<PAGE>
Table of Contents
Financial statements (Strategist Income Fund)..................1
Notes to financial statements (Strategist Income Fund).........4
Financial statements (Government Income Portfolio).............9
Notes to Financial statements (Government Income Portfolio)...12
Investments in securities (Government Income Portfolio).......16
Financial statements (Quality Income Portfolio)...............22
Notes to Financial statements (Quality Income Portfolio)......25
Investments in securities (Quality Income Portfolio)..........30
Financial statements (High Yield Portfolio)...................41
Notes to Financial statements (High Yield Portfolio)..........44
Investments in securities (High Yield Portfolio)..............49
<PAGE>
Financial statements
Statements of assets and liabilities
Strategist Income Fund, Inc.
Nov. 30, 1996 (Unaudited)
Strategist Strategist Strategist
Government Quality High
Income Fund Income Fund Yield Fund
Assets
Investment in corresponding Portfolio (Note 1)$539,066 $557,212 $564,476
Expense receivable from AEFC 60 52
355
Organizational costs (Note 1) 17,993 17,993
17,995
- --------------------------------------------------------------------------------
Total assets 557,119 575,257 582,826
- --------------------------------------------------------------------------------
Liabilities
Dividends payable to shareholders 300 450 445
Accrued distribution fee 7 7 7
Payable to advisor 19,552 18,239 18,239
Other accrued expenses 8,988 13,524 28,373
- --------------------------------------------------------------------------------
Total liabilities 28,847 32,220 47,064
- --------------------------------------------------------------------------------
Net assets applicable to outstanding
capital stock $528,272 $543,037 $535,762
- --------------------------------------------------------------------------------
Represented by
Capital stock -- authorized 3,000,000,000 shares
per Fund of $.01 par value: outstanding
104,908; 57,345 and 122,308 shares 1,049 573 1,223
Additional paid-in-capital 512,430 510,915 524,007
Undistributed net investment income 2,378 4,598 779
Accumulated net realized loss (Note 1) (3,709) (1,491) (3,427)
Unrealized appreciation of investments 16,124 28,442 13,180
- --------------------------------------------------------------------------------
Total -- representing net assets applicable to
outstanding capital stock $528,272 $543,037 $535,762
- --------------------------------------------------------------------------------
Net asset value per share of outstanding
capital stock $5.04 $9.47 $ 4.38
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statements of operations
For the period from June 10, 1996 (commencement of operations)
to Nov. 30, 1996 (Unaudited)
Strategist Strategist Strategist
Government Quality High
Income Fund Income Fund Yield Fund
Investment income
Income:
Interest $16,201 $14,900 $1,774
Dividends -- 60 18,986
- --------------------------------------------------------------------------------
Total income 16,201 14,960 20,760
- --------------------------------------------------------------------------------
Expenses (Note 2)
Distribution fee 508 512 510
Transfer agency fee 25 29 31
Administrative services fee 102 102 102
Postage 1,654 2,614 5,877
Registration fees 4,906 5,621 13,717
Reports to shareholders 1,252 1,408 3,165
Audit fees 3,459 4,577 4,778
Administrative 55 27 146
Other 1,239 2,848 4,061
- --------------------------------------------------------------------------------
Total feeder expenses 13,200 17,738 32,387
Expenses allocated from corresponding Portfolio 1,087 1,086 1,207
- --------------------------------------------------------------------------------
Total expenses 14,287 18,824 33,594
Less expenses reimbursed by AEFC (12,043) (16,552) (31,143)
- --------------------------------------------------------------------------------
Total net expenses 2,244 2,272 2,451
- --------------------------------------------------------------------------------
Investment income -- net 13,957 12,688 18,309
- --------------------------------------------------------------------------------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security and
foreign currency transactions 2,226 2,070 (3,427)
Net realized gain on option contracts written 3,709 370 --
Net realized loss on futures contracts (9,644) (3,931) --
- --------------------------------------------------------------------------------
Net realized loss on investments (3,709) (1,491) (3,427)
Net change in unrealized appreciation or
depreciation 16,124 28,442 13,180
- --------------------------------------------------------------------------------
Net gain on investments 12,415 26,951 9,753
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
operation $26,372 $39,639 $28,062
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Financial statements
Statements of changes in net assets
For the period from June 10, 1996 (commencement of operations)
to Nov. 30, 1996 (Unaudited)
Strategist Strategist Strategist
Government Quality High
Income Fund Income Fund Yield Fund
Operations and distributions
Investment income -- net $13,957 $ 12,688 $18,309
Net loss on investments (3,709) (1,491) (3,427)
Net change in unrealized appreciation
or depreciation 16,124 28,442 13,180
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 26,372 39,639 28,062
- --------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (11,579) (8,090) (17,530)
- --------------------------------------------------------------------------------
Capital share transactions (Note 3)
Proceeds from sales 462,200 476,494 478,145
Reinvestment of distributions at net asset
value 11,279 7,624 17,085
Payment for redemptions -- (2,630) --
- --------------------------------------------------------------------------------
Increase in net assets from capital share
transactions 473,479 481,488 495,230
- --------------------------------------------------------------------------------
Total increase in net assets 488,272 513,037 505,762
Net assets at beginning of period (Note 1) 40,000 30,000 30,000
- --------------------------------------------------------------------------------
Net assets at end of period (including
undistributed net investment income
of $2,378, $4,598, and $779) $528,272 $543,037 $535,762
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Notes to financial statements
Strategist Income Fund, Inc.
(Unaudited as to Nov. 30, 1996)
_______________________________________________________________________
1. Summary of significant accounting policies
Strategist Government Income Fund (Government Income Fund), Strategist Quality
Income Fund (Quality Income Fund), and Strategist High Yield Fund (High Yield
Fund) are series of capital stock within Strategist Income Fund, Inc. Each Fund
is registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. On April 15, 1996, American
Express Financial Corporation (AEFC) invested $40,000 in Government Income Fund,
$30,000 in Quality Income Fund, and $30,000 in High Yield Fund which represented
8,147 shares for Strategist Government Income Fund, 3,352 shares for Strategist
Quality Income Fund, and 6,961 shares for Strategist High Yield Fund. Operations
did not formally commence until June 10, 1996.
Investments in Portfolios
Each of the Funds seeks to achieve its investment objectives by investing all of
its net investable assets in a corresponding series (the Portfolio) of Income
Trust (the Trust).
Government Income Fund invests all of its assets in the Government Income
Portfolio,an open-end investment company that has the same objectives as the
Fund. Government Income Portfolio invests primarily in U.S. government and
government agency securities.
Quality Income Fund invests all of its assets in the Quality Income Portfolio,
an open-end investment company that has the same objectives as the Fund. Quality
Income Portfolio invests primarily in investment-grade bonds.
High Yield Fund invests all of its assets in the High Yield Portfolio, an
open-end investment company that has the same objectives as the Fund. High Yield
Portfolio invests primarily in long-term corporate bonds in the lower ranking
categories, commonly known as junk bonds.
Each Fund records daily its share of the corresponding Portfolio's income,
expenses and realized and unrealized gains and losses. The financial statements
of the Portfolios are included elsewhere in this report and should be read in
conjunction with the Funds' financial statements. Each Fund records its
investment in the corresponding Portfolio at value that is equal to the Fund's
proportionate ownership interest in the net assets of the Portfolio. As of Nov.
30, 1996, the percentages of the corresponding Portfolio owned by Government
Income Fund, Quality Income Fund, and High Yield Fund were 0.03%, 0.03%, and
0.02%, respectively. Valuation of securities held by the Portfolios is discussed
in Note 1 of the Portfolios' Notes to financial statements.
Organizational costs
Each Fund incurred organizational expenses in connection with the start-up and
initial registration of the Fund. These costs will be amortized over 60 months
on a straight-line basis beginning with the commencement of operations. If any
or all of the shares held by AEFC representing initial capital of the Fund are
redeemed during the amortization period, the redemption proceeds will be reduced
by the pro rata portion of the unamortized organizational cost balance.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Federal taxes
Since each Fund's policy is to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to the shareholders, no provision for income or excise taxes is
required.
Net investment income (loss) and net realized gains (losses) allocated from the
Portfolios may differ for financial statement and tax purposes primarily because
of the deferral of losses on certain futures contracts, the recognition of
certain foreign currency gains (losses) as ordinary income (loss) for tax
purposes, and losses deferred due to "wash sale" transactions. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gains (losses) were recorded by the Funds.
Dividends to shareholders
Dividends from net investment income, declared daily and paid monthly for
Government Income Fund, Quality Income Fund, and High Yield Fund, are reinvested
in additional shares of the Funds at net asset value or payable in cash. Capital
gains, when available, are distributed along with the last income dividend of
the calendar year.
Other
At Nov. 30, 1996, AEFC owned 104,463 shares for Government Income Fund,
56,915 shares for Quality Income Fund, and 120,418 shares for High
Yield Fund.
_______________________________________________________________________
2. Expenses and sales charges
In addition to the expenses allocated from the Portfolio, each Fund accrues its
own expenses as follows:
Each Fund entered into agreements with AEFC for providing administrative
services and serving as transfer agent. Under its Administrative Services
Agreement, each Fund pays AEFC for administration and accounting services at a
percentage of the Fund's average daily net assets in reducing percentages from
0.05% to 0.025% annually. Under this agreement, each Fund also pays taxes; audit
and certain legal fees; registration fees for shares; office expenses;
consultants' fees; compensation of board members; corporate filing fees;
organizational expenses; and any other expenses properly payable by the Funds
approved by the board.
Under a separate Transfer Agency Agreement, AEFC maintains shareholder accounts
and records. Each Fund pays AEFC an annual fee per shareholder account of $25.
Under a Plan and Agreement of Distribution, each Fund pays American Express
Service Corporation (the Distributor) a distribution fee at an annual rate of
0.25% of the Fund's average daily net assets for distribution related services.
AEFC and the Distributor have agreed to waive certain fees and to absorb certain
other of Fund expenses until Nov. 30, 1997. Under this agreement, each Fund's
total expenses will not exceed 1.10% (1.20% for Strategist High Yield Fund) of
each of the Fund's average daily net assets.
A redemption fee of 0.5% is applied and retained by High Yield Fund if shares
are redeemed or exchanged within 180 days of purchase.
_______________________________________________________________________
3. Capital share transactions
Transactions in shares of capital stock for the period indicated are as follows:
Period ended November 30, 1996
Government Quality High
Income Income Yield
Fund* Fund* Fund*
- -----------------------------------------------------------------------
Sold 94,508 53,493 111,447
Reinvested Dividends 2,253 800 3,900
Redemptions -- (300) --
- -----------------------------------------------------------------------
Net increase 96,761 53,993 115,347
- ----------------------------------------------------------------------
*Inception date was June 10, 1996.
- -----------------------------------------------------------------------
4. Financial highlights
The tables below show certain important information for evaluating each Fund's
results.
Period ended Nov. 30, 1996
Government Quality High
Income Income Yield
Fund* Fund* Fund*
- ------------------------------------------------------------------------
Per share income and capital
changes**
Net asset value, beginning of period $4.91 $8.95 $4.31
Income from investment operations:
Net investment income (loss) 0.15 0.27 0.18
Net gains (losses) 0.11 0.44 0.07
(both realized and unrealized)
Total from investment operations 0.26 0.71 0.25
Less distributions:
Distributions from net investment (0.13) (0.19) (0.18)
income
Net asset value, end of period $5.04 $9.47 $4.38
Ratios/supplemental data
Net assets, end of period (in $528 $543 $536
thousands)
Ratio of expenses to average daily 1.10%+ 1.10%+ 1.20%+
net assets++
Ratio of net income to average daily 6.84%+ 6.17%+ 8.95%+
net assets
Total return 5.7% 7.8% 5.5%
Portfolio turnover rate (excluding 60% 14% 47%
short-term securities) for the
underlying Portfolio
Average brokerage commission rate
for the underlying Portfolio# -- -- $0.0633
- ------------------------------------------------------------------------
*Inception date was June 10, 1996
**For a share outstanding throughout the period. Rounded
to the nearest cent.
+Adjusted to an annual basis.
++The Advisor and Distributor voluntarily limited total
operating expenses to 1.10% (1.20% for High Yield Fund)
of average daily net assets. Without this agreement,
the ratio of expenses to average daily net assets would have been
6.47% for Government Income Fund, 9.15% for Quality Income Fund
and 16.43% for High Yield Fund.
#The rate is calculated by dividing the total brokerage
commissions paid on applicable purchases and sales of portfolio securities
for the period by the total number of related shares purchased and sold.
