Putnam
Premier
Income
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-03
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FROM THE TRUSTEES
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Dear Fellow Shareholder:
Over the six months ended January 31, 2003, changing market conditions
and shifts in investor sentiment demonstrated the value of Putnam
Premier Income Trust's diversified approach to fixed-income investing.
The fund's solid returns for the period reflect its ability to benefit
from strengths in different sectors of the bond market, as well as the
success of the strategic positioning devised by the management team.
For example, during the period, underperformance in the high-yield
corporate bond sector initially dampened performance, but was offset by
the strength of the fund's U.S. government securities holdings. Later in
the period, the high-yield sector recovered and made a valuable
contribution to the fund's returns.
Timely moves such as these enabled your fund to outperform its primary
benchmark index at net asset value. Details can be found on page 7. In
the following report, your fund's management team provides additional
details about their strategy, as well as their outlook for the remainder
of the fiscal year.
Meanwhile, we would like you to know how much we appreciate your
continued confidence in Putnam, especially as we continue to work our
way through one of the most challenging periods in recent investment
history. We believe those who maintain a long-term focus and a
diversified approach to investing should eventually be rewarded for
their patience.
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 19, 2003
REPORT FROM FUND MANAGEMENT
FUND HIGHLIGHTS
* For the first six months of its 2003 fiscal year, Putnam Premier
Income Trust had a total return at net asset value (NAV) of 8.24%. The
fund's return at market price was 13.20%.
* With greater demand in the marketplace for higher-yielding
investments, the fund's market price return exceeded its return at NAV.
* At NAV, the fund outperformed its primary benchmark, the Lehman
Government Bond Index, which returned 4.87% during the six-month
period.
* The fund slightly underperformed at NAV the average return for the
Lipper Flexible Income Funds (closed-end) category, which was 8.78%.
* See the Performance Summary on page 7 for complete fund performance,
comparative index performance, and Lipper data.
* PERFORMANCE COMMENTARY
The fund's solid returns were due to strategic underweighting of U.S.
investment-grade bonds, which underperformed during the period, and the
fund's overweighting of higher-yielding, lower-rated bonds, such as U.S.
high-yield corporate bonds. These securities performed strongly from
October through January.
Fund Profile
Putnam Premier Income Trust is designed for investors seeking a high
level of current income. The fund maintains flexibility across three
sectors -- U.S. government and agencies, high-yield corporate, and
international -- to seek maximum current income without undue risk to
capital. The fund may be appropriate for investors seeking a higher
level of income who can accept a moderately higher level of risk.
The fund's results should be considered in the context of a generally
favorable period for the bond market, especially for those sectors with
greater credit risk, which performed well during the final three and a
half months of the period. The fund was well served by its sector
diversification. The fund's U.S. investment-grade bonds performed well
at the outset, benefiting from a weak stock market and a significant
flight to quality. Beginning in mid October, however, lower-rated
high-yield corporate bonds outperformed, and the fund's holdings of
these securities benefited from this trend.
* MARKET OVERVIEW
The bond market experienced a turning point in mid October 2002, which
occurred approximately at the midpoint of the fund's semi annual period.
In the summer and early fall of 2002, a number of factors contributed to
a highly risk-averse psychology in the market: media reports of corporate
malfeasance, the prospect of war in Iraq, poor earnings, high default rates,
and a significant weakening in the economy. These factors caused investors
to flock to high-quality bonds, such as U.S. Treasuries, and to shun equities,
U.S. corporate investment-grade bonds, and U.S. corporate high-yield bonds.
As the fourth quarter of calendar 2002 approached, investor sentiment
changed. In the fourth quarter, a brighter outlook for profits and the
economy also helped boost corporate investment-grade and high-yield
bonds -- as well as equities -- contributing to strong returns for these
fixed-income sectors from mid October through the end of January 2003.
U.S. Treasuries, by comparison, did not fare as well during this period.
Overseas, the European bond markets were generally strong throughout the
period, as anemic growth (especially in France and Germany) and low
inflation boosted bond returns. In addition, a significant increase in
the value of the euro versus the dollar over the past 18 months has
helped boost European bond returns for U.S. investors. Some emerging
markets performed well, such as Russia, Mexico, and Bulgaria, while
others experienced sharp declines due to economic and political woes,
including Argentina, Venezuela, and Brazil.
MARKET SECTOR PERFORMANCE, SIX MONTHS ENDED 1/31/03
Equities
Standard & Poor's 500 Index (broad market) -5.26%
-----------------------------------------------------------------------
Nasdaq Composite Index (technology stocks) -0.55%
-----------------------------------------------------------------------
Russell 2000 Index (small- and mid-cap stocks) -4.44%
-----------------------------------------------------------------------
Bonds
Lehman Government Bond Index 4.87%
-----------------------------------------------------------------------
SSB Non-U.S. World Govt. Bond Index 10.47%
-----------------------------------------------------------------------
JP Morgan Global High Yield Index 8.10%
-----------------------------------------------------------------------
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
* STRATEGY OVERVIEW
As a multi-sector fixed-income fund, Putnam Premier Income Trust's
strategy worked well during the fund's semiannual period because
conditions in the bond market changed drastically. As a result, the
different sectors within the fund benefited at different times as
market conditions varied.
During the first 10 weeks of the period, the fund's high-quality
holdings performed well, offsetting the underperformance of the
corporate high-yield holdings. During the latter 14 weeks of the period,
when the Treasury market saw an enormous rise in yields in October and
experienced a great deal of volatility thereafter, the fund's corporate
high-yield holdings bolstered returns. Finally, throughout the period,
the fund's foreign bonds -- in both the emerging-markets and
investment-grade sectors -- performed well, exemplifying the value of
geographic diversification.
A notable sector change during the period was a reduction in the fund's
mortgage-backed securities (MBS) holdings and a corresponding increase
in the fund's corporate investment-grade bonds.
While we believe the fund's strategy worked well during the period, it
may have caused the fund to underperform other similar funds within its
Lipper peer group category. For example, if the fund's emerging-markets
sector weighting had been larger, the fund would have benefited more
fully from the strength of these markets in the fourth calendar quarter
of 2002. Similarly, within emerging markets, the fund missed the strong
returns in Brazil that occurred after that country's elections in
October.
[GRAPHIC OMITTED: horizontal bar chart FUND SECTOR WEIGHTINGS]
FUND SECTOR WEIGHTINGS*
as of 7/31/02 as of 1/31/03
U.S.
investment grade 32.02% 34.49%
Corporate
high yield 45.39% 44.15%
Foreign
investment grade 14.13% 13.91%
Emerging markets 8.46% 7.45%
Footnote reads:
*This chart shows how the fund's sector weighings have changed over the
past six months. Weighings are shown a a percentage of net assets.
Holdings will vary over time.
* PERFORMANCE OVERVIEW BY SECTOR
Prior to mid October, the fund's performance was hurt by the fund's
large weighting (nearly 50%) in high-yield corporate bonds. Since it is
a multi-sector fund, however, the underperformance of this sector was
offset by strong performance among the fund's U.S. Treasury and
mortgage-backed securities (MBS) holdings. (The fund's MBS holdings
consist primarily of "structured" products, including government agency
bonds, asset-backed securities, commercial MBSs, and collateralized
mortgage obligations.) In addition, the fund's foreign investment-grade
bonds in Germany and France performed well because of weakness in those
economies and the strength of the euro. In addition, the fund's holdings
in Sweden, Canada, and New Zealand had solid performance during the
period.
In emerging markets, the fund's performance benefited from being
invested in countries that performed well, such as Russia, Mexico, and
Bulgaria, and from reduced weightings in countries like Argentina,
Venezuela, and Brazil, which experienced difficulties. Brazilian bonds
performed well after that country's elections, and we did not capture
those gains, but in general we were pleased with our security selection
within the emerging-markets sector.
[GRAPHIC OMITTED: TOP SECTOR HOLDINGS]
TOP SECTOR HOLDINGS*
U.S. investment-grade
Federal National Mortgage Association,
7.5%, 8/25/42
U.S. Treasury Bonds, 7.5%, 11/15/16
Federal National Mortgage Association
TBA, 7.0%, 2/1/33
High-yield
HMH Properties, Inc. company guaranty
Series B, 7.875%, 2008
Echostar DBS Corp. senior notes,
10.375%, 2007
Pioneer Natural Resources Co. company
guaranty, 9.625%, 2010
International
Sweden (government of) bonds Ser.
1044, 3.5%, 2006
Sweden (government of) bonds Ser.
1037, 8.0%, 2007
Canada (government of) bonds 6.0%, 2011
Footnote reads:
*These holdings represented 13.3% of the fund's net assets as of 1/31/03.
Portfolio holdings will vary over time.
During the first 10 weeks of the period, the fund's weighting in U.S.
corporate investment-grade bonds was near zero. However, after the
Treasury yield spike in mid October, and the more hopeful outlook for
this beleaguered sector, we began adding high-grade corporate bonds to
the portfolio. The increase in this weighting benefited performance, as
the sector performed very well during the final 14 weeks of the period.
The increase in corporate investment-grade bonds corresponded with a
decrease in the fund's holdings of structured fixed-income investments,
including commercial MBSs, collateralized mortgage obligations,
government agency bonds, and asset-backed securities. We felt that the
strong performance of these securities for much of the year had run its
course, and we invested the proceeds from these sales in corporate
investment-grade bonds.
The fund held a large weighting in corporate high-yield securities
throughout the period, as we believed that this sector was due for
recovery and should outperform over the next several years. While risks
remain significant for this sector, with an uncertain economic recovery,
weak corporate spending, high default rates, and slow profit growth, we
are managing these risks by maintaining a high level of diversity and
not investing too much in any one holding. The fund's large high-yield
weighting was a major factor in its strong performance during the period
because high-yield bonds outperformed most other fixed-income sectors
from mid October through the end of January. Please note that all
sector weightings discussed in this report are subject to review in
accordance with the fund's investment strategy and may vary in the
future.
* THE FUND'S MANAGEMENT TEAM
The fund is managed by the Putnam Core Fixed-Income Team. The members of
this team are D. William Kohli (Portfolio Leader), David Waldman
(Portfolio Member), Carl Bell, Rob Bloemker, Andrea Burke, Kevin Cronin,
Steve Horner, James Prusko, Michael Salm, and John Van Tassel.
THE OUTLOOK FOR YOUR FUND
The following commentary reflects anticipated developments that could affect
your fund over the next six months, as well as your management team's plans
for responding to them.
Looking toward the remainder of 2003, we believe that European government
and government agency bonds will continue to outperform U.S. Treasuries, and
that the euro will continue rising versus the dollar. As a result, we
anticipate maintaining an overweighted position in Europe and de-emphasizing
U.S. Treasuries. We also anticipate that we will keep the fund's high-yield
exposure at current levels because of our positive views on this sector.
Several factors support this view: Default rates are beginning to decrease,
companies are retiring debt, and investors are seeking securities with
greater yield potential.
We are reducing the fund's corporate investment-grade weighting, as we
believe that there are too many uncertainties surrounding the U.S. economy
and among individual bonds in this sector. Finally, we have shortened the
fund's duration as a precautionary measure against a rise in interest rates
this year. (Duration is a measure of interest-rate sensitivity; the shorter
a fund's duration, the less sensitive it will be to changes in interest
rates.) We anticipate that the other sector weightings will remain the same,
but, as always, will make adjustments as conditions warrant.
The views expressed in this report are exclusively those of Putnam
Management as of 1/31/03. They are not meant as investment advice. Although
the described holdings were viewed favorably as of 1/31/03, there is no
guarantee the fund will continue to hold these securities in the future.
International investing involves certain risks, such as currency
fluctuations, economic instability, and political developments. Lower-rated
bonds may offer higher yields in return for more risk. Mutual funds that
invest in government securities are not guaranteed. Mortgage-backed
securities are subject to prepayment risk.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports,
and prospectuses. Putnam is now able to send a single copy of
these materials to customers who share the same address. This
change will automatically apply to all shareholders except those
who notify us. If you would prefer to receive your own copy, please
call Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance during
the semiannual period, which ended January 31, 2003. In accordance with
NASD requirements, we also include performance for the most current
calendar quarter-end. Performance should always be considered in light
of a fund's investment strategy. A profile of your fund's strategy
appears on the first page of the Report from Fund Management. Terms used
in this section are defined on page 8.
TOTAL RETURN FOR PERIODS ENDED 1/31/03
NAV Market price
--------------------------------------------------
6 months 8.24% 13.20%
--------------------------------------------------
1 year 7.59 12.72
--------------------------------------------------
5 years 15.81 19.89
Annual average 2.98 3.70
--------------------------------------------------
10 years 83.73 94.87
Annual average 6.27 6.90
--------------------------------------------------
Life of fund
(since 2/29/88)
Annual average 7.80 7.37
--------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/03
JP Morgan Lipper Flexible
Lehman SSB Non-U.S. Global CSFB Income Funds
Government World Govt. High Yield High Yield (closed-end)
Bond Index Bond Index Index* Index category average+
-----------------------------------------------------------------------------------------------------------------------------
6 months 4.87% 10.47% 8.10% 8.86% 8.78%
-----------------------------------------------------------------------------------------------------------------------------
1 year 10.51 27.68 4.04 4.94 3.11
-----------------------------------------------------------------------------------------------------------------------------
5 years 42.91 29.63 6.67 8.48 10.53
Annual average 7.40 5.33 1.30 1.64 1.77
-----------------------------------------------------------------------------------------------------------------------------
10 years 102.40 87.13 -- 87.95 76.47
Annual average 7.31 6.47 -- 6.51 5.76
-----------------------------------------------------------------------------------------------------------------------------
Life of fund
(since 2/29/88)
Annual average 8.23 6.92 -- 8.22 7.53
-----------------------------------------------------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset
value, and market price will fluctuate and you may have a gain or a loss
when you sell your shares. Performance does not reflect taxes on
reinvested distributions.
* This comparative index replaced the CSFB High Yield Index on 12/30/02
because, in Putnam Management's opinion, the securities tracked by this
index more accurately reflect the types of securities generally held by the
fund. The JP Morgan Global High Yield Index's inception date was 12/31/93.
