Putnam
Premier
Income
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-01
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
Putnam Premier Income Trust's broadly diversified portfolio
demonstrated the merits of the fund's strategy in the uncertain global
fixed-income markets that prevailed throughout the first half of fiscal
2001. Its diversified strategy across investment-grade, high-yield, and
international sectors provided stability as each sector reacted
differently to the global environment.
In the following report, David Waldman and the Core Fixed-Income Team
discuss the challenging global economic and market environments in which
they worked as they pursued the fund's twin objectives of high current
income and relative stability of net asset value.
As the team assesses prospects for the fiscal year's second half, it
expresses some optimism about prospects for high-yield bonds and will
continue to take advantage of opportunities in both international and
investment-grade sectors.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
March 21, 2001
REPORT FROM FUND MANAGEMENT
David L. Waldman
and the Core
Fixed-Income Team
During the six months ended January 31, 2001, world markets experienced
significant volatility. Many equity markets posted negative results,
while most fixed-income markets achieved positive returns as interest
rates fell. Foreign currencies were stable to weaker relative to the
U.S. dollar. Putnam Premier Income Trust's strategy allowed the fund to
weather the volatile market environment through a diversified approach
to fixed-income investing.
Total return for 6 months ended 1/31/01
NAV Market price
-----------------------------------------------------------------------
2.78% 8.99%
-----------------------------------------------------------------------
Past performance is not indicative of future results. Performance based
on market prices for the shares will vary from performance based on the
portfolio's net asset value. Performance information for longer periods
begins on page 5.
* PERFORMANCE MARKED BY CHANGING MARKET SENTIMENT
During the period, investors experienced a change in market psychology
over a relatively short period. At the beginning of the fund's fiscal
year, a more stable market environment had returned on the heels of the
Federal Reserve Board's decisions to increase interest rates between mid
1999 and early 2000. Investors also were confident that the U.S. economy
could achieve a soft landing. However, the stability was short-lived, as
market psychology changed in anticipation of a U.S. and global economic
slowdown which not only impacted U.S. markets but was felt worldwide.
The fixed-income market enjoyed positive performance during the period,
with investment-grade sectors and emerging markets leading the way. In
the international sector, local bond returns were positive as rates
fell, although the weakening of foreign currencies limited the
performance in terms of U.S. dollars. The high-yield markets continued
to underperform because of slowing economic growth and equity market
volatility.
[GRAPHIC OMITTED: horizontal bar chart SECTOR ALLOCATIONS]
SECTOR ALLOCATIONS*
High yield 48.5%
U.S. investment
grade 28.4%
Foreign 23.3%
Footnote reads:
*Based on market value as of 1/31/01. Holdings will vary over time.
During the final month of your fund's semiannual period, many sectors
experienced a dramatic turnaround. The Fed's surprise interest-rate cut
on January 3, 2001, and its additional cut at the end of the month
demonstrated its resolve to avert a hard economic landing. Investors
welcomed the reduction in interest rates, and many of the sectors
managed to recoup losses experienced through the end of the 2000
calendar year. Speculation that a U.S. economic soft landing could be
achieved in 2001 contributed to the renewed popularity of higher-risk
investments such as high-yield corporates and emerging markets.
* INVESTMENT-GRADE SECURITIES REMAINED RELIABLE AS HIGH-YIELDS RECOVERED
Within the investment-grade sector, securities posted positive returns
during the period. Thanks to a rally in U.S. interest rates, the fund
benefited from the strong price appreciation of investment-grade
sectors; the yield of a representative U.S. 10-year Treasury bond fell
approximately a full percentage point during the period. Both mortgage
and corporate sectors slightly outperformed Treasuries and experienced
significantly stronger returns in January 2001. Because of the fund's
overweighted position in investment-grade securities, we were able to
take advantage of this positive performance.
[GRAPHIC OMITTED: TOP SECTOR HOLDINGS]
TOP SECTOR HOLDINGS*
Top three high-yield holdings
Echostar Broadband Corp. 144A
sr. notes 10 3/8s, 2007
Huntsman ICI Chemicals, Inc.
company guaranty 10 1/8s, 2009
Nextel Communications, Inc. 144A
sr. notes 9 1/2s, 2011
Top three U.S. government holdings
U.S. Treasury Notes 6 1/2s, 2/15/10
U.S. Treasury Notes 5 3/4s, 8/15/10
FNMA Pass-through Certificates
7 1/2s, 6/1/15 to 10/1/15
Top three international holdings
Italy (Government of) bonds 7 1/4s, 2026
Germany (Federal Republic of) bonds
Ser. 132, 4 1/8s, 2004
Hellenic Greece (Republic of) bonds
6 1/2s, 2014
Footnote reads:
These holdings represent 18.4% of the fund's net assets as of 1/31/01.
Holdings will vary over time.
High-yield corporates underperformed for most of the fund's fiscal
2000. Several factors, including volatile equity markets, increasing
defaults, and slowing economic growth, contributed to a difficult period
for high yield securities. Specifically, telecommunications, which tends
to be a large sector within the high yield universe, experienced poor
performance due to investor uncertainty. Spreads of high-yield
securities (the difference between the yields of high-yield corporate
securities and Treasury securities of comparable maturity) widened
throughout most of the period and then narrowed in January 2001. This
allowed the sector to gain back some of its negative performance.
Fortunately we kept the fund underweighted in high-yield securities
through most of the period, which contributed to performance, but it
did not completely escape the negative impact of the telecommunications
sector. Towards the end of the period, we increased our high-yield
allocation as valuations and fundamentals became favorable.
* DEVELOPED AND EMERGING MARKETS BOLSTERED RETURNS
Within the international sector, emerging markets generated attractive
returns because of attractive valuations and supportive economic and
political environments. The fund positions in Mexico and Russia
contributed to positive performance. Mexican securities benefited from a
growing economy while Russia benefited from firm oil prices. The
performance of international developed markets benefited from falling
interest rates, but was hurt by currency weakness relative to the U.S.
dollar. We were able to take advantage of opportunities in Canada, the
United Kingdom, and Greece. Our position in Greece has benefited from
further integration with Europe.
* OUTLOOK FOR 2001: KEEPING A CLOSE WATCH
While the market continues its bumpy ride, we continue to monitor the
fixed-income universe closely and look for positive fundamentals and
attractive valuations. With the Fed taking an aggressive stance with
regard to the U.S. economy, resolving to avert a hard landing and
engineer a more stable economic environment, we believe that a recession
is unlikely in the near future. Within the investment-grade market, we
will continue to take advantage of opportunities in the mortgage-backed
sector.
A full recovery for high-yield bonds may very well be in the cards for
the near future, as their recent positive performance and popularity
suggest stronger prospects. However, we will monitor the fund's
high-yield weighting closely in the short term, should this turn out not
to be the case. Within the international marketplace, we continue to
take advantage of opportunities in the developed market universe and
remain neutral with regard to emerging markets. Although more
volatility and uncertainty may be in store, we believe the fund is well
positioned to meet the challenges of fiscal 2001.
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 1/31/01, there is no guarantee the fund will
continue to hold these securities in the future. International
investments are subject to certain risks, such as currency fluctuations,
economic instability, and political developments. While the U.S.
government backing of individual securities does not insure your
principal, which will fluctuate, it does guarantee that the fund's
government-backed holdings will make timely payments of interest and
principal. Mortgage-backed securities in the portfolio may be subject to
prepayment risk. 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 will affect the issuer's
ability to pay principal and interest.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing regulations
for semiannual and annual reports and prospectuses. Putnam is now able to
send a single copy of these materials to customers who share the same
address. This change will automatically apply to all shareholders except
those who notify us. If you prefer to receive your own copy, please call
Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. 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 1/31/01
NAV Market price
--------------------------------------------------
6 months 2.78% 8.99%
--------------------------------------------------
1 year 5.89 21.97
--------------------------------------------------
5 years 26.87 32.85
Annual average 4.88 5.85
--------------------------------------------------
10 years 126.14 133.44
Annual average 8.50 8.85
--------------------------------------------------
Life of fund
(since 2/29/88) 180.56 145.34
Annual average 8.31 7.19
--------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/01
Salomon Bros.
Lehman Bros. Non-U.S. First Boston
Government World Govt. High Yield Consumer
Index Bond Index Index price index
-------------------------------------------------------------------------------------------------------
6 months 7.93% 1.59% 0.37% 1.68%
-------------------------------------------------------------------------------------------------------
1 year 14.22 -0.06 0.87 3.84
-------------------------------------------------------------------------------------------------------
5 years 37.49 10.44 29.68 13.57
Annual average 6.57 2.01 5.33 2.58
-------------------------------------------------------------------------------------------------------
10 years 114.14 84.71 198.15 30.53
Annual average 7.91 6.33 11.54 2.70
-------------------------------------------------------------------------------------------------------
Life of fund (since 2/29/88) 175.66 125.34 207.47 51.47
Annual average 8.16 6.49 9.08 3.27
-------------------------------------------------------------------------------------------------------
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 in an index.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/01
--------------------------------------------------
Distributions (number) 6
--------------------------------------------------
Income $0.318
--------------------------------------------------
Capital gains --
--------------------------------------------------
Total $0.318
--------------------------------------------------
Share value: NAV Market price
--------------------------------------------------
7/31/00 $7.19 $6.375
--------------------------------------------------
1/31/01 7.03 6.610
--------------------------------------------------
Current return (end of period)
--------------------------------------------------
Current dividend rate 1 9.05% 9.62%
--------------------------------------------------
1 Income portion of most recent distribution,
annualized and divided by NAV or market price
at end of period.
TOTAL RETURN FOR PERIODS ENDED 12/31/00 (most recent calendar quarter)
NAV Market price
--------------------------------------------------
6 months -0.52% 2.02%
--------------------------------------------------
1 year 1.74 11.92
--------------------------------------------------
5 years 24.53 27.00
Annual average 4.48 4.90
--------------------------------------------------
10 years 122.32 120.65
Annual average 8.32 8.24
--------------------------------------------------
Life of fund
(since 2/29/88) 171.61 125.54
Annual average 8.09 6.54
--------------------------------------------------
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.
