AMERICAN
EXPRESS
Financial
Direct
Strategist Income Fund, Inc.
1999 Semiannual Report
Strategist Government Income Fund
Strategist High Yield Fund
Strategist Quality Income Fund
<PAGE>
Table of Contents
From the Portfolio Manager (Strategist Government Income Fund) 2
From the Portfolio Manager (Strategist High Yield Fund) 4
From the Portfolio Manager (Strategist Quality Income Fund) 6
Financial Statements (Strategist Income Fund, Inc.) 8
Notes to Financial Statements (Strategist Income Fund, Inc.) 13
Financial Statements (Government Income Portfolio) 20
Notes to Financial Statements (Government Income Portfolio) 23
Investments in Securities (Government Income Portfolio) 28
Financial Statements (High Yield Portfolio) 36
Notes to Financial Statements (High Yield Portfolio) 39
Investments in Securities (High Yield Portfolio) 43
Financial Statements (Quality Income Portfolio) 73
Notes to Financial Statements (Quality Income Portfolio) 76
Investments in Securities (Quality Income Portfolio) 81
<PAGE>
(picture of) James W. Snyder
James w. Snyder
Portfolio manager
From the Portfolio Manager
Strategist Government Income Fund
Rising interest rates put a damper on the bond market during the past six
months. Still, Strategist Government Income Fund fared relatively well, as it
generated a positive total return of 0.81% for the first half of the fiscal year
June through November 1999.
Although inflation had, to that point, shown little indication of getting out of
hand, fixed-income investors found enough to worry about when the period began.
Leading the list were an economy that, except for the second quarter of 1999,
continued to show remarkably good growth; an extremely tight labor market; a
run-up in the price of oil; and an occasionally weak dollar. That combination,
many investors apparently concluded, probably would fan the fire under inflation
before long. That view was reinforced by the actions of the Federal Reserve
Board (the Fed), which raised short-term interest rates three times during the
six months (in June, August and November) in an effort to cool off the economy
and head off a potential spike in inflation.
SELLING PRESSURE INCREASES
The result of the hand-wringing and the Fed's actions was increased selling
pressure on bonds, which caused interest rates to rise and, ultimately, caused
prices to fall. Although the short- and intermediate-term securities the Fund
invests in were less affected by the downturn than longer-maturity bonds, the
negative environment did hurt the Fund's performance.
Also playing a role was a huge supply of new bonds, which tended to hold down
prices on all non-U.S. Treasury issues, including the mortgage-backed securities
that made up the bulk of the portfolio. Later in the period, the supply shrank
somewhat, lending some much-needed support to the mortgage sector. That helped
the Fund to turn things around during the fall, when it recorded three straight
months of gains to finish in positive territory for the period as a whole.
Looking at the portfolio's asset mix, I kept the majority invested in
mortgage-backed bonds issued by the Federal National Mortgage Association
(commonly known as "Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac"). Most of the rest went into Treasury securities. At the outset
of the period, the portfolio held a higher-than-usual level of cash reserves,
which provided something of a cushion for the Fund's net asset value as interest
rates rose. I gradually reduced the cash over the ensuing months. As is normally
the case, I also maintained an investment in interest-rate futures contracts --
a form of derivatives -- to reduce volatility in the Fund's value.
As the second half of the fiscal year begins, fixed-income investors remain
concerned that the Fed may find it necessary to push short-term interest rates
still higher in upcoming months. Even if the Fed doesn't act, over the near term
I think the bond market could continue to struggle in the face of that
possibility. In light of that, I plan to maintain an emphasis on mortgage-backed
securities, which I believe offer good investment value as well as potential for
positive performance.
James W. Snyder
<PAGE>
(picture of) Jack Utter
Jack Utter
Portfolio manager
From the Portfolio Manager
Strategist High Yield Fund
The bond market struggled for much of the past six months amid concerns about
inflation and rising interest rates. Although high-yield issues fared better
than most sectors of the market, an over all decline in prices resulted in
Strategist High Yield Fund experiencing a loss of 0.75% on a total return basis
for the first half of the fiscal year -- June through November 1999.
The period got off to a reasonably good start, though, as the economy continued
to chug along with little sign of higher inflation. Thanks in part to strength
in its telecommunications and paper/forest products holdings, the Fund produced
positive results through mid-summer.
But the tone of the bond market changed abruptly about that time, as investors,
prompted by a hike in short-term interest rates by the Federal Reserve Board
(the Fed), became increasingly worried that higher inflation and still-higher
interest rates might lie ahead. That concern was reinforced by another Fed rate
hike in late August. While high-yield bonds suffered less from the rise in rates
than did some sectors of the market, a substantial supply of new issues and a
drop-off in demand on the part of investors in high-yield mutual funds kept
downward pressure on prices through October.
A LATE RALLY
Still, the period did end on an encouraging note, as news of still-tame
inflation finally boosted investors' spirits. For the Fund, the result was a
sharp rebound in November, which proved to be its strongest month of the period.
As I look toward the new fiscal year, with economic growth showing no sign of
slacking off, I think the Fed may decide to push short-term interest rates
somewhat higher in the months ahead to avoid a run-up in inflation.
Nevertheless, while that almost surely would present a near-term problem for the
bond market, I think it might ultimately lead to better performance as the
period progresses. Beyond that, because high-yield bonds currently offer
above-average investment value, I think they have the potential to attract
increased interest from investors and, therefore, could enjoy improved price
support.
Jack Utter
<PAGE>
(picture of) Ray Goodner
Ray Goodner
Portfolio manager
From the Portfolio Manager
Strategist Quality Income Fund
The U.S. bond market struggled for much of the past six months, as concern about
potentially higher inflation led to a rise in interest rates. Strategist Quality
Income Fund did manage to finish in positive territory, however, with a total
return of 0.06% for the first half of the fiscal year -- June through November
1999.
With the economy continuing to hum along, unemployment at a record-low level and
the price of oil more than doubling in a matter of months, the unwelcome specter
of higher inflation was confronting many bond investors when the period began.
Evidently, the Federal Reserve Board (the Fed) saw some threat to the still-tame
inflation environment, too, as it raised short-term interest rates three times
over the six months -- in June, August and November -- in an effort to cool off
the economy and, ultimately, relieve whatever upward pressure might have been
building under consumer prices.
RATES UP, BONDS DOWN
The end result was that interest rates across the maturity range crept higher,
holding down bond prices in the process. Compounding the situation was a heavy
supply of corporate bonds, which further eroded the foundation under prices.
Fortunately, during the autumn interest rates leveled off, creating a better
tone in the market and enabling bonds to make up some of the previously lost
ground.
Given the difficult environment, I maintained a defensive structure in the
portfolio. This centered on reducing the duration to provide some protection
against rising interest rates. (Duration, a function of the average maturity of
the securities in the portfolio, influences the Fund's sensitivity to
interest-rate changes. In general, the longer the duration, the greater the
sensitivity.) In addition, I held a higher-than-normal level of cash reserves.
Looking at bond sectors, the biggest area of investment was high-grade corporate
bonds, followed by U.S. Treasury and mortgage-backed securities. Among that
group, on a relative basis corporates and mortgages provided the best
performance for the Fund. I also held some Korean and Malaysian bonds
denominated in U.S. dollars. While they amounted to a modest portion of the
portfolio, their strong price gains did have a noticeably positive effect on
performance.
Although the first half of the fiscal year was disappointing on an absolute
basis, I'm encouraged that the bond market held up as well as it did given the
conditions and that inflation has yet to show clear signs of heading higher.
Looking ahead, while the Fed could raise short-term interest rates somewhat
higher over the near term, I think longer-term rates may be relatively stable
and perhaps even decline before the fiscal year is over. If so, the bond market
and, ultimately, the Fund are likely to experience improving performance.
Ray Goodner
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statements of assets and liabilities
Strategist Income Fund, Inc.
Strategist Strategist Strategist
Government High Yield Quality
Nov. 30, 1999 (Unaudited) Income Fund Fund Income Fund
Assets
<S> <C> <C> <C> <C>
Investments in corresponding Portfolio (Note 1) $891,979 $1,696,239 $745,943
Expense receivable from AEFC 937 170 49
--- --- --
Total assets 892,916 1,696,409 745,992
------- --------- -------
Liabilities
Dividends payable to shareholders 1,215 3,774 905
Accrued transfer agency fee 2 3 1
Accrued administrative services fee 1 2 1
Other accrued expenses 5,738 18,943 3,675
----- ------ -----
Total liabilities 6,956 22,722 4,582
----- ------ -----
Net assets applicable to outstanding capital stock $885,960 $1,673,687 $741,410
======== ========== ========
Represented by
Capital stock -- $.01 par value (Note 1) 1,869 $ 4,467 $ 836
Additional paid-in capital 915,519 1,983,642 753,606
Undistributed net investment income 1,216 4,240 826
Accumulated net realized gain (loss) (19,415) (104,754) 1,929
Unrealized appreciation (depreciation) on investments (13,229) (213,908) (15,787)
------- -------- -------
Total -- representing net assets applicable to
outstanding capital stock $885,960 $1,673,687 $741,410
======== ========== ========
Shares outstanding 186,949 446,743 83,561
------- ------- ------
Net asset value per share of outstanding capital stock $ 4.74 $ 3.75 $ 8.87
---- ---------- --------
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
Statements of operations
Strategist Income Fund, Inc.
Strategist Strategist Strategist
Six months ended Nov. 30, 1999 Government High Yield Quality
(Unaudited) Income Fund Fund Income Fund
Investment income
Income:
<S> <C> <C> <C>
Dividends $ -- $ 10,016 $ 199
Interest 29,613 84,015 25,915
Less foreign taxes withheld -- -- (8)
Total income 29,613 94,031 26,106
------ ------ ------
Expenses (Note 2):
Expenses allocated from corresponding Portfolio 2,271 4,923 1,992
Distribution fee 768 1,484 649
Transfer agency fee 327 502 193
Administrative services fees and expenses 226 432 191
Compensation of board members 409 458 410
Registration fees 13,025 23,407 4,151
Audit fees 1,800 1,800 1,800
Printing and postage 480 3,920 182
Other 3,810 1,372 187
----- ----- ---
Total expenses 23,116 38,298 9,755
Less expenses reimbursed by AEFC (18,113) (28,679) (5,528)
------- ------- ------
Total net expenses 5,003 9,619 4,227
----- ----- -----
Investment income (loss)-- net 24,610 84,412 21,879
------ ------ ------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (27,000) (36,857) (7,069)
Financial futures contracts (4,063) -- 2,423
Foreign currency transactions -- (1,566) (40)
Options contracts written 11,575 -- --
------
Net realized gain (loss) on investments (19,488) (38,423) (4,686)
Net change in unrealized appreciation
(depreciation) on investments 4,519 (61,262) (16,432)
----- ------- -------
Net gain (loss) on investments (14,969) (99,685) (21,118)
------- ------- -------
Net increase (decrease) in net assets
resulting from operations $ 9,641 $ (15,273) $ 761
========= ======== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Income Fund, Inc.
Strategist Government Income Fund
Nov. 30, 1999 May 31, 1999
Six months ended Year ended
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 24,610 $ 44,023
Net realized gain (loss) on investments (19,488) 22,247
Net change in unrealized appreciation
(depreciation) on investments 4,519 (35,378)
----- -------
Net increase (decrease) in net assets resulting from operations 9,641 30,892
----- ------
Distributions to shareholders from:
Net investment income (24,474) (44,231)
Net realized gain -- (14,001)
-------
Total distributions (24,474) (58,232)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 16,966 273,402
Reinvestment of distributions at net asset value 14,350 58,028
Payments for redemptions (29,642) (62,923)
------- -------
Increase (decrease) in net assets from capital share transactions 1,674 268,507
----- -------
Total increase (decrease) in net assets (13,159) 241,167
Net assets at beginning of period 899,119 657,952
Net assets at end of period $885,960 $899,119
======== ========
Undistributed net investment income $ 1,216 $ 1,080
-------- --------
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
Nov. 30, 1999 May 31, 1999
Six months ended Year ended
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 84,412 $ 169,409
Net realized gain (loss) on investments (38,423) (66,406)
Net change in unrealized appreciation
(depreciation) on investments (61,262) (185,856)
------- --------
Net increase (decrease) in net assets resulting from operations (15,273) (82,853)
------- -------
Distributions to shareholders from:
Net investment income (81,083) (176,522)
Net realized gain -- (18,715)
-------
Total distributions (81,083) (195,237)
------- --------
Capital share transactions (Note 3)
Proceeds from sales 177,378 1,140,763
Reinvestment of distributions at net asset value 55,167 140,321
Payments for redemptions (136,434) (466,187)
-------- --------
Increase (decrease) in net assets from capital share transactions 96,111 814,897
------ -------
Total increase (decrease) in net assets (245) 536,807
Net assets at beginning of period 1,673,932 1,137,125
--------- ---------
Net assets at end of period $1,673,687 $1,673,932
========== ==========
Undistributed net investment income $ 4,240 $ 911
---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Strategist Income Fund, Inc.
