Putnam
Premier
Income
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Fixed-income markets, particularly in the United States, experienced
considerable volatility in the six months ended January 31, 2000. However,
your fund's experienced management team, long-term investment approach,
and diversified sector strategy helped stabilize it against the short-term
changes in investor sentiment. Putnam's fixed-income investment approach
is designed to add value by seeking incremental excess returns from
multiple sources while employing strict risk control. This philosophy
benefited the fund during the semiannual period.
Total return for 6 months ended 1/31/00
Net asset value Market price
- ------------------------------------------------------------------------
1.13% -11.86%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 7.
* U.S. BOND MARKET CHARACTERIZED BY VOLATILITY
The fund's fiscal year began with a sharp increase in interest rates in
the United States as investors became concerned that continued strength in
the U.S. economy could lead to higher inflation. On August 6, the yield on
the bellwether 30-year Treasury bond rose to 6.175%, its highest level
since the beginning of 1998. The Federal Reserve Board subsequently raised
short-term interest rates by a quarter of a percentage point on August 24.
Given a heightened level of investor anxiety about future rate increases,
liquidity in the market, and Y2K fears, the market experienced significant
volatility during the latter half of 1999.
[GRAPHIC OMITTED: horizontal bar chart SECTOR ALLOCATION]
SECTOR ALLOCATION*
7/31/99 1/31/2000
U.S. investment
grade 34.0% 23.6%
High yield 45.0% 48.7%
Foreign
(ex-emerging) 10.0% 10.1%
Emerging
markets 11.0% 10.1%
Footnote reads:
*Based on net assets as of 1/31/00. Holdings will vary over time.
In the fourth quarter, market volatility and rising interest rates
continued to hold back the performance of U.S. Treasury bonds, but the
fund benefited from its strategy of investing in the spread sectors, which
offer a yield advantage (or spread) over Treasuries. Spread sectors
include high-grade corporate bonds, mortgage-backed securities, high-yield
bonds, and emerging- markets debt. As the market looked beyond Y2K and
recognized attractive valuations, the fund's spread sector holdings
performed well through December, enhancing fund performance.
Throughout January, the bond market again experienced turbulence. The
combination of stronger-than-expected growth in the fourth quarter and
rising oil prices caused concerns about inflation to escalate. These
events contributed to higher interest rates across the board by the end of
January. On January 18, 2000, the yield on the 30-year Treasury bond
reached a new two-and-a-half-year high of 6.75%. In addition, reports in
January that the U.S. budget surplus could lead to a potential reduction
in the supply of Treasuries contributed to further market volatility,
specifically in the long end of the Treasury yield curve.
* FUND'S DIVERSITY HELPED IT WEATHER MARKET SWINGS
The fund's diverse range of holdings helped cushion it against these
dramatic swings in the bond market. For example, the fund's
emerging-markets holdings rallied throughout the period, with the market
benchmark posting the highest returns of any sector, with a total return
of 14.04%. Rising commodity prices, a strengthening euro, and global
economic growth continued to strengthen many emerging economies. The
fund's positions included holdings in Mexico, Brazil, and Bulgaria. While
these holdings offer attractive yields, structural country-specific
economic developments will warrant our close attention in the coming year.
[GRAPHIC OMITTED: TOP SECTOR HOLDINGS]
TOP SECTOR HOLDINGS*
Top three high-yield holdings
Midland Funding II Corp. deb. Ser. A, 11.75%, 2005
Midland Funding II Corp. deb. Ser. B, 13.25%, 2006
Millicom International Cellular S.A. sr. disc. notes stepped-coupon zero %
(13.50%, 6/1/01), 2006 (Luxembourg)
Top three U.S. government holdings
U.S. Treasury Notes 6.00%, 8/15/09
U.S. Treasury Bonds 6.125%, 8/15/29
GNMA Pass-through certificates 7.00%, 12/15/22 to 5/15/28
Top three international holdings
Germany (Federal Republic of) bonds
Ser. 132, 4.125%, 2004
Sweden (Government of) bonds Ser. 1041, 6.75%, 2014
United Kingdom Treasury bonds
8.00%, 2000
Footnote reads:
* These holdings represented 17.8% of the fund's net assets as of 1/31/00.
Holdings will vary over time.
In the developed global economy, including Continental Europe and the
United Kingdom, economic growth has been accelerating, which has put
pressure on interest rates. The euro declined relative to the dollar, but
your fund's managers believe it is still fundamentally sound and should
recover in the next 6 to 12 months.
Corporate and high-yield bonds have benefited from continued strength in
the United States, and from the global economic recovery. Contained
inflation, strong earnings, and reasonable valuations for these securities
were all positive factors during the period.
The fund's high-yield holdings had a particularly healthy fourth quarter
as a result of increasing profits, fading Y2K concerns, and an increase in
merger and acquisition activity. In particular, the fund's
telecommunications holdings were exceptionally strong as a result of
technological advancements and surging demand, and holdings in the energy
sector performed well as a result of rising oil prices. One negative trend
during the period was an increase in corporate debt levels. This increased
leverage could adversely affect bond ratings if the economy slows.
In the mortgage-backed area, commercial mortgage-backed securities (CMBSs)
showed solid performance. Your fund's lead manager, David Waldman, and the
rest of the management team believe these securities are attractive, given
their reasonable valuations, structural characteristics, and strong real
estate fundamentals. Moreover, the securities offer significant prepayment
protection, which helps insulate them from changes in interest rates.
* OUTLOOK DEPENDENT ON ECONOMY AND INTEREST RATES
The outlook for bonds over the next 6 to 12 months will depend heavily
upon what happens with inflation and the economy. The managers' current
analysis suggests that the U.S. and global economies will continue to show
solid but moderating growth in the coming year. They expect that yields
will remain unchanged over the next six months as the market has already
discounted further Fed interest rate increases.
One of the key factors will be inflation, which is beginning to show signs
of increasing. The rise in oil prices and tight U.S. labor markets have
become a concern, but strong productivity growth and global competition
thus far have kept inflation at bay. A second factor is the Fed. The
markets would probably react strongly to Fed interest-rate hikes (or any
hint to that effect) that exceed current expectation levels.
* UPCOMING TRANSITION
This is my last letter to you and other Putnam Premier Income Trust
shareholders. After more than 30 years as Chairman of the Trustees and
President of the Putnam Funds, the time has come for me to step aside. In
June, John Hill will become Chairman. John is currently an independent
Trustee and has served on the Board for the past 14 years. In addition, my
son, George Putnam, III, will take on the role of President. I am
confident that the leadership of the funds will be in exceptionally strong
hands. I will become Chairman Emeritus, remain a shareholder, and stay in
close touch with the funds.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 15, 2000
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 1/31/00, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit rating
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.
Please see page 44 for information about recent changes in the fund's
investment policy.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Premier
Income Trust is designed for investors seeking a high level of current income
consistent with preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 1/31/00
Market
NAV price
- ----------------------------------------------------------------------------
6 months 1.13% -11.86%
- ----------------------------------------------------------------------------
1 year 0.45 -20.17
- ----------------------------------------------------------------------------
5 years 43.77 31.35
Annual average 7.53 5.60
- ----------------------------------------------------------------------------
10 years 134.28 101.97
Annual average 8.89 7.28
- ----------------------------------------------------------------------------
Life of fund 163.35 101.31
(since 2/29/88)
Annual average 8.46 6.05
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/00
Salomon Bros.
