Putnam
Premier
Income
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-02
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
If there is any such thing as normalcy in the securities markets, it
certainly has not been much in evidence over the past two years as
equity investors stampeded in droves to the relative safety of bonds.
Bonds have flourished in this shower of attention and handily
outperformed stocks.
Emerging signals now suggest that the economic downturn will neither be
as deep nor as prolonged as was feared in the aftermath of the September
11th attacks. The challenges presented by the shift from recession to
recovery are being closely assessed by Putnam Premier Income Trust's
management team. The team presents its in-depth analysis of performance
and prospects in the following report.
As you will note in this report, we are now simply listing the name of
the team responsible for the fund's management rather than individual
team members. This change reflects Putnam's belief that mutual funds are
more effectively overseen by teams than by individuals.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
March 13, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Core Fixed-Income Team
In a period marked by a transition from recession to hopes for a global
economic recovery, Putnam Premier Income Trust weathered the
uncertainties well, benefiting from its diverse range of bond holdings
in several different fixed-income sectors and geographic regions. The
fund's performance at net asset value was mixed relative to its
comparative benchmark indices, outperforming the CSFB High Yield Index
and the Salomon Smith Barney Non-World Government Bond Index, while
underperforming the Lehman Government Bond Index. The fund's higher
return at market price, which outperformed all three benchmarks,
reflected increased demand for fixed-income investments growing out of
the general flight to safety produced by the volatility and uncertainty
of the period.
Total return for 6 months ended 1/31/02
NAV Market price
-----------------------------------------------------------------------
2.05% 4.89%
-----------------------------------------------------------------------
Past performance does not indicate future results. Performance based on
market prices for the shares will vary from performance based on the
portfolio's net asset value. Performance information for longer periods
begins on page 6.
* A CHALLENGING AND VOLATILE PERIOD FOR GLOBAL BOND MARKETS
Financial markets faced an exceptionally challenging and volatile
semiannual period as weaker-than-expected data trends and tragedy in the
United States raised economic and geopolitical uncertainty to new
heights. Prior to September 11th, global yields declined as investors
scrutinized key indicators for signs of a rebound in economic activity.
After September 11th, yield curves in the major bond-market sectors
steepened, as shorter-maturity issues rallied strongly due to the
decreased appetite for risk and increased preference for liquidity.
[GRAPHIC OMITTED: horizontal bar chart SECTOR ALLOCATIONS]
SECTOR ALLOCATIONS*
High yield 47.6%
U.S. investment grade 28.7%
Foreign 23.7%
Footnote reads:
* Based on net assets as of 1/31/02. Holdings will vary over time.
Following military advances in Afghanistan, investors became less risk
averse. In addition, a better-than-expected rebound in consumer activity
prompted a selloff in global sovereigns, which erased some of the gains
achieved during the period. Central banks around the world cut rates
actively during the period and the Federal Reserve Board led the pack
with an additional 2.0% in rate reductions. As the period came to a
close, improving economic fundamentals reinforced investor expectations
for a modest recovery. Meanwhile, the Federal Reserve's decision to
leave interest rates unchanged at their January 30-31 meeting suggested
the worst of the U.S. slowdown may have passed. This was the first Fed
meeting in over a year that has not resulted in an interest-rate cut.
* INVESTMENT-GRADE SECTORS PERFORMED WELL
Investment-grade bond markets continued to benefit from increased demand
resulting from lower short-term interest rates and poor performance in
equities. However, more robust economic reports, which seemed to
indicate a turning point, progressively placed pressure on
investment-grade bond returns after the initial trauma following
September 11th had subsided. Your fund's performance overall benefited
from allocations to the U.S. investment-grade sectors, especially
Treasuries and mortgage-backed securities.
* HIGH-YIELD SECTOR REMAINED VOLATILE
Volatility remained the norm for the high-yield market, which surged and
receded with each change in investor sentiment. High-yield bonds
typically track trends in the equity markets. However, despite declining
equity markets amid weaker-than-expected economic data and poor earnings
announcements, high-yield bonds held up relatively well in the beginning
of the period. Investor demand continued to be stimulated by positive
relative returns and steeper yield curves as world central banks
initiated an additional round of easings. However, September 11th erased
all high-yield returns earned since January, as investors penalized the
asset class for its lack of liquidity, credit risk, and sensitivity to
the worsening economic environment. This cut into the fund's gains at
the time.
Fund Profile
Putnam Premier Income Trust is designed for investors seeking a high
level of current income consistent with preservation of capital. The
fund maintains flexibility across fixed-income sectors to seek maximum
current income without undue risk to capital. The fund is designed for
investors seeking a higher level of income who can accept a moderately
higher level of risk.
Beginning in October and continuing through the end of the period, the
rapid dissipation of investors' gloomiest economic scenarios helped the
high-yield market recover most of the ground lost following the attacks.
One sector, telecommunications, weighed down market returns during the
period as the ongoing inability of telecom companies to show profits or
find additional financing led to increasing defaults.
Better-than-expected economic data helped fuel an early January
high-yield rally, although rating downgrades, defaults, and rumors of
restructuring began to pressure returns for the latter part of the
month.
* INTERNATIONAL BONDS HELD UP WELL AMID THE SLOWING GLOBAL ECONOMY
Global bonds in developed markets rose modestly for the semi-annual
period. Following the terrorist attacks on September 11th, fears of a
U.S.-led economic downturn in the global economy precipitated a round of
coordinated monetary easing from world central banks. Global bonds
benefited from this environment of heightened economic and geopolitical
uncertainty, and your fund's performance benefited in turn. As 2001 came
to an end, global bonds in developed markets quickly lost steam as
investors grew more optimistic about economic recovery and equity
markets bounced back from their post-September 11th lows. Within
developed markets, the fund's exposure to Germany was a positive
contributor to performance.
Emerging-market bonds advanced broadly in 2001, although returns were
weighted down by the lack of structural reform in Argentina that
eventually culminated in default. Within the emerging-markets sector,
the fund's overweighted position in Russia, as well as our avoidance of
Argentina, contributed positively to performance.
* MANAGEMENT SEES A MODEST RECOVERY IN 2002
We believe there will be continued low inflation and a modest recovery
in the first half of 2002. The stimulative effect of the Fed's
aggressive monetary easing policy, combined with the government's fiscal
policy, appears to have helped the economy stabilize; however, business
and consumer spending is expected to remain relatively weak in 2002,
leading to only a modest recovery by historical standards.
[GRAPHIC OMITTED: TOP SECTOR HOLDINGS]
TOP SECTOR HOLDINGS*
Top three high-yield holdings
Allied Waste Industries, Inc., company guaranty, Series B, 10.0%, 2009
HMH Properties, Inc, company guaranty, Series B, 7.875%, 2008
Echostar Broadband Corp., senior notes 10.375%, 2007
Top three U.S. government holdings
U.S. Treasury Bonds 7.5%, 11/15/16
Federal National Mortgage Association, TBA, 6.5%, 2/1/17
U.S. Treasury Bonds 5.375%, 2/15/31
Top three international holdings
Germany (Federal Republic of) bonds Series 95, 7.375%, 2005
France (Government of) bonds 5.5%, 2010
Brazil (Federal Republic of) bonds, 8.0%, 2014
Footnote reads:
*These holdings represent 18.8% of the fund's net assets as of 1/31/02.
Portfolio holdings will vary over time.
The Fed's decision to keep interest rates unchanged at its January 30
meeting signals a pause, if not an end, to its year-long aggressive
rate-cutting campaign. Nonetheless, we believe that continued low
inflation will likely allow the Fed more time before it feels the need
to raise rates. We will continue to monitor the fixed-income universe
closely, identifying securities with positive fundamentals and
attractive valuations.
We remain cautiously optimistic on the high-yield market. Our
economists' expectations of only a modest economic recovery beginning in
the second quarter do not diminish the attractiveness of high-yield
bonds as valuations remain compelling in this sector. The current
yield spread (the difference between the yield on high-yield bonds and
that on Treasuries) remains above the historical average, reflecting
modest recovery expectations and a continued high default rate. Credit
dynamics in the high-yield market should also improve this year.
"For the second consecutive year, investors in most bond mutual funds
enjoyed solid returns in 2001, a respite from the miserable returns in
stocks over that period."
-- The Wall Street Journal, January 7, 2002
Internationally, we continue to find value in developed markets, while
we are neutral with regard to emerging markets. Fortunately, Argentina's
default has had little impact on the rest of the emerging-markets sector
thus far. As investors in the global bond markets look toward an
improving environment this year, we will continue to maintain the fund's
diversity, take advantage of opportunities as they arise, and maintain
strict risk controls.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 1/31/02, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, such as currency fluctuations, economic
instability, and political developments. Lower-rated bonds may offer
higher yields in return for more risk. Government securities guarantee
principal and interest; mutual funds that invest in these securities are
not guaranteed. Mortgage-backed securities are subject to prepayment
risk.
NEWS FROM THE TRUSTEES
In July 2001, we welcomed Charles B. Curtis to Putnam's Board of Trustees.
He brings an impressive list of credentials that include several key
positions in Washington and directorships in education and energy-related
industries. We look forward to the contributions Charles will make to the
continued success of the Putnam funds.
PUTNAM'S POLICY ON DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these materials
to customers who share the same address. This change will automatically
apply to all shareholders except those who notify us. If you would prefer
to receive your own copy, please call Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 1/31/02
NAV Market price
--------------------------------------------------
6 months 2.05% 4.89%
--------------------------------------------------
1 year 1.50 4.48
--------------------------------------------------
5 years 17.81 25.57
Annual average 3.33 4.66
--------------------------------------------------
10 years 94.47 100.05
Annual average 6.88 7.18
--------------------------------------------------
Life of fund
(since 2/29/88)
Annual average 7.81 7.00
--------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/02
Salomon
Lehman Bros. Non-
Government U.S. World
Bond Govt. Bond CSFB High Consumer
Index Index Yield Index price index
-------------------------------------------------------------------------------
6 months 3.06% -1.79% 1.30% 0.11%
-------------------------------------------------------------------------------
1 year 6.86 -5.70 0.73 1.08
-------------------------------------------------------------------------------
5 years 43.67 2.00 17.55 11.42
Annual average 7.52 0.40 3.29 2.19
-------------------------------------------------------------------------------
10 years 103.73 58.72 106.26 28.60
Annual average 7.37 4.73 7.51 2.55
-------------------------------------------------------------------------------
Life of fund
(since 2/29/88)
Annual average 8.07 5.56 8.46 3.11
-------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
return, net asset value, and market price will fluctuate and you may
have a gain or a loss when you sell your shares. Performance does not
reflect taxes on reinvested distributions. Securities indexes assume
reinvestment of all distributions and interest payments and do not take
into account brokerage fees or taxes. Securities in the fund to not
match those in the indexes, and performance of the fund will differ. It
is not possible to invest in an index.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/02
--------------------------------------------------
Distributions
(number) 6
--------------------------------------------------
Income $0.2700
--------------------------------------------------
Capital gains --
--------------------------------------------------
Total $0.2700
--------------------------------------------------
Share value: NAV Market price
--------------------------------------------------
7/31/01 $6.68 $6.290
--------------------------------------------------
1/31/02 6.53 6.320
--------------------------------------------------
Current return (end of period)
--------------------------------------------------
Current
dividend
rate 1 8.27% 8.54%
--------------------------------------------------
1 Income portion of most recent distribution,
annualized and divided by NAV or market price
at end of period.
TOTAL RETURN FOR PERIODS ENDED 12/31/01 (most recent calendar quarter)
NAV Market price
--------------------------------------------------
6 months 2.51% -0.73%
--------------------------------------------------
1 year 4.11 7.32
--------------------------------------------------
5 years 17.52 25.25
Annual average 3.28 4.61
--------------------------------------------------
10 years 93.49 93.71
Annual average 6.82 6.84
--------------------------------------------------
Life of fund
(since 2/29/88)
Annual average 7.80 6.60
--------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset
value, and market price will fluctuate, and you may have a gain or a
loss when you sell your shares. Performance does not reflect taxes on
reinvested distributions.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all of the fund's assets
by the number of outstanding shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Government Bond Index* is an unmanaged list of U.S. Treasury and
agency securities.
Credit Suisse First Boston (CSFB) High Yield Index* is an unmanaged list
of lower-rated higher-yielding U.S. corporate bonds.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged
list of bonds issued by 10 countries.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Footnote reads:
* Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate table
is provided for each share class.