Footnote reads:
*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.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
THE FUND'S PORTFOLIO
January 31, 2001 (Unaudited)
CORPORATE BONDS AND NOTES (49.3%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
$ 190,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 194,275
930,000 AOA Holdings LLC sr. notes 10 3/8s, 2006 874,200
969,955 Interact Operating Co. 144A notes 14s, 2003 29,099
585,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 608,400
420,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 436,800
1,150,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 1,175,875
-------------
3,318,649
Aerospace and Defense (0.9%)
-------------------------------------------------------------------------------------------------------------------
1,735,000 Argo-Tech Corp. 144A company guaranty 8 5/8s, 2007 1,457,400
1,660,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 1,701,500
960,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 933,600
1,180,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 1,109,200
540,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 572,400
1,310,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,310,000
460,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 457,700
1,630,000 Sequa Corp. sr. notes 9s, 2009 1,658,525
-------------
9,200,325
Agriculture (0.3%)
-------------------------------------------------------------------------------------------------------------------
2,914,545 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 2,637,663
Airlines (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,390,000 Airbus Industries 144A notes Ser. D, 12.266s, 2020 1,500,630
1,430,000 Calair LLC 144A company guaranty 8 1/8s, 2008 1,376,375
250,000 Continental Airlines, Inc. notes 8s, 2005 236,420
110,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 109,359
330,000 Northwest Airlines, Inc. company guaranty 8 3/8s, 2004 325,532
30,000 Northwest Airlines, Inc. company guaranty 7 7/8s, 2008 28,366
770,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 747,524
780,000 US Air, Inc. pass-through certificates Ser. 93A3, 10 3/8s, 2013 776,100
-------------
5,100,306
Automotive (1.3%)
-------------------------------------------------------------------------------------------------------------------
460,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 427,800
1,070,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 995,100
300,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 255,000
1,380,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 1,162,650
880,000 Exide Corp. sr. notes 10s, 2005 660,000
200,000 Federal Mogul Corp. notes 7 7/8s, 2010 48,000
2,900,000 Federal Mogul Corp. notes 7 3/4s, 2006 754,000
280,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
8 1/4s, 2008 182,000
1,990,000 Hayes Wheels International, Inc. company guaranty 11s, 2006 1,542,250
1,970,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 1,379,000
180,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 118,800
995,000 Lear Corp. sub. notes 9 1/2s, 2006 971,538
600,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 587,382
790,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 785,347
2,590,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 1,683,500
740,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 (In default)(NON) 297,850
490,000 Tenneco, Inc. company guaranty 11 5/8s, 2009 267,050
1,270,000 Transportation Manufacturing Operations, Inc. company
guaranty 11 1/4s, 2009 381,000
-------------
12,498,267
Banking (1.2%)
-------------------------------------------------------------------------------------------------------------------
495,000 Bangko Sentral NG Pilipinas bonds 8.6s, 2027 (Philippines) 331,650
250,000 Bank United Corp. notes 8 7/8s, 2007 258,463
860,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 851,400
850,000 Colonial Capital II 144A company guaranty 8.92s, 2027 806,074
110,000 Dime Capital Trust I bonds Ser. A, 9.33s, 2027 104,456
1,650,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 1,598,751
2,310,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 2,344,650
930,000 Local Financial Corp. sr. notes 11s, 2004 930,000
165,000 North Fork Capital Trust I company guaranty 8.7s, 2026 159,098
115,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 119,024
715,000 Provident Capital Trust company guaranty 8.6s, 2026 623,523
410,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 260,674
2,980,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 3,114,100
585,000 Sovereign Capital Trust company guaranty 9s, 2027 411,910
505,000 Webster Capital Trust I 144A bonds 9.36s, 2027 441,345
-------------
12,355,118
Beverage (0.1%)
-------------------------------------------------------------------------------------------------------------------
420,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 414,750
Broadcasting (3.7%)
-------------------------------------------------------------------------------------------------------------------
1,440,000 Acme Television 144A sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 1,353,600
680,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 668,100
910,000 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 1,003,275
1,160,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 870,000
760,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009
(United Kingdom) 763,739
420,000 Central European Media Enterprises, Ltd. sr. notes 9 3/8s,
2004 (Bermuda) 118,650
2,040,000 Chancellor Media Corp. company guaranty 8s, 2008 2,078,250
559,390 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 587,360
2,986,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 1,134,680
6,790,000 Echostar Broadband Corp. 144A sr. notes 10 3/8s, 2007 7,146,475
1,580,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 1,623,450
1,000,000 Emmis Broadcasting Corp. bank term loan, FRN 9.246s, 2009 1,003,750
920,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 802,700
1,390,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,417,800
480,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 499,200
790,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 805,800
900,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 627,750
345,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 86,250
2,200,000 Lin Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 1,738,000
280,000 LIN Television Corp. company guaranty 8 3/8s, 2008 274,400
830,000 News America, Inc. sr. notes 6 5/8s, 2008 795,431
450,000 Paxson Communications Corp. 144A sr. sub. notes 11 5/8s, 2002 456,750
50,000 Pegasus Communications Corp. sr. notes 12 1/2s, 2007 53,000
360,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 381,600
4,096,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 3,966,566
1,010,000 Radio One, Inc. company guaranty stepped-coupon Ser. B,
7s (12s, 5/15/01), 2004 (STP) 1,055,450
130,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 48,750
680,000 RCN Corp. sr. notes 10 1/8s, 2010 380,800
400,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 128,000
370,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 351,500
640,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 601,600
260,000 Spanish Broadcasting System, Inc. sr. sub. notes 9 5/8s, 2009 239,200
2,070,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 2,038,950
800,000 XM Satellite Radio Holdings, Inc. sec. notes 14s, 2010 544,000
1,460,000 Young Broadcasting Inc. 144A sr. sub notes 10 1/8s, 2005 1,481,900
-------------
37,126,726
Building Materials (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,050,000 American Standard, Inc. company guaranty 7 5/8s, 2010 1,983,375
100,000 American Standard, Inc. company guaranty 7 1/8s, 2003 98,000
390,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 331,500
860,000 Building Materials Corp. company guaranty 8s, 2008 335,400
1,420,000 Dayton Superior Corp. company guaranty 13s, 2009 1,416,450
690,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 669,300
-------------
4,834,025
Cable Television (3.2%)
-------------------------------------------------------------------------------------------------------------------
1,880,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010 1,978,700
1,630,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 1,621,850
530,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 492,900
320,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 288,000
860,000 Century Communications Corp. sr. notes 8 7/8s, 2007 799,800
1,490,000 Charter Communications Holdings LLC 144A sr. disc. notes
stepped-coupon zero % (13 1/2s, 1/15/06), 2011 (STP) 901,450
710,000 Charter Communications Holdings LLC 144A sr. notes
11 1/8s, 2011 749,050
680,000 Charter Communications Holdings LLC sr. notes 10s, 2009 700,400
1,270,000 Charter Communications Holdings LLC sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 850,900
2,900,000 Charter Communications Holdings LLC sr. notes 8 5/8s, 2009 2,798,500
440,000 Charter Communications Holdings LLC sr. notes 8 1/4s, 2007 424,600
2,335,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(10 3/4s, 11/15/00), 2007 (Bermuda) (STP) 2,194,900
2,015,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 2,156,050
290,000 CSC Holdings, Inc. deb. 7 5/8s, 2018 275,921
2,565,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,923,750
2,040,000 Insight Midwest LP/Insight Capital, Inc. 144A sr. notes
10 1/2s, 2010 2,182,800
1,049,000 International Cabletel, Inc. sr. disc. notes stepped-coupon
zero % (11 1/2s, 2/1/01), 2006 (STP) 1,007,040
1,130,000 Mediacom LLC/Mediacom Capital Corp. 144A sr. notes
9 1/2s, 2013 1,138,475
1,760,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 1,707,200
1,520,000 NTL, Inc. sr. notes Ser. A, 12 3/4s, 2005 1,352,800
330,000 Rogers Cablesystems, Ltd. deb. 10 1/8s, 2012 (Canada) 356,400
170,000 Rogers Cablesystems, Ltd. notes 11s, 2015 (Canada) 192,100
930,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) (In default) (NON) 306,900
590,000 TeleWest Communications PLC sr. disc. notes stepped-coupon
zero % (11 3/8s, 2/1/05), 2010 (United Kingdom) (STP) 324,500
570,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008
(United Kingdom) 570,000
700,000 TeleWest Communications PLC deb. 11s, 2007
(United Kingdom) 677,250
540,000 TeleWest Communications PLC structured note (issued by
DLJ International Capital) 10 7/8s, 2005 (United Kingdom) 504,684
80,000 TeleWest Communications PLC sr. notes 9 7/8s, 2010
(United Kingdom) 75,200
300,000 TeleWest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 288,000
960,000 TeleWest Communications PLC sr. disc. notes stepped-coupon
zero % (9 1/4s, 4/15/04), 2009 (United Kingdom) (STP) 559,200
2,420,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon zero %
(13 3/4s, 2/1/05), 2010 (Netherlands) (STP) 943,800
350,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon zero %
(12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 133,000
380,000 United Pan-Europe N.V. sr. notes 11 1/4s, 2010 (Netherlands) 296,400
1,180,000 United Pan-Europe N.V. 144A bonds 10 7/8s,
2009 (Netherlands) 908,600
780,000 United Pan-Europe N.V. 144A sr. disc. notes stepped-coupon
