Strategist Income Fund, Inc.
1997 Semi Annual Report
Strategist Government Income Fund
Strategist High Yield Fund
Strategist Quality Income Fund
American Express Financial Direct
<PAGE>
Table of contents
Financial statements (Strategist Income Fund) 1
Notes to financial statements (Strategist Income Fund) 6
Financial statements (Government Income Portfolio) 13
Notes to financial statements (Government Income Portfolio) 16
Investments in securities (Government Income Portfolio) 20
Financial statements (High Yield Portfolio) 28
Notes to financial statements (High Yield Portfolio) 31
Investments in securities (High Yield Portfolio) 36
Financial statements (Quality Income Portfolio) 46
Notes to financial statements (Quality Income Portfolio) 49
Investments in securities (Quality Income Portfolio) 53
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<TABLE>
<CAPTION>
Financial statements
Statements of assets and liabilities
Strategist Income Fund, Inc.
Nov. 30, 1997 (Unaudited)
Strategist Strategist Strategist
Government High Quality
Income Fund Yield Fund Income Fund
Assets
Investment in corresponding
<S> <C> <C> <C>
Portfolio (Note 1) $659,960 $1,004,679 $630,472
Expense reimbursement
receivable from AEFC -- 18 --
Organizational costs (Note 1) 1,844 1,837 2,198
----- ----- -----
Total assets 661,804 1,006,534 632,670
------- --------- -------
Liabilities
Dividends payable to shareholders 200 430 315
Accrued distribution fee 8 13 8
Other accrued expenses 71,993 30,504 17,100
------ ------ ------
Total liabilities 72,201 30,947 17,423
------ ------ ------
Net assets applicable to
outstanding capital stock $589,603 $ 975,587 $615,247
-------- ---------- --------
Represented by
Capital stock-- $.01 par value (Note 1) $ 1,182 $ 2,130 $ 654
Additional paid in capital 577,357 919,641 584,124
Undistributed net investment income 391 1,795 403
Accumulated net realized gain (loss)(Note 4) (7,125) 3,510 (827)
Unrealized appreciation (depreciation)
on investments 17,798 48,511 30,893
Total -- representing net assets applicable
to outstanding capital stock $589,603 $ 975,587 $615,247
-------- ---------- --------
Shares outstanding 118,177 212,956 65,358
------- ------- ------
Net asset value per share of
outstanding capital stock $ 4.99 $ 4.58 $ 9.41
----- ----- -----
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Strategist Income Fund, Inc.
Statements of operations
Strategist Income Fund, Inc.
Six months ended Nov. 30, 1997 (Unaudited)
Strategist Strategist Strategist
Government High Quality
Income Fund Yield Fund Income Fund
Investment income
Income:
<S> <C> <C> <C>
Dividends $ -- $ 3,438 $ 151
Interest 21,571 43,655 21,366
------ ------ ------
Total income 21,571 47,093 21,517
------ ------ ------
Expenses (Note 2):
Expenses allocated from
corresponding Portfolio 1,618 2,910 1,599
Distribution fee 701 1,252 745
Transfer agency fee 71 506 105
Administrative services fees and expenses 140 251 149
Registration fees -- 12,558 272
Audit fees 600 1,600 300
Other 79 258 98
Total expenses 3,209 19,335 3,268
Less expenses reimbursed by AEFC (112) (13,300) (193)
---- ------- ----
Total net expenses 3,097 6,035 3,075
----- ----- -----
Investment income (loss)-- net 18,474 41,058 18,442
------ ------ ------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions 6,165 11,898 683
Financial futures (10,771) -- (3,941)
Options contracts written (1,009) -- --
------ ------ -----
Net realized gain (loss) on investments (5,615) 11,898 (3,258)
Net change in unrealized appreciation
(depreciation) on investments 13,289 25,068 21,591
------ ------ ------
Net gain (loss) on investments 7,674 36,966 18,333
----- ------ ------
Net increase (decrease) in net assets
resulting from operations $26,148 $78,024 $36,775
------- ------- -------
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Income Fund, Inc.
Strategist Government Income Fund
Six months ended For the period from
Nov. 30, 1997 June 10, 1996* to
(Unaudited) May 31, 1997
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 18,474 $ 30,968
Net realized gain (loss) on investments (5,615) 3,003
Net change in unrealized appreciation
(depreciation) on investments 13,289 4,509
------ -----
Net increase (decrease) in net assets
resulting from operations 26,148 38,480
------ ------
Distributions to shareholders from:
Net investment income (19,500) (30,279)
Net realized gain -- (4,513)
------ ------
Total distributions (19,500) (34,792)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 18,048 485,789
Reinvestment of distributions at net asset value 19,400 34,648
Payments for redemptions (2,349) (16,269)
------ -------
Increase (decrease) in net assets from
capital share transactions 35,099 504,168
------ -------
Total increase (decrease) in net assets 41,747 507,856
Net assets at beginning of period (Note 1) 547,856 40,000
------- ------
Net assets at end of period $589,603 $547,856
-------- --------
Undistributed net investment income $ 391 $ 1,417
------ -------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Income Fund, Inc.
Strategist High Yield Fund
Six months ended For the period from
Nov. 30, 1997 June 10, 1996* to
(Unaudited) May 31, 1997
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 41,058 $ 50,916
Net realized gain (loss) on investments 11,898 (8,388)
Net change in unrealized appreciation
(depreciation) on investments 25,068 23,443
------ ------
Net increase (decrease) in net assets
resulting from operations 78,024 65,971
------ ------
Distributions to shareholders from:
Net investment income (40,406) (50,495)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 131,547 884,081
Reinvestment of distributions at net asset value 39,554 50,255
Payments for redemptions (193,004) (19,940)
-------- -------
Increase (decrease) in net assets from
capital share transactions (21,903) 914,396
------- -------
Total increase (decrease) in net assets 15,715 929,872
Net assets at beginning of period (Note 1) 959,872 30,000
------- ------
Net assets at end of period $975,587 $959,872
-------- --------
Undistributed net investment income $ 1,795 $ 1,143
------- -------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Income Fund, Inc.
Strategist Quality Income Fund
Six months ended For the period from
Nov. 30, 1997 June 10, 1996* to
(Unaudited) May 31, 1997
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 18,442 $ 30,582
Net realized gain (loss) on investments (3,258) 2,511
Net change in unrealized appreciation
(depreciation) on investments 21,591 9,302
------ -----
Net increase (decrease) in net assets
resulting from operations 36,775 42,395
------ ------
Distributions to shareholders from:
Net investment income (19,731) (29,382)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 23,443 511,382
Reinvestment of distributions at net asset value 19,638 29,123
Payments for redemptions (19,678) (8,718)
------- ------
Increase (decrease) in net assets from
capital share transactions 23,403 531,787
------ -------
Total increase (decrease) in net assets 40,447 544,800
Net assets at beginning of period (Note 1) 574,800 30,000
------- ------
Net assets at end of period $615,247 $574,800
-------- --------
Undistributed net investment income $ 403 $ 1,692
------ -------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
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Notes to financial statements
Strategist Income Fund, Inc.
(Unaudited as to Nov. 30, 1997)
1. Summary of significant accounting policies
Strategist Government Income Fund (Government Income Fund), Strategist
High Yield Fund (High Yield Fund), and Strategist Quality Income Fund
(Quality Income 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. Each Fund has 3 billion authorized shares of capital stock. On
April 15, 1996, American Express Financial Corporation (AEFC) invested
$40,000 in Government Income Fund, $30,000 in High Yield Fund, and $30,000
in Quality Income Fund which represented 8,147 shares for Strategist
Government Income Fund, 6,961 shares for Strategist High Yield Fund, and
3,352 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.
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.
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.
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, 1997, the percentages of the
corresponding Portfolio owned by Government Income Fund, High Yield Fund,
and Quality Income Fund were 0.03%, 0.03%, and 0.04%, respectively.
Valuation of securities held by the Portfolios is discussed in Note 1 of
the Portfolios' "Notes to financial statements," which are included
elsewhere in this report.
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.
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.
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, High Yield Fund, and Quality Income 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, 1997, AEFC owned 112,924 shares of Government Income Fund,
131,030 shares of High Yield Fund, and 61,154 shares of Quality Income
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 a fee 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 a separate Transfer Agency Agreement, American Express Client
Service Corporation (AECSC) maintains shareholder accounts and records.
Each Fund pays AECSC 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.
A redemption fee of 0.50% is applied and retained by High Yield Fund if
shares are redeemed or exchanged within 180 days of purchase.
AEFC and the Distributor have agreed to waive certain fees and to absorb
certain other of Fund expenses until Dec. 31, 1998. 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.
<PAGE>
3. Capital share transactions
Transactions in shares of capital stock for the periods indicated are as
follows:
Six Months ended Nov. 30, 1997
Government High Quality
Income Yield Income
Fund Fund Fund
Sold 3,624 28,961 2,513
Reinvested dividends 3,899 8,660 2,105
Redemptions (469) (42,146) (2,097)
---- ------- ------
Net increase (decrease) 7,054 (4,525) 2,521
----- ------ -----
Period ended May 31, 1997
Government High Quality
Income Yield Income
Fund* Fund* Fund*
Sold 99,299 203,619 57,264
Reinvested dividends 6,996 11,458 3,164
Redemptions (3,319) (4,557) (943)
------ ------ ----
Net increase (decrease) 102,976 210,520 59,485
------- ------- ------
*Inception date was June 10, 1996.
4. Capital loss carryover
For federal income tax purposes, Government Income Fund and High Yield
Fund had capital loss carryovers at May 31, 1997 of $851 and $8,417,
respectively, that if not offset by subsequent capital gains, will expire
in 2005 and 2006. It is unlikely the board will authorize a distribution
of any net realized gains for a Fund until its available capital loss
carryover has been offset or expires.
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<CAPTION>
5. Financial highlights
The tables below show certain important information for evaluating each
Fund's results.
Government Income Fund
Fiscal period ended May 31,
Per share income and capital changes(a)
1997(c) 1997(b)
<S> <C> <C>
Net asset value, beginning of period $4.93 $4.91
Income from investment operations:
Net investment income (loss) .16 .30
Net gains (losses) (both realized and unrealized) .07 .06
Total from investment operations .23 .36
Less distributions:
Dividends from net investment income (.17) (.30)
Distributions from realized gains -- (.04)
Total distributions (.17) (.34)
Net asset value, end of period $4.99 $4.93
Ratios/supplemental data
Net assets, end of period (in thousands) $590 $548
Ratio of expenses to average daily net assets 1.10%d,e 1.10%d,e
Ratio of net income (loss) to average daily net assets 6.59%e 6.48%e
Portfolio turnover rate (excluding short term securities) 89% 146%
Total return 4.8% 7.6%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 10, 1996.
(c) Six months ended Nov. 30, 1997. (Unaudited).
(d) The Advisor and Distributor voluntarily limited total operating expenses.
