UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File No. 811-05012 ----------------------------------------- CREDIT SUISSE ASSET MANAGEMENT INCOME FUND, INC. ------------------------------------------------ (Exact Name of Registrant as Specified in Charter) 466 Lexington Avenue, New York, New York 10017-3140 --------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) J. Kevin Gao, Esq. Credit Suisse Asset Management Income Fund, Inc. 466 Lexington Avenue New York, New York 10017-3140 Registrant's telephone number, including area code: (212) 875-3500 Date of fiscal year end: December 31 Date of reporting period: January 1, 2004 to December 31, 2004 ITEM 1. REPORTS TO STOCKHOLDERS. CREDIT SUISSE ASSET MANAGEMENT INCOME FUND, INC. ANNUAL REPORT DECEMBER 31, 2004 Credit Suisse Asset Management Income Fund, Inc. 466 Lexington Avenue New York, NY 10017 OFFICERS AND DIRECTORS Michael E. Kenneally DIRECTOR, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Enrique R. Arzac DIRECTOR Lawrence J. Fox DIRECTOR James S. Pasman, Jr. DIRECTOR William W. Priest, Jr. DIRECTOR Richard J. Lindquist PRESIDENT AND CHIEF INVESTMENT OFFICER Emidio Morizio CHIEF COMPLIANCE OFFICER Ajay Mehra CHIEF LEGAL OFFICER J. Kevin Gao SENIOR VICE PRESIDENT Michael A. Pignataro CHIEF FINANCIAL OFFICER, VICE PRESIDENT AND SECRETARY Maxine C. Evertz ASSISTANT SECRETARY Robert M. Rizza TREASURER INVESTMENT ADVISER Credit Suisse Asset Management, LLC 466 Lexington Avenue New York, New York 10017 Phone 1-800-293-1232 ADMINISTRATOR AND CUSTODIAN Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109 SHAREHOLDER SERVICING AGENT Fleet National Bank (c/o Equiserve) P.o. Box 43010 Providence, Rhode Island 02940-3010 Phone 1-800-730-6001 LEGAL COUNSEL Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York 10019 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Pricewaterhousecoopers LLP Two Commerce Square Philadelphia, Pennsylvania 19103 CREDIT SUISSE ASSET MANAGEMENT INCOME FUND, INC. (THE "FUND") ANNUAL REPORT - DECEMBER 31, 2004 Dear Shareholder: PERFORMANCE SUMMARY 12/31/03 - 12/31/04 FUND & BENCHMARKS PERFORMANCE ------------------------------------ ------------ Fund NAV (as of 12/31/04) $ 4.56 Total Return* (based on NAV) 13.55% Total Return (based on market value) 8.60% Citigroup High-Yield Market Index** (CHYMI) 10.79% J. P. Morgan Emerging Markets Bond Index Global*** 11.73% MARKET OVERVIEW: POSITIVE HIGH YIELD ENVIRONMENT In our view, a quickening economic recovery, robust corporate earnings growth and a strong credit environment were positive factors for high yield during the Fund's fiscal year. With inflation in check, nominal short term rates remained at their 45-year low for much of the year. The Fed only began tightening at its June 30th meeting, and did so in a well-telegraphed, "measured" pace, raising rates a quarter point at each successive meeting, bringing the fed funds rate to 2.25% by year-end. In this low-rate environment, corporate managements took advantage of strong cash flow to repair their balance sheets. Issuance of below investment grade paper set a new high in 2004 at $158 billion, over 60% of which was earmarked for the replacement of higher interest debt. The deleveraging helped drive Moody's default and downgrade/upgrade ratios to cyclical lows. And as the risk premium declined, demand for high yield surged, with investors flocking particularly to lower-rated securities, deemed by some to be safer in the stronger fundamental environment. Spread tightening occurred across the credit spectrum, but was greatest in CCC-rated issues. STRATEGIC REVIEW: SELECTIVE SECTOR POSITIONING The Fund outperformed its CHYMI benchmark primarily due to its relative positioning in outperforming industry sectors and to security selection within those sectors. The Fund's highest relative weightings versus the CHYMI benchmark (in chemicals, gaming, wireless and cable) accounted for strong relative contributions versus the benchmark. Security selection within those sectors, as well as in technology, automobile manufacturing and building products, was also a key driver of return. In emerging markets, we overweighted the debt of commodity-producing countries including Venezuela, Russia and Brazil, all of which benefited from increased raw materials prices. Detractors to performance included our underweight position in industries where, in our view, the fundamentals had weakened, which included the diversified telecom, utilities and energy-other sectors. OUTLOOK: HIGH HOPES FOR HIGH YIELD We expect the fundamental credit environment to remain strong in 2005, as high corporate cash level and refinancing has, in our opinion, reduced the likelihood of default over the next three to six quarters. As we don't expect significant further spread tightening, coupon income could become a large component of total returns. We have a positive view of the wireless, cable and chemicals sectors and will continue to underweight diversified telecom and airlines. In our view, increased CCC-rated issuance in 2004 may be a harbinger of a weaker fundamental environment two to three years out. The Fund will maintain its overweight in B-rated issues and we remain cautious on duration, emphasizing shorter maturity issues. Sincerely yours, /s/ Richard J. Lindquist Richard J. Lindquist PRESIDENT AND CHIEF INVESTMENT OFFICER **** /s/ Michael E. Kenneally Michael E. Kenneally DIRECTOR, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER ***** HIGH YIELD BONDS ARE LOWER-QUALITY BONDS THAT ARE ALSO KNOWN AS "JUNK BONDS." SUCH BONDS ENTAIL GREATER RISKS THAN THOSE FOUND IN HIGHER-RATED SECURITIES. INTERNATIONAL INVESTING ENTAILS SPECIAL RISK CONSIDERATIONS, INCLUDING CURRENCY FLUCTUATIONS, LOWER LIQUIDITY, ECONOMIC AND POLITICAL RISKS, AND DIFFERENCES IN ACCOUNTING METHODS; THESE RISKS ARE GENERALLY HEIGHTENED FOR EMERGING-MARKET INVESTMENTS. THE FUND MAY INCLUDE A GREATER DEGREE OF RISK THAN OTHER FUNDS THAT INVEST IN LARGER, MORE-DEVELOPED MARKETS. IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKET, INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT PORTFOLIO. THESE STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND REGULATIONS IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS. 2 THE INFORMATION PRESENTED IS FOR INFORMATIONAL PURPOSES ONLY. THIS REPORT IS NOT A RECOMMENDATION TO BUY OR SELL OR A SOLICITATION OF AN OFFER TO BUY OR SELL ANY SECURITIES OR ADOPT ANY INVESTMENT STRATEGY. READERS ARE ADVISED NOT TO INFER OR ASSUME THAT ANY SECURITIES, COMPANIES, SECTORS OR MARKETS DESCRIBED WILL BE PROFITABLE. ALL OPINIONS AND VIEWS CONSTITUTE JUDGMENTS AS OF THE DATE OF WRITING, AND ARE SUBJECT TO CHANGE AT ANY TIME WITHOUT NOTICE. *Assuming reinvestment of dividends of $0.42 per share. **The Citigroup High-Yield Market Index is a broad-based, unmanaged index of high yield securities that is compiled by Citigroup Global Markets Inc. It does not reflect the impact of taxes. Investors cannot invest directly in an index. ***The J.P. Morgan Emerging Markets Bond Index Global is a comprehensive index of emerging market debt securities. Launched in August 1999, it tracks the total returns of U.S. dollar-denominated debt instruments for 27 emerging market countries. Investors cannot invest directly in an index. ****Richard J. Lindquist, who is a Managing Director of Credit Suisse Asset Management, LLC ("CSAM"), is primarily responsible for management of the Fund's assets. He has served in such capacity since November 21, 1996. Prior to that date, he served as Vice President to the Fund, a position he assumed on August 15, 1989. Mr. Lindquist joined CSAM on May 1, 1995 as a result of CSAM's acquisition of CS First Boston Investment Management Corporation ("CSFBIM"). Prior to joining CSAM and beginning in July 1989, he held various offices at CSFBIM. Mr. Lindquist also is President and Chief Investment Officer of Credit Suisse High Yield Bond Fund (NYSE: DHY). *****Michael E. Kenneally, is the Chairman and Global Chief Executive Officer of CSAM. He has served in these capacities since April 2003. Previously, he was the Chairman and Chief Investment Officer of Banc of America Capital Management from 1998 to March 2003. Mr. Kenneally is also Director and/or Chairman of other investment companies advised by CSAM. 3 TOP TEN HOLDINGS(unaudited) (as a % of net assets as of 12/31/04) 1. Ministry Finance of Russia Series V, Debentures 3.00%, 5/14/08 1.7% 2. Westfed Holdings Sr. Debentures 15.50%, 9/15/99 1.7% 3. Federal Republic of Brazil Unsubordinated 11.00%, 8/17/40 1.5% 4. Newark Group, Inc. Sr. Sub. Notes 9.75%, 3/15/14 0.9% 5. Russian Federation Series REGS, Unsubordinated 5.00%, 3/31/30 0.9% 6. Hard Rock Hotel, Inc. Notes 8.875%, 6/1/13 0.9% 7. Federal Republic of Brazil Series 20 yr, Bonds 8%, 4/15/14 0.9% 8. Federal Republic of Brazil Series 30 yr, Collateralized 3.0625%, 4/15/24 0.7% 9. Republic of Turkey Sr. Unsub. Notes 11.875%, 1/15/30 0.6% 10. Cablevision Systems New York Group Sr. Notes 8.00%, 4/15/12 0.6% CREDIT QUALITY BREAKDOWN (unaudited) (as a % of total investments as of 12/31/04) A/A 0.6% BBB/Baa 1.2 BB/Ba 11.6 B/B 46.5 CCC/Caa 21.9 CC/Ca 4.2 N/R 6.8 -------- Subtotal 92.8 Time Deposit 6.0 Equities and Other 1.2 -------- Total 100.0% ======== 4 SCHEDULE OF INVESTMENTS DECEMBER 31, 2004 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- DOMESTIC SECURITIES (74.7%) CORPORATE OBLIGATIONS (73.5%) AEROSPACE (0.5%) BE Aerospace, Inc. Series B, Sr. Sub. Notes 8.00%, 3/1/08 Caa3 $ 300 $ 301,875 (1) L-3 Communications Corp. Sr. Sub. Notes 5.875%, 1/15/15 Ba3 650 651,625 Sequa Corp. Sr. Notes 9.00%, 8/1/09 B1 250 283,125 ---------------- GROUP TOTAL 1,236,625 ---------------- AIRLINES (0.3%) American Airlines, Inc. Series 01-2, Pass thru Certs 7.80%, 10/1/06 B1 550 503,767 Continental Airlines, Inc. Series 991C, Pass thru Certs 6.954%, 8/2/09 B2 177 143,590 ---------------- GROUP TOTAL 647,357 ---------------- AUTOMOBILE MANUFACTURING/VEHICLE PARTS (2.4%) (2) Aetna Industries, Inc. Sr. Notes 11.875%, 10/1/06 N/R 1 30 Autocam Corp. Sr. Sub. Notes 10.875%, 6/15/14 B3 400 396,000 Cambridge Industries, Inc. Sr. Sub. Notes 10.25%, 7/15/07 Aa2 775 7,746 (1) Collins & Aikman Products Corp. Sr. Sub. Notes 12.875%, 8/24/12 B3 1,350 1,172,812 (1) Cooper Standard Auto Notes 8.375%, 12/15/14 B3 500 501,250 Dura Operating Corp. Series D, Gtd. 9.00%, 5/1/09 B3 400 398,000 Holley Performance Products, Inc. Series B, Gtd. 12.25%, 9/15/07 Caa3 365 286,525 Metaldyne Corp. Gtd. 11.00%, 6/15/12 Caa1 800 668,000 Motor Coach Industries International, Inc. Gtd. 11.25%, 5/1/09 Ca 1,121 644,287 (1) Stanadyne Corp. Sr. Sub. Notes 10.00%, 8/15/14 Caa1 $ 400 $ 434,000 (1) Tenneco Automotive, Inc. Sr. Sub. Notes 8.625%, 11/15/14 B3 350 365,750 (1) Transportation Technologies Industries, Inc. Sr. Sub. Notes 12.50%, 3/31/10 Caa1 500 516,250 ---------------- GROUP TOTAL 5,390,650 ---------------- BROADBAND (0.2%) (1) Level 3 Financing, Inc. Sr. Notes 10.75%, 10/15/11 Caa1 250 227,500 Primus Telecommunications Group, Inc. Sr. Notes 8.00%, 1/15/14 B3 250 221,250 ---------------- GROUP TOTAL 448,750 ---------------- BROADCAST/OUTDOOR (0.6%) Emmis Operating, Co. Sr. Subordinated 6.875%, 5/15/12 B2 250 262,812 Interep National Radio Sales, Inc. Series B, Gtd. 10.00%, 7/1/08 Ca 250 189,687 (3) Paxson Communications Corp. Gtd. 0.00%, 1/15/09 Caa1 500 470,000 Sinclair Broadcast Group, Inc. Gtd. 8.75%, 12/15/11 B2 450 492,187 ---------------- GROUP TOTAL 1,414,686 ---------------- BUILDING PRODUCTS (2.3%) (3) Associated Materials, Inc. Sr. Discount Notes 0.00%, 3/1/14 Caa2 750 543,750 Building Materials Corp. Series B, Sr. Notes 7.75%, 7/15/05 B2 250 255,625 (1) Building Materials Corp. of America Sr. Notes 7.75%, 8/1/14 B2 300 304,125 Dayton Superior Corp.: Gtd. 13.00%, 6/15/09 Caa2 720 752,400 Secured 10.75%, 9/15/08 B3 250 268,750 The accompanying notes are an integral part of the financial statements. 5 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- (1) Goodman Global Holdings Co., Inc. Sr. Sub. Notes 7.875%, 12/15/12 Caa1 $ 250 $ 248,750 Interface, Inc. Sr. Sub. Notes 9.50%, 2/1/14 Caa3 400 438,000 (3) Norcraft Holdings/Capital Sr. Discount Notes 0.00%, 9/1/12 Caa1 250 188,750 Ply Gem Industries, Inc. Sr. Sub. Notes 9.00%, 2/15/12 B3 400 408,000 (1) RMCC Acquisition Co. Sr. Sub. Notes 9.50%, 11/1/12 Caa1 500 501,250 (1) THL Buildco (Nortek), Inc. Sr. Sub. Notes 8.50%, 9/1/14 B3 300 315,000 Texas Industries, Inc. Sr. Notes 10.25%, 6/15/11 B1 250 293,750 Werner Holdings Co., Inc. Series A, Gtd. 10.00%, 11/15/07 B3 800 668,000 ---------------- GROUP TOTAL 5,186,150 ---------------- CABLE (6.6%) (2) Adelphia Communications Corp. Series B, Sr. Notes 8.375%, 2/1/08 N/R 800 758,000 (1) Atlantic Broadband Finance LLC Sr. Sub. Notes 9.375%, 1/15/14 Caa1 500 486,250 CSC Holdings, Inc.: Series B, Debentures 8.125%, 8/15/09 B1 150 164,812 Series B, Sr. Notes 7.625%, 4/1/11 B1 200 216,500 (1) Cablevision Systems Group Corp. Sr. Notes 8.00%, 4/15/12 B3 1,250 1,340,625 (2) Century Communications Corp. Series B, Sr. Discount Notes 0.00%, 1/15/08 N/R 500 352,500 Sr. Discount Notes 0.00%, 3/15/03 N/R 500 532,500 Sr. Notes 8.75%, 10/1/07 N/R 450 531,000 Charter Communications Holdings LLC: Sr. Discount Notes 9.92%, 4/1/11 Ca 1,200 1,029,000 Sr. Notes 8.625%, 4/1/09 Ca 750 654,375 8.75%, 11/15/13 B3 500 518,750 10.25%, 1/15/10 Ca 950 838,375 (2)(4) DIVA Systems Corp. Series B, Sr. Discount Notes 12.625%, 3/1/08 N/R $ 3,014 $ 7,536 (2) Frontiervision Holdings LP Series B, Sr. Discount Notes 11.875%, 9/15/07 N/R 500 670,000 (3) Insight Communications Co., Inc. Sr. Discount Notes 0.00%, 2/15/11 Caa2 250 244,375 Insight Midwest/Insight Capital: Sr. Notes 9.75%, 10/1/09 B2 900 947,250 10.50%, 11/1/10 B2 500 550,000 Jones Intercable, Inc. Sr. Notes 7.625%, 4/15/08 Baa3 450 498,265 Mediacom LLC/Capital Corp.: Series B, Sr. Notes 8.50%, 4/15/08 B3 871 892,775 Sr. Notes 7.875%, 2/15/11 B3 850 837,250 Northland Cable Television, Inc. Gtd. 10.25%, 11/15/07 Caa3 750 750,000 (2) Olympus Communications, L.P./Olympus Capital Corp. Series B, Sr. Notes 10.625%, 11/15/06 N/R 892 1,177,440 Renaissance Media Group LLC Gtd. 10.00%, 4/15/08 B3 953 986,355 ---------------- GROUP TOTAL 14,983,933 ---------------- CAPITAL GOODS (1.2%) Blount, Inc. Sr. Sub. Notes 8.875%, 8/1/12 Caa1 250 272,500 (1) Case New Holland, Inc. Sr. Notes 9.25%, 8/1/11 Ba3 350 391,125 JII Holdings LLC Secured 13.00%, 4/1/07 Caa2 760 707,172 Motors & Gears, Inc. Series D, Sr. Notes 10.75%, 11/15/06 Caa1 950 933,375 SPX Corp. Sr. Notes 6.25%, 6/15/11 Ba3 350 371,000 ---------------- GROUP TOTAL 2,675,172 ---------------- The accompanying notes are an integral part of the financial statements. 6 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- CHEMICALS (3.7%) (1) Crompton Corp. Sr. Notes 9.875%, 8/1/12 B1 $ 350 $ 402,500 (1)(3) Crystal U.S. Holdings/ U.S. Sub3 Sr. Discount Notes 0.00%, 10/1/14 Caa2 700 483,000 Equistar Chemicals L.P./ Equistar Funding Corp. Sr. Notes 10.625%, 5/1/11 B2 350 407,750 (3) HMP Equity Holdings Corp. Sr. Discount Notes 0.00%, 5/15/08 N/R 500 333,125 (3) Huntsman International Holdings LLC Sr. Discount Notes 0.00%, 12/31/09 Caa2 250 141,250 (1) Huntsman Co. LLC: Gtd. 11.625%, 10/15/10 B2 500 593,750 11.50%, 7/15/12 B3 400 475,000 IMC Global, Inc. Sr. Notes 10.875%, 8/1/13 B1 350 439,250 ISP Chemco, Inc. Series B, Gtd. 10.25%, 7/1/11 B1 250 283,750 (1)(3) KI Holdings, Inc. Sr. Discount Notes 0.00%, 11/15/14 Caa2 600 387,000 (1) Kraton Polymers LLC/ Capital Corp. Sr. Sub. Notes 8.125%, 1/15/14 Caa1 350 366,625 Lyondell Chemical Co.: Gtd. 10.50%, 6/1/13 B1 850 1,015,750 Series B, Secured 9.875%, 5/1/07 B1 411 432,577 Millennium America, Inc. Gtd. 9.25%, 6/15/08 B1 500 571,250 Nalco Co. Sr. Sub. Notes 8.875%, 11/15/13 Caa1 400 441,000 Polyone Corp. Gtd. 10.625%, 5/15/10 B3 400 452,000 Radnor Holdings Corp. Sr. Notes 11.00%, 3/15/10 Caa1 250 215,625 Resolution Performance Products LLC Sr. Sub. Notes 13.50%, 11/15/10 Caa2 500 546,250 Terra Capital, Inc. Secured 11.50%, 6/1/10 Caa1 357 408,765 ---------------- GROUP TOTAL 8,396,217 ---------------- COMPETITIVE LOCAL EXCHANGE CARRIER (0.8%) Madison River Capital/ Madison River Finance Sr. Notes 13.25%, 3/1/10 Caa1 $ 871 $ 944,492 Time Warner Telecom, LLC Sr. Notes 9.75%, 7/15/08 B3 800 814,000 ---------------- GROUP TOTAL 1,758,492 ---------------- CONSUMER PRODUCTS/TOBACCO (3.0%) (1)(3) AAC Group Holding Corp. Sr. Discount Notes 0.00%, 10/1/12 Caa1 400 271,000 Ames True Temper, Inc. Sr. Sub. Notes 10.00%, 7/15/12 Caa1 600 618,000 Amscan Holdings, Inc. Sr. Sub. Notes 8.75%, 5/1/14 B3 300 301,500 DIMON, Inc. Sr. Notes 7.75%, 6/1/13 B1 500 527,500 (2) Diamond Brands Operating Corp. Gtd. 10.125%, 4/15/08 N/R 2,000 40,000 General Binding Corp. Gtd. 9.375%, 6/1/08 Caa1 700 703,500 (1) Interactive Health LLC Sr. Notes 7.25%, 4/1/11 B3 400 350,000 (3) Johnsondiversey Holdings, Inc. Discount Notes 0.00%, 5/15/13 B3 600 522,000 Leiner Health Products, Inc. Sr. Sub. Notes 11.00%, 6/1/12 B3 250 274,375 PCA LLC/PCA Finance Corp. Sr. Notes 11.875%, 8/1/09 B3 650 575,250 Playtex Products, Inc. Gtd. 9.375%, 6/1/11 Caa2 500 536,250 (1) Prestige Brands, Inc. Sr. Sub. Notes 9.25%, 4/15/12 Caa1 500 533,750 Rayovac Corp. Sr. Sub. Notes 8.50%, 10/1/13 B3 250 278,750 Remington Arms Co., Inc. Gtd. 10.50%, 2/1/11 B3 115 111,550 Samsonite Corp. Sr. Sub. Notes 8.875%, 6/1/11 B3 250 271,875 The accompanying notes are an integral part of the financial statements. 