Lehman Bros. Non-U.S. First Boston Consumer
Government World Govt. High Yield price
Bond Index Bond Index Index index
- -----------------------------------------------------------------------------
6 months 0.31% -2.14% 0.00% 1.44%
- -----------------------------------------------------------------------------
1 year -2.67 -6.46 1.91 2.67
- -----------------------------------------------------------------------------
5 years 40.71 26.43 52.18 12.28
Annual average 7.07 4.80 8.76 2.34
- -----------------------------------------------------------------------------
10 years 108.99 124.01 194.66 32.73
Annual average 7.65 8.40 11.41 2.87
- -----------------------------------------------------------------------------
Life of fund 141.35 125.47 204.82 45.78
(since 2/29/88)
Annual average 7.67 7.06 9.80 3.21
- -----------------------------------------------------------------------------
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 in an index.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/00
- ----------------------------------------------------------------------------
Distributions (number) 6
- ----------------------------------------------------------------------------
Income $0.353
- ----------------------------------------------------------------------------
Capital gains --
- ----------------------------------------------------------------------------
Total $0.353
- ----------------------------------------------------------------------------
Share value NAV Market price
- ----------------------------------------------------------------------------
7/31/99 $7.62 $7.188
- ----------------------------------------------------------------------------
1/31/00 7.35 6.000
- ----------------------------------------------------------------------------
Current return
- ----------------------------------------------------------------------------
Current dividend rate1 8.65% 10.60%
- ----------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (most recent calendar quarter)
Market
NAV price
- -----------------------------------------------------------------------------
6 months 1.64% -17.49%
- -----------------------------------------------------------------------------
1 year 2.04 -18.84
- -----------------------------------------------------------------------------
5 years 46.17 37.34
Annual average 7.89 6.55
- -----------------------------------------------------------------------------
10 years 131.07 104.63
Annual average 8.74 7.42
- -----------------------------------------------------------------------------
Life of fund 165.74 101.58
(since 2/29/88)
Annual average 8.60 6.10
- -----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their original
cost.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
Comparative benchmarks
First Boston High Yield Index* is an unmanaged list of lower-rated
higher-yield U.S. corporate bonds.
Lehman Brothers Government Bond Index* is an unmanaged list of U.S.
government and mortgage-backed securities.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged
list of bonds issued by 10 countries.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take 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.
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A guide to the financial statements
These sections of the report 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 are determined. All investment and noninvestment 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-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
January 31, 2000 (Unaudited)
CORPORATE BONDS AND NOTES (47.6%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
$ 2,500,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 2,581,250
Aerospace and Defense (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,745,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 1,483,250
650,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 546,000
1,280,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 960,000
1,910,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 1,766,750
730,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 622,325
325,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 311,188
--------------
5,689,513
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,234,062 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 2,942,996
Airlines (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,390,000 Airbus Industries 144A 12.266s, 2020 1,438,706
780,000 Calair LLC 144A company guaranty 8 1/8s, 2008 718,575
215,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 129,000
1,340,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 1,098,800
695,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 444,800
480,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 192,000
4,190,000 United Pan-Europe N.V. 144A sr. disc. notes stepped-coupon
zero % (13 3/4s, 2/1/05), 2010 (Netherlands) (STP) 2,220,700
4,090,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon
zero % (12.5s, 8/1/04), 2009 (Netherlands) (STP) 2,229,050
1,270,000 United Pan-Europe N.V. sr. notes Ser. B, 10 7/8s, 2009 1,241,425
--------------
9,713,056
Apparel (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,995,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 2,019,938
635,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 593,725
645,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 593,400
--------------
3,207,063
Automotive Parts (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
440,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 440,000
949,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 949,000
1,260,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 1,171,800
570,000 Federal Mogul Corp. notes 7 3/8s, 2006 512,396
1,520,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
8 1/4s, 2008 1,345,200
1,355,000 Lear Corp. sub. notes 9 1/2s, 2006 1,351,613
1,420,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 1,420,000
2,140,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 1,968,800
740,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 236,800
220,000 San Luis Corp SA sr. notes 8 7/8s, 2008 (Mexico) 194,700
670,000 Transportation Manufacturing Operations, Inc. company
guaranty 11 1/4s, 2009 673,350
--------------
10,263,659
Banks (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,140,000 Bangko Sentral NG Pilipinas bonds 8.6s, 2027 (Philippines) 923,400
1,245,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 834,150
110,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 105,654
165,000 North Fork Capital Trust I company guaranty 8.7s, 2026 150,185
350,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 227,500
725,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 677,875
1,865,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 1,735,700
715,000 Provident Capital Trust company guaranty 8.6s, 2026 653,725
410,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 356,138
1,090,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 1,106,350
585,000 Sovereign Capital Trust company guaranty 9s, 2027 425,640
555,000 Webster Capital Trust I 144A bonds 9.36s, 2027 515,101
--------------
7,711,418
Basic Industrial Products (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,740,000 Blount Inc. 144A sr. sub. notes 13s, 2009 1,837,875
1,272,500 Blount Inc. bank term loan FRN 9.375s, 9/1/06 1,280,453
350,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 323,750
560,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 190,400
575,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 520,375
--------------
4,152,853
Broadcasting (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,280,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 2,148,900
910,000 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 1,032,850
2,050,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 1,809,125
1,920,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 1,689,600
1,331,200 Capstar Broadcasting sub. deb. 12s, 2009 (PIK) 1,504,256
800,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 812,000
420,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004
(Bermuda) 168,000
2,990,000 Chancellor Media Corp. company guaranty 8s, 2008 2,975,050
809,390 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 825,578
850,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 811,750
3,065,000 Comcast UK Cable Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 2,927,075
2,630,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 2,590,550
1,580,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,445,700
1,710,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 1,735,650
900,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 850,500
1,050,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 1,051,879
450,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 465,750
4,096,000 PHI Holdings, Inc. sr. sub. notes 16s, 2001 3,471,360
1,010,000 Radio One, Inc. company guaranty stepped-coupon Ser. B,
7s, (12s, 5/15/00), 2004 (STP) 1,080,700
320,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 284,800
460,000 Spanish Broadcasting Systems sr. sub notes 9 5/8s, 2009 448,500
1,570,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 1,373,750
500,000 TV Azteca S.A. de C.V. sr. notes Ser. A, 10 1/8s, 2004 (Mexico) 446,250
--------------
31,949,573
Building and Construction (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
490,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 147,000
390,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 374,400
940,000 Building Materials Corp. company guaranty 8s, 2008 834,250
555,000 Cia Latino Americana 144A company guaranty 11 5/8s, 2004
(Argentina) 360,750
2,070,000 D.R. Horton, Inc. company guaranty 8s, 2009 1,873,350
1,165,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 798,025
665,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 468,825
460,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 425,500
690,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 657,225
910,000 Toll Corp. company guaranty 8 1/8s, 2009 828,100
--------------
6,767,425
Business Equipment and Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 304,500
1,275,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,182,563
2,400,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 2,124,000
1,230,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,168,500
1,500,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 1,597,500
1,155,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 606,375
639,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 685,328
--------------
7,668,766
Cable Television (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,310,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 894,075
1,570,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 1,428,700
560,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 506,800