zero % (12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 296,400
-------------
31,977,520
Chemicals (1.9%)
-------------------------------------------------------------------------------------------------------------------
2,490,000 Arco Chemical Co. deb. 9.8s, 2020 2,340,600
1,040,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 894,400
220,000 Hercules, Inc. 144A company guaranty 11 1/8s, 2007 210,100
5,525,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 5,663,125
1,130,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 1,028,300
180,000 ISP Holdings, Inc. sr. notes Ser. B, 9s, 2003 158,400
975,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 994,500
1,830,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 1,866,600
290,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s,
2007 (India) 87,000
2,345,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007
(In default) (NON) 726,950
520,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 390,000
470,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 340,750
1,364,000 Polytama International notes 11 1/4s, 2007 (Indonesia) 68,200
1,210,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 895,400
670,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 676,700
1,085,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 162,750
950,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 926,250
720,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 424,800
330,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 188,100
280,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 217,000
940,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 768,450
-------------
19,028,375
Coal (0.1%)
-------------------------------------------------------------------------------------------------------------------
728,450 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 276,811
1,760,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005
(In default) (NON) 123,200
-------------
400,011
Commercial and Consumer Services (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,150,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 2,225,250
855,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 615,600
510,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 377,400
1,000,000 Travel Centers of America Corp. bank term loan, FRN
10.01s, 2007 1,007,500
-------------
4,225,750
Communications Equipment (--%)
-------------------------------------------------------------------------------------------------------------------
420,000 Telex Communications, Inc. 144A company guaranty
10 1/2s, 2007 227,325
Components (0.1%)
-------------------------------------------------------------------------------------------------------------------
710,000 Seagate Technology, Inc. 144A company guaranty 12 1/2s,
2007 (Cayman Islands) 702,900
Construction (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,950,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 1,608,750
1,690,000 Morrison Knudsen Corp. 144A sr. notes 11s, 2010 1,554,800
-------------
3,163,550
Consumer (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,020,000 Derby Cycle Corp. (The) sr. notes 10s, 2008 286,875
760,000 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 108,379
1,300,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 468,000
1,600,000 Jostens, Inc. sr. sub notes 12 3/4s, 2010 1,632,000
1,390,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 1,056,400
1,000,000 Sealy Mattress Co. company guaranty stepped-coupon Ser. B,
zero % (10 7/8s, 12/15/02), 2007 (STP) 835,000
450,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 468,000
-------------
4,854,654
Consumer Finance (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,015,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 507,500
810,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 486,000
980,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 916,300
1,030,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 (In default) (NON) 159,650
1,510,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (In default) (NON) 234,050
1,150,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 (In default) (NON) 178,250
1,885,000 Delta Financial Corp. company guaranty 9 1/2s, 2004 716,300
550,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 165,000
790,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 632,000
-------------
3,995,050
Consumer Goods (0.7%)
-------------------------------------------------------------------------------------------------------------------
1,910,000 Albecca, Inc. company guaranty 10 3/4s, 2008 1,814,500
1,150,000 Doane Pet Care Corp. sr. sub. deb. 9 3/4s, 2007 989,000
860,000 Elizabeth Arden, Inc. 144A notes 11 3/4s, 2011 894,400
320,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 312,000
840,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 166,950
2,370,000 Playtex Products, Inc. sr. sub notes 9s, 2003 2,322,600
190,000 Playtex Products, Inc. 144A company guaranty Ser. B,
8 7/8s, 2004 186,200
350,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 259,000
-------------
6,944,650
Consumer Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
795,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 806,925
2,400,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 2,316,000
-------------
3,122,925
Consumer Staples (--%)
-------------------------------------------------------------------------------------------------------------------
790,000 Doskcil Manufacturing Co sr. sub. notes 10 1/8s, 2007 197,500
Containers (0.7%)
-------------------------------------------------------------------------------------------------------------------
1,530,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 1,415,250
570,000 Huntsman Packaging Corp. company guaranty 13s, 2010 356,250
880,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 686,400
670,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 546,050
650,000 Radnor Holdings, Inc. sr. notes 10s, 2003 552,500
460,000 Stone Container Corp. 144A company guaranty 11 1/2s,
2006 (Canada) 471,500
2,100,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 1,974,000
510,000 U.S. Can Corp. 144A sr. sub. notes 12 3/8s, 2010 530,400
-------------
6,532,350
Electric Utilities (0.6%)
-------------------------------------------------------------------------------------------------------------------
991,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 728,385
310,000 CMS Energy Corp. sr. notes 7 1/2s, 2009 288,703
2,640,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 2,534,400
775,917 Luannan Energy Co. sec. notes 12 1/4s, 2002
(Cayman Islands) (FWC/WIS) 387,958
806,228 Northeast Utilities System notes Ser. A, 8.58s, 2006 825,480
265,067 Northeast Utilities System notes Ser. B, 8.38s, 2005 271,057
992,500 TNP Enterprises, Inc. 9.04s, 2005 996,842
-------------
6,032,825
Energy (0.7%)
-------------------------------------------------------------------------------------------------------------------
250,000 Compagnie Generale de Geophysique SA 144A sr. notes
10 5/8s, 2007 (France) 263,125
560,000 Grant Prideco, Inc. 144A sr. notes 9 5/8s, 2007 590,100
1,530,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 1,568,250
1,010,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 1,047,875
530,000 RBF Finance Co. company guaranty 11 3/8s, 2009 638,650
2,550,000 RBF Finance Co. company guaranty 11s, 2006 3,072,750
-------------
7,180,750
Entertainment (0.6%)
-------------------------------------------------------------------------------------------------------------------
280,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 207,200
1,805,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 1,353,750
390,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 394,875
2,300,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,323,000
2,300,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 (In default) (NON) 138,000
1,030,000 Regal Cinemas, Inc. sr. sub. notes 8 7/8s, 2010 (In default) (NON) 103,000
1,120,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 89,600
1,240,000 Six Flags, Inc. company guaranty 8 7/8s, 2006 1,255,500
420,000 Six Flags, Inc. 144A sr. notes 9 1/2s, 2009 422,625
859,000 United Artists Theatre 144A notes 10.415s, 2007 (In default) (NON) 18,254
2,459,000 United Artists Theatre sr. sub. notes Ser. B, 9 3/4s, 2008
(In default) (NON) 52,254
-------------
6,358,058
Financial (0.7%)
-------------------------------------------------------------------------------------------------------------------
125,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 71,875
2,000,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,965,880
600,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 593,442
1,005,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 572,850
200,000 Finova Capital Corp. sr. notes 7 5/8s, 2009 149,000
675,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 351,000
510,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 306,000
815,000 Ocwen Federal Bank sub. deb. 12s, 2005 733,500
680,000 Ocwen Financial Corp. notes 11 7/8s, 2003 584,800
1,030,000 Resource America, Inc. 144A sr. notes 12s, 2004 952,750
880,000 Superior Financial 144A sr. notes 8.65s, 2003 875,123
-------------
7,156,220
Food (0.4%)
-------------------------------------------------------------------------------------------------------------------
710,000 Archibald Candy Corp. company guaranty 10 1/4s, 2004 376,300
420,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 302,400
965,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 694,800
560,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 284,200
900,000 Premier International Foods PLC sr. notes 12s, 2009
(United Kingdom) 855,000
1,570,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 1,130,400
1,220,000 Vlasic Foods Intl., Inc. sr. sub. notes Ser. B, 10 1/4s, 2009 268,400
-------------
3,911,500
Gaming & Lottery (3.0%)
-------------------------------------------------------------------------------------------------------------------
710,000 Anchor Gaming company guaranty 9 7/8s, 2008 743,725
2,150,000 Autotote Corp. 144A company guaranty 12 1/2s, 2010 2,021,000
2,300,000 Autotote Corp. bank term loan FRN 7.195s, 2007 2,185,000
1,892,549 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s,
2004 (In default) (NON) 1,135,530
770,000 Harrah's Entertainment, Inc. company guaranty 7 7/8s, 2005 766,150
480,000 Harrah's Entertainment, Inc. company guaranty 7 1/2s, 2009 467,890
1,290,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 1,357,725
970,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 960,300
1,010,000 International Game Technology 144A sr. notes 8 3/8s, 2009 1,025,150
2,300,000 International Game Technology sr. notes 7 7/8s, 2004 2,328,750
540,000 Isle of Capri Black Hawk LLC 144A 1st mtge. Ser. B, 13s, 2004 588,600
930,000 Isle of Capri Casinos company guaranty 8 3/4s, 2009 818,400
1,270,000 Mandalay Resort Group sr. sub notes Ser. B, 10 1/4s, 2007 1,301,750
2,020,000 MGM Mirage company guaranty 8 3/8s, 2011 2,004,850
1,170,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 1,172,925
