Putnam
Premier
Income
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The turbulent market environment that prevailed throughout the first half
of Putnam Premier Income Trust's fiscal 1999 continued its volatility
during the second half. Despite the ongoing uncertainty, your fund's
trisector investment strategy was instrumental in delivering competitive
results for the full fiscal year. In the following report, your fund's
management team reviews performance and discusses prospects for fiscal
2000 in the emerging economic and market environment.
I am pleased to announce the appointment of David L. Waldman and Robert M.
Paine to your fund's management team during fiscal 1999. David joined
Putnam in 1997 and is a chief investment officer in the Core Fixed Income
Group. He was previously associated with Lazard Freres Asset Management
and Goldman Sachs Asset Management. He has 11 years of investment
experience. Bob has been with Putnam since 1987 and is a senior portfolio
manager in the High Yield Group. He also has 11 years of investment
experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
September 15, 1999
Report from the Fund Managers
Robert Paine
David Waldman
D. William Kohli
Over the past year, financial, political, and economic events at home and
overseas presented investors in fixed-income securities with some
formidable challenges. Putnam Premier Income Trust began fiscal 1999 last
August just as global market volatility began intensifying in earnest.
Russia made history by defaulting on its debt. Shortly thereafter, hedge
funds began liquidating their assets, seemingly en masse. With Asian and
Latin American markets continuing to struggle, the U.S. Treasury market
became the world's darling and any fixed-income sector that exhibited a
modicum of risk fell out of favor. U.S. high-yield bonds and
emerging-markets debt suffered to the greatest extent.
By the midpoint of the fiscal year, however, the global financial
situation began to look brighter. Investors renewed their interest in U.S.
high-yield and high-grade corporate issues as well as in U.S.
mortgage-backed securities and emerging-markets bonds. As the second half
of the period progressed, U.S. high-yield bonds and emerging-markets
issues led the pack in terms of total return performance. However, earlier
this summer, most bond sectors came under pressure once again, this time
amid fears of rising inflation. The accelerating pace of global economic
growth drove bond yields higher in markets worldwide.
The changing nature of the world's financial markets and ensuing bouts of
volatility are reflected in your fund's performance for the 12 months
ended July 31, 1999.
Total return for 12 months ended 7/31/99
Net asset value Market price
- ----------------------------------------------------------------
-4.01% -7.24%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
[GRAPHIC OMITTED: horizontal bar chart SECTOR ALLOCATION]
SECTOR ALLOCATION*
7/31/98 7/31/99
U.S. investment
grade 38.1% 34.0%
High yield 46.2% 45.0%
Foreign
(ex-emerging) 10.3% 10.0%
Emerging
markets 8.1% 11.0%
Footnote reads:
*Based on net assets. Holdings will vary over time.
* FED MAKES SEVERAL RATE ADJUSTMENTS TO REASSURE INVESTORS
Over the course of your fund's fiscal year, the Federal Reserve Board cut
short-term interest rates three times and increased them once. The three
successive rate cuts, enacted last fall, served to inject liquidity into
the global marketplace and to ease fears about a worldwide financial
crisis. The Fed then chose to raise rates by a quarter of a percentage
point this past June to corral economic growth and reassure investors that
the increase was necessary to keep inflation in check. (Shortly after the
close of the fiscal year, the Fed implemented another quarter-point
increase.)
In both instances, U.S. Treasury securities were the most seriously
affected by the Fed's actions. Combined with the global flight to quality
last fall, the rate cuts helped push the yield on the benchmark 30-year
Treasury bond down -- and its price up -- to levels last seen in the
1960s. This sparked a historic rally in the Treasury sector. Conversely
the anticipation of the Fed's interest-rate increase this past spring,
combined with a more relaxed attitude among investors toward riskier
investments, added fuel to already rising yields and propelled the
long-term bond's yield past the psychologically important 6% mark. Thus
your fund's position in Treasury securities helped buoy performance during
the fiscal year's first half and then detracted from returns in the latter
months.
Within the mortgage-backed securities sector, residential mortgage-backed
issues, primarily seasoned current-coupon GNMAs, and commercial
mortgage-backed securities, which offer structural prepayment protection,
were emphasized. Strong economic activity and solid real estate
fundamentals helped these holdings perform quite well for much of the
period's second half.
* U.S. HIGH-YIELD BONDS SERVE AS FUND'S ANCHOR POSITION
Given the solid fundamentals of the U.S. economy and corporate America, we
believe high-yield bonds present an attractive investment opportunity. By
fiscal year's end, approximately 40 percent of the fund's net assets were
invested in U.S. high-yield bonds.
"Bond investors have a new favorite pastime: hand wringing. . . What bond
funds are doing well and should continue to outperform in this nervous
environment? Those that invest in riskier debt, namely [high-yield] bonds
and emerging-markets securities."
- -- "Mutual Funds, Quarterly Review," The Wall Street Journal, July 6, 1999
Within this sector, we favored bonds in the telecommunications, media, and
finance industries. Deregulation has created a favorable environment for
merger and acquisition activity, which, in turn, creates the potential for
credit upgrades and price appreciation opportunities. As investment
conditions improved for high-yield bonds, telecommunications, financial
services, and cable television were among the top-performing subsectors
within the high-yield market and a key focus for your fund. Of the fund's
telecom holdings, Global Crossing, Nextel, and Covad were among the most
noteworthy performers. NTL, a U.K. cable company, and AMFM, Inc. were
among the fund's top media issues. In addition, specialty finance
companies such as Contifinancial and Delta Financial produced notable
results. While the securities discussed in this report were viewed
favorably at the end of the period, all holdings are subject to review in
accordance with the fund's investment strategy and may vary in the future.
"As a multisector bond fund, Putnam Premier Income Trust can help investors
who seek high current income within a controlled risk framework. With U.S.
stock prices at historic highs, participating in the income and total return
potential of a globally diversified bond fund might be the answer to some
portfolio rebalancing questions."
- -- Robert Paine, fund manager
Stricter Medicare reimbursement formulas negatively affected the
performance of several health-care issues, particularly long-term nursing
care bonds such as Sun Healthcare. We continue to hold these bonds in the
portfolio, however, since we believe the bad news has been fully priced
into the market and price appreciation going forward appears a
possibility. Among cyclical industries, we selectively added some
high-quality issues, such as Riverwood International in the packaging and
container industry.
* EMERGING-MARKETS BONDS BECOME MORE ATTRACTIVE
During the period, we slightly increased the fund's position in
emerging-markets securities as the fiscal year progressed. It was roughly
11% of net assets by the year's end. Since the fiscal year's midpoint,
emerging-markets issues have performed extremely well, recovering some of
the ground they lost in 1998. Although investors still have some
fundamental concerns about Argentina and Brazil, bond prices in these
markets are at historically inexpensive levels. The fund has exposure to
bonds in these countries as well as the Mexican issues, which offer
attractive yields relative to their medium-term sovereign
creditworthiness.
We also initiated positions in Bulgaria, one of Eastern Europe's more
solidly growing economies, and believe they offer not only good value but
also appreciation potential. We continue to believe that Japan remains a
relatively unattractive market and thus we have kept the fund's exposure
there to a minimum. The core bond markets of Europe are fairly represented
in the portfolio, although they too have come under pressure of late in
response to the global rise in interest rates.
* FISCAL YEAR 2000 BEGINS ON UNCERTAIN NOTE
We enter the new fiscal year with both optimism and trepidation. The
remarkable strength of the U.S. economy, combined with relatively subdued
inflation and solid corporate profitability, bodes well for high-yield
bonds in the coming months. Yet the perceived problems that Y2K may cause
could very well -- however temporarily -- adversely affect the liquidity
of not only high-yield bonds but most other fixed-income securities. We
expect the Fed to maintain its preemptive attitude on interest rates and
to keep a tight rein on inflation and to slow economic growth. In the
short term, these events may likely cause some market turbulence. In the
long run, we expect Y2K to be viewed as a veritable nonevent while the
Fed's actions this year should prove to fortify the fundamental strength
of U.S. corporations. We plan to have your fund positioned to both
minimize potential volatility and maximize the resulting opportunities.