<PAGE>
<PAGE>
Statement of assets and liabilities
Government Income Portfolio
Nov. 30, 1996
Assets
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $1,814,207,684) $1,868,737,176
Dividends and accrued interest receivable 15,994,484
Receivable for investment securities sold 917,314
U.S. government securities held as collateral (Note 4) 20,522,098
---------------------
Total assets 1,906,171,072
---------------------
Liabilities
Disbursements in excess of cash on demand deposit 8,070,547
Payable for investment securities purchased 22,905,816
Payable upon return of securities loaned (Note 4) 20,522,098
Accrued investment management services fee 51,553
Other accrued expenses 38,782
Open option contracts written, at value
(premium received $2,362,367)(Note 5) 2,566,445
---------------------
Total liabilities 54,155,241
---------------------
=====================
Net assets $1,852,015,831
=====================
See accompany notes to financial statements.
<PAGE>
Statement of Operations
Government Income Portfolio
For the period from May 13, 1996 (commencement of operations)
to Nov. 30, 1996
Investment income
(Unaudited)
Income:
Interest $61,724,838
-
Expenses (Note 2):
Investment management services fee 4,254,050
Compensation of board members 7,218
Custodian fees 77,682
Audit fees 6,941
Administrative 1,858
Other 2,934
---------------------
Total expenses 4,350,683
Earning credits on cash balances (Note 2 ) (930)
Total net expenses 4,349,753
---------------------
Investment income -- net 57,375,085
---------------------
Realized and unrealized loss -- net
Net realized gain on security transactions (Note 3) (260,862)
Net realized loss on closed futures contracts (31,389,709)
Net realized gain on closed ,exercised or expired 10,212,947
---------------------
written contracts (Note 5) (21,437,624)
Net realized loss on investments
Net change in unrealized appreciation or
depreciation of investments 60,825,122
Net gain on investments 39,387,498
=====================
Net increase in net assets resulting from operations $96,762,583
=====================
See accompanying notes to financial statements.
<PAGE>
Statement of changes in net assets
Government Income Portfolio
For the period from May 13, 1996 to Nov. 30, 1996
Operations and distributions
(Unaudited)
Investment income - net $57,375,085
Net realized gain on investments (21,437,624)
Net change in unrealized appreciation or
depreciation of investments 60,825,122
------------------------
Net increase in net assets resulting from operations 96,762,583
Net contributions 1,755,213,248
------------------------
Total increase in net assets 1,851,975,831
Net assets at beginning of period (Note 1) 40,000
========================
Net assets at end of period $1,852,015,831
========================
See accompanying notes to financial statements.
<PAGE>
Notes to financial statements
Government Income Portfolio
(Unaudited as to Nov. 30, 1996)
- ------------------------------------------------------------------
1. Summary of significant accounting policies
Government Income Portfolio (the Portfolio) is a series of Income Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company. Government Income
Portfolio seeks to provide a high level of current income and safety of
principal consistent with investment in U.S. government and government agency
securities. The Declaration of Trust permits the Trustees to issue
non-transferable interests in the Portfolio. On April 15, 1996, AEFC contributed
$40,000 to the Portfolio. Operations did not formally commence until June 10,
1996, at which time an existing fund transferred its assets to the Portfolio in
return for an ownership percentage of the Portfolio.
Significant accounting polices followed by the Portfolio are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price; securities for which market quotations
are not readily available are valued at fair value according to methods selected
in good faith by the board. Determination of fair value involves, among other
things, reference to market indexes, matrixes and data from independent brokers.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
<PAGE>
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Portfolio may buy or
write options traded on any U.S. or foreign exchange or in the over-the-counter
market where the completion of the obligation is dependent upon the credit
standing of the other party. The Portfolio also may buy or sell put and call
options and write covered call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a written
call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Portfolio may buy and sell financial futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy or write put and call options on
these futures contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Interest income, including level-yield amortization of premium and
discount, is accrued daily.
___________________________________________________________________
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with American Express Financial Corporation (AEFC) for
managing its portfolio. Under this agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a percentage of the
Portfolio's average daily net assets in reducing percentages from 0.52% to
0.395% annually.
Under the agreement, the Trust also pays taxes and nonadvisory expenses, which
include custodian fees to be paid to an affiliate of AEFC; audit and certain
legal fees; fidelity bond premiums; registration fees for units; office
expenses; consultants' fees; compensation of trustees; corporate filing fees;
expenses incurred in connection with lending securities of the Portfolio: and
any other expenses properly payable by the Trust or Portfolio, approved by the
board.
For the period from June 10, 1996 to Nov. 30, 1996, the Portfolio's custodian
fees were reduced by $930 as a result of earnings credits from overnight cash
balances.
Pursuant to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the units of the Trust.
- -------------------------------------------------------------------
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,162,604,762 and $1,050,966,073 respectively, for the
period from June 10, 1996 to Nov. 30, 1996. For the same period, the portfolio
turnover rate was 60%. Realized gains and losses are determined on an identified
cost basis.
- -------------------------------------------------------------------
4. Interest rate futures contracts
At Nov. 30, 1996, investments in securities included securities valued at
$39,674,340 that were pledged as collateral to cover initial margin deposits on
2,566 open purchase contracts and 4,200 open sale contracts. The market value
of the open purchase contracts at Nov. 30, 1996 was $277,756,252 with a net
unrealized gain of $6,798,668. The market value of the open sale contracts at
Nov. 30, 1996 was $476,310,469 with a net unrealized loss of $6,326,156. See
summary of significant accounting policies.
- --------------------------------------------------------------------
5. Lending of portfolio securities
At Nov. 30, 1996, securities valued at $20,659,600 were on loan to brokers. For
collateral, the Portfolio received U.S. government securities valued at
$20,522,098. Income from securities lending amounted to $35,042 for the period
ended Nov. 30, 1996. The risks to the Portfolio of securities lending are that
the borrower may not provide additional collateral when required or return the
securities when due.
- ---------------------------------------------------------------------
6. Options contracts written
The number of contracts and premium amounts associated with options contracts
written (see summary of significant accounting policies) is as follows:
<TABLE>
Period ended Nov. 30, 1996
- ----------------------------------------------------------------------------------------------------
Puts Calls MBS Puts andCalls
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Contracts Premium Contracts Premium Contracts Premiums
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 10, 1996 -- $ -- 4,096 $ 5,250,764 16,575 $1,003,390
Opened 3,993 4,012,437 4,981 5,805,196 46,325 3,682,216
Closed (2,484) (2,627,008) (3,729) (4,314,033) (44,200) (2,962,367)
Exercised -- -- (4,413) (5,535,992) (3,400) (154,062)
Expired (433) (408,774) (765) (840,223) (7,650) (549,177)
- ---------------------------------------------------------------------------------------------------------------------
Balance Nov. 30, 1996 1,076 $976,655 170 $ 365,712 7,650 $1,020,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
Investments in securities
Government Income Portfolio (Percentages represent value of
Nov. 30, 1996 (Unaudited) investments compared to net assets)
- --------------------------------------------------------------------------------
Bonds (100.3%)
- --------------------------------------------------------------------------------
<CAPTION>
Issuer Coupon Maturity Principal Value (a)
rate year amount
- -----------------------------------------------------------------------------------------------------------------
U.S. government obligations (25.2%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.00% 1998 $ 8,000,000 $ 7,959,280
5.63 1997 13,000,000 13,018,980
5.88 1998 18,750,000 18,850,470
6.00 1997-99 57,000,000 57,417,110
6.25 2001 2,100,000 2,136,183
6.50 2005-06 45,850,000 (e,f) 47,303,693
6.75 2000 45,000,000 (e,f) 46,386,900
6.88 1999-206 81,800,000 85,426,176
7.00 2006 5,000,000 5,330,850
7.75 2000 45,000,000 47,617,650
8.125 2019 38,500,000 45,969,770
Collateralized Mtge Securities Corp 14.18 2020 3,750,000 4,153,125
Resolution Funding Corp 8.125 2019 8,000,000 9,439,360
Zero Coupon 6.06 2001 20,863,000 (b) 16,445,260
6.36 2003 16,000,000 (b) 10,624,320
6.39 2007 40,153,000 (b) 20,914,493
7.08 2007 25,120,000 (b) 12,866,966
7.18 2009 16,000,000 (b) 7,032,960
7.87 2018-19 24,000,000 (b) 5,446,485
8.04 2012 8,400,000 (b) 2,960,832
------------------
Total 467,300,863
- -----------------------------------------------------------------------------------------------------------------
Mortgage-backed securities (75.1%)
Federal Home Loan Mortgage Corporation (21.1%)
6.00 2026 21,000,000 19,977,930
6.50 2009 8,905,823 8,888,100
6.50 2003 429,261 430,737
6.75 2006 46,535,000 48,047,387
7.00 2010 21,172,130 21,415,821
7.50 2024 8,589,114 8,739,939
8.00 2023-25 74,959,146 77,484,667
8.50 2025 17,364,506 18,136,185
8.63 2023 3,456,299 2,892,542
9.00 2025-26 51,300,042 54,326,207
Collateralized Mtge Obligation 4.00 2023 13,629,045 12,756,786
6.75 2022 22,000,000 21,912,220
8.25 2024 30,704,830 32,487,245
8.50 2022 9,150,000 10,120,266
Interest Only 10.00 2020 342,713 (c) 101,704
Inverse Floater 7.10 2023 3,956,343 (d) 3,176,825
7.31 2024 11,609,678 (d) 9,998,603
7.77 2023 10,514,507 (d) 7,982,088
9.36 2022 5,798,581 (d) 5,459,654
9.42 2022 21,356,119 (d) 19,554,944
14.91 2021 6,545,617 (d) 7,148,076
Total
------------------
391,037,926
- -----------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association (53.1%)
3.00 2019 11,250,000 9,980,437
4.50 2010 8,204,208 7,053,322
5.88 2006 29,925,000 29,107,150
6.00 2008-23 41,724,034 40,551,898
6.50 2023-25 134,401,247 (e,f) 131,189,626
7.00 2003-25 129,750,210 129,497,443
7.50 2025-26 49,866,827 50,505,630
8.00 2021-26 50,715,980 52,236,275
8.50 2007-26 333,063,791 348,525,464
9.00 2023-26 78,397,309 83,150,721
Collateralized Mtge Obligation 4.70 2022 11,156,552 10,978,270
5.00 2024 6,663,083 6,008,568
5.50 2008 12,039,867 11,695,046
6.00 2008 7,628,038 7,578,837
6.50 2017 1,670,718 1,670,868
7.00 2012 7,178,509 7,249,923
Interest Only 9.50 2018-22 17,679,360 (c) 5,428,240
10.00 2018-22 59,260,990 (c) 18,432,641
10.50 2021 14,561,111 (c) 4,616,182
Inverse Floater 7.26 2023 6,052,314 (d) 5,150,701
8.59 2024 5,174,338 (d) 4,336,819
Principal Only 7.59 2021 804,373 (g) 596,471
8.31 2020 12,044,539 (g) 11,247,087
10.52 2023 8,265,432 (g) 7,251,098
Total
------------------
984,038,717
- -----------------------------------------------------------------------------------------------------------------
Government National Mortgage Association (0.9%)
7.50 2025 15,100,344 15,360,070
11.00 2019 378,317 424,025
------------------
Total 15,784,095
- -----------------------------------------------------------------------------------------------------------------
Total bonds
(Cost: $1,803,632,109) 1,858,161,601
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Short-term securities (0.6%)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Issuer Annualized Amount Value (a)
yield on payable at
date of maturity
purchase
- -----------------------------------------------------------------------------------------------------------------
U.S. government agency (0.4%)
Federal Home Loan Mtge Corp Disc Nts
<S> <C> <C> <C>
12-12-96 5.23% $1,400,000 $ 1,397,564
12-20-96 5.22 5,000,000 4,985,556
Total 6,383,120
- -----------------------------------------------------------------------------------------------------------------
Letter of credit (0.1%)
Federal Home Loan Bank
12-19-96 5.27 2,600,000 2,592,796
- -----------------------------------------------------------------------------------------------------------------
Commercial paper (0.1%)
Fleet Funding
12-10-96 5.29 1,602,000 1,599,659
- ------------------------------------------------------------------------------------------------------------------
Total short-term securities
(Cost: $10,575,575) $10,575,575
- -----------------------------------------------------------------------------------------------------------------
Total investment in securities
(Cost: $1,814,207,684) (h) $1,868,737,176
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(c) Interest-only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
interest-only is extremely sensitive to the rate of principal payments on the
underlying mortgage assets. A rapid (slow) rate of principal repayments may have
an adverse (positive) effect on yield to maturity. The principal amount shown is
the notional amount of the underlying mortgages.
(d) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a decline
(increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate
disclosed is the rate in effect on Nov. 30, 1996.