7 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- Sealy Mattress Co. Sr. Sub. Notes 8.25%, 6/15/14 B2 $ 400 $ 426,000 United Industries Corp. Series D, Gtd. 9.875%, 4/1/09 N/R 400 420,500 ---------------- GROUP TOTAL 6,761,800 ---------------- CONTAINERS (2.1%) AEP Industries, Inc. Sr. Sub. Notes 9.875%, 11/15/07 B3 650 664,625 Berry Plastics Corp. Gtd. 10.75%, 7/15/12 B3 600 690,000 (1) Graham Packaging Co. Sub. Notes 9.875%, 10/15/14 Caa2 350 375,375 Graphic Packaging International Corp. Sr. Sub. Notes 9.50%, 8/15/13 B3 250 285,625 (1) Intertape Polymer U.S., Inc. Sr. Sub. Notes 8.50%, 8/1/14 B3 300 306,375 Owens-Illinois, Inc. Sr. Notes 8.10%, 5/15/07 B3 850 909,500 Pliant Corp. Gtd. 13.00%, 6/1/10 Caa2 850 833,000 Solo Cup Co. Sr. Sub. Notes 8.50%, 2/15/14 B3 500 522,500 U.S. Can Corp. Gtd. 10.875%, 7/15/10 Caa1 250 266,250 ---------------- GROUP TOTAL 4,853,250 ---------------- DIVERSIFIED TELECOMMUNICATIONS (0.6%) Cincinnati Bell, Inc. Sr. Sub. Notes 8.375%, 1/15/14 B3 250 254,375 (1) Qwest Communications International, Inc. Sr. Notes 7.50%, 2/15/14 B3 300 304,500 Qwest Corp.: Notes 6.625%, 9/15/05 Ba3 500 512,500 (1) Sr. Notes 7.875%, 9/1/11 Ba3 250 272,500 ---------------- GROUP TOTAL 1,343,875 ---------------- ENERGY/OTHER (2.1%) Dynegy Holdings, Inc.: (1) Secured 10.125%, 7/15/13 B3 250 287,500 Sr. Notes 6.875%, 4/1/11 Caa2 250 241,875 8.75%, 2/15/12 Caa2 600 631,500 El Paso CGP Co.: Notes 6.375%, 2/1/09 Caa1 $ 250 $ 250,312 7.75%, 6/15/10 Caa1 250 262,500 El Paso Corp. Sr. Notes 7.00%, 5/15/11 Caa1 500 508,125 El Paso Natural Gas Series A, Sr. Notes 7.625%, 8/1/10 B1 250 275,000 El Paso Production Holding Co. Gtd. 7.75%, 6/1/13 B3 750 789,375 Giant Industries, Inc.: Gtd. 11.00%, 5/15/12 B3 186 216,690 Sr. Sub. Notes 8.00%, 5/15/14 B3 200 210,000 (1) Gulfmark Offshore, Inc. Sr. Notes 7.75%, 7/15/14 B2 250 266,250 Reliant Energy, Inc. Secured 6.75%, 12/15/14 B1 250 249,687 Reliant Resources, Inc. Secured 9.50%, 7/15/13 B1 500 570,625 ---------------- GROUP TOTAL 4,759,439 ---------------- ENVIRONMENTAL SERVICES (0.4%) Allied Waste North America, Inc. Series B, Sr. Notes 7.375%, 4/15/14 Caa1 500 481,250 (1) Waste Services, Inc. Sr. Sub. Notes 9.50%, 4/15/14 Ca 400 400,000 ---------------- GROUP TOTAL 881,250 ---------------- FINANCE (2.0%) (1) E*Trade Financial Corp. Sr. Notes 8.00%, 6/15/11 B1 250 270,000 (1) Rainbow National Services LLC Sr. Notes 8.75%, 9/1/12 B3 250 275,625 Westfed Holdings: (2) Debentures 15.50%, 9/15/99 N/R 2,000 3,800,000 (4) Sr. Debentures 25.00%, 8/22/09 N/R 121 121,025 ---------------- GROUP TOTAL 4,466,650 ---------------- FOOD PROCESSORS/BEVERAGE/BOTTLING (1.4%) Agrilink Foods, Inc. Gtd. 11.875%, 11/1/08 B3 100 104,625 The accompanying notes are an integral part of the financial statements. 8 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- Eagle Family Foods, Inc. Series B, Gtd. 8.75%, 1/15/08 Caa2 $ 471 $ 364,637 Land O'Lakes, Inc. Sr. Notes 8.75%, 11/15/11 B3 800 800,000 (1) Le-Natures, Inc. Sr. Sub. Notes 9.00%, 6/15/13 Caa1 250 277,500 National Wine & Spirits, Inc. Gtd. 10.125%, 1/15/09 B3 220 218,900 (1) Pinnacle Foods Holding Corp. Sr. Sub. Notes 8.25%, 12/1/13 B3 400 383,000 Swift & Co.: Gtd. 10.125%, 10/1/09 B1 250 280,000 Sr. Sub. Notes 12.50%, 1/1/10 B2 300 340,500 Wornick Co. Secured 10.875%, 7/15/11 B2 400 436,000 ---------------- GROUP TOTAL 3,205,162 ---------------- GAMING (5.6%) American Casino & Entertainment Properties LLC Secured 7.85%, 2/1/12 B2 500 533,750 Ameristar Casinos, Inc. Gtd. 10.75%, 2/15/09 B2 920 1,030,400 Argosy Gaming Co.: Sr. Sub. Notes 9.00%, 9/1/11 Ba3 250 280,000 7.00%, 1/15/14 B1 250 277,500 Aztar Corp. Sr. Sub. Notes 7.875%, 6/15/14 Ba3 250 276,875 Boyd Gaming Corp. Gtd. 9.25%, 8/1/09 Ba3 600 648,000 (1) Chukchansi Economic Development Authority Sr. Notes 14.50%, 6/15/09 N/R 1,000 1,265,000 Circus & Eldorado/Silver Legacy Capital Corp. First Mortgage Notes 10.125%, 3/1/12 B1 500 546,250 Hard Rock Hotel, Inc. Notes 8.875%, 6/1/13 B3 1,800 1,998,000 Herbst Gaming, Inc. Sr. Sub. Notes 8.125%, 6/1/12 B3 300 322,500 Inn of the Mountain Gods Sr. Notes 12.00%, 11/15/10 B3 400 470,000 Isle of Capri Casinos, Inc. Sr. Sub. Notes 7.00%, 3/1/14 B2 $ 400 $ 410,000 MGM Mirage, Inc.: Gtd. 9.75%, 6/1/07 Ba2 100 111,500 Sr. Notes 6.75%, 9/1/12 Ba1 250 264,375 Majestic Star Casino LLC Gtd. 9.50%, 10/15/10 B2 750 798,750 Mohegan Tribal Gaming Authority Sr. Sub. Notes 7.125%, 8/15/14 Ba3 250 264,375 Park Place Entertainment Corp.: Sr. Sub. Notes 7.875%, 12/15/05 Ba2 150 156,000 9.375%, 2/15/07 Ba2 500 552,500 Penn National Gaming, Inc. Series B, Gtd. 11.125%, 3/1/08 B2 850 911,625 River Rock Entertainment Authority Sr. Notes 9.75%, 11/1/11 B2 400 450,500 Riviera Holdings Corp. Gtd. 11.00%, 6/15/10 B2 700 785,750 Venetian Casino Resort LLC Gtd. 11.00%, 6/15/10 B2 180 206,325 (1) Waterford Gaming LLC Sr. Notes 8.625%, 9/15/12 B1 228 245,100 (2)(4) Windsor Woodmont Black Hawk Series B, First Mortgage Notes 13.00%, 3/15/05 N/R 290 8,700 ---------------- GROUP TOTAL 12,813,775 ---------------- HEALTHCARE FACILITIES/SUPPLIES (2.4%) Ardent Health Services LLC Sr. Sub. Notes 10.00%, 8/15/13 B3 250 263,750 (1) Beverly Enterprises, Inc. Sr. Sub. Notes 7.875%, 6/15/14 B2 250 269,375 (1)(3) CDRV Investors, Inc. Sr. Discount Notes 0.00%, 1/1/15 Caa2 800 501,000 Concentra Operating Corp. Gtd. 9.50%, 8/15/10 B3 250 283,750 The accompanying notes are an integral part of the financial statements. 9 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- Fisher Scientific International, Inc. Sr. Sub. Notes 8.125%, 5/1/12 Ba3 $ 260 $ 289,900 (3) MQ Associates, Inc. Sr. Discount Notes 0.00%, 8/15/12 Caa1 1,000 760,000 Medquest, Inc. Series B, Gtd. 11.875%, 8/15/12 B3 600 708,000 (1) National Mentor, Inc. Sr. Sub. Notes 9.625%, 12/1/12 B3 400 427,000 (1) Tenet Healthcare Corp. Sr. Notes 9.875%, 7/1/14 B3 250 273,750 Triad Hospitals, Inc. Sr. Sub. Notes 7.00%, 11/15/13 B3 1,000 1,027,500 Universal Hospital Services, Inc. Sr. Notes 10.125%, 11/1/11 B3 250 261,250 (1) Vanguard Health Holdings II Sr. Sub. Notes 9.00%, 10/1/14 Caa1 350 376,250 ---------------- GROUP TOTAL 5,441,525 ---------------- HOME BUILDERS (0.8%) Tech Olympic USA, Inc. Gtd. 9.00%, 7/1/10 Ba3 500 537,500 Toll Corp. Sr. Sub. Notes 8.25%, 12/1/11 Ba2 250 277,500 WCI Communities, Inc. Gtd. 10.625%, 2/15/11 Ba3 650 724,750 William Lyon Homes, Inc. Sr. Notes 7.50%, 2/15/14 B2 250 241,250 ---------------- GROUP TOTAL 1,781,000 ---------------- INDUSTRIAL (1.5%) (1) Altra Industrial Motion Secured 9.00%, 12/1/11 B3 400 408,000 (1) Amsted Industries, Inc. Sr. Notes 10.25%, 10/15/11 B3 250 283,750 Amtrol, Inc. Sr. Sub. Notes 10.625%, 12/31/06 Caa3 600 529,500 (1) Coleman Cable, Inc. Sr. Notes 9.875%, 10/1/12 B3 400 427,000 (1) Hawk Corp. Sr. Notes 8.75%, 11/1/14 B2 250 257,500 Polypore, Inc. Sr. Sub. Notes 8.75%, 5/15/12 Caa1 $ 400 $ 420,000 True Temper Sports, Inc. Gtd. 8.375%, 9/15/11 Caa1 450 420,750 Wolverine Tube, Inc. Gtd. 10.50%, 4/1/09 B3 550 602,250 ---------------- GROUP TOTAL 3,348,750 ---------------- LEISURE (2.7%) AMC Entertainment, Inc.: Sr. Sub. Notes 9.875%, 2/1/12 B3 650 711,750 8.00%, 3/1/14 B3 400 400,000 Affinity Group, Inc. Sr. Sub. Notes 9.00%, 2/15/12 B3 250 271,875 Bally Total Fitness Holding Corp. Sr. Notes 10.50%, 7/15/11 B3 350 354,375 Bluegreen Corp. Series B, Gtd. 10.50%, 4/1/08 B3 1,000 1,025,000 Booth Creek Ski Holdings, Inc. Series B, Gtd. 12.50%, 3/15/07 Caa1 1,147 1,161,337 (3) Cinemark, Inc. Sr. Discount Notes 0.00%, 3/15/14 Caa1 400 304,000 Cinemark USA, Inc. Sr. Sub. Notes 9.00%, 2/1/13 B3 250 286,562 Six Flags, Inc.: Sr. Notes 9.75%, 4/15/13 Caa1 400 408,000 9.625%, 6/1/14 Caa1 500 505,000 (1)(3) WMG Holdings Corp. Sr. Discount Notes 0.00%, 12/15/14 Caa2 1,250 804,688 ---------------- GROUP TOTAL 6,232,587 ---------------- LODGING (0.8%) CapStar Hotel Co. Sr. Sub. Notes 8.75%, 8/15/07 Caa1 250 255,313 Felcor Lodging LP Gtd. 8.50%, 6/1/11 B1 425 483,438 HMH Properties, Inc. Series B, Gtd. 7.875%, 8/1/08 Ba3 126 130,095 Host Marriot LP Series I, Gtd. 9.50%, 1/15/07 Ba3 600 660,000 The accompanying notes are an integral part of the financial statements. 10 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- John Q. Hammons Hotel LP Series B, First Mortgage Notes 8.875%, 5/15/12 B2 $ 300 $ 340,500 ---------------- GROUP TOTAL 1,869,346 ---------------- METALS & MINING (1.9%) AK Steel Corp.: Gtd. 7.875%, 2/15/09 B3 250 255,938 7.75%, 6/15/12 B3 300 310,500 (1) Alpha Natural Resources Gtd. 10.00%, 6/1/12 B3 500 572,500 Earle M. Jorgensen Co. Secured 9.75%, 6/1/12 B2 500 565,000 (1) IMCO Recycling Escrow Sr. Notes 9.00%, 11/15/14 B3 300 313,500 International Steel Group, Inc. Sr. Notes 6.50%, 4/15/14 Ba3 1,000 1,077,500 Ispat Inland ULC Secured 9.75%, 4/1/14 B3 259 321,160 Metallurg, Inc. Series B, Gtd. 11.00%, 12/1/07 Ca 571 499,188 (2) WCI Steel, Inc. Series B, Sr. Notes 10.00%, 12/1/04 N/R 250 202,500 Wise Metals Group LLC Secured 10.25%, 5/15/12 B2 250 253,750 ---------------- GROUP TOTAL 4,371,536 ---------------- OIL EQUIPMENT (0.2%) Parker Drilling Co. Series B, Gtd. 10.125%, 11/15/09 B2 377 396,321 ---------------- PAPER & FOREST PRODUCTS (2.4%) Appleton Papers, Inc. Sr. Sub. Notes 9.75%, 6/15/14 B3 350 388,500 Blue Ridge Paper Product, Inc. Secured 9.50%, 12/15/08 B2 350 331,625 Caraustar Industries, Inc. Gtd. 9.875%, 4/1/11 Caa1 434 473,060 Cellu Tissue Holdings, Inc. Secured 9.75%, 3/15/10 B2 250 260,625 Georgia-Pacific Corp. Gtd. 9.375%, 2/1/13 Ba2 1,000 1,170,000 Newark Group, Inc. Sr. Sub. Notes 9.75%, 3/15/14 Caa1 $ 2,000 $ 2,140,000 Stone Container Corp. Sr. Notes 8.375%, 7/1/12 B2 600 657,000 ---------------- GROUP TOTAL 5,420,810 ---------------- PUBLISHING (2.0%) (1) CBD Media Holdings/ CBD Holdings Finance, Inc. Sr. Notes 9.25%, 7/15/12 Caa2 500 516,875 Dex Media East LLC Gtd. 12.125%, 11/15/12 B2 200 244,750 Dex Media, Inc.: (3) Discount Notes 0.00%, 11/15/13 B3 500 394,375 Notes 8.00%, 11/15/13 B3 250 271,875 Haights Cross Operating Co.: Gtd. 11.75%, 8/15/11 Caa1 350 397,250 (1) Sr. Notes 11.75%, 8/15/11 Caa1 100 113,500 Houghton Mifflin Co.: (3) Sr. Discount Notes 0.00%, 10/15/13 Caa2 250 185,000 Sr. Notes 8.25%, 2/1/11 B3 300 321,000 Liberty Group Publishing, Inc. Debentures 11.625%, 2/1/09 Caa2 900 914,625 PRIMEDIA, Inc. Sr. Notes 8.00%, 5/15/13 B3 350 361,813 (2)(4) Premier Graphics, Inc. Gtd. 11.50%, 12/1/05 N/R 2,000 0 Sheridan Acquisition Corp. Secured 10.25%, 8/15/11 B1 300 329,625 (1) WDAC Subsidiary Corp. Sr. Notes 8.375%, 12/1/14 B2 500 495,625 ---------------- GROUP TOTAL 4,546,313 ---------------- RESTAURANTS (1.6%) Buffets, Inc. Sr. Sub. Notes 11.25%, 7/15/10 B3 500 537,500 (1) Carrols Corp. Sr. Sub. Notes 9.00%, 1/15/13 B3 150 156,000 (1) Denny's Corp./ Denny's Holdings, Inc. Sr. Notes 10.00%, 10/1/12 Caa1 500 540,625 The accompanying notes are an integral part of the financial statements. 11 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- El Pollo Loco, Inc. Secured 9.25%, 12/15/09 B2 $ 250 $ 264,375 Friendly Ice Cream Corp. Sr. Notes 8.375%, 6/15/12 B2 500 493,125 (1) Landry's Restaurants, Inc. Sr. Notes 7.50%, 12/15/14 B2 350 349,125 O'Charley's, Inc. Sr. Sub. Notes 9.00%, 11/1/13 Ba3 400 430,000 (2)(4) Romacorp, Inc. Sr. Notes 10.50%, 12/31/08 N/R 1,102 722,072 Sbarro, Inc. Gtd. 11.00%, 9/15/09 Caa2 125 126,875 ---------------- GROUP TOTAL 3,619,697 ---------------- RETAIL- FOOD & DRUG (0.7%) (1) Duane Reade, Inc. Sr. Sub. Notes 9.75%, 8/1/11 Caa1 500 457,500 Great Atlantic & Pacific Tea Company, Inc. Sr. Notes 9.125%, 12/15/11 Caa1 400 377,000 (1) Rite Aid Corp. Notes 6.125%, 12/15/08 Caa1 300 283,500 Roundy's, Inc. Series B, Gtd. 8.875%, 6/15/12 B2 200 219,500 Stater Brothers Holdings, Inc. Sr. Notes 8.125%, 6/15/12 B1 150 159,375 ---------------- GROUP TOTAL 1,496,875 ---------------- RETAIL STORES (1.4%) Asbury Automotive Group Co. Gtd. 9.00%, 6/15/12 B3 400 422,000 (2)(4) Flooring America, Inc. Series B, Gtd. 9.25%, 10/15/07 N/R 703 0 Michaels Stores, Inc. Sr. Notes 9.25%, 7/1/09 Ba1 400 430,628 NBTY, Inc. Series B, Sr. Sub. Notes 8.625%, 9/15/07 B1 400 408,000 Nebraska Book Co., Inc. Sr. Sub. Notes 8.625%, 3/15/12 Caa1 500 515,000 Perry Ellis International, Inc. Series B, Sr. Sub. Notes 8.875%, 9/15/13 B3 250 263,750 (1) Southern States COOP, Inc. Sr. Notes 10.50%, 10/15/10 B3 $ 750 $ 772,500 United Auto Group, Inc. Gtd. 9.625%, 3/15/12 B3 250 277,500 ---------------- GROUP TOTAL 3,089,378 ---------------- SATELLITE (0.2%) Echostar DBS Corp. Sr. Notes 9.125%, 1/15/09 Ba3 195 215,475 (1) PanAMSat Corp. Gtd. 9.00%, 8/15/14 B2 300 336,375 ---------------- GROUP TOTAL 551,850 ---------------- SECONDARY OIL & GAS PRODUCERS (1.8%) (1) Belden & Blake Corp. Secured 8.75%, 7/15/12 B3 250 255,000 Chesapeake Energy Corp.: Sr. Notes 6.875%, 1/15/16 Ba3 602 633,605 7.00%, 8/15/14 Ba3 250 267,500 Forest Oil Corp. Sr. Notes 8.00%, 6/15/08 Ba3 900 997,875 Plains E&P Co. Sr. Sub. Notes 8.75%, 7/1/12 Ba3 300 336,750 Pogo Producing Co. Series B, Sr. Sub. Notes 8.25%, 4/15/11 Ba3 550 599,500 Vintage Petroleum, Inc. Sr. Sub. Notes 7.875%, 5/15/11 B1 700 749,000 Whiting Petroleum Corp. Sr. Sub. Notes 7.25%, 5/1/12 B2 300 315,000 ---------------- GROUP TOTAL 4,154,230 ---------------- SERVICES (5.3%) Advanstar Communications, Inc. Secured 10.75%, 8/15/10 B3 400 453,500 (1) Allied Security Escrow Corp. Sr. Sub. Notes 11.375%, 7/15/11 Caa1 400 420,000 American Color Graphics, Inc. Notes 10.00%, 6/15/10 Caa1 800 679,000 Brand Services, Inc. Gtd. 12.00%, 10/15/12 B3 600 675,000 Buhrmann U.S., Inc Sr. Sub. Notes 8.25%, 7/1/14 B2 250 254,063 The accompanying notes are an integral part of the financial statements. 12 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- Diamond Triumph Auto Glass, Inc. Gtd. 9.25%, 4/1/08 Caa1 $ 500 $ 457,500 Great Lakes Dredge & Dock Co. Sr. Sub. Notes 7.75%, 12/15/13 Caa2 850 777,750 IESI Corp. Gtd. 10.25%, 6/15/12 N/R 500 587,500 (1) Integrated Alarm Services Group, Inc. Secured 12.00%, 11/15/11 B3 400 422,000 Integrated Electrical Services, Inc. Series C, Gtd. 9.375%, 2/1/09 Caa1 625 590,625 Iron Mountain, Inc.: Gtd. 8.625%, 4/1/13 Caa1 450 480,375 7.75%, 1/15/15 Caa1 250 255,000 La Petite Academy, Inc. Series B, Gtd. 10.00%, 5/15/08 Ca 1,300 1,163,500 Language Line Holdings, Inc. Sr. Sub. Notes 11.125%, 6/15/12 Caa1 250 266,250 Morton's Restaurant Group, Inc. Secured 7.50%, 7/1/10 B2 300 294,000 Muzak LLC/Muzak Finance Corp.: Gtd. 9.875%, 3/15/09 Caa2 650 457,438 Sr. Notes 10.00%, 2/15/09 Caa1 300 280,875 National Beef Packing Co. LLC Sr. Notes 10.50%, 8/1/11 B2 400 422,000 Quintiles Transnational Corp. Sr. Sub. Notes 10.00%, 10/1/13 B3 250 281,250 Rent-Way, Inc. Secured 11.875%, 6/15/10 B3 500 565,625 Salton, Inc. Sr. Sub. Notes 12.25%, 4/15/08 Ca 750 570,000 United Rentals North America, Inc.: Sr. Sub. Notes 7.75%, 11/15/13 B2 800 788,000 7.00%, 2/15/14 B2 1,000 940,000 ---------------- GROUP TOTAL 12,081,251 ---------------- TECHNOLOGY (2.4%) AMI Semiconductor, Inc. Gtd. 10.75%, 2/1/13 B3 $ 136 $ 160,480 (1) Advanced Micro Devices, Inc. Sr. Notes 7.75%, 11/1/12 B3 500 523,125 Amkor Technology, Inc.: Sr. Notes 9.25%, 2/15/08 B3 350 359,625 7.75%, 5/15/13 B3 500 472,500 Ampex Corp. Secured 12.00%, 8/15/08 N/R 443 443,481 (1) Itron, Inc. Sr. Sub. Notes 7.75%, 5/15/12 B2 250 255,625 Lucent Technologies, Inc.: Notes 7.25%, 7/15/06 B2 340 357,000 5.50%, 11/15/08 B2 550 567,875 Sanmina-SCI Corp. Gtd. 10.375%, 1/15/10 Ba2 800 922,000 Unisys Corp. Sr. Notes 7.875%, 4/1/08 Ba1 250 257,500 Viasystems, Inc. Sr. Sub. Notes 10.50%, 1/15/11 Caa2 600 591,000 Xerox Corp. Sr. Notes 7.625%, 6/15/13 Ba2 550 606,375 ---------------- GROUP TOTAL 5,516,586 ---------------- TEXTILE/APPAREL/SHOE MANUFACTURING (1.6%) BGF Industries, Inc. Series B, Sr. Sub. Notes 10.25%, 1/15/09 Ca 250 241,875 Levi Strauss & Co.: Notes 7.00%, 11/1/06 Ca 515 543,325 Sr. Notes 12.25%, 12/15/12 Ca 735 821,363 (1) 9.75%, 1/15/15 Ca 850 845,750 Phillips Van-Heusen Corp. Sr. Notes 7.25%, 2/15/11 B2 400 422,000 (1) Propex Fabrics, Inc. Sr. Notes 10.00%, 12/1/12 Caa1 500 521,250 Tropical Sportswear International Corp. Series A, Gtd. 11.00%, 6/15/08 Ca 700 339,500 ---------------- GROUP TOTAL 3,735,063 ---------------- TOWERS (0.7%) American Towers, Inc. Gtd. 7.25%, 12/1/11 B2 500 532,500 The accompanying notes are an integral part of the financial statements. 