amount of 0.20% (annualized) of average
weekly gross assets of the Fund for the first five years of the Fund's
operations 0.15% of average weekly gross assets of the Fund in year 6, 0.10%
in year 7 and 0.05%% in year 8. For the period from the start of business,
May 30, 2003, to April 30, 2004 the Investment Adviser waived $5,474,120 of
its advisory fee.
EVM serves as the administrator of the Fund, but currently receives no
compensation for providing administrative services to the Fund.
Certain officers and Trustees of the Fund are officers of the above
organizations.
5 PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term obligations and
including paydowns, aggregated $5,101,069,210 and $2,003,953,416
respectively.
6 SECURITIES LENDING AGREEMENT
The Fund has established a securities lending agreement with brokers in
which the Fund lends portfolio securities to a broker in exchange for
collateral consisting of either cash or U.S. government securities in an
amount at least equal to the market value of the securities on loan. Under
the agreement, the Fund continues to earn interest on the securities loaned.
Collateral received is generally cash, and the Fund invests the cash and
receives any interest on the amount invested but it must also pay the broker
a loan rebate fee computed as a varying percentage of the collateral
received. The loan rebate fee paid by the Fund offsets a portion of the
interest income received and amounted to $861,336 for the period from the
start of business, May 30, 2003, to April 30, 2004. At April 30, 2004, the
value of the securities loaned and the value of the collateral amounted to
$120,965,769 and $123,955,543, respectively. In the event of counterparty
default, the Fund is subject to potential loss if it is delayed or prevented
from exercising its right to dispose of the collateral. The Fund bears risk
in the event that invested collateral is not sufficient to meet obligations
due on the loans. The Fund has the right under the lending agreement to
recover the securities from the borrower on demand.
30
7 COMMON SHARES OF BENEFICIAL INTEREST
The Agreement and Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional $0.01 par value common shares of
beneficial interest. Transactions in common shares were as follows:
PERIOD ENDED
APRIL 30, 2004(1)
------------------------------------------------------------------------------------
Sales 111,005,000
Issued to shareholders electing to receive payments of
distributions in Fund shares 109,946
------------------------------------------------------------------------------------
NET INCREASE 111,114,946
------------------------------------------------------------------------------------
(1) For the period from the start of business, May 30, 2003, to April 30, 2004.
8 FEDERAL INCOME TAX BASIS OF UNREALIZED APPRECIATION (DEPRECIATION)
The cost and unrealized appreciation (depreciation) in value of the
investments owned at April 30, 2004, as computed on a federal income tax
basis, were as follows:
AGGREGATE COST $ 3,104,224,239
-------------------------------------------------------------------------------------
Gross unrealized appreciation $ 62,441,549
Gross unrealized depreciation (21,856,142)
-------------------------------------------------------------------------------------
NET UNREALIZED APPRECIATION $ 40,585,407
-------------------------------------------------------------------------------------
9 FINANCIAL INSTRUMENTS
The Fund regularly trades in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and financial futures contracts, and may involve, to a
varying degree, elements of risk in excess of the amounts recognized for
financial statement purposes. The notional or contractual amounts of these
instruments represent the investment the Fund has in particular classes of
financial instruments and does not necessarily represent the amounts
potentially subject to risk. The measurement of the risks associated with
these instruments is meaningful only when all related and offsetting
transactions are considered. At April 30, 2004 there were no outstanding
obligations under these financial instruments.
10 ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
The Fund held its Annual Meeting of Shareholders on February 20, 2004. The
following action was taken by the shareholders:
Item 1: The election of Jessica M. Bibliowicz and Samuel L. Hayes, III as
Trustees of the Fund for a three-year term expiring in 2007. Mr. Hayes was
designated the Nominee to be elected solely by APS shareholders:
NUMBER OF SHARES
NOMINEE FOR TRUSTEE -------------------------------
ELECTED BY ALL SHAREHOLDERS FOR WITHHELD
----------------------------------------------------------------------
Jessica M. Bibliowicz 90,460,389 843,102
NUMBER OF SHARES
NOMINEE FOR TRUSTEE -------------------------------
ELECTED BY APS SHAREHOLDERS FOR WITHHELD
----------------------------------------------------------------------
Samuel L. Hayes 32,144 156
Ms. Bibliowicz resigned from the Board of Trustees effective April 15,
2004.
