-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Das/WNJ2zZ5toMmdk6JCGX3cPGTI1kvOjb6NV1V/0GwSXZ53ZYVoj30FkUtraJdb IFIyERd2fz1wqua20QsG3g== 0001047469-04-000201.txt : 20040106 0001047469-04-000201.hdr.sgml : 20040106 20040106142922 ACCESSION NUMBER: 0001047469-04-000201 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20031031 FILED AS OF DATE: 20040106 EFFECTIVENESS DATE: 20040106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON VANCE LIMITED DURATION INCOME FUND CENTRAL INDEX KEY: 0001222922 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-21323 FILM NUMBER: 04509465 MAIL ADDRESS: STREET 1: 255 STATE STREET CITY: BOSTON STATE: MA ZIP: 02109 N-CSRS 1 a2124159zn-csrs.txt N-CSRS FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File Number: 811-21323 --------- Eaton Vance Limited Duration Income Fund ---------------------------------------- (Exact Name of Registrant as Specified in Charter) The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109 ----------------------------------------------------------------------- (Address of Principal Executive Offices) Alan R. Dynner The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109 ----------------------------------------------------------------------- (Name and Address of Agent for Services) (617) 482-8260 -------------- (Registrant's Telephone Number) April 30 -------- Date of Fiscal Year End October 31, 2003 ---------------- Date of Reporting Period ITEM 1. REPORTS TO STOCKHOLDERS [EATON VANCE(R) MANAGEMENT INVESTMENTS LOGO] [GRAPHIC] SEMIANNUAL REPORT OCTOBER 31, 2003 EATON VANCE LIMITED DURATION INCOME FUND 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 (SEC) 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 http://www.sec.gov. EATON VANCE LIMITED DURATION INCOME FUND as of October 31, 2003 INVESTMENT UPDATE INVESTMENT ENVIRONMENT - - The bank loan market has benefited from a stronger economy. Industrial and technology companies have begun to see an increase in orders in response to a renewal of capital spending. In addition, companies that cut costs and restructured their debt during the economic slowdown are now beginning to see the benefits of those moves, as business activity gathers steam. Finally, consumer and investor confidence has increased, as corporate governance issues are being addressed by regulators and businesses alike. Together, these trends have contributed to a better credit climate and a stronger loan market. - - The mortgage-backed securities (MBS) sector performed poorly during the period, primarily due to a sharp rise in prepayment rates. Re-financings surged, as homeowners rushed to take advantage of the lowest interest rates in 45 years. As a consequence, the price performance of MBS investments was impaired. - - The improving economy provided a lift for the high-yield market in the second half of 2003. Tax cuts and low interest rates also provided a boost. As an indication of the economy's recovery in the second half, third quarter Gross Domestic Product (GDP) rose 8.2%, marking the nation's fastest growth rate in two decades. Finally, default rates - which rose during the economic slowdown - have declined significantly, reflecting the improved credit conditions. THE FUND PERFORMANCE - - Based on the Fund's October 2003 monthly dividend of $0.1345 and a closing share price of $18.78, the Fund had a market yield of 8.59%.(1) The Fund's market yield represented a yield advantage over many other income-producing vehicles. THE FUND'S INVESTMENTS - - The Fund's managers have emphasized broad diversification across industries, with investments in economically-sensitive, cyclical sectors, as well as more defensive areas. At October 31, 2003, the Fund's investments represented 43 industries, with no single sector accounting for as much as 10% of the Fund. The largest sectors were broadcasting and entertainment; health care and childcare; education; telecommunications; leisure, amusement and entertainment; and hotels, motels, inns and gaming. - - Among the Fund's largest floating-rate loans were companies that we believe are likely to benefit from an economic recovery. For example, broadcasting companies, publishers and printers should benefit from an increase in advertising budgets. Another economically-sensitive area was containers and packaging. As companies ship more products, there is rising demand for containerboard and other packaging materials. In a less GDP-sensitive area, the Fund had an investment in health care, including an operator of dialysis centers for kidney patients. The company has benefited from a rising number of procedures and a higher fee schedule. - - Among its high-yield bond investments, the Fund had significant investments in telecommunications and broadcasting companies. Wireless companies have completed the build-out of their networks and are becoming cash-flow positive for the first time in years. The Fund also had large investments in utility bonds, including energy pipeline companies and power generating companies that took steps to pare debt and improve short-term liquidity. By restructuring bank debt, issuing equity and repurchasing their own bonds, these companies have improved their balance sheets and enhanced their access to the capital markets. - - The Fund's performance was adversely affected by the difficult MBS market. Prepayment rates rose sharply not only for generic MBS, but also among the Fund's seasoned MBS, which have historically displayed much more predictable prepay rates. However, we believe that interest rates have likely bottomed and that it is probable that the majority of re-financings have already occurred. Accordingly, we would expect that prepayment rates would ease dramatically and provide a better climate for MBS investments relative to other high-grade, fixed-income sectors. FUND INFORMATION as of October 31, 2003
PERFORMANCE(2) Average Annual Total Return (by share price, AMEX) Life of Fund (5/30/03) 1.19% Average Annual Total Return (at net asset value) Life of Fund (5/30/03) 3.07%
[CHART] FIVE LARGEST SECTOR WEIGHTINGS(3) Broadcasting & Entertainment 9.0% Health Care, Education & Childcare 8.3% Telecommunications 7.4% Leisure, Amusement & Entertainment 6.4% Hotels, Motels, Inns & Gaming 5.5%
(1) 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. (2) Returns are historical and are calculated by determining the percentage change in market value or net asset value with all distributions reinvested. (3) Five Largest Sector Weightings account for 36.6% of the Fund's net assets, determined by dividing the total market value of the holdings by the 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. 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. 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. Shares of the Fund 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 change. 2 EATON VANCE LIMITED DURATION INCOME FUND as of October 31, 2003 PORTFOLIO OF INVESTMENTS (Unaudited) Senior, Floating Rate Interests -- 47.8%(1)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE - ------------------------------------------------------------------------------------------ AEROSPACE AND DEFENSE -- 0.5% TRANSDIGM, INC. $ 5,300,000 Term Loan, Maturing July 22, 2010 $ 5,361,284 UNITED DEFENSE INDUSTRIES, INC. 5,421,738 Term Loan, Maturing October 6, 2005 5,443,523 - ------------------------------------------------------------------------------------------ $ 10,804,807 - ------------------------------------------------------------------------------------------ AUTOMOBILE -- 2.9% ACCURIDE CORP. $ 4,900,000 Term Loan, Maturing June 13, 2007 $ 4,961,250 COLLINS AND AIKMAN 1,961,988 Term Loan, Maturing December 31, 2005 1,953,650 EXIDE CORP. 12,300,000 DIP Loan, Maturing February 15, 2004 12,115,500 FEDERAL MOGUL CORP. 2,000,000 DIP Loan, Maturing February 6, 2005 2,020,000 FEDERAL-MOGUL CORP. 5,626,706 DIP Loan, Maturing February 24, 2004 5,612,639 HLI OPERATING CO., INC. 6,000,000 Term Loan, Maturing June 3, 2009 6,075,936 J.L. FRENCH AUTOMOTIVE CASTINGS, INC. 1,836,600 Term Loan, Maturing November 30, 2006 1,735,587 METALDYNE, INC. 2,646,319 Term Loan, Maturing December 31, 2009 2,629,229 TENNECO AUTOMOTIVE 359,906 Term Loan, Maturing December 31, 2006 361,256 1,349,876 Term Loan, Maturing December 31, 2007 1,363,094 1,349,876 Term Loan, Maturing December 31, 2008 1,363,094 THE GOODYEAR TIRE AND RUBBER CO. 8,000,000 Term Loan, Maturing March 31, 2006 8,060,000 TRW AUTOMOTIVE HOLDINGS CORP. 4,225,610 Term Loan, Maturing February 28, 2010 4,269,188 7,500,000 Term Loan, Maturing February 28, 2011 7,582,815 UNITED COMPONENTS, INC. 2,000,000 Term Loan, Maturing June 30, 2010 2,017,916 - ------------------------------------------------------------------------------------------ $ 62,121,154 - ------------------------------------------------------------------------------------------ BEVERAGES, FOOD AND TOBACCO -- 2.0% AMERICAN SEAFOOD HOLDINGS, INC. $ 2,449,547 Term Loan, Maturing March 31, 2009 $ 2,460,773 AURORA FOODS, INC. 4,987,047 Term Loan, Maturing March 31, 2007 5,064,969 CONSTELLATION BRANDS, INC. $ 1,964,625 Term Loan, Maturing November 30, 2008 $ 1,987,218 DEAN FOODS CO. 2,261,333 Term Loan, Maturing July 15, 2008 2,282,180 DEL MONTE CORP. 3,000,000 Term Loan, Maturing December 20, 2008 3,020,625 498,744 Term Loan, Maturing December 20, 2010 505,705 DR. PEPPER/SEVEN UP BOTTLING GROUP, INC. 1,989,637 Term Loan, Maturing October 7, 2007 2,001,452 INTERSTATE BRANDS CORPS. 953,125 Term Loan, Maturing July 19, 2006 953,125 1,224,142 Term Loan, Maturing July 19, 2007 1,228,579 6,473,857 Term Loan, Maturing July 19, 2007 6,483,975 MERISANT CO. 6,775,111 Term Loan, Maturing January 31, 2010 6,840,748 REDDY ICE GROUP, INC. 4,400,000 Term Loan, Maturing July 31, 2009 4,447,665 SOUTHERN WINE AND SPIRITS OF AMERICA, INC. 4,407,708 Term Loan, Maturing June 28, 2008 4,433,418 - ------------------------------------------------------------------------------------------ $ 41,710,432 - ------------------------------------------------------------------------------------------ BROADCASTING & ENTERTAINMENT -- 4.8% BRESNAN COMMUNICATIONS, LLC $ 6,500,000 Term Loan, Maturing September 30, 2010 $ 6,553,826 CANWEST MEDIA, INC. 5,250,000 Term Loan, Maturing May 15, 2009 5,303,592 CHARTER COMMUNICATIONS OPERATING, LLC 2,500,000 Term Loan, Maturing March 18, 2007 2,400,520 15,363,236 Term Loan, Maturing March 18, 2008 14,910,988 CSG SYSTEMS INTL, INC. 3,299,136 Term Loan, Maturing December 31, 2007 3,171,295 CUMULUS MEDIA, INC. 987,519 Term Loan, Maturing March 28, 2010 998,474 DIRECTTV HOLDINGS, LLC 18,000,000 Term Loan, Maturing March 6, 2010 18,121,500 DISCOVERY COMMUNICATIONS, INC. 11,212,121 Revolving Loan, Maturing May 31, 2004 10,749,621 EMMIS COMMUNICATION CORP. 500,000 Term Loan, Maturing August 31, 2008 501,964 5,750,000 Term Loan, Maturing August 31, 2009 5,815,487 FALCON HOLDING GROUP, L.P. 994,778 Term Loan, Maturing December 31, 2007 951,671 GRAY TELEVISION, INC.0 6,300,000 Term Loan, Maturing December 31, 2010 6,356,700
