Putnam
Premier
Income
Trust
ANNUAL REPORT
July 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam Premier Income Trust owes its solid performance to several
factors . . . On the government side, the fund has recently benefited from
its larger-than-average exposure to mortgages. (Mortgages have
outperformed other government issues in the past year and a half.)"
-- Morningstar Inc., May 23, 1997
* The fund's Trustees have approved changes that allow the fund to
maintain larger allocations in the high-yield and international markets.
Please refer to an important notice on page 12 explaining the changes.
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
33 Financial statements
42 Results of July 10, 1997 shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
* Karsh, Ottawa
Dear Shareholder:
Your fund's multisector strategy was especially useful over the 12 months
ended July 31, 1997, since it enabled the portfolio to benefit from strong
performance throughout the fixed-income universe. In the international portion
of the portfolio, your managers capitalized on investors' growing appetite for
emerging-markets bonds; in the taxable fixed-income portion, favorable
supply-demand dynamics supported performance of the mortgage-backed securities
they emphasized. Finally, high-yield bonds continue to reflect the health of
the U.S. economy and the stock market.
In the following report, Kenneth Taubes and his three co-managers discuss
positioning strategies within each of the portfolio's sectors and their
expectations for fiscal 1998. Ken, who has been managing funds at Putnam for
nearly six years, took over as lead manager in April.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
September 17, 1997
Report from the Fund Managers
Kenneth J. Taubes, lead manager
Jin W. Ho
D. William Kohli
Gail S. Attridge
Over the course of Putnam Premier Income Trust's fiscal year ended July 31,
1997, bond markets around the world overcame the persistent fear that
inflation would soon result from strong economic growth. During the period,
interest rates declined -- short term somewhat less than long term, resulting
in a somewhat flatter yield curve. Declining long-term rates accompanied
rising bond prices in all sectors of the fund's portfolio.
Our focus on higher-yielding U.S. corporate holdings, bonds from the world's
emerging economies, and U.S. mortgage-backed securities helped produce
above-average performance for the year. Your fund's total return of 13.20% at
net asset value and 26.24% at market price compares favorably with the
benchmarks for each of its sectors. Detailed performance information can be
found on pages 9 and 10.
* STRONG ECONOMY SUPPORTS HIGH-YIELD BONDS
U.S. economic activity was ablaze during the fiscal year, particularly in late
1996 and early 1997. Unemployment reached its lowest level in more than 20
years, productivity soared, and commodity prices fell. This combination of
factors produced strong and steady earnings gains in the corporate sector
during the period, propelling the prices of high-yield corporate bonds.
An additional driving force for high-yield bonds during the year was merger
and acquisition activity. Corporations in a number of industries have sought
greater efficiency and market share by combining with or acquiring other
companies. Issuers of high-yield debt stand to gain investment-grade status
through combinations with larger, more seasoned corporations. This was
certainly the case during the year as holdings including ADT Ltd., Greenwich
Air, UNC Inc., and Echostar Communications announced deals with
investment-grade companies. While these securities and others discussed in
this report were viewed favorably during the period, all holdings are subject
to review and adjustment in accordance with the fund's investment strategy and
may vary in the future.
The telecommunications sector, which was among the top performing high-yield
sectors during the year, was a major emphasis in the portfolio -- and a major
contributor to performance. Deregulation in the industry, combined with
rulings favorable to competitive local exchange carriers such as Nextel
Communications, resulted in strong operating results. The fund also benefited
from its exposure to gaming, aerospace, and utility companies during the
period.
* EMERGING MARKETS LEAD AS DOLLAR RISES
In general, fixed-income markets outside the United States enjoyed an
environment of declining long-term interest rates, moderate economic growth,
and little inflation. Bonds in Europe and the emerging markets -- the fund's
largest areas of non-U.S. concentration -- rallied during the period.
In the world's developing markets, a number of positive factors contributed to
overall strong performance during the year. Comparatively low yields on U.S.
Treasuries, increased liquidity in the global bond markets, and positive
economic fundamentals in Latin America, Eastern Europe, and Africa resulted in
some of the most attractive returns of any asset class. A brief downturn in
March, spurred by Federal Reserve Board Chairman Alan Greenspan's
congressional testimony and the increase in short-term U.S. rates, only
temporarily swayed investors away from the encouraging fiscal and economic
developments in many of these markets.
[GRAPHIC OMITTED: vertical bar chart SECTOR ALLOCATION]
SECTOR ALLOCATION*
Plot Points read:
U.S. investment grade 1/31/97 24.2%
7/31/97 22.0%
High yield 1/31/97 42.4%
7/31/97 41.1%
Foreign bonds 1/31/97 28.1%
7/31/97 28.9%
Emerging markets 1/31/97 6.2%
7/31/97 15.8%
1/31/97 Total 100.9%
7/31/97 Total 107.8%
Footnote reads:
*Based on net assets. Holdings will vary over time.
In early 1997, for example, the Mexican government repaid the final
installment of a $13.5 billion loan from the United States ahead of schedule
and also made early payments to the International Monetary Fund. In Argentina,
higher-than-expected tax revenues sparked upward revisions in forecasts of
1997 economic growth. Indeed, March's slump gave us an opportunity to boost
our emerging-markets holdings, including new or increased positions in South
Africa, Eastern Europe (including Russia and Bulgaria), and Mexico. At the end
of July, emerging-markets bonds totaled 12% of portfolio holdings.
Within the fund's European segment, a well-timed shift in emphasis in late
1996 away from the smaller, peripheral markets was insufficient to overcome
the effects of a rising U.S. dollar, which eroded gains on core holdings. In
mid autumn, we opted to sell the fund's Spanish, Italian, and Swedish bonds,
whose prices had risen to our target levels because of improving economic and
fiscal conditions in the underlying markets. We reinvested the proceeds in the
dollar bloc markets of Canada, Australia, and the United Kingdom and increased
the fund's weighting in core European markets, such as France and Germany.
The shift in focus was fortunate. Several of Europe's smaller markets suffered
setbacks in the first quarter of 1997 because of the prospect of delays
associated with European Monetary Union. Meanwhile larger core markets enjoyed
continued modest gains on the back of improving economic fundamentals and
generally outperformed their smaller European counterparts.
Because of a surge in the value of the U.S. dollar against other key
currencies, however, the returns from core European holdings were flat to
negative in dollar terms. The dollar's rapid rise in early 1997 took many
market participants by surprise because the same conditions that had led to
low volatility in the currency markets in 1996 still prevailed. As a result,
the fund's European holdings provided the lowest dollar-adjusted returns
during the period. By comparison, the fund's emerging-markets holdings
finished the period relatively unscathed, since these bonds are issued
primarily in the form of dollar-denominated Brady bonds.
TOP SECTOR HOLDINGS*
Top three high-yield holdings
Midland Funding Corp. 13.25%, 2006
Transamerican Energy zereo% 2002
Celcaribe S.A. 114A units stepped-coupon zero%, 2004
Top three U.S. investment-grade holdings
GNMA 7.5% 2022-2027
GNMA 7%, 2025-2026
U.S. Treasury obligations 6.5%, 2026
Top three international holdings
United Mexican States 6.25%, 20219
United Kingdom Treasury bonds 8%, 2021
Argentina (Republic of) 6.88%, 2023
* These holdings represent 22.2% of the fund's net assets as of 7/31/97.
Portfolio holdings will vary over time.
* MORTGAGE-BACKED HOLDINGS PROPEL TAXABLE INVESTMENT-GRADE SLEEVE
From a total-return standpoint, 30-year Treasuries provided the greatest gains
to investors in U.S. government securities during the year. However, these
securities also embody the greatest sensitivity to changing interest rates and
thus represent the greatest investment risk. Therefore, given the degree of
uncertainty that persisted throughout the year regarding the prospects for
inflation, we opted to focus instead on mortgage-backed securities in the
fund's taxable investment-grade sector, or "sleeve" (formerly known as the
U.S. government securities sleeve).
Within the sleeve, we are maintaining a heavy weighting in mortgage-backed
holdings to take advantage of their attractive characteristics in a relatively
stable interest-rate environment. To compensate for their inherent risk of
prepayment, these securities continue to provide higher yields than most
alternatives in the U.S. investment-grade market. In addition, the market's
supply and demand dynamics for mortgage-backed securities remain extremely
favorable. At the end of July, GNMAs and other mortgage-related securities
accounted for roughly three quarters of the fund's taxable investment-grade
sleeve.
* POSITIVE OUTLOOK CONTINUES
As the fund enters fiscal 1998, we are cautiously optimistic about the outlook
for fixed-income investing. Although modest evidence of slower U.S. economic
growth emerged late in the fiscal year, we suspect consumer-driven activity
will again put upward pressure on interest rates. In our view, further Fed
tightening is not out of the question. Consequently the fund's duration stance
is now slightly more defensive than that of its benchmarks.