THE FUND'S PORTFOLIO
January 31, 2002 (Unaudited)
CORPORATE BONDS AND NOTES (48.9%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
$ 790,000 Adams Outdoor Advertising bank term loan
FRB Ser. B, 5.41s, 2008 (acquired 8/1/01,
cost $789,012) (RES) $ 794,938
1,110,500 Interact Operating Co. notes 14s, 2003 (PIK) 111
585,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 615,713
420,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 441,000
-------------
1,851,762
Aerospace and Defense (1.2%)
-------------------------------------------------------------------------------------------------------------------
1,735,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 1,440,050
120,000 Argo-Tech Corp. company guaranty Ser. D,
8 5/8s, 2007 99,600
1,290,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 1,128,750
960,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 806,400
1,180,000 Decrane Aircraft Holdings Co. company guaranty
Ser. B, 12s, 2008 1,110,675
1,030,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 597,400
1,310,000 L-3 Communications Corp. sr. sub. notes
8 1/2s, 2008 1,362,400
440,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 470,800
1,000,000 L3 Communications Corp. Structured notes
(Issued by Counts Trust) Ser. 2001-5, 8.82s, 2009 1,020,000
570,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 581,400
2,140,000 Sequa Corp. sr. notes 9s, 2009 2,075,800
500,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 476,250
-------------
11,169,525
Agriculture (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,620,000 Premium Standard Farms, Inc. 144A sr. notes
9 1/4s, 2011 1,664,550
Airlines (0.6%)
-------------------------------------------------------------------------------------------------------------------
100,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 70,000
1,390,000 Airbus Industries 144A notes Ser. D, 12.266s, 2020 1,421,939
580,000 American Airlines, Inc. bonds Ser. 01-2, Class B,
8.608s, 2011 578,985
290,000 American Airlines, Inc. 144A pass-through
certificates Ser. 01-2, Class A-2, 7.858s, 2011 292,390
1,360,000 Calair, LLC 144A company guaranty 8 1/8s, 2008 1,142,400
450,000 Continental Airlines, Inc. pass-through certificates
Ser. D, 7.568s, 2006 360,000
330,000 Northwest Airlines, Inc. company guaranty
8 3/8s, 2004 306,900
770,000 Northwest Airlines, Inc. company guaranty
7 5/8s, 2005 693,000
377,446 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 383,108
780,000 US Air, Inc. pass-through certificates Ser. 93A3,
10 3/8s, 2013 483,600
-------------
5,732,322
Automotive (1.3%)
-------------------------------------------------------------------------------------------------------------------
460,000 Aftermarket Technology Corp. sr. sub. notes
12s, 2004 469,200
1,070,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 1,091,400
486,505 Collins & Aikman Products, Inc. bank term loan
FRN Ser. B, 7s, 2005 (acquired 12/20/01,
cost $481,640) (RES) 489,242
670,000 Collins & Aikman Products, Inc. company
guaranty 11 1/2s, 2006 633,150
900,000 Collins & Aikman Products, Inc. 144A sr. notes
10 3/4s, 2011 904,500
160,000 Dana Corp. notes 7s, 2029 115,200
490,000 Dana Corp. notes 6 1/4s, 2004 441,000
1,720,000 Dana Corp. 144A sr. notes 9s, 2011 1,565,200
220,000 Delco Remy International, Inc. 144A company
guaranty 11s, 2009 221,375
70,000 Delco Remy International, Inc. company guaranty
10 5/8s, 2006 69,475
1,970,000 Dura Operating Corp. 144A company guaranty
Ser. D, 9s, 2009 1,891,200
EUR 140,000 Dura Operating Corp. sr. sub. notes Ser. B, 9s, 2009 109,653
$ 730,000 Exide Corp. sr. notes 10s, 2005 226,300
200,000 Federal Mogul Corp. notes 7 7/8s, 2010
(In default) (NON) 30,000
910,000 Federal Mogul Corp. notes 7 3/4s, 2006
(In default) (NON) 136,500
280,000 Hayes Lemmerz International, Inc. company
guaranty Ser. B, 9 1/8s, 2007 (In default) (NON) 11,200
280,000 Hayes Lemmerz International, Inc. company
guaranty Ser. B, 8 1/4s, 2008 (In default) (NON) 11,200
350,000 Hayes Lemmerz International, Inc. 144A
company guaranty 11 7/8s, 2006 (In default) (NON) 189,438
880,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 900,381
1,210,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 1,226,795
350,000 Lear Corp. Structured Notes 8.46s, 2006 (issued by
STEERS Credit Linked Trust 2001)
(acquired 5/17/01, cost $350,000) (RES) 351,750
490,000 Tenneco, Inc. company guaranty 11 5/8s, 2009
(Malaysia) 271,950
270,000 Venture Holdings Trust 144A sr. notes Ser. B,
9 1/2s, 2005 221,400
-------------
11,577,509
Banking (1.1%)
-------------------------------------------------------------------------------------------------------------------
700,000 Chevy Chase Savings Bank, Inc. sub. debs.
9 1/4s, 2005 707,000
850,000 Colonial Capital II 144A company guaranty
8.92s, 2027 778,188
110,000 Dime Capital Trust I bank guaranty Ser. A,
9.33s, 2027 119,557
1,500,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 1,496,805
2,150,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010
(South Korea) 2,418,750
165,000 North Fork Capital Trust I company guaranty
8.7s, 2026 159,496
115,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 107,742
715,000 Provident Capital Trust company guaranty 8.6s, 2026 642,256
410,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 298,796
2,980,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 3,248,200
505,000 Webster Capital Trust I 144A bonds 9.36s, 2027 463,176
-------------
10,439,966
Beverage (0.3%)
-------------------------------------------------------------------------------------------------------------------
210,000 Constellation Brands, Inc. company guaranty
8 1/2s, 2009 210,000
860,000 Constellation Brands, Inc. company guaranty
Ser. B, 8s, 2008 890,100
1,190,000 Constellation Brands, Inc. sr. sub. notes Ser. B,
8 1/8s, 2012 1,210,825
-------------
2,310,925
Broadcasting (3.7%)
-------------------------------------------------------------------------------------------------------------------
1,440,000 Acme Television company guaranty 10 7/8s, 2004 1,418,400
423,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 439,920
800,000 Belo Corp. sr. notes 7 1/8s, 2007 792,136
530,000 Belo Corp. sr. unsub. notes 8s, 2008 540,680
860,000 Benedek Communications Corp. sr. disc.
notes 13 1/4s, 2006 (In default) (NON) 619,200
1,980,000 British Sky Broadcasting PLC company guaranty
6 7/8s, 2009 (United Kingdom) 1,883,515
2,040,000 Chancellor Media Corp. company guaranty 8s, 2008 2,136,900
3,586,000 Diva Systems Corp. sr. disc. notes stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 573,760
4,250,000 Echostar Broadband Corp. sr. notes 10 3/8s, 2007 4,526,250
1,990,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 2,069,600
1,160,000 Echostar DBS Corp. 144A sr. notes 9 1/8s, 2009 1,184,650
160,000 Emmis Communications Corp. bank term loan
FRN Ser. A, 4.506s, 2009 (acquired 1/31/02,
cost $159,400) (RES) 158,880
875,069 Emmis Communications Corp. bank term loan
FRN Ser. B, 5 1/2s, 2009 (acquired 1/2/01,
cost $873,757) (RES) 876,859
200,000 Emmis Communications Corp. company guaranty
Ser. B, 8 1/8s, 2009 200,000
560,000 Emmis Communications Corp. sr. disc. notes
stepped-coupon zero % (12 1/2s, 3/15/06),
2011 (STP) 380,800
986,308 Fox Family Worldwide, Inc. sr. disc. notes
stepped-coupon zero % (10 1/4s, 11/1/02),
2007 (STP) 1,075,076
1,830,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,958,100
1,110,000 Fox/Liberty Networks, LLC sr. notes 8 7/8s, 2007 1,165,500
130,000 Granite Broadcasting Corp. sr. sub. notes
9 3/8s, 2005 118,300
960,000 Granite Broadcasting Corp. sr. sub. notes
8 7/8s, 2008 816,000
85,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 36,975
1,740,000 LIN Holdings Corp. sr. disc. notes stepped-coupon
zero % (10s, 3/1/03), 2008 (STP) 1,218,000
170,000 LIN Holdings Corp. 144A sr. disc. notes stepped-
coupon zero % (10s, 3/1/03), 2008 (STP) 106,250
440,000 LIN Television Corp. company guaranty 8 3/8s, 2008 433,400
270,000 News America, Inc. sr. notes 6 5/8s, 2008 270,675
20,000 Pegasus Communications Corp. sr. notes
12 1/2s, 2007 19,600
1,200,000 Pegasus Satellite sr. notes 12 3/8s, 2006 1,152,000
2,658,731 Quorum Broadcast Holdings, LLC notes
stepped-coupon zero % (15s, 5/15/06),
2009 (acquired 5/15/01, cost $1,056,491) (RES) (STP) 1,056,580
502,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B,
zero % (9.8s, 2/15/03), 2008 (STP) 115,460
510,000 Sinclair Broadcast Group, Inc. bank term loan
FRN 5.93s, 2009 (acquired 10/23/01,
cost $500,756) (RES) 511,530
1,370,000 Sinclair Broadcast Group, Inc. company guaranty 9s,
2007 1,411,100
100,000 Sinclair Broadcast Group, Inc. sr. sub. notes
8 3/4s, 2007 102,500
440,000 Sinclair Broadcast Group, Inc. 144A sr. sub. notes
8 3/4s, 2011 451,000
2,080,000 XM Satellite Radio Holdings, Inc. sec. notes 14s,
2010 1,591,200
2,420,000 Young Broadcasting, Inc. 144A sr. sub notes 10s,
2011 2,299,000
166,000 Young Broadcasting, Inc. company guaranty Ser. B,
8 3/4s, 2007 149,400
-------------
33,859,196
Building Materials (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,050,000 American Standard Companies, Inc. company
guaranty 7 5/8s, 2010 2,101,250
100,000 American Standard Companies, Inc. company
guaranty 7 1/8s, 2003 102,000
390,000 Atrium Companies, Inc. company guaranty Ser. B,
10 1/2s, 2009 366,600
450,000 Building Materials Corp. company guaranty 8s, 2008 335,250
1,020,000 Dayton Superior Corp. company guaranty 13s, 2009 1,045,500
570,000 NCI Building Systems, Inc. sr. sub. notes Ser. B,
9 1/4s, 2009 550,050
590,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 592,950
460,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 467,475
120,000 Nortek, Inc. 144A sr. sub. notes Ser. B, 9 7/8s, 2011 120,900
-------------
5,681,975
Cable Television (3.3%)
-------------------------------------------------------------------------------------------------------------------
1,270,000 Adelphia Communications Corp. sr. notes
10 7/8s, 2010 1,352,550
1,770,000 Adelphia Communications Corp. sr. notes
10 1/4s, 2011 1,831,950
80,000 Adelphia Communications Corp. sr. notes
10 1/4s, 2006 82,200
50,000 Adelphia Communications Corp. sr. notes
7 7/8s, 2009 47,250
2,380,000 Adelphia Communications Corp. sr. notes Ser. B,
9 7/8s, 2007 2,403,800
530,000 Adelphia Communications Corp. sr. notes Ser. B,
8 3/8s, 2008 511,450
1,710,000 Adelphia Communications Corp. sr. notes Ser. B,
7 3/4s, 2009 1,607,400
860,000 Century Communications Corp. sr. notes
8 7/8s, 2007 842,800
960,000 Charter Communications Holdings, LLC bank
term loan FRN Ser. B, 4.52s, 2008
(acquired 10/22/01, cost $938,400) (RES) 946,320
180,000 Charter Communications Holdings, LLC sr. disc.
notes stepped-coupon zero % (13 1/2s, 1/15/06),
2011 (STP) 120,600
1,860,000 Charter Communications Holdings, LLC sr. disc.
notes stepped-coupon zero % (11 3/4s, 5/15/06),
2011 (STP) 1,143,900
320,000 Charter Communications Holdings, LLC sr. disc.
notes stepped-coupon zero % (9.92s, 4/1/04),
2011 (STP) 233,600
2,200,000 Charter Communications Holdings, LLC sr. notes
11 1/8s, 2011 2,312,750
500,000 Charter Communications Holdings, LLC sr. notes
10 3/4s, 2009 520,000
850,000 Charter Communications Holdings, LLC sr. notes
10s, 2009 858,500
2,320,000 Charter Communications Holdings, LLC sr. notes
8 5/8s, 2009 2,215,600
710,000 Charter Communications Holdings, LLC sr. notes
8 1/4s, 2007 674,500
970,000 Charter Communications Holdings, LLC/Capital
Corp. 144A sr. disc. notes stepped-coupon
zero % (12 1/8s, 1/15/07), 2012 (STP) 560,175
290,000 CSC Holdings, Inc. debs. 7 5/8s, 2018 269,207
280,000 CSC Holdings, Inc. sr. sub. debs. 10 1/2s, 2016 308,000
2,015,000 CSC Holdings, Inc. sr. sub. debs. 9 7/8s, 2013 2,115,750
3,225,000 Diamond Cable Communication PLC sr. disc.
notes stepped-coupon zero % (10 3/4s, 2/15/02),
2007 (United Kingdom) (STP) 1,064,250
1,340,000 Diamond Cable Communications PLC sr. disc.
notes 13 7/8s, 2005 (United Kingdom) 442,200
330,000 Diamond Cable Communications PLC sr. disc.
notes 13 1/4s, 2004 (United Kingdom) 107,250
830,000 Insight Communications Company, Inc. sr. disc.
notes stepped-coupon zero % (12 1/4s, 2/15/06),
2011 (STP) 520,825
210,000 Insight Midwest LP/Insight Capital, Inc. bank term
loan 5 1/2s, 2009 (acquired 11/5/01,
cost $209,606) (RES) 210,225
990,000 Insight Midwest LP/Insight Capital, Inc. 144A
sr. notes 10 1/2s, 2010 1,076,625
969,000 International Cabletel, Inc. sr. disc. notes
11 1/2s, 2006 319,770
1,520,000 NTL, Inc. sr. notes Ser. A, 12 3/4s, 2005 520,600
1,720,000 NTL Communications Corp. sr. notes Ser. B, 11 7/8s,
2010 610,600
680,000 NTL Communications Corp. sr. notes stepped-
coupon Ser. B, zero % (12 3/8s, 10/1/03), 2008 (STP) 200,600
250,000 ONO Finance PLC sr. notes 13s, 2009
(United Kingdom) 172,500
560,000 ONO Finance PLC 144A sr. notes 14s, 2011
(United Kingdom) 386,400
200,000 Rogers Cablesystems, Ltd. debs. 10 1/8s, 2012
(Canada) 211,000
170,000 Rogers Cablesystems, Ltd. notes 11s, 2015
(Canada) 190,400
780,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s,
2005 (Canada) 842,400
910,000 Rogers Cablesystems, Ltd. sr. sub. notes 8.8s,
2007 (Canada) 869,050
930,000 Supercanal Holdings SA 144A sr. notes 11 1/2s,
2005 (Argentina) (In default) (NON) 18,600
780,000 TeleWest Communications PLC debs. 11s, 2007
(United Kingdom) 507,000
300,000 TeleWest Communications PLC debs. 9 5/8s, 2006
(United Kingdom) 202,500
360,000 TeleWest Communications PLC Structured Notes
10 7/8s, 2005 (issued by DLJ International Capital)
(United Kingdom) 261,504
1,880,000 United Pan-Europe NV sr. disc. notes 12 1/2s,
2009 (Netherlands) 155,100
2,820,000 United Pan-Europe NV sr. disc. notes stepped-
coupon zero % (13 3/4s, 2/1/05), 2010
(Netherlands) (STP) 232,650
350,000 United Pan-Europe NV sr. disc. notes stepped-
coupon zero % (12 1/2s, 8/1/04), 2009
(Netherlands) (STP) 28,875
-------------
30,109,226
Chemicals (2.7%)
-------------------------------------------------------------------------------------------------------------------
1,180,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 1,202,125
420,000 Airgas, Inc. 144A sr. sub. notes 9 1/8s, 2011 438,900
2,490,000 ARCO Chemical Co. debs. 9.8s, 2020 2,353,050
510,000 Avecia Group PLC company guaranty 11s,
2009 (United Kingdom) 504,900
740,000 Compass Minerals Group, Inc. 144A sr. sub.
notes 10s, 2011 777,925
2,280,000 Equistar Chemicals LP/Equistar Funding Corp.