+ Over the 6-month, and 1-, 5-, and 10-year periods ended 1/31/03, there
were 12, 12, 12, and 9 funds, respectively, in this Lipper category.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/03
---------------------------------------------------------------------
Distributions (number) 6
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Income $0.2700
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Capital gains --
---------------------------------------------------------------------
Total $0.2700
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Share value: NAV Market price
---------------------------------------------------------------------
7/31/02 $6.22 $6.03
---------------------------------------------------------------------
1/31/03 6.45 6.54
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Current return (end of period)
---------------------------------------------------------------------
Current dividend rate 1 8.37% 8.26%
---------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 12/31/02
(most recent calendar quarter)
NAV Market price
-----------------------------------------------------------------------
6 months 4.74% 1.91%
-----------------------------------------------------------------------
1 year 6.43 10.93
-----------------------------------------------------------------------
5 years 14.93 13.82
Annual average 2.82 2.62
-----------------------------------------------------------------------
10 years 83.97 88.16
Annual average 6.29 6.53
-----------------------------------------------------------------------
Life of fund
(since 2/29/88)
Annual average 7.71 6.89
-----------------------------------------------------------------------
Past performance does not indicate future results. More recent returns may
be less or more than those shown. Investment return, net asset value, and
market price will fluctuate and you may have a gain or a loss when you sell
your shares. Performance does not reflect taxes on reinvested distributions.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
NASDAQ Composite Index is an unmanaged index that tracks broad market
performance of those securities sold on the NASDAQ exchange. Since this
index includes many companies in the technology sector, where market
trends change quickly, this index can be volatile.
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged
index of high-yield debt securities.
JP Morgan Global High Yield Index is an unmanaged index that is designed
to mirror the investable universe of the U.S. dollar-denominated global
high-yield corporate debt market, including domestic and international
issues.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
Salomon Smith Barney (SSB) Non-U.S. World Government Bond Index is an
unmanaged index of government bonds issued by 10 countries.
Standard & Poor's 500 Index is an unmanaged index of common stock performance.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ.
You cannot invest directly in an index.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to determine
the net asset value per share, which is calculated separately for each
class of shares. (For funds with preferred shares, the amount subtracted
from total assets includes the net assets allocated to remarketed preferred
shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios, and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-end funds, a separate table is
provided for each share class.
THE FUND'S PORTFOLIO
January 31, 2003 (Unaudited)
CORPORATE BONDS AND NOTES (48.4%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.1%)
-------------------------------------------------------------------------------------------------------------------
$1,188,235 Interact Operating Co. notes 14s, 2003
(In default) (NON) (PIK) $119
780,000 Lamar Media Corp. 144A sr. sub. notes 7 1/4s, 2013 796,052
-------------
796,171
Automotive (1.0%)
-------------------------------------------------------------------------------------------------------------------
265,000 American Axle & Manufacturing, Inc. company guaranty
9 3/4s, 2009 285,206
700,000 Collins & Aikman Products, Inc. company guaranty
11 1/2s, 2006 581,000
1,370,000 Collins & Aikman Products, Inc. company guaranty
10 3/4s, 2011 1,301,500
255,000 Dana Corp. notes 10 1/8s, 2010 255,638
370,000 Dana Corp. notes 9s, 2011 358,900
160,000 Dana Corp. notes 7s, 2029 116,800
405,000 Dana Corp. notes 6 1/2s, 2009 353,363
490,000 Dana Corp. notes 6 1/4s, 2004 487,550
EUR 170,000 Dana Corp. sr. notes 9s, 2011 167,864
$230,000 Delco Remy International, Inc. company guaranty 11s, 2009 126,500
280,000 Delco Remy International, Inc. company guaranty 10 5/8s, 2006 156,100
100,000 Delco Remy International, Inc. sr. notes 8 5/8s, 2007 82,000
890,000 Dura Operating Corp. company guaranty Ser. B, 8 5/8s, 2012 885,550
965,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 854,025
730,000 Exide Corp. sr. notes 10s, 2005 (In default) (NON) 62,050
200,000 Federal Mogul Corp. notes 7 7/8s, 2010 (In default) (NON) 35,000
610,000 Federal Mogul Corp. notes 7 3/4s, 2006 (In default) (NON) 106,750
200,000 Hayes Lemmerz International, Inc. 144A company guaranty
11 7/8s, 2006 (In default) (NON) 116,000
1,090,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 1,179,925
1,160,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 1,220,900
EUR 285,000 Lear Corp. sr. notes 8 1/8s, 2008 320,420
$368,000 Tenneco Automotive, Inc. company guaranty Ser. B,
11 5/8s, 2009 272,320
-------------
9,325,361
Basic Materials (6.1%)
-------------------------------------------------------------------------------------------------------------------
15,000 Abitibi-Consolidated Finance LP company guaranty
7 7/8s, 2009 15,734
1,340,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 1,420,400
165,000 Airgas, Inc. company guaranty 9 1/8s, 2011 179,850
1,210,000 AK Steel Corp. company guaranty 7 7/8s, 2009 1,161,600
785,000 AK Steel Corp. company guaranty 7 3/4s, 2012 751,638
249,698 Appleton Papers, Inc. bank term loan FRN 4.64s, 2006
(acquired 6/4/02, cost $250,635) (RES) 250,479
1,460,000 Appleton Papers, Inc. company guaranty Ser. B, 12 1/2s, 2008 1,620,600
1,500,000 ARCO Chemical Co. debs. 9.8s, 2020 1,170,000
1,135,000 Avecia Group PLC company guaranty 11s, 2009
(United Kingdom) 942,050
850,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 310,250
740,000 Compass Minerals Group, Inc. company guaranty 10s, 2011 810,300
1,250,000 Doe Run Resources Corp. company guaranty Ser. B, 11 1/4s,
2005 (In default) (NON) 325,000
180,000 Doe Run Resources Corp. company guaranty Ser. B(a),
11 1/4s, 2005 (In default) (NON) 57,600
420,000 Doe Run Resources Corp. company guaranty FRN Ser. B,
8.119s, 2003 (In default) (NON) 96,600
1,065,000 Dow Chemical Co. (The) notes 5 3/4s, 2009 1,095,822
255,000 Equistar Chemicals LP notes 8 3/4s, 2009 218,025
1,930,000 Equistar Chemicals LP/Equistar Funding Corp. company
guaranty 10 1/8s, 2008 1,756,300
370,000 Ferro Corp. sr. notes 9 1/8s, 2009 400,917
EUR 300,000 Fort James Corp. company guaranty 4 3/4s, 2004 305,891
$1,125,000 Four M Corp. sr. notes Ser. B, 12s, 2006 1,153,125
1,105,000 Georgia-Pacific Corp. debs. 9 1/2s, 2011 1,060,800
990,000 Georgia-Pacific Corp. notes 8 7/8s, 2031 836,550
160,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 150,400
290,000 Georgia-Pacific Corp. 144A sr. notes 8 7/8s, 2010 287,100
235,000 Haynes International, Inc. sr. notes 11 5/8s, 2004 127,194
300,000 Hercules, Inc. bank term loan FRN Ser. B, 4.66s, 2007
(acquired 12/17/02, cost $299,250) (RES) 300,000
2,065,000 Hercules, Inc. company guaranty 11 1/8s, 2007 2,312,800
577,119 Huntsman Corp. bank term loan FRN Ser. A, 6.004s, 2007
(acquired various dates from 3/1/02 to 7/17/02,
cost $467,029) (RES) 479,971
276,850 Huntsman Corp. bank term loan FRN Ser. B, 7.438s, 2007
(acquired various dates from 3/1/02 to 7/17/02,
cost $224,038) (RES) 230,247
1,655,000 Huntsman ICI Chemicals, Inc. company guaranty
10 1/8s, 2009 1,373,650
2,025,000 Huntsman ICI Holdings sr. disc. notes zero %, 2009 465,750
EUR 695,000 Huntsman International, LLC sr. sub. notes Ser. EXCH,
10 1/8s, 2009 551,998
$500,000 IMC Global, Inc. company guaranty Ser. B, 11 1/4s, 2011 535,000
832,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 894,400
320,000 IMC Global, Inc. 144A sr. notes 11 1/4s, 2011 345,600
1,910,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 2,000,725
320,000 ISP Holdings, Inc. sec. sr. notes Ser. B, 10 5/8s, 2009 308,800
80,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 (In default) (NON) 50,000
2,360,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2049 (In default) (NON) 129,800
60,000 Louisiana-Pacific Corp. sr. notes 8 7/8s, 2010 64,800
472,000 Louisiana-Pacific Corp. sr. sub. notes 10 7/8s, 2008 512,120
445,000 Lyondell Chemical Co. bonds 11 1/8s, 2012 431,650
250,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 233,750
95,000 Lyondell Chemical Co. sec. notes Ser. B, 9 7/8s, 2007 88,825
1,040,000 Lyondell Chemical Co. sr. sub. notes 10 7/8s, 2009 878,800
850,000 Lyondell Chemical Co. 144A sec. notes 9 1/2s, 2008 769,250
EUR 1,110,000 MDP Acquisitions PLC sr. notes Ser. REGS, 10 1/8s,
2012 (Ireland) 1,197,320
EUR 310,000 Messer Griesheim Holdings AG sr. notes 10 3/8s,
2011 (Germany) 347,030
$1,610,000 Millennium America, Inc. company guaranty 9 1/4s, 2008 1,682,450
455,000 Millennium America, Inc. company guaranty 7s, 2006 445,900
630,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 638,663
120,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 120,900
460,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 466,325
630,000 Noveon, Inc. company guaranty Ser. B, 11s, 2011 693,000
1,315,000 OM Group, Inc. company guaranty 9 1/4s, 2011 881,050
670,000 Oregon Steel Mills, Inc. company guaranty 10s, 2009 633,150
484,000 P&L Coal Holdings Corp. company guaranty Ser. B,
9 5/8s, 2008 508,805
1,630,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 1,670,750
609,379 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 414,378
260,000 Phelps Dodge Corp. sr. notes 8 3/4s, 2011 272,019
203,126 Pioneer Cos., Inc. sec. FRN 4.9s, 2006 138,126
330,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007
(In default) (NON) 66,000
160,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s,
2008 (In default) (NON) 32,000
1,095,000 Potlatch Corp. company guaranty 10s, 2011 1,190,813
1,620,000 Premium Standard Farms, Inc. sr. notes 9 1/4s, 2011 1,344,600
398,000 Riverwood International Corp. bank term loan FRN Ser. C,
4.492s, 2007 (acquired 4/24/02, cost $406,181) (RES) 396,694
400,000 Riverwood International Corp. bank term loan FRN Ser. C,
3.861s, 2008 (acquired 4/24/02, cost $400,000) (RES) 398,250
2,355,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 2,366,775
1,210,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 931,700
830,000 Salt Holdings Corp. 144A sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 489,700
365,000 Smurfit-Stone Container Corp. company guaranty 8 1/4s, 2012 375,038
1,040,000 Solutia, Inc. company guaranty 11 1/4s, 2009 873,600
1,340,000 Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 1,400,300
194,941 Sterling Chemicals, Inc. sec. notes 10s, 2007 (PIK) 155,953
1,090,000 Stone Container Corp. sr. notes 9 3/4s, 2011 1,171,750
490,000 Stone Container Corp. sr. notes 9 1/4s, 2008 519,400
1,050,000 Stone Container Corp. sr. notes 8 3/8s, 2012 1,086,750
460,000 Stone Container Corp. 144A company guaranty
11 1/2s, 2006 (Canada) 487,600
1,210,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 1,210,000
210,000 Tembec Industries, Inc. company guaranty 8 1/2s,
2011 (Canada) 209,475
70,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 44,800
280,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 179,200
515,000 Ucar Finance, Inc. company guaranty 10 1/4s, 2012 412,000
50,000 United States Steel, LLC sr. notes 10 3/4s, 2008 49,500
710,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 191,700
55,000 Weirton Steel Corp. sr. notes FRN 10s, 2008 6,875
1,290,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007
(In default) (NON) 38,700
570,000 WHX Corp. sr. notes 10 1/2s, 2005 444,600
-------------
55,645,800
Building Materials (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,510,000 American Standard Cos., Inc. company guaranty 7 5/8s, 2010 1,610,038
100,000 American Standard Cos., Inc. company guaranty 7 1/8s, 2003 100,000
445,000 Atrium Cos., Inc. company guaranty Ser. B, 10 1/2s, 2009 439,438
450,000 Building Materials Corp. company guaranty 8s, 2008 353,250
1,230,000 Dayton Superior Corp. company guaranty 13s, 2009 1,082,400
246,875 NCI Building Systems, Inc. bank term loan FRN Ser. B, 4.4s,
2008 (acquired 9/4/02, cost $246,875) (RES) 247,492
1,960,000 Owens Corning bonds 7 1/2s, 2018 (In default) (NON) 453,250
1,185,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 274,031
-------------
4,559,899
Capital Goods (4.5%)
-------------------------------------------------------------------------------------------------------------------
350,000 Advanced Glass Fiber Yarns bank term loan FRN Ser. A,
6 3/4s, 2004 (acquired 9/12/02, cost $245,237) (RES) 210,000
310,000 Advanced Glass Fiber Yarns sr. sub. notes 9 7/8s, 2009
(In default) (NON) 15,500
968,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 861,520
362,600 Alliant Techsystems, Inc. bank term loan FRN Ser. C, 3.688s,
2009 (acquired 5/7/02, cost $362,600) (RES) 363,008
54,358 Allied Waste Industries, Inc. bank term loan FRN 4.438s, 2007
(acquired 2/27/02, cost $53,679) (RES) 54,095
450,509 Allied Waste Industries, Inc. bank term loan FRN 4.188s, 2006
(acquired various dates from 10/22/01 to 2/27/02,
cost $443,167) (RES) 448,337
800,000 Allied Waste North America, Inc. company guaranty Ser. B,
10s, 2009 794,000
545,000 Allied Waste North America, Inc. company guaranty Ser. B,
8 7/8s, 2008 558,625
1,610,000 Allied Waste North America, Inc. company guaranty Ser. B,
8 1/2s, 2008 1,626,100
105,000 Allied Waste North America, Inc. company guaranty Ser. B,
7 7/8s, 2009 103,688