890,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 772,075
860,000 Century Communications Corp. sr. notes 8 7/8s, 2007 804,100
2,640,000 Charter Communications Holdings LLC sr. notes 8 5/8s, 2009 2,428,800
25,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 26,063
1,680,000 CSC Holdings, Inc. sr. notes Ser. B, 8 1/8s, 2009 1,680,000
360,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 345,330
1,920,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 1,799,808
2,795,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 2,222,025
995,000 Grupo Televisa S.A. de C.V. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 915,400
350,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 361,393
1,019,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 1,049,570
2,500,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 2,450,000
950,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 931,000
830,000 RBS Participacoes S.A. 144A company guaranty 11s, 2007
(Brazil) 688,900
290,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 303,050
930,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) 511,500
--------------
20,118,589
Cellular Communications (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 2,028,000
4,132,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 516,500
3,160,000 McCaw International Ltd sr. disc. notes stepped coupon
zero % (13s, 4/15/02), 2007 (STP) 2,291,000
4,650,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 4,022,250
350,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 218,750
250,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 (STP) 176,875
2,010,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 2,211,000
3,080,000 NEXTEL Communications, Inc. 144A sr. notes 9 3/8s, 2009 2,956,800
1,110,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 1,112,775
1,840,000 US Unwired, Inc. sr. disc. notes stepped-coupon zero %
(13 3/8s, 11/1/04), 2009 (STP) 1,058,000
--------------
16,591,950
Chemicals (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
740,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 677,100
1,060,000 Georgia Gulf Corp. 144A sr. sub. notes 10 3/8s, 2007 1,091,800
900,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 846,000
490,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 463,050
3,140,000 Huntsman ICI Chemicals, Inc. 144A sr. sub. notes 10 1/8s, 2009 3,171,400
2,110,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 2,078,350
3,220,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 3,179,750
2,035,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 1,729,750
1,280,752 Polytama International notes 11 1/4s, 2007 (Netherlands) 230,535
1,210,000 Royster-Clark, Inc. 144A 1st mtge 10 1/4s, 2009 1,076,900
1,530,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 1,445,850
925,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 277,500
550,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 569,250
1,160,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 870,000
--------------
17,707,235
Computer Services and Software (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 345,600
840,000 Cybernet Internet Services Intl., Inc. 144A sr. notes 14s, 2009 705,600
1,100,000 Globix Corp. 144A sr. notes 12 1/2s, 2010 1,111,000
950,000 Interact Operating Co. notes 14s, 2003 285,000
1,260,000 PSINet, Inc. sr. notes 11 1/2s, 2008 1,316,700
590,000 PSINet, Inc. sr. notes 11s, 2009 603,275
1,130,000 PSINet, Inc. 144A sr. notes 10 1/2s, 2006 1,146,950
1,000,000 Unisys Corp. sr. notes 11 3/4s, 2004 1,085,000
1,710,000 Unisys Corp. sr. notes 7 7/8s, 2008 1,641,600
850,000 Verio, Inc. sr. notes 11 1/4s, 2008 890,375
440,000 Verio, Inc. sr. notes 10 3/8s, 2005 447,700
--------------
9,578,800
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Axia, Inc. company guaranty 10 3/4s, 2008 1,327,500
1,705,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 852,500
--------------
2,180,000
Consumer Durable Goods (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,460,000 Albecca, Inc. company guaranty 10 3/4s, 2008 1,771,200
340,000 Iron Age Corp. company guaranty 9 7/8s, 2008 244,800
450,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 443,250
--------------
2,459,250
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,340,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 2,410,200
Cosmetics (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
345,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 335,513
320,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 307,200
630,000 Revlon Consumer Products sr. notes 9s, 2006 450,450
2,000,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 830,000
360,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 255,600
--------------
2,178,763
Electric Utilities (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,245,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 908,850
1,445,000 Applied Power, Inc. sr. sub. notes 8 3/4s, 2009 1,416,100
1,250,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,241,575
1,190,000 Calpine Corp. sr. notes 7 7/8s, 2008 1,134,788
3,140,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 2,920,200
613,754 Midland Funding II Corp. deb. Ser. C-94, 10.33s, 2002 630,491
3,750,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 4,350,338
5,000,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 5,341,100
1,079,397 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,073,190
2,100,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004
(China) 1,050,000
1,670,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 1,720,100
--------------
21,786,732
Electronics and Electrical Equipment (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
670,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 700,150
700,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 693,000
1,720,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 1,625,400
215,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 122,550
520,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 521,300
2,010,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 2,015,025
460,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 465,750
1,750,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 1,312,500
--------------
7,455,675
Entertainment (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,120,000 ITT Corp. notes 6 3/4s, 2005 1,856,548
50,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon zero %
(10s, 4/1/03), 2008 (STP) 33,625
2,300,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,196,500
1,525,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 1,037,000
1,240,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 1,162,500
1,380,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 1,283,400
1,120,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 414,400
2,250,000 Trump A.C. 1st mtge. 11 1/4s, 2006 1,755,000
2,090,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 2,110,900
229,000 United Artists Theatre 144A 10.415s, 2007 22,900
1,609,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 128,720
--------------
12,001,493
Environmental Control (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,085,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 2,683,950
1,150,000 Allied Waste Industries, Inc. bank term loan Ser. C,
FRN 8.438s, 2007 1,127,506
$940,000 Allied Waste Industries, Inc. bank term loan Ser. B,
FRN 8.188s, 2006 915,992
2,810,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 2,416,600
2,430,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 1,779,975
1,670,000 Waste Management, Inc. notes 6 5/8s, 2002 1,580,772
430,000 Waste Management, Inc. company guaranty 6 1/2s, 2004 392,375
150,000 WMX Technologies, Inc. notes 7.7s, 2002 145,215
--------------
11,042,385
Food and Beverages (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
610,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 150,400
260,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 62,100
340,000 Ameriserve Food Distribution Inc. 144A sec. notes 12s, 2006 244,800
1,730,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 1,699,725
355,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 348,788
600,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 457,500
2,050,000 Doane Pet Care Corp. sr. sub. notes 9 3/4s, 2007 2,003,875
1,570,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 1,067,600
1,790,000 Triarc Consumer Products, Inc. company guaranty
10 3/4s, 2009 1,731,825
1,390,000 Vlassic Foods Intl., Inc. sr. sub notes Ser. B, 10 1/4s, 2009 1,237,100
--------------
9,003,713
Gaming (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,150,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 1,187,375
1,480,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 1,494,800
2,120,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 2,035,200
1,720,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 1,506,565
1,780,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 952,300
480,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 448,258
2,010,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 2,065,275
970,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 933,625
930,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 864,900
2,380,000 International Game Technology 144A sr. notes 7 7/8s, 2004 2,255,050
540,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 588,600
1,150,000 Mohegan Tribal Gaming Auth. sr. notes 8 1/8s, 2006 1,098,250
1,100,000 Park Place Entertainment sr. notes 8 1/2s, 2006 1,084,600
875,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 721,875
--------------
17,236,673
Health Care Services (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 313,250
750,000 Columbia/HCA Healthcare Corp. med. term notes notes
7.69s, 2025 603,750
210,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 184,800
1,590,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 1,492,040
1,270,000 Conmed Corp. company guaranty 9s, 2008 1,168,400
1,175,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 834,250
1,420,000 Fresenius Medical Capital Trust II company guaranty
7.875s, 2008 1,285,100
1,040,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 837,200
1,260,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 88,200
620,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 43,400
1,780,000 Lifepoint Hospital Holdings company guaranty Ser. B,
10 3/4s, 2009 1,833,400
868,101 Magellan Health Corp. bank term loan 8s, 2005 811,674
510,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP)
(In default) (NON) 2,550
2,500,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 12,500
700,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 672,000
2,690,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 618,700
1,720,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 1,023,400
1,345,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 87,425