company guaranty 10 1/8s, 2008 2,245,800
370,000 Ferro Corp. sr. notes 9 1/8s, 2009 381,100
240,000 Georgia Gulf Corp. company guaranty
10 3/8s, 2007 252,300
2,180,000 Hercules, Inc. 144A company guaranty
11 1/8s, 2007 2,299,900
2,835,000 Huntsman ICI Chemicals, Inc. company guaranty
10 1/8s, 2009 2,636,550
500,000 IMC Global, Inc. 144A sr. notes, 11 1/4s, 2011 539,220
1,130,000 IMC Global, Inc. 144A sr. notes, 10 7/8s, 2008 1,214,162
2,070,000 ISP Chemco, Inc. company guaranty Ser. B,
10 1/4s, 2011 2,173,500
700,000 ISP Chemco, Inc. 144A sr. sub. notes 10 1/4s, 2011 735,000
830,000 Lyondell Petrochemical Co. notes Ser. A,
9 5/8s, 2007 827,925
310,000 Messer Griesheim Holdings AG sr. notes 10 3/8s,
2011 (Germany) 284,961
1,700,000 Millenium America, Inc. company guaranty 9 1/4s,
2008 1,763,750
510,000 Noveon, Inc. company guaranty Ser. B, 11s, 2011 525,938
960,000 OM Group, Inc. 144A sr. sub. notes 9 1/4s, 2011 988,800
609,379 PCI Chemicals & Pharmaceuticals sr. notes 10s,
2008 (Canada) 457,034
203,127 Pioneer Companies, Inc. FRN 5.381s, 2006 146,251
330,000 Polymer Group, Inc. company guaranty Ser. B,
9s, 2007 (In default) (NON) 132,000
160,000 Polymer Group, Inc. company guaranty Ser. B,
8 3/4s, 2008 64,000
1,210,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 763,813
930,000 Sterling Chemicals, Inc. company guaranty Ser. B,
12 3/8s, 2006 (In default) (NON) 791,663
1,085,000 Sterling Chemicals Holdings sr. disc. notes 13 1/2s,
2008 (In default) (NON) 9,754
280,000 Texas Petrochemical Corp. sr. sub. notes Ser. B,
11 1/8s, 2006 226,800
-------------
24,737,121
Commercial and Consumer Services (0.5%)
-------------------------------------------------------------------------------------------------------------------
320,000 Coinmach Corp. bank term loan FRN Ser. B,
4.631s, 2009 (acquired 1/31/02, cost $319,600) (RES) 322,000
2,150,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 2,217,188
1,920,000 Coinmach Corp. 144A sr. notes 9s, 2010 1,953,600
-------------
4,492,788
Communications Equipment (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,510,000 PanAmSat Corp. 144A sr. notes 8 1/2s, 2012 1,511,888
420,000 Telex Communications, Inc. company guaranty
10 1/2s, 2007 (In default) (NON) 109,200
-------------
1,621,088
Components (--%)
-------------------------------------------------------------------------------------------------------------------
210,000 Seagate Technology, Inc. 144A company guaranty
12 1/2s, 2007 (Cayman Islands) 237,300
Construction (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,700,000 Better Minerals & Aggregates Co. company
guaranty 13s, 2009 1,462,000
1,250,000 Morrison Knudsen Corp. 144A sr. notes 11s,
2010 (In default) (NON) 262,500
-------------
1,724,500
Consumer (0.7%)
-------------------------------------------------------------------------------------------------------------------
837,025 Derby Cycle Corp. (The) sr. notes 10s, 2008
(In default) (NON) 159,035
EUR 2,195,093 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008
(In default) (NON) 202,858
$ 1,600,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 1,784,000
2,520,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 1,638,000
663,154 Sealy Corp. bank term loan FRN Ser. B, 4.063s,
2004 (acquired 12/17/01, cost $664,826) (RES) 660,431
335,649 Sealy Corp. bank term loan FRN Ser. C, 4.313s,
2005 (acquired 12/17/01, cost $336,470) (RES) 334,271
499,446 Sealy Corp. bank term loan FRN Ser. D, 4.563s,
2005 (acquired 12/17/01, cost $500,628) (RES) 497,395
1,000,000 Sealy Mattress Co.company guaranty stepped-
coupon Ser. B, zero % (10 7/8s, 12/15/02),
2007 (STP) 925,000
450,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 461,250
-------------
6,662,240
Consumer Finance (0.3%)
-------------------------------------------------------------------------------------------------------------------
400,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 120,000
630,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 563,850
2,636,000 Finova Group, Inc. notes 7 1/2s, 2009 1,001,680
260,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 260,107
550,000 Nationwide Credit, Inc. sr. notes Ser. A,
10 1/4s, 2008 154,000
910,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B,
11s, 2006 768,950
-------------
2,868,587
Consumer Goods (0.5%)
-------------------------------------------------------------------------------------------------------------------
760,000 Albecca, Inc. company guaranty 10 3/4s, 2008 843,600
580,000 Armkel, LLC/Armkel Finance 144A sr. sub. notes
9 1/2s, 2009 609,000
460,000 Elizabeth Arden, Inc. sec. notes Ser. B, 11 3/4s, 2011 427,800
260,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 236,600
840,000 Leiner Health Products sr. sub. notes 9 5/8s,
2007 (In default) (NON) 115,500
760,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 805,600
630,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 44,100
370,000 Revlon Consumer Products sr. notes 9s, 2006 233,100
360,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 226,800
540,000 Revlon Consumer Products sr. sub. notes
8 5/8s, 2008 229,500
670,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 696,800
-------------
4,468,400
Consumer Services (0.1%)
-------------------------------------------------------------------------------------------------------------------
400,000 United Rentals (North America), Inc. 144A
company guaranty Ser. B, 10 3/4s, 2008 432,000
Containers (0.8%)
-------------------------------------------------------------------------------------------------------------------
1,238,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 1,225,620
260,000 Applied Extrusion Technologies, Inc. company
guaranty Ser. B, 10 3/4s, 2011 268,450
1,320,000 Owens-Brockway Glass 144A sec. notes 8 7/8s, 2009 1,320,000
1,000,000 Owens-Illinois, Inc. debs. 7.8s, 2018 805,000
460,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 427,800
570,000 Pliant Corp. company guaranty 13s, 2010 589,950
1,490,000 Tekni-Plex, Inc. company guaranty Ser. B,
12 3/4s, 2010 1,475,100
690,298 U.S. Can Corp. bank term loan FRN Ser. B, 6.14s,
2008 (acquired 10/17/01, cost $638,094) (RES) 565,058
550,000 U.S. Can Corp. company guaranty Ser. B, 12 3/8s,
2010 313,500
-------------
6,990,478
Electric Utilities (1.3%)
-------------------------------------------------------------------------------------------------------------------
670,000 AES Corp. (The) notes 8 3/4s, 2008 582,900
2,750,000 AES Corp. (The) sr. notes 9 3/8s, 2010 2,395,938
1,550,000 Calpine Canada Energy Finance company guaranty
8 1/2s, 2008 (Canada) 1,294,250
1,190,000 CMS Energy Corp. sr. notes 8.9s, 2008 1,255,450
440,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 448,743
470,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 470,005
520,000 Edison Mission Energy sr. notes 10s, 2008 527,800
1,050,000 Mission Energy Holding Co. 144A sec. notes
13 1/2s, 2008 1,165,500
696,671 Northeast Utilities notes Ser. A, 8.58s, 2006 741,251
208,267 Northeast Utilities notes Ser. B, 8.38s, 2005 217,564
500,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s,
2005 (In default) (NON) 537,500
1,270,000 Southern California Edison Co. notes 8.95s, 2003 1,301,750
130,000 Southern California Edison Co. notes 6 3/8s, 2006 119,600
982,500 TNP Enterprises, Inc. bank term loan FRN 4.539s,
2005 (acquired 4/4/00, cost $981,517) (RES) 980,044
-------------
12,038,295
Electronics (--%)
-------------------------------------------------------------------------------------------------------------------
349,164 United Defense Industries, Inc. bank term loan
FRN 5.18s, 2009 (acquired 10/19/01,
cost $349,286) (RES) 349,928
Energy (0.6%)
-------------------------------------------------------------------------------------------------------------------
760,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 767,600
130,000 BRL Universal Equipment 144A sec. notes
8 7/8s, 2008 131,300
665,000 Dresser, Inc. company guaranty 9 3/8s, 2011 665,000
410,000 Grant Prideco, Inc. company guaranty Ser. B,
9 5/8s, 2007 401,800
450,000 Hanover Equipment Trust 144A sec. notes
8 3/4s, 2011 441,000
140,000 Hanover Equipment Trust 144A sec. notes
8 1/2s, 2008 138,250
520,000 Key Energy Services, Inc. 144A sr. notes Ser. B,
8 3/8s, 2008 520,915
760,000 Parker Drilling Corp. company guaranty Ser. D,
9 3/4s, 2006 744,800
1,110,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 1,165,500
-------------
4,976,165
Entertainment (1.2%)
-------------------------------------------------------------------------------------------------------------------
280,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 267,400
230,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 221,950
1,805,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 1,660,600
390,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 399,750
1,580,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 1,647,150
1,004,285 Regal Cinemas, Inc. bank term loan FRN Ser. A,
9.22s, 2006 (acquired various dates 3/1/01
through 6/4/01, cost $902,012) (RES) 1,057,512
787,090 Regal Cinemas, Inc. bank term loan FRN Ser. B,
6s, 2006 (acquired various dates 3/1/01
through 3/26/01, cost $874,337) (RES) 823,493
650,000 Regal Cinemas, Inc. bank term loan FRN Ser. B,
5.881s, 2008 (acquired 1/31/02, cost $648,375) (RES) 653,250
301,593 Regal Cinemas, Inc. bank term loan FRN Ser. C,
6 1/4s, 2006 (acquired various dates from
3/1/01 through 3/26/01, cost $265,043) (RES) 317,426
1,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s,
2008 (In default) (NON) 185
730,000 Regal Cinemas, Inc. 144A sr. sub. notes 9 3/8s, 2012 737,300
1,120,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s,
2005 (In default) (NON) 112
1,240,000 Six Flags Corp. sr. notes 8 7/8s, 2006 1,295,800
420,000 Six Flags, Inc. 144A sr. notes 9 1/2s, 2009 428,400
1,310,000 Six Flags, Inc. 144A sr. notes 8 7/8s, 2010 1,310,000
-------------
10,820,328
Financial (0.7%)
-------------------------------------------------------------------------------------------------------------------
1,915,000 Advanta Corp. 144A company guaranty Ser. B,
8.99s, 2026 1,072,400
1,005,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s,
2004 (In default) (NON) 251,250
150,000 Comdisco, Inc. notes 7 1/4s, 2001 (In default) (NON) (DEF) 120,000
110,000 Comdisco, Inc. notes 6 3/8s, 2049 (In default) (NON) 88,000
760,000 Comdisco, Inc. notes 5.95s, 2002 (In default) (NON) 600,400
530,000 Conseco, Inc. sr. notes 10 3/4s, 2008 286,200
350,000 Green Tree Financial notes Ser. A, 6 1/2s, 2002 311,500
420,000 Imperial Credit Industries, Inc. sec. notes 12s, 2005 155,400
510,000 Ocwen Capital Trust I company guaranty
10 7/8s, 2027 392,700
545,000 Ocwen Federal Bank sub. debs. 12s, 2005 528,650
160,000 Ocwen Financial Corp. notes 11 7/8s, 2003 156,800
1,030,000 Resource America, Inc. 144A sr. notes 12s, 2004 999,100
880,000 Superior Financial Corp. 144A sr. notes 8.65s, 2003 902,250
470,000 Willis Corroon Corp. 144A company guaranty
9s, 2009 486,450
-------------
6,351,100
Food (0.9%)
-------------------------------------------------------------------------------------------------------------------
940,000 Archibald Candy Corp. company guaranty 10 1/4s,
2004 (In default) (NON) 517,000
1,470,000 Aurora Foods, Inc. bank term loan FRN Ser. B2,
6.18s, 2010 (acquired 1/11/02, cost $1,466,325) (RES) 1,451,258
420,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 411,600
1,015,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D,
9 7/8s, 2007 994,700
310,000 Del Monte Corp. company guaranty Ser. B,
9 1/4s, 2011 325,500
1,150,000 Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 937,250
560,000 Eagle Family Foods company guaranty Ser. B,
8 3/4s, 2008 397,600
900,000 Premier International Foods PLC sr. notes 12s,
2009 (United Kingdom) 972,000
1,570,000 RAB Enterprises, Inc. company guaranty 10 1/2s,
2005 628,000
350,000 Smithfield Foods, Inc. sr. notes Ser. B, 8s, 2009 364,000
973,000 Suiza Foods Corp. bank term loan FRN Ser. B,
4.91s, 2008 (acquired 12/10/01, cost $979,487) (RES) 978,387
1,220,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B,
10 1/4s, 2009 (In default) (NON) 268,400
-------------
8,245,695
Gaming & Lottery (3.7%)
-------------------------------------------------------------------------------------------------------------------
650,000 Aladdin Gaming Holdings, LLC sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 3/1/03),
2010 (In default) (NON) (STP) 35,750
790,000 Ameristar Casinos, Inc. company guaranty
10 3/4s, 2009 859,125
900,000 Argosy Gaming Co. company guaranty
10 3/4s, 2009 999,000
130,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 138,450
2,201,778 Autotote Corp. bank term loan FRN 6.308s,
2007 (acquired 10/13/00, cost $2,196,273) (RES) 2,200,860
760,000 Autotote Corp. company guaranty Ser. B,
12 1/2s, 2010 828,400
413,718 Fitzgeralds Gaming Corp. company guaranty
Ser. B, 12 1/4s, 2004 (In default) (NON) 144,801
920,000 Harrah's Entertainment, Inc. company guaranty
7 1/2s, 2009 930,773
800,000 Harrah's Operating Co., Inc. company guaranty
8s, 2011 833,919
900,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 942,750
1,360,000 Hollywood Casino Corp. company guaranty
11 1/4s, 2007 1,502,800
250,000 Hollywood Park, Inc. company guaranty Ser. B,
9 1/4s, 2007 215,000
1,250,000 Horseshoe Gaming Holdings company guaranty
8 5/8s, 2009 1,307,813
1,010,000 International Game Technology sr. notes 8 3/8s, 2009 1,070,600
2,300,000 International Game Technology sr. notes 7 7/8s, 2004 2,392,000
220,000 Isle of Capri Casinos, Inc. company guaranty
8 3/4s, 2009 216,150
2,020,000 Majestic Investor Holdings/Majestic Investor
Capital Corp. 144A company guaranty
11.653s, 2007 1,929,100
110,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 117,838
1,080,000 Mandalay Resort Group sr. sub. notes Ser. B,
10 1/4s, 2007 1,150,200
810,000 Mandalay Resort Group 144A sr. sub. notes
9 3/8s, 2010 832,275
2,340,000 MGM Mirage company guaranty 8 1/2s, 2010 2,466,337
550,000 Mikohn Gaming Corp. company guaranty Ser. B,
11 7/8s, 2008 536,250
700,000 Mohegan Tribal Gaming sr. notes 8 1/8s, 2006 714,000
1,090,000 Mohegan Tribal Gaming sr. sub. notes 8 3/4s, 2009 1,128,150
160,000 Mohegan Tribal Gaming sr. sub. notes 8 3/8s, 2011 162,400
1,040,000 Park Place Entertainment Corp. sr. notes 7 1/2s,
2009 1,007,528
1,470,000 Park Place Entertainment Corp. sr. sub. notes
8 7/8s, 2008 1,521,450
820,000 Penn National Gaming, Inc. company guaranty
Ser. B, 11 1/8s, 2008 885,600
1,020,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 1,048,050
170,000 Station Casinos, Inc. sr. sub. notes 9 7/8s, 2010 177,650
280,000 Station Casinos, Inc. 144A sr. sub. notes 9 3/4s, 2007 291,200
570,000 Trump Atlantic City Associates company guaranty
Ser. B, 11 1/4s, 2006 376,200
60,000 Trump Atlantic City Associates 144A company
guaranty 11 1/4s, 2006 39,450
770,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s,
2003 589,050
3,200,000 Trump Castle Funding, Inc. sub. notes 10 1/4s, 2003 3,240,000
1,090,000 Venetian Casino, Inc. company guaranty
12 1/4s, 2004 1,122,700
450,000 Wheeling Island Gaming, Inc. 144A sr. notes
10 1/8s, 2009 465,750
-------------
34,419,369
Health Care (1.5%)
-------------------------------------------------------------------------------------------------------------------
510,000 Beverly Enterprises, Inc. 144A sr. notes 9 5/8s, 2009 525,300
487,000 Clarent Hospital Corp. sr. notes 11 1/2s, 2005 487,000
648,000 Concentra Operating Corp. bank term loan FRN
Ser. B, 5.131s, 2006 (acquired 1/15/02,
cost $650,025) (RES) 646,785
324,000 Concentra Operating Corp. bank term loan
FRN Ser. C, 5.381s, 2007 (acquired 1/15/02,
cost $325,012) (RES) 323,393
52,800 Genesis Health Ventures, Inc. sec. notes
FRN 7.59s, 2007 52,272
1,060,000 HCA, Inc. debs. 7.19s, 2015 1,041,450
750,000 HCA, Inc. med. term notes 7.69s, 2025 708,750
1,590,000 HCA, Inc. med. term notes 6.63s, 2045 1,601,877
520,000 HCA, Inc. notes 8 3/4s, 2010 572,000
350,000 HCA, Inc. notes 8.36s, 2024 357,875
1,530,000 HCA, Inc. notes 7s, 2007 1,552,950
580,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 640,900
1,260,000 Integrated Health Services, Inc. sr. sub. notes
Ser. A, 9 1/2s, 2007 (In default) (NON) 126
620,000 Integrated Health Services, Inc. sr. sub. notes
Ser. A, 9 1/4s, 2008 (In default) (NON) 62
190,000 Lifepoint Hospital Holdings company guaranty
Ser. B, 10 3/4s, 2009 212,800
2,500,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 (In default) (NON) 25,000
510,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02),
2007 (In default) (NON) (STP) 2,550
2,690,000 Multicare Companies, Inc. sr. sub. notes 9s,
2007 (In default) (NON) 269
1,503,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 1,606,046
140,000 Triad Hospitals, Inc. 144A sr. notes Ser. B, 8 3/4s, 2009 149,450
2,390,000 Triad Hospitals Holdings company guaranty Ser. B,
11s, 2009 2,640,950
780,000 Vanguard Health Systems, Inc. 144A sr. sub.