31
EATON VANCE LIMITED DURATION INCOME FUND as of April 30, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE TRUSTEES AND SHAREHOLDERS OF EATON VANCE LIMITED DURATION INCOME FUND:
We have audited the accompanying statement of assets and liabilities of Eaton
Vance Limited Duration Income Fund (the Fund) as of April 30, 2004, including
the portfolio of investments, the related statement of operations, and the
statement of changes in net assets and the financial highlights for the period
from the start of business, May 30, 2003, to April 30, 2004. 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 audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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. Our
procedures included confirmation of securities held as of April 30, 2004 by
correspondence with the custodian. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 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 audit provides 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
Eaton Vance Limited Duration Income Fund at April 30, 2004, the results of its
operations, the changes in its net assets and the financial highlights for the
period from the start of business May 30, 2003, to April 30, 2004, in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 17, 2004
32
EATON VANCE LIMITED DURATION INCOME FUND
DIVIDEND REINVESTMENT PLAN
The Fund offers a dividend reinvestment plan (the Plan) pursuant to which
shareholders may elect to have dividends and capital gains distributions
reinvested in common shares (the Shares) of the Fund. You may elect to
participate in the Plan be completing the Dividend Reinvestment Plan Application
Form. If you do not participate, you will receive all distributions in cash paid
by check mailed directly to you by PFPC Inc. as dividend paying agent. On the
distribution payment date, if the net asset value per Share is equal to or less
than the market price per Share plus estimated brokerage commissions then new
Shares will be issued. The number of Shares shall be determined by the greater
of the net asset value per Share or 95% of the market price. Otherwise, Shares
generally will be purchased on the open market by the Plan Agent. Distributions
subject to income tax (if any) are taxable whether or not shares are reinvested.
If your shares are in the name of a brokerage firm, bank, or other nominee, you
can ask the firm or nominee to participate in the Plan on your behalf. If the
nominee does not offer the Plan, you will need to request that your shares be
re-registered in your name with the Fund's transfer agent, PFPC, Inc. or you
will not be able to participate.
The Plan Agent's service fee for handling distributions will be paid by the
Fund. Each participant will be charged their pro rata share of brokerage
commissions on all open-market purchases.
Plan participants may withdraw from the Plan at any time by writing to the Plan
Agent at the address noted on the following page. If you withdraw, you will
receive shares in your name for all Shares credited to your account under the
Plan. If a participant elects by written notice to the Plan Agent to have the
Plan Agent sell part or all of his or her Shares and remit the proceeds, the
Plan Agent is authorized to deduct a $5.00 fee plus brokerage commissions from
the proceeds.
If you wish to participate in the Plan and your shares are held in your own
name, you may complete the form on the following page and deliver it to the Plan
Agent.
Any inquires regarding the Plan can be directed to the Plan Agent, PFPC, Inc.,
at 1-800-331-1710.
33
EATON VANCE LIMITED DURATION INCOME FUND
APPLICATION FOR PARTICIPATION IN DIVIDEND REINVESTMENT PLAN
This form is for shareholders who hold their common shares in their own names.
If your common shares are held in the name of a brokerage firm, bank, or other
nominee, you should contact your nominee to see if it will participate in the
Plan on your behalf. If you wish to participate in the Plan, but your brokerage
firm, bank, or nominee is unable to participate on your behalf, you should
request that your common shares be re-registered in your own name which will
enable your participation in the Plan.
The following authorization and appointment is given with the understanding that
I may terminate it at any time by terminating my participation in the Plan as
provided in the terms and conditions of the Plan.
-----------------------------------------------------
Please print exact name on account:
-----------------------------------------------------
Shareholder signature Date
-----------------------------------------------------
Shareholder signature Date
Please sign exactly as your common shares are
registered. All persons whose names appear on the
share certificate must sign.
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO RECEIVE YOUR DIVIDENDS AND
DISTRIBUTIONS IN CASH. THIS IS NOT A PROXY.
THIS AUTHORIZATION FORM, WHEN SIGNED, SHOULD BE MAILED TO THE FOLLOWING ADDRESS:
Eaton Vance Limited Duration Income Fund
c/o PFPC, Inc.