Strategist Quality Income Fund
Nov. 30, 1999 May 31, 1999
Six months ended Year ended
(Unaudited)
Operations and distributions
<S> <C> <C>
Investment income (loss)-- net $ 21,879 $ 41,799
Net realized gain (loss) on investments (4,686) 14,233
Net change in unrealized appreciation
(depreciation) on investments (16,432) (31,558)
------- -------
Net increase (decrease) in net assets resulting from operations 761 24,474
--- ------
Distributions to shareholders from:
Net investment income (21,703) (41,686)
Net realized gain -- (5,030)
------
Total distributions (21,703) (46,716)
------- -------
Capital share transactions (Note 3)
Proceeds from sales 1,832 116,122
Reinvestment of distributions at net asset value 20,878 46,716
Payments for redemptions (17,293) (56,369)
------- -------
Increase (decrease) in net assets from capital share transactions 5,417 106,469
----- -------
Total increase (decrease) in net assets (15,525) 84,227
Net assets at beginning of period 756,935 672,708
------- -------
Net assets at end of period $741,410 $756,935
======== ========
Undistributed net investment income $ 826 $ 650
-------- --------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
Strategist Income Fund, Inc.
(Unaudited as to Nov. 30, 1999)
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.
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 the value that is equal to the
Fund's proportionate ownership interest in the Portfolios' net assets. As of
Nov. 30, 1999, the percentages of the corresponding Portfolio owned by
Government Income Fund, High Yield Fund and Quality Income Fund were 0.03%,
0.05% and 0.05%, respectively. Valuation of securities held by the Portfolios is
discussed in Note 1 of the Portfolios' "Notes to financial statements" (included
elsewhere in this report).
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
Federal taxes
The Fund's policy is to comply with all sections of the Internal Revenue Code
that apply to regulated investment companies and to distribute substantially all
of its taxable income to the shareholders. No provision for income or excise
taxes is thus required.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of deferred 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
As of Nov. 30, 1999, AEFC owned 130,174 shares of Government Income Fund,
160,799 shares of High Yield Fund and 69,610 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 has an agreement with AEFC to provide administrative services. Under
its Administrative Services Agreement, each Fund pays AEFC a fee 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 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 Fund expenses through May 31, 2000. Under this agreement, each Fund's
total expenses will not exceed 1.10% (1.20% for High Yield Fund) of each of the
Fund's average daily net assets. In addition, for the six months ended Nov. 30,
1999, AEFC further voluntarily agreed to waive certain fees and expenses to
1.11% for High Yield Fund.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods indicated are as
follows:
Six months ended Nov. 30, 1999
Government High Quality
Income Yield Income
Fund Fund Fund
Sold 3,582 45,410 204
Issued for reinvested distributions 3,019 14,397 2,334
Redeemed (6,237) (35,877) (1,938)
------ ------- ------
Net increase (decrease) 364 23,930 600
Year ended May 31, 1999
Government High Quality
Income Yield Income
Fund Fund Fund
Sold 55,436 254,861 12,360
Issued for reinvested distribtions 11,755 34,590 4,993
Redeemed (12,803) (113,505) (5,994)
------- -------- ------
Net increase (decrease) 54,388 175,946 11,359
4. CAPITAL LOSS CARRYOVER
For federal income tax purposes, High Yield Fund has a capital loss carryover as
of May 31, 1999 of $66,068 that if not offset by subsequent capital gains, will
expire in 2008. It is unlikely the board will authorize a distribution of any
net realized capital gains for a fund until its available capital loss carryover
has been offset or expires.
<PAGE>
<TABLE>
<CAPTION>
5. FINANCIAL HIGHLIGHTS
The tables below show certain important financial information for evaluating
each Fund's results.
Government Income Fund
Fiscal period ended May 31,
Per share income and capital changesa
1999c 1999 1998 1997b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $4.82 $4.98 $4.93 $4.91
Income from investment operations:
Net investment income (loss) .13 .28 .32 .30
Net gains (losses) (both realized and unrealized) (.08) (.07) .11 .06
Total from investment operations .05 .21 .43 .36
Less distributions:
Dividends from net investment income (.13) (.28) (.33) (.30)
Distributions from realized gains -- (.09) (.05) (.04)
Total distributions (.13) (.37) (.38) (.34)
Net asset value, end of period $4.74 $4.82 $4.98 $4.93
Ratios/supplemental data
Net assets, end of period (in thousands) $886 $899 $658 $548
Ratio of expenses to average daily net assetsd 1.10%e 1.09% 1.09% 1.10%e
Ratio of net investment income (loss)
to average daily net assets 5.43%e 5.57% 6.44% 6.48%e
Portfolio turnover rate
(excluding short-term securities) 303% 278% 159% 146%
Total return .81% 4.19% 9.04% 7.59%
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, 1999 (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 5.10% for the six months ended Nov. 30, 1999 and 1.41%,
1.57% and 25.68% for the periods ended 1999, 1998 and 1997, respectively.
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 changesa
1999c 1999 1998 1997b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $3.96 $4.61 $4.41 $4.31
Income from investment operations:
Net investment income (loss) .18 .39 .43 .38
Net gains (losses) (both realized and unrealized) (.21) (.58) .17 .09
Total from investment operations (.03) (.19) .60 .47
Less distributions:
Dividends from net investment income (.18) (.42) (.40) (.37)
Distributions from realized gains -- (.04) -- --
Total distributions (.18) (.46) (.40) (.37)
Net asset value, end of period $3.75 $3.96 $4.61 $4.41
Ratios/supplemental data
Net assets, end of period (in thousands) $1,674 $1,674 $1,137 $960
Ratio of expenses to average daily net assetsd 1.11%e 1.19% .72% 1.19%e
Ratio of net investment income (loss)
to average daily net assets 9.77%e 9.73% 9.28% 8.90%e
Portfolio turnover rate
(excluding short-term securities) 19% 47% 81% 92%
Total return (.75%) (3.94%) 14.02% 11.40%
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, 1999 (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 4.43% for the six months ended Nov. 30, 1999 and 1.85%, 2.15%
and 11.48% for the periods ended 1999, 1998 and 1997, respectively.
e Adjusted to an annual basis.
</TABLE>
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<TABLE>
<CAPTION>
Quality Income Fund
Fiscal period ended May 31,
Per share income and capital changesa
1999c 1999 1998 1997b
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.12 $9.40 $9.15 $8.95
Income from investment operations:
Net investment income (loss) .25 .53 .58 .55
Net gains (losses) (both realized and unrealized) (.25) (.21) .34 .18
Total from investment operations -- .32 .92 .73
Less distributions:
Dividends from net investment income (.25) (.54) (.61) (.53)
Distributions from realized gains -- (.06) (.06) --
Total distributions (.25) (.60) (.67) (.53)
Net asset value, end of period $8.87 $9.12 $9.40 $9.15
Ratios/supplemental data
Net assets, end of period (in thousands) $741 $757 $673 $575
Ratio of expenses to average daily net assetsd 1.10%e 1.09% .97% 1.10%e
Ratio of net investment income (loss)
to average daily net assets 6.82%e 5.68% 6.22% 6.33%e
Portfolio turnover rate
(excluding short-term securities) 28% 30% 20% 31%
Total return .06% 3.38% 10.30% 8.31%
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, 1999 (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 2.55% for the six months ended Nov. 30, 1999 and 3.58%,
1.48% and 13.34% for the periods ended 1999, 1998 and 1997, respectively.
e Adjusted to an annual basis.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of assets and liabilities
Government Income Portfolio
Nov. 30, 1999 (Unaudited)
Assets
Investments in securities, at value (Note 1)
<S> <C> <C>
(identified cost $4,583,093,649) $4,527,530,478
Cash in bank on demand deposit 770,720
Accrued interest receivable 26,978,644
Receivable for investment securities sold 726,259,440
U.S. government securities held as collateral (Note 5) 74,105,757
----------
Total assets 5,355,645,039
-------------
Liabilities
Payable for investment securities purchased 245,854,032
Payable for securities purchased on a when-issued basis (Note 1) 827,200,077
Payable upon return of securities loaned (Note 5) 858,622,632
Accrued investment management services fee 43,186
Other accrued expenses 15,586
Securities sold short (Notes 1 and 3) 224,001,250
Options contracts written, at value (premium received $1,863,381) (Note 6) 577,500
-------
Total liabilities 2,156,314,263
-------------
Net assets $3,199,330,776
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Government Income Portfolio
Six months ended Nov. 30, 1999 (Unaudited)
Investment income
Income:
<S> <C>
Interest $110,029,262
------------
Expenses (Note 2):
Investment management services fee 8,307,540
Compensation of board members 7,210
Custodian fees 129,730
Audit fees 16,875
Other 24,695
------
Total expenses 8,486,050
Earnings credits on cash balances (Note 2) (6,026)
------
Total net expenses 8,480,024
---------
Investment income (loss) -- net 101,549,238
-----------
Realized and unrealized gain (loss) -- net Net realized gain (loss) on:
Security transactions (Note 3) (102,651,069)
Financial futures contracts (14,547,989)
Options contracts written (Note 6) 43,106,240
- ----------
Net realized gain (loss) on investments (74,092,818)
Net change in unrealized appreciation (depreciation) on investments 17,562,382
----------
Net gain (loss) on investments (56,530,436)
-----------
Net increase (decrease) in net assets resulting from operations $ 45,018,802
-------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Government Income Portfolio
Nov. 30, 1999 May 31, 1999
Six months ended Year ended
(Unaudited)
Operations
<S> <C> <C>
Investment income (loss) -- net $ 101,549,238 $ 170,696,388
Net realized gain (loss) on investments (74,092,818) 77,523,298
Net change in unrealized appreciation (depreciation) on investments 17,562,382 (129,475,710)
---------- ------------
Net increase (decrease) in net assets resulting from operations 45,018,802 118,743,976
Net contributions (withdrawals) from partners (260,136,460) 726,433,297
------------ -----------
Total increase (decrease) in net assets (215,117,658) 845,177,273
Net assets at beginning of period 3,414,448,434 2,569,271,161
------------- -------------
Net assets at end of period $3,199,330,776 $3,414,448,434
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
Government Income Portfolio
(Unaudited as to Nov. 30, 1999)
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. The 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.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
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 that reflects fair value
as quoted by dealers 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
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and sell put and call
options and write covered call options on portfolio securities as well as write
cash-secured put and call options on U.S. government securities. The Portfolio
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
Portfolio gives up the opportunity for 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 being unable to enter into a closing transaction if a liquid secondary
market does not exist. The Portfolio also may write over-the-counter options
where completing the obligation depends 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 Portfolio
will realize a gain or loss when the option transaction expires or closes. 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
To gain exposure to or protect itself from market changes, the Portfolio may buy
and sell financial futures contracts. Risks of entering into futures contracts
and related options include the possibility of 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.
Short sales
The Portfolio may engage in short sales. In these transactions, the Portfolio
sells a security that it does not own in anticipation of a decline in the market
value of the security. To complete the transaction, the Portfolio must borrow
the security to make delivery to the buyer. The Portfolio is obligated to
replace the security that was borrowed by purchasing it at the market price at
the time of replacement. The price at such time may be more or less than the
price at which the Portfolio sold the security. The Portfolio will designate
cash or liquid securities to cover its open short positions. The Portfolio also
may engage in "short sales against the box," a form of short-selling that
involves selling a security that the Portfolio owns (or has an unconditioned
right to purchase) for delivery at a specified date in the future. This
technique allows the Portfolio to hedge protectively against anticipated
declines in the market of its securities. If the value of the securities sold
short increased between the date of the short sale and the date on which the
borrowed security is replaced, the Portfolio loses the opportunity to
participate in the gain. A "short sale against the box" will result in a
constructive sale of appreciated securities thereby generating capital gains to
the Portfolio.
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 debt securities
at least equal to the amount of its commitment. As of Nov. 30, 1999, the
Portfolio had entered into outstanding when-issued or forward-commitments of
$827,200,077.
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. As a "pass-through" entity, the Portfolio therefore
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 an Investment Management Services
Agreement with AEFC to manage 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, 1999, the Portfolio's custodian fees were
reduced by $6,026 as a result of earnings credits from overnight cash balances.
The Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $13,405,766,542 and $13,188,404,377, respectively, for
the six months ended Nov. 30, 1999. For the same period, the portfolio turnover
rate was 303%. Realized gains and losses are determined on an identified cost
basis.
As of Nov. 30, 1999, the following securities were sold short.
Issuer Shares Proceeds Value
FNMA 30 6.5% TBA 100,000,000 $ 96,027,500 $ 95,218,750
FNMA 30 7.0% TBA 132,000,000 129,758,750 128,782,500
-- --- ----------- ----------- -----------
Total 232,000,000 $225,786,250 $224,001,250
4. INTEREST RATE FUTURES CONTRACTS
As of Nov. 30, 1999, investments in securities included securities valued at
$79,306,974 that were pledged as collateral to cover initial margin deposits on
4,187 open purchase contracts and 26,942 open sale contracts. The market value
of the open purchase contracts as of Nov. 30, 1999 was $453,558,223 with a net
unrealized loss of $3,424,278. The market value of the open sale contracts as of
Nov. 30, 1999 was $4,915,426,288 with a net unrealized gain of $7,442,411. See
"Summary of significant accounting policies."