1,080,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 70,200
650,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 622,375
410,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 402,825
1,813,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 1,672,493
650,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 588,250
800,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 828,000
--------------
16,096,182
Insurance and Finance (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,805,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 1,159,713
125,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 81,250
2,000,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,873,820
600,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 546,768
875,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 516,250
270,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 153,900
705,000 Cellco Finance Corp. NV sr. sub. notes 15s, 2005 (Netherlands) 761,400
1,120,000 Cellco Finance Corp. NV 144A sr. notes 12 3/4s, 2005
(Netherlands) 1,164,800
420,000 Colonial Capital II 144A company guaranty 8.92s, 2027 375,829
1,200,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 120,000
1,510,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 151,000
1,150,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 103,500
1,573,000 Fannie Mae 6 5/8s, 2009 1,495,577
1,100,000 Freddie Mac 6 7/8s, 2005 1,084,875
1,410,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 1,254,646
1,175,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 893,000
955,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 737,738
865,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 802,288
1,380,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 869,400
2,890,000 RBF Finance Co. company guaranty 11s, 2006 3,077,850
1,110,000 Resource America, Inc. 144A sr. notes 12s, 2004 899,100
5,330,000 Sears Roebuck Acceptance Corp. unsub. 10s, 2007 3,384,550
--------------
21,507,254
Lodging (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,090,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 784,800
2,820,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 2,446,350
20,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 17,900
3,500,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 3,653,125
950,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 902,500
2,500,000 Starwood Hotels, Inc. bank term loan 8.763s, 2003 2,506,250
540,000 Sun International Hotels Ltd. company guaranty 9s, 2007 499,500
480,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 432,000
--------------
11,242,425
Medical Supplies and Devices (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,640,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 1,414,500
1,085,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 1,041,600
525,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 393,750
840,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 627,900
940,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 47,000
940,000 Mediq, Inc. company guaranty 11s, 2008 94,000
--------------
3,618,750
Metals and Mining (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
680,000 Anker Coal Group, Inc. 144A sec. notes 14 1/4s, 2007 (PIK) 496,400
2,350,000 Better Minerals & Aggregates Co. 144A sr. sub. notes 13s, 2009 2,350,000
775,000 Continental Global Group sr. notes Ser. B, 11s, 2007 398,156
550,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 541,750
1,760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 792,000
800,000 Neenah Corp. company guaranty Ser. F, 11 1/8s, 2007 730,000
1,220,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 1,250,500
690,000 WHX Corp. sr. notes 10 1/2s, 2005 652,050
--------------
7,210,856
Motion Picture Distribution (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 256,000
1,805,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 1,480,100
2,996,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 1,348,200
--------------
3,084,300
Networking (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
290,000 Exodus Communications, Inc. sr. notes 11 1/4s, 2008 300,150
1,570,000 Exodus Communications, Inc. 144A sr. notes 10 3/4s, 2009 1,617,100
--------------
1,917,250
Oil and Gas (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
960,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 986,400
500,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 345,000
140,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 84,000
320,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 328,000
765,000 Gulf Canada Resources Ltd. sr. notes 8 3/8s, 2005 (Canada) 727,347
690,000 Gulf Canada Resources Ltd. sr. notes 8.35s, 2006 (Canada) 660,675
460,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 473,800
2,110,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 2,067,800
1,140,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 1,088,700
35,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 32,900
630,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 274,050
610,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 183,000
1,820,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 1,842,750
430,000 Vintage Petroleum sr. sub. notes 9s, 2005 422,475
--------------
9,516,897
Packaging and Containers (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
440,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 400,400
830,000 Ball Corp. company guaranty 7 3/4s, 2006 792,650
1,315,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 1,124,325
90,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/4s, 2007 83,925
50,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 45,750
820,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 799,500
880,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 841,474
1,230,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 1,114,589
1,940,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 1,802,260
771,893 Packaging Corp. bank term loan FRN 9.438s, 2008 728,235
160,811 Packaging Corp. bank term loan FRN 8.625s, 2007 161,615
650,000 Radnor Holdings, Inc. sr. notes 10s, 2003 624,000
2,240,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 2,161,600
1,410,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 1,402,950
--------------
12,083,273
Paper and Forest Products (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 APP Finance II Mauritius Ltd. bonds stepped-coupon zero %
(16s, 2/15/04), 2049 (Indonesia) (STP) 157,500
825,000 Doman Industries 144A 8 3/4s, 2004 709,500
1,230,000 Impac Group, Inc. company guaranty Ser. B, 10 1/8s, 2008 1,057,800
4,250,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s, 2007
(Indonesia) 2,975,000
1,350,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 1,356,750
2,810,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 1,967,000
2,524,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 2,295,315
1,490,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 1,341,000
--------------
11,859,865
Pharmaceuticals and Biotechnology (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,450,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,384,750
1,100,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 1,017,500
--------------
2,402,250
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,395,000 Affinity Group Holdings sr. notes 11s, 2007 1,283,400
2,140,000 American Media Operation, Inc. sr. sub. notes 10 1/4s, 2009 2,129,300
1,250,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 1,137,500
1,260,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 1,134,000
1,000,000 Perry-Judd company guaranty 10 5/8s, 2007 840,000
296,745 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 270,038
370,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 351,500
--------------
7,145,738
Railroads (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
400,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 336,000
1,415,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 905,600
--------------
1,241,600
Restaurants (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 1,080,000
1,800,000 Sbarro, Inc. 144A sr. notes 11s, 2009 1,849,500
--------------
2,929,500
Retail (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,770,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 1,486,800
1,000,000 K mart Corp. pass-thru certificates Ser. 95K4, 9.35s, 2020 1,004,560
2,920,000 K mart Corp. notes 8 3/8s, 2004 2,883,062
1,160,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 870,000
1,600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 1,592,000
1,690,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 1,537,900
--------------
9,374,322
Satellite Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,300,000 Gloden Sky DBS, Inc. sr. disc. notes, stepped-coupon Ser. B,
zero % (13 1/2s, 3/1/04), 2007 (STP) 838,500
870,000 Golden Sky DBS, Inc.company guaranty Ser. B, 12 3/8s, 2006 943,950
930,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 840,488
640,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004
(Mexico) 460,800
--------------
3,083,738
Semiconductors (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,900,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,904,750
890,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 823,250
--------------
2,728,000
Shipping (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 International Shipholding Corp. sr. notes 9s, 2003 194,500
360,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 320,400
1,240,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 1,255,500
940,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 810,750
--------------
2,581,150
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,060,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 720,800
Steel (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,710,000 AK Steel Corp. company guaranty 7 7/8s, 2009 2,439,000
1,190,000 California Steel Industries sr. notes Ser. B, 8 1/2s, 2009 1,121,575
1,810,000 LTV Corp. sr. notes 11 3/4s, 2009 1,900,500
2,030,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 2,075,675
100,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 94,000
--------------
7,630,750
Telecommunications (7.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,250,000 Alaska Communications Systems Corp. company guaranty
9 3/8s, 2009 2,148,750
1,100,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 616,000
810,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 522,450
780,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 787,800
650,000 Caprock Communications Corp. sr. notes 11 1/2s, 2009 658,125
1,300,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009 (Luxembourg) 1,352,000
3,075,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) (STP) 2,706,000
955,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 191,000
2,100,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 2,163,000