In the spring, we reduced nondollar holdings and increased the weighting in
emerging markets. We currently intend to retain the underweight non-U.S.
currencies until fundamental investment conditions change. We remain
optimistic about the prospects for high-yield corporate bonds and
mortgage-backed securities in the coming months, however, and will continue to
take advantage of select opportunities in the emerging markets.
Overall, we believe the fund's flexible investment strategy and commitment to
the high-yield, U.S. government, and international sectors should continue to
provide better-than-average performance in the coming months.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 7/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Premier Income Trust is designed for investors seeking a
high level of current income consistent with preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 7/31/97
Market
NAV price
- ------------------------------------------------------------------
1 year 13.20% 26.24%
- ------------------------------------------------------------------
5 years 62.05 49.82
Annual average 10.14 8.42
- ------------------------------------------------------------------
Life of fund
(since 2/29/88) 154.09 127.84
Annual average 10.41 9.13
- ------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/97
Salomon Bros.
Lehman Bros. Non-U.S. First Boston Consumer
Government World Govt. High Yield Price
Bond Index Bond Index Index Index
- ---------------------------------------------------------------------
1 year 10.17% 13.96% 16.06% 2.23%
- ---------------------------------------------------------------------
5 years 40.54 59.79 74.10 14.23
Annual average 7.04 9.83 11.73 2.70
- ---------------------------------------------------------------------
Life of fund 116.10 108.94 182.76 38.36
(since 2/29/88)
Annual average 8.53 8.14 11.67 3.51
- ---------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value,
and market price will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost. Securities indexes assume
reinvestment of all distributions and interest payments and do not take
into account brokerage fees or taxes. Securities in the fund do not match
those in the indexes and performance of the fund will differ. It is not
possible to invest directly in an index.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 7/31/97
- ---------------------------------------------------------------------
Distributions
- ---------------------------------------------------------------------
Number 12
- ---------------------------------------------------------------------
Income $0.675
- ---------------------------------------------------------------------
Capital gains
- ---------------------------------------------------------------------
Long-term --
- ---------------------------------------------------------------------
Short-term --
- ---------------------------------------------------------------------
Total $0.675
- ---------------------------------------------------------------------
Share value: NAV Market price
- ---------------------------------------------------------------------
7/31/96 $8.53 $7.375
- ---------------------------------------------------------------------
7/31/97 8.88 8.562
- ---------------------------------------------------------------------
Current return: NAV Market price
- ---------------------------------------------------------------------
End of period
- ---------------------------------------------------------------------
Current dividend rate1 8.11% 8.41%
- ---------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided
by NAV or market value at end of period.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(most recent calendar quarter)
Market
NAV price
- ----------------------------------------------------------------------
1 year 11.71% 18.58%
- ----------------------------------------------------------------------
5 years 61.25 54.38
Annual average 10.03 9.07
- ----------------------------------------------------------------------
Life of fund
(since 2/29/88) 148.64 119.67
Annual average 10.25 8.79
- ----------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, market value and
net asset value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market value is the current trading price of one share of the fund. Market
values are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
First Boston High Yield Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
Lehman Brothers Government Bond Index* is an unmanaged list of U.S.
government and mortgage-backed securities.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged
list of bonds issued by 10 countries.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Actions by the Trustees
INVESTMENT POLICY CHANGES ADOPTED
The Trustees approved the following modifications to the fund's investment
policies, effective immediately:
The fund may invest up to 65% of its assets in any of the three sectors of
the fixed-income market - (1) U.S. government and high-grade domestic
corporate bonds, (2) international fixed-income securities, and (3) high-
yield or below-investment-grade securities - with a minimum allocation to
each sector of 15%.
Securities purchased for the international sector will no longer need a
minimum rating of A. Emerging-market securities issued by governmental
entities will be included in the international sector rather than, as
previously, the high-yield sector. However, not more than 20% of the fund
may be invested in international fixed-income securities not rated
investment grade by rating agencies (or unrated securities of equivalent
quality).
The fund will not invest more than 65% of its assets in securities rated
below investment grade by rating agencies (or unrated securities of
equivalent quality).
These changes increase the fund's flexibility to make larger allocations to
the high-yield and international markets, which have grown considerably in
depth and breadth since the fund was launched in 1988. The added flexibility
is designed to let the fund take greater advantage of these markets when the
manager believes it prudent while still maintaining the fund's character as
a diversified fixed-income fund with a commitment to each sector.
Report of independent accountants
To the Trustees and Shareholders of
Putnam Premier Income Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, 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 Putnam Premier
Income Trust (the "fund") at July 31, 1997, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards which 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 investments owned at July 31, 1997 by correspondence with the
custodian and the application of alternative auditing procedures where
investments purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
September 16, 1997
Portfolio of investments owned
July 31, 1997
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (33.3%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.1%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 175,000 Adams Outdoor Advertising (L.P.) sr. notes
10 3/4s, 2006 $ 190,750
860,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 921,275
--------------
1,112,025
Aerospace and Defense (0.7%)
- ------------------------------------------------------------------------------------------------------------
2,500,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 2,656,250
335,000 Hawk Corp. sr. notes 10 1/4s, 2003 350,075
1,000,000 Howmet Corp. sr. sub. notes 10s, 2003 1,090,000
1,565,000 L-3 Communications Corp. 144A sr. sub. notes
10 3/8s, 2007 1,678,463
1,300,000 Sequa Corp. bonds 8 3/4s, 2001 1,313,000
690,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 712,425
--------------
7,800,213
Agriculture (0.6%)
- ------------------------------------------------------------------------------------------------------------
4,931,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon
Ser. B, zero % (11 1/2s, 9/1/00), 2005 ++ 3,747,560
2,905,652 Premium Standard Farms, Inc. sr. secd. notes
11s, 2003 [2 DBL. DAGGERS] 3,225,274
--------------
6,972,834
Apparel (0.2%)
- ------------------------------------------------------------------------------------------------------------
325,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 333,125
2,275,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 2,354,625
--------------
2,687,750
Automotive (0.6%)
- ------------------------------------------------------------------------------------------------------------
920,000 A.P.S. Inc. company guaranty 11 7/8s, 2006 897,000
949,000 Aftermarket Technology Corp. sr. sub. notes Ser. D,
12s, 2004 1,058,135
500,000 Coach USA, Inc. company guaranty 9 3/8s, 2007 502,500
1,090,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 403,300
500,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 511,250
1,500,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 1,530,000
1,805,000 Lear Corp. sub. notes 9 1/2s, 2006 1,976,475
730,000 Safety Component International, Inc. 144A sr.