See notes to financial statements. 3
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE - ------------------------------------------------------------------------------------------ BROADCASTING & ENTERTAINMENT (CONTINUED) INSIGHT MIDWEST HOLDINGS, LLC $ 1,500,000 Term Loan, Maturing December 31, 2009 $ 1,509,961 10,000,000 Term Loan, Maturing December 31, 2009 10,050,000 MCC IOWA, LLC 4,000,000 Term Loan, Maturing March 31, 2010 3,966,252 4,500,000 Term Loan, Maturing September 30, 2010 4,537,813 SINCLAIR TELEVISION GROUP, INC. 2,485,900 Term Loan, Maturing December 31, 2009 2,504,989 2,429,500 Term Loan, Maturing December 31, 2009 2,450,758 - ------------------------------------------------------------------------------------------ $ 100,855,411 - ------------------------------------------------------------------------------------------ BUILDINGS AND REAL ESTATE -- 1.4% AIMCO PROPERTIES, L.P. $ 4,394,456 Term Loan, Maturing February 28, 2004 $ 4,427,414 5,000,000 Term Loan, Maturing May 30, 2008 5,053,125 INTERLINE BRANDS, INC. 4,443,750 Term Loan, Maturing November 30, 2009 4,465,969 iSTAR WALDEN/STARWOOD WALDEN LLC 2,500,000 Term Loan, Maturing June 30, 2003 2,506,250 NCI BUILDING SYSTEMS, INC. 2,850,000 Term Loan, Maturing July 31, 2008 2,869,594 NEWKIRK MASTER, L.P. 1,482,525 Term Loan, Maturing December 31, 2004 1,482,525 PANOLAM INDUSTRIES, INC. 500,000 Term Loan, Maturing November 24, 2007 492,500 TOWER FINANCING I, LLC 2,750,000 Term Loan, Maturing July 9, 2008 2,753,438 WFP TOWER A CO. L.P. 4,500,000 Term Loan, Maturing June 12, 2006 4,495,784 - ------------------------------------------------------------------------------------------ $ 28,546,599 - ------------------------------------------------------------------------------------------ CARGO TRANSPORT -- 0.3% RAILAMERICA, INC. $ 730,943 Term Loan, Maturing May 31, 2009 $ 736,425 1,021,600 Term Loan, Maturing May 31, 2009 1,029,262 4,512,067 Term Loan, Maturing May 31, 2009 4,545,907 - ------------------------------------------------------------------------------------------ $ 6,311,594 - ------------------------------------------------------------------------------------------ CHEMICALS, PLASTICS AND RUBBER -- 2.2% ARTEVA B.V. $ 1,493,534 Term Loan, Maturing December 31, 2006 $ 1,491,668 AVECIA INVESTMENTS LTD. 1,305,344 Term Loan, Maturing June 30, 2007 1,253,130 803,799 Term Loan, Maturing June 30, 2008 771,647 CP KELCO US, INC. $ 1,537,175 Term Loan, Maturing March 31, 2008 $ 1,545,821 511,109 Term Loan, Maturing September 30, 2008 514,197 HUNTSMAN INTERNATIONAL 4,507,084 Term Loan, Maturing June 30, 2007 4,529,899 4,507,325 Term Loan, Maturing June 30, 2008 4,529,861 IMC GLOBAL, INC. 4,973,330 Term Loan, Maturing November 17, 2006 5,018,712 NOVEON 6,500,000 Term Loan, Maturing December 31, 2009 6,569,062 POLYMER GROUP, INC. 11,748,376 Term Loan, Maturing December 31, 2006 11,464,453 RESOLUTION PERFORMANCE PRODUCTS, LLC 2,000,000 Term Loan, Maturing November 14, 2008 2,000,834 ROCKWOOD SPECIALTIES GROUP, INC. 4,000,000 Term Loan, Maturing July 23, 2010 4,041,668 WESTLAKE CHEMICAL CORP. 2,992,500 Term Loan, Maturing July 31, 2010 3,027,102 - ------------------------------------------------------------------------------------------ $ 46,758,054 - ------------------------------------------------------------------------------------------ CONTAINERS, PACKAGING AND GLASS -- 3.5% BERRY PLASTICS CORP. $ 4,942,450 Term Loan, Maturing June 30, 2010 $ 4,990,332 CONSOLIDATED CONTAINER HOLDINGS LLC 3,768,094 Term Loan, Maturing June 30, 2007 3,441,525 Crown Cork and Seal Americas, Inc. 15,000,000 Term Loan, Maturing September 15, 2008 15,146,250 GRAPHIC PACKAGE INTERNATIONAL, INC. 2,000,000 Term Loan, Maturing August 8, 2008 2,001,250 17,500,000 Term Loan, Maturing August 8, 2009 17,670,625 OWENS-ILLINOIS, INC. 9,500,000 Term Loan, Maturing April 1, 2007 9,528,205 6,000,000 Term Loan, Maturing April 1, 2008 6,045,624 STONE CONTAINER CORP. 9,413,794 Term Loan, Maturing June 30, 2009 9,487,928 2,440,530 Term Loan, Maturing June 30, 2009 2,459,749 TEKNI-PLEX, INC. 2,807,122 Term Loan, Maturing March 31, 2006 2,802,442 - ------------------------------------------------------------------------------------------ $ 73,573,930 - ------------------------------------------------------------------------------------------ DIVERSIFIED/CONGLOMERATE MANUFACTURING -- 2.1% AMSCAN HOLDINGS, INC. $ 3,982,481 Term Loan, Maturing June 15, 2007 $ 4,005,711
See notes to financial statements. 4
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE - ------------------------------------------------------------------------------------------ DIVERSIFIED/CONGLOMERATE MANUFACTURING (CONTINUED) AMSTED INDUSTRIES, INC. $ 6,483,750 Term Loan, Maturing October 15, 2010 $ 6,525,622 DRESSER, INC. 2,000,000 Term Loan, Maturing March 31, 2007 2,020,358 FLOWSERVE CORP. 4,348,037 Term Loan, Maturing June 30, 2009 4,383,752 MANITOWOC CO. (THE) 2,992,347 Term Loan, Maturing June 30, 2007 3,008,245 MUELLER GROUP, INC. 2,992,424 Term Loan, Maturing May 31, 2008 3,003,110 NATIONAL WATERWORKS, INC. 4,454,082 Term Loan, Maturing November 22, 2009 4,491,385 POLYPORE INCORPORATED 3,491,139 Term Loan, Maturing December 31, 2007 3,524,595 SPX CORP. 974,359 Term Loan, Maturing September 30, 2008 981,667 7,255,286 Term Loan, Maturing September 30, 2009 7,318,770 TRIMAS CORP. 4,778,100 Term Loan, Maturing December 31, 2009 4,790,843 - ------------------------------------------------------------------------------------------ $ 44,054,058 - ------------------------------------------------------------------------------------------ DIVERSIFIED/CONGLOMERATE SERVICE -- 0.6% ADVANSTAR COMMUNICATIONS, INC. $ 359,177 Term Loan, Maturing November 17, 2007 $ 359,177 ALDERWOODS GROUP 957,592 Term Loan, Maturing September 28, 2008 971,357 COINMACH LAUNDRY CORP. 4,666,000 Term Loan, Maturing July 25, 2009 4,689,815 CORRECTIONS CORP. OF AMERICA 2,493,750 Term Loan, Maturing March 31, 2008 2,523,363 GLOBAL IMAGING SYSTEMS, INC. 1,995,000 Term Loan, Maturing June 25, 2009 2,014,950 IRON MOUNTAIN, INC. 1,997,994 Term Loan, Maturing February 15, 2008 2,014,406 WACKENHUT CORRECTIONS CORP. 2,962,500 Term Loan, Maturing July 9, 2009 2,993,977 - ------------------------------------------------------------------------------------------ $ 15,567,045 - ------------------------------------------------------------------------------------------ DIVERSIFIED NATURAL RESOURCES, PRECIOUS METALS AND MINERALS -- 0.2% COMPASS MINERALS GROUP, INC. $ 3,037,806 Term Loan, Maturing November 28, 2009 $ 3,064,386 PEABODY ENERGY CORP. $ 995,000 Term Loan, Maturing March 31, 2010 $ 1,005,987 - ------------------------------------------------------------------------------------------ $ 4,070,373 - ------------------------------------------------------------------------------------------ ECOLOGICAL -- 1.0% ALLIED WASTE INDUSTRIES, INC. $ 9,570,711 Term Loan, Maturing January 15, 2009 $ 9,696,326 9,710,229 Term Loan, Maturing July 15, 2010 9,857,620 ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS, INC. 767,111 Term Loan, Maturing December 31, 2004 767,111 - ------------------------------------------------------------------------------------------ $ 20,321,057 - ------------------------------------------------------------------------------------------ ELECTRONICS -- 0.9% AMPHENOL CORP. $ 3,912,632 Term Loan, Maturing May 6, 2010 $ 3,944,175 FAIRCHILD SEMICONDUCTOR CORP. 7,730,625 Term Loan, Maturing June 19, 2008 7,793,436 XEROX CORP. 4,500,000 Term Loan, Maturing September 30, 2008 4,535,861 - ------------------------------------------------------------------------------------------ $ 16,273,472 - ------------------------------------------------------------------------------------------ FARMING AND AGRICULTURE -- 0.1% THE SCOTTS CO. $ 1,500,000 Term Loan, Maturing September 30, 2010 $ 1,520,223 - ------------------------------------------------------------------------------------------ $ 1,520,223 - ------------------------------------------------------------------------------------------ GROCERY -- 0.0% THE PANTRY, INC. $ 495,010 Term Loan, Maturing March 31, 2007 $ 500,888 - ------------------------------------------------------------------------------------------ $ 500,888 - ------------------------------------------------------------------------------------------ HEALTH CARE, EDUCATION, AND CHILDCARE -- 4.6% ALARIS MEDICAL SYSTEMS, INC. $ 5,297,391 Term Loan, Maturing June 30, 2009 $ 5,358,311 ALLIANCE IMAGING, INC. 4,000,000 Term Loan, Maturing June 10, 2008 3,971,252 AMERISOURCE BERGEN CORP. 1,458,824 Term Loan, Maturing March 31, 2005 1,458,824 COMMUNITY HEALTH SYSTEMS, INC. 4,954,975 Term Loan, Maturing July 5, 2010 5,003,286 4,000,000 Term Loan, Maturing July 5, 2010 4,020,000
See notes to financial statements. 5
