FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-21323
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Eaton Vance Limited Duration Income Fund
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(Exact Name of Registrant as Specified in Charter)
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
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(Address of Principal Executive Offices)
Alan R. Dynner
The Eaton Vance Building, 255 State Street, Boston, Massachusetts 02109
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(Name and Address of Agent for Services)
(617) 482-8260
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(Registrant's Telephone Number)
April 30
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Date of Fiscal Year End
October 31, 2003
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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
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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
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$ 10,804,807
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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
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$ 62,121,154
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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
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$ 41,710,432
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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
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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
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$ 100,855,411
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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
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$ 28,546,599
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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
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$ 6,311,594
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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
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$ 46,758,054
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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
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$ 73,573,930
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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
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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
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$ 44,054,058
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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
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$ 15,567,045
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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
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$ 4,070,373
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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
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$ 20,321,057
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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
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$ 16,273,472
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FARMING AND AGRICULTURE -- 0.1%
THE SCOTTS CO.
$ 1,500,000 Term Loan, Maturing September 30, 2010 $ 1,520,223
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$ 1,520,223
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GROCERY -- 0.0%
THE PANTRY, INC.
$ 495,010 Term Loan, Maturing March 31, 2007 $ 500,888
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$ 500,888
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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
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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
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$ 97,810,871
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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
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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
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$ 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
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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
-----------------