-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WqJofjb/Lt0lW3jbul2I5ulY47x8f/YZtvypcZBNbxSxTrRBO4C9vksY6MEGNqLl LNk5oq7fuNCJYnyvKLQKCA== 0000928816-99-000078.txt : 19990319 0000928816-99-000078.hdr.sgml : 19990319 ACCESSION NUMBER: 0000928816-99-000078 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990318 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM PREMIER INCOME TRUST CENTRAL INDEX KEY: 0000827773 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042995046 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05452 FILM NUMBER: 99568210 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 N-30D 1 PUTNAM PREMIER INCOME TRUST Putnam Premier Income Trust SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 1-31-99 [LOGO: BOSTON * LONDON * TOKYO] From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: It was with a confidence borne of experience that the management team of Putnam Premier Income Trust held steady in its investment approach throughout the first six months of fiscal 1999. Your fund's trisector strategy helped it weather bouts of extreme market volatility while delivering competitive returns. Performance results at both net asset value and market price -- along with longer-term returns -- can be found on pages 6 and 7. * GLOBAL FLIGHT TO QUALITY REWARDS TREASURY SECURITIES While global market conditions were unsettled for much of 1998, financial markets suffered one of their worst crises in August. Russia defaulted on its debt, the financial meltdown in Japan intensified, and fiscal unrest was building steam in Latin America. Fearing the worst, investors worldwide shunned any fixed-income security carrying the slightest credit risk. As a result, the U.S. Treasury market became the world's coveted safe haven and Treasury prices soared to record levels. Your fund's U.S. Treasury holdings contributed positively to performance and helped offset the downturns in other areas. Elsewhere in the U.S. government sector, your fund's management team focused on residential mortgage-backed securities and commercial mortgage-backed issues -- two areas with higher yield potential than Treasuries. In the residential area, the fund's managers favored GNMAs, chiefly intermediate-term current-coupon issues that tend to have less prepayment risk than their higher-coupon FHLMC and FNMA brethren. However, while these securities are considered high-quality investments, they still have greater credit sensitivity than Treasuries. Consequently both residential and commercial mortgage-back securities experienced downturns along with the broader fixed-income market. The commercial issues were more severely affected because of a decline in the real estate sector. However, by the period's end, most of the fund's mortgage-backed holdings had begun to recover lost ground. * SPREAD SECTORS SUFFER IN DOWNTURN The strategy typically employed by your fund's managers involves emphasizing the so-called spread sectors, those areas in which there is a yield advantage over Treasuries. Along with mortgage-backed securities, these sectors include high-yield bonds, high-grade corporate issues, and on occasion, a position in emerging-markets debt. In the past, this approach has greatly benefited your fund. However, in early fall, investors' extreme risk-averse behavior caused high-yield bonds and emerging-markets debt to plummet in price. Even high-grade corporate issues suffered, although to a lesser degree. Your fund's holdings in these sectors did not escape the downturn unscathed dampening performance over the period. Fortunately, by late January, high-grade corporate issues had rebounded and emerging-markets bonds showed signs of strengthening. While high-yield bonds have recovered somewhat, with the greatest price gains occurring in January, they currently remain at highly attractive valuations. As the period progressed, your fund's managers selectively increased the portfolio's exposure to the high-yield market, redeploying some assets from the fund's U.S. government investments. This was done in the belief that the high-yield market's rout was more of a financial event than a fundamental one and that investors would soon come to recognize the outstanding value currently offered by this sector, thereby bidding prices up once again. [GRAPHIC OMITTED: horizontal bar chart SECTOR ALLOCATION] SECTOR ALLOCATION* 7/31/98 1/31/99 U.S. investment grade 38.1% 35.2% High yield 46.2% 43.3% Foreign (ex-emerging) 10.3% 13.0% Emerging markets 8.1% 6.1% Footnote reads: *Based on net assets. Holdings will vary over time. In our opinion, many of today's high-yield issuers are far more financially stable than they were 10 years ago. Indeed, default rates are less than 2% of the overall market. Furthermore, many of the companies issuing high-yield debt today -- and the ones your fund's managers have been targeting -- are found in fast-growing industries, such as health care, telecommunications, cable, and broadcasting. Merger and acquisition activity continues at a fast pace as well, setting the stage for credit upgrades, a trend that benefited several fund holdings in 1998. A most notable example is Telecommunications Inc., which was recently purchased by AT&T. Other high-yield holdings worth mentioning include but are not limited to Intermedia Communications, Inc., Covad, and International Cable Tel. While these holdings and others discussed in this report were viewed favorably at the end of the period, all holdings are subject to review and adjustment in accordance with the fund's investment strategy and may well vary in the future. On the international side, the fund's investments in the core bond markets of Europe served it well, as the global flight to quality also proved beneficial to these markets. At the close of the fiscal period, roughly 6% of the fund's assets were invested in the emerging markets. The managers have tended to favor those countries that have access to capital, such as Mexico and Bulgaria. * MANAGERS LOOK TO SECOND HALF WITH CAUTIOUS OPTIMISM While no assurances can be made, your fund's managers are optimistic about prospects for recovery in the spread sectors as the second half of fiscal 1999 begins. We believe dormant inflation, low interest rates, and the absence of recessionary signs in the economy set the stage for stronger bond performance on the home front. In Europe, repeated interest-rate cuts, slowing economic growth, and the continued convergence of the European Economic and Monetary Union point to solid performance potential for the Continent's bonds. As always, selectivity and broad diversification will remain the dominant criteria for portfolio composition in the months ahead. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees March 17, 1999 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 1/31/99, there is no guarantee the fund will continue to hold these securities in the future. The lower credit ratings of high-yield bonds reflect a greater possibility that adverse changes in the economy or poor performance by the issuers of these bonds may affect the issuer's ability to pay principal and interest. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. While U.S. government backing of individual securities does not insure principal, which will fluctuate, it does guarantee that the fund's government-backed holdings will make timely payments of interest and principal. This fund includes investments in mortgage-backed securities, which are subject to prepayment risk. [GRAPHIC OMITTED: TOP SECTOR HOLDINGS] TOP SECTOR HOLDINGS* Top three high-yield holdings Household Netherlands N.V. company guaranty 6.2%, 2003 (Netherlands) Citicorp sub. notes 6.375%, 2008 Raytheon Co. 144A 6.4%, 2018 Top three U.S. government holdings GNMA 7.00%, 2024-2028 U.S. Treasury obligation 6.5%, 2026 GNMA 7.5%, 2022-2027 Top three international holdings United Kingdom Treasury bonds 8.00%, 2000 Brazil (Government of) discount bonds FRB 6.625%, 2024 Netherlands (Government of) bonds, Series. 2, 8.25%, 2002 Footnote reads: *These holdings represent 18.8% of the fund's net assets as of 1/31/99. Portfolio holdings will vary over time. Performance summary This section provides information about your fund's performance, which should always be considered in light of its investment strategy. Putnam Premier Income Trust is designed for investors seeking a high level of current income consistent with preservation of capital. TOTAL RETURN FOR PERIODS ENDED 1/31/99 Market NAV price - ------------------------------------------------------------------------------ 6 months -3.36% 2.41% - ------------------------------------------------------------------------------ 1 year -0.91 4.63 - ------------------------------------------------------------------------------ 5 years 36.35 58.28 Annual average 6.40 9.62 - ------------------------------------------------------------------------------ 10 years 142.63 139.03 Annual average 9.27 9.11 - ------------------------------------------------------------------------------ Life of fund 162.16 152.15 (since 2/29/88) Annual average 9.23 8.84 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/99 Salomon Bros. Lehman Bros. Non-U.S. First Boston Consumer Government World Govt. High Yield Price Bond Index Bond Index Index Index - -------------------------------------------------------------------------- 6 months 5.89% 13.44% -3.34% 0.86% - -------------------------------------------------------------------------- 1 year 8.86 15.16 -0.17 1.86 - -------------------------------------------------------------------------- 5 years 40.36 45.76 46.81 12.59 Annual average 7.02 7.83 7.98 2.40 - -------------------------------------------------------------------------- 10 years 138.73 137.12 174.52 35.92 Annual average 9.09 9.02 10.63 3.12 - -------------------------------------------------------------------------- Life of fund 147.92 141.05 199.10 41.90 (since 2/29/88) Annual average 8.67 8.39 10.55 3.26 - -------------------------------------------------------------------------- Past performance is no assurance of future results. More recent returns may be more or less than those shown. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns, net asset value and market price will fluctuate so that an investor's shares when sold may be worth more or less than their original cost. Securities indexes assume reinvestment of all distributions and interest payments and do not take into account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. PRICE AND DISTRIBUTION INFORMATION 6 months ended 1/31/99 - ------------------------------------------------------------------------------ Distributions (number) 6 - ------------------------------------------------------------------------------ Income $0.378 - ------------------------------------------------------------------------------ Capital gains -- - ------------------------------------------------------------------------------ Total $0.378 - ------------------------------------------------------------------------------ Share value NAV Market price - ------------------------------------------------------------------------------ 7/31/98 $8.71 $8.500 - ------------------------------------------------------------------------------ 1/31/99 8.03 8.312 - ------------------------------------------------------------------------------ Current return - ------------------------------------------------------------------------------ Current dividend rate1 9.41% 9.10% - ------------------------------------------------------------------------------ 1Income portion of most recent distribution, annualized and divided by NAV or market price at end of period. TOTAL RETURN FOR PERIODS ENDED 12/31/98 (most recent calendar quarter) Market NAV price - ------------------------------------------------------------------------------ 6 months -3.63% 1.61% - ------------------------------------------------------------------------------ 1 year -0.55 5.29 - ------------------------------------------------------------------------------ 5 years 37.62 54.64 Annual average 6.59 9.11 - ------------------------------------------------------------------------------ 10 years 144.91 151.13 Annual average 9.37 9.65 - ------------------------------------------------------------------------------ Life of fund 160.43 148.38 (since 2/29/88) Annual average 9.23 8.76 - ------------------------------------------------------------------------------ Past performance is no assurance of future results. More recent returns may be more or less than those shown. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns, net asset value and market price will fluctuate so that an investor's shares when sold may be worth more or less than their original cost. TERMS AND DEFINITIONS Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares. Market price is the current trading price of one share of the fund. Market prices are set by transactions between buyers and sellers on the New York Stock Exchange. COMPARATIVE BENCHMARKS First Boston High Yield Index* is an unmanaged list of lower-rated higher-yield U.S. corporate bonds. Lehman Brothers Government Bond Index* is an unmanaged list of U.S. government and mortgage-backed securities. Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged list of bonds issued by 10 countries. Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. *Securities indexes assume reinvestment of all distributions and interest payments and do not take in account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index.
Portfolio of investments owned January 31, 1999 (Unaudited) CORPORATE BONDS AND NOTES (42.4%) (a) PRINCIPAL AMOUNT VALUE Advertising (0.7%) - -------------------------------------------------------------------------------------------------------------------------- $ 2,500,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 2,718,750 2,100,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 2,257,500 2,500,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 2,718,750 -------------- 7,695,000 Aerospace and Defense (1.7%) - -------------------------------------------------------------------------------------------------------------------------- 470,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 448,850 650,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 620,750 1,280,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 1,267,200 1,500,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 1,575,000 410,000 BE Aerospace, Inc. 144A sr. sub. notes 9 1/2s, 2008 434,600 600,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 591,000 5,900,000 Boeing Co. deb. 6 5/8s, 2038 6,017,528 500,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 405,000 217,000 Hawk Corp. sr. notes 10 1/4s, 2003 224,595 530,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 540,600 990,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 1,029,600 6,125,000 Raytheon Co. 144A bonds 6.4s, 2018 6,173,939 -------------- 19,328,662 Agriculture (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 2,905,653 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (acquired various dates from 2/8/93 to 4/7/97, cost $2,570,065) (NON) (RES) 2,905,653 1,110,000 Purina Mills, Inc. sr. sub. notes 9s, 2010 1,087,800 -------------- 3,993,453 Airlines (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 780,000 Calair LLC company guaranty 8 1/8s, 2008 758,550 855,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 530,100 1,340,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 1,139,000 1,705,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 477,400 915,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 677,100 820,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 500,200 -------------- 4,082,350 Apparel (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 1,995,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 1,955,100 1,455,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 1,444,088 635,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 685,800 -------------- 4,084,988 Automotive (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 440,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 465,300 949,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 1,003,568 1,250,000 Cambridge Industries, Inc. company guaranty Ser. B, 10 1/4s, 2007 1,000,000 3,470,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 3,454,420 1,970,000 Hayes Lemmerz International, Inc. 144A company guaranty 8 1/4s, 2008 1,979,850 1,355,000 Lear Corp. sub. notes 9 1/2s, 2006 1,493,888 2,140,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 2,182,800 730,000 Safety Components International, Inc. sr. sub. notes Ser. B, 10 1/8s, 2007 715,400 -------------- 12,295,226 Banks (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 635,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 508,000 370,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 399,981 575,000 First Federal Financial Corp. notes 11 3/4s, 2004 592,250 3,440,000 Fuji JGB Inv. LLC 144A FLIRB bonds Ser. A, 9.87s, 2049 (Japan) 2,380,308 710,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 750,364 615,000 North Fork Capital Trust I company guaranty 8.7s, 2026 666,722 350,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 273,000 725,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 674,250 735,000 Peoples Heritage Capital Trust company guaranty Ser. B, 9.06s, 2027 764,356 715,000 Provident Capital Trust company guaranty 8.6s, 2026 768,511 410,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 417,314 585,000 Sovereign Capital Trust company guaranty 9s, 2027 556,932 555,000 Webster Capital Trust I 144A bonds 9.36s, 2027 593,817 -------------- 9,345,805 Basic Industrial Products (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 1,260,000 Axia, Inc. company guaranty 10 3/4s, 2008 1,278,900 350,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 346,500 800,000 Neenah Foundry Co. 144A sr. sub. notes 11 1/8s, 2007 832,000 630,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 678,850 1,230,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 1,269,434 1,940,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 1,967,994 510,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 489,600 -------------- 6,863,278 Broadcasting (2.9%) - -------------------------------------------------------------------------------------------------------------------------- 1,395,000 Affinity Group Holdings sr. notes 11s, 2007 1,408,950 2,050,000 Benedek Communications Corp. sr. disc. notes stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 1,463,188 1,920,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero % (12 3/4s, 2/1/02), 2009 (STP) 1,608,000 800,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 844,000 770,000 CBS Corp. notes 6 7/8s, 2003 799,745 420,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 (Bermuda) 264,600 4,130,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 4,450,075 809,390 Citadel Broadcasting Co. sr. sub. notes 10 1/4s, 2007 891,341 240,000 Citadel Broadcasting, Inc. 144A sr. sub. notes 9 1/4s, 2008 255,000 3,065,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero % (11.2s, 11/15/00), 2007 (Bermuda) (STP) 2,651,225 370,374 Echostar Communications Corp. sr. notes 12 1/8s, 2004 426,856 1,580,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,540,500 1,710,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 1,778,400 1,990,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 1,920,350 2,250,000 Jacor Communications, Inc. company guaranty Ser. B, 8 3/4s, 2007 2,430,000 2,310,000 News America Inc. deb. 7 1/8s, 2028 2,390,111 310,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 324,725 4,096,000 PHI Holdings, Inc. sr. sub.notes 16s, 2001 3,171,942 1,010,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 1,030,200 320,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 323,200 1,225,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 1,310,750 1,005,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 783,900 500,000 TV Azteca S.A. De C.V. sr. notes Ser. A, 10 1/8s, 2004 (Mexico) 405,000 -------------- 32,472,058 Building and Construction (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 950,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 864,500 490,000 American Architectural Products Corp. company guaranty 11 3/4s, 2007 426,300 570,000 Building Materials Corp. 144A sr. notes 8s, 2008 571,425 1,165,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 535,900 665,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 332,500 460,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 460,000 950,000 Morris Material Handling, Inc. company guaranty 9 1/2s, 2008 712,500 655,000 Presley Cos. sr. notes 12 1/2s, 2001 524,000 910,000 Toll Corp. company guaranty 8 1/8s, 2009 919,100 440,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B, zero % (12 3/4s, 6/1/99), 2004 (STP) 228,800 -------------- 5,575,025 Buses (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,130,000 MCII Holdings sec. notes 12%, 2002 966,150 Business Services (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 1,305,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 1,174,500 840,000 Cendant Corp. notes 7 1/2s, 2000 852,978 300,000 Iron Mountain, Inc. med. term notes company guaranty 10 1/8s, 2006 