1,170,000 Covad Communications Group, Inc. 144A sr. notes 12s, 2010 1,178,775
2,270,000 Econophone, Inc. company guaranty 13 1/2s, 2007 2,383,500
580,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 566,950
3,410,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 1,705,000
1,850,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 1,211,750
1,150,000 Focal Communications Corp. 144A sr. notes 11 7/8s, 2010 1,184,500
700,000 Global Crossing Holdings, Ltd. 144A sr. notes 9 1/8s, 2006 670,250
475,000 Globe Telecom 144A sr. notes 13s, 2009 520,125
1,066,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 831,480
2,300,000 GST Telecommunications, Inc. sr. disc. notes stepped-coupon
zero % (10 1/2s, 5/1/03), 2008 (STP) 1,288,000
610,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 622,200
1,670,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 1,774,375
860,000 Hyperion Telecommunications Corp., Inc. sr. sub. notes
12s, 2007 892,250
1,420,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 2/15/03), 2008 (STP) 795,200
1,370,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 1,246,700
2,660,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 1,463,000
1,590,000 Insight Midwest 144A sr. notes 9 3/4s, 2009 1,597,950
2,150,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 1,945,750
1,250,000 Intra Corp. bonds 13s, 2010 666,138
2,640,000 IPC Information Systems, Inc. sr. disc. notes 10 7/8s, 2008 1,966,800
1,190,000 KMC Telecommunications, Inc. sr. notes 13 1/2s, 2009 1,190,000
4,175,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 2,358,875
2,855,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 1,905,713
1,460,000 L-3 Communications Corp. sr. notes 9 1/8s, 2008 1,354,150
1,310,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,188,825
1,710,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 1,282,500
2,170,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,931,300
760,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 505,400
380,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 328,700
225,000 Nextlink Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 6/1/04), 2009 (STP) 135,000
260,000 Nextlink Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 12/1/04), 2009 (STP) 145,600
280,000 Nextlink Communications, Inc. 144A sr. notes 10 1/2s, 2009 280,700
1,870,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 1,963,500
1,020,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 1,081,200
1,740,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 1,148,400
1,350,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 1,215,000
1,245,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 1,001,416
285,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 221,374
1,200,000 Qwest Communications International, Inc. sr. notes Ser. B,
7 1/4s, 2008 1,139,880
1,710,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 923,400
1,785,000 RSL Communications Ltd. company guaranty 12 1/4s, 2006 1,809,544
750,000 RSL Communications Ltd. 144A 10 1/2s, 2008 686,250
815,000 RSL Communications Ltd. company guaranty 9 1/8s, 2008 700,900
1,640,000 Startec Global Communications Corp. sr. notes 12s, 2008 1,344,800
1,765,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 1,606,150
630,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 31,500
2,500,000 TeleWest Communications PLC 144A 9 7/8s, 2010 2,500,000
780,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (9 1/4, 4/15/04), 2009
(United Kingdom) (STP) 468,000
1,545,000 Teligent, Inc. sr. notes 11 1/2s, 2007 1,483,200
1,000,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 1,002,500
1,220,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 1,290,150
3,230,000 Williams Communications Group, Inc. sr. notes 10 7/8s, 2009 3,326,900
1,890,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 2,646,000
400,000 Winstar Communications, Inc. 144A sr. disc. units notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 400,000
940,000 WinStar Communications, Inc. sr. sub. notes 11s, 2008 958,800
620,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 563,425
1,560,000 Worldwide Fiber Inc. 144A sr. notes 12s, 2009 1,622,400
--------------
79,397,270
Telephone Services (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,520,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 1,086,800
220,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 248,600
1,710,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,556,100
710,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 553,800
1,930,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 945,700
950,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) (STP) 560,500
2,490,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 1,276,125
1,640,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,492,400
1,045,000 Globo Communicacoes 144A company guaranty 10 1/2s, 2006
(Brazil) 867,350
370,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 313,575
922,000 ITC Deltacom, Inc. sr. notes 11s, 2007 958,880
280,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008
(In default) (NON) 140,000
450,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 441,000
2,630,000 McLeodUSA, Inc. sr. notes 8 1/8s, 2009 2,380,150
470,000 Onepoint Communications, Inc. company guaranty Ser. B,
14 1/2s, 2008 305,500
350,000 RCN Corp. sr. disc. notes stepped-coupon zero % (11 1/8s,
10/15/02), 2007 (STP) 241,500
440,000 Transtel S.A. pass-through certificates 12 1/2s, 2007 242,000
640,000 US Xchange LLC sr. notes 15s, 2008 480,000
1,490,000 Viatel, Inc. sr. disc. notes stepped-coupon zero % (12 1/2s,
4/15/03), 2008 (STP) 864,200
1,008,000 Viatel, Inc. 144A sr. notes 11 1/2s, 2009 962,640
2,560,000 Viatel, Inc. sr. notes 11 1/4s, 2008 2,393,600
--------------
18,310,420
Textiles (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,330,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 438,900
935,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 888,250
470,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 437,100
2,130,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 1,826,475
--------------
3,590,725
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003
(Greece) 460,000
630,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 601,650
--------------
1,061,650
Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,900,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 1,813,987
Wireless Communications (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
570,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 564,300
990,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 668,250
1,020,000 Neuvo Grupo Iusacell S.A. 144A sr. notes 14 1/4s, 2006
(Mexico) 1,060,800
250,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 27,500
1,560,000 Telecorp PCS, Inc. company guaranty stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 976,950
3,050,000 Voicestream Wire Corp. 144A sr. notes 10 3/8s, 2009 3,126,250
--------------
6,424,050
--------------
Total Corporate Bonds and Notes (cost $545,266,155) $ 492,972,032
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (14.7%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (4.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 6,564,833 Federal Home Loan Mortgage Corporation 7 1/2s,
with due dates from March 1, 2020 to May 1, 2028 $ 6,410,953
6,625,000 Federal Home Loan Mortgage Corporation TBA, 6s, 2029 5,965,614
Federal National Mortgage Association
Pass-Through Certificates
266,378 8s, November 1, 2029 265,712
5,358,125 7 1/2s, (Interest Only) IO, November 25, 2023 1,722,972
1,404,599 7s, Dwarf, with due dates from October 1, 2010
to May 1, 2011 1,370,791
3,968,802 6 1/2s, with due dates from February 1, 2026
to November 1, 2028 3,683,523
22,976 6 1/2s, Dwarf, with due dates from August 1, 2010
to September 1, 2010 21,942
200,000 6s, May 1, 2029 179,936
Government National Mortgage Association
Pass-Through Certificates
7,867,662 8s, with due dates from July 15, 2024
to December 15, 2027 7,850,431
7,656,063 7 1/2s, with due dates from January 15, 2023
to February 15, 2027 7,504,544
14,077,310 7s, with due dates from December 15, 2022
to May 15, 2028 13,467,068
--------------
48,443,486
U.S. Treasury Obligations (10.0%)
- --------------------------------------------------------------------------------------------------------------------------
46,660,000 U.S. Treasury Bonds 6 1/8s, August 15, 2029 44,414,254
U.S. Treasury Notes
490,000 6 3/8s, January 31, 2002 487,854
58,359,000 6s, August 15, 2009 (SEG) 55,623,130
1,820,000 5 7/8s, November 15, 2004 1,759,430
3,785,000 U.S. Treasury Strip, zero %, November 15, 2019 1,082,359
--------------
103,367,027
--------------
Total U.S. Government and Agency Obligations
(cost $154,194,624) $ 151,810,513
FOREIGN GOVERNMENT BONDS AND NOTES (12.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD 3,110,000 Argentina (Republic of) unsub. 11 3/4s, 2009 $ 3,016,700
USD 2,155,000 Argentina (Republic of) unsub. Ser. BGL5,
11 3/8s, 2017 2,044,664
USD 23,380,000 Australia (Government of) bonds Ser. 1106,
6 3/4s, 2006 14,537,918
USD 7,625,000 Australia (Government of) 5 3/4s, 2011 4,286,523
USD 5,215,000 Brazil (Federal Republic of) notes 14 1/2s, 2009 5,443,417
USD 3,275,000 Brazil (Federal Republic of) bonds 10 1/8s, 2027 2,538,125
CAD 1,405,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 1,007,745
CAD 20,375,000 Canada (Government of) bonds Ser. WL43,
5 3/4s, 2029 13,244,595
USD 2,610,000 Colombia (Republic of) unsub. 8 5/8s, 2008 2,166,300
USD 1,820,000 Germany (Federal Republic of) bonds Ser. 98,
5 5/8s, 2028 1,664,625
USD 24,390,000 Germany (Federal Republic of) bonds Ser. 132,
4 1/8s, 2004 22,792,494
USD 1,332,000 Morocco (Government of) bonds Ser. A, 6.563s, 2009 1,198,800
USD 410,000 Philippines (Government of) 9 7/8s, 2019 389,500
USD 3,665,000 Russia (Federation of) 144A bonds 12 3/4s, 2028 2,652,544
USD 3,850,000 Russia (Federation of) deb. FRB 6.91s, 2015
(In default) (NON) 705,031
USD 15,870,000 Russia (Federation of) deb. principal loans FRB
6.719s, 2020 2,479,688
SEK 145,800,000 Sweden (Government of) bonds Ser. 1041,
6 3/4s, 2014 17,427,763
SEK 22,200,000 Sweden (Government of) bonds Ser. 1035, 6s, 2005 2,534,130
USD 1,435,000 Turkey (Republic of) sr. unsub. 12 3/8s, 2009 1,519,378
GBP 4,420,000 United Kingdom Treasury bonds 10s, 2003 7,908,747
GBP 2,355,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 4,078,813
GBP 10,305,000 United Kingdom Treasury bonds 8s, 2000 16,857,885
USD 1,510,000 United Mexican States bonds 11 3/8s, 2016 1,627,025
USD 2,410,000 Venezuela (Republic of) bonds 9 1/4s, 2027 1,533,483
--------------
Total Foreign Government Bonds and Notes
(cost $139,593,876) $ 133,655,893
COLLATERALIZED MORTGAGE OBLIGATIONS (9.0%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 80,000 Amresco Commercial Mortgage Funding I Ser. 97-C1,
Class F, 7.64s, 2029 $ 73,263
Commercial Mortgage Acceptance Corp.