P.O. Box 43027
Providence, RI 02940-3027
800-331-1710
NUMBER OF EMPLOYEES
The Fund is organized as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company and has no employees.
NUMBER OF SHAREHOLDERS
As of April 30, 2004, our records indicate that there are 123 registered
shareholders and approximately 100,800 shareholders owning the Fund shares in
street name, such as through brokers, banks, and financial intermediaries.
If you are a street name shareholder and wish to receive our reports directly,
which contain important information about the Fund, please write or call:
Eaton Vance Distributors, Inc.
The Eaton Vance Building
255 State Street
Boston, MA 02109
1-800-225-6265
AMERICAN STOCK EXCHANGE SYMBOL
The American Stock Exchange symbol is EVV.
34
EATON VANCE LIMITED DURATION INCOME FUND
MANAGEMENT AND ORGANIZATION
FUND MANAGEMENT. The Trustees of Eaton Vance Limited Duration Income Fund (the
Fund) are responsible for the overall management and supervision of the Fund's
affairs. The Trustees and officers of the Fund are listed below. Except as
indicated, each individual has held the office shown or other offices in the
same company for the last five years. Trustees and officers of the Fund hold
indefinite terms of office. The "noninterested Trustees" consist of those
Trustees who are not "interested persons" of the Fund, as that term is defined
under the 1940 Act. The business address of each Trustee and officer is The
Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109. As used
below, "EVC" refers to Eaton Vance Corp., "EV" refers to Eaton Vance, Inc.,
"EVM" refers to Eaton Vance Management, "BMR" refers to Boston Management and
Research, and "EVD" refers to Eaton Vance Distributors, Inc. EVC and EV are the
corporate parent and trustee, respectively, of EVM and BMR.
TERM OF NUMBER OF PORTFOLIOS
POSITION(S) OFFICE AND IN FUND COMPLEX
NAME AND WITH THE LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH FUND SERVICE DURING PAST FIVE YEARS TRUSTEE(1) OTHER DIRECTORSHIPS HELD
-----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
James B. Hawkes Trustee Until 2005 Chairman, President and Chief 197 Director of EVC
11/19/41 and Vice 3 years. Executive Officer of BMR, EVC, EVM
President Trustee and EV; Director of EV; Vice
since 2003 President and Director of EVD.
Trustee and/or officer of 191
registered investment companies in
the Eaton Vance Fund Complex.
Mr. Hawkes is an interested person
because of his positions with BMR,
EVM, EVC and EV, which are
affiliates of the Fund.
NONINTERESTED TRUSTEE(S)
Samuel L. Hayes, Trustee Until 2007. Jacob H. Schiff Professor of 197 Director of Tiffany & Co.
III 3 years. Investment Banking Emeritus, (specialty retailer) and
2/23/35 Trustee Harvard University Graduate School Telect, Inc.
since 2003 of Business Administration. (telecommunication services
company)
William H. Park Trustee Until 2005. President and Chief Executive 194 None
9/19/47 3 years. Officer, Prizm Capital Management,
Trustee LLC (investment management firm)
since 2003 (since 2002). Executive Vice
President and Chief Financial
Officer, United Asset Management
Corporation (a holding company
owning institutional investment
management firms) (1982-2001).
Ronald A. Pearlman Trustee Until 2006. Professor of Law, Georgetown
7/10/40 3 years. University Law Center (since 194 None
Trustee 1999). Tax Partner, Covington &
since 2003 Burling, Washington, DC
(1991-2000).
Norton H. Reamer Trustee Until 2006. President, Chief Executive Officer 197 None
9/21/35 3 years. and a Director of Asset Management
Trustee Finance Corp. (a specialty finance
since 2003 company serving the investment
management industry) (since
October2003). President, Unicorn
Corporation (an investment and
financial advisory services
company) (since September2000).
Formerly, Chairman, Hellman,
Jordan Management Co., Inc. (an
investment management company)
(2000-2003). Formerly, Advisory
Director of Berkshire Capital
Corporation (investment banking
firm) (2002-2003). Formerly,
Chairman of the Board, United
Asset Management Corporation (a
holding company owning
institutional investment
management firms) and Chairman,
President and Director, UAM Funds
(mutual funds) (1980-2000).