328,500 1,275,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,326,000 1,230,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,199,250 996,377 Outsourcing Solutions, Inc. bank term loan 8 5/8s, 10/15/03 986,413 -------------- 5,867,641 Cable Television (1.4%) - -------------------------------------------------------------------------------------------------------------------------- 1,110,000 Acme Television sr. disc. notes stepped-coupon zero % (10 7/8s, 9/30/00), 2004 (STP) 937,950 1,750,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 1,820,000 300,000 CSC Holdings, Inc. deb. Ser. B, 8 1/8s, 2009 330,708 360,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 383,638 920,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 961,446 1,125,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (11 3/4s, 12/15/00), 2005 (United Kingdom) (STP) 874,688 1,795,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (10 3/4s, 2/15/02), 2007 (United Kingdom) (STP) 1,566,138 370,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 179,913 1,045,000 Globo Communicacoes 144A company guaranty 10 1/2s, 2006 (Brazil) 470,250 3,440,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 2,562,800 1,975,000 Grupo Televisa S.A. 144A sr. notes 11 7/8s, 2006 (Mexico) 1,925,625 250,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 269,375 1,050,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 1,107,750 290,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 329,875 930,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005 (Argentina) 455,700 340,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008 (United Kingdom) 401,200 1,300,000 United International Holdings sr. disc. notes stepped-coupon Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 871,000 -------------- 15,448,056 Cellular Communications (1.2%) - -------------------------------------------------------------------------------------------------------------------------- 4,132,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon zero % (14s, 10/1/02), 2007 (STP) 971,020 1,790,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 1,798,950 1,540,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 1,763,300 3,500,000 Dial Call Communications, Inc. sr. disc. notes Ser. B, 10 1/4s, 2005 3,517,500 3,160,000 McCaw International Ltd sr. disc. notes stepped-coupon zero % (13s, 4/15/02), 2007 (STP) 1,773,550 5,075,000 Millicom International Cellular S.A. sr. disc. notes stepped-coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) (STP) 3,679,375 140,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 147,000 -------------- 13,650,695 Chemicals (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 740,000 Geo Specialty Chemicals 144A sr. sub. notes 10 1/8s, 2008 717,800 750,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 757,500 1,150,000 Huntsman Corp. 144A sr. sub. notes FRN 9.031s, 2007 1,127,000 1,000,000 Lyondell Petrochemical bank term loan 7 1/4s, 2003 965,000 360,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 241,200 1,212,546 Polytama International notes 11 1/4s, 2007 (Indonesia) 242,509 1,150,000 Scotts Co. 144A sr. sub. notes 8 5/8s, 2009 1,184,500 925,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 360,750 1,070,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 374,500 -------------- 5,970,759 Computer Services and Software (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 320,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 336,800 2,150,000 IPC Information Systems sr. disc. notes stepped-coupon zero % (10 7/8s, 11/1/01), 2008 (STP) 1,386,750 1,260,000 PSINet, Inc. 144A sr. notes 11 1/2s, 2008 1,373,400 630,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 648,900 1,710,000 Unisys Corp. sr. notes 7 7/8s, 2008 1,795,500 610,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 643,550 -------------- 6,184,900 Conglomerates (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 555,000 Cia Latino Americana 144A company guaranty 11 5/8s, 2004 (Argentina) 294,150 515,000 Dine S.A. de C.V. company guaranty 8 3/4s, 2007 (Mexico) 412,000 -------------- 706,150 Consumer Durable Goods (--%) - -------------------------------------------------------------------------------------------------------------------------- 450,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 432,000 Consumer Non Durables (--%) - -------------------------------------------------------------------------------------------------------------------------- 250,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 227,500 180,000 Hedstrom Holdings, Inc. sr. disc. notes stepped-coupon zero % (12s, 6/1/02), 2009 (STP) 72,000 -------------- 299,500 Consumer Services (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,755,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 1,921,725 480,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %, (13 5/8s, 6/30/00), 2005 (STP) 547,200 -------------- 2,468,925 Cosmetics (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 570,000 Chattem, Inc. company guaranty Ser. B, 8 7/8s, 2008 584,250 320,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 323,200 345,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 341,550 1,410,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 1,258,425 630,000 Revlon, Inc. 144A sr. notes 9s, 2006 617,400 -------------- 3,124,825 Electric Utilities (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 4,305,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 2,755,200 1,750,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 2,240,438 4,000,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 4,636,960 804,952 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 857,266 1,192,560 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,274,704 1,120,000 York Power Funding 144A company guaranty 12s, 2007 (Cayman Islands) 1,136,800 -------------- 12,901,368 Electronics and Electrical Equipment (1.2%) - -------------------------------------------------------------------------------------------------------------------------- 670,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006 (Canada) 730,300 500,000 Details, Inc. sr. sub. notes Ser. B, 10s, 2005 475,000 700,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 696,500 185,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 194,250 2,305,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 2,466,350 1,720,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 1,780,200 445,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 427,200 2,190,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 2,321,400 460,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 471,500 1,420,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 1,459,050 240,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 238,800 190,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 189,050 1,500,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 1,410,000 455,000 Wavetek Corp. company guaranty 10 1/8s, 2007 436,800 -------------- 13,296,400 Energy-related (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 1,190,000 Calpine Corp. sr. notes 7 7/8s, 2008 1,216,775 810,000 CMS Energy Corp. sr. notes 6 3/4s, 2004 810,000 2,470,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 2,725,793 620,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 655,073 610,000 Niagara Mohawk Power Corp. sr. notes Ser. E, 7 3/8s, 2003 633,991 2,100,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 (China) 903,000 630,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 415,800 -------------- 7,360,432 Entertainment (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,085,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 1,076,863 490,000 ITT Corp. notes 6 3/4s, 2005 438,138 860,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 877,200 1,240,000 SFX Entertainment, Inc. 144A company guaranty Ser. B, 9 1/8s, 2008 1,271,000 1,010,000 Silver Cinemas Inc. sr. sub. notes 10 1/2s, 2005 595,900 3,740,000 Time Warner, Inc. company guaranty 6 5/8s, 2029 3,809,190 2,090,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 2,110,900 875,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 901,250 1,470,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 1,418,550 -------------- 12,498,991 Environmental Control (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 2,810,000 Allied Waste Industries, Inc. 144A sr. notes 7 7/8s, 2009 2,901,325 Food and Beverages (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 1,220,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 1,030,900 1,470,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 1,381,800 730,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 797,525 575,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 589,375 695,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 653,300 65,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon zero % (12 3/8s, 7/15/02), 2007 (STP) 31,200 1,570,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 1,161,800 -------------- 5,645,900 Health Care Services (1.9%) - -------------------------------------------------------------------------------------------------------------------------- 350,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 351,750 560,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 551,600 680,000 Conmed Corp. company guaranty 9s, 2008 690,200 1,175,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 1,122,125 1,280,000 Global Health Sciences company guaranty 11s, 2008 857,600 1,040,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 811,200 1,230,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 1,162,350 1,200,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 1,128,000 1,270,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 1,114,425 1,000,000 Magellan Health Services, Inc. bank term loan 8s, 2/12/05 970,000 510,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 214,200 2,500,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 1,875,000 1,390,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 1,188,909 700,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 651,749 2,690,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 2,394,100 1,960,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 1,724,800 560,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 464,800 698,792 Patriot American Hospital bank term loan ser. B, 8 1/8s, 2003 681,322 1,345,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 1,089,450 370,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 296,000 870,000 Tenet Healthcare Corp. 144A sr. sub. notes 8 1/8s, 2008 896,100 650,000 Tenet Healthcare Corp.144A sr. notes 7 5/8s, 2008 666,250 -------------- 20,901,930 Insurance and Finance (3.