5. LENDING OF PORTFOLIO SECURITIES As of Nov. 30, 1999, securities valued at
$831,697,825 were on loan to brokers. For collateral, the Portfolio received
$784,516,875 in cash and U.S. government securities valued at $74,105,757.
Income from securities lending amounted to $1,828,867 for the six months ended
Nov. 30, 1999. The risks to the Portfolio of securities lending are that the
borrower may not provide additional collateral when required or return the
securities when due.
6. OPTIONS CONTRACTS WRITTEN
Contracts and premium amounts associated with options contracts written are as
follows:
Six months ended Nov. 30, 1999
Puts Calls
Contracts Premium Contracts Premium
Balance May 31, 1999 2,351 $3,162,193 33,129 $15,694,987
Opened 91,274 10,358,188 127,396 21,161,409
Closed (19,800) (3,579,800) (18,634) (6,090,420)
Exercised (26,926) (944,834) (24,225) (2,156,317)
Expired (46,899) (8,995,747) (85,898) (26,746,278)
------- ---------- ------- -----------
Balance Nov. 30, 1999 -- $ -- 31,768 $ 1,863,381
See "Summary of significant accounting policies."
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
Government Income Portfolio
Nov. 30, 1999 (Unaudited)
(Percentages represent value of investments compared to net assets)
Bonds (137.9%)
Issuer Coupon Principal Value(a)
rate amount
Mortgage-backed securities (94.8%)
Federal Home Loan Mtge Corp
<S> <C> <C> <C> <C> <C>
08-01-00 7.50% $533,757 $534,459
07-01-03 6.50 14,695 14,543
09-01-09 6.50 3,770,817 3,728,296
10-01-10 7.00 9,619,092 9,600,983
01-01-13 6.00 10,554,713 10,152,634
04-01-14 6.00 40,772,405 39,089,199
11-01-23 8.00 10,459,739 10,688,598
05-01-24 7.50 4,173,151 4,175,738
07-01-24 8.00 5,634,971 5,726,539
01-01-25 9.00 4,844,869 5,065,892
06-01-25 8.00 7,472,755 7,589,480
08-01-25 8.00 1,936,790 1,967,043
02-01-26 6.00 16,392,090 15,321,522
05-01-26 9.00 10,511,805 11,004,598
12-01-27 6.00 131,521,687 122,603,797
01-01-28 6.00 2,700,713 2,504,912
02-01-28 6.00 17,126,421 15,888,108
09-01-28 6.00 18,063,603 16,772,530
10-01-28 6.00 13,158,386 12,200,324
06-01-29 6.50 22,397,890 21,361,988
06-01-29 7.00 24,992,229 24,429,904
07-01-29 6.50 46,205,287 44,068,293
07-01-29 7.00 26,232,898 25,642,658
Collateralized Mtge Obligation
08-15-03 6.50 11,926,107 11,863,563
11-15-22 4.00 44,310,000 38,703,686
11-15-23 4.00 5,752,952 5,569,030
Interest Only
01-01-20 10.00 148,557(c) 34,658
Principal Only
09-15-03 6.46 5,355,715(d) 4,554,977
05-15-08 7.14 5,689,699(d) 4,577,541
05-15-08 8.13 5,176,585(d) 4,538,409
03-15-09 7.38 3,122,966(d) 2,717,957
11-15-23 7.86 834,511(d) 699,373
Federal Natl Mtge Assn
12-01-99 7.00 665,796 665,803
09-01-07 8.50 2,370,176 2,454,996
05-01-13 6.00 55,758,434 53,399,458
06-01-13 6.00 45,747,139 43,811,712
08-01-13 6.00 73,401,709 70,296,297
09-01-13 6.00 16,961,409 16,243,822
11-01-13 6.00 18,059,744 17,295,689
12-01-13 5.50 12,670,878 11,879,502
12-01-13 6.00 3,894,139 3,729,389
01-01-14 5.50 2,420,206 2,269,049
01-01-14 6.00 2,822,031 2,702,639
02-01-14 5.50 9,449,676 8,852,761
03-01-14 5.50 986,656 923,331
03-01-14 6.00 4,502,543 4,312,054
04-01-14 5.50 204,730,118(b) 191,897,108
04-01-14 6.00 7,486,502 7,163,486
05-01-14 5.50 26,928,315 25,200,027
05-01-14 6.00 22,440,789 21,472,544
06-01-14 5.50 140,365,986 131,568,971
06-01-14 6.00 40,970,409 39,205,719
06-01-14 6.50 54,091,984 52,928,078
07-01-14 5.50 16,026,324 14,997,738
07-01-14 6.00 61,021,396 58,388,532
08-01-14 5.50 111,491,017 104,335,407
08-01-14 6.00 153,241,104 146,634,185
08-01-14 6.50 12,818,902 12,539,457
09-01-14 6.00 4,277,195 4,092,650
09-01-14 6.50 12,942,450 12,660,311
12-01-14 6.50 217,910,000(b) 212,938,927
12-01-14 7.00 66,000,000(b) 65,649,375
08-01-19 6.50 156,798,051 149,447,358
11-01-21 8.00 1,956,771 1,992,227
03-01-23 9.00 1,346,060 1,416,728
04-01-23 8.50 5,169,799 5,349,139
08-25-23 6.00 14,400,000 12,897,484
09-01-23 6.50 37,929,979 36,507,605
09-01-23 8.50 17,837,634 18,489,778
11-01-23 6.00 9,604,276 8,985,953
12-01-23 7.00 12,291,293 12,053,088
01-01-24 6.50 14,037,389 13,484,598
06-01-24 9.00 4,232,807 4,449,739
09-01-25 6.50 18,783,031 17,992,224
11-01-25 6.50 18,878,120 18,087,504
02-01-26 6.00 491,233 457,461
02-01-26 8.00 1,973,967 2,001,721
04-01-26 6.00 279,600 260,378
05-01-26 7.50 13,156,512 13,123,621
02-01-27 6.00 2,212,019 2,054,413
04-01-27 6.00 5,077,269 4,715,514
04-01-27 6.50 12,106,182 11,542,518
04-01-27 7.00 7,535,944 7,364,049
09-01-27 7.00 5,983,009 5,846,537
03-01-28 6.00 21,088,896 19,565,175
04-01-28 6.00 54,785,778(f,g) 50,812,971
05-01-28 6.00 9,147,403 8,484,875
05-01-28 6.50 19,714,399 18,807,309
07-01-28 6.00 9,517,515 8,828,180
09-01-28 6.00 91,710,631 85,037,536
10-01-28 6.00 16,471,458 15,267,065
10-01-28 6.50 47,177,378 45,010,167
06-01-29 6.50 41,463,694 39,536,168
07-01-29 6.50 142,278,766 135,609,281
09-01-29 6.50 534,214 509,171
09-01-29 7.00 70,227,246 68,637,299
10-01-29 7.00 109,722,540 107,233,502
11-01-29 6.50 13,768,107 13,122,659
11-01-29 7.00 17,732,885 17,325,767
11-01-29 7.50 22,000,000 21,931,559
12-01-29 5.50 132,000,000(b) 123,461,249
Collateralized Mtge Obligation
09-25-08 4.50 38,000,000 34,235,021
11-25-08 5.50 2,084,009 2,006,963
10-25-10 4.50 6,368,130 6,156,772
07-25-12 7.00 2,371,887 2,361,000
01-25-19 3.00 4,997,335 4,834,123
08-25-23 6.50 15,000,000 14,125,050
05-18-26 5.00 17,000,000 14,614,144
Interest Only
08-01-18 9.50 45,980(c) 11,653
01-15-20 10.00 2,197,879(c) 600,878
02-25-22 9.50 347,971(c) 84,864
07-25-22 8.50 7,739,013(c) 1,977,326
Inverse Floater
08-25-23 6.78 687,961(h) 609,829
03-25-24 7.98 1,030,465(h) 886,507
Principal Only
06-25-21 12.57 281,048(d) 231,288
Govt Natl Mtge Assn
08-20-19 11.00 142,126 158,293
Total 3,034,493,530
U.S. government obligations (41.3%)
Collateralized Mtge Acceptance Corp
12-15-30 6.50 74,487 73,396
Resolution Funding Corp
Zero Coupon
04-15-06 5.74 4,803,000(i) 3,173,540
04-15-08 5.88 21,250,000(i) 12,218,960
07-15-08 6.13 48,500,000(i) 27,385,224
01-15-09 5.76 24,173,000(i) 13,237,836
07-15-09 5.91 32,646,000(i) 17,234,999
10-15-12 8.04 8,400,000(i) 3,521,049
04-15-17 7.28 37,700,000(i) 11,602,514
07-15-17 7.28 6,650,000(i) 2,012,084
01-15-18 7.20 8,000,000(i) 2,342,552
10-15-18 7.87 7,500,000(i) 2,092,433
U.S. Treasury
07-31-01 5.50 26,600,000(f,g) 26,402,628
08-19-01 5.50 44,000,000 43,638,320
09-30-01 5.63 374,000,000(e,f,g) 371,527,859
10-31-01 5.88 228,800,000(e) 228,289,775
04-30-02 6.63 10,000,000 10,137,890
02-15-03 10.75 15,000,000(f,g) 16,968,323
08-15-03 5.75 18,500,000(e) 18,271,525
11-15-03 4.25 1,950,000 1,825,688
02-15-04 4.75 154,000,000(e) 146,423,200
05-15-04 5.25 44,000,000(e) 42,515,000
05-15-04 12.38 7,000,000 8,641,774
08-15-05 6.50 5,000,000 5,068,184
08-15-05 10.75 4,750,00(f) 5,744,148
05-15-06 6.88 12,600,000(e) 13,012,603
07-15-06 7.00 98,500,000(e) 102,392,612
11-15-08 4.75 10,100,000(e) 9,077,375
05-15-09 5.50 160,600,000(e) 152,770,750
Zero Coupon
11-15-04 5.65 33,000,000(f,g,i) 24,254,762
Total 1,321,857,003
Other (1.8%)
California Infrastructure-
Pacific Gas & Electric Series 1997-1
09-25-05 6.32 20,400,000 20,186,820
San Diego Gas & Electric
03-25-03 6.07 7,500,000 7,487,625
09-25-05 6.19 6,000,000 5,906,700
Southern California Edison
03-25-03 6.17 13,895,000 13,884,579
GMAC Commercial Mtge Securities
Series 1997-C2 Cl A1
12-15-04 6.45 9,081,798 8,907,246
Total 56,372,970
Total bonds
(Cost: $4,467,777,598) $4,412,723,503
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Option purchased (0.04%)
Issuer Shares Exercise Expiration Value(a)
price date
Put
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 1,500,000 $97 Dec. 1999 $1,218,750
Total option purchased
(Cost: $1,617,188) $1,218,750
Short-term securities (3.6%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (3.4%)
Federal Home Loan Bank Disc Nts
12-22-99 5.21% $6,600,000 $6,578,139
02-02-00 5.59 6,300,000 6,232,576
02-18-00 5.60 8,000,000 7,892,978
02-23-00 5.65 2,200,000 2,168,729
Federal Home Loan Mtge Corp Disc Nts
12-10-99 5.20 1,800,000 1,797,405
01-10-00 5.60 5,000,000 4,966,118
01-12-00 5.52 1,600,000 1,589,527
02-01-00 5.59 700,000 692,626
02-18-00 5.63 10,500,000 10,359,533
Federal Natl Mtge Assn Disc Nts
12-02-99 5.24 1,300,000 1,299,602
12-08-99 5.26 4,800,000 4,794,229
12-17-99 5.25 500,000 498,676
01-21-00 5.61 5,900,000 5,847,454
01-25-00 5.57 9,400,000 9,311,274
01-28-00 5.59 300,000 296,969
02-02-00 5.61 1,000,000 989,298
02-17-00 5.60 37,500,000 37,004,603
02-24-00 5.65 6,400,000 6,307,961
Total 108,627,697
Commercial paper (0.2%)
Bell Atlantic
01-18-00 5.85 5,000,000 4,960,528
Total short-term securities
(Cost: $113,698,863) $113,588,225
Total investments in securities
(Cost: $4,583,093,649)(j) $4,527,530,478
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) At Nov. 30, 1999, the cost of securities purchased, including interest
purchased, on a when-issued basis was $827,200,077.
(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) 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.
(e) Security is partially or fully on loan. See Note 5 to the financial
statements.