380,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 380,000
130,000 Park Place Entertainment Corp. sr. sub. notes 9 3/8s, 2007 135,200
1,700,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 1,734,000
410,000 Station Casinos, Inc. sr. sub notes 9 7/8s, 2010 426,400
3,380,000 Trump A.C. 1st mtge. 11 1/4s, 2006 2,264,600
1,810,000 Trump Castle Funding, Inc. 144A sr. sub. notes 11 3/4s, 2003 1,429,900
3,200,000 Trump Castle Funding, Inc. 144A sub. notes 10 1/4s, 2003 3,240,000
1,000,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 1,040,000
-------------
29,527,845
Health Care (1.7%)
-------------------------------------------------------------------------------------------------------------------
930,000 ALARIS Medical Systems, Inc. 144A company guaranty
9 3/4s, 2006 446,400
450,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 482,625
1,270,000 Conmed Corp. company guaranty 9s, 2008 1,143,000
750,000 HCA-The Healthcare Co. med. term notes 7.69s, 2025 671,250
520,000 HCA-The Healthcare Co. notes 8 3/4s, 2010 547,300
350,000 HCA-The Healthcare Co. notes 8.36s, 2024 331,625
1,060,000 HCA-The Healthcare Co. deb. 7.19s, 2015 954,000
1,530,000 HCA-The Healthcare Co. notes 7s, 2007 1,466,888
1,590,000 HCA-The Healthcare Corp. med. term notes 6.63s, 2045 1,564,735
805,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 716,450
940,000 Lifepoint Hospital Holdings company guaranty Ser. B,
10 3/4s, 2009 1,029,300
1,330,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 1,183,700
1,070,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 10,700
940,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 94
1,330,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 (In default) (NON) 527,013
310,000 Tenet Healthcare Corp. sr. notes Ser. B, 9 1/4s, 2010 337,900
1,503,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 1,519,909
120,000 Tenet Healthcare Corp. sr. notes 8s, 2005 122,100
880,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 875,600
2,390,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 2,557,300
-------------
16,487,889
Homebuilding (1.0%)
-------------------------------------------------------------------------------------------------------------------
840,000 D.R. Horton, Inc. sr. sub. notes 9 3/4s, 2010 844,200
670,000 D.R. Horton, Inc. company guaranty 8s, 2009 644,875
370,000 Del Webb Corp. sr. sub. deb. 10 1/4s, 2010 347,800
410,000 Del Webb Corp. sr. sub. debs 9 3/4s, 2008 385,400
550,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 500,500
920,000 K. Hovnanian Enterprises, Inc. 144A company guaranty
10 1/2s, 2007 901,600
1,790,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 1,897,400
720,000 Lennar Corp. sr. notes 7 5/8s, 2009 691,200
120,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 112,500
920,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 952,200
180,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 162,900
880,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 906,400
970,000 Toll Corp. sr. sub notes 8 1/4s, 2011 969,864
910,000 Toll Corp. company guaranty 8 1/8s, 2009 891,800
-------------
10,208,639
Industrial (--%)
-------------------------------------------------------------------------------------------------------------------
190,000 Dana Corp. notes 6 1/4s, 2004 166,649
Lodging/Tourism (0.8%)
-------------------------------------------------------------------------------------------------------------------
1,030,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 309,000
660,000 Felcor Lodging company guaranty 9 1/2s, 2008 675,715
640,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 638,400
3,910,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 3,822,025
1,720,000 ITT Corp. notes 6 3/4s, 2005 1,672,906
1,250,000 Meristar Hospitality Corp. 144A sr. notes 9 1/8s, 2011 1,264,063
-------------
8,382,109
Manufacturing (0.9%)
-------------------------------------------------------------------------------------------------------------------
3,440,000 Blount, Inc. 144A company guaranty 13s, 2009 2,855,200
262,268 Blount, Inc. 9.315s, 2006 243,910
775,000 Continental Global Group sr. notes Ser. B, 11s, 2007 232,500
992,983 Flowserve Corp. bank term loan 9.464s, 2006 992,983
1,860,000 Flowserve Corp. company guaranty 12 1/4s, 2010 1,953,000
2,160,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 2,073,600
575,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 517,500
-------------
8,868,693
Medical Services (0.1%)
-------------------------------------------------------------------------------------------------------------------
190,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 200,450
1,260,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s,
2007 (In default) (NON) 11,025
620,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s,
2008 (In default) (NON) 5,425
510,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (In default) (STP) 5,100
2,500,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s,
2007 (In default) (NON) 25,000
2,690,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 134,500
190,000 Service Corp. International debs. 7 7/8s, 2013 114,950
120,000 Service Corp. International notes 7.7s, 2009 75,000
1,130,000 Service Corp. International notes 6s, 2005 734,500
1,345,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 13,450
1,080,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 21,600
-------------
1,341,000
Medical Technology (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,780,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 498,400
Metals (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,490,000 AK Steel Corp. company guaranty 7 7/8s, 2009 2,197,425
1,710,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 1,316,700
80,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 68,800
40,000 Kaiser Aluminum & Chemical Corp. sr. notes 9 7/8s, 2002 38,900
1,680,000 LTV Corp. company guaranty 11 3/4s, 2009 193,200
1,760,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 299,200
406,000 Oregon Steel Mills 1st mortgage 11s, 2003 292,320
600,000 P&L Coal Holdings Corp. company guaranty Ser. B,
9 5/8s, 2008 615,000
1 UCAR Global 8.663s, 2008 1
730,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 569,400
100,000 Weirton Steel Co. 144A sr. notes 10 3/4s, 2005 28,000
1,290,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007
(In default)(NON) 38,700
690,000 WHX Corp. sr. notes 10 1/2s, 2005 414,000
-------------
6,071,646
Oil & Gas (1.8%)
-------------------------------------------------------------------------------------------------------------------
1,800,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 1,827,000
570,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 535,800
420,000 Chesapeake Energy Corp. company guaranty Ser. B,
9 5/8s, 2005 430,500
470,000 Giant Industries Corp. company guaranty 9s, 2007 437,100
150,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s,
2005 (Canada) 161,250
1,120,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 1,136,800
800,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 844,000
1,430,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 1,451,450
1,020,000 Nuevo Energy Co. 144A sr. sub. notes 9 3/8s, 2010 1,009,800
1,370,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 1,467,037
930,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 995,788
2,540,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 2,749,550
120,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 118,800
420,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 92,400
810,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 854,615
310,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 308,450
1,020,000 Triton Energy, Ltd. sr. notes 8 7/8s, 2007 (Cayman Islands) 1,040,400
1,590,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 1,721,175
430,000 Vintage Petroleum sr. sub. notes 9s, 2005 438,600
-------------
17,620,515
Paper & Forest Products (2.4%)
-------------------------------------------------------------------------------------------------------------------
650,000 Abitibi-Consolidated, Inc. deb. 8.85s, 2030 (Canada) 692,452
1,280,000 Abitibi-Consolidated, Inc. bonds 8.55s, 2010 (Canada) 1,360,870
1,600,000 App China Group Ltd. 144A sr. disc. notes 14s, 2010 (Bermuda) 432,000
1,505,000 APP Finance II Mauritius, Ltd. bonds stepped-coupon zero %
(12s, 2/15/04), 2049 (Indonesia) (STP) 90,300
526,000 Doman Industries, Ltd. company guaranty 12s, 2004 (Canada) 531,260
1,505,000 Doman Industries, Ltd. 144A sr. notes 8 3/4s, 2004 903,000
1,860,000 Four M Corp. sr. notes Ser. B, 12s, 2006 1,776,300
170,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/4s, 2007 119,000
250,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 170,000
1,295,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 518,000
4,250,000 Indah Kiat Financial Mauritius, Ltd. company guaranty 10s,
2007 (Indonesia) 1,147,500
1,450,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 1,486,250
2,810,000 Pindo Deli Finance Mauritius, Ltd. 144A company guaranty
10 3/4s, 2007 (Indonesia) 702,500
2,320,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 2,250,400
420,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 432,600
180,000 Stone Container Corp. sr. notes 12.58s, 2016 189,450
32,000 Stone Container Corp. sr. sub. deb. stepped-coupon 12 1/4s
(12 1/4s, 5/12/00), 2002 (STP) 32,120
90,000 Stone Container Corp. 1st mtge. 10 3/4s, 2002 91,125
838,786 Stone Container Corp. 10.105s, 2006 838,786
2,650,000 Stone Container Corp. 144A sr. notes 9 3/4s, 2011 2,709,625
4,787,826 Stone Container Corp. 9 3/8s, 2006 4,793,811
970,000 Stone Container Corp. 144A sr. notes 9 1/4s, 2008 986,975
1,080,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 1,093,500
-------------
23,347,824
Pharmaceuticals (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,240,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 1,271,000
1,230,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 1,254,600
110,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 112,200
-------------
2,637,800
Power Producers (1.4%)
-------------------------------------------------------------------------------------------------------------------
3,550,000 AES Corp. sr. notes 9 3/8s, 2010 3,709,750
530,000 Calpine Corp. sr. notes 10 1/2s, 2006 553,850
230,000 Calpine Corp. sr. notes 9 1/4s, 2004 230,131
1,050,000 Calpine Corp. sr. notes 7 7/8s, 2008 1,029,757
30,000 Calpine Corp. sr. notes 7 3/4s, 2009 30,000
3,150,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 3,581,771
1,220,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 1,314,416
386,564 Midland Funding II Corp. deb. Ser. C-94, 10.33s, 2002 396,580
1,270,000 Tiverton/Rumford Power Associates, Ltd. 144A pass-through
certificates 9s, 2018 1,274,013
1,655,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 1,779,125
-------------
13,899,393
Publishing (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,155,000 Affinity Group Holdings 144A sub. notes 11s, 2007 1,745,550
129,280 Big Flower Holdings bank term loan FRN 9.004s, 2010 127,664
290,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 269,700
760,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 706,800