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,805,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 1,200,325 2,000,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,802,360 8,855,000 Citicorp sub. notes 6 3/8s, 2008 9,125,343 420,000 Colonial Capital I 144A company guaranty 8.92s, 2027 422,945 4,820,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B, zero % (12 1/2s, 03/01/03), 2008 (STP) 1,156,800 10,325,000 Household Netherlands N.V. company guaranty 6.2s, 2003 (Netherlands) 10,517,045 1,175,000 Imperial Credit Capital Trust I 144A company guaranty 10 1/4s, 2002 881,250 955,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 732,963 865,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 901,763 1,380,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 1,062,600 2,625,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s, 2007 (Indonesia) 1,286,250 1,000,000 Resource America Inc. 144A sr. notes 12s, 2004 845,000 6,135,000 Sprint Capital Corp. company guaranty 5.7s, 2003 6,165,430 -------------- 36,100,074 Lodging (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 780,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 764,400 950,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 978,500 810,000 Raintree Resorts International, Inc. sr. notes Ser. B, 13s, 2004 405,000 1,250,000 Sun International Hotels Ltd. company guaranty 9s, 2007 1,293,750 2,500,000 Starwood Hotels Resorts bank term loan 7.861s, 2003 2,487,500 -------------- 5,929,150 Medical Supplies and Devices (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 1,305,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 1,331,100 985,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 1,078,575 525,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 504,000 840,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 869,400 1,110,000 Mediq, Inc. company guaranty 11s, 2008 1,043,400 940,000 Mediq, Inc. deb. stepped-coupon zero %, (13s, 6/1/03) 2009 (STP) 423,000 -------------- 5,249,475 Metals and Mining (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 850,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 467,500 775,000 Continental Global Group sr. notes Ser. B, 11s, 2007 662,625 580,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 562,600 110,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006 108,350 1,760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 1,460,800 1,250,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 1,150,000 770,000 WHX Corp. sr. notes 10 1/2s, 2005 693,000 -------------- 5,104,875 Motion Picture Distribution (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,555,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 1,601,650 2,996,000 Diva Systems Corp. 144A sr. disc. notes stepped-coupon zero % (12 5/8s, 3/1/03), 2008 (STP) 958,720 -------------- 2,560,370 Office Equipment (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 639,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 712,485 220,000 United Stationer Supply, Inc. 144A sr. sub. notes 8 3/8s, 2008 221,100 1,200,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 855,000 -------------- 1,788,585 Oil and Gas (1.2%) - -------------------------------------------------------------------------------------------------------------------------- 2,305,000 Abraxas Petrolem Corp. 144A company guaranty Ser. D, 11 1/2s, 2004 1,636,550 160,000 American Eco Corp. company guaranty Ser. B, 9 5/8s, 2008 80,000 500,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 290,000 140,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 63,000 1,620,000 Chesapeake Energy Corp. company guaranty Ser. B, 9 5/8s, 2005 1,198,800 360,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 295,200 885,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 628,350 730,000 Dailey Petroleum Services Corp. company guaranty 9 1/2s, 2008 350,400 790,000 Eagle Geophysical, Inc. company guaranty Ser. B, 10 3/4s, 2008 505,600 160,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon Ser. B, zero % (14 1/8s, 5/1/03), 2006 (STP) 52,800 765,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 759,263 710,000 Michael Petroleum Corp. sr. notes Ser. B, 11 1/2s, 2005 511,200 875,000 Northern Offshore 144A company guaranty 10s, 2005 437,500 810,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 789,750 1,140,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 1,077,300 1,160,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 893,200 610,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 414,800 90,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B, zero % (13s, 6/15/99), 2002 (STP) 24,075 3,430,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 926,100 1,927,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 1,271,820 1,820,000 Vintage Petroleum 144A sr. sub. notes 9 3/4s, 2009 1,829,100 -------------- 14,034,808 Packaging and Containers (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 440,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 441,100 420,000 Radnor Holdings Inc. sr. notes 10s, 2003 432,600 2,550,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 2,307,750 1,465,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 1,465,000 -------------- 4,646,450 Paging (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 500,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 568,750 250,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 102,500 -------------- 671,250 Paper and Forest Products (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 250,000 APP Finance II Mauritius Ltd. bonds stepped-coupon zero %, (12s, 2/15/04), 2049 (Indonesia) (STP) 105,000 820,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 815,900 1,230,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 1,236,150 2,450,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s, 2007 (Indonesia) 1,176,000 2,765,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004 (Indonesia) 1,244,250 1,645,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 1,135,050 1,490,000 Republic Group Inc. sr. sub. notes 9 1/2s, 2008 1,516,075 -------------- 7,228,425 Pharmaceuticals (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,450,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,486,250 Photography (--%) - -------------------------------------------------------------------------------------------------------------------------- 360,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero % (9 5/8s, 2/1/02), 2006 (STP) 201,600 Publishing (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 900,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 922,500 1,250,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 1,268,750 760,000 Gothic Production Corp. company guaranty Ser. B, 11 1/8s, 2005 589,000 1,000,000 Perry-Judd company guaranty 10 5/8s, 2007 1,045,000 260,497 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 270,917 370,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 382,950 -------------- 4,479,117 Railroads (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,415,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %, (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 721,650 1,280,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,075,200 -------------- 1,796,850 Real Estate (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 2,820,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 (Canada) (R) 2,735,400 Recreation (1.5%) - -------------------------------------------------------------------------------------------------------------------------- 1,670,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 1,862,050 1,480,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 1,546,600 490,000 Circus Circus Enterprises, Inc. sr. sub. notes 9 1/4s, 2005 496,125 350,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 317,699 1,975,000 Coast Hotels & Casinos, Inc. 1st mtge. company guaranty Ser. B, 13s, 2002 2,221,875 1,780,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004 961,200 1,230,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 1,242,300 540,000 Isle of Capri Black Hawk LLC 1st mortgage Ser. B, 13s, 2004 585,900 1,675,000 Mohegan Tribal Gaming Auth. sr. notes Ser. B, 13 1/2s, 2002 2,010,000 1,690,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 1,685,775 2,300,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,374,750 1,400,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 630,000 500,000 Trump A.C. 1st mtge. 11 1/4s, 2006 457,500 -------------- 16,391,774 Restaurants (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 1,818,000 720,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 741,838 -------------- 2,559,838 Retail (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 870,000 Fred Meyer, Inc. company guaranty 7.45s, 2008 951,084 445,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 445,000 1,000,000 K mart Corp. pass-thru certificates Ser. 95K4, 9.35s, 2020 1,051,630 1,600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 1,664,000 750,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 720,000 1,690,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 1,706,900 -------------- 6,538,614 Satellite Services (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,180,000 Golden Sky Systems 144A sr. sub. notes 12 3/8s, 2006 1,256,700 1,150,000 Primestar bank term loan 8 5/8s, 2004 402,500 640,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004 (Mexico) 505,600 -------------- 2,164,800 Semiconductors (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 545,129 Cirent Semiconductor sr. sub. notes 10.22s, 2002 545,129 554,760 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 554,760 980,613 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 (PIK) 882,552 1,900,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,900,000 1,660,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 1,444,200 -------------- 5,326,641 Shipping (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 360,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 334,800 1,100,000 Johnstown America Industries, Inc. company guaranty Ser. C, 11 3/4s, 2005 1,168,750 570,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 330,600 -------------- 1,834,150 Specialty Consumer Products (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 1,060,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 1,017,600 600,000 Eye Care Centers of America 144A sr. sub. notes 9 1/8s, 2008 564,000 -------------- 1,581,600 Telecommunications (6.7%) - -------------------------------------------------------------------------------------------------------------------------- 