Putnam
Premier
Income
Trust
Item 1. Report to Stockholders:
-------------------------------
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
The value of Putnam Premier Income Trust's strategy of diversification
that we have noted in previous reports was demonstrated once again for
the full fiscal year that ended on July 31, 2003. The fund's performance
was driven by two significant trends during the period. Early in the
year, falling interest rates and a preference for higher-quality bonds
boosted prices among the fund's investment-grade holdings. The second
trend, which began in mid-October 2002, was an improving credit cycle.
This helped the fund's higher-yielding, lower-quality holdings
outperform. Management's decision to increase the fund's exposure to
this segment of the market early in the cycle contributed to strong
results.
The fund's exposure to lower-rated, higher-yielding bonds was less than
that of its peer group, dampening the fund's results versus its Lipper
category average. You will find the details on the facing page. As far
as we are concerned, however, the relative stability provided by this
mix of quality and opportunity is a worthwhile tradeoff over the long
term.
Meanwhile, it is heartening now to see signs that one of the most
challenging periods in recent investment history may at last be ending.
What we told you at the beginning of this fiscal year bears repeating
here. We deeply appreciate your continued confidence in Putnam and we
firmly believe that over the long haul your patience will be rewarded.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
September 17, 2003
Report from Fund Management
Fund highlights
* Putnam Premier Income Trust had a total return of 17.61% at net asset
value for the fiscal year ended July 31, 2003. The fund's return at
market price was 13.41%.
* Declining yields across all fixed-income sectors prompted management
to recommend a reduction in the fund's dividend, which occurred in
April 2003.
* Differences in portfolio composition caused the fund to underperform
the average return for the Lipper Flexible Income Funds (Closed-End)
category, which was 18.88%.
* The fund's strategy of investing in high-yield corporate and
emerging-market debt helped it to significantly outperform its
benchmark, the Lehman Government Bond Index, which returned 4.45%
during the fund's fiscal year. Additional comparisons, many of which
more closely track the fund's performance over this period, appear on
page 2.
* See the Performance Summary on page 8 for complete fund performance,
comparative performance, and Lipper data.
Performance commentary
The fund's robust total return and solid comparative results versus its
benchmark were due primarily to its emphasis on higher-yielding,
lower-rated bonds -- such as U.S. high-yield corporate bonds as well as
sovereign debt issued by emerging-market countries -- while limiting
exposure to investment-grade bonds during the period. Higher-yielding,
lower-rated fixed-income sectors turned in exceptionally strong results
from mid-October 2002 through period end, significantly outperforming
higher-rated debt as investors' appetite for higher-risk asset classes
returned. We attribute the fund's modest underperformance versus its
Lipper universe to lower weightings in these riskier asset categories
than the average fund in the peer group. The fund's exposure to foreign
government bonds also contributed positively to results. The fund's
lower performance at market price is attributable to reduced investor
demand following the April dividend reduction.
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.
Market overview
The fund's fiscal year results should be considered in the context of an
extraordinarily favorable environment for bond performance across all
sectors. The war in Iraq, SARS-related fears, and a negative economic
climate drove bond yields to historic lows worldwide, significantly
driving up bond prices, which move in the opposite direction to yields.
Governments and central banks redoubled their efforts to revitalize the
sluggish global economy with additional fiscal and monetary easing,
which improved investor morale.
Supported by investor demand for yield and improving issuer
fundamentals, corporate bonds led the investment-grade market during the
period, after a dismal performance in the second half of 2002. The
securitized sector, which includes various types of mortgage-backed
securities (e.g. Ginnie Maes), as well as asset-backed securities
(ABSs), also advanced, although performance was undercut by
mortgage-backed securities (MBSs), which were hurt by mortgage
prepayments. ABSs performed well in the second half of the period.
Beginning in October 2002 and continuing through period end, falling
default rates and increasing optimism about growth prospects for the
second half of 2003 convinced high-yield investors that the credit cycle
was turning in their favor. Following the lead of high-yield bonds,
emerging-market debt rallied as investors' risk tolerance and appetite
for yield increased.
In the final month of the period, bond market conditions changed
abruptly. Improved prospects for an upturn in the economic cycle and a
quickly increasing U.S. federal budget deficit made bonds less
attractive to both domestic and non-U.S. investors. The bond market
sell-off that resulted drove yields up and prices down rapidly across
all bond sectors.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 7/31/03
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Bonds
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Lehman Government Bond Index 4.45%
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Citigroup Non-U.S. World Government Bond Index 14.19%
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JP Morgan Global High Yield Index 22.23%
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JP Morgan Emerging Markets Bond Index 32.89%
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Equities
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S&P 500 Index (broad stock market) 10.64%
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MSCI EAFE Index (international stocks) 6.30%
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Russell 2000 Index (small-company stocks) 23.11%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 7/31/03.
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Strategy overview
Putnam Premier Income Trust's multisector strategy served it well during
the fiscal year. It provided us with the flexibility to pursue the most
attractive fixed-income opportunities in a period when substantial
changes in investor sentiment drove significantly different returns
across fixed-income sectors.
Early in the period, the fund's allocation to investment-grade corporate
bonds contributed to returns as investors preferred the relative
security of these higher-quality bonds amid declining equity markets and
geopolitical uncertainty. In mid October, however, constructive fiscal
and monetary policies combined with easing geopolitical tension and
compelling valuations to shift investor focus to lower-rated
higher-yielding sectors. With yields in these sectors near historic
highs and fundamentals finally poised to improve, we believed that this
nascent rally had momentum behind it. Consequently, we began to rotate
assets out of investment-grade securities and into high-yield corporate
and emerging-market debt. This reallocation proved timely as the rally
in these sectors extended through June.
The fund's investment in high-yield corporate and emerging-market debt
was funded by the sale of mortgage-backed securities, which we believed
would continue to come under pressure due to mortgage prepayments in a
persistently low interest-rate environment. We also sold U.S. government
and agency securities, reasoning that they were unlikely to benefit
further from interest-rate declines. For most of the period, we favored
foreign investment-grade securities over their U.S. counterparts.
[GRAPHIC OMITTED: horizontal bar chart FUND SECTOR WEIGHTINGS COMPARED]
FUND SECTOR WEIGHTINGS COMPARED
as of as of
1/31/03 7/31/03
U.S. investment grade 34.5% 27.1%
Corporate high yield 44.2% 50.1%
Foreign investment grade 13.9% 13.3%
Emerging markets 7.5% 9.6%
Footnote reads:
This chart shows how the fund's sector weightings have changed over the past
six months. Weightings are shown as a percentage of market value. Holdings
will vary over time.
How allocations affected performance
In the U.S. investment-grade sector, the fund benefited from its
allocation to corporate bonds, which outperformed all other segments
within this sector. Investors were drawn to investment-grade corporate
bonds not only as a source of yield as interest rates fell, but also in
response to companies' focus on debt and cost reduction, which increased
the bonds' attractiveness. The fund's selective exposure to
investment-grade securitized debt also contributed positively as this
market segment outperformed U.S. Treasuries. (The fund's holdings in the
securitized sector consist primarily of mortgage-backed securities
(MBSs), commercial mortgage-backed securities (CMBSs), asset-backed
securities (ABSs), and collateralized mortgage obligations (CMOs).) Our
strategy of emphasizing high-coupon MBSs and CMBSs helped performance,
while holdings of ABSs hurt performance, as this segment was negatively
affected by the struggles of two major manufactured housing financiers
(Conseco and Greentree) in late 2002.
In the corporate high-yield sector, we consolidated the fund's
positions, while still maintaining a high level of diversification. We
also sought to reduce exposure to callable bonds. Call risk, which is
the risk that a bond issuer may redeem outstanding bonds before their
scheduled maturity, became a significant factor as bond issuers chose to
take advantage of declining yields to refinance their debt at lower
rates. Within industry sectors, large holdings in wireless
communications, diversified media, and broadcasting were top performers
in the market rally. Cable holdings also contributed positively to
performance.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS AS OF 7/31/03]
TOP INDUSTRY WEIGHTINGS AS OF 7/31/03
Consumer staples 8.7%
Basic materials 5.4%
Capital goods 5.2%
Communications services 5.0%
Energy 4.4%
Footnote reads:
Weightings are shown as a percentage of market value and are an
aggregate of both investment-grade and high-yield corporate bond
exposures. Holdings will vary over time.
For the fund's foreign investment-grade holdings, we emphasized
higher-yielding European sovereign debt (e.g., Sweden) where yields had
considerably more room to fall than in the United States. Bonds issued
by Canada and New Zealand were also favored because we believed that
these countries had prematurely boosted rates at the onset of the
economic recovery. These strategies benefited the fund as rates declined
more significantly in all of these countries amid the global bond market
rally. In addition, the fund benefited from our currency strategy, which
correctly anticipated U.S. dollar and Japanese yen weakness as well as
the relative strength of the euro, U.K. pound sterling, and Canadian and
Australian dollars.
While the fund did benefit from its emerging-market debt holdings, our
strategy may have been too conservative within the sector, given the
breadth and strength of the rally. Some of the situations that most
concerned us -- the economic policies of the newly elected Brazilian
president, for example -- played out better than we had anticipated.
Nevertheless, the fund's exposure to Russia proved advantageous. Russian
government bonds were strong performers as windfall oil exporting
revenues accumulated in government coffers. Please note that all
holdings discussed in this report are subject to review in accordance
with the fund's investment strategy and may vary in the future.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY WEIGHTINGS AS OF 7/31/03]
TOP COUNTRY WEIGHTINGS AS OF 7/31/03
United States 74.4%
Canada 3.2%
United Kingdom 2.9%
France 1.7%
Russia 1.5%
Footnote reads:
Weightings are shown as a percentage of market value. Holdings will vary
over time.
OF SPECIAL INTEREST
In April 2003 the fund's monthly distribution was reduced from $0.045 to
$0.039 per share. This reduction was prompted by declining yields across
all fixed-income sectors over the course of the prolonged bond-market
rally. In addition, many issuers called bonds and many mortgages were
prepaid, requiring the fund to reinvest at lower rates.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income Team. The members of
the 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.
The abrupt and significant increase in interest rates over the last six
weeks of the reporting period has shifted our valuation perspective on
bonds. As of the end of the period, we believed markets had become
prematurely confident that a lasting global economic recovery was
already underway. Yields on 10-year Treasuries had climbed too high and
we believe they should stabilize in coming months. We have consequently
moved from an underweight in Treasuries toward a more neutral weighting
in our multisector portfolio. Elsewhere in the U.S. investment-grade
sector, we are currently neutral with regard to investment-grade
corporate bonds. While fundamentals continue to improve, investors have
already recognized this improvement, so valuations of investment-grade
corporate bonds are no longer attractive. Mortgage-backed securities
(MBSs) typically fare poorly in rising interest-rate environments, and
the past six weeks have been no exception. We believe this sector now
looks attractive on a relative valuation basis and we are poised to take
advantage of opportunities in it.
As fiscal 2004 begins, high-yield corporates remain attractive in our
view. Although their yield spread versus Treasuries, a traditional
measure of valuation, has moved closer to historical averages, we
believe that the positive cycle for this asset class has more room to
run based on continuing improvement in fundamentals, declining default
rates, and sustained demand among investors for higher yields.
While we still prefer higher-yielding European government debt to U.S.
Treasury bonds, the recent outperformance in Europe prompted us to trim
these holdings and increase our U.S. Treasury exposure somewhat. New
Zealand and Sweden, where we anticipate improving spreads, are two of
our favorite markets. Our view on emerging markets is less positive. The
increase in U.S. Treasury yields, diminishing inflows, and an upsurge in
lower-quality issuance all suggest that the market is too rich at
current levels. From a country selection standpoint, we continue to
favor Russia and Peru.
The management team believes that the fund's diverse portfolio, flexible
strategy, and focus on risk management will continue to serve it well.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. International
investing involves certain risks, such as currency fluctuations,
economic instability, and political developments. Additional risks may
be associated with emerging-market securities, including illiquidity and
volatility. 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.
Performance summary
This section provides information about your fund's performance during
its fiscal year, which ended July 31, 2003. In accordance with
regulatory 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. 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. A
profile of your fund's strategy appears on the first page of this
report. See page 9 for definitions of some terms used in this section.