(e) Partially pledged as initial deposit on the following open interest rate
futures contracts (see Note 4 to the financial statements):
Type of security Notional amount
- --------------------------------------------------------------------------------
Purchase contracts
U.S. Treasury Note Dec. 96 5-year notes $195,800,000
U.S. Treasury Note March 97 5-year notes 8,500,000
U.S. Treasury Note March 97 2-year notes 26,800,000
U.S. Treasury Note Dec. 96 10-year notes 25,500,000
Sale contracts
U.S. Treasury Note March 97 10-year notes 221,000,000
U.S. Treasury Note Dec. 96 10-year notes 18,700,000
U.S. Treasury Bonds March 97 164,800,000
U.S. Treasury Bonds Dec. 96 15,500,000
(f) At Nov. 30, 1996, securities valued at $39,674,340 were held to cover open
call options written as follows:
Issuer Number of Exercise Expiration Value (a)
contracts price date
U.S. Treasury Bonds March 97 170 $112 Feb. 1997 $ 786,250
Mortgage-Backed Security
(MBS) Spread 2,550 100 Feb. 1997 414,380
Mortgage-Backed Security
(MBS) Spread 5,100 94 Jan. 1997 1,099,690
At Nov. 30, 1996, cash or short-term securities were designated to cover open
put options written as follows:
Issuer
Number of Exercise Expiration Value (a)
contracts price date
U.S. Treasury Bonds March 97 212 $112 Feb. 1997 $ 172,250
U.S. Treasury Bonds March 97 226 104 Feb. 1997 14,125
U.S. Treasury Bonds March 97 638 106 Feb. 1997 79,750
(g) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the underlying
mortgage assets. A slow (rapid) rate of principal repayments may have an adverse
(positive) effect on yield to maturity. Interest rate disclosed represents
current yield based upon the current cost basis and estimated timing of the
future cash flows.
(h) At Nov. 30, 1996, the cost of securities for federal income tax purposes was
approximately $1,814,208,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on the cost was:
Unrealized appreciation $60,195,000
Unrealized depreciation (5,666,000)
- --------------------------------------------------------------------------------
Net unrealized appreciation $54,529,000
- --------------------------------------------------------------------------------
<PAGE>
Statement of assets and liabilities
Quality Income Portfolio
Nov. 30, 1996
Assets
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $1,644,334,576) $1,734,414,397
Cash in bank on demand deposit 470,275
Dividends and accrued interest receivable 24,485,658
Receivable for investment securities sold 1,790,583
U.S. government securities held as collateral (Note 4) 48,125,347
---------------------
Total assets 1,809,286,260
---------------------
Liabilities
Payable for investment securities purchased 21,861,510
Payable upon return of securities loaned (Note 4) 50,075,347
---------------------
Accrued investment management services fee 48,239
Other accrued expenses 46,869
---------------------
Total liabilities 72,031,965
---------------------
=====================
Net assets $1,737,254,295
=====================
See accompany notes to financial statements.
<PAGE>
Statement of operations
Quality Income Portfolio
For the period from June 10, 1996
(commencement of operations ) to Nov. 30, 1996
Investment income
(Unaudited)
Income:
Interest $ 58,623,259
Dividends 195,143
---------------------
Total income 58,818,402
---------------------
Expenses (Note 2):
Investment management services fee 4,177,373
Compensation of board members 7,121
Custodian fees 27,779
Audit fees 14,750
Administrative 2,104
---------------------
Total expenses 4,229,127
Earnings credits on cash balances (Note 2) (1,894)
Total net expenses 4,227,233
---------------------
Investment income -- net 54,591,169
---------------------
Realized and unrealized gain (loss) -- net
Net realized gain on security and foreign curency
transactions (including gain of $965,427 from foreign currency
transactions) (Note 3) 6,704,004
Net realized loss on financial futures (11,406,331)
Net realized gain on option contracts written (Note 6) 1,166,158
---------------------
Net realized loss on investments and foreign currencies (3,536,169)
Net change in unrealized appreciation or
depreciation of investments and on translation of assets 81,176,272
---------------------
and liabilities in foreign currencies
Net gain on investments and foreign currencies 77,640,103
=====================
Net increase in net assets resulting from operations $132,231,272
=====================
See accompanying notes to financial statements.
<PAGE>
Statement of changes in net assets
Quality Income Portfolio
For the period from June 10, 1996
(commencement of operations) to Nov. 30, 1996
Operations and distributions
(Unaudited)
Investment income - net $ 54,591,169
Net realized loss on investments and foreign currencies (3,536,169)
Net change in unrealized appreciation or depreciation of
investments and on translation of assets and liabilities
in foreign currencies 81,176,272
--------------------
Net increase in net assets resulting from operations 132,231,272
Net contributions 1,604,993,023
--------------------
Total increase in net assets 1,737,224,295
Net assets at beginning of period (Note 1) 30,000
====================
Net assets at end of period $1,737,254,295
====================
See accompanying notes to financial statements.
<PAGE>
Notes to financial statements
Quality Income Portfolio
(Unaudited as to Nov. 30, 1996)
______________________________________________________________________
1. Summary of significant accounting policies
The Quality Income Portfolio (the Portfolio) is a series of Income Trust (the
Trust) and is registered under the Investment Company Act of 1940 (as amended)
as a diversified, open-end management investment company. Quality Income
Portfolio invests primarily in investment-grade bonds. The Declaration of Trust
permits the Trustees to issue non-transferable interests in the Portfolio. On
April 15, 1996, AEFC contributed $30,000 to the Portfolio. Operations did not
formally commence until June 10, 1996, at which time, an existing fund
transferred its assets to the Portfolio in return for an ownership percentage of
the Portfolio.
Significant accounting polices followed by the Portfolio are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price; securities for which market quotations
are not readily available are valued at fair value according to methods selected
in good faith by the board. Determination of fair value involves, among other
things, reference to market indexes, matrixes and data from independent brokers.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
<PAGE>
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Portfolio may buy or
write options traded on any U.S. or foreign exchange or in the over-the-counter
market where the completion of the obligation is dependent upon the credit
standing of the other party. The Portfolio also may buy or sell put and call
options and write covered call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a written
call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Portfolio may buy and sell financial futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy or write put and call options on
these futures contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Foreign currency translations
and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions
may arise from sales of foreign currency, closed forward contracts, exchange
gains or losses realized between the trade date and settlement dates on
securities transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contract.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date. For U.S. dollar
denominated bonds, interest income includes level-yield amortization of premium
and discount. For foreign bonds, except for original issue discount, the
Portfolio does not amortize premium and discount. Interest income, including
level-yield amortization of premium and discount, is accrued daily.
_______________________________________________________________________
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with American Express Financial Corporation (AEFC) for
managing its portfolio. Under this agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a percentage of the
Portfolio's average daily net assets in reducing percentages from 0.52% to
0.395% annually.
Under the agreement, the Trust also pays taxes and nonadvisory expenses, which
include custodian fees to be paid to an affiliate of AEFC; audit and certain
legal fees; fidelity bond premiums; registration fees for units; office
expenses; consultants' fees; compensation of trustees; corporate filing fees;
expenses incurred in connection with lending securities of the Portfolio: and
any other expenses properly payable by the Trust or Portfolio, approved by the
board.
For the period from June 10, 1996 to Nov. 30, 1996, the Portfolio's custodian
fees were reduced by $1,894 as a result of earnings credits from overnight cash
balances.
Pursuant to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the units of the Trust.
- -----------------------------------------------------------------------
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $186,687,329 and $218,562,152, respectively, for the
period from June 10, 1996 to Nov. 30, 1996. For the same period, the portfolio
turnover rate was 14%. Realized gains and losses are determined on an identified
cost basis.
- -----------------------------------------------------------------------
4. Lending of portfolio securities
At Nov. 30, 1996, securities valued at $47,471,135 were on loan to brokers. For
collateral, the Portfolio received $1,950,000 in cash and U.S. government
securities valued at $48,125,347. Income from securities lending amounted to
$55,666 for the period from June 10, 1996 to Nov. 30, 1996. The risks to the
Portfolio of securities lending are that the borrower may not provide additional
collateral when required or return the securities when due.
- -----------------------------------------------------------------------
5. Illiquid securities
Investments in securities include issues that are illiquid. The Portfolio
currently limits investments in illiquid securities to 10% of the net assets, at
market value, at the time of purchase. The aggregate value of such securities at
Nov. 30, 1996 was $6,268,389 representing 0.4% of the net assets. Pursuant to
guidelines adopted by the board, certain unregistered securities are determined
to be liquid and are not included within the 10% limitation specified above.
- -----------------------------------------------------------------------
6. Option contracts written
The number of contracts and premium amounts associated with covered call option
contracts written (see Summary of significant accounting policies) is as
follows:
Period ended Nov. 30, 1996
Call Puts
-------------------------------------------------
Contracts Premium Contracts Premium
-------------------------------------------------
Balance May 31, 1996 -- $ -- -- $ --
Opened 500 876,408 400 451,126
Closed -- -- (400) (451,126)
Exercised (311) (655,867) -- --
Expired (189) (220,541) -- --
--------------------------------------------------------------------------
Balance Nov. 30, 1996 -- $ -- -- $ --
- -----------------------------------------------------------------------
7. Interest rate futures contracts
At Nov. 30, 1996, investments in securities included securities valued at
$7,156,030 that were pledged as collateral to cover initial margin deposits on
1,300 open sales contracts. The market value of the open contracts at Nov. 30,
1996, was $150,637,500 with a net unrealized gain of $1,066,281.
See Summary of significant accounting policies.