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE - ------------------------------------------------------------------------------------------ HEALTH CARE, EDUCATION, AND CHILDCARE (CONTINUED) CONCENTRA OPERATING CORP. $ 4,987,500 Term Loan, Maturing June 30, 2009 $ 5,040,492 CONMED CORP. 3,491,250 Term Loan, Maturing December 31, 2007 3,532,709 CROSS COUNTRY HEALTHCARE, INC. 3,087,500 Term Loan, Maturing June 5, 2009 3,126,094 DADE BEHRING HOLDINGS, INC. 3,459,233 Term Loan, Maturing October 3, 2008 3,493,825 1,113,440 Term Loan, Maturing October 3, 2008 1,128,054 DAVITA, INC. 18,450,168 Term Loan, Maturing March 31, 2009 18,619,301 EXPRESS SCRIPTS, INC. 1,915,385 Term Loan, Maturing March 31, 2008 1,932,487 FHC HEALTH SYSTEMS, INC. 1,160,526 Term Loan, Maturing April 30, 2005 1,156,900 1,492,105 Term Loan, Maturing April 30, 2006 1,487,442 FISHER SCIENTIFIC INTERNATIONAL, LLC 5,067,784 Term Loan, Maturing March 31, 2010 5,117,829 3,502,838 Term Loan, Maturing March 31, 2010 3,535,677 FRESENIUS MEDICAL CARE HOLDINGS, INC. 1,995,000 Term Loan, Maturing February 21, 2010 2,014,950 KINETIC CONCEPTS, INC. 4,189,500 Term Loan, Maturing October 3, 2009 4,227,469 KNOWLEDGE LEARNING CORP. 3,447,500 Term Loan, Maturing May 15, 2010 3,445,345 LANGUAGE LINE, LLC 3,500,000 Term Loan, Maturing December 31, 2008 3,518,959 MEDCO HEALTH SOLUTIONS, INC. 6,500,000 Term Loan, Maturing June 30, 2010 6,576,174 QUINTILES TRANSNATIONAL CORP. 2,500,000 Term Loan, Maturing September 25, 2009 2,521,875 TEAM HEALTH 3,807,593 Term Loan, Maturing October 31, 2008 3,790,934 TRIAD HOSPITALS HOLDINGS, INC. 3,701,834 Term Loan, Maturing March 31, 2008 3,732,682 - ------------------------------------------------------------------------------------------ $ 97,810,871 - ------------------------------------------------------------------------------------------ HOME AND OFFICE FURNISHINGS, HOUSEWARES, AND DURABLE CONSUMER GOODS -- 0.7% SIMMONS CO. $ 1,000,000 Term Loan, Maturing October 30, 2006 $ 1,005,375 TEMPUR-PEDIC, INC. 4,987,500 Term Loan, Maturing June 30, 2009 5,009,320 WARNER HOLDING CO. $ 4,500,000 Term Loan, Maturing June 11, 2009 $ 4,235,625 - ------------------------------------------------------------------------------------------ $ 10,250,320 - ------------------------------------------------------------------------------------------ HOTELS, MOTELS, INNS, AND GAMING -- 2.0% ALLIANCE GAMING CORP. $ 9,650,000 Term Loan, Maturing September 5, 2009 $ 9,734,437 AMERISTAR CASINOS, INC. 3,490,997 Term Loan, Maturing December 31, 2006 3,515,871 ARGOSY GAMING CO. 997,449 Term Loan, Maturing June 30, 2008 1,004,306 BOYD GAMING CORP. 2,979,937 Term Loan, Maturing June 24, 2008 2,995,209 EXTENDED STAY AMERICA 2,969,697 Term Loan, Maturing December 31, 2007 3,001,621 ISLE OF CAPRI CASINOS 2,393,924 Term Loan, Maturing April 25, 2008 2,411,132 MARINA DISTRICT FINANCE CO. 186,441 Revolving Loan, Maturing December 31, 2007 181,780 9,435,028 Term Loan, Maturing December 31, 2007 9,538,229 PENN NATIONAL GAMING, INC. 3,989,984 Term Loan, Maturing July 31, 2006 4,020,906 VENETIAN CASINO RESORT, LLC/LAS VEGAS SANDS, INC. 1,975,000 Term Loan, Maturing June 4, 2008 2,001,333 - ------------------------------------------------------------------------------------------ $ 38,404,824 - ------------------------------------------------------------------------------------------ INSURANCE -- 0.6% HILB, ROGAL AND HOBBS CO. $ 1,994,949 Term Loan, Maturing June 30, 2007 $ 2,016,146 INFINITY PROPERTY AND CASUALTY CORP. 5,042,625 Term Loan, Maturing June 30, 2010 5,086,748 U.S.I. HOLDINGS CORP. 5,985,000 Term Loan, Maturing August 11, 2008 6,029,888 - ------------------------------------------------------------------------------------------ $ 13,132,782 - ------------------------------------------------------------------------------------------ LEISURE, AMUSEMENT, ENTERTAINMENT -- 3.8% AMFAC RESORTS, INC. $ 2,329,622 Term Loan, Maturing September 30, 2003 $ 2,326,710 2,329,622 Term Loan, Maturing September 30, 2004 2,326,710 CINEMARK USA, INC. 6,982,500 Term Loan, Maturing March 31, 2009 7,062,505 HOLLYWOOD ENTERTAINMENT CORP. 2,856,061 Term Loan, Maturing March 31, 2008 2,876,142
See notes to financial statements. 6
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE - ------------------------------------------------------------------------------------------ LEISURE, AMUSEMENT, ENTERTAINMENT (CONTINUED) ISTAR FINANCIAL, INC $ 7,000,000 Term Loan, Maturing July 24, 2006 $ 6,982,500 LOEWS CINEPLEX ENTERTAINMENT CORP. 17,216,422 Term Loan, Maturing September 30, 2006 17,295,325 NEW ENGLAND SPORTS VENTURES, LLC 3,000,000 Term Loan, Maturing February 28, 2005 3,000,000 REGAL CINEMAS, INC. 15,300,000 Term Loan, Maturing June 30, 2009 15,464,154 SIX FLAGS THEME PARKS INC. 7,000,000 Term Loan, Maturing June 30, 2009 7,001,876 UNIVERSAL CITY DEVELOPMENT PARTNERS, L.P. 8,307,277 Term Loan, Maturing June 30, 2007 8,348,813 VAIL RESORTS, INC. 3,980,000 Term Loan, Maturing December 10, 2008 4,022,288 VIVENDI UNIVERSAL ENTERTAINMENT LLP 7,500,000 Term Loan, Maturing June 30, 2008 7,559,062 - ------------------------------------------------------------------------------------------ $ 84,266,085 - ------------------------------------------------------------------------------------------ MACHINERY (NON-AGRICULTURAL, NON-CONSTRUCTION, NON-ELECTRONIC) -- 0.7% COLFAX CORP. $ 2,171,016 Term Loan, Maturing May 30, 2009 $ 2,181,871 REXNORD CORP. 1,891,428 Term Loan, Maturing November 30, 2009 1,905,909 THERMADYNE HOLDINGS CORP. 7,500,000 Term Loan, Maturing March 31, 2008 7,368,750 - ------------------------------------------------------------------------------------------ $ 11,456,530 - ------------------------------------------------------------------------------------------ OIL AND GAS -- 2.1% CITGO PETROLEUM CO. $ 5,000,000 Term Loan, Maturing February 27, 2006 $ 5,200,000 COLUMBIA NATURAL RESOURCES, LLC 3,375,000 Revolving Loan, Maturing August 28, 2008 3,366,563 CUMBERLAND FARMS, INC. 2,493,177 Term Loan, Maturing September 8, 2008 2,493,177 4,487,718 Term Loan, Maturing September 8, 2008 4,510,157 MAGELLAN MIDSTREAM PARTNERS, L.P. 1,500,000 Term Loan, Maturing August 6, 2008 1,511,250 SPRAGUE ENERGY CORP. 2,896,667 Revolving Loan, Maturing August 10, 2007 2,889,425 WEG ACQUISITION, L.P. 5,100,000 Term Loan, Maturing June 17, 2008 5,154,188 WILLIAMS PRODUCTION RMT CO. $ 18,453,750 Term Loan, Maturing May 30, 2007 $ 18,649,821 - ------------------------------------------------------------------------------------------ $ 43,774,581 - ------------------------------------------------------------------------------------------ PERSONAL AND NON-DURABLE CONSUMER PRODUCTS (MANUFACTURING ONLY) -- 0.9% ARMKEL, LLC $ 489,559 Term Loan, Maturing March 31, 2009 $ 494,148 CHURCH AND DWIGHT CO., INC. 2,156,157 Term Loan, Maturing September 30, 2007 2,183,648 JOHNSONDIVERSEY, INC. 1,244,804 Term Loan, Maturing November 30, 2008 1,248,110 2,834,061 Term Loan, Maturing November 30, 2009 2,860,630 MARY KAY COSMETICS, INC. 4,533,766 Term Loan, Maturing September 30, 2007 4,560,211 PLAYTEX PRODUCTS, INC. 12,934,341 Term Loan, Maturing May 31, 2009 12,930,306 RAYOVAC CORP. 5,292,468 Term Loan, Maturing September 30, 2009 5,313,416 - ------------------------------------------------------------------------------------------ $ 29,590,469 - ------------------------------------------------------------------------------------------ PERSONAL, FOOD, AND MISCELLANEOUS -- 0.9% AFC ENTERPRISES, INC. $ 1,543,247 Term Loan, Maturing May 23, 2009 $ 1,542,476 BUFFETS, INC. 6,057,666 Term Loan, Maturing June 30, 2009 6,080,382 DOMINO'S, INC. 7,937,894 Term Loan, Maturing June 25, 2010 8,023,885 JACK IN THE BOX, INC. 4,458,788 Term Loan, Maturing July 22, 2007 4,492,229 - ------------------------------------------------------------------------------------------ $ 20,138,972 - ------------------------------------------------------------------------------------------ PERSONAL TRANSPORTATION -- 0.4% - ------------------------------------------------------------------------------------------ LAIDLAW INTERNATIONAL, INC. $ 9,359,495 Term Loan, Maturing June 19, 2009 $ 9,454,550 - ------------------------------------------------------------------------------------------ $ 9,454,550 - ------------------------------------------------------------------------------------------ PRINTING AND PUBLISHING -- 3.3% - ------------------------------------------------------------------------------------------ AMERICAN MEDIA OPERATIONS, INC. $ 2,480,916 Term Loan, Maturing April 1, 2007 $ 2,499,213 CBD MEDIA LLC 991,250 Term Loan, Maturing December 31, 2009 999,510
See notes to financial statements. 7
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE - ------------------------------------------------------------------------------------------ PRINTING AND PUBLISHING (CONTINUED) DEX MEDIA EAST, LLC $ 1,000,000 Term Loan, Maturing November 8, 2008 $ 1,005,208 6,089,325 Term Loan, Maturing November 8, 2009 6,176,317 DEX MEDIA WEST, LLC 2,577,520 Term Loan, Maturing September 9, 2009 2,597,388 9,989,147 Term Loan, Maturing March 9, 2010 10,097,359 GENERAL BINDING CORP. 1,250,000 Term Loan, Maturing January 15, 2008 1,250,000 HOLLINGER INTERNATIONAL PUBLISHING, INC. 2,970,000 Term Loan, Maturing September 30, 2009 3,018,263 JOSTENS, INC. 4,000,000 Term Loan, Maturing July 15, 2010 4,037,152 JOURNAL REGISTER CO. 1,921,487 Term Loan, Maturing September 30, 2006 1,907,076 LIBERTY GROUP OPERATING, INC. 5,022,948 Term Loan, Maturing April 30, 2007 5,066,899 MERRILL CORP. 2,467,841 Term Loan, Maturing November 15, 2007 2,467,841 MOORE HOLDINGS USA, INC. 8,977,500 Term Loan, Maturing March 15, 2010 9,036,419 MORRIS PUBLISHING GROUP, LLC 7,500,000 Term Loan, Maturing March 31, 2011 7,570,313 R.H. DONNELLEY, INC. 4,974,937 Term Loan, Maturing June 30, 2010 5,069,600 SUN MEDIA CORP. 2,833,473 Term Loan, Maturing February 7, 2009 2,847,641 THE READER'S DIGEST ASSOCIATION, INC. 996,691 Term Loan, Maturing May 20, 2007 995,445 4,985,957 Term Loan, Maturing May 20, 2008 4,986,850 - ------------------------------------------------------------------------------------------ $ 71,628,494 - ------------------------------------------------------------------------------------------ RETAIL STORES -- 1.4% CSK AUTO, INC. $ 7,650,000 Term Loan, Maturing June 20, 2009 $ 7,724,113 ORIENTAL TRADING CO. 5,678,125 Term Loan, Maturing August 4, 2010 5,734,906 PETCO ANIMAL SUPPLIES INC. 997,491 Term Loan, Maturing October 2, 2008 1,009,960 RENT-A-CENTER, INC. 2,992,500 Term Loan, Maturing May 28, 2009 3,024,762 RITE AID CORP. 12,650,000 Term Loan, Maturing April 30, 2008 12,847,656 - ------------------------------------------------------------------------------------------ $ 30,341,397 - ------------------------------------------------------------------------------------------ TELECOMMUNICATIONS -- 3.1% AMERICAN TOWER, L.P. $ 7,370,247 Term Loan, Maturing December 31, 2007 $ 7,435,990 BROADWING, INC. 8,357,107 Term Loan, Maturing December 31, 2004 8,430,232 1,495,444 Term Loan, Maturing December 31, 2005 1,510,531 1,502,751 Term Loan, Maturing December 31, 2006 1,516,088 CROWN CASTLE OPERATING CO. 2,000,000 Term Loan, Maturing September 15, 2007 2,020,626 DOBSON CELLULAR SYSTEMS, INC. 1,000,000 Term Loan, Maturing March 31, 2010 1,013,750 NEXTEL COMMUNICATIONS, INC. 8,049,394 Term Loan, Maturing June 30, 2008 8,088,562 8,049,394 Term Loan, Maturing December 30, 2008 8,088,562 QWEST CORP. 17,500,000 Term Loan, Maturing June 4, 2007 18,014,063 SPECTRASITE COMMUNICATIONS, INC. 2,292,621 Term Loan, Maturing June 30, 2006 2,318,413 WESTERN WIRELESS 6,333,592 Term Loan, Maturing September 30, 2008 6,319,075 - ------------------------------------------------------------------------------------------ $ 64,755,892 - ------------------------------------------------------------------------------------------ TEXTILES AND LEATHER -- 0.1% ST. JOHN KNITS INTERNATIONAL, INC. $ 2,993,304 Term Loan, Maturing July 31, 2007 $ 3,002,658 - ------------------------------------------------------------------------------------------ $ 3,002,658 - ------------------------------------------------------------------------------------------ UTILITIES -- 0.7% CENTERPOINT ENERGY, INC. $ 7,725,000 Term Loan, Maturing October 7, 2006 $ 7,793,799 MICHIGAN ELECTRIC TRANSMISSION CO., LLC 2,977,387 Term Loan, Maturing June 30, 2007 2,992,893 PACIFIC ENERGY GROUP, LLC 3,000,000 Term Loan, Maturing July 26, 2009 3,021,564 - ------------------------------------------------------------------------------------------ $ 13,808,256 - ------------------------------------------------------------------------------------------ TOTAL SENIOR, FLOATING RATE INTERESTS (IDENTIFIED COST $1,009,314,788) $ 1,014,805,778 - ------------------------------------------------------------------------------------------
See notes to financial statements. 8 MORTGAGE PASS-THROUGHS -- 51.4%
PRINCIPAL AMOUNT (000'S OMITTED) SECURITY VALUE - ------------------------------------------------------------------------------------------ FEDERAL HOME LOAN MORTGAGE CORP.: $ 52,772 6.50%, with various maturities to 2025 $ 55,615,378 44,946 7.00%, with various maturities to 2024 47,970,911 2,549 7.13%, with maturity at 2023 2,727,244 18,217 7.50%, with various maturities to 2025 19,630,946 3,837 7.65%, with maturity at 2022 4,190,533 976 7.70%, with maturity at 2022 1,069,442 45,875 8.00%, with various maturities to 2030 50,015,183 18,824 8.50%, with various maturities to 2024 20,850,239 556 8.75%, with maturity at 2010 605,236 4,780 9.00%, with various maturities to 2022 5,260,395 15,712 9.50%, with various maturities to 2025 17,736,892 5,720 10.00%, with various maturities to 2020 6,626,627 3,450 10.50%, with various maturities to 2021 4,045,664 313 11.00%, with maturity at 2015 363,539 516 11.50%, with various maturities to 2020 608,061 326 12.00%, with maturity at 2019 389,682 1,868 12.50%, with various maturities to 2015 2,242,945 838 13.00%, with maturity at 2015 1,023,710 71 13.50%, with maturity at 2014 86,469 233 14.00%, with maturity at 2014 292,092 - ------------------------------------------------------------------------------------------ $ 241,351,188 - ------------------------------------------------------------------------------------------ FEDERAL NATIONAL MORTGAGE ASSN.: $ 2,279 6.00%, with maturity at 2023 $ 2,366,859 165,907 6.50%, with various maturities to 2033 174,427,340 65,454 7.00%, with various maturities to 2025 69,865,479 11,645 7.50%, with various maturities to 2025 12,537,210 36,737 8.00%, with various maturities to 2028 40,130,330 346 8.25%, with maturity at 2018 378,940 19,916 8.50%, with various maturities to 2027 21,911,917 4,211 8.616%, with maturity at 2029 4,630,759 37,658 9.00%, with various maturities to 2026 41,986,510 2,274 9.176%, with maturity at 2024 2,574,754 16,751 9.50%, with various maturities to 2030 18,844,614 7,598 10.00%, with various maturities to 2021 8,839,505 6,777 10.233%, with maturity at 2019 7,836,839 3,588 10.50%, with various maturities to 2025 4,209,959 2,998 11.00%, with various maturities to 2020 3,533,526 368 11.25%, with maturity at 2016 437,006 7,675 11.50%, with various maturities to 2021 9,120,813 90 11.75%, with maturity at 2014 107,286 1,133 12.00%, with various maturities to 2016 1,361,104 $ 930 12.50%, with various maturities to 2015 1,121,270 898 13.00%, with various maturities to 2015 1,094,794 414 13.50%, with various maturities to 2017 515,699 131 14.50%, with maturity at 2014 162,919 - ------------------------------------------------------------------------------------------ $ 427,995,432 - ------------------------------------------------------------------------------------------ GOVERNMENT NATIONAL MORTGAGE ASSN.: $ 14,153 6.00%, with maturity at 2024 $ 14,742,509 137,704 6.50%, with various maturities to 2024(2) 145,234,337 11,186 7.00%, with various maturities to 2023 11,934,484 25,086 8.00%, with various maturities to 2025 27,443,653 6,952 8.50%, with various maturities to 2022 7,657,420 30,062 9.00%, with various maturities to 2025 33,529,631 40,949 9.50%, with various maturities to 2026 46,207,037 - ------------------------------------------------------------------------------------------ $ 286,749,071 - ------------------------------------------------------------------------------------------ COLLATERALIZED MORTGAGE OBLIGATIONS: $ 2,130 Federal Home Loan Mortgage Corp., Series 1289, Class PV, 7.50%, due 2022 $ 2,223,082 10,405 Federal Home Loan Mortgage Corp., Series 1497, Class K, 7.00%, due 2023 10,972,591 18,182 Federal Home Loan Mortgage Corp., Series 1529, Class Z, 7.00%, due 2023 19,117,422 26,281 Federal Home Loan Mortgage Corp., Series 1730, Class Z, 7.00%, due 2024 27,682,720 893 Federal National Mortgage Assn., Series 1992-103, Class Z, 7.50%, due 2022 953,969 1,737 Federal National Mortgage Assn., Series 1992-113, Class Z, 7.50%, due 2022 1,854,846 7,366 Federal National Mortgage Assn., Series 1993-16, Class Z, 7.50%, due 2023 7,870,859 6,334 Federal National Mortgage Assn., Series 1993-22, Class PM, 7.40%, due 2023 6,753,086 8,892 Federal National Mortgage Assn., Series 1993-25, Class J, 7.50%, due 2023 9,500,186 19,856 Federal National Mortgage Assn., Series 1993-30, Class PZ, 7.50%, due 2023 21,288,949 15,120 Federal National Mortgage Assn., Series 1994-89, Class ZQ, 8.00%, due 2024 16,356,469 10,885 Federal National Mortgage Assn., Series G93-29, Class Z, 7.00%, due 2023 11,492,852 - ------------------------------------------------------------------------------------------ $ 136,067,031 - ------------------------------------------------------------------------------------------ TOTAL MORTGAGE PASS-THROUGHS (IDENTIFIED COST $1,101,684,870) $ 1,092,162,722 - ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 9 CORPORATE BONDS & NOTES -- 48.8%
PRINCIPAL AMOUNT (000'S OMITTED) SECURITY VALUE - ------------------------------------------------------------------------------------------ AEROSPACE AND DEFENSE -- 1.3% ARMOR HOLDINGS INC., SR. SUB. NOTES $ 1,895 8.25%, 8/15/13(3) $ 2,041,862 BE AEROSPACE, INC., SR. NOTES 1,045 8.50%, 10/1/10(3) 1,081,575 DUNLOP STAND AERO HOLDINGS, SR. NOTES 5,680 11.875%, 5/15/09 6,191,200 GENCORP, INC., SR. SUB. NOTES 8,500 9.50%, 8/15/13 8,733,750 SEQUA CORP. 5,000 8.875%, 4/1/08 5,481,250 TITAN CORP., SR. SUB. NOTES 2,000 8.00%, 5/15/11(3) 2,310,000 VOUGHT AIRCRAFT, INC., SR. NOTES 1,000 8.00%, 7/15/11(3) 1,010,000 - ------------------------------------------------------------------------------------------ $ 26,849,637 - ------------------------------------------------------------------------------------------ AIRLINES -- 0.8% AMERICAN AIRLINES $ 3,000 7.80%, 10/1/06 $ 2,464,352 525 8.608%, 4/1/11 460,011 DELTA AIR LINES 70 6.65%, 3/15/04 70,175 3,660 7.779%, 11/18/05 3,345,881 6,000 7.70%, 12/15/05 5,655,000 710 7.779%, 1/2/12 607,995 NORTHWEST AIRLINES, INC., SR. NOTES 4,000 9.875%, 3/15/07 3,590,000 - ------------------------------------------------------------------------------------------ $ 16,193,414 - ------------------------------------------------------------------------------------------ APPAREL -- 0.3% PERRY ELLIS INTERNATIONAL, INC., SR. SUB. NOTES $ 3,795 8.875%, 9/15/13(3) $ 3,956,287 PHILLIPS VAN-HEUSEN, SR. NOTES 2,500 8.125%, 5/1/13(3) 2,650,000 - ------------------------------------------------------------------------------------------ $ 6,606,287 - ------------------------------------------------------------------------------------------ AUTOMOBILE -- 2.2% DANA CORP. $ 8,375 10.125%, 3/15/10 $ 9,505,625 KEYSTONE AUTOMOTIVE, SR. SUB. NOTES 1,020 9.75%, 11/1/13(3) 1,081,200 METALDYNE, INC., SR. NOTES $ 1,910 10.00%, 11/1/13(3) $ 1,871,800 R.J. TOWER CORP., SR. NOTES 6,450 12.00%, 6/1/13(3) 5,966,250 SONIC AUTOMOTIVE, INC., SR. SUB. NOTES 1,600 8.625%, 8/15/13 1,700,000 TENNECO AUTOMOTIVE, GLOBAL SHARES, SERIES B 12,190 10.25%, 7/15/13 13,530,900 TRW AUTOMOTIVE HOLDINGS CORP, SR. NOTES 2,500 9.375%, 2/15/13(3) 2,850,000 TRW AUTOMOTIVE HOLDINGS CORP, SR. SUB. NOTES 6,000 11.00%, 2/15/13(3) 7,110,000 UNITED COMPONENTS, INC., SR. SUB. NOTES 990 9.375%, 6/15/13(3) 1,019,700 - ------------------------------------------------------------------------------------------ $ 44,635,475 - ------------------------------------------------------------------------------------------ BEVERAGE, FOOD AND TOBACCO -- 0.4% MERISANT CO., SR. NOTES $ 6,330 9.50%, 7/15/13(3) $ 6,868,050 REDDY ICE GROUP, INC., SR. SUB. NOTES 2,535 8.875%, 8/1/11(3) 2,661,750 - ------------------------------------------------------------------------------------------ $ 9,529,800 - ------------------------------------------------------------------------------------------ BROADCASTING & ENTERTAINMENT -- 4.2% CANWEST MEDIA, INC., SR. SUB. NOTES $ 11,000 10.625%, 5/15/11 $ 12,650,000 CHARTER COMMUNICATION HOLDINGS, SR. DISC. NOTES 1,820 13.50%, 1/15/11 1,237,600 CORUS ENTERTAINMENT, INC., SR. SUB. NOTES 880 8.75%, 3/1/12 973,500 CSC HOLDINGS, INC., SR. NOTES 2,970 7.875%, 12/15/07 3,051,675 5,000 8.125%, 7/15/09 5,225,000 CSC HOLDINGS, INC., SR. SUB. NOTES 1,500 9.875%, 2/15/13 1,578,750 6,605 10.50%, 5/15/16 7,298,525 ECHOSTAR DBS CORP., SR. NOTES 10,000 4.41%, 10/1/08 10,325,000 INSIGHT COMMUNICATIONS, SR. DISC. NOTES 4,115 12.25%, 2/15/11 2,901,075 INSIGHT MIDWEST HOLDINGS, LLC, SR. NOTES 14,265 10.50%, 11/1/10 14,978,250 MEDIACOM LLC/CAPITAL CORP., SR. NOTES 5,000 9.50%, 1/15/13 4,775,000