sub. notes 10 1/8s, 2007 744,600
--------------
7,623,260
Banks (1.4%)
- ------------------------------------------------------------------------------------------------------------
500,000 Advanta Corp. med. term notes Ser. C, 7.075s, 1999 499,765
2,000,000 Advanta Corp. med. term notes Ser. D, 6.54s, 2000 1,973,520
545,000 Albank Capital Trust 144A company guaranty
9.27s, 2027 578,823
635,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 636,588
370,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 405,805
890,000 Espirto Santo Centrais 144A sr. notes 10s, 2007
(Luxembourg) 912,250
2,500,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 2,768,750
375,000 Greenpoint Capital Trust I 144A company
guaranty 9.1s, 2027 399,000
635,000 North Fork Capital Trust I company guaranty
8.7s, 2026 674,916
345,000 Onbank Capital Trust I 144A company guaranty
9 1/4s, 2027 367,425
735,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 786,450
360,000 Pioneer Americas Acquisition 144A sr. notes
9 1/4s, 2007 361,800
3,150,000 Polytama International notes 11 1/4s, 2007 3,173,625
715,000 Provident Capital Trust company guaranty 8.6s, 2026 743,285
410,000 Riggs Capital Trust 144A bonds 8 5/8s 2026 427,548
585,000 Sovereign Capital Trust 144A company guaranty
9s, 2027 619,334
555,000 Webster Capital Trust I 144A bonds 9.36s, 2027 608,891
--------------
15,937,775
Basic Industrial Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
425,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 450,500
590,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 621,943
510,000 Roller Bearing Co. 144A sr. sub. notes 9 5/8s, 2007 526,575
--------------
1,599,018
Broadcasting (1.7%)
- ------------------------------------------------------------------------------------------------------------
1,395,000 Affinity Group Holdings 144A sr. notes 11s, 2007 1,492,650
475,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 503,500
1,920,000 Capstar Broadcasting 144A sr. disc. notes
stepped-coupon zero % (12 3/4s, 2/1/02), 2009 ++ 1,286,400
800,000 Capstar Broadcasting 144A sr. sub. notes 9 1/4s, 2007 822,000
94,390 Citadel Broadcasting Co. 144A sr. notes 10 1/4s, 2007 101,941
715,000 Citadel Broadcasting Co. 144A sr. sub. notes
10 1/4s, 2007 772,200
3,415,000 Comcast UK Cable, Ltd. deb. stepped-coupon
zero % (11.2s, 11/15/00), 2007 (Bermuda) ++ 2,612,475
1,500,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 1,635,000
10,000 Jacor Communications, Inc. company guaranty
9 3/4s, 2006 10,750
2,250,000 Jacor Communications, Co. 144A company guaranty
8 3/4s, 2007 2,317,500
840,000 Lenfest Communications, Inc. sr. sub. notes
10 1/2s, 2006 936,600
3,816,000 Petracom Holdings, Inc. notes stepped-coupon
zero % (17 1/2s, 8/1/98), 2003 ++ 3,663,360
1,010,000 Radio One Inc. 144A sr. sub. notes stepped-coupon
7s, (12s, 5/1/00), 2004 ++ 944,350
1,000,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 1,047,500
1,225,000 Spanish Broadcasting Systems 144A sr. notes
11s, 2004 1,310,750
1,005,000 TV Azteca S.A. de cv 144A sr. notes 10 1/2s, 2007
(Mexico) 1,070,325
500,000 TV Azteca S.A. de cv 144A sr. notes 10 1/8s, 2004
(Mexico) 527,500
--------------
21,054,801
Building and Construction (1.0%)
- ------------------------------------------------------------------------------------------------------------
1,190,000 Atrium Companies Inc. sub. notes 10 1/2s, 2006 1,240,575
1,000,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 1,203,750
400,000 Continental Homes Holding Corp. company
guaranty 10s, 2006 419,000
500,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 507,500
2,365,000 Presley Cos. sr. notes 12 1/2s, 2001 2,359,088
5,063,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 5,771,820
440,000 Waxman Industries Inc. sr. notes stepped-coupon
Ser. B, zero % (12 3/4s, 6/1/99), 2004 ++ 378,400
--------------
11,880,133
Buses (0.3%)
- ------------------------------------------------------------------------------------------------------------
235,000 Atlantic Express, Transportation Corp.
company guaranty 144A, 10 3/4s, 2004 247,925
1,085,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 1,155,525
3,105,000 Consorcio/MCII Holdings sec. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 2,747,925
--------------
4,151,375
Business Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
2,270,000 Corporate Express, Inc. sr. sub. notes Ser. B,
9 1/8s, 2004 2,275,675
210,000 Loomis Fargo & Co. company guaranty 10s, 2004 211,050
1,230,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B,
11s, 2006 1,371,450
465,000 Williams Scoutman Inc. 144A sr.notes 9 7/8s, 2007 469,650
--------------
4,327,825
Cable Television (1.6%)
- ------------------------------------------------------------------------------------------------------------
750,000 Adelphia Communications Corp. sr. deb. 11 7/8s, 2004 806,250
3,875,000 American Telecasting, Inc. sr. disc. notes stepped-
coupon zero % (14 1/2s, 8/15/00), 2005 ++ 1,007,500
2,750,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 1,911,250
2,275,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 1,882,563
435,000 Diamond Cable Communication Co. 144A sr. disc.
notes stepped-coupon zero % (10 3/4s, 2/15/02),
2007 (United Kingdom) ++ 258,825
1,214,953 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 1,269,626
5,440,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2008 (Mexico) ++ 3,903,200
1,975,000 Grupo Televisa S.A. 144A sr. notes 11 7/8s, 2006
(Mexico) 2,251,500
800,000 Heartland Wireless Communications, Inc. sr. notes
Ser. B, 14s, 2004 354,000
685,000 Heartland Wireless Communications, Inc. 144A
sr. notes Ser. D, 13s, 2003 232,900
1,000,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 1,090,000
1,700,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-
coupon zero % (13 1/2s, 8/1/99), 2004 ++ 1,513,000
5,820,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 (Australia) ++ 3,957,600
--------------
20,438,214
Cellular Communications (1.5%)
- ------------------------------------------------------------------------------------------------------------
5,950,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 ++ 5,027,750
1,480,000 Comcast Cellular 144A sr. notes 9 1/2s, 2007 1,542,900
385,000 Consorcio Ecuatoriano 144A notes 14s, 2002
(Ecuador) 416,763
3,500,000 Dial Call Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (10 1/4s, 12/15/98), 2005 ++ 2,940,000
1,015,000 Globalstar L.P. Capital 144A sr. notes 11 3/8s, 2004 969,325
3,120,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 2,043,600
820,000 Intercel, Inc. 144A sr. notes 11 1/8s, 2007 844,600
7,165,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 5,391,663
--------------
19,176,601
Chemicals (0.8%)
- ------------------------------------------------------------------------------------------------------------
2,675,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 2,862,250
1,185,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 1,232,400
1,150,000 Huntsman Corp. 144A sr. sub. notes FRN 9.187s, 2007 1,187,375
1,000,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 967,500
925,000 Sovereign Specialty Chemical sr. sub. notes 144A
9 1/2, 2007 929,625
1,275,000 Sterling Chemicals Holdings sr. disc. notes stepped-
coupon zero % (13 1/2s, 8/15/01), 2008 ++ 873,375
580,000 Sterling Chemicals Inc. sr. sub. notes Ser. A,
11 1/4s, 2007 626,400
760,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 768,550
--------------
9,447,475
Computer Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
420,000 DecisionOne Corp. 9 3/4s 2007 430,500
1,900,000 Interact Systems, Inc. 144A stepped-coupon
zero % (14s, 8/1/99), 2003 ++ 855,000
--------------
1,285,500
Conglomerates (0.1%)
- ------------------------------------------------------------------------------------------------------------
555,000 Cia Latino Americana 144A company guaranty 11 5/8s,
2004 (Argentina) 589,688
220,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes
13s, 1999 220,825
--------------
810,513
Consumer Durable Goods (0.2%)
- ------------------------------------------------------------------------------------------------------------
370,000 Coleman Escrow Corp. 144A sr. disc. notes
zero %, 2001 218,300
1,280,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/01), 2006 ++ 704,000
2,335,000 Remington Products Co. LLC 144A sr. sub. notes
Ser. B, 11s, 2006 2,031,450
--------------
2,953,750
Consumer Non Durables (0.1%)
- ------------------------------------------------------------------------------------------------------------
385,000 Foamex (L.P.) 144A sr. sub. notes 9 7/8s, 2007 390,775
365,000 Hedstrom Corp. 144A sr. sub. notes 10s, 2007 371,388
--------------
762,163
Consumer Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
4,791,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 5,318,010
Cosmetics (0.2%)
- ------------------------------------------------------------------------------------------------------------
345,000 French Fragrances, Inc. sr. notes Ser. B., 10 3/8s, 2007 357,506
3,770,000 Revlon Worldwide Corp. 144A sr. disc. notes
zero %, 2001 2,695,550
--------------
3,053,056
Electric Utilities (2.1%)
- ------------------------------------------------------------------------------------------------------------
4,305,000 AES China Generating Co. sr. notes 10 1/8s, 2006
(China) 4,692,450
2,000,000 Calpine Corp. sr. notes 10 1/2s, 2006 2,175,000
875,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 900,883
4,225,000 El Paso Electric Co. 1st mtge. Ser. E, 9.4s, 2011 4,724,564
2,750,000 Long Island Lighting Co. deb. 9s, 2022 3,105,740
1,095,000 Long Island Lighting Co. refunding mtge. notes
9 5/8s, 2024 1,150,506
6,550,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 8,348,041
1,375,361 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,382,101
--------------
26,479,285
Electronic (0.6%)
- ------------------------------------------------------------------------------------------------------------
1,280,000 Celestica International Ltd. 144A sr. sub. notes
10 1/2s, 2006 (Canada) 1,390,400
2,305,000 Dobson Communications Corp. 144A 11 3/4s, 2007 2,224,325
445,000 HCC Industries, Inc. 144A sr. sub. notes 10 3/4s, 2007 471,700
460,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 489,900