[GRAPHIC OMITTED: TOP SECTOR HOLDINGS]
TOP SECTOR HOLDINGS
Top three high-yield holdings
Global Crossing Holdings 9.625%, 2008
Midland Funding II Corp. 11.75%, 2005
AMFM Inc. 8.00%, 2008
Top three U.S. government holdings
U.S. Treasury Notes 5.25%, 5/15/04
U.S. Treasury Notes 4.75%, 11/15/08
U.S. Treasury Notes 5.75%, 6/30/01
Top three international holdings
U.K. Treasury Bonds 8.00%, 2000
Sweden (Government of) Bonds,
Series 1035, 6.75%, 2014
Canada (Government of) Bonds
5.75%, 2029
Footnote reads:
These holdings represent 17.8% of the fund's net assets as of 7/31/99.
Portfolio holdings will vary over time.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 7/31/99, 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.
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 7/31/99
Market
NAV price
- -----------------------------------------------------------------
1 year -4.01% -7.24%
- -----------------------------------------------------------------
5 years 42.37 45.96
Annual average 7.32 7.86
- -----------------------------------------------------------------
10 years 127.88 103.12
Annual average 8.59 7.34
- -----------------------------------------------------------------
Life of fund 160.42 128.38
(since 2/29/88)
Annual average 8.74 7.50
- -----------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/99
Salomon Bros.
Lehman Bros. Non-U.S. First Boston Consumer
Government World Govt. High Yield price
Bond Index Bond Index Index index
- ------------------------------------------------------------------------------
1 year 2.74% 8.42% -1.49% 2.14%
- ------------------------------------------------------------------------------
5 years 41.38 34.61 55.44 12.33
Annual average 7.17 6.13 9.22 2.35
- ------------------------------------------------------------------------------
10 years 110.44 127.41 170.20 34.00
Annual average 7.73 8.56 10.45 2.97
- ------------------------------------------------------------------------------
Life of fund 140.59 130.40 204.83 43.71
(since 2/29/88)
Annual average 7.99 7.58 10.25 3.23
- ------------------------------------------------------------------------------
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 12 MONTHS ENDED 7/31/99
- --------------------------------------------------------------------------
Distributions
- --------------------------------------------------------------------------
Number 12
- --------------------------------------------------------------------------
Income $0.6149
- --------------------------------------------------------------------------
Capital gains
Long-term 0.0321
- --------------------------------------------------------------------------
Short-term 0.0910
- --------------------------------------------------------------------------
Total $0.7380
- --------------------------------------------------------------------------
Share value NAV Market price
- --------------------------------------------------------------------------
7/31/98 $8.71 $8.50
- --------------------------------------------------------------------------
7/31/99 7.62 7.19
- --------------------------------------------------------------------------
Current return
- --------------------------------------------------------------------------
Current dividend rate1 9.45% 10.01%
- --------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Market
NAV price
- ------------------------------------------------------------------------
1 year -3.25% -0.05%
- ------------------------------------------------------------------------
5 years 44.22 56.09
Annual average 7.60 9.31
- ------------------------------------------------------------------------
10 years 130.68 122.51
Annual average 8.72 8.33
- ------------------------------------------------------------------------
Life of fund 161.45 144.32
(since 2/29/88)
Annual average 8.85 8.20
- ------------------------------------------------------------------------
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 and principal value 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 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
The Board of Trustees and Shareholders of
Putnam Premier Income Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Premier Income Trust, including the fund's portfolio, as of July
31, 1999, and the related statement of operations, statement of changes in
net assets and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audit.
The statement of changes in net assets for the year ended July 31, 1998,
and the financial highlights for each of the years in the four-year period
ended July 31, 1998, were audited by other auditors whose report dated
September 17, 1998 expressed an unqualified opinion on that financial
statement and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of July 31, 1999, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam Premier Income Trust as of July 31, 1999, the results of its
operations, changes in its net assets and financial highlights for the
year then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Boston, Massachusetts
September 9, 1999
<TABLE>
<CAPTION>
The fund's portfolio
July 31, 1999
CORPORATE BONDS AND NOTES (47.4%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 2,500,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 2,662,500
2,100,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 2,047,500
2,500,000 Outdoor Communications, Inc. sr. sub. notes 9 1/4s, 2007 2,575,000
--------------
7,285,000
Aerospace and Defense (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
470,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 425,350
650,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 588,250
1,280,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 1,209,600
1,500,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 1,522,500
410,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 414,100
1,090,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 1,019,150
500,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 477,500
530,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 522,050
--------------
6,178,500
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,065,463 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 2,820,226
Airlines (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
780,000 Calair LLC 144A company guaranty 8 1/8s, 2008 713,700
855,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 307,800
1,340,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 964,800
915,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 791,475
820,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 516,600
3,310,000 United Pan-Europe N.V. 144A stepped-coupon zero %
(12 1/2s, 2004), 2009 (Netherlands) (STP) 1,795,675
1,580,000 United Pan-Europe N.V. 144A sr. notes 10 7/8s, 2009
(Netherlands) 1,576,050
--------------
6,666,100
Apparel (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,280,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 1,024,000
1,995,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 2,004,975
635,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 641,350
645,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 651,450
--------------
4,321,775
Automotive Parts (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
440,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 455,400
949,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 982,215
1,260,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 1,212,750
3,470,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 3,242,819
1,520,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
8 1/4s, 2008 1,436,400
1,355,000 Lear Corp. sub. notes 9 1/2s, 2006 1,392,263
1,420,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 1,448,400
2,140,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 2,118,600
740,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 573,500
670,000 Transportation Manufacturing Operations Inc. 144A
company guaranty 11 1/4s, 2009 661,625
--------------
13,523,972
Banks (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
$ 3,315,000 Banco Nacional de Comercio Exterior bank guaranteed
7 1/4s, 2004 (Mexico) 3,024,938
DKK 4,503,000 Bank Realkredit Danmark mortgage 7s, 2029
(Denmark) 640,045
$ 635,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 552,450
870,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 894,177
575,000 First Federal Financial Corp. notes 11 3/4s, 2004 586,500
795,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 790,961
615,000 North Fork Capital Trust I company guaranty 8.7s, 2026 600,640
350,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 241,500
725,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 710,500
735,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 690,187
715,000 Provident Capital Trust company guaranty 8.6s, 2026 682,360
410,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 382,657
585,000 Sovereign Capital Trust company guaranty 9s, 2027 575,798
555,000 Webster Capital Trust I 144A bonds 9.36s, 2027 536,985
--------------
10,909,698
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 336,875
560,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 324,800
575,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 540,500
--------------
1,202,175
Broadcasting (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,280,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 2,188,800
4,130,000 AMFM, Inc. company guaranty 8s, 2008 4,006,100
2,050,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 1,742,500
1,920,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 1,622,400
800,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 827,000
1,989,950 Capstar Broadcasting bank term loan 4.999s, 2005 1,989,950
420,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 357,000
809,390 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 850,871
850,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 858,500
3,065,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 2,827,463
3,630,000 Echostar DBS Corp. 144A sr. notes 9 3/8s, 2009 3,657,225
1,580,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,485,200
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 1,930,300
2,250,000 Jacor Communications, Inc. company guaranty Ser. B,
8 3/4s, 2007 2,390,625
70,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 72,538
1,050,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 1,060,500
450,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 461,250
1,310,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 1,296,900
4,096,000 PHI Holdings, Inc. sr. sub. notes 16s, 2001 3,384,115
1,010,000 Radio One, Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 (STP) 1,045,350
320,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 312,000
1,225,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 1,335,250
1,570,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 1,153,950
500,000 TV Azteca S.A. de C.V. sr. notes Ser. A, 10 1/8s, 2004 (Mexico) 395,000
--------------
39,029,187
Building and Construction (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
490,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 343,000