(f) 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
<S> <C> <C> <C>
Eurodollar Sept. 2004, 90-day $25,500,000
U.S. Treasury Notes March 2000, 2-year 5,100,000
U.S. Treasury Notes March 2000, 5-year 388,100,000
Sale contracts
Eurodollar March 2000, 90-day 86,500,000
Eurodollar March 2001, 90-day 97,700,000
Eurodollar March 2003, 90-day 152,200,000
Eurodollar March 2004, 90-day 112,500,000
Eurodollar June 2000, 90-day 86,500,000
Eurodollar June 2001, 90-day 27,900,000
Eurodollar June 2002, 90-day 68,800,000
Eurodollar June 2003, 90-day 152,200,000
Eurodollar June 2004, 90-day 112,500,000
Eurodollar Sept. 2000, 90-day 86,500,000
Eurodollar Sept. 2001, 90-day 28,900,000
Eurodollar Sept. 2002, 90-day 68,800,000
Eurodollar Sept. 2003, 90-day 152,200,000
Eurodollar Dec. 2000, 90-day 97,700,000
Eurodollar Dec. 2002, 90-day 152,200,000
Eurodollar Dec. 2003, 90-day 114,700,000
Eurodollar Dec. 1999, 90-day 33,700,000
U.S. Treasury Bonds Dec. 1999 82,700,000
U.S. Treasury Bonds March 2000 30,800,000
U.S. Treasury Notes Dec. 1999, 5-year 68,200,000
U.S. Treasury Notes Dec. 1999, 10-year 503,100,000
U.S. Treasury Notes March 2000 376,900,000
(g) At Nov. 30, 1999, securities valued at $79,302,013 were held to cover open
call options written as follows:
Issuer Principal Exercise Expiration Value(a)
amount Price Date
Federal Natl Mtge Assn $880,000 $96 Dec. 1999 $68,750
Federal Natl Mtge Assn 880,000 98 Dec. 1999 110,000
Federal Natl Mtge Assn 880,000 98 Dec. 1999 55,000
Federal Natl Mtge Assn 440,000 97 Dec. 1999 41,250
U.S. Treasury Note Futures Dec. 1999968,000 98 Dec. 1999 302,500
Total $577,500
(h) 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, 1999. Inverse floaters in the
aggregate represent 0.05% of the Portfolio's net assets as of Nov. 30, 1999.
(i) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(j) At Nov. 30, 1999, the cost of securities for federal income tax purposes was
approximately $4,581,476,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $ 16,878,000
Unrealized depreciation (70,824,000)
-----------
Net unrealized depreciation $(53,946,000)
</TABLE>
<PAGE>
Financial Statements
Statement of assets and liabilities
High Yield Portfolio
Nov. 30, 1999 (Unaudited)
Assets
Investments in securities, at value (Note 1)
(identified cost $4,035,222,769) $3,582,460,337
Accrued interest and dividends receivable 91,065,797
Receivable for investment securities sold 80,245
------
Total assets 3,673,606,379
Liabilities
Disbursement in excess of cash on demand deposit 415,268
Payable for investment securities purchased 20,075,599
Accrued investment management services fee 55,767
------
Total liabilities 20,546,634
----------
Net assets $3,653,059,745
==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
High Yield Portfolio
Six months ended Nov. 30, 1999 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 22,201,859
Interest 185,999,071
-----------
Total income 208,200,930
-----------
Expenses (Note 2):
Investment management services fee 10,703,078
Compensation of board members 8,221
Custodian fees 76,100
Audit fees 17,250
Other 204,951
-------
Total expenses 11,009,600
Earnings credits on cash balances (Note 2) (77,392)
-------
Total net expenses 10,932,208
----------
Investment income (loss) -- net 197,268,722
-----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (71,669,176)
Foreign currency transactions (3,633,441)
----------
Net realized gain (loss) on investments (75,302,617)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (140,281,232)
------------
Net gain (loss) on investments (215,583,849)
------------
Net increase (decrease) in net assets resulting from operations $ (18,315,127)
==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
High Yield Portfolio
Nov. 30, 1999 May 31, 1999
Six months ended Year ended
(Unaudited)
Operations
<S> <C> <C>
Investment income (loss)-- net $ 197,268,722 $ 394,989,832
Net realized gain (loss) on investments (75,302,617) (127,910,210)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies
(140,281,232) (413,949,530)
------------ ------------
Net increase (decrease) in net assets resulting from operations (18,315,127) (146,869,908)
Net contributions (withdrawals) from partners (223,222,018) (122,534,167)
------------ ------------
Total increase (decrease) in net assets (241,537,145) (269,404,075)
Net assets at beginning of period 3,894,596,890 4,164,000,965
------------- -------------
Net assets at end of period $3,653,059,745 $3,894,596,890
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
High Yield Portfolio
(Unaudited as to Nov. 30, 1999)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. The 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.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
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 that reflects fair value
as quoted by dealers 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
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends 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 as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
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 being unable 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 when the option transaction expires or closes. 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
To gain exposure to or protect itself from market changes, 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 of 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. 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, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date 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 its contract obligations.
Illiquid securities
As of Nov. 30, 1999, investments in securities included issues that are illiquid
which the Portfolio currently limits to 10% of net assets, at market value, at
the time of purchase. The aggregate value of such securities as of Nov. 30, 1999
was $64,118,063 representing 1.8% of net assets. According to board guidelines,
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. As a "pass-through" entity, the Portfolio therefore
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. 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 an Investment Management Services
Agreement with AEFC to manage 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.
During the six months ended Nov. 30, 1999, the Portfolio's custodian fees were
reduced by $77,392 as a result of earnings credits from overnight cash balances.
The Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $678,098,198 and $747,520,445, respectively, for the six
months ended Nov. 30, 1999. For the same period, the portfolio turnover rate was
19%. Realized gains and losses are determined on an identified cost basis.
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
High Yield Portfolio
Nov. 30, 1999 (Unaudited)
(Percentages represent value of investments compared to net assets)
Bonds (84.6%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (--%)
Govt of Algeria
(U.S. Dollar)
<S> <C> <C> <C> <C> <C>
03-04-00 7.06% $522,727(c) $512,273
Mortgage-backed securities (0.1%)
Federal Home Loan Mtge Corp
08-01-17 7.50 2,820(e) 2,864
Merrill Lynch Mtge Investors
06-15-21 7.88 4,657,548 4,228,180
Total 4,231,044
Aerospace & defense (1.6%)
BE Aerospace
Sr Sub Nts Series B
03-01-08 8.00 10,200,000 8,440,500
Compass Aerospace
Sr Sub Nts
04-15-05 10.13 11,335,000(d) 8,104,525
Fairchild
Company Guaranty
04-15-09 10.75 19,550,000 16,617,500
L-3 Communications
Sr Sub Nts Series B
05-01-07 10.38 6,145,000 6,344,713
Sequa
Sr Nts
08-01-09 9.00 20,750,000 20,646,250
Total 60,153,488
Automotive & related (2.5%)
EV Intl
Company Guaranty Series A
03-15-07 11.00 10,500,000 7,350,000
French (JL) Auto Casting
Sr Sub Nts
06-01-09 11.50 12,900,000(d) 12,738,750
Hayes Lemmerz Intl
Company Guaranty Series B
07-15-07 9.13 10,000,000 9,725,000
Lear
Sr Nts
05-15-09 8.11 20,000,000(d) 18,978,400
MSX Intl
Company Guaranty
01-15-08 11.38 13,110,000 12,323,400
Oxford Automotive
Company Guaranty Series D
06-15-07 10.13 25,120,000 22,670,800
Penda
Sr Nts Series B
03-01-04 10.75 4,500,000 4,353,750
Venture Holdings Trust
Sr Nts Series B
07-01-05 9.50 4,000,000 3,740,000
Total 91,880,100
Banks and savings & loans (0.5%)
Sovereign Bancorp
Sr Nts
11-15-06 10.50 16,400,000 16,543,500
Beverages & tobacco (0.3%)
Canandaigua Brands
Company Guaranty
03-01-09 8.50 12,500,000 11,906,250
Chemicals (1.3%)
Allied Waste North America
Company Guaranty Series B
01-01-06 7.63 4,250,000 3,867,500
01-01-09 7.88 18,675,000 16,620,750
Sr Sub Nts
08-01-09 10.00 4,250,000(d) 3,878,125
Lyondell Chemical
Series B
05-01-07 9.88 9,500,000 9,785,000
Sr Sub Nts
05-01-09 10.88 8,800,000 9,174,000
Sterling Chemicals
Company Guaranty Series B
07-15-06 12.38 5,000,000 5,150,000
Total 48,475,375
Commercial finance (0.4%)
Advance Holding
Zero Coupon Series B
04-15-03 12.45 8,800,000(g) 4,400,000
Netia Holdings
(U.S. Dollar) Company Guaranty Series B
11-01-07 10.25 12,750,000(c) 10,773,750
Total 15,173,750
Communications equipment & services (12.9%)
21st Century Telecom Group
Zero Coupon Sr Disc Nts
02-15-03 14.81 19,300,000(g) 8,878,000
AirGate PCS
Zero Coupon
10-01-04 13.50 16,700(g) 10,145,250
Bestel
(U.S. Dollar) Zero Coupon
05-15-01 12.75 6,400,000(c,g) 4,032,000
Birch Telecom
Sr Nts
06-15-08 14.00 14,000,000 14,210,000
Caprock Communications
Sr Nts Series B
07-15-08 12.00 17,000,000 17,085,000
Celcaribe
Sr Nts
03-15-04 13.50 11,150,000 8,139,500
Covad Communications Group
Sr Nts
02-15-09 12.50 10,000,000 10,300,000
Crown Castle Intl
Zero Coupon Sr Disc Nts
08-01-04 11.30 14,750,000(d,g) 8,997,500
Dobson/Sygnet Communications
Sr Nts
12-15-08 12.25 16,000,000 17,600,000
EchoStar DBS
Sr Nts
02-01-09 9.38 41,015,000 41,271,344
Esprit Telecom Group
(U.S. Dollar) Sr Nts
12-15-07 11.50 17,900,000(c) 18,168,500
06-15-08 10.88 17,000,000(c) 16,745,000
GST Equipment Funding
Sr Nts
05-01-07 13.25 6,750,000 6,648,750
GST Network Funding
Zero Coupon Sr Disc Nts
05-01-03 10.50 15,000,000(g) 7,518,750
GST Telecommunications
Sr Sub Nts
11-15-07 12.75 6,750,000 6,615,000
Jordan Telecommunications Products
Sr Nts Series B
08-01-07 9.88 25,950,000 25,431,000
Zero Coupon Sr Disc Nts Series B
08-01-00 10.04 21,900,000(g) 18,834,000
KMC Telecom Holdings
Sr Nts
05-15-09 13.50 12,000,000(d) 11,880,000
Zero Coupon Sr Disc Nts
02-15-03 12.68 12,000,000(g) 6,390,000
MJD Communications
Sr Sub Nts Series B
05-01-08 9.50 5,525,000 4,972,500
NTL
Zero Coupon Sr Nts Series B
02-01-01 11.40 40,000,000(g) 35,800,000
PhoneTel Technologies
Sr Nts
12-15-06 12.00 23,500,000(b) 3,995,000
Price Communications Wireless
Company Guaranty Series B
12-15-06 9.13 24,700,000 25,132,250
RCN