13 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- Crown Castle International Corp. Series B, Sr. Notes 7.50%, 12/1/13 B3 $ 400 $ 432,000 (1) SBA Communication Corp. Sr. Notes 8.50%, 12/1/12 Caa1 400 410,000 (3) SBA Telecommunications Corp. Sr. Discount Notes 0.00%, 12/15/11 B3 300 254,250 ---------------- GROUP TOTAL 1,628,750 ---------------- TRANSPORTATION (0.2%) (1)(3) H-Lines Finance Holding Corp. Sr. Discount Notes 0.00%, 4/1/13 Caa2 300 217,500 (1) Horizon Lines LLC Notes 9.00%, 11/1/12 B3 300 324,000 ---------------- GROUP TOTAL 541,500 ---------------- UTILITIES (3.4%) AES Corp.: Sr. Notes 9.50%, 6/1/09 B2 37 41,701 7.75%, 3/1/14 B2 400 436,000 Allegheny Energy Supply Co., LLC Notes 7.80%, 3/15/11 B3 400 438,000 Aquila, Inc. Sr. Notes 7.625%, 11/15/09 B2 400 420,000 CMS Energy Corp.: Sr. Notes 7.50%, 1/15/09 B1 700 749,000 7.75%, 8/1/10 B1 250 274,687 Calpine Corp.: (1) Secured 8.50%, 7/15/10 N/R 950 819,375 Sr. Notes 7.75%, 4/15/09 Caa1 800 616,000 (5) Calpine Generating Co. Secured 7.756%, 4/1/10 B2 800 786,000 Edison Mission Energy Sr. Notes 7.73%, 6/15/09 B1 500 540,000 (1) Inergy LP Sr. Notes 6.875%, 12/15/14 B1 250 252,500 Midwest Generation LLC Secured 8.75%, 5/1/34 B1 400 456,000 (2) Mirant Americas Generation LLC Sr. Notes 7.625%, 5/1/06 N/R 500 540,000 (1)(2) Mirant Corp. Sr. Notes 7.40%, 7/15/04 N/R $ 300 $ 222,000 (1) NRG Energy, Inc. Secured 8.00%, 12/15/13 B1 400 438,000 Sierra Pacific Resources Sr. Notes 8.625%, 3/15/14 B2 300 340,500 TNP Enterprises, Inc. Series B, Sr. Sub. Notes 10.25%, 4/1/10 B2 350 375,375 ---------------- GROUP TOTAL 7,745,138 ---------------- WIRELESS (3.7%) Airgate PCS, Inc. Secured 9.375%, 9/1/09 Caa1 400 433,000 (3) Alamosa PCS Holdings, Inc. Gtd. 0.00%, 2/15/10 N/R 800 868,000 American Cellular Corp. Series B, Sr. Notes 10.00%, 8/1/11 Caa1 500 431,250 Centennial Cellular Operating Co./ Centennial Communications Corp. Gtd. 10.125%, 6/15/13 Caa1 400 451,000 Dobson Communications Corp. Sr. Notes 8.875%, 10/1/13 Ca 300 212,250 (1) Horizon PCS, Inc. Sr. Notes 11.375%, 7/15/12 B3 350 393,750 IPCS Escrow Co. Sr. Notes 11.50%, 5/1/12 B3 250 285,000 (1)(3) IWO Escrow Co. Sr. Discount Notes 0.00%, 1/15/15 Caa2 250 156,250 (2) IWO Holdings, Inc. Gtd. 14.00%, 1/15/11 N/R 550 360,250 Nextel Communications, Inc. Sr. Notes 7.375%, 8/1/15 Ba3 250 276,250 Nextel Partners, Inc. Sr. Notes 8.125%, 7/1/11 B3 750 836,250 Rural Cellular Corp. Sr. Sub. Notes 9.75%, 1/15/10 Caa2 1,450 1,319,500 Triton PCS, Inc. Gtd. 8.50%, 6/1/13 Caa1 750 727,500 The accompanying notes are an integral part of the financial statements. 14 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- U.S. Unwired, Inc. Series B, Secured 10.00%, 6/15/12 Caa1 $ 400 $ 453,000 Ubiquitel Operating Co.: Sr. Notes 9.875%, 3/1/11 Caa1 150 169,125 (1) 9.875%, 3/1/11 Caa1 350 394,625 Western Wireless Corp. Sr. Notes 9.25%, 7/15/13 Caa1 500 546,250 ---------------- GROUP TOTAL 8,313,250 ---------------- TOTAL CORPORATE OBLIGATIONS (Cost $161,100,630) 167,104,989 ---------------- SHARES/ UNITS ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS (0.9%) BROADCAST/OUTDOOR (0.1%) (6) Equinix, Inc. 5,567 237,934 ---------------- CABLE (0.0%) (6) Digitalglobe, Inc. 69,987 69,987 ---------------- CAPITAL GOODS (0.0%) (4)(6) Motels of America, Inc. 750 75 ---------------- CONTAINERS (0.0%) (4)(6) Continental AFA Dispensing Co. 20,689 37,240 ---------------- FINANCE (0.0%) (4)(6)(7) Westfed Holdings, Inc. Class B (acquired 9/20/88, cost $510) 16,893 169 ---------------- FOOD PROCESSORS/BEVERAGE/BOTTLING (0.4%) (6) Crunch Equity Holdings LLC 703 913,722 (1)(4)(6) Specialty Foods Corp. 52,500 525 ---------------- GROUP TOTAL 914,247 ---------------- INDUSTRIAL (0.1%) (4)(6) Doskocil Manufacturing Co. 36,000 126,000 ---------------- RETAIL- FOOD & DRUG (0.0%) (4)(6) Archibald Candy Corp. 2,030 0 ---------------- RETAIL STORES (0.1%) (4)(6) Safelite Glass Corp. Class B 18,064 90,320 (4)(6) Safelite Realty Corp. 1,219 12,190 ---------------- GROUP TOTAL 102,510 ---------------- SERVICES (0.0%) (6) Cenveo, Inc. 21,306 66,049 (1)(6) Cenveo, Inc. 10,652 33,021 ---------------- GROUP TOTAL 99,070 ---------------- SHARES/ VALUE UNITS (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- TEXTILE/APPAREL/SHOE MANUFACTURING (0.2%) (6) Safety Components International, Inc. 26,759 $ 370,612 ---------------- WIRELESS (0.0%) (6) Dobson Communications Corp. Class A 57,927 99,634 ---------------- TOTAL COMMON STOCKS (Cost $2,959,560) 2,057,478 ---------------- PREFERRED STOCKS (0.2%) CABLE (0.0%) (6) Adelphia Communications Corp. 13% Cum. Exchangeable Series B 7,500 9,375 ---------------- FINANCE (0.0%) (4)(6)(7) Westfed Holdings, Inc. Class A (acquired 9/20/88- 6/18/93, cost $4,815,472) 57,005 14,251 ---------------- RESTAURANTS (0.0%) (4)(6)(8) AmeriKing, Inc. 13% Cum. Exchangeable 40,375 0 ---------------- WIRELESS (0.2%) Dobson Communications Corp. 6% Conv. preferred 900 58,466 (6)(8) Rural Cellular Corp. 11.375% Sr. Exchangeable 426 331,215 ---------------- GROUP TOTAL 389,681 ---------------- TOTAL PREFERRED STOCKS (Cost $6,611,899) 413,307 ---------------- WARRANTS (0.1%) (6) Advanced Glassfiber Yarns expiring 5/14/10 115 288 (6) Colt Telecom Group Plc expiring 12/31/06 400 5,778 (1)(6) Dayton Superior Corp. expiring 6/15/09 1,250 13 (1)(6) Decrane Aircraft Holdings expiring 9/30/08 800 8 (1)(6) Huntsman Equity Holdings Corp. expiring 5/15/11 250 117,625 (6) Loral Space & Communications expiring 12/27/06 6,290 63 (6) Mikohn Gaming Corp. expiring 8/15/08 3,000 98 (6) NTL, Inc. expiring 1/13/11 4 16 (4)(6) Pegasus Communications Corp. expiring 1/1/07 250 3 (1)(6) Pliant Corp. expiring 6/1/10 747 93 (4)(6) Safelite Glass Corp.: Class A expiring 9/29/06 44,271 443 Class A expiring 9/29/07 29,514 295 The accompanying notes are an integral part of the financial statements. 15 SHARES/ VALUE UNITS (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- (6) Star Choice Communications, Inc. expiring 12/5/05 16,212 $ 60,889 (4)(6) Windsor Woodmont Black Hawk expiring 3/15/10 100 0 ---------------- TOTAL WARRANTS (Cost $137,905) 185,612 ---------------- TOTAL DOMESTIC SECURITIES (Cost $170,809,994) 169,761,386 ---------------- MOODY'S FACE RATINGS AMOUNT (UNAUDITED) (000) ----------------------------------------------------------------------------------------------------------------- FOREIGN SECURITIES (17.1%) CORPORATE OBLIGATIONS (7.4%) AUTOMOBILE MANUFACTURING/VEHICLE PARTS (0.1%) Bombardier Recreational Products, Inc. Sr. Sub. Notes (Canada) 8.375%, 12/15/13 B3 USD $250 268,125 ---------------- BROADBAND (0.5%) Call Net Enterprises, Inc. Yankee Gtd. (Canada) 10.625%, 12/31/08 Caa3 USD 400 402,000 (1) Global Crossing Finance plc Gtd. (United Kingdom) 10.75%, 12/15/14 Caa1 USD 750 744,375 ---------------- GROUP TOTAL 1,146,375 ---------------- BROADCAST /OUTDOOR (0.1%) Corus Entertainment, Inc. Global Sr. Sub. Notes (Canada) 8.75%, 3/1/12 B1 USD 150 165,375 ---------------- BUILDING PRODUCTS (0.1%) (1)(3) MAAX Holdings, Inc. Sr. Discount Notes (Canada) 0.00%, 12/15/12 Caa1 USD 500 316,250 ---------------- CABLE (0.8%) (2) Australis Holdings Pty. Ltd. Yankee Sr. Secured Discount Notes (Australia) 15.00%, 11/1/02 N/R USD 4,600 92,000 (1) Kabel Deutschland GmbH Sr. Notes (Germany) 10.625%, 7/1/14 B2 USD 400 462,000 Rogers Cablesystems, Inc. Series B, Yankee Sr. Notes (Canada) 10.00%, 3/15/05 Ba3 USD 250 254,687 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- (1)(3) Telenet Group Holding NV Discount Notes (Belgium) 0.00%, 6/15/14 Caa2 USD $600 $ 459,000 (1) Videotron LTEE Sr. Notes. (Canada) 6.875%, 1/15/14 Ba3 USD 600 623,250 ---------------- GROUP TOTAL 1,890,937 ---------------- CHEMICALS (1.0%) Acetex Corp. Global Sr. Notes (Canada) 10.875%, 8/1/09 B2 USD 400 437,000 Avecia Group plc Global Gtd. (United Kingdom) 11.00%, 7/1/09 Caa3 USD 750 776,250 (1) BCP Caylux Holdings Sr. Sub. Notes (Luxembourg) 9.625%, 6/15/14 B3 USD 400 453,000 Rhodia SA Sr. Notes (France) 10.25%, 6/1/10 B3 USD 600 678,000 ---------------- GROUP TOTAL 2,344,250 ---------------- CONTAINERS (0.6%) Crown Cork & Seal Finance plc Yankee Gtd. (United Kingdom) 7.00%, 12/15/06 B3 USD 300 316,500 Crown Euro Holdings SA Secured (France) 9.50%, 3/1/11 B1 USD 795 910,275 ---------------- GROUP TOTAL 1,226,775 ---------------- INDUSTRIAL (0.3%) (2) International Utility Structures, Inc.: Sub. Notes (Canada) 13.00%, 2/1/08 N/R USD 924 4,620 Yankee Sr. Sub. Notes (Canada) 10.75%, 2/1/08 N/R USD 800 168,000 (1) Magnachip Semiconductor Sr. Sub. Notes (South Korea) 8.00%, 12/15/14 B2 USD 400 419,000 ---------------- GROUP TOTAL 591,620 ---------------- LEISURE (0.3%) Intrawest Corp. Sr. Notes (Canada) 7.50%, 10/15/13 B1 USD 250 267,188 (1) NCL Corp. Sr. Notes (Bermuda) 10.625%, 7/15/14 B2 USD 500 502,500 ---------------- GROUP TOTAL 769,688 ---------------- The accompanying notes are an integral part of the financial statements. 16 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- METALS & MINING (0.1%) Gerdau Ameristeel Corp. Sr. Notes (Canada) 10.375%, 7/15/11 Ba3 USD $250 $ 294,375 ---------------- PAPER/FOREST PRODUCTS (1.1%) Abitibi-Consolidated, Inc. Notes (Canada) 7.75%, 6/15/11 Ba3 USD 250 263,750 (1) Ainsworth Lumber Co., Ltd. Sr. Notes (Canada) 7.25%, 10/1/12 B2 USD 250 255,625 JSG Funding plc Global Sr. Notes (Ireland) 9.625%, 10/1/12 B3 USD 500 560,000 Norkse Skog Canada Ltd. Sr. Notes (Canada) 7.375%, 3/1/14 Ba3 USD 250 261,875 Riverside Forest Products Ltd. Sr. Notes (Canada) 7.875%, 3/1/14 B2 USD 400 442,000 Tembec Industries, Inc.: Global Notes, Gtd. (Canada) 7.75%, 3/15/12 Ba3 USD 250 243,125 Yankee Gtd. (Canada) 8.625%, 6/30/09 Ba3 USD 400 404,000 ---------------- GROUP TOTAL 2,430,375 ---------------- RETAIL - FOOD & DRUG (0.2%) (1) Jean Coutu Group (PJC), Inc. Sr. Sub. Notes (Canada) 8.50%, 8/1/14 B3 USD 400 412,000 ---------------- SECONDARY OIL & GAS PRODUCERS (0.7%) Paramount Resources Ltd. Yankee Sr. Notes (Canada) 8.875%, 7/15/14 B3 USD 325 396,500 (1) Petroliam Nasional Berhad (Petronas) Bonds (Malaysia) 7.75%, 8/15/15 A2 USD 1,000 1,226,382 ---------------- GROUP TOTAL 1,622,882 ---------------- TECHNOLOGY (0.4%) Celestica, Inc. Sr. Sub. Notes (Canada) 7.875%, 7/1/11 Ba3 USD 300 323,250 (1) Flextronics International Ltd. Sr. Sub. Notes (Singapore) 6.25%, 11/15/14 Ba2 USD 250 248,750 Danka Business Systems plc Sr. Notes (United Kingdom) 11.00%, 6/15/10 B3 USD $250 $ 266,250 ---------------- GROUP TOTAL 838,250 ---------------- TRANSPORTATION (0.8%) Sea Containers Ltd. Series B, Yankee Sr. Notes (Bermuda) 10.75%, 10/15/06 B3 USD 700 736,750 Ship Finance International Ltd. Sr. Notes (Bermuda) 8.50%, 12/15/13 B1 USD 750 776,250 (1) Stena AB Sr. Notes (Sweden) 7.00%, 12/1/16 Ba3 USD 250 248,750 ---------------- GROUP TOTAL 1,761,750 ---------------- UTILITIES (0.1%) Calpine Canada Energy Finance LLC Gtd. (Canada) 8.50%, 5/1/08 Caa1 USD 317 261,525 ---------------- WIRELESS (0.2%) (1) Millicom International Cellular S.A. Sr. Notes (Luxembourg) 10.00%, 12/1/13 B3 USD 500 525,625 ---------------- TOTAL CORPORATE OBLIGATIONS (Cost $19,073,792) 16,866,177 ---------------- GOVERNMENT OBLIGATIONS (9.7%) ARGENTINA (0.2%) (5) Bocon PRO 1 Bonds 2.67%, 4/1/07 Ca ARP 152 3,397 Republic of Argentina Series 2031, Unsubordinated 12.00%, 6/19/31 Ca USD 1,060 352,450 ---------------- GROUP TOTAL 355,847 ---------------- BRAZIL (3.6%) Federal Republic of Brazil: Series 20YR, Bonds 8.00%, 4/15/14 B1 USD 1,916 1,973,386 Series 30YR, Collateralized 3.0625%, 4/15/24 B1 USD 1,680 1,567,754 Series RG, Bonds 2.125%, 4/15/12 B1 USD 1,324 1,268,799 Unsubordinated 11.00%, 8/17/40 B1 USD 2,850 3,385,087 ---------------- GROUP TOTAL 8,195,026 ---------------- The accompanying notes are an integral part of the financial statements. 17 MOODY'S FACE RATINGS AMOUNT VALUE (UNAUDITED) (000) (NOTE 1-A) ----------------------------------------------------------------------------------------------------------------- COLOMBIA (0.5%) Republic of Colombia: Global Bonds 11.75%, 2/25/20 Ba2 USD $715 $ 922,350 Series EMTN, Notes 11.50%, 5/31/11 Ba2 EUR 150 258,021 ---------------- GROUP TOTAL 1,180,371 ---------------- PANAMA (0.2%) Republic of Panama Bonds 9.375%, 1/16/23 Ba1 USD 375 435,000 ---------------- PHILIPPINES (0.6%) Republic of Philippines Bonds 8.375%, 2/15/11 Ba2 USD 1,315 1,319,931 ---------------- RUSSIA (2.7%) Ministry Finance of Russia: Series V, Debentures 3.00%, 5/14/08 Ba2 USD 4,255 3,966,086 Series VI, Debentures 3.00%, 5/14/06 Ba1 USD 180 176,778 (3) Russian Federation Series REGS, Unsubordinated 5.00%, 3/31/30 Baa3 USD 2,030 2,101,862 ---------------- GROUP TOTAL 6,244,726 ---------------- TURKEY (0.9%) Republic of Turkey: Notes 11.50%, 1/23/12 B1 USD 405 522,450 Sr. Unsubordinated Notes 11.875%, 1/15/30 B1 USD 1,000 1,445,000 ---------------- GROUP TOTAL 1,967,450 ---------------- UKRAINE (0.2%) Ukraine Government Bonds 7.65%, 6/11/13 B1 USD 500 535,000 ---------------- VENEZUELA (0.8%) Republic of Venezuela: Bonds 9.25%, 9/15/27 B2 USD 650 687,375 Notes 8.50%, 10/8/14 B2 USD 500 531,250 Sr. Unsubordinated Notes 11.00%, 3/5/08 B2 EUR 360 573,299 ---------------- GROUP TOTAL 1,791,924 ---------------- TOTAL GOVERNMENT OBLIGATIONS (Cost $20,382,980) 22,025,275 ---------------- TOTAL FOREIGN SECURITIES (Cost $39,456,772) 38,891,452 ---------------- TIME DEPOSIT (5.8%) HSBC Bank USA (Grand Cayman) 1.37%, 1/03/05 (Cost $13,345,000) $ 13,345,000 ---------------- TOTAL INVESTMENTS (97.6%) (Cost $223,611,766) 221,997,838 ---------------- OTHER ASSETS IN EXCESS OF LIABILITIES (2.4%) 5,376,096 ---------------- NET ASSETS (100%) Applicable to 49,895,588 issued and outstanding $.001 par value shares (authorized 100,000,000 shares) $ 227,373,934 ================ N/R--Not Rated ARP--Argentine Peso EUR--Euro Dollar (1) 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. At December 31, 2004, these securities amounted to was $39,102,142 or 17.20% of net assets. (2) Defaulted security. (3) Step Bond--The interest stated is as of December 31, 2004 and will reset at a future date. (4) Not readily marketable; securities are valued at fair value as determined in good faith by, or under the direction of, the Board of Directors. (5) Floating Rate--The interest rate changes on these instruments based upon a designated base rate. The rates shown are those in effect at December 31, 2004. (6) Non-income producing security. (7) Restricted as to private and public resale. Total cost of restricted securities at December 31, 2004 aggregated $4,815,982. Total market value of restricted securities owned at December 31, 2004 was $14,420 or 0.01% of net assets. (8) Payment-in-kind preferred stock. Market value includes accrued dividend. The accompanying notes are an integral part of the financial statements. 18 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004 --------------------------------------------------------------------------------- ASSETS: Investments at Value (Cost $223,611,766) (Note 1-A) $ 221,997,838 Foreign Cash at Value (Cost $1,551,073) 1,561,411 Receivables: Receivable for Investments Sold 9,799 Interest Receivable (Note 1-B) 4,394,528 Other Assets 11,091 --------------------------------------------------------------------------------- Total Assets 227,974,667 --------------------------------------------------------------------------------- LIABILITIES: Investments Purchased 147,715 Unrealized Depreciation on Forward Foreign Currency Transaction (Note 1-I) 37,740 Investment Advisory Fees (Note 2) 278,333 Shareholders' Reports 68,358 Custodian Fees 20,378 Administrative Fees (Note 2) 19,579 Shareholders' Servicing Fees 12,462 Audit Fees 10,000 Legal Fees 4,003 Other Liabilities 2,165 --------------------------------------------------------------------------------- Total Liabilities 600,733 --------------------------------------------------------------------------------- NET ASSETS $ 227,373,934 ================= NET ASSETS CONSIST OF: Capital Shares at $.001 Par Value $ 49,896 Capital Paid in Excess of Par Value 390,430,990 Distributions in Excess of Net Investment Income (3,889,740) Accumulated Net Realized Loss on Investments and Foreign Currency Transactions (157,580,865) Unrealized Depreciation on Investments, Foreign Currency Translations (1,636,347) --------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO 49,895,588 ISSUED AND OUTSTANDING SHARES (AUTHORIZED 100,000,000 SHARES) $ 227,373,934 ================= NET ASSET VALUE PER SHARE $ 4.56 MARKET PRICE PER SHARE $ 4.45 ================================================================================= STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2004 --------------------------------------------------------------------------------- INVESTMENT INCOME: Interest (Net of foreign taxes withheld of $3,818) (Note 1-B) $ 19,410,109 Dividends (Note 1-B) 9,435 --------------------------------------------------------------------------------- Total Income 19,419,544 --------------------------------------------------------------------------------- EXPENSES: Investment Advisory Fees (Note 2) 1,080,394 Custodian Fees 120,774 Administrative Fees (Note 2) 108,039 Shareholders' Reports 103,897 Directors' Fees and Expenses 67,856 Shareholders' Servicing Fees 65,671 Legal Fees 49,950 Audit Fees 44,650 NYSE Fees 39,105 Insurance 25,382 Miscellaneous 13,254 --------------------------------------------------------------------------------- Total Expenses 1,718,972 --------------------------------------------------------------------------------- Net Investment Income 17,700,572 --------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN CURRENCY RELATED ITEMS Net realized gain from investments 2,566,562 Net realized gain on foreign currency transactions (Note 1-B) 453,423 Net change in unrealized appreciation (depreciation) from investments 7,561,550 Net change in unrealized appreciation (depreciation) from foreign currency translations (Note 1-B) 184,469 --------------------------------------------------------------------------------- Net Realized Gain and Change in Unrealized Appreciation 10,766,004 --------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 28,466,576 ================================================================================= The accompanying notes are an integral part of the financial statements. 