390,000 Atrium Companies, Inc. 144A sr. sub. notes 10 1/2s, 2009 381,225
940,000 Building Materials Corp. company guaranty 8s, 2008 874,200
555,000 Cia Latino Americana 144A company guaranty 11 5/8s, 2004
(Argentina) 266,400
3,240,000 D.R. Horton, Inc. company guaranty 8s, 2009 3,094,200
1,165,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 570,850
665,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 305,900
460,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 449,650
690,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 662,400
910,000 Toll Corp. company guaranty 8 1/8s, 2009 862,225
--------------
7,810,050
Business Equipment and Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,305,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 1,318,050
300,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 311,250
1,275,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,243,125
2,400,000 Iron Mountain, Inc. 144A sr. sub. notes 8 1/4s, 2011 2,238,000
1,230,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,193,100
988,753 Outsourcing Solutions, Inc. bank term loan 8 5/8s, 2003 966,506
1,200,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 678,000
639,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 695,711
305,000 United Stationer Supply, Inc. sr. sub. notes 8 3/8s, 2008 286,700
--------------
8,930,442
Cable Television (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 45,000
1,570,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 1,310,950
1,680,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 1,604,400
890,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 814,350
860,000 Century Communications Corp. sr. notes 8 7/8s, 2007 847,100
1,060,000 Century Communications Corp. sr. notes 8 3/4s, 2007 1,038,800
3,640,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 3,471,650
25,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 27,563
300,000 CSC Holdings, Inc. deb. Ser. B, 8 1/8s, 2009 297,327
360,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 334,494
920,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 867,680
1,125,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 1,030,781
2,795,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 2,263,950
3,440,000 Grupo Televisa S.A. de C.V. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 2,769,200
1,975,000 Grupo Televisa S.A. de C.V. 144A sr. notes 11 7/8s, 2006
(Mexico) 2,014,500
350,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 377,125
1,019,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 1,029,190
650,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 663,000
830,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 568,550
290,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 311,025
930,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) (In default) (NON) 465,000
1,300,000 United International Holdings sr. disc. notes
stepped-coupon Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 754,000
--------------
22,905,635
Cellular Communications (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,260,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon
zero % (10.8s, 5/15/04), 2009 (Canada) (STP) 1,727,800
1,000,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 620,000
2,400,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 1,944,000
4,132,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 1,776,760
1,790,000 Cencall Communications Corp. sr. disc. 10 1/8s, 2004 1,816,850
3,500,000 Dial Call Communications, Inc. sr. disc. notes
Ser. B, 10 1/4s, 2005 3,587,500
2,225,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 2,336,250
3,160,000 McCaw International Ltd sr. disc. notes stepped coupon
zero % (13s, 4/15/02), 2007 (STP) 1,959,200
5,075,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 3,780,875
350,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 186,813
425,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 312,375
500,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 357,500
1,110,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 1,132,200
--------------
21,538,123
Chemicals (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
740,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 699,300
1,010,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 964,550
490,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 470,400
1,150,000 Huntsman Corp. 144A sr. sub. notes FRN 9.188s, 2007 1,046,500
2,680,000 Huntsman ICI Chemicals, Inc. 144A sr. sub. notes 10 1/8s, 2009 2,666,600
2,110,000 Lyondell Petrochemical Co. 144A sec. notes 9 7/8s, 2007 2,131,100
2,540,000 Lyondell Petrochemical Co. 144A sec. notes 9 5/8s, 2007 2,571,750
360,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 280,800
1,301,764 Polytama International notes 11 1/4s, 2007 (Netherlands) (PIK) 234,317
1,210,000 Royster-Clark, Inc. 144A 1st mtge 10 1/4s, 2009 1,185,800
1,530,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 1,518,525
925,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 277,500
800,000 Sterling Chemicals, Inc. 144A sec. notes 12 3/8s, 2006 818,000
1,070,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 599,200
--------------
15,464,342
Computer Services and Software (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 328,000
1,260,000 PSINet, Inc. sr. notes 11 1/2s, 2008 1,285,200
1,280,000 PSINet, Inc. 144A sr. notes 11s, 2009 1,280,000
1,030,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 999,100
1,710,000 Unisys Corp. sr. notes 7 7/8s, 2008 1,718,550
850,000 Verio Inc. sr. notes 11 1/4s, 2008 862,750
440,000 Verio Inc. sr. notes 10 3/8s, 2005 435,600
--------------
6,909,200
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,260,000 Axia, Inc. company guaranty 10 3/4s, 2008 1,197,000
1,705,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 664,950
--------------
1,861,950
Consumer Durable Goods (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
950,000 Albecca, Inc. company guaranty 10 3/4s, 2008 731,500
225,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 99,000
340,000 Iron Age Corp. company guaranty 9 7/8s, 2008 261,800
450,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 447,750
--------------
1,540,050
Consumer Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,340,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 2,521,350
480,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %
(13 5/8s, 6/30/00), 2005 (STP) 537,600
--------------
3,058,950
Cosmetics (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
345,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 355,350
320,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 320,000
630,000 Revlon Consumer Products sr. notes 9s, 2006 567,000
360,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 316,800
4,500,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 3,780,000
--------------
5,339,150
Electric Utilities (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,305,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 2,669,100
470,000 Applied Power, Inc. sr. sub. notes 8 3/4s, 2009 455,900
2,250,000 Calpine Corp. sr. notes 8 3/4s, 2007 2,257,853
1,190,000 Calpine Corp. sr. notes 7 7/8s, 2008 1,130,500
3,140,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 3,040,525
723,909 Midland Funding I Corp. deb. Ser. C-94, 10.33s, 2002 757,745
1,750,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 2,076,953
4,000,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 4,554,640
610,000 Niagara Mohawk Power Corp. sr. notes Ser. E, 7 3/8s, 2003 615,252
620,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 616,627
1,192,560 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,207,599
2,100,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 1,134,000
1,670,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 1,644,950
--------------
22,161,644
Electronics and Electrical Equipment (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
670,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 716,900
700,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 686,000
1,720,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 1,694,200
215,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 195,650
2,010,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 2,030,100
460,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 471,500
1,750,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 1,513,750
240,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 207,600
455,000 Wavetek Corp. company guaranty 10 1/8s, 2007 400,400
--------------
7,916,100
Entertainment (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
2,120,000 ITT Corp. notes 6 3/4s, 2005 1,930,451
2,300,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,277,000
930,000 Premier Parks, Inc.144A sr. disc. notes stepped-
coupon zero % (10s, 4/1/03), 2008 (STP) 623,100
360,000 PX Escrow Corp. sr. disc. notes stepped-coupon
zero % (9 5/8s, 2/1/02), 2006 (STP) 208,800
1,240,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 1,209,000
1,150,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 1,106,875
1,120,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 515,200
2,090,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 2,116,292
1,470,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 808,500
--------------
10,795,218
Environmental Control (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,230,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10s, 2009 2,202,125
2,810,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 2,578,175
1,150,000 Allied Waste Industries, Inc. bank term loan Ser. C,
8.311s, 2007 1,144,250
940,000 Allied Waste Industries, Inc. bank term loan Ser. B, 8.078s, 2006 935,300
--------------
6,859,850
Food and Beverages (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,220,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 976,000
730,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 757,375
355,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 369,495
2,185,000 Doane Pet Care sr. sub. notes 9 3/4s, 2007 2,239,625
600,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 534,000
1,570,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 1,075,450
1,790,000 Triarc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 1,736,300
960,000 Vlassic Foods Intl., Inc. 144A sr. sub. notes 10 1/4s, 2009 931,200
--------------
8,619,445
Gaming (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,190,000 Argosy Gaming Co. 144A sr. sub. notes 10 3/4s, 2009 1,219,750
1,480,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 1,531,800
2,120,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 2,088,200
570,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 510,703
1,780,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 979,000
480,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 457,666
2,010,000 Hollywood Casino Corp. 144A sec. notes 11 1/4s, 2007 2,032,613
970,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 940,900
1,370,000 Horseshoe Gaming Holdings 144A sr. sub. notes 8 5/8s, 2009 1,322,050
2,380,000 International Game Technology 144A sr. notes 7 7/8s, 2004 2,296,700
540,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 602,100