Zero Coupon Sr Disc Nts Series B
02-15-03 9.80 7,500,000(g) 4,893,750
Rhythms Net Connections
Sr Nts
04-15-09 12.75 10,000,000 9,500,000
Spectrasite Holdings
Zero Coupon Sr Disc Nts
04-15-04 11.25 17,200,000(g) 8,944,000
Tele1 Europe
(U.S. Dollar) Sr Nts
05-15-09 13.00 8,000,000(c,d) 8,200,000
Telehub Communications
Zero Coupon Company Guaranty
07-31-01 13.88 12,000,000(g) 1,200,000
Triton Communications
Zero Coupon Company Guaranty
05-01-03 10.86 22,000,000(g) 15,537,500
Unisite
Zero Coupon Sub Nts
12-15-00 13.00 9,000,000(d,g,i) 11,480,400
Versatel Telecom
(U.S. Dollar) Sr Nts
05-15-08 13.25 16,600,000(c) 17,513,000
Vialog
Company Guaranty
11-15-01 12.75 22,600,000 15,820,000
Voicestream Wire
Sr Nts
11-15-09 10.38 8,700,000(d) 9,069,750
Zero Coupon Sr Disc Nts
11-15-04 11.88 17,600,000(d,g) 10,736,000
Williams Communication Group
Sr Nts
10-01-09 10.88 15,000,000 15,712,500
Worldwide Fiber
Sr Nts
08-01-09 12.00 16,000,000(d) 16,380,000
Total 473,776,244
Computers & office equipment (2.4%)
Concentric Network
Sr Nts
12-15-07 12.75 5,600,000 5,901,000
Cooperative Computing
Sr Sub Nts
02-01-08 9.00 20,250,000 14,782,500
Decisionone Holdings
Zero Coupon
08-01-02 9.89 8,450,000(b,g) 10,563
Globix
Sr Nts
05-01-05 13.00 22,220,000 21,608,950
PSINet
Sr Nts
12-01-06 10.50 3,050,000(d) 3,076,688
11-01-08 11.50 6,500,000 6,776,250
Sr Nts Series B
02-15-05 10.00 15,275,000 15,198,625
Verio
Sr Nts
04-01-05 10.38 7,000,000 7,035,000
12-01-08 11.25 11,000,000(d) 11,495,000
Total 85,884,576
Electronics (0.7%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 13,650,000(c,d) 10,957,196
Metromedia Fiber Network
Sr Nts Series B
11-15-08 10.00 13,750,000 13,956,250
Total 24,913,446
Energy (3.4%)
Canadian Forest Oil
(U.S. Dollar) Company Guaranty
09-15-07 8.75 14,500,000(c) 13,920,000
Clark R&M
Sr Sub Nts
11-15-07 8.88 10,100,000 6,464,000
Energy Corp of America
Sr Sub Nts Series A
05-15-07 9.50 9,000,000 5,220,000
HS Resources
Company Guaranty
11-15-06 9.25 4,250,000 4,196,875
Sr Sub Nts
12-01-03 9.88 9,700,000 9,687,875
Sr Sub Nts Series B
11-15-06 9.25 8,000,000 7,900,000
Hurricane Hydrocarbons
(U.S. Dollar) Sr Nts
11-01-04 11.75 15,750,000(b,c,d) 8,190,000
Lodestar Holdings
Company Guaranty
05-15-05 11.50 18,350,000 10,276,000
Michael Petroleum
Sr Nts Series B
04-01-05 11.50 6,000,000(b) 2,880,000
Nuevo Energy
Sr Sub Nts
06-01-08 9.50 12,000,000(d) 12,000,000
Ocean Energy
Company Guaranty Series B
07-01-08 8.38 14,000,000 13,790,000
Rayovac
Sr Sub Nts Series B
11-01-06 10.25 11,814,000 12,552,375
Roil
(U.S. Dollar)
12-05-02 12.78 4,368,000(c,d) 3,363,360
Tesoro Petroleum
Company Guaranty Series B
07-01-08 9.00 14,250,000 13,680,000
Total 124,120,485
Energy equipment & services (0.9%)
DI Inds
Sr Nts
07-01-07 8.88 6,000,000 5,460,000
Grey Wolf
Company Guaranty Series C
07-01-07 8.88 1,750,000 1,596,875
Northern Offshore
(U.S. Dollar) Company Guaranty Series B
05-15-05 10.00 21,000,000(c) 12,600,000
Plains Resources
Company Guaranty Series D
03-15-06 10.25 9,000,000 8,460,000
Seven Seas Petroleum
Sr Nts Series B
05-15-05 12.50 8,000,000 3,600,000
Total 31,716,875
Financial services (2.3%)
AOA Holdings LLC
Sr Nts
06-01-06 10.38 15,500,000(d) 15,441,875
Arcadia Financial
Sr Nts
03-15-07 11.50 30,165,000 30,448,200
Gemini Inds
12-23-01 13.50 13,567,500(b,i) 6,783,750
Omnipoint Midwest Holding
12-31-06 9.40 4,250,000 4,037,500
12-31-06 10.00 8,500,000 8,075,000
ONO Finance
(U.S. Dollar) Company Guaranty
05-01-09 13.00 4,070,000(c,d) 4,232,800
RBF Finance
Company Guaranty
03-15-09 11.38 12,375,000 13,303,125
Total 82,322,250
Food (0.6%)
Ameriserve Food Distributions
Company Guaranty
10-15-06 8.88 5,100,000 2,703,000
07-15-07 10.13 6,125,000 1,837,500
Aurora Foods
Sr Sub Nts Series D
02-15-07 9.88 10,000,000 10,250,000
Daya Guna
(U.S. Dollar) Company Guaranty
06-01-07 10.00 3,690,000(c,d) 2,214,000
RAB Enterprises
Company Guaranty
05-01-05 10.50 9,600,000 6,528,000
Total 23,532,500
Health care (0.6%)
Alaris Medical
Zero Coupon Sr Disc Nts
08-01-03 11.12 16,000,000(g) 7,040,000
Alaris Medical Systems
Company Guaranty
12-01-06 9.75 16,450,000 13,653,500
Total 20,693,500
Health care services (3.2%)
Abbey Healthcare Group
Sr Sub Nts
11-01-02 9.50 25,750,000 24,591,250
Fountain View
Company Guaranty Series B
04-15-08 11.25 8,600,000 6,536,000
Genesis Health Ventures
Sr Sub Nts
10-01-06 9.25 9,725,000 3,403,750
Hanger Orthopedic Group
Sr Sub Nts
06-15-09 11.25 9,600,000(d) 9,456,000
Magellan Health Services
Sr Sub Nts
02-15-08 9.00 15,000,000 12,150,000
Oxford Health Plans
Sr Nts
05-15-05 11.00 13,000,000 12,350,000
Paracelsus Healthcare
Sr Sub Nts
08-15-06 10.00 17,600,000 9,680,000
Physician Sales & Service
Company Guaranty
10-01-07 8.50 15,250,000 15,364,375
Tenet Healthcare
Sr Sub Nts Series B
12-01-08 8.13 17,050,000 15,728,625
Triad Hospitals Holdings
Sr Sub Nts
05-15-09 11.00 6,050,000(d) 6,292,000
Total 115,552,000
Household products (0.3%)
Scotts
Sr Sub Nts
01-15-09 8.63 10,385,000(d) 10,021,525
Industrial equipment & services (1.8%)
Blount
Company Guaranty
06-15-05 7.00 14,700,000 12,495,000
Fairfield Mfg
Sr Sub Nts
10-15-08 9.63 13,600,000 12,920,000
Grove Holdings/Capital
Zero Coupon
05-01-03 11.63 4,000,000(g) 440,000
Grove Inds
05-01-10 14.50 3,342,730 334,273
Motor & Gears
Sr Nts Series D
11-15-06 10.75 30,500,000 28,365,000
Thermadyne Holdings
Zero Coupon
06-01-03 12.50 12,000,000(g) 5,520,000
Thermadyne Mfg
Company Guaranty
06-01-08 9.88 5,000,000 4,300,000
Total 64,374,273
Insurance (0.4%)
Americo Life
Sr Sub Nts
06-01-05 9.25 15,000,000 14,887,500
Leisure time & entertainment (6.0%)
Alliance Atlantis Communications
(U.S. Dollar) Sr Sub Nts
12-15-09 13.00 15,000,000(c) 14,925,000
Coast Hotels & Casino
Company Guaranty
04-01-09 9.50 9,235,000 8,865,600
Hammons (JQ) Hotels
1st Mtge
02-15-04 8.88 12,000,000 11,040,000
Hollywood Casino Shreveport
1st Mtge
08-01-06 13.00 8,900,000(d) 9,456,250
Hollywood Park
Company Guaranty Series B
02-15-07 9.25 10,000,000 9,900,000
Horseshoe Gaming Holding
Company Guaranty
05-15-09 8.63 16,550,000 15,805,250
Icon Health & Fitness
Company Guaranty
09-27-05 12.00 5,550,000(d) 2,997,000
Isle of Capri Casinos/Capital
1st Mtge Series B
08-31-04 13.00 15,750,000 17,088,750
Lodgenet Entertainment
Sr Nts
12-15-06 10.25 15,000,000 15,150,000
Premier Cruises
Sr Nts
03-15-08 11.00 11,000,000(b,d,h) --
Premier Parks
Sr Nts
04-01-06 9.25 10,000,000 9,775,000
06-15-07 9.75 13,650,000 13,581,750
Regal Cinemas
Sr Sub Nts
06-01-08 9.50 13,000,000 10,530,000
12-15-10 8.88 17,250,000 13,196,250
Trump Atlantic City Assn/Funding
1st Mtge Company Guaranty
05-01-06 11.25 26,945,000 22,094,900
Trump Holdings & Funding
Sr Nts
06-15-05 15.50 28,050,000 25,385,250
United Artists Theatres
Series 1995A
07-01-15 9.30 13,071,216 9,520,028
Sr Sub Nts Series B
04-15-08 9.75 27,000,000 5,130,000
Venetian Casino/LV Sands
Company Guaranty
11-15-05 14.25 6,000,000 3,360,000
Total 217,801,028
Media (9.4%)
Adelphia Communications
Sr Deb
09-15-04 11.88 5,000,000 5,225,000
Sr Nts
11-15-00 9.38 14,000,000 13,877,500
Sr Nts Series B
02-01-08 8.38 9,500,000 8,977,500
AMFM
Company Guaranty
11-01-08 8.00 35,550,000 35,638,874
Zero Coupon Sr Disc Nts
02-01-02 7.49 8,000,000(g) 6,980,000
Australis Holdings
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-00 13.35 17,900,000(b,c,g) 179,000
Australis Media
(U.S. Dollar)
11-01-00 14.00 1,785,504(b,c) 1,600,342
(U.S. Dollar) Zero Coupon
05-15-00 12.32 43,500,000(b,c,g) 4,350
05-15-00 13.83 469,560(b,c,g) 2,348
Benedek Communications
Zero Coupon Sr Disc Nts
05-15-01 13.89 13,500,000(g) 12,217,500
Big City Radio
Zero Coupon Company Guaranty
03-15-01 11.25 10,000,000(g) 7,075,000
Bresnan Communications
Sr Nts Series B
02-01-09 8.00 9,050,000 9,095,250
CBS Radio
Pay-in-kind Sub Deb
01-15-09 11.38 9,475,300(j) 10,612,336
Central Euro Media
(U.S. Dollar) Sr Nts
08-15-04 9.38 12,175,000(c) 4,748,250
Coaxial Communications/Phoenix
Company Guaranty
08-15-06 10.00 10,000,000 9,825,000
Globo Communicacoes Participacoes
(U.S. Dollar) Sr Nts
12-05-08 10.63 15,000,000(c,d) 12,056,250
Golden Sky Systems
Company Guaranty Series B
08-01-06 12.38 8,500,000 8,585,000
MDC Communications
(U.S. Dollar) Sr Sub Nts
12-01-06 10.50 16,350,000(c) 16,390,875
Outdoor Systems
Company Guaranty
10-15-06 9.38 10,000,000 10,475,000
06-15-07 8.88 20,755,000 21,429,537
Paxson Communications
Sr Sub Nts
10-01-02 11.63 14,700,000 15,251,250
Pegasus Media & Communications
Series B
07-01-05 12.50 15,400,000 16,709,000
Sr Nts Series B
10-15-05 9.63 11,100,000 11,044,500
Price Communications Wireless
Sr Sub Nts
07-15-07 11.75 10,000,000 11,000,000
Radio Unica
Zero Coupon Company Guaranty
08-01-02 11.74 13,000,000(g) 8,482,500
Regional Independent Medical
(U.S. Dollar) Sr Nts
07-01-08 10.50 15,200,000(c) 15,162,000
Sinclair Broadcast Group
Sr Sub Nts
12-15-07 8.75 1,800,000 1,678,500
Company Guaranty
07-15-07 9.00 2,550,000 2,390,625
Susquehanna Media
Sr Sub Nts
05-15-09 8.50 6,395,000 6,267,100
Telemundo Holdings
Zero Coupon Sr Disc Nts Series B
08-15-03 11.50 17,000,000(g) 9,690,000
TeleWest Communications
(U.S. Dollar) Sr Nts
11-01-08 11.25 8,000,000(c) 8,660,000
(U.S. Dollar) Zero Coupon
10-01-00 11.64 7,000,000(c,g) 6,483,750
(U.S. Dollar) Zero Coupon Sr Disc Nts
04-15-04 8.96 13,725,000(c,d,g) 8,749,688
Veninfotel
(U.S. Dollar) Cv Pay-in-kind
03-01-02 10.00 10,418,625(c,i,j) 15,627,938
WRC Media/Weekly Read/JLC
11-15-09 12.75 12,500,000(d) 12,375,000
Total
344,566,763
Metals (2.4%)
AK Steel
Company Guaranty
02-15-09 7.88 15,000,000 14,250,000
EnviroSource
Sr Nts
06-15-03 9.75 26,648,000 16,055,420
Great Lakes Acquisition
Zero Coupon Series B
05-15-03 21.06 6,500,000(g) 3,079,375
Imexsa Export Trust
(U.S. Dollar)
05-31-03 10.13 7,947,481(c,d) 7,788,531
Maxxam Group Holdings
Sr Nts Series B
08-01-03 12.00 12,000,000 11,400,000
Ormet
Company Guaranty
08-15-08 11.00 17,000,000(d) 15,130,000
Pen Holdings
Company Guaranty Series B
06-15-08 9.88 10,625,000 10,040,625
Sheffield Steel
1st Mtge Series B
12-01-05 11.50 10,200,000 8,415,000
Total 86,158,951
Miscellaneous (10.6%)
Adams Outdoor Advertising
Sr Nts
03-15-06 10.75 10,800,000 11,313,000
Advanced Glassfiber Yarn
Sr Sub Nts
01-15-09 9.88 17,720,000 16,125,200
Argo-Tech
Company Guaranty
10-01-07 8.63 5,750,000 4,894,688
Company Guaranty Series D
10-01-07 8.63 13,000,000 11,082,500
Bistro Trust
Sub Nts
12-31-02 9.50 10,000,000(d) 9,402,000
Booth Creek Ski Holdings
Sr Nts Series B
03-15-07 12.50% $4,500,000 $3,228,750
Centaur Mining & Exploration
(U.S. Dollar) Company Guaranty
12-01-07 11.00 11,500,000(c) 11,270,000
Charter Communications Holdings LLC
Sr Nts
04-01-09 8.63 15,200,000 14,402,000
Comforce Operating
Sr Nts Series B
12-01-07 12.00 4,750,000 3,408,125
Consolidated Container