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TOTAL RETURN FOR PERIODS ENDED 7/31/03
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NAV Market price
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1 year 17.61% 13.41%
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5 years 22.73 17.57
Annual average 4.18 3.29
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10 years 85.81 86.76
Annual average 6.39 6.45
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Life of fund
(since 2/29/88)
Annual average 8.11 7.14
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Performance does not reflect taxes on reinvested distributions.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/03
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Citigroup Non-
Lehman U.S. World JP Morgan CSFB Lipper Flexible
Government Government Global High Income Funds
Bond Bond High Yield Yield (Closed-End)
Index Index Index* Index category average+
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1 year 4.45% 14.19% 22.23% 23.33% 18.88%
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5 years 38.44 31.99 16.88 18.99 17.74
Annual average 6.72 5.71 3.17 3.54 3.13
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10 years 90.27 79.70 -- 94.80 74.63
Annual average 6.64 6.04 -- 6.90 5.68
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Life of fund
(since 2/29/88)
Annual average 7.93 6.92 -- 8.82 7.86
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* 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 1-, 5-, and 10-year periods ended 7/31/03, there were 12, 12,
and 9 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/03
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Putnam Premier Income Trust
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Distributions (number) 12
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Income $0.516
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Capital gains --
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Total $0.516
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Share value: NAV Market price
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7/31/02 $6.22 $6.03
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7/31/03 6.75 6.31
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Current return (end of period)
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Current dividend rate 1 6.93% 7.42%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
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TOTAL RETURN FOR PERIODS ENDED 6/30/03 (MOST RECENT CALENDAR QUARTER)
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NAV Market price
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1 year 17.87% 14.72%
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5 years 25.34 23.66
Annual average 4.62 4.34
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10 years 90.44 96.46
Annual average 6.65 6.99
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Life of fund (since 2/29/88)
Annual average 8.28 7.48
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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 indexes
Citigroup (formerly Salomon Smith Barney) Non-U.S. World Government Bond
Index is an unmanaged index of government bonds from representative
developed countries excluding the United States.
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 used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
JP Morgan Emerging Markets Bond Index is an unmanaged index used to
mirror the investable universe of the external debt instruments in the
emerging markets including external currency denominated Brady bonds,
loans and Eurobonds, as well as U.S. dollar local market instruments.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
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.
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. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Independent Auditors' Report, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
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 year.
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.
Independent auditors' report
The Board of Trustees and Shareholders
Putnam Premier Income Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Premier Income Trust, including the fund's portfolio, as of July
31, 2003, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and
financial highlights are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of July 31, 2003 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Premier Income Trust as of July 31, 2003,
the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in
the United States of America.
KPMG LLP
Boston, Massachusetts
September 3, 2003
The fund's portfolio
July 31, 2003
Corporate bonds and notes (54.2%) (a)
Principal amount Value
Advertising and Marketing Services (0.1%)
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$328,333 Adams Outdoor Advertising bank term loan FRN
4.5848s, 2008 (acquired 4/2/03, cost $327,513) (RES) $329,154
300,000 Lamar Media Corp. bank term loan FRN Ser. B,
3.5625s, 2010 (acquired 2/27/03, cost $300,000) (RES) 300,812
780,000 Lamar Media Corp. company guaranty 7 1/4s, 2013 795,600
-------------
1,425,566
Automotive (1.2%)
-------------------------------------------------------------------------------------------------------------------
470,000 ArvinMeritor, Inc. notes 8 3/4s, 2012 484,100
960,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 748,800
1,425,000 Collins & Aikman Products, Inc. company guaranty 10 3/4s, 2011 1,261,125
220,000 Dana Corp. notes 10 1/8s, 2010 238,700
880,000 Dana Corp. notes 9s, 2011 948,200
EUR 60,000 Dana Corp. notes 9s, 2011 70,900
$135,000 Dana Corp. notes 7s, 2029 113,400
405,000 Dana Corp. notes 6 1/2s, 2009 378,675
490,000 Dana Corp. notes 6 1/4s, 2004 494,900
295,000 Delco Remy International, Inc. company guaranty 11s, 2009 224,200
520,000 Delco Remy International, Inc. company guaranty 10 5/8s, 2006 457,600
1,505,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 1,377,075
247,500 Hayes Lemmerz International, Inc. bank term loan
FRN 5.9789s, 2009 (acquired 6/3/03, cost $245,025) (RES) 248,428
1,090,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 1,234,425
1,160,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 1,241,200
EUR 285,000 Lear Corp. sr. notes 8 1/8s, 2008 349,606
$63,786 SPX Corp. bank term loan FRN Ser. B, 3 3/8s, 2009
(acquired 7/23/02, cost $63,786) (RES) 63,918
106,255 SPX Corp. bank term loan FRN Ser. C, 3 5/8s, 2010
(acquired 7/23/02, cost $106,255) (RES) 106,475
368,000 Tenneco Automotive, Inc. company guaranty Ser. B, 11 5/8s, 2009 320,160
1,040,000 Tenneco Automotive, Inc. 144A sec. notes 10 1/4s, 2013 1,045,200
225,000 TRW Automotive bank term loan FRN Ser. C-1,
4.116s, 2011 (acquired 7/21/03, cost $225,000) (RES) 225,703
-------------
11,632,790
Basic Materials (5.6%)
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15,000 Abitibi-Consolidated Finance LP company
guaranty 7 7/8s, 2009 15,759
1,340,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 1,467,300
200,000 Acetex Corp. 144A sr. notes 10 7/8s, 2009 (Canada) 219,000
1,155,000 AK Steel Corp. company guaranty 7 7/8s, 2009 860,475
840,000 AK Steel Corp. company guaranty 7 3/4s, 2012 600,600
231,805 Appleton Papers, Inc. bank term loan FRN Ser. C,
4.3432s, 2006 (acquired 6/4/02, cost $232,674) (RES) 232,333
1,355,000 Appleton Papers, Inc. company guaranty Ser. B,
12 1/2s, 2008 1,514,213
810,000 Better Minerals & Aggregates Co. company
guaranty 13s, 2009 550,800
740,000 Compass Minerals Group, Inc. company guaranty 10s, 2011 814,000
1,433,853 Doe Run Resources Corp. company guaranty Ser. A1,
11 3/4s, 2008 (acquired various dates from 7/27/01
to 5/27/03, cost $905,472) (RES) (PIK) 573,541
1,065,000 Dow Chemical Co. (The) notes 5 3/4s, 2009 1,110,397
255,000 Equistar Chemicals LP notes 8 3/4s, 2009 237,788
270,000 Equistar Chemicals LP notes 6 1/2s, 2006 249,750
2,345,000 Equistar Chemicals LP/Equistar Funding Corp.
company guaranty 10 1/8s, 2008 2,345,000
550,000 Equistar Chemicals LP/Equistar Funding Corp. 144A
sr. notes 10 5/8s, 2011 544,500
EUR 300,000 Fort James Corp. company guaranty 4 3/4s, 2004 334,244
$415,000 Georgia-Pacific Corp. debs. 9 1/2s, 2011 433,675
1,230,000 Georgia-Pacific Corp. debs. 7.7s, 2015 1,131,600
80,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 78,800
160,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 160,000
445,000 Georgia-Pacific Corp. 144A sr. notes 8 7/8s, 2010 462,800
259,000 Georgia-Pacific Corp. 144A sr. notes 7 3/8s, 2008 256,410
760,000 Gerdau Ameristeel Corp/Gusap Partners 144A
sr. notes 10 3/8s, 2011 (Canada) 729,600
298,500 Hercules, Inc. bank term loan FRN Ser. B, 4.4766s,
2007 (acquired 12/17/02, cost $297,754) (RES) 299,495
3,040,000 Hercules, Inc. company guaranty 11 1/8s, 2007 3,526,400
505,000 Huntsman Advanced Materials, LLC 144A sec.
notes 11s, 2010 535,300
896,056 Huntsman Corp. bank term loan FRN Ser. A, 6.0441s,
2007 (acquired various dates from 3/1/02
to 5/1/03, cost $741,276) (RES) 822,452
436,980 Huntsman Corp. bank term loan FRN Ser. B, 8.4375s,
2007 (acquired various dates from 3/1/02
to 7/31/03, cost $354,270) (RES) 401,397
1,430,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 1,329,900
2,025,000 Huntsman ICI Holdings sr. disc. notes zero %, 2009 789,750
EUR 590,000 Huntsman International, LLC
sr. sub. notes Ser. EXCH, 10 1/8s, 2009 564,388
$320,000 IMC Global, Inc. company guaranty Ser. B, 11 1/4s, 2011 320,000
567,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 567,000
1,910,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 2,139,200
375,000 ISP Holdings, Inc. sec. sr. notes Ser. B, 10 5/8s, 2009 397,500
80,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 (In default) (NON) 63,200
2,360,000 Kaiser Aluminum & Chemical Corp.
sr. sub. notes 12 3/4s, 2003 (In default) (NON) 188,800
530,000 Louisiana-Pacific Corp. sr. notes 8 7/8s, 2010 609,500
2,000 Louisiana-Pacific Corp. sr. sub. notes 10 7/8s, 2008 2,280
445,000 Lyondell Chemical Co. bonds 11 1/8s, 2012 451,675
185,000 Lyondell Chemical Co. company guaranty 9 1/2s, 2008 175,750
525,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 507,938
60,000 Lyondell Chemical Co. sr. sub. notes 10 7/8s, 2009 55,200
1,205,000 Lyondell Chemical Co. 144A sec. notes 9 1/2s, 2008 1,144,750
EUR 1,110,000 MDP Acquisitions PLC sr. notes 10 1/8s, 2012 (Ireland) 1,330,392
$442,536 MDP Acquisitions PLC sub. notes 15 1/2s, 2013 (Ireland) (PIK) 486,790
EUR 310,000 Messer Griesheim Holdings AG sr. notes 10 3/8s, 2011 (Germany) 385,157
$945,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 968,625
430,000 Millenium America, Inc. 144A sr. notes 9 1/4s, 2008 440,750
695,000 Noveon International bonds 13s, 2011 715,850
630,000 Noveon International company guaranty Ser. B, 11s, 2011 702,450
1,315,000 OM Group, Inc. company guaranty 9 1/4s, 2011 1,288,700
1,255,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 1,298,925
609,379 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 524,066
192,965 Pioneer Cos., Inc. sec. FRN 4.6s, 2006 164,020
1,095,000 Potlatch Corp. company guaranty 10s, 2011 1,193,550
415,000 Rhodia SA 144A sr. sub. notes 8 7/8s, 2011 (France) 400,475
355,224 Riverwood International Corp. bank term loan FRN
Ser. C, 3.861s, 2008 (acquired 4/24/02, cost $355,224) (RES) 354,780
2,380,000 Riverwood International Corp. company
guaranty 10 7/8s, 2008 2,439,500
220,000 Riverwood International Corp. company
guaranty 10 5/8s, 2007 227,700
465,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 385,950
400,000 Salt Holdings Corp. 144A sr. disc.