1,150,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 1,121,250
880,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 836,000
1,400,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 630,000
875,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 892,500
--------------
17,461,232
Health Care Services (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 318,500
750,000 Columbia/HCA Healthcare Corp. med. term notes notes
7.69s, 2025 616,583
210,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 189,050
1,590,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 1,509,308
1,270,000 Conmed Corp. company guaranty 9s, 2008 1,244,600
1,175,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 840,125
1,420,000 Fresenius Medical Capital Trust II company guaranty
7.875s, 2008 1,313,500
1,040,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 863,200
1,380,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 883,200
770,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 485,100
680,000 Lifepoint Hospital Holdings 144A sr. sub. notes 10 3/4s, 2009 685,100
924,021 Magellan Health Services, Inc. bank term loan 8s, 2005 877,820
510,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 40,800
2,500,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 300,000
700,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 654,500
2,690,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 1,721,600
1,720,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 1,307,200
1,345,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 174,850
1,080,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 140,400
650,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 630,500
410,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 410,000
1,160,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 1,087,500
650,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 604,500
800,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 806,000
--------------
17,703,936
Insurance and Finance (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,805,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 1,371,800
2,000,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,852,180
600,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 537,090
875,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 700,000
160,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 120,000
1,850,000 Capital One Financial Corp. notes 7 1/4s, 2006 1,772,874
1,090,000 Cellco Finance Corp. NV 144A sr. sub. notes 15s, 2005
(Netherlands) 1,141,775
420,000 Colonial Capital II company guaranty 8.92s, 2027 389,001
1,200,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 414,000
1,510,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 513,400
1,150,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 385,250
3,830,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 3,433,059
1,175,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 928,250
955,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 764,000
865,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 804,450
1,380,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 910,800
2,680,000 RBF Finance Co. company guaranty 11s, 2006 2,760,400
1,000,000 Resource America, Inc. 144A sr. notes 12s, 2004 910,000
--------------
19,708,329
Lodging (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,090,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 959,200
2,820,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 2,573,250
20,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 19,050
950,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 940,500
2,500,000 Starwood Hotels Resorts bank term loan 7.861s, 2003 2,500,000
540,000 Sun International Hotels Ltd. company guaranty 9s, 2007 537,300
710,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 688,700
--------------
8,218,000
Medical Supplies and Devices (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,640,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 1,574,400
1,085,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 1,150,100
525,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 456,750
840,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 806,400
940,000 Mediq, Inc. company guaranty 11s, 2008 742,600
940,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 357,200
--------------
5,087,450
Metals and Mining (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
410,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 411,025
850,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007
(In default) (NON) 391,000
775,000 Continental Global Group sr. notes Ser. B, 11s, 2007 643,250
1,760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 1,487,200
800,000 Neenah Corp. company guaranty Ser. F, 11 1/8s, 2007 784,000
1,720,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 1,685,600
690,000 WHX Corp. sr. notes 10 1/2s, 2005 652,050
--------------
6,054,125
Motion Picture Distribution (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
590,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 539,850
1,085,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 1,003,625
1,805,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 1,615,475
2,996,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 629,160
--------------
3,788,110
Networking (--%)
- --------------------------------------------------------------------------------------------------------------------------
290,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 290,000
Oil and Gas (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 365,000
140,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 84,000
960,000 Coda Energy Inc. company guaranty Ser. B, 10 1/2s, 2006 1,000,800
160,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (14 1/8s, 5/1/03), 2006 (STP) 56,000
760,000 Gothic Production Corp. company guaranty Ser. B,
11 1/8s, 2005 668,800
1,010,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005
(Canada) 1,030,200
765,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005
(Canada) 750,488
460,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 471,500
1,110,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 1,121,100
1,140,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 1,105,800
1,550,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 1,534,128
35,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 33,600
630,000 RAM Energy, Inc. sr. notes 11 1/2s, 2008 335,475
610,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 262,300
1,820,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 1,874,600
430,000 Vintage Petroleum sr. sub. notes 9s, 2005 430,000
--------------
11,123,791
Packaging and Containers (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
440,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 431,200
830,000 Ball Corp. company guaranty 7 3/4s, 2006 821,700
820,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 803,600
880,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 869,546
1,230,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 1,153,802
1,940,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 1,853,767
1,610,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 1,650,250
1,115,702 Packaging Corp bank term loan Ser. C, 6s, 2008 1,102,257
232,438 Packaging Corp bank term loan Ser. B, 5 1/2s, 2007 233,891
650,000 Radnor Holdings, Inc. sr. notes 10s, 2003 663,000
2,550,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 2,524,500
1,410,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 1,431,150
--------------
13,538,663
Paper and Forest Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 157,500
1,230,000 Impac Group, Inc. company guaranty Ser. B, 10 1/8s, 2008 1,153,125
1,145,000 Indah Kiat Financial Mauritius Ltd. company guaranty
10s, 2007 (Indonesia) 709,900
1,350,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 1,360,125
1,195,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 776,750
1,490,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 1,445,300
--------------
5,602,700
Pharmaceuticals and Biotechnology (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,450,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,421,000
1,100,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 1,065,625
--------------
2,486,625
Publishing (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,395,000 Affinity Group Holdings sr. notes 11s, 2007 1,339,200
990,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 990,000
1,250,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 1,190,625
1,260,000 Garden State Newspapers 144A sr. sub. notes 8 5/8s, 2011 1,171,800
2,310,000 News America, Inc. deb. 7 1/8s, 2028 2,037,374
1,000,000 Perry-Judd company guaranty 10 5/8s, 2007 990,000
277,982 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 (PIK) 265,473
370,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 370,000
--------------
8,354,472
Railroads (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,415,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 792,400
795,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 683,700
--------------
1,476,100
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 1,674,000
Retail (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
825,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 804,375
1,000,000 K mart Corp. pass-thru certificates Ser. 95K4, 9.35s, 2020 1,082,500
1,160,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 1,119,400
1,600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 1,640,000
750,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 624,375
1,690,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 1,639,300
--------------
6,909,950
Satellite Services (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,180,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 1,298,000
3,440,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 1,999,500
640,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes
10 1/8s, 2004 (Mexico) 502,400
--------------
3,799,900
Semiconductors (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
447,689 Cirent Semiconductor sr. sub. notes 10.22s, 2002 443,212
513,645 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 509,792
1,900,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,862,000
1,037,703 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 (PIK) 1,011,760
1,110,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 1,018,425
--------------
4,845,189
Shipping (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 International Shipholding Corp. sr. notes 9s, 2003 204,750
360,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 324,000
1,240,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 1,283,400
--------------
1,812,150
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,060,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 1,017,600
Steel (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,710,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 2,628,700
1,370,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 1,318,625
2,030,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 2,090,900