770,000 PriMedia, Inc. company guaranty Ser. B, 8 1/2s, 2006 746,900
360,000 PriMedia, Inc. company guaranty 7 5/8s, 2008 338,400
-------------
3,935,014
Railroads (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,020,000 Kansas City Soutern Railway 144A sr. notes 9 1/2s, 2008 1,071,000
1,100,000 Railamerica Transportation Corp. company guaranty
12 7/8s, 2010 1,045,000
1,625,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 1,328,438
-------------
3,444,438
Regional Bells (0.1%)
-------------------------------------------------------------------------------------------------------------------
610,000 Alaska Communications Systems Corp. company guaranty
9 3/8s, 2009 579,500
Restaurants (0.5%)
-------------------------------------------------------------------------------------------------------------------
480,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 465,600
1,080,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 388,800
1,800,000 Sbarro, Inc. company guaranty 11s, 2009 1,872,000
1,470,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 1,429,105
830,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 824,265
-------------
4,979,770
Retail (0.9%)
-------------------------------------------------------------------------------------------------------------------
2,700,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 1,458,000
1,460,000 Grupo Elektra S.A. de C.V. sr. notes 12s, 2008 (Mexico) 1,401,600
560,000 Iron Age Corp. company guaranty 9 7/8s, 2008 380,800
40,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon zero %
(12 1/8s, 5/1/03), 2009 (STP) 4,000
710,000 K mart Corp. notes 9 3/8s, 2006 710,000
1,000,000 K mart Corp. notes 8 3/8s, 2004 977,740
700,000 K mart Corp. pass thru certificates Ser. 95K4, 9.35s, 2020 568,750
1,030,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 916,700
3,460,000 Saks, Inc. company guaranty 8 1/4s, 2008 2,698,800
190,000 Southland Corp. sr. sub. deb. 5s, 2003 169,864
80,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 66,800
-------------
9,353,054
Semiconductor (0.4%)
-------------------------------------------------------------------------------------------------------------------
540,000 Amkor Technologies, Inc., structured note (issued by Steers,
Credit Linked Trust 2000) 12.58s, 2005 548,100
590,000 ChipPac Intl., Ltd. company guaranty Ser. B, 12 3/4s, 2009 560,500
490,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 10 1/2s, 2009 494,900
60,000 Fairchild Semiconductor Corp. company guaranty 10 3/8s, 2007 60,600
1,990,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,980,050
-------------
3,644,150
Shipping (0.2%)
-------------------------------------------------------------------------------------------------------------------
500,000 Eletson Holdings 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 450,000
110,000 International Shipholding Corp. sr. notes 9s, 2003 110,000
320,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 124,800
1,680,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 1,428,000
1,420,000 Pegasus Shipping 144A company guaranty stepped-coupon
zero % (14 1/2s, 6/20/03), 2008 (Bermuda) (STP) 63,900
-------------
2,176,700
Software (--%)
-------------------------------------------------------------------------------------------------------------------
630,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 50,400
Specialty Printing (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Perry-Judd company guaranty 10 5/8s, 2007 840,000
316,775 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 253,420
370,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 326,525
-------------
1,419,945
Technology (0.9%)
-------------------------------------------------------------------------------------------------------------------
310,000 Amkor Technologies, Inc. sr. sub. notes 10 1/2s, 2009 313,100
1,110,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 1,123,875
670,000 Celestica International, Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 696,800
530,000 Colo.com 144A units 13 7/8s, 2010 265,000
1,540,000 Flextronics International, Ltd. sr. sub. notes 9 7/8s,
2010 (Singapore) 1,632,400
1,080,000 Flextronics International, Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 1,096,200
620,000 SCG Holding & Semiconductor Corp. company guaranty
12s, 2009 567,300
1,765,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 1,412,000
1,750,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 1,443,750
810,000 Viasystems, Inc. sr. sub. notes 9 3/4s, 2007 680,400
-------------
9,230,825
Technology Services (0.6%)
-------------------------------------------------------------------------------------------------------------------
950,000 Equinix, Inc. sr. notes 13s, 2007 693,500
2,770,000 Exodus Communications, Inc. sr. notes 11 5/8s, 2010 2,721,525
290,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 278,400
860,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 812,700
2,100,000 Globix Corp. sr. notes 12 1/2s, 2010 966,000
230,000 PSINet, Inc. sr. notes 11 1/2s, 2008 64,400
1,660,000 PSINet, Inc. sr. notes 11s, 2009 464,800
160,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 44,000
180,000 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010 46,800
-------------
6,092,125
Telecommunications (5.5%)
-------------------------------------------------------------------------------------------------------------------
160,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 78,400
2,060,000 American Tower Corp. 144A sr. notes 9 3/8s, 2009 2,070,300
590,000 Arch Communications, Inc. sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/15/01), 2008 (STP) 212,400
810,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 429,300
710,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 255,600
570,000 Carrier1 Intl. SA 144A sr. notes Ser. B, 13 1/4s, 2009 (Sweden) 456,000
2,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 1,440,000
940,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 357,200
40,000 Covad Communications Group, Inc. sr. notes Ser. B, 12s, 2010 13,600
460,000 Crown Castle International Corp. sr. disc. notes
stepped-coupon zero % (11 1/4s, 8/1/04), 2011 (STP) 326,600
1,910,000 Crown Castle International Corp. sr. notes 10 3/4s, 2011 2,043,700
330,000 Dobson Communications Corp. sr. notes 10 7/8s, 2010 341,550
1,220,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 1,293,200
2,270,000 Econophone, Inc. company guaranty 13 1/2s, 2007 681,000
580,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) (In default) (NON) 17,400
2,000,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13s, 4/15/03), 2008 (STP) 280,000
360,000 Global Crossing Holdings, Ltd. company guaranty 9 1/2s,
2009 (Bermuda) 365,400
870,000 Global Crossing Holdings, Ltd. company guaranty 9 1/8s,
2006 (Bermuda) 884,138
1,470,000 Global Crossing Holdings, Ltd. 144A sr. notes 8.7s,
2007 (Bermuda) 1,460,813
815,000 Grupo Iusacell sr. notes 14 1/4s, 2006 (Mexico) 884,275
80,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 37,600
160,000 Hermes Europe Railtel sr. notes 10 3/8s, 2009 75,200
1,270,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 1,219,200
1,250,000 Intira Corp. bonds stepped-coupon zero %
(13s, 8/1/05), 2010 (STP) 437,500
360,000 Level 3 Communication, Inc. sr. disc. notes stepped-coupon
zero % (12 7/8s, 3/15/05), 2010 (STP) 205,200
250,000 Level 3 Communication, Inc. sr. notes 11 1/4s, 2010 237,500
2,290,000 Level 3 Communication, Inc. sr. notes 11s, 2008 2,221,300
570,000 Level 3 Communication, Inc. sr. disc. notes stepped-coupon
zero % (10 1/2s, 12/1/03), 2008 (STP) 359,100
190,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 169,575
1,450,000 Maxcom Telecomunicaciones SA de CV company guaranty
Ser. B, 13 3/4s, 2007 725,000
1,040,000 McCaw International, Ltd. sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 704,600
310,000 Metrocall, Inc. sr. sub. notes 11s, 2008 74,400
250,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 55,000
260,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 55,900
1,580,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 1,469,400
1,570,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 1,460,100
1,850,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) (STP) 1,618,750
2,210,000 Nextel International, Inc. 144A sr. notes 12 3/4s, 2010 1,955,850
2,010,000 Nextel Communications, Inc. sr. notes 12s, 2008 2,200,950
5,570,000 Nextel Communications, Inc. 144A sr. notes 9 1/2s, 2011 5,570,000
1,830,000 Nextel Partners, Inc. sr. notes 11s, 2010 1,825,425
840,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 436,800
990,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 148,500
1,280,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (STP) 294,400
250,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil)
(In default) (NON) 31,250
2,330,000 Pinnacle Holdings, Inc. sr. disc. notes stepped-coupon zero %
(10s, 3/15/03), 2008 (STP) 1,398,000
890,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 916,700
1,350,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 567,000
910,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 912,275
810,000 RSL Communications PLC company guaranty 12 7/8s, 2010
(United Kingdom) 24,300
1,025,000 RSL Communications, Ltd. company guaranty 12 1/4s,
2006 (Bermuda) 30,750
635,000 RSL Communications PLC company guaranty 9 1/8s, 2008
(United Kingdom) 19,050
1,040,000 SBA Communications Corp. 144A sr. notes 10 1/4s, 2009 1,047,800
1,190,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (12 7/8s, 3/15/05) 2010 714,000
970,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 4/15/04), 2009 620,800
1,380,000 Startec Global Communications Corp. sr. notes 12s, 2008 746,925
50,000 USA Mobile Communication, Inc. sr. notes 9 1/2s, 2004 24,000
1,490,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 193,700
2,070,000 Viatel, Inc. sr. notes 11 1/4s, 2008 600,300
2,370,000 Voicestream Wireless Corp. sr. notes 10 3/8s, 2009 2,701,800
2,000,000 Western Wireless Corp. bank term loan FRN 8.65s, 2008 2,005,000
760,000 Williams Communications Group, Inc. sr. notes 11.7s, 2010 710,600
980,000 Williams Communications Group, Inc. sr. notes 11.7s, 2008 911,400
870,000 Williams Communications Group, Inc. sr. notes 10 7/8s, 2009 783,000
280,000 Williams Communications Group, Inc. sr. notes 10.7s, 2007 257,600
1,250,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 848,438
-------------
53,512,814
Telephone (2.8%)
-------------------------------------------------------------------------------------------------------------------
290,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 188,500
210,000 Alamosa Delaware, Inc. 144A sr. notes 12 1/2s, 2011 213,150
120,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 66,300
510,000 Allegiance Telecom, Inc. 144A sr. notes 12 7/8s, 2008 541,875
600,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 468,000
160,000 Asia Global Crossing 144A ser. notes 13 3/8s, 2010 (Bermuda) 160,400
780,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 429,000
1,710,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 342,000
830,000 CFW Communications Co. sr. notes 13s, 2010 605,900