notes stepped-coupon zero % (12s, 6/1/06), 2013 (STP) 232,000
1,070,000 Salt Holdings Corp. 144A sr. notes stepped-coupon
zero % (12 3/4s, 12/15/07), 2012 (STP) 716,900
310,000 Smurfit-Stone Container Corp. company
guaranty 8 1/4s, 2012 313,100
280,000 Solutia, Inc. company guaranty 11 1/4s, 2009 201,600
650,000 Solutia, Inc. debs. 7 3/8s, 2027 247,000
1,340,000 Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 1,393,600
194,941 Sterling Chemicals, Inc. sec. notes 10s, 2007 (PIK) 182,270
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 514,500
1,105,000 Stone Container Corp. sr. notes 8 3/8s, 2012 1,116,050
725,000 Stone Container Corp. 144A company
guaranty 11 1/2s, 2006 (Canada) 768,500
575,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 543,375
210,000 Tembec Industries, Inc. company guaranty 8 1/2s, 2011 (Canada) 198,450
70,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s,
2006 (In default) (NON) 17,500
280,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 70,000
1,015,000 Ucar Finance, Inc. company guaranty 10 1/4s, 2012 1,060,675
710,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 (In default) (NON) 230,750
55,000 Weirton Steel Corp. sr. notes 0 1/2s, 2008 (In default) (NON) 6,600
1,290,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 (In default) (NON) 116,100
570,000 WHX Corp. sr. notes 10 1/2s, 2005 490,200
-------------
52,713,060
Building Materials (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,510,000 American Standard Cos., Inc. company
guaranty 7 5/8s, 2010 1,672,325
445,000 Atrium Cos., Inc. company guaranty Ser. B, 10 1/2s, 2009 469,475
450,000 Building Materials Corp. company guaranty 8s, 2008 421,875
965,000 Dayton Superior Corp. 144A sec. notes 10 3/4s, 2008 950,525
240,625 NCI Building Systems, Inc. bank term loan FRN
Ser. B, 4.35s, 2008 (acquired 9/4/02, cost $240,625) (RES) 241,126
630,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 652,050
120,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 126,300
460,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 472,075
415,000 Owens Corning bonds 7 1/2s, 2018 (In default) (NON) 168,075
1,185,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 479,925
-------------
5,653,751
Capital Goods (5.2%)
-------------------------------------------------------------------------------------------------------------------
350,000 Advanced Glass Fiber Yarns bank term loan FRN
Ser. A, 6 1/2s, 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
1,148,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 1,067,640
313,626 Alliant Techsystems, Inc. bank term loan FRN
Ser. C, 3.4924s, 2009 (acquired 5/7/02, cost $313,626) (RES) 314,567
212,143 Allied Waste Industries, Inc. bank term loan FRN
4.4433s, 2010 (acquired 4/25/03, cost $212,143) (RES) 213,816
35,357 Allied Waste Industries, Inc. bank term loan FRN
Ser. C, 4.529s, 2010 (acquired 4/25/03, cost $35,357) (RES) 35,637
740,000 Allied Waste North America, Inc. company
guaranty Ser. B, 10s, 2009 779,775
1,975,000 Allied Waste North America, Inc. company
guaranty Ser. B, 9 1/4s, 2012 2,157,688
655,000 Allied Waste North America, Inc. company
guaranty Ser. B, 8 7/8s, 2008 697,575
1,670,000 Allied Waste North America, Inc. company
guaranty Ser. B, 8 1/2s, 2008 1,761,850
1,750,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 1,627,500
120,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 111,600
900,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 751,500
185,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 155,400
760,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 627,000
405,000 Berry Plastics Corp. company guaranty 10 3/4s, 2012 435,375
1,530,000 Blount, Inc. company guaranty 13s, 2009 1,315,800
1,310,000 Blount, Inc. company guaranty 7s, 2005 1,244,500
770,000 Briggs & Stratton company guaranty 8 7/8s, 2011 877,800
2,300,000 Browning-Ferris Industries, Inc. debs. 7.4s, 2035 2,001,000
880,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 844,800
EUR 790,000 BSN Financing Co. SA company guaranty Ser. EUR,
10 1/4s, 2009 (Luxembourg) 880,175
$470,000 BSN Glasspack 144A sec. notes 9 1/4s, 2009 (France) 526,293
187,500 Casella Waste Systems, Inc. bank term loan FRN
Ser. B, 4.4412s, 2010 (acquired 1/22/03, cost $187,500) (RES) 188,156
300,000 Crown Cork & Seal Company, Inc. bank term loan FRN
Ser. B, 4.1s, 2008 (acquired 2/21/03, cost $297,000) (RES) 300,500
920,000 Crown Holdings SA 144A sec. notes 10 7/8s, 2013 (France) 975,200
1,975,000 Crown Holdings SA 144A sec. notes 9 1/2s, 2011 (France) 2,054,000
1,310,000 Decrane Aircraft Holdings Co. company
guaranty Ser. B, 12s, 2008 615,700
850,000 Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 884,000
1,150,000 FIMEP SA 144A sr. notes 10 1/2s, 2013 (France) 1,288,000
EUR 420,000 Flender Holdings 144A sr. notes 11s, 2010 (Denmark) 472,668
$116,177 Flowserve Corp. bank term loan FRN Ser. C, 3.947s,
2009 (acquired 4/30/02, cost $116,177) (RES) 116,561
705,000 Flowserve Corp. company guaranty 12 1/4s, 2010 810,750
EUR 135,000 Flowserve Finance BV company guaranty 12 1/4s,
2010 (Netherlands) 168,641
$135,000 Fonda Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 90,450
300,000 Graham Packaging bank term loan FRN 5.0352s, 2010
(acquired 2/18/03, cost $298,500) (RES) 299,250
915,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 910,425
730,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 146,000
650,000 Insilco Holding Co. sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (In default) (NON) (STP) 7,150
EUR 380,000 Invensys, PLC sr. unsub. notes 5 1/2s, 2005 (United Kingdom) 401,138
$580,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 261,000
520,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 5/8s, 2010 569,400
420,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 438,900
245,025 Laidlaw International, Inc. bank term loan FRN 7s,
2009 (acquired 6/18/03, cost $240,125) (RES) 246,250
1,025,000 Laidlaw International, Inc. 144A sr. notes 10 3/4s, 2011 1,091,625
190,000 Legrand SA debs. 8 1/2s, 2025 (France) 193,800
425,000 Manitowoc Co., Inc. (The) company guaranty 10 1/2s, 2012 459,000
EUR 255,000 Manitowoc Co., Inc. (The) company guaranty 10 3/8s, 2011 296,591
$470,064 Michigan Electric Transmission Co./Michigan
Electric Transmission, Inc. bank term loan FRN
Ser. B, 3.6s, 2007 (acquired 4/22/02, cost $270,064) (RES) 470,848
1,435,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 1,248,450
1,565,000 Owens-Brockway Glass company guaranty 8 7/8s, 2009 1,627,600
955,000 Owens-Brockway Glass sr. sec. notes 8 3/4s, 2012 1,007,525
775,000 Owens-Brockway Glass 144A sr. notes 8 1/4s, 2013 782,750
725,000 Owens-Brockway Glass 144A sr. sec. notes 7 3/4s, 2011 732,250
135,000 Pliant Corp. company guaranty 13s, 2010 121,500
715,000 Pliant Corp. 144A sec. notes 11 1/8s, 2009 750,750
930,000 Roller Bearing Company of America company
guaranty Ser. B, 9 5/8s, 2007 837,000
1,650,000 Sequa Corp. sr. notes 9s, 2009 1,757,250
160,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 168,000
110,000 Sequa Corp. 144A sr. notes 8 7/8s, 2008 114,675
855,000 Siebe PLC 144A notes 7 1/8s, 2007 (United Kingdom) 799,425
290,000 Siebe PLC 144A sr. unsub. 6 1/2s, 2010 (United Kingdom) 247,950
335,000 Sweetheart Cup Co. company guaranty 12s, 2004 298,150
600,000 TD Funding Corp. 144A sr. sub. notes 8 3/8s, 2011 610,500
1,730,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 1,686,750
185,000 Terex Corp. company guaranty 8 7/8s, 2008 188,700
915,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 1,001,925
185,000 Terex Corp. company guaranty Ser. D, 8 7/8s, 2008 190,550
444,383 Titan Corp. (The) bank term loan FRN Ser. B,
4.485s, 2009 (acquired various dates from 5/14/02
to 6/3/02, cost $444,383) (RES) 444,754
515,000 Titan Corp. (The) 144A sr. sub. notes 8s, 2011 533,025
75,000 Transdigm, Inc. bank term loan FRN 4.116s, 2010
(acquired 7/21/03, cost $75,000) (RES) 75,656
430,000 Trimas Corp. company guaranty 9 7/8s, 2012 436,450
380,000 Trimas Corp. 144A company guaranty 9 7/8s, 2012 385,700
601,596 Veridian Corp. bank term loan FRN Ser. B, 4.35s,
2008 (acquired 9/20/02, cost $601,596) (RES) 604,228
510,000 Vought Aircraft Industries Inc. 144A sr. notes 8s, 2011 512,550
-------------
49,572,857
Commercial and Consumer Services (0.4%)
-------------------------------------------------------------------------------------------------------------------
189,225 Coinmach Corp. bank term loan FRN Ser. B, 4.0327s,
2009 (acquired 1/31/02, cost $188,988) (RES) 189,792
1,655,000 Coinmach Corp. sr. notes 9s, 2010 1,746,025
196,704 Corrections Corp. of America bank term loan FRN
4.6698s, 2008 (acquired 2/24/03, cost $196,950) (RES) 197,503
670,372 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 36,870
DEM 77,574 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 2,455
EUR 1,645,474 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 52,075
$895,000 IESI Corp. company guaranty 10 1/4s, 2012 939,750
910,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B,
11s, 2006 (In default) (NON) 9,100
123,750 Worldspan bank term loan FRN 4 7/8s, 2007
(acquired 6/30/03, cost $122,513) (RES) 124,214
-------------
3,297,784
Communication Services (5.1%)
-------------------------------------------------------------------------------------------------------------------
1,995,000 ACC Escrow Corp. 144A sr. notes 10s, 2011 2,014,950
550,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon
zero % (13 1/2s, 10/1/04), 2009 (STP) 299,750
890,000 Alamosa Delaware, Inc. company guaranty
13 5/8s, 2011 809,900
400,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 344,000
3,000 Alamosa PCS Holdings, Inc. company
guaranty stepped-coupon zero % (12 7/8s, 2/15/05), 2010 (STP) 1,950
1,970,000 American Cellular Corp. company guaranty 9 1/2s,
2009 (In default) (NON) 1,221,400
405,000 American Tower Corp. sr. notes 9 3/8s, 2009 413,100
1,360,000 American Tower Escrow Corp. disc. notes zero %, 2008 897,600
770,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010
(Bermuda) (In default) (NON) 100,100
340,686 Bell Actimedia bank term loan FRN Ser. C, 5.35s,
2010 (acquired 11/26/02, cost $337,279) (RES) 343,241
2,065,000 Centennial Cellular Operating Co. 144A sr. notes 10 1/8s, 2013 2,018,538
1,265,000 Cincinnati Bell, Inc. 144A company guaranty 7 1/4s, 2013 1,198,588
445,735 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 2,786
75,000 Colt Telecommunications Group PLC sr. disc.
notes 12s, 2006 (United Kingdom) 75,750
GBP 305,000 Colt Telecommunications Group PLC
sr. notes 10 1/8s, 2007 (United Kingdom) 465,744
EUR 150,000 Colt Telecommunications Group PLC
sr. notes 7 5/8s, 2009 (United Kingdom) 145,177
$1,405,000 Crown Castle International Corp. sr. disc.
notes stepped-coupon zero % (10 3/8s, 5/15/04), 2011 (STP) 1,376,900
1,060,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 1,107,700
150,000 Crown Castle International Corp. sr. notes 9s, 2011 151,500
1,220,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 1,293,200
365,000 Eircom Funding 144A sr. sub. notes 8 1/4s, 2013 (Ireland) 372,300
540,000 Fairpoint Communications, Inc. sr. sub. notes 12 1/2s, 2010 561,600
380,000 Firstworld Communication Corp. sr. disc.