561,000 Oregon Steel Mills 1st mortgage 11s, 2003 575,025
--------------
6,613,250
Telecommunications (8.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,250,000 Alaska Communications Systems 144A sr. sub. notes
9 3/8s, 2009 2,154,375
1,100,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 627,000
810,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 518,400
780,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 787,800
780,000 Caprock Communications Corp. sr. notes Ser. B, 12s, 2008 799,500
650,000 Caprock Communications Corp. 144A sr. notes 11 1/2s, 2009 656,500
3,075,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) (STP) 2,552,250
955,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 (In default) (NON) 124,150
2,440,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 2,330,200
1,045,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 569,525
6,210,000 DTI Holdings, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 03/01/03), 2008 (STP) 2,111,400
2,270,000 Econophone, Inc. company guaranty 13 1/2s, 2007 2,360,800
1,790,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 930,800
580,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 610,450
3,410,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 1,926,650
2,210,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 1,259,700
4,930,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 5,102,550
1,570,000 GST Equipment Funding sr. notes 13 1/4s, 2007 1,695,600
2,026,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 1,722,100
2,830,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 1,698,000
610,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 637,450
655,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 543,650
1,670,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 1,753,500
860,000 Hyperion Telecommunications Corp., Inc. 144A sr. sub. notes
12s, 2007 872,900
1,420,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 823,600
1,370,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 1,219,300
1,900,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 (STP) 342,000
1,770,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 1,230,150
2,460,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 2,214,000
3,810,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 3,424,238
2,150,000 IPC Information Systems, Inc. sr. disc. notes 10 7/8s, 2008 1,644,750
4,175,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 2,212,750
1,380,000 KMC Telecommunications 144A sr. notes 13 1/2s, 2009 1,400,700
2,545,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 1,476,100
1,565,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 1,643,250
860,000 L-3 Communications Corp. sr. notes 9 1/8s, 2008 812,700
1,310,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,290,350
1,060,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 932,800
525,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 424,930
2,170,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,779,400
220,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 138,600
380,000 Netia Holdings B.V. company guaranty 10 1/4s, 2007 (Poland) 332,500
2,010,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 2,241,150
1,640,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 1,738,400
1,020,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008
(United Kingdom) 1,116,900
1,740,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 957,000
1,900,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 1,805,000
1,635,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 1,275,137
945,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 709,308
1,200,000 Qwest Communications International, Inc. sr. notes
Ser. B, 7 1/4s, 2008 1,158,000
2,020,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 1,060,500
1,785,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 1,865,325
750,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 735,000
815,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 741,650
1,640,000 Startec Global Communications Corp. sr. notes 12s, 2008 1,426,800
1,765,000 Telecom Tech, Inc. company guaranty 9 3/4s, 2008 1,698,813
630,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 422,100
220,000 TeleWest Communications PLC sr. notes 11 1/4s, 2008
(United Kingdom) 240,900
1,180,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero %, (9 1/4, 4/15/04) 2009
(United Kingdom) (STP) 761,100
760,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 1/2s, 3/1/03), 2008 (STP) 431,300
1,545,000 Teligent, Inc. sr. notes 11 1/2s, 2007 1,487,063
2,210,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 2,254,200
440,000 Transtel S.A. pass-through certificates 12 1/2s, 2007 224,400
850,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 877,625
370,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 382,025
1,890,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 2,343,600
400,000 Winstar Communications, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/15/00), 2005 (STP) 342,000
1,040,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 951,600
2,190,000 WinStar Communications, Inc. sr. sub. notes 10s, 2008 1,971,000
1,560,000 Worldwide Fiber Inc 144a sr. notes 12s, 2009 1,540,500
--------------
90,445,764
Telephone Services (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,520,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 980,400
440,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 481,800
2,710,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 2,520,300
2,820,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 1,494,600
900,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 756,000
620,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 452,600
1,640,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,517,000
370,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 251,600
1,045,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 741,950
922,000 ITC Deltacom, Inc. sr. notes 11s, 2007 977,320
280,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 147,000
450,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 441,000
2,630,000 McLeodUSA, Inc. sr. notes 8 1/8s, 2009 2,373,575
470,000 OnePoint Communications Corp. 144A sr. notes 14 1/2s, 2008 300,800
350,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 231,000
1,280,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon zero %
(12 1/2s, 8/15/01), 2006 (STP) 1,165,581
470,000 Sprint Spectrum L.P. sr. notes 11s, 2006 528,900
1,000,000 US Xchange LLC sr. notes 15s, 2008 1,010,000
1,490,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 931,250
2,840,000 Viatel, Inc. sr. notes 11 1/4s, 2008 2,840,000
--------------
20,142,676
Textiles (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,330,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 598,500
935,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 906,950
470,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 451,200
2,130,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 2,034,141
--------------
3,990,791
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003
(Greece) 470,000
630,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 614,250
--------------
1,084,250
Wireless Communications (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
540,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 434,700
570,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 518,700
990,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 900,900
250,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 102,500
1,280,000 Telecorp PCS, Inc. 144A sr. disc. notes stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 736,000
--------------
2,692,800
--------------
Total Corporate Bonds and Notes (cost $554,329,089) $ 509,568,635
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (19.9%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (6.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 7,133,128 Federal Home Loan Mortgage Corp. 7 1/2s, with due dates
from March 1, 2020 to May 1, 2028 $ 7,137,550
Federal National Mortgage Association
Pass-through Certificates
2,194,156 7s, Dwarf, with due dates from December 1, 2007 to
May 1, 2011 2,186,609
4,176,039 6 1/2s, with due dates from February 1, 2026 to
November 1, 2028 3,977,678
1,108,695 6 1/2s, Dwarf, with due dates from August 1, 2010 to
July 1, 2013 1,082,708
Government National Mortgage Association
Pass-through Certificates
9,067,430 8s, with due dates from July 15, 2024 to March 15, 2028 9,248,781
8,238,217 7 1/2s, with due dates from January 15, 2023 to
February 15, 2027 8,250,231
14,908,355 7s, with due dates from December 15, 2022 to
May 15, 2028 14,570,635
26,865,593 6 1/2s, with due dates from December 15, 2027 to
May 15, 2029 25,505,385
--------------
71,959,577
U.S. Treasury Obligations (13.2%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
7,130,000 6 1/2s, November 15, 2026 (SEG) 7,310,460
4,515,000 5 1/4s, February 15, 2029 3,987,287
U.S. Treasury Notes
26,000,000 5 3/4s, June 30, 2001 26,044,720
10,670,000 5 5/8s, May 15, 2008 10,366,545
15,370,000 5 1/2s, May 15, 2009 14,908,900
42,589,000 5 1/4s, May 15, 2004 41,630,748
2,505,000 5 1/4s, May 31, 2001 2,488,943
30,770,000 4 3/4s, November 15, 2008 28,077,625
6,875,000 4 1/4s, November 15, 2003 6,459,269
--------------
141,274,497
--------------
Total U.S. Government and Agency Obligations
(cost $218,367,742) $ 213,234,074
FOREIGN GOVERNMENT BONDS AND NOTES (12.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD 11,665,000 Argentina (Republic of) unsub. 11 3/4s, 2009 $ 10,294,363
USD 2,155,000 Argentina (Republic of) unsub. Ser. BGL5,
11 3/8s, 2017 1,810,200
USD 3,090,000 Brazil (Government of) bonds 9 3/8s, 2008 2,348,400
CAD 20,375,000 Canada (Government of) bonds 5 3/4s, 2029 13,540,880
CAD 10,195,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 7,414,730
USD 3,200,000 Colombia (Republic of) unsub. 8 5/8s, 2008 2,480,000
USD 2,225,000 Korea (Republic of) unsub. 8 7/8s, 2008 2,277,288
USD 1,409,552 Morocco (Government of) bonds Ser. A,
6.563s, 2009 1,148,785
USD 3,865,000 Poland (Government of) bonds Ser. PDI, 4s, 2014 3,377,237
USD 3,665,000 Russia (Government of) 144A bonds 12 3/4s, 2028 2,052,400
USD 3,660,000 Russia (Government of) bonds 10s, 2007 1,807,308
USD 15,870,000 Russia (Government of) deb. principal loans FRB
6.719s, 2020 (In default) (NON) 1,805,213
USD 3,850,000 Russia (Government of) bonds 6.719s, 2015
(In default) (NON) 591,938
SEK 145,800,000 Sweden (Government of) bonds Ser. 1035,
6 3/4s, 2014 19,655,789
SEK 22,200,000 Sweden (Government of) bonds Ser. 1041, 6s, 2005 2,826,858
GBP 1,830,000 United Kingdom Treasury bonds 9s, 2008 3,689,894
GBP 29,115,000 United Kingdom Treasury bonds 8s, 2000 48,791,502
USD 4,175,000 United Mexican States bonds 11 3/8s, 2016 4,300,250
USD 6,275,000 United Mexican States bonds Ser. XW, 10 3/8s, 2009 6,290,688
USD 2,410,000 Venezuela (Government of) bonds 9 1/4s, 2027 1,527,458
--------------
Total Foreign Government Bonds and Notes
(cost $141,182,257) $ 138,031,181
COLLATERALIZED MORTGAGE OBLIGATIONS (7.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.