100,000 21st Century Telecom Group, Inc. sr. disc. notes stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 42,500 440,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 453,200 3,150,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 1,701,000 1,100,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero % (12 1/2s, 11/15/02), 2007 (Israel) (STP) 561,000 810,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero % (12 3/4s, 5/15/03), 2005 (Mexico) (STP) 453,600 780,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 780,000 1,280,000 Charter Communications International, Inc. disc. notes stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 (STP) 1,148,800 1,250,000 Charter Communications International, Inc. sr. notes Ser. B, 11 1/4s, 2006 1,431,250 955,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 305,600 1,045,000 Covad Communications Group sr. disc. notes stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 619,163 3,630,000 Echostar DBS Corp. 144A sr. notes 9 3/8s, 2009 3,720,750 2,270,000 Econophone Inc. company guaranty 13 1/2s, 2007 2,247,300 1,790,000 Econophone, Inc. 144A notes stepped-coupon zero % (11s, 2/15/03), 2008 (STP) 877,100 580,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007 (United Kingdom) 609,000 3,410,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon zero % (13, 4/15/03), 2008 (STP) 1,329,900 2,210,000 Focal Communications Corp. sr. disc. notes, stepped-coupon zero % (12 1/8s, 02/15/03), 2008 (STP) 1,105,000 4,930,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 5,213,475 1,570,000 GST Equipment Funding sr. notes 13 1/4s, 2007 1,601,400 2,026,000 GST Telecommunications, Inc. company guaranty stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 1,387,810 2,330,000 GST Telecommunications, Inc. 144A sr. disc. notes stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 1,048,500 270,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007 (Netherlands) 297,000 655,000 Hyperion Telecommunication Inc. sr. disc. notes stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 497,800 1,370,000 Hyperion Telecommunications, Inc. sr. notes Ser. B, 12 1/4s, 2004 1,452,200 1,420,000 ICG Communications, Inc. sr. disc. notes stepped-coupon zero % (10s, 02/15/03), 2008 (STP) 795,200 1,370,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero % (13 1/2s, 9/15/00), 2005 (STP) (Canada) 1,147,375 1,900,000 Interact Systems, Inc. 144A stepped-coupon zero % (14s, 8/1/99), 2003 (STP) 76,000 1,720,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 1,195,400 3,770,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 3,638,050 3,810,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 3,238,500 1,280,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 1,273,600 3,765,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 1,844,850 2,545,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero % (11 7/8s, 10/15/02), 2007 (STP) 1,297,950 1,565,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 1,725,413 1,060,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 954,000 920,000 Metrocall, Inc. 144A sr. sub. notes 11s, 2008 926,900 525,000 MetroNet Communications Corp. sr. disc. notes stepped-coupon zero % (10 3/4s, 11/1/02), 2007 (Canada) (STP) 378,000 2,140,000 MetroNet Communications Corp. 144A sr. notes 10 5/8s, 2008 (Canada) 2,332,600 1,310,000 MetroNet Communications Corp. sr. disc. stepped-coupon notes zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 890,800 2,170,000 Microcell Telecommunications sr. disc. notes stepped-coupon Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,670,900 220,000 Netia Holdings B.V. 144A company guaranty stepped-coupon zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 135,300 380,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007 (Poland) 349,600 350,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 154,000 2,010,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 2,236,125 855,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 583,538 500,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 325,000 1,300,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 1,313,000 1,020,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 1,162,800 650,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 689,000 830,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero % (9 3/4s, 4/1/03), 2008 (STP) 582,038 1,570,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 910,600 1,420,000 Qwest Communications International, Inc. sr. disc. notes stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 1,136,000 790,000 Qwest Communications International, Inc. sr. disc. notes stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 616,200 1,200,000 Qwest Communications International, Inc. 144A sr. notes 7 1/4s, 2008 1,257,000 2,290,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 1,259,500 1,640,000 Startec Global Communications Corp. sr. notes 12s, 2008 1,476,000 1,765,000 Telecommunications Techniques, Inc. company guaranty 9 3/4s, 2008 1,747,350 630,000 Telehub Communications Corp. company guaranty stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 371,700 1,545,000 Teligent, Inc. sr. notes 11 1/2s, 2007 1,467,750 1,900,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (11 1/2s, 3/1/03), 2008 (STP) 931,000 2,210,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 2,364,700 370,000 Versatel Teleco sr. notes 144A 13 1/4s, 2008 382,950 850,000 Versatel Teleco sr. notes 13 1/4s, 2008 879,750 1,390,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon zero % (15s, 3/1/02), 2007 (STP) 1,251,000 -------------- 75,850,787 Telephone Services (2.6%) - -------------------------------------------------------------------------------------------------------------------------- 2,710,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 2,046,050 1,160,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 655,400 2,400,000 Celcaribe S.A. sr. notes stepped-coupon zero % (13 1/2s, 3/15/04), 2004 (Colombia) (STP) 1,848,000 2,905,000 Colt Telecommunications Group PLC sr. disc. notes stepped-coupon zero %, (12s, 12/15/01), 2006 (United Kingdom) (STP) 2,469,250 1,760,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon zero % (12 3/4s, 4/1/01), 2006 (STP) 985,600 620,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 483,600 1,240,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,215,200 4,160,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero % (9 7/8s, 5/1/03), 2008 (STP) 2,246,400 922,000 ITC Deltacom, Inc. sr. notes 11s, 2007 1,014,200 860,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 853,550 1,210,000 Long Distance International, Inc. 144A sr. notes 12 1/4s, 2008 968,000 659,000 MJD Communications, Inc. notes Ser. B, FRN, 10s, 2008 632,640 470,000 OnePoint Communications, Corp. 144A sr. notes 14 1/2s, 2008 244,400 1,900,000 Primus Telecommunications Group, Inc. sr. notes Ser. B, 9 7/8s, 2008 1,776,500 350,000 RCN Corp. sr. disc. notes stepped-coupon zero %, (11 1/8s, 10/15/02), 2007 (STP) 203,000 1,785,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 1,865,325 750,000 RSL Communications PLC. 144A sr. notes 10 1/2s, 2008 (United Kingdom) 731,250 700,000 RSL Communications, Ltd. company guaranty, stepped-coupon zero % (10 1/8s, 3/1/03), 2008 (STP) 385,000 650,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 594,750 1,280,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon zero % (12 1/2s, 8/15/01), 2006 (STP) 1,152,000 470,000 Sprint Spectrum L.P. sr. notes 11s, 2006 549,604 440,000 Transtel S.A. 144A pass-through certificates 12 1/2s, 2007 (Colombia) 167,200 3,090,000 U S West, Inc. notes 5 5/8s, 2008 3,116,605 640,000 US Xchange LLC sr. notes 15s, 2008 660,800 2,240,000 Viatel, Inc. sr. notes 11 1/4s, 2008 2,256,800 -------------- 29,121,124 Textiles (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,740,000 Galey & Lord Inc. company guaranty 9 1/8s, 2008 1,374,600 700,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 701,750 470,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 465,300 -------------- 2,541,650 Transportation (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 500,000 Coach USA, Inc. 144A company guaranty 9 3/8s, 2007 511,875 500,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 480,000 630,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 630,000 -------------- 1,621,875 Wireless Communications (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 2,280,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 2,348,400 1,270,000 American Mobile Satellite Corp. company guaranty 12 1/4s, 2008 615,950 505,000 Telesystem International Wireless Inc. sr. disc. notes stepped-coupon Ser. C, zero %, (10 1/2s, 11/1/02), 2007 (STP) 186,850 -------------- 3,151,200 -------------- Total Corporate Bonds and Notes (cost $521,218,368) $ 479,058,524 U.S. GOVERNMENT AND AGENCY OBLIGATIONS (20.9%) (a) PRINCIPAL AMOUNT VALUE U.S. Government Agency Mortgage Obligations (15.1%) - -------------------------------------------------------------------------------------------------------------------------- $ 8,897,297 Federal Home Loan Mortgage Corp. 7 1/2s, with due dates from March 1, 2020 to May 1, 2028 $ 9,161,369 Federal National Mortgage Association 14,045,000 6 1/2s, TBA, February 15, 2029 14,172,248 Federal National Mortgage Association Pass-through Certificates 2,569,433 7s, Dwarf, with due dates from December 1, 2007 to May 1, 2011 2,629,634 25,444,891 6 1/2s, with due dates from June 1, 2023 to November 1, 2028 25,675,421 1,208,973 6 1/2s, Dwarf, with due dates from August 1, 2010 to July 1, 2013 1,228,232 8,711,157 6s, Dwarf, July 1, 2013 8,743,824 Government National Mortgage Association 10,290,000 6 1/2s, TBA, February 15, 2029 10,405,763 Government National Mortgage Association Pass-through Certificates 10,783,325 8s, with due dates from July 15, 2024 to March 15, 2028 11,232,404 26,282,545 7 1/2s, with due dates from August 15, 2022 to July 15, 2027 27,154,939 50,328,580 7s, with due dates from March 15, 2024 to December 15, 2028 51,087,702 8,545,217 6 1/2s, with due dates from December 15, 2027 to May 15, 2028 8,641,348 -------------- 170,132,884 U.S. Treasury Obligations (5.8%) - -------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds 23,390,000 6 1/2s, November 15, 2026 27,351,564 18,170,000 5 1/4s, November 15, 2028 18,615,710 6,520,000 5 1/4s, August 15, 2003 6,696,236 U.S. Treasury Notes 2,245,000 5 1/2s, May 31, 2003 2,321,128 3,130,000 5 1/2s, March 31, 2003 3,231,224 7,025,000 4 3/4s, November 15, 2008 7,080,989 -------------- 65,296,851 -------------- Total U.S. Government and Agency Obligations (cost $228,212,460) $ 235,429,735 FOREIGN GOVERNMENT BONDS AND NOTES (14.9%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- CAD 10,195,000 Canada (Government of) bonds Ser. WB60, 7 1/4s, 2007 $ 7,825,169 USD 3,835,000 China (People's Republic of) unsub. 