SEE NOTES TO FINANCIAL STATEMENTS. 10
PRINCIPAL AMOUNT (000'S OMITTED) SECURITY VALUE - ------------------------------------------------------------------------------------------ BROADCASTING & ENTERTAINMENT (CONTINUED) MUZAK HOLDINGS LLC $ 2,000 9.875%, 3/15/09 $ 1,955,000 MUZAK LLC/MUZAK FINANCE, SR. NOTES 7,365 10.00%, 2/15/09 7,788,487 NEXSTAR FINANCE HOLDINGS LLC, INC. 330 12.00%, 4/1/08 370,425 NEXSTAR FINANCE HOLDINGS LLC, INC., SR. DISC. NOTES 2,105 11.375%, 4/1/13 1,510,337 PAXSON COMMUNICATIONS CORP. 8,615 10.75%, 7/15/08 9,325,737 PEGASUS COMMUNICATIONS CORP., SR. NOTES 2,000 11.25%, 1/15/10(3) 1,660,000 PEGASUS SATELLITE 2,000 12.375%, 8/1/06 1,710,000 - ------------------------------------------------------------------------------------------ $ 89,314,361 - ------------------------------------------------------------------------------------------ BUILDING AND CONSTRUCTION -- 0.7% DAYTON SUPERIOR CORP., SR. NOTES $ 7,000 10.75%, 9/15/08(3) $ 7,332,500 KOPPERS, INC., SR. NOTES 1,835 9.875%, 10/15/13(3) 1,945,100 WCI COMMUNITIES, INC., SR. SUB. NOTES 6,000 7.875%, 10/1/13 6,240,000 - ------------------------------------------------------------------------------------------ $ 15,517,600 - ------------------------------------------------------------------------------------------ BUILDINGS AND REAL ESTATE -- 0.3% CB RICHARD ELLIS, INC., SR. SUB. NOTES $ 2,600 11.25%, 6/15/11 $ 2,928,250 CBRE ESCROW, INC., SR. NOTES 2,640 9.75%, 5/15/10(3) 2,864,400 - ------------------------------------------------------------------------------------------ $ 5,792,650 - ------------------------------------------------------------------------------------------ BUSINESS SERVICES -- 1.2% ADVANSTAR COMMUNICATIONS, SR. NOTES $ 6,500 8.63%, 8/15/08 $ 6,792,500 MOBILE MINI, INC., SR. NOTES 2,925 9.50%, 7/1/13(3) 3,217,500 NORCROSS SAFETY PRODUCTS, SR. SUB. NOTES 4,660 9.875%, 8/15/11(3) 5,056,100 UNITED RENTALS, INC. 2,000 10.75%, 4/15/08 2,255,000 UNITED RENTALS, INC., SERIES B 5,000 10.75%, 4/15/08 5,637,500 WILLIAMS SCOTSMAN, INC. $ 3,000 9.875%, 6/1/07 $ 3,060,000 WILLIAMS SCOTSMAN, INC., SR. NOTES 1,375 10.00%, 8/15/08(3) 1,519,375 - ------------------------------------------------------------------------------------------ $ 27,537,975 - ------------------------------------------------------------------------------------------ CHEMICALS, PLASTICS AND RUBBER -- 2.9% ACETEX CORP., SR. NOTES $ 3,000 10.875%, 8/1/09(3) $ 3,375,000 AVECIA INVESTMENTS LTD. 1,132 11.00%, 7/1/09 1,058,420 EQUISTAR CHEMICAL, SR. NOTES 7,000 10.625%, 5/1/11(3) 7,350,000 HUNTSMAN ADVENTURE MATERIALS, SR. NOTES 3,815 11.00%, 7/15/10(3) 4,105,894 HUNTSMAN CO., LLC 5,000 11.625%, 10/15/10(3) 4,825,000 HUNTSMAN INTERNATIONAL 6,000 9.875%, 3/1/09 6,360,000 IMC GLOBAL, INC. 6,775 11.25%, 6/1/11 7,029,062 LYONDELL CHEMICAL CO. 5,000 9.50%, 12/15/08 5,025,000 4,790 9.50%, 12/15/08 4,813,950 NALCO COMPANY, SR. NOTES 3,150 7.75%, 11/15/11(3) 3,291,750 NALCO COMPANY, SR. SUB. NOTES 3,150 8.875%, 11/15/13(3) 3,291,750 OM GROUP, INC. 10,520 9.25%, 12/15/11 10,677,800 ROCKWOOD SPECIALTIES GROUP, INC., SR. SUB. NOTES 1,185 10.625%, 5/15/11(3) 1,279,800 - ------------------------------------------------------------------------------------------ $ 62,483,426 - ------------------------------------------------------------------------------------------ COMPUTER SERVICES -- 0.1% COOPERATIVE COMPUTING, SR. NOTES $ 1,000 10.50%, 6/15/11(3) $ 1,085,000 - ------------------------------------------------------------------------------------------ $ 1,085,000 - ------------------------------------------------------------------------------------------ CONSUMER PRODUCTS -- 0.4% AMSCAN HOLDINGS, INC., SR. SUB. NOTES $ 7,465 9.875%, 12/15/07 $ 7,688,950
SEE NOTES TO FINANCIAL STATEMENTS. 11
PRINCIPAL AMOUNT (000'S OMITTED) SECURITY VALUE - ------------------------------------------------------------------------------------------ CONSUMER PRODUCTS (CONTINUED) NORCRAFT COMPANIES, SR. SUB. NOTES $ 770 9.00%, 11/1/11(3) $ 812,350 - ------------------------------------------------------------------------------------------ $ 8,501,300 - ------------------------------------------------------------------------------------------ CONTAINERS, PACKAGING AND GLASS -- 1.6% ANCHOR GLASS CONTAINER CORP., SR. NOTES $ 5,000 11.00%, 2/15/13 $ 5,725,000 CROWN EURO HOLDINGS SA 20,495 10.875%, 3/1/13 23,466,775 GRAPHIC PACKAGING INTERNATIONAL, INC., SR. SUB. NOTE 3,265 9.50%, 8/15/13(3) 3,648,637 U.S. CAN CORP., SR. NOTES 1,230 10.875%, 7/15/10(3) 1,276,125 - ------------------------------------------------------------------------------------------ $ 34,116,537 - ------------------------------------------------------------------------------------------ DIVERSIFIED/CONGLOMERATE MANUFACTURING -- 0.9% AMSTED INDUSTRIES, INC., SR. NOTES $ 7,150 10.25%, 10/15/11(3) $ 7,918,625 DRESSER, INC. 9,200 9.375%, 4/15/11 9,499,000 NATIONAL WATERWORKS, INC., SERIES B 1,500 10.50%, 12/1/12 1,687,500 - ------------------------------------------------------------------------------------------ $ 19,105,125 - ------------------------------------------------------------------------------------------ DIVERSIFIED/CONGLOMERATE SERVICE -- 0.4% ADVANSTAR COMMUNICATIONS, INC. $ 5,700 10.75%, 8/15/10(3) $ 6,084,750 1,280 10.75%, 8/15/10(3) 1,366,400 - ------------------------------------------------------------------------------------------ $ 7,451,150 - ------------------------------------------------------------------------------------------ ECOLOGICAL -- 0.8% ALLIED WASTE INDUSTRIES, INC. $ 14,660 10.00%, 8/1/09 16,016,050 - ------------------------------------------------------------------------------------------ $ 16,016,050 - ------------------------------------------------------------------------------------------ ELECTRONICS -- 1.3% DANKA BUSINESS SYSTEMS, SR. NOTES $ 2,350 11.00%, 6/15/10(3) $ 2,173,750 DIGITALNET, INC., SR. NOTES 5,178 9.00%, 7/15/10(3) 5,669,910 HEXCEL CORP. 1,520 9.875%, 10/1/08 1,694,800 HEXCEL CORP., SR. SUB. NOTES $ 525 9.75%, 1/15/09 $ 549,937 SANMINA-SCI CORP., SR. NOTES 5,000 10.375%, 1/15/10 5,925,000 WESCO DISTRIBUTION INC. 5,000 9.125%, 6/1/08 5,075,000 XEROX CORP. 3,000 9.75%, 1/15/09 3,412,500 XEROX CORP., SR. NOTES 1,855 7.125%, 6/15/10 1,901,375 1,485 7.625%, 6/15/13 1,522,125 - ------------------------------------------------------------------------------------------ $ 27,924,397 - ------------------------------------------------------------------------------------------ ENERGY SERVICES -- 0.2% TRICO MARINE SERVICES $ 5,750 8.875%, 5/15/12 $ 3,967,500 - ------------------------------------------------------------------------------------------ $ 3,967,500 - ------------------------------------------------------------------------------------------ FOODS -- 0.6% B&G FOODS, INC. $ 4,000 9.625%, 8/1/07 $ 4,130,000 BURNS PHILIP CAPITAL, SR. NOTES 2,000 9.50%, 11/15/10(3) 2,110,000 BURNS PHILIP CAPITAL, SR. SUB NOTES 2,000 10.75%, 2/15/11(3) 2,120,000 DOANE PET CARE CO. 1,970 10.75%, 3/1/10 2,029,100 SEMINIS VEGETABLE SEEDS, SR. SUB. NOTES 1,525 10.25%, 10/1/13(3) 1,639,375 - ------------------------------------------------------------------------------------------ $ 12,028,475 - ------------------------------------------------------------------------------------------ HEALTH AND PERSONAL CARE -- 0.3% BALLY TOTAL FITNESS HOLDINGS., SR. NOTES $ 6,000 10.50%, 7/15/11(3) $ 6,240,000 - ------------------------------------------------------------------------------------------ $ 6,240,000 - ------------------------------------------------------------------------------------------ HEALTHCARE, EDUCATION AND CHILDCARE -- 3.7% ALARIS MEDICAL SYSTEMS, INC., SR. SUB. NOTES $ 645 7.25%, 7/1/11 $ 664,350 ALLIANCE IMAGING, INC., SR. SUB. NOTES 6,870 10.375%, 4/15/11 7,299,375 ARDENT HEALTH SERVICES, SR. SUB. NOTES 6,995 10.00%, 8/15/13(3) 7,519,625
SEE NOTES TO FINANCIAL STATEMENTS. 12
PRINCIPAL AMOUNT (000'S OMITTED) SECURITY VALUE - ------------------------------------------------------------------------------------------ HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED) CONCENTRA OPERATING CORP. $ 7,000 9.50%, 8/15/10 $ 7,455,000 MEDQUEST, INC. 6,000 11.875%, 8/15/12 6,570,000 NATIONAL NEPHROLOGY ASSOCIATION, SR. SUB. NOTES 2,000 9.00%, 11/1/11(3) 2,075,000 PACIFICARE HEALTH SYSTEM 10,795 10.75%, 6/1/09 12,468,225 QUINTILES TRANSNATIONAL CORP., SR.SUB. NOTES 9,690 10.00%, 10/1/13(3) 10,271,400 ROTECH HEALTHCARE, INC. 9,550 9.50%, 4/1/12 10,361,750 TENET HEALTHCARE CORP. 10,000 7.375%, 2/1/13 9,750,000 VANGUARD HEALTH SYSTEMS 10,000 9.75%, 8/1/11 10,750,000 - ------------------------------------------------------------------------------------------ $ 85,184,725 - ------------------------------------------------------------------------------------------ HOME AND OFFICE FURNISHINGS, HOUSEWARES AND DURABLE CONSUMER GOODS -- 0.4% RAYOVAC CORP., SR. SUB. NOTES $ 8,585 8.50%, 10/1/13(3) $ 8,971,325 - ------------------------------------------------------------------------------------------ $ 8,971,325 - ------------------------------------------------------------------------------------------ HOTELS, MOTELS, INNS AND GAMING -- 3.5% ARGOSY GAMING CO. $ 2,224 10.75%, 6/1/09 $ 2,446,400 CHUKCHANSI EDA, SR. NOTES 800 14.50%, 6/15/09(3) 981,000 EXTENDED STAY AMERICA, SR. SUB. NOTES 2,000 9.15%, 3/15/08 2,090,000 FELCOR LODGING 6,300 10.00%, 9/15/08 6,804,000 HOST MARRIOTT L.P., SERIES I 7,000 9.50%, 1/15/07 7,787,500 INN OF THE MOUNTAIN GODS, SR. NOTES 5,230 12.00%, 11/15/10(3) 5,491,500 JOHN Q HAMONS HOTELS/FINANCE, SERIES B 3,500 8.875%, 5/15/12 3,832,500 MAJESTIC STAR LLC, SR. NOTES 8,375 9.50%, 10/15/10(3) 8,710,000 