$ 2,485,000 Ser. 97-ML1, Class D, 6.977s, 2030 $ 2,340,559
41,123,795 Ser. 97-ML1, IO, 0.899s, 2017 (Interest Only) 1,985,508
1,935,000 Ser. 98-C2, Class D, 6.757s, 2009 1,786,247
2,685,000 Countrywide Home Loan Ser. 98-3, Class A5,
6 3/4s, 2028 2,536,905
4,100,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C,
Class A8, 6 1/2s, 2024 3,806,153
Criimi Mae Commercial Mortgage Trust
11,790,000 Ser. 98-C1, Class A2, 7s, 2011 10,133,873
4,705,000 Ser. 98-C1, Class B, 7s, 2011 3,522,869
27,439,607 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 1.244s, 2031 1,539,190
Fannie Mae
12,472,792 Ser. 281, Class 2, IO, 9s, 2026 3,202,000
6,049,000 Ser. 1993-251, Class Z, 6 1/2s, 2023 5,321,230
4,419,571 Ser. 301, Class 1, zero %, 2029 2,796,760
First Union-Lehman Brothers Commercial Mortgage Co.
12,707,646 Ser. 97-C2, IO, 1.916s, 2027 962,009
1,110,000 Ser. 98-C2, Class D, 6.778s, 2013 989,938
Freddie Mac
5,956,431 Ser. 147, Class IO, 8s, 2023 1,643,603
1,900,000 Ser. 2040, Class PE, 7 1/2s, 2028 1,910,887
1,105,000 Ser. 1439, Class I, 7 1/2s, 2022 1,120,496
15,270,000 Ser. 2089, Class PI, IO, 7s, 2023 2,882,364
1,539,212 Ser. 1717, Class L, 6 1/2s, 2024 1,508,067
7,345,466 Ser. 203, Class PO, 1s, 2029 (Principal Only) 4,570,257
1,575,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 1,494,281
5,000,000 GMAC Commercial Mortgage Securities Inc. Ser. 98-C2,
Class D, 6 1/2s, 2031 4,508,984
1,775,000 Government National Mortgage Association Ser. 1997-8,
Class PE, 7 1/2s, 2027 1,810,500
2,025,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D,
7.191s, 2031 1,859,836
Merrill Lynch Mortgage Investors, Inc.
1,615,000 Ser. 1995-C3, Class D, 7.782s, 2025 1,596,327
650,000 Ser. 1998-C2, Class D, 6.956s, 2030 606,938
5,872,090 Ser. 1996-C2, Class IO, 1.5607s, 2028 416,551
7,125,266 Ser. 98-C2, Class IO, 1.449s, 2030 524,375
Morgan Stanley Capital I
31,189,187 Ser. 98-HF1, Class X, IO, 1.033s, 2018 1,764,138
1,150,000 Ser. 98-WF1, Class D, 7.12s, 2008 1,095,734
Mortgage Capital Funding, Inc.
12,843,749 Ser. 97-MC2, Class X, IO, 1.367s, 2012 919,131
69,904,941 Ser. 98-MC1, Class X, IO, 0.719s, 2009 2,752,507
774,968 Prudential Home Mortgage Securities Ser. 93-57,
Class A4, 5.9s, 2023 770,357
1,811,970 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 1,782,925
--------------
Total Collateralized Mortgage Obligations
(cost $81,947,452) $ 76,461,499
BRADY BONDS (4.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 4,895,000 Argentina (Republic of) Ser. L-GP 6s, 2023 $ 2,943,119
26,427,641 Brazil (Government of) disc. bonds FRB 8s, 2014 16,155,217
5,975,000 Brazil (Government of) disc. bonds FRB 6.125s, 2024 3,599,938
5,260,000 Brazil (Government of) bonds Ser. L, FRB 6.188s, 2012 3,103,400
1,075,000 Bulgaria (Government of) deb. Ser. PDI, FRB, 6.688s, 2011 736,375
2,650,000 Bulgaria (Government of) bonds Ser. A, FRB 6 1/2s, 2024 1,808,625
1,020,000 Bulgaria (Government of) Ser. A, FLIRB 2 1/2s, 2012 617,100
2,130,000 Ecuador (Republic of) bonds 3 1/2s, 2025 788,100
1,968,159 Ecuador (Republic of) deb. Ser. PDI, FRB, 6.625s, 2015 570,766
2,130,000 Peru (Government of) 144A bonds Ser. PDI, 4s, 2017 1,304,625
12,070,000 United Mexican States bonds Ser. D, FRB 6.068s, 2019 9,837,050
3,605,000 United Mexican States sec. Ser. B, 6 1/4s, 2019 2,550,538
4,857,120 Venezuela (Government of) deb. Ser. DL, FRB, 6.762s, 2007 3,569,983
--------------
Total Brady Bonds (cost $47,445,870) $ 47,584,836
PREFERRED STOCKS (3.8%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
329 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) $ 164,500
28,875 AmeriKing, Inc. $3.25 pfd. (PIK) 664,125
108,000 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 2,808,000
13,312 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 1,550,848
9,100 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 1,069,250
29,725 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 1,605,150
6,875 Chevy Chase Savings Bank $3.25 pfd. 209,688
13,450 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 1,519,850
670 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 629,800
30,497 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 3,446,161
69,460 Diva Systems Corp. Ser. C, $6.00 pfd. 416,760
2,360 Dobson Communications 144A 13.00% pfd. (PIK) 2,265,600
540 First Republic 144A 10.50% pfd. 539,865
250,000 Fresenius Medical Capital Trust I Ser. D, 9.00% company
guaranty, pfd. 246,250
22,460 Global Crossing Holdings $10.50 pfd. (PIK) 2,335,840
1,849 Granite Broadcasting 144A $12.75 pfd. (PIK) 1,812,020
4,383 ICG Holdings, Inc. $14.25 pfd. (Canada) 4,383,000
2,803 Intermedia Communication Ser. B, $13.50 pfd. (PIK) 2,746,940
1,545 IXC Communications, Inc. $12.50 pfd. (PIK) 1,653,150
23,306 Lady Luck Gaming Corp. $11.25 pfd. 885,628
1,033 NEXTEL Communications, Inc. Ser. D, $13.00 cum. pfd. (PIK) 1,110,475
422 NEXTEL Communications, Inc. Ser. E, $11.125 pfd. (PIK) 438,880
46,405 Nextlink Communications, Inc. 144A $7.00 cum. pfd. 2,320,250
208 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 1,872,000
960 R& B Falcon Corp. 144A $13.875 pfd. (PIK) 864,000
5,000 Sinclair Capital $11.625 cum. pfd. 517,500
1,770 Spanish Broadcasting Systems $14.25 cum. pfd. (PIK) 1,929,300
1,450 WinStar Communications, Inc. 144A 14.25% cum. pfd. (PIK) 1,319,500
--------------
Total Preferred Stocks (cost $41,838,923) $ 41,324,330
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 $ 4,138,846
1,275,000 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2,
7.67s, 2028 1,229,177
3,444,100 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 2,927,485
975,522 Green Tree Recreational Equipment & Cons. Ser. 97-B,
Class A1, 6.55s, 2028 978,151
--------------
Total Asset-Backed Securities (cost $9,938,088) $ 9,273,659
COMMON STOCKS (0.5%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
3,122 Allegiance Telecom, Inc. (NON) $ 157,076
525 AmeriKing, Inc.(NON) 21,000
134,711 Celcaribe S.A. (NON) 67,356
390,240 Celcaribe S.A. 144A (NON) 585,360
42,880 CellNet Data Systems, Inc. (NON) 353,760
10,918 Hedstrom Holdings, Inc. 144A (NON) 10,918
10,934 IFINT Diversified Holdings 144A (NON) 21,868
466 Mothers Work, Inc. (NON) 6,874
250 Paging Do Brazil Holdings Co., LLC 144A (NON) (Brazil) 3
1,186 Premium Holdings (L.P.) 144A (NON) 4,446
61,326 Price Communications Corp 1,088,537
250,248 PSF Holdings LLC Class A (NON) 3,002,973
423 Spanish Broadcasting System, Inc. (NON) 266,490
36,750 Specialty Foods Acquisition Corp. (NON) 1,838
8,037 Viatel, Inc. (NON) 297,366
--------------
Total Common Stocks (cost $10,861,593) $ 5,885,865
WARRANTS (0.5%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
540 American Mobile Satellite Corp. 4/1/08 $ 27,000
810 Bestel S.A. (Mexico) 5/15/05 24,300
780 Birch Telecommunications, Inc. 144A 6/15/08 42,900
6,652 Cellnet Data Systems, Inc. 10/1/07 166,300
810 Club Regina, Inc. 144A 12/1/04 810
2,905 Colt Telecommunications Group PLC 12/31/06 1,118,425
12,892 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 1,289
1,715 Diva Systems Corp. 5/15/06 415,030
8,988 Diva Systems Corp. 144A 3/1/08 71,904
24,100 DTI Holdings Inc. 3/1/08 241
20 E. Spire Communications, Inc. 11/1/05 300
2,520 Econophone, Inc. 144A 7/1/07 151,200
1,090 Epic Resorts 6/15/05 11
940 Esat Holdings, Inc. (Ireland) 2/1/07 65,800
3,410 Firstworld Communication 4/15/08 221,650
1,015 Globalstar Telecommunications 144A 2/15/04 101,500
2,815 Hyperion Telecommunications 144A 4/15/01 281,500
20,856 ICG Communications 10/15/05 396,264
1,900 Interact Systems, Inc. 8/1/03 19
3,025 Intermedia Communications, Inc. 6/1/00 302,500
1,140 International Wireless Communications
Holdings 144A 8/15/01 6
2,175 KMC Telecom Holdings, Inc. 4/15/08 6,525
2,185 Knology Holdings, Inc. 144A 10/15/07 5,463
280 Long Distance International, Inc. 144A 4/13/08 560
3,590 McCaw International Ltd. 4/15/07 14,360
940 Mediq Inc. 144A 6/1/09 9
350 MGC Communications, Inc. 144A 10/1/04 36,750
470 OnePoint Communications Corp. 6/1/08 470
990 Orbital Imaging Corp. 3/1/05 29,700
1,310 Orion Network Systems 1/15/07 15,393
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 1,396
960 R& B Falcon Corp. 144A 5/1/09 115,200
9,160 Rhythms Netcon 144A 5/15/08 1,137,947
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 18,900
5,820 UIH Australia/Pacific, Inc. 144A 5/15/06 174,600
1,220 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 201,300
454 Wright Medical Technology, Inc. 144A 6/30/03 5
--------------
Total Warrants (cost $1,994,812) $ 5,278,123
CONVERTIBLE PREFERRED STOCKS (0.3%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
6,400 Chancellor Media Corp. $3.00 cv. cum. pfd. $ 682,400
5,750 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 187,594