7.3s, 2008 3,708,445 EUR 3,405,101 France (Government of) deb. 6s, 2025 4,709,665 EUR 9,539,954 France (Government of) bonds 5 1/2s, 2007 12,295,007 EUR 10,039,216 Germany (Federal Republic of) bonds 7 1/8s, 2003 13,081,071 EUR 3,147,002 Germany (Federal Republic of) bonds Ser. 97, 6 1/2s, 2027 4,633,443 EUR 2,109,723 Italy (Government of) bonds 7 1/4s, 2026 3,305,949 USD 2,225,000 Korea (Republic of) unsub. 8 7/8s, 2008 2,375,188 EUR 10,103,416 Netherlands (Government of) bonds Ser. 2, 8 1/4s, 2002 13,336,961 EUR 8,973,503 Netherlands (Government of) bonds 7 1/4s, 2004 12,212,567 EUR 3,498,645 Netherlands (Government of) bonds 5 1/2s, 2028 4,534,868 USD 2,950,000 Ontario (Province of) sr. unsub. 5 1/2s, 2008 2,973,158 USD 3,000,000 Quebec (Province of) deb. 7s, 2007 3,249,330 USD 3,665,000 Russia (Government of) 144A bonds 12 3/4s, 2028 1,154,475 USD 11,345,000 Russia (Government of) deb. FRB 5.969s, 2020 879,238 EUR 2,634,356 Spain (Government of) bonds 6s, 2029 3,582,256 SEK 22,200,000 Sweden (Government of) bonds, Ser. 1041,6 3/4s, 2014 3,204,872 SEK 25,300,000 Sweden (Government of) bonds, Ser. 1035, 6s, 2005 4,129,519 GBP 5,095,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 9,814,473 GBP 29,115,000 United Kingdom Treasury bonds 8s, 2000 50,576,249 USD 6,305,000 United Mexican States bonds 11 3/8s, 2016 6,494,150 -------------- Total Foreign Government Bonds and Notes (cost $161,207,328) $ 168,076,053 COLLATERALIZED MORTGAGE OBLIGATIONS (8.4%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 2,565,000 Chase Mortgage Finance Corp. Ser. 98-S2,Class A14, 6 3/4s, 2028 $ 2,588,245 Commercial Mortgage Acceptance Corp. 3,520,000 Ser. 97-ML1, Class D, 7.11s, 2030 3,550,800 3,520,000 Ser. 98-C2, Class D, 6.757s, 2009 3,454,550 41,362,847 Ser. 97-ML1, Interest Only (IO), 0.962s, 2017 2,249,105 2,685,000 Countrywide Home Loans Ser. 98-3, Class A5, 6 3/4s, 2028 2,714,787 4,100,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C, Class A8, 6 1/2s, 2024 4,081,960 Criimi Mae Commercial Mortgage Trust 11,790,000 Ser. 98-C1, Class A2, 7s, 2011 11,451,038 4,705,000 Ser. 98-C1, Class B, 7s, 2011 4,382,266 49,213,887 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, Class X, IO, 1.254s, 2031 3,016,273 5,856,081 Fannie Mae Ser. 1993-251, Class Z, 6 1/2s, December 25, 2023 5,735,300 2,831,866 Fannie Mae Strip Ser. 299, Class 2, IO, 6 1/2s, 2028 627,435 First Union-Lehman Brothers Commercial Mortgage Co. 4,060,000 Ser. 97-C2, Class D, 7.12s, 2012 3,989,584 1,110,000 Ser. 98-C2, Class D, 6.778s, 2013 1,057,015 24,655,474 Ser. 97-C2, IO, 1.092s, 2027 2,015,778 Freddie Mac 1,900,000 Ser. 2040, Class PE, 7 1/2s, 2028 2,062,925 1,105,000 Ser. 1439, Class I, 7 1/2s, 2022 1,177,084 1,539,212 Ser. 1717, Class L, 6 1/2s, 2024 1,551,297 Freddie Mac Strip 15,270,000 Ser. 2089, IO, 7s, 2023 2,715,197 8,791,637 Ser. 192 IO, 6 1/2s, 2028 1,895,697 4,191,190 Ser. 176, Principal Only (PO) zero %, 2026 3,502,263 5,593,512 Ser. 177 PO zero %, 2026 4,674,078 1,575,000 G E Capital Mtg Services Ser. 98-11, Class 2A4, 6 3/4s, 2028 1,592,845 GMAC Commercial Mortgage Securities Inc. 5,000,000 Ser. 98-C2, Class D, 6 1/2s, 2031 4,750,391 55,966,268 Ser. 98-C2, Class X, IO, 0.823s, 2031 2,426,662 Government National Mortgage Association 1,775,000 Ser. 97-8 Class PE, May 16, 2027 1,872,625 2,025,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D, 7.191s, 2031 1,976,906 Merrill Lynch Mortgage Investors, Inc. 1,615,000 Ser. 1995-C3, Class D, 7.782s, 2025 1,673,291 650,000 Ser. 98-C2, Class D, 7.116s, 2030 646,141 Morgan Stanley Capital I 1,150,000 Ser. 98-WF1, Class D, 7.12s, 2008 1,143,621 1,120,000 Ser. 98-XL1, Class E, 6.989s, 2030 1,108,581 31,685,315 Ser. 1998-HF1, Class X, IO, 1.208s, 2018 1,873,889 Mortgage Capital Funding, Inc. 1,475,000 Ser. 98-MC1, Class A2, 6.663s, 2008 1,552,438 53,478,515 Ser. 98-MC1, Class X, IO, 0.722s, 2009 2,239,413 17,822,736 Nationslink Funding Corp. Ser. 98-2, Class X, IO, 0.9442s, 2023 790,884 1,032,312 Prudential Home Mortgage Securities Ser. 93-57, Class A4, 5.9s, 2023 1,034,893 2,057,361 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 2,067,175 -------------- Total Collateralized Mortgage Obligations (cost $96,036,380) $95,242,432 BRADY BONDS (4.8%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 2,155,000 Argentina (Republic of) unsub. Ser. BGL5, 11 3/8s, 2017 $ 1,974,627 5,465,000 Argentina (Republic of) unsub. Ser. BGL4, 11s, 2006 4,973,150 4,065,000 Brazil (Government of) bonds 9 3/8s, 2008 2,611,763 31,165,000 Brazil (Government of) disc. bonds FRB 6.625s, 2024 16,791,702 5,260,000 Brazil (Government of) Ser. L, FRB 6.188s, 2012 2,301,250 5,835,000 Bulgaria (Government of) Ser. A, FRB 6.688s, 2024 4,011,563 3,600,000 Bulgaria (Government of) deb. Ser. PDI, FRB 6.688s, 2011 2,376,000 2,725,000 Bulgaria (Government of) Ser. A, FRB 2 1/2s, 2012 1,532,813 4,500,000 Central Bank of Nigeria Ser. WW, 6 1/4s, 2020 2,846,250 FRF 8,650,000 Ivory Coast -- 144A FLIRB collateralized FRB 2s, 2018 374,671 FRF 8,541,875 Ivory Coast -- 144A PDI bonds FRB 1.9s, 2018 414,386 $ 1,720,000 United Mexican States Sec. Ser. B, 6 1/4s, 2019 1,307,200 8,430,000 United Mexican States Ser. D, FRB 6.098s, 2019 6,722,925 9,857,110 Venezuela (Government of) deb. Ser. DL, FRB 5.938s, 2007 5,717,124 -------------- Total Brady Bonds (cost $61,847,921) $ 53,955,424 PREFERRED STOCKS (3.7%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 309 21st Century Telecom Group 144A $13.75 cum. pfd. (PIK) $ 191,580 27,102 AmeriKing, Inc. $3.25 pfd. (PIK) 718,203 8 Anvil Holdings Ser. B, $3.25 pfd. (PIK) 80 108,000 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 2,835,000 12,559 Capstar Broadcasting Inc. 144A $12.00 pfd. (PIK) 1,481,962 8,560 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 1,027,200 29,725 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 1,486,250 6,875 Chevy Chase Savings Bank $3.25 pfd. 204,531 12,615 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 1,469,648 628 Concentric Network Corp. Ser. B, $13.50 pfd. (PIK) 555,780 28,870 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 3,334,485 69,460 Diva Systems Corp. Ser. C, $6.00 pfd. 416,760 424 E. Spire Communications, Inc. 12.75% pfd. (PIK) 161,120 1,420 Fresenius Medical Capital Trust II 7.875% company guaranty pfd. (Germany) 1,409,350 250 Fresenius Medical Care Capital Trust I Ser. D, $9.00 pfd. (Germany) 261,562 24,560 Global Crossing Holdings Ltd. 144A $10.50 pfd. (PIK) 2,400,740 1,732 Granite Broadcasting 144A $12.75 pfd. (PIK) 1,584,780 372 Hyperion Telecommunications Ser. B, 12.875% pfd. (PIK) 301,320 4,086 ICG Holdings, Inc. $14.25 pfd. (Canada) 4,106,430 2,624 Intermedia Communication Ser. B, 13.50% (PIK) 2,650,240 1,454 IXC Communications, Inc. $12.50 pfd. (PIK) 1,403,110 23,306 Lady Luck Gaming Corp. $11.25 pfd. 792,404 13,537 Nebco Evans Holding Co. 144A $11.25 pfd. (PIK) 676,850 4,370 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 4,522,950 400 NEXTEL Communications, Inc. Ser. E, $11.125 pfd. (PIK) 376,000 43,320 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 2,144,340 196 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 1,705,200 5,000 Sinclair Capital $11.625 cum. pfd. 542,500 1,653 Spanish Broadcasting Systems $14.25 cum. pfd. (PIK) 1,752,180 150,582 TCR Holding Corp. Class E, zero % pfd. 9,487 1,036 Viatel, Inc. Ser. A, $10.00 cv. pfd. (PIK) 150,220 1,450 WinStar Communications, Inc. 144A $14.25 cum. pfd. (PIK) 1,160,000 -------------- Total Preferred Stocks (cost $43,812,913) $ 41,832,262 ASSET-BACKED SECURITIES (0.9%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 4,135,000 Chemical Master Credit Card Trust Ser. 95-2, Class A, 6.23s, 2003 $ 4,189,251 1,275,000 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2, 7.67s, 2028 1,280,177 3,575,575 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 3,653,790 1,228,978 Green Tree Recreational Equipment & Cons Ser. 97-B, Class A1, 6.55s, 2028 1,251,925 -------------- Total Asset-Backed Securities (cost $10,323,951) $ 10,375,143 WARRANTS (0.4%) (a) (NON) EXPIRATION NUMBER OF WARRANTS DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- 2,140 Allegiance Telecom, Inc. 2/3/08 $ 58,850 1,270 American Mobile Satellite Corp. 4/1/08 3,175 95,000 Becker Gaming Corp. 144A 11/15/00 10 810 Bestel SA 5/15/05 729 6,652 Cellnet Data Systems, Inc. 9/15/07 146,344 810 Club Regina, Inc. 144A 4/15/06 810 2,905 Colt Telecommunications Group PLC 12/31/06 1,597,750 320 Concentric Network Corp. 12/15/07 44,800 12,892 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 6,446 1,045 Covad Communications Group 144A 3/15/08 738,815 8,988 Diva Systems Corp. 3/1/08 134,820 1,715 Diva Systems Corp. 5/15/06 415,030 24,100 DTI Holdings Inc. 3/1/08 1,205 20 E. Spire Communications, Inc. 11/1/05 120 2,520 Econophone, Inc. 144A 7/15/07 126,000 780 Epic Resorts 6/15/05 8 940 Esat Holdings, Inc. (Ireland) 2/1/07 63,450 3,410 Firstworld Communication 4/15/08 34,100 1,015 Globalstar Telecom 144A 2/15/04 65,975 2,815 Hyperion Telecommunications 144A 4/15/01 206,903 20,856 Intelcom Group 144A 10/15/05 417,120 1,900 Interact Systems, Inc. 8/1/03 19 3,025 Intermedia Communications 6/1/00 106,631 1,140 International Wireless Communications Holdings 144A 8/15/01 11 2,175 KMC Telecom Holdings, Inc. 4/15/08 5,438 2,185 Knology Holdings, Inc. 144A 10/15/07 3,278 1,210 Long Distance International, Inc. 144A 4/13/08 3,025 3,590 McCaw International Ltd. 4/15/07 14,360 350 MGC Communications, Inc. 144A 10/1/04 10,456 940 Mediq Inc. Units 6/1/03 9 470 Onepoint Communications, Inc. 6/1/08 470 990 Orbital Imaging Corp. 144A 3/1/05 39,600 1,310 Orion Network Systems 1/15/07 15,065 12,880 Pagemart, Inc. 144A 12/31/03 103,040 1,570 Pathnet, Inc. 144A 4/15/08 15,700 1,600 Paxson Communications Corp. 144A 6/30/03 16 46,534 President Riverboat Casinos, Inc. 9/30/99 4,653 9,160 Rhythms Netcon 144A 5/15/08 183,200 990 Spanish Broadcasting Systems 144A 6/30/99 202,950 1,640 STARTEC Global Communications Corp. 5/15/08 1,640 680 Sterling Chemicals Holdings 8/15/08 10,200 630 Telehub Communications Corp 7/31/05 630 5,820 UIH Australia/Pacific, Inc. 144A 5/15/06 5,820 1,220 Versatel 144A 5/15/08 12,200 -------------- Total Warrants (cost $2,413,607) $ 4,800,871 COMMON STOCKS (0.4%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 525 AmeriKing, Inc. (NON) $ 21,000 390,240 Celcaribe S.A. 144A (Colombia) (NON) 507,312 42,880 CellNet