2,305,000 Ser. 97-ML1, Class D, 6.977s, 2030 2,095,389
40,871,564 Ser. 97-ML1, IO, 0.558s, 2017 1,858,379
423,000 Commercial Mortgage Asset Trust Ser. 99-C1, Class A4,
6.975s, 2013 388,763
77,033,794 Commercial Mortgage Asset Trust Ser. 99-C1, IO, Class X,
1.157s, 2020 4,757,439
2,685,000 Countrywide Home Loan Ser. 98-3, Class A5, 6 3/4s, 2028 2,460,551
4,100,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C,
Class A8, 6 1/2s, 2024 3,571,387
Criimi Mae Commercial Mortgage Trust
9,913,000 Ser. 98-C1, Class A2, 7s, 2011 8,337,762
3,764,000 Ser. 98-C1, Class B, 7s, 2011 2,830,058
71,302,271 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 0.86s, 2031 3,709,946
219,000 DLJ Commercial Mortgage Corp. Ser. 99-CG3, Class A1B,
7.34S, 2009 211,951
Fannie Mae
6,248,274 Ser. 93-251, Class Z, 6 1/2s, 2023 5,123,585
Fannie Mae Strip
6,243,173 Ser. 281, Class 2, IO, 9s, 2026 1,820,275
938,312 Ser. 176, Class 2, IO, 8s, 2022 297,034
2,621,093 Ser. 217, Class 2, IO, 8s, 2023 829,740
13,807,554 Ser. 218, Class 2, IO, 7 1/2s, 2023 4,332,120
7,180,534 Ser. 221, Class 2, IO, 7 1/2s, 2023 2,257,380
222,353 Ser. 202, Class 2, IO, 6s, 2029 72,681
17,687,141 Ser. 222, Class 2, IO, 3.213s, 2023 5,516,177
5,817,849 Ser. 266, Class 2, IO, 3.401s, 2024 1,803,533
3,008,932 Ser. 250, CLass 2, IO, 0.428s, 2023 950,634
1,703,798 Ser. 294-1, Class PO , zero % , 2028 1,075,256
5,218,316 Ser. 304, CLass 2, IO, zero %, 6s, 2028 1,519,835
Freddie Mac
1,900,000 Ser. 2040, Class PE, 7 1/2s, 2028 1,835,039
1,105,000 Ser. 1439, Class I, 7 1/2s, 2022 1,059,117
1,236,174 Ser. 2188, Class SA, 7.23s, 2029 967,306
1,539,212 Ser. 1717, Class L, 6 1/2s, 2024 1,457,802
1,268,679 Ser. 2068, Class, SD, 4.107s, 2028 634,339
Freddie Mac Strip
3,401,828 Ser. 202, Class (Principal Only) PO, zero %, 2029 2,026,214
1,575,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 1,418,162
Government National Mortgage Association
1,828,258 Ser. 1998-18, Class SA, 8.58s, 2027 1,343,770
1,775,000 Ser. 1997-8, Class PE 7 1/2s, 2027 1,685,695
10,528,345 Ser. 1998-2, Class SA, IO, 2.62s, 2028 641,571
5,951,841 Ser. 1999-34, Class SC, IO, 2.72s, 2019 318,052
2,286,888 Ser. 1999-38, Class Sl, zero %, 2026 2,023,896
2,770,000 General Growth Properties Ala Moa Ser. 99-C1, CLass E,
FRB, 8.04s, 2009 2,770,000
570,000 General Growth Properties-Homart Ser. 99-C1, Class G,
8.089s, 2003 570,000
650,000 General Growth Properties-Homart Ser. 99-C1 , Class F,
7.839s, 2003 650,000
1,420,000 General Growth Properties Ivanhoe Ser. 99-C1,Class G,
FRB, 9.03s, 2004 1,420,000
1,198,000 General Growth Properties Ivanhoe Ser. 99-C1, Class F,
FRB, 8.292s, 2004 1,198,000
2,025,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D,
7.191s, 2031 1,797,029
53,678 LB Commercial Mortgage Trust Ser. 99-C2, Class A1,
7.105s, 2008 52,429
Merrill Lynch Mortgage Investors, Inc.
1,615,000 Ser. 95-C3, Class D, 7.782s, 2025 1,557,213
650,000 Ser. 98-C2, Class D, 6.956s, 2030 585,609
1,495,000 Ser. 96-C2, Class E, 6.96s, 2028 1,238,047
31,887,313 Ser. 96-C2, Class IO, 1.601s, 2028 2,152,394
2,485,810 Ser. 98-C2, Class IO, 1.575s, 2030 172,841
Morgan Stanley Capital I
1,380,000 Ser. 98-XL1, Class E, 7.15s, 2030 1,266,581
30,880,298 Ser. 98-HF1, Class X, IO, 1.191s, 2018 1,650,166
Mortgage Capital Funding, Inc.
15,779,508 Ser. 97-MC2, Class X, IO, 1.58s, 2012 1,052,789
42,239,784 Ser. 98-MC1, Class X, IO, 0.856s, 2009 1,560,892
557,004 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 546,800
1,637,563 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 1,586,095
--------------
Total Collateralized Mortgage Obligations
(cost $99,121,895) $ 93,130,986
BRADY BONDS (4.5%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 8,775,000 Argentina (Republic of) FRB Ser. L-GL, 5.874s, 2023 $ 6,778,688
17,549,083 Brazil (Federal Republic of) bonds FRB 8s, 2014 12,196,612
1,075,000 Bulgaria (Government of) deb. Ser. PDI, FRB, 6.688s, 2011 843,875
2,650,000 Bulgaria (Government of) FRB Ser. A, 6 1/2s, 2024 2,086,875
5,600,000 Bulgaria (Government of) Ser. A, FLIRB, 2 1/4s, 2012 3,990,000
2,130,000 Peru (Republic of) bonds Ser. PDI, FRB, 4s, 2017 1,405,800
9,375,000 United Mexican States bonds Ser. XW, IO, 10 3/8s, 2009 9,515,625
7,070,000 United Mexican States FRB Ser. D, 6 3/4s, 2019 6,566,263
3,428,550 Venezuela (Republic of) deb. Ser. DL, FRB, 6.762s, 2007 2,678,726
1,460,000 Venezuela (Republic) Ser. W-A, 6 3/4s, 2020 970,900
--------------
Total Brady Bonds (cost $43,794,855) $ 47,033,364
PREFERRED STOCKS (3.5%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
351 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) $ 326,430
30,781 AmeriKing, Inc. $3.25 pfd. (PIK) 430,934
108,000 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 2,511,000
29,725 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 1,605,150
6,875 Chevy Chase Savings Bank $3.25 pfd. 189,063
9,323 Citadel Broadcasting, Inc. 144A $13.25 cum. pfd. (PIK) 1,041,845
715 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 750,750
32,216 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 3,487,382
69,460 Diva Systems Corp. Ser. C, $6.00 pfd. 347,300
2,514 Dobson Communications 13.00% pfd. 2,715,120
540 First Republic 144A 10.50% pfd. 513,000
250 Fresenius Medical Capital Trust I Ser. D, 9.00% company
guaranty, pfd. (Germany) 242,500
16,260 Global Crossing Holdings 144A $10.50 pfd. 1,609,740
1,973 Granite Broadcasting 144A $12.75 pfd. (PIK) 2,012,460
4,702 ICG Holdings, Inc. $14.25 pfd. (Canada) 4,231,800
2,622 Intermedia Communication Ser. B, $13.50 pfd. (PIK) 2,622,000
1,462 IXC Communications, Inc. $12.50 pfd. (PIK) 1,586,270
23,306 Lady Luck Gaming Corp. $11.25 pfd. 1,211,912
1,066 NEXTEL Communications, Inc. Ser. D, $13.00 cum. pfd. (PIK) 1,097,980
445 NEXTEL Communications, Inc. Ser. E, $11.125 pfd. (PIK) 440,550
36,590 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 1,902,680
221 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 2,276,300
1,030 R&B Falcon Corp. $13.875 pfd. 1,035,150
5,000 Sinclair Capital $11.625 cum. pfd. 490,000
1,450 WinStar Communications, Inc. 144A 14.25% cum. pfd. (PIK) 1,609,500
--------------
Total Preferred Stocks (cost $35,856,129) $ 36,286,816