notes 9 3/4s, 2011 819,000
-------------
13,966,805
Homebuilding (0.9%)
-------------------------------------------------------------------------------------------------------------------
760,000 Beazer Homes USA, Inc. company guaranty
8 5/8s, 2011 787,550
120,000 D.R. Horton, Inc. company guaranty 8s, 2009 121,500
880,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 862,400
550,000 Del Webb Corp. sr. sub. debs. 9 3/8s, 2009 577,500
630,000 K. Hovnanian Enterprises, Inc. company guaranty
10 1/2s, 2007 665,438
1,270,000 KB Home sr. sub. notes 9 1/2s, 2011 1,327,150
330,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 361,350
720,000 Lennar Corp. sr. notes 7 5/8s, 2009 725,400
120,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 121,800
920,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 975,200
180,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 178,200
470,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 479,400
680,000 Toll Corp. company guaranty 8 1/8s, 2009 681,700
170,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 171,700
-------------
8,036,288
Lodging/Tourism (1.1%)
-------------------------------------------------------------------------------------------------------------------
1,224,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 1,269,900
510,000 Felcor Lodging LP 144A company guaranty
9 1/2s, 2008 529,125
709,000 Felcor Lodging LP 144A sr. notes 8 1/2s, 2011 705,455
4,720,000 HMH Properties, Inc. company guaranty Ser. B,
7 7/8s, 2008 4,578,400
920,000 ITT Corp. notes 6 3/4s, 2005 913,045
200,000 John Q. Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 198,000
630,000 Meristar Hospitality Corp. 144A sr. notes 9 1/8s, 2011 620,550
260,000 Meristar Hospitality Corp. 144A sr. notes 9s, 2008 257,400
410,000 MeriStar Hospitality Operating Partnership/MeriStar
Hospitality Finance Corp. 144A sr. notes
10 1/2s, 2009 (R) 429,475
490,000 Starwood Hotels & Resorts Worldwide, Inc. bank
term loan FRN 4.624s, 2003 (acquired 11/14/01,
cost $483,569) (RES) 489,475
-------------
9,990,825
Machinery (0.2%)
-------------------------------------------------------------------------------------------------------------------
540,000 Briggs & Stratton company guaranty 8 7/8s, 2011 561,762
40,000 Case Corp. notes 7 1/4s, 2016 31,200
220,000 Terex Corp. company guaranty 8 7/8s, 2008 222,200
460,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 488,175
370,000 Terex Corp. company guaranty Ser. D, 8 7/8s, 2008 373,700
-------------
1,677,037
Manufacturing (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,250,000 Blount, Inc. company guaranty 13s, 2009 1,057,500
269,428 Flowserve Corp. bank term loan FRN 5.793s,
2006 (acquired 10/24/01, cost $269,596) (RES) 269,091
960,000 Flowserve Corp. company guaranty 12 1/4s, 2010 1,075,200
650,000 Insilco Holding Co. sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 91,000
200,000 Jackson Products, Inc. company guaranty Ser. B,
9 1/2s, 2005 100,000
220,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 110,000
2,160,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 2,008,800
930,000 Roller Bearing Company of America company
guaranty Ser. B, 9 5/8s, 2007 809,100
-------------
5,520,691
Medical Services (0.8%)
-------------------------------------------------------------------------------------------------------------------
1,037,600 Alderwoods Group, Inc. company guaranty
12 1/4s, 2009 1,037,600
4,200 Alderwoods Group, Inc. company guaranty
12 1/4s, 2004 4,536
20,900 Alderwoods Group, Inc. company guaranty 11s,
2007 20,900
780,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 803,400
300,000 Conventry Health Care, Inc. 144A sr. notes 8 1/8s, 2012 303,750
516,086 Magellan Health Services, Inc. bank term loan FRN
5.813s, 2004 (acquired 1/10/02, cost $516,731) (RES) 514,538
2,050,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 1,670,750
180,000 Magellan Health Services, Inc. 144A sr. notes
9 3/8s, 2007 178,200
1,070,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 10,700
940,000 Mediq, Inc. debs. stepped-coupon zero %
(13s, 6/1/03), 2009 (STP) 94
800,000 Omnicare, Inc. 144A sr. sub. notes Ser. B, 8 1/8s, 2011 834,000
190,000 Service Corp. International debs. 7 7/8s, 2013 165,300
120,000 Service Corp. International notes 7.7s, 2009 109,500
1,130,000 Service Corp. International notes 6s, 2005 1,011,350
1,010,000 Stewart Enterprises, Inc. 144A sr. sub. notes
10 3/4s, 2008 1,100,900
1,345,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 135
1,080,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s,
2008 (In default) (NON) 108
-------------
7,765,761
Medical Technology (0.7%)
-------------------------------------------------------------------------------------------------------------------
360,000 ALARIS Medical Systems, Inc. company guaranty
9 3/4s, 2006 347,400
1,130,000 ALARIS Medical Systems, Inc. sec. notes Ser. B,
11 5/8s, 2006 1,227,463
350,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon
zero % (11 1/8s, 8/1/03), 2008 (STP) 231,000
400,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 422,000
510,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 568,650
1,270,000 Conmed Corp. company guaranty 9s, 2008 1,304,925
670,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s,
2009 649,900
580,000 Insight Health Services Corp. 144A sr. sub. notes
9 7/8s, 2011 598,850
388,987 Kinetic Concepts, Inc. bank term loan FRN Ser. C,
5.56s, 2005 (acquired 11/5/01, cost $389,473) (RES) 387,366
1,015,000 Kinetic Concepts, Inc. company guaranty Ser. B,
9 5/8s, 2007 1,030,225
-------------
6,767,779
Metals (0.7%)
-------------------------------------------------------------------------------------------------------------------
1,480,000 AK Steel Corp. company guaranty 7 7/8s, 2009 1,461,500
650,000 AK Steel Corp. sr. notes 9 1/8s, 2006 663,000
510,450 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 219,494
740,000 Centaur Mining & Exploration company guaranty 11s,
2007 (Australia) (In default) (NON) 37,000
1,250,000 Doe Run Resources Corp. company guaranty Ser. B,
11 1/4s, 2005 250,000
180,000 Doe Run Resources Corp. company guaranty,
11 1/4s, 2005 50,400
420,000 Doe Run Resources Corp. company guaranty FRN
Ser. B, 9.38s, 2003 75,600
80,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 53,600
2,360,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 590,000
1,680,000 LTV Corp. company guaranty 11 3/4s,
2009 (In default) (NON) 8,400
600,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 217,500
406,000 Oregon Steel Mills 1st mtge. 11s, 2003 403,970
484,000 P&L Coal Holdings Corp. company guaranty
Ser. B, 9 5/8s, 2008 519,090
1,100,000 United States Steel, LLC 144A company guaranty
10 3/4s, 2008 1,050,500
710,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 433,100
100,000 Weirton Steel Corp 144A sr. notes 10 3/4s,
2005 (In default) (NON) 10,000
1,290,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s,
2007 (In default) (NON) 25,800
570,000 WHX Corp. sr. notes 10 1/2s, 2005 279,300
-------------
6,348,254
Oil & Gas (2.3%)
-------------------------------------------------------------------------------------------------------------------
990,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B,
8 7/8s, 2007 999,900
530,000 Chesapeake Energy Corp. company guaranty
8 3/8s, 2008 516,750
1,890,000 Chesapeake Energy Corp. company guaranty 144A
8 1/8s, 2011 1,795,500
590,000 El Paso Energy Partners L..P. 144A company guaranty
Ser. B, 8 1/2s, 2011 599,588
400,000 Forest Oil Corp. company guaranty 10 1/2s, 2006 427,000
730,000 Forest Oil Corp. sr. notes 8s, 2008 737,300
420,000 Forest Oil Corp. 144A sr. notes 8s, 2011 421,050
800,000 Leviathan Gas Corp. company guaranty Ser. B,
10 3/8s, 2009 851,000
980,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 960,400
130,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 123,500
760,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 3/8s, 2010 718,200
840,000 Ocean Energy, Inc. company guaranty Ser. B,
8 3/8s, 2008 879,665
2,050,000 Pemex Master Trust 144A bonds 8 5/8s, 2022 2,044,875
3,500,000 Pioneer Natural Resources Co. company guaranty
9 5/8s, 2010 3,885,000
400,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 410,000
120,000 Port Arthur Finance Corp. company guaranty
12 1/2s, 2009 121,800
420,000 Seven Seas Petroleum, Inc. sr. notes Ser. B,
12 1/2s, 2005 247,800
810,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 845,964
310,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 310,000
550,000 Stone Energy Corp. 144A sr. sub. notes 8 1/4s, 2011 552,750
80,000 Triton Energy, Ltd. sr. notes 9 1/4s, 2005
(Cayman Islands) 87,335
570,000 Triton Energy, Ltd. sr. notes 8 7/8s, 2007
(Cayman Islands) 623,278
1,560,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 1,560,000
430,000 Vintage Petroleum, Inc. sr. sub. notes 9s, 2005 423,550
510,000 Westport Resources Corp. 144A sr. sub. notes
8 1/4s, 2011 518,288
440,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s,
2009 460,900
-------------
21,121,393
Paper & Forest Products (1.8%)
-------------------------------------------------------------------------------------------------------------------
1,080,000 Appleton Papers, Inc. 144A sr. sub. notes 12 1/2s,
2008 993,600
550,000 Bowater Canada Finance 144A notes 7.95s,
2011 (Canada) 561,655
1,305,000 Doman Industries, Ltd. sr. notes 8 3/4s, 2004
(Canada) 287,100
1,125,000 Four M Corp. sr. notes Ser. B, 12s, 2006 1,113,750
110,000 Gaylord Container Corp. sr. notes Ser. B,
9 3/4s, 2007 95,700
230,000 Gaylord Container Corp. sr. notes Ser. B,
9 3/8s, 2007 200,100
265,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 100,700
240,000 Georgia-Pacific Corp. notes 8 7/8s, 2031 213,703
840,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 768,020
210,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 192,931
220,000 Norske Skog Canada, Ltd. 144A sr. notes 8 5/8s,
2011 (Canada) 224,400
1,410,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 1,519,275
1,200,000 Potlatch Corp. 144A sr. sub. notes 10s, 2011 1,244,520
2,320,000 Riverwood International Corp. company
guaranty 10 7/8s, 2008 2,395,400
670,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 708,525
614,690 Stone Container Corp. bank term loan FRN Ser. F,
5 1/4s, 2006 (acquired various dates from
5/3/00 to 5/15/01, cost $614,075) (RES) 613,057
838,034 Stone Container Corp. bank term loan FRN
Ser. H, 5.438s, 2006 (acquired 7/17/00,
cost $837,098) (RES) 834,592
180,000 Stone Container Corp. sr. notes 12.58s, 2016 189,900
1,090,000 Stone Container Corp. sr. notes 9 3/4s, 2011 1,166,300
490,000 Stone Container Corp. sr. notes 9 1/4s, 2008 524,300
460,000 Stone Container Corp. 144A company guaranty
11 1/2s, 2006 (Canada) 492,200
1,450,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 1,515,250
850,000 Tembec Industries, Inc. company guaranty 8 1/2s,
2011 (Canada) 879,750
-------------
16,834,728
Power Producers (0.9%)
-------------------------------------------------------------------------------------------------------------------
530,000 Calpine Corp. sr. notes 10 1/2s, 2006 471,700
1,080,000 Calpine Corp. sr. notes 8 5/8s, 2010 872,100
1,560,000 Calpine Corp. sr. notes 8 1/2s, 2011 1,263,600
1,050,000 Calpine Corp. sr. notes 7 7/8s, 2008 861,000
30,000 Calpine Corp. sr. notes 7 3/4s, 2009 24,000
1,740,000 Midland Funding II Corp. debs. Ser. B, 13 1/4s, 2006 2,015,894
120,000 Midland Funding II Corp. debs. Ser. A, 11 3/4s, 2005 129,565
141,112 Midland Funding II Corp. debs. Ser. C-94, 10.33s, 2002 144,304
1,270,000 Tiverton/Rumford Power Associates, LP 144A
pass-through certificates 9s, 2018 1,054,100
1,651,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) (In default) (NON) 1,551,940
-------------
8,388,203
Publishing (1.1%)
-------------------------------------------------------------------------------------------------------------------
2,155,000 Affinity Group Holdings sr. notes 11s, 2007 1,982,600
760,000 Garden State Newspapers, Inc. sr. sub. notes
8 5/8s, 2011 752,400
290,000 Garden State Newspapers, Inc. sr. sub. notes
Ser. B, 8 3/4s, 2009 287,100
502,000 Hollinger International Publishing, Inc. company
guaranty 9 1/4s, 2007 510,785
1,760,000 Hollinger Participation Trust 144A sr. notes
12 1/8s, 2010 (Canada) (PIK) 1,603,800
740,000 Key3media Group, Inc. company guaranty
11 1/4s, 2011 651,200
1,000,000 Perry-Judd company guaranty 10 5/8s, 2007 900,000
1,420,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 1,320,600
470,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 413,600
1,070,000 PRIMEDIA, Inc. company guaranty Ser. B,
8 1/2s, 2006 1,005,800
600,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon
zero % (13 3/4s, 7/15/06), 2011 (Canada) (STP) 378,000
640,000 Quebecor Media, Inc. sr. notes 11 1/8s,
2011 (Canada) 691,200
-------------
10,497,085
Railroads (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,020,000 Kansas City Southern Railway Co. company
guaranty 9 1/2s, 2008 1,101,600
1,100,000 RailAmerica Transportation Corp. company
guaranty 12 7/8s, 2010 1,210,000
200,000 Transportation Manufacturing Operations, Inc.