<PAGE>
Investments in securities
<TABLE>
Quality Income Portfolio (Percentages represent value of
Nov. 30, 1996 (Unaudited) investments compared to net assets)
- -----------------------------------------------------------------------------------------------------------------------
Bonds (92.6%)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Issuer Coupon Maturity Principal Value (a)
rate year amount
- ------------------------------------------------------------------------------------------------------------------------
U.S. government obligations (34.0%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.875% 2004 $ 8,000,000 $ 7,959,760
6.875 1999 60,000,000 61,758,000
7.25 1996-2004 70,000,000 73,049,500
7.50 2001-2016 217,100,000 (b) 238,147,504
8.00 2021 15,000,000 17,780,100
8.625 1997 50,745,000 (l) 51,876,106
Resolution Funding Corp
Zero Coupon 7.61 2017 39,000,000 (c) 9,910,290
7.89 2016 35,900,000 (b,c) 9,977,687
7.98 2016 47,000,000 (b,c) 12,798,100
8.19 2014 48,000,000 (c) 15,481,920
8.27 2014 10,000,000 (c) 3,120,500
8.35 2006 48,000,000 (b,c) 26,819,040
8.94 2006 25,000,000 (c) 14,199,500
8.95 2006 68,000,000 (b,c) 36,831,520
Overseas Private Investment 6.99 2009 10,000,000 (i) 10,187,500
Total 589,897,027
- ------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities (12.6%)
Federal Home Loan Mtge Corp 7.50 2024 17,363,605 17,668,509
8.00 2016-2025 11,227,867 11,594,910
8.50 2017-2022 10,316,945 10,815,711
9.00 2020-2021 5,922,344 6,280,166
Collateralized Mtge Obligation 8.50 2019 2,971,133 2,987,652
Federal Housing Admin 7.43 2024 9,169,652 9,029,814
Federal Natl Mtge Assn 6.50 2023 12,419,180 12,147,448
8.00 2026 14,850,000 15,153,961
10.00 2002 133 139
Collateralized Mtge Obligation 8.00 2021 13,787,402 14,047,843
8.50 2019 1,448,659 1,597,713
Principal Only 9.50 2018 1,318,240 (e) 1,042,017
9.89 2020 2,441,223 (e) 2,085,223
Trust Series Z 6.00 2024 20,041,441 (d) 16,171,238
Govt Natl Mtge Assn 7.50 2026 20,500,000 20,816,725
8.00 2022-2026 43,265,072 44,753,215
8.50 2026 20,167,411 21,091,885
9.00 2024-2025 6,944,347 7,394,077
Collateralized Mtge Obligation Trust 7.75 2012 1,371,196 1,386,255
Prudential Bache
Collateralized Mtge Obligation 7.965 2019 3,599,707 3,729,022
Total 219,793,523
- ------------------------------------------------------------------------------------------------------------------------
Financial (9.2%)
Banks and savings & loans (3.6%)
BankAmerica
Sub Nts 7.50 2002 8,810,000 9,338,336
BankBoston Capital Trust 8.25 2026 5,000,000 (g) 5,158,600
Boatmen's Bancshares
Sub Nts 9.25 2001 8,950,000 10,087,097
First Bank System 6.875 2007 8,550,000 8,662,347
First Chicago
Sr Nts 9.00 1999 7,900,000 8,458,056
NCNB
Sub Nts 9.125 2001 10,000,000 11,170,800
Standard Credit Card 8.625 2002 10,000,000 10,033,400
Total 62,908,636
- ------------------------------------------------------------------------------------------------------------------------
Financial services (2.4%)
Aristar
Sr Deb 8.875 1998 10,520,000 10,971,729
BankAmerica 7.70 2026 5,000,000 (g) 4,965,000
Beneficial 9.125 1998 10,000,000 10,388,300
Greyhound Financial
Medium-term Nts 7.95 1999 9,600,000 10,026,240
Salomon 7.75 2000 5,000,000 5,199,300
Total 41,550,569
- ------------------------------------------------------------------------------------------------------------------------
Insurance (3.2%)
American United Life Insurance 7.75 2026 4,800,000 (j) 4,755,264
Arkwright Trust 9.625 2026 4,000,000 (g) 4,531,720
Berkley (WR) 8.70 2022 10,000,000 11,272,300
Conseco Finance Trust II 8.70 2026 6,600,000 6,837,270
Equitable Life Assurance 7.70 2015 5,000,000 (g) 5,146,450
Nationwide Trust 9.875 2025 11,500,000 (g) 13,016,390
SunAmerica 9.95 2012 8,000,000 9,714,480
Total 55,273,874
- ------------------------------------------------------------------------------------------------------------------------
Industrial (14.3%)
Automotive & related (2.6%)
Daimler-Benz North America
Medium-term Nts 7.375 2006 14,000,000 14,791,420
General Motors 8.875 2003 7,050,000 7,995,335
General Motors Acceptance 7.00 2000 14,300,000 14,646,203
Medium-term Nts 5.95 1998 8,000,000 8,012,720
Total 45,445,678
- ------------------------------------------------------------------------------------------------------------------------
Building materials & construction (0.6%)
Georgia-Pacific
Credit Sensitive Nt 9.85 1997 10,000,000 10,217,700
- ------------------------------------------------------------------------------------------------------------------------
Chemicals (0.7%)
Dow Chemical 8.85 2021 10,000,000 11,520,100
- ------------------------------------------------------------------------------------------------------------------------
Electronics (0.3%)
Harris 10.375 2018 3,900,000 4,361,604
- ------------------------------------------------------------------------------------------------------------------------
Energy (2.3%)
PDV America 7.875 2003 16,500,000 16,458,420
Texaco Capital
Gtd Deb 7.50 2043 12,000,000 12,445,800
USX 9.375 2022 9,200,000 10,884,520
Total 39,788,740
- ------------------------------------------------------------------------------------------------------------------------
Energy equipment & services (0.3%)
Foster Wheeler 6.75 2005 5,850,000 5,834,147
- ------------------------------------------------------------------------------------------------------------------------
Health care (1.6%)
Lilly (Eli) 6.77 2036 13,300,000 12,823,062
Schering-Plough
Zero Coupon 7.31 1996 15,000,000 (c,g) 15,000,000
Total 27,823,062
- ------------------------------------------------------------------------------------------------------------------------
Industrial equipment & services (1.8%)
Browning-Ferris Inds 9.25 2021 7,000,000 8,628,200
Case 7.25 2005 10,000,000 10,289,500
Deere & Co 8.95 2019 10,000,000 11,698,900
Total 30,616,600
- ------------------------------------------------------------------------------------------------------------------------
Media (1.7%)
Tele-communications 7.875 2013 13,300,000 12,221,636
Sr Deb 9.875 2022 5,000,000 5,381,600
Time Warner Entertainment 8.375 2033 12,000,000 (g) 12,470,280
Total 30,073,516
- ------------------------------------------------------------------------------------------------------------------------
Retail (2.4%)
American Stores 8.00 2026 10,000,000 10,615,300
Dayton Hudson 7.875 2023 18,850,000 18,673,187
Home Depot
Cv 3.25 2001 1,000,000 998,750
Wal-Mart Stores 7.00 2006 12,000,000 (g) 12,345,480
Total 42,632,717
- ------------------------------------------------------------------------------------------------------------------------
Transportation (0.6%)
Burlington Northern 7.00 2025 10,000,000 9,559,000
- ------------------------------------------------------------------------------------------------------------------------
Utilities (9.2%)
Electric (6.8%)
Arizona Public Service
1st Mtge 8.75 2024 5,000,000 5,611,800
Sale Lease-Backed Obligation 8.00 2015 9,000,000 9,525,330
Cajun Electric Power Cooperation
Mtge Trust 8.92 2019 4,960,000 5,481,742
Commonwealth Edison 6.50 2000 9,000,000 9,055,530
Long Island Lighting 9.625 2024 10,000,000 10,594,500
RGS Funding
Sale Lease-Backed Obligation 9.82 2022 9,939,934 12,412,592
Salton Sea
Sr Nts 7.84 2010 10,000,000 (g) 10,423,400
San Diego Gas & Electric
1st Mtge 9.625 2020 9,950,000 11,105,295
Southern California Edison
1st Mtge 8.875 2023 21,000,000 21,875,910
Texas Utilities Electric
1st Mtge 9.75 2021 13,000,000 15,202,590
Wisconsin Electric Power 6.875 2095 8,000,000 7,555,200
Total 118,843,889
- ------------------------------------------------------------------------------------------------------------------------
Telephone (2.4%)
BellSouth Telecommunications 7.00 2095 10,000,000 9,985,600
GTE 10.25 2020 6,050,000 6,993,135
New York Telephone 9.375 2031 7,000,000 8,030,120
Pacific Bell 8.50 2031 15,000,000 16,442,250
Total 41,451,105
- ------------------------------------------------------------------------------------------------------------------------
Foreign (12.7%)(h)
ABN Amro Bank
(U.S. Dollar) 7.75 2023 12,000,000 12,939,360
Alcan Aluminum
(U.S. Dollar) 8.875 2022 9,600,000 10,493,184
Bank of China
(U.S. Dollar) 8.25 2014 7,100,000 7,419,713
British Airport Authority Euro
(British Pound) 5.75 2006 1,500,000 2,588,132
Bundes Republic
(Deutsche Mark) 6.00 2016 10,000,000 6,208,130
(Deutsche Mark) 7.50 2004 14,000,000 10,213,853
City of Helsinki
(U.S. Dollar) Sr Nts 9.15 2006 1,500,000 (j) 1,513,125
Euratom Euro
(U.S. Dollar) 7.75 1997 6,100,000 6,115,250
Financiera Ener Nacional
(U.S. Dollar) 9.375 2006 11,800,000 (g) 12,463,750
Japan Finance
(U.S. Dollar) 9.25 1998 25,950,000 27,416,694
KFW Intl Finance
(U.S. Dollar)
Medium-term Nts 8.50 1999 10,000,000 10,745,900
Korea Electric Power
(U.S. Dollar) 7.75 2013 14,000,000 14,633,920
(U.S. Dollar) 8.00 2002 9,000,000 9,635,220
(U.S. Dollar) Zero Coupon 9.27 2016 35,000,000 (f) 6,858,250
Peoples Republic of China
(U.S. Dollar) 9.00 2096 10,000,000 11,081,700
Petronas
(U.S. Dollar) 7.75 2015 10,000,000 (g) 10,526,900
Republic of Austria Euro
(U.S. Dollar) 10.00 1998 5,000,000 5,306,250
Republic of Italy
(U.S. Dollar) 6.875 2023 23,200,000 22,792,840
Rodamco NV
(U.S. Dollar) 7.30 2005 10,000,000 10,407,800
State of Israel
(U.S. Dollar) 6.375 2005 10,800,000 10,472,436
Telekom Malaysia
(U.S. Dollar) 7.875 2025 10,000,000 (g) 10,511,000
Total 220,343,407
- -----------------------------------------------------------------------------------------------------------------------
Total bonds
(Cost: $1,518,343,525) 1,607,934,894
</TABLE>
- --------------------------------------------------------------------------------
Preferred stocks (0.7%)
- --------------------------------------------------------------------------------
Issuer Shares Value (a)
- --------------------------------------------------------------------------------
Salomon
2.375% 340,000 8,903,750
Sakura Bank ADR
.075% Cv 174,000 (g) 3,258,953
- --------------------------------------------------------------------------------
Total preferred stocks
(Cost: $11,671,710) 12,162,703
- --------------------------------------------------------------------------------
Short-term securities (6.5%)
- --------------------------------------------------------------------------------
Issuer Annualized Amount Value (a)
yield on payable at
date of maturity
purchase
- --------------------------------------------------------------------------------
U.S government agencies (0.2%)
Federal Home Loan Mtge Disc Nt
12-20-96 5.23% $1,100,000 $1,096,816
Federal Natl Mtge Assn Disc Nt
12-09-96 5.24 2,900,000 2,896,208
Total 3,993,024
- --------------------------------------------------------------------------------
Commercial paper (6.2%)
Ameritech Capital
12-18-96 5.29 5,000,000 (k) 4,986,825
Aon
12-06-96 5.28 1,200,000 1,198,948
BBV Finance
12-02-96 5.26 7,300,000 7,297,875
CAFCO
12-18-96 5.28 . 4,700,000 (k) 4,687,686
Cargill
12-13-96 5.27 5,800,000 5,789,004
Dean Witter
01-07-97 5.35 7,900,000 7,855,637
Gannett
12-17-96 5.32 6,900,000 (k) 6,882,731
General Electric
12-17-96 5.28 3,500,000 3,491,306
Kellogg
01-10-97 5.35 7,900,000 7,852,135
Metlife Funding
01-28-97 5.35 2,571,000 2,547,373
Mobil Australia Finance
12-05-96 5.27 2,400,000 (k) 2,398,250
Pfizer
12-05-96 5.27 600,000 (k) 599,563
Pitney Bowes Credit
12-19-96 5.27 6,700,000 6,681,435
Reed Elsevier
12-23-96 5.27 3,500,000 (k) 3,488,260
Southwestern Bell Capital
12-04-96 5.27 2,200,000 (k) 2,198,717
Sandoz
12-18-96 5.29 7,800,000 7,779,525
01-27-97 5.37 700,000 (k) 693,671
Smithkline Beecham
12-03-96 5.29 5,500,000 5,497,594
12-23-96 5.30 8,000,000 7,973,013
01-21-97 5.32 7,300,000 7,243,397
Sysco
12-10-96 5.28 5,400,000 (k) 5,392,125
Wal-mart
12-05-96 5.40 5,300,000 5,296,025
Total 107,831,095
- --------------------------------------------------------------------------------
Letter of credit (0.1%)
Bank of America -
AES Barbers Point
12-20-96 5.29 2,500,000 2,492,681
- --------------------------------------------------------------------------------
Total short-term securities
(Cost: $114,319,341) $114,316,800
- --------------------------------------------------------------------------------
Total investments in securities
(Cost: $1,644,334,576)(m) $1,734,414,397
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Security is partially or fully on loan. See Note 4 to the financial
statements.
(c) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(d) This security is a collateralized mortgage obligation that pays no
interest of principal during its initial accrual period until payment of
previous series within the trust have been paid off. Interest is accrued at an
effective yield; similar to a zero coupon bond.
(e) Principal only represents securities that entitle holders to receive only
principal payments on the underlying mortgages. The yield to maturity of a
principal only is sensitive to the rate of principal payments on the underlying
mortgage assets. A slow (rapid) rate of principal repayments may have an adverse
(positive) effect on yield to maturity. Interest rate disclosed represents
current yield based upon the current cost basis and estimated timing of future
cash flows.
(f) For those zero coupon bonds that become coupon paying at a future date,
the interest rate disclosed represents the annualized effective yield from
the date of acquisition to interest rate reset date disclosed.
(g) Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(h) Foreign security values are stated in U.S. dollars. For debt
securities, principal amounts are denominated in the currency indicated.
(i) Interest rate varies either based on a predetermined schedule or to
reflect current market conditions; rate shown is the effective rate on
Nov. 30, 1996.