MTR GAMING GROUP, SERIES B 2,500 9.75%, 4/1/10 2,643,750 PENINSULA GAMING LLC $ 3,100 12.25%, 7/1/06 $ 3,301,500 PENN NATIONAL GAMING, INC. 1,000 11.125%, 3/1/08 1,135,000 SUN INTERNATIONAL HOTELS, SR. SUB. NOTES 4,000 8.875%, 8/15/11 4,385,000 VENETIAN CASINO RESORT, LLC/LAS VEGAS SANDS, INC. 5,995 11.00%, 6/15/10 6,946,706 WATERFORD GAMING LLC, SR. NOTES 9,877 8.625%, 9/15/12(3) 10,383,196 - ------------------------------------------------------------------------------------------ $ 66,938,052 - ------------------------------------------------------------------------------------------ LEISURE, AMUSEMENT, ENTERTAINMENT -- 2.6% CARMIKE CINEMAS $ 2,475 10.375%, 2/1/09 $ 2,611,125 GAYLORD ENTERTAINMENT CO., SR. NOTES 1,265 8.00%, 11/15/13(3) 1,307,694 HOLLYWOOD ENTERTAINMENT CORP. 11,335 9.625%, 3/15/11 12,326,812 INTRAWEST CORP., SR. NOTES 3,910 7.50%, 10/15/13(3) 3,939,325 PREMIER PARKS, INC., SR. NOTES 2,395 9.75%, 6/15/07 2,442,900 ROYAL CARIBBEAN CRUISES, SR. NOTES 12,195 8.75%, 2/2/11 13,658,400 SIX FLAGS THEME PARKS, INC., SR. NOTES 1,000 8.875%, 2/1/10 955,000 4,000 9.75%, 4/15/13 3,940,000 UNIVERSAL CITY DEVELOPMENT PARTNERS, L.P., SR. NOTES 12,500 11.75%, 4/1/10(3) 14,515,625 - ------------------------------------------------------------------------------------------ $ 55,696,881 - ------------------------------------------------------------------------------------------ MACHINERY -- 1.0% CASE NEW HOLLAND, INC., SR. NOTES $ 7,135 9.25%, 8/1/11(3) $ 7,955,525 MANITOWOC CO., INC. (THE) 1,500 10.50%, 8/1/12 1,710,000 TEREX CORP. 9,500 10.375%, 4/1/11 10,758,750 TEREX CORP., SERIES D 1,000 8.875%, 4/1/08 1,047,500 - ------------------------------------------------------------------------------------------ $ 21,471,775 - ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 13
PRINCIPAL AMOUNT (000'S OMITTED) SECURITY VALUE - ------------------------------------------------------------------------------------------ MANUFACTURING -- 1.1% AVONDALE MILLS INC., SR. SUB. NOTES $ 3,700 10.25%, 7/1/13(3) $ 2,830,500 FOAMEX L.P./CAPITAL CORP. 7,000 10.75%, 4/1/09 6,195,000 JACUZZI BRANDS, INC., SR. NOTES 4,495 9.625%, 7/1/10(3) 4,787,175 OXFORD INDUSTRIES, INC., SR. NOTES 9,500 8.875%, 6/1/11(3) 10,271,875 - ------------------------------------------------------------------------------------------ $ 24,084,550 - ------------------------------------------------------------------------------------------ METALS - INDUSTRIAL -- 0.1% AK STEEL CORP. $ 2,000 7.75%, 6/15/12 $ 1,370,000 - ------------------------------------------------------------------------------------------ $ 1,370,000 - ------------------------------------------------------------------------------------------ NETWORKING PRODUCTS -- 0.0% LUCENT TECHNOLOGIES, INC., DEBS. $ 1,315 6.45%, 3/15/29 $ 1,022,412 - ------------------------------------------------------------------------------------------ $ 1,022,412 - ------------------------------------------------------------------------------------------ OIL AND GAS -- 2.7% CHESAPEAKE ENERGY CORP., SR. NOTES $ 5,000 8.50%, 3/15/12 $ 5,325,000 CLARK R&M, INC., SR. SUB. NOTES 7,500 8.875%, 11/15/07 7,687,500 CONTINENTAL RESOURCES 2,000 10.25%, 8/1/08 1,975,000 DYNEGY HOLDINGS, INC., SR. NOTES 2,945 6.875%, 4/1/11 2,576,875 10,545 10.125%, 7/15/13(3) 11,494,050 GULFTERRA ENERGY PARTNER, SERIES B 1,715 8.50%, 6/1/10 1,877,925 PARKER DRILLING CO., SR. NOTES 910 9.625%, 10/1/13(3) 939,575 SONAT, INC. 5,000 7.625%, 7/15/11 4,237,500 TRANSMONTAIGNE, INC., SR. SUB. NOTES 4,000 9.125%, 6/1/10(3) 4,360,000 WILLIAMS COS., INC., SR. NOTES 15,555 8.625%, 6/1/10 17,110,500 - ------------------------------------------------------------------------------------------ $ 57,583,925 - ------------------------------------------------------------------------------------------ PAPER AND FOREST PRODUCTS -- 1.8% BOISE CASCADE CO., SR. NOTES $ 2,545 7.00%, 11/1/13 $ 2,611,369 GEORGIA-PACIFIC CORP. 14,500 9.50%, 12/1/11 16,892,500 MDP ACQUISITIONS/JSG FUNDING PLC, SR. NOTES 17,180 9.625%, 10/1/12 19,155,700 - ------------------------------------------------------------------------------------------ $ 38,659,569 - ------------------------------------------------------------------------------------------ PRINTING AND PUBLISHING -- 1.6% AMERICAN COLOR GRAPHICS $ 1,330 10.00%, 6/15/10(3) $ 1,433,075 AMERICAN MEDIA OPERATIONS, INC. 4,040 8.875%, 1/15/11 4,403,600 AMERICAN MEDIA, INC., SERIES B 3,845 10.25%, 5/1/09 4,142,988 CBD Media LLC, SR. SUB. NOTES 4,200 8.625%, 6/1/11(3) 4,525,500 DEX MEDIA WEST LLC, SR. NOTES 1,835 8.50%, 8/15/10 2,009,325 DEX MEDIA WEST LLC, SR. SUB. NOTES 6,015 9.875%, 8/15/13(3) 6,872,138 LIBERTY GROUP OPERATING, INC. 1,380 9.375%, 2/1/08 1,373,100 R.H. DONNELLEY, INC., SR. SUB. NOTES 6,120 10.875%, 12/15/12 7,328,700 VON HOFFMAN CORP. 2,000 10.25%, 3/15/09 2,165,000 - ------------------------------------------------------------------------------------------ $ 34,253,426 - ------------------------------------------------------------------------------------------ RETAIL STORES -- 1.0% CSK Auto, Inc. $ 6,000 12.00%, 6/15/06 $ 6,780,000 Mothers Work, Inc. 1,800 11.25%, 8/1/10 2,002,500 Payless Shoesource, Inc., Sr. Sub. Notes 2,045 8.25%, 8/1/13(3) 2,004,100 PCA LLC/PCA Finance Corp., Sr. Notes 8,000 11.875%, 8/1/09 8,760,000 Penny (JC) Co., Inc. 1,875 8.00%, 3/1/10 2,095,313 - ------------------------------------------------------------------------------------------ $ 21,641,913 - ------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 14
PRINCIPAL AMOUNT (000'S OMITTED) SECURITY VALUE - ------------------------------------------------------------------------------------------ SEMICONDUCTORS -- 0.8% AMKOR TECHNOLOGIES, INC., SR. SUB. NOTES $ 9,000 10.50%, 5/1/09 $ 9,720,000 CHIPPAC INTERNATIONAL LTD. 520 12.75%, 8/1/09 574,600 ON SEMICONDUCTOR CORP. 2,000 13.00%, 5/15/08 2,330,000 ON SEMICONDUCTOR CORP., SR. NOTES 4,000 12.00%, 3/15/10 4,780,000 - ------------------------------------------------------------------------------------------ $ 17,404,600 - ------------------------------------------------------------------------------------------ SERVICES -- 0.3% KINDERCARE LEARNING CENTERS, INC., SR. SUB. NOTES $ 7,000 9.50%, 2/15/09 $ 7,175,000 - ------------------------------------------------------------------------------------------ $ 7,175,000 - ------------------------------------------------------------------------------------------ TELECOMMUNICATIONS -- 4.3% ACCEPTANCE ESCROW CORP., SR. NOTES $ 4,060 10.00%, 8/1/11(3) $ 4,445,700 ALASKA COMMUNICATIONS SYSTEMS HOLDINGS, INC., SR. NOTES 5,000 9.875%, 8/15/11 5,300,000 AMERICAN TOWER, L.P., SR. NOTES 9,535 9.375%, 2/1/09 10,059,425 AVAYA, INC. 2,000 11.125%, 4/1/09 2,370,000 CENTENNIAL CELLULAR COMMUNICATIONS, SR. NOTES 3,580 10.125%, 6/15/13(3) 3,741,100 CINCINNATI BELL, INC., SR. SUB. NOTES 1,885 8.375%, 1/15/14(3) 1,953,331 COLT TELECOM GROUP PLC, SR. DISC. NOTES 3,000 12.00%, 12/15/06 3,018,750 CROWN CASTLE OPERATING CO., SR. NOTES 5,000 10.75%, 8/1/11 5,637,500 DOBSON COMMUNICATIONS CORP., SR. NOTES 3,995 10.875%, 7/1/10 4,414,475 7,000 8.875%, 10/1/13 7,140,000 MARCONI CORP. PLC, SERIES A 2,565 8.00%, 4/30/08(3) 2,521,205 NEXTEL COMMUNICATIONS, INC., SR. NOTES 6,225 7.375%, 8/1/15 6,505,125 NEXTEL PARTNERS, INC., SR. NOTES 2,910 12.50%, 11/15/09 3,390,150 1,805 11.00%, 3/15/10 2,008,063 6,820 8.125%, 7/1/11(3) 7,041,650 NORTEL NETWORKS LTD. $ 2,000 6.125%, 2/15/06 $ 2,057,500 QWEST CORP. 10,015 13.50%, 12/15/10(3) 11,742,588 2,000 8.875%, 3/15/12(3) 2,270,000 TRITON PCS, INC. 2,765 8.50%, 6/1/13 2,923,988 TSI TELECOMMUNICATION, SERIES B 2,000 12.75%, 2/1/09 2,070,000 WESTERN WIRELESS, SR. NOTES 540 9.25%, 7/15/13 567,000 - ------------------------------------------------------------------------------------------ $ 91,177,550 - ------------------------------------------------------------------------------------------ UTILITIES -- 3.0% AES CORP., SR. NOTES $ 4,500 8.75%, 6/15/08 $ 4,680,000 6,000 9.50%, 6/1/09 6,420,000 6,965 8.75%, 5/15/13(3) 7,469,963 945 9.00%, 5/15/15(3) 1,015,875 CALPINE CORP., SR. NOTES 4,725 8.25%, 8/15/05 4,276,125 1,020 10.50%, 5/15/06 953,700 10,220 8.50%, 7/15/10(3) 9,402,400 1,095 8.50%, 2/15/11 788,400 EL PASO CORP., SR. NOTES 13,615 7.00%, 5/15/11 11,538,713 ILLINOIS POWER 2,430 7.50%, 6/15/09 2,648,700 ORION POWER HOLDINGS, INC., SR. NOTES 12,415 12.00%, 5/1/10 14,339,325 - ------------------------------------------------------------------------------------------ $ 63,533,201 - ------------------------------------------------------------------------------------------ TOTAL CORPORATE BONDS & NOTES (IDENTIFIED COST $999,309,232) $ 1,037,065,063
SEE NOTES TO FINANCIAL STATEMENTS. 15 SHORT-TERM INVESTMENTS -- 0.8%
PRINCIPAL MATURITY AMOUNT DATE BORROWER RATE AMOUNT - ------------------------------------------------------------------------------------------ $16,122,000 11/03/03 Investors Bank & Trust Company Time Deposit 1.08% $ 16,122,000 - ------------------------------------------------------------------------------------------ TOTAL SHORT-TERM INVESTMENTS (AMORTIZED COST $16,122,000) $ 16,122,000 - ------------------------------------------------------------------------------------------ TOTAL INVESTMENTS -- 148.8% (IDENTIFIED COST $3,126,430,890) $ 3,160,155,563 - ------------------------------------------------------------------------------------------ OTHER ASSETS, LESS LIABILITIES -- (4.1)% $ (86,967,328) - ------------------------------------------------------------------------------------------ AUCTION PREFERRED SHARES PLUS CUMULATIVE UNPAID DIVIDENDS -- (44.7)% $ (950,091,046) - ------------------------------------------------------------------------------------------ NET ASSETS APPLICABLE TO COMMON SHARES -- 100% $ 2,123,097,189 - ------------------------------------------------------------------------------------------
