Putnam
Premier
Income
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
It was with a confidence borne of experience that the management team of
Putnam Premier Income Trust held steady in its investment approach
throughout the first six months of fiscal 1999. Your fund's trisector
strategy helped it weather bouts of extreme market volatility while
delivering competitive returns. Performance results at both net asset
value and market price -- along with longer-term returns -- can be found
on pages 6 and 7.
* GLOBAL FLIGHT TO QUALITY REWARDS TREASURY SECURITIES
While global market conditions were unsettled for much of 1998, financial
markets suffered one of their worst crises in August. Russia defaulted on
its debt, the financial meltdown in Japan intensified, and fiscal unrest
was building steam in Latin America. Fearing the worst, investors
worldwide shunned any fixed-income security carrying the slightest credit
risk. As a result, the U.S. Treasury market became the world's coveted
safe haven and Treasury prices soared to record levels. Your fund's U.S.
Treasury holdings contributed positively to performance and helped offset
the downturns in other areas.
Elsewhere in the U.S. government sector, your fund's management team
focused on residential mortgage-backed securities and commercial
mortgage-backed issues -- two areas with higher yield potential than
Treasuries. In the residential area, the fund's managers favored GNMAs,
chiefly intermediate-term current-coupon issues that tend to have less
prepayment risk than their higher-coupon FHLMC and FNMA brethren. However,
while these securities are considered high-quality investments, they still
have greater credit sensitivity than Treasuries. Consequently both
residential and commercial mortgage-back securities experienced downturns
along with the broader fixed-income market. The commercial issues were
more severely affected because of a decline in the real estate sector.
However, by the period's end, most of the fund's mortgage-backed holdings
had begun to recover lost ground.
* SPREAD SECTORS SUFFER IN DOWNTURN
The strategy typically employed by your fund's managers involves
emphasizing the so-called spread sectors, those areas in which there is a
yield advantage over Treasuries. Along with mortgage-backed securities,
these sectors include high-yield bonds, high-grade corporate issues, and
on occasion, a position in emerging-markets debt. In the past, this
approach has greatly benefited your fund. However, in early fall,
investors' extreme risk-averse behavior caused high-yield bonds and
emerging-markets debt to plummet in price. Even high-grade corporate
issues suffered, although to a lesser degree. Your fund's holdings in
these sectors did not escape the downturn unscathed dampening performance
over the period. Fortunately, by late January, high-grade corporate issues
had rebounded and emerging-markets bonds showed signs of strengthening.
While high-yield bonds have recovered somewhat, with the greatest price
gains occurring in January, they currently remain at highly attractive
valuations. As the period progressed, your fund's managers selectively
increased the portfolio's exposure to the high-yield market, redeploying
some assets from the fund's U.S. government investments. This was done in
the belief that the high-yield market's rout was more of a financial event
than a fundamental one and that investors would soon come to recognize the
outstanding value currently offered by this sector, thereby bidding prices
up once again.
[GRAPHIC OMITTED: horizontal bar chart SECTOR ALLOCATION]
SECTOR ALLOCATION*
7/31/98 1/31/99
U.S. investment grade 38.1% 35.2%
High yield 46.2% 43.3%
Foreign (ex-emerging) 10.3% 13.0%
Emerging markets 8.1% 6.1%
Footnote reads:
*Based on net assets. Holdings will vary over time.
In our opinion, many of today's high-yield issuers are far more
financially stable than they were 10 years ago. Indeed, default rates are
less than 2% of the overall market. Furthermore, many of the companies
issuing high-yield debt today -- and the ones your fund's managers have
been targeting -- are found in fast-growing industries, such as health
care, telecommunications, cable, and broadcasting.
Merger and acquisition activity continues at a fast pace as well, setting
the stage for credit upgrades, a trend that benefited several fund
holdings in 1998. A most notable example is Telecommunications Inc., which
was recently purchased by AT&T. Other high-yield holdings worth mentioning
include but are not limited to Intermedia Communications, Inc., Covad, and
International Cable Tel. While these holdings and others discussed in this
report were viewed favorably at the end of the period, all holdings are
subject to review and adjustment in accordance with the fund's investment
strategy and may well vary in the future.
On the international side, the fund's investments in the core bond markets
of Europe served it well, as the global flight to quality also proved
beneficial to these markets. At the close of the fiscal period, roughly 6%
of the fund's assets were invested in the emerging markets. The managers
have tended to favor those countries that have access to capital, such as
Mexico and Bulgaria.
* MANAGERS LOOK TO SECOND HALF WITH CAUTIOUS OPTIMISM
While no assurances can be made, your fund's managers are optimistic about
prospects for recovery in the spread sectors as the second half of fiscal
1999 begins. We believe dormant inflation, low interest rates, and the
absence of recessionary signs in the economy set the stage for stronger
bond performance on the home front. In Europe, repeated interest-rate
cuts, slowing economic growth, and the continued convergence of the
European Economic and Monetary Union point to solid performance potential
for the Continent's bonds. As always, selectivity and broad
diversification will remain the dominant criteria for portfolio
composition in the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 17, 1999
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 1/31/99, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield bonds reflect a greater possibility that adverse changes in
the economy or poor performance by the issuers of these bonds may affect
the issuer's ability to pay principal and interest. International
investing involves certain risks, such as currency fluctuations, economic
instability, and political developments. While U.S. government backing of
individual securities does not insure principal, which will fluctuate, it
does guarantee that the fund's government-backed holdings will make timely
payments of interest and principal. This fund includes investments in
mortgage-backed securities, which are subject to prepayment risk.
[GRAPHIC OMITTED: TOP SECTOR HOLDINGS]
TOP SECTOR HOLDINGS*
Top three high-yield holdings
Household Netherlands N.V. company guaranty 6.2%, 2003 (Netherlands)
Citicorp sub. notes 6.375%, 2008
Raytheon Co. 144A 6.4%, 2018
Top three U.S. government holdings
GNMA 7.00%, 2024-2028
U.S. Treasury obligation 6.5%, 2026
GNMA 7.5%, 2022-2027
Top three international holdings
United Kingdom Treasury bonds 8.00%, 2000
Brazil (Government of) discount bonds FRB 6.625%, 2024
Netherlands (Government of) bonds, Series. 2, 8.25%, 2002
Footnote reads:
*These holdings represent 18.8% of the fund's net assets as of 1/31/99.
Portfolio holdings will vary over time.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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 1/31/99
Market
NAV price
- ------------------------------------------------------------------------------
6 months -3.36% 2.41%
- ------------------------------------------------------------------------------
1 year -0.91 4.63
- ------------------------------------------------------------------------------
5 years 36.35 58.28
Annual average 6.40 9.62
- ------------------------------------------------------------------------------
10 years 142.63 139.03
Annual average 9.27 9.11
- ------------------------------------------------------------------------------
Life of fund 162.16 152.15
(since 2/29/88)
Annual average 9.23 8.84
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/99
Salomon Bros.