1,420,000 Motors and Gears, Inc. sr. notes Ser. B, 10 3/4s, 2006 1,505,200
620,000 Therma-Wave Inc. 144A sr. notes 10 5/8s, 2004 669,600
955,000 Wavetek Corp. 144A sr. sub. notes 10 1/8s, 2007 983,650
--------------
7,734,775
Energy-Related (0.1%)
- ------------------------------------------------------------------------------------------------------------
910,000 AES Corp. 144A sr. sub. notes 8 3/8s, 2007 926,653
Entertainment (0.2%)
- ------------------------------------------------------------------------------------------------------------
750,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 774,375
1,800,000 Trump Holdings & Funding Corp. sr. notes
15 1/2s, 2005 2,106,000
--------------
2,880,375
Environmental Control (0.2%)
- ------------------------------------------------------------------------------------------------------------
925,000 Allied Waste Industries, Inc. company guaranty
10 1/4s, 2006 1,008,250
2,300,000 Allied Waste Industries, Inc. 144A sr. disc. notes
stepped-coupon zero % (11.3s, 6/1/02), 2007 ++ 1,512,250
--------------
2,520,500
Food and Beverages (0.5%)
- ------------------------------------------------------------------------------------------------------------
220,000 Ameriserve Food Co. 144A sr. sub. notes
10 1/8s, 2007 228,250
575,000 Canandaigua Wine Co. sr. sub. notes Ser. C,
8 3/4s, 2003 580,750
5,095,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 5,451,650
65,000 Nebco Evans Holding Co. 144A sr. disc. notes
stepped-coupon zero % (12 3/8s, 7/15/02),
2007 ++ 39,000
185,000 Windy Hill Pet Food Co. 144A sr.sub.notes
9 3/4s, 2007 190,550
--------------
6,490,200
Health Care Services (0.9%)
- ------------------------------------------------------------------------------------------------------------
4,480,000 Columbia/HCA Healthcare Corp. med. term notes
7.58s, 2025 4,653,062
875,000 Integrated Health Services, Inc. 144A sr. sub. notes
9 1/2s, 2007 927,500
1,305,000 IMED Corp. 144A sr. sub. notes 9 3/4s, 2006 1,353,938
1,490,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 1,639,000
1,960,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 1,979,600
--------------
10,553,100
Insurance and Finance (1.2%)
- ------------------------------------------------------------------------------------------------------------
2,085,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 2,157,975
250,000 APP Finance II Mauritius Ltd. 144A bonds 12s, 2049
(Indonesia) 253,750
420,000 Colonial Capital I 144A company guaranty 8.92s, 2027 439,819
575,000 First Federal Financial Corp. notes 11 3/4s, 2004 586,500
2,250,000 Indah Kiat Financial Mauritius 144A 10s, 2007
(Indonesia) 2,230,313
1,175,000 Imperial Credit Capital Trust I 144A company
guaranty 10 1/4s, 2002 1,177,938
955,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 947,838
705,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 736,725
865,000 Investors Capital Trust I 144A company guaranty
9.77s, 2027 (United Kingdom) 925,550
725,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 806,563
370,000 Pacalta Resources Ltd. 144A sr. notes 10 3/4s, 2004
(Canada) 373,700
2,150,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 2,268,250
440,000 Resource America Inc. 144A bonds 12s, 2004 444,400
1,755,000 Vicap SA. 144A company guaranty 11 3/8s, 2007
(Mexico) 1,908,563
--------------
15,257,884
Lodging (0.2%)
- ------------------------------------------------------------------------------------------------------------
500,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 505,000
1,160,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 1,241,200
1,250,000 Sun International Hotels Ltd. company guaranty
9s, 2007 1,293,750
--------------
3,039,950
Medical Supplies and Devices (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,285,000 Dade International, Inc. sr. sub. notes Ser. B,
11 1/8s, 2006 1,448,838
235,000 Leiner Health Products 144A sr. sub. notes
9 5/8s, 2007 243,225
1,000,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 1,015,000
--------------
2,707,063
Metals and Mining (0.3%)
- ------------------------------------------------------------------------------------------------------------
340,000 Acindar Industria Argentina de Aceros S.A. bonds
11 1/4s, 2004 (Argentina) 363,375
775,000 Continental Global Group 144A sr. notes Ser. A,
11s, 2007 821,500
260,000 Echo Bay Mines jr. sub. deb. 11s, 2027 (Canada) 241,800
785,000 Maxxam Group Holdings Inc. sr. notes Ser. B, 12s, 2003 832,100
825,000 Royal Oak Mines, Inc. company guaranty Ser. B,
11s, 2006 (Canada) 744,563
150,000 Wells Aluminum 144A notes 10 1/8s, 2005 156,750
--------------
3,160,088
Motion Picture Distribution (0.5%)
- ------------------------------------------------------------------------------------------------------------
1,250,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 1,353,125
1,295,000 AMC Entertainment, Inc. 144A sr. sub. notes
9 1/2s, 2009 1,327,375
1,895,600 Cinemark Mexico USA notes Ser. B, 13s, 2003
(Mexico) [2 DBL. DAGGERS] 1,819,776
128,100 Cinemark Mexico USA notes Ser. D, 13s, 2003
(Mexico) [2 DBL. DAGGERS] 122,976
1,505,000 Cinemark USA, Inc. notes 9 5/8s, 2008 1,538,863
--------------
6,162,115
Nursing Homes (0.1%)
- ------------------------------------------------------------------------------------------------------------
380,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 394,250
1,355,000 Sun Healthcare Group Inc. 144A sr. sub. notes
9 1/2s, 2007 1,399,038
--------------
1,793,288
Office Equipment (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,500,000 United Stationer Supply, Inc. sr. sub. notes
12 3/4s, 2005 2,850,000
Oil and Gas (2.1%)
- ------------------------------------------------------------------------------------------------------------
2,305,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B,
11 1/2s, 2004 2,523,975
490,000 Cliffs Drilling Co. company guaranty Ser. B,
10 1/4s, 2003 534,100
1,695,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 1,762,800
545,000 DI Industries Inc. sr. notes 8 7/8s, 2007 547,725
800,000 Maxus Energy Corp. notes 9 3/8s, 2003 858,000
2,575,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 2004 2,523,500
900,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 963,000
365,000 Petsec Energy, Inc. 144A sr. sud. notes 9 1/2s, 2007 368,650
185,000 Pogo Producing Co. 144A notes 8 3/4s, 2007 189,625
550,000 Pride Petroleum Services, Inc. 9 3/8s, 2007 585,750
365,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 365,456
290,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 308,850
10,100,000 Transamerican Energy 144A sr. disc. notes stepped-
coupon zero % (13.0s, 6/15/99), 2002 ++ 7,878,000
4,000,000 Transamerican Energy 144A sr. notes 11 1/2s, 2002 4,000,000
1,927,000 TransTexas Gas Corp. sr. sub. notes 13 3/4s, 2001 2,187,145
370,000 Wiser Oil Co. 144A sr. sub. notes 9 1/2s, 2007 371,850
145,000 W. R. Carpenter 144A sr. sud. notes 10 5/8s, 2007 147,900
--------------
26,116,326
Packaging and Containers (0.8%)
- ------------------------------------------------------------------------------------------------------------
1,700,000 Amtrol, Inc. sr. sub. notes 10 5/8s, 2006 1,772,250
1,000,000 Innova S De R.L. 144A sr. notes 12 7/8s, 2007
(Mexico) 1,060,000
6,000,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 6,495,000
265,000 Printpack, Inc. sr. sub. notes Ser. B, 10 5/8s, 2006 285,538
420,000 Radnor Holdings Inc. sr.notes 10s, 2003 432,600
425,000 US Can Corp. company guaranty Ser. B, 10 1/8s, 2006 448,375
--------------
10,493,763
Paging (0.6%)
- ------------------------------------------------------------------------------------------------------------
750,000 Arch Communications Group sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/15/01), 2008 ++ 450,000
2,475,000 Mobile Telecommunications Tech. sr. notes
13 1/2s, 2002 2,697,750
2,800,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 11/1/98), 2003 ++ 2,513,000
250,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 256,875
1,475,000 Paging Network, Inc. sr. sub. notes 10s, 2008 1,504,500
--------------
7,422,125
Paper and Forest Products (1.0%)
- ------------------------------------------------------------------------------------------------------------
3,225,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 3,507,188
2,655,000 Florida Coast Paper LLC 1st mtge. Ser. B,
12 3/4s, 2003 2,840,850
2,345,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty
10s, 2004 (Indonesia) 2,365,519
1,940,000 Repap New Brunswick sr. notes 10 5/8s, 2005
(Canada) 1,843,000
1,150,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 1,152,875
650,000 Stone Container Corp. sr. notes 11 7/8s, 2016 711,750
--------------
12,421,182
Publishing (0.5%)
- ------------------------------------------------------------------------------------------------------------
4,250,000 American Media Operation, Inc. sr. sub. notes
11 5/8s, 2004 4,675,000
500,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 517,500
370,000 Von Hoffman Press Inc. 144A sr. sub. notes
10 3/8s, 2007 391,275
--------------
5,583,775
REITs (Real Estate Investment Trusts) (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,415,000 HMH Properties, Inc. 144A sr. notes 8 7/8s, 2007
(Canada) 1,468,063
Railroads (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,280,000 TFM S.A. de cv 144A company guaranty
10 1/4s, 2007 (Mexico) 1,324,800
1,415,000 TFM S.A. de cv 144A company guaranty stepped-
coupon zero % (11.75s, 6/15/02), 2009 (Mexico) ++ 873,763
--------------
2,198,563
Recreation (1.6%)
- ------------------------------------------------------------------------------------------------------------
460,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 541,650
300,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 296,250
100,000 Casino Magic Finance Corp. 1st mtge. 11 1/2s, 2001 90,250
1,975,000 Coast Hotels & Casinos, Inc. company guaranty
Ser. B, 13s, 2002 2,212,000
2,563,100 Colorado Gaming & Entertainment Co. sr. notes
12s, 2003 [2 DBL. DAGGERS] 2,870,672
2,050,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 2,203,750
2,825,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 2,810,875
2,379,000 Louisiana Casino Cruises Corp. 1st mtge.