1,975,000 Allied Waste North America, Inc. 144A company guaranty
9 1/4s, 2012 2,039,188
280,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 264,600
540,000 Amkor Technologies, Inc. Structured Notes (issued by STEERS
Credit Linked Trust 2000) 12.58s, 2005 426,600
880,000 Applied Extrusion Technologies, Inc. company guaranty Ser. B,
10 3/4s, 2011 550,000
120,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 93,600
1,750,000 Argo-Tech Corp. 144A company guaranty 8 5/8s, 2007 1,365,000
900,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 711,000
185,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 138,750
1,400,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 1,064,000
770,000 Berry Plastics Corp. company guaranty 10 3/4s, 2012 816,200
1,635,000 Blount, Inc. company guaranty 13s, 2009 1,017,788
390,000 Blount, Inc. company guaranty 7s, 2005 327,600
770,000 Briggs & Stratton company guaranty 8 7/8s, 2011 833,525
2,300,000 Browning-Ferris Industries, Inc. debs. 7.4s, 2035 1,863,000
880,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 814,000
187,500 Casella Waste Systems, Inc. bank term loan FRN Ser. B, 4.63s,
2010 (acquired 1/22/03, cost $187,500) (RES) 187,313
EUR 160,000 Crown Cork & Seal Finance SA company guaranty 6s,
2004 (France) 161,424
$1,310,000 Decrane Aircraft Holdings Co. company guaranty Ser. B,
12s, 2008 681,200
850,000 Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 858,500
129,570 Flowserve Corp. bank term loan FRN Ser. C, 4.188s, 2009
(acquired 4/30/02, cost $129,570) (RES) 128,899
705,000 Flowserve Corp. company guaranty 12 1/4s, 2010 775,500
EUR 135,000 Flowserve Finance BV company guaranty 12 1/4s,
2010 (Netherlands) 157,936
$135,000 Fonda Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 81,675
1,030,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 890,950
730,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 211,700
775,000 IESI Corp. company guaranty 10 1/4s, 2012 767,250
650,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (In default) (NON) (STP) 13,000
490,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 269,500
600,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 339,000
420,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 438,900
520,000 K&F Industries, Inc. 144A sr. sub. notes 9 5/8s, 2010 543,400
1,310,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,359,125
1,000,000 L-3 Communications Corp. Structured Notes, 8.82s, 2009
(Issued by COUNTS Trust, Series 2001) 1,000,000
555,000 Laidlaw, Inc. debs. 8 3/4s, 2025 (Canada) (In default) (NON) 265,013
170,000 Laidlaw, Inc. debs. 8 1/4s, 2023 (Canada) (In default) (NON) 84,575
1,750,000 Laidlaw, Inc. notes 7.65s, 2006 (Canada) (In default) (NON) 861,875
445,000 Manitowoc Co., Inc. (The) 144A sr. sub. notes 10 1/2s, 2012 467,250
472,438 Michigan Electric Transmission Co./Michigan Electric
Transmission, Inc. bank term loan FRN Ser. B, 3.84s, 2007
(acquired various dates from 4/22/02 to 5/3/02,
cost $474,688) (RES) 470,666
570,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 574,275
1,435,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 1,291,500
1,455,000 Owens-Brockway Glass company guaranty 8 7/8s, 2009 1,476,825
765,000 Owens-Brockway Glass 144A sec. sr. notes 8 3/4s, 2012 768,825
190,000 Owens-Brockway Glass 144A sec. sr. notes 8 3/4s, 2012 190,950
330,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 322,575
825,000 Pliant Corp. company guaranty 13s, 2010 709,500
195,000 Pliant Corp. sr. sub. notes 13s, 2010 167,700
415,000 Remington Arms Co., Inc. 144A company guaranty
10 1/2s, 2011 429,525
410,000 Rexnord Corp. 144A sr. sub. notes 10 1/8s, 2012 430,500
930,000 Roller Bearing Co. of America company guaranty Ser. B,
9 5/8s, 2007 837,000
63,961 SPX Corp. bank term loan FRN Ser. B, 3.688s, 2009
(acquired 7/23/02, cost $63,961) (RES) 63,650
106,548 SPX Corp. bank term loan FRN Ser. C, 3.938s, 2010
(acquired 7/23/02, cost $106,548) (RES) 106,028
335,000 Sweetheart Cup Co. sr. sub. notes 10 1/2s, 2003 251,250
1,490,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 1,318,650
185,000 Terex Corp. company guaranty 8 7/8s, 2008 170,200
1,025,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 984,000
370,000 Terex Corp. company guaranty Ser. D, 8 7/8s, 2008 344,100
298,558 Trimas Corp. bank term loan FRN 4.438s, 2009 (acquired 6/5/02,
cost $298,558) (RES) 298,483
205,000 Trimas Corp. 144A company guaranty 9 7/8s, 2012 202,950
605,000 Trimas Corp. 144A sr. sub. notes 9 7/8s, 2012 598,950
416,258 United Defense Industries, Inc. bank term loan FRN Ser. B, 3.6s,
2009 (acquired various dates from 10/19/01 to 7/1/02,
cost $416,289) (RES) 416,779
-------------
40,328,590
Commercial and Consumer Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
189,225 Coinmach Corp. bank term loan FRN Ser. B, 4.525s, 2009
(acquired 1/31/02, cost $188,988) (RES) 189,047
1,660,000 Coinmach Corp. sr. notes 9s, 2010 1,743,000
-------------
1,932,047
Communication Services (3.6%)
-------------------------------------------------------------------------------------------------------------------
375,000 Bell Actimedia bank term loan FRN Ser. C, 5.688s, 2010
(acquired 11/26/02, cost $371,250) (RES) 376,594
550,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 49,500
890,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 320,400
400,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 124,000
2,228,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 434,460
1,510,000 American Cellular Corp. company guaranty 9 1/2s, 2009 294,450
660,000 American Tower Corp. sr. notes 9 3/8s, 2009 528,000
550,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 (In default) (NON) 2,750
770,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda)
(In default) (NON) 92,400
456,760 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 9,135
1,140,000 Crown Castle International Corp. sr. disc. notes stepped-coupon
zero % (10 3/8s, 5/15/04), 2011 (STP) 792,300
1,060,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 869,200
150,000 Crown Castle International Corp. sr. notes 9s, 2011 118,500
3,080,000 Cybernet Internet Services International, Inc. 144A sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (Denmark)
(In default) (NON) (STP) 3,080
1,220,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 1,000,400
380,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13s, 4/15/03), 2008 (In default) (NON) (STP) 38
413,112 Globix Corp. company guaranty 11s, 2008 (PIK) 293,310
220,000 Horizon PCS, Inc. company guaranty 13 3/4s, 2011 35,200
125,538 Hughes Electronics bank term loan FRN 5.86s, 2003
(acquired 11/21/02, cost $123,655) (RES) 125,538
90,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008
(In default) (NON) 43,200
1,270,000 iPCS, Inc. sr. disc. notes stepped-coupon zero %
(14s, 7/15/05), 2010 (STP) 50,800
705,000 IWO Holdings, Inc. company guaranty 14s, 2011 126,900
810,000 Leap Wireless International, Inc. company guaranty
12 1/2s, 2010 105,300
260,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 (In default) (NON) 5,200
450,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009
(In default) (NON) 12,375
1,070,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s,
2008 (In default) (NON) 29,425
1,260,000 Microcell Telecommunications sr. disc. notes Ser. B, 14s,
2006 (Canada) (In default) (NON) 88,200
320,000 Millicom International Cellular SA sr. disc. notes 13 1/2s,
2006 (Luxembourg) 202,400
975,000 Nextel Communications, Inc. bank term loan FRN Ser. A,
2.688s, 2007 (acquired 11/1/02, cost $850,688) (RES) 882,832
187,031 Nextel Communications, Inc. bank term loan FRN Ser. B,
4.813s, 2008 (acquired 12/19/02, cost $172,957) (RES) 175,275
187,031 Nextel Communications, Inc. bank term loan FRN Ser. C,
5.063s, 2008 (acquired 12/19/02, cost $172,957) (RES) 175,275
1,495,000 Nextel Communications, Inc. sr. disc. notes 9 3/4s, 2007 1,465,100
25,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.95s, 2/15/03), 2008 (STP) 24,500
1,230,000 Nextel Communications, Inc. sr. notes 12s, 2008 1,266,900
2,075,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 1,997,188
80,000 Nextel Communications, Inc. 144A sr. disc. notes zero %, 2007 80,000
2,205,000 Nextel Partners, Inc. sr. disc. notes stepped-coupon zero %
(14s, 2/1/04), 2009 (STP) 1,786,050
270,000 Nextel Partners, Inc. sr. notes 12 1/2s, 2009 260,550
990,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005
(In default) (NON) 198,000
690,000 PanAmSat Corp. bank term loan FRN Ser. B, 4.84s, 2009
(acquired 2/21/02, cost $689,138) (RES) 677,494
1,160,000 PanAmSat Corp. company guaranty 8 1/2s, 2012 1,125,200
10,000 Qwest Capital Funding, Inc. company guaranty 7 3/4s, 2006 7,900
1,060,000 Qwest Capital Funding, Inc. company guaranty 7 1/4s, 2011 771,150
270,000 Qwest Capital Funding, Inc. company guaranty 6 3/8s, 2008 195,750
680,000 Qwest Communications International, Inc. sr. notes Ser. B,
7 1/4s, 2008 557,600
1,210,000 Qwest Corp. 144A notes 8 7/8s, 2012 1,246,300
2,807,000 Qwest Services Corp. 144A notes 13 1/2s, 2010 2,947,350
168,564 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010
(In default) (NON) 3,371
1,075,000 Rogers Cantel, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 956,750
450,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 436,500
420,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 262,500
152,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 168,720
45,000 Telecorp PCS, Inc. company guaranty stepped-coupon
zero % (11 5/8s, 4/15/04), 2009 (STP) 43,088
2,940,000 Telus Corp. notes 8s, 2011 (Canada) 2,881,200
1,625,000 Telus Corp. notes 7 1/2s, 2007 (Canada) 1,590,469
300,000 Time Warner Telecom, Inc. bank term loan FRN Ser. B,
5.45s, 2009 (acquired 1/15/03, cost $262,500) (RES) 252,000
855,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 513,000
470,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 274,950
130,000 Triton PCS, Inc. company guaranty 9 3/8s, 2011 109,200
1,180,000 Triton PCS, Inc. company guaranty 8 3/4s, 2011 955,800
500,000 Triton PCS, Inc. company guaranty zero %, 2008 435,000
710,000 TSI Telecommunication Services, Inc. company guaranty
Ser. B, 12 3/4s, 2009 607,050
550,000 U S West, Inc. notes 5 5/8s, 2008 484,000
2,310,000 UbiquiTel Operating Co. company guaranty stepped-coupon
zero % (14s, 4/15/05), 2010 (STP) 138,600
1,250,000 US UnWired, Inc. company guaranty stepped-coupon
Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 128,125
210,000 US West Capital Funding, Inc. company guaranty 6 7/8s, 2028 142,275
565,000 US West Capital Funding, Inc. company guaranty 6 1/4s, 2005 457,650
-------------
32,813,717
Conglomerates (0.5%)
-------------------------------------------------------------------------------------------------------------------
230,000 Tyco International Group SA company guaranty
6 3/4s, 2011 (Luxembourg) 217,350
2,840,000 Tyco International Group SA company guaranty
6 3/8s, 2006 (Luxembourg) 2,790,300
310,000 Tyco International Group SA company guaranty
6 3/8s, 2005 (Luxembourg) 306,900
1,190,000 Tyco International Group SA notes 6 3/8s, 2011
(Luxembourg) 1,106,700
-------------
4,421,250
Consumer (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,185,000 Icon Health & Fitness company guaranty 11 1/4s, 2012 1,167,225
343,335 Jostens, Inc. bank term loan FRN Ser. C, 4.15s, 2009
(acquired 7/30/02, cost $343,335) (RES) 342,977
1,230,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 1,386,825
2,330,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 1,968,850
-------------
4,865,877
Consumer Staples (8.2%)
-------------------------------------------------------------------------------------------------------------------
70,000 Acme Communications, Inc. sr. disc. notes Ser. B, 12s, 2005 70,525
1,440,000 Acme Television company guaranty 10 7/8s, 2004 1,472,400
256,985 Adams Outdoor Advertising bank term loan FRN Ser. B,
4.87s, 2008 (acquired 8/1/01, cost $256,663) (RES) 257,199
110,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005
(In default) (NON) 45,650
560,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010
(In default) (NON) 240,800
25,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2011
(In default) (NON) 11,125
75,000 Adelphia Communications Corp. sr. notes 9 3/8s, 2009
(In default) (NON) 32,250
35,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009
(In default) (NON) 14,700
30,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008
(In default) (NON) 12,600
1,790,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009
(In default) (NON) 742,850
2,155,000 Affinity Group Holdings sr. notes 11s, 2007 2,149,613
735,000 AMC Entertainment, Inc. sr. sub. notes 9 7/8s, 2012 701,925
260,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 248,300
990,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 945,450
493,861 American Seafood Group, LLC bank term loan FRN Ser. B,
4.667s, 2009 (acquired 4/11/02, cost $493,367) (RES) 495,095
314,237 AMF Bowling Worldwide bank term loan FRN Ser. B, 6.069s,
2008 (acquired 3/1/02, cost $313,452) (RES) 312,666
444,117 Archibald Candy Corp. company guaranty 10s, 2007 (PIK) 377,499
890,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 965,650
315,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 129,150
1,010,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 414,100
535,000 Brand Services, Inc. 144A sr. sub. notes 12s, 2012 577,800
310,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009
(United Kingdom) 334,800
2,320,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 2,366,400
299,152 Carmike Cinemas, Inc. bank term loan FRN Ser. B, 7 3/4s, 2005
(acquired 10/4/02, cost $291,934) (RES) 294,166
1,120,000 Century Cable Holdings bank term loan FRN 6 1/4s, 2009
(acquired various dates from 5/22/02 to 6/11/02,
cost $980,796) (RES) 811,440
2,200,000 Chancellor Media Corp. company guaranty 8s, 2008 2,409,000
250,000 Charter Communications Holdings, LLC bank term loan FRN
Ser. B, 4.12s, 2008 (acquired 1/9/03, cost $217,188) (RES) 210,597