Lehman Bros. Non-U.S. First Boston Consumer
Government World Govt. High Yield Price
Bond Index Bond Index Index Index
- --------------------------------------------------------------------------
6 months 5.89% 13.44% -3.34% 0.86%
- --------------------------------------------------------------------------
1 year 8.86 15.16 -0.17 1.86
- --------------------------------------------------------------------------
5 years 40.36 45.76 46.81 12.59
Annual average 7.02 7.83 7.98 2.40
- --------------------------------------------------------------------------
10 years 138.73 137.12 174.52 35.92
Annual average 9.09 9.02 10.63 3.12
- --------------------------------------------------------------------------
Life of fund 147.92 141.05 199.10 41.90
(since 2/29/88)
Annual average 8.67 8.39 10.55 3.26
- --------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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
6 months ended 1/31/99
- ------------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------------
Income $0.378
- ------------------------------------------------------------------------------
Capital gains --
- ------------------------------------------------------------------------------
Total $0.378
- ------------------------------------------------------------------------------
Share value NAV Market price
- ------------------------------------------------------------------------------
7/31/98 $8.71 $8.500
- ------------------------------------------------------------------------------
1/31/99 8.03 8.312
- ------------------------------------------------------------------------------
Current return
- ------------------------------------------------------------------------------
Current dividend rate1 9.41% 9.10%
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV
or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 12/31/98
(most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------------
6 months -3.63% 1.61%
- ------------------------------------------------------------------------------
1 year -0.55 5.29
- ------------------------------------------------------------------------------
5 years 37.62 54.64
Annual average 6.59 9.11
- ------------------------------------------------------------------------------
10 years 144.91 151.13
Annual average 9.37 9.65
- ------------------------------------------------------------------------------
Life of fund 160.43 148.38
(since 2/29/88)
Annual average 9.23 8.76
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund. Market
prices 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-yield 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
January 31, 1999 (Unaudited)
CORPORATE BONDS AND NOTES (42.4%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 2,500,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 2,718,750
2,100,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 2,257,500
2,500,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 2,718,750
--------------
7,695,000
Aerospace and Defense (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
470,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 448,850
650,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 620,750
1,280,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 1,267,200
1,500,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 1,575,000
410,000 BE Aerospace, Inc. 144A sr. sub. notes 9 1/2s, 2008 434,600
600,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 591,000
5,900,000 Boeing Co. deb. 6 5/8s, 2038 6,017,528
500,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 405,000
217,000 Hawk Corp. sr. notes 10 1/4s, 2003 224,595
530,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 540,600
990,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 1,029,600
6,125,000 Raytheon Co. 144A bonds 6.4s, 2018 6,173,939
--------------
19,328,662
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,905,653 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003
(acquired various dates from 2/8/93 to 4/7/97,
cost $2,570,065) (NON) (RES) 2,905,653
1,110,000 Purina Mills, Inc. sr. sub. notes 9s, 2010 1,087,800
--------------
3,993,453
Airlines (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
780,000 Calair LLC company guaranty 8 1/8s, 2008 758,550
855,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 530,100
1,340,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 1,139,000
1,705,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 477,400
915,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 677,100
820,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 500,200
--------------
4,082,350
Apparel (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,995,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 1,955,100
1,455,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 1,444,088
635,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 685,800
--------------
4,084,988
Automotive (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
440,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 465,300
949,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 1,003,568
1,250,000 Cambridge Industries, Inc. company guaranty Ser. B, 10 1/4s, 2007 1,000,000
3,470,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 3,454,420
1,970,000 Hayes Lemmerz International, Inc. 144A company guaranty
8 1/4s, 2008 1,979,850
1,355,000 Lear Corp. sub. notes 9 1/2s, 2006 1,493,888
2,140,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 2,182,800
730,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 715,400
--------------
12,295,226
Banks (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
635,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 508,000
370,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 399,981
575,000 First Federal Financial Corp. notes 11 3/4s, 2004 592,250
3,440,000 Fuji JGB Inv. LLC 144A FLIRB bonds Ser. A, 9.87s, 2049 (Japan) 2,380,308
710,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 750,364
615,000 North Fork Capital Trust I company guaranty 8.7s, 2026 666,722
350,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 273,000
725,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 674,250
735,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 764,356
715,000 Provident Capital Trust company guaranty 8.6s, 2026 768,511
410,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 417,314
585,000 Sovereign Capital Trust company guaranty 9s, 2027 556,932
555,000 Webster Capital Trust I 144A bonds 9.36s, 2027 593,817
--------------
9,345,805
Basic Industrial Products (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,260,000 Axia, Inc. company guaranty 10 3/4s, 2008 1,278,900
350,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 346,500
800,000 Neenah Foundry Co. 144A sr. sub. notes 11 1/8s, 2007 832,000
630,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 678,850
1,230,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 1,269,434
1,940,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 1,967,994
510,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 489,600
--------------
6,863,278
Broadcasting (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,395,000 Affinity Group Holdings sr. notes 11s, 2007 1,408,950
2,050,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 1,463,188
1,920,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 1,608,000
800,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 844,000
770,000 CBS Corp. notes 6 7/8s, 2003 799,745
420,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s,
2004 (Bermuda) 264,600
4,130,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 4,450,075
809,390 Citadel Broadcasting Co. sr. sub. notes 10 1/4s, 2007 891,341
240,000 Citadel Broadcasting, Inc. 144A sr. sub. notes 9 1/4s, 2008 255,000
3,065,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 2,651,225
370,374 Echostar Communications Corp. sr. notes 12 1/8s, 2004 426,856
1,580,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,540,500
1,710,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 1,778,400
1,990,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 1,920,350
2,250,000 Jacor Communications, Inc. company guaranty Ser. B, 8 3/4s, 2007 2,430,000
2,310,000 News America Inc. deb. 7 1/8s, 2028 2,390,111
310,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 324,725
4,096,000 PHI Holdings, Inc. sr. sub.notes 16s, 2001 3,171,942
1,010,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 1,030,200
320,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 323,200
1,225,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 1,310,750
1,005,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 783,900
500,000 TV Azteca S.A. De C.V. sr. notes Ser. A, 10 1/8s, 2004 (Mexico) 405,000
--------------
32,472,058
Building and Construction (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
950,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 864,500
490,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 426,300
570,000 Building Materials Corp. 144A sr. notes 8s, 2008 571,425
1,165,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 535,900
665,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 332,500
460,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 460,000
950,000 Morris Material Handling, Inc. company guaranty 9 1/2s, 2008 712,500
655,000 Presley Cos. sr. notes 12 1/2s, 2001 524,000
910,000 Toll Corp. company guaranty 8 1/8s, 2009 919,100
440,000 Waxman Industries Inc. sr. notes stepped-coupon
Ser. B, zero % (12 3/4s, 6/1/99), 2004 (STP) 228,800
--------------
5,575,025
Buses (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,130,000 MCII Holdings sec. notes 12%, 2002 966,150
Business Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,305,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 1,174,500
840,000 Cendant Corp. notes 7 1/2s, 2000 852,978
300,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 328,500
1,275,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,326,000
1,230,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,199,250
996,377 Outsourcing Solutions, Inc. bank term loan 8 5/8s, 10/15/03 986,413
--------------
5,867,641