11 1/2s, 1998 2,402,790
2,425,000 Mohegan Tribal, Gaming Auth. sr. secd. notes Ser. B,
13 1/2s, 2002 3,201,000
1,400,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 1,134,000
500,000 Trump A.C. 1st mtge. 11 1/4s, 2006 500,625
2,106,000 Trump Castle notes 11 1/2s, 2000 2,106,000
--------------
20,369,862
Restaurants (0.2%)
- ------------------------------------------------------------------------------------------------------------
335,000 AmeriKing, Inc. sr. notes 10 3/4s, 2006 355,100
1,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 1,926,000
--------------
2,281,100
Retail (0.3%)
- ------------------------------------------------------------------------------------------------------------
1,600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 1,664,000
540,000 Specialty Retailers 144A company guaranty
8 1/2s, 2005 545,400
180,000 Specialty Retailers 144A company guaranty 9s, 2007 181,350
635,000 William Carter Co. 144A sr. sub. notes 12s, 2008 688,975
475,000 William Carter Co. sr. sub. notes Ser. A, 10 3/8s, 2006 504,688
--------------
3,584,413
Satellite Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
600,000 Echostar Communications Corp. stepped-coupon
zero % (12 7/8s, 6/1/99), 2004 ++ 513,750
1,275,000 Echostar DBS Corp. 144A company guaranty
12 1/2s, 2002 1,294,125
940,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon
zero % (12.5s, 2/01/02), 2007 ++ 573,400
820,000 TCI Satellite Entertainment 144A sr. sub. notes
10 7/8s, 2007 848,700
--------------
3,229,975
Semiconductors (0.4%)
- ------------------------------------------------------------------------------------------------------------
593,287 Cirent Semiconductor sr. sub. notes 10.22s, 2002 604,411
629,637 Cirent Semiconductor 144A sr. sub. notes
10.14s, 2004 641,443
825,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 862,125
1,810,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
10 1/8s, 2007 1,918,600
745,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero %, (11.5s, 8/15/00) 2003
(Canada) ++ 476,800
910,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 947,538
--------------
5,450,917
Specialty Consumer Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,455,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 2003 ## 1,542,300
Steel (0.2%)
- ------------------------------------------------------------------------------------------------------------
820,000 AK Steel Corp. sr. notes 9 1/8s, 2006 865,100
400,000 Altos Hornos De Mexico 144A bonds 11 7/8s, 2004
(Mexico) 436,000
1,500,000 Ispat Mexicana, S.A. 144A bonds 10 3/8s, 2001
(Mexico) 1,586,250
--------------
2,887,350
Supermarkets (0.4%)
- ------------------------------------------------------------------------------------------------------------
1,045,000 Fleming Companies, Inc. 144A sr. sub. notes
10 1/2s, 2004 1,073,738
315,000 Marsh Supermarkets, Inc. 144A sr. sub. notes
8 7/8s, 2007 318,938
1,370,000 Shoppers Food Warehouse 144A sr. notes
9 3/4s, 2004 1,411,100
120,000 Stater Brothers Holdings 144A sr. sub. notes 9s, 2004 123,300
1,700,000 Stater Brothers sr. notes 11s, 2001 1,853,000
--------------
4,780,076
Telecommunications (2.5%)
- ------------------------------------------------------------------------------------------------------------
710,000 American Communication Services, Inc. 144A sr.
notes 13 3/4s, 2007 752,600
1,960,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 1,161,300
175,000 Brooks Fiber Properties, Inc. sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/1/01), 2006 ++ 129,500
5,360,000 CellNet Data Systems, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13s, 6/15/00), 2005 ++ 3,805,600
1,280,000 Charter Communications International, Inc. disc.
notes stepped-coupon Ser. B, zero % (14s, 3/15/01),
2007 ++ 908,800
1,250,000 Charter Communications International, Inc. sr. notes
Ser. B, 11 1/4s, 2006 1,371,875
1,695,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 1,889,925
2,355,000 Frontiervision Operating Partners L.P. sr. sub. notes
11s, 2006 2,536,335
2,026,000 GST Telecommunications,Inc. company guaranty
stepped-coupon zero % (13 7/8s, 15/15/00),
2005 ++ 1,357,420
1,150,000 GST Equipment Funding 144A sr. notes 13 1/4s, 2007 1,270,750
4,015,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01),
2003 ++ 2,429,075
5,270,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon
zero % (13 1/2s, 9/15/00), 2005 ++ 4,057,900
2,750,000 Intermedia Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (11 1/4s, 7/15/02),
2007 ++ 1,760,000
1,420,000 ITC Deltacom, Inc. 144A sr. notes 11s, 2007 1,483,900
1,400,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 1,305,500
1,760,000 Pratama Datakom Asia BV 144A company
guaranty 12 3/4s, 2005 (Indonesia) 1,755,600
1,325,000 Rogers Cantel, Inc. deb. 9 3/8s, 2008 (Canada) 1,437,625
1,320,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 1,006,500
785,000 Winstar Equipment Corp. 144A company guaranty
12 1/2s, 2004 792,850
--------------
31,213,055
Telephone Services (1.0%)
- ------------------------------------------------------------------------------------------------------------
1,045,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 1,101,169
1,700,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon
zero % (10 1/2s, 3/1/02), 2007 ++ 1,130,500
1,300,000 Nextlink Communications, Inc. sr. notes 12 1/2s, 2006 1,456,000
4,000,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 4,105,000
3,250,000 RSL Communications, Ltd. company guaranty
12 1/4s, 2006 3,347,500
1,000,000 Sprint Spectrum L.P. sr. notes 11s, 2006 1,122,500
--------------
12,262,669
Textiles (0.3%)
- ------------------------------------------------------------------------------------------------------------
900,000 Polymer Group, Inc. 144A sr. sub. notes 9s, 2007 924,750
2,000,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 2,267,500
--------------
3,192,250
Transportation (0.2%)
- ------------------------------------------------------------------------------------------------------------
260,000 Chemical Leaman Corp. 144A sr. notes 10 3/8s, 2005 269,100
1,600,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s,
2003 (Greece) 1,620,000
--------------
1,889,100
Wireless Communications (1.2%)
- ------------------------------------------------------------------------------------------------------------
390,000 Grupo Iusacell S.A. 144A sr. notes 10s, 2004 (Mexico) 400,238
1,140,000 International Wireless Communications, Inc. sr. disc.