235,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 71,675
1,340,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 438,850
865,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 1/15/05), 2010 (STP) 328,700
2,180,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 11 1/8s, 2011 1,068,200
1,195,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10 3/4s, 2009 573,600
585,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10 1/4s, 2010 286,650
1,060,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10s, 2011 519,400
795,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 9 5/8s, 2009 385,575
140,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 8 5/8s, 2009 67,900
130,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 8 1/4s, 2007 63,050
1,805,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 1,732,800
210,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 213,150
420,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 432,600
595,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 599,463
2,575,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 2,497,750
240,000 Cumulus Media, Inc. bank term loan FRN Ser. B, 4.438s, 2007
(acquired 3/20/02, cost $240,000) (RES) 241,150
240,000 Dean Foods Co. sr. notes 6 5/8s, 2009 240,000
310,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 323,175
780,000 Del Monte Corp. 144A sr. sub. notes 8 5/8s, 2012 803,400
375,000 Del Monte Foods Co. bank term loan FRN Ser. B, 5.117s, 2010
(acquired 12/16/02, cost $373,125) (RES) 377,344
753,830 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 15,077
EUR 2,042,070 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 22,413
$3,586,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (In default) (NON) (STP) 35,860
1,150,000 Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 925,750
585,000 Dole Food Co. notes 6 3/8s, 2005 623,025
715,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 761,475
560,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 380,800
4,135,000 Echostar DBS Corp. sr. notes 10 3/8s, 2007 4,445,125
1,565,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 1,643,250
2,130,000 Echostar DBS Corp. sr. notes 9 1/8s, 2009 2,247,150
450,000 Emmis Communications Corp. bank term loan FRN Ser. C,
3 5/8s, 2009 (acquired 6/20/02, cost $449,438) (RES) 451,781
335,000 Emmis Communications Corp. company guaranty Ser. B,
8 1/8s, 2009 345,050
433,000 Emmis Communications Corp. sr. disc. notes stepped-coupon
zero % (12 1/2s, 3/15/06), 2011 (STP) 355,060
865,000 Fleming Cos., Inc. company guaranty 10 1/8s, 2008 614,150
405,000 Fleming Cos., Inc. company guaranty 9 7/8s, 2012 162,000
720,000 Fleming Cos., Inc. sr. notes 9 1/4s, 2010 489,600
290,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 279,850
325,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 316,875
190,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 173,850
840,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 747,600
1,130,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 952,025
585,000 Gray Television, Inc. company guaranty 9 1/4s, 2011 621,563
620,000 Insight Communications Co., Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 2/15/06), 2011 (STP) 387,500
105,000 Insight Midwest LP/Insight Capital, Inc. bank term loan FRN
4.563s, 2009 (acquired 11/5/01, cost $104,803) (RES) 101,404
135,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 9 3/4s, 2009 129,263
49,000 Knology, Inc. 144A sr. notes 12s, 2009 (PIK) 29,400
555,000 Land O'Lakes, Inc. sr. notes 8 3/4s, 2011 299,700
1,390,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 1,417,800
170,000 LIN Holdings Corp. 144A sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 176,800
350,000 LIN Television Corp. company guaranty 8s, 2008 371,000
450,000 MGM Studios bank term loan FRN 4.39s, 2008 (acquired 6/10/02,
cost $450,000) (RES) 447,047
1,270,000 News America Holdings, Inc. company guaranty 9 1/4s, 2013 1,541,459
1,560,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 1,560,000
465,000 Olympus Cable bank term loan FRN Ser. B, 6 1/4s, 2010
(acquired various dates from 6/20/02 to 11/6/02,
cost $374,206) (RES) 372,930
910,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006
(In default) (NON) 9,100
510,000 Pegasus Satellite sr. notes 12 3/8s, 2006 357,000
298,500 Playtex Products, Inc. bank term loan FRN 3.63s, 2009
(acquired 6/3/02, cost $298,500) (RES) 297,287
865,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 947,175
630,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 38,588
900,000 Premier International Foods PLC sr. notes 12s, 2009
(United Kingdom) 963,000
365,000 Premier Parks, Inc. sr. disc. notes stepped-coupon zero %
(10s, 4/1/03), 2008 (STP) 350,400
390,000 Premier Parks, Inc. sr. notes 10s, 2007 376,350
2,658,731 Quorum Broadcast Holdings, LLC notes stepped-coupon
zero % (15s, 5/15/06), 2009 (STP) 1,657,453
1,355,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005
(In default) (NON) 542,000
182,333 Rayovac Corp. bank term loan FRN Ser. B, 5.134s, 2009
(acquired 9/26/02, cost $182,151) (RES) 181,991
502,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 120,480
560,000 Regal Cinemas, Inc. company guaranty Ser. B, 9 3/8s, 2012 588,000
640,000 Revlon Consumer Products sr. notes 9s, 2006 387,200
500,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 305,000
945,000 Rite Aid Corp. notes 7 1/8s, 2007 803,250
260,000 Rite Aid Corp. sr. notes 7 5/8s, 2005 237,900
780,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 819,000
297,752 Roundy's, Inc. bank term loan FRN 4.165s, 2009
(acquired 6/3/02, cost $297,752) (RES) 297,752
760,000 Sbarro, Inc. company guaranty 11s, 2009 703,000
670,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 713,550
459,967 Shoppers Drug Mart bank term loan FRN Ser. F, 3.417s,
2009 (acquired various dates from 5/22/02 to 5/29/02,
cost $461,704) (RES) 460,082
1,120,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 112
300,000 Sinclair Broadcast Group, Inc. bank term loan FRN Ser. B,
3.63s, 2010 (acquired 12/19/02, cost $300,000) (RES) 300,214
440,000 Sinclair Broadcast Group, Inc. company guaranty 8 3/4s, 2011 470,800
525,000 Sinclair Broadcast Group, Inc. 144A company guaranty 8s, 2012 540,750
281,250 Six Flags, Inc. bank term loan FRN Ser. B, 3.63s, 2009
(acquired 1/15/03, cost $280,898) (RES) 278,438
210,000 Six Flags, Inc. sr. notes 9 1/2s, 2009 201,075
3,360,000 Six Flags, Inc. sr. notes 8 7/8s, 2010 3,124,800
80,000 Southland Corp. debs. Ser. A, 4 1/2s, 2004 78,400
190,000 Southland Corp. sr. sub. debs. 5s, 2003 186,200
324,855 Suiza Foods Corp. bank term loan FRN Ser. B, 3.65s, 2008
(acquired 12/10/01, cost $327,021) (RES) 324,307
1,840,000 TeleWest Communications PLC debs. 11s, 2007
(United Kingdom) (In default) (NON) 349,600
300,000 TeleWest Communications PLC debs. 9 5/8s, 2006
(United Kingdom) (In default) (NON) 57,000
255,000 TeleWest Communications PLC sr. notes Ser. S, 9 7/8s, 2010
(United Kingdom) (In default) (NON) 51,000
105,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008
(United Kingdom) (In default) (NON) 19,950
1,880,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009 (Netherlands)
(In default) (NON) 131,600
3,010,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero %
(13 3/4s, 2/1/05), 2010 (Netherlands) (In default) (NON) (STP) 210,700
180,000 United Pan-Europe NV 144A bonds 10 7/8s, 2009 (Netherlands)
(In default) (NON) 18,000
400,000 United Rentals (North America), Inc. company guaranty Ser. B,
10 3/4s, 2008 396,000
1,220,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B, 10 1/4s,
2009 (In default) (NON) 207,400
945,000 Williams Scotsman, Inc. company guaranty 9 7/8s, 2007 888,300
1,663,000 Young Broadcasting, Inc. company guaranty 10s, 2011 1,667,158
113,000 Young Broadcasting, Inc. company guaranty Ser. B, 8 3/4s, 2007 110,740
50,000 Yum! Brands, Inc. sr. notes 8 7/8s, 2011 54,750
370,000 Yum! Brands, Inc. sr. notes 8 1/2s, 2006 395,900
1,470,000 Yum! Brands, Inc. sr. notes 7.65s, 2008 1,543,500
375,000 Yum! Brands, Inc. sr. notes 7.45s, 2005 395,625
-------------
74,509,691
Energy (3.5%)
-------------------------------------------------------------------------------------------------------------------
990,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 1,039,500
890,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 938,950
1,280,000 Chesapeake Energy Corp. company guaranty 9s, 2012 1,372,800
1,055,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 1,105,113
215,000 Chesapeake Energy Corp. sr. notes Ser. B, 8 1/2s, 2012 224,675
1,220,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 1,311,500
180,000 Denbury Resources, Inc. company guaranty Ser. B, 9s, 2008 187,200
975,000 Dresser, Inc. company guaranty 9 3/8s, 2011 987,188
160,000 El Paso Energy Partners LP company guaranty Ser. B,
8 1/2s, 2011 156,000
150,000 El Paso Energy Partners LP 144A company guaranty 8 1/2s, 2011 146,250
560,000 Encore Acquisition Co. company guaranty 8 3/8s, 2012 588,000
570,000 Forest Oil Corp. company guaranty 7 3/4s, 2014 575,700
420,000 Forest Oil Corp. sr. notes 8s, 2011 438,900
420,000 Forest Oil Corp. sr. notes 8s, 2008 438,900
545,000 Hornbeck Offshore Services, Inc. sr. notes 10 5/8s, 2008 574,975
450,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 454,500
215,000 Magnum Hunter Resources, Inc. company guaranty 9.6s, 2012 230,050
670,000 Mission Resources Corp. company guaranty Ser. C, 10 7/8s, 2007 408,700
980,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 1,048,600
755,000 Parker Drilling Co. company guaranty Ser. B, 10 1/8s, 2009 770,100
2,190,000 Petronas Capital, Ltd. 144A company guaranty 7 7/8s,
2022 (Malaysia) 2,362,572
1,735,000 Petronas Capital, Ltd. 144A company guaranty 7s,
2012 (Malaysia) 1,882,475
3,500,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 4,175,350
160,000 Pioneer Natural Resources Co. company guaranty 6 1/2s, 2008 162,635
525,000 Plains All American Pipeline LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 548,625
800,000 Plans Exploration & Production Co. company guaranty Ser. B,
8 3/4s, 2012 840,000
920,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 984,400
1,110,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 1,154,400
420,000 Seven Seas Petroleum, Inc. sr. notes Ser. B, 12 1/2s, 2005
(In default) (NON) 46,200
210,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 217,350
1,000,000 Stone Energy Corp. sr. sub. notes 8 1/4s, 2011 1,037,500
460,000 Swift Energy Co. sr. sub. notes 10 1/4s, 2009 462,300
660,000 Swift Energy Co. sr. sub. notes 9 3/8s, 2012 653,400
1,030,000 Trico Marine Services, Inc. company guaranty 8 7/8s, 2012 947,600
900,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 949,500
605,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 635,250
205,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 203,975
510,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 538,050
460,000 Westport Resources Corp. 144A sr. sub. notes 8 1/4s, 2011 485,300
260,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 276,250
440,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s, 2009 459,800
-------------
32,020,533
Financial (1.4%)
-------------------------------------------------------------------------------------------------------------------
1,470,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 790,125
700,000 Chevy Chase Savings Bank, Inc. sub. debs. 9 1/4s, 2005 702,625
42,576 Comdisco Holding Co., Inc./Comdisco, Inc. sec. notes Ser. B,
11s, 2005 41,937
530,000 Conseco, Inc. 144A company guaranty 10 3/4s, 2009
(In default) (NON) 127,200
170,000 Crescent Real Estate Equities LP FRN 7 1/2s, 2007 (R) 169,150
1,410,000 Crescent Real Estate Equities LP sr. notes 9 1/4s, 2009 (R) 1,480,500
3,046,000 Finova Group, Inc. notes 7 1/2s, 2009 1,104,175
331,920 Hilb, Rogal & Hamilton Co. bank term loan FRN 4.188s, 2007
(acquired 6/20/02, cost $331,920) (RES) 333,165
420,000 Imperial Credit Industries, Inc. sec. notes 12s, 2005 (In default) (NON) 1,050
980,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 (R) 1,029,000
338,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 (In default) (NON) 23,660
81,000 Ocwen Financial Corp. notes 11 7/8s, 2003 82,316
1,070,000 Resource America, Inc. 144A sr. notes 12s, 2004 1,070,000
2,890,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 3,251,250
880,000 Superior Financial Corp. 144A sr. notes 8.65s, 2003 884,641
612,243 Veridian Corp. bank term loan FRN 4.773s, 2008
(acquired 9/20/02, cost $612,243) (RES) 613,315
760,000 Western Financial Bank sub. debs. 9 5/8s, 2012 741,000
135,000 Yell Finance BV sr. notes 10 3/4s, 2011 (Netherlands) 147,150
-------------
12,592,259
Gaming & Lottery (3.2%)
-------------------------------------------------------------------------------------------------------------------
650,000 Aladdin Gaming Holdings, LLC sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 3/1/03), 2010 (In default) (NON) (STP) 6,500
470,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 501,725
900,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 972,000
230,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 243,800
500,000 Borgata Resorts bank term loan FRN 5.501s, 2007
(acquired 6/5/02, cost $498,750) (RES) 495,000
1,050,000 Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 1,097,250
420,000 Chumash Casino & Resort Enterprise 144A sr. notes 9s, 2010 443,100
935,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 984,088
310,000 Herbst Gaming, Inc. 144A sec. sr. notes 10 3/4s, 2008 327,050
1,420,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 1,522,950
705,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 627,450
1,250,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 1,321,875
1,010,000 International Game Technology sr. notes 8 3/8s, 2009 1,161,500
2,300,000 International Game Technology sr. notes 7 7/8s, 2004 2,426,500
1,305,000 Majestic Investor Holdings/Capital Corp. company guaranty
11.653s, 2007 1,239,750
110,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 122,100