Data Systems, Inc. (NON) 353,760 10,918 Hedstrom Holdings, Inc. 144A 10,918 10,934 IFINT Diversified Holdings 144A (NON) 21,868 466 Mothers Work, Inc. (NON) 5,825 250 Paging Do Brazil Holdings Co., LLC Class B, (Brazil) 3 1,186 Premium Holdings (L.P.) 144A (NON) 4,743 250,248 PSF Holdings LLC Class A (acquired various dates from 9/15/93 to 8/25/94, cost $8,604,327) (NON) (RES) 3,190,662 7,950 RSL Communications, Ltd. Class A (NON) 203,719 36,750 Specialty Foods Acquisition Corp. (NON) 1,838 -------------- Total Common Stocks (cost $9,730,838) $ 4,321,648 CONVERTIBLE BONDS AND NOTES (0.4%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 2,420,000 APP Global Finance Ltd. 144A cv. company guaranty 3 1/2s, 2003 (United Kingdom) $ 1,185,800 1,200,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 1,032,000 647,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon zero %, (13 7/8s, 12/15/00), 2005 (STP) 601,710 800,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 675,000 700,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 501,375 -------------- Total Convertible Bonds and Notes (cost $5,074,074) $ 3,995,885 UNITS (0.2%) (a) NUMBER OF UNITS VALUE - -------------------------------------------------------------------------------------------------------------------------- 780 Birch Telecom, Inc. 144A units 14s, 2008 $ 709,800 1,420 Pegasus Shipping 144A units company guaranty stepped-coupon zero % (14 1/2s, 6/20/03), 2008 (STP) 653,200 1,240 Transam Refinance, Inc. 144A units 16s, 2003 124,000 960 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 787,200 7,615 XCL Ltd. 144A units cv. cum. pfd. 9 1/2s, 2006 (PIK) 380,750 -------------- Total Units (cost $4,405,330) $ 2,654,950 CONVERTIBLE PREFERRED STOCKS (0.1%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 6,400 Chancellor Media Corp. $3.00 cv. cum. pfd. $ 743,200 5,750 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 58,938 52 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 509,600 1,091 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. (PIK) 54,550 -------------- Total Convertible Preferred Stocks (cost $1,615,676) $ 1,366,288 SHORT-TERM INVESTMENTS (3.7%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 18,000,000 Diageo Capital PLC, effective yield of 4.83%, March 5, 1999 (United Kingdom) $ 17,922,720 23,517,000 Interest in $308,920,000 joint repurchase agreement dated January 29, 1999 with Credit Suisse First Boston due February 1, 1999 with respect to various U.S. Treasury obligations -- maturity value of $23,526,172 for an effective yield of 4.68% 23,517,000 -------------- Total Short-Term Investments (cost $41,439,720) $ 41,439,720 - -------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,187,338,566) (b) $1,142,548,935 - -------------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $1,129,221,048. (b) The aggregate identified cost on a tax basis is $1,191,448,959, resulting in gross unrealized appreciation and depreciation of $57,543,460 and $106,443,484, respectively, or net unrealized depreciation of $48,900,024. (NON) Non-income-producing security. (STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin receiving interest at this rate. (RES) Restricted, excluding 144A securities, as to pubic resale. The total market value of restricted securities held at January 31, 1999 was $6,096,315 or 0.5% 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, 1999. (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 a Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are current interest rates shown at January 31, 1999 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, 1999: (as percentage of Market Value) Brazil 2.0% Canada 2.9 France 1.5 Germany 1.7 Mexico 2.0 Netherlands 3.6 United Kingdom 7.7 United States 72.5 Others 6.1 ----- Total 100.0% ===== - ------------------------------------------------------------------------------- Forward Currency Contracts to Buy at January 31, 1999 (Unaudited) (aggregate face value $172,803,107) Unrealized Aggregate Face Delivery Appreciation/ Market Value Value Date (Depreciation) - ------------------------------------------------------------------------------- Australian Dollars $899,802 $913,813 2/17/99 $ (14,011) Danish Krone 6,928,284 7,078,795 2/17/99 (150,511) Deutschemarks 75,284,481 77,567,881 2/17/99 (2,283,400) Italian Lira 16,512,188 17,059,320 2/17/99 (547,132) Japanese Yen 52,877,326 51,807,407 3/17/99 1,069,919 Spanish Peseta 7,881,267 8,062,091 2/17/99 (180,824) Swedish Krona 10,639,166 10,313,800 2/17/99 325,366 - ------------------------------------------------------------------------------- $(1,780,593) - ------------------------------------------------------------------------------- Forward Currency Contracts to Sell at January 31, 1999 (Unaudited) (aggregate face value $265,764,799) Unrealized Market Aggregate Face Delivery Appreciation/ Value Value Date (Depreciation) - ------------------------------------------------------------------------------- British Pounds $55,092,539 $55,175,288 3/17/99 $ 82,749 Canadian Dollar 7,921,793 7,803,457 2/17/99 (118,336) Danish Krone 39,395 40,561 2/17/99 1,166 Deutschemarks 93,917,902 96,697,329 2/17/99 2,779,427 Dutch Guilder 30,618,400 31,589,319 2/17/99 970,919 French Franc 15,073,875 15,463,314 2/17/99 389,439 Hong Kong Dollar 7,578,262 7,659,841 2/17/99 81,579 Japanese Yen 52,405,009 51,335,690 3/17/99 (1,069,319) - ------------------------------------------------------------------------------- $3,117,624 - ------------------------------------------------------------------------------- Futures Contracts Outstanding at January 31, 1999 (Unaudited) Unrealized Total Aggregate Face Expiration Appreciation/ Value Value Date (Depreciation) - ------------------------------------------------------------------------------- U. S. Treasury Bond 20 yr. (Long) $71,680,000 $71,557,412 Mar-99 $122,588 U. S. Treasury Bond 20 yr. (Short) 896,000 889,611 Mar-99 (6,389) - ------------------------------------------------------------------------------- $116,199 - ------------------------------------------------------------------------------- TBA Sale Commitments at January 31, 1999 (Unaudited) (Proceeds receivable $6,466,915) Principal Settlement Market Agency Amount Date Value - ------------------------------------------------------------------------------- GNMA, 6 1/2s, February 2029 $6,422,000 2/22/99 $6,494,248 - ------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities January 31, 1999 (Unaudited) Assets - ----------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $1,187,338,566) (Note 1) $1,142,548,935 - ----------------------------------------------------------------------------------------------- Cash 2,670,532 - ----------------------------------------------------------------------------------------------- Foreign currency (cost $376,645) 386,703 - ----------------------------------------------------------------------------------------------- Dividends, interest and other receivables 20,684,953 - ----------------------------------------------------------------------------------------------- Receivable for securities sold 14,279,522 - ----------------------------------------------------------------------------------------------- Receivable for variation margin 103,688 - ----------------------------------------------------------------------------------------------- Receivable for open forward currency contracts 5,734,301 - ----------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts 64,862 - ----------------------------------------------------------------------------------------------- Total assets 1,186,473,496 Liabilities - ----------------------------------------------------------------------------------------------- Distributions payable to shareholders 8,855,896 - ----------------------------------------------------------------------------------------------- Payable for securities purchased 34,983,060 - ----------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 1,890,725 - ----------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 132,210 - ----------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 26,105 - ----------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 1,452 - ----------------------------------------------------------------------------------------------- Payable for open forward currency contracts 4,397,270 - ----------------------------------------------------------------------------------------------- Payable for closed forward currency contracts 222,087 - ----------------------------------------------------------------------------------------------- TBA sales commitments, at value (proceeds receivable $6,466,915) 6,494,248 - ----------------------------------------------------------------------------------------------- Other accrued expenses 249,395 - ----------------------------------------------------------------------------------------------- Total liabilities 57,252,448 - ----------------------------------------------------------------------------------------------- Net assets $1,129,221,048 Represented by - ----------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $1,217,545,018 - ----------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (12,731,164) - ----------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (32,180,563) - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (43,412,243) - ----------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $1,129,221,048 Computation of net asset value - ----------------------------------------------------------------------------------------------- Net asset value per share ($1,129,221,048 divided by 140,572,311 shares) $8.03 - ----------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of operations Six months ended January 31, 1999 (Unaudited) Investment income: - ----------------------------------------------------------------------------------------------- Interest income (net of foreign tax of $66,421) $51,638,799 - ----------------------------------------------------------------------------------------------- Dividends 2,170,674 - ----------------------------------------------------------------------------------------------- Total investment income 53,809,473 Expenses: - ----------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 3,895,673 - ----------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 654,870 - ----------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 13,433 - ----------------------------------------------------------------------------------------------- Administrative services (Note 2) 8,865 - ----------------------------------------------------------------------------------------------- Reports