notes zero %, 2001 649,800
2,875,000 Iridium LLC/Capital Corp. 144A sr. notes 14s, 2005 2,889,375
2,005,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 1,944,850
1,850,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 1,794,500
5,980,000 Pricellular Wireless sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/97), 2001 ++ 6,443,450
490,000 Sygnet Wireless, Inc. sr. notes 11 1/2s, 2006 498,575
450,000 Western Wireless Corp. sr. sub. notes 10 1/2s, 2007 472,500
--------------
15,093,288
--------------
Total Corporate Bonds and Notes
(cost $397,077,366) $ 414,427,719
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (31.7%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (24.9%)
- ------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
23,837,381 8 1/2s, with due dates from April 1, 2026 to
June 15, 2027 24,865,265
11,928,542 6 1/2s, with due dates from December 1, 2011
to April 1, 2012 11,883,816
Federal National Mortgage Association
18,527,211 8s, with due dates from May 1, 2026 to
September 1, 2026 19,100,262
20,150,964 7 1/2s, with due dates from July 1, 2025 to
June 1, 2027 20,478,428
15,913,141 7s, with due dates from November 1, 2025 to
April 15, 2027 15,888,164
72,043 6 1/2s, with due dates from June 1, 2023 to
February 1, 2024 70,469
34,305,000 Federal National Mortgage Association TBA 6.5s,
September 16, 2027 33,275,850
Government National Mortgage Association
8,850,000 8 1/2s, TBA, September 16, 2027 9,242,940
14,955,000 8 1/2s, TBA, August 16, 2027 15,618,553
17,147,202 8 1/2s, with due dates from February 15, 2026 to
March 15, 2027 17,908,032
20,829,143 8s, with due dates from January 15, 2026 to
February 15, 2027 21,506,117
3,570,000 7 1/2s, TBA, August 16, 2027 3,631,333
65,540,478 7 1/2s, with due dates from August 15, 2022 to
May 15, 2027 66,685,021
42,678,474 7s, with due dates from July 1, 2025 to July 15, 2026 42,745,088
7,400,000 5 1/2s, TBA, September 16, 2027 7,396,522
--------------
310,295,860
U.S. Treasury Obligations (6.8%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
10,330,000 8 1/8s, August 15, 2019 12,447,650
780,000 6 5/8s, February 15, 2027 814,367
33,640,000 6 1/2s, November 15, 2026 # 34,386,472
U.S. Treasury Notes
20,724,000 6 1/2s, October 15, 2006 21,365,201
16,025,000 6 1/4s, March 31, 1999 16,165,219
--------------
85,178,909
--------------
Total U.S. Government and Agency Obligations
(cost $386,676,301) $ 395,474,769
FOREIGN GOVERNMENT BONDS AND NOTES (18.2%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
AUD 9,680,000 Australia (Government of) bonds Ser. 1106,
6 3/4s, 2006 $ 7,450,363
AUD 14,100,000 Australia (Government of) bonds Ser. 302,
9 3/4s, 2002 12,124,694
USD 14,861,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan FRN,
Libor plus 13/16, 2020 +##+++ 10,402,700
USD 9,820,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) 1999 (Non performing)+ 9,359,688
CAD 7,940,000 Canada (Government of) bonds
Ser. WB60, 7 1/4s, 2007 6,389,790
CAD 12,460,000 Canada (Government of) bonds
Ser. WE00, 5 1/2s, 2002 9,134,139
DKK 55,700,000 Denmark (Government of) bonds 7s, 2026 7,935,695
DEM 48,440,000 Germany (Federal Republic of ) Bonds
Ser. 97, 6 1/2s 2027 27,339,641
DEM 31,265,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 17,552,579
ITL 17,775,000,000 Italy (Government of) bonds 8 3/4s, 2006 11,345,155
ITL 44,535,000,000 Italy (Government of) bonds 6 1/4s, 2002 25,064,208
ITL 31,405,000,000 Italy (Government of) bonds 7 3/4s, 2001 18,521,236
ITL 22,880,000,000 Italy (Government of) bonds 6s, 2000 12,771,051
PEN 2,435,000 Peru (Government of) 144A Ser. US, 4s 1,604,056
ZAR 7,720,000 South Africa (Republic of) bonds Ser. 153,
13s, 2010 1,572,128
ESP 2,140,290,000 Spain (Government of) bonds 9.4s, 1999 14,722,070
GBP 18,050,000 United Kingdom Treasury bonds 8s, 2021 33,540,869
--------------
Total Foreign Government Bonds and Notes
(cost $222,122,488) $ 226,830,062
BRADY BONDS (11.0%) *[DIAMOND]
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
35,955,000 Argentina (Republic of) Ser. L-GL, 6.875s, 2023 $ 32,359,500
6,753,140 Argentina (Republic of) deb. 6 3/4s, 2005 6,423,924
12,732,000 Bulgaria (Government of)deb. Ser. PDI,6.688s, 2011 9,867,300
36,694,237 Brazil (Republic of) C bond 8s, 2014 +++ 31,006,631
3,044,000 Ecuador (Government of) 6.438s, 2025 2,393,345
50,880,000 United Mexican States sec. Ser. B, 6 1/4s, 2019 41,976,000
14,750,000 Venezuela (Government of) deb. Ser. DL, 6 3/4s, 2007 13,735,938
--------------
Total Brady Bonds (cost $142,252,060) $ 137,762,638
PREFERRED STOCKS (2.7%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
8,146 Alliance Gaming Corp. Ser. B, $15.00 pfd. [2 DBL. DAGGERS] $ 830,892
21,000 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 588,000
30,360 Cablevision Systems Corp. Ser. M, $11.125
dep. shs. pfd. [2 DBL. DAGGERS] 3,210,570
108,000 California Federal Bancorp Inc. Ser. A, $2.28 pfd. 2,835,000
5,500 Capstar Broadcasting Inc. 144A $12.00 pfd. 578,875
17,311 Chancellor Radio Broadcasting 144A $12.00 pfd. 1,990,765
29,725 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 1,590,288
6,875 Chevy Chase Savings Bank $3.25 pfd. 213,125
9,300 Citadel Broadcasting Co. 144A $13.25 pfd. [2 DBL. DAGGERS] 997,425
34,730 Diva Systems Corp. Ser. C, $6.00 pfd. 397,311
1,532 Granite Broadcasting 144A $12.75 pfd. [2 DBL. DAGGERS] 1,623,920
3,314 ICG Holdings, Inc. $14.25 pfd. (Canada) 3,777,960
2,607 Intermedia Communication Ser. B, $13.50 pfd. 2,945,910
4,010 Nextel Communications Inc. 144A $13.00 pfd. [2 DBL. DAGGERS] 4,270,650
32,117 Nextlink Communications, Inc. Ser. 144A $7.00 pfd. 1,846,728
2,067 NTL Inc. 144A Ser. B, $13.00 pfd. [2 DBL. DAGGERS] 2,273,700
14,250 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 1,653,000
1,490 Spanish Broadcasting Systems 144A $14.25 pfd. [2 DBL. DAGGERS] 1,564,500
8,560 Von Hoffman Corp. 144A $13.50 pfd. 244,816
--------------
Total Preferred Stocks (cost $29,439,718) $ 33,433,435
UNITS (1.5%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
790 Advanced Radio Telecommunications units 14s, 2007 $ 799,875
385 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 (Brazil) ++ 7,315,000
4,405 Colt Telecommunications Group PLC units
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) ++ 2,907,300
380 DecisionOne Holdings Corp. units 11 1/2s, 2008 227,050
1,715 Diva Systems Corp. 144A units stepped-coupon
zero % (13s, 5/15/01), 2006 ++ 1,500,625
250 Fresenius Medical Care units Ser. D, zero %,
(Germany) 259,375
180 Hedstrom Holdings, Inc. units stepped-coupon
zero % (12s, 6/1/02), 2009 ++ 111,150
2,590 McCaw International Ltd. 144A units stepped-
coupon zero % (13s, 4/15/02), 2007 ++ 1,424,500
1,310 Orion Network Systems units stepped-coupon
zero % (12.5s, 1/15/02), 2007 ++ 795,825
740 Stone Container Corp. units sr. sub. 12 1/4s, 2002 769,600
2,565 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 641,250
960 XCL Ltd. units 13 1/2s, 2004 979,200
4,700 XCL Ltd. units cum pfd. zero % 408,900
--------------
Total Units (cost $15,022,063) $ 18,139,650
COMMON STOCKS (0.7%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
525 AmeriKing, Inc. + $ 26,250
42,880 CellNet Data Systems Inc. + 530,640
86,149 Computervision Corp. + 296,137
136,975 Grand Union Co. (acquired 6/20/95,
cost $7,750,000) [DBL. DAGGERS]+ 171,219
10,934 IFINT Diversified Holdings 144A + 109,340
1,658 PMI Holdings Corp. 144A + 530,560
1,186 Premium Holdings L.P. 144A + 5,929
250,248 PSF Holdings LLC Class A + 6,631,572
36,750 Specialty Foods Corp. 144A + 9,188
11,900 Terex Corp. Rights + 238,000
--------------
Total Common Stocks (cost $17,475,180) $ 8,548,835
CONVERTIBLE BONDS AND NOTES (0.6%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
1,180,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) $ 1,171,233
1,200,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 1,078,582
647,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 ++ 582,300
700,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 612,500
450,000 National Semiconductor Corp. 144A cv. deb.