notes zero %, 2008 (In default) (NON) 38
459,310 Globix Corp. company guaranty 11s, 2008 (PIK) 353,669
220,000 Horizon PCS, Inc. company guaranty 13 3/4s, 2011 48,400
90,000 Intermedia Communications, Inc. sr. notes Ser. B,
8.6s, 2008 (In default) (NON) 59,850
1,270,000 iPCS, Inc. sr. disc. notes stepped-coupon zero %
(14s, 7/15/05), 2010 (In default) (NON) (STP) 76,200
705,000 IWO Holdings, Inc. company guaranty 14s, 2011 105,750
1,000,000 L-3 Communications Corp. Structured Notes
Ser. 01-5, 8.82s, 2009 (Issued by COUNTS Trust) 1,010,000
815,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 782,400
450,000 Metromedia Fiber Network, Inc. sr. notes 10s,
2009 (In default) (NON) 33,750
1,070,000 Metromedia Fiber Network, Inc. sr. notes Ser. B,
10s, 2008 (In default) (NON) 80,250
1,085,000 Millicom International Cellular SA 144A
sr. notes 11s, 2006 (Luxembourg) 1,095,850
925,000 Nextel Communications, Inc. bank term loan FRN
Ser. A, 2.5625s, 2007 (acquired 11/1/02, cost $807,063) (RES) 893,781
186,094 Nextel Communications, Inc. bank term loan FRN
Ser. B, 4.6875s, 2008 (acquired 12/19/02, cost $172,090) (RES) 185,695
186,094 Nextel Communications, Inc. bank term loan FRN
Ser. C, 4.9375s, 2008 (acquired 12/19/02, cost $172,090) (RES) 185,695
25,000 Nextel Communications, Inc. sr. disc. notes 9.95s, 2008 26,250
420,000 Nextel Communications, Inc. sr. notes 12s, 2008 449,400
540,000 Nextel Communications, Inc. sr. notes 9 1/2s, 2011 587,250
1,805,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 1,913,300
1,425,000 Nextel Communications, Inc. sr. notes 7 3/8s, 2015 1,396,500
85,000 Nextel Partners, Inc. sr. notes 12 1/2s, 2009 94,138
760,000 Nextel Partners, Inc. sr. notes 11s, 2010 805,600
2,440,000 Nextel Partners, Inc. 144A sr. notes 8 1/8s, 2011 2,269,200
990,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 (In default) (NON) 475,200
448,500 PanAmSat Corp. bank term loan FRN Ser. B, 4.6s,
2009 (acquired 2/21/02, cost $447,939) (RES) 450,342
1,160,000 PanAmSat Corp. company guaranty 8 1/2s, 2012 1,206,400
10,000 Qwest Capital Funding, Inc. company guaranty 7 3/4s, 2006 8,700
268,125 Qwest Communications International, Inc. bank term
loan FRN 6 1/2s, 2007 (acquired 6/5/03, cost $265,444) (RES) 269,466
2,855,000 Qwest Corp. 144A notes 8 7/8s, 2012 2,926,375
3,692,000 Qwest Services Corp. 144A notes 13 1/2s, 2010 3,968,900
70,000 Rogers Cantel, Ltd. debs. 9 3/8s, 2008 (Canada) 72,800
1,075,000 Rogers Cantel, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 1,091,125
380,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 429,400
420,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 357,000
480,000 SBA Communications Corp. sr. disc. notes 12s, 2008 501,600
695,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 649,825
152,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 183,160
2,690,000 Telus Corp. notes 8s, 2011 (Canada) 3,005,967
298,500 Time Warner Telecom, Inc. bank term loan FRN
Ser. B, 5.1s, 2009 (acquired 1/15/03, cost $260,922) (RES) 297,008
375,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 360,000
710,000 TSI Telecommunication Services, Inc. company
guaranty Ser. B, 12 3/4s, 2009 706,450
550,000 U.S. West, Inc. notes 5 5/8s, 2008 489,500
577,000 UbiquiTel Operating Co. 144A company guaranty
stepped-coupon zero % (14s, 4/15/05), 2010 (STP) 328,890
2,225,000 US UnWired, Inc. company guaranty stepped-coupon
Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 1,123,625
565,000 US West Capital Funding, Inc. company
guaranty 6 1/4s, 2005 497,200
1,500,000 Western Wireless Corp. 144A sr. notes 9 1/4s, 2013 1,425,000
140,000 Williams Communications Group, Inc. notes zero %,
2010 (In default) (NON) 1
180,000 Williams Communications Group, Inc. notes zero %,
2008 (In default) (NON) 2
280,000 Williams Communications Group, Inc. notes zero %,
2007 (In default) (NON) 3
-------------
48,492,679
Conglomerates (0.4%)
-------------------------------------------------------------------------------------------------------------------
230,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 232,300
1,485,000 Tyco International Group SA company
guaranty 6 3/8s, 2006 (Luxembourg) 1,529,550
310,000 Tyco International Group SA company
guaranty 6 3/8s, 2005 (Luxembourg) 319,300
1,935,000 Tyco International Group SA notes 6 3/8s, 2011
(Luxembourg) 1,915,650
-------------
3,996,800
Consumer (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,470,000 Icon Health & Fitness company guaranty 11 1/4s, 2012 1,558,200
300,000 Jostens, Inc. bank term loan FRN Ser. B, 3.61s,
2010 (acquired 7/28/03, cost $300,000) (RES) 302,125
730,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 839,500
2,330,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 2,399,900
-------------
5,099,725
Consumer Staples (8.5%)
-------------------------------------------------------------------------------------------------------------------
29,000 Acme Communications, Inc. sr. disc. notes Ser. B, 12s, 2005 29,218
110,000 Adelphia Communications Corp. notes Ser. B,
9 7/8s, 2005 (In default) (NON) 72,050
560,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010 (In default) (NON) 368,200
25,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2011 (In default) (NON) 17,250
75,000 Adelphia Communications Corp. sr. notes 9 3/8s, 2009 (In default) (NON) 50,625
1,505,000 Adelphia Communications Corp. sr. notes Ser. B,
7 3/4s, 2009 (In default) (NON) 989,538
370,000 Ahold Finance USA eurobonds 6 3/8s, 2005 404,114
485,000 AMC Entertainment, Inc. sr. sub. notes 9 7/8s, 2012 521,375
1,055,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 1,091,925
990,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 1,014,750
445,065 American Seafood Group, LLC bank term loan FRN
Ser. B, 4.35s, 2009 (acquired 4/11/02, cost $444,620) (RES) 445,343
304,417 AMF Bowling Worldwide bank term loan FRN Ser. B,
5.5283s, 2008 (acquired 3/1/02, cost $303,656) (RES) 304,291
451,518 Archibald Candy Corp. company guaranty 10s, 2007 (PIK) 153,516
890,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 979,000
315,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 (In default) (NON) 154,350
450,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D,
9 7/8s, 2007 (In default) (NON) 220,500
735,000 Brand Services, Inc. company guaranty 12s, 2012 830,550
2,320,000 British Sky Broadcasting PLC company
guaranty 6 7/8s, 2009 (United Kingdom) 2,528,800
685,000 Capital Records Inc. 144A company guaranty 8 3/8s, 2009 698,700
257,885 Carmike Cinemas, Inc. bank term loan FRN Ser. B,
7 3/4s, 2005 (acquired 10/4/02, cost $251,663) (RES) 258,744
1,120,000 Century Cable Holdings bank term loan FRN 6s, 2009
(acquired various dates from 5/22/02 to 6/11/02, cost $980,796) (RES) 939,200
248,741 Charter Communications Holdings, LLC bank term
loan FRN Ser. B, 3.86s, 2008 (acquired 1/9/03, cost $216,093) (RES) 234,023
360,000 Charter Communications Holdings, LLC/Capital Corp.
sr. disc. notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 178,200
735,000 Charter Communications Holdings, LLC/Capital Corp.
sr. disc. notes stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 396,900
595,000 Charter Communications Holdings, LLC/Capital Corp.
sr. disc. notes stepped-coupon zero % (11 3/4s, 1/15/05), 2010 (STP) 380,800
2,180,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 11 1/8s, 2011 1,749,450
1,195,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10 3/4s, 2009 958,988
585,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10 1/4s, 2010 454,838
2,310,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 10s, 2011 1,744,050
995,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 9 5/8s, 2009 766,150
525,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 8 5/8s, 2009 391,125
130,000 Charter Communications Holdings, LLC/Capital Corp.
sr. notes 8 1/4s, 2007 103,675
910,000 Cinemark USA, Inc. sr. sub. notes 9s, 2013 973,700
1,805,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 1,859,150
210,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 214,200
420,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 446,250
595,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 624,750
247,500 Constellation Energy Group, Inc. bank term loan FRN Ser. B,
3 7/8s, 2008 (acquired 3/20/03, cost $247,500) (RES) 249,480
2,575,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 2,568,563
240,000 Dean Foods Co. sr. notes 6 5/8s, 2009 244,800
310,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 327,825
780,000 Del Monte Corp. 144A sr. sub. notes 8 5/8s, 2012 811,200
347,413 Del Monte Foods Co. bank term loan FRN Ser. B,
4.8581s, 2010 (acquired 12/16/02, cost $345,676) (RES) 349,671
165,000 DirecTV bank term loan FRN Ser. B, 4.7539s, 2010
(acquired 3/4/03, cost $165,000) (RES) 165,639
1,315,000 DirecTV Holdings, LLC 144A sr. notes 8 3/8s, 2013 1,453,075
3,586,000 Diva Systems Corp. sr. disc. notes Ser. B,
12 5/8s, 2008 (In default) (NON) 286,880
1,150,000 Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 1,086,750
57,033 Dole Food Co. bank term loan FRN Ser. B, 5.0446s,
2008 (acquired 3/28/03, cost $57,033) (RES) 57,484
275,000 Dole Food Co. sr. notes 7 1/4s, 2009 283,250
365,000 Dole Food Co. 144A sr. notes 8 7/8s, 2011 381,425
510,000 Domino's, Inc. 144A sr. sub. notes 8 1/4s, 2011 532,950
560,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 380,800
2,795,000 Echostar DBS Corp. sr. notes 10 3/8s, 2007 3,081,488
3,155,000 Echostar DBS Corp. sr. notes 9 1/8s, 2009 3,509,938
125,000 Elizabeth Arden, Inc. sec. notes Ser. B, 11 3/4s, 2011 139,375
GBP 170,000 EMI Group eurobonds 9 3/4s, 2008 (United Kingdom) 276,674
$297,000 Emmis Communications Corp. bank term loan FRN
Ser. C, 3 3/8s, 2009 (acquired 6/20/02, cost $296,629) (RES) 298,238
335,000 Emmis Communications Corp. company
guaranty Ser. B, 8 1/8s, 2009 345,888
90,000 Emmis Communications Corp. sr. disc.
notes stepped-coupon zero % (12 1/2s, 3/15/06), 2011 (STP) 76,950
865,000 Fleming Cos., Inc. company guaranty 10 1/8s, 2008 (In default) (NON) 103,800
720,000 Fleming Cos., Inc. sr. notes 9 1/4s, 2010 (In default) (NON) 97,200
290,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 292,900
365,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 373,213
55,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 54,450
840,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 827,400
1,130,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 1,096,100
585,000 Gray Television, Inc. company guaranty 9 1/4s, 2011 634,725
105,000 Insight Midwest LP/Insight Capital, Inc. bank term
loan FRN 4.0625s, 2009 (acquired 11/5/01, cost $104,803) (RES) 105,253
430,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 10 1/2s, 2010 460,100
135,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 9 3/4s, 2009 139,725
52,627 Knology, Inc. 144A sr. notes 12s, 2009 (PIK) 43,944
815,000 Land O'Lakes, Inc. sr. notes 8 3/4s, 2011 692,750
350,000 LIN Television Corp. company guaranty 8s, 2008 371,000
450,000 MGM Studios bank term loan FRN Ser. B, 4.1s, 2008
(acquired 6/10/02, cost $450,000) (RES) 449,719
1,270,000 News America Holdings, Inc. company guaranty 9 1/4s, 2013 1,593,107
92,230 Nexstar Broadcasting bank term loan FRN Ser. B,
4.29s, 2011 (acquired 2/5/03, cost $92,230) (RES) 92,441
39,020 Nexstar Mission Broadcasting bank term loan FRN
4.29s, 2011 (acquired 2/5/03, cost $39,020) (RES) 39,109
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, 6s, 2010
(acquired various dates from 6/20/02 to 11/6/02,
cost $374,206) (RES) 407,805