41,120 Global Telesystems, Inc. 144A $3.625 cv. pfd. 2,302,720
54 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 560,250
1,503 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. 10,521
--------------
Total Convertible Preferred Stocks (cost $3,714,418) $ 3,743,485
CONVERTIBLE BONDS AND NOTES (0.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,200,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 1,152,000
647,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 938,150
800,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 653,000
700,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 589,750
--------------
Total Convertible Bonds and Notes (cost $2,667,470) $ 3,332,900
UNITS (0.3%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
840 Cybernet 144A units 14s, 2009 $ 844,200
1,300 Network Plus Corp. units pfd. 13 1/4s, 2009 1,332,500
1,420 Pegasus Shipping 144A units company guaranty
stepped-coupon zero % (14 1/2s. 6/20/03), 2008
(Bermuda) (STP) 426,000
960 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 412,800
7,615 XCL Ltd. 144A units 9.5s, 2006 (PIK) 53,305
--------------
Total Units (cost $4,580,705) $ 3,068,805
SHORT-TERM INVESTMENTS (3.7%) (a) (cost $39,783,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$39,783,000 Interest in $369,077,000 joint repurchase agreement dated
July 30, 1999 with S.B.C. Warburg Inc. due August 2, 1999 with
respect to various U.S. Treasury obligations -- maturity value
of $39,799,676 for an effective yield of 5.03% $ 39,783,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,158,651,419) (b) $1,096,570,392
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,073,979,503.
(b) The aggregate identified cost on a tax basis is $1,159,381,355, resulting in gross unrealized appreciation and
depreciation of $22,335,085 and $85,146,048, respectively, or net unrealized depreciation of $62,810,963.
(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.
(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 July 31, 1999.
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.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at
July 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 July 31, 1999: (as percentage of Market Value)
Argentina 1.4%
Brazil 2.5
Canada 3.6
Mexico 3.2
Netherlands 1.0
Sweden 2.1
United Kingdom 5.7
United States 76.6
Others 3.9
-----
Total 100.0%
=====
- -----------------------------------------------------------------------------------
Forward Currency Contracts to Buy at July 31, 1999
(aggregate face value $109,718,695)
Aggregate Face Delivery Unrealized
Market Value Value Date Appreciation
- -----------------------------------------------------------------------------------
Argentine Peso $ 3,690,180 $ 3,641,802 8/31/99 $ 48,378
Argentine Peso 3,691,286 3,632,850 8/27/99 58,436
Australian Dollars 6,209,116 6,143,698 9/15/99 65,418
Danish Krone 4,835,886 4,697,490 9/15/99 138,396
Euro 40,536,286 39,368,551 9/15/99 1,167,735
Japanese Yen 53,841,997 52,234,304 9/16/99 1,607,693
- -----------------------------------------------------------------------------------
$3,086,056
- -----------------------------------------------------------------------------------
Forward Currency Contracts to Sell at July 31, 1999
(aggregate face value $145,536,899)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -----------------------------------------------------------------------------------
British Pounds $54,169,897 $53,671,326 9/15/99 $ (498,571)
Canadian Dollar 21,780,996 22,365,279 9/15/99 584,283
Euro 10,588,840 10,246,806 9/15/99 (342,034)
Hong Kong Dollar 7,708,758 7,659,846 1/11/00 (48,912)
Japanese Yen 45,906,508 44,494,137 9/16/99 (1,412,371)
Swedish Krona 7,263,354 7,099,505 9/15/99 (163,849)
- -----------------------------------------------------------------------------------
$(1,881,454)
- -----------------------------------------------------------------------------------
Futures Contracts Outstanding at July 31, 1999
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- -----------------------------------------------------------------------------------
Euro Euribor (Short) $ 2,340,549 $ 2,298,749 Sep-99 $ (41,800)
Euro Euribor (Short) 2,328,872 2,289,292 Dec-99 (39,580)
Euro Euribor (Short) 2,328,390 2,288,732 Mar-00 (39,658)
Euro Euribor (Short) 2,064,009 2,029,544 Jun-00 (34,465)
Euro Euribor (Short) 2,058,872 2,024,919 Sep-00 (33,953)
Euro Euribor (Short) 2,051,596 2,018,774 Dec-00 (32,822)
Euro Euribor (Short) 2,048,706 2,016,213 Mar-01 (32,493)
Euro Shatz (Long) 9,033,592 8,890,168 Sep-99 143,424
U.S. Treasury Bond (Long) 21,844,063 22,389,686 Sep-99 (545,623)
U.S. Treasury Note
10 Yr (Long) 11,582,813 11,576,933 Sep-99 5,880
U.S. Treasury Note
10 Yr (Short) 11,522,109 11,519,306 Dec-99 (2,803)
- -----------------------------------------------------------------------------------
$ (653,893)
- -----------------------------------------------------------------------------------
TBA Sale Commitments at July 31, 1999
(Proceeds receivable $25,358,491)
Principal Settlement Market
Agency Amount Date Value
- -----------------------------------------------------------------------------------
GNMA 7s,
September 2029 $26,291,000 9/21/99 $24,959,887
- -----------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
July 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,158,651,419) (Note 1) $1,096,570,392
- -----------------------------------------------------------------------------------------------
Cash 2,724,603
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $13,442) 13,783
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 19,249,166
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 47,916,451
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 3,670,339
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 855,817
- -----------------------------------------------------------------------------------------------
Total assets 1,171,000,551
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 8,448,685
- -----------------------------------------------------------------------------------------------
Payable for variation margin 68,093
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 58,719,174
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,895,016
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 189,136
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 48,162
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,196
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 2,465,737
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 10,304
- -----------------------------------------------------------------------------------------------
Payable for exchange listing fees 68,966
- -----------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $25,358,491) 24,959,887
- -----------------------------------------------------------------------------------------------
Other accrued expenses 141,692
- -----------------------------------------------------------------------------------------------
Total liabilities 97,021,048
- -----------------------------------------------------------------------------------------------
Net assets $1,073,979,503
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,221,125,546
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (6,283,550)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (79,741,098)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (61,121,395)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,073,979,503
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($1,073,979,503 divided by
140,989,259 shares) $7.62
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended July 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $102,915) $ 95,307,718
- -----------------------------------------------------------------------------------------------
Dividends 4,530,074
- -----------------------------------------------------------------------------------------------
Total investment income 99,837,792
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,725,289
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,298,283
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 26,160
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 18,257
- -----------------------------------------------------------------------------------------------
Reports to shareholders 72,280
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 42,255
- -----------------------------------------------------------------------------------------------
Legal 29,504
- -----------------------------------------------------------------------------------------------
Postage 214,472