6 1/2s, 2002 482,063
3,483,000 Pricellular Wireless Corp. 144A cv. sub. notes stepped-
coupon zero % (10 3/4s, 8/15/00), 2004 ++ 2,978,047
--------------
Total Convertible Bonds and Notes
(cost $5,630,633) $ 6,904,725
PURCHASED OPTIONS OUTSTANDING (0.7%) *
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE VALUE
- ------------------------------------------------------------------------------------------------------------
JPY 3,600,000,000 Japanese Government Bond August 97
Futures Contract (call) JPY118 $ 2,567,089
USD 161,600,000 U.S. T bond (call) September97 34,212
$103,75 2,979,904
USD 13,385,000 U.S. dollar in exchange for September97 34,212
German Deutsche Mark DEM1.845 174,407
JPY 7,200,000,000 Japanese Government Bond August 97 34,181
Futures contracts (call) JPY124 1,591,899
USD 20,350,100 U.S. dollar in exchange for August97 34,181
Japanese yen JPY112.1 1,060,240
--------------
Total Purchased Options Outstanding
(cost $4,730,603) $ 8,373,539
COLLATERALIZED MORTGAGE OBLIGATIONS (2.7%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
4,135,000 Chemical Master Credit Card Trust Ser. 95-2, Class A,
6.23s, 2003 $ 4,153,070
1,275,000 Contimortgage Home Equity Loan Trust Ser. 97-1,
Class M2, 7.67s, 2025 1,306,875
1,857,124 Federal Home Loan Mortgage Corp.
Ser. 35, Class JZ, 7s, 2027 1,718,044
Federal National Mortgage Association Strips Ser. 284
12,907,245 Class 1, Principal only, zero%, 2027 9,333,551
12,907,245 Class 2, Interest only, 7.5s, 2027 3,795,537
2,320,000 Government National Mortgage Association
Ser. 97-1, Class 7.5s, 2027 2,392,863
2,817,326 Rural Housing Trust Ser. 87-1, Class D, 6.33s,
April 1, 2026 2,804,057
8,240,000 Sears Credit Account Master Trust Ser. 95-5, Class A,
6.05s, 2004 8,167,900
--------------
Total Collateralized Mortgage Obligations
(cost $33,454,176) $ 33,671,897
WARRANTS (0.2%) *+
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ------------------------------------------------------------------------------------------------------------
95,000 Becker Gaming Corp. 144A 11/15/00 $ 950
5,375 County Seat Holdings, Inc. 10/15/98 108
940 Esat Holdings Warrant 2/1/07 18,800
1,015 Globalstar Telecom 144A 2/15/04 60,900
700 Grand Union Co. Ser. 1 (acquired 6/20/95,
cost $280) [DBL. DAGGERS] 6/16/00 28
1,399 Grand Union Co. Ser Z (acquired 6/20/95
cost $140) [DBL. DAGGERS] 6/16/00 14
2,815 Hyperion Telecommunications 144A 4/15/01 84,450
187,200 Insight Communications Co. 144A 3/1/98 468,000
20,856 Intelcom Group 144A 9/15/05 302,412
1,900 Interact Systems Inc. 8/1/03 475
3,025 Intermedia Communications 144A 6/1/00 151,250
1,140 International Wireless
Communications Holdings 144A 8/15/01 11
10,452 Louisiana Casino Cruises, Inc. 144A 12/1/98 522,600
36,815 Nextlink Communications, Inc. 144A 2/1/09 368
12,880 Pagemart, Inc. 144A 12/31/03 96,600
5,600 Petracom Holdings, Inc. 144A 8/1/05 39,900
46,534 President Riverboat Casinos, Inc. 9/30/99 23,267
2,000 RSL Communications Ltd. 144A 11/15/06 50,000
7,445 SDW Holdings Corp. 144A 12/15/06 96,785
990 Spanish Broadcasting Systems 144A 6/30/99 138,600
680 Sterling Chemicals Holdings 8/15/08 23,800
24,000 UCC Investor Holding, Inc. 144A 10/31/99 300,000
455 Wright Medical Technology, Inc. 144A 6/30/03 45,488
--------------
Total Warrants (cost $2,370,334) $ 2,424,806
CONVERTIBLE PREFERRED STOCKS (0.1%) *(cost $1,082,250)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
18,000 Granite Broadcasting $1.938 cv. pfd. $ 1,072,125
SHORT-TERM INVESTMENTS (4.4%) *(cost $54,945,790)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
54,937,000 Interest in $323,552,000 joint repurchase agreement
dated July 31, 1997 with SBC Warburg Sec. due
August 1, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $54,945,790 for an
effective yield of 5.76% $ 54,945,790
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,312,278,962) *** $1,342,009,990
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,245,444,300
*** The aggregate identified cost on a tax basis is $1,315,275,381,
resulting in gross unrealized appreciation and depreciation of
$65,758,925 and $39,024,316, respectively, or net unrealized
appreciation of $26,734,609.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the
new interest rate to be paid and the date the fund will begin receiving
interest at this rate.
+++ A portion of the income will be received in additional
securities.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at July 31, 1997 was
$171,261 or less than of 0.1% of net assets.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at the
discretion of the issuer.
# A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at July 31,
1997
## When-issued securities (Note 1).
[DIAMOND] Brady Bonds are foreign bonds collateralized by the
U.S. Government. The rates are floating and are
the current rates at July 31, 1997.
144A after the name of a security represents those 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.
TBA after the name of a security represents to be announced
securities (Note 1).
The rates shown on a floating rate note (FRN) are current interest
rates shown at July 31, 1997 which are subject to change based on
terms of the security.
</TABLE>
<TABLE>
<CAPTION>
Diversification by Country
- -----------------------------------------------------------------------------
Distribution of investments by country of issue at July 31, 1997:
(as percentage of Market Value)
<S> <C> <C> <C>
Argentina 3.0% Russia 1.5%
Australia 1.8 Spain 1.1
Brazil 3.0 United Kingdom 3.4
Canada 2.1 United States 67.4
Germany 3.4 Venezuela 1.0
Italy 5.0 Others 3.2
Mexico 4.1 ----------------------
Total 100.0%
</TABLE>
<TABLE>
<CAPTION>
Forward Currency Contracts to Sell at July 31, 1997
(aggregate face value $171,431,448)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars 15,561,771 15,639,410 Sep 97 $ 77,639
British Pounds 2,535,029 2,521,276 Sep 97 (13,753)
Deutschemarks 613,552 662,637 Jun 98 49,085
Deutschemarks 56,955,694 59,946,093 Sep 97 2,990,399
Italian Lira 47,355,491 49,400,386 Sep 97 2,044,895
Japanese Yen 19,266,259 20,377,552 Sep 97 1,111,293
Spanish Peseta 1,122,490 1,154,874 Sep 97 32,384
Swedish Krona 1,753,017 1,786,201 Sep 97 33,184
Swiss Franc 18,530,608 19,943,019 Sep 97 1,412,411
- -----------------------------------------------------------------------------------------
7,737,537
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Forward Currency Contracts to Buy at July 31, 1997
(aggregate face value $210,012,039)
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $ 3,138,568 $ 3,285,943 Sep 97 $ (147,375)
Canadian Dollar 3,555,245 3,564,551 Sep 97 (9,306)
Danish Krone 838,211 845,899 Sep 97 (7,688)
Deutschemarks 43,953,285 46,436,063 Sep 97 (2,482,778)
French Franc 33,906,722 35,473,210 Sep 97 (1,566,488)
Italian Lira 1,002,347 1,079,123 Sep 97 (76,776)
Japanese Yen 78,998,509 84,300,179 Sep 97 (5,301,670)
Polish Zloty 3,351,035 3,623,073 Jun 98 (272,038)
Swedish Krona 9,233,004 9,817,215 Sep 97 (584,211)
Swiss Franc 18,456,227 20,003,382 Sep 97 (1,547,155)
Venezuelan Bolivar 1,576,034 1,583,401 Jun 98 (7,367)
- ----------------------------------------------------------------------------------------
(12,002,852)
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Forward Currency Contracts to Buy at July 31, 1997
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UST Note 10 Year (Short) $43,956,000 $42,833,784 9-Sep-97 $(1,122,216)
- ----------------------------------------------------------------------------------------
$(1,122,216)
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TBA Sale Commitments at July 31, 1997
proceeds receivable $61,696,804)
Settlement Market
Description Principal Amount Date Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA, 8s August 2039 $18,527,000 8/12/1997 $19,100,040
GNMA 7s, August 2039 42,677,000 8/20/1997 42.745,552
- ----------------------------------------------------------------------------------------
$61,845,592
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
July 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,312,278,962) (Note 1) 1,342,009,990
- ---------------------------------------------------------------------------------------------------
Cash 1,654,250
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 17,076,096
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 112,041,560
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 201,909
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 7,781,791
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 409,818
- ---------------------------------------------------------------------------------------------------
Total assets 1,481,175,414
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 8,419,940
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,117,682
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 149,824,618
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,116,916
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 178,338
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 21,033
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,664
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 12,047,106
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 158,225
- ---------------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $61,696,804) 61,845,592
- ---------------------------------------------------------------------------------------------------
Total liabilities 235,731,114
- ---------------------------------------------------------------------------------------------------
Net assets 1,245,444,300
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 1,229,563,197
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (20,153,722)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment and
foreign currency transactions (Note 1) 11,966,714
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 24,068,111
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding 1,245,444,300
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($1,245,444,300 divided by
140,248,960 shares) $8.88
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended July 31, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $124,737) $100,282,020
- --------------------------------------------------------------------------------------------------
Dividends 601,786
- --------------------------------------------------------------------------------------------------
Total investment income 100,883,806
Expenses:
Compensation of Manager (Note 2) 8,353,009
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,187,605
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 47,984
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 20,660
- --------------------------------------------------------------------------------------------------
Reports to shareholders 63,283
- --------------------------------------------------------------------------------------------------
Registration fees 200
- --------------------------------------------------------------------------------------------------
Auditing 51,296
- --------------------------------------------------------------------------------------------------
Legal 51,320
- --------------------------------------------------------------------------------------------------
Postage 202,696
- --------------------------------------------------------------------------------------------------
Exchange listing fees 118,256
- --------------------------------------------------------------------------------------------------
Other 35,856
- --------------------------------------------------------------------------------------------------
Total expenses 10,132,165
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (167,446)
- --------------------------------------------------------------------------------------------------