Sr Sub Nts
07-15-09 10.13 17,900,000(d) 18,034,250
Cybernet Internet Service
Sr Nts
07-01-09 14.00 10,250,000(i) 8,968,750
Dura Operating
Company Guaranty Series B
05-01-09 9.00 9,000,000 8,370,000
ECM Funding LP
06-10-02 11.92 1,079,825(i) 1,077,125
Equinix
12-01-07 13.00 17,000,000(d) 17,000,000
Falcon Products
Company Guaranty Series B
06-15-09 11.38 15,250,000 14,411,250
Great Central Mines
(U.S. Dollar) Sr Nts
04-01-08 8.88 10,000,000(c) 8,950,000
ISG Resources
04-15-08 10.00 17,445,000 15,351,600
Knology Holdings
Zero Coupon Sr Disc Nts
10-15-02 12.14 6,600,000(g) 3,927,000
Nebco Evans Holding
Zero Coupon Sr Disc Nts
07-15-02 34.18 8,500,000(g) 1,190,000
Nextel Partners
Zero Coupon Sr Disc Nts
02-01-04 13.78 47,900,000(g) 31,254,749
Norcal Waste Systems
Company Guaranty Series B
11-15-05 13.50 20,300,000 21,924,000
NSM Steel
Company Guaranty
02-01-06 12.00 7,739,335(b,d) 464,360
02-01-08 12.25 11,700,000(b,d) 234,000
NTEX
(U.S. Dollar) Sr Nts
06-01-06 11.50 6,900,000(c) 2,898,000
Outsourcing Solutions
Sr Sub Nts Series B
11-01-06 11.00 37,395,000 36,273,149
Panolam Inds
Sr Sub Nts
02-15-09 11.50 4,450,000(d) 4,527,875
Park-Ohio Inds
Sr Sub Nts
12-01-07 9.25 19,025,000 18,311,563
Pierce Leahy Command
Company Guaranty
05-15-08 8.13 25,150,000 23,106,563
Poland Telecom Finance
(U.S. Dollar) Company Guaranty Series B
12-01-07 14.00 16,500,000(c) 12,375,000
Riviera Black Hawk
1st Mtge
06-01-05 13.00 10,425,000(d) 10,868,063
SC Intl
09-01-07 9.25 17,650,000 15,929,125
SFC New Holdings
Sr Nts
08-15-01 11.25 15,000,000 14,400,000
SFC Sub Inc
Zero Coupon
12-15-05 11.00 718,404(b,g) 72
Stellex Inds
Sr Sub Nts Series B
11-01-07 9.50 11,450,000 8,244,000
Talton Holdings
Company Guaranty Sr Nts Series B
06-30-07 11.00 3,650,000 3,449,250
Total 386,666,007
Multi-industry conglomerates (1.0%)
Communications & Power Inds
Sr Sub Nts Series B
08-01-05 12.00 10,000,000 8,100,000
Jordan Inds
Sr Nts Series D
08-01-07 10.38 10,410,000 10,097,700
Zero Coupon Sr Sub Debs Series B
04-01-02 11.75 17,692,251(g) 11,499,963
Metromedia Intl Group
Sr Disc Nts Series B
09-30-07 10.50 5,826,000 2,738,220
Prime Succession
Sr Sub Nts
08-15-04 10.75 13,475,000 5,390,000
Total 37,825,883
Paper & packaging (7.2%)
Bear Island LLC/Finance
Sr Nts Series B
12-01-07 10.00 6,875,000 6,531,250
Berry Plastics
Sr Sub Nts
04-15-04 12.25 3,250,000(d) 3,404,375
07-15-07 11.00 7,100,000(d) 6,975,750
BPC Holding
Sr Nts Series B
06-15-06 12.50 11,750,000 10,839,375
Crown Paper
Sr Sub Nts
09-01-05 11.00 18,025,000 12,617,500
Doman Inds
(U.S. Dollar)
03-15-04 8.75 14,625,000(c) 12,431,250
(U.S. Dollar) Company Guaranty
07-01-04 12.00 9,750,000(c) 10,140,000
(U.S. Dollar) Sr Nts Series B
11-15-07 9.25 3,500,000(c) 2,738,750
Gaylord Container
Sr Nts
06-15-07 9.75 6,000,000 5,760,000
02-15-08 9.88 32,500,000 28,518,750
Sr Nts Series B
06-15-07 9.38 3,750,000 3,506,250
Graham Packaging/GPC Capital
Zero Coupon Sr Disc Nts Series B
01-15-03 11.57 6,900,000(g) 4,579,875
Grupo Industrial Durango
(U.S. Dollar)
08-01-03 12.63 5,000,000(c) 5,012,500
Packaging Corp of America
Company Guaranty
04-01-09 9.63 9,905,000 10,202,150
Repap New Brunswick
(U.S. Dollar)
06-01-04 11.50 7,500,000(c) 7,668,750
(U.S. Dollar) Sr Nts
06-01-04 9.00 19,900,000(c) 19,551,750
04-15-05 10.63 18,550,000(c) 17,297,875
Riverwood Intl
Company Guaranty
08-01-07 10.63 5,500,000 5,720,000
04-01-08 10.88 10,000,000 10,000,000
Company Guaranty Sr Nts
04-01-06 10.25 15,000,000 15,375,000
Silgan Holdings
06-01-09 9.00 13,250,000 12,521,250
Pay-in-kind
07-15-06 13.25 5,621,000(j) 6,084,733
Stone Container
Sr Nts
08-01-16 12.58 9,000,000 9,247,500
Tjiwi Kimia Intl
(U.S. Dollar) Company Guaranty
08-01-01 13.25 7,000,000(b,c) 6,195,000
Warren (SD)
Pay-in-kind
12-15-06 14.00 27,690,869(j) 31,706,045
Total 264,625,678
Restaurants & lodging (1.4%)
American Restaurant Group
Company Guaranty Series B
02-15-03 11.50 9,000,000 6,750,000
Domino's
Company Guaranty Series B
01-15-09 10.38 16,325,000 15,467,938
Florida Panthers Holdings
Company Guaranty
04-15-09 9.88 11,000,000 10,560,000
Prime Hospitality
Sr Sub Nts Series B
04-01-07 9.75 18,700,000 18,045,500
Total 50,823,438
Retail (1.5%)
Amazon.com
Zero Coupon Sr Disc Nts
05-01-03 10.00 11,500,000(g) 7,590,000
Dairy Mart Convenience Stores
Sr Sub Nts
03-15-04 10.25 17,675,000 14,935,375
Sr Sub Nts Series B
03-15-04 10.25 6,250,000 5,281,250
Maxim Group
Company Guaranty Series B
10-15-07 9.25 12,500,000(b) 10,593,750
Musicland Group
Company Guaranty Series B
03-15-08 9.88 16,750,000 14,195,625
Rite Aid
Cv Sub Nts
09-15-02 5.25 4,000,000 2,010,000
Total 54,606,000
Textiles & apparel (0.9%)
Anvil Knitwear
Sr Nts Series B
03-15-07 10.88 14,000,000 10,220,000
Galey & Lord
Company Guaranty
03-01-08 9.13 20,050,000 4,611,500
GFSI
Sr Sub Nts Series B
03-01-07 9.63 13,000,000 7,800,000
GFSI Holdings
Zero Coupon Sr Disc Nts Series B
09-15-04 10.77 17,300,000(g) 5,190,000
Steel Heddle Group
Zero Coupon Series B
06-01-03 13.74 6,200,000(g) 922,250
Steel Heddle Mfg
Company Guaranty Series B
06-01-08 10.63 4,600,000 2,530,000
Total 31,273,750
Transportation (1.2%)
American Architectural
Company Guaranty
12-01-07 11.75 10,000,000 3,500,000
Autopistas Del Sol
(U.S. Dollar) Sr Nts
08-01-09 10.25 10,800,000(c,d) 8,370,000
Enterprises Shipholding
(U.S. Dollar) Sr Nts
05-01-08 8.88 21,305,000(c) 12,676,475
Global Ocean Carriers
Sr Nts
07-15-07 10.25 13,500,000(b) 3,780,000
Greater Beijing First Expressways
(U.S. Dollar) Sr Nts
06-15-04 9.25 3,500,000(c) 1,575,000
06-15-07 9.50 5,000,000(c) 2,150,000
Hermes Europe RailTel
(U.S. Dollar) Sr Nts
01-15-09 10.38 10,500,000(c) 10,342,500
Total 42,393,975
Utilities -- gas (0.2%)
Leviathan Gas
Company Guaranty Series B
06-01-09 10.38 8,400,000 8,736,000
Utilities -- telephone (6.6%)
Allegiance Telecom
Zero Coupon Sr Disc Nts Series B
02-15-03 11.99 30,450,000(g) 21,467,250
AT&T Canada
(U.S. Dollar) Sr Nts
08-15-07 12.00 8,750,000(c) 10,106,250
(U.S. Dollar) Zero Coupon Sr Disc Nts
11-01-02 10.74 8,300,000(c,g) 6,847,500
06-15-03 9.96 16,000,000(c,g) 12,480,000
COLT Telecommunications Group
(U.S. Dollar) Zero Coupon
12-15-01 12.00 8,500,000(c,g) 7,458,750
Energis
(U.S. Dollar)
06-15-09 9.75 8,175,000(c,d) 8,420,250
Geotek Communications
Cv Sr Sub Nts
02-15-01 12.00 4,135,000(b) 5,169
Intermedia Communications
Sr Nts Series B
11-01-07 8.88 11,025,000 10,253,250
06-01-08 8.60 2,400,000 2,190,000
Zero Coupon Sr Disc Nts Series B
07-15-02 10.65 22,375,000(g) 16,333,750
ITC Deltacom
Sr Nts
03-01-08 8.88 17,250,000 16,732,500
11-15-08 9.75 4,500,000 4,590,000
McLeod USA
Sr Nts
03-15-08 8.38 7,680,000 7,276,800
02-15-09 8.13 13,000,000 12,187,500
Omnipoint Communications
Sr Nts
08-15-06 11.63 22,400,000 23,911,999
Paging Network
Sr Sub Nts
02-01-06 8.88 8,500,000 2,805,000
08-01-07 10.13 7,950,000 2,623,500
Panamsat Intl Systems
Pay-in-kind
04-15-05 12.75 4,000(j) 4,360
Primus Telecommunications Group
Sr Nts
08-01-04 11.75 11,550,000 11,434,500
01-15-09 11.25 4,250,000 3,995,000
Sr Nts Series B
05-15-08 9.88 10,000,000 8,950,000
Pronet
Sr Sub Nts
06-15-05 11.88 19,350,000 13,158,000
RSL Communications
(U.S. Dollar) Company Guaranty
11-15-06 12.25 10,167,000(c) 10,319,505
11-15-08 10.50 1,875,000(c) 1,790,625
11-15-09 9.88 7,700,000(c) 6,776,000
United Pan-Europe Communications
(European Monetary Unit) Sr Nts
11-01-09 11.25 8,500,000(c,i) 8,776,250
(U.S. Dollar) Sr Nts
08-01-09 10.88 10,200,000(c,d) 10,480,500
Total 241,374,208
Total bonds
(Cost: $3,490,691,528) $3,087,522,635
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Common stocks (2.2%)
Issuer Shares Value(a)
<S> <C> <C>
Arena Brands 111,111(b,i) $2,555,553
Celcaribe 1,812,990(b,d) 1,812,990
Communications & Power Inds 3,500(b) 525,000
Concentric Network 300,000(b) 8,531,250
Earthwatch 314,426(b,d) 707,459
Gaylord Container Cl A 1,000,000(b) 6,250,000
Global TeleSystems Group 215,400(b) 6,879,338
Intermedia Communications 311,942(b) 8,695,383
Jack in the Box 21,000(b) 442,313
Nextel Communications Cl A 41,056(b) 4,069,676
OpTel 17,000(b,d) 170
Pagemart Nationwide 50,750(b) 203,000
Pegasus Communications 16,923(b) 1,110,572
Premier Holdings 814,645 3,054,918
Price Communications 840,211(b) 21,057,787
Specialty Foods 300,000(b) 75,000
Versatel Telecom Intl ADR 200,000(b,c) 5,500,000
Weatherford Intl 170,580(b) 5,959,639
Wilshire Financial Services Group 2,412,000(b) 3,015,000
Wilshire Real Estate Investment Trust 140,000 306,250
Wireless One 25,000(b) 32,500
Total common stocks
(Cost: $89,931,253) $80,783,798
Preferred stocks & other (9.2%)
Issuer Shares Value(a)
21st Century Telecom Group
13.75% Pay-in-kind 3,301(j) $1,650,500
Warrants 2,600 26,000
Adelphia Business Solutions
Pay-in-kind 5,810(j) 5,403,300
Allegiance Telecom
Warrants 30,450 2,892,750
American Mobile Satellite
Warrants 8,000(d) 400,000
American Restaurant Group
12.00% Pay-in-kind Series B 4,155(j) 3,324,000
Warrants 3,500 35
APP Finance II Mauritius Cl B
12.00% 22,600(b,c) 14,690,000
Australis Holdings
Warrants 13,400(c) 134
Bar Technologies
Warrants 10,000 $200,000
Belco Oil & Gas
6.50% Cv 210,000 3,360,000
Bell Technology
Warrants 19,525 1,952,500
Benedek Communications
11.50% Pay-in-kind 7,000(b,j) 5,600,000
Warrants 70,000 140,000
Bestel
Warrants 10,400 312,000
Birch Telecom
Warrants 14,000 77,000
Capstar Broadcasting
12.00% Pay-in-kind Exchangeable 50,562(j) 5,966,316
Capstar Communications
12.63% Pay-in-kind Series E 68,630(j) 8,098,340
Century Maintenance
13.25% Pay-in-kind Series C 136,096(j) 13,745,696
Clark Materials Handling
13.00% 7,621(b) 2,286,300
Clearnet Communications
Warrants 42,240 633,600
Communications & Power Inds
14.00% Pay-in-kind Series B 213,634(j) 17,304,323
Concentric Network
13.50% Pay-in-kind Series B 13,539(j) 12,658,965
Crown Packaging
Warrants 10,000(h) --
CSC Holdings
11.13% Pay-in-kind Series M 348,681(j) 37,831,889
11.75% Pay-in-kind Series H 159,224(j) 17,594,252
Cybernet Internet
Warrants 10,250 1,127,500
Dairy Mart
Warrants 311,333 108,967
Dobson Communications
13.00% Pay-in-kind 10,817(j) 11,628,275
Fairfield Mfg
11.25% Pay-in-kind 6,580(b,j) 6,514,199
Geotek Communications
Warrants 872,500 1
HarCor Energy
Warrants 110,000 55,000
Hemmeter Enterprises
Warrants 36,000(h) $--
HF Holdings
Warrants 53,125(h) --
Hosiery Corp of America
Warrants 10,000 400,000
Intermedia Communications
7.00% Cv Series F 240,000(b) 5,280,000
13.50% Pay-in-kind Series B 19,910(j) 18,914,500
Warrants 22,750 2,451,313
Intl Wireless Communications
Warrants 14,750 148
Iridium World Communications
Warrants 17,150 172
Jitney-Jungle Stores of America Cl A
15.00% 109,500 109,500
KMC Telecom Holdings
Warrants 12,000 36,000
Knology Holdings
Warrants 11,000 22,000
Lady Luck Gaming
Pay-in-kind 50,000(b,i,j) 2,000,000