Without this agreement, the ratio of expenses to average daily net assets
would have been 1.14% for the six months ended Nov. 30, 1997 and 25.68% for
the period ended May 31, 1997.
(e) Adjusted to an annual basis.
</TABLE>
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<TABLE>
<CAPTION>
High Yield Fund
Fiscal period ended May 31,
Per share income and capital changes(a)
1997(c) 1997(b)
<S> <C> <C>
Net asset value, beginning of period $4.41 $4.31
Income from investment operations:
Net investment income .19 .38
Net gains (losses) (both realized and unrealized) .16 .09
Total from investment operations .35 .47
Less distributions:
Dividends from net investment income (.18) (.37)
Net asset value, end of period $4.58 $4.41
Ratios/supplemental data
Net assets, end of period (in thousands) $976 $960
Ratio of expenses to average daily net assets 1.20%d,e 1.19%d,e
Ratio of net income (loss) to average daily net assets 8.20%e 8.90%e
Portfolio turnover rate (excluding short term securities) 45% 92%
Total return 8.1% 11.4%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 10, 1996.
(c) Six months ended Nov. 30, 1997. (Unaudited).
(d) The Advisor and Distributor voluntarily limited total operating expenses.
Without this agreement, the ratio of expenses to average daily net assets
would have been 3.86% for the six months ended Nov. 30, 1997 and 11.48% for
the period ended May 31, 1997.
(e) Adjusted to an annual basis.
</TABLE>
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<CAPTION>
Quality Income Fund
Fiscal period ended May 31,
Per share income and capital changesa
1997(c) 1997(b)
<S> <C> <C>
Net asset value, beginning of period $9.15 $8.95
Income from investment operations:
Net investment income (loss) .29 .55
Net gains (losses) (both realized and unrealized) .28 .18
Total from investment operations .57 .73
Less distributions:
Dividends from net investment income (.31) (.53)
Net asset value, end of period $9.41 $9.15
Ratios/supplemental data
Net assets, end of period (in thousands) $615 $575
Ratio of expenses to average daily net assets 1.03%d,e 1.10%d,e
Ratio of net income (loss) to average daily net assets 6.19%e 6.33%e
Portfolio turnover rate (excluding short term securities) 9% 31%
Total return 6.3% 8.3%
(a) For a share outstanding throughout the period. Rounded to the nearest cent.
(b) Inception date was June 10, 1996.
(c) Six months ended Nov. 30, 1997. (Unaudited).
(d) The Advisor and Distributor voluntarily limited total operating expenses.
Without this agreement, the ratio of expenses to average daily net assets would
have been 1.10% for the six months ended Nov. 30, 1997 and 13.34% for the period
ended May 31, 1997.
(e) Adjusted to an annual basis.
</TABLE>
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Financial statements
Statement of assets and liabilities
Government Income Portfolio
Nov. 30, 1997 (Unaudited)
Assets
Investments in securities, at value (Note 1)
(identified cost $2,916,716,941) $2,982,973,037
Cash in bank on demand deposit 29,079,723
Accrued interest receivable 28,273,625
Receivable for investment securities sold 148,052,355
U.S. government securities held as collateral (Note 5) 48,924,229
----------
Total assets 3,237,302,969
-------------
Liabilities
Payable for investment securities purchased 271,327,816
Payable upon return of securities loaned (Note 5) 522,438,916
Accrued investment management services fee 65,401
Other accrued expenses 25,568
Option contracts written, at value
(premium received $68,470,442) (Note 6) 67,402,593
----------
Total liabilities 861,260,294
-----------
Net assets $2,376,042,675
--------------
See accompany notes to financial statements.
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<CAPTION>
Statement of operations
Government Income Portfolio
Six months ended Nov. 30, 1997 (Unaudited)
Investment income
Income:
<S> <C>
Interest $ 79,006,597
------------
Expenses (Note 2):
Investment management services fee 5,819,399
Compensation of board members 8,105
Custodian fees 64,291
Audit fees 15,750
Other 22,475
------
Total expenses 5,930,020
---------
Investment income (loss)-- net 73,076,577
----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 22,460,870
Financial futures contracts (39,616,512)
Options contracts written (Note 6) (3,646,628)
----------
Net realized gain (loss) on investments (20,802,270)
Net change in unrealized appreciation
(depreciation) on investments 48,680,255
----------
Net gain (loss) on investments 27,877,985
----------
Net increase (decrease) in net assets resulting from operations $100,954,562
------------
See accompanying notes to financial statements.
</TABLE>
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<CAPTION>
Statements of changes in net assets
Government Income Portfolio
Six months ended For the period from
Nov. 30, 1997 June 10, 1996* to
(Unaudited) May 31, 1997
Operations
<S> <C> <C>
Investment income (loss)-- net $ 73,076,577 $ 124,973,996
Net realized gain (loss) on investments (20,802,270) (221,211)
Net change in unrealized appreciation
(depreciation) on investments 48,680,255 22,413,297
---------- ----------
Net increase (decrease) in net assets
resulting from operations 100,954,562 147,166,082
Net contributions (withdrawals) from partners 71,105,143 2,056,776,888
---------- -------------
Total increase (decrease) in net assets 172,059,705 2,203,942,970
Net assets at beginning of period (Note 1) 2,203,982,970 40,000
------------- ------
Net assets at end of period $2,376,042,675 $2,203,982,970
-------------- --------------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
Government Income Portfolio
(Unaudited as to Nov. 30, 1997)
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, American Express Financial Corporation (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. Debt securities are
generally traded in the over the counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. 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.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Fund may buy
and sell put and call options and write covered call options on portfolio
securities and may write cash secured put and call options on U.S.
government securities. The Fund also may purchase mortgage backed security
(MBS) put spread options and write covered MBS call spread options. MBS
spread options are based upon the changes in the price spread between a
specified mortgage backed security and a like duration Treasury security.
The risk in writing a call option is that the Fund gives up the
opportunity of profit if the market price of the security increases. The
risk in writing a put option is that the Fund 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 Fund pays a premium whether or not
the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary
market does not exist. The Fund also may write over the counter options
where the completion of the obligation is dependent upon the credit
standing of the other party.
Option contracts are valued daily at the closing prices on their primary
exchanges and unrealized appreciation or depreciation is recorded. The
Fund will realize a gain or loss upon expiration or closing of the option
transaction. When options on debt securities or futures are exercised, the
Fund will realize a gain or loss. When other options are 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. 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 gross assets the same as owned securities. The Portfolio
designates cash or liquid high grade short term debt securities at least
equal to the amount of its commitment. As of Nov. 30, 1997, the Portfolio
had entered into outstanding when issued or forward commitments of
$150,340,573.
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 (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, brokerage commissions 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 and approved by the
board.
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 $2,484,312,386 and $2,323,839,728
respectively, for the period from June 1, 1997 to Nov. 30, 1997. For the
same period, the portfolio turnover rate was 89%. Realized gains and
losses are determined on an identified cost basis.
4. Interest rate futures contracts
At Nov. 30, 1997, investments in securities included securities valued at
$46,237,690 that were pledged as collateral to cover initial margin
deposits on 4,208 open purchase contracts and 5,597 open sale contracts.
The market value of the open purchase contracts at Nov. 30, 1997 was
$452,952,970 with a net unrealized gain of $1,377,395. The market value of
the open sale contracts at Nov. 30, 1997 was $645,244,375 with a net
unrealized loss of $3,633,969. See Summary of significant accounting
policies.
5. Lending of portfolio securities
At Nov. 30, 1997, securities valued at $508,045,552 were on loan to
brokers. For collateral, the Portfolio received $473,514,687 in cash and
U.S. government securities valued at $48,924,229. Income from securities
lending amounted to $791,225 for the period ended Nov. 30, 1997. 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.
<PAGE>
<TABLE>
<CAPTION>
6. Option contracts written
The number of contracts and premium amounts associated with option
contracts written is as follows:
Period ended Nov. 30, 1997
Puts Calls MBS Puts and Calls
Contracts Premium Contracts Premium Contracts Premiums
<S> <C> <C> <C> <C> <C> <C>
Balance May 31, 1997 2,209 $ 2,598,052 4,067 $ 6,810,256 13,000 $ 757,616
Opened 8,907 11,819,477 11,941 18,536,024 46,150 109,104,140
Closed (8,261) (10,084,501) (8,397) (12,936,837) (20,700) (52,279,257)
Exercised (42) (35,228) (1,686) (2,710,856) (18,700) (441,483)
Expired (148) (180,885) (1,876) (2,419,670) (4,250) (66,406)
---- -------- ------ ---------- ------ -------
Balance Nov. 30, 1997 2,665 $ 4,116,915 4,049 $ 7,278,917 15,500 $ 57,074,610
----- ----------- ----- ----------- ------ ------------
See Summary of significant accounting policies.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Government Income Portfolio
Nov. 30, 1997 (Unaudited)
(Percentages represent value of investments compared to net assets)
Bonds (110.9%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (55.1%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.125 % 1998 $ 78,000,000 $ 77,592,840
5.375 1998 10,000,000 9,990,500
5.625 1998 55,000,000 54,954,900
5.750 2003 18,500,000 18,418,230
5.875 1999-05 47,600,000(h) 47,624,487
6.00 1999-00 147,750,000(h) 148,391,820
6.25 2000-21 12,100,000(e,f,h) 12,239,147
6.375 2000-27 302,850,000(h) 310,683,815
6.50 2005 5,000,000(e,f) 5,183,050
6.625 2002 48,500,000 49,747,850
6.75 2000 100,750,000(h) 102,915,117