(j) Identifies issues considered to be illiquid, (see Note 5 to the financial
statements). Information concerning such security holdings at Nov. 30, 1996, is
as follows:
Security Acquisition Cost
date
American United Life Insurance*
7.75% 2026 02-13-96 $4,800,000
City of Helsinki
9.15% Sr Nts 2006 02-07-95 $1,497,956
*Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(k) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under section 4(2) of the Securities Act of 1933, as amended,
an may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(l) Partially pledged as initial margin deposit on the following open interest
rate futures contracts (see Note 7 to the financial statements):
Type of security Notional amount
Sales contracts
U.S Treasury Bonds March 1997 $130,000,000
(m) At Nov. 30, 1996, the cost of securities for federal income tax purposes was
approximately $1,644,334,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $92,252,000
Unrealized depreciation (2,172,000)
Net unrealized appreciation $90,080,000
<PAGE>
<PAGE>
Financial statements
Statement of assets and liabilities
High Yield Portfolio
Nov. 30, 1996
Assets
(Unaudited)
Investments in securities, at value (Note 1)
(identified cost $2,078,592,178) $2,801,335,747
Dividends and accrued interest receivable 56,094,864
U.S. government securities held as collateral (Note 5) 1,028,841
Receivable for investment securities sold 37,488,542
- --------------------------------------------------------------------------------
Total assets 2,895,947,994
- --------------------------------------------------------------------------------
Liabilities
Disbursements in excess of cash on demand deposit 14,017,501
Payable for investment securities purchased 83,533,771
Payable upon return of securities loaned (Note 5) 1,028,841
Accrued investment management services fee 86,639
Other accrued expenses 47,220
- --------------------------------------------------------------------------------
Total liabilities 98,713,972
- --------------------------------------------------------------------------------
Net assets $2,797,234,022
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Statement of operations
High Yield Portfolio
For the period ended June 10, 1996
(commencement of operations) to Nov. 30, 1996
Investment income
(Unaudited)
Income:
Interest $116,125,438
Dividends 10,295,842
- --------------------------------------------------------------------------------
Total income 126,421,280
- --------------------------------------------------------------------------------
Expenses (Note 2):
Investment management services fee 7,048,585
Compensation of board members 3,500
Custodian fees 46,550
Audit fees 5,250
Administrative 858
Other 5,792
- --------------------------------------------------------------------------------
Total expenses 7,110,535
Earnings credits on cash balances (Note 2) (25,375)
- -------------------------------------------------------------------------------
Total net expenses 7,085,160
- --------------------------------------------------------------------------------
Investment income -- net 119,336,120
- --------------------------------------------------------------------------------
Realized and unrealized gain -- net
Net realized gain on security transactions 4,420,244
Net change in unrealized appreciation or depreciation
of investments 26,567,783
- --------------------------------------------------------------------------------
Net gain on investments 30,988,027
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $150,324,147
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Financial Statements
Statement of changes in net assets
High Yield Portfolio
For the period from June 10, 1996
(commencement of operations) to Nov. 30, 1996
Operations and distributions
(Unaudited)
Investment income -- net $119,336,120
Net realized gain on investments 4,420,244
Net change in unrealized appreciation or depreciation
of investments 26,567,783
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 150,324,147
- --------------------------------------------------------------------------------
Net contributions 2,646,879,875
- --------------------------------------------------------------------------------
Total increase in net assets 2,797,204,022
Net assets at beginning of period (Note 1) 30,000
- --------------------------------------------------------------------------------
Net assets at end of period $2,797,234,022
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
Notes to financial statements
High Yield Portfolio
(Unaudited as to Nov. 30, 1996)
- ----------------------------------------------------------------------
1. Summary of significant accounting policies
The High Yield Portfolio (the Portfolio) is a series of Income Trust (the Trust)
and is registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. High Yield Portfolio
invests primarily in long-term corporate bonds in the lower-rating categories,
commonly known as junk bonds. The Declaration of Trust permits the Trustees to
issue non-transferable interests in the Portfolio. On April 15, 1996, AEFC
contributed $30,000 to the Portfolio. Operations did not formally commence until
June 10, 1996, at which time, an existing fund transferred its assets to the
Portfolio in return for an ownership percentage of the Portfolio.
Significant accounting polices followed by the Portfolio are summarized below:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Valuation of securities
All securities are valued at the close of each business day. Securities traded
on national securities exchanges or included in national market systems are
valued at the last quoted sales price; securities for which market quotations
are not readily available are valued at fair value according to methods selected
in good faith by the board. Determination of fair value involves, among other
things, reference to market indexes, matrixes and data from independent brokers.
Short-term securities maturing in more than 60 days from the valuation date are
valued at the market price or approximate market value based on current interest
rates; those maturing in 60 days or less are valued at amortized cost.
<PAGE>
Option transactions
In order to produce incremental earnings, protect gains and facilitate buying
and selling of securities for investment purposes, the Portfolio may buy or
write options traded on any U.S. or foreign exchange or in the over-the-counter
market where the completion of the obligation is dependent upon the credit
standing of the other party. The Portfolio also may buy or sell put and call
options and write covered call options on portfolio securities and may write
cash-secured put options. The risk in writing a call option is that the
Portfolio gives up the opportunity of profit if the market price of the security
increases. The risk in writing a put option is that the Portfolio may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolio pays a premium whether or not
the option is exercised. The Portfolio also has the additional risk of not being
able to enter into a closing transaction if a liquid secondary market does not
exist.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The Portfolio
will realize a gain or loss upon expiration or closing of the option
transaction. When an option is exercised, the proceeds on sales for a written
call option, the purchase cost for a written put option or the cost of a
security for a purchased put or call option is adjusted by the amount of premium
received or paid.
Futures transactions
In order to gain exposure to or protect itself from changes in the market, the
Portfolio may buy and sell stock index futures contracts traded on any U.S. or
foreign exchange. The Portfolio also may buy or write put and call options on
these futures contracts. Risks of entering into futures contracts and related
options include the possibility that there may be an illiquid market and that a
change in the value of the contract or option may not correlate with changes in
the value of the underlying securities.
Upon entering into a futures contract, the Portfolio is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Portfolio each day. The variation margin payments are
equal to the daily changes in the contract value and are recorded as unrealized
gains and losses. The Portfolio recognizes a realized gain or loss when the
contract is closed or expires.
Securities purchased on a when-issued basis
Delivery and payment for securities that have been purchased by the Portfolio on
a forward-commitment or when-issued basis can take place one month or more after
the transaction date. During this period, such securities are subject to market
fluctuations, and they may affect the Portfolio's net assets the same as owned
securities. The Portfolio designates cash or liquid high-grade debt securities
at least equal to the amount of its commitment. As of Nov. 30, 1996, the
Portfolio had entered into outstanding when-issued or forward commitments of
$5,825,000.
Foreign currency translations
and foreign currency contracts
Securities and other assets and liabilities denominated in foreign currencies
are translated daily into U.S. dollars at the closing rate of exchange. Foreign
currency amounts related to the purchase or sale of securities and income and
expenses are translated at the exchange rate on the transaction date. The effect
of changes in foreign exchange rates on realized and unrealized security gains
or losses is reflected as a component of such gains or losses. In the statement
of operations, net realized gains or losses from foreign currency transactions
may arise from sales of foreign currency, closed forward contracts, exchange
gains or losses realized between the trade date and settlement dates on
securities transactions, and other translation gains or losses on dividends,
interest income and foreign withholding taxes.
The Portfolio may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Portfolio and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates from an
independent pricing service. The Portfolio is subject to the credit risk that
the other party will not complete the obligations of the contract.
Federal taxes
For federal income tax purposes the Portfolio qualifies as a partnership and
each investor in the Portfolio is treated as the owner of its proportionate
share of the net assets, income, expenses and realized and unrealized gains and
losses of the Portfolio. Accordingly, as a "pass-through" entity, the Portfolio
does not pay any income dividends or capital gain distributions.
Other
Security transactions are accounted for on the date securities are purchased or
sold. Dividend income is recognized on the ex-dividend date. For U.S. dollar
denominated bonds, interest income includes level-yield amortization of premium
and discount. For foreign bonds, except for original issue discount, the Fund
does not amortize premium and discount. Interest income, including level-yield
amortization of premium and discount, is accrued daily.
_______________________________________________________________________
2. Fees and expenses
The Trust, on behalf of the Portfolio, has entered into an Investment Management
Services Agreement with American Express Financial Corporation (AEFC) for
managing its portfolio. Under this agreement, AEFC determines which securities
will be purchased, held or sold. The management fee is a percentage of the
Portfolio's average daily net assets in reducing percentages from 0.59% to
0.465% annually.
Under the agreement, the Trust also pays taxes and nonadvisory expenses, which
include custodian fees to be paid to an affiliate of AEFC; audit and certain
legal fees; fidelity bond premiums; registration fees for units; Portfolio
office expenses; consultants' fees; compensation of trustees; corporate filing
fees; expenses incurred in connection with lending securities of the Portfolio:
and any other expenses properly payable by the Trust or Portfolio, approved by
the board.
For the period from June 10, 1996 to Nov. 30, 1996, the Portfolio's custodian
fees were reduced by $25,375 as a result of earnings credits from overnight cash
balances.
Pursuant to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the units of the Trust.
- -----------------------------------------------------------------------
3. Securities transactions
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $1,461,907,793 and $1,106,020,842, respectively, for the
period from June 10, 1996 to Nov. 30, 1996. For the same period, the portfolio
turnover rate was 47%. Realized gains and losses are determined on an identified
cost basis.
- -----------------------------------------------------------------------
4. Lending of portfolio securities
At Nov. 30, 1996, securities valued at $995,000 were on loan to brokers. For
collateral, the Portfolio received in U.S. government securities valued at
$1,028,841. Income from securities lending amounted to $10,073 for the period
ended Nov. 30, 1996. The risks to the Portfolio of securities lending are that
the borrower may not provide additional collateral when required or return the
securities when due.
- -----------------------------------------------------------------------
5. Illiquid securities
Investments in securities include issues that are illiquid. The Portfolio
currently limits investments in illiquid securities to 10% of the net assets, at
market value, at the time of purchase. The aggregate value of such securities at
Nov. 30, 1996 was $111,352,402 representing 3.98% of the net assets. Pursuant to
guidelines adopted by the board, certain unregistered securities are determined
to be liquid and are not included within the 10% limitation specified above.