company guaranty 11 1/4s, 2009 120,000
-------------
2,431,600
Real Estate (0.1%)
-------------------------------------------------------------------------------------------------------------------
980,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 984,900
Regional Bells (0.1%)
-------------------------------------------------------------------------------------------------------------------
860,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 619,200
Restaurants (0.4%)
-------------------------------------------------------------------------------------------------------------------
500,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 540,000
910,000 Sbarro, Inc. company guaranty 11s, 2009 910,000
50,000 Tricon Global Restaurants, Inc. sr. notes 8 7/8s, 2011 53,000
1,470,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 1,477,350
830,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 838,300
-------------
3,818,650
Retail (0.8%)
-------------------------------------------------------------------------------------------------------------------
670,000 Amazon.com, Inc. sr. sub. notes stepped-coupon
zero % (10s, 5/1/03), 2008 (STP) 536,000
1,050,000 Autonation, Inc. company guaranty 9s, 2008 1,092,000
20,000 Fleming Companies, Inc. 144A sr. sub. notes
10 5/8s, 2007 18,850
330,000 Fleming Companies, Inc. company guaranty Ser. B,
10 1/2s, 2004 311,850
800,000 Fleming Companies, Inc. 144A sr. notes 10 1/8s, 2008 800,000
360,000 Great Atlantic & Pacific Tea Co. notes 7 3/4s, 2007 355,500
40,000 Iron Age Holdings Corp. sr. disc. notes stepped-
coupon zero % (12 1/8s, 5/1/03), 2009 (STP) 3,600
420,000 K mart Corp. notes 9 3/8s, 2006 (In default) (NON) 195,300
700,000 K mart Corp. pass-through certificates Ser. 95K4,
9.35s, 2020 367,500
460,000 K mart Corp. 144A notes 9 7/8s, 2008 (In default) (NON) 209,300
90,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 83,700
850,000 Petco Animal Supplies, Inc. 144A sr. sub. notes
10 3/4s, 2011 888,250
2,700,000 Saks, Inc. company guaranty 8 1/4s, 2008 2,349,000
80,000 Southland Corp. debs. Ser. A, 4 1/2s, 2004 74,736
190,000 Southland Corp. sr. sub. debs. 5s, 2003 182,014
310,000 Tommy Hilfiger USA, Inc. company guaranty
6 1/2s, 2003 297,600
-------------
7,765,200
Semiconductor (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,050,000 Fairchild Semiconductor International, Inc. sr. sub.
notes 10 1/8s, 2007 1,086,750
1,000,000 Micron Technology, Inc. notes 6 1/2s, 2005 920,000
-------------
2,006,750
Shipping (0.2%)
-------------------------------------------------------------------------------------------------------------------
110,000 International Shipholding Corp. sr. notes 9s, 2003 110,000
320,000 Kitty Hawk, Inc. company guaranty 9.95s,
2004 (In default) (NON) 41,600
960,000 Navistar International Corp. sr. notes Ser. B,
8s, 2008 931,200
670,000 Navistar International Corp. 144A sr. notes Ser. B,
9 3/8s, 2006 701,825
180,000 Newport News Shipbuilding, Inc. sr. notes
8 5/8s, 2006 190,800
260,000 Travel Centers of America, Inc. company guaranty
12 3/4s, 2009 275,600
-------------
2,251,025
Software (--%)
-------------------------------------------------------------------------------------------------------------------
630,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02),
2005 (STP) 63
Specialty Printing (0.1%)
-------------------------------------------------------------------------------------------------------------------
385,349 Von Hoffman Press, Inc. 144A sr. sub. notes
13 1/2s, 2009 308,279
370,000 Von Hoffman Press, Inc. 144A sr. sub. notes
10 3/8s, 2007 333,463
-------------
641,742
Technology (0.3%)
-------------------------------------------------------------------------------------------------------------------
260,000 Amkor Technology, Inc. 144A. notes 9 1/4s, 2008 249,600
540,000 Amkor Technologies, Inc. Structured Note 12.58s,
2005 (issued by STEERS Credit Linked
Trust 2000) 529,200
100,000 Lucent Technologies, Inc. debs. 6 1/2s, 2028 68,500
2,750,000 Lucent Technologies, Inc. debs. 6.45s, 2029 1,883,750
520,000 SCG Holding & Semiconductor Corp. company
guaranty 12s, 2009 208,000
765,000 Telecommunications Techniques, Inc. company
guaranty 9 3/4s, 2008 214,200
240,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 62,400
-------------
3,215,650
Technology Services (0.8%)
-------------------------------------------------------------------------------------------------------------------
3,080,000 Cybernet Internet Services International, Inc. 144A
sr. disc. notes stepped-coupon 13s (13s, 8/15/04),
2009 (Denmark) (STP) 30,800
1,180,000 Equinix, Inc. sr. notes 13s, 2007 401,200
280,000 Exodus Communications, Inc. sr. notes 11 5/8s,
2010 (In default) (NON) 61,600
475,000 Exodus Communications, Inc. sr. notes 10 3/4s,
2009 (In default) (NON) 105,688
2,000,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13s, 4/15/03), 2008 (STP) 200
2,100,000 Globix Corp. sr. notes 12 1/2s, 2010 315,000
1,250,000 Intira Corp. bonds stepped-coupon zero %
(13s, 2/1/05), 2010 (acquired 1/3/00,
cost $666,138) (RES) (STP) 125
305,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 317,963
370,000 Iron Mountain, Inc. company guaranty 8 1/8s,
2008 (Canada) 374,625
2,400,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 2,472,000
230,000 PSINet, Inc. sr. notes 11 1/2s, 2008 (In default) (NON) 21,275
1,660,000 PSINet, Inc. sr. notes 11s, 2009 (In default) (NON) 141,100
160,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 (In default) (NON) 14,800
3,440,000 Xerox Credit Corp. 144A sr. notes 9 3/4s, 2009 3,233,600
50,000 Xerox Credit Corp. sr. notes 6.1s, 2003 46,000
-------------
7,535,976
Telecommunications (2.4%)
-------------------------------------------------------------------------------------------------------------------
1,490,000 360Networks, Inc. sr. notes 13s, 2008 (Canada)
(In default) (NON) 14,900
1,510,000 American Cellular Corp. 144A sr. sub. notes
9 1/2s, 2009 1,419,400
2,950,000 American Tower Corp. sr. notes 9 3/8s, 2009 2,050,250
550,000 Arch Communications, Inc. sr. notes 13 3/4s,
2008 (In default) (NON) 3,713
410,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s,
2010 (Bermuda) 135,300
710,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 246,725
1,355,000 Celcaribe SA sr. notes 13 1/2s, 2004 (Colombia) 813,000
530,000 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010
(In default) (NON) 10,600
820,000 Crown Castle International Corp. sr. disc. notes
stepped-coupon zero % (10 3/8s, 5/15/04),
2011 (STP) 434,600
490,000 Crown Castle International Corp. sr. notes 10 3/4s,
2011 433,650
1,300,000 Crown Castle International Corp. 144A sr. notes
9 3/8s, 2011 1,033,500
1,220,000 Dobson/Sygnet Communications, Inc. sr.
notes 12 1/4s, 2008 1,281,000
2,270,000 Econophone, Inc. company guaranty 13 1/2s,
2007 (In default) (NON) 45,400
580,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) (In default) (NON) 2,900
830,000 Flag, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 481,400
140,000 FLAG Telecom Holdings, Ltd. sr. notes 11 5/8s,
2010 (Bermuda) 53,200
130,000 Global Crossing Holdings, Ltd. company guaranty
9 5/8s, 2008 (Bermuda) 6,500
230,000 Global Crossing Holdings, Ltd. company guaranty
9 1/2s, 2009 (Bermuda) 11,500
3,230,000 Global Crossing Holdings, Ltd. company guaranty
9 1/8s, 2006 (Bermuda) 161,500
166,000 Level 3 Communications, Inc. sr. disc. notes
stepped-coupon zero % (10 1/2s, 12/1/03),
2008 (STP) 38,180
1,110,000 Level 3 Communications, Inc. sr. notes 9 1/8s, 2008 444,000
420,000 Loral Cyberstar, Inc. company guaranty 10s, 2006 289,800
1,650,000 McCaw International, Ltd. sr. disc. notes stepped-
coupon zero % (13s, 4/15/02), 2007 (STP) 132,000
310,000 Metrocall, Inc. sr. sub. notes 11s, 2008 (In default) (NON) 3,100
250,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007
(In default) (NON) 2,500
260,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007
(In default) (NON) 2,600
810,000 Millicom International Cellular SA sr. disc. notes
13 1/2s, 2006 (Luxembourg) 550,800
2,010,000 Nextel Communications, Inc. sr. notes 12s, 2008 1,668,300
2,310,000 Nextel Communications, Inc. sr. notes 9 1/2s, 2011 1,674,750
1,560,000 Nextel Partners, Inc. sr. notes 11s, 2010 1,216,800
270,000 Nextel Partners, Inc. sr. notes 11s, 2010 210,600
840,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s,
2008 142,800
990,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s,
2005 (In default) (NON) 198,000
1,660,000 Price Communications Wireless, Inc. 144A sr.
notes 9 1/8s, 2006 1,743,000
180,000 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s,
2010 (In default) (NON) 10,800
760,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011
(Canada) 790,400
1,025,000 RSL Communications, Ltd. company guaranty 12 1/4s,
2006 (Bermuda) (In default) (NON) 35,875
150,000 RSL Communications PLC 144A company guaranty
10 1/2s, 2008 (United Kingdom) (In default) (NON) 5,250
16,848 Rural Cellular Corp. bank term loan FRN 5.48s,
2008 (acquired 11/5/01, cost $16,384) (RES) 16,198
252,717 Rural Cellular Corp. bank term loan FRN Ser. C,
5.73s, 2009 (acquired 11/5/01, cost $245,767) (RES) 242,969
420,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 424,200
1,190,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 856,800
1,340,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-
coupon zero % (11 1/8s, 4/15/04), 2009 (STP) 348,400
1,820,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (12 7/8s, 3/15/05), 2010 (STP) 455,000
1,380,000 Startec Global Communications Corp. sr. notes 12s,
2008 (In default) (NON) 27,600
50,000 USA Mobile Communications, Inc. sr. notes 9 1/2s,
2004 (In default) (NON) 2,000
1,490,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 3,725
1,950,000 Viatel, Inc. sr. notes 11 1/4s, 2008 (In default) (NON) 4,875
1,280,000 WebLink Wireless, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 2/1/03), 2008 (STP) 3,200
2,000,000 Western Wireless Corp. bank term loan FRN 4.755s,
2008 (acquired 4/24/00, cost $1,997,500) (RES) 1,800,000
140,000 Williams Communications Group, Inc. sr. notes
11 7s, 2010 46,200
180,000 Williams Communications Group, Inc. sr. notes
11.7s, 2008 50,400
280,000 Williams Communications Group, Inc. sr. notes
10.7s, 2007 89,600
1,250,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008
(In default) (NON) 12,500
-------------
22,182,260
Telephone (2.2%)
-------------------------------------------------------------------------------------------------------------------
290,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon
zero % (13 1/2s, 10/1/04), 2009 (STP) 203,000
890,000 Alamosa Delaware, Inc. company guaranty 13 5/8s,
2011 876,650
160,000 Alamosa Delaware, Inc. company guaranty 12 1/2s,
2011 152,000
510,000 Alamosa PCS Holdings, Inc. company guaranty
stepped-coupon zero % (12 7/8s, 2/15/05),
2010 (STP) 280,500
780,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 132,600
1,450,000 Horizon PCS, Inc. company guaranty stepped-
coupon zero % (14s, 10/1/05), 2010 (STP) 667,000
740,000 Horizon PCS, Inc. 144A sr. notes 13 3/4s, 2011 680,800
220,000 Hyperion Telecommunications Corp., Inc. sr. disc.