7.00 2006 8,500,000(h) 9,118,035
7.125 2000 32,000,000 32,889,600
7.75 2000-01 118,250,000(e,f,h) 123,402,070
8.125 2019 31,000,000(h) 38,363,430
8.50 2000 22,000,000 23,224,080
10.75 2003-05 19,750,000(e,f) 24,403,215
11.875 2003 66,000,000 85,635,660
12.375 2004 7,000,000 9,412,690
TIPS 3.625 2002 500,000(i) 504,083
Collateralized Mtge
Securities Corp 13.45 2020 3,750,000 4,003,125
Resolution Funding
Corp 8.125 2019 8,000,000 9,807,440
Zero Coupon 6.13 2008 48,500,000(b) 25,750,105
6.15 2002 11,170,000(b) 8,695,622
6.36 2003 16,000,000(b) 11,404,160
7.20 2018 8,000,000(b) 2,265,120
7.28 2017 44,350,000(b) 13,132,220
7.37 2017 79,350,000(b) 22,824,228
7.43 2019 84,500,000(b) 22,395,027
7.87 2018 7,500,000(b) 2,026,608
8.04 2012 8,400,000(b) 3,363,360
------------
Total 1,310,361,634
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mortgage backed securities (55.8%)
Federal Home Loan Mortgage Corporation (20.0%)
<S> <C> <C> <C> <C>
6.00 2025 156,250,000(j) 149,609,375
6.00 2026 19,536,798 18,761,187
6.50 2003-09 7,719,350 7,705,723
7.00 2010 18,528,806 18,759,490
7.50 2024 7,710,626 7,909,637
8.00 2023-25 64,726,545 67,197,468
8.50 2022-27 20,100,488 21,012,531
9.00 2025-26 41,355,760 44,159,227
14.24 2027 199,625,260(b) 3,485,457
Collateralized Mtge
Obligation 1.08 2027 6,187,259 5,095,765
4.00 2023 11,817,347 11,172,711
6.75 2022 22,000,000 21,942,580
8.25 2024 33,335,995 36,311,899
8.50 2022 9,150,000 10,175,349
Interest Only 10.00 2020 266,685 84,238
Principal Only 1.32 2022 4,997,974 4,050,858
1.48 2027 2,356,107 1,850,416
2.47 2023 13,000,000 8,013,281
2.48 2008 10,119,749 8,238,108
2.92 2009 5,979,874 4,554,982
3.41 2003-07 21,486,331 17,631,882
3.82 2008 8,328,020 6,046,923
-----------
Total 473,769,087
Federal National Mortgage Association (35.2%)
6.00 2008-27 36,256,755 34,883,125
6.50 2023-27 153,713,110(e,f) 151,814,540
7.00 2023-27 169,778,707 170,587,391
7.50% 2025-26 $ 72,316,529 $ 73,889,414
8.00 2021-27 24,416,149 25,297,719
8.50 2007-26 200,875,613 210,783,243
9.00 2023-26 24,096,455 25,799,104
Collateralized Mtge
Obligation 3.00 2019 11,250,000 10,292,513
4.50 2010 8,204,208 7,509,230
4.70 2022 5,436,398 5,392,744
5.00 2024 6,507,327 6,265,906
5.50 2008 10,693,282 10,286,617
6.00 2008 6,166,539 6,084,709
6.50 2017 580,768 579,295
7.00 2012 6,130,247 6,172,668
8.50 2021 12,350,000 13,652,753
9.00 2020 11,666,000 12,818,484
Inverse Floater 6.45 2023 6,052,314(d) 5,458,340
7.58 2024 4,913,659(d) 4,055,439
Principal Only 1.00 2020-21 6,389,197 6,048,962
1.25 2023 6,436,532 6,105,050
3.08 2023 10,788,439 6,080,297
3.85 2008 7,000,000 5,087,031
Interest Only 8.50 2022 15,129,619(c) 4,471,440
9.50 2018-22 14,086,847(c) 4,245,834
10.00 2018-22 46,501,373(c) 13,621,981
10.50 2021 11,732,705(c) 3,998,961
Principal Only 4.95 2023 9,558,975(g) 5,053,830
-----------
Total 836,336,620
Government National Mortgage Association (0.6%)
7.50 2025 13,882,693 14,209,075
11.00 2019 301,483 336,657
-----------
Total 14,545,732
Total bonds
(Cost: $2,568,197,121) $2,635,013,073
</TABLE>
<PAGE>
Options purchased (0.2%)
Issuer Number Exercise Expiration Value(a)
of contracts price date
Put
MBS 8,500 $103 Dec. 1997 $ 9,775
MBS 10,000 97 Jan. 1998 250,000
U.S. Treasury Bonds
March 98 340 108 Feb. 1998 53,125
Call
U.S. Treasury Bonds
March 98 1,300 109 Feb. 1998 3,473,431
---------
Total options purchased
(Cost: $4,385,854) $3,786,331
<PAGE>
<TABLE>
<CAPTION>
Short term securities (14.5%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (10.2%)
Federal Home Loan Mtge Corp Disc Nts
<S> <C> <C> <C>
12 05 97 5.47% $ 9,400,000 $ 9,391,446
12 11 97 5.47 8,300,000 8,284,922
12 11 97 5.48 20,400,000 20,362,872
12 11 97 5.50 6,000,000 5,989,020
12 11 97 5.50 50,000,000 49,908,500
12 22 97 5.48 5,900,000 5,879,456
Federal Natl Mtge Assn Disc Nts
12 22 97 5.51 49,000,000 48,850,550
12 22 97 5.51 17,000,000 16,948,150
12 22 97 5.51 50,000,000 49,824,625
12 22 97 5.52 27,400,000 27,299,533
-------------
Total 242,739,074
Certificates of deposit (4.3%)
ABN Yankee
04 17 98 6.27 25,000,000 25,026,043
Canadian Imperial Bank Yankee
03 23 98 6.00 25,000,000 25,000,000
Societe Generale Yankee
03 20 98 5.98 41,400,000 41,399,042
04 15 98 6.25 10,000,000 10,009,474
-------------
Total 101,434,559
Total short term securities
(Cost: $344,133,966) $ 344,173,633
Total investment in securities
(Cost: $2,916,716,941)(k) $2,982,973,037
</TABLE>
<PAGE>
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, 1997.
(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 March 98, 5 year notes $74,700,000
U.S. Treasury Note Dec. 97, 5 year notes 308,100,000
U.S. Treasury Note March 98, 2 year notes 38,000,000
Sale contracts
U.S. Treasury Note March 98, 10 year notes 122,100,000
U.S. Treasury Note Dec. 97, 10 year notes 157,900,000
U.S. Treasury Bonds March 98 235,400,000
U.S. Treasury Bonds Dec. 97 44,300,000
<PAGE>
<TABLE>
<CAPTION>
(f) At Nov. 30, 1997, securities valued at $46,237,690 were held to cover
open call options written as follows:
Issuer Number of Exercise Expiration Value(a)
contracts price date
U.S. Treasury Bonds
<S> <C> <C> <C> <C>
March 98 170 $117 Feb. 1998 $393,125
U.S. Treasury Bonds
March 98 786 118 Dec. 1997 1,252,687
U.S. Treasury Bonds
March 98 425 119 Dec. 1997 425,000
U.S. Treasury Bonds
March 98 500 116 Feb. 1998 1,953,125
U.S. Treasury Bonds
March 98 1,063 118 Feb. 1998 2,790,375
U.S. Treasury Bonds
March 98 1,105 120 Feb. 1998 1,830,156
Mortgage Backed Security
(MBS) Spread 5,500 103 Dec. 1997 56,873,437
Mortgage Backed Security
(MBS) Spread 10,000 98 Jan. 1998 312,500
At Nov. 30, 1997, 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 98 1,085 $117 Dec. 1997 $305,156
U.S. Treasury Bonds March 98 650 114 Feb. 1998 304,687
U.S. Treasury Bonds March 98 760 116 Feb. 1998 688,750
U.S. Treasury Bonds March 98 170 118 Feb. 1998 273,593
</TABLE>
<PAGE>
(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) Security is partially or fully on loan. See Note 5 to the financial
statements.
(i) U.S. Treasury inflation protection securities (TIPS) are securities in
which the principal amount is adjusted for inflation and the semi
annual interest payments equal a fixed percentage of the
inflation adjusted principal amount.
(j) At Nov. 30, 1997, the cost of securities purchased on a when issued
basis was $150,340,573.
(k) At Nov. 30, 1997, the cost of securities for federal income tax
purposes was approximately $2,916,717,000 and the approximate
aggregate gross unrealized appreciation and depreciation based on that
cost was:
Unrealized appreciation -------------------------- $73,157,000
Unrealized depreciation -------------------------- (6,901,000)
Net unrealized appreciation ---------------------- $66,256,000
<PAGE>
Financial statements
Statement of assets and liabilities
High Yield Portfolio
Nov. 30, 1997 (Unaudited)
Assets
Investments in securities, at value (Note 1)
(identified cost $3,474,839,490) $3,650,617,733
Cash in bank on demand deposit 3,002,464
Dividends and accrued interest receivable 73,736,989
Receivable for investment securities sold 48,594,919
----------
Total assets 3,775,952,105
-------------
Liabilities
Payable for investment securities purchased 62,619,745
Accrued investment management services fee 112,728
Other accrued expenses 64,991
------
Total liabilities 62,797,464
----------
Net assets applicable to outstanding capital stock $3,713,154,641
--------------
See accompanying notes to financial statements.
<PAGE>
Statement of operations
High Yield Portfolio
Six months ended Nov. 30, 1997 (Unaudited)
Investment income
Income:
Dividends $ 11,844,608
Interest 149,298,575
-----------
Total income 161,143,183
-----------
Expenses (Note 2):
Investment management services fee 9,770,940
Compensation of board members 10,608
Custodian fees 81,526
Audit fees 16,500
Other 40,988
------
Total net expenses 9,920,562
---------
Investment income (loss) -- net 151,222,621
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on security transactions (Note 3) 48,640,869
Net change in unrealized appreciation
(depreciation) on investments 67,224,769
----------
Net gain (loss) on investments 115,865,638
-----------
Net increase (decrease) in net assets resulting from operations $267,088,259
------------
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
High Yield Portfolio
Six months ended For the period from
Nov. 30, 1997 June 10, 1996* to
(Unaudited) May 31, 1997
Operations
<S> <C> <C>
Investment income (loss)-- net $ 151,222,621 $ 255,009,695
Net realized gain (loss) on investments 48,640,869 11,905,305
Net change in unrealized appreciation
(depreciation) on investments 67,224,769 42,485,867
---------- ----------
Net increase (decrease) in net assets
resulting from operations 267,088,259 309,400,867
Net contributions (withdrawals) from partners 247,002,008 2,889,633,507
----------- -------------
Total increase (decrease) in net assets 514,090,267 3,199,034,374
Net assets at beginning of period (Note 1) 3,199,064,374 30,000
------------- ------
Net assets at end of period $3,713,154,641 $3,199,064,374
-------------- --------------
*Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to financial statements
High Yield Portfolio
(Unaudited as to Nov. 30, 1997)
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, American Express Financial Corporation
(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 policies 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. Debt securities are
generally traded in the over the counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. 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.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Portfolio
may buy and 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 and 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 options on debt securities or futures are
exercised, the Portfolio will realize a gain or loss. When other options
are 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 and 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.
Illiquid securities
At Nov. 30, 1997, investments in securities included issues that are
illiquid. The Portfolio currently limits investments in illiquid
securities to 10% of net assets, at market value, at the time of purchase.
The aggregate value of such securities at Nov. 30, 1997 was $55,337,512
representing 1.49% of 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.
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 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, brokerage commissions and
nonadvisory expenses which include custodian fees, 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 and approved by the board.