<PAGE>
<TABLE>
Investments in securities
High Yield Portfolio (Percentages represent value of
Nov. 30, 1996 (Unaudited) investments compared to net assets)
- -------------------------------------------------------------------------------------------------------
Bonds (88.3%)
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Issuer Coupon Maturity Principal Value (a)
rate year amount
- ----------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities (1.7%)
<S> <C> <C> <C> <C>
U.S. Treasury 7.00 2006 $ 24,000,000 $ 25,588,080
Federal Home Loan Mtge Corp 7.625 2017 6,148 (b) 6,334
Inverse Floater 7.26 2024 9,865,946 (k) 9,190,622
8.80 2023 4,407,829 (k) 3,688,868
Merrill Lynch Mtge Investors 8.22 2021 9,511,705 (c) 9,302,447
--------------------
Total 47,776,351
- ----------------------------------------------------------------------------------------------------------------------
Financial (4.2%)
Banks and savings & loans (0.4%)
First Nationwide Bank
Sr Sub Nts 10.625 2003 10,250,000 (c) 10,941,875
- ----------------------------------------------------------------------------------------------------------------------
Financial services (2.3%)
Cityscape Financial 11.00 1998 15,000,000 15,000,000
GPA Delaware 8.75 1998 10,000,000 10,200,000
Homeside
Sr Nts 11.25 2003 14,225,000 (c) 15,860,875
Malan Realty Investors REIT
Cv Sub Deb 9.50 2004 2,300,000 2,190,750
Olympic Financial
Sr Nts 13.00 2000 16,375,000 18,196,719
Ryder
Sr Sub Nts 10.00 2006 3,500,000 (c) 3,574,375
--------------------
Total 65,022,719
- ----------------------------------------------------------------------------------------------------------------------
Insurance (1.5%)
Americo Life
Sr Sub Nts 9.25 2005 15,000,000 14,850,000
Life Partners
Sr Sub Nts 12.75 2002 10,000,000 10,837,500
Reliance Group Holdings 9.75 2003 15,000,000 15,562,500
--------------------
Total 41,250,000
- ----------------------------------------------------------------------------------------------------------------------
Industrial (67.2%)
Aerospace & defense (1.9%)
Alliant Techsystems
Sr Sub Nts 11.75 2003 9,250,000 (c) 10,244,375
K&F Inds
Sr Sub Nts 10.375 2004 4,900,000 5,157,250
Sequa 9.625 1999 3,000,000 3,108,750
Sr Sub Nts 9.375 2003 20,750,000 20,931,562
TransDigm
Sr Secured Nts 13.00 2000 14,030,000 (e) 12,907,600
--------------------
Total 52,349,537
- ----------------------------------------------------------------------------------------------------------------------
Automotive & related (0.4%)
Penda 10.75 2004 12,000,000 11,040,000
- ----------------------------------------------------------------------------------------------------------------------
Beverages and tobacco (0.5%)
Stroh Brewery
Sr Sub Nts 11.10 2001 14,887,000 15,538,306
- ----------------------------------------------------------------------------------------------------------------------
Building materials & construction (1.0%)
Baldwin 10.37 2003 2,750,000 (d) 1,182,500
Presley Companies
Sr Nts 12.50 2001 10,000,000 9,775,000
Schuller Intl Group
Sr Nts 10.875 2004 12,000,000 13,320,000
Southdown
Sr Sub Nts 10.00 2006 4,700,000 4,958,500
--------------------
Total 29,236,000
- ----------------------------------------------------------------------------------------------------------------------
Chemicals (1.2%)
ISP Holdings
Sr Nts 9.75 1999 22,215,000 (c) 23,325,750
NL Inds
Zero Coupon Sr Nts 10.12 1998 12,000,000 (g) 9,960,000
--------------------
Total 33,285,750
- ----------------------------------------------------------------------------------------------------------------------
Communications equipment & services (9.2%)
Celcaribe
Zero Coupon 10.42 1998 3,800,000 (c,g) 4,294,000
Zero Coupon 13.44 1998 7,350,000 (g) 6,174,000
Cencall Communications
Zero Coupon Sr Nts 20.74 1999 8,000,000 (g) 5,280,000
Comcast Cellular
Zero Coupon 7.04 2000 10,000,000 (f) 7,225,000
Zero Coupon 11.74 2000 26,900,000 (f) 19,368,000
Communications & Power Inds
Sr Sub Nts 12.00 2005 10,000,000 (c) 10,937,500
Geotek Communications
Cv 12.00 2001 5,000,000 (e) 4,875,000
Zero Coupon 17.41 2000 23,250,000 (g) 14,763,750
GST Telecommunications
Zero Coupon Cv 5.81 2000 2,320,000 (c,g) 1,902,400
Impsat 12.125 2003 10,000,000 (c) 10,325,000
Intermedia Communications of Florida
Sr Nts 13.50 2005 15,000,000 (c) 17,175,000
Intl Wireless Communication
Zero Coupon, Sr Nts 14.00 2001 14,750,000 (c,f) 8,038,750
MFS Communications
Sr Dis Nts 6.90 1999 8,000,000 (g) 6,920,000
Mobil Telecommunications Technology
Sr Nts 13.50 2002 8,500,000 8,818,750
Nextlink Communications
Sr Nts 12.50 2006 15,000,000 15,825,000
Omnipoint
Sr Nts 11.625 2006 15,000,000 (c) 15,825,000
Sr Nts Series A 11.625 2006 5,000,000 (c) 5,275,000
Pagemart Nationwide
Zero Coupon Sr Nts 15.80 2000 23,000,000 (c,g) 15,352,500
Peoples Telephone
Sr Nts 12.25 2002 7,000,000 7,367,500
Pricellular Wire
Zero Coupon Sr Dis Nts 2.76 1998 5,000,000 (g) 4,875,000
Sr Nts 10.75 2004 6,500,000 (c) 6,776,250
Zero Coupon Sr Dis Nts 10.85 1999 13,350,000 (g) 11,447,625
RSL Communications
With Warrants 12.25 2001 9,500,000 (c) 9,357,500
Sygnet Wireless
Sr Nts 11.50 2006 7,500,000 7,612,500
Teleport Communications
Sr Nts Zero Coupon 11.12 2001 20,000,000 (g) 13,600,000
Winstar Communications
Zero Coupon Sr Disc Nts 13.57 2000 20,000,000 (e,g) 11,650,000
Zero Coupon Sr Sub Disc 14.50 2000 10,000,000 (e,g) 6,500,000
--------------------
Total 257,561,025
- ----------------------------------------------------------------------------------------------------------------------
Computers & office equipment (2.0%)
Advanced Micro Devices
Sr Nts 11.00 2003 14,500,000 15,714,375
Anacomp
Sr Sub Nts Pay-in-Kind 13.00 2002 14,750,000 (m) 15,727,187
Softkey Intl
Cv 5.50 2000 2,500,000 (c) 2,100,000
Unisys
Sr Nts 11.75 2004 15,500,000 16,236,250
Sr Nts 12.00 2003 8,000,000 8,400,000
--------------------
Total 58,177,812
- ----------------------------------------------------------------------------------------------------------------------
Energy (3.1%)
Abraxas Petroleum
Sr Nts 11.50 2004 4,000,000 (c) 4,140,000
Costilla Energy
Sr Nts 10.25 2006 10,000,000 10,375,000
Forcenergy
Sr Sub Nts 9.50 2006 5,000,000 5,200,000
HarCor Energy
Sr Nts 14.875 2002 4,353,000 (c) 5,049,480
HS Resources
Sr Sub Nts 9.25 2006 4,250,000 (c) 4,303,125
Sr Sub Nts 9.875 2003 9,700,000 9,918,250
Petroleum Heat & Power
Sub Deb 9.375 2006 10,000,000 9,562,500
Trans Texas Gas
Sr Secured Nts 11.50 2002 15,000,000 16,237,500
Transamerican Refining
1st Mtge 16.50 2002 9,700,000 9,603,000
United Meridian
Sr Sub Nts 10.375 2005 5,800,000 6,322,000
Veritas DGC
Sr Nts 9.75 2003 5,500,000 5,610,000
--------------------
Total 86,320,855
- ----------------------------------------------------------------------------------------------------------------------
Food (1.0%)
Chiquita Brands Intl 9.625 2004 8,500,000 8,733,750
Specialty Foods
Sr Nts 10.25 2001 10,000,000 (c) 9,600,000
11.25 2003 10,000,000 (c) 8,400,000
--------------------
Total 26,733,750
- ----------------------------------------------------------------------------------------------------------------------
Furniture & appliances (0.2%)
Lifestyle Furnishings 10.875 2006 6,500,000 (c) 6,922,500
- ----------------------------------------------------------------------------------------------------------------------
Health care (0.5%)
Dade Intl
Sr Sub Nts 11.125 2006 5,850,000 (c,e) 6,361,875
Maxxim Medical
Sr Sub Nts 10.50 2001 6,600,000 (c) 6,897,000
--------------------
Total 13,258,875
- ----------------------------------------------------------------------------------------------------------------------
Heathcare services (2.4%)
Healthsource
Cv 5.00 2003 3,000,000 (e) 2,373,750
Magellan Health Services
Sr Sub Nts Cl A 11.25 2004 12,500,000 (c) 13,828,125
Merit Behavioral 11.50 2005 5,500,000 (c) 5,775,000
Paracelsus Healthcare
Sr Sub Nts 10.00 2006 19,000,000 16,530,000
Regency Health Services 12.25 2003 5,000,000 5,356,250
Tenet Healthcare
Sr Sub Nts 10.125 2005 20,000,000 22,150,000
--------------------
Total 66,013,125
- ----------------------------------------------------------------------------------------------------------------------
Household products (2.4%)
Coty
Sr Sub Nts 10.25 2005 7,000,000 7,577,500
Rayovac
Sr Sub Nts 10.25 2006 10,175,000 (c) 10,531,125
Remington Product
Sr Sub Nts 11.00 2004 5,000,000 (c) 4,650,000
Revlon Worldwide
Zero Coupon Sr Disc Nts 11.52 1998 30,000,000 (c,f) 25,875,000
Samsonite
Sr Sub Nts 11.125 2005 5,000,000 5,525,000
Twin Laboratories 10.25 2006 12,250,000 (e) 12,801,250
--------------------
Total 66,959,875
- ----------------------------------------------------------------------------------------------------------------------
Industrial equipment & services (3.0%)
ACF Inds 11.60 2000 3,020,000 3,038,875
Allied Waste North America
Sr Sub Nts 10.25 2004 5,000,000 (c) 5,137,500
Borg-Warner Security
Sr Sub Nts 9.125 2003 10,000,000 9,462,500
Clark Materials Handling
Sr Nts 10.75 2006 6,500,000 (c) 6,678,750
Goss Graphic Systems
Sr Sub Nts 12.00 2006 10,000,000 10,100,000
Molten Metal Tehcnology
Cv Sub Nts 5.50 2006 1,500,000 (e) 1,113,750
Motors and Gears
Sr Nts 10.75 2006 11,000,000 (c) 11,261,250
Prime Succession
Sr Sub Nts 10.75 2004 10,000,000 (c) 10,812,500
Specialty Equipment
Sr Sub Nts 11.375 2003 23,300,000 24,901,875
--------------------
Total 82,507,000
- ----------------------------------------------------------------------------------------------------------------------
Leisure time & entertainment (8.5%)
Alliance Entertainment
Sr Sub Nts 11.25 2005 24,000,000 (c) 16,080,000
Alliance Gaming
Sr Nts 12.875 2003 13,850,000 14,577,125
Boomtown
1st Mtge 11.50 2003 10,000,000 (c) 10,562,500
Casino Magic-Louisiana
1st Mtge 13.00 2003 12,500,000 (c) 12,437,500
Coast Hotels & Casino
1st Mtge 13.00 2002 19,800,000 (c) 21,532,500
Icon Fitness
Sr Dis Nts 14.00 2001 20,000,000 (g) 10,325,000
Lady Luck Gaming
1st Mtge 11.875 2001 5,000,000 4,850,000
Mohegan Tribal Gaming
Sr Nts 13.50 2002 13,400,000 (c) 17,420,000
Plitt Theatres 10.875 2004 27,850,000 28,685,500
PRT Funding
Sr Nts 11.625 2004 2,000,000 1,682,500
Stratosphere
1st Mtge 8.68 2002 12,000,000 (d) 11,400,000
Trump Atlantic City Funding
1st Mtge 11.25 2006 49,975,000 46,976,500
Trump Holdings
Sr Nts 15.50 2005 10,000,000 11,462,500
United Artists 11.50 2002 6,000,000 (c) 6,375,000
United Artists Theatres
Pass Thru Certs 9.30 2015 13,884,723 12,878,081
Waterford Gaming
Sr Nts 12.75 2003 10,000,000 (c) 10,400,000
--------------------
Total 237,644,706
- ----------------------------------------------------------------------------------------------------------------------
Media (10.6%)
Ackerley Communications
Sr Secured Nts 10.75 2003 13,500,000 (c) 14,445,000
Adams Outdoor Advertising
Sr Nts 10.75 2006 15,300,000 (e) 16,103,250
Adelphia Communications
Pay-in-Kind 9.5 2004 34,665,352 (d,m) 29,292,222
Sr Deb 11.875 2004 5,000,000 4,937,500
American Telecasting
Zero Coupon 8.66 1999 9,606,320 (e,g) 5,955,919
Zero Coupon Sr Disc Nts 7.72 2000 10,000,000 (c,g) 5,550,000
Benedek Broadcasting
Sr Nts 11.875 2005 2,500,000 2,603,125
Benedek Communications
Zero Coupon Sr Disc Nts 13.25 2001 9,500,000 (g) 5,225,000
CAI Wireless Systems
Sr Nts 12.25 2002 11,250,000 9,337,500
Citicasters
Sr Sub Nts 9.75 2004 15,000,000 15,243,750
CS Wireless Systems
Zero Coupon With Warrants 12.79 2001 3,250,000 (c,g) 4,680,000
Echostar Satellite Broadcasting
Zero Coupon 12.84 2000 25,500,000 (g) 19,316,250
Heritage Media Services
Sr Sub Nts 8.75 2006 17,900,000 17,363,000
Lamar Advertising
Sr Sub Nts 9.625 2006 4,000,000 4,070,000
Lenfest Communications
Sr Nts 8.375 2005 20,000,000 19,300,000
Outdoor Systems
Sr Nts 9.375 2006 10,000,000 10,050,000
Paxson Communications
Sr Sub Nts 11.625 2002 7,000,000 7,157,500
Pegasus Media & Communications
Cl B 12.50 2005 7,500,000 (c) 8,100,000
People's Choice TV
Zero Coupon With Warrants 13.25 2000 23,500,000 (g) 9,165,000
Petersen Publishing
Sr Sub Nts 11.125 2006 6,500,000 (c) 6,662,500