Cable Television (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,110,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 937,950
1,750,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 1,820,000
300,000 CSC Holdings, Inc. deb. Ser. B, 8 1/8s, 2009 330,708
360,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 383,638
920,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 961,446
1,125,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 874,688
1,795,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,566,138
370,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 179,913
1,045,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 470,250
3,440,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon zero %
(13 1/4s, 5/15/01), 2008 (Mexico) (STP) 2,562,800
1,975,000 Grupo Televisa S.A. 144A sr. notes 11 7/8s, 2006 (Mexico) 1,925,625
250,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 269,375
1,050,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 1,107,750
290,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 329,875
930,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s,
2005 (Argentina) 455,700
340,000 TeleWest Communications PLC 144A sr. notes
11 1/4s, 2008 (United Kingdom) 401,200
1,300,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 871,000
--------------
15,448,056
Cellular Communications (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,132,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 971,020
1,790,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 1,798,950
1,540,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 1,763,300
3,500,000 Dial Call Communications, Inc. sr. disc. notes Ser. B, 10 1/4s, 2005 3,517,500
3,160,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 1,773,550
5,075,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 3,679,375
140,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 147,000
--------------
13,650,695
Chemicals (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
740,000 Geo Specialty Chemicals 144A sr. sub. notes 10 1/8s, 2008 717,800
750,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 757,500
1,150,000 Huntsman Corp. 144A sr. sub. notes FRN 9.031s, 2007 1,127,000
1,000,000 Lyondell Petrochemical bank term loan 7 1/4s, 2003 965,000
360,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 241,200
1,212,546 Polytama International notes 11 1/4s, 2007 (Indonesia) 242,509
1,150,000 Scotts Co. 144A sr. sub. notes 8 5/8s, 2009 1,184,500
925,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 360,750
1,070,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 374,500
--------------
5,970,759
Computer Services and Software (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 336,800
2,150,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 1,386,750
1,260,000 PSINet, Inc. 144A sr. notes 11 1/2s, 2008 1,373,400
630,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 648,900
1,710,000 Unisys Corp. sr. notes 7 7/8s, 2008 1,795,500
610,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 643,550
--------------
6,184,900
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
555,000 Cia Latino Americana 144A company guaranty 11 5/8s,
2004 (Argentina) 294,150
515,000 Dine S.A. de C.V. company guaranty 8 3/4s, 2007 (Mexico) 412,000
--------------
706,150
Consumer Durable Goods (--%)
- --------------------------------------------------------------------------------------------------------------------------
450,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 432,000
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 227,500
180,000 Hedstrom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 72,000
--------------
299,500
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,755,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 1,921,725
480,000 Protection One, Inc. sr. disc. notes stepped-coupon
zero %, (13 5/8s, 6/30/00), 2005 (STP) 547,200
--------------
2,468,925
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
570,000 Chattem, Inc. company guaranty Ser. B, 8 7/8s, 2008 584,250
320,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 323,200
345,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 341,550
1,410,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 1,258,425
630,000 Revlon, Inc. 144A sr. notes 9s, 2006 617,400
--------------
3,124,825
Electric Utilities (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,305,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 2,755,200
1,750,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 2,240,438
4,000,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 4,636,960
804,952 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 857,266
1,192,560 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,274,704
1,120,000 York Power Funding 144A company guaranty 12s, 2007
(Cayman Islands) 1,136,800
--------------
12,901,368
Electronics and Electrical Equipment (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
670,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 730,300
500,000 Details, Inc. sr. sub. notes Ser. B, 10s, 2005 475,000
700,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 696,500
185,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 194,250
2,305,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 2,466,350
1,720,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 1,780,200
445,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 427,200
2,190,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 2,321,400
460,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 471,500
1,420,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 1,459,050
240,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 238,800
190,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 189,050
1,500,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 1,410,000
455,000 Wavetek Corp. company guaranty 10 1/8s, 2007 436,800
--------------
13,296,400
Energy-related (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,190,000 Calpine Corp. sr. notes 7 7/8s, 2008 1,216,775
810,000 CMS Energy Corp. sr. notes 6 3/4s, 2004 810,000
2,470,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 2,725,793
620,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 655,073
610,000 Niagara Mohawk Power Corp. sr. notes Ser. E, 7 3/8s, 2003 633,991
2,100,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004
(China) 903,000
630,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 415,800
--------------
7,360,432
Entertainment (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,085,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 1,076,863
490,000 ITT Corp. notes 6 3/4s, 2005 438,138
860,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 877,200
1,240,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 1,271,000
1,010,000 Silver Cinemas Inc. sr. sub. notes 10 1/2s, 2005 595,900
3,740,000 Time Warner, Inc. company guaranty 6 5/8s, 2029 3,809,190
2,090,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 2,110,900
875,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 901,250
1,470,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 1,418,550
--------------
12,498,991
Environmental Control (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,810,000 Allied Waste Industries, Inc. 144A sr. notes 7 7/8s, 2009 2,901,325
Food and Beverages (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,220,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 1,030,900
1,470,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 1,381,800
730,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 797,525
575,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 589,375
695,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 653,300
65,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 (STP) 31,200
1,570,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 1,161,800
--------------
5,645,900
Health Care Services (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 351,750
560,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 551,600
680,000 Conmed Corp. company guaranty 9s, 2008 690,200
1,175,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 1,122,125
1,280,000 Global Health Sciences company guaranty 11s, 2008 857,600
1,040,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 811,200
1,230,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 1,162,350
1,200,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 1,128,000
1,270,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 1,114,425
1,000,000 Magellan Health Services, Inc. bank term loan 8s, 2/12/05 970,000
510,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 214,200
2,500,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 1,875,000
1,390,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 1,188,909
700,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 651,749
2,690,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 2,394,100
1,960,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 1,724,800
560,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 464,800
698,792 Patriot American Hospital bank term loan ser. B, 8 1/8s, 2003 681,322
1,345,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 1,089,450
370,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 296,000
870,000 Tenet Healthcare Corp. 144A sr. sub. notes 8 1/8s, 2008 896,100
650,000 Tenet Healthcare Corp.144A sr. notes 7 5/8s, 2008 666,250
--------------
20,901,930
Insurance and Finance (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,805,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 1,200,325
2,000,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,802,360
8,855,000 Citicorp sub. notes 6 3/8s, 2008 9,125,343
420,000 Colonial Capital I 144A company guaranty 8.92s, 2027 422,945
4,820,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 1/2s, 03/01/03), 2008 (STP) 1,156,800
10,325,000 Household Netherlands N.V. company guaranty 6.2s,
2003 (Netherlands) 10,517,045
1,175,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 881,250
955,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 732,963
865,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 901,763
1,380,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 1,062,600
2,625,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 1,286,250