ASSET-BACKED SECURITIES (0.7%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 3,140,000 Banamex S.A. 144A 7.5s, 2006 $ 3,099,463
1,275,000 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2,
7.67s, 2028 637,500
3,390,002 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 2,542,501
799,439 Green Tree Recreational Equipment & Cons. Ser. 97-B,
Class A1, 6.55s, 2028 787,385
--------------
Total Asset-Backed Securities (cost $8,593,684) $ 7,066,849
COMMON STOCKS (0.6%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
17,058 Adelphia Business Solutions, Inc. (NON) $ 874,223
525 AmeriKing, Inc. (NON) 5,250
12,800 AMFM, Inc. (NON) 998,400
134,711 Celcaribe (NON) 50,517
390,240 Celcaribe S.A. 144A (Colombia) (NON) 585,360
10,934 IFINT Diversified Holdings 144A (NON) 21,868
5,960 Intermedia Communications, Inc. (NON) 256,280
1,887 MGC Communications, Inc. (NON) 107,677
466 Mothers Work, Inc. (NON) 4,660
250 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 3
1,186 Premium Holdings (L.P.) 144A (NON) 11,857
250,248 PSF Holdings LLC Class A (NON) 2,502,480
21,150 Spanish Broadcasting System, Inc. Class B (NON) 539,325
36,750 Specialty Foods Acquisition Corp. (NON) 735
8,037 Viatel, Inc. (NON) 296,867
65 Waste Management, Inc. 1,261
--------------
Total Common Stocks (cost $10,369,298) $ 6,256,763
CONVERTIBLE PREFERRED STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
5,750 Chesapeake Energy Corp. $3.50 cum. cv. pfd. $ 178,250
41,120 Global Telesystems, Inc. 144A $3.625 cv. pfd. 1,814,420
2,260 IGC Communication 144A $3.38 cv. pfd. 124,300
1,900 Interact Electronic $14.00 cv. pfd 1,900
6,800 LTV Corp. (The) 144A $4.13 cv. pfd. 365,500
56 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 554,400
16,500 PSINet, Inc. 144A $3.50 cv. pfd. 767,250
781 XCL Ltd 144A Ser. A, 9.50% cv. cum. pfd. 781
--------------
Total Convertible Preferred Stocks (cost $4,324,614) $ 3,806,801
CONVERTIBLE BONDS AND NOTES (0.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 3,080,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) $ 1,601,600
647,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 582,300
800,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 620,000
700,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 798,875
--------------
Total Convertible Bonds and Notes (cost $3,361,683) $ 3,602,775
WARRANTS (0.3%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
810 Bestel S.A. (Mexico) 5/15/05 $ 81,000
780 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 42,900
6,652 Cellnet Data Systems, Inc. 10/1/07 63,194
810 Club Regina, Inc. 144A 12/1/04 810
12,892 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 1,289
840 Cybernet Internet 144A 7/1/09 100,800
2,520 Destia Communications 144A 7/15/07 327,600
1,715 Diva Systems Corp. 5/15/06 317,275
8,988 Diva Systems Corp. 3/1/08 107,856
20 E. Spire Communications, Inc. 11/1/05 360
1,090 Epic Resorts 6/15/05 11
940 Esat Holdings, Inc. (Ireland) 2/1/07 211,500
3,410 Firstworld Communication 4/15/08 511,500
1,015 Globalstar Telecommunications 2/15/04 233,450
20,856 ICG Communications 10/15/05 364,980
1,900 Interact Electronic 144A 8/1/03 19
1,900 Interact Systems, Inc. 8/1/03 19
1,140 International Wireless Communications
Holdings 144A 8/15/01 1
35,000 Intira Corp. 2/14/06 350
2,175 KMC Telecom Holdings, Inc. 4/15/08 7,613
2,185 Knology Holdings 10/22/07 4,916
280 Long Distance International, Inc. 144A 4/13/08 560
3,590 McCaw International Ltd. 4/15/07 16,155
940 Mediq, Inc. 144A 6/1/09 9
1,300 Network Plus Corp. 2/19/09 32,500
470 Onepoint Communications, Inc. 6/1/08 4,700
990 Orbital Imaging Corp. 144A 3/1/05 19,800
1,310 Orion Network Systems 1/15/07 14,410
12,880 Pagemart, Inc. 144A 12/31/03 96,600
1,570 Pathnet, Inc. 144A 4/15/08 15,700
1,600 Paxson Communications Corp. 144A 6/30/03 4,800
960 R&B Falcon Corp. 144A 5/1/09 240,000
1,640 Startec Global Communications Corp. 5/15/08 29,520
680 Sterling Chemicals Holdings 8/15/08 10,200
630 Telehub Communications Corp. 7/31/05 315
5,820 UIH Australia/Pacific, Inc. 144A 5/15/06 174,600
1,220 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 518,500
454,880 Wright Medical Technology, Inc. 144A 6/30/03 5
--------------
Total Warrants (cost $1,897,945) $ 3,555,817
UNITS (0.2%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
930 Equinix, Inc. 144A units, 13s, 2007 $ 957,900
850 GT Group Telecommunications units stepped-coupon zero %
(13 1/4s, 2/1/05), 2010 (STP) 450,500
1,420 Pegasus Shipping 144A units company guaranty
stepped-coupon zero % (14 1/2s. 6/20/03), 2008
(Bermuda) (STP) 127,800
960 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 96,000
7,615 XCL Ltd. 144A units 9.5s, 2006 (PIK) 7,615
--------------
Total Units (cost $3,802,016) $ 1,639,815
SHORT-TERM INVESTMENTS (9.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 42,500,000 Windmill Funding effective yield of 5.71%, February 28, 2000 $ 42,318,312
25,000,000 Interest in $568,126,000 joint repurchase agreement
dated January 31, 2000 with S.B.C. Warburg Inc. due
February 1, 2000 with respect to various
U.S. Treasury obligations -- maturity value of $25,003,958
for an effective yield of 5.7% 25,000,000
27,017,000 Interest in $650,000,000 joint tri-party repurchase agreement
dated January 31, 2000 with Goldman Sachs & Co. due
February 1, 2000 with respect to various
U.S. Treasury obligations -- maturity value of $27,021,278
for an effective yield of 5.7% 27,017,000
--------------
Total Short-Term Investments (cost $94,335,312) $ 94,335,312
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,144,512,086) (b) $1,075,153,736
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,036,512,312.
(b) The aggregate identified cost on a tax basis is $1,145,242,022, resulting in gross unrealized appreciation and
depreciation of $27,374,581 and $97,462,867, respectively, or net unrealized depreciation of $70,088,286.
(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.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at January 31, 2000.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
TBA after the name of a security represents to be announced securities (Note 1).