(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 October 31, 2003. (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 October 31, 2003 the Fund had unfunded commitments amounting to $7,106,864 under various credit agreements. SEE NOTES TO FINANCIAL STATEMENTS. 16 EATON VANCE LIMITED DURATION INCOME FUND AS OF OCTOBER 31, 2003 FINANCIAL STATEMENTS(Unaudited) STATEMENT OF ASSETS AND LIABILITIES As of October 31, 2003 ASSETS Investments, at value (identified cost, $3,126,430,890) $ 3,160,155,563 Cash 3,528,839 Receivable for investments sold 14,336,188 Receivable from the Investment Adviser 7,500 Interest receivable 36,234,883 Prepaid expenses 8,550 - ------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 3,214,271,523 - ------------------------------------------------------------------------------------------------------ LIABILITIES Payable for investments purchased $ 77,233,785 Collateral for securities loaned 63,520,196 Payable to affiliate for Trustees' fees 12,400 Accrued organization costs 7,500 Accrued offering costs 83,644 Accrued expenses 225,763 - ------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES $ 141,083,288 - ------------------------------------------------------------------------------------------------------ AUCTION PREFERRED SHARES (38,000 SHARES OUTSTANDING) AT LIQUIDATION VALUE PLUS CUMULATIVE UNPAID DIVIDENDS 950,091,046 - ------------------------------------------------------------------------------------------------------ NET ASSETS APPLICABLE TO COMMON SHARES $ 2,123,097,189 - ------------------------------------------------------------------------------------------------------ SOURCES OF NET ASSETS Common Shares, $0.01 par value, unlimited number of shares authorized, 111,005,000 shares issued and outstanding $ 1,110,050 Additional paid-in capital 2,108,417,187 Accumulated undistributed net realized gain (computed on the basis of identified cost) 1,352,697 Accumulated distributions in excess of net investment income (21,507,418) Net unrealized appreciation (computed on the basis of identified cost) 33,724,673 - ------------------------------------------------------------------------------------------------------ NET ASSETS APPLICABLE TO COMMON SHARES $ 2,123,097,189 - ------------------------------------------------------------------------------------------------------ NET ASSET VALUE PER COMMON SHARE ($2,123,097,189 DIVIDED BY 111,005,000 COMMON SHARES ISSUED AND OUTSTANDING) $ 19.13 - ------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Period Ended October 31, 2003(1) INVESTMENT INCOME Interest $ 47,489,758 Securities lending income 881,760 - ------------------------------------------------------------------------------------------------------ TOTAL INVESTMENT INCOME $ 48,371,518 - ------------------------------------------------------------------------------------------------------ EXPENSES Investment adviser fee $ 8,563,131 Trustees' fees and expenses 12,400 Preferred shares remarketing agent fee 611,644 Custodian fee 233,709 Legal and accounting services 80,172 Printing and postage 36,800 Transfer and dividend disbursing agent fees 28,340 Amortization of organization expenses 7,500 Miscellaneous 67,125 - ------------------------------------------------------------------------------------------------------ TOTAL EXPENSES $ 9,640,821 - ------------------------------------------------------------------------------------------------------ Deduct -- Reduction of investment adviser fee $ 2,283,502 Expense reimbursement 7,500 - ------------------------------------------------------------------------------------------------------ TOTAL EXPENSE REDUCTIONS $ 2,291,002 - ------------------------------------------------------------------------------------------------------ NET EXPENSES $ 7,349,819 - ------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME $ 41,021,699 - ------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) -- Net realized gain (loss) Investment transactions (identified cost basis) $ 1,352,697 - ------------------------------------------------------------------------------------------------------ NET REALIZED GAIN $ 1,352,697 - ------------------------------------------------------------------------------------------------------ Change in unrealized appreciation (depreciation) -- Investments (identified cost basis) $ 33,724,673 - ------------------------------------------------------------------------------------------------------ NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) $ 33,724,673 - ------------------------------------------------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN $ 35,077,370 - ------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO PREFERRED SHAREHOLDERS $ (2,808,427) - ------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 73,290,642 - ------------------------------------------------------------------------------------------------------
(1) For the period from the start of business, May 30, 2003, to October 31, 2003. SEE NOTES TO FINANCIAL STATEMENTS. 17 STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED OCTOBER 31, 2003 INCREASE (DECREASE) IN NET ASSETS (UNAUDITED)(1) - ------------------------------------------------------------------------------------------------------ From operations -- Net investment income $ 41,021,699 Net realized gain 1,352,697 Net change in unrealized appreciation (depreciation) 33,724,673 Distributions to preferred shareholders (2,808,427) - ------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS FROM OPERATIONS $ 73,290,642 - ------------------------------------------------------------------------------------------------------ Distributions to common shareholders -- From net investment income $ (59,720,690) - ------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS $ (59,720,690) - ------------------------------------------------------------------------------------------------------ Capital share transactions -- Proceeds from sale of common shares(2) $ 2,120,100,000 Offering costs and preferred shares underwriting discounts (10,672,763) - ------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS $ 2,109,427,237 - ------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS $ 2,122,997,189 - ------------------------------------------------------------------------------------------------------ NET ASSETS APPLICABLE TO COMMON SHARES - ------------------------------------------------------------------------------------------------------ At beginning of period $ 100,000 - ------------------------------------------------------------------------------------------------------ AT END OF PERIOD $ 2,123,097,189 - ------------------------------------------------------------------------------------------------------ ACCUMULATED OVERDISTRIBUTED NET INVESTMENT INCOME INCLUDED IN NET ASSETS APPLICABLE TO COMMON SHARES - ------------------------------------------------------------------------------------------------------ AT END OF PERIOD $ (21,507,418) - ------------------------------------------------------------------------------------------------------
(1) For the period from the start of business, May 30, 2003, to October 31, 2003. (2) Proceeds from sales of shares net of sales load paid of $99,900,000. SEE NOTES TO FINANCIAL STATEMENTS. 18 FINANCIAL HIGHLIGHTS Selected data for a common share outstanding during the periods stated
PERIOD ENDED OCTOBER 31, 2003 (UNAUDITED)(1)(2) - ------------------------------------------------------------------------------------------------- Net asset value -- Beginning of period (Common shares)(3) $ 19.100 - ------------------------------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS Net investment income $ 0.377 Net realized and unrealized gain 0.315 Distribution to preferred shareholders (0.026) - ------------------------------------------------------------------------------------------------- TOTAL INCOME FROM OPERATIONS $ 0.666 - ------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income $ (0.538) - ------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS TO COMMON SHAREHOLDERS $ (0.538) - ------------------------------------------------------------------------------------------------- PREFERRED AND COMMON SHARES OFFERING COSTS CHARGED TO PAID-IN CAPITAL $ (0.011) - ------------------------------------------------------------------------------------------------- PREFERRED SHARES UNDERWRITING DISCOUNTS $ (0.087) - ------------------------------------------------------------------------------------------------- NET ASSET VALUE -- END OF PERIOD (COMMON SHARES) $ 19.130 - ------------------------------------------------------------------------------------------------- MARKET VALUE -- END OF PERIOD (COMMON SHARES) $ 18.780 - ------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN ON NET ASSET VALUE(4) 3.07% - ------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN ON MARKET VALUE(4) 1.19% - -------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. 19
PERIOD ENDED OCTOBER 31, 2003 (UNAUDITED)(1)(2) - ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA+,++ - ------------------------------------------------------------------------------------------------------------- Net assets applicable to common shares, end of period (000's omitted) $ 2,123,097 Ratios (As a percentage of average net assets applicable to common shares): Net expenses(5) 0.84%(6) Net investment income(5) 4.67%(6) Portfolio Turnover 44% - ------------------------------------------------------------------------------------------------------------- + The operating expenses of the Fund reflect a reduction of the investment adviser fee and a reimbursement of expenses by the Adviser. Had such actions 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) 1.10%(6) Net investment income(5) 4.41%(6) Net investment income per share $ 0.356 - ------------------------------------------------------------------------------------------------------------- ++ 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 0.65%(6) Net investment income 3.61%(6) - ------------------------------------------------------------------------------------------------------------- + The operating expenses of the Fund reflect a reduction of the investment adviser fee and a reimbursement of expenses by the Adviser. Had such actions not been taken, the ratios would have been as follows: Ratios (As a percentage of average total net assets): Expenses 0.85%(6) Net investment income 3.41%(6) - ------------------------------------------------------------------------------------------------------------- Senior Securities: Total preferred shares outstanding 38,000 Asset coverage per preferred share(7) $ 80,873 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 October 31, 2003. (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 the shareholder 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. SEE NOTES TO FINANCIAL STATEMENTS. 