90,000 Mandalay Resort Group sr. sub. notes 9 3/8s, 2010 96,075
2,730,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 2,968,875
680,000 Mirage Resorts, Inc. notes 6 3/4s, 2008 688,500
75,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 78,188
1,090,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 1,133,600
270,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 280,800
980,000 Mohegan Tribal Gaming Authority sr. sub. notes 8s, 2012 1,009,400
1,300,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 1,329,250
655,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 694,300
155,000 Park Place Entertainment Corp. sr. sub. notes 8 1/8s, 2011 160,619
200,000 Penn National Gaming, Inc. company guaranty Ser. B, 11 1/8s, 2008 220,000
1,465,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 1,523,600
305,000 Pinnacle Entertainment, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 275,263
1,040,000 Resorts International Hotel and Casino, Inc. company guaranty
11 1/2s, 2009 951,600
465,000 Riviera Holdings Corp. company guaranty 11s, 2010 409,200
375,000 Scientific Gaming bank term loan FRN Ser. B, 4.85s, 2008
(acquired 12/11/02, cost $373,125) (RES) 374,375
1,010,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 1,065,550
50,000 Station Casinos, Inc. sr. sub. notes 9 7/8s, 2010 53,500
570,000 Trump Atlantic City Associates company guaranty 11 1/4s, 2006 438,900
130,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 127,400
1,955,000 Venetian Casino Resort, LLC company guaranty 11s, 2010 2,028,313
135,000 Wheeling Island Gaming, Inc. company guaranty 10 1/8s, 2009 136,350
-------------
29,536,296
Health Care (3.9%)
-------------------------------------------------------------------------------------------------------------------
237,003 Accredo Health, Inc. bank term loan FRN Ser. B, 4.12s, 2009
(acquired 3/20/02, cost $236,766) (RES) 237,003
225,000 Advanced Medical Optics, Inc. bank term loan FRN 4.64s, 2008
(acquired 6/17/02, cost $224,719) (RES) 225,113
1,040,000 ALARIS Medical Systems, Inc. sec. notes Ser. B, 11 5/8s, 2006 1,180,400
490,000 ALARIS Medical Systems, Inc. 144A company guaranty 9 3/4s, 2006 502,250
350,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 8/1/03), 2008 (STP) 344,750
2,392,600 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 2,207,174
19,000 Alderwoods Group, Inc. company guaranty 11s, 2007 19,000
966,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 951,510
780,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 832,650
605,000 AmerisourceBergen Corp. 144A sr. notes 7 1/4s, 2012 621,638
510,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 563,550
1,210,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 1,240,250
448,875 Community Health Systems, Inc. bank term loan FRN Ser. B,
3.93s, 2010 (acquired 7/11/02, cost $448,875) (RES) 446,280
1,270,000 Conmed Corp. company guaranty 9s, 2008 1,308,100
255,000 Dade Behring, Inc. company guaranty 11.91s, 2010 278,588
444,607 DaVita, Inc. bank term loan FRN Ser. B, 4.604s, 2009
(acquired 4/26/02, cost $444,051) (RES) 444,969
690,000 Extendicare Health Services, Inc. company guaranty
9 1/2s, 2010 655,500
52,272 Genesis Health Ventures, Inc. sec. notes FRN 6.38s, 2007 51,749
835,000 Hanger Orthopedic Group, Inc. company guaranty
10 3/8s, 2009 880,925
205,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 214,225
920,000 HCA, Inc. debs. 7.19s, 2015 988,494
750,000 HCA, Inc. med. term notes 7.69s, 2025 794,768
520,000 HCA, Inc. notes 8 3/4s, 2010 591,521
350,000 HCA, Inc. notes 8.36s, 2024 391,679
1,385,000 HCA, Inc. notes 7s, 2007 1,484,194
1,990,000 Healthsouth Corp. notes 7 5/8s, 2012 1,741,250
840,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 751,800
340,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 299,200
5,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 4,400
560,000 IASIS Healthcare Corp. company guaranty 13s, 2009 610,400
1,260,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 26,775
620,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 13,175
257,899 Kinetic Concepts, Inc. bank term loan FRN Ser. C, 4.15s, 2005
(acquired 11/5/01, cost $258,221) (RES) 257,039
1,015,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 1,065,750
1,855,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 (In default) (NON) 435,925
365,000 Magellan Health Services, Inc. 144A sr. notes 9 3/8s, 2007 299,300
1,070,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 10,700
940,000 Mediq, Inc. debs. stepped-coupon zero % (13s, 6/1/03), 2009
(In default) (NON) (STP) 94
1,070,000 MedQuest, Inc. 144A sr. sub. notes 11 7/8s, 2012 1,021,850
2,690,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 53,800
800,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 856,000
1,575,000 PacifiCare Health Systems, Inc. company guaranty 10 3/4s, 2009 1,702,969
1,120,000 Rotech Healthcare, Inc. 144A sr. sub. notes 9 1/2s, 2012 1,120,000
390,000 Service Corp. International debs. 7 7/8s, 2013 359,775
115,000 Service Corp. International notes 7.7s, 2009 109,250
105,000 Service Corp. International notes 7.2s, 2006 101,850
155,000 Service Corp. International notes 6 1/2s, 2008 143,375
1,435,000 Service Corp. International notes 6s, 2005 1,395,538
370,000 Service Corp. International notes Ser. (a), 7.7s, 2009 349,650
1,010,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 1,121,100
360,000 Tenet Healthcare Corp. sr. notes 6 1/2s, 2012 342,900
555,000 Tenet Healthcare Corp. sr. notes 6 3/8s, 2011 527,250
180,000 Tenet Healthcare Corp. sr. notes 5 3/8s, 2006 173,700
2,785,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 3,021,725
135,000 Triad Hospitals, Inc. company guaranty Ser. B, 8 3/4s, 2009 143,775
-------------
35,516,595
Homebuilding (1.1%)
-------------------------------------------------------------------------------------------------------------------
610,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 637,450
390,000 D.R. Horton, Inc. company guaranty 8 1/2s, 2012 400,725
10,000 D.R. Horton, Inc. company guaranty 8s, 2009 10,200
880,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 877,800
780,000 Del Webb Corp. sr. sub. debs 9 3/8s, 2009 818,025
630,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 686,700
155,000 K. Hovnanian Enterprises, Inc. company guaranty 8 7/8s, 2012 154,225
180,000 K. Hovnanian Enterprises, Inc. company guaranty 8s, 2012 180,000
860,000 KB Home sr. sub. notes 9 1/2s, 2011 926,650
320,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 367,200
720,000 Lennar Corp. sr. notes 7 5/8s, 2009 799,200
120,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 124,950
1,130,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 1,248,650
180,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 184,500
615,000 Schuler Homes, Inc. company guaranty 10 1/2s, 2011 647,288
50,000 Schuler Homes, Inc. company guaranty 9s, 2008 51,875
215,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 226,825
590,000 Toll Corp. company guaranty 8 1/8s, 2009 604,750
170,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 175,525
100,000 WCI Communities, Inc. company guaranty 10 5/8s, 2011 98,500
840,000 WCI Communities, Inc. company guaranty 9 1/8s, 2012 756,000
-------------
9,977,038
Household Furniture and Appliances (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Sealy Mattress Co. company guaranty Ser. B, zero %, 2002 1,020,000
1,220,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 1,213,900
-------------
2,233,900
Lodging/Tourism (1.6%)
-------------------------------------------------------------------------------------------------------------------
50,000 Capstar Hotel Co. sr. sub. notes 8 3/4s, 2007 33,500
1,807,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 (R) 1,743,755
457,000 Felcor Lodging LP company guaranty 8 1/2s, 2008 (R) 425,010
1,175,000 Hilton Hotels Corp. notes 7 5/8s, 2012 1,157,375
6,720,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 6,283,200
345,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 332,063
920,000 ITT Corp. notes 6 3/4s, 2005 925,750
2,085,000 John Q. Hammons Hotels LP/John Q. Hammons Hotels
Finance Corp. III 1st mtge. Ser. B, 8 7/8s, 2012 2,116,275
275,000 Meristar Hospitality Corp. company guaranty 9 1/8s, 2011 (R) 224,125
720,000 RFS Partnership LP company guaranty 9 3/4s, 2012 730,800
410,000 Starwood Hotels & Resorts Worldwide, Inc. 144A notes
7 7/8s, 2012 405,900
260,000 Starwood Hotels & Resorts Worldwide, Inc. 144A notes
7 3/8s, 2007 259,350
-------------
14,637,103
Publishing (1.9%)
-------------------------------------------------------------------------------------------------------------------
365,000 American Media, Inc. 144A sr. sub. notes 8 7/8s, 2011 374,125
760,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 784,700
290,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 295,800
625,000 Hollinger International Publishing, Inc. 144A sr. notes 9s, 2010 651,563
2,548,982 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010
(Canada) (PIK) 2,485,257
310,000 Houghton Mifflin Co. 144A sr. notes 9 7/8s, 2013 321,625
1,135,000 Houghton Mifflin Co. 144A sr. notes 8 1/4s, 2011 1,157,700
740,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011
(In default) (NON) 59,200
680,000 Mail-Well I Corp. company guaranty 9 5/8s, 2012 612,000
2,045,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 1,942,750
470,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 430,050
1,070,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 1,037,900
300,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero %
(13 3/4s, 7/15/06), 2011 (Canada) (STP) 201,000
1,380,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 1,428,300
375,000 RH Donnelley Finance Corp. I bank term loan FRN Ser. B,
5.34s, 2010 (acquired 12/4/02, cost $375,000) (RES) 376,781
980,000 RH Donnelley Finance Corp. I 144A sr. notes 8 7/8s, 2010 1,043,700
1,135,000 RH Donnelley Finance Corp. I 144A sr. sub. notes 10 7/8s, 2012 1,245,663
960,000 Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 988,800
255,000 Vertis, Inc. 144A sr. notes 10 7/8s, 2009 262,650
800,000 Von Hoffman Press, Inc. company guaranty 10 1/4s, 2009 760,000
370,000 Von Hoffman Press, Inc. company guaranty FRN 10 3/8s, 2007 292,300
439,126 Von Hoffman Press, Inc. debs. zero %, 2009 (PIK) 285,432
-------------
17,037,296
Retail (1.0%)
-------------------------------------------------------------------------------------------------------------------
670,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 690,100
800,000 Asbury Automotive Group, Inc. company guaranty 9s, 2012 728,000
1,240,000 Autonation, Inc. company guaranty 9s, 2008 1,289,600
460,000 Gap, Inc. (The) notes 6.9s, 2007 453,100
520,000 Hollywood Entertainment Corp. sr. sub. notes 9 5/8s, 2011 514,800
210,000 JC Penney Co., Inc. debs. 7.95s, 2017 196,350
105,000 JC Penney Co., Inc. debs. 7.65s, 2016 97,650
620,000 JC Penney Co., Inc. debs. 7.4s, 2037 633,950
1,000,000 JC Penney Co., Inc. notes 9s, 2012 1,045,000
450,000 JC Penney Co., Inc. notes Ser. A MTN, 7.05s, 2005 464,063
360,000 Kmart Corp. 144A notes 9 7/8s, 2008 (In default) (NON) 61,200
2,190,000 Saks, Inc. company guaranty 8 1/4s, 2008 2,146,200
715,000 United Auto Group, Inc. 144A sr. sub. notes 9 5/8s, 2012 700,700
-------------
9,020,713
Technology (1.7%)
-------------------------------------------------------------------------------------------------------------------
880,000 AMI Semiconductor, Inc. 144A sr. sub. notes 10 3/4s, 2013 880,000
270,000 Avaya, Inc. sec. sr. notes 11 1/8s, 2009 255,150
135,000 Fairchild Semiconductor International, Inc. company guaranty
10 3/8s, 2007 142,763
305,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 322,538
370,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 375,088
1,890,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 1,965,600
100,000 Lucent Technologies, Inc. debs. 6 1/2s, 2028 55,000
3,360,000 Lucent Technologies, Inc. debs. 6.45s, 2029 1,848,000
515,000 Lucent Technologies, Inc. notes 7 1/4s, 2006 401,700
920,000 Micron Technology, Inc. notes 6 1/2s, 2005 763,600
1,460,000 Nortel Networks Corp. notes 6 1/8s, 2006 (Canada) 1,248,300
470,000 ON Semiconductor Corp. 144A company guaranty 12s, 2008 376,000
370,000 SCG Holding & Semiconductor Corp. company guaranty
12s, 2009 203,963
855,000 Seagate Technology Hdd Holdings company guaranty 8s, 2009 891,338
1,760,000 Sequa Corp. sr. notes 9s, 2009 1,707,200
160,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 155,200
208,982 Telex Communications Group, Inc. sr. sub. notes Ser. A,
zero %, 2006 114,940
446,628 Titan Corp. (The) bank term loan FRN Ser. B, 4.352s, 2009
(acquired various dates from 5/14/02 to 6/3/02,
cost $448,320) (RES) 445,697
135,000 Unisys Corp. sr. notes 8 1/8s, 2006 140,400
440,000 Unisys Corp. sr. notes 7 7/8s, 2008 453,200
250,000 Unisys Corp. sr. notes 7 1/4s, 2005 254,375
260,000 Xerox Cap Europe PLC company guaranty 5 7/8s, 2004
(United Kingdom) 256,100
785,000 Xerox Corp. notes 5 1/2s, 2003 777,150
750,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 772,500
EUR 270,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 285,734
$250,000 Xerox Credit Corp. sr. notes 6.1s, 2003 247,500
-------------
15,339,036
Textiles (0.5%)
-------------------------------------------------------------------------------------------------------------------
780,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 (In default) (NON) 62,400
1,160,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 1,139,700
1,035,000 Levi Strauss & Co. 144A sr. notes 12 1/4s, 2012 1,029,825
695,000 Russell Corp. company guaranty 9 1/4s, 2010 740,175
310,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 311,550
1,200,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 372,000
850,000 William Carter Holdings Co. (The) company guaranty Ser. B,
10 7/8s, 2011 937,125
-------------
4,592,775
Transportation (1.1%)
-------------------------------------------------------------------------------------------------------------------