1,000,000 Resource America Inc. 144A sr. notes 12s, 2004 845,000
6,135,000 Sprint Capital Corp. company guaranty 5.7s, 2003 6,165,430
--------------
36,100,074
Lodging (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
780,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 764,400
950,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 978,500
810,000 Raintree Resorts International, Inc. sr. notes Ser. B, 13s, 2004 405,000
1,250,000 Sun International Hotels Ltd. company guaranty 9s, 2007 1,293,750
2,500,000 Starwood Hotels Resorts bank term loan 7.861s, 2003 2,487,500
--------------
5,929,150
Medical Supplies and Devices (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,305,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 1,331,100
985,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 1,078,575
525,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 504,000
840,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 869,400
1,110,000 Mediq, Inc. company guaranty 11s, 2008 1,043,400
940,000 Mediq, Inc. deb. stepped-coupon zero %, (13s, 6/1/03) 2009 (STP) 423,000
--------------
5,249,475
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
850,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 467,500
775,000 Continental Global Group sr. notes Ser. B, 11s, 2007 662,625
580,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 562,600
110,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006 108,350
1,760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 1,460,800
1,250,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 1,150,000
770,000 WHX Corp. sr. notes 10 1/2s, 2005 693,000
--------------
5,104,875
Motion Picture Distribution (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,555,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 1,601,650
2,996,000 Diva Systems Corp. 144A sr. disc. notes stepped-coupon
zero % (12 5/8s, 3/1/03), 2008 (STP) 958,720
--------------
2,560,370
Office Equipment (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
639,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 712,485
220,000 United Stationer Supply, Inc. 144A sr. sub. notes 8 3/8s, 2008 221,100
1,200,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 855,000
--------------
1,788,585
Oil and Gas (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,305,000 Abraxas Petrolem Corp. 144A company guaranty Ser. D,
11 1/2s, 2004 1,636,550
160,000 American Eco Corp. company guaranty Ser. B, 9 5/8s, 2008 80,000
500,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 290,000
140,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 63,000
1,620,000 Chesapeake Energy Corp. company guaranty Ser. B, 9 5/8s, 2005 1,198,800
360,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 295,200
885,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 628,350
730,000 Dailey Petroleum Services Corp. company guaranty 9 1/2s, 2008 350,400
790,000 Eagle Geophysical, Inc. company guaranty Ser. B, 10 3/4s, 2008 505,600
160,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (14 1/8s, 5/1/03), 2006 (STP) 52,800
765,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 759,263
710,000 Michael Petroleum Corp. sr. notes Ser. B, 11 1/2s, 2005 511,200
875,000 Northern Offshore 144A company guaranty 10s, 2005 437,500
810,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 789,750
1,140,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 1,077,300
1,160,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 893,200
610,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 414,800
90,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B,
zero % (13s, 6/15/99), 2002 (STP) 24,075
3,430,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 926,100
1,927,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 1,271,820
1,820,000 Vintage Petroleum 144A sr. sub. notes 9 3/4s, 2009 1,829,100
--------------
14,034,808
Packaging and Containers (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
440,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 441,100
420,000 Radnor Holdings Inc. sr. notes 10s, 2003 432,600
2,550,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 2,307,750
1,465,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 1,465,000
--------------
4,646,450
Paging (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 568,750
250,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 102,500
--------------
671,250
Paper and Forest Products (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 APP Finance II Mauritius Ltd. bonds stepped-coupon zero %,
(12s, 2/15/04), 2049 (Indonesia) (STP) 105,000
820,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 815,900
1,230,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 1,236,150
2,450,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 1,176,000
2,765,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s,
2004 (Indonesia) 1,244,250
1,645,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 1,135,050
1,490,000 Republic Group Inc. sr. sub. notes 9 1/2s, 2008 1,516,075
--------------
7,228,425
Pharmaceuticals (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,450,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,486,250
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
360,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 201,600
Publishing (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
900,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 922,500
1,250,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 1,268,750
760,000 Gothic Production Corp. company guaranty Ser. B, 11 1/8s, 2005 589,000
1,000,000 Perry-Judd company guaranty 10 5/8s, 2007 1,045,000
260,497 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 270,917
370,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 382,950
--------------
4,479,117
Railroads (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,415,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %,
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 721,650
1,280,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,075,200
--------------
1,796,850
Real Estate (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,820,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s,
2008 (Canada) (R) 2,735,400
Recreation (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,670,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 1,862,050
1,480,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 1,546,600
490,000 Circus Circus Enterprises, Inc. sr. sub. notes 9 1/4s, 2005 496,125
350,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 317,699
1,975,000 Coast Hotels & Casinos, Inc. 1st mtge. company guaranty
Ser. B, 13s, 2002 2,221,875
1,780,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004 961,200
1,230,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 1,242,300
540,000 Isle of Capri Black Hawk LLC 1st mortgage Ser. B, 13s, 2004 585,900
1,675,000 Mohegan Tribal Gaming Auth. sr. notes Ser. B, 13 1/2s, 2002 2,010,000
1,690,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 1,685,775
2,300,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,374,750
1,400,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 630,000
500,000 Trump A.C. 1st mtge. 11 1/4s, 2006 457,500
--------------
16,391,774
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 1,818,000
720,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 741,838
--------------
2,559,838
Retail (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
870,000 Fred Meyer, Inc. company guaranty 7.45s, 2008 951,084
445,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 445,000
1,000,000 K mart Corp. pass-thru certificates Ser. 95K4, 9.35s, 2020 1,051,630
1,600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 1,664,000
750,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 720,000
1,690,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 1,706,900
--------------
6,538,614
Satellite Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,180,000 Golden Sky Systems 144A sr. sub. notes 12 3/8s, 2006 1,256,700
1,150,000 Primestar bank term loan 8 5/8s, 2004 402,500
640,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 505,600
--------------
2,164,800
Semiconductors (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
545,129 Cirent Semiconductor sr. sub. notes 10.22s, 2002 545,129
554,760 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 554,760
980,613 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s,
2008 (PIK) 882,552
1,900,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,900,000
1,660,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 1,444,200
--------------
5,326,641
Shipping (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
360,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 334,800
1,100,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 1,168,750
570,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 330,600
--------------
1,834,150
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,060,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 1,017,600
600,000 Eye Care Centers of America 144A sr. sub. notes 9 1/8s, 2008 564,000
--------------
1,581,600
Telecommunications (6.7%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 42,500
440,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 453,200
3,150,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 1,701,000
1,100,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 561,000
810,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 453,600
780,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 780,000
1,280,000 Charter Communications International, Inc. disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 (STP) 1,148,800
1,250,000 Charter Communications International, Inc. sr. notes Ser. B,
11 1/4s, 2006 1,431,250
955,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 305,600
1,045,000 Covad Communications Group sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 619,163
3,630,000 Echostar DBS Corp. 144A sr. notes 9 3/8s, 2009 3,720,750
2,270,000 Econophone Inc. company guaranty 13 1/2s, 2007 2,247,300
1,790,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 877,100
580,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 609,000