notes Ser. B, 13s, 2003 4,400
1,700,000 Hyperion Telecommunications Corp., Inc. sr. sub.
notes 12s, 2007 34,000
1,420,000 ICG Services, Inc. sr. disc. notes stepped-coupon
zero % (10s, 2/15/03), 2008 (In default) (NON) (STP) 110,050
2,870,000 ICG Services, Inc. sr. disc. notes stepped-coupon
zero % (9 7/8s, 5/1/03), 2008 (STP) 222,425
1,190,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (12 1/4s, 3/1/04),
2009 (STP) 1,029,350
90,000 Intermedia Communications, Inc. sr. notes Ser. B,
8.6s, 2008 90,450
630,000 Intermedia Communications, Inc. sr. notes Ser. B,
8 1/2s, 2008 630,000
1,270,000 Ipcs, Inc. sr. disc. notes stepped-coupon zero %
(14s, 7/15/05), 2010 (STP) 730,250
1,060,000 IWO Holdings, Inc. company guaranty 14s, 2011 1,028,200
2,085,000 KMC Telecommunications Holdings, Inc. sr. disc.
notes stepped-coupon zero % (12 1/2s, 2/15/03),
2008 (STP) 83,400
1,420,000 Leap Wireless International, Inc. company guaranty
12 1/2s, 2010 1,036,600
340,000 McLeodUSA, Inc. sr. notes 11 3/8s, 2009 84,150
1,180,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 280,250
140,000 McLeodUSA, Inc. sr. notes 8 3/8s, 2008 33,250
1,300,000 McLeodUSA, Inc. sr. notes 8 1/8s, 2009 312,000
450,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 150,750
1,070,000 Metromedia Fiber Network, Inc. sr. notes Ser. B,
10s, 2008 358,450
1,260,000 Microcell Telecommunications sr. disc. notes Ser. B,
14s, 2006 (Canada) 1,058,400
1,050,000 Nextlink Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 6/1/04),
2009 (In default) (NON) (STP) 105,000
240,000 Nextlink Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/8s, 12/1/04),
2009 (In default) (NON) (STP) 24,000
330,000 Nextlink Communications, Inc. sr. notes 9 5/8s,
2007 (In default) (NON) 39,600
390,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 128,700
1,820,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 2,111,200
70,000 Telecorp PCS, Inc. company guaranty stepped-
coupon zero % (11 5/8s, 4/15/04), 2009 (STP) 60,200
580,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 435,000
1,340,000 Tritel PCS, Inc. company guaranty 10 3/8s, 2011 1,524,250
130,000 Triton PCS, Inc. company guaranty 9 3/8s, 2011 130,000
90,000 Triton PCS, Inc. company guaranty zero %, 2008 80,100
1,080,000 Triton PCS, Inc. 144A sr. sub. notes 8 3/4s, 2011 1,053,000
2,310,000 UbiquiTel Operating Co. company guaranty
stepped-coupon zero % (14s, 4/15/05), 2010 (STP) 1,131,900
1,250,000 US UnWired, Inc. company guaranty stepped-
coupon Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 862,500
660,000 Versatel Telecom B.V. sr. notes 13 1/4s,
2008 (Netherlands) 217,800
320,000 Versatel Telecom B.V. sr. notes 13 1/4s,
2008 (Netherlands) 105,600
1,935,000 Voicestream Wireless Corp. sr. notes 10 3/8s, 2009 2,207,351
5,406,000 WinStar Communications, Inc. sr. disc. notes
stepped-coupon zero % (14 3/4s, 4/15/05),
2010 (In default) (NON) (STP) 27,030
1,280,000 WinStar Communications, Inc. sr. notes 12 3/4s,
2010 (In default) (NON) 6,400
70,000 WinStar Communications, Inc. sr. notes 12 1/2s,
2008 (In default) (NON) 350
-------------
20,518,906
Textiles (0.3%)
-------------------------------------------------------------------------------------------------------------------
780,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 150,150
1,060,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004
(In default) (NON) 233,200
1,290,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 1,286,748
1,200,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 324,000
680,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 190,400
630,000 William Carter Holdings Co. company guaranty
Ser. B, 10 7/8s, 2011 677,250
-------------
2,861,748
Tobacco (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,560,000 North Atlantic Trading Co. company guaranty
Ser. B, 11s, 2004 1,474,200
Waste Management (0.9%)
-------------------------------------------------------------------------------------------------------------------
907,671 Allied Waste Industries, Inc. bank term loan, FRN
4.664s, 2006 (acquired various dates 10/18/01
through 10/22/01, cost $888,866) (RES) 894,198
5,735,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 10s, 2009 5,821,025
30,000 Allied Waste Industries, Inc. 144A sr. notes 8 1/2s,
2008 30,000
2,430,000 Browning-Ferris debs. 7.4s, 2035 1,931,850
-------------
8,677,073
Water Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
380,000 Azurix Corp. sr. notes Ser. B, 10 3/4s, 2010 292,600
310,000 Azurix Corp. sr. notes Ser. B, 10 3/8s, 2007 244,900
-------------
537,500
-------------
Total Corporate Bonds and Notes
(cost $527,280,457) $ 450,269,630
FOREIGN GOVERNMENT BONDS AND NOTES (16.3%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 2,498,943 Argentina (Republic of) bonds 2.89s, 2018
(In default) (NON) $ 574,757
AUD 2,180,000 Australia (Government of) bonds Ser. 513,
6 1/2s, 2013 1,138,624
$ 3,645,000 Brazil (Federal Republic of) bonds 12 1/4s, 2030 3,149,280
2,630,000 Brazil (Federal Republic of) notes 11s, 2012 2,301,250
3,040,000 Brazil (Federal Republic of) unsub. notes 11s, 2040 2,340,800
CAD 2,725,000 Canada (Government of) bonds 5 1/2s, 2010 1,724,976
CAD 930,000 Canada (Government of) bonds Ser. WL43,
5 3/4s, 2029 589,292
$ 2,160,000 Colombia (Republic of) bonds 11 3/4s, 2020 2,122,200
1,310,000 Ecuador (Republic of) bonds Ser. REGS, 12s, 2012 1,015,250
360,000 Ecuador (Republic of) bonds stepped-coupon
Ser. REGS, 5s (6s, 8/15/02), 2030 (STP) 183,240
EUR 17,220,000 France (Government of) bonds 5 1/2s, 2010 15,377,051
EUR 1,080,000 France (Government of) debs. 4s, 2009 877,501
EUR 650,000 Germany (Federal Republic of) bonds 5s, 2012 563,931
EUR 1,642,300 Germany (Federal Republic of) bonds Ser. 00,
5 1/2s, 2031 1,474,309
EUR 17,845,000 Germany (Federal Republic of) bonds Ser. 95,
7 3/8s, 2005 16,657,043
EUR 7,300,000 Germany (Federal Republic of) bonds Ser. 99,
4s, 2009 5,965,813
EUR 4,950,000 Italy (Government of) sr. unsub. 4 1/4s, 2002 4,258,335
EUR 5,010,000 Italy (Government of) treasury bonds 5 1/4s, 2011 4,360,403
EUR 2,540,000 Italy (Government of) treasury bonds 4 3/4s, 2006 2,200,388
EUR 5,325,000 Italy (Government of) treasury bonds 3 1/4s, 2004 4,518,604
NZD 6,155,000 New Zealand (Government of) bonds Ser. 709,
7s, 2009 2,616,203
$ 1,635,000 Philippines (Republic of) bonds 9 7/8s, 2019 1,565,513
3,260,000 Philippines (Republic of) notes 10 5/8s, 2025 3,219,250
3,665,000 Russia (Federation of) bonds 12 3/4s, 2028 4,150,613
5,670,000 Russia (Federation of) unsub. 8 1/4s, 2010 5,154,030
8,635,000 Russia (Federation of) unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 5,288,938
11,677,500 Russia (Federation of) 144A unsub. 2 1/4, 2030 7,152,469
EUR 760,000 Spain (Government of) bonds 6s, 2029 713,004
EUR 2,360,000 Spain (Government of) bonds 4.8s, 2006 2,049,530
SEK 108,140,000 Sweden (Government of) bonds Ser. 1044,
3 1/2s, 2006 9,568,679
$ 1,070,000 Turkey (Republic of) bonds 11 3/4s, 2010 1,075,350
725,000 Turkey (Republic of) notes 11 1/2s, 2012 722,245
GBP 4,420,000 United Kingdom Treasury bonds 10s, 2003 6,752,298
GBP 4,100,000 United Kingdom Treasury bonds 8 1/2s, 2005 6,501,003
GBP 860,000 United Kingdom Treasury bonds 5s, 2012 1,226,898
GBP 2,855,000 United Kingdom Treasury 144A bonds Ser. 85,
9 3/4s, 2002 4,163,796
$ 2,620,000 United Mexican States bonds 11 3/8s, 2016 3,268,450
4,235,000 United Mexican States bonds Ser. MTN,
8.3s, 2031 4,192,650
2,080,000 United Mexican States notes 7 1/2s, 2012 2,051,920
5,770,000 United Mexican States notes Ser. A, 9 7/8s, 2010 6,485,480
1,055,000 Venezuela (Republic of) bonds 9 1/4s, 2027 631,945
-------------
Total Foreign Government Bonds and Notes
(cost $147,406,805) $ 149,943,311
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (13.4%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (4.9%)
-------------------------------------------------------------------------------------------------------------------
$ 101,010 Federal Home Loan Mortgage Corporation
Pass-Through Certificates 7 1/2s, March 1, 2026 $ 105,408
Federal National Mortgage Association
6,784,500 TBA, 6 1/2s, February 1, 2032 6,824,800
35,000,000 TBA, 6 1/2s, February 1, 2017 35,842,100
1,413,778 Federal National Mortgage Association Pass-
Through Certificates 7 1/2s, with due dates
from August 1, 2029 to May 1, 2031 1,468,230
590,187 Government National Mortgage Association
Pass-Through Certificates 8s, December 15, 2022 631,672
-------------
44,872,210
U.S. Treasury Obligations (8.5%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
51,795,000 7 1/2s, November 15, 2016 (SEG) 61,684,737
14,195,000 5 3/8s, February 15, 2031 14,073,065
U.S. Treasury Notes
2,000,000 5s, August 15, 2011 1,995,320
660,000 3 1/2s, November 15, 2006 635,455
-------------
78,388,577
-------------
Total U.S. Government and Agency Obligations
(cost $125,095,220) $ 123,260,787
COLLATERALIZED MORTGAGE OBLIGATIONS (10.9%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 80,000 Amresco Commercial Mortgage Funding I
Ser. 97-C1, Class F, 7.64s, 2029 $ 82,388
5,247,202 Banc of America Commercial Mortgage, Inc.
Ser. 01-PB1, Class XC, Interest Only (IO),
0.833s, 2035 224,646
8,778,867 Bank of America Mortgage Securities Ser. 01-10,
Class 1A11, IO, 6.79s, 2031 735,230
1,780,901 Blackstone Hotel Acquisition Co. jr. mtge. loan
FRN 9.794s, 2003 (United Kingdom) 2,405,087
760,000 Chase Commercial Mortgage Securities Corp.
Ser. 00-3, Class G, 6.887s, 2019 624,981
10,897,684 Citicorp Mortgage Securities, Inc. Ser. 01-15,
Class A3A, IO, 5.64s, 2031 668,760
Commercial Mortgage Acceptance Corp.
2,305,000 Ser. 97-ML1, Class D, 6.975s, 2010 2,197,673
6,874,110 Ser. 97-ML1, IO, 0.952s, 2017 227,436
75,589,253 Commercial Mortgage Asset Trust Ser. 99-C1,
Class X, IO, 0.974s, 2020 4,405,436
2,685,000 Countrywide Home Loan Ser. 98-3, Class A5,
6 3/4s, 2028 2,703,879
4,100,000 Countrywide Mortgage Backed Securities, Inc.
Ser. 93-C, Class A8, 6 1/2s, 2024 4,064,207
2,948,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1,
Class A2, 7s, 2011 2,975,638
3,474,000 Criimi Mae Commercial Mortgage Trust 144A
Ser. 98-C1, Class B, 7s, 2011 3,111,944
CS First Boston Mortgage Securities Corp.
720,000 Ser. 01-CF2, Class E, 7.29s, 2011 740,875
755,000 Ser. 01-CF2, Class G, 6.93s, 2011 733,818
69,095,021 Deutsche Mortgage & Asset Receiving Corp.