1,140,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,026,000
1,535,000 Focal Communications Corp. sr. sub. notes stepped-coupon
Ser. B, zero % (12 1/8s, 2/15/03), 2008 (STP) 921,000
80,000 Focal Communications Corp. sr. notes 11 7/8s, 2010 69,600
150,000 Hyperion Telecommunications Corp., Inc. sr. sub. notes 12s, 2007 111,750
1,420,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(10s, 2/15/03), 2008 (In default) (STP) 71,000
3,790,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 189,500
770,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (12 1/4s, 3/1/04), 2009 (STP) 477,400
90,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 81,900
630,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 579,600
4,175,000 KMC Telecommunications Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 501,000
1,000,000 Leap Wireless International, Inc. company guaranty
12 1/2s, 2010 700,000
1,930,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 1,428,200
760,000 McLeodUSA, Inc. sr. notes 11 3/8s, 2009 803,700
450,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 436,500
1,580,000 McLeodUSA, Inc. sr. notes 8 1/8s, 2009 1,469,400
1,660,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,643,400
380,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 298,300
760,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 532,000
1,420,000 Nextlink Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 6/1/04), 2009 (STP) 830,700
190,000 Nextlink Communications, Inc. sr. notes 10 3/4s, 2009 175,750
660,000 RSL Communications PLC 144A 10 1/2s, 2008
(United Kingdom) 19,800
450,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 445,500
1,060,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 1,115,650
1,550,000 Time Warner Telecom, Inc. 144A sr. notes 10 1/8s, 2011 1,596,500
730,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 722,700
440,000 Transtel S.A. pass thru certificates 12 1/2s, 2007 (In default) (NON) 83,600
1,230,000 Tritel PCS, Inc. 144A sr. sub notes 10 3/8s, 2011 1,236,150
1,010,000 Triton PCS, Inc. 144A sr. sub notes 9 3/8s, 2011 1,015,050
2,310,000 UbiquiTel Operating Co. company guaranty stepped-coupon
zero % (14s, 4/15/05), 2010 (STP) 970,200
1,760,000 US Unwired, Inc. company guaranty stepped-coupon Ser. B,
zero % (13 3/8s, 11/1/04), 2009 (STP) 981,200
850,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008 (Netherlands) 680,000
320,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008 (Netherlands) 256,000
5,406,000 WinStar Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 4/15/05), 2010 (STP) 2,081,310
950,000 WinStar Communications, Inc. sr. notes 12 3/4s, 2010 769,500
480,000 WinStar Communications, Inc. sr. notes 12 1/2s, 2008 374,400
430,000 XO Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.45s, 4/15/03), 2008 (STP) 268,750
-------------
27,978,135
Textiles (1.0%)
-------------------------------------------------------------------------------------------------------------------
360,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 237,600
1,605,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 1,444,500
1,160,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 (In default) (NON) 348,000
3,060,000 Levi Strauss & Co. 144A sr. notes 11 5/8s, 2008 3,182,400
270,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 243,000
2,100,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 1,617,000
1,300,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 1,020,500
635,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 590,550
645,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 632,100
-------------
9,315,650
Tobacco (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,690,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 1,098,500
Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,980,000 Cathay International, Ltd. 144A sr. notes 13s, 2008 (China) 495,000
Waste Management (0.8%)
-------------------------------------------------------------------------------------------------------------------
3,595,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 3,630,950
1,740,000 Allied Waste Industries, Inc. 144A company guaranty
8 7/8s, 2008 1,770,450
195,743 Allied Waste Industries, Inc. bank term loan, FRN 8 7/8s, 2006 198,801
275,760 Allied Waste Industries, Inc. bank term loan, FRN 8.311s, 2007 279,086
2,430,000 Browning-Ferris Industries, Inc. 144A deb. 7.4s, 2035 1,895,400
-------------
7,774,687
Water Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
520,000 Azurix Corp. sr. notes Ser. B, 10 3/4s, 2010 507,000
420,000 Azurix Corp. sr. notes Ser. B, 10 3/8s, 2007 409,500
-------------
916,500
-------------
Total Corporate Bonds and Notes (cost $567,206,499) $ 488,553,351
FOREIGN GOVERNMENT BONDS AND NOTES (13.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
USD 3,849,000 Argentina (Republic of) 11 3/4s, 2015 $ 3,733,530
USD 1,315,000 Argentina (Republic of) notes Ser. XW, 11s, 2005 1,301,850
USD 2,696,000 Argentina (Republic of) unsub. 11 3/4s, 2009 2,645,585
USD 2,365,000 Brazil (Federal Republic of) bonds 12 3/4s, 2020 2,403,550
USD 3,645,000 Brazil (Federal Republic of) bonds 12 1/4s, 2030 3,526,538
CAD 3,695,000 Canada (Government of) bonds 6s, 2011 2,570,007
CAD 2,725,000 Canada (Government of) bonds 5 1/2s, 2010 1,827,257
CAD 1,405,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 1,033,017
CAD 5,240,000 Canada (Government of) bonds Ser. WL43,
5 3/4s, 2029 3,504,970
USD 1,385,000 Colombia (Republic of) bonds 11 3/4s, 2020 1,230,988
EUR 16,210,000 Germany (Federal Republic of) bonds Ser. 132,
4 1/8s, 2004 14,904,662
EUR 4,920,000 Germany (Federal Republic of) bonds Ser. 98,
5 5/8s, 2028 4,722,783
GRD 12,915,627 Hellenic Greece (Republic of) bonds 6 1/2s, 2014 12,981,480
EUR 15,785,000 Italy (Government of) bonds 7 1/4s, 2026 17,628,761
EUR 4,950,000 Italy (Government of) sr. unsub. 4 1/4s, 2002 4,597,873
USD 1,184,000 Morocco (Kingdom of) floating rate govt. guaranty
Ser. A, 7 3/4s, 2009 1,059,680
NZD 12,305,000 New Zealand (Government of) bonds Ser. 709,
7s, 2009 5,785,379
USD 1,675,000 Philippines (Republic of) bonds 9 7/8s, 2019 1,402,813
USD 2,305,000 Philippines (Republic of) notes 10 5/8s, 2025 1,982,300
USD 3,665,000 Russia (Federation of) 144A bonds 12 3/4s, 2028 3,289,338
USD 2,295,000 Russia (Federation of) unsub. 10s, 2007 1,833,246
USD 2,625,000 Russia (Federation of) unsub. 8 1/4s, 2010 1,808,100
USD 13,072,500 Russia (Federation of) 144A unsub. 2 1/2s, 2030 5,490,450
GBP 4,420,000 United Kingdom Treasury bonds 10s, 2003 7,208,452
GBP 5,355,000 United Kingdom 144A Treasury bonds Ser. 85,
9 3/4s, 2002 8,353,948
GBP 4,100,000 United Kingdom Treasury bonds 8 1/2s, 2005 6,857,256
USD 2,410,000 United Mexican States bonds 11 3/8s, 2016 2,846,933
USD 5,455,000 United Mexican States bonds Ser. XW, 10 3/8s, 2009 6,007,592
USD 1,985,000 Venezuela (Republic of) bonds 9 1/4s, 2027 1,364,688
-------------
Total Foreign Government Bonds and Notes
(cost $129,815,929) $ 133,903,026
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (13.4%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (2.5%)
-------------------------------------------------------------------------------------------------------------------
$ 155,484 Federal Home Loan Mortgage Corporation 7 1/2s,
March 1, 2026 $ 159,393
Federal National Mortgage Association
Pass-Through Certificates
20,247,885 7 1/2s, with due dates from June 1, 2015 to
October 1, 2015 20,840,743
2,705,000 6s, May 15, 2008 2,756,990
Government National Mortgage Association
Pass-Through Certificates
832,139 8s, December 15, 2022 869,143
-------------
24,626,269
U.S. Treasury Obligations (10.9%)
-------------------------------------------------------------------------------------------------------------------
10,860,000 U.S. Treasury Bonds 6 1/4s, May 15, 2030 11,968,046
U.S. Treasury Notes
55,240,000 6 1/2s, February 15, 2010 (SEG) 60,435,874
34,320,000 5 3/4s, August 15, 2010 35,837,630
-------------
108,241,550
-------------
Total U.S. Government and Agency Obligations
(cost $128,982,510) $ 132,867,819
COLLATERALIZED MORTGAGE OBLIGATIONS (10.3%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 80,000 Amresco Commercial Mortgage Funding I 7.64s, 2029 $ 80,175
1,780,901 Blackstone Hotel Acquisition Co. sr. mtge. loan 10.26s, 2003 2,472,919
Commercial Mortgage Acceptance Corp.
2,305,000 Ser. 97-ML1, Class D, 7.053s, 2010 2,245,934
6,984,879 Ser. 97-ML1, Interest Only (IO), 0.955s, 2017 253,475
76,351,981 Commercial Mortgage Asset Trust Ser. 99-C1, Class X, IO,
0.928s, 2020 4,783,929
2,685,000 Countrywide Home Loan Ser. 98-3, Class A5, 6 3/4s, 2028 2,646,823
4,100,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C,
Class A8, 6 1/2s, 2024 4,019,681
Criimi Mae Commercial Mortgage Trust
12,243,000 Ser. 98-C1, Class A2, 7s, 2011 11,632,763
3,474,000 Ser. 98-C1, Class B, 7s, 2011 3,034,322
70,275,687 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 1.233s, 2023 3,502,804
Fannie Mae
1,394,200 Ser. 98-1, Class SA, IO, 10.205s, 2024 589,921
5,079,856 Ser. 281, Class 2, IO, 9s, 2026 1,065,144
2,232,276 Ser. 217, Class 2, IO, 8s, 2023 441,209
2,560,999 Ser. 203, Class 2, IO, 8s, 2023 541,811
2,692,286 Ser. 251, Class 2, IO, 8s, 2023 569,587
804,404 Ser. 176, Class 2, IO, 8s, 2022 158,995
11,838 Ser. 92-15, Class L, IO, 8s, 2022 308,249
5,696,139 Ser. 254, Class 2, IO, 7.5s, 2024 1,254,931
5,118,349 Ser. 266, Class2, IO, 7.5s, 2024 1,103,644
14,235,488 Ser. 218, Class 2, IO, 7.5s, 2023 3,016,144
7,392,731 Ser. 221, Class 2, IO, 7.5s, 2023 1,561,714
4,085,135 Ser. 252, Class 2, IO, 7.5s, 2023 897,453
6,666,732 Ser. 93-251, Class Z, 6 1/2s, 2023 6,252,145
5,908,754 Ser. 97-91, Class SL, IO, 4.75s, 2023 705,357
917,660 Ser. 92-124, Class SA, IO, 4.081s, 2022 96,382
3,538,618 Ser. 218, Class 2, IO, 3.491s, 2023 769,649
8,213,499 Ser. 98-66, Class SB, IO, 2.436s, 2028 521,044
14,170,000 Ser. 94-77, Class SB, IO, 1.78s, 2024 1,354,369
38,211,400 Ser. 00-T6, IO, 0.742s, 2030 800,750
12,556,000 FFCA Secured Lending Corp. Ser. 00-1, Class X, IO,
1.727s, 2020 1,202,629
Freddie Mac
2,528,278 Ser. 2219, Class SA, 10.49s, 2030 2,531,615
899,634 Ser. 147, IO, 8s, 2023 188,923
1,539,212 Ser. 1717, Class L, 6 1/2s, 2024 1,561,038
1,914,000 Ser. 44, Class SG, IO, 3.71s, 2023 234,465
1,575,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 1,572,953
2,770,000 General Growth Properties Ala Moana Ser. 99-C1, Class E,
7.822s, 2004 2,770,000
General Growth Properties-Homart
570,000 Ser. 99-C1, Class G, 8.072s, 2003 570,000
650,000 Ser. 99-C1, Class F, 7.822s, 2003 650,000
General Growth Properties-Ivanhoe
695,000 Ser. 99-C1, Class G, 8.822s, 2004 695,000
1,198,000 Ser. 99-C1, Class F, 8.072s, 2004 1,198,000
Government National Mortgage Association
3,589,255 Ser. 00-17, Class SB, 12.838s, 2026 4,128,900
1,785,169 Ser. 99-38, Class SL, 12.588s, 2026 1,838,725
1,945,072 Ser. 00-11, Class SA, 12.319s, 2021 1,983,973
10,847,483 Ser. 99-43, Class SJ, IO, 2.118s, 2029 $632,205
1,834,197 Ser. 98-2, Class EA, Principal Only (PO), zero %, 2028 1,494,870
1,470,421 Ser. 99-42, PO, zero %, 2027 1,251,696
7,365,000 Holmes Financing PLC Ser. 1, Class 2C, 6.789s, 2040 7,300,925
Merrill Lynch Mortgage Investors, Inc.