3,410,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 1,329,900
2,210,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
zero % (12 1/8s, 02/15/03), 2008 (STP) 1,105,000
4,930,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 5,213,475
1,570,000 GST Equipment Funding sr. notes 13 1/4s, 2007 1,601,400
2,026,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 1,387,810
2,330,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 1,048,500
270,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 297,000
655,000 Hyperion Telecommunication Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 4/15/01), 2003 (STP) 497,800
1,370,000 Hyperion Telecommunications, Inc. sr. notes Ser. B, 12 1/4s, 2004 1,452,200
1,420,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 795,200
1,370,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (STP) (Canada) 1,147,375
1,900,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 (STP) 76,000
1,720,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 1,195,400
3,770,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 3,638,050
3,810,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 3,238,500
1,280,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 1,273,600
3,765,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 1,844,850
2,545,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 1,297,950
1,565,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 1,725,413
1,060,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 954,000
920,000 Metrocall, Inc. 144A sr. sub. notes 11s, 2008 926,900
525,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 378,000
2,140,000 MetroNet Communications Corp. 144A sr. notes 10 5/8s,
2008 (Canada) 2,332,600
1,310,000 MetroNet Communications Corp. sr. disc. stepped-coupon
notes zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 890,800
2,170,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,670,900
220,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 135,300
380,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 349,600
350,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 154,000
2,010,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 2,236,125
855,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 583,538
500,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 (STP) 325,000
1,300,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 1,313,000
1,020,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 1,162,800
650,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 689,000
830,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (STP) 582,038
1,570,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 910,600
1,420,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 1,136,000
790,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 616,200
1,200,000 Qwest Communications International, Inc. 144A sr. notes
7 1/4s, 2008 1,257,000
2,290,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 1,259,500
1,640,000 Startec Global Communications Corp. sr. notes 12s, 2008 1,476,000
1,765,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 1,747,350
630,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 371,700
1,545,000 Teligent, Inc. sr. notes 11 1/2s, 2007 1,467,750
1,900,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 1/2s, 3/1/03), 2008 (STP) 931,000
2,210,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 2,364,700
370,000 Versatel Teleco sr. notes 144A 13 1/4s, 2008 382,950
850,000 Versatel Teleco sr. notes 13 1/4s, 2008 879,750
1,390,000 WinStar Communications, Inc. sr. sub. notes
stepped-coupon zero % (15s, 3/1/02), 2007 (STP) 1,251,000
--------------
75,850,787
Telephone Services (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,710,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 2,046,050
1,160,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 655,400
2,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 1,848,000
2,905,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 2,469,250
1,760,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 3/4s, 4/1/01), 2006 (STP) 985,600
620,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 483,600
1,240,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,215,200
4,160,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 2,246,400
922,000 ITC Deltacom, Inc. sr. notes 11s, 2007 1,014,200
860,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 853,550
1,210,000 Long Distance International, Inc. 144A sr. notes 12 1/4s, 2008 968,000
659,000 MJD Communications, Inc. notes Ser. B, FRN, 10s, 2008 632,640
470,000 OnePoint Communications, Corp. 144A sr. notes 14 1/2s, 2008 244,400
1,900,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 1,776,500
350,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 203,000
1,785,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 1,865,325
750,000 RSL Communications PLC. 144A sr. notes 10 1/2s, 2008
(United Kingdom) 731,250
700,000 RSL Communications, Ltd. company guaranty, stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 (STP) 385,000
650,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 594,750
1,280,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon zero %
(12 1/2s, 8/15/01), 2006 (STP) 1,152,000
470,000 Sprint Spectrum L.P. sr. notes 11s, 2006 549,604
440,000 Transtel S.A. 144A pass-through certificates 12 1/2s, 2007
(Colombia) 167,200
3,090,000 U S West, Inc. notes 5 5/8s, 2008 3,116,605
640,000 US Xchange LLC sr. notes 15s, 2008 660,800
2,240,000 Viatel, Inc. sr. notes 11 1/4s, 2008 2,256,800
--------------
29,121,124
Textiles (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,740,000 Galey & Lord Inc. company guaranty 9 1/8s, 2008 1,374,600
700,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 701,750
470,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 465,300
--------------
2,541,650
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Coach USA, Inc. 144A company guaranty 9 3/8s, 2007 511,875
500,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 480,000
630,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 630,000
--------------
1,621,875
Wireless Communications (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,280,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 2,348,400
1,270,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 615,950
505,000 Telesystem International Wireless Inc. sr. disc. notes
stepped-coupon Ser. C, zero %, (10 1/2s, 11/1/02), 2007 (STP) 186,850
--------------
3,151,200
--------------
Total Corporate Bonds and Notes (cost $521,218,368) $ 479,058,524
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (20.9%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (15.1%)
- --------------------------------------------------------------------------------------------------------------------------
$ 8,897,297 Federal Home Loan Mortgage Corp. 7 1/2s, with due dates
from March 1, 2020 to May 1, 2028 $ 9,161,369
Federal National Mortgage Association
14,045,000 6 1/2s, TBA, February 15, 2029 14,172,248
Federal National Mortgage Association Pass-through Certificates
2,569,433 7s, Dwarf, with due dates from December 1, 2007 to
May 1, 2011 2,629,634
25,444,891 6 1/2s, with due dates from June 1, 2023 to November 1, 2028 25,675,421
1,208,973 6 1/2s, Dwarf, with due dates from August 1, 2010 to
July 1, 2013 1,228,232
8,711,157 6s, Dwarf, July 1, 2013 8,743,824
Government National Mortgage Association
10,290,000 6 1/2s, TBA, February 15, 2029 10,405,763
Government National Mortgage Association Pass-through
Certificates
10,783,325 8s, with due dates from July 15, 2024 to March 15, 2028 11,232,404
26,282,545 7 1/2s, with due dates from August 15, 2022 to July 15, 2027 27,154,939
50,328,580 7s, with due dates from March 15, 2024 to
December 15, 2028 51,087,702
8,545,217 6 1/2s, with due dates from December 15, 2027 to
May 15, 2028 8,641,348
--------------
170,132,884
U.S. Treasury Obligations (5.8%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
23,390,000 6 1/2s, November 15, 2026 27,351,564
18,170,000 5 1/4s, November 15, 2028 18,615,710
6,520,000 5 1/4s, August 15, 2003 6,696,236
U.S. Treasury Notes
2,245,000 5 1/2s, May 31, 2003 2,321,128
3,130,000 5 1/2s, March 31, 2003 3,231,224
7,025,000 4 3/4s, November 15, 2008 7,080,989
--------------
65,296,851
--------------
Total U.S. Government and Agency Obligations
(cost $228,212,460) $ 235,429,735
FOREIGN GOVERNMENT BONDS AND NOTES (14.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
CAD 10,195,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 $ 7,825,169
USD 3,835,000 China (People's Republic of) unsub. 7.3s, 2008 3,708,445
EUR 3,405,101 France (Government of) deb. 6s, 2025 4,709,665
EUR 9,539,954 France (Government of) bonds 5 1/2s, 2007 12,295,007
EUR 10,039,216 Germany (Federal Republic of) bonds 7 1/8s, 2003 13,081,071
EUR 3,147,002 Germany (Federal Republic of) bonds Ser. 97,
6 1/2s, 2027 4,633,443
EUR 2,109,723 Italy (Government of) bonds 7 1/4s, 2026 3,305,949
USD 2,225,000 Korea (Republic of) unsub. 8 7/8s, 2008 2,375,188
EUR 10,103,416 Netherlands (Government of) bonds Ser. 2,
8 1/4s, 2002 13,336,961
EUR 8,973,503 Netherlands (Government of) bonds 7 1/4s, 2004 12,212,567
EUR 3,498,645 Netherlands (Government of) bonds 5 1/2s, 2028 4,534,868
USD 2,950,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 2,973,158
USD 3,000,000 Quebec (Province of) deb. 7s, 2007 3,249,330
USD 3,665,000 Russia (Government of) 144A bonds 12 3/4s, 2028 1,154,475
USD 11,345,000 Russia (Government of) deb. FRB 5.969s, 2020 879,238
EUR 2,634,356 Spain (Government of) bonds 6s, 2029 3,582,256
SEK 22,200,000 Sweden (Government of) bonds, Ser. 1041,6 3/4s, 2014 3,204,872
SEK 25,300,000 Sweden (Government of) bonds, Ser. 1035, 6s, 2005 4,129,519
GBP 5,095,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 9,814,473
GBP 29,115,000 United Kingdom Treasury bonds 8s, 2000 50,576,249
USD 6,305,000 United Mexican States bonds 11 3/8s, 2016 6,494,150
--------------
Total Foreign Government Bonds and Notes
(cost $161,207,328) $ 168,076,053
COLLATERALIZED MORTGAGE OBLIGATIONS (8.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,565,000 Chase Mortgage Finance Corp. Ser. 98-S2,Class A14,
6 3/4s, 2028 $ 2,588,245
Commercial Mortgage Acceptance Corp.