Liberty Group Publishing
14.75% Cv 19,097(b) 420,134
MetroNet Communications
Warrants 8,750 1,116,336
Nakornthai Strip Mill
Warrants 7,407,184 7
Nebco Evans Holdings
11.25% Pay-in-kind 137,299(j) 1,647,588
Nextel Communications
11.13% Pay-in-kind Series E 7,882(j) 8,039,640
13.00% Pay-in-kind Series D 21,853(j) 23,601,240
North Atlantic Trading
12.00% Pay-in-kind 1(b,d,j) 18
NTL
13.00% Pay-in-kind Series B 27,557(j) 28,452,602
ONO Finance
Value Ctfs 4,070(c,d,i) 244,200
Packaging Corp of America
12.38% Pay-in-kind 44,968(j) 4,901,512
Paxson Communications
12.50% Pay-in-kind Exchangeable 245,072(b,j) 24,997,344
Pegasus Communications
12.75% Pay-in-kind 62,500(b,j) 7,000,000
12.75% Pay-in-kind Series A 3,653(b,j) 3,872,180
PLD Telekom
Warrants 4,000(b) 200
Warrants 4,000 200
Poland Telecom
Warrants 16,500(c) 907,500
Primus Telecommunications
Warrants 11,550 288,750
R&B Falcon
13.88% Cm Pay-in-kind 432(d,j) 450,360
Warrants 12,000(d) 3,360,000
RSL Communications
Warrants 9,500 888,250
SGW Holding
12.50% Pay-in-kind Series B 144,980(b,i,j) 2,464,660
Cv Series A 87,091(b,i) 899,940
Warrants 2,750 870,375
Sinclair Capital
11.63% 140,000 13,720,000
Tele1 Europe
Warrants 8,000(d) 640,000
Telehub Communications
Warrants 12,000 60,000
Unifi Communications
Warrants 10,000 100
Unisite
Cl C 5,938(i) 3,239,452
Warrants 4,504(i) 45
Vialog
Warrants 22,600 836,200
Wireless One
Warrants 23,250 233
Total preferred stocks & other
(Cost: $378,130,394) $337,714,541
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Short-term securities (2.1%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (1.5%)
Federal Home Loan Mtge Corp Disc Nts
<S> <C> <C> <C> <C> <C>
12-14-99 5.28% $1,000,000 $997,952
12-16-99 5.26 900,000 897,792
12-16-99 5.26 5,000,000 4,987,735
12-20-99 5.22 1,700,000 1,695,089
01-10-00 5.60 4,900,000 4,866,795
02-01-00 5.59 5,600,000 5,541,004
02-04-00 5.59 10,400,000 10,285,219
Federal Natl Mtge Assn Disc Nts
12-07-99 5.25 16,000,000 15,983,200
12-13-99 5.25 7,900,000 7,884,480
Total 53,139,266
Commercial paper (0.6%)
Bell Atlantic
01-12-00 5.88 7,900,000 7,844,893
Electronic Data Systems
12-01-99 5.70 8,300,000(f) 8,298,686
GTE Funding
01-18-00 5.94 5,300,000 5,257,077
Natl Rural Utilities
12-02-99 5.30 1,900,000 1,899,441
Total 23,300,097
Total short-term securities
(Cost: $76,469,594) $76,439,363
Total investments in securities
(Cost: $4,035,222,769)(k) $3,582,460,337
</TABLE>
<PAGE>
Notes to investments in securities
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Non-income producing. For long-term debt securities, item identified is in
default as to payment of interest and/or principal.
(c) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of Nov. 30,
1999, the value of foreign securities represented 13.69% of net assets.
(d) 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.
(e) Adjustable rate mortgage; interest rate varies to reflect current market
conditions; rate shown is the effective rate on Nov. 30, 1999.
(f) 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.
(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) Negligible market value.
(i) 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, 1999, is as follows:
Security Acquisition Cost
dates
Arena Brands
Common 09-03-92 $5,888,888
Cybernet Internet Service
14.00% Sr Nts 2009 11-04-99 10,250,000
ECM Funding LP
11.92% 2002 04-13-92 1,277,510
Gemini Inds
13.50% 2001 12-23-96 13,500,000
Lady Luck Gambling
Pay-in-kind Preferred 11-19-98 1,750,000
SGW Holdings
12.50% Pay-in-kind Series B Preferred 8-12-97 thru 08-31-99 $2,332,663
Cv Series A Preferred 08-12-97 899,998
Unisite
Cl C Preferred 12-17-97 2,750,066
Warrants 12-17-97 --
13.00% Zero Coupon Sub Nts 2000* 12-18-97 9,000,000
United Pan-Europe Communications
(European Monetary Unit) 11.25% Sr Nts 2009* 10-25-99 8,437,270
Veninfotel
(U.S. Dollar) 10.00% Cv Pay-in-kind 2002 03-05-97 thru 09-01-98 9,450,000
Voicestream Wire
10.38% Sr Nts 2009* 11-05-99 8,700,000
11.88% Zero Coupon Sr Disc Nts 2004* 11-05-99 9,866,736
* Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended.
(j) Pay-in-kind securities are securities in which the issuer makes interest or
dividend payments in cash or in additional securities. The securities usually
have the same terms as the original holdings.
(k) At Nov. 30, 1999, the cost of securities for federal income tax purposes was
approximately $4,035,223,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $ 114,961,000
Unrealized depreciation (567,724,000)
------------
Net unrealized depreciation $(452,763,000)
<PAGE>
Financial Statements
Statement of assets and liabilities
Quality Income Portfolio
Nov. 30, 1999 (Unaudited)
Assets
Investments in securities, at value (Note 1)
(identified cost $1,517,888,430) $1,483,658,035
Dividends and accrued interest receivable 20,649,069
Receivable for investment securities sold 12,979
------
Total assets 1,504,320,083
-------------
Liabilities
Disbursements in excess of cash on demand deposit 43,646
Payable for investment securities purchased 35,572,815
Accrued investment management services fee 20,669
Other accrued expenses 2,568
-----
Total liabilities 35,639,698
----------
Net assets $1,468,680,385
==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of operations
Quality Income Portfolio
Six months ended Nov. 30, 1999 (Unaudited)
Investment income
Income:
<S> <C>
Dividends $ 403,750
Interest 52,852,579
Less foreign taxes withheld (16,198)
-------
Total income 53,240,131
----------
Expenses (Note 2):
Investment management services fee 3,972,412
Compensation of board members 5,578
Custodian fees 32,698
Audit fees 15,375
Other 39
--
Total expenses 4,026,102
Earnings credits on cash balances (Note 2) (10,828)
-------
Total net expenses 4,015,274
---------
Investment income (loss) -- net 49,224,857
----------
Realized and unrealized gain (loss) -- net
Net realized gain (loss) on:
Security transactions (Note 3) (7,674,206)
Financial future contracts 4,801,845
Foreign currency transactions (49,365)
-------
Net realized gain (loss) on investments (2,921,726)
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies (40,719,315)
-----------
Net gain (loss) on investments and foreign currencies (43,641,041)
-----------
Net increase (decrease) in net assets resulting from operations $ 5,583,816
=============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Quality Income Portfolio
Nov. 30, 1999 May 31, 1999
Six months ended Year ended
(Unaudited)
Operations
<S> <C> <C>
Investment income (loss)-- net $ 49,224,857 $ 100,906,199
Net realized gain (loss) on investments (2,921,726) 41,663,256
Net change in unrealized appreciation (depreciation) on investments
and on translation of assets and liabilities in foreign currencies
(40,719,315) (78,170,119)
----------- -----------
Net increase (decrease) in net assets resulting from operations 5,583,816 64,399,336
Net contributions (withdrawals) from partners (114,741,991) (93,477,216)
------------ -----------
Total increase (decrease) in net assets (109,158,175) (29,077,880)
Net assets at beginning of period 1,577,838,560 1,606,916,440
------------- -------------
Net assets at end of period $1,468,680,385 $1,577,838,560
============== ==============
See accompanying notes to financial statements.
<PAGE>
</TABLE>
Notes to Financial Statements
Quality Income Portfolio
(Unaudited as to Nov. 30, 1999)
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.
The Portfolio's significant accounting policies are summarized below:
Use of estimates
Preparing financial statements that conform to generally accepted accounting
principles requires management to make estimates (e.g., on assets and
liabilities) that could differ from actual results.
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 that reflects fair value
as quoted by dealers 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
To produce incremental earnings, protect gains and facilitate buying and selling
of securities for investments, the Portfolio may buy and write options traded on
any U.S. or foreign exchange or in the over-the-counter market where completing
the obligation depends 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 as well as write cash-secured put options. The
risk in writing a call option is that the Portfolio gives up the opportunity for
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 being unable 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 when the option transaction expires or closes. 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
To gain exposure to or protect itself from market changes, 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 of 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. 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, if any, may arise from sales
of foreign currency, closed forward contracts, exchange gains or losses realized
between the trade date and settlement date 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 its contract obligations.
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 net assets the same as
owned securities. The Porfolio designates cash or liquid high-grade short-term
debt securities at least equal to the amount of its commitment. As of Nov. 30,
1999, the Porfolio had entered into outstanding when-issued or
forward-commitments of $35,194,690.
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. As a "pass-through" entity, the Portfolio therefore
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. 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 an Investment Management Services
Agreement with AEFC to manage 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, 1999, the Portfolio's custodian fees were
reduced by $10,828 as a result of earnings credits from overnight cash balances.
The Portfolio also pays custodian fees to American Express Trust Company, an
affiliate of AEFC.
According to a Placement Agency Agreement, American Express Financial Advisors
Inc. acts as placement agent of the Trust's units.
3. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (other than short-term
obligations) aggregated $400,663,415 and $449,777,855, respectively, for the six
months ended Nov. 30, 1999. For the same period, the portfolio turnover rate was
28%. Realized gains and losses are determined on an identified cost basis.
4. INTEREST RATE FUTURES CONTRACTS As of Nov. 30, 1999, investment is securities
included securities valued at $13,078,753 that were pledged as collateral to
cover initial margin deposit on 1,100 open sales contracts. The market value of
the open sales contracts as of Nov. 30, 1999, was $102,368,750 with a net
unrealized loss of $579,994. See "Summary of significant accounting policies."