19 STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, ------------------------------ 2004 2003 --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net Investment Income $ 17,700,572 $ 18,352,767 Net Realized Gain (Loss) on Investments and Foreign Currency Transactions 3,019,985 (5,436,579) Change in Unrealized Appreciation of Investments and Foreign Currency Translations 7,746,019 34,311,753 --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 28,466,576 47,227,941 --------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net Investment Income (20,005,808) (21,280,026) Return of Capital (950,339) (1,173,023) --------------------------------------------------------------------------------------------------------------------------------- Total Distributions (20,956,147) (22,453,049) --------------------------------------------------------------------------------------------------------------------------------- Total Increase in Net Assets 7,510,429 24,774,892 --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of Period 219,863,505 195,088,613 --------------------------------------------------------------------------------------------------------------------------------- End of Period (Including distributions in excess of net investment income of (3,889,740) and ($4,068,815), respectively.) $ 227,373,934 $ 219,863,505 ================================================================================================================================= The accompanying notes are an integral part of the financial statements. 20 FINANCIAL HIGHLIGHTS YEAR ENDED DECEMBER 31, --------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: 2004 2003 2002 2001(2) 2000 ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR $ 4.41 $ 3.91 $ 4.74 $ 5.70 $ 7.34 ------------------------------------------------------------------------------------------------------------------------ Offering Costs -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------ Investment Activities: Net Investment Income 0.35 0.37 0.42 0.61+ 0.67 Net Realized and Unrealized Gain (Loss) on Investments and Futures Contracts 0.22 0.58 (0.55) (0.85) (1.55) ------------------------------------------------------------------------------------------------------------------------ Total from Investment Activities 0.57 0.95 (0.13) (0.24) (0.88) ------------------------------------------------------------------------------------------------------------------------ Distributions: Net Investment Income (0.40) (0.43) (0.62) (0.72) (0.76) Return of Capital (0.02) (0.02) (0.08) -- -- ------------------------------------------------------------------------------------------------------------------------ Total Distributions (0.42) (0.45) (0.70) (0.72) (0.76) ------------------------------------------------------------------------------------------------------------------------ Decrease in Net Asset Value due to Shares Issued through Rights Offering -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $ 4.56 $ 4.41 $ 3.91 $ 4.74 $ 5.70 ======================================================================================================================== PER SHARE MARKET VALUE, END OF YEAR $ 4.45 $ 4.50 $ 3.88 $ 4.98 $ 5.56 ======================================================================================================================== TOTAL INVESTMENT RETURN: Net Asset Value (1) 13.55% 24.59% (5.26)% (6.04)% (12.37)% Market Value 8.60% 28.11% (10.52)% 1.15% 3.55% ======================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Year (Thousands) $ 227,374 $ 219,864 $ 195,089 $ 236,652 $ 197,817 Ratio of Expenses to Average Net Assets Including Expense Offsets 0.78% 0.78% 0.79% 1.07% 0.78% Ratio of Expenses to Average Net Assets 0.78% 0.78% 0.79% 1.07% 0.78% Ratio of Net Investment Income to Average Net Assets 8.08% 8.83% 9.93% 11.66% 10.10% Portfolio Turnover Rate 57.8% 77.8% 61.1% 50.1%(3) 39.1% ------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, --------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: 1999 1998 1997 1996 1995^ ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF YEAR $ 7.77 $ 8.44 $ 8.12 $ 8.63 $ 8.05 ------------------------------------------------------------------------------------------------------------------------ Offering Costs -- -- -- (0.02) -- ------------------------------------------------------------------------------------------------------------------------ Investment Activities: Net Investment Income 0.75 0.71 0.69 0.75 0.86 Net Realized and Unrealized Gain (Loss) on Investments and Futures Contracts (0.46) (0.66) 0.39 0.18 0.48 ------------------------------------------------------------------------------------------------------------------------ Total from Investment Activities 0.29 0.05 1.08 0.93 1.34 ------------------------------------------------------------------------------------------------------------------------ Distributions: Net Investment Income (0.72) (0.72) (0.76) (0.90) (0.76) Return of Capital -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------ Total Distributions (0.72) (0.72) (0.76) (0.90) (0.76) ------------------------------------------------------------------------------------------------------------------------ Decrease in Net Asset Value due to Shares Issued through Rights Offering -- -- -- (0.52) -- ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF YEAR $ 7.34 $ 7.77 $ 8.44 $ 8.12 $ 8.63 ======================================================================================================================== PER SHARE MARKET VALUE, END OF YEAR $ 6.06 $ 7.56 $ 8.75 $ 7.63 $ 7.88 ======================================================================================================================== TOTAL INVESTMENT RETURN: Net Asset Value (1) 4.50% 0.47% 14.03% 10.59%* 17.41% Market Value (11.32)% (5.68)% 25.90% 10.05%* 24.34% ======================================================================================================================== RATIOS AND SUPPLEMENTAL DATA: Net Assets, End of Year (Thousands) $ 254,857 $ 269,507 $ 291,959 $ 280,634 $ 210,441 Ratio of Expenses to Average Net Assets Including Expense Offsets 0.78% 0.81% 0.84% 0.94% -- Ratio of Expenses to Average Net Assets 0.78% 0.81% 0.84% 0.95% 0.92% Ratio of Net Investment Income to Average Net Assets 9.90% 8.59% 8.47% 9.23% 10.22% Portfolio Turnover Rate 43.5% 84.7% 97.7% 81.0% 44.1% ------------------------------------------------------------------------------------------------------------------------ ^ Credit Suisse Asset Management, LLC, formerly known as BEA Associates replaced CS First Boston Investment Management as the Fund's investment adviser effective June 13, 1995. * Adjusted for Rights Offering. + Calculated using the average share method. (1) Total investment return based on per share net asset value reflects the effects of change in net asset value on the performance of the Fund during each year, and assumes dividends and capital gains distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based on market value, due to differences between the market price of the stock and the net asset value of the Fund. (2) As required, effective January 1, 2001 the Fund has adopted provisions of AICPA Audit and Accounting Guide for Investment Companies and has begun amortizing premium on debt securities. The effect of this change for the year ended December 31, 2001 was a decrease to net investment income per share by $0.004 and an increase to net realized and unrealized gains and losses per share by $0.004 and a decrease to the net ratio of net investment income to average net assets from 11.73% to 11.66%. Per share ratios and supplemental data for prior periods have not been restated to reflect this change. (3) Due to the realignment of the Fund's portfolio in connection with the combination with Credit Suisse Strategic Global Income Fund, Inc., the cost of purchases of $30,040,944 and proceeds from sales of $37,801,151 have been excluded from the Portfolio Turnover calculation. Note: Current Year permanent book-tax differences, if any, are not included in the calculation of net investment income per share. The accompanying notes are an integral part of the financial statements. 21 CREDIT SUISSE ASSET MANAGEMENT INCOME FUND, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Credit Suisse Asset Management Income Fund, Inc. (the "Fund") was incorporated on February 11, 1987 and is registered as a diversified, closed-end investment company under the Investment Company Act of 1940, as amended. The Fund's investment objective is to seek current income through investment primarily in debt securities. On May 14, 2001, the Fund acquired substantially all of the assets and assumed the liabilities of Credit Suisse Asset Management Strategic Global Income Fund, Inc. ("CGF"). Pursuant to the terms of the agreement governing the acquisition, the CGF shareholders, for each share of common stock of CGF held, became entitled to receive an equivalent dollar amount of full shares of common stock of the Fund. Based on the net asset values of the Fund and CGF as of May 11, 2001 ($5.49 and $6.96, respectively), the conversion ratio was 1.2681 shares of the Fund for each share of CGF. Cash was paid in lieu of fractional shares. Net assets of the Fund and CGF as of the acquisition date were $190,522,544 and $83,383,448, including unrealized depreciation of $71,252,968 and $16,668,823, respectively. Total net assets immediately after the acquisition were $273,905,992. Based upon the opinion of Fund counsel, the acquisition qualified as a tax-free reorganization for Federal income tax purposes, with no gain or loss recognized by the Fund, CGF or their shareholders. A. SECURITY VALUATION: The net asset value of the Fund is determined daily as of the close of regular trading on the New York Stock Exchange, Inc. (the "Exchange") on each day the Exchange is open for business. Debt securities with a remaining maturity greater then 60 days are valued in accordance with the price supplied by a pricing service, which may use a matrix, formula or other objective method that takes into consideration market indices, yield curves and other specific adjustments. Debt obligations that will mature in 60 days or less are valued on the basis of amortized cost, which approximates market value, unless it is determined that using this method would not represent fair value. The Fund's equity investments are valued at market value, which is generally determined using the closing price on the exchange or market on which the security is primarily traded at the time of valuation ("Valuation Time"). If no sales are reported, equity investments are generally valued at the most recent bid quotation as of the Valuation Time or at the lowest asked quotation in the case of a short sale of securities. Securities and other assets for which market quotations are not readily available, or whose values have been materially affected by events occurring before the Fund's Valuation Time but after the close of the securities' primary markets, are valued at fair value as determined in good faith by, or under the direction of, the Board of Directors under procedures established by the Board of Directors. The Fund may invest up to 10% of its total assets in securities which are not readily marketable, including those which are restricted as to disposition under securities law ("restricted securities") (excludes 144A securities). These securities are valued pursuant to the valuation procedures noted above. B. SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are accounted for on a trade date basis. Interest income is accrued as earned. The Fund amortizes premium and accretes discount using the effective yield method. Dividends are recorded on the ex-dividend date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. Discount or premium on mortgage backed securities are recorded upon receipt of principal payments on the underlying mortgage pools. C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income are declared and paid monthly. Distributions of net realized capital gains, if any, are declared and paid at least annually. However, to the extent that a net realized capital gain can be reduced by a capital loss carryover, such gain will not be distributed. Income and capital gains distributions are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles in the United States of America ("GAAP"). D. FEDERAL INCOME TAXES: No provision is made for federal taxes as it is the Fund's intention to continue to qualify for and elect the tax treatment applicable to regulated investment companies under the Internal Revenue Code of 1986, as amended, and to make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes. E. USE OF ESTIMATES: The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period. Actual results could differ from these estimates. 22 F. SHORT-TERM INVESTMENTS: The Fund, together with other funds/portfolios advised by Credit Suisse Asset Management, LLC ("CSAM"), an indirect wholly-owned subsidiary of Credit Suisse Group, sweeps available cash into either a short-term variable rate time deposit issued by Brown Brothers Harriman & Co. ("BBH&Co."), the Fund's custodian, Grand Cayman branch or with other client approved, and highly rated banks. The short-term time deposit is a variable rate account classified as a short-term investment. G. DELAYED DELIVERY COMMITMENTS: The Fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. H. FUTURES CONTRACTS: The Fund may enter into futures contracts to the extent permitted by its investment policies and objectives. Upon entering into a futures contract, the Fund is required to deposit cash or pledge U.S. Government securities as initial margin. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying instrument, are made or received by the Fund each day (daily variation margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transactions and the Fund's basis in the contracts. Risks of entering into futures contracts for hedging purposes include the possibility that a change in the value of the contracts may not correlate with the changes in the value of the underlying instruments. In addition, the purchase of futures contracts involves the risk that the Fund could lose more than the original margin deposit and subsequent payments required for a futures transaction. At December 31, 2004, the Fund had no open futures contracts. I. FORWARD FOREIGN CURRENCY CONTRACTS: The Fund may enter into forward foreign currency contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency. The Fund will enter into forward foreign currency contracts primarily for hedging purposes. Forward foreign currency contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized until the contract settlement date, or an offsetting position is entered into. At December 31, 2004, the Fund had the following open forward foreign currency contract: FORWARD FOREIGN FOREIGN CURRENCY CURRENCY EXPIRATION TO BE CONTRACT CONTRACT UNREALIZED CONTRACT DATE SOLD AMOUNT VALUE LOSS ---------------------- ---------- ------------------ ------------ ------------ ----------- European Economic Unit 3/16/05 EURO (1,699,438) $ 2,274,188 $ 2,311,928 $ (37,740) J. OTHER: The Fund may invest in securities of foreign countries and governments which involve certain risks in addition to those inherent in domestic investments. Such risks generally include, among others currency risks (fluctuations in currency exchange rates), information risk (key information may be inaccurate or unavailable) and political risk (expropriation, nationalization or the imposition of capital or currency controls or punitive taxes). Other risks of investing in foreign securities include liquidity and valuation risks. The Fund may be subject to taxes imposed by countries in which it invests with respect to its investments in issuers existing or operating in such countries. Such taxes are generally based on income earned or repatriated and capital gains realized on the sale of such investments. The Fund accrues such taxes when the related income or gains are earned. The Fund's investments in securities of issuers located in less developed countries considered to be "emerging markets" involve risks in addition to those generally applicable to foreign securities. Focusing on emerging (less developed) markets involves higher levels of risk, including increased currency, information, liquidity, market, political and valuation risks. Deficiencies in regulatory oversight, market infrastructure, shareholder protections and company laws could expose the Fund to operational and other risks as well. Some countries may have restrictions that could limit the Fund's access to attractive investment opportunities. Additionally, emerging markets often face serious economic problems (such as high external debt, inflation and unemployment) that could subject the portfolio to increased volatility or substantial declines in value. Lower-rated debt securities (commonly known as "junk bonds") possess speculative characteristics and are subject to greater market fluctuations and risk of lost income and principal than higher-rated debt securities for a variety of reasons. Also, during an economic downturn or substantial 23 period of rising interest rates, highly leveraged issuers may experience financial stress which would adversely effect their ability to service their principal and interest payment obligations, to meet projected business goals and to obtain additional financing. In addition, periods of economic uncertainty and changes can be expected to result in increased volatility of market prices of lower-rated debt securities and (to the extent a Fund invests in junk bonds) the Fund's net asset value. NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES CSAM serves as investment adviser for the Fund. For its investment advisory services, CSAM is entitled to receive a fee from the Fund at a computed weekly and paid quarterly rate as follows: 0.50% of the lower of the weekly stock price (market value) of the Fund's outstanding shares or its average weekly net assets. For the year ended December 31, 2004, investment advisory fees earned were $1,080,394. BBH&Co., provides administrative and custodial services to the Fund. Under the Administration and Custody Agreements, BBH&Co. is paid a fee based on average net assets. For the year ended December 31, 2004, BBH&Co. earned administrative service fees (including out-of-pocket expenses) of $108,039. Fleet National Bank provides transfer agent services to the Fund. Under the Transfer Agent Agreement, Fleet National Bank is paid a fee based on the number of accounts in the Fund per year. In addition, the Fund is charged certain out-of-pocket expenses by Fleet National Bank. Merrill Corporation ("Merrill"), an affiliate of CSAM, has been engaged by the Fund to provide certain financial printing services. For the year ended December 31, 2004, Merrill was paid $52,865 for its services to the Fund. NOTE 3. LINE OF CREDIT The Fund, together with other funds/portfolios advised by CSAM (collectively, the "Participating Funds"), participates in a $75 million committed, unsecured line of credit facility ("Credit Facility") with Deutsche Bank, A.G. as administrative agent and syndication agent and State Street Bank and Trust Company as operations agent for temporary or emergency purposes. Under the terms of the Credit Facility, the Participating Funds pay an aggregate commitment fee at a rate of 0.10% per annum on the average unused amount of the Credit Facility, which is allocated among the Participating Funds in such manner as is determined by the governing Boards of the Participating Funds. In addition, the Participating Funds pay interest on borrowings at the Federal Funds rate plus 0.50%. At December 31, 2004 and during the year ended December 31, 2004, the Fund had no borrowings under the Credit Facility. NOTE 4. PURCHASES AND SALES OF SECURITIES For the year ended December 31, 2004, there were no transactions in U.S. Government and Agency Obligations. Purchases and sales of investment securities (excluding short-term investments) were as follows: INVESTMENT SECURITIES --------------------- Purchases $ 122,790,631 Sales 138,838,759 NOTE 5. FEDERAL INCOME TAXES Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments of foreign currency transactions, interest accrual from defaulted bonds, losses deferred due to wash sales and Post-October losses. The tax characteristics of dividends paid during the year ended December 31, 2004 and the year ended December 31, 2003, respectively, for the Fund were as follows: ORDINARY INCOME RETURN OF CAPITAL -------------------------------- --------------------------- 2004 2003 2004 2003 --------------- -------------- ----------- ------------- $ 20,005,808 $ 21,280,026 $ 950,339 $ 1,173,023 At December 31, 2004, the components of distributable earnings on a tax basis for the Fund were as follows: Undistributed Income Other $ (3,889,740)* Accumulated Capital and other losses (157,391,053) Unrealized appreciation (depreciation) (1,826,160)** ---------------- $ (163,106,953) ---------------- * Other Book/Tax temporary differences are attributable primarily to the mark-to-market of Forward Currency Contracts and the accrual of defaulted interest on bonds. ** The difference between Book-basis and Tax-basis unrealized depreciation is attributable primarily to the Tax deferral of losses on wash sales. 24 At December 31, 2004, the Fund had capital loss carryforwards available to offset possible future capital gains as follows: EXPIRES DECEMBER 31, --------------------------------------------------------------------------------------------------------- 2006 2007 2008 2009 2010 2011 2012 ------------ ------------ ------------ ------------- ------------- ------------- ------------ $ 3,565,110 $ 9,512,339 $ 2,335,946 $ 50,358,903 $ 72,148,258 $ 18,379,472 $ 1,091,025 At December 31, 2004, the identified cost for federal income tax purposes, as well as the gross unrealized appreciation from investments for those securities having an excess of value over cost, gross unrealized depreciation from investments for those securities having an excess of cost over value and the net unrealized appreciation (depreciation) from investments were as follows; $223,801,579, 18,047,399, (19,851,140) and $(1,803,741), respectively. At December 31, 2004, the Fund reclassified $3,434,650 from accumulated undistributed net investment income and $(2,389,770) from accumulated net realized loss to paid in capital, to adjust for permanent book/tax treatments of foreign currency transactions, interest accrual from defaulted bonds sold and return of capital. Net assets were not affected by these reclassifications. NOTE 6. OTHER The Fund issued to its shareholders of record as of the close of business on September 27, 1996, transferable Rights to subscribe for up to an aggregate of 10,160,570 shares of Common Stock of the Fund at a rate of one share of Common Stock for three Rights held at the subscription price of $7.15 per share. During October 1996, the Fund issued a total of 10,160,570 shares of Common Stock on exercise of such Rights. Rights' offering costs of $550,000 were charged directly against the proceeds of the Offering. NOTE 7. CONTINGENCIES In the normal course of business, the Fund may provide general indemnifications pursuant to certain contacts and organizational documents. The Fund's maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote. 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Credit Suisse Asset Management Income Fund, Inc.: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Credit Suisse Asset Management Income Fund, Inc. (the "Fund") at December 31, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the ten years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 18, 2005 26 DESCRIPTION OF INVESTLINK(SM) PROGRAM (UNAUDITED) The InvestLink(SM) Program is sponsored and administered by Fleet National Bank, not by Credit Suisse Asset Management Income Fund, Inc., (the "Fund"). Fleet National Bank will act as program administrator (the "Program Administrator") of the InvestLink(SM) Program (the "Program"). The purpose of the Program is to provide interested investors with a simple and convenient way to invest funds and reinvest dividends in shares of the Fund's common stock ("Shares") at prevailing prices, with reduced brokerage commissions and fees. An interested investor may join the Program at any time. Purchases of Shares with funds from a participant's cash payment or automatic account deduction will begin on the next day on which funds are invested. If a participant selects the dividend reinvestment option, automatic investment of dividends generally will begin with the next dividend payable after the Program Administrator receives his enrollment form. Once in the Program, a person will remain a participant until he terminates his participation or sells all Shares held in his Program account, or his account is terminated by the Program Administrator. A participant may change his investment options at any time by requesting a new enrollment form and returning it to the Program Administrator. A participant will be assessed certain charges in connection with his participation in the Program. First-time investors will be subject to an initial service charge which will be deducted from their initial cash deposit. All optional cash deposit investments will be subject to a service charge. Sales processed through the Program will have a service fee deducted from the net proceeds, after brokerage commissions. In addition to the transaction charges outlined above, participants will be assessed per share processing fees (which include brokerage commissions.) Participants will not be charged any fee for reinvesting dividends. The number of Shares to be purchased for a participant depends on the amount of his dividends, cash payments or bank account or payroll deductions, less applicable fees and commissions, and the purchase price of the Shares. The Program Administrator uses dividends and funds of participants to purchase Shares of the Fund's common stock in the open market. Such purchases will be made by participating brokers as agent for the participants using normal cash settlement practices. All Shares purchased through the Program will be allocated to participants as of the settlement date, which is usually three business days from the purchase date. In all cases, transaction processing will occur within 30 days of the receipt of funds, except where temporary curtailment or suspension of purchases is necessary to comply with applicable provisions of the Federal Securities laws or when unusual market conditions make prudent investment impracticable. In the event the Program Administrator is unable to purchase Shares within 30 days of the receipt of funds, such funds will be returned to the participants. The average price of all Shares purchased by the Program Administrator with all funds received during the time period from two business days preceding any investment date up to the second business day preceding the next investment date shall be the price per share allocable to a participant in connection with the Shares purchased for his account with his funds or dividends received by the Program Administrator during such time period. The average price of all Shares sold by the Program Administrator pursuant to sell orders received during such time period shall be the price per share allocable to a participant in connection with the Shares sold for his account pursuant to his sell orders received by the Program Administrator during such time period. Fleet National Bank, as Program Administrator administers the Program for participants, keeps records, sends statements of account to participants and performs other duties relating to the Program. Each participant in the Program will receive a statement of his account following each purchase of Shares. The statements will also show the amount of dividends credited to such participant's account (if applicable), as well as fees paid by the participant. In addition, each participant will receive copies of the Fund's annual and semi-annual reports to shareholders, proxy statements and, if applicable, dividend income information for tax reporting purposes. If the Fund is paying dividends on the Shares, a participant will receive dividends through the Program for all Shares held on the dividend record date on the basis of full and fractional Shares held in his account, and for all other Shares of the Fund registered in his name. The Program Administrator will send checks to the participants for the amounts of their dividends that are not to be automatically reinvested at no cost to the participants. Shares of the Fund purchased under the Program will be registered in the name of the accounts of the respective participants. Unless requested, the Fund will not issue to participants certificates for Shares of the Fund purchased under the Program. The Program Administrator will hold the Shares in book-entry form until a Program participant chooses to withdraw his Shares or terminate his participation in the Program. The number of Shares purchased for a participant's account under the Program will be shown on his statement of account. This feature protects against loss, theft or destruction of stock certificates. 27 A participant may withdraw all or a portion of the Shares from his Program account by notifying the Program Administrator. After receipt of a participant's request, the Program Administrator will issue to such participant certificates for the whole Shares of the Fund so withdrawn or, if requested by the participant, sell the Shares for him and send him the proceeds, less applicable brokerage commissions, fees, and transfer taxes, if any. If a participant withdraws all full and fractional Shares in his Program account, his participation in the Program will be terminated by the Program Administrator. In no case will certificates for fractional Shares be issued. The Program Administrator will convert any fractional Shares held by a participant at the time of his withdrawal to cash. Participation in any rights offering, dividend distribution or stock split will be based upon both the Shares of the Fund registered in participants' names and the Shares (including fractional Shares) credited to participants' Program accounts. Any stock dividend or Shares resulting from stock splits with respect to Shares of the Fund, both full and fractional, which participants hold in their Program accounts and with respect to all Shares registered in their names will be automatically credited to their accounts. All Shares of the Fund (including any fractional share) credited to his account under the Program will be voted as the participant directs. The participants will be sent the proxy materials for the annual meetings of shareholders. When a participant returns an executed proxy, all of such shares will be voted as indicated. A participant may also elect to vote his Shares in person at the Shareholders' meeting. A participant will receive tax information annually for his personal records and to help him prepare his U.S. federal income tax return. The automatic reinvestment of dividends does not relieve him of any income tax which may be payable on dividends. For further information as to tax consequences of participation in the Program, participants should consult with their own tax advisors. The Program Administrator in administering the Program will not be liable for any act done in good faith or for any good faith omission to act. However, the Program Administrator will be liable for loss or damage due to error caused by its negligence, bad faith or willful misconduct. Shares held in custody by the Program Administrator are not subject to protection under the Securities Investors Protection Act of 1970. The participant should recognize that neither the Fund nor the Program Administrator can provide any assurance of a profit or protection against loss on any Shares purchased under the program. A participant's investment in Shares held in his Program account is no different than his investment in directly held Shares in this regard. The participant bears the risk of loss and the benefits of gain from market price changes with respect to all his Shares. Neither the Fund nor the Program Administrator can guarantee that Shares purchased under the Program will, at any particular time, be worth more or less than their purchase price. Each participant must make an independent investment decision based on his own judgment and research. While the Program Administrator hopes to continue the Program indefinitely, the Program Administrator reserves the right to suspend or terminate the Program at any time. It also reserves the right to make modifications to the Program. Participants will be notified of any such suspension, termination or modification in accordance with the terms and conditions of the Program. The Program Administrator also reserves the right to terminate any participant's participation in the Program at any time. Any question of interpretation arising under the Program will be determined in good faith by the Program Administrator and any such good faith determination will be final. Any interested investor may participate in the Program. To participate in the Program, an investor who is not already a registered owner of the Shares must make an initial investment of at least $250.00. All other cash payments or bank account deductions must be at least $100.00, up to a maximum of $100,000.00 annually. An interested investor may join the Program by reading the Program description, completing and signing the enrollment form and returning it to the Program Administrator. The enrollment form and information relating to the Program (including terms and conditions) may be obtained by calling the Program Administrator at one of the following telephone numbers: First Time Investors (888) 697-8026. Current Shareholders (800) 730-6001. All correspondence regarding the Program should be directed to: Fleet National Bank, InvestLink Program, P.O. 43010, Providence, RI 02940-3010. 