Lynn A. Stout Trustee Until 2006. Professor of Law, University of 197 None
9/14/57 3 years. California at Los Angeles School
Trustee of Law (since July2001). Formerly,
since 2003 Professor of Law, Georgetown
University Law Center.
35
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
TERM OF
POSITION(S) OFFICE AND
NAME AND WITH THE LENGTH OF PRINCIPAL OCCUPATION(S)
DATE OF BIRTH FUND SERVICE DURING PAST FIVE YEARS
---------------------------------------------------------------------------------------------------------------
Thomas E. Faust Jr. President Since 2003 Executive Vice President of EVM, BMR, EVC and EV; Chief
5/31/58 Investment Officer of EVM and BMR and Director of EVC.
Chief Executive Officer of Belair Capital Fund LLC,
Belcrest Capital Fund LLC, Belmar Capital Fund LLC,
Belport Capital Fund LLC and Belrose Capital Fund LLC
(private investment companies sponsored by EVM). Officer
of 56 registered investment companies managed by EVM or
BMR.
Scott H. Page Vice President Since 2003 Vice President of EVM and BMR. Officer of 14 registered
11/30/59 investment companies managed by EVM or BMR
Susan Schiff Vice President Since 2003 Vice President of EVM and BMR. Officer of 26 registered
3/13/61 investment companies managed by EVM or BMR.
Payson F. Swaffield Vice President Since 2003 Vice President of EVM and BMR. Officer of 14 registered
8/13/56 investment companies managed by EVM or BMR.
Mark S. Venezia* Vice President Since 2004 Vice President of EVM and BMR. Officer of 4 registered
5/23/49 investment companies managed by EVM or BMR
Michael W. Weilheimer Vice President Since 2003 Vice President of EVM and BMR. Officer of 11 registered
2/11/61 investment companies managed by EVM or BMR.
Alan R. Dynner Secretary Since 2003 Vice President, Secretary and Chief Legal Officer of BMR,
10/10/40 EVM, EVD, EV and EVC; Officer of 197 registered investment
companies managed by EVM or BMR.
James L. O'Connor Treasurer Since 2003 Vice President of BMR, EVM and EVD. Officer of 117
4/1/45 registered investment companies managed by EVM or BMR.
(1) Includes both master and feeder funds in a master-feeder structure.
* Mr. Venezia joined the current portfolio management team effective as of
March 16, 2004.
36
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INVESTMENT ADVISER OF EATON VANCE LIMITED DURATION INCOME FUND
EATON VANCE MANAGEMENT
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MA 02109
ADMINISTRATOR OF EATON VANCE LIMITED DURATION INCOME FUND
EATON VANCE MANAGEMENT
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MA 02109
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MA 02116
TRANSFER AGENT
PFPC INC.
ATTN: EATON VANCE FUNDS
P.O. BOX 43027
PROVIDENCE, RI 02940-9653
(800) 331-1710
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
200 BERKELEY STREET
BOSTON, MA 02116-5022
EATON VANCE LIMITED DURATION INCOME FUND
THE EATON VANCE BUILDING
255 STATE STREET
BOSTON, MA 02109
1856-6/04 CE-LDISRC
ITEM 2. CODE OF ETHICS
The registrant has adopted a code of ethics applicable to its Principal
Executive Officer, Principal Financial Officer and Principal Accounting Officer.
The registrant undertakes to provide a copy of such code of ethics to any person
upon request, without charge, by calling 1-800-262-1122.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant's Board has designated William H. Park, Samuel L. Hayes, III and
Norton H. Reamer, each an independent trustee, as its audit committee financial
experts. Mr. Park is a certified public
accountant who is the President and Chief Executive Officer of Prizm Capital
Management, LLC (investment management firm). Previously, he served as Executive
Vice President and Chief Financial Officer of United Asset Management
Corporation ("UAM") (a holding company owning institutional investment
management firms). Mr. Hayes is the Jacob H. Schiff Professor of Investment
Banking Emeritus of the Harvard University Graduate School of Business
Administration. Mr. Reamer is the President, Chief Executive Officer and a
Director of Asset Management Finance Corp. (a specialty finance company serving
the investment management industry) and is President of Unicorn Corporation (an
investment and financial advisory services company). Formerly, Mr. Reamer was
Chairman of Hellman, Jordan Management Co., Inc. (an investment management
company) and Advisory Director of Berkshire Capital Corporation (an investment
banking firm), Chairman of the Board of UAM and Chairman, President and Director
of the UAM Funds (mutual funds).