3,520,000 Ser. 97-ML1, Class D, 7.11s, 2030 3,550,800
3,520,000 Ser. 98-C2, Class D, 6.757s, 2009 3,454,550
41,362,847 Ser. 97-ML1, Interest Only (IO), 0.962s, 2017 2,249,105
2,685,000 Countrywide Home Loans Ser. 98-3, Class A5, 6 3/4s, 2028 2,714,787
4,100,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C,
Class A8, 6 1/2s, 2024 4,081,960
Criimi Mae Commercial Mortgage Trust
11,790,000 Ser. 98-C1, Class A2, 7s, 2011 11,451,038
4,705,000 Ser. 98-C1, Class B, 7s, 2011 4,382,266
49,213,887 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 1.254s, 2031 3,016,273
5,856,081 Fannie Mae Ser. 1993-251, Class Z, 6 1/2s, December 25, 2023 5,735,300
2,831,866 Fannie Mae Strip Ser. 299, Class 2, IO, 6 1/2s, 2028 627,435
First Union-Lehman Brothers Commercial Mortgage Co.
4,060,000 Ser. 97-C2, Class D, 7.12s, 2012 3,989,584
1,110,000 Ser. 98-C2, Class D, 6.778s, 2013 1,057,015
24,655,474 Ser. 97-C2, IO, 1.092s, 2027 2,015,778
Freddie Mac
1,900,000 Ser. 2040, Class PE, 7 1/2s, 2028 2,062,925
1,105,000 Ser. 1439, Class I, 7 1/2s, 2022 1,177,084
1,539,212 Ser. 1717, Class L, 6 1/2s, 2024 1,551,297
Freddie Mac Strip
15,270,000 Ser. 2089, IO, 7s, 2023 2,715,197
8,791,637 Ser. 192 IO, 6 1/2s, 2028 1,895,697
4,191,190 Ser. 176, Principal Only (PO) zero %, 2026 3,502,263
5,593,512 Ser. 177 PO zero %, 2026 4,674,078
1,575,000 G E Capital Mtg Services Ser. 98-11, Class 2A4, 6 3/4s, 2028 1,592,845
GMAC Commercial Mortgage Securities Inc.
5,000,000 Ser. 98-C2, Class D, 6 1/2s, 2031 4,750,391
55,966,268 Ser. 98-C2, Class X, IO, 0.823s, 2031 2,426,662
Government National Mortgage Association
1,775,000 Ser. 97-8 Class PE, May 16, 2027 1,872,625
2,025,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D, 7.191s, 2031 1,976,906
Merrill Lynch Mortgage Investors, Inc.
1,615,000 Ser. 1995-C3, Class D, 7.782s, 2025 1,673,291
650,000 Ser. 98-C2, Class D, 7.116s, 2030 646,141
Morgan Stanley Capital I
1,150,000 Ser. 98-WF1, Class D, 7.12s, 2008 1,143,621
1,120,000 Ser. 98-XL1, Class E, 6.989s, 2030 1,108,581
31,685,315 Ser. 1998-HF1, Class X, IO, 1.208s, 2018 1,873,889
Mortgage Capital Funding, Inc.
1,475,000 Ser. 98-MC1, Class A2, 6.663s, 2008 1,552,438
53,478,515 Ser. 98-MC1, Class X, IO, 0.722s, 2009 2,239,413
17,822,736 Nationslink Funding Corp. Ser. 98-2, Class X, IO, 0.9442s, 2023 790,884
1,032,312 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 1,034,893
2,057,361 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 2,067,175
--------------
Total Collateralized Mortgage Obligations
(cost $96,036,380) $95,242,432
BRADY BONDS (4.8%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,155,000 Argentina (Republic of) unsub. Ser. BGL5,