510,000 Pegasus Satellite sr. notes 12 3/8s, 2006 479,400
297,000 Playtex Products, Inc. bank term loan FRN Ser. C,
4.6191s, 2009 (acquired 6/3/02, cost $297,000) (RES) 296,443
2,195,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 2,107,200
630,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 78,750
900,000 Premier International Foods PLC sr. notes 12s,
2009 (United Kingdom) 990,000
390,000 Premier Parks, Inc. sr. notes 10s, 2007 369,525
1,565,000 Premium Standard Farms, Inc. sr. notes 9 1/4s, 2011 1,533,700
2,658,731 Quorum Broadcast Holdings, LLC notes stepped-coupon
zero % (15s, 5/15/06), 2009 (STP) 1,943,266
980,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 421,400
178,000 Rayovac Corp. bank term loan FRN Ser. B, 4.9238s,
2009 (acquired 9/26/02, cost $177,822) (RES) 178,000
502,000 RCN Corp. sr. disc. notes Ser. B, zero %, 2008 205,820
560,000 Regal Cinemas, Inc. company guaranty Ser. B, 9 3/8s, 2012 617,400
980,000 Remington Arms Co., Inc. 144A company guaranty 10 1/2s, 2011 1,011,752
640,000 Revlon Consumer Products sr. notes 9s, 2006 408,000
500,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 318,750
165,000 Rite Aid Corp. bank term loan FRN 4.6035s, 2008
(acquired 5/16/03, cost $164,794) (RES) 165,660
780,000 Rite Aid Corp. 144A notes 9 1/2s, 2011 830,700
160,000 Rite Aid Corp. 144A notes 6s, 2005 152,000
945,000 Rite Aid Corp. 144A sr. notes 9 1/4s, 2013 933,188
525,000 Rite Aid Corp. 144A sr. sec. notes 8 1/8s, 2010 535,500
780,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 830,700
296,256 Roundy's, Inc. bank term loan FRN 3.6304s, 2009
(acquired 6/3/02, cost $296,256) (RES) 296,395
1,130,000 Sbarro, Inc. company guaranty 11s, 2009 987,338
670,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 700,150
423,170 Shoppers Drug Mart bank term loan FRN Ser. F,
3 1/8s, 2009 (acquired various dates from 5/22/02
to 5/29/02, cost $424,907) (RES) 423,611
1,120,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 112
440,000 Sinclair Broadcast Group, Inc. company guaranty 8 3/4s, 2011 468,600
525,000 Sinclair Broadcast Group, Inc. company guaranty 8s, 2012 538,125
281,250 Six Flags, Inc. bank term loan FRN Ser. B, 3.37s,
2009 (acquired 1/15/03, cost $280,898) (RES) 280,605
3,935,000 Six Flags, Inc. sr. notes 8 7/8s, 2010 3,561,175
1,840,000 TeleWest Communications PLC debs. 11s, 2007
(United Kingdom) (In default) (NON) 692,300
300,000 TeleWest Communications PLC debs. 9 5/8s, 2006
(United Kingdom) (In default) (NON) 112,500
255,000 TeleWest Communications PLC sr. notes Ser. S,
9 7/8s, 2010 (United Kingdom) (In default) (NON) 94,988
105,000 TeleWest Communications PLC 144A sr. notes 11 1/4s,
2008 (United Kingdom) (In default) (NON) 39,375
1,880,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009
(Netherlands) (In default) (NON) 397,150
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) 617,050
180,000 United Pan-Europe NV 144A bonds 10 7/8s, 2009
(Netherlands) (In default) (NON) 56,025
400,000 United Rentals (North America), Inc. company
guaranty Ser. B, 10 3/4s, 2008 430,000
165,000 Vivendi Universal SA bank term loan FRN Ser. B,
3.8574s, 2008 (acquired 6/23/03, cost $165,000) (France) (RES) 165,722
755,000 Vivendi Universal SA 144A notes 6 1/4s, 2008 (France) 737,069
630,000 Vivendi Universal SA 144A sr. notes 9 1/4s, 2010 (France) 700,875
955,000 Williams Scotsman, Inc. company guaranty 9 7/8s, 2007 923,963
1,663,000 Young Broadcasting, Inc. company guaranty 10s, 2011 1,800,198
113,000 Young Broadcasting, Inc. company guaranty Ser. B, 8 3/4s, 2007 113,565
50,000 Yum! Brands, Inc. sr. notes 8 7/8s, 2011 56,250
370,000 Yum! Brands, Inc. sr. notes 8 1/2s, 2006 400,525
1,470,000 Yum! Brands, Inc. sr. notes 7.65s, 2008 1,587,600
-------------
80,479,792
Energy (4.8%)
-------------------------------------------------------------------------------------------------------------------
970,000 Arch Western Finance, LLC 144A sr. notes 6 3/4s, 2013 955,450
960,000 Belden & Blake Corp. company guaranty Ser. B, 9 7/8s, 2007 892,800
890,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 947,850
475,000 Chesapeake Energy Corp. company guaranty 9s, 2012 517,750
345,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 365,700
155,000 Chesapeake Energy Corp. company guaranty 8 1/8s, 2011 163,331
215,000 Chesapeake Energy Corp. sr. notes Ser. B, 8 1/2s, 2012 224,138
1,515,000 Chesapeake Energy Corp. 144A sr. notes 7 1/2s, 2013 1,560,450
1,220,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 1,305,400
975,000 Dresser, Inc. company guaranty 9 3/8s, 2011 994,500
310,000 El Paso Energy Partners LP company guaranty Ser. B, 8 1/2s, 2011 325,500
645,000 Encore Acquisition Co. company guaranty 8 3/8s, 2012 677,250
850,000 Forest Oil Corp. company guaranty 7 3/4s, 2014 881,875
420,000 Forest Oil Corp. sr. notes 8s, 2011 442,050
275,000 Forest Oil Corp. sr. notes 8s, 2008 289,438
2,720,000 Gazprom OAO 144A notes 9 5/8s, 2013 (Russia) 2,849,200
595,000 Hornbeck Offshore Services, Inc. sr. notes 10 5/8s, 2008 633,675
410,000 Key Energy Services, Inc. sr. notes 6 3/8s, 2013 408,975
105,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 111,825
980,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 1,043,700
400,000 OAO Gazprom notes Ser. REGS, 9 5/8s, 2013 (Russia) 419,000
450,000 Offshore Logistics, Inc. 144A sr. notes 6 1/8s, 2013 427,500
755,000 Parker Drilling Co. company guaranty Ser. B, 10 1/8s, 2009 807,850
123,441 Peabody Energy Corp. bank term loan FRN Ser. B,
3.6925s, 2010 (acquired 3/20/03, cost $123,441) (RES) 124,315
1,525,000 Pemex Project Funding Master Trust 144A bonds 8 5/8s, 2022 1,647,000
1,850,000 Pemex Project Funding Master Trust 144A notes 7 3/8s, 2014 1,937,875
1,410,000 Petronas Capital, Ltd. company guaranty 7 7/8s, 2022 (Malaysia) 1,570,458
315,000 Petronas Capital, Ltd. company guaranty 7s, 2012 (Malaysia) 350,060
2,830,000 Petronas Capital, Ltd. 144A company guaranty 7 7/8s,
2022 (Malaysia) 3,152,054
1,120,000 Petronas Capital, Ltd. 144A company guaranty 7s,
2012 (Malaysia) 1,244,656
3,500,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 4,226,250
160,000 Pioneer Natural Resources Co. company guaranty 7.2s, 2028 168,000
525,000 Plains All American Pipeline LP/Plains All
American Finance Corp. company guaranty 7 3/4s, 2012 564,375
800,000 Plains Exploration & Production Co. company
guaranty Ser. B, 8 3/4s, 2012 832,000
675,000 Plains Exploration & Production Co. 144A
sr. sub. notes 8 3/4s, 2012 702,000
920,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 984,400
591,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 609,469
750,000 Seabulk International, Inc. 144A sr. notes 9 1/2s, 2013 750,000
420,000 Seven Seas Petroleum, Inc. sr. notes Ser. B,
12 1/2s, 2005 (In default) (NON) 46,200
1,035,000 Star Gas Partners LP/Star Gas Finance Co.
sr. notes 10 1/4s, 2013 1,086,750
550,000 Star Gas Propane bank term loan FRN 8.04s, 2009
(acquired 5/7/03, cost $539,000) (RES) 541,750
210,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 217,875
1,000,000 Stone Energy Corp. sr. sub. notes 8 1/4s, 2011 1,052,500
460,000 Swift Energy Co. sr. sub. notes 10 1/4s, 2009 480,700
660,000 Swift Energy Co. sr. sub. notes 9 3/8s, 2012 709,500
500,000 Tesoro Petroleum Corp. sec. notes 8s, 2008 510,000
1,030,000 Trico Marine Services, Inc. company guaranty 8 7/8s, 2012 741,600
205,000 Universal Compression, Inc. 144A sr. notes 7 1/4s, 2010 207,050
900,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 963,000
605,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 641,300
205,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 216,275
165,000 Weg Acquistion bank term loan FRN 5.61s, 2008
(acquired 6/13/03, cost $163,350) (RES) 166,238
1,110,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 1,182,150
385,000 Westport Resources Corp. 144A company guaranty 8 1/4s, 2011 410,025
530,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 575,050
320,000 XTO Energy, Inc. sr. notes 6 1/4s, 2013 321,600
-------------
46,177,682
Financial (2.0%)
-------------------------------------------------------------------------------------------------------------------
1,470,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 926,100
700,000 Chevy Chase Savings Bank, Inc. sub. debs. 9 1/4s, 2005 701,750
530,000 Conseco, Inc. 144A company guaranty 10 3/4s, 2009 (In default) (NON) 323,300
170,000 Crescent Real Estate Equities LP notes 7 1/2s, 2007 (R) 169,082
1,075,000 Crescent Real Estate Equities LP sr. notes 9 1/4s, 2009 (R) 1,114,990
3,046,000 Finova Group, Inc. notes 7 1/2s, 2009 1,370,700
330,252 Hilb, Rogal & Hamilton Co. bank term loan FRN
Ser. B, 3 7/8s, 2007 (acquired 6/20/02, cost $330,252) (RES) 332,729
247,500 Infinity Inc. bank term loan FRN 3.6s, 2010
(acquired 7/2/03, cost $247,500) (RES) 248,738
1,135,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 (R) 1,214,450
625,000 iStar Financial, Inc. sr. notes 7s, 2008 (R) 632,813
6,345,900 JPMorgan HYDI 144A notes 8s, 2008 6,139,658
338,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s,
2008 (In default) (NON) 3
81,000 Ocwen Financial Corp. notes 11 7/8s, 2003 81,405
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 3,420,136
760,000 Western Financial Bank sub. debs. 9 5/8s, 2012 836,000
-------------
18,581,854
Gaming & Lottery (3.0%)
-------------------------------------------------------------------------------------------------------------------
690,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 772,800
900,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 976,500
230,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 244,950
250,000 Borgata Resorts bank term loan FRN Ser. B,
5.1793s, 2007 (acquired 6/5/02, cost $249,375) (RES) 250,313
1,050,000 Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 1,126,125
500,000 Chumash Casino & Resort Enterprise 144A
sr. notes 9s, 2010 540,000
1,245,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 1,372,613
980,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 970,200
1,250,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 1,331,250
900,000 International Game Technology sr. notes 8 3/8s, 2009 1,063,458
1,195,000 Majestic Investor Holdings/Capital Corp. company
guaranty 11.653s, 2007 1,200,975
600,000 Mandalay Resort Group 144A sr. notes 6 1/2s, 2009 595,500
2,730,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 3,043,950
680,000 Mirage Resorts, Inc. notes 6 3/4s, 2008 720,800
75,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 80,250
270,000 Mohegan Tribal Gaming Authority
sr. sub. notes 8 3/8s, 2011 290,925
980,000 Mohegan Tribal Gaming Authority sr. sub. notes 8s, 2012 1,043,700
790,000 Mohegan Tribal Gaming Authority 144A
sr. sub. notes 6 3/8s, 2009 776,175
1,410,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 1,515,750
525,000 Park Place Entertainment Corp. sr. notes 7s, 2013 536,813
545,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 595,413
155,000 Park Place Entertainment Corp. sr. sub. notes 8 1/8s, 2011 168,175
299,250 Penn National Gaming, Inc. bank term loan FRN
Ser. B, 5.1029s, 2010 (acquired 2/19/03, cost $298,876) (RES) 299,923
640,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 708,800
1,320,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 1,402,500
165,000 Pinnacle Entertainment, Inc. bank term loan FRN
Ser. B, 5.725s, 2008 (acquired 4/3/03, cost $162,938) (RES) 165,825
305,000 Pinnacle Entertainment, Inc.
sr. sub. notes Ser. B, 9 1/2s, 2007 301,950
495,000 Resorts International Hotel and Casino, Inc.