100,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 55,000
1,340,093 Airbus Industries 144A sinking fund Ser. D, 12.266s, 2020 120,608
585,000 Allied Holdings, Inc. company guaranty Ser. B, 8 5/8s, 2007 438,750
1,360,000 Calair, LLC/Calair Capital Corp. company guaranty
8 1/8s, 2008 625,600
450,000 Continental Airlines, Inc. pass-through certificates Ser. D,
7.568s, 2006 202,500
1,300,000 CSX Corp. notes 6 1/4s, 2008 1,434,208
550,000 Delta Air Lines, Inc. pass-through certificates Ser. 00-1, Class C,
7.779s, 2005 456,131
359,542 Delta Air Lines, Inc. pass-through certificates Ser. C,
7.779s, 2012 280,443
EUR 500,000 Fixed-Link Finance BV sec. notes FRN Ser. B2-X, 7.85s, 2009
(Netherlands) 474,935
$252,547 Ingram Industries bank term loan FRN 4.046s, 2008
(acquired 6/17/02, cost $252,547) (RES) 249,391
1,530,000 Kansas City Southern Railway Co. company guaranty
9 1/2s, 2008 1,683,000
1,230,000 Navistar International Corp. company guaranty Ser. B,
9 3/8s, 2006 1,205,400
575,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 491,625
770,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 523,600
1,170,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 772,200
360,092 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 330,280
115,000 RailAmerica Transportation company guaranty 12 7/8s, 2010 116,869
150,000 Transportation Manufacturing Operations, Inc. company
guaranty 11 1/4s, 2009 94,500
260,000 Travel Centers of America, Inc. company guaranty 12 3/4s, 2009 275,600
780,000 US Air, Inc. pass-through certificates Ser. 93A3, 10 3/8s, 2013
(In default) (NON) 390,000
-------------
10,220,640
Utilities & Power (2.0%)
-------------------------------------------------------------------------------------------------------------------
375,000 AES Corp. (The) sr. notes 8 7/8s, 2011 238,125
230,000 AES Corp. (The) sr. notes 8 3/4s, 2008 154,100
1,300,000 Allegheny Energy Supply 144A bonds 8 1/4s, 2012 1,014,000
365,000 Allegheny Energy, Inc. notes 7 3/4s, 2005 350,400
340,000 Calpine Canada Energy Finance company guaranty 8 1/2s,
2008 (Canada) 159,800
530,000 Calpine Corp. sr. notes 10 1/2s, 2006 278,250
1,795,000 Calpine Corp. sr. notes 8 5/8s, 2010 816,725
1,490,000 Calpine Corp. sr. notes 8 1/2s, 2011 685,400
1,050,000 Calpine Corp. sr. notes 7 7/8s, 2008 488,250
1,190,000 CMS Energy Corp. sr. notes 8.9s, 2008 1,017,450
440,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 367,400
140,000 CMS Panhandle Holding Corp. sr. notes 6 1/2s, 2009 137,534
880,000 Consumers Energy bank term loan FRN 6.176s, 2004
(acquired various dates from 9/16/02 to 9/17/02,
cost $844,800) (RES) 880,000
730,000 Dynegy Holdings, Inc. sr. notes 6 7/8s, 2011 354,050
520,000 Edison Mission Energy sr. notes 10s, 2008 280,800
530,000 Edison Mission Energy sr. notes 9 7/8s, 2011 286,200
1,740,000 Midland Funding II Corp. debs. Ser. B, 13 1/4s, 2006 1,861,800
340,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 91,800
186 Northeast Utilities notes Ser. A, 8.58s, 2006 206
1,060,000 Oncor Electric Delivery Co. 144A notes 6 3/8s, 2012 1,100,699
500,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005
(In default) (NON) 497,500
25,000 Sierra Pacific Power Co. general ref. mtge. Ser. A, 8s, 2008 23,468
500,000 Southern California Edison Co. bank term loan FRN 4.813s,
2005 (acquired 2/28/02, cost $499,250) (RES) 497,578
1,270,000 Southern California Edison Co. notes 8.95s, 2003 1,314,450
130,000 Southern California Edison Co. notes 6 3/8s, 2006 122,850
1,270,000 Tiverton/Rumford Power Associates, LP 144A pass-through
certificates 9s, 2018 685,800
1,105,000 Western Resources, Inc. 1st mtge. 7 7/8s, 2007 1,138,150
815,000 Western Resources, Inc. sr. notes 9 3/4s, 2007 798,700
790,000 Williams Cos., Inc. (The) FRN Ser. A, 6 3/4s, 2006 643,850
365,000 Williams Cos., Inc. (The) notes 9 1/4s, 2004 337,625
800,000 Williams Cos., Inc. (The) notes 6 1/2s, 2006 644,000
1,651,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands)
(In default) (NON) 1,320,800
-------------
18,587,760
-------------
Total Corporate Bonds and Notes (cost $485,151,308) $440,510,347
FOREIGN GOVERNMENT BONDS AND NOTES (15.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
USD 1,941,787 Argentina (Republic of) unsub. Ser. 2018, 2.89s, 2018
(In default) (NON) $402,921
USD 2,630,000 Brazil (Federal Republic of) bonds 10 1/8s, 2027 1,614,820
USD 3,685,000 Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 4,145,625
CAD 11,840,000 Canada (Government of) bonds 6s, 2011 8,282,975
CAD 2,725,000 Canada (Government of) bonds 5 1/2s, 2010 1,853,854
CAD 930,000 Canada (Government of) bonds Ser. WL43, 5 3/4s, 2029 629,898
USD 1,300,000 Chile (Republic of) bonds 5 1/2s, 2013 1,280,500
USD 1,875,000 Colombia (Republic of) bonds 11 3/4s, 2020 1,896,563
USD 845,000 Colombia (Republic of) bonds 10 3/8s, 2033 764,725
USD 1,665,000 Colombia (Republic of) notes 10 3/4s, 2013 1,660,838
EUR 480,000 Colombia (Republic of) notes Ser. E MTN, 11 1/2s, 2011 510,547
USD 420,000 Colombia (Republic of) unsub. 9 3/4s, 2009 415,800
EUR 755,000 Colombia (Republic of) unsub. bonds Ser. 15A, 11 3/8s, 2008 809,531
USD 820,000 Costa Rica (Republic of) 144A notes 6.914s, 2008 824,100
USD 1,585,000 Dominican Republic 144A notes 9.04s, 2013 1,585,000
USD 710,000 Ecuador (Republic of) bonds Ser. REGS, 12s, 2012 459,725
USD 3,430,000 Ecuador (Republic of) bonds stepped-coupon Ser. REGS,
6s (7s, 8/15/03), 2030 (STP) 1,620,675
EUR 4,830,000 France (Government of) bonds 5 1/2s, 2010 5,736,139
EUR 1,080,000 France (Government of) deb. 4s, 2009 1,178,870
EUR 7,200,000 Germany (Federal Republic of) bonds 5s, 2012 8,284,159
EUR 950,000 Germany (Federal Republic of) bonds Ser. 94, 6 1/4s, 2024 1,229,170
EUR 6,340,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 7,509,011
EUR 530,000 Italy (Government of) treasury bonds 4 3/4s, 2006 599,169
NZD 12,920,000 New Zealand (Government of) bonds 6 1/2s, 2013 7,289,874
NZD 8,036,000 New Zealand (Government of) bonds Ser. 709, 7s, 2009 4,630,358
USD 1,635,000 Peru (Republic of) notes 9 7/8s, 2015 1,609,658
USD 1,470,000 Peru (Republic of) notes 9 1/8s, 2008 1,488,375
USD 1,565,000 Philippines (Republic of) bonds 9s, 2013 1,521,963
USD 3,040,000 Russia (Federation of) unsub. 8 1/4s, 2010 3,283,200
USD 4,805,000 Russia (Federation of) unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 3,935,295
USD 8,807,500 Russia (Federation of) 144A unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 7,213,343
USD 3,985,000 South Africa (Republic of) notes 7 3/8s, 2012 4,343,650
EUR 710,000 Spain (Kingdom of) bonds 5 3/4s, 2032 878,255
EUR 2,360,000 Spain (Kingdom of) bonds 4.8s, 2006 2,690,033
SEK 76,070,000 Sweden (Government of) bonds Ser. 1037, 8s, 2007 10,259,885
SEK 127,250,000 Sweden (Government of) bonds Ser. 1044, 3 1/2s, 2006 14,633,861
USD 705,600 Ukraine (Government of) sr. notes Ser. REGS, 11s, 2007 748,642
GBP 4,420,000 United Kingdom treasury bonds 10s, 2003 7,533,506
GBP 1,055,000 United Kingdom treasury bonds 8 3/4s, 2017 2,542,041
GBP 1,100,000 United Kingdom treasury bonds 5s, 2012 1,905,590
GBP 2,800,000 United Kingdom treasury bonds 5s, 2004 4,687,218
USD 2,285,000 United Mexican States bonds 11 3/8s, 2016 3,004,775
USD 1,855,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 1,892,100
USD 720,000 United Mexican States notes Ser. A, 9 7/8s, 2010 869,400
USD 1,055,000 Venezuela (Republic of) bonds 9 1/4s, 2027 666,233
-------------
Total Foreign Government Bonds and Notes
(cost $126,502,133) $140,921,870
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (10.3%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government and Agency Mortgage Obligations (3.4%)
-------------------------------------------------------------------------------------------------------------------
$74,653 Federal Home Loan Mortgage Corp. Pass-Through Certificates
7 1/2s, March 1, 2026 $80,041
Federal National Mortgage Association
14,693,000 TBA, 7s, February 1, 2033 15,473,566
3,214,000 TBA, 6 1/2s, February 1, 2032 3,348,586
53,000 TBA, 6 1/2s, February 1, 2017 56,064
Federal National Mortgage Association Pass-Through Certificates
597,050 7 1/2s, with due dates from October 1, 2022 to January 1, 2030 636,752
10,728,206 7s, with due dates from March 1, 2028 to June 1, 2032 11,306,963
289,921 6 1/2s, January 1, 2028 302,493
-------------
31,204,465
U.S. Government and Agency Obligations (0.4%)
-------------------------------------------------------------------------------------------------------------------
2,590,000 Fannie Mae 7 1/4s, January 15, 2010 3,103,664
U.S. Treasury Obligations (6.5%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
21,600,000 7 1/2s, November 15, 2016 (SEG) 27,998,158
8,802,000 6 1/4s, May 15, 2030 10,451,345
12,260,000 6 1/4s, August 15, 2023 14,273,803
U.S. Treasury Notes
55,000 4s, November 15, 2012 55,095
20,460,000 U.S. Treasury Strip zero %, November 15, 2024 6,382,313
-------------
59,160,714
-------------
Total U.S. Government and Agency Obligations
(cost $88,983,618) $93,468,843
COLLATERALIZED MORTGAGE OBLIGATIONS (10.2%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$432,429 Arc Net Interest Margin Trust Ser. 02-5A, Class A, 7 3/4s, 2032 $429,647
592,176 Arc Net Interest Margin Trust 144A Ser. 02-1A, Class A, 7 3/4s, 2032 592,075
6,363,607 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
Interest Only (IO), 0.94s, 2017 191,405
42,775,709 Commercial Mortgage Asset Trust Ser. 99-C1, Class X, IO, 0.92s, 2020 2,429,527
1,858,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1,
Class A2, 7s, 2011 2,013,608
$2,814,000 Criimi Mae Commercial Mortgage Trust 144A Ser. 98-C1,
Class B, 7s, 2011 $2,924,801
66,499,981 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 1.19s, 2023 2,410,624
Euro Loan Conduit 144A
GBP 462,778 FRN Ser. 7A, Class D, 5.69s, 2006 (United Kingdom) 756,590
GBP 462,778 FRN Ser. 7A, Class E, 7.44s, 2006 (United Kingdom) 730,121
Fannie Mae
$4,637,587 Ser. 02-36, Class SJ, 16.744s, 2029 5,166,636
401,925 Ser. 98-1, Class SA, IO, 13.2s, 2024 18,087
4,295 Ser. 92-15, Class L, IO, 8s, 2022 72,885
26,986,000 7 1/2s, 2042 29,446,881
12,059,722 Ser. 02-9, Class MS, IO, 6 3/4s, 2032 1,123,062
10,048,095 Ser. 02-36, Class QH, IO, 6.7s, 2029 669,501
3,079,902 Ser. 02-29, Class SL, IO, 6.7s, 2029 156,883
4,919,388 Ser. 02-52, Class SL, IO, 6.65s, 2032 467,342
5,107,204 Ser. 02-63, Class SN, IO, 6.65s, 2032 504,336
1,304,000 Ser. 01-58, Class HI, IO, 6 1/2s, 2026 46,048
3,788,173 Ser. 93-251, Class Z, 6 1/2s, 2023 3,805,338
4,851,593 Ser. 318, Class 2, IO, 6s, 2032 946,061
2,232,888 Ser. 01-74, Class MI, IO, 6s, 2015 210,482
608,304 Ser. 98-51, Class SG, 2.365s, 2022 252,801
23,704,583 Ser. 00-T6, IO, 0.74s, 2030 514,840
9,437,577 Ser. 318, Class 1, Principal Only (PO), zero %, 2032 7,893,649
653,396 Ser. 99-51, Class N, PO, zero %, 2029 570,599
562,231 Ser. 99-52, Class MO, PO, zero %, 2026 541,683
154,605 Ser. 97-92, PO, zero %, 2025 153,638
618,981 Ser. 96-5, Class PB, PO, zero %, 2024 588,806
228,814 Ser. 93-159, Class D, PO, zero %, 2023 226,526
1,127,953 Ser. 93-146, Class H, PO, zero %, 2023 1,080,720
23,947,956 FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, 1.7s, 2020 1,889,643
Freddie Mac
1,844,800 Ser. 2412, Class GS, FRN, 17.4s, 2032 2,222,984
401,552 Ser. 2028, Class SG, IO, 13.4s, 2023 27,105
1,759,150 Ser. 2478, Class SY, IO, 6.78s, 2021 144,030
4,676,663 Ser. 2448, Class SE, IO, 6.73s, 2029 216,296
3,799,300 Ser. 2448, Class SM, IO, 6.63s, 2032 731,365
1,327,769 Ser. 1717, Class L, 6 1/2s, 2024 1,338,766
2,008,400 Ser. 2515, Class IG, IO, 5.5s, 2032 752,084
277,644 Ser. 2044, Class SG, IO, 4.84s, 2023 1,041
1,899,711 Ser. 215, PO, zero %, 2031 1,751,890
1,843,846 Ser. 2235, PO, zero %, 2030 1,596,655
5 Ser. 2078, Class KC, PO, zero %, 2023 5
1,575,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 1,603,497
Government National Mortgage Association
100,143 Ser. 02-49, Class QS, FRN, 17.5s, 2029 100,612
2,990,654 Ser. 02-36, Class SD, IO, 6.79s, 2029 157,944
4,478,666 Ser. 02-51, Class SA, IO, 6.74s, 2032 252,645
6,331,267 Ser. 01-43, Class SJ, IO, 6.24s, 2029 399,661
7,153,447 Ser. 01-43, Class SD, IO, 6.2s, 2028 244,034
9,614,581 Ser. 02-47, Class SM, IO, 4.61s, 2032 540,820
5,824,144 Ser. 02-63, Class ST, IO, 4.26s, 2024 200,205
754,522 Ser. 98-2, Class EA, PO, zero %, 2028 687,931
1,495,000 Granite Mortgages PLC FRN Ser. 01-1, Class 1C, 2.77s, 2041
(United Kingdom) 1,485,773
$7,365,000 Holmes Financing PLC FRB Ser. 1, Class 2C, 2.53s, 2040 7,317,503
14,244,865 Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2, IO,
1.95s, 2028 939,271
9,307,350 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO,
1.55s, 2012 426,102
25,668 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 25,824
747,052 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 785,369
332,281 Sasco Arc Net Interest Margin Notes Ser. 02-BC10,
Class A, 7 3/4s, 2033 329,260
-------------
Total Collateralized Mortgage Obligations (cost $94,356,177) $93,103,517
ASSET-BACKED SECURITIES (5.0%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
Amortizing Residential Collateral Trust
$40,426,364 Ser. 02-BC1, Class A, IO, 6s, 2005 $2,223,490
3,170,000 Ser. 02-BC1, Class M2, FRN, 2.45s, 2032 3,047,904
924,071 Arc Net Interest Margin Trust 144A Ser. 02-8A, Class A1,
7 3/4s, 2032 916,456
426,296 Asset Backed Funding Corp. NIM Trust Ser. 02-WF1,
9.32s, 2032 422,033
2,571,000 Bank One Issuance Trust FRN Ser. 02-C1, Class C1,
2.33s, 2009 2,551,316
Bayview Financial Acquisition Trust
1,278,084 Ser. 01-DA, Class M3, FRN, 2.75s, 2031 1,257,716
1,390,000 Ser. 02-CA, Class A, IO, 10.5s, 2004 125,317
1,752,996 CDC Mortgage Capital Trust Ser. 02-HE1, Class M, FRN,
2.6s, 2033 1,688,355
463,000 Chase Funding Net Interest Margin Ser. 03-1, 8 3/4s, 2036 463,000
Chase Funding Net Interest Margin 144A
327,212 Ser. 02-1, Class Note, 8 1/2s, 2035 325,053
766,406 Ser. 02-2, Class Note, 8 1/2s, 2035 766,406
217,371 Ser. 02-C1, Class Note, 8 1/2s, 2035 215,936
Conseco Finance Securitizations Corp.