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) -(d)
The registrant commenced operations on May 30, 2003. The following table
presents the aggregate fees billed to the registrant for the registrant's first
fiscal year ended April 30, 2004 by the registrant's principal accountant for
professional services rendered for the audit of the registrant's annual
financial statements and fees billed for other services rendered by the
principal accountant during such period.
FISCAL YEAR ENDED 4/30/04
------------------------------------------------------
Audit Fees $ 68,701
Audit-Related Fees(1) 14,420
Tax Fees(2) 5,800
All Other Fees(3) 0
----------
Total $ 88,921
==========
(1) Audit-related fees consist of the aggregate fees billed for assurance and
related services that are reasonably related to the performance of the
audit of financial statements and are not reported under the category of
audit fees.
(2) Tax fees consist of the aggregate fees billed for professional services
rendered by the principal accountant relating to tax compliance, tax
advice, and tax planning.
(3) All other fees consist of the aggregate fees billed for products and
services provided by the principal accountant other than audit,
audit-related, and tax services.
(e)(1) The registrant's audit committee has adopted policies and procedures
relating to the pre-approval of services provided by the registrant's principal
accountant (the "Pre-Approval Policies"). The Pre-Approval Policies establish a
framework intended to assist the audit committee in the proper discharge of its
pre-approval responsibilities. As a general matter, the Pre-Approval Policies
(i) specify certain types of audit, audit-related, tax, and other services
determined to be pre-approved by the audit committee; and (ii) delineate
specific procedures governing the mechanics of the pre-approval process,
including the approval and monitoring of audit and non-audit service fees.
Unless a service is
specifically pre-approved under the Pre-Approval Policies, it must be separately
pre-approved by the audit committee.
The Pre-Approval Policies and the types of audit and non-audit services
pre-approved therein must be reviewed and ratified by the registrant's audit
committee at least annually. The registrant's audit committee maintains full
responsibility for the appointment, compensation, and oversight of the work of
the registrant's principal accountant.
(e)(2) No services described in paragraphs (b)-(d) above were approved by the
registrant's audit committee pursuant to the "de minimis exception" set forth in
Rule 2-01(c)(7)(i)(C) of Regulation S-X.
(f) Not applicable.
(g) The following table presents (i) the aggregate non-audit fees (i.e., fees
for audit-related, tax, and other services) billed for services rendered to the
registrant by its principal accountant for the registrant's first fiscal year;
and (ii) the aggregate non-audit fees (i.e., fees for audit-related, tax, and
other services) billed for services rendered to the Eaton Vance organization for
the registrant's first fiscal year.
FISCAL YEAR ENDED 4/30/04
------------------------------------------------------
REGISTRANT $ 88,921
EATON VANCE(1) $ 479,012
(1) Eaton Vance Management, a subsidiary of Eaton Vance Corp., acts as the
registrant's investment adviser and administrator.
(h) The registrant's audit committee has considered whether the provision by the
registrant's principal accountant of non-audit services to the registrant's
investment adviser and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant that
were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is
compatible with maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act of
1934, as amended. Norton H. Reamer (Chair), Samuel L. Hayes, III, William H.
Park and Lynn A. Stout are the members of the registrant's audit committee.
ITEM 6. SCHEDULE OF INVESTMENTS
Please see schedule of investments contained in the Report to Stockholders
included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
The Board of Trustees of the Trust has adopted a proxy voting policy and
procedure (the "Fund Policy"), pursuant to which the Trustees have delegated
proxy voting responsibility to the Fund's investment adviser and adopted the
investment adviser's proxy voting policies and procedures (the "Policies") which
are described below. The Trustees will review the Fund's proxy voting records
from time to time and will annually consider approving the Policies for the
upcoming year. In the event that a conflict of interest arises between the
Fund's shareholders and the investment adviser, the administrator, or any of
their affiliates or any affiliate of the Fund, the investment adviser will
generally refrain from voting the proxies related to the companies giving rise
to such conflict until it consults with the Board of the Fund except as
contemplated under the Fund Policy. The Board's Special Committee will instruct
the investment adviser on the appropriate course of action.