TKR Cable
Deb 10.50 2007 9,525,000 10,642,378
UIH Australia/Pacific
Zero Coupon Sr Disc Nts 14.29 2001 10,000,000 (g) 5,387,500
United Intl Holdings
Zero Coupon Disc Nts 11.55 1999 15,000,000 (f) 10,668,750
Zero Coupon Disc Nts 12.00 1999 12,600,000 (f) 8,961,750
Universal Outdoor
Sr Sub Nts 9.75 2006 20,000,000 20,500,000
Viacom Intl
Sub Deb 8.00 2006 8,000,000 7,740,000
Sub Deb 7.00 2003 15,000,000 14,412,600
Wireless One
With Warrants 13.00 2003 5,000,000 4,962,500
--------------------
Total 297,832,994
- ----------------------------------------------------------------------------------------------------------------------
Metals (3.1%)
Bar Technologies 13.50 2001 10,000,000 (c) 10,100,000
Carbide/Graphite Group
Sr Nts 11.50 2003 9,091,000 9,954,645
EnviroSource
Sr Nts 9.75 2003 18,750,000 17,343,750
NS Group 12.50 2003 14,000,000 (l) 13,930,000
Ryerson Tull 9.125 2006 9,000,000 9,540,000
WCI Steel
Sr Nts 10.00 2004 10,500,000 (c) 10,591,875
Sr Nts 10.50 2002 14,000,000 15,785,000
--------------------
Total 87,245,270
- ----------------------------------------------------------------------------------------------------------------------
Multi-industry conglomerates (0.7%)
Tally Mfg & Technology
Sr Nts 10.75 2003 18,500,000 19,101,250
- ----------------------------------------------------------------------------------------------------------------------
Paper & packaging (6.0%)
BPC Holding
Sr Nts Pay-in-Kind 12.50 2006 9,750,000 (m) 10,249,688
Crown Paper
Sr Sub Nts 11.00 2005 7,000,000 6,475,000
Florida Coast Paper
1st Mtge 12.75 2003 10,000,000 10,550,000
Gaylord Container
Sr Sub Disc Deb 12.75 2005 28,000,000 30,800,000
Pacific Lumber
Sr Nts 10.50 2003 10,000,000 10,050,000
Plastic Container
Sr Secured Nts 10.75 2001 14,200,000 15,123,000
Repap Wisconsin
Sr Nts 9.875 2006 10,000,000 9,850,000
Riverwood Intl 10.875 2008 15,000,000 13,650,000
Silgan 13.25 2002 5,528,000 5,659,290
Sr Sub Nts 11.75 2002 10,350,000 11,048,625
Stone Container
1st Mtge 10.75 2002 10,000,000 10,437,500
Sr Nts 12.625 1998 4,500,000 4,798,125
Sweetheart Cup
Sr Sub Nts 10.50 2003 10,000,000 10,450,000
Warren (SD)
Sr Nts 12.00 2004 16,500,000 (c) 17,407,500
--------------------
Total 166,548,728
- ----------------------------------------------------------------------------------------------------------------------
Restaurants & lodging (1.1%)
Flagstar
Sr Nts 10.75 2001 16,000,000 14,640,000
Sr Nts 10.875 2002 4,000,000 3,630,000
Hammons (John Q) Hotels
1st Mtge 8.875 2004 12,000,000 11,910,000
--------------------
Total 30,180,000
- ----------------------------------------------------------------------------------------------------------------------
Retail (5.0%)
Dairy Mart Convenience Stores
Sr Sub Nts Series A 10.25 2004 18,700,000 18,045,500
Sr Sub Nts Series B 10.25 2004 6,250,000 6,031,250
Di Giorgio
Sr Nts 12.00 2003 16,000,000 16,160,000
Grand Union
Sr Nts 12.00 2004 8,000,000 8,320,000
Home Depot
Cv 3.25 2001 1,000,000 998,750
Jitney-Jungle Stores
Sr Nts 12.00 2006 10,000,000 10,650,000
Pathmark Stores
Zero Coupon Jr Sub Nts 10.75 1999 13,500,000 (g) 9,247,500
Penn Traffic
Sr Nts 8.625 2003 5,000,000 4,100,000
Pueblo Xtra Intl
Sr Nts 9.50 2003 19,140,000 17,943,750
Ralphs Grocery
Sr Nts 10.45 2004 15,000,000 15,600,000
Saks Holdings
Cv 5.50 2006 3,800,000 3,871,250
Specialty Retailers 11.00 2003 6,750,000 7,028,438
Sports Authority
Cv 5.25 2001 1,550,000 (c) 1,532,562
Stater Brothers Holdings 11.00 2001 14,500,000 15,587,500
White Rose Foods
Zero Coupon 12.75 1998 5,000,000 (f) 3,900,000
--------------------
Total 139,016,500
- ----------------------------------------------------------------------------------------------------------------------
Textiles & apparel (0.8%)
Hat Brand Holdings -- 2002 5,000,000 (d,e) 3,000,000
Hosiery Corp of America 13.75 2002 9,993,175 10,992,492
US Leather
Sr Nts 10.25 2003 9,000,000 7,717,500
--------------------
Total 21,709,992
- ----------------------------------------------------------------------------------------------------------------------
Miscellaneous (2.6%)
Darling-Delaware
Sr Sub Nts 11.00 2000 9,932,000 9,894,755
ECM Funding 11.92 2002 2,474,310 (e,i) 2,721,741
Newport News Ship
Sr Sub Nts 9.25 2006 4,500,000 (c) 4,601,250
Norcal Waste Systems 12.75 2005 20,300,000 22,330,000
Outsourcing Solutions
Sr Sub Nts 11.00 2006 5,500,000 (c) 5,740,625
Pierce Leahy
Sr Sub Nts 11.125 2006 8,750,000 (c) 9,625,000
SC Intl Services
Sr Sub Nts 13.00 2005 15,000,000 16,800,000
--------------------
Total 71,713,371
- ----------------------------------------------------------------------------------------------------------------------
Utilities (2.2%)
Electric
California Energy
Sr Nts 9.50 2006 8,000,000 (c) 8,220,000
Sr Secured Nts 9.875 2003 9,000,000 9,461,250
First Palo Verde Funding 10.15 2016 3,193,000 3,384,580
Long Island Lighting
Deb 8.90 2019 2,000,000 2,015,220
Deb 9.00 2022 2,000,000 2,052,720
Midland Funding II 11.75 2005 5,000,000 5,575,000
13.25 2006 12,500,000 14,656,250
Niagara Mohawk Power
1st Mtge 9.75 2005 9,000,000 9,536,130
Texas-New Mexico Power
Secured Deb 10.75 2003 7,000,000 7,560,000
--------------------
Total 62,461,150
- ----------------------------------------------------------------------------------------------------------------------
Foreign (13.0%)
APP Intl Finance
(U.S. Dollar) 11.75 2005 6,600,000 7,029,000
Australis Holdings
(U.S. Dollar) Zero Coupon With Warrants 14.99 2000 13,400,000 (e,g) 7,772,000
Australis Media
(U.S. Dollar) Zero Coupon With Warrants 14.92 2000 12,750,000 (g) 7,331,250
Banco Nacional de Comercio Exterior
(U.S. Dollar) 7.25 2004 10,000,000 8,787,500
Banque Audi 9.375 2001 2,300,000 (c) 2,369,000
Cable Systems
(U.S. Dollar) 10.75 1999 2,644,643 (e) 2,591,750
Caguas Humacas
(U.S. Dollar) 10.50 1998 10,263,129 (e) 9,955,235
Celestica Intl
(U.S. Dollar) Sr Sub Nts 10.50 2006 5,000,000 (c) 5,187,500
Clearnet Communications
(U.S. Dollar) Zero Coupon 15.67 2000 10,800,000 (g) 6,966,000
Doman Inds
(U.S. Dollar) 8.75 2004 10,500,000 9,870,000
Dominion Textiles
(U.S. Dollar) Sr Nts 8.875 2003 5,000,000 5,050,000
Fresh Del Monte Produce
(U.S. Dollar) 10.00 2003 22,000,000 20,707,500
FSW Intl
(U.S. Dollar) Sr Nts 12.50 2006 9,000,000 (c) 9,225,000
Govt of Russia
(U.S. Dollar) 6.36 2020 10,000,000 (o) 5,825,000
Grupo Industrial Durango
(U.S. Dollar) 12.625 2003 5,000,000 5,412,500
Grupo Televisa S.A.
(U.S. Dollar) Sr Nts 11.875 2006 4,500,000 4,995,000
(U.S. Dollar) Zero Coupon Sr Nts 13.25 2001 18,000,000 (g) 11,790,000
Gulf Canada Resources
(U.S. Dollar) 9.25 2004 13,500,000 14,377,500
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 10,000,000 (c) 10,500,000
Intl Cabletel
(U.S. Dollar) Zero Coupon 11.48 2001 31,000,000 (c,g) 19,878,750
MDC Communications
(U.S. Dollar) Sr Sub Nts 10.50 2006 12,100,000 12,372,250
Newsquest Capital
(U.S. Dollar) Sr Sub Nts 11.00 2006 5,000,000 (c) 5,106,250
PLD Telekom
(U.S. Dollar) With Warrants 14.42 2001 4,000,000 (g) 3,281,560
Polysindo Intl Fin
(U.S. Dollar) 11.375 2006 9,825,000 10,611,000
Repap New Brunswick
(U.S. Dollar) Sr Nts 9.875 2000 4,400,000 4,383,500
(U.S. Dollar) Sr Nts 10.625 2005 10,600,000 10,308,500
Republic of Argentina
(U.S. Dollar) Sr Unsub 11.00 2006 16,000,000 16,680,000
Republic of Brazil
(U.S. Dollar) 6.563 2012 3,250,000 (i) 2,405,000
Rogers Cablesystems
(U.S. Dollar) Sr Secured Nts 9.625 2002 9,000,000 9,405,000
Rogers Cantel
(U.S. Dollar) Sr Sub Nts 11.125 2002 10,000,000 10,800,000
Russia-Interest Notes
(U.S. Dollar) 6.597 2049 7,000,000 4,821,250
Scandinavian Broadcasting
Cv Sub Deb 7.25 2005 3,730,000 3,622,763
Tarkett Intl
(U.S. Dollar) 9.00 2002 10,000,000 (c) 10,212,500
Telewest
(U.S. Dollar) 11.00 2000 20,000,000 (g) 13,600,000
Tjiwi Kimia
(U.S. Dollar) 13.25 2001 10,000,000 11,425,000
Transport Maritima Mex
(U.S. Dollar) Sr Nts 10.00 2006 7,600,000 7,676,000
United Mexican States
(U.S. Dollar) 11.50 2026 2,669,000 2,789,105
(U.S. Dollar) 11.375 2016 15,000,000 15,525,000
Venezuela
(U.S. Dollar) 6.625 2007 8,000,000 (i) 6,980,000
Viridian
(U.S. Dollar) Deb 10.50 2014 10,000,000 12,350,000
(U.S. Dollar) 9.75 2003 3,500,000 3,797,500
Vneshekonom Bank
(U.S. Dollar) Zero Coupon 24.07 1997 14,000,000 10,955,000
--------------------
Total 364,727,663
- ----------------------------------------------------------------------------------------------------------------------
Total bonds
(Cost: $2,374,255,502) $2,469,076,976
</TABLE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
Stocks and other (7.7%)
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Issuer Shares Value (a)
- ----------------------------------------------------------------------------------------------------------------------
Advanced Micro Devices
<S> <C> <C>
Common 100,000 (d) $ 2,425,000
Alliance Gaming
15% Pay-in-Kind Preferred 59,454 (m) 5,581,244
American Communication Services
Warrants 17,200 (c) 1,462,000
American Telecasting
Warrants 85,225 191,756
Bar Technologies
Warrants 10,000 550,000
Benedek Communications
15% Preferred 70,000 (d) 7,560,000
Warrants 70,000 350,000
Cablevision Systems
11.125% Pay-in-Kind Preferred 305,352 (c,m) 26,870,976
11.75% Pay-in-Kind Preferred 112,498 (m) 10,518,563
Celcaribe
Common 1,195,110 (d) 2,151,198
Chevy Chase
10.375% Preferred 82,000 4,182,000
Chevy Chase Savings
13% Preferred 180,000 5,850,000
Clearnet Communications
Warrants 35,640 271,755
Communications & Power Inds
14% Preferred 59,161 (d) 5,993,421
Common 3,500 (c) 379,750
Crown Packaging
Warrants 10,000 5,000
Dairy Mart Convenience Stores
Warrants 311,333 933,999
Earthwatch
12% Preferred Cv 700,000 (c) 7,000,000
EchoStar Communications
Common 100,000 (d) 2,675,000
El Paso Electric
11.4% Pay-in-kind Preferred 32,528 (m) 3,578,080
First Nationwide Bank
11.5% Preferred 166,500 18,981,000
Foodmaker
Warrants 7,000 173,250
Fresenius Medical Care
9% Preferred 5,500 5,610,000
Gaylord Container
Common 437,500 (d) 2,789,063
Warrants 562,500 3,550,781
Geotek Communications
Warrants 872,500 1,308,750
GPA Financial
8% Preferred Cv 48,026 4,774,987
HarCor Energy
Common 100,000 (d) 493,750
Warrants 110,000 (c) 247,500
Harvard Inds
14.25% Pay-in-kind Preferred 496,774 (m) 7,948,384
Hat Brand Holdings
Warrants 90,346 (e,n) --
Hemmeter Enterprises
Warrants 36,000 (c,n) --
Hosiery Corp of America
Warrants 10,000 (c) 55,000
Houlihan's Restaurant
Warrants 5,886 30,166
IFINT Diversified Holdings
Common 42,418 (e) 890,778
Intermedia Communications
Warrants 22,750 1,137,500
Intl Wireless Communication
Warrants 14,750 148
K-III Communications
10% Preferred 75,000 (c) 7,002,188
Kelley Oil & Gas
$2.625 Cv Preferred 100,000 (d) 2,412,500
Lady Luck
Pay-in-Kind Preferred 70,484 2,149,762
Lady Luck Gaming
Common 200,000 (d) 450,000
Nextel Communications
Warrants 18,902 189
Pagemart Nationwide
Common 50,750 (c,d) 355,250
Panamsat
12.75% Pay-in-Kind Preferred 372 (d,m) 453,840
Common 150,000 (d) 4,312,500
Pantry Pride
14.875% Preferred 100,000 10,250,000
Paxson Communications
12.5% Pay-in-Kind Preferred 99,800 (m) 9,456,050
Pegasus Media & Communications
Common 750 (d) 253,219
Reliance Group Holdings
Warrants 277,791 664,093
Riggs Natl
Series B Preferred 72,825 2,057,306
SD Warren
14% Preferred 200,000 (d) 6,600,000
Silgan Holdings
13.25% Pay-in-Kind Preferred 5,156 (m) 5,510,475
Specialty Foods Acquisition
Common 300,000 (d) 187,500
Station Casinos
7% Cv Preferred 50,000 2,500,000
Supermarket General
$3.52 Pay-in-Kind Cv Preferred 275,000 (d,m) 7,700,000
Time Warner
10.25% Pay-in-Kind Preferred 14,301 (c,m) 15,498,709
TransDigm
Warrants 11,195 1,533,671
Triangle Wire & Cable
Common 548,889 (d,e) 548,889
Webcraft Technology
Common 32,502 (d,e) 325
Wireless One
Common 25,000 (d) 234,375
Warrants 23,250 162,750
- ---------------------------------------------------------------------------------------------------------------------
Total stocks and other
(Cost: $220,347,950) $216,814,390
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
Short-term securities (3.8%)