Net expenses 9,964,719
- --------------------------------------------------------------------------------------------------
Net investment income 90,919,087
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 23,956,893
- --------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 290,721
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 4,039,447
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (5,866,416)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures,
and TBA sale commitments during the year 30,385,823
- --------------------------------------------------------------------------------------------------
Net gain on investments 52,806,468
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $143,725,555
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
-------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 90,919,087 $ 89,437,806
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 28,287,061 34,931,641
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in
foreign currencies 24,519,407 (21,947,783)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 143,725,555 102,421,664
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (90,919,087) (91,016,918)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income (3,860,069) (1,695,936)
- ----------------------------------------------------------------------------------------------------------------------
Shares repurchased (Note 4) (3,356,370) (229,350)
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 45,590,029 9,479,460
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 1,199,854,271 1,190,374,811
- ----------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess
of net investment income of $20,153,722 and
$9,585,083, respectively) 1,245,444,300 1,199,854,271
- ----------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 140,679,960 140,709,960
- ----------------------------------------------------------------------------------------------------------------------
Shares repurchased (431,000) (30,000)
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of year 140,248,960 140,679,960
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ---------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year Ended July 31
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.53 $8.46 $8.29 $8.87 $8.51
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .65 .64 .68 .64 .71
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .38 .09 .17 (.50) .42
- ---------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.03 .73 .85 .14 1.13
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net
investment income (.65) (.65) (.58) (.70) (.71)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.03) (.01) -- (.02) (.06)
- ---------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.10) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.68) (.66) (.68) (.72) (.77)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.88 $8.53 $8.46 $8.29 $8.87
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 26.24 7.94 6.86 .95 1.92
- ---------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $8.56 $7.38 $7.44 $7.63 $8.25
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,245,444 $1,199,854 $1,190,375 $1,166,726 $1,249,193
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .83 .85 .82 .86 .84
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.42 7.43 8.29 7.30 8.14
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 262.01 332.00 196.83 242.29 250.65
- ---------------------------------------------------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes
amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2)
</TABLE>
Notes to financial statements
July 31, 1997
Note 1
Significant accounting policies
Putnam Premier Income Trust (the "fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, closed-end management
investment company. The fund's investment objective is to seek high current
income consistent with the preservation of capital by allocating its
investments among the U.S. investment grade sector, high yield sector and
international sector of the fixed income securities market.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value, and
other investments, including restricted securities, are stated at fair value
following procedures approved by the Trustees. Market quotations are not
considered to be readily available for certain debt obligations; such
investments are stated at fair value on the basis of valuations furnished by a
pricing service approved by the Trustees or dealers which determines
valuations for normal, institutional-size trading units of such securities
using methods based on market transactions for comparable securities and
various relationships between securities which are generally recognized by
institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management") the fund's manager, a wholly-owned
subsidiary of Putnam Investments, Inc. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date.
Discounts on zero coupon bonds, original issue discount bonds, stepped-coupon
bonds and payment-in-kind bonds are accreted according to the effective yield
method.
Securities purchased or sold on a (when-issued or forward commitment) or
delayed delivery basis may be settled a month or more after the trade date;
interest income is accrued based on the terms of the security. Losses may
arise due to changes in the market value of the underlying securities or if
the counterparty does not perform under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized gains and losses on foreign currency
transactions arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the period end,
resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is "marked to
market" daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The fund could be exposed to
risk if the value of the currency changes unfavorably, if the counterparties
to the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitments will not fluctuate more than 1.0% from the principal
amount. The fund holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward sale of
other securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Security valuation"
above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of the
underlying securities, generally according to the procedures described under
"Security valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by a fund as an unrealized gain or loss. If
the TBA sale commitment is closed through the acquisition of an offsetting
purchase commitment, the fund realizes a gain or loss. If the fund delivers
securities under the commitment, the fund realizes a gain or a loss from the
sale of the securities based upon the unit price established at the date the
commitment was entered into.
J) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held and for excise tax
on income and capital gains.
K) Distributions to shareholders Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though, as a result of market conditions or
investment decisions, the fund may not achieve projected investment results
for a given period. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences
include treatment of gains and losses on forward foreign currency contracts,
currency gains and losses on foreign bonds, losses on wash sale transactions,
market discount, post October foreign loss deferrals and taxable character of
distributions. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
For the year ended July 31, 1997, the Fund reclassified $6,708,570 to increase
distributions in excess of net investment income and $5,664,109 to increase
paid-in-capital, with an increase to accumulated net realized gain on
investments and foreign currency transactions of $1,044,461. The calculations
of investment income per share in the financial highlights table exclude these
adjustments.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average weekly net assets of the fund.
Such fee is based on the following annual rates: 0.75% of the first $500
million of average weekly net assets, 0.65% of the next $500 million, 0.60% of
the next $500 million and 0.55% of any amount over $1.5 billion.
As part of the custodian contract between the subcustodian bank and PFTC, the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At July 31, 1997, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended July 31, 1997, fund expenses were reduced by $167,446 under
expense offset arrangements with PFTC and brokerage service arrangements.
Investor servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested a portion of the assets
utilized in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,278 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on
or after July 1, 1995. The deferred fees remain in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchase and sales of securities
During the year ended July 31, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $1,984,836,949 and $2,015,479,589, respectively. Purchases and
sales of U.S. government obligations aggregated $1,102,622,317 and
$1,081,273,278, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------------------
Contracts
outstanding at
beginning of
period -- $--
- ------------------------------------------------------------
Options written 29,072,100 446,257
- ------------------------------------------------------------
Options sold (29,072,100) (446,257)
- ------------------------------------------------------------
Options
outstanding at
end of period -- $--
- ------------------------------------------------------------
Note 4
Share Repurchase Program
The Trustees authorized the fund to repurchase up to 7,000,000 of its shares
in the open market. Repurchases will only be made when the fund's shares are
trading at less than net asset value and at such times and amounts as is
believed to be in the best interest of the fund's shareholders. Any
repurchases of shares will have the effect of increasing the net asset value
per share of remaining shares outstanding. For the year ended July 31, 1997,
the fund repurchased 431,000 shares for $3,356,370, which reflects a discount
from net asset value of 10.67%.
Federal tax information
(Unaudited)
The Form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
Results of July 10, 1997 shareholder meeting
An annual meeting of shareholders of the fund was held on July 10, 1997. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 109,016,983 2,739,417
Hans H. Estin 109,016,917 2,739,483
John A. Hill 109,041,565 2,714,835
R.J. Jackson 109,054,075 2,702,325
Elizabeth T. Kennan 109,006,285 2,750,115
Lawrence J. Lasser 109,028,630 2,727,770
Robert E. Patterson 109,053,017 2,703,383
Donald S. Perkins 109,008,820 2,747,580
William F. Pounds 109,004,547 2,751,753
George Putnam 109,013,603 2,742,797
George Putnam, III 109,028,617 2,727,783
A.J.C. Smith 109,054,535 2,701,865
W. Nicholas Thorndike 109,023,996 2,732,404
A proposal to ratify the selection of Price Waterhouse LLP as auditors for the
fund was approved as follows: 109,513,242 votes for, and 922,476 votes
against, with 1,320,683 abstentions and broker non-votes.
A proposal to convert your fund from closed-end to open-end status and
authorize certain related amendments to the Agreement and Declaration of Trust
was approved as follows: 13,218,049 votes for, and 46,250,232 votes against,
with 52,288,119 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Kenneth J. Taubes
Vice President and Fund Manager
Jin W. Ho
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Gail S. Attridge
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time for up-to-date
information about the fund's NAV.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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35888-073 9/97