company guaranty 11 1/2s, 2009 471,488
785,000 Riviera Holdings Corp. company guaranty 11s, 2010 768,319
373,125 Scientific Gaming bank term loan FRN Ser. B, 4.6s,
2008 (acquired 12/11/02, cost $371,259) (RES) 373,591
1,060,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 1,139,500
570,000 Trump Atlantic City Associates company
guaranty 11 1/4s, 2006 453,150
2,135,000 Trump Casino Holdings, LLC 144A mtge. 11 5/8s, 2010 1,942,850
1,300,000 Venetian Casino Resort, LLC company guaranty 11s, 2010 1,436,500
-------------
28,681,031
Health Care (3.5%)
-------------------------------------------------------------------------------------------------------------------
79,133 ALARIS Medical Systems, Inc. bank term loan FRN
3.8695s, 2009 (acquired 6/30/03, cost $79,153) (RES) 79,891
710,000 ALARIS Medical Systems, Inc. sr. sub. notes 7 1/4s, 2011 710,000
2,392,600 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 2,554,101
16,500 Alderwoods Group, Inc. company guaranty 11s, 2007 16,995
966,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 961,170
605,000 AmerisourceBergen Corp. company guaranty 7 1/4s, 2012 632,225
780,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 834,600
510,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 561,000
1,210,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 1,252,350
446,625 Community Health Systems, Inc. bank term loan FRN
Ser. B, 3.78s, 2010 (acquired 7/11/02, cost $446,625) (RES) 447,253
255,000 Dade Behring, Inc. company guaranty 11.91s, 2010 288,150
300,000 DaVita, Inc. bank term loan FRN Ser. C, 3.616s,
2009 (acquired 7/17/03, cost $300,000) (RES) 300,938
690,000 Extendicare Health Services, Inc. company
guaranty 9 1/2s, 2010 729,675
299,250 Fisher Scientific International, Inc. bank term loan
FRN Ser. B, 3.6s, 2010 (acquired 2/13/03, cost $299,250) (RES) 300,372
299,250 Fresenius Medical Care AG bank term loan FRN
3.6991s, 2010 (acquired 2/18/03, cost $299,250) (RES) 300,933
52,272 Genesis Health Ventures, Inc. sec. notes FRN 6.114s, 2007 51,749
835,000 Hanger Orthopedic Group, Inc. company guaranty 10 3/8s, 2009 910,150
205,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 222,425
920,000 HCA, Inc. debs. 7.19s, 2015 892,927
350,000 HCA, Inc. notes 8.36s, 2024 352,513
750,000 HCA, Inc. notes 7.69s, 2025 703,363
1,385,000 HCA, Inc. notes 7s, 2007 1,454,976
1,525,000 Healthsouth Corp. notes 7 5/8s, 2012 (In default) (NON) 1,265,750
705,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 (In default) (NON) 592,200
340,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 (In default) (NON) 285,600
290,000 Healthsouth Corp. sr. notes 7s, 2008 (In default) (NON) 240,700
560,000 IASIS Healthcare Corp. company guaranty 13s, 2009 621,600
105,000 IASIS Healthcare Corp. 144A sr. sub. notes 8 1/2s, 2009 105,000
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) 13,950
256,930 Kinetic Concepts, Inc. bank term loan FRN Ser. C,
3.85s, 2005 (acquired 11/5/01, cost $257,251) (RES) 256,609
1,990,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 (In default) (NON) 905,450
365,000 Magellan Health Services., Inc. 144A
sr. notes 9 3/8s, 2007 (In default) (NON) 357,700
206,250 Medex, Inc. bank term loan FRN 4.85s, 2009
(acquired various dates from 5/16/03 to 6/16/03, cost $206,147) (RES) 207,109
940,000 Mediq, Inc. debs. zero %, 2009 (In default) (NON) 94
1,285,000 MedQuest, Inc. company guaranty Ser. B, 11 7/8s, 2012 1,342,825
2,690,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 40,350
EUR 535,000 NYCO Holdings 144A 11 1/2s, 2013 606,906
$535,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 567,100
510,000 Omnicare, Inc. sr. sub. notes 6 1/8s, 2013 489,600
1,575,000 PacifiCare Health Systems, Inc. company guaranty 10 3/4s, 2009 1,779,750
770,000 Province Healthcare Co. sr. sub. notes 7 1/2s, 2013 739,200
390,000 Service Corp. International debs. 7 7/8s, 2013 378,300
115,000 Service Corp. International notes 7.7s, 2009 115,575
105,000 Service Corp. International notes 7.2s, 2006 106,575
35,000 Service Corp. International notes 6 7/8s, 2007 34,738
155,000 Service Corp. International notes 6 1/2s, 2008 150,350
1,435,000 Service Corp. International notes 6s, 2005 1,438,588
370,000 Service Corp. International notes Ser. (a), 7.7s, 2009 371,850
1,010,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 1,131,200
160,000 Tenet Healthcare Corp. sr. notes 6 3/8s, 2011 145,200
520,000 Tenet Healthcare Corp. sr. notes 5 3/8s, 2006 495,300
2,785,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 3,077,425
45,000 Triad Hospitals, Inc. company guaranty Ser. B, 8 3/4s, 2009 47,925
425,000 Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 461,125
-------------
32,956,175
Homebuilding (1.0%)
-------------------------------------------------------------------------------------------------------------------
610,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 651,175
390,000 D.R. Horton, Inc. company guaranty 8 1/2s, 2012 423,150
880,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 924,000
265,000 D.R. Horton, Inc. sr. notes 6 7/8s, 2013 261,025
10,000 D.R. Horton, Inc. sr. notes 5 7/8s, 2013 9,200
630,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 722,925
795,000 K. Hovnanian Enterprises, Inc. company guaranty 8 7/8s, 2012 850,650
180,000 K. Hovnanian Enterprises, Inc. company guaranty 8s, 2012 191,700
290,000 K. Hovnanian Enterprises, Inc. 144A sr. sub. notes 7 3/4s, 2013 292,900
1,085,000 KB Home sr. sub. notes 9 1/2s, 2011 1,188,075
85,000 KB Home sr. sub. notes 7 3/4s, 2010 89,250
860,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 971,800
750,000 Schuler Homes, Inc. company guaranty 10 1/2s, 2011 847,500
55,000 Technical Olympic USA, Inc. company guaranty 10 3/8s, 2012 58,850
190,000 Technical Olympic USA, Inc. company guaranty 9s, 2010 201,400
135,000 Technical Olympic USA, Inc. 144A sr. sub. notes 10 3/8s, 2012 144,450
590,000 Toll Corp. company guaranty 8 1/8s, 2009 613,600
170,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 184,450
220,000 WCI Communities, Inc. company guaranty 10 5/8s, 2011 239,800
735,000 WCI Communities, Inc. company guaranty 9 1/8s, 2012 775,425
-------------
9,641,325
Household Furniture and Appliances (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Sealy Mattress Co. company guaranty Ser. B, zero %, 2002 980,000
1,220,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 1,183,400
-------------
2,163,400
Lodging/Tourism (1.4%)
-------------------------------------------------------------------------------------------------------------------
1,187,000 FelCor Lodging LP company guaranty 9 1/2s, 2008 (R) 1,216,675
1,175,000 Hilton Hotels Corp. notes 7 5/8s, 2012 1,251,375
440,000 HMH Properties, Inc. company guaranty Ser. A, 7 7/8s, 2005 (R) 445,500
5,940,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 (R) 5,925,150
345,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 349,313
815,000 ITT Corp. notes 6 3/4s, 2005 843,525
2,085,000 John Q. Hammons Hotels LP/John Q. Hammons Hotels
Finance Corp. III 1st mtge. Ser. B, 8 7/8s, 2012 2,184,038
720,000 RFS Partnership LP company guaranty 9 3/4s, 2012 729,000
135,000 Starwood Hotels & Resorts Worldwide, Inc. company
guaranty 7 7/8s, 2012 143,100
535,000 Starwood Hotels & Resorts Worldwide, Inc. company
guaranty 7 3/8s, 2007 553,725
206,250 Wyndham International, Inc. bank term loan FRN
6.029s, 2006 (acquired 5/21/03, cost $165,000) (RES) 173,018
-------------
13,814,419
Publishing (2.1%)
-------------------------------------------------------------------------------------------------------------------
58,929 Affinity Group Holdings bank term loan FRN
Ser. B1, 5.116s, 2009 (acquired 5/27/03, cost $58,781) (RES) 59,076
146,953 Affinity Group Holdings bank term loan FRN Ser. B2,
5.116s, 2009 (acquired 5/27/03, cost $146,586) (RES) 147,321
1,657,000 Affinity Group Holdings sr. notes 11s, 2007 1,698,425
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 298,700
625,000 Hollinger International Publishing, Inc. sr. notes 9s, 2010 646,875
1,985,785 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada) (PIK) 2,273,686
740,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011 (In default) (NON) 7,400
680,000 Mail-Well I Corp. company guaranty 9 5/8s, 2012 724,200
165,000 Moore Wallace bank term loan FRN Ser. B, 4.2688s,
2010 (acquired 3/13/03, cost $165,000) (RES) 165,206
282,718 PRIMEDIA, Inc. bank term loan FRN Ser. B, 4.0979s,
2009 (acquired 2/10/03, cost $270,702) (RES) 274,943
2,045,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 2,091,013
470,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 460,600
1,110,000 PRIMEDIA, Inc. 144A sr. notes 8s, 2013 1,110,000
300,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon
zero % (13 3/4s, 7/15/06), 2011 (Canada) (STP) 243,000
1,380,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 1,552,500
373,125 RH Donnelley Finance Corp. I bank term loan FRN
Ser. B, 5.1709s, 2010 (acquired 12/4/02, cost $373,125) (RES) 379,966
1,290,000 RH Donnelley Finance Corp. I 144A sr. notes 8 7/8s, 2010 1,396,425
825,000 RH Donnelley Finance Corp. I 144A sr. sub. notes 10 7/8s, 2012 928,125
252,057 Sum Media bank term loan FRN Ser. B, 3.61s, 2009
(acquired 2/4/03, cost $252,057) (RES) 252,294
1,215,000 Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 1,202,850
1,545,000 Vertis, Inc. 144A sec. notes 9 3/4s, 2009 1,595,213
800,000 Von Hoffman Press, Inc. company guaranty 10 1/4s, 2009 856,000
370,000 Von Hoffman Press, Inc. company guaranty FRN 10 3/8s, 2007 371,850
468,767 Von Hoffman Press, Inc. debs. 13s, 2009 (PIK) 433,609
87,000 Yell Finance BV sr. notes 10 3/4s, 2011 (Netherlands) 98,745
-------------
20,052,722
Retail (1.0%)
-------------------------------------------------------------------------------------------------------------------
129,872 Advance Stores bank term loan FRN Ser. C, 4.0049s,
2007 (acquired 3/4/03, cost $129,872) (RES) 130,424
800,000 Asbury Automotive Group, Inc. company guaranty 9s, 2012 784,000
1,230,000 Autonation, Inc. company guaranty 9s, 2008 1,353,000
460,000 Gap, Inc. (The) notes 6.9s, 2007 484,150
520,000 Hollywood Entertainment Corp. sr. sub. notes 9 5/8s, 2011 566,800
1,160,000 J. Crew Operating Corp. 144A sr. sub. notes 10 3/8s, 2007 1,136,800
1,645,000 JC Penney Co., Inc. debs. 7.95s, 2017 1,595,650
245,000 JC Penney Co., Inc. debs. 7.65s, 2016 230,300
40,000 JC Penney Co., Inc. notes 8s, 2010 40,600
450,000 JC Penney Co., Inc. notes Ser. MTNA, 7.05s, 2005 455,625
2,190,000 Saks, Inc. company guaranty 8 1/4s, 2008 2,266,650
715,000 United Auto Group, Inc. company guaranty 9 5/8s, 2012 754,325
-------------
9,798,324
Technology (1.7%)
-------------------------------------------------------------------------------------------------------------------
880,000 AMI Semiconductor, Inc. company guaranty 10 3/4s, 2013 994,400
205,734 Amkor Technologies, Inc. bank term loan FRN 5.1s,
2006 (acquired 4/17/03, cost $206,005) (RES) 208,177
540,000 Amkor Technologies, Inc. structured notes 12.58s,
2005 (issued by STEERS Credit Linked Trust 2000) 561,600
270,000 Avaya, Inc. sec. sr. notes 11 1/8s, 2009 297,000
770,000 DigitalNet Holdings Inc. 144A sr. notes 9s, 2010 754,600
305,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 315,675
232,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 237,800
1,890,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 1,927,800
100,000 Lucent Technologies, Inc. debs. 6 1/2s, 2028 64,250
3,360,000 Lucent Technologies, Inc. debs. 6.45s, 2029 2,167,200
75,000 Lucent Technologies, Inc. notes 5 1/2s, 2008 60,750
1,460,000 Nortel Networks Corp. notes 6 1/8s, 2006 (Canada) 1,394,300
785,000 ON Semiconductor Corp. company guaranty 13s, 2008 808,550
1,095,000 SCG Holding & Semiconductor Corp. company guaranty 12s, 2009 952,650
855,000 Seagate Technology Hdd Holdings company
guaranty 8s, 2009 (Cayman Islands) 923,400
208,982 Telex Communications Group, Inc. sr. sub. notes Ser. A, zero %, 2006 114,940
260,000 Xerox Cap Europe PLC company guaranty 5 7/8s, 2004
(United Kingdom) 261,300
555,000 Xerox Corp. notes Ser. MTN, 7.2s, 2016 510,600
2,480,000 Xerox Corp. sr. notes 7 1/8s, 2010 2,380,800
750,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 810,000
EUR 270,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 324,368
-------------
16,070,160
Textiles (0.3%)
-------------------------------------------------------------------------------------------------------------------
$780,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 (In default) (NON) 5,850
1,145,000 Levi Strauss & Co. sr. notes 12 1/4s, 2012 967,525
635,000 Oxford Industries, Inc. 144A sr. notes 8 7/8s, 2011 665,163
695,000 Russell Corp. company guaranty 9 1/4s, 2010 743,650
850,000 William Carter Holdings Co. (The) company
guaranty Ser. B, 10 7/8s, 2011 952,000
-------------
3,334,188
Tire & Rubber (0.1%)
-------------------------------------------------------------------------------------------------------------------
825,000 Goodyear Tire & Rubber Co. (The) notes 7.857s, 2011 606,375
Transportation (1.3%)
-------------------------------------------------------------------------------------------------------------------
100,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) (In default) (NON) 56,000
1,340,093 Air2 US 144A sinking fund Ser. D, 12.266s, 2020 (In default) (NON) 40,203
620,000 Allied Holdings, Inc. company guaranty Ser. B, 8 5/8s, 2007 551,800
525,000 American Airlines, Inc. pass-through certificates
Ser. 01-1, 6.817s, 2011 441,000
350,000 American Airlines, Inc. pass-through certificates
Ser. 99-1, 7.024s, 2009 332,500
1,365,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 1,078,350
450,000 Continental Airlines, Inc. pass-through
certificates Ser. D, 7.568s, 2006 333,000
1,300,000 CSX Corp. notes 6 1/4s, 2008 1,424,498
550,000 Delta Air Lines, Inc. pass-through certificates
Ser. 00-1, 7.779s, 2005 453,369
359,542 Delta Air Lines, Inc. pass-through certificates
Ser. 02-1, 7.779s, 2012 298,420
1,285,000 Evergreen International Aviation, Inc. 144A sec.