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Issuer Annualized Amount Value (a)
yield on payable at
date of maturity
purchase
- ---------------------------------------------------------------------------------------------------------------------
U.S. government agency (0.1%)
Federal Home Loan Mtge Corp Disc Nt
<S> <C> <C> <C>
12-19-96 5.27 $ 2,300,000 $ 2,293,627
12-19-96 5.30 2,400,000 2,393,312
--------------------
Total 4,686,939
- ---------------------------------------------------------------------------------------------------------------------
Commercial paper (3.2%)
BellSouth Telephone
12-12-96 5.30 3,900,000 3,893,136
CAFCO
12-03-96 5.29 2,100,000 (h) 2,099,081
12-18-96 5.28 4,300,000 (h) 4,288,734
Gateway Fuel
12-11-96 5.27 6,600,000 6,589,433
General Electric Capital
12-02-96 5.28 8,500,000 8,497,521
Intel
12-24-96 5.31 2,100,000 2,091,496
Merrill Lynch
12-06-96 5.55 7,500,000 7,493,063
Met Life Funding
12-06-96 5.28 2,170,000 2,164,946
02-20-97 5.37 6,247,000 6,166,632
Mobil Australia Finance
12-20-96 5.27 3,700,000 (h) 3,689,208
Morgan Stanley
01-24-97 5.39 6,000,000 5,948,338
Motorola
12-09-96 5.27 800,000 798,952
12-23-96 5.29 5,400,000 5,381,819
Sandoz
12-18-96 5.29 6,700,000 6,682,412
UBS Finance
12-02-96 5.90 22,000,000 21,992,789
USAA Capital
12-02-96 5.32 1,700,000 1,699,501
--------------------
Total 89,477,061
- ---------------------------------------------------------------------------------------------------------------------
Total short-term securities
(Cost: $94,173,002) $94,164,000
- ---------------------------------------------------------------------------------------------------------------------
Total investment in securities of unaffiliated issuers
(Cost: $2,688,776,454) $2,780,055,369
- ------------------------------------------------------------------------------------------------------------------------------------
Investment in securities of affiliated issuer (j)
Common stock (0.8%)
- ------------------------------------------------------------------------------------------------------------------------------------
Issuer Shares Value (a)
Kash Karry Food Stores
Common 822,430 (d) $ 21,280,376
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities of affiliated issuers
(Cost: $19,815,725) $21,280,376
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment in securities
(Cost: $2,708,592,179) $2,801,335,745
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the
financial statements.
(b) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on November 30, 1996.
(c) Represents a security sold under Rule 144A, which is exempt from
registration under the Secruities Act of 1933, as amended. This security has
been determined to be liquid under guidelines established by the board.
(d) Non-income producing. For long-term debt securities, item
identified is in default as to payment of interest and/or principal.
(e) Identifies issues considered to be illiquid (see Note 7 to the financial
statements). Information concerning such security holdings at November 30, 1996.
Security Acquisition Cost
dates
Adams Outdoor Advertising
Sr Nts 03-05-96 thru 09-17-96 15,464,125
American Telecasting 09-21-95 thru 02-02-96 6,996,044
Australias Holdings *
(U.S. Dollar)
Zero Coupon with Warrants 10-29-96 7,513,380
Cable Systems
(U.S. Dollar) 02-02-96 2,478,654
Caguas Humacas
(U.S. Dollar) 02-02-96 9,823,639
Dade Intl
Sr Sub Nts 04-30-96 5,850,000
ECM Funding 04-13-92 2,474,310
Geotek Communications
Cv 03-04-96 4,630,000
Hat Brand Holdings
Warrants 09-03-92 --
Zero Coupon 2002 09-03-96 5,000,000
Healthsource *
Cv 06-28-96 thru 07-03-96 2,337,750
IFINT Diversified Holdings
Common 08-18-94 35,493
Molten Metal Technology *
Cv Sub Nts 10-30-96 1,050,000
TransDigm
Sr Secured Nts 09-29-93 thru 04-24-96 12,722,817
Warrants 09-29-93 thru 04-24-96 1,027,809
Triangle Wire & Cable
Common 01-13-92 13,000,117
Twin Laboratories * 05-02-96 thru 10-02-96 12,390,313
Webcraft Technology
Common 12-22-86 16,875
Winstar Communications 10-01-95 thru 02-01-96 4,971,878
10-18-95 thru 02-01-96 10,565,242
* Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(f) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(g) For those zero coupon bonds that become coupon paying at a future date, the
interest rate disclosed represents the annualized effective yield from the date
of acquisition to interest reset date disclosed.
(h) Commercial paper sold within terms of a private placement memorandum, exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and may be sold only to dealers in that program or other "accredited investors."
This security has been determined to be liquid under guidelines established by
the board.
(i) Interest rate varies either based on a predetermined schedule or to
reflect current market conditions; rate shown is the effective rate on
Nov. 30, 1996.
(j) Investments representing 5% or more of the outstanding voting
securities of the issuer. Transactions with companies that are or
were affiliates during the period ended Nov. 30, 1996 are:
<TABLE>
<CAPTION>
Beginning Purchase Sales Ending Dividend
Issuer cost cost cost cost income
<S> <C> <C> <C> <C> <C>
Kash Karry Food Stores $19,815,725 $ -- $ -- $19,815,725 $ --
Envirodyne Inds 11,146,875 -- 11,146,875 -- --
Total $30,962,600 $ -- $11,146,875 $19,815,725 $ --
</TABLE>
(k) Inverse floaters represent securities that pay interest at a rate that
increases (decreases) in the same magnitude as, or in a multiple of, a decline
(increase) in the LIBOR (London InterBank Offering Rate) Index. Interest rate
disclosed is the rate in effect on Nov. 30, 1996. Inverse floaters in the
aggregate represent 0.5% of the Portfolio's net assets as of Nov. 30, 1996.
(l) Security is partially or fully on loan. See note 5 to the financial
statements.
(m) Pay-in-kind securities are securities in which the issuer has the option to
make interest payments in cash or in additional securities. These securities
issued as interest, usually have the same terms, including maturity date, as the
pay-in-kind securities.
(n) Presently negligible market value.
(o) At Nov. 30, 1996, the cost of securities purchased, including interest
purchased, on a when-issued basis was $5,628,370.
(p) At Nov. 30, 1996, the cost of securities for federal income tax
purpose was approximately $2,707,845,000 and the approximate aggregate gross
unrealized appreciation and depreciation based on that cost was:
Unrealized appreciation $150,031,000
Unrealized depreciation (56,540,000)
- ------------------------------- ------------------------------
Net unrealized appreciation $ 93,491,000
<PAGE>
Financial statements
Statements of assets and liabilities
Strategist Income Fund, Inc.
Dec. 31, 1996
Strategist Strategist Strategist
Government Quality High
Income Fund Income Fund Yield Fund
Assets
Investment in corresponding Portfolio $536,583 $551,557 $679,280
Expense receivable from AEFC -- -- 181
Organizational costs 2,318 2,318 2,308
- --------------------------------------------------------------------------------
Total assets 538,901 553,875 681,769
- --------------------------------------------------------------------------------
Liabilities
Dividends payable to shareholders 1,050 2,700 637
Accrued distribution fee 4 4 4
Payable to advisor 218 -- --
Other accrued expenses 9,980 13,898 33,984
- --------------------------------------------------------------------------------
Total liabilities 11,252 16,602 34,625
- --------------------------------------------------------------------------------
Net assets applicable to outstanding
capital stock $527,649 $537,273 $647,144
- --------------------------------------------------------------------------------
Represented by
Capital stock -- authorized 3,000,000,000 shares
per Fund of $.01 par value: outstanding
107,169; 58,148 and 147,148 shares 1,072 581 1,471
Additional paid-in-capital 523,599 518,387 633,056
Undistributed (excess of distributions over)
net investment income (4,680) (243) 366
Accumulated net realized loss (2,160) (950) (3,254)
Unrealized appreciation of investments 9,818 19,498 15,505
- --------------------------------------------------------------------------------
Total -- representing net assets applicable to
outstanding capital stock $527,649 $537,273 $647,144
- --------------------------------------------------------------------------------
Net asset value per share of outstanding
capital stock $ 4.92 $ 9.24 $ 4.40
- --------------------------------------------------------------------------------
Financial statements
Statements of operations
For the one month ended Dec. 31, 1996
Strategist Strategist Strategist
Government Quality High
Income Fund Income Fund Yield Fund
Investment income
Income:
Interest $3,316 $3,349 $4,644
Dividends -- 65 231
- --------------------------------------------------------------------------------
Total income 3,316 3,414 4,875
- --------------------------------------------------------------------------------
Expenses:
Distribution fee 115 118 122
Transfer agency fee 7 7 19
Administrative services fee 23 24 24
Postage 7 9 1,094
Registration fees -- -- 2,482
Reports to shareholders 7 9 589
Audit fees 1,058 436 889
Administrative -- -- 27
Other -- -- 757
- --------------------------------------------------------------------------------
Total feeder expenses 1,217 603 6,003
Expenses allocated from corresponding Portfolio 249 255 298
- --------------------------------------------------------------------------------
Total expenses 1,466 858 6,301
Less expenses reimbursed by AEFC (1,035) (334) (5,747)
- --------------------------------------------------------------------------------
Total net expenses 431 524 554
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Investment income -- net 2,885 2,890 4,321
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Realized and unrealized gain (loss) -- net
Net realized gain on security and foreign
currency transactions 340 402 173
Net realized gain on option contracts written 85 -- --
Net realized gain on futures contracts 1,124 139 --
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Net realized gain on investments 1,549 541 173
Net change in unrealized appreciation
or depreciation (6,306) (8,944) 2,325
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Net gain (loss) on investments (4,757) (8,403) 2,498
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Net increase (decrease) in net assets
resulting from operation $(1,872) $(5,513) $6,819
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Financial statements
Statements of changes in net assets
For the one month ended Dec. 31, 1996
Strategist Strategist Strategist
Government Quality High
Income Fund Income Fund Yield Fund
Operations and distributions
Investment income -- net $ 2,885 $ 2,890 $ 4,320
Net gain on investments 1,549 541 173
Net change in unrealized appreciation
or depreciation (6,306) (8,944) 2,325
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Net increase (decrease) in net assets
resulting from operations (1,872) (5,513) 6,818
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Distributions to shareholders from:
Net investment income (9,943) (7,731) (4,733)
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Capital share transactions
Proceeds from sales 2,000 2,000 104,756
Reinvestment of distributions at net asset value 9,192 5,480 4,541
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Increase in net assets from capital
share transactions 11,192 7,480 109,297
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Total increase (decrease) in net assets (623) (5,764) 141,382
Net assets at beginning of period 528,272 543,037 535,762
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Net assets at end of period (including
undistributed (excess of distribution over)
net investment income of $(4,680), $(243),
and $4,321) $527,649 $537,273 $647,144
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