346,000 Ser. 00-2, Class A4, 8.48s, 2021 367,132
4,310,000 Ser. 00-4, Class A6, 8.31s, 2032 3,938,715
1,535,000 Ser. 00-6, Class M2, 8.2s, 2032 1,074,500
32,000 Ser. 01-04, Class A4, 7.36s, 2019 29,095
18,000 Ser. 01-3, Class A3, 5.79s, 2024 17,522
47,000 Ser. 01-3, Class A4, 6.91s, 2033 41,469
1,436,000 Ser. 01-4, Class B1, 9.4s, 2010 689,280
4,828,401 Ser. 02-1, Class A, 6.681s, 2032 4,691,342
1,100,000 Consumer Credit Reference IDX Securities Ser. 02-1A,
Class A, FRB, 3.4s, 2007 1,078,344
1,301,780 First Plus 144A Ser. 98-A, Class A, 8 1/2s, 2023 859,175
Green Tree Financial Corp.
385,000 Ser. 95-F, Class B2, 7.1s, 2021 354,441
45,000 Ser. 99-5, Class A5, 7.86s, 2031 40,967
Greenpoint Manufactured Housing
3,255,306 Ser. 00-3, Class IA, 8.45s, 2031 3,255,306
50,000 Ser. 99-5, Class A4, 7.59s, 2028 49,000
456,000 GSAMP Trust Ser. 02-HE2N, Class Note, 8 1/4s, 2032 454,005
371,867 Home Equity Asset Trust Ser. 02-1N, Class A, 8s, 2032 362,570
1,755,000 LNR CDO, Ltd. Ser. 02-1A, Class FFL, 4.589s, 2037 1,597,598
1,457,253 Madison Avenue Manufactured Housing Contract Ser. 02-A,
Class B1, FRN, 4.6s, 2032 1,020,077
825,962 Mid-State Trust Ser. 10, Class B, 7.54s, 2036 748,916
Morgan Stanley Dean Witter Capital I
545,000 Ser. 01-NC3, Class B1, FRN, 3.8s, 2031 503,699
2,318,000 Ser. 01-NC4, Class B1, FRN, 3.85s, 2032 2,139,442
890,000 Ser. 02-AM2, Class B1, FRN, 3.603s, 2032 808,648
1,051,000 Ser. 02-NC3, Class M2, FRN, 2.653s, 2032 1,000,132
Morgan Stanley Dean Witter Capital I 144A
222,221 Ser. 01-AM1N, Class Note, 12 3/4s, 2032 222,221
704,900 Ser. 01-NC4N, Class Note, 8 1/2s, 2032 704,900
328,503 NovaStar Caps Trust Ser. 02-C1, Class A, 7.15s, 2031 328,503
975,872 Option One Mortgage Securities Corp. Ser. 02-2A, Class CFTS,
8.83s, 2032 975,567
813,079 Option One Mortgage Securities Corp. 144A Ser. 02-1,
Class CTFS, 6 3/4s, 2032 809,645
2,070,938 Pass-Through Amortizing Credit Card Trust Ser. 02-1A,
Class A4FL, 7.339s, 2012 2,063,172
7,400,000 Residential Asset Mortgage Products, Inc. Ser. 03-RZ1,
Class A, IO, 5 3/4s, 2005 640,563
544,000 TIAA Commercial Real Estate Securitization Ser. 02-1A,
Class IV, 6.84s, 2037 448,970
-------------
Total Asset-Backed Securities (cost $49,486,995) $45,317,898
PREFERRED STOCKS (1.5%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
1,377 AmeriKing, Inc. $3.25 cum. pfd. (In default) (NON) (PIK) $14
62,400 California Federal Preferred Capital Corp. Ser. A, $2.281 pfd. 1,640,496
31,190 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 1,777,830
3,805 Chevy Chase Savings Bank, Inc. $3.25 pfd. 104,828
28,919 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. 2,812,372
1,185 Delta Financial Corp. Ser. A, $10.00 cum. pfd. 6,518
69,460 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 695
20,000 Doane Pet Care Co. $7.125 pfd. 600,000
1,118 Dobson Communications Corp. 13.00% pfd. (PIK) 670,800
658 Dobson Communications Corp. 12.25% pfd. (PIK) 394,854
540 First Republic Capital Corp. 144A 10.50% pfd. 567,000
510 Granite Broadcasting Corp. 12.75% cum. pfd. 326,400
69 Leiner Health Products Ser. C, zero % pfd. (NON) 1
22,867 Lodgian, Inc. Ser. A, $7.06 cum. pfd. (PIK) 457,340
196 Metrocall Holdings, Inc. Ser. A, 15.00% cum. pfd. 12
2 Nextel Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 1,980
1,156 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 1,086,640
1,703 North Atlantic Trading Co. 12.00% pfd. (PIK) 28,951
17 NTL Europe, Inc. Ser. A, zero % cum. pfd. 54
417 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 2,814,750
1,712 Rural Cellular Corp. 12.25% pfd. (PIK) 476,058
-------------
Total Preferred Stocks (cost $17,264,096) $13,767,593
BRADY BONDS (1.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$4,500,000 Argentina (Republic of) govt. guaranty Ser. L-GP, 6s, 2023
(In default) (NON) $2,058,750
1,391,493 Brazil (Federal Republic of) bonds 8s, 2014 965,418
1,065,000 Brazil (Federal Republic of) government guaranty
Ser. 30YR, 3.063s, 2024 660,300
1,610,000 Brazil (Federal Republic of) govt. guaranty FRB Ser. RG,
3 1/4s, 2012 931,868
1,029,000 Peru (Republic of) bonds Ser. PDI, 4s, 2017 800,048
1,020,000 Peru (Republic of) coll. FLIRB 3 1/4s, 2017 736,950
2,215,000 Peru (Republic of) coll. FLIRB Ser. 20YR, 4s, 2017 1,600,338
1,650,000 United Mexican States bonds Ser. B, 6 1/4s, 2019 1,635,645
5,714,286 Venezuela (Republic of) debs. FRB Ser. DL, 2 7/8s, 2007 4,157,143
-------------
Total Brady Bonds (cost $13,658,217) $13,546,460
COMMON STOCKS (1.2%) (a)
NUMBER OF SHARES VALUE
Basic Materials (--%)
-------------------------------------------------------------------------------------------------------------------
39,407 Pioneer Cos., Inc. (NON) $98,518
368 Sterling Chemicals, Inc. (NON) 9,195
-------------
107,713
Communication Services (0.1%)
-------------------------------------------------------------------------------------------------------------------
136 Arch Wireless, Inc. (NON) 305
45,677 Arch Wireless, Inc. (NON) 46
277,865 Celcaribe SA (Colombia) 2,779
21,241 Covad Communications Group, Inc. 144A (NON) 28,251
8,782 Equinix, Inc. (NON) 30,737
2,423 FLAG Telecom Holdings, Ltd. (Bermuda) (NON) 25,397
48,165 Globix Corp. (NON) 101,147
228 Metrocall Holdings, Inc. (NON) 399
38,630 NTL, Inc. (NON) 539,661
2,169 Vast Solutions, Inc. Class B1 (NON) 1,085
2,169 Vast Solutions, Inc. Class B2 (NON) 1,085
2,169 Vast Solutions, Inc. Class B3 (NON) 1,085
6,160 WilTel Communications, Inc. (NON) 92,061
-------------
824,038
Conglomerates (--%)
-------------------------------------------------------------------------------------------------------------------
11,334 Jasper Energy 144A 708
2,319 York Research Corp. 144A 145
-------------
853
Consumer Cyclicals (0.5%)
-------------------------------------------------------------------------------------------------------------------
27,093 Lodgian, Inc. (NON) 135,465
160,000 Loewen Group International, Inc. (NON) 16
1,250,000 Morrison Knudsen Corp. 50,000
234 Quorum Broadcast Holdings, Inc. Class E (NON) 51,008
236,020 Regal Entertainment Group 144A 4,082,674
39,603 Safety Components International, Inc. (NON) 227,717
2,437 Washington Group International, Inc. (NON) 39,431
-------------
4,586,311
Consumer Staples (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,452 Archibald Candy Corp. (NON) 286,663
19,924 Aurora Foods, Inc. (NON) 9,962
28,440 Doskocil Manufacturing Co., Inc. (NON) 103,806
1,186 Premium Holdings (LP) 144A 24,900
2,502 PSF Group Holdings, Inc. 144A Class A (NON) 4,379,340
-------------
4,804,671
Financial (--%)
-------------------------------------------------------------------------------------------------------------------
1,005,000 AMRESCO Capital Trust, Inc. (NON) (R) 74,370
628 Comdisco Holding Co., Inc. (NON) 67,824
3,390,037 Contifinancial Corp. Liquidating Trust Units 76,276
1,145 Delta Funding Residual Exchange Co., LLC (NON) 222,703
1,145 Delta Funding Residual Management, Inc. (NON) 11
-------------
441,184
Health Care (--%)
-------------------------------------------------------------------------------------------------------------------
3,074 Alderwoods Group, Inc. (NON) 15,524
9,649 Genesis Health Ventures, Inc. (NON) 151,972
2,359 Mariner Health Care, Inc. (NON) 17,693
1,195 Sun Healthcare Group, Inc. (NON) 562
-------------
185,751
-------------
Total Common Stocks (cost $30,608,062) $10,950,521
CONVERTIBLE BONDS AND NOTES (0.4%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$955,000 American Tower Corp. cv. notes 5s, 2010 $664,919
690,000 DaVita, Inc. cv. sub. notes 7s, 2009 699,488
1,955,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 1,527,344
985,000 Province Healthcare Co. cv. sub. notes 4 1/2s, 2005 845,869
150,000 Rogers Communications cv. debs. 2s, 2005 (Canada) 117,563
-------------
Total Convertible Bonds and Notes (cost $3,491,554) $3,855,183
UNITS (0.2%) (a)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
1,360 American Tower Escrow Corp. units zero %, 2008 $802,400
395 MDP Acquisitions PLC 144A units 15 1/2s, 2013 (Ireland) (PIK) 424,625
960 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 288,000
7,615 XCL, Ltd. 144A 9.50% units cum. cv. pfd. (In default) (NON) (PIK) 1,904
-------------
Total Units (cost $2,688,119) $1,516,929
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
77 Genesis Health Ventures, Inc. 6.00% cum. cv. pfd. (PIK) $8,470
847 Hercules Trust II 6.50% units cum. cv. pfd. 499,730
1,900 Interact Electronic Marketing, Inc. 14.00% cum. cv. pfd.
(In default) (NON) 19
2,821 Knology, Inc. 144A Ser. D, zero % cv. pfd. 1,411
6,800 LTV Corp. 144A $4.125 cv. pfd. (In default) (NON) 850
77 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 323,400
9,916 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 9,916
900 Weirton Steel Corp. Ser. C, zero % cv. pfd. 90
1,503 XCL, Ltd. 144A Ser. A, 9.50% cum. cv. pfd. (In default) (NON) (PIK) 376
-------------
Total Convertible Preferred Stocks (cost $1,544,455) $844,262
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
780 Birch Telecommunications, Inc. 144A 6/15/08 $1
1,420 Dayton Superior Corp. 6/15/09 355
2,919 Diva Systems Corp. 5/15/06 29
8,326 Diva Systems Corp. 144A 3/1/08 83
1,450 Horizon PCS, Inc. 10/1/10 1
1,900 Interact Systems, Inc. 8/1/03 2
1,900 Interact Systems, Inc. 144A 12/15/09 19
1,270 iPCS, Inc. 144A 7/15/10 318
563 IWO Holdings, Inc. 1/15/11 141
758 Leap Wireless International, Inc. 144A 4/15/10 8
550 Mikohn Gaming Corp. 144A 8/15/08 275
560 ONO Finance PLC 144A (United Kingdom) 2/15/11 1
1,310 Orion Network Systems 1/15/07 13
1,600 Paxson Communications Corp. 144A 6/30/03 2
570 Pliant Corp. 144A 6/1/10 2,850
682 Solutia, Inc. 144A 7/15/09 853
2,987 Sun Healthcare Group, Inc. 2/28/05 1
690 Travel Centers of America, Inc. 144A 5/1/09 6,900
2,310 Ubiquitel, Inc. 144A 4/15/10 1
1,650,000 United Mexican States Ser. B (Mexico) 6/30/04 13,196
1,650,000 United Mexican States Ser. C (Mexico) 6/30/05 2,475
1,650,000 United Mexican States Ser. D (Mexico) 6/30/06 990
1,650,000 United Mexican States Ser. E (Mexico) 6/30/07 825
1,190 Veraldo Holdings, Inc. 144A 4/15/08 12
50 Versatel Telecom NV (Netherlands) 5/15/08 1
1,505 Washington Group International, Inc. Ser. A 1/25/06 1,129
1,719 Washington Group International, Inc. Ser. B 1/25/06 860
929 Washington Group International, Inc. Ser. C 1/25/06 465
800 XM Satellite Radio Holdings, Inc. 144A 3/15/10 1
-------------
Total Warrants (cost $1,118,665) $31,807
SHORT-TERM INVESTMENTS (9.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$61,612 Short-term investments held as collateral for loaned securities
with yields ranging from 1.27% to 1.35% and due dates
ranging from February 3, 2003 to March 24, 2003 (d) $61,585
86,221,596 Short-term investments held in Putnam commingled cash
account with yields ranging from 1.23% to 1.69% and
due dates ranging from February 3, 2003 to
March 31, 2003 (d) 86,221,596
-------------
Total Short-Term Investments (cost $86,283,181) $86,283,181
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,001,136,580) $944,118,411
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $909,289,940.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at January 31, 2003 was
$20,636,019 or 2.3% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with with
the custodian to cover margin requirements for future contracts at
January 31, 2003.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced
securities (Note 1).