Ser. 98-C1, Class X, IO, 1.231s, 2023 2,828,577
Euro Loan Conduit 144A
GBP 700,000 FRN Ser. 7A, Class E, 8.493s, 2006
(United Kingdom) 932,977
GBP 700,000 FRN Ser. 7A, Class D, 6.743s, 2006
(United Kingdom) 979,966
Fannie Mae
$ 384,360 Ser. 93-245, Class SD, 18.435s, 2023 395,651
89,123 Ser. 99-28, Class SC, 15.379s, 2028 89,123
640,513 Ser. 98-63, Class S, 14.448s, 2026 634,108
31,214,994 Ser. 00-T6, IO, 8.7s, 2030 671,809
Fannie Mae
7,684 Ser. 92-15, Class L, IO, 1037.606s, 2022 199,173
3,132,333 Ser. 01-55, Class CZ, 6 1/2s, 2031 3,100,520
1,304,000 Ser. 01-58, Class HI, IO, 6 1/2s, 2026 319,888
4,915,000 Ser. 01-62, Class PI, IO, 6 1/2s, 2025 840,158
1,394,200 Ser. 98-1, Class SA, IO, 10 1/2s, 2024 504,526
7,113,216 Ser. 93-251, Class Z, 6 1/2s, 2023 6,984,289
3,523,070 Ser. 318, Class 2, IO, 6s, 2032 1,072,334
3,270,300 Ser. 01-72, Class NI, IO, 6s, 2021 471,000
2,497,495 Ser. 01-62, Class BI, IO, 6s, 2026 472,963
1,513,560 Ser. 93-159, Class D, Principal Only (PO),
zero %, 2023 1,135,170
1,482,580 Ser. 96-5, Class PB, PO, zero %, 2024 1,169,385
568,606 Ser. 97-92, PO, zero %, 2025 543,640
1,115,115 Ser. 99-52, Class MO, PO, zero %, 2026 999,422
24,932,035 FFCA Secured Lending Corp. Ser. 00-1, Class X,
IO, 1.714s, 2027 2,169,866
Freddie Mac
759,351 Ser. 2149, Class ST, 22.43s, 2029 750,096
1,597,833 Ser. 2319, Class S, 21.78s, 2031 1,534,419
2,139,570 Ser. 2360, Class SC, 16.328s, 2031 2,063,348
792,664 Ser. 2286, Class LR, 15.533s, 2024 792,416
664,000 Ser. 2028, Class SG, IO, 10.4s, 2023 266,015
1,440,830 Ser. 1717, Class L, 6 1/2s, 2024 1,475,781
1,744,135 Ser. 2044, Class SG, IO, 3.76s, 2023 122,089
2,390,666 Ser. 2389, Class EI, IO, 6s, 2021 347,394
8,766,098 Ser. 212, IO, 6s, 2031 2,438,071
13,084,056 Ser. 216, IO, 6s, J2032 4,023,347
2,110,927 Ser. 211, IO, 6s, July 1, 2029 574,568
563,170 Ser. 2337, PO, zero %, 2031 429,065
4,696,648 Ser. 215, PO, zero %, 2031 4,111,035
399,197 Ser. 2317, PO, zero %, 2031 335,076
263,998 Ser. 2302, Class LO, PO, zero %, 2031 261,028
324,312 Ser. 2304, PO, zero %, 2031 321,069
616,352 Ser. 2078, Class KC, PO, zero %, 2023 542,389
637,887 Ser. 2190, PO, zero %, 2014 631,508
1,146,134 Ser. 2351, Class EO, PO, zero %, 2031 865,331
770,000 GE Capital Commercial Mortgage Corp. Ser. 01-1,
Class G, 7.04s, 2011 746,178
1,575,000 GE Capital Mortgage Services, Inc. Ser. 98-11,
Class 2A4, 6 3/4s, 2028 1,584,419
Government National Mortgage Association
1,271,788 Ser. 98-2, Class EA, PO, zero %, 2028 1,077,841
581,785 Ser. 99-42, PO, zero %, 2027 545,787
1,495,000 Granite Mortgages PLC FRN Ser. 01-1, Class 1C,
3.79s, 2041 (United Kingdom) 1,491,263
7,365,000 Holmes Financing PLC FRB Ser. 1, Class 2C, 2.977s,
2040 (United Kingdom) 7,320,810
Merrill Lynch Mortgage Investors, Inc.
18,963,012 Ser. 96-C2, IO, 1.893s, 2028 1,167,410
2,344,273 Ser. 98-C2, IO, 1.538s, 2030 148,349
1,615,000 Ser. 1995-C3, Class D, 7.782s, 2025 1,689,189
1,495,000 Ser. 96-C2, Class E, 6.96s, 2028 1,409,038
9,804,275 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X,
IO, 1.572s, 2007 530,044
103,817 Prudential Home Mortgage Securities Ser. 93-57,
Class A4, 5.9s, 2023 105,554
24,630,688 Residential Funding Mortgage Securities, Inc. Ser. 01-
S26, Class A9, IO, 5.64s, 2031 1,616,389
GBP 1,700,000 Residential Mortgage Securities 144A FRB Ser. 8,
Class M, 6.88s, 2038 2,390,428
$ 1,031,002 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 1,058,046
3,495,000 Starwood Asset Receivables Trust FRB Ser. 00-1,
Class E, 4.68s, 2002 3,493,253
-------------
Total Collateralized Mortgage Obligations
(cost $100,006,598) $ 100,674,586
BRADY BONDS (3.2%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 18,386,183 Brazil (Federal Republic of) bonds 8s, 2014 $ 14,157,360
1,130,000 Brazil (Federal Republic of) govt. guaranty
FRB 3 1/4s, 2012 792,469
1,850,000 Bulgaria (Government of) coll., Ser. A, FLIRB,
4.563s, 2012 1,637,250
2,993,900 Bulgaria (Government of) debs. Ser. PDI, FRB,
4.563s, 2011 2,574,754
695,800 Bulgaria (Government of) debs. Ser. RPDI, FRB,
4.563s, 2011 598,388
1,730,000 Bulgaria (Government of) Ser. A, FRB, 4.563s, 2024 1,496,450
2,560,000 Peru (Republic of) FLIRB, 3 3/4s, 2017 1,888,000
4,420,000 United Mexican States bonds Ser. B, 6 1/4s, 2019 4,127,175
2,857,100 Venezuela (Republic of) debs. Ser. DL, FRB,
4 3/4s, 2007 2,035,684
-------------
Total Brady Bonds (cost $27,610,348) $ 29,307,530
PREFERRED STOCKS (2.3%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
39,751 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 398
43,276 Brand Scaffold Services, Inc. 144A $3.625 pfd. 1,817,592
74,000 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 1,890,700
39,305 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 2,181,428
3,805 Chevy Chase Savings Bank, Inc. $3.25 pfd. 102,735
340,000 CSBI Capital Trust I 144A company guaranty Ser. A,
11.75% pfd. 377,400
28,919 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 3,079,874
1,885 Delta Financial Corp. Ser. A, $10.00 cum. pfd. 21,678
69,460 Diva Systems Corp. Ser. C, $6.00 cum. pfd. 695
20,000 Doane Pet Care Co. $7.125 pfd. 600,000
2,857 Dobson Communications Corp. 13.00% pfd. 2,571,300
540 First Republic Capital Corp. 144A 10.50% pfd. 526,500
570 Fresenius Medical Capital Trust II 7.875% company
guaranty pfd. (Germany) 570,000
2,662 Granite Broadcasting Corp. 12.75% cum. pfd. (PIK) 1,144,660
1,598 ICG Holdings, Inc. 14.25% pfd. (Canada)
(In default) (NON) 16
815 ICG Holdings, Inc. 144A 14.00% pfd. (Canada)
(In default) (NON) (PIK) 8
1,582 Intermedia Communications, Inc. Ser. B,
13.50% pfd. (PIK) 1,613,640
1,038 Nextel Communications, Inc. 144A Ser. E,
$11.125 pfd. (PIK) 435,960
404 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 3,434,000
1,518 Rural Cellular Corp. 12.25% pfd. (PIK) 1,062,488
-------------
Total Preferred Stocks (cost $25,893,232) $ 21,431,072
ASSET-BACKED SECURITIES (1.6%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
Conseco Finance Securitizations Corp.
$ 4,265,000 Ser. 00-4, Class A6, 8.31s, 2032 $ 4,495,577
1,535,000 Ser. 00-6, Class M2, 8.2s, 2032 1,546,865
1,436,000 Ser. 01-4, Class B1, 9.4s, 2010 1,371,436
2,153,013 First Plus 144A Ser. 98-A, Class A, 8 1/2s, 2023 1,420,989
385,000 Green Tree Financial Corp. Ser. 95-F, Class B2,
7.1s, 2021 337,236
888,642 Mid-State Trust Ser. 10, Class B, 7.54s, 2027 844,210
545,000 Morgan Stanley Dean Witter Capital I Ser. 01-NC3,
Class B1, 4.38s, 2031 545,000
2,318,000 Morgan Stanley Dean Witter Capital I Ser. 01-NC4,
Class B1, FRN, 4.42s, 2032 2,262,368
1,740,000 Option One Mortgage Loan Trust Ser. 02-1, 6 3/4s,
2032 1,721,608
-------------
Total Asset-Backed Securities (cost $15,076,562) $ 14,545,289
CONVERTIBLE BONDS AND NOTES (0.7%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 950,000 American Tower Corp. cv. notes 5s, 2010 $ 503,690
1,300,000 DaVita, Inc. cv. sub. notes 7s, 2009 1,295,580
110,000 Echostar Communications Corp. 144A cv. sub.
notes 5 3/4s, 2008 100,100
1,610,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 98,613
800,000 Healthsouth Corp. cv. sub. debs. 3 1/4s, 2003 771,000
158,000 Hexcel Corp. cv. sub. notes 7s, 2003 96,973
2,950,000 Nextel Communications, Inc. cv. sr. notes
5 1/4s, 2010 1,677,813
150,000 Rogers Communications cv. debs. 2s, 2005 (Canada) 121,313
1,280,000 Solectron Corp. cv. notes zero %, 2020 721,600
40,000 Spectrasite Holdings, Inc. cv. sr. notes 6 3/4s, 2010 14,630
1,160,000 Telewest Finance Corp. cv. sub. notes 6s, 2005
(United Kingdom) 707,600
-------------
Total Convertible Bonds and Notes
(cost $7,155,836) $ 6,108,912
COMMON STOCKS (0.6%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
3,074 Alderwoods Group, Inc. (NON) $ 39,808
525 AmeriKing, Inc. (NON) 5
45,677 Arch Wireless, Inc. (NON) 502
19,924 Aurora Foods, Inc. (NON) 97,628
277,865 Celcaribe SA (Colombia) 34,733
22,903 Clarent Hospital Corp. 160,321
3,220,535 Contifinancial Corp. Liquidating Trust units 161,027
24,951 Covad Communications Group, Inc. 144A (NON) 56,140
1,885 Delta Funding Residual Exchange Co., LLC (NON) 411,873
1,885 Delta Funding Residual Management, Inc. (NON) 19
28,440 Doskocil Manufacturing 79,000
243,039 Focal Communications Corp. (NON) 99,646
13,645 Genesis Health Ventures, Inc. 218,320
20,238 Intira Corp. 2
2,830 MPower Holdings Corp. 144A 991
39,407 Pioneer Cos., Inc. (NON) 39,407
1,186 Premium Holdings (L.P.) 144A 18,972
2,502 PSF Holdings, LLC Class A 4,003,968
234 Quorum Broadcast Holdings, Inc. Class E 233,980
124 RSL Communications, Ltd. Class A (NON) 1
39,603 Safety Components International, Inc. 237,618
36,750 Specialty Foods Acquisition Corp. (NON) 368
2,169 Vast Solutions, Inc. Class B1 (NON) 6,507
2,169 Vast Solutions, Inc. Class B2 (NON) 6,507
2,169 Vast Solutions, Inc. Class B3 (NON) 6,507
-------------
Total Common Stocks (cost $15,843,337) $ 5,913,850
UNITS (0.1%) (a)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
847 Hercules Trust II units 6.50% cum. cv. pfd. $ 346,741
1,420 Pegasus Shipping 144A units company guaranty
stepped-coupon zero % (14 1/2s, 6/20/03),
2008 (Bermuda) (STP) 49,700
960 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 288,000
7,615 XCL, Ltd. 144A units 9.50% cv. cum. pfd.
(In default) (NON) (PIK) 3,808
-------------
Total Units (cost $3,114,794) $ 688,249
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
218 Anker Coal Group, Inc. $14.25 cv. pfd. $ 1,090
77 Genesis Health Ventures, Inc. $6.00 cv. pfd. (PIK) 8,470
1,900 Interact Systems, Inc. 144A 14.00% cv. pfd.
(In default) (NON) 19
6,800 LTV Corp. (The) 144A $4.125 cv. pfd.
(In default) (NON) 13,600
68 Paxson Communications Corp. 144A 9.75%
cv. pfd. (PIK) 591,600
200 World Access, Inc. 144A Ser. D, zero % cv. pfd. 50
1,503 XCL, Ltd. 144A Ser. A, 9.50% cum. cv. pfd.
(In default) (NON) (PIK) 752
-------------
Total Convertible Preferred Stocks
(cost $1,581,118) $ 615,581
WARRANTS (0.1%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
16 Anker Coal Group, Inc. 144A 10/28/09 $ 1
810 Bestel SA de CV (Mexico) 5/15/05 64,800
780 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 78
530 Colo.com, Inc. 144A 3/15/10 5
1,420 Dayton Superior Corp. 6/15/09 24,850
160 Decrane Aircraft Holdings Co. 9/30/08 1
19,981 Delta Financial Corp. 12/21/10 2
2,520 Destia Communications 144A 7/15/07 25
2,919 Diva Systems Corp. 5/15/06 29
8,326 Diva Systems Corp. 144A 3/1/08 83
11,700 Genesis Health Ventures, Inc. 10/1/02 26,910
1,015 Globalstar Telecommunications 2/15/04 10
1,450 Horizon PCS, Inc. 10/1/10 36,250
20,856 ICG Communications, Inc. 10/15/05 209
25,863 Imperial Credit Industries, Inc. 8/1/08 26
1,900 Interact Systems, Inc. 8/1/03 2
1,900 Interact Systems, Inc. 144A 12/15/09 19
121,649 Intira Corp. Class B 9/29/10 12
1,270 iPCS, Inc. 144A 7/15/10 31,750
820 IWO Holdings, Inc. 1/15/11 32,800
1,600 Jostens, Inc. 5/1/10 16,000
2,175 KMC Telecommunications
Holdings, Inc. 144A 4/15/08 22
2,185 Knology Holdings, Inc. 10/22/07 55
758 Leap Wireless International, Inc. 144A 4/15/10 22,740
4,144 Loral Space & Communications, Ltd. 12/27/06 41
3,590 McCaw International, Ltd. 4/15/07 36
940 Mediq, Inc. 144A 6/1/09 9
550 Mikohn Gaming Corp. 144A 8/15/08 2,750
560 ONO Finance PLC 144A
(United Kingdom) 2/15/11 2,800
990 Orbital Imaging Corp. 144A 3/1/05 1
1,310 Orion Network Systems 1/15/07 33
12,880 Pagemart, Inc. 144A 12/31/03 129
1,600 Paxson Communications Corp. 144A 6/30/03 6,400
570 Pliant Corp. 144A 6/1/10 1,140
810 Raintree Resort 144A 12/1/04 8
1,640 Startec Global Communications Corp. 5/15/08 16
680 Sterling Chemicals Holdings 8/15/08 408
630 Telehub Communications Corp. 144A 7/31/05 1
690 Travel Centers of America 5/1/09 7
2,310 Ubiquitel, Inc. 144A 4/15/10 69,300
5,820 UIH Australia/Pacific, Inc. 144A 5/15/06 58
22,322 United Artists Theatre 3/2/08 178,576
1,190 Veraldo Holdings, Inc. 144A 4/15/08 12
50 Versatel Telecom NV (Netherlands) 5/15/08 25
800 XM Satellite Radio Holdings, Inc. 144A 3/15/10 800
-------------
Total Warrants (cost $3,378,806) $ 519,229
SHORT-TERM INVESTMENTS (3.1%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 10,223,000 Citicorp for an effective yield of 1.92%,
February 1, 2002 $ 10,222,455
18,776,000 Interest in $750,000,000 joint tri-party repurchase
agreement dated January 31, 2002 with S.B.C.