to shareholders 21,556 - ----------------------------------------------------------------------------------------------- Auditing 44,994 - ----------------------------------------------------------------------------------------------- Legal 3,489 - ----------------------------------------------------------------------------------------------- Postage 94,172 - ----------------------------------------------------------------------------------------------- Exchange listing fees 59,024 - ----------------------------------------------------------------------------------------------- Other 3,247 - ----------------------------------------------------------------------------------------------- Total expenses 4,799,323 - ----------------------------------------------------------------------------------------------- Expense reduction (Note 2) (26,532) - ----------------------------------------------------------------------------------------------- Net expenses 4,772,791 - ----------------------------------------------------------------------------------------------- Net investment income 49,036,682 - ----------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (43,090,902) - ----------------------------------------------------------------------------------------------- Net realized gain on futures contracts (Note 1) 4,131,568 - ----------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (2,724,940) - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 2,063,789 - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of investments, futures contracts and TBA sale commitments during the period (50,930,291) - ----------------------------------------------------------------------------------------------- Net loss on investments (90,550,776) - ----------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(41,514,094) - ----------------------------------------------------------------------------------------------- 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 1999* 1998 - --------------------------------------------------------------------------------------------------------------- Decrease in net assets - --------------------------------------------------------------------------------------------------------------- Operations: - --------------------------------------------------------------------------------------------------------------- Net investment income $49,036,682 $103,451,712 - --------------------------------------------------------------------------------------------------------------- Net realized loss on investments and foreign currency transactions (41,684,274) (6,854,645) - --------------------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (48,866,502) (18,613,852) - --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (41,514,094) 77,983,215 - --------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------------------------------------- From net investment income (53,054,128) (92,539,997) - --------------------------------------------------------------------------------------------------------------- From net realized gain on investments -- (9,699,908) - --------------------------------------------------------------------------------------------------------------- Increase from capital share transactions 2,601,660 -- - --------------------------------------------------------------------------------------------------------------- Total decrease in net assets (91,966,562) (24,256,690) Net assets - --------------------------------------------------------------------------------------------------------------- Beginning of period 1,221,187,610 1,245,444,300 - --------------------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $12,731,164 and $8,713,718, respectively) $1,129,221,048 $1,221,187,610 - --------------------------------------------------------------------------------------------------------------- Number of fund shares - --------------------------------------------------------------------------------------------------------------- Shares outstanding at beginning of period 140,248,960 140,248,960 - --------------------------------------------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 323,351 -- - --------------------------------------------------------------------------------------------------------------- Shares outstanding at end of period 140,572,311 140,248,960 - --------------------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended Per-share January 31 operating performance (Unaudited) Year ended July 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $8.71 $8.88 $8.53 $8.46 $8.29 $8.87 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .35 .74 .65 .64 .68 .64 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.65) (.18) .38 .09 .17 (.50) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations (.30) .56 1.03 .73 .85 .14 - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.38) (.66) (.65) (.65) (.58) (.70) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net investment income -- -- (.03) (.01) -- (.02) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain -- (.07) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ From return of capital -- -- -- -- (.10) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.38) (.73) (.68) (.66) (.68) (.72) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $8.03 $8.71 $8.88 $8.53 $8.46 $8.29 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at market value (%)(a) (3.36)* 8.06 26.24 7.94 6.86 .95 - ------------------------------------------------------------------------------------------------------------------------------------ Market value, end of period $8.31 $8.50 $8.56 $7.38 $7.44 $7.63 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $1,129,221 $1,221,188 $1,245,444 $1,199,854 $1,190,375 $1,166,726 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .42* .89 .83 .85 .82 .86 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 4.31* 8.34 7.42 7.43 8.29 7.30 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 75.97* 209.50 262.01 332.00 196.83 242.29 - ------------------------------------------------------------------------------------------------------------------------------------ (a) Total return assumes dividend reinvestment. (b) The ratio of expenses to average net assets for the period ended July 31, 1996 and thereafter includes amounts paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
Notes to financial statements January 31, 1999 (Unaudited) Note 1 Significant accounting policies Putnam Premier Income Trust (the "fund") is registered under the Investment Company Act of 1940, as amended, as a non-diversified, closed-end management investment company. The fund's investment objective is to seek high current income consistent with the preservation of capital by allocating its investments among the U.S. government sector, high yield sector and international sector of the fixed income securities market. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. 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 sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments, including restricted securities, are stated at fair value following procedures approved by the Trustees. Market quotations are not considered to be readily available for certain debt obligations; such investments are stated at fair value on the basis of valuations furnished by a pricing service or dealers, approved by the Trustees, which determines valuations for normal, institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Discounts on zero coupon bonds, original issue discount bonds, stepped-coupon bonds and payment in kind bonds are accreted according to the yield-to-maturity basis. 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. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. H) TBA purchase commitments The fund may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitments will not fluctuate more than 1.0% from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Security valuation" above. Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for their portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. I) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security valuation" above. The contract is "marked-to-market" daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. K) Distributions to shareholders Distributions to shareholders are recorded by the fund on the ex-dividend date. At certain times, the fund may pay distributions at a level rate even though, as a result of market conditions or investment decisions, the fund may not achieve projected investment results for a given period. 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 subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the six months ended January 31, 1999, fund expenses were reduced by $26,532 under expense offset arrangements with PFTC. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Each Trustee of the fund receives an annual Trustee fee, of which $980 has been allocated to the fund, and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the 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 in the fund and are 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 Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. Note 3 Purchase and sales of securities During the six months ended January 31, 1999, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $576,290,407 and $477,876,453, respectively. Purchases and sales of U.S. government obligations aggregated $280,290,757 and $369,466,725, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. 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 period ended January 31, 1999, the fund did not repurchase any shares. As of January 31, 1999, a total of 511,000 shares have been repurchased since the inception of the program. Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman John A. Hill, Vice Chairman Jameson Adkins Baxter Hans H. Estin Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Edward H. D'Alelio Vice President Jennifer E. Leichter Vice President and Fund Manager David Waldman Vice President and Fund Manager D. William Kohli Vice President and Fund Manager Richard A. Monaghan Vice President John R. Verani Vice President Beverly Marcus Clerk and Assistant Treasurer Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit our website (www.putnaminv.com) any time for up-to-date information about the fund's NAV. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 www.putnaminv.com - --------------------- BULK RATE U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- 49939-073 3/99 -----END PRIVACY-ENHANCED MESSAGE-----