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at January 31, 2003,
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, 2003: (as a percentage of Market Value)
Canada 3.3%
Colombia 0.6
France 0.7
Germany 1.8
Luxembourg 0.5
Mexico 0.8
New Zealand 1.3
Peru 0.7
Russia 1.5
South Africa 0.5
Sweden 2.6
United Kingdom 2.6
United States 70.0
Venezuela 0.5
Other 12.6
----
Total 100.0%
------------------------------------------------------------------------------
Forward Currency Contracts to Buy at January 31, 2003 (Unaudited)
(aggregate face value $81,438,490)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
------------------------------------------------------------------------------
Australian Dollars $24,334,696 $23,272,417 3/19/03 $1,062,279
British Pounds 666,854 648,580 3/19/03 18,274
Canadian Dollars 16,848,501 16,632,652 3/19/03 215,849
Danish Krone 1,326,721 1,304,400 3/19/03 22,321
Euro 18,169,775 17,240,683 3/19/03 929,092
Japanese Yen 18,540,004 18,427,993 3/19/03 112,011
Korean Won 3,490,245 3,353,942 3/19/03 136,303
Swiss Francs 600,323 557,823 3/19/03 42,500
------------------------------------------------------------------------------
$2,538,629
------------------------------------------------------------------------------
Forward Currency Contracts to Sell at January 31, 2003 (Unaudited)
(aggregate face value $75,954,991)
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
------------------------------------------------------------------------------
Australian Dollars $1,743,431 $1,675,408 3/19/03 $(68,023)
British Pounds 15,550,153 15,085,889 3/19/03 (464,264)
Canadian Dollars 10,160,592 10,079,062 3/19/03 (81,530)
Euro 7,913,616 7,771,428 3/19/03 (142,188)
Japanese Yen 6,769,960 6,767,588 3/19/03 (2,372)
New Zealand
Dollars 11,783,153 10,925,431 3/19/03 (857,722)
Swedish Krona 24,918,240 23,650,185 3/19/03 (1,268,055)
------------------------------------------------------------------------------
$(2,884,154)
------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 2003 (Unaudited)
Unrealized
Market Aggregate Face Expiration Appreciation/
Value Value Date (Depreciation)
------------------------------------------------------------------------------
CBT Interest Rate
Swap 10yr (Long) $2,578,875 $2,551,660 Mar-03 $27,215
Euro-Bobl 5yr
(Long) 20,178,983 19,685,716 Mar-03 493,267
Euro-Bund 10yr
(Long) 26,363,469 25,771,738 Mar-03 591,731
Euro 90 day (Long) 1,970,400 1,909,134 Sep-03 61,266
Euro 90 day
(Short) 1,973,700 1,917,566 Jun-03 (56,134)
Japanese
Government Bond
10yr (Long) 9,761,775 9,677,272 Mar-03 84,503
Japanese
Government Bond
10yr (Long) 7,144,263 7,080,919 Mar-03 63,344
US Treasury Bond
20yr (Long) 50,596,563 48,685,159 Mar-03 1,911,404
US Treasury Note
5yr (Short) 54,690,188 53,622,158 Mar-03 (1,068,030)
US Treasury Note
10yr (Long) 8,446,406 8,274,627 Mar-03 171,779
US Treasury Note
10yr (Short) 102,954,844 101,029,348 Mar-03 (1,925,496)
------------------------------------------------------------------------------
$354,849
------------------------------------------------------------------------------
Credit Default Contracts Outstanding at January 31, 2003
(premiums received $1,743,437)
Notional Market
Amount Value
------------------------------------------------------------------------------
Agreement with
JPMorgan Chase
Bank effective
May 14, 2002,
maturing on May
15, 2007, to
receive a premium
equal to 17.171%
times the
notional amount.
For each credit
default event
related to one of
the 100 issues
within the HYDI
100 8.75%,
5/15/07 Bond
Index, the fund
makes a payment
of the
proportional
notional amount
times the
difference
between the par
value and the
then-market value
of the defaulted
issue. $6,295,000 $1,631,035
------------------------------------------------------------------------------
Swap Contracts Outstanding at January 31, 2003 (Unaudited)
Notional Termination Unrealized
Amount Date Appreciation
------------------------------------------------------------------------------
Agreement with
Merrill Lynch
Capital Services,
Inc. dated
November 17, 2000
to pay semi-annually
the notional amount
multiplied by the
three month
USD-LIBOR-BBA and
receive the
notional amount
multiplied by
6.68%. $9,000,000 11/21/05 $1,028,768
Agreement with
Merrill Lynch
Capital Services,
Inc. dated
September 27,
2002 to receive
semiannually the
notional amount
multiplied by the
six month
JPY-LIBOR-BBA and
pay monthly the
notional amount
multiplied by
0.399%. JPY 3,417,000,00 10/1/07 559,383
Agreement with
Goldman Sachs
Capital Markets,
L.P. dated
September 13,
2002 to pay at
maturity the
notional amount
multiplied by the
six month
USD-LIBOR-BBA and
receive (pay) at
maturity the
notional amount
multiplied by the
change in net
asset value of
the ishares GS
InvesTop
Corporate Bond
Fund. $7,089,972 3/21/03 73,389
Agreement with
Goldman Sachs
Capital Markets,
L.P. dated
November 8, 2002
to pay at
maturity the
notional amount
multiplied by the
six month
USD-LIBOR-BBA
plus a specified
spread and
receive (pay) at
maturity the
notional amount
multiplied by the
change in net
asset value of
the ishares GS
InvesTop
Corporate Bond
Fund. 7,581,570 5/14/03 90,758
------------------------------------------------------------------------------
$1,752,298
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2003 (Unaudited)
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value, including $59,890 of securities on loan
(identified cost $1,001,136,580) (Note 1) $944,118,411
-------------------------------------------------------------------------------------------
Cash 688,756
-------------------------------------------------------------------------------------------
Foreign currency (cost $3,992,532) (Note 1) 4,351,928
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 16,316,917
-------------------------------------------------------------------------------------------
Receivable for securities sold 11,584,185
-------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 1,752,298
-------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 92,357
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 2,601,832
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 704,610
-------------------------------------------------------------------------------------------
Total assets 982,211,294
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 6,337,238
-------------------------------------------------------------------------------------------
Payable for securities purchased 59,142,076
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,556,880
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 98,988
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 73,599
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,381
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 2,947,357
-------------------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 1,002,444
-------------------------------------------------------------------------------------------
Credit default contracts outstanding, at value (premiums
received $1,743,437) (Note 1) 1,631,035
-------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 61,585
-------------------------------------------------------------------------------------------
Other accrued expenses 68,771
-------------------------------------------------------------------------------------------
Total liabilities 72,921,354
-------------------------------------------------------------------------------------------
Net assets $909,289,940
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $1,205,678,948
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (10,374,243)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (230,431,615)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (55,583,150)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $909,289,940
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value per share ($909,289,940 divided by 141,063,022 shares) $6.45
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended January 31, 2003 (Unaudited)
Investment income:
-------------------------------------------------------------------------------------------
Interest $38,646,877
-------------------------------------------------------------------------------------------
Dividends 2,322,148
-------------------------------------------------------------------------------------------
Securities lending 3,564
-------------------------------------------------------------------------------------------
Total investment income 40,972,589
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,156,033
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 428,156
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,912
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,036
-------------------------------------------------------------------------------------------
Other 79,505
-------------------------------------------------------------------------------------------
Total expenses 3,685,642
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (32,031)
-------------------------------------------------------------------------------------------
Net expenses 3,653,611
-------------------------------------------------------------------------------------------
Net investment income 37,318,978
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (27,327,840)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,297,367)
-------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 508,429
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in foreign
currencies during the period (1,067,668)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts,
swap contracts and credit default contracts during the period 61,128,014
-------------------------------------------------------------------------------------------
Net gain on investments 31,943,568
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $69,262,546
-------------------------------------------------------------------------------------------
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
2003* 2002
-------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
-------------------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------
Net investment income $37,318,978 $77,407,229
-------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (28,116,778) (55,420,916)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and
assets and liabilities in foreign currencies 60,060,346 (10,330,603)
-------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 69,262,546 11,655,710
-------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From net investment income (38,079,406) (74,641,521)
-------------------------------------------------------------------------------------------------------
From return of capital -- (1,490,807)
-------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in connection with
reinvestment of distributions 458,083 --
-------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 31,641,223 (64,476,618)
Net assets
-------------------------------------------------------------------------------------------------------
Beginning of period 877,648,717 942,125,335
-------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net investment
income of $10,374,243 and $9,613,815, respectively) $909,289,940 $877,648,717
-------------------------------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 140,989,259 140,989,259
-------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of
distributions 73,763 --
-------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 141,063,022 140,989,259
-------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.22 $6.68 $7.19 $7.62 $8.71 $8.88
------------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------------
Net investment income (a) .26 .55 .61 .63 .64 .74
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .24 (.47) (.50) (.39) (.99) (.18)
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .50 .08 .11 .24 (.35) .56
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.27) (.53) (.51) (.67) (.62) (.66)
------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- -- (.12) (.07)
------------------------------------------------------------------------------------------------------------------
From return
of capital -- (.01) (.11) -- -- --
------------------------------------------------------------------------------------------------------------------
Total distributions (.27) (.54) (.62) (.67) (.74) (.73)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.45 $6.22 $6.68 $7.19 $7.62 $8.71
------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 13.20* 4.44 8.56 (1.51) (7.24) 8.06
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.54 $6.03 $6.29 $6.38 $7.19 $8.50
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $909,290 $877,649 $942,125 $1,013,487 $1,073,980 $1,221,188
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .42* .86 .85 .83 .86 .89
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.21* 8.39 8.87 8.48 8.05 8.34
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 99.07(d)* 175.78(d) 231.58 133.80 165.79 209.50
------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
January 31, 2003 (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 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 accounting principles generally accepted in the United States
of America and requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities in the
financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Market quotations are
not considered to be readily available for certain debt obligations;
such investments are valued at fair value on the basis of valuations
furnished by an independent pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable relationships,
generally recognized by institutional traders, between securities. For
foreign investments, if trading or events occurring in other markets
after the close of the principal exchange in which the securities are
traded are expected to materially affect the value of the investments,
then those investments are valued, taking into consideration these
events, at their fair value following procedures approved by the
Trustees. 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 valued at amortized cost,
which approximates market value. Other investments, including restricted
securities, are valued at fair value following procedures approved by
the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
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.
All premiums/discounts are amortized/accreted on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions 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. Forward currency contracts outstanding
at period end are listed after The fund's portfolio.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin." Exchange traded options are
valued at the last sale price, or if no sales are reported, the last bid
price for purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by
dealers. Future and written option contracts outstanding at period end
are listed after The fund's portfolio.
H) Total return swap contracts The fund may engage in total return swap
agreements, which are arrangements to exchange a market linked return
for an interest payment, both based on a notional principal amount. To
the extent that the total return of the security or index underlying the
transaction exceeds or falls short of the offsetting interest rate
obligation, the fund will receive a payment from or make a payment to
the counterparty, respectively. Total return swap agreements are marked
to market daily based upon quotations from market makers and the change,
if any, is recorded as unrealized gain or loss. Payments received or
made at the end of the measurement period are recorded as realized gains
or losses. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or in the price
of the underlying security or index, the possibility that there is no
liquid market for these agreements or that the counterparty may default
on its obligation to perform. Total return swap contracts outstanding at
period end are listed after The fund's portfolio.
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, 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. A portion of the 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 if the counterparty
defaults on its obligation to perform. Interest rate swap contracts
outstanding at period end are listed after The fund's portfolio.
J) Credit default contracts The fund may engage in credit default
contracts where one party, the protection buyer, makes an upfront
payment to a counter party, the protection seller, in exchange for the
right to receive a contingent payment as a result of a credit event
related to a specified security or index. The upfront payment received
by the fund, as the protection seller, is recorded as a liability on the
fund's books. The credit default contracts are marked to market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made as a
result of a credit event or termination of the contract are recorded,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counter party may
default on its obligation to perform. Credit default contracts
outstanding at period end are listed after The fund's portfolio.
K) 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 significantly
differ 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 its 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.
L) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is
"marked-to-market" daily and the change in market value is recorded by
the fund as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
fund realizes a gain or loss. If the fund delivers securities under the
commitment, the fund realizes a gain or a loss from the sale of the
securities based upon the unit price established at the date the
commitment was entered into. TBA sale commitments outstanding at period
end are listed after The fund's portfolio.
M) Security lending The fund may lend securities, through its agent
Citibank N.A., to qualified borrowers in order to earn additional
income. The loans are collateralized by cash and/or securities in an
amount at least equal to the market value of the securities loaned. The
market value of securities loaned is determined daily and any additional
required collateral is allocated to the fund on the next business day.
The risk of borrower default will be borne by Citibank N.A. The fund
will bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At January 31, 2003, the value of
securities loaned amounted to $59,890. The fund received cash collateral
of $61,585, which is pooled with collateral of other Putnam funds into
23 issuers of high-grade short-term investments.
N) 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, 2002, the fund had a capital loss carryover of approximately
$154,608,000 available to the extent allowed by tax law to offset future
capital gains, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
------------------- -------------------
$39,893,000 July 31, 2007
44,858,000 July 31, 2008
24,930,000 July 31, 2009
44,927,000 July 31, 2010
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending July 31, 2003 approximately $46,453,000 of losses recognized
during the period November 1, 2001 to July 31, 2002.
The aggregate identified cost on a tax basis is $1,004,635,632,
resulting in gross unrealized appreciation and depreciation of
$46,184,634 and $106,701,855, respectively, or net unrealized
depreciation of $60,517,221.
O) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of average weekly net assets, 0.65% of the next $500
million, 0.60% of the next $500 million and 0.55% of any amount over
$1.5 billion.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended January 31,
2003, the fund's expenses were reduced by $32,031 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,208 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, 2003, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $404,263,861 and
$557,493,521, respectively. Purchases and sales of U.S. government
obligations aggregated $581,580,417 and $604,648,777, respectively.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded over 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark of
a well-rounded financial program. We presently manage over 100 mutual funds
in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer
and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and Principal Executive Officer
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Assistant Treasurer and Principal Accounting Officer
Brett C. Browchuk
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Richard G. Leibovitch
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Kevin M. Cronin
Vice President
Judith Cohen
Clerk and Assistant Treasurer
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
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
88604 073 3/03