28 INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED) NUMBER OF PORTFOLIOS IN POSITION(S) TERM OF OFFICE FUND COMPLEX NAME, ADDRESS AND HELD AND LENGTH PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS DATE OF BIRTH WITH FUND OF TIME SERVED DURING PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT DIRECTORS Enrique R. Arzac Director, Since 1990; Professor of Finance and 8 Director of The Adams Columbia University Nominating current term Economics, Graduate Express Company (a Graduate School of Committee ends at the 2007 School of Business, closed-end investment Business Chairman and annual meeting Columbia University company); Director of New York, New York Audit Committee since 1971. Petroleum and Resources 10027 Member Corporation (a closed-end Date of Birth: 02/10/41 investment company.) Lawrence J. Fox Director, Since 1990; Partner of Drinker 3 Director, Winthrop Trust One Logan Square Nominating current term Biddle & Reath (law firm) Company. 18th & Cherry Streets Committee ends at the 2006 since 1972. Philadelphia, Member and annual meeting Pennsylvania 19103 Audit Committee Date of Birth: 07/17/43 Chairman James S. Pasman, Jr. Director, Since Fund Currently retired. 42 Director of Education c/o Credit Suisse Asset Nominating Inception; Management Corp. Management, LLC and Audit current term 466 Lexington Avenue Committee ends at the 2005 New York, New York Member annual meeting 10017-3140 Date of Birth: 12/20/30 INTERESTED DIRECTORS(1) Michael E. Kenneally Director, Since 2004; Chairman and Global 44 None Credit Suisse Asset Chairman of Current term Chief Executive Officer of Management, LLC the Board and ends at the 2006 CSAM since 2003; 466 Lexington Avenue Chief Executive annual meeting Chairman and Chief New York, New York Officer Investment Officer of 10017-3140 Banc of America Capital Date of Birth: 03/30/54 Management from 1998 to March 2003. William W. Priest, Jr. Director Since 1997; Chief Executive Officer of 47 Director of Globe c/o Epoch Investment current term J Net Enterprises, Inc. Wireless, LLC (maritime Partners ends at the 2005 (technology holding communications company); 667 Madison Avenue annual meeting company) since June 2004; Director of InfraRed X New York, New York Chief Executive Officer of (medical device company); 10021 Epoch Investment Director of J Net Date of Birth: 09/24/41 Partners, Inc. since Enterprises, Inc. April 2004; Co-Managing Partner, Steinberg Priest & Sloane Capital Management, LLC since March 2001 to March 2004; Chairman and Managing Director of CSAM from 2000 to February 2001; Chief Executive Officer and Managing Director of CSAM from 1990 to 2000. 29 POSITION(S) TERM OF OFFICE NAME, ADDRESS AND HELD AND LENGTH PRINCIPAL OCCUPATION(S) DATE OF BIRTH WITH FUND OF TIME SERVED DURING PAST FIVE YEARS -------------------------------------------------------------------------------------------------------------------------------- OFFICERS(2) Richard J. Lindquist President and Since 1996 Managing Director of CSAM; Associated with CSAM since 1995; Officer Credit Suisse Asset Chief of other Credit Suisse Funds. Management, LLC Investment 466 Lexington Avenue Officer New York, New York 10017-3140 Date of Birth: 06/22/60 Michael A. Pignataro Chief Since 1995 Director and Director of Fund Administration of CSAM; Associated Credit Suisse Asset Financial with CSAM since 1984; Officer of other Credit Suisse Funds. Management, LLC Officer, Vice 466 Lexington Avenue President and New York, New York Secretary 10017-3140 Date of Birth: 11/15/59 Emidio Morizio Chief Since 2004 Director and Global Head of Compliance of CSAM; Associated with Credit Suisse Asset Compliance CSAM since July 2000; Vice President and Director of Compliance Management, LLC Officer of Forstmann-Leff Associates from 1998 to June 2000; Officer of 466 Lexington Avenue other Credit Suisse Funds. New York, New York 10017-3140 Date of Birth: 09/21/66 Ajay Mehra Chief Legal Since 2004 Director and Deputy General Counsel of CSAM since September 2004; Credit Suisse Asset Officer Senior Associate of Shearman & Sterling LLP from September 2000 to Management, LLC September 2004; Senior Counsel of the SEC Division of Investment 466 Lexington Avenue Management from June 1997 to September 2000; Officer of other Credit New York, New York Suisse Funds. 10017-3140 Date of Birth: 08/14/70 J. Kevin Gao Senior Vice Since 2004 Vice President and legal counsel of CSAM; Associated with CSAM since Credit Suisse Asset President July 2003; Associated with the law firm of Willkie Farr & Gallagher Management, LLC LLP from 1998 to 2003; Officer of the other Credit Suisse Funds. 466 Lexington Avenue New York, New York 10017-3140 Date of Birth: 10/13/67 Robert M. Rizza Treasurer Since 1999 Assistant Vice President of CSAM; Associated with CSAM since 1998; Credit Suisse Asset Officer of other Credit Suisse Funds. Management, LLC 466 Lexington Avenue New York, New York 10017-3140 Date of Birth: 12/09/65 (1) Designates a director who is an "interested person" of the Fund as defined under the Investment Company Act of 1940, as amended. Mr. Priest is an interested person of the Fund because, up to December 31, 2002, he was retained by CSAM to provide consulting services. (2) The officers of the Fund shown are officers that make policy decisions. 30 ANNUAL CERTIFICATIONS (UNAUDITED) The Fund's Chief Executive Officer has filed an annual certification with the NYSE that, as of the date of the certification, he was unaware of any violation by the Fund of the NYSE's corporate governance listing standards. The Fund's Chief Executive Officer and Chief Financial Officer have also filed certifications with the SEC as part of the Fund's Form N-CSR filings that cover certain public disclosure documents of the Fund, including its annual and semi-annual reports to stockholders. 31 ADDITIONAL FEDERAL TAX INFORMATION (UNAUDITED) The percentage of ordinary income dividends paid by the Fund during the year ended December 31, 2004, which qualify for the Dividends Received Deduction available to corporate shareholders was 0.02%. In January, 2005, the Fund will report on Form 1099 the tax status of all distributions made during the calendar year 2004. Shareholders should use the information on Form 1099 for their tax income returns. Please consult your Tax Advisor if you have any questions concerning the above information. 32 PROXY POLICY AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED) Information regarding how the Credit Suisse Asset Management Income Fund, Inc. (the "Fund") voted proxies related to its portfolio securities during the 12-month period ended June 30, 2004, as well as the policies and procedures that the Fund uses to determine how to vote proxies relating to its portfolio securities are available: - By calling 1-800-293-1232 - On the Fund's website, www.csam.com/us - On the website of the Securities and Exchange Commission, http://www.sec.gov The Fund files a complete schedule of its portfolio holdings for the first and third quarters of its fiscal year with the SEC on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at http:/www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. 33 OTHER FUNDS MANAGED BY CREDIT SUISSE ASSET MANAGEMENT, LLC Credit Suisse Capital Appreciation Fund Credit Suisse Cash Reserve Fund Credit Suisse Emerging Markets Fund Credit Suisse Fixed Income Fund Credit Suisse Global Fixed Income Fund Credit Suisse Global Small Cap Fund Credit Suisse High Income Fund Credit Suisse International Focus Fund Credit Suisse Japan Equity Fund Credit Suisse Large Cap Value Fund Credit Suisse Mid-Cap Growth Fund Credit Suisse New York Municipal Fund Credit Suisse Select Equity Fund Credit Suisse Short Duration Bond Fund Credit Suisse Small Cap Growth Fund Credit Suisse Small Cap Value Fund Fund shares are not deposits or other obligations of Credit Suisse Asset Management, LLC or any affiliate, are not FDIC-insured and are not guaranteed by Credit Suisse Asset Management, LLC or any affiliate. Fund investments are subject to investment risks, including loss of your investment. There are special risk considerations associated with international, global, emerging-market, small-company, private equity, high-yield debt, single-industry, single-country and other special, aggressive or concentrated investment strategies. Past performance cannot guarantee future results. More complete information about a fund, including charges and expenses, is provided in the Prospectus, which should be read carefully before investing. You may obtain copies by calling Credit Suisse Funds at 800-927-2874. For up-to-date performance, please look in the mutual fund section of your newspaper under Credit Suisse. Credit Suisse Asset Management Securities, Inc., Distributor. 34 THE CSAM GROUP OF FUNDS LITERATURE REQUEST- Call today for free descriptive information on the closed-end funds listed below at 1-800-293-1232 or visit our website on the Internet: http://www.csam.com/us. CLOSED-END FUNDS SINGLE COUNTRY The Brazilian Equity Fund, Inc. (BZL) The Chile Fund, Inc. (CH) The Indonesia Fund, Inc. (IF) The First Israel Fund, Inc. (ISL) MULTIPLE COUNTRY The Emerging Markets Telecommunications Fund, Inc. (ETF) The Latin America Equity Fund, Inc. (LAQ) FIXED INCOME Credit Suisse High Yield Bond Fund (DHY) 35 4946-AR-04 Credit Suisse Asset Management, LLC Phone: 1-800-293-1232 www.csam.com/us ITEM 2. CODE OF ETHICS. The registrant has adopted a code of ethics applicable to its Chief Executive Officer, President, Chief Financial Officer and Chief Accounting Officer, or persons performing similar functions. A copy of the code is filed as Exhibit 12(a)(1) to this Form. There were no amendments to the code during the fiscal year ended December 31, 2004. There were no waivers or implicit waivers from the code granted by the registrant during the fiscal year ended December 31, 2004. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's governing board has determined that it has two audit committee financial experts serving on its audit committee: Enrique R. Arzac and James Pasman, Jr. Each audit committee financial expert is "independent" for purposes of this item. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) through (d). The information in the table below is provided for services rendered to the registrant by its independent registered public accounting firm, PricewaterhouseCoopers LLP ("PwC"), for its fiscal years ended December 31, 2003 and December 31, 2004. 2003 2004 --------------------------------------------------------------- Audit Fees $ 37,410 $ 37,410 Audit-Related Fees(1) $ 3,000 $ 4,500 Tax Fees(2) $ 2,175 $ 2,284 All Other Fees -- -- --------------------------------------------------------------- Total $ 42,585 $ 44,194 --------------------------------------------------------------- (1) Services include agreed-upon procedures in connection with the registrant's semi-annual financial statements ($3,000 per year) and the registrant's third quarter 2004 Form N-Q filing ($1,500). (2) Tax services in connection with the registrant's excise tax calculations and review of the registrant's applicable tax returns. The information in the table below is provided with respect to non-audit services that directly relate to the registrant's operations and financial reporting and that were rendered by PwC to the registrant's investment adviser, Credit Suisse Asset Management, LLC ("CSAM"), and any service provider to the registrant controlling, controlled by or under common control with CSAM that provided ongoing services to the registrant ("Covered Services Provider"), for the registrant's fiscal years ended December 31, 2003 and December 31, 2004. 2003 2004 -------------------------------------------------------- Audit-Related Fees N/A N/A 2 Tax Fees N/A N/A All Other Fees N/A N/A ------------------------------------------------------- Total N/A N/A ------------------------------------------------------- (e)(1) Pre-Approval Policies and Procedures. The Audit Committee ("Committee") of the registrant is responsible for pre-approving (i) all audit and permissible non-audit services to be provided by the independent registered public accounting firm to the registrant and (ii) all permissible non-audit services to be provided by the independent registered public accounting firm to CSAM and any Covered Services Provider if the engagement relates directly to the operations and financial reporting of the registrant. The Committee may delegate its responsibility to pre-approve any such audit and permissible non-audit services to the Chairperson of the Committee, and the Chairperson shall report to the Committee, at its next regularly scheduled meeting after the Chairperson's pre-approval of such services, his or her decision(s). The Committee may also establish detailed pre-approval policies and procedures for pre-approval of such services in accordance with applicable laws, including the delegation of some or all of the Committee's pre-approval responsibilities to other persons (other than CSAM or the registrant's officers). Pre-approval by the Committee of any permissible non-audit services shall not be required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the registrant, CSAM and any Covered Services Provider constitutes not more than 5% of the total amount of revenues paid by the registrant to its independent registered public accounting firm during the fiscal year in which the permissible non-audit services are provided; (ii) the permissible non-audit services were not recognized by the registrant at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit. (e)(2) The information in the table below sets forth the percentages of fees for services (other than audit, review or attest services) rendered by PwC to the registrant for which the pre-approval requirement was waived pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X: 2003 2004 -------------------------------------------------------- Audit-Related Fees N/A N/A Tax Fees N/A N/A All Other Fees N/A N/A -------------------------------------------------------- Total N/A N/A -------------------------------------------------------- 3 The information in the table below sets forth the percentages of fees for services (other than audit, review or attest services) rendered by PwC to CSAM and any Covered Services Provider required to be approved pursuant to Rule 2-01(c)(7)(ii)of Regulation S-X, for the registrant's fiscal years ended December 31, 2003 and December 31, 2004: 2003 2004 -------------------------------------------------------- Audit-Related Fees N/A N/A Tax Fees N/A N/A All Other Fees N/A N/A -------------------------------------------------------- Total N/A N/A -------------------------------------------------------- (f) Not Applicable. (g) The aggregate fees billed by PwC for non-audit services rendered to the registrant, CSAM and Covered Service Providers for the fiscal years ended December 31, 2003 and December 31, 2004 were $5,175 and $6,784, respectively. (h) Not Applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The registrant has a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The members of the committee are Enrique R. Arzac, Laurence Fox and James Pasman, Jr. ITEM 6. SCHEDULE OF INVESTMENTS. Included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. 