notes 12s, 2010 1,278,575
EUR 500,000 Fixed-Link Finance BV sec. notes FRN Ser. B2-X,
7.85s, 2009 (Netherlands) 444,533
$1,270,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 1,416,050
260,000 Kansas City Southern Railway Co. company guaranty 7 1/2s, 2009 269,100
1,435,000 Navistar International Corp. company guaranty Ser. B, 9 3/8s, 2006 1,542,625
300,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 301,500
770,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 635,250
655,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 478,150
351,415 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 349,658
274,029 Pacer International, Inc. bank term loan FRN
4.4548s, 2010 (acquired 6/10/03, cost $274,966) (RES) 276,085
260,000 Travel Centers of America, Inc. company guaranty 12 3/4s, 2009 299,000
737,147 US Air, Inc. pass-through certificates Ser. 93-A3,
10 3/8s, 2013 (In default) (NON) 294,859
-------------
12,594,525
Utilities & Power (4.2%)
-------------------------------------------------------------------------------------------------------------------
77,000 AES Corp. (The) sr. notes 8 7/8s, 2011 71,803
43,000 AES Corp. (The) sr. notes 8 3/4s, 2008 40,313
1,085,000 AES Corp. (The) 144A sec. notes 9s, 2015 1,057,875
1,005,000 AES Corp. (The) 144A sec. notes 8 3/4s, 2013 964,800
1,300,000 Allegheny Energy Supply 144A bonds 8 1/4s, 2012 1,085,500
470,000 Allegheny Energy, Inc. notes 7 3/4s, 2005 474,700
595,000 Avon Energy Partners Holdings 144A notes 7.05s,
2007 (United Kingdom) 519,138
55,000 Avon Energy Partners Holdings 144A notes 6.46s,
2008 (United Kingdom) 45,096
595,000 Calpine Canada Energy Finance company
guaranty 8 1/2s, 2008 (Canada) 440,300
375,000 Calpine Corp. bank term loan FRN 6.866s, 2007
(acquired 7/11/03, cost $375,000) (RES) 349,821
530,000 Calpine Corp. sr. notes 8 1/2s, 2011 384,250
1,750,000 Calpine Corp. sr. notes 7 7/8s, 2008 1,277,500
570,000 Calpine Corp. sr. notes 7 5/8s, 2006 473,100
3,030,000 Calpine Corp. 144A sec. notes 8 1/2s, 2010 2,727,000
390,000 CenterPoint Energy Resources Corp. debs. 6 1/2s, 2008 408,476
335,000 CenterPoint Energy Resources Corp. 144A notes 7 7/8s, 2013 364,096
3,700 CMS Energy Corp. bank term loan FRN Ser. C, 9s,
2004 (acquired 4/21/03, cost $3,654) (RES) 3,700
210,000 CMS Energy Corp. pass-through certificates 7s, 2005 205,800
1,190,000 CMS Energy Corp. sr. notes 8.9s, 2008 1,178,100
440,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 433,400
250,000 CMS Energy Corp. 144A sr. notes 7 3/4s, 2010 237,500
140,000 CMS Panhandle Holding Corp. sr. notes 6 1/2s, 2009 150,675
1,125,000 Dynegy Holdings, Inc. company guaranty 6 3/4s, 2005 1,113,750
240,000 Dynegy Holdings, Inc. sr. notes 8 1/8s, 2005 240,000
205,000 Dynegy Holdings, Inc. sr. notes 7.45s, 2006 200,900
425,000 Dynegy Holdings, Inc. sr. notes 6 7/8s, 2011 316,625
520,000 Edison Mission Energy sr. notes 10s, 2008 410,800
530,000 Edison Mission Energy sr. notes 9 7/8s, 2011 413,400
295,000 Edison Mission Energy sr. notes 7.73s, 2009 221,250
215,000 El Paso CGP Co. debs. 6 1/2s, 2008 172,000
275,000 El Paso CGP Co. notes 6 3/8s, 2009 213,125
385,000 El Paso Corp. notes Ser. MTN, 6.95s, 2007 315,700
170,000 El Paso Corp. sr. notes 7 3/8s, 2012 131,750
505,000 El Paso Natural Gas Co. 144A sr. notes 7 5/8s, 2010 479,750
1,285,000 El Paso Production Holding Co. 144A sr. notes 7 3/4s, 2013 1,178,988
895,000 Gemstone Investor, Ltd. 144A company guaranty 7.71s, 2004 865,913
1,275,000 Israel Electric Corp., Ltd. notes Ser. REGS, 7.95s, 2011 (Israel) 1,372,363
1,105,000 Midland Funding II Corp. debs. Ser. B, 13 1/4s, 2006 1,292,850
535,000 Midwest Generation LLC pass-through certificates Ser. A, 8.3s, 2009 502,900
535,000 Mirant Americas Generation, Inc. sr. notes 8.3s, 2011 (In default) (NON) 399,913
1,625,000 Mirant Americas Generation, Inc. sr. notes 7 5/8s, 2006 (In default) (NON) 1,186,250
390,000 Mirant Americas Generation, Inc. sr. notes 7.2s, 2008 (In default) (NON) 282,750
390,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 195,000
186 Northeast Utilities notes Ser. A, 8.58s, 2006 211
465,000 Northwest Pipeline Corp. company guaranty 8 1/8s, 2010 477,788
1,185,000 Northwestern Corp. notes 8 3/4s, 2012 873,938
500,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005 (In default) (NON) 515,000
865,000 PG&E Corp. 144A sec. notes 6 7/8s, 2008 877,975
220,000 PG&E Gas Transmission Northwest sr. notes 7.1s, 2005 223,300
850,000 PSEG Energy Holdings, Inc. notes 7 3/4s, 2007 871,250
670,000 SEMCO Energy, Inc. 144A sr. notes 7 3/4s, 2013 676,700
260,000 Sierra Pacific Power Co. collateralized Ser. MTNC, 6.82s, 2006 258,050
25,000 Sierra Pacific Power Co. general ref. mtge. Ser. A, 8s, 2008 25,750
990,000 Sierra Pacific Resources notes 8 3/4s, 2005 994,950
500,000 Southern California Edison Co. bank term loan FRN
4 3/8s, 2005 (acquired 2/28/02, cost $499,250) (RES) 500,938
130,000 Southern California Edison Co. notes 6 3/8s, 2006 131,788
1,270,000 Southern California Edison Co. 144A 1st mtge. 8s, 2007 1,371,600
440,000 Teco Energy, Inc. notes 10 1/2s, 2007 486,200
220,000 Teco Energy, Inc. notes 7.2s, 2011 209,000
570,000 Teco Energy, Inc. notes 7s, 2012 535,800
510,000 Teco Energy, Inc. sr. notes 7 1/2s, 2010 497,250
815,000 Western Resources, Inc. sr. notes 9 3/4s, 2007 903,631
790,000 Williams Cos., Inc. (The) FRN Ser. A, 6 3/4s, 2006 754,450
525,000 Williams Cos., Inc. (The) notes 9 1/4s, 2004 531,563
1,010,000 Williams Cos., Inc. (The) notes 6 1/2s, 2006 959,500
975,000 Williams Cos., Inc. (The) sr. notes 8 5/8s, 2010 972,563
520,000 Williams Holdings Of Delaware notes 6 1/2s, 2008 468,000
165,000 Williams Products bank term loan FRN 4.9s, 2007
(acquired 6/4/03, cost $165,000) (RES) 165,825
1,370,925 York Power Funding 144A notes 12s, 2007
(Cayman Islands) (In default) (NON) 959,647
-------------
39,641,587
-------------
Total Corporate bonds and notes (cost $524,879,123) $516,478,571
Foreign government bonds and notes (14.3%) (a)
Principal amount Value
-------------------------------------------------------------------------------------------------------------------
USD 1,250,000 Argentina (Government of) FRB Ser. L-GL, 2.313s, 2023 $628,125
EUR 6,000,000 Austria (Republic of) notes Ser. E MTN, 3.8s, 2013 6,497,835
USD 2,630,000 Brazil (Federal Republic of) bonds 10 1/8s, 2027 2,097,425
USD 1,505,000 Brazil (Federal Republic of) bonds 2.188s, 2012 1,147,563
USD 1,290,000 Bulgaria (Republic of) bonds 1.938s, 2024 1,251,300
USD 3,685,000 Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 4,086,665
CAD 11,840,000 Canada (Government of) bonds 6s, 2011 9,078,455
CAD 2,725,000 Canada (Government of) bonds 5 1/2s, 2010 2,039,105
CAD 930,000 Canada (Government of) bonds Ser. WL43,
5 3/4s,2029 687,262
USD 1,300,000 Chile (Republic of) bonds 5 1/2s, 2013 1,287,000
USD 507,876 Colombia (Republic of) bank guaranty 9 3/4s, 2011 561,965
USD 2,430,000 Colombia (Republic of) bonds 10 3/8s, 2033 2,518,695
USD 420,000 Colombia (Republic of) bonds Ser. NOV, 9 3/4s, 2009 463,050
USD 4,430,000 Colombia (Republic of) notes 10 3/4s, 2013 4,861,925
USD 660,000 Costa Rica (Republic of) 144A notes 8.05s, 2013 709,500
USD 1,285,000 Dominican Republic 144A notes 9.04s, 2013 1,156,500
USD 4,670,000 Ecuador (Republic of) bonds stepped-coupon
Ser. REGS, 6s (7s, 8/15/03), 2030 (STP) 2,750,630
EUR 1,845,000 France (Government of) bonds 5 3/4s, 2032 2,313,068
EUR 4,830,000 France (Government of) bonds 5 1/2s, 2010 5,990,122
EUR 1,080,000 France (Government of) deb. 4s, 2009 1,236,094
EUR 6,340,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 7,805,729
USD 260,000 Indonesia (Republic of) FRN 2.005s, 2006 219,050
USD 645,000 Indonesia (Republic of) FRN 2.005s, 2005 569,213
EUR 530,000 Italy (Government of) treasury bonds 4 3/4s, 2006 626,464
USD 1,265,000 Korea Highway Corp. 144A notes 4.9s, 2013 (South Korea) 1,172,566
EUR 1,040,000 Netherlands (Government of) bonds 5s, 2012 1,245,908
NZD 12,920,000 New Zealand (Government of) bonds 6 1/2s, 2013 7,887,702
NZD 8,036,000 New Zealand (Government of) bonds Ser. 709, 7s, 2009 4,999,141
USD 240,000 Philippines (Republic of) bonds 9s, 2013 246,000
USD 3,690,000 Russia (Federation of) unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 3,298,860
USD 8,807,500 Russia (Federation of) 144A unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 7,873,905
USD 3,985,000 South Africa (Republic of) notes 7 3/8s, 2012 4,363,575
USD 1,100,000 State of Israel notes 4 5/8s, 2013 1,022,670
SEK 85,700,000 Sweden (Government of) bonds 6 3/4s, 2014 12,261,496
USD 3,175,000 Turkey (Republic of) notes 9 7/8s, 2008 3,238,500
USD 627,203 Ukraine (Government of) sr. notes Ser. REGS, 11s, 2007 688,355
USD 1,490,000 Ukraine (Government of) 144A bonds 7.65s, 2013 1,445,300
GBP 4,420,000 United Kingdom treasury bonds 10s, 2003 7,150,889
GBP 1,055,000 United Kingdom treasury bonds 8 3/4s, 2017 2,398,719
GBP 1,100,000 United Kingdom treasury bonds 5s, 2012 1,832,677
GBP 2,800,000 United Kingdom treasury bonds 5s, 2004 4,561,480
USD 1,855,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 1,924,563
USD 2,370,000 United Mexican States notes 8 1/8s, 2019 2,464,800
USD 1,385,000 United Mexican States notes 7 1/2s, 2012 1,481,950
USD 2,150,000 United Mexican States notes 4 5/8s, 2008 2,123,125
USD 2,545,000 Venezuela (Republic of) bonds 9 1/4s, 2027 1,896,025
-------------
Total Foreign government bonds and notes (cost $127,008,304) $136,160,946
U.S. government and agency obligations (9.8%) (a)
Principal amount Value
U.S. Government and Agency Mortgage Obligations (3.3%)
-------------------------------------------------------------------------------------------------------------------
$45,154 Federal Home Loan Mortgage Corporation
Pass-Through Certificates 7 1/2s, March 1, 2026 $48,166
340,948 Federal National Mortgage Association Pass-Through
Certificates 7 1/2s, with due dates from
October 1, 2022 to January 1, 2030 361,694
11,207,000 Federal National Mortgage Association TBA, 5s,
August 1, 2033 10,713,220
21,203,000 Government National Mortgage Association TBA, 5s,
August 1, 2033 20,321,803
-------------
31,444,883
U.S. Treasury Obligations (6.5%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
21,600,000 7 1/2s, November 15, 2016 26,757,842
8,802,000 6 1/4s, May 15, 2030 9,735,153
12,260,000 6 1/4s, August 15, 2023 13,461,100
6,275,000 U.S. Treasury Notes 1 5/8s, March 31, 2005 6,274,266
20,460,000 U.S. Treasury Strip zero %, November 15, 2024 5,908,909
-------------
62,137,270
-------------
Total U.S. government and agency obligations (cost $94,620,606) $93,582,153
Collateralized mortgage obligations (8.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------------------------------------------
$206,562 Arc Net Interest Margin Trust Ser. 02-5A, Class A, 7 3/4s, 2032 $205,233
300,832 Arc Net Interest Margin Trust 144A Ser. 02-1A,
Class A, 7 3/4s, 2032 300,780
55,035,000 Bayview Financial Acquisition Trust Ser. 03-X,
Class A1, Interest Only (IO), 1.36s, 2006 851,323
6,310,625 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
IO, 0.96s, 2017 191,291
42,497,339 Commercial Mortgage Asset Trust Ser. 99-C1,
Class X, IO, 0.91s, 2032 2,469,945
1,858,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1,
Class A2, 7s, 2011 2,093,153
2,814,000 Criimi Mae Commercial Mortgage Trust 144A
Ser. 98-C1, Class B, 7s, 2011 2,880,761
62,222,694 Deutsche Mortgage & Asset Receiving Corp.