20 EATON VANCE LIMITED DURATION INCOME FUND AS OF OCTOBER 31, 2003 NOTES TO FINANCIAL STATEMENTS (Unaudited) 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 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. Facility fees received are recognized as income over the expected term of the loan. 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 21 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. 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 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 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 22 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 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. 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 INTERIM FINANCIAL STATEMENTS -- The interim financial statements relating to October 31, 2003 and for the period then ended have not been audited by independent certified public accountants, but in the opinion of the Fund's management reflect all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial statements. 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, 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 1.07% to 1.30% for Series A Shares, from 1.07% to 1.30% for Series B Shares, from 1.07% to 1.25% for Series C Shares, from 1.07% to 1.25% for Series D Shares and from 1.07% to 1.20% for Series E Shares, during the period from the commencement of offering, July 25, 2003, to October 31, 2003. 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 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. 23 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 October 31, 2003 was 1.15%, 1.13%, 1.15%, 1.15% and 1.10%, for Series A, Series B, Series C, Series D and Series E Shares, respectively. For the period from the commencement of offering, July 25, 2003, to October 31, 2003, the Fund paid dividends to Auction Preferred shareholders amounting to $561,769, $564,027, $563,173, $562,810, and $556,648 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%, 1.14%, 1.14%, 1.14% and 1.12%, 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 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 October 31, 2003 the fee was equivalent to 0.75% (annualized) of the Fund's average weekly gross assets for such period and amounted to $8,563,131. 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. For the period from the start of business, May 30, 2003, to October 31, 2003 the Investment Adviser waived $2,283,502 of its advisory fee. Certain officers and Trustees of the Fund are officers of the above organizations. 5 PURCHASES AND SALES OF INVESTMENTS Purchases, sales and paydowns of investments, other than short-term obligations, aggregated $4,213,105,961 and $1,075,804,536 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 $3,882 for the period from the start of business, May 30, 2003, to October 31, 2003. At October 31, 2003, the value of the securities loaned and the value of the collateral amounted to $62,057,653 and $63,520,196, 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. 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 OCTOBER 31, 2003 (UNAUDITED)(1) - ------------------------------------------------------------------------------------ Sales 111,005,000 - ------------------------------------------------------------------------------------ NET INCREASE 111,005,000 - ------------------------------------------------------------------------------------
(1) For the period from the start of business, May 30, 2003, to October 31, 2003. 24 8 FEDERAL INCOME TAX BASIS OF UNREALIZED APPRECIATION (DEPRECIATION) The cost and unrealized appreciation (depreciation) in value of the investments owned at October 31, 2003, as computed on a federal income tax basis, were as follows: AGGREGATE COST $ 3,127,968,418 - --------------------------------------------------------------------------------------- Gross unrealized appreciation $ 50,989,238 Gross unrealized depreciation (18,802,093) - --------------------------------------------------------------------------------------- NET UNREALIZED APPRECIATION $ 32,187,145 - ---------------------------------------------------------------------------------------
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 October 31, 2003 there were no outstanding obligations under these financial interments. 25 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 automatically reinvested in common shares (the Shares) of the Fund. You may elect to participate in the Plan by 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 inquiries regarding the Plan can be directed to the Plan Agent, PFPC Inc., at 1-800-331-1710. 26 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 October 31, 2003, our records indicate that there are 107 registered shareholders and approximately 82,915 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. 27 EATON VANCE LIMITED DURATION INCOME FUND INVESTMENT MANAGEMENT OFFICERS Thomas E. Faust Jr. President and Chief Executive Officer James B. Hawkes Vice President and Trustee Scott H. Page Vice President Susan Schiff Vice President Payson F. Swaffield Vice President Michael W. Weilheimer Vice President James L. O'Connor Treasurer and Principal Financial Accounting Officer Alan R. Dynner Secretary TRUSTEES Jessica M. Bibliowicz Samuel L. Hayes, III William H. Park Ronald A. Pearlman Norton H. Reamer Lynn A. Stout 28 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) 262-1122 EATON VANCE LIMITED DURATION INCOME FUND THE EATON VANCE BUILDING 255 STATE STREET BOSTON, MA 02109 This report must be preceded or accompanied by a current prospectus which contains more complete information on the Fund, including its distribution plan, sales charges and expenses. Please read the prospectus carefully before you invest or send money. 1856-12/03 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 (a fixed income 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 of Unicorn Capital (an investment and financial advisory services company), Chairman of Hellman, Jordan Management Co., Inc. (an investment management company) and Advisory Director of Berkshire Capital Corporation (an investment banking firm). Previously, Mr. Reamer was Chairman of the Board of UAM and Chairman, President and Director of the UAM Funds (mutual funds). ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES Not required in this filing. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS Not required in this filing. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES The registrant's Board has adopted a proxy voting policy and procedure (the "Fund Policy"), pursuant to which the Trustees have delegated proxy voting responsibility to the registrant'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 registrant'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 registrant's shareholders and the investment adviser, the administrator, or any of their affiliates or any affiliate of the registrant, 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's Special Committee except as contemplated under the Fund Policy. The 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 registrant's shareholders and the investment adviser, the administrator, or any of their affiliates or any affiliate of the registrant 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 registrant 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 registrant voted proxies relating to portfolio securities during the 12 month period ended June 30, 2004 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. [RESERVED] ITEM 9. 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 significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 10. 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: December 16, 2003 ----------------- 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: December 16, 2003 ----------------- By: /s/ Thomas E. Faust Jr. --------------------------------------- Thomas E. Faust Jr. President Date: December 16, 2003 ----------------- EX-99.CERT 3 a2124159zex-99_cert.txt EXHIBIT 99.CERT Exhibit 99.Cert FORM N-CSR ITEMS 10(a)(2)(i) & 10(a)(2)(ii) EXHIBIT I, James L. O'Connor; certify that: 1. I have reviewed this report on Form N-CSR of Eaton Vance Limited Duration Income Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 16, 2003 ----------------- /s/ James L. O'connor - --------------------------------------------- James L. O'Connor Treasurer I, Thomas E. Faust Jr.; certify that: 1. I have reviewed this report on Form N-CSR of Eaton Vance Limited Duration Income Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of the internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 16, 2003 ----------------- /s/ Thomas E. Faust Jr. - --------------------------------------------- Thomas E. Faust Jr. President EX-99.CERT906 4 a2124159zex-99_cert906.txt EXHIBIT 99.CERT906 Exhibit 99.906.Cert FORM N-CSR ITEM 10(b) EXHIBIT CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned hereby certify in their capacity as Treasurer and President, respectively, of EATON VANCE LIMITED DURATION INCOME FUND (the "Fund"), that: (a) the Semi-Annual Report of the Fund on Form N-CSR for the period ended October 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (b) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Fund for such period. A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO THE FUND AND WILL BE RETAINED BY THE FUND AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. Date: December 16, 2003 ----------------- /s/ James L. O'Connor - -------------------------------------------- James L. O'Connor Treasurer Date: December 16, 2003 ----------------- /s/ Thomas E. Faust Jr. - -------------------------------------------- Thomas E. Faust Jr. President -----END PRIVACY-ENHANCED MESSAGE-----