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 $1,954,014,989 and $1,521,762,924,
respectively, for the six months ended Nov. 30, 1997. For the same period,
the portfolio turnover rate was 45%. Realized gains and losses are
determined on an identified cost basis.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
High Yield Portfolio
Nov. 30, 1997 (Unaudited)
(Percentages represent value of investments compared to net assets)
Bonds (88.6%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
<S> <C> <C> <C> <C>
Mortgage backed securities (0.2%)
Federal Home
Loan Mtge Corp 7.50 % 2017 $ 5,173(b) $ 5,411
Merrill Lynch
Mtge Investors 8.19 2021 7,300,939 7,328,318
-----------
Total 7,333,729
Aerospace & defense (1.4%)
Alliant Techsystems
Sr Sub Nts 11.75 2003 9,250,000 10,175,000
K&F Inds
Sr Sub Nts 9.25 2007 4,500,000(c) 4,567,500
L 3 Communications
Sr Sub Nts 10.375 2007 10,645,000 11,496,600
Sequa 9.625 1999 3,000,000 3,105,000
Sr Sub Nts 9.375 2003 20,750,000 21,683,750
-----------
Total 51,027,850
Automotive & related (0.7%)
Hayes Wheels Intl 9.125 2007 10,000,000 10,300,000
Oxford Auto
Sr Sub Nts 10.125 2007 14,370,000(c) 15,016,650
-----------
Total 25,316,650
Banks and savings & loans (0.7%)
First Nationwide Bank
Sr Sub Nts 10.625 2003 11,000,000 12,265,000
Wilshire Financial
Services 13.00 2004 10,000,000(c) 14,006,250
-----------
Total 26,271,250
Beverages & tobacco (0.4%)
Stroh Brewery
Sr Sub Nts 11.10 2006 14,887,000 14,589,260
Building materials & construction (0.1%)
Southdown
Sr Sub Nts 10.00 2006 4,700,000 5,134,750
Chemicals (0.9%)
Freedom Chemicals 10.625 2006 9,000,000 10,057,500
ISP Holdings
Sr Nts 9.75 2002 22,215,000 23,520,131
-----------
Total 33,577,631
Communications equipment & services (18.2%)
CCPR Services 10.00 2007 22,350,000 23,020,500
Celcaribe
Zero Coupon 10.42 1998 3,800,000(c,g) 6,270,000
Zero Coupon 13.44 1998 7,350,000(g) 7,276,500
Cencall Communications
Zero Coupon Sr Nts 15.37 1999 11,500,000(g) 10,407,500
Clearnet Communications
Zero Coupon
Sr Disc Nts 11.82 2005 12,000,000 9,030,000
Comcast Cellular
Sr Nts 9.50 2007 20,000,000 20,900,000
Communications & Power Inds
Sr Sub Nts 12.00 2005 10,000,000 11,112,500
EchoStar Communications
Zero Coupon
Sr Disc Nts 7.95 2004 12,000,000(g) 10,800,000
Zero Coupon
Sr Disc Nts 11.81 2004 30,500,000(g) 25,162,500
Geotek Communications
Cv 12.00 2001 4,135,000(e) 2,873,825
Zero Coupon 17.41 2000 23,250,000(g) 13,717,500
Globalstar
Sr Nts 11.25 2004 7,500,000 7,537,500
with Warrants 11.375 2004 13,500,000(c) 13,601,250
GST Equipment Funding
Sr Nts 13.25 2007 6,750,000 7,695,000
Hypertion Telecommunications
Sr Nts 12.25 2004 14,000,000 15,085,000
Impsat 12.125 2003 10,000,000 11,087,500
Intermedia Communications
Sr Nts 8.875 2007 6,400,000 6,416,000
Zero Coupon
Sr Disc Nts 11.25 2007 23,000,000(g) 15,755,000
Intl Wireless Communication
Zero Coupon Sr Nts 14.00 2001 14,750,000(f) 8,628,750
Iridium LLC/Capital 11.25 2005 4,000,000 3,880,000
13.00 2005 22,150,000 22,980,625
ITC Deltacom
Sr Nts 11.00 2007 14,550,000 15,423,000
Jordon Telecom Products
Sr Nts 9.875 2007 8,250,000 8,353,125
Zero Coupon
Sr Disc Nts 6.98 2007 11,000,000(g) 8,690,000
Metrocall
Sr Sub Nts 10.375 2007 13,750,000 14,025,000
Metronet Communications
with Units 12.00 2007 8,750,000 9,953,125
NTL
Sr Nts 10.75 2006 40,000,000 30,500,000
Nextlink Communications
Sr Nts 12.50 2006 15,000,000 17,025,000
Norcal Waste Systems 13.50 2005 20,300,000 23,268,875
Omnipoint
Sr Nts 11.625 2006 24,100,000 25,546,000
Sr Nts Series A 11.625 2006 13,450,000 14,257,000
Optel
with Common Stock 13.00 2005 17,000,000(c) 17,595,000
Outsourcing Solutions
Sr Sub Nts 11.00 2006 20,895,000 23,245,687
Pagemart Nationwide
Zero Coupon Sr Nts 15.80 2000 23,000,000(g) 19,550,000
Peoples Telephone
Sr Nts 12.25 2002 12,500,000 13,125,000
Phonetel Technologies
Sr Nts 12.00 2006 23,500,000 24,205,000
Pierce Leahy
Sr Sub Nts 11.125 2006 5,433,000(c) 6,139,290
Price Communications Celluar
Zero Coupon
Sr Disc Nts 11.18 2007 12,000,000(c,f) 6,870,000
Price Wireless
Sr Sub Nts 11.75 2007 10,000,000(c) 10,825,000
Pricellular Wireless
Zero Coupon
Sr Disc Nts 10.85 1998 18,250,000(g) 18,706,250
Sr Sub Nts 14.00 2001 10,000,000 11,175,000
Pronet
Sr Sub Nts 11.875 2005 19,350,000 20,607,750
RSL Communications
with Warrants 12.25 2006 14,500,000 15,805,000
SC Intl Services
Sr Sub Nts with Rights 9.25 2007 22,000,000(c) 22,770,000
Teleport Communications
Zero Coupon Sr Nts 11.12 2001 30,000,000(g) 23,850,000
Unifi Communications
with Warrants 14.00 2004 10,000,000 9,862,500
Vialog
with Units 12.75 2001 11,100,000(c) 11,322,000
-----------
Total 675,932,052
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Computers & office equipment (1.3%)
Anacomp
Sr Sub Nts 10.875 2004 13,000,000 13,390,000
Read Rite
Cv 6.50 2004 4,375,000 3,921,094
Softkey
Cv 5.50 2000 2,500,000 2,256,250
Unisys
Sr Nts 11.75 2004 17,500,000 19,950,000
Sr Nts 12.00 2003 8,000,000 9,060,000
-----------
Total 48,577,344
Energy (3.7%)
Belco Oil & Gas
Sr Sub Nts 8.875 2007 5,800,000 5,807,250
Benton Oil & Gas 9.375 2007 9,000,000(c) 9,112,500
Bellwether Exploration
Sr Sub Nts 10.875 2007 9,000,000 9,765,000
Clark R & M
Sr Sub Nts 8.875 2007 11,000,000(c) 11,000,000
Clark Schwebel
Deb 12.50 2007 4,507,412(c) 4,822,931
Costilla Energy
Sr Nts 10.25 2006 10,000,000 10,500,000
Empire Gas
Sr Nts 7.00 2004 11,350,000(i) 10,442,000
Energy Corp of America
Sr Sub Nts 9.50 2007 9,000,000 8,955,000
Forcenergy
Sr Sub Nts 8.50 2007 4,500,000 4,545,000
Sr Sub Nts 9.50 2006 5,000,000 5,275,000
Harcor Energy
Sr Nts Series B 14.875 2002 10,615,000 12,207,250
Hurricane Hydrocarbons
Sr Nts 11.75 2004 15,000,000(c) 15,112,500
HS Resources
Sr Sub Nts 9.25 2006 4,250,000 4,430,625
Sr Sub Nts 9.875 2003 9,700,000 10,063,750
Petroleum Heat & Power
Sub Deb 9.375 2006 2,800,000 2,632,000
Transamerican Energy
Sr Nts 11.50 2002 11,600,000(c) 11,629,000
-----------
Total 136,299,806
Energy equipment & services (0.6%)
Dailey Intl 9.75 2007 4,000,000(c) 4,180,000
Plains Resources 10.25 2006 9,000,000 9,720,000
Pride Petroleum Services
Sr Nts 9.375 2007 6,600,000 7,111,500
-----------
Total 21,011,500
Financial services (1.0%)
Arcadia Financial
with Warrants 11.50 2007 22,750,000 22,636,250
Gemini 13.50 2001 13,500,000(e,i) 13,500,000
-----------
Total 36,136,250
Food (2.9%)
Ameriserv Food
Sr Sub Nts 10.125 2007 8,400,000(c) 8,757,000
Aurora Foods
Sr Sub Nts 9.875 2007 16,000,000 16,720,000
Chiquita Brands Intl 9.625 2004 8,500,000 9,031,250
CFP Holdings
Sr Nts 11.625 2004 15,175,000(c) 14,719,750
Fine Host
Cv 5.00 2004 2,000,000(c) 1,885,000
Gorges/Quik to Fix Food
Sr Sub Nts Series B 11.50 2006 14,250,000 14,926,875
Pilgrim's Pride
Sr Sub Nts 10.875 2003 3,970,000 4,198,275
Specialty Foods
Sr Nts 10.25 2001 20,000,000 20,100,000
Twin Laboratories
Sr Sub Nts 10.25 2006 15,250,000 16,317,500
-----------
Total 106,655,650
Furniture & appliances (0.2%)
Lifestyle Furnishings 10.875 2006 6,500,000 7,263,750
Health care (0.3%)
Maxxim Medical
Sr Sub Nts 10.50 2006 6,600,000 7,177,500
MVE
Sr Nts 12.50 2002 3,600,000 3,663,000
-----------
Total 10,840,500
Health care services (2.3%)
Paracelsus Healthcare
Sr Sub Nts 10.00 2006 22,500,000 23,456,250
Tenet Healthcare
Sr Sub Nts 8.625 2007 15,000,000 15,411,000
Sr Sub Nts 10.125 2005 28,250,000 30,721,875
Vencor
Sr Sub Nts 8.625 2007 16,450,000(c) 16,244,375
-----------
Total 85,833,500
Household products (0.8%)
Coty
Sr Sub Nts 10.25 2005 7,000,000 7,455,000
Rayovac
Sr Sub Nts 10.25 2006 7,175,000 7,766,937
Revlon Worldwide
Zero Coupon
Sr Disc Nts 11.52 2001 20,000,000(f) 13,800,000
Syratech
Sr Nts 11.00 2007 2,360,000 2,242,000
-----------
Total 31,263,937
Industrial equipment & services (3.2%)
ACF Inds 11.60 2000 1,460,000 1,454,525
Borg Warner Security
Sr Sub Nts 9.125 2003 10,000,000 10,100,000
Sr Sub Nts 9.625 2007 6,600,000 6,831,000
Clark Materials Handling
Sr Nts 10.75 2006 11,000,000 11,742,500
Coach USA
Sr Nts 9.375 2007 9,000,000 9,157,500
Goss Graphic Systems
Sr Sub Nts 12.00 2006 10,000,000 11,300,000
Motors and Gears
Sr Nts 10.75 2006 18,000,000 19,125,000
Prime Succession
Sr Sub Nts 10.75 2004 10,000,000 11,050,000
Shefield Steel
with Common Stock 11.50 2005 11,000,000(c) 11,000,000
Specialty Equipment