Warburg, Inc. due February 1, 2002 with respect
to various U.S. Government obligations --
maturity value of $18,777,001 for an effective
yield of 1.92% 18,776,000
-------------
Total Short-Term Investments (cost $28,998,455) $ 28,998,455
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,028,441,568) (b) $ 932,276,481
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $920,789,198.
(b) The aggregate identified cost on a tax basis is $1,033,464,431,
resulting in gross unrealized appreciation and depreciation of
$29,869,504 and $131,057,454, respectively, or net unrealized
depreciation of $101,187,950.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin accruing interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at January 31, 2002 was
$23,619,424 or 2.6% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at January
31, 2002.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced
securities (Note 1).
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at January 31, 2002,
which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at January 31, 2002:
(as percentage of Market Value)
Brazil 2.4%
Canada 2.0
France 1.7
Germany 2.7
Italy 1.6
Mexico 2.2
Russia 2.3
Sweden 1.0
United Kingdom 4.2
United States 75.9
Other 4.0
--------------------
Total 100.0%
------------------------------------------------------------------------------
Forward Currency Contracts to Buy at January 31, 2002 (Unaudited)
(Aggregate face value $61,530,388)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollars $16,242,520 $16,580,131 3/20/02 $ (337,611)
British Pounds 6,419,437 6,542,551 3/20/02 (123,114)
Canadian Dollars 3,433,108 3,410,368 3/20/02 22,740
Danish Krone 974,577 1,000,119 3/20/02 (25,542)
Euro 9,287,788 9,631,281 3/20/02 (343,493)
Japanese Yen 22,323,760 23,868,407 3/20/02 (1,544,647)
Swiss Francs 479,350 497,531 3/20/02 (18,181)
------------------------------------------------------------------------------
$(2,369,848)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Forward Currency Contracts to Sell at January 31, 2002 (Unaudited)
(Aggregate face value $62,302,099)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollars $ 111,214 $ 111,178 3/20/02 $ (36)
British Pounds 21,453,007 21,678,013 3/20/02 225,006
Canadian Dollars 1,123,243 1,121,688 3/20/02 (1,555)
Euro 25,951,671 26,807,176 3/20/02 855,505
Japanese Yen 1,099,936 1,095,684 3/20/02 (4,252)
New Zealand
Dollars 2,478,853 2,465,449 3/20/02 (13,404)
Swedish Krona 8,928,913 9,022,911 3/20/02 93,998
------------------------------------------------------------------------------
$1,155,262
------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 2002 (Unaudited)
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
------------------------------------------------------------------------------
Euro Bund (Long) $ 9,378,955 $ 9,400,902 Mar-02 $ (21,947)
Euro Dollar 90 day
(Long) 11,029,650 11,021,796 Mar-02 7,854
Euro Dollar 90 day
(Long) 11,233,015 11,227,645 Jun-02 5,370
Euro Dollar 90 day
(Short) 11,093,475 11,092,130 Mar-02 (1,345)
Euro Dollar 90 day
(Short) 10,997,450 10,986,145 Jun-02 (11,305)
Euro-Bobl 5 yr.
(Long) 25,206,770 25,663,925 Mar-02 (457,155)
Euro-Bor 90 day
(Long) 9,440,760 9,439,894 Mar-02 866
Euro-Bor 90 day
(Short) 9,533,307 9,531,597 Mar-02 (1,710)
Japanese
Government Bonds
10 yr. (Long) 712,299 720,914 Mar-02 (8,615)
U.S. Treasury Bond
(Long) 35,789,625 36,298,356 Mar-02 (508,731)
U.S. Treasury Bond
(Long) 26,257,000 26,298,141 Mar-02 (41,141)
------------------------------------------------------------------------------
$(1,037,859)
------------------------------------------------------------------------------
Swap Contracts outstanding at January 31, 2002 (Unaudited)
Notional Termination Unrealized
Amount Date Appreciation
------------------------------------------------------------------------------
Agreement with Merrill Lynch
Capital Services dated November
17, 2000 to pay quarterly the
notional amount multiplied by the
U.S. 3-Month LIBOR and receive
semi-annually the notional amount
multiplied by 6.68% $9,000,000 11/21/05 $647,996
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2002 (Unaudited)
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,028,441,568) (Note 1) $ 932,276,481
-------------------------------------------------------------------------------------------
Foreign currency (cost $936,319) (Note 1) 903,028
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 19,383,860
-------------------------------------------------------------------------------------------
Receivable for securities sold 71,883,106
-------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 647,996
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 1,197,249
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 96,403
-------------------------------------------------------------------------------------------
Total assets 1,026,388,123
Liabilities
-------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 7,270,837
-------------------------------------------------------------------------------------------
Payable for variation margin (Note 1) 101,506
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 6,334,809
-------------------------------------------------------------------------------------------
Payable for securities purchased 87,260,872
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,594,860
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 151,629
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 37,098
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,174
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 2,411,835
-------------------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 319,189
-------------------------------------------------------------------------------------------
Other accrued expenses 115,116
-------------------------------------------------------------------------------------------
Total liabilities 105,598,925
-------------------------------------------------------------------------------------------
Net assets $ 920,789,198
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 1,206,785,512
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (12,373,898)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (175,813,048)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (97,809,368)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 920,789,198
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($920,789,198 divided by 140,989,259 shares) $6.53
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended January 31, 2002 (Unaudited)
Investment income:
-------------------------------------------------------------------------------------------
Interest (net of foreign tax of $352) $ 42,627,913
-------------------------------------------------------------------------------------------
Dividends 1,121,001
-------------------------------------------------------------------------------------------
Securities lending 305
-------------------------------------------------------------------------------------------
Total investment income 43,749,219
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,218,172
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 407,804
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,524
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,195
-------------------------------------------------------------------------------------------
Other 308,198
-------------------------------------------------------------------------------------------
Total expenses 3,955,893
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (27,312)
-------------------------------------------------------------------------------------------
Net expenses 3,928,581
-------------------------------------------------------------------------------------------
Net investment income 39,820,638
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (27,589,132)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,711,451
-------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 11,167
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (4,727,606)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 1,609,389
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts
swap contracts and written options during the period 5,894,136
-------------------------------------------------------------------------------------------
Net loss on investments (23,090,595)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 16,730,043
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
January 31 July 31
2002* 2001
--------------------------------------------------------------------------------------------------
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 39,820,638 $ 86,175,137
--------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (30,594,120) (48,500,275)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies 7,503,525 (21,624,968)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 16,730,043 16,049,894
--------------------------------------------------------------------------------------------------
Distributions to shareholders (Note 1):
--------------------------------------------------------------------------------------------------
From net investment income (38,066,180) (72,307,759)
--------------------------------------------------------------------------------------------------
From return of capital -- (15,103,543)
--------------------------------------------------------------------------------------------------
Total decrease in net assets (21,336,137) (71,361,408)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 942,125,335 1,013,486,743
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $12,373,898 and
$14,128,356, respectively) $920,789,198 $ 942,125,335
--------------------------------------------------------------------------------------------------
Number of fund shares
--------------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of period 140,989,259 140,989,259
--------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.68 $7.19 $7.62 $8.71 $8.88 $8.53
------------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------------
Net investment income (a) .28 .61 .63 .64 .74 .65
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.16) (.50) (.39) (.99) (.18) .38
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .12 .11 .24 (.35) .56 1.03
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.27) (.51) (.65) (.62) (.66) (.65)
------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.02) -- -- (.03)
------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (.12) (.07) --
------------------------------------------------------------------------------------------------------------------
From return of
capital -- (.11) -- -- -- --
------------------------------------------------------------------------------------------------------------------
Total distributions (.27) (.62) (.67) (.74) (.73) (.68)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.53 $6.68 $7.19 $7.62 $8.71 $8.88
------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 4.89* 8.56 (1.51) (7.24) 8.06 26.24
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.32 $6.29 $6.38 $7.19 $8.50 $8.56
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $920,789 $942,125 $1,013,487 $1,073,980 $1,221,188 $1,245,444
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .43* .85 .83 .86 .89 .83
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.29* 8.87 8.48 8.05 8.34 7.42
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 72.06(d)* 231.58 133.80 165.79 209.50 262.01
------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
NOTES TO FINANCIAL STATEMENTS
January 31, 2002 (Unaudited)
Note 1
Significant accounting policies
Putnam Premier Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified,
closed-end management investment company. The fund's investment
objective is to seek high current income consistent with the
preservation of capital by allocating its investments among the U.S.
government sector, the high yield sector and the international sector of
the fixed-income securities market.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Market quotations are
not considered to be readily available for certain debt obligations;
such investments are stated at fair value on the basis of valuations
furnished by an independent pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable relationships,
generally recognized by institutional traders, between securities.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value. Other investments, including restricted
securities, are stated at fair value following procedures approved by
the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in one or more repurchase agreements and/or short-term money
market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Non-cash dividends if any, are
recorded at the fair market value of the securities received.
All premiums/discounts are amortized/accreted on a yield-to-maturity
basis. The premium in excess of the call price, if any, is amortized to
the call date; thereafter, the remaining excess premium is amortized to
maturity.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short-term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
"marked-to-market" daily and the change in market value is recorded as
an unrealized gain or loss. When the contract is closed, the fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed. The fund could be exposed to risk if the value of
the currency changes unfavorably, if the counterparties to the contracts
are unable to meet the terms of their contracts or if the fund is unable
to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin." Exchange traded options are
valued at the last sale price, or if no sales are reported, the last bid
price for purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by
dealers.
H) Interest rate swap contracts The fund may engage in interest rate
swap agreements, which are arrangements between two parties to exchange
cash flows based on a notional principal amount. The fund may enter into
interest rate swap agreements, to manage the funds exposure to interest
rates. Interest rate swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss. Payments made or received are included as part
of interest income. Payments received or made upon early termination are
recorded as realized gain or loss. The fund could be exposed to credit
or market risk due to unfavorable changes in the fluctuation of interest
rates or that the counterparty may default on its obligation to perform.
I) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the
unit price has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate
more than 0.01% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for their portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
J) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is
"marked-to-market" daily and the change in market value is recorded by
the fund as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
fund realizes a gain or loss. If the fund delivers securities under the
commitment, the fund realizes a gain or a loss from the sale of the
securities based upon the unit price established at the date the
commitment was entered into.
K) Security lending The fund may lend securities, through its agent
Citibank N.A., to qualified borrowers in order to earn additional
income. The loans are collateralized by cash and/or securities in an
amount at least equal to the market value of the securities loaned. The
market value of securities loaned is determined daily and any additional
required collateral is allocated to the fund on the next business day.
The risk of borrower default will be borne by Citibank N.A., the fund
will bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At January 31, 2002, the fund had
no securities out on loan
L) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At July 31, 2001, the fund had a capital loss carryover of approximately
$109,681,000 available to the extent allowed by tax law to offset future
capital gains, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
-------------- ------------------
$39,893,000 July 31, 2007
44,858,000 July 31, 2008
24,930,000 July 31, 2009
M) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of average weekly net assets, 0.65% of the next $500
million, 0.60% of the next $500 million and 0.55% of any amount over
$1.5 billion.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
Under the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At January 31, 2002, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended January 31,
2002, the fund's expenses were reduced by $27,312 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,045 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the six months ended January 31, 2002, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $296,478,571 and
$357,984,245, respectively. Purchases and sales of U.S. government
obligations aggregated $593,124,911 and $549,533,392, respectively.
Written option transactions during the period are summarized as follows:
Contract Premiums
Amounts Received
---------------------------------------------------------------------------
Written options
outstanding at
beginning of period $1,664,000 $33,280
---------------------------------------------------------------------------
Options opened 6,126,000 11,167
---------------------------------------------------------------------------
Options expired (6,126,000) (11,167)
---------------------------------------------------------------------------
Options closed (1,664,000) (33,280)
---------------------------------------------------------------------------
Written options
outstanding at
end of period $-- $--
---------------------------------------------------------------------------
Note 4
Share repurchase program
The Trustees authorized the fund to repurchase up to 7,000,000 of its
shares in the open market. Repurchases will only be made when the fund's
shares are trading at less than net asset value and at such times and
amounts as is believed to be in the best interest of the fund's
shareholders. Any repurchases of shares will have the effect of
increasing the net asset value per share of remaining shares
outstanding. For the six months ended January 31, 2002, the fund did not
repurchase any shares. As of January 31, 2002, 511,000 shares have been
repurchased since the inception of the program.
Note 5
New accounting pronouncement
As required, effective January 1, 2001, the fund has adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies. This Guide requires that the fund amortize premium and
accrete discount on all fixed-income securities, and classify as
interest income gains and losses realized on paydowns on mortgage-backed
securities. Prior to January 1, 2001, the fund did not amortize premium
and accrete discounts for certain fixed income securities and
characterized as realized gains and losses paydowns on mortgage backed
securities. Adopting these accounting principles will not affect the
fund's net asset value, but will change the classification of certain
amounts between interest income and realized and unrealized gain/loss in
the Statement of operations. The adoption of this principle is not
material to the financial statements.
Amendment to Bylaws
(Unaudited)
On March 9, 2001, the Trustees amended the fund's Bylaws to require
advance notice of shareholder Trustee nominations and shareholder
proposals fixing the number of Trustees. Shareholders wishing to propose
one or more nominees for election as Trustees or wishing to make a
proposal fixing the number of Trustees at an annual meeting of
shareholders must provide written notice to the fund (including all
required information) so that such notice is received in good order by
the fund not less than sixty (60) nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting. An
exception applies in the case of the annual meeting which was held in
calendar year 2001, to the effect that the notice described above to be
timely must be received in good order by the fund not less than thirty
(30) days prior to that anniversary date. A further exception to the
notice deadline applies in the event the date of the annual meeting is
substantially advanced or delayed from that anniversary date. Copies of
these amendments to the Bylaws have been filed with the Securities and
Exchange Commission and are available from its public reference
facilities.
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FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We presently manage over 100 mutual
funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Kevin Cronin
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) anytime for up-to-date
information about the fund's NAV.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
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U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
79248 073 3/02