1,615,000 Ser. 1995-C3, Class D, 7.791s, 2025 1,667,235
1,495,000 Ser. 96-C2, Class E, 6.96s, 2028 1,389,883
1,610,000 Ser. 98-C2, Class F, 6 1/4s, 2030 1,099,831
22,330,016 Ser. 96-C2, IO, 1.729s, 2028 1,444,473
2,424,521 Ser. 98-C2, IO, 1.564s, 2030 161,950
10,182,249 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO,
1.364s, 2012 644,345
261,876 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 261,790
1,700,000 Residential Mortgage Securities Ser. 8, Class M, 6.879s, 2038 2,470,774
1,328,604 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 1,333,719
3,495,000 Starwood Asset Receivables Trust Ser. 00-1, Class E,
8.464s, 2005 3,510,291
-------------
Total Collateralized Mortgage Obligations
(cost $104,488,458) $ 102,471,531
BRADY BONDS (4.2%) (a)
PRINCIPAL AMOUNT
-------------------------------------------------------------------------------------------------------------------
$ 10,670,400 Argentina (Republic of) debs. FRB 7 5/8s, 2005 $ 9,964,020
3,620,000 Argentina (Republic of) govt. guaranty 6s, 2023 2,597,350
21,039,872 Brazil (Federal Republic of) bonds 8s, 2014 (POR) 17,122,247
1,220,000 Brazil (Federal Republic of) govt. guaranty Ser. 18YR, FRN,
7 11/16s, 2012 936,350
1,730,000 Bulgaria (Government of) Ser. A, FRB, 7.063s, 2024 1,340,750
510,000 Bulgaria (Government of) deb. Ser. PDI, FRB, 7.063s, 2011 395,250
4,170,000 Bulgaria (Government of) Ser. A, FLIRB, 2 3/4s, 2012 3,190,050
720,000 Peru (Republic of) bonds Ser. PDI, FRB, 4s, 2017 472,536
4,240,000 United Mexican States bonds Ser. W, 6 1/4s, 2019 3,890,200
2,499,975 Venezuela (Republic of) deb. Ser. DL, FRB, 7s, 2007 2,118,729
-------------
Total Brady Bonds (cost $38,947,886) $ 42,027,482
PREFERRED STOCKS (2.6%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
34,980 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 34,980
538 Benedek Communications Corp. 11.50% pfd. (PIK) 199,060
80,020 Brand Scaffold, Inc. $3.63 cum. pfd. 2,960,740
3,210 CGA Group, Ltd. 144A Ser. A, 13.75% pfd. (PIK) 78,640
39,625 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. (PIK) 2,080,313
3,805 Chevy Chase Savings Bank, Inc. $3.25 pfd. 99,881
10,599 Citadel Broadcasting, Inc. 144A $13.25 cum. pfd. (PIK) 1,176,489
340,000 CSBI Capital Trust I 144A company guaranty 11.75% pfd. 343,400
28,137 CSC Holdings, Inc. Ser. M, $11.13 cum. pfd. (PIK) 3,095,070
69,460 Diva Systems Corp. Ser. C, $6.00 pfd. 555,680
20,000 Doane Products Co. $7.12 pfd. 600,000
2,510 Dobson Communications Corp. 13.00% pfd. 2,334,300
540 First Republic 144A 10.50% pfd. 456,300
570 Fresenius Medical Capital Trust II 7.875% pfd. (Germany) 554,325
74,000 Golden State Bancorp Ser. A, $2.28 pfd. 1,702,000
1,469 Granite Broadcasting Corp. 144A 12.75% pfd. (PIK) 367,250
1,598 ICG Holdings, Inc. 14.25% pfd. (Canada) (In default) (NON) 31,960
815 ICG Holdings, Inc. 144A 14.00% pfd. (Canada) (In default) (PIK) 16,300
1,339 Intermedia Communications, Inc. Ser. B, 13.50% pfd. (PIK) 1,151,540
1,700 Nextel Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 1,683,000
495 Nextel Communications, Inc. Ser. E, $11.125 pfd. (PIK) 435,600
271 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 2,506,750
150 Pegasus Communications Corp. Ser. A, 12.75% cum. pfd. 150,000
1,346 Rural Cellular Corp. 12.25% pfd. (PIK) 1,117,180
31,920 XO Communications, Inc. $7.00 cum. pfd. (PIK) 1,260,840
818 XO Communications, Inc. Ser. E, 13.50% pfd. 531,700
-------------
Total Preferred Stocks (cost $30,290,211) $ 25,523,298
ASSET-BACKED SECURITIES (1.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
Conseco Finance Securitization
$ 10,075,000 Ser. 00-4, Class A6, 8.31s, 2032 $ 10,773,953
1,535,000 Ser. 00-6, Class M2, 8.2s, 2032 1,540,836
2,961,221 First Plus 144A Ser. 98-A, Class A, 8 1/2s, 2023 2,261,633
-------------
Total Asset-Backed Securities (cost $14,555,527) $ 14,576,422
CONVERTIBLE BONDS AND NOTES (0.6%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 550,000 Amkor Technologies, Inc. cv. sub. notes 5s, 2007 $ 433,125
3,080,000 Cybernet Internet Services Intl., Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) 616,000
370,000 Davita, Inc. sub. notes 7s, 2009 323,750
2,600,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 1,118,000
800,000 Healthsouth Corp. cv. sub. deb. 3 1/4s, 2003 720,000
400,000 Hexcel Corp. cv. sub. notes 7s, 2003 361,500
1,000,000 Micron Technology, Inc. cv. 6 1/2s, 2005 855,000
1,340,000 Telewest Finance Corp. cv. sub. notes 6s, 2005
(United Kingdom) 1,127,275
-------------
Total Convertible Bonds and Notes (cost $6,710,602) $ 5,554,650
COMMON STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
44,790 360Networks, Inc. 144A (Canada) $ 537,480
525 AmeriKing, Inc. (NON) 525
45,677 Arch Wireless, Inc. (NON) 52,814
19,925 Aurora Foods, Inc. (NON) 95,638
277,865 Celcaribe S.A. (NON) 34,733
2,830 MGC Communications, Inc. (NON) 24,763
250 Paging Do Brazil Holdings Co., LLC 144A Class B (Brazil) (NON) 3
1,186 Premium Holdings 144A 15,711
2,502 PSF Holdings LLC Class A (NON) 3,315,786
124 RSL Communications, Ltd. Class A (NON) 33
39 Safety Components International, Inc. (NON) 5
19,650 Spanish Broadcasting System, Inc. 144A (NON) 111,759
36,750 Specialty Foods Acquisition Corp. (NON) 368
2,169 Vast Solutions, Inc. Class B1 (NON) 6,507
2,169 Vast Solutions, Inc. Class B2 (NON) 6,507
2,169 Vast Solutions, Inc. Class B3 (NON) 6,507
74 Waste Management, Inc. 1,269
-------------
Total Common Stocks (cost $9,775,655) $ 4,210,408
UNITS (0.2%) (a)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
1,520,000 Horizon PCS., Inc. 144A units stepped-coupon zero %
(14s, 10/1/05), 2010 (STP) $ 744,800
1,270,000 iPCS, Inc. units stepped-coupon zero % (14s, 7/15/05), 2010 (STP) 571,500
820,000 IWO Holdings, Inc. 144A units 14s, 2011 822,050
960,000 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 172,800
-------------
Total Units (cost $3,296,983) $ 2,311,150
WARRANTS (0.2%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
16 Anker Coal Group, Inc. 144A 10/28/09 $ 1
1,600 Asia Plup & Paper Co., Ltd. 144A 3/15/05 16
810 Bestel S.A. de C.V. (Mexico) 5/15/05 81,000
780 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 42,900
6,652 CellNet Data Systems, Inc. 10/1/07 7
1,420 Dayton Superior Corp. 6/15/09 28,400
160 Decrane Aircraft Holdings 9/30/08 1
1,885 Delta Financial Corp. 12/21/10 1
2,520 Destia Communications, Inc. 144A 7/15/07 50,400
1,715 Diva Systems Corp. 5/15/06 943,250
8,326 Diva Systems Corp. 144A 3/1/08 124,890
1,090 Epic Resorts Corp. 6/15/05 11
1,190 Firstworld Communication Corp. 4/15/08 17,850
1,015 Globalstar Telecommunications 2/15/04 10
20,856 ICG Communications 10/15/05 20,856
1,900 Interact Systems, Inc. 8/1/03 19
1,900 Interact Systems, Inc. 144A 12/15/09 19
1,140 International Wireless Communications
Holdings 144A 8/15/01 1
20,653 Intira Corp. Class A 2/1/10 2
7,097 Intira Corp. Class B 2/1/10 1
1,600 Jostens, Inc. 5/1/10 35,200
2,175 KMC Telecommunications Holdings, Inc. 144A 4/15/08 4,350
2,185 Knology Holdings 10/22/07 4,916
1,000 Leap Wireless International, Inc. 144A 4/15/10 250
1,450 Maxcom Telecomunicaciones SA de CV
144A (Mexico) 4/1/07 15
3,590 McCaw International, Ltd. 4/15/07 107,700
940 Mediq, Inc. 144A 6/1/09 9
160 Motient 144A 4/1/08 1,600
1,080 Ntelos, Inc. 8/15/10 1,080
990 Orbital Imaging Corp. 144A 3/1/05 8,910
1,310 Orion Network Systems 1/15/07 3,275
12,880 Pagemart, Inc. 144A 12/31/03 64,400
1,600 Paxson Communications Corp. 144A 6/30/03 5,600
570 Pliant Corp. 144A 6/1/10 4,560
1,100 Railamerica, Inc. 8/15/10 11,000
810 Raintree Resort Intl., Inc. 144A 12/1/04 8
1,640 Startec Global Communications Corp. 5/15/08 1,066
680 Sterling Chemicals Holdings 8/15/08 1,083
630 Telehub Communications Corp. 7/31/05 315
2,310 Ubiquitel, Inc. 144A 4/15/10 69,300
5,820 UIH Australia/Pacific, Inc. 144A 5/15/06 17,460
50 Versatel Telecom N.V. (Netherlands) 5/15/08 8,000
454,880 Wright Medical Technology, Inc. 144A 6/30/03 1
800 XM Satellite Radio Holdings, Inc. 144A 3/15/10 56,000
-------------
Total Warrants (cost $1,799,952) $ 1,715,733
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
4,700 Global Crossing Ltd. 7.00% cv. cum. pfd. $ 733,200
4,750 Global Telesystems Group, Inc. 144A $3.625 cv. pfd. 9,500
1,900 Interact Systems, Inc. 144A 14.00% cv. pfd. 19
6,800 LTV Corp. (The) 144A $4.13 cv. pfd. 6,800
62 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 567,300
200 World Access, Inc. 144A Ser. D, zero % cv. pfd. 50,000
7,615 XCL, Ltd. 144A 9.50% cv. pfd. (PIK) 3,808
1,503 XCL, Ltd. 144A Ser. A, 9.50% cv. cum. pfd. (PIK) 752
-------------
Total Convertible Preferred Stocks (cost $2,932,425) $ 1,371,379
PURCHASED OPTIONS OUTSTANDING (--%) EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
-------------------------------------------------------------------------------------------------------------------
$16,120,500 USD/EUR Call Feb-01/0.9 $ 97,417
SHORT-TERM INVESTMENTS (2.2%) (a) (cost $21,487,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$21,487,000 Interest in $350,000,000 joint repurchase agreement dated
January 31, 2001 with Morgan (J.P.) & Co., Inc. due
February 1, 2001 with respect to various U.S. Government
obligations -- maturity value of $21,490,432 for an effective
yield of 5.75% $ 21,487,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,060,289,636) (b) $ 976,670,666
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $990,784,433.
(b) The aggregate identified cost on a tax basis is $1,064,557,686
resulting in gross unrealized appreciation and depreciation of
$34,227,374 and $122,114,394, respectively, or net unrealized
depreciation of $87,887,020.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin receiving interest or dividend income at this rate.
(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, 2001.
(FWC/WIS) When-issued securities (Note 1).