Sr Sub Nts 11.375 2003 23,300,000 25,047,500
-----------
Total 116,808,025
Insurance (1.2%)
Americo Life
Sr Sub Nts 9.25 2005 15,000,000 15,356,250
Integon Capital 10.75 2027 10,000,000 13,425,000
Reliance Group
Holdings 9.75 2003 15,000,000 15,787,500
-----------
Total 44,568,750
Leisure time & entertainment (7.4%)
Affinity Group
Sr Nts 11.00 2007 9,000,000 9,585,000
AMC Entertainment
Sr Sub Nts 9.50 2009 4,500,000 4,623,750
CLN Holdings
Zero Coupon
Sr Disc Nts 10.425 2001 29,750,000 18,742,500
Zero Coupon
Sr Disc Nts 13.655 2001 9,750,000 5,996,250
Coast Hotels & Casino
1st Mtge 13.00 2002 19,800,000 22,176,000
HMH Properties 8.875 2007 7,000,000 7,210,000
Hollywood Theaters
Sr Sub Nts 10.625 2007 5,950,000(c) 6,351,625
Icon Fitness
Zero Coupon
Sr Disc Nts 14.00 2001 21,750,000(g) 12,723,750
Icon Health & Fitness
Sr Sub Nts 13.00 2002 7,500,000 8,400,000
IHF Holdings
Zero Coupon
Sr Disc Nts 15.00 2004 7,275,000 6,292,875
Lady Luck Gaming
1st Mtge 11.875 2001 7,500,000 7,593,750
Lodgenet Entertainment
Sr Nts with Rights 10.25 2006 15,000,000 15,506,250
Plitt Theatres 10.875 2004 27,850,000 30,078,000
Riviera Holdings 10.00 2004 11,000,000 10,890,000
Trump Atlantic City Funding
1st Mtge 11.25 2006 26,945,000 26,742,913
Trump Holdings
Sr Nts 15.50 2005 28,050,000 32,397,750
United Artists Theatre
Pass Thru Certificates 9.30 2015 13,637,787 13,978,731
Venetian Casino 12.25 2004 15,105,000 15,293,812
Sr Sub Nts 10.00 2005 6,000,000(c) 5,625,000
Waterford Gaming
Sr Nts 12.75 2003 12,771,000 14,239,665
-----------
Total 274,447,621
Media (8.1%)
Acme Television
Zero Coupon
Sr Disc Nts 10.87 2004 6,700,000 4,941,250
Amer Telecasting
Zero Coupon
Sr Disc Nts 9.79 2005 9,300,000 2,976,000
Ackerley Communications
Sr Secured Nts 10.75 2003 13,500,000 14,445,000
Adams Outdoor Advertising
Sr Nts 10.75 2006 15,300,000 16,715,250
Adelphia Communications
Pay in kind 9.50 2004 27,561,773(j) 27,975,200
Sr Deb 11.875 2004 5,000,000 5,450,000
Benedek Broadcasting
Sr Nts 11.875 2005 2,500,000 2,812,500
Benedek Communications
Zero Coupon
Sr Disc Nts 13.25 2001 9,500,000(g) 6,958,750
Big Flower Press Holdings
Sr Sub Nts 8.875 2007 8,000,000(c) 8,100,000
CBS 8.625 2012 4,500,000 4,865,355
8.875 2022 7,750,000 8,367,907
Chancellor Media
Sr Sub Nts 9.375 2004 13,500,000 14,107,500
Garden State Newspapers
Sr Sub Nts 8.75 2009 9,000,000(c) 9,000,000
Jacor Communications 9.75 2006 19,000,000 20,235,000
James Cable Partners
Sr Nts 10.75 2004 17,000,000(c) 17,807,500
Marcus Cable
Sr Disc Nts 5.47 2004 21,750,000 19,973,200
Outdoor Systems
Sr Nts 9.375 2006 10,000,000 10,550,000
Sr Sub Nts 8.875 2007 5,500,000 5,692,500
Paxson Communications
Sr Sub Nts 11.625 2002 7,000,000 7,507,500
Pegasus Communications
Sr Sub Nts with
Common Stock 9.625 2005 6,500,000(c) 6,500,000
Pegasus Media & Communications
Cl B 12.50 2005 15,400,000 17,556,000
Spanish Broadcasting
Sr Nts with Rights 11.00 2004 3,150,000 3,472,875
Sr Nts 7.50 2002 4,000,000 4,620,000
Transwestern Publishing
Sr Sub Nts with
Common stock 9.625 2007 4,500,000(c) 4,567,500
United Intl Holdings
Zero Coupon
Disc Nts 11.55 1999 22,750,000(f) 18,427,500
Zero Coupon
Disc Nts 12.00 1999 7,600,000(f) 6,156,000
Viacom Intl
Sub Deb 8.00 2006 17,000,000 16,872,500
Sub Deb 7.00 2003 15,000,000 14,520,900
-----------
Total 301,173,687
Metals (1.9%)
Bar Technologies 13.50 2001 10,000,000(c) 10,825,000
EnviroSource
Sr Nts 9.75 2003 21,510,000 21,644,438
Livent 9.75 2004 5,500,000 5,472,500
Maxxam Group Holdings
Sr Nts Series B 12.00 2003 12,000,000 13,020,000
Ryerson Tull 9.125 2006 4,250,000 4,611,250
WCI Steel
Sr Nts 10.00 2004 15,500,000 16,236,250
-----------
Total 71,809,438
Multi industry conglomerates (5.2%)
Axiohm Transaction Solutions
Sr Sub Nts 9.75 2007 4,500,000 4,567,500
Booth Creek Ski Holdings
Sr Nts 12.50 2007 5,000,000 4,937,500
Centaur Mining & Exploration
Sr Nts 11.00 2007 11,500,000(c) 11,615,000
Comforce
Sr Nts with
Common stock 12.00 2007 15,000,000(c) 15,112,500
Crown Castle
Zero Coupon
Sr Disc Nts 10.62 2007 11,000,000(c,f) 6,655,000
Deeptech Intl
Sr Nts 12.00 2000 10,000,000 10,637,500
Dyersburg
Sr Sub Nts with
Common stock 9.75 2007 3,750,000(c) 3,890,625
Emergent Group
Sr Nts with
Common Stock 10.75 2004 10,000,000(c) 9,987,500
Global Ocean Carriers
Sr Nts 10.25 2007 13,500,000 13,230,000
Isle of Capri
1st Mortgage 13.00 2004 16,250,000(c) 16,453,125
Jordan Inds
Zero Coupon
Sr Sub Debs 11.75 2002 17,692,251(g) 10,438,428
Kitty Hawk Sr Nts 9.95 2004 9,000,000(c) 9,090,000
Knology Holdings
Sr Disc Nts
with Warrants 11.875 2007 1,100,000(c) 5,747,500
Park Ohio Inds
Sr Sub Nts with
Common Stocks 9.25 2007 15,000,000(c) 15,150,000
Poindexter (JB) 11.13 2004 9,250,000 9,250,000
Precise Technology
Sr Sub Nts 11.125 2007 4,500,000 4,657,500
Resource America 12.00 2004 9,000,000(c) 9,270,000
Southwest Royalties
Sr Nts with
Common Stocks 10.50 2004 3,750,000(c) 3,750,000
Stellex Inds
Sr Sub Nts with
Common Stocks 9.50 2007 13,700,000(c) 13,734,250
Viasystems
Sr Sub Nts with
Common Stocks 9.75 2007 5,700,000(c) 5,899,500
Wells Aluminum
Sr Nts with
Common Stocks 10.125 2005 10,000,000 10,487,500
-----------
Total 194,560,928
Paper & packaging (4.9%)
Bear Island
Sr Nts 10.00 2007 4,500,000(c) 4,556,250
BPC Holding
Sr Nts Pay in Kind 12.50 2006 9,750,000(j) 10,737,188
Bway
Sr Sub Nts 10.25 2007 5,500,000(c) 5,967,500
Crown Paper
Sr Sub Nts 11.00 2005 20,000,000 21,100,000
Gaylord Container
Sr Nts 9.75 2007 15,000,000 15,000,000
Sr Sub Disc Deb 12.75 2005 28,000,000 30,240,000
Riverwood Intl 10.25 2006 15,000,000 15,300,000
10.625 2007 5,500,000 5,733,750
10.875 2008 10,000,000 9,800,000
Silgan
Pay in kind 13.25 2006 5,621,000(j) 6,351,730
Sr Sub Nts 9.00 2009 8,250,000 8,497,500
Stone Container
1st Mtge 10.75 2002 10,000,000 10,700,000
Sr Nts 11.875 1998 4,500,000 4,713,750
Sr Nts 12.58 2016 9,000,000 9,922,500
Sweetheart Cup
Sr Sub Nts 10.50 2003 5,330,000 5,250,050
Warren (SD)
Sr Nts 12.00 2004 16,500,000 18,480,000
-----------
Total 182,350,218
Restaurants & lodging (0.7%)
Hammons (John Q) Hotels
1st Mtge 8.875 2004 12,000,000 12,180,000
Prime Hospitality
Sr Sub Nts 9.75 2007 11,900,000 12,673,500
-----------
Total 24,853,500
Retail (3.3%)
County Seat Stores
Sr Nts with Warrants 12.75 2004 8,000,000(c) 8,240,000
Dairy Mart Convenience Stores
Sr Sub Nts Series A 10.25 2004 18,700,000 18,606,500
Sr Sub Nts Series B 10.25 2004 6,250,000(c) 6,218,750
Food 4 Less
Sr Sub Debs
Pay in kind 13.625 2007 13,181,300(j) 16,937,971
Zero Coupon 8.66 2000 5,000,000(g) 4,350,000
Maxim Group
Sr Nts 9.25 2007 12,500,000(c) 12,281,250
Pathmark Stores
Sub Nts 11.625 2002 8,000,000 8,080,000
Zero Coupon Sub Nts 10.75 1999 12,500,000(g) 9,312,500
Penn Traffic
Sr Nts 8.625 2003 10,000,000 8,525,000
Pueblo Xtra Intl
Sr Nts 9.50 2003 16,210,000 15,480,550
Stater Brothers
Holdings 11.00 2001 14,500,000 15,950,000
-----------
Total 123,982,521
Textiles & apparel (1.1%)
Anvil Knitwear
Sr Nts 10.875 2007 14,000,000 14,455,000
Hosiery Corp
of America 13.75 2002 10,000,000 10,800,000
GEAR for Sports
Sr Sub Nts 9.625 2007 9,000,000(c) 9,225,000
11.375 2009 7,300,000(c) 7,519,000
-----------
Total 41,999,000
Utilities -- electric (1.5%)
AES
Sr Sub Nts 8.50 2007 12,800,000 12,704,000
First Palo
Verde Funding 10.15 2016 3,132,000 3,319,920
Midland Funding II 11.75 2005 5,000,000 5,750,000
13.25 2006 12,500,000 15,265,625
Niagara Mohawk Power
1st Mtge 9.75 2005 9,000,000 10,388,340
Texas New Mexico Power
Secured Deb 10.75 2003 7,000,000 7,595,000
-----------
Total 55,022,885
Utilities -- telephone (1.1%)
BTI Telecom
Sr Nts 10.50 2007 11,000,000 11,055,000
Nextel Communications
Sr Disc Nts with
Common stock 11.84 2004 4,500,000 3,881,250
Panamsat Intl Systems
Pay in kind 12.75 2005 11,000 13,475
Primus Telecom Group
Sr Nts 11.75 2004 11,550,000 12,358,500
Talton Holdings
Sr Nts with
Common Stocks 11.00 2007 7,600,000(c) 8,132,000
Telegroup
Zero Coupon with
Common Stock 10.49 2004 5,500,000(c,f) 4,152,500
-----------
Total 39,592,725
Miscellaneous (0.3%)
ECM Funding 11.92 2002 1,846,304(e) 1,846,304
XCL 13.50 2004 8,000,000(c) 9,600,000
-----------
Total 11,446,304
Foreign (13.0%)
ALFA Bank
(U.S. Dollar) 10.375 2000 5,000,000 4,050,000
APP Intl Finance
(U.S. Dollar) 11.75 2005 4,500,000 4,556,250
Australis Holdings
(U.S. Dollar)