4 CREDIT SUISSE ASSET MANAGEMENT, LLC CREDIT SUISSE FUNDS CREDIT SUISSE INSTITUTIONAL FUNDS CSAM CLOSED-END FUNDS PROXY VOTING POLICY AND PROCEDURES Introduction Credit Suisse Asset Management, LLC ("CSAM") is a fiduciary that owes each of its clients duties of care and loyalty with respect to proxy voting. The duty of care requires CSAM to monitor corporate events and to vote proxies. To satisfy its duty of loyalty, CSAM must cast proxy votes in the best interests of each of its clients. The Credit Suisse Funds, Credit Suisse Institutional Funds, and CSAM Closed-End Funds (the "Funds"), which have engaged Credit Suisse Asset Management, LLC as their investment adviser, are of the belief that the proxy voting process is a means of addressing corporate governance issues and encouraging corporate actions both of which can enhance shareholder value. Policy The Proxy Voting Policy (the "Policy") set forth below is designed to ensure that proxies are voted in the best interests of CSAM's clients. The Policy addresses particular issues and gives a general indication of how CSAM will vote proxies. The Policy is not exhaustive and does not include all potential issues. Proxy Voting Committee The Proxy Voting Committee will consist of a member of the Portfolio Management Department, a member of the Legal and Compliance Department, and a member of the Operations Department (or their designees). The purpose of the Proxy Voting Committee is to administer the voting of all clients' proxies in accordance with the Policy. The Proxy Voting Committee will review the Policy annually to ensure that it is designed to promote the best interests of CSAM's clients. For the reasons disclosed below under "Conflicts," the Proxy Voting Committee has engaged the services of an independent third party (initially, Institutional Shareholder Services ("ISS")) to assist in issue analysis and vote recommendation for proxy proposals. Proxy proposals addressed by the Policy will be voted in accordance with the Policy. Proxy proposals addressed by the Policy that require a case-by-case analysis will be voted in accordance with the vote 5 recommendation of ISS. Proxy proposals not addressed by the Policy will also be voted in accordance with the vote recommendation of ISS. To the extent that the Proxy Voting Committee proposes to deviate from the Policy or the ISS vote recommendation, the Committee shall obtain client consent as described below. CSAM investment professionals may submit a written recommendation to the Proxy Voting Committee to vote in a manner inconsistent with the Policy and/or the recommendation of ISS. Such recommendation will set forth its basis and rationale. In addition, the investment professional must confirm in writing that he/she is not aware of any conflicts of interest concerning the proxy matter or provide a full and complete description of the conflict. Conflicts CSAM is the institutional and mutual fund asset management arm of Credit Suisse First Boston, which is part of Credit Suisse Group, one of the world's largest financial organizations. As part of a global, full service investment-bank, broker-dealer, and asset-management organization, CSAM and its affiliates and personnel may have multiple advisory, transactional, financial, and other interests in securities, instruments, and companies that may be purchased or sold by CSAM for its clients' accounts. The interests of CSAM and/or its affiliates and personnel may conflict with the interests of CSAM's clients in connection with any proxy issue. In addition, CSAM may not be able to identify all of the conflicts of interest relating to any proxy matter. Consent In each and every instance in which the Proxy Voting Committee favors voting in a manner that is inconsistent with the Policy or the vote recommendation of ISS (including proxy proposals addressed and not addressed by the Policy), it shall disclose to the client conflicts of interest information and obtain client consent to vote. Where the client is a Fund, disclosure shall be made to any one director who is not an "interested person," as that term is defined under the Investment Company Act of 1940, as amended, of the Fund. Recordkeeping CSAM is required to maintain in an easily accessible place for five years all records relating to proxy voting. These records include the following: - a copy of the Policy; - a copy of each proxy statement received on behalf of CSAM clients; 6 - a record of each vote cast on behalf of CSAM clients; - a copy of all documents created by CSAM personnel that were material to making a decision on a vote or that memorializes the basis for the decision; and - a copy of each written request by a client for information on how CSAM voted proxies, as well as a copy of any written response. CSAM reserves the right to maintain certain required proxy records with ISS in accordance with all applicable regulations. Disclosure CSAM will describe the Policy to each client. Upon request, CSAM will provide any client with a copy of the Policy. CSAM will also disclose to its clients how they can obtain information on their proxy votes. ISS will capture data necessary for Funds to file Form N-PX on an annual basis concerning their proxy voting record in accordance with applicable law. Procedures The Proxy Voting Committee will administer the voting of all client proxies. CSAM has engaged ISS as an independent third party proxy voting service to assist in the voting of client proxies. ISS will coordinate with each client's custodian to ensure that proxy materials reviewed by the custodians are processed in a timely fashion. ISS will provide CSAM with an analysis of proxy issues and a vote recommendation for proxy proposals. ISS will refer proxies to the Proxy Voting Committee for instructions when the application of the Policy is not clear. The Proxy Voting Committee will notify ISS of any changes to the Policy or deviating thereof. PROXY VOTING POLICY Operational Items Adjourn Meeting Proposals to provide management with the authority to adjourn an annual or special meeting will be determined on a case-by-case basis. Amend Quorum Requirements Proposals to reduce quorum requirements for shareholder meetings below a majority of the shares outstanding will be determined on a case-by-case basis. 7 Amend Minor Bylaws Generally vote for bylaw or charter changes that are of a housekeeping nature. Change Date, Time, or Location of Annual Meeting Generally vote for management proposals to change the date/time/location of the annual meeting unless the proposed change is unreasonable. Generally vote against shareholder proposals to change the date/time/location of the annual meeting unless the current scheduling or location is unreasonable. Ratify Auditors Generally vote for proposals to ratify auditors unless: (1) an auditor has a financial interest in or association with the company, and is therefore not independent; (2) fees for non-audit services are excessive, or (3) there is reason to believe that the independent auditor has rendered an opinion, which is neither accurate nor indicative of the company's financial position. Generally vote on a case-by-case basis on shareholder proposals asking companies to prohibit their auditors from engaging in non-audit services (or capping the level of non-audit services). Generally vote on a case-by-case basis on auditor rotation proposals taking into consideration: (1) tenure of audit firm; (2) establishment and disclosure of a renewal process whereby the auditor is regularly evaluated for both audit quality and competitive price; (3) length of the rotation period advocated in the proposal, and (4) significant audit related issues. Board of Directors Voting on Director Nominees in Uncontested Elections Generally votes on director nominees on a case-by-case basis. Votes may be withheld: (1) from directors who attended less than 75% of the board and committee meetings without a valid reason for the absences; (2) implemented or renewed a dead-hand poison pill; (3) ignored a shareholder proposal that was approved by a majority of the votes cast for two consecutive years; (4) ignored a shareholder proposal approved by a majority of the shares outstanding; (5) have failed to act on takeover offers where the majority of the shareholders have tendered their shares; (6) are inside directors or affiliated outside directors and sit on the audit, compensation, or nominating committee; (7) are inside directors or affiliated outside directors and the full board serves as the audit, compensation, or nominating committee or the company does not have one of these committees; or (8) are audit committee members and the non-audit fees paid to the auditor are excessive Cumulative Voting 8 Proposals to eliminate cumulative voting will be determined on a case-by-case basis. Proposals to restore or provide for cumulative voting in the absence of sufficient good governance provisions and/or poor relative shareholder returns will be determined on a case-by-case basis. Director and Officer Indemnification and Liability Protection Proposals on director and officer indemnification and liability protection generally evaluated on a case-by-case basis. Generally vote against proposals that would: (1) eliminate entirely directors' and officers' liability for monetary damages for violating the duty of care; or (2) expand coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. Generally vote for only those proposals providing such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (1) the director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company, and (2) only if the director's legal expenses would be covered. Filling Vacancies/Removal of Directors Generally vote against proposals that provide that directors may be removed only for cause. Generally vote for proposals to restore shareholder ability to remove directors with or without cause. Proposals that provide that only continuing directors may elect replacements to fill board vacancies will be determined on a case-by-case basis. Generally vote for proposals that permit shareholders to elect directors to fill board vacancies. Independent Chairman (Separate Chairman/CEO) Generally vote for shareholder proposals requiring the position of chairman be filled by an independent director unless there are compelling reasons to recommend against the proposal, including: (1) designated lead director, elected by and from the independent board members with clearly delineated duties; (2) 2/3 independent board; (3) all independent key committees; or (4) established governance guidelines. Majority of Independent Directors Generally vote for shareholder proposals requiring that the board consist of a majority or substantial majority (two-thirds) of independent directors unless the board composition already meets the adequate threshold. Generally vote for shareholder proposals requiring the board audit, compensation, and/or nominating committees be composed exclusively of independent directors if they currently do not meet that standard. Generally withhold votes from insiders and affiliated outsiders sitting on the audit, compensation, or nominating committees. Generally withhold votes from insiders and affiliated outsiders on boards that are 9 lacking any of these three panels. Generally withhold votes from insiders and affiliated outsiders on boards that are not at least majority independent. Term Limits Generally vote against shareholder proposals to limit the tenure of outside directors. Proxy Contests Voting on Director Nominees in Contested Elections Votes in a contested election of directors should be decided on a case-by-case basis, with shareholders determining which directors are best suited to add value for shareholders. The major decision factors are: (1) company performance relative to its peers; (2) strategy of the incumbents versus the dissidents; (3) independence of directors/nominees; (4) experience and skills of board candidates; (5) governance profile of the company; (6) evidence of management entrenchment; (7) responsiveness to shareholders; or (8) whether takeover offer has been rebuffed. Amend Bylaws without Shareholder Consent Proposals giving the board exclusive authority to amend the bylaws will be determined on a case-by-case basis. Proposals giving the board the ability to amend the bylaws in addition to shareholders will be determined on a case-by-case basis. Confidential Voting Generally vote for shareholder proposals requesting that corporations adopt confidential voting, use independent vote tabulators and use independent inspectors of election, as long as the proposal includes a provision for proxy contests as follows: In the case of a contested election, management should be permitted to request that the dissident group honor its confidential voting policy. If the dissidents agree, the policy may remain in place. If the dissidents will not agree, the confidential voting policy may be waived. Generally vote for management proposals to adopt confidential voting. Cumulative Voting Proposals to eliminate cumulative voting will be determined on a case-by-case basis. Proposals to restore or provide for cumulative voting in the absence of sufficient good governance provisions and/or poor relative shareholder returns will be determined on a case-by-case basis. 10 Antitakeover Defenses and Voting Related Issues Advance Notice Requirements for Shareholder Proposals/Nominations Votes on advance notice proposals are determined on a case-by-case basis. Amend Bylaws without Shareholder Consent Proposals giving the board exclusive authority to amend the bylaws will be determined on a case-by-case basis. Generally vote for proposals giving the board the ability to amend the bylaws in addition to shareholders. Poison Pills (Shareholder Rights Plans) Generally vote for shareholder proposals requesting that the company submit its poison pill to a shareholder vote or redeem it. Votes regarding management proposals to ratify a poison pill should be determined on a case-by-case basis. Plans should embody the following attributes: (1) 20% or higher flip-in or flip-over; (2) two to three year sunset provision; (3) no dead-hand or no-hand features; or (4) shareholder redemption feature Shareholders' Ability to Act by Written Consent Generally vote against proposals to restrict or prohibit shareholders' ability to take action by written consent. Generally vote for proposals to allow or make easier shareholder action by written consent. Shareholders' Ability to Call Special Meetings Proposals to restrict or prohibit shareholders' ability to call special meetings or that remove restrictions on the right of shareholders to act independently of management will be determined on a case-by-case basis. Supermajority Vote Requirements Proposals to require a supermajority shareholder vote will be determined on a case-by-case basis Proposals to lower supermajority vote requirements will be determined on a case-by-case basis. Merger and Corporate Restructuring Appraisal Rights Generally vote for proposals to restore, or provide shareholders with, rights of appraisal. 