- -----------------------------------------------------------------------------------------------
Exchange listing fees 118,360
- -----------------------------------------------------------------------------------------------
Other 100,374
- -----------------------------------------------------------------------------------------------
Total expenses 9,645,309
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (76,167)
- -----------------------------------------------------------------------------------------------
Net expenses 9,569,142
- -----------------------------------------------------------------------------------------------
Net investment income 90,268,650
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (71,810,244)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,524,661)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 315,362
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 1,990,188
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts and TBA sale commitments during the year (68,565,842)
- -----------------------------------------------------------------------------------------------
Net loss on investments (139,595,197)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (49,326,547)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 90,268,650 $ 103,451,712
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (73,019,543) (6,854,645)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and assets and liabilities in foreign currencies (66,575,654) (18,613,852)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (49,326,547) 77,983,215
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (86,389,968) (92,539,997)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments (17,357,444) (9,699,908)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions
from reinvestment of dividends 5,865,852 --
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (147,208,107) (24,256,690)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 1,221,187,610 1,245,444,300
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $6,283,550 and $8,713,718,
respectively) $1,073,979,503 $1,221,187,610
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 140,248,960 140,248,960
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions 740,299 --
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at end of year 140,989,259 140,248,960
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.71 $8.88 $8.53 $8.46 $8.29
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .64 .74 .65 .64 .68
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.99) (.18) .38 .09 .17
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.35) .56 1.03 .73 .85
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.62) (.66) (.65) (.65) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.03) (.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain (.12) (.07) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- -- (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.74) (.73) (.68) (.66) (.68)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.62 $8.71 $8.88 $8.53 $8.46
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (7.24) 8.06 26.24 7.94 6.86
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $7.19 $8.50 $8.56 $7.38 $7.44
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,073,980 $1,221,188 $1,245,444 $1,199,854 $1,190,375
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86 .89 .83 .85 .82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.05 8.34 7.42 7.43 8.29
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 165.79 209.50 262.01 332.00 196.83
- ------------------------------------------------------------------------------------------------------------------------------------
(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
July 31, 1999
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. 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 dealer, 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). Gains or losses on securities sold are determined on
the identified cost basis.
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, 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. At July 31, 1999, the fund had a capital loss carryover of
approximately $39,883,000 available to offset future net capital gain, if
any, which will expire on July 31, 2007.
K) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. The amount and character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent differences
of losses on wash sale transactions, foreign currency gains and losses,
post-October loss deferrals, dividends payable, defaulted bond interest,
unrealized gains and losses on certain futures contracts, paydown gains
and losses on mortgage-backed securities, market discount, interest on
payment-in-kind securities and foreign market discount. Reclassifications
are made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations. For the year ended July 31, 1999, the fund
reclassified $1,448,514 to increase distributions in excess of net
investment income and $316,336 to increase paid-in-capital, with a
decrease to accumulated net realized losses of $1,132,178. The calculation
of net investment income per share in the financial highlights table
excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average weekly net assets of the
fund. Such fee is based on the following annual rates: 0.75% of the first
$500 million of average weekly net assets, 0.65% of the next $500 million,
0.60% of the next $500 million and 0.55% of any amount over $1.5 billion.
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 year ended July 31, 1999, fund expenses were reduced by $76,167
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 $1,577
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
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 year ended July 31, 1999, purchases and sales of investment
securities other than U.S. government obligations and short-term
investments aggregated $1,343,502,438 and $1,364,137,145, respectively.
Purchases and sales of U.S. government obligations aggregated $434,984,058
and $452,314,495, respectively.
Note 4
Share Repurchase Program
The Trustees authorized the fund to repurchase up to 7,000,000 of its
shares in the open market. Repurchases will only be made when the fund's
shares are trading at less than net asset value and at such times and
amounts as is believed to be in the best interest of the fund's
shareholders. Any repurchases of shares will have the effect of increasing
the net asset value per share of remaining shares outstanding. For the
year ended July 31, 1999, the fund did not repurchase any shares. As of
July 31, 1999, 511,000 shares have been repurchased since the inception of
the program.
Note 5
Change in independent accountants
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this fund's independent auditor and voted to appoint KPMG LLP for the
fund's fiscal year ended July 31, 1999. During the two most recent fiscal
years, PricewaterhouseCoopers LLP audit reports contained no adverse
opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further,
in connection with its audits for the two most recent fiscal years and
through July 14, 1999, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
The fund has designated 5.01% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of June 3, 1999 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on June 3, 1999. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 121,724,687 2,419,423
Hans H. Estin 121,587,715 2,556,395
John A. Hill 121,780,528 2,363,582
Ronald J. Jackson 121,786,764 2,357,346
Paul L. Joskow 121,694,565 2,449,545
Elizabeth T. Kennan 121,690,846 2,453,264
Lawrence J. Lasser 121,746,317 2,397,793
John H. Mullin III 121,770,647 2,373,463
Robert E. Patterson 121,783,980 2,360,130
William F. Pounds 121,591,565 2,552,545
George Putnam 121,646,979 2,497,131
George Putnam, III 121,706,430 2,437,680
A.J.C. Smith 121,773,290 2,370,820
W. Thomas Stephens 121,777,747 2,366,363
W. Nicholas Thorndike 121,689,016 2,455,094
A proposal to ratify the selection of KPMG LLP as the independent auditors
of your fund was approved as follows: 122,009,245 votes for, and 765,987
votes against, with 1,368,878 abstentions.
All tabulations are rounded to nearest whole number.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
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
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
Robert Paine
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
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (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
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
54547-073 9/99