<PAGE>
<TABLE>
<CAPTION>
Investments in Securities
Quality Income Portfolio
Nov. 30, 1999 (Unaudited)
(Percentages represent value of investments compared to net assets)
Bonds (92.1%)
Issuer Coupon Principal Value(a)
rate amount
Government obligations (29.8%)
Federal Republic of Germany
(European Monetary Unit)
<S> <C> <C> <C> <C> <C>
07-04-27 6.50% 10,000,000(b) $10,975,022
Overseas Private Investment
U.S. Govt Guaranty Series 1996A
01-15-09 6.99 10,000,000 9,980,100
People's Republic of China
(U.S. Dollar)
01-15-96 9.00 10,000,000(b) 9,501,890
Resolution Funding Corp
Zero Coupon
04-15-16 8.05 47,000,000(c) 15,454,987
U.S. Treasury
02-15-00 5.88 25,000,000 25,023,658
08-15-00 6.00 11,400,000 11,421,410
11-15-01 7.50 109,000,000 111,950,706
02-15-04 5.88 8,000,000 7,947,834
05-15-04 7.25 25,000,000 26,046,823
08-15-04 7.25 26,800,000 27,963,278
05-15-06 6.88 31,150,000 32,170,047
11-15-16 7.50 128,370,000(i) 139,909,962
TIPS
01-15-07 3.38 8,050,000(h) 8,135,047
Total 436,480,764
Mortgage-backed securities (20.8%)
Federal Home Loan Mtge Corp
07-01-16 8.00 418 425
01-01-17 8.00 3,390 3,460
03-01-17 8.50 83,317 86,051
06-01-17 8.50 52,758 54,687
04-01-20 9.00 1,001,484 1,049,675
04-01-21 9.00 825,123 868,442
03-01-22 8.50 1,819,174 1,883,409
08-01-22 8.50 1,800,670 1,863,135
06-01-24 7.50 7,717,037 7,721,822
02-01-25 8.00 3,148,607 3,199,771
Collateralized Mtge Obligation
09-01-19 8.50 83,091 85,973
Federal Housing Admin
01-01-24 7.43 8,634,693 8,453,904
Federal Natl Mtge Assn
11-01-02 10.00 76 78
06-15-09 6.38 33,000,000 32,017,589
04-01-14 6.50 17,803,989 17,420,898
12-01-14 6.50 15,000,000(j) 14,657,813
10-01-23 6.50 7,815,623 7,522,537
11-01-26 8.00 5,442,542 5,519,064
04-01-27 7.50 6,963,339 6,943,772
06-01-27 7.50 7,591,929 7,570,596
07-01-27 8.00 6,081,754 6,165,980
01-01-28 6.50 2,842,712 2,713,028
05-01-28 6.50 17,344,667 16,553,403
12-01-28 6.50 18,502,372 17,658,294
02-01-29 6.50 19,057,401 18,188,003
03-01-29 6.00 4,000,001 3,707,521
03-01-29 6.50 14,528,809 13,853,407
05-01-29 6.00 1,000,001 926,881
06-01-29 7.00 20,864,049 20,407,647
07-01-29 6.00 15,000,001 13,903,201
11-01-29 7.00 20,000,000 19,537,600
12-01-29 7.00 20,800,000(j) 20,293,000
Collateralized Mtge Obligation
10-25-19 8.50 1,448,659 1,509,657
Principal Only
01-25-20 9.89 83,141(f) 82,490
09-01-18 9.50 431,103(f) 356,028
Trust Series Z
02-25-24 6.00 23,863,884(g) 20,141,595
Govt Natl Mtge Assn
05-15-26 7.50% $10,664,986 $10,638,324
Prudential Bache
Collateralized Mtge Obligation
04-01-19 7.97 1,985,282 2,016,376
Total 305,575,536
Automotive & related (2.8%)
Daimler-Benz North America
Company Guaranty Medium-term Nts Series A
09-15-06 7.38 18,745,000 18,995,702
General Motors
05-15-03 8.88 7,050,000 7,430,943
GMAC
Medium-term Nts
03-01-00 7.00 14,300,000 14,333,915
Total 40,760,560
Banks and savings & loans (6.9%)
ABN-Amro Bank
(U.S. Dollar) Sub Nts Series B
05-15-23 7.75 12,000,000(b) 11,833,547
Banco General
(U.S. Dollar)
08-01-02 7.70 6,400,000(b,d) 6,029,583
Bayerische Landesbank
(U.S. Dollar) Deposit Nts
02-26-01 5.63 13,750,000(b) 13,586,092
Cullen/Frost Capital
Series A
02-01-27 8.42 10,000,000 9,583,050
Firstar Capital
Company Guaranty Series B
12-15-26 8.32 5,900,000 5,580,334
Greenpoint Bank
Sr Nts
07-15-02 6.70 15,000,000 14,727,000
Morgan (JP)
Sr Sub Medium-term Nts Series A
02-15-12 4.00 9,350,000(k) 8,226,691
NationsBank
Sub Nts
11-01-01 9.25 8,950,000 9,321,231
NCNB
Sub Nts
10-15-01 9.13 10,000,000 10,385,563
Sanwa Finance Aruba
(U.S. Dollar)
07-15-09 8.35 12,000,000(b) 12,260,196
Total 101,533,287
Building materials & construction (0.3%)
Foster Wheeler
11-15-05 6.75 5,850,000 4,830,795
Chemicals (1.5%)
Dow Chemical
01-15-09 5.97 12,755,000 11,672,113
USA Waste Services
Sr Nts
10-01-07 7.13 11,900,000 9,945,463
Total 21,617,576
Communications equipment & services (0.6%)
Telekom Malaysia
(U.S. Dollar)
08-01-25 7.88 10,000,000(b,d) 9,081,038
Electronics (0.6%)
Hyundai Semiconductor
(U.S. Dollar) Sr Nts
05-15-07 8.63 10,800,000(b,d) 8,669,430
Energy (3.2%)
PDV America
Sr Nts
08-01-03 7.88 16,500,000 14,766,831
Phillips Petroleum
03-15-28 7.13 12,000,000 10,646,288
Texaco Capital
Gtd Deb
03-01-43 7.50 12,000,000 11,245,688
USX-Marathon Group
05-15-22 9.38% $9,200,000 $9,732,054
Total 46,390,861
Financial services (2.4%)
KFW Intl Finance
(U.S. Dollar) Medium-term Nts
12-15-99 8.50 10,000,000(b) 10,010,526
Marlin Water Trust
Sr Nts
12-15-01 7.09 8,300,000 8,171,051
Railcar Leasing
(U.S. Dollar)
01-15-13 7.13 12,150,000(b,d) 12,189,832
Salomon
Sr Nts
05-15-00 7.75 5,000,000 5,041,600
Total 35,413,009
Health care (0.8%)
Lilly (Eli)
01-01-36 6.77 13,300,000 12,095,255
Health care services (2.3%)
AETNA Services
08-15-03 6.38 13,650,000 13,243,507
HEALTHSOUTH
Sr Nts
06-15-08 7.00 15,000,000 12,505,245
Service Corp Intl
03-15-08 6.50 11,550,000 8,704,738
Total 34,453,490
Industrial equipment & services (1.7%)
ARAMARK Services
08-01-04 6.75 15,000,000 14,444,925
Deere & Co
06-15-19 8.95 10,000,000 10,562,649
Total 25,007,574
Insurance (4.4%)
Arkwright CSN Trust
08-15-26 9.63 11,000,000(d) 11,347,576
Conseco
Medium-term Nts Series B
06-21-01 7.60 10,000,000 9,919,298
Conseco Financing Trust
Company Guaranty
11-15-26 8.70 6,600,000 5,886,558
Nationwide CSN Trust
02-15-25 9.88 11,500,000(d) 12,229,619
SAFECO Capital
Company Guaranty
07-15-37 8.07 15,000,000 12,945,266
SunAmerica
08-01-08 9.95 11,000,000 12,977,359
Total 65,305,676
Media (0.8%)
Cox Enterprises
06-14-02 6.63 12,000,000(d) 11,839,822
Metals (0.7%)
Alcan Aluminum
(U.S. Dollar)
01-15-22 8.88 9,600,000(b) 10,152,640
Miscellaneous (0.1%)
Jasmine Submarine Telecom
(U.S. Dollar) Sr Nts
05-30-11 8.48 1,443,645(b,d) 1,313,307
Paper & packaging (0.8%)
Caraustar Inds
06-01-09 7.38 11,775,000 11,216,884
Retail (1.8%)
Dayton Hudson
06-15-23 7.88 18,850,000 17,840,827
Wal-Mart CRAVE Trust
07-17-06 7.00 9,282,557(d) 9,111,016
Total 26,951,843
Transportation (1.4%)
Burlington Northern Santa Fe
12-15-25 7.00 10,000,000 9,072,859
Enterprise Rent-A-Car USA Finance
02-15-08 6.80 10,000,000(d) 9,349,000
Zhuhai Highway
(U.S. Dollar) Sr Nts
07-01-06 9.13 2,850,000(b,d) 1,781,250
Total 20,203,109
Utilities -- electric (3.9%)
Arizona Public Service
1st Mtge Sale Lease-backed Obligation
12-30-15 8.00 9,000,000 8,983,747
Commonwealth Edison
1st Mtge Series 90
04-15-00 6.50 9,000,000 8,995,910
Edison Mission Energy
Sr Nts
06-15-09 7.73 8,600,000(d) 8,575,086
Israel Electric
(U.S. Dollar) Sr Nts
12-15-26 7.88 9,000,000(b,d) 8,229,600
Korea Electric Power
(U.S. Dollar) Zero Coupon
04-01-16 10.07 35,000,000(b,e) 5,296,127
Salton Sea Funding
Series C
05-30-10 7.84 10,000,000 9,887,697
Wisconsin Electric Power
12-01-95 6.88 8,000,000 7,006,924
Total 56,975,091
Utilities -- gas (0.6%)
El Paso Energy
Sr Nts Series B
07-15-01 6.63 8,675,000 8,596,752
Utilities -- telephone (3.9%)
AT&T
01-15-25 8.35 5,000,000 5,088,100
12-01-31 8.63 14,000,000 14,427,283
GTE Florida
02-01-28 6.86 12,450,000 11,384,380
New York Telephone
07-15-31 9.38 14,000,000 14,852,142
U S West Capital Funding
Company Guaranty
08-15-01 6.88 12,000,000(d) 11,980,320
Total 57,732,225
Total bonds
(Cost: $1,386,741,745) $1,352,196,524
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Preferred stock (0.6%)
Issuer Shares Value(a)
Salomon Income Financing Trust
<S> <C> <C>
2.38% 340,000 $8,861,420
Total preferred stock
(Cost: $8,500,000) $8,861,420
Short-term securities (8.2%)
Issuer Annualized Amount Value(a)
yield on date payable at
of purchase maturity
U.S. government agencies (7.4%)
Federal Home Loan Mtge Corp Disc Nts
12-16-99 5.26% $10,500,000 $10,474,244
01-10-00 5.60 2,200,000 2,185,092
01-12-00 5.52 14,100,000 14,007,707
02-11-00 5.63 900,000 889,014
Federal Natl Mtge Assn Disc Nts
12-02-99 5.24 24,700,000 24,692,439
12-15-99 5.26 22,200,000 22,149,770
12-17-99 5.26 10,900,000 10,871,134
02-04-00 5.60 23,900,000 23,636,224
Total 108,905,624
Commercial paper (0.9%)
Ford Motor Credit
12-14-99 5.31 1,000,000 997,939
Merrill Lynch
01-26-00 5.99 5,600,000 5,547,066
Northern States Power
12-07-99 5.32 1,100,000 1,098,864
Petrofina (Delaware)
01-18-00 6.03 6,100,000 6,050,598
Total
13,694,467
Total short-term securities
(Cost: $122,646,685)
$122,600,091
Total investments in securities
(Cost: $1,517,888,430)(l) $1,483,658,035
</TABLE>
<PAGE>
(a) Securities are valued by procedures described in Note 1 to the financial
statements.
(b) Foreign security values are stated in U.S. dollars. For debt securities,
principal amounts are denominated in the currency indicated. As of Nov. 30,
1999, the value of foreign securities represented 8.91% of net assets.
(c) For zero coupon bonds, the interest rate disclosed represents the annualized
effective yield on the date of acquisition.
(d) 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.
(e) 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.
(f) 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.
(g) This security is a collateralized mortgage obligation that pays no interest
or principal during its initial accrual period until previous series within the
trust have been paid off. Interest is accrued at an effective yield; similar to
a zero coupon bond.
(h) U.S. Treasury inflation-protection securities (TIPS) are securities in which
the principal amount is adjusted for inflation and the semiannual interest
payments equal a fixed percentage of the inflation-adjusted principal amount.
(i) 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
Sale contracts
U.S. Treasury Bonds, March 2000 $110,000,000
(j) At Nov. 30, 1999, the cost of securities purchased, including interest
purchased, on a when-issued basis was $35,194,690.
(k) Interest rate varies either based on a predetermined schedule or to reflect
current market conditions; rate shown is the effective rate on Nov. 30, 1999.
(l) At Nov. 30, 1999, the cost of securities for federal income tax purposes was
approximately $1,517,888,000 and the approximate aggregate gross unrealized
appreciation and depreciation based on that cost was:
Unrealized appreciation $13,197,000
Unrealized depreciation (47,427,000)
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Net unrealized depreciation $(34,230,000)
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American Express Financial Advisors Inc., Distributor
S-6139 E (1/00)