11 3/8s, 2017 $ 1,974,627
5,465,000 Argentina (Republic of) unsub. Ser. BGL4, 11s, 2006 4,973,150
4,065,000 Brazil (Government of) bonds 9 3/8s, 2008 2,611,763
31,165,000 Brazil (Government of) disc. bonds FRB 6.625s, 2024 16,791,702
5,260,000 Brazil (Government of) Ser. L, FRB 6.188s, 2012 2,301,250
5,835,000 Bulgaria (Government of) Ser. A, FRB 6.688s, 2024 4,011,563
3,600,000 Bulgaria (Government of) deb. Ser. PDI,
FRB 6.688s, 2011 2,376,000
2,725,000 Bulgaria (Government of) Ser. A, FRB 2 1/2s, 2012 1,532,813
4,500,000 Central Bank of Nigeria Ser. WW, 6 1/4s, 2020 2,846,250
FRF 8,650,000 Ivory Coast -- 144A FLIRB collateralized FRB 2s, 2018 374,671
FRF 8,541,875 Ivory Coast -- 144A PDI bonds FRB 1.9s, 2018 414,386
$ 1,720,000 United Mexican States Sec. Ser. B, 6 1/4s, 2019 1,307,200
8,430,000 United Mexican States Ser. D, FRB 6.098s, 2019 6,722,925
9,857,110 Venezuela (Government of) deb. Ser. DL,
FRB 5.938s, 2007 5,717,124
--------------
Total Brady Bonds (cost $61,847,921) $ 53,955,424
PREFERRED STOCKS (3.7%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
309 21st Century Telecom Group 144A $13.75 cum. pfd. (PIK) $ 191,580
27,102 AmeriKing, Inc. $3.25 pfd. (PIK) 718,203
8 Anvil Holdings Ser. B, $3.25 pfd. (PIK) 80
108,000 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 2,835,000
12,559 Capstar Broadcasting Inc. 144A $12.00 pfd. (PIK) 1,481,962
8,560 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 1,027,200
29,725 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 1,486,250
6,875 Chevy Chase Savings Bank $3.25 pfd. 204,531
12,615 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 1,469,648
628 Concentric Network Corp. Ser. B, $13.50 pfd. (PIK) 555,780
28,870 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 3,334,485
69,460 Diva Systems Corp. Ser. C, $6.00 pfd. 416,760
424 E. Spire Communications, Inc. 12.75% pfd. (PIK) 161,120
1,420 Fresenius Medical Capital Trust II 7.875% company
guaranty pfd. (Germany) 1,409,350
250 Fresenius Medical Care Capital Trust I Ser. D, $9.00 pfd.
(Germany) 261,562
24,560 Global Crossing Holdings Ltd. 144A $10.50 pfd. (PIK) 2,400,740
1,732 Granite Broadcasting 144A $12.75 pfd. (PIK) 1,584,780
372 Hyperion Telecommunications Ser. B, 12.875% pfd. (PIK) 301,320
4,086 ICG Holdings, Inc. $14.25 pfd. (Canada) 4,106,430
2,624 Intermedia Communication Ser. B, 13.50% (PIK) 2,650,240
1,454 IXC Communications, Inc. $12.50 pfd. (PIK) 1,403,110
23,306 Lady Luck Gaming Corp. $11.25 pfd. 792,404
13,537 Nebco Evans Holding Co. 144A $11.25 pfd. (PIK) 676,850
4,370 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 4,522,950
400 NEXTEL Communications, Inc. Ser. E, $11.125 pfd. (PIK) 376,000
43,320 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 2,144,340
196 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 1,705,200
5,000 Sinclair Capital $11.625 cum. pfd. 542,500
1,653 Spanish Broadcasting Systems $14.25 cum. pfd. (PIK) 1,752,180
150,582 TCR Holding Corp. Class E, zero % pfd. 9,487
1,036 Viatel, Inc. Ser. A, $10.00 cv. pfd. (PIK) 150,220
1,450 WinStar Communications, Inc. 144A $14.25 cum. pfd. (PIK) 1,160,000
--------------
Total Preferred Stocks (cost $43,812,913) $ 41,832,262
ASSET-BACKED SECURITIES (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 4,135,000 Chemical Master Credit Card Trust Ser. 95-2, Class A,
6.23s, 2003 $ 4,189,251
1,275,000 Contimortgage Home Equity Loan Trust Ser. 97-1,
Class M2, 7.67s, 2028 1,280,177
3,575,575 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 3,653,790
1,228,978 Green Tree Recreational Equipment & Cons Ser. 97-B,
Class A1, 6.55s, 2028 1,251,925
--------------
Total Asset-Backed Securities (cost $10,323,951) $ 10,375,143
WARRANTS (0.4%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,140 Allegiance Telecom, Inc. 2/3/08 $ 58,850
1,270 American Mobile Satellite Corp. 4/1/08 3,175
95,000 Becker Gaming Corp. 144A 11/15/00 10
810 Bestel SA 5/15/05 729
6,652 Cellnet Data Systems, Inc. 9/15/07 146,344
810 Club Regina, Inc. 144A 4/15/06 810
2,905 Colt Telecommunications Group PLC 12/31/06 1,597,750
320 Concentric Network Corp. 12/15/07 44,800
12,892 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 6,446
1,045 Covad Communications Group 144A 3/15/08 738,815
8,988 Diva Systems Corp. 3/1/08 134,820
1,715 Diva Systems Corp. 5/15/06 415,030
24,100 DTI Holdings Inc. 3/1/08 1,205
20 E. Spire Communications, Inc. 11/1/05 120
2,520 Econophone, Inc. 144A 7/15/07 126,000
780 Epic Resorts 6/15/05 8
940 Esat Holdings, Inc. (Ireland) 2/1/07 63,450
3,410 Firstworld Communication 4/15/08 34,100
1,015 Globalstar Telecom 144A 2/15/04 65,975
2,815 Hyperion Telecommunications 144A 4/15/01 206,903
20,856 Intelcom Group 144A 10/15/05 417,120
1,900 Interact Systems, Inc. 8/1/03 19
3,025 Intermedia Communications 6/1/00 106,631
1,140 International Wireless Communications
Holdings 144A 8/15/01 11
2,175 KMC Telecom Holdings, Inc. 4/15/08 5,438
2,185 Knology Holdings, Inc. 144A 10/15/07 3,278
1,210 Long Distance International, Inc. 144A 4/13/08 3,025
3,590 McCaw International Ltd. 4/15/07 14,360
350 MGC Communications, Inc. 144A 10/1/04 10,456
940 Mediq Inc. Units 6/1/03 9
470 Onepoint Communications, Inc. 6/1/08 470
990 Orbital Imaging Corp. 144A 3/1/05 39,600
1,310 Orion Network Systems 1/15/07 15,065
12,880 Pagemart, Inc. 144A 12/31/03 103,040
1,570 Pathnet, Inc. 144A 4/15/08 15,700
1,600 Paxson Communications Corp. 144A 6/30/03 16
46,534 President Riverboat Casinos, Inc. 9/30/99 4,653
9,160 Rhythms Netcon 144A 5/15/08 183,200
990 Spanish Broadcasting Systems 144A 6/30/99 202,950
1,640 STARTEC Global Communications Corp. 5/15/08 1,640
680 Sterling Chemicals Holdings 8/15/08 10,200
630 Telehub Communications Corp 7/31/05 630
5,820 UIH Australia/Pacific, Inc. 144A 5/15/06 5,820
1,220 Versatel 144A 5/15/08 12,200
--------------
Total Warrants (cost $2,413,607) $ 4,800,871
COMMON STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
525 AmeriKing, Inc. (NON) $ 21,000
390,240 Celcaribe S.A. 144A (Colombia) (NON) 507,312
42,880 CellNet Data Systems, Inc. (NON) 353,760
10,918 Hedstrom Holdings, Inc. 144A 10,918
10,934 IFINT Diversified Holdings 144A (NON) 21,868
466 Mothers Work, Inc. (NON) 5,825
250 Paging Do Brazil Holdings Co., LLC Class B, (Brazil) 3
1,186 Premium Holdings (L.P.) 144A (NON) 4,743
250,248 PSF Holdings LLC Class A (acquired various dates from
9/15/93 to 8/25/94, cost $8,604,327) (NON) (RES) 3,190,662
7,950 RSL Communications, Ltd. Class A (NON) 203,719
36,750 Specialty Foods Acquisition Corp. (NON) 1,838
--------------
Total Common Stocks (cost $9,730,838) $ 4,321,648
CONVERTIBLE BONDS AND NOTES (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,420,000 APP Global Finance Ltd. 144A cv. company guaranty
3 1/2s, 2003 (United Kingdom) $ 1,185,800
1,200,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 1,032,000
647,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon
zero %, (13 7/8s, 12/15/00), 2005 (STP) 601,710
800,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 675,000
700,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 501,375
--------------
Total Convertible Bonds and Notes (cost $5,074,074) $ 3,995,885
UNITS (0.2%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
780 Birch Telecom, Inc. 144A units 14s, 2008 $ 709,800
1,420 Pegasus Shipping 144A units company guaranty
stepped-coupon zero % (14 1/2s, 6/20/03), 2008 (STP) 653,200
1,240 Transam Refinance, Inc. 144A units 16s, 2003 124,000
960 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 787,200
7,615 XCL Ltd. 144A units cv. cum. pfd. 9 1/2s, 2006 (PIK) 380,750
--------------
Total Units (cost $4,405,330) $ 2,654,950
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
6,400 Chancellor Media Corp. $3.00 cv. cum. pfd. $ 743,200
5,750 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 58,938
52 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 509,600
1,091 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. (PIK) 54,550
--------------
Total Convertible Preferred Stocks (cost $1,615,676) $ 1,366,288
SHORT-TERM INVESTMENTS (3.7%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 18,000,000 Diageo Capital PLC, effective yield of 4.83%,
March 5, 1999 (United Kingdom) $ 17,922,720
23,517,000 Interest in $308,920,000 joint repurchase agreement
dated January 29, 1999 with Credit Suisse First Boston
due February 1, 1999 with respect to various U.S.
Treasury obligations -- maturity value of $23,526,172
for an effective yield of 4.68% 23,517,000
--------------
Total Short-Term Investments (cost $41,439,720) $ 41,439,720
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,187,338,566) (b) $1,142,548,935
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,129,221,048.
(b) The aggregate identified cost on a tax basis is $1,191,448,959, resulting in gross unrealized appreciation and
depreciation of $57,543,460 and $106,443,484, respectively, or net unrealized depreciation of $48,900,024.
(NON) Non-income-producing security.