Zero Coupon
with Warrants 14.99 2002 17,900,000(g) 7,518,000
Australis Media
(U.S. Dollar)
Pay in kind 17.77 2003 112,938 36,140
(U.S. Dollar)
Zero Coupon
with Warrants 14.92 2003 43,500,000(g) 13,920,000
Autopistas Del Sol
(U.S. Dollar) 10.25 2009 13,500,000(c) 12,690,000
Cable Systems
(U.S. Dollar) 10.75 1999 2,316,976(e) 2,305,391
Call Net Enterprises
(U.S. Dollar)
Zero Coupon 9.27 2007 5,750,000(g) 3,866,875
Canadian Forest Oil
(U.S. Dollar)
Sr Sub Nts 8.75 2007 8,500,000(c) 8,585,000
CEI Citicorp Holdings
(U.S. Dollar) 8.50 2002 3,000,000(c) 2,887,500
(Argentine Peso) 11.25 2007 5,000,000(c) 4,012,500
Cia Latino Americana
(U.S. Dollar) 11.625 2004 3,500,000(c) 3,552,500
City of Moscow
(U.S. Dollar) 9.50 2000 10,000,000(c) 9,650,000
(U.S. Dollar)
Zero Coupon 10.96 1997 6,000,000(g) 5,901,000
Colt Telecommunications Group
(U.S. Dollar)
Zero Coupon 12.00 2006 8,500,000(g) 6,630,000
DGS Intl Finance
(U.S. Dollar) 10.00 2007 5,975,000 5,736,000
Doman Inds
(U.S. Dollar) 8.75 2004 10,500,000 10,368,750
(U.S. Dollar) 9.25 2007 3,500,000(c) 3,482,500
Dominion Textiles
(U.S. Dollar) Sr Nts 8.875 2003 5,000,000 5,150,000
Espirito Santo Centrais
(U.S. Dollar) 10.00 2007 9,000,000(c) 8,145,000
Fresh Del Monte Produce
(U.S. Dollar) 10.00 2003 22,000,000 22,990,000
Govt of Algeria
(U.S. Dollar) 7.06 2006 5,750,000 4,571,250
Govt of Argentina
(U.S. Dollar) 9.75 2027 5,000,000 4,612,500
Greater Beijing First
(U.S. Dollar) 9.25 2004 3,500,000(c) 3,272,745
(U.S. Dollar) 9.50 2007 5,000,000(c) 4,562,600
Grupo Industrial Durango
(U.S. Dollar) 12.625 2003 5,000,000 5,562,500
Grupo Iusacell Sa De
(U.S. Dollar) 10.00 2004 4,550,000(c) 4,606,875
Grupo Televisa
(U.S. Dollar) Sr Nts 11.875 2006 3,250,000 3,680,625
(U.S. Dollar)
Zero Coupon Sr Nts 13.25 2001 4,900,000(g) 3,724,000
GST Telecommunications
(U.S. Dollar) Sr Nts 12.75 2007 6,750,000 6,834,375
Guangdong Enterprises
(U.S. Dollar) Sr Nts 8.875 2007 3,600,000(c) 3,418,452
Gulf Canada Resources
(U.S. Dollar) 9.25 2004 13,500,000 14,225,625
Hutchison Whampoa
(U.S. Dollar) 7.45 2017 2,500,000(c) 2,321,875
Hyundai Semiconductor
(U.S. Dollar) 8.625 2007 15,000,000(c) 14,060,100
Imexsa Export Trust
(U.S. Dollar) 10.125 2003 10,000,000(c) 10,362,500
Ionica
(U.S. Dollar)
Zero Coupon 7.45 2007 21,000,000(g) 8,610,000
ITT Publimedia
(U.S. Dollar) 9.375 2007 6,500,000 6,825,000
MDC Communications
(U.S. Dollar)
Sr Sub Nts 10.50 2006 12,100,000 12,947,000
Metronet Communications
(U.S. Dollar)
Zero Coupon 10.66 2007 12,800,000(c,f) 7,616,000
Mexican Cetes
(Mexican Peso)
Zero Coupon 1998 85,160,000(f) 9,347,162
Microcell Telecommunications
(U.S. Dollar)
Zero Coupon 17.90 2007 12,140,000(f) 4,349,568
Netia Holdings
(U.S. Dollar) 10.25 2007 13,500,000(c) 13,162,500
(U.S. Dollar)
Zero Coupon 11.85 2007 8,500,000(c,f) 5,100,000
Newsquest Capital
(U.S. Dollar) Series B 11.00 2006 4,650,000 5,173,125
PCI Chemical
(U.S. Dollar)
Sr Nts with
Common Stock 9.25 2007 4,500,000(c) 4,466,250
PLD Telekom
(U.S. Dollar)
Sr Disc Nts
with Warrant 5.26 2004 4,000,000 4,000,000
Philippine Long Distance Telephone
(U.S. Dollar) 7.85 2007 7,500,000(c) 6,600,150
(U.S. Dollar) 8.35 2017 7,500,000(c) 6,337,425
Poland Telecom
(U.S. Dollar)
With Warrants 14.00 2007 1,200,000(c) 12,300,000
Repap New Brunswick
(U.S. Dollar) Sr Nts 9.875 2000 15,450,000 15,720,375
(U.S. Dollar) Sr Nts 10.625 2005 28,500,000 27,360,000
Rogers Cablesystems
(U.S. Dollar)
Sr Secured Nts 9.625 2002 9,000,000 9,540,000
Russia Federal Loan
(Russian Ruble) 14.00 2000 30,008,877,650 3,939,565
Tarkett Intl
(U.S. Dollar) 9.00 2002 10,000,000 10,137,500
Tatneft Finance
(U.S. Dollar) 9.00 2002 3,800,000(c) 3,439,000
Telewest
(U.S. Dollar)
Zero Coupon 11.00 2000 20,000,000(g) 15,250,000
Tjiwi Kimia
(U.S. Dollar) 10.00 2004 10,000,000(c) 9,050,000
(U.S. Dollar) 13.25 2001 7,000,000 7,297,500
United Mexican States
(U.S. Dollar) 11.50 2026 5,000,000 5,793,750
Veninfotel
(U.S. Dollar) Cv
Pay in kind 10.00 2002 9,000,000(e,j) 12,510,000
Veritas Holdings
(U.S. Dollar) 9.625 2003 23,470,000 25,112,900
-----------
Total 483,834,198
Total bonds
(Cost: $3,149,507,745) $3,289,515,209
</TABLE>
<PAGE>
Common stocks (0.6%)
Issuer Shares Value(a)
Arena Brands 111,111(d,e) $ 2,388,886
Celcaribe 1,195,110(d) 4,780,440
Communication & Power Inds 7,936(d) 968,624
EchoStar Communications 150,000(d) 2,681,250
Gaylord Container 1,000,000(d) 6,812,500
HarCor 100,000(d) 300,000
Imperial Credit REIT 80,600 1,259,375
INFINT Diversified Holdings 42,418(e) 636,270
Lady Luck Gaming 200,000(d) 225,000
Nextel Communications 41,056(d) 1,036,664
Optel 17,000(d) 170
Pagemart Nationwide 50,750(d) 253,750
Pegasus Communications 16,923(d) 373,364
Specialty Food Acquisition 300,000(d) 112,500
Wireless One 25,000(d) 64,844
Total common stocks
(Cost: $21,064,231) $21,893,637
<PAGE>
Preferred stocks & other (8.6%)
Issuer Shares Value(a)
American Radio Systems
11.375% Pay in kind 94,753(j) $11,370,360
American Telecasting
Warrants 85,225 4,261
Asia Pulp & Paper
12% 17,600 16,544,000
Australis Holdings
Warrants 13,400 134
Bar Technologies
Warrants 10,000 550,000
Benedek Communications
15% 70,000(d) 8,680,000
Warrants 70,000 70,000
Cablevision Systems
11.125% Pay in kind 340,764(j) 38,932,287
11.75% Pay in kind 126,308(j) 14,778,036
Clearnet Communications
Warrants 42,240 380,160
Communications & Power Inds
14% 154,638(d) 16,237,025
Core Capital
10% Units Cv 222,223(e) 10,000,035
Crown Packaging
Warrants 10,000 1,250
Dairy Mart Convenience Stores
Warrants 311,333(e) 155,667
Earthwatch
12% Cv 700,000(c) 7,000,000
Echo Star Communications
12.125% Pay in kind 10,375 10,634,375
Fairfield Manufacturing
11.25% Pay in kind 11,130 11,797,800
First Nationwide Bank
11.5% Preferred 166,500 18,991,406
Foodmaker
Warrants 7,000 311,500
Geotek Communications
Warrants 872,500 872,500
Globalstar
Warrants 13,500(c) 1,451,250
GPA Financial
8% Cv 38,721(e) 3,803,679
HarCor Energy
Warrants 110,000 165,000
Hem En
Warrants 36,000(k) --
Hosiery Corp of America
Warrants 10,000 70,000
Houlihan's Restaurant
Warrants 5,886(k) --
Hyperion Telecom
12.875% Pay in kind 4,500(c,j) 4,398,750
Intermedia Communications
13.5% Pay in kind 114,540(c,j) 13,630,260
Warrants 22,750 1,706,250
Intl Wireless Communication
Warrants 14,750 663,750
Ionica
Warrants 25,500(k) --
Iridium
Warrants 17,150(c) 2,229,500
IXC Communications
12.50% Pay in kind 4,500 5,141,250
Nextel Communications
Warrants 18,902(k) --
NTL
12% 5,162(c) 5,936,300
Pantry Pride
14.88% 50,000 5,050,000
Paxson Communications
12.5% Pay in kind 142,310(j) 14,657,930
Pegasus Communications
12.75% 63,984 8,741,775
Price Communications
Warrants 41,280 82,560
Primedia
11.625% Pay in kind --(j) 84
Primus Telecom
Warrants 11,550 115,500
RSL
Warrants 9,500 878,750
SDW Holdings
15% 274,350(d) 13,031,625
SFX Broadcasting
12.625% Pay in kind 27,500(j) 3,251,875
SGW Holding
12.50% Pay in kind 2,750(c,j) 2,750,000
12.625% Pay in kind Cv 87,091(j) 899,946
Sinclair Capital
11.63% 140,000 15,470,000
Superior Natl Capital
10.38% 3,700 3,737,000
Time Warner
10.25% Pay in kind 15,822(j) 18,037,080
TransDigm
Warrants 11,195(e) 5,317,455
Unifi
Warrants 10,000 200,000
Warren (SD)
14% 434,930(d) 20,441,710
Wireless One
Warrants 23,250 5,813
Total preferred stocks & other
(Cost: $284,234,515) $319,175,888
<TABLE>
<CAPTION>
Short term securities (0.5%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
<S> <C> <C> <C>
U.S. government agencies (--%)
Federal Home Loan Bank Disc Nt
12 17 97 5.47% $1,100,000 $ 1,097,008
Federal Home Loan Mtge Corp Disc Nt
12 05 97 5.50 900,000 899,178
-------------
Total 1,996,186
Commercial paper (0.5%)
Ameritech Capital Funding
12 12 97 5.56 600,000 598,802
BOC Group
12 22 97 5.58 1,300,000 1,295,390
Colgate Palmolive
12 22 97 5.60 2,200,000(h) 2,192,171
Fleet Funding
01 08 98 5.70 5,500,000 5,465,472
Heinz (HJ)
12 03 97 5.55 1,200,000 1,199,263
12 11 97 5.55 2,600,000 2,595,207
Intl Finance
12 03 97 5.57 800,000 799,507
Lincoln Natl
12 16 97 5.59 2,300,000(h) 2,293,950
Metlife Funding
12 11 97 5.55 1,600,000 1,597,051
-------------
Total 18,036,813
Total short term securities
(Cost: $20,032,999) $ 20,032,999
Total investment in securities
(Cost: $3,474,839,490)(l) $3,650,617,733
</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 Nov. 30, 1997.