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.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at January 31, 2001,
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, 2001:
(as percentage of Market Value)
Argentina 2.1%
Bermuda 1.0
Brazil 2.5
Bulgaria 1.0
Canada 2.0
Caymen Islands 1.0
Germany 2.0
Italy 2.3
Mexico 2.2
New Zealand 1.0
Russia 1.3
United Kingdom 3.0
United States 73.9
Other 4.7
-----
Total 100.0%
------------------------------------------------------------------------------
Forward Currency Contracts to Buy at January 31, 2001
(aggregate face value $172,724,546)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollar $17,851,042 $18,041,460 3/21/01 $ (190,418)
British Pounds 8,926,434 8,969,069 3/21/01 (42,635)
Canadian Dollar 8,222,503 8,018,324 3/21/01 204,179
Danish Krone 688,594 655,231 3/21/01 33,363
Euro Dollar 66,371,231 63,836,801 3/21/01 2,534,430
Japanese Yen 65,885,238 69,751,097 3/21/01 (3,865,859)
Swedish Krona 1,050,920 1,043,152 3/21/01 7,768
Swiss Franc 2,498,684 2,409,412 3/21/01 89,272
------------------------------------------------------------------------------
$ (1,229,900)
------------------------------------------------------------------------------
Forward Currency Contracts to Sell at January 31, 2001
(aggregate face value $139,973,160)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
------------------------------------------------------------------------------
British Pounds $ 7,822,804 $ 7,762,965 3/21/01 $ (59,839)
Canadian Dollar 3,721,855 3,661,965 3/21/01 (59,890)
Euro Dollar 72,187,849 69,270,793 3/21/01 (2,917,056)
Japanese Yen 51,595,876 54,006,815 3/21/01 2,410,939
New Zealand Dollar 5,504,324 5,270,622 3/21/01 (233,702)
------------------------------------------------------------------------------
$ (859,548)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 2001
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
------------------------------------------------------------------------------
Euro 3 month (Long) $ 2,605,763 $ 2,603,359 Jun-02 $ 2,404
Euro 3 month (Long) 12,374,050 12,237,715 Sep-01 136,335
Euro 3 month (Short) 2,616,213 2,615,628 Jun-01 (585)
Euro-Euribor
3 month (Long) 1,330,819 1,329,310 Mar-01 1,509
Euro-Euribor
3 month (Long) 221,757 221,261 Sep-02 496
Euro-Euribor
3 month (Long) 222,640 221,575 Sep-01 1,065
Euro-Euribor
3 month (Long) 222,407 221,399 Jun-01 1,008
Euro-Euribor
3 month (Long) 222,268 221,517 Mar-02 751
Euro-Euribor
3 month (Long) 221,977 221,389 Jun-02 588
Euro-Euribor
3 month (Short) 1,107,040 1,104,463 Dec-02 (2,577)
Euro-Euribor
3 month (Short) 442,886 441,925 Mar-03 (961)
Euro-Schatz
2 Yr (Long) 4,492,375 4,472,468 Jun-01 19,907
Euro-Schatz
2 Yr (Short) 5,349,493 5,322,712 Mar-01 (26,781)
GBP Libor
3 month (Long) 1,380,362 1,377,288 Mar-02 3,074
GBP Libor
3 month (Short) 1,379,924 1,375,547 Mar-01 (4,377)
Gilt (Short) 1,690,323 1,662,384 Mar-01 (27,939)
JGB 10 Yr (Long) 25,079,948 24,424,748 Mar-01 655,200
US Treasury Bond
20 Yr (Long) 1,144,688 1,139,922 Mar-01 4,766
US Treasury Bond
20 Yr (Long) 4,058,438 3,934,128 Mar-01 124,310
US Treasury Bond
20 Yr (Short) 3,954,375 3,848,645 Mar-01 (105,730)
US Treasury Note
10 Yr (Long) 36,721,344 36,464,160 Mar-01 257,184
US Treasury Note
5 Yr (Long) 52,359,156 51,317,193 Mar-01 1,041,963
US Treasury Note
5 Yr (Short) 6,766,094 6,663,407 Mar-01 (102,687)
------------------------------------------------------------------------------
$1,978,923
------------------------------------------------------------------------------
Swap Contracts outstanding at January 31, 2001
Notional Termination Unrealized
Amount Date Appreciation
------------------------------------------------------------------------------
Agreement with
Merrill Lynch
International &
Co. CV dated
November 17,
2000, to pay
semiannually the
notional amount
multiplied by the
Libor-BBA and
receive the
notional amount
multiplied by
6.7506%. $9,000,000 Nov-05 $402,241
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2001 (Unaudited)
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,060,289,636) (Note 1) $ 976,670,666
-------------------------------------------------------------------------------------------
Cash 1,595,518
-------------------------------------------------------------------------------------------
Foreign currency (cost $526,753) 538,041
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 21,285,845
-------------------------------------------------------------------------------------------
Receivable for securities sold 14,158,800
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 5,321,452
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,227,787
-------------------------------------------------------------------------------------------
Receivable for open swap contracts 402,241
-------------------------------------------------------------------------------------------
Receivable for variation margin 192,130
-------------------------------------------------------------------------------------------
Total assets 1,021,392,480
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 7,462,684
-------------------------------------------------------------------------------------------
Payable for securities purchased 12,520,468
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,666,743
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 153,168
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 37,671
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,252
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts 7,410,900
-------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,290,687
-------------------------------------------------------------------------------------------
Other accrued expenses 62,474
-------------------------------------------------------------------------------------------
Total liabilities 30,608,047
-------------------------------------------------------------------------------------------
Net assets $ 990,784,433
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,220,796,521
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (18,738,956)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (127,918,083)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (83,355,049)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 990,784,433
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($990,784,433 divided by 140,989,259 shares) $7.03
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended January 31, 2001 (Unaudited)
Investment income:
-------------------------------------------------------------------------------------------
Interest income $46,820,891
-------------------------------------------------------------------------------------------
Dividends 1,588,323
-------------------------------------------------------------------------------------------
Total investment income 48,409,214
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,476,351
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 457,566
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 17,114
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,326
-------------------------------------------------------------------------------------------
Other 124,968
-------------------------------------------------------------------------------------------
Total expenses 4,080,325
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (28,372)
-------------------------------------------------------------------------------------------
Net expenses 4,051,953
-------------------------------------------------------------------------------------------
Net investment income 44,357,261
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (17,563,568)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (113,085)
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (5,261,364)
-------------------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 379,130
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (326,176)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts and swap contracts during the period 659,052
-------------------------------------------------------------------------------------------
Net loss on investments (22,226,011)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $22,131,250
-------------------------------------------------------------------------------------------
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
2001* 2000
---------------------------------
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 44,357,261 $ 88,222,416
--------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (22,558,887) (31,547,912)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies 332,876 (22,566,530)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 22,131,250 34,107,974
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (44,833,560) (91,636,916)
--------------------------------------------------------------------------------------------------
In excess of net investment income -- (2,963,818)
--------------------------------------------------------------------------------------------------
Total decrease in net assets (22,702,310) (60,492,760)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 1,013,486,743 1,073,979,503
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $18,738,956 and
$18,262,657, respectively) $990,784,433 $1,013,486,743
--------------------------------------------------------------------------------------------------
Number of fund shares
--------------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of period 140,989,259 140,989,259
--------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.19 $7.62 $8.71 $8.88 $8.53 $8.46
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .31 .63 .64 .74 .65 .64
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.15) (.39) (.99) (.18) .38 .09
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 .24 (.35) .56 1.03 .73
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.65) (.62) (.66) (.65) (.65)
------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- (.03) (.01)
------------------------------------------------------------------------------------------------------------------
From net realized gain -- -- (.12) (.07) -- --
------------------------------------------------------------------------------------------------------------------
Total distributions (.32) (.67) (.74) (.73) (.68) (.66)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.03 $7.19 $7.62 $8.71 $8.88 $8.53
------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) 8.99* (1.51) (7.24) 8.06 26.24 7.94
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.61 $6.38 $7.19 $8.50 $8.56 $7.38
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $990,784 $1,013,487 $1,073,980 $1,221,188 $1,245,444 $1,199,854
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .42* .83 .86 .89 .83 .85
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.51* 8.48 8.05 8.34 7.42 7.43
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 158.30* 133.80 165.79 209.50 262.01 332.00
------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment.
(b) Includes amounts paid through expense offset arrangements (Note 2).
NOTES TO FINANCIAL STATEMENTS
January 31, 2001 (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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available
for certain debt obligations; such investments are stated at fair value
on the basis of valuations furnished by an independent pricing service
or dealers, approved by the Trustees, which determine valuations for
normal institutional-size trading units of such securities using methods
based on market transactions for comparable securities and variable
relationships between securities that 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, LLC. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, LLC. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date, except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends, if any, are recorded at the fair
market value of the securities received. Any premium resulting from the
purchase of corporate bonds is amortized on a yield-to-maturity basis.
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.
Securities purchased or sold on a forward commitment basis may be
settled a month or more after the trade date; interest income is accrued
based on the terms of the security. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty
does not perform under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short-term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
"marked to market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. 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 .01% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date.
TBA purchase commitments may be considered securities in themselves,
and involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for their portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
I) Interest rate swap contracts The fund may engage in interest rate
swap agreements, which are arrangements between two parties to exchange
cash flows based on a notional principal amount. The fund may enter into
interest rate swap agreements, to manage the funds exposure to interest
rates. Interest rate swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss. Payments made or received are included as part
of interest income. Payments received or made upon early termination
are recorded as realized gain or loss. The fund could be exposed to
credit or market risk due to unfavorable changes in the fluctuation of
interest rates or that the counterparty may default on its obligation to
perform.
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.
At July 31, 2000, the fund had a capital loss carryover of approximately
$84,751,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$39,893,000 July 31, 2007
44,858,000 July 31, 2008
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of average weekly net assets of the fund, 0.65% of
the next $500 million, 0.60% of the next $500 million and 0.55%
thereafter.
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, LLC.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used
to reduce a portion of the fund's expenses. The fund also reduced
expenses through brokerage service arrangements. For the six months
ended January 31, 2001 the fund's expenses were reduced by $28,372 under
these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,035 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement
of operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the six months ended January 31, 2001, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $1,020,542,897 and
$715,040,607, respectively. Purchases and sales of U.S. government
obligations aggregated $439,784,125 and $721,321,825, respectively.
Note 4
Share repurchase program
The Trustees authorized the fund to repurchase up to 7,000,000 of
its shares in the open market. Repurchases will only be made when the
fund's shares are trading at less than net asset value and at such times
and amounts as is believed to be in the best interest of the fund's
shareholders. Any repurchases of shares will have the effect of
increasing the net asset value per share of remaining shares
outstanding. For the six months ended January 31, 2001, the fund
did not repurchase any shares. As of January 31, 2001, 511,000 shares
have been repurchased since the inception of the program.
Note 5
New accounting pronouncement
In November 2000, the AICPA issued a revised Audit and Accounting Guide,
Audits of Investment Companies, which is effective for fiscal years
beginning after December 15, 2000. The revised Guide will require the
fund to amortize premium and accrete discount on all fixed-income
securities, and classify as interest income gains and losses realized on
paydowns on mortgage-backed securities which are presently included in
realized gain/loss. Adopting these accounting principles will not affect
the fund's net asset value, but will change the classification of
certain amounts between interest income and realized and unrealized
gain/loss in the Statement of operations. The fund has not yet
quantified the impact, if any, resulting from the adoption of this
principle on the financial statements.
WELCOME TO WWW.PUTNAMINVESTMENTS.COM
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name
or objective, use our glossary to decode investment terms . . . and much
more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape or Microsoft Internet Explorer,
using an independent Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminvestments.com
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, 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
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
David L.Waldman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) 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
---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
69562 073 3/01