(STP) 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.
(RES) Restricted, excluding 144A securities, as to pubic resale. The total market value of restricted securities
held at January 31, 1999 was $6,096,315 or 0.5% of net assets.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for
futures contracts at January 31, 1999.
(R) Real Estate Investment Trust.
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).
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on a Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are current interest rates shown
at January 31, 1999 which are subject to change based on the terms of the security.
Diversification by Country
Distribution of investments by country of issue at January 31, 1999: (as percentage of Market Value)
Brazil 2.0%
Canada 2.9
France 1.5
Germany 1.7
Mexico 2.0
Netherlands 3.6
United Kingdom 7.7
United States 72.5
Others 6.1
-----
Total 100.0%
=====
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at January 31, 1999 (Unaudited)
(aggregate face value $172,803,107)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Australian Dollars $899,802 $913,813 2/17/99 $ (14,011)
Danish Krone 6,928,284 7,078,795 2/17/99 (150,511)
Deutschemarks 75,284,481 77,567,881 2/17/99 (2,283,400)
Italian Lira 16,512,188 17,059,320 2/17/99 (547,132)
Japanese Yen 52,877,326 51,807,407 3/17/99 1,069,919
Spanish Peseta 7,881,267 8,062,091 2/17/99 (180,824)
Swedish Krona 10,639,166 10,313,800 2/17/99 325,366
- -------------------------------------------------------------------------------
$(1,780,593)
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at January 31, 1999 (Unaudited)
(aggregate face value $265,764,799)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
British Pounds $55,092,539 $55,175,288 3/17/99 $ 82,749
Canadian Dollar 7,921,793 7,803,457 2/17/99 (118,336)
Danish Krone 39,395 40,561 2/17/99 1,166
Deutschemarks 93,917,902 96,697,329 2/17/99 2,779,427
Dutch Guilder 30,618,400 31,589,319 2/17/99 970,919
French Franc 15,073,875 15,463,314 2/17/99 389,439
Hong Kong Dollar 7,578,262 7,659,841 2/17/99 81,579
Japanese Yen 52,405,009 51,335,690 3/17/99 (1,069,319)
- -------------------------------------------------------------------------------
$3,117,624
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 1999 (Unaudited)
Unrealized
Total Aggregate Face Expiration Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
U. S. Treasury Bond
20 yr. (Long) $71,680,000 $71,557,412 Mar-99 $122,588
U. S. Treasury Bond
20 yr. (Short) 896,000 889,611 Mar-99 (6,389)
- -------------------------------------------------------------------------------
$116,199
- -------------------------------------------------------------------------------
TBA Sale Commitments at January 31, 1999 (Unaudited)
(Proceeds receivable $6,466,915)
Principal Settlement Market
Agency Amount Date Value
- -------------------------------------------------------------------------------
GNMA, 6 1/2s, February 2029 $6,422,000 2/22/99 $6,494,248
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,187,338,566) (Note 1) $1,142,548,935
- -----------------------------------------------------------------------------------------------
Cash 2,670,532
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $376,645) 386,703
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 20,684,953
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 14,279,522
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 103,688
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 5,734,301
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 64,862
- -----------------------------------------------------------------------------------------------
Total assets 1,186,473,496
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 8,855,896
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 34,983,060
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,890,725
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 132,210
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 26,105
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,452
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 4,397,270
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 222,087
- -----------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $6,466,915) 6,494,248
- -----------------------------------------------------------------------------------------------
Other accrued expenses 249,395
- -----------------------------------------------------------------------------------------------
Total liabilities 57,252,448
- -----------------------------------------------------------------------------------------------
Net assets $1,129,221,048
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,217,545,018
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (12,731,164)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (32,180,563)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (43,412,243)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,129,221,048
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($1,129,221,048 divided by
140,572,311 shares) $8.03
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $66,421) $51,638,799
- -----------------------------------------------------------------------------------------------
Dividends 2,170,674
- -----------------------------------------------------------------------------------------------
Total investment income 53,809,473
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,895,673
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 654,870
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,433
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,865
- -----------------------------------------------------------------------------------------------
Reports to shareholders 21,556
- -----------------------------------------------------------------------------------------------
Auditing 44,994
- -----------------------------------------------------------------------------------------------
Legal 3,489
- -----------------------------------------------------------------------------------------------
Postage 94,172
- -----------------------------------------------------------------------------------------------
Exchange listing fees 59,024
- -----------------------------------------------------------------------------------------------
Other 3,247
- -----------------------------------------------------------------------------------------------
Total expenses 4,799,323
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (26,532)
- -----------------------------------------------------------------------------------------------
Net expenses 4,772,791
- -----------------------------------------------------------------------------------------------
Net investment income 49,036,682
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (43,090,902)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 4,131,568
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (2,724,940)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 2,063,789
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts and TBA sale commitments during the period (50,930,291)
- -----------------------------------------------------------------------------------------------
Net loss on investments (90,550,776)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(41,514,094)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $49,036,682 $103,451,712
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (41,684,274) (6,854,645)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and assets and liabilities in foreign currencies (48,866,502) (18,613,852)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (41,514,094) 77,983,215
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (53,054,128) (92,539,997)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (9,699,908)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions 2,601,660 --
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (91,966,562) (24,256,690)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 1,221,187,610 1,245,444,300
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $12,731,164 and $8,713,718,
respectively) $1,129,221,048 $1,221,187,610
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 140,248,960 140,248,960
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 323,351 --
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 140,572,311 140,248,960
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.71 $8.88 $8.53 $8.46 $8.29 $8.87
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .35 .74 .65 .64 .68 .64
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.65) (.18) .38 .09 .17 (.50)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.30) .56 1.03 .73 .85 .14
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38) (.66) (.65) (.65) (.58) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) (.01) -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain -- (.07) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (.10) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.38) (.73) (.68) (.66) (.68) (.72)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.03 $8.71 $8.88 $8.53 $8.46 $8.29
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (3.36)* 8.06 26.24 7.94 6.86 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $8.31 $8.50 $8.56 $7.38 $7.44 $7.63
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,129,221 $1,221,188 $1,245,444 $1,199,854 $1,190,375 $1,166,726
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .42* .89 .83 .85 .82 .86
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.31* 8.34 7.42 7.43 8.29 7.30
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.97* 209.50 262.01 332.00 196.83 242.29
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total 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
January 31, 1999 (Unaudited)
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. government 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 or dealers, approved by
the Trustees, 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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 yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and 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 gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized 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 appreciation
and depreciation of assets and liabilities in foreign currencies 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
current 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. 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. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
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 the 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, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor 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. 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.
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 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.
The fund reimburses Putnam Management an allocated amount 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 subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended January 31, 1999, fund expenses were reduced by
$26,532 under expense offset arrangements with PFTC. 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.
Each Trustee of the fund receives an annual Trustee fee, of which $980 has
been allocated to the fund, 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 "Deferral 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 Deferral 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 six months ended January 31, 1999, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $576,290,407 and $477,876,453,
respectively. Purchases and sales of U.S. government obligations
aggregated $280,290,757 and $369,466,725, respectively. In determining the
net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
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
period ended January 31, 1999, the fund did not repurchase any shares. As
of January 31, 1999, a total of 511,000 shares have been repurchased since
the inception of the program.
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
David Waldman
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our website (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
49939-073 3/99