(c) 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.
(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 1 to the
financial statements). Information concerning such security
holdings at Nov. 30, 1997 is as follows:
Security Acquisition dates Cost
Arena Brands 09 03 92 $5,888,888
Cable Systems
(U.S. Dollar) 02 02 96 2,231,874
Core Capital
10% Unit Cv 10 30 97 10,000,035
Dairy Mart Convenience Stores
Warrants 11 28 95 thru 10 27 96 239,401
ECM Funding 04 13 92 1,846,304
Gemini 11 01 96 13,500,000
Geotek Communications
Cv 03 04 96 4,135,000
GPA Financial
8% Cv 12 23 96 3,820,010
IFINT Diversified Holdings
Common 08 18 94 --
TransDigm
Warrants 09 29 93 thru 04 24 96 1,027,805
Veninfotel
(U.S. Dollar) Cv Pay in kind 03 05 97 8,000,000
(U.S. Dollar) Cv Pay in kind 07 23 97 1,000,000
(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, 1997.
(j) Pay in kind securities are securities in which the issuer has the
options to make interest or dividend payments in cash or in
additional securities. These securities issued as interest or
dividends, usually have the same terms, including maturity date, as
the pay in kind securities.
(k) Negligible market value.
(l) At Nov. 30, 1997, the cost of securities for federal income tax
purpose was approximately $3,473,984,000 and the approximate
aggregate gross unrealized appreciation and depreciation based on that
cost was:
Unrealized appreciation ----------------- $232,733,000
Unrealized depreciation ----------------- 56,099,000
Net unrealized appreciation ----------------- $176,634,000
<PAGE>
Financial statements
Statement of assets and liabilities
Quality Income Portfolio
Nov. 30, 1997 (Unaudited)
Assets
Investments in securities, at value (Note 1)
(identified cost $1,530,823,220) $1,616,509,179
Cash in bank on demand deposit 82,529
Accrued interest receivable 22,470,641
U.S. government securities held as collateral (Note 4) 69,880,900
Total assets 1,708,943,249
Liabilities
Payable for investment securities purchased 47,500
Payable upon return of securities loaned (Note 4) 88,558,400
Accrued investment management services fee 45,323
Other accrued expenses 28,416
Total liabilities 88,679,639
Net assets applicable to outstanding capital stock $1,620,263,610
See accompany notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Quality Income Portfolio
Six months ended Nov. 30, 1997 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 403,750
Interest 56,571,543
----------
Total income 56,975,293
Expenses (Note 2):
Investment management services fee 4,138,691
Compensation of board members 8,105
Custodian fees 63,161
Audit fees 14,750
Other 11,868
------
Total expenses 4,236,575
Earning credits on cash balances (Note 2) (2,504)
------
Total net expenses 4,234,071
---------
Investment income (loss) -- net 52,741,222
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) 2,061,188
Financial futures contracts (10,400,542)
-----------
Net realized gain (loss) on investments (8,339,354)
Net change in unrealized appreciation
(depreciation) on investments 57,065,978
----------
Net gain (loss) on investments 48,726,624
----------
Net increase (decrease) in net assets resulting from operations $101,467,846
------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Quality Income Portfolio
Six months ended For the period from
Nov. 30, 1997 June 10, 1996* to
(Unaudited) May 31, 1997
Operations
<S> <C> <C>
Investment income (loss)-- net $ 52,741,222 $ 112,252,618
Net realized gain (loss) on investments (8,339,354) 9,395,624
Net change in unrealized appreciation
(depreciation) on investments 57,065,978 20,434,131
---------- ----------
Net increase (decrease) in net assets
resulting from operations 101,467,846 142,082,373
Net contributions (withdrawals) from partners (96,858,305) 1,473,541,696
----------- -------------
Total increase (decrease) in net assets 4,609,541 1,615,624,069
Net assets at beginning of period (Note 1) 1,615,654,069 30,000
------------- ------
Net assets at end of period 1,620,263,610 1,615,654,069
------------- -------------
*Commencement of operations.
See accompanying notes to financial statements.
of change in net assets
</TABLE>
<PAGE>
Notes to financial statements
Quality Income Portfolio
(Unaudited as to Nov. 30, 1997)
1. Summary of significant accounting policies
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 policies 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. Debt securities are
generally traded in the over the counter market and are valued at a price
deemed best to reflect fair value as quoted by dealers who make markets in
these securities or by an independent pricing service. Securities for
which market quotations are not readily available are valued at fair value
according to methods selected in good faith by the board. 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.
Option transactions
In order to produce incremental earnings, protect gains and facilitate
buying and selling of securities for investment purposes, the Portfolio
may buy and 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 and 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 options on debt securities or futures are
exercised, the Portfolio will realize a gain or loss. When other options
are 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 and 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.
Illiquid securities
At Nov. 30, 1997, investments in securities included 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, 1997 was
$4,882,464 representing 0.3% 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.
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 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, brokerage commissions and
nonadvisory expenses, which include custodian fees, 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 and approved by the board.
During the six months ended Nov. 30, 1997, the Portfolio's custodian fees
were reduced by $2,504 as a result of earnings credit 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 $155,509,631 and $137,805,238, respectively,
for the six months ended Nov. 30, 1997. For the same period, the portfolio
turnover rate was 9%. Realized gains and losses are determined on an
identified cost basis.
4. Lending of portfolio securities
At Nov. 30, 1997, securities valued at $86,496,200 were on loan to
brokers. For collateral, the Portfolio received $18,677,500 in cash and
U.S. government securities valued at $69,880,900. Income from securities
lending amounted to $52,529 for the six months ended Nov. 30, 1997. 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. Interest rate futures contracts
At Nov. 30, 1997, investments in securities included securities valued at
$12,317,300 that were pledged as collateral to cover initial margin
deposits on 380 open sales contracts. The market value of the open
contracts at Nov. 30, 1997, was $45,231,875 with a net unrealized loss of
$154,375. See Summary of significant accounting policies.