11 Asset Purchases Generally vote case-by-case on asset purchase proposals, taking into account: (1) purchase price, including earnout and contingent payments; (2) fairness opinion; (3) financial and strategic benefits; (4) how the deal was negotiated; (5) conflicts of interest; (6) other alternatives for the business; or (7) noncompletion risk (company's going concern prospects, possible bankruptcy). Asset Sales Votes on asset sales should be determined on a case-by-case basis after considering: (1) impact on the balance sheet/working capital; (2) potential elimination of diseconomies; (3) anticipated financial and operating benefits; (4) anticipated use of funds; (5) value received for the asset; fairness opinion (if any); (6) how the deal was negotiated; or (6) Conflicts of interest Conversion of Securities Votes on proposals regarding conversion of securities are determined on a case-by-case basis. When evaluating these proposals, should review (1) dilution to existing shareholders' position; (2) conversion price relative to market value; (3) financial issues: company's financial situation and degree of need for capital; effect of the transaction on the company's cost of capital; (4) control issues: change in management; change in control; standstill provisions and voting agreements; guaranteed contractual board and committee seats for investor; veto power over certain corporate actions; (5) termination penalties; (6) conflict of interest: arm's length transactions, managerial incentives. Generally vote for the conversion if it is expected that the company will be subject to onerous penalties or will be forced to file for bankruptcy if the transaction is not approved. Corporate Reorganization Votes on proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan are determined on a case-by-case basis, after evaluating: (1) dilution to existing shareholders' position; (2) terms of the offer; (3) financial issues; (4) management's efforts to pursue other alternatives; (5) control issues; (6) conflict of interest. Generally vote for the debt restructuring if it is expected that the company will file for bankruptcy if the transaction is not approved. Reverse Leveraged Buyouts Votes on proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan are determined on a case-by-case basis, after evaluating: (1) dilution to existing shareholders' position; (2) terms of the offer; (3) financial issues; (4) management's efforts to pursue other alternatives; (5) control issues; (6) conflict of interest. Generally vote 12 for the debt restructuring if it is expected that the company will file for bankruptcy if the transaction is not approved. Formation of Holding Company Votes on proposals regarding the formation of a holding company should be determined on a case-by-case basis taking into consideration: (1) the reasons for the change; (2) any financial or tax benefits; (3) regulatory benefits; (4) increases in capital structure; (5) changes to the articles of incorporation or bylaws of the company. Absent compelling financial reasons to recommend the transaction, generally vote against the formation of a holding company if the transaction would include either of the following: (1) increases in common or preferred stock in excess of the allowable maximum as calculated a model capital structure; (2) adverse changes in shareholder rights; (3) going private transactions; (4) votes going private transactions on a case-by-case basis, taking into account: (a) offer price/premium; (b) fairness opinion; (c) how the deal was negotiated; (d) conflicts of interest; (e) other alternatives/offers considered; (f) noncompletion risk. Joint Ventures Vote on a case-by-case basis on proposals to form joint ventures, taking into account: (1) percentage of assets/business contributed; (2) percentage ownership; (3) financial and strategic benefits; (4) governance structure; (5) conflicts of interest; (6) other alternatives; (7) noncompletion risk; (8) liquidations. Votes on liquidations should be determined on a case-by-case basis after reviewing: (1) management's efforts to pursue other alternatives such as mergers; (2) appraisal value of the assets (including any fairness opinions); (3) compensation plan for executives managing the liquidation. Generally vote for the liquidation if the company will file for bankruptcy if the proposal is not approved. Mergers and Acquisitions Votes on mergers and acquisitions should be considered on a case-by-case basis, determining whether the transaction enhances shareholder value by giving consideration to: (1) prospects of the combined companies; (2) anticipated financial and operating benefits; (3) offer price; (4) fairness opinion; (5) how the deal was negotiated; (6) changes in corporate governance and their impact on shareholder rights; (7) change in the capital structure; (8) conflicts of interest. Private Placements Votes on proposals regarding private placements should be determined on a case-by-case basis. When evaluating these proposals, should review: (1) dilution to existing shareholders' position; (2) terms of the offer; (3) financial issues; (4) management's efforts to pursue alternatives such as mergers; (5) control issues; (6) conflict of interest. Generally vote for the 13 private placement if it is expected that the company will file for bankruptcy if the transaction is not approved. Prepackaged Bankruptcy Plans Votes on proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan are determined on a case-by-case basis, after evaluating: (1) dilution to existing shareholders' position; (2) terms of the offer; (3) financial issues; (4) management's efforts to pursue other alternatives; (5) control issues; (6) conflict of interest. Generally vote for the debt restructuring if it is expected that the company will file for bankruptcy if the transaction is not approved. Recapitalization Votes case-by-case on recapitalizations (reclassifications of securities), taking into account: (1) more simplified capital structure; (2) enhanced liquidity; (3) fairness of conversion terms, including fairness opinion; (4) impact on voting power and dividends; (5) reasons for the reclassification; (6) conflicts of interest; (7) other alternatives considered. Reverse Stock Splits Generally vote for management proposals to implement a reverse stock split when the number of authorized shares will be proportionately reduced. Generally vote for management proposals to implement a reverse stock split to avoid delisting. Votes on proposals to implement a reverse stock split that do not proportionately reduce the number of shares authorized for issue should be determined on a case-by-case basis. Spinoffs Votes on spinoffs should be considered on a case-by-case basis depending on: (1) tax and regulatory advantages; (2) planned use of the sale proceeds; (3) valuation of spinoff; fairness opinion; (3) benefits that the spinoff may have on the parent company including improved market focus; (4) conflicts of interest; managerial incentives; (5) any changes in corporate governance and their impact on shareholder rights; (6) change in the capital structure Value Maximization Proposals Vote case-by-case on shareholder proposals seeking to maximize shareholder value. Capital Structure Adjustments to Par Value of Common Stock 14 Generally vote for management proposals to reduce the par value of common stock unless the action is being taken to facilitate an antitakeover device or some other negative corporate governance action. Generally vote for management proposals to eliminate par value. Common Stock Authorization Votes on proposals to increase the number of shares of common stock authorized for issuance are determined on a case-by-case basis. Generally vote against proposals at companies with dual-class capital structures to increase the number of authorized shares of the class of stock that has superior voting rights. Generally vote for proposals to approve increases beyond the allowable increase when a company's shares are in danger of being delisted or if a company's ability to continue to operate as a going concern is uncertain. Dual-class Stock Generally vote against proposals to create a new class of common stock with superior voting rights. Generally vote for proposals to create a new class of nonvoting or subvoting common stock if: (1) it is intended for financing purposes with minimal or no dilution to current shareholders; (2) it is not designed to preserve the voting power of an insider or significant shareholder. Issue Stock for Use with Rights Plan Generally vote against proposals that increase authorized common stock for the explicit purpose of implementing a shareholder rights plan. Preemptive Rights Votes regarding shareholder proposals seeking preemptive rights should be determined on a case-by-case basis after evaluating: (1) the size of the company; (2) the shareholder base; (3) the liquidity of the stock Preferred Stock Generally vote against proposals authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights ("blank check" preferred stock). Generally vote for proposals to create "declawed" blank check preferred stock (stock that cannot be used as a takeover defense). Generally vote for proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable. Generally vote against proposals to increase the number of blank check preferred stock authorized for issuance when no shares have been issued or reserved for a specific purpose. Generally vote case-by-case on proposals to increase the number of blank check 15 preferred shares after analyzing the number of preferred shares available for issue given a company's industry and performance in terms of shareholder returns. Recapitalization Vote case-by-case on recapitalizations (reclassifications of securities), taking into account: (1) more simplified capital structure; (2) enhanced liquidity; (3) fairness of conversion terms, including fairness opinion; (4) impact on voting power and dividends; (5) reasons for the reclassification; (6) conflicts of interest; (7) other alternatives considered. Reverse Stock Splits Generally vote for management proposals to implement a reverse stock split when the number of authorized shares will be proportionately reduced. Generally vote for management proposals to implement a reverse stock split to avoid delisting. Votes on proposals to implement a reverse stock split that do not proportionately reduce the number of shares authorized for issue should be determined on a case-by-case basis. Share Repurchase Programs Generally vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms. Stock Distributions: Splits and Dividends Generally vote for management proposals to increase the common share authorization for a stock split or share dividend, provided that the increase in authorized shares would not result in an excessive number of shares available for issuance. Tracking Stock Votes on the creation of tracking stock are determined on a case-by-case basis, weighing the strategic value of the transaction against such factors as: (1) adverse governance changes; (2) excessive increases in authorized capital stock; (3) unfair method of distribution; (4) diminution of voting rights; (5) adverse conversion features; (6) negative impact on stock option plans; (7) other alternatives such as a spinoff. Executive and Director Compensation Executive and Director Compensation Votes on compensation plans for directors are determined on a case-by-case basis. 16 Stock Plans in Lieu of Cash Votes for plans which provide participants with the option of taking all or a portion of their cash compensation in the form of stock are determined on a case-by-case basis. Generally vote for plans which provide a dollar-for-dollar cash for stock exchange. Votes for plans which do not provide a dollar-for-dollar cash for stock exchange should be determined on a case-by-case basis. Director Retirement Plans Generally vote against retirement plans for nonemployee directors. Generally vote for shareholder proposals to eliminate retirement plans for nonemployee directors. Management Proposals Seeking Approval to Reprice Options Votes on management proposals seeking approval to reprice options are evaluated on a case-by-case basis giving consideration to the following: (1) historic trading patterns; (2) rationale for the repricing; (3) value-for-value exchange; (4) option vesting; (5) term of the option; (6) exercise price; (7) participants; (8) employee stock purchase plans. Votes on employee stock purchase plans should be determined on a case-by-case basis. Generally vote for employee stock purchase plans where: (1) purchase price is at least 85 percent of fair market value; (2) offering period is 27 months or less, and (3) potential voting power dilution (VPD) is ten percent or less. Generally vote against employee stock purchase plans where either: (1) purchase price is less than 85 percent of fair market value; (2) Offering period is greater than 27 months, or (3) VPD is greater than ten percent Incentive Bonus Plans and Tax Deductibility Proposals Generally vote for proposals that simply amend shareholder-approved compensation plans to include administrative features or place a cap on the annual grants any one participant may receive. Generally vote for proposals to add performance goals to existing compensation plans. Votes to amend existing plans to increase shares reserved and to qualify for favorable tax treatment considered on a case-by-case basis. Generally vote for cash or cash and stock bonus plans that are submitted to shareholders for the purpose of exempting compensation from taxes if no increase in shares is requested. Employee Stock Ownership Plans (ESOPs) Generally vote for proposals to implement an ESOP or increase authorized shares for existing ESOPs, unless the number of shares allocated to the ESOP is excessive (more than five percent of outstanding shares.) 401(k) Employee Benefit Plans 17 Generally vote for proposals to implement a 401(k) savings plan for employees. Shareholder Proposals Regarding Executive and Director Pay Generally vote for shareholder proposals seeking additional disclosure of executive and director pay information, provided the information requested is relevant to shareholders' needs, would not put the company at a competitive disadvantage relative to its industry, and is not unduly burdensome to the company. Generally vote against shareholder proposals seeking to set absolute levels on compensation or otherwise dictate the amount or form of compensation. Generally vote against shareholder proposals requiring director fees be paid in stock only. Generally vote for shareholder proposals to put option repricings to a shareholder vote. Vote for shareholders proposals to exclude pension fund income in the calculation of earnings used in determining executive bonuses/compensation. Vote on a case-by-case basis for all other shareholder proposals regarding executive and director pay, taking into account company performance, pay level versus peers, pay level versus industry, and long term corporate outlook. Performance-Based Option Proposals Generally vote for shareholder proposals advocating the use of performance-based equity awards (indexed, premium-priced, and performance-vested options), unless: (1) the proposal is overly restrictive; or (2) the company demonstrates that it is using a substantial portion of performance-based awards for its top executives. Stock Option Expensing Generally vote for shareholder proposals asking the company to expense stock options unless the company has already publicly committed to start expensing by a specific date. Golden and Tin Parachutes Generally vote for shareholder proposals to require golden and tin parachutes to be submitted for shareholder ratification, unless the proposal requires shareholder approval prior to entering into employment contracts. Vote on a case-by-case basis on proposals to ratify or cancel golden or tin parachutes. May 19, 2004 ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Form N-CSR disclosure requirement is not yet effective with respect to the registrant. 18 ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. None. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors since the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(g) of Schedule 14A in its definitive proxy statement dated March 1, 2004. ITEM 11. CONTROLS AND PROCEDURES. (a) As of a date within 90 days from the filing date of this report, the principal executive officer and principal financial officer concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) were effective based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. (b) There were no changes in registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Registrant's Code of Ethics is an exhibit to this report. (a)(2) The certifications of the registrant as required by Rule 30a-2(a) under the Act are exhibits to this report. (a)(3) Not applicable. (b) The certifications of the registrant as required by Rule 30a-2(b) under the Act are an exhibit to this report. 19 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. CREDIT SUISSE ASSET MANAGEMENT INCOME FUND, INC. /s/ Michael E. Kenneally ------------------------ Name: Michael E. Kenneally Title: Chief Executive Officer Date: March 8, 2005 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. /s/ Michael E. Kenneally ------------------------ Name: Michael E. Kenneally Title: Chief Executive Officer Date: March 8, 2005 /s/ Michael A. Pignataro ------------------------ Name: Michael A. Pignataro Title: Chief Financial Officer Date: March 8, 2005