The Policies are designed to promote accountability of a company's management to
its shareholders and to align the interests of management with those
shareholders. The investment adviser will generally support company management
on proposals relating to environmental and social policy issues and on matters
regarding the state of organization of the company. On all other matters, the
investment adviser will take management's proposals under advisement but will
consider each matter in light of the guidelines set forth in the Policies.
Except in the instance of routine matters related to corporate administration
which are not expected to have a significant economic impact on the company or
its shareholders (on which the investment adviser will routinely vote with
management), the investment adviser will review each matter on a case-by-case
basis and reserves the right to deviate from the Policies guidelines when it
believes the situation warrants such a deviation. The Policy includes voting
guidelines for matters relating to, among other things, the election of
directors, approval of independent auditors, executive compensation, corporate
structure and anti-takeover defenses. The investment adviser may abstain from
voting from time to time where it determines that the costs associated with
voting a proxy outweighs the benefits derived from exercising the right to vote.
In addition, the investment adviser will monitor situations that may result in a
conflict of interest between the Fund's shareholders and the investment adviser,
the administrator, or any of their affiliates or any affiliate of the Fund by
maintaining a list of significant existing and prospective corporate clients.
The investment adviser's personnel responsible for reviewing and voting proxies
on behalf of the Fund will report any proxy received or expected to be received
from a company included on that list to the investment adviser's general counsel
or chief equity investment officer. The general counsel or chief equity
investment officer will determine if a conflict exists. If a conflict does
exist, the proxy will either be voted strictly in accordance with the Policy or
the investment adviser will seek instruction on how to vote from the Board.
Effective August 31, 2004, information on how the Fund voted proxies relating to
portfolio securities during the 12 month period ended June 30, 2004 [is/will be]
available (1) without charge, upon request, by calling 1-800-262-1122, and (2)
on the Securities and Exchange Commission's website at http://www.sec.gov.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Effective February 9, 2004, the Governance Committee of the Board of Trustees
formalized the procedures by which a Fund's shareholders may recommend nominees
to the registrant's Board of Trustees. The Governance Committee shall, when
identifying candidates for the position of Independent Trustee, consider any
such candidate recommended by a shareholder of a Fund if such recommendation
contains sufficient background information concerning the candidate, and is
received in a sufficiently timely manner (and in any event no later than the
date specified for receipt of shareholder proposals in any applicable proxy
statement with respect to a Fund). Shareholders shall be directed to address any
such recommendations to the attention of the Governance Committee, c/o the
Secretary of the Fund.
ITEM 10. CONTROLS AND PROCEDURES
(a) It is the conclusion of the registrant's principal executive officer and
principal financial officer that the effectiveness of the registrant's current
disclosure controls and procedures (such disclosure controls and procedures
having been evaluated within 90 days of the date of this filing) provide
reasonable assurance that the information required to be disclosed by the
registrant has been recorded, processed, summarized and reported within the time
period specified in the Commission's rules and forms and that the information
required to be disclosed by the registrant has been accumulated and communicated
to the registrant's principal executive officer and principal financial officer
in order to allow timely decisions regarding required disclosure.
(b) There have been no changes in the registrant's internal controls over
financial reporting during the period that has materially affected, or is
reasonably likely to materially affect the registrant's internal control over
financial reporting.
ITEM 11. EXHIBITS
(a)(1) Registrant's Code of Ethics - Not applicable (please see Item 2).
(a)(2)(i) Treasurer's Section 302 certification.
(a)(2)(ii) President's Section 302 certification.
(b) Combined Section 906 certification.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EATON VANCE LIMITED DURATION INCOME FUND
By: /s/ Thomas E. Faust Jr.
----------------------------------
Thomas E. Faust Jr.
President
Date: June 16, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ James L. O'Connor
----------------------------------
James L. O'Connor
Treasurer
Date: June 16, 2004
By: /s/ Thomas E. Faust Jr.
-----------------------------------------------
Thomas E. Faust Jr.
President
Date: June 16, 2004