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at
January 31, 2000 which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at January 31, 2000: (as a percentage of Market Value)
Argentina 1.2%
Australia 1.8
Brazil 2.2
Canada 3.0
Germany 2.4
Mexico 2.4
Sweden 1.9
United Kingdom 3.2
United States 76.9
Others 5.0
------------
Total 100%
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at January 31, 2000 (Unaudited)
(aggregate face value $146,245,826)
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- -------------------------------------------------------------------------------
Australian Dollar $ 17,777,597 $ 18,153,765 6/21/00 $ (376,168)
Danish Krone 1,120,402 1,138,503 6/21/00 (18,101)
Euro 71,502,772 73,966,135 6/21/00 (2,463,363)
Japanese Yen 49,608,591 50,403,196 6/21/00 (794,605)
Swiss Franc 2,509,592 2,584,227 6/21/00 (74,635)
- -------------------------------------------------------------------------------
$(3,726,872)
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at January 31, 2000 (Unaudited)
(aggregate face value $128,313,540)
Aggregate Face Delivery Unrealized
Market Value Value Date Appreciation
- -------------------------------------------------------------------------------
British Pounds $ 36,011,404 $ 36,802,853 6/21/00 $ 791,449
Canadian Dollar 950,323 953,686 6/21/00 3,363
Euro 14,168,126 14,635,488 6/21/00 467,362
Japanese Yen 60,269,035 61,115,238 6/21/00 846,203
Swedish Krona 14,220,625 14,806,275 6/21/00 585,650
- -------------------------------------------------------------------------------
$ 2,694,027
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 2000 (Unaudited)
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Euroyen (Long) $100,371,192 $100,326,628 Jun-00 $ 44,564
Euroyen (Short) 76,477,081 76,454,453 Jun-01 (22,628)
Euroyen (Short) 23,365,300 23,363,626 Mar-01 (1,674)
GBP Libor (Long) 24,165,364 24,147,118 Dec-00 18,246
GBP Libor (Short) 24,384,102 24,370,531 Mar-00 (13,571)
Gilt (Short) 3,360,413 3,504,956 Mar-00 144,543
U.S. Treasury Bond (Long) 23,700,219 24,071,786 Mar-00 (371,567)
- -------------------------------------------------------------------------------
$ (202,087)
- -------------------------------------------------------------------------------
TBA Sale Commitments at January 31, 2000 (Unaudited)
(Proceeds receivable $6,307,891)
Principal Settlement Market
Agency Amount Date Value
- -------------------------------------------------------------------------------
FHLMC 7 1/2s, February 2030 $ 6,401,288 3/21/00 $ 6,252,266
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 2000 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,144,512,086) (Note 1) $1,075,153,736
- -----------------------------------------------------------------------------------------------
Cash 64,865
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $904,600) 878,634
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 19,932,408
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 19,821,235
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 2,694,027
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,884,664
- -----------------------------------------------------------------------------------------------
Total assets 1,120,429,569
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 7,462,019
- -----------------------------------------------------------------------------------------------
Payable for variation margin 140,590
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 58,886,834
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,819,045
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 98,786
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 30,228
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,404
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 3,726,872
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 5,278,451
- -----------------------------------------------------------------------------------------------
Payable for exchange listing fees 128,079
- -----------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $6,307,891) 6,252,266
- -----------------------------------------------------------------------------------------------
Other accrued expenses 92,683
- -----------------------------------------------------------------------------------------------
Total liabilities 83,917,257
- -----------------------------------------------------------------------------------------------
Net assets $1,036,512,312
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,221,125,546
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (12,711,831)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (101,194,638)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (70,706,765)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,036,512,312
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($1,036,512,312 divided by
140,989,259 shares) $7.35
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31, 2000 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income $44,968,463
- -----------------------------------------------------------------------------------------------
Dividends 2,672,518
- -----------------------------------------------------------------------------------------------
Total investment income 47,640,981
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,672,454
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 429,979
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,799
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 8,600
- -----------------------------------------------------------------------------------------------
Reports to shareholders 25,576
- -----------------------------------------------------------------------------------------------
Auditing 16,330
- -----------------------------------------------------------------------------------------------
Legal 24,584
- -----------------------------------------------------------------------------------------------
Postage 57,354
- -----------------------------------------------------------------------------------------------
Exchange listing fees 59,113
- -----------------------------------------------------------------------------------------------
Other 18,290
- -----------------------------------------------------------------------------------------------
Total expenses 4,329,079
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (28,027)
- -----------------------------------------------------------------------------------------------
Net expenses 4,301,052
- -----------------------------------------------------------------------------------------------
Net investment income 43,339,929
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (18,404,155)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (619,042)
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (2,430,343)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (2,416,874)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts and TBA sale commitments during the period (7,168,496)
- -----------------------------------------------------------------------------------------------
Net loss on investments (31,038,910)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $12,301,019
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
2000* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 43,339,929 $ 90,268,650
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (21,453,540) (73,019,543)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and assets and liabilities in foreign currencies (9,585,370) (66,575,654)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 12,301,019 (49,326,547)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (49,768,210) (86,389,968)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- (17,357,444)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions
from reinvestment of dividends -- 5,865,852
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (37,467,191) (147,208,107)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 1,073,979,503 1,221,187,610
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $12,711,831 and
$6,283,550, respectively) $1,036,512,312 $1,073,979,503
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 140,989,259 140,248,960
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions -- 740,299
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 140,989,259 140,989,259
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.62 $8.71 $8.88 $8.53 $8.46 $8.29
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .31 .64 .74 .65 .64 .68
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.23) (.99) (.18) .38 .09 .17
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .08 (.35) .56 1.03 .73 .85
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.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 (.35) (.74) (.73) (.68) (.66) (.68)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.35 $7.62 $8.71 $8.88 $8.53 $8.46
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (11.86)* (7.24) 8.06 26.24 7.94 6.86
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.00 $7.19 $8.50 $8.56 $7.38 $7.44
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,036,512 $1,073,980 $1,221,188 $1,245,444 $1,199,854 $1,190,375
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .41* .86 .89 .83 .85 .82
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.12* 8.05 8.34 7.42 7.43 8.29
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 62.58* 165.79 209.50 262.01 332.00 196.83
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment.
(b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
</TABLE>
Notes to financial statements
January 31, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Premier Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The fund's investment objective
is to seek high current income consistent with the preservation of capital
by allocating its investments among the U.S. government sector, high yield
sector and international sector of the fixed income securities market.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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 sales price on its principal exchange, 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 dealers, approved by the Trustees, which determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
variable relationships between securities that 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.
Any premium resulting from the purchase of stepped-coupon securities is
amortized on a yield-to-maturity basis.
Securities purchased or sold on a forward commitment basis may be settled
a month or more after the trade date; interest income is accrued based on
the terms of the security. Losses may arise due to changes in the market
value of the underlying securities or if the counterparty does not perform
under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate. Investments in foreign securities involve
certain risks, including those related to economic instability,
unfavorable political developments, and currency fluctuations, not present
with domestic investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with
the intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of
a commitment prior to settlement if Putnam Management deems it appropriate
to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale commitments
are not received until the contractual settlement date. During the time a
TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market" daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the acquisition
of an offsetting purchase commitment, the fund realizes a gain or loss. If
the fund delivers securities under the commitment, the fund realizes a
gain or a loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
J) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
K) Distributions to shareholders Distributions to shareholders from net
investment income 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. Capital gain
distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. Reclassifications
are made to the fund's capital accounts to reflect income and gains available
for distribution (or available capital loss carryovers) under income tax
regulations.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average 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 six months ended January 31, 2000, fund expenses were reduced by
$28,027 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $1,589
has been allocated to the fund and an additional fee for each Trustees
meeting attended. 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 a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and meeting
fees for the three years preceding retirement. Pension expense for the
fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended January 31, 2000, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $395,609,957 and
$422,635,976, respectively. Purchases and sales of U.S. government
obligations aggregated $228,825,583 and $253,703,214, 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 six
months ended January 31, 2000, the fund did not repurchase any shares. As
of January 31, 2000, 511,000 shares have been repurchased since the
inception of the program.
Trustees approve investment policy changes for Putnam Premier Income Trust
At their February 4, 2000, meeting, the Trustees of the Putnam Funds approved
changes in the investment policies of Putnam Premier Income Trust and four
other funds that also invest in the U.S. government/investment-grade,
high-yield, and international fixed-income sectors of the securities markets.
The changes, proposed by Putnam Management, were made to standardize the ways
the three investment sectors are defined and to provide greater clarity and
consistency among the funds as to minimum and maximum investments in each
sector, and to establish consistent limits on lower-rated securities that may
be purchased by both the high-yield and international sectors.
The changes will provide portfolio managers somewhat greater flexibility,
enhancing their ability to compete in the multi-sector universe, which has
evolved over recent years. However, Putnam Management does not expect that the
proposed changes will significantly change the way the funds are managed.
Sector definitions clarified and standardized. To eliminate ambiguity and
inconsistency across funds, the following sector definitions were adopted for
each of the five funds:
* The U.S. investment-grade sector includes any security issued by an entity
domiciled or with its principal operations in the United States and at least
investment-grade in quality.
* The high-yield sector includes any security issued by an entity domiciled or
with its principal operations in the United States and is below
investment-grade in quality.
* The international sector includes any security issued by an entity domiciled
or with its principal operations outside the United States.
The revised investment policies also delete an expectation that the
international sector will primarily be invested in securities of
industrialized Western Europe (including the Scandinavian countries),
Canada, Japan, Australia, and New Zealand. This change will increase the
funds' flexibility to invest in nonindustrialized countries, including
emerging markets.
Uniform limit established on lower-rated securities. The new uniform policy for
all five funds limits securities below investment grade quality to 70% of fund
assets, provided that no more than 5% of assets be invested in securities below
CCC in quality. Putnam Premier Income Trust and two other Putnam closed-end
funds had limited securities below investment grade in quality to 65% of fund
assets. The increased limit will enhance the competitiveness of the fund.
The change also eliminates a policy of the fund that prohibits it from
investing more than 20% of assets in foreign securities rated below investment
grade. This restriction could potentially restrict the fund's ability to take
advantage of attractive foreign fixed-income markets, including high-yield
corporate securities and emerging markets. Moreover, the fund will be subject
to an overall 70% restriction on lower-rated securities.
Consistent minimum and maximum investment limits adopted. The required 20%
minimum investment in U.S. government securities was lowered to 15%.
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
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
David Waldman
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.
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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
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