<PAGE>
<TABLE>
<CAPTION>
Investments in securities
Quality Income Portfolio
Nov. 30, 1997 (Unaudited)
(Percentages represent value of investments compared to net assets)
Bonds (97.2%)
Issuer Coupon Maturity Principal Value(a)
rate year amount
U.S. government obligations (30.1%)
<S> <C> <C> <C> <C>
U.S. Treasury 5.875% 2000-04 $33,000,000(b) $33,063,430
6.00 2000 11,400,000(b) 11,457,912
6.875 1999 60,000,000 61,032,600
7.25 2004 51,800,000(b) 55,682,372
7.50 2001-16 179,000,000(b) 196,971,130
8.00 2021 15,000,000(k) 18,475,950
Tips 3.375 2007 8,050,000(m) 8,080,986
Resolution Funding Corp
Zero Coupon 7.98 2016 47,000,000(c) 14,798,420
8.19 2014 48,000,000(c) 17,629,920
8.27 2014 10,000,000(c) 3,560,500
8.94 2006 25,000,000(c) 15,503,500
8.95 2006 68,000,000(c) 40,314,480
Overseas Private
Investment 6.99 2009 10,000,000 10,325,000
-----------
Total 486,896,200
Mortgage backed securities (16.2%)
Collateralized Mtge
Obligation Trust 7.75 2012 340,130 341,963
Federal Home Loan
Mtge Corp 7.50 2024 15,781,816 16,189,145
8.00 2016-25 9,775,755 10,134,533
8.50 2017-26 21,269,325 22,246,591
9.00 2020-21 4,915,825 5,259,480
Federal Housing
Admin 7.43 2024 9,005,027 9,266,736
Federal Natl Mtge
Assn 6.50 2023 11,359,139 11,221,239
7.50 2027 39,141,016 39,940,658
8.00 2026-27 27,705,829 28,682,889
10.00 2002 116 121
Collateralized Mtge
Obligation 8.00 2021 9,595,822 9,697,884
8.50 2019 1,448,659 1,607,724
Principal Only 9.50 2018 1,007,211(e) 792,691
9.89 2020 1,835,820(e) 1,668,465
Trust Series Z 6.00 2024 21,277,554(d) 18,359,550
Govt Natl Mtge Assn 7.50 2026 19,815,015 20,247,378
8.00 2022-26 39,031,411 40,521,772
8.50 2026 16,878,989 17,702,684
9.00 2024-25 5,282,405 5,671,666
Prudential Bache
Collateralized Mtge
Obligation 7.965 2019 3,349,400 3,466,389
-----------
Total 263,019,558
Automotive & related (1.4%)
Daimler Benz North America
Medium term Nts 7.375 2006 14,000,000 14,884,940
General Motors 8.875 2003 7,050,000 7,845,240
-----------
Total 22,730,180
Banks and savings & loans (5.4%)
BankAmerica
Series B 7.70 2026 5,000,000(g) 5,057,750
BankBoston Capital Trust
Company Guaranty
Series B 8.25 2026 5,000,000 5,311,000
First Bank System 6.875 2007 8,550,000 8,691,673
First Chicago
Sr Nts 9.00 1999 7,900,000 8,216,158
Firstar Capital Trust 8.32 2026 10,000,000 10,838,200
Morgan (JP)
Medium term Nts 4.00 2012 9,350,000(i) 9,042,103
NationsBank 9.25 2001 8,950,000 9,816,181
NCNB
Sub Nts 9.125 2001 10,000,000 10,969,100
Swiss Bank
Sub Deb 7.75 2026 11,369,000 12,534,664
Washington Mutual Capital I
Company Guaranty 8.375 2027 5,800,000(g) 6,218,006
-----------
Total 86,694,835
Chemicals (1.5%)
Dow Chemical 8.85 2021 10,000,000 12,234,100
USA Waste Services
Sr Nts 7.125 2007 11,900,000 12,249,622
-----------
Total 24,483,722
Communications equipment & services (0.6%)
BellSouth
Telecommunications 7.00 2095 10,000,000 10,248,400
Computers & office equipment (0.3%)
Hewlett Packard
Zero Coupon 3.125 2017 10,000,000(c,g) 5,187,500
Electronics (0.3%)
Harris 10.375 2018 3,900,000 4,241,718
Energy (2.5%)
PDV America 7.875 2003 16,500,000 17,061,165
Texaco Capital
Gtd Deb 7.50 2043 12,000,000 12,834,480
USX 9.375 2022 9,200,000 11,423,088
-----------
Total 41,318,733
Energy equipment & services (0.4%)
Foster Wheeler 6.75 2005 5,850,000 5,899,725
Financial services (4.4%)
Aristar
Sr Deb 8.875 1998 10,520,000 10,705,994
Beneficial 9.125 1998 10,000,000 10,063,800
General Motors Acceptance
Medium Term Nts 5.95 1998 8,000,000 8,011,360
General Motors
Acceptance 7.00 2000 14,300,000 14,540,240
Greyhound Financial
Medium Term Nts 7.95 1999 9,600,000 9,861,504
Railcar Leasing
Sr Nts 7.125 2000 12,150,000(g) 12,643,776
Salomon 7.75 2000 5,000,000 5,165,400
-----------
Total 70,992,074
Health care (0.8%)
Lilly (Eli) 6.77 2036 13,300,000 13,463,457
Industrial equipment & services (1.3%)
Browning Ferris Inds 9.25 2021 7,000,000 8,761,620
Deere & Co 8.95 2019 10,000,000 11,875,300
-----------
Total 20,636,920
Insurance (4.5%)
American United Life 7.75 2026 4,800,000(l) 4,882,464
Arkwright Trust 9.625 2026 4,000,000(g) 4,767,520
Berkley (WR) 8.70 2022 10,000,000 11,728,600
Conseco Financing Trust II
Company Guaranty 8.70 2026 6,600,000 7,204,890
Equitable Life
Assurance 7.70 2015 5,000,000(g) 5,333,700
Nationwide Trust 9.875 2025 11,500,000(g) 13,511,120
SAFECO Capital Trust I
Company Guaranty 8.07 2037 15,000,000(g) 15,590,400
SunAmerica 9.95 2012 8,000,000 10,224,080
-----------
Total 73,242,774
Media (0.8%)
Time Warner
Entertainment 8.375% 2033 $12,000,000 $13,460,520
Retail (2.6%)
Dayton Hudson 7.875 2023 18,850,000 19,758,193
Rite Aid 5.25 2002 9,000,000 10,125,000
Wal Mart CRAVE
Trust 7.00 2006 11,211,435(g) 11,457,862
-----------
Total 41,341,055
Transportation (0.6%)
Burlington Northern
Santa Fe 7.00 2025 10,000,000 10,024,000
Utilities -- electric (5.0%)
Arizona Public Service
Sale Lease Backed
Obligation 8.00 2015 9,000,000 9,697,500
Cajun Electric Power
Mtge Trust 8.92 2019 4,960,000 5,390,974
Commonwealth Edison
1st Mtge Series 90 6.50 2000 9,000,000 9,051,750
Long Island Lighting 9.625 2024 7,000,000 7,227,500
Long Island Lighting 8.625 2004 3,000,000 3,197,520
RGS Funding
Sale Lease Backed
Obligation 9.82 2022 4,969,237 6,371,357
RGS Funding I & M
Sale Lease Back
Obligation 9.82 2022 4,969,232 6,371,351
Salton Sea Cl C 7.84 2010 10,000,000 10,648,800
Texas Utilities Electric
1st Mtge 9.75 2021 13,000,000 14,886,170
Wisconsin Electric
Power 6.875 1995 8,000,000 7,994,080
-----------
Total 80,837,002
Utilities -- telephone (2.8%)
AT&T 8.35 2025 5,000,000 5,451,900
GTE 10.25 2020 6,050,000 6,817,080
New York Telephone 9.375 2031 14,000,000 16,013,200
Pacific Bell 8.50 2031 15,000,000 16,320,750
-----------
Total 44,602,930
Foreign (15.7%)(h)
ABN Amro Bank
(U.S. Dollar) 7.75 2023 12,000,000 12,867,240
Alcan Aluminum
(U.S. Dollar) 8.875 2022 9,600,000 10,471,392
BAA PLC
(British Pound) 9.36 2006 1,500,000 2,691,306
Banco General
(U.S. Dollar) 7.70 2002 6,400,000(g) 6,305,728
Bank of China
(U.S. Dollar) 8.25 2014 7,100,000 7,187,543
Bayerische Landesbank
(U.S. Dollar)
Deposit Nts 5.625 2001 13,750,000 13,582,938
Dao Heng Bank
(U.S. Dollar) Sub
Nts 7.75 2007 7,000,000(g) 6,518,820
Deutsche Bank
(U.S. Dollar)
Zero Coupon 4.50 2017 6,510,000(c,g) 2,905,087
Gruma
(U.S. Dollar) 7.625 2007 2,000,000(g) 1,940,000
Guangdong Enterprises
(U.S. Dollar) Sr Nts 8.875 2007 5,800,000(g) 5,507,506
Hutchinson Whampoa
(U.S. Dollar) 7.50 2027 14,025,000(g) 13,261,900
Hyundai Semiconductor
(U.S. Dollar) Sr Nts 8.625 2007 10,800,000(g) 10,123,272
Israel Electric
(U.S. Dollar) 7.875 2026 9,000,000(g) 9,305,730
Japan Finance
(U.S. Dollar) 9.25 1998 25,950,000 26,646,239
Jasmine Submarine Telecom
(U.S. Dollar) 8.48 2011 5,000,000(g) 4,312,050
KFW Intl Finance
(U.S. Dollar)
Medium Term Nts 8.50 1999 10,000,000 10,457,300
Korea Development Bank
(U.S. Dollar) 7.25 2006 4,600,000 4,214,014
Korea Electric Power
(U.S. Dollar) 8.00 2002 9,000,000 8,628,120
Korea Electric Power
(U.S. Dollar)
Zero Coupon 9.27 2016 35,000,000(f) 4,783,100
People's Republic of China
(U.S. Dollar) 9.00 2096 10,000,000 10,611,300
Perez
(U.S. Dollar) 8.125 2007 5,000,000(g) 4,800,000
Petronas
(U.S. Dollar) 7.75 2015 10,000,000 9,554,800
Ras Laffan Gas
(U.S. Dollar) 8.29 2014 10,000,000(g) 10,618,900
Republic of Austria Euro
(U.S. Dollar) 10.00 1998 3,150,000 3,218,906
Republic of Italy
(U.S. Dollar) 6.875 2023 23,200,000 23,807,840
Rodamco NV
(U.S. Dollar) 7.30 2005 10,000,000 10,544,300
State of Israel
(U.S. Dollar) 6.375 2005 10,800,000 10,687,572
Telekom Malaysia
(U.S. Dollar) 7.875 2025 10,000,000(g) 9,457,800
-----------
Total 255,010,703
Total bonds
(Cost: $1,489,411,047) $1,574,332,006
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Preferred stock (0.6%)
Issuer Shares Value(a)
Salomon Income Financing Trust
9.50% 340,000 $9,265,000
Total preferred stock
(Cost: $8,500,000) $9,265,000
Short term securities (2.0%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (0.8%)
Federal Home Loan Bank Disc Nt
<S> <C> <C> <C> <C>
12 17 97 5.47% $ 2,500,000 $ 2,493,200
Federal Home Loan Mtge Corp Disc Nt
12 22 97 5.52 9,800,000 9,765,564
Federal Natl Mtge Assn Disc Nt
12 11 97 5.45 1,400,000 1,397,466
-------------
Total 13,656,230
Commercial paper (1.2%)
A.I. Credit
12 03 97 5.53 2,500,000 2,498,469
CAFCO
12 17 97 5.60 2,600,000(j) 2,592,746
Consolidated Natural Gas
12 18 97 5.58 1,500,000 1,495,590
May Dept Stores
12 09 97 5.56 500,000 499,231
PACCAR Financial
12 04 97 5.55 1,900,000 1,898,541
USAA Capital
12 17 97 5.58 10,300,000 10,271,366
-------------
Total 19,255,943
Total short term securities
(Cost: $32,912,173) $ 32,912,173
Total investments in securities
(Cost: $1,530,823,220)(n) $1,616,509,179
</TABLE>
<PAGE>
Notes to investments in securities
(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 or 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 aquisition to interest 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, 1997.
(j) 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.
(k) Partially pledged as initial margin deposit on the following open
interest rate futures contracts (see Note 5 to the financial
statements):
Type of security Notional amount
Sales Contracts
U.S. Treasury Bonds $380,000,000
(l) Identifies issues considered to be illiquid as to their marketability
(see Note 1 to the financial statements). Information concerning such
security holdings at Nov. 30, 1997, is as follows:
Security Acquisition date Cost
American United Life* 02 13 96 $4,800,000
*Represents a security sold under Rule 144A, which is exempt from
registration under the securities Act of 1933, as amended.
(m) U.S. Treasury inflation protection securities (TIPS) are securities in
which the principal amount is adjusted for inflation and the semi
annual interest payments equal a fixed percentage of the
inflation adjusted principal amount.
(n) At Nov. 30, 1997, the cost of securities for federal income tax
purposes was approximately $1,530,769,000 and the approximate
aggregate gross unrealized appreciation and depreciation based on that
cost was:
Unrealized appreciation -------------------------- $91,265,000
Unrealized depreciation -------------------------- (5,525,000)
Net unrealized appreciation ---------------------- $85,740,000
<PAGE>
American Express Service Corporation, Distributor
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