Ser. 98-C1, Class X, IO, 1.22s, 2023 2,146,595
25,303,411 DLJ Commercial Mortgage Corp. 144A Ser. 00-CKP1,
Class S, IO, 0.481s, 2010 1,437,474
1,880,000 Euro 144A FRB Class A, 4.102s, 2011 3,021,912
Fannie Mae
2,509,970 Ser. 02-36, Class SJ, 17 3/8s, 2029 2,819,991
20,124,989 Ser. 00-T6, IO, 8.7s, 2030 437,090
2,740 Ser. 92-15, Class L, IO, 8s, 2022 38,419
1,071,183 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 1,163,396
38,356 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 41,658
1,304,390 Ser. 01-T10, Class A2, 7 1/2s, 2041 1,416,680
28,918 Ser. 01-T8, Class A1, 7 1/2s, 2041 31,407
5,025,141 Ser. 01-T7, Class A1, 7 1/2s, 2041 5,457,734
750,150 Ser. 01-T3, Class A1, 7 1/2s, 2040 814,727
2,212,212 Ser. 01-T1, Class A1, 7 1/2s, 2040 2,402,652
885,245 Ser. 99-T2, Class A1, 7 1/2s, 2039 961,452
476,501 Ser. 00-T6, Class A1, 7 1/2s, 2030 517,521
2,236,925 Ser. 01-T4, Class A1, 7 1/2s, 2028 2,429,492
4,692 Ser. 02-W3, Class A5, 7 1/2s, 2028 5,096
8,432 Ser. 2002-T1, Class A2, 7s, 2031 9,013
4,545,917 Ser. 02-92, Class SA, IO, 6.85s, 2033 608,016
2,859,392 Ser. 03-14, Class KS, IO, 6 1/2s, 2017 274,323
2,716,650 Ser. 03-58, Class ID, IO, 6s, 2033 688,077
2,553,852 Ser. 332, Class 2, IO, 6s, 2033 683,155
7,425,544 Ser. 329, Class 2, IO, 5 1/2s, 2033 2,137,161
10,115,313 Ser. 03-63, Class SE, IO, 5 1/2s, 2031 1,156,939
4,843,694 Ser. 03-37, Class IC, IO, 5 1/2s, 2027 575,189
8,705,981 Ser. 337, Class 2, IO, 5s, 2033 2,600,912
2,663,700 Ser. 03-24, Class IC, IO, 5s, 2015 498,611
20,353,436 Ser. 03-W10, Class 3A, IO, 2.287s, 2043 865,021
16,800,179 Ser. 03-W10, Class 1A, IO, 2.255s, 2043 735,008
3,215,826 Ser. 318, Class 2, IO, 1.577s, 2032 768,785
228,682 Ser. 01-58, Class HI, IO, 1.485s, 2026 71
385,543 Ser. 98-51, Class SG, IO, 1.481s, 2022 170,612
1,359,289 Ser. 01-74, Class MI, IO, 1.103s, 2015 156,099
2,475,974 Ser. 322, Class 2, IO, 0.77s, 2032 571,795
6,028,304 Ser. 03-49, Class TS, IO, 0.7s, 2018 820,414
5,527,948 Ser. 03-34, Class SG, IO, 0.695s, 2033 621,030
16,260,163 Ser. 03-34, IO, 0.694s, 2032 1,806,402
13,819,923 Ser. 03-34, Class ES, IO, 0.681s, 2033 1,550,423
3,080,796 Ser. 03-26, Class IG, IO, 0.68s, 2033 605,569
1,555,116 Ser. 02-29, Class SL, IO, 0.644s, 2029 71,438
2,954,185 Ser. 02-52, Class SL, IO, 0.613s, 2032 246,490
7,019,173 Ser. 02-9, Class MS, IO, 0.597s, 2032 614,178
3,181,472 Ser. 02-63, Class SN, IO, 0.595s, 2032 291,304
1,291,791 Ser. 03-23, Class SC, IO, 0.587s, 2033 167,125
5,438,263 Ser. 02-36, Class QH, IO, 6.95s, 2029 433,200
8,751,901 Ser. 03-23, Class AI, IO, 0.545s, 2017 1,247,146
4,695,200 Ser. 03-41, Class SP, IO, 0.439s, 2015 459,983
3,739,259 Ser. 03-7, Class SM, IO, 0.358s, 2023 175,278
1,387,595 Ser. 02-21, Class PS, IO, 0.148s, 2025 13,009
135,903 Ser. 02-27, Class IA, IO, 0.083s, 2013 2,123
413,618 Ser. 03-26, Class JO, Principal Only (PO), zero %, 2033 413,618
751,615 Ser. 02-97, PO, zero %, 2033 583,206
17,485 Ser. 03-18, PO, zero %, 2032 17,485
464,084 Ser. 99-51, Class N, PO, zero %, 2029 390,121
358,533 Ser. 99-52, Class MO, PO, zero %, 2026 344,701
230,759 Ser. 96-5, Class PB, PO, zero %, 2024 225,856
22,793,178 FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, 1.72s, 2020 1,686,112
Freddie Mac
1,844,800 Ser. 2412, Class GS, FRN, 18.1s, 2032 2,213,760
88,296 Ser. 2028, Class SG, IO, 13.7s, 2023 1,435
1,033,400 Ser. 2590, Class IH, IO, 5 1/2s, 2028 308,244
2,008,400 Ser. 2515, Class IG, IO, 1.891s, 2032 767,962
11,407,660 Ser. 216, IO, 1.589s, 2032 2,695,060
3,799,300 Ser. 2448, Class SM, IO, 1.315s, 2032 607,888
2,035,475 Ser. 2448, Class SE, IO, 0.74s, 2029 61,064
1,089,247 Ser. 2478, Class SY, IO, 0.654s, 2021 80,332
4,697,172 Ser. 2579, Class GS, IO, 0.639s, 2017 507,594
1,193,586 Ser. 215, PO, zero %, 2031 1,024,620
1,111,303 Ser. 2235, PO, zero %, 2030 873,935
5 Ser. 2078, Class KC, PO, zero %, 2023 5
42,292,914 GMAC Commercial Mortgage Securities, Inc.
Ser. 99-C1, Class X, IO, 0.65s, 2033 1,288,612
Government National Mortgage Association
1,338,649 Ser. 02-36, Class SD, IO, 7.05s, 2029 31,793
5,521,950 Ser. 01-19, Class S, IO, 6.397s, 2031 496,976
4,412,062 Ser. 02-63, Class ST, IO, 1.066s, 2024 99,271
2,375,186 Ser. 02-51, Class SA, IO, 0.971s, 2032 145,099
3,716,012 Ser. 01-43, Class SJ, IO, 0.489s, 2029 227,792
6,040,930 Ser. 02-47, Class SM, IO, 0.363s, 2032 347,353
2,714,925 Ser. 01-43, Class SD, IO, 0.301s, 2028 65,012
819,648 Ser. 02-40, Class IB, IO, 0.207s, 2028 19,595
3,430,357 Ser. 02-29, Class SX, IO, 0.171s, 2029 163,477
492,163 Ser. 98-2, Class EA, PO, zero %, 2028 412,725
Granite Mortgages PLC
EUR 2,005,000 Ser. 03-2, Class 2C1, 5.2s, 2010 (United Kingdom) 2,229,350
GBP 1,505,000 FRN Ser. 03-2, Class 3C, 4.956s, 2043 (United Kingdom) 2,419,137
$11,743,884 Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2,
IO, 9.1s, 2028 833,323
4,436,110 Merrill Lynch Mortgage Trust 144A Ser. 02-MW1,
Class XP, IO, 1.86s, 2034 323,004
9,213,764 Mortgage Capital Funding, Inc. Ser. 97-MC2,
Class X, IO, 8.05s, 2012 375,020
4,457 Prudential Home Mortgage Securities Ser. 93-57,
Class A4, 5.9s, 2023 4,450
626,672 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 656,830
234,055 Sasco Arc Net Interest Margin Notes Ser. 02-BC10,
Class A, 7 3/4s, 2033 231,928
1,192,568 Sasco Arc Net Interest Margin Notes 144A
Ser. 03-AM1, Class A, 7 3/4s, 2033 1,186,754
386,570 Sasco Net Interest Margin Trust 144A Ser. 03-BC1,
Class B, zero %, 2033 276,820
Starwood Asset Receivables Trust 144A
270,000 FRB Ser. 03-1A, Class F, 2.2s, 2022 270,162
340,000 FRB Ser. 03-1A, Class E, 2.15s, 2022 340,204
355,000 FRB Ser. 03-1A, Class A2, 1.45s, 2022 355,213
552,000 Structured Asset Securities Corp. FRN Ser. 02-HF2,
Class M3, 3.1s, 2032 469,502
4,075,000 Washington Mutual Ser. 03-S1, Class A11, IO,
5 1/2s, 2033 834,102
-------------
Total Collateralized mortgage obligations (cost $82,816,533) $82,666,183
Asset-backed securities (6.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------------------------------------------
Ameriquest Mortgage Securities, Inc.
$231,000 FRN Ser. 03-AR3, Class M5, 4.85s, 2033 $218,891
585,000 FRN Ser. 03-1, Class M4, 4.18s, 2033 481,406
Amortizing Residential Collateral Trust
31,442,727 Ser. 02-BC1, Class A, IO, 6s, 2005 1,295,342
115,000 FRB Ser. 03-8, 4.866s, 2011 96,094
541,000 FRN Ser. 02-BC5, Class B, 3.35s, 2032 469,275
438,000 FRN Ser. 02-BC7, Class B3, 3.1s, 2032 375,157
888,478 AQ Finance NIM Trust Ser. 03-N1, Class Note, 9.37s, 2033 888,458
1,676,066 AQ Finance NIM Trust 144A Ser. 03-N2, Class Note, 9.3s, 2033 1,673,447
560,970 Arc Net Interest Margin Trust 144A Ser. 02-8A,
Class A1, 7 3/4s, 2032 556,348
250,000 Argent Securities, Inc. FRB Ser. 03-1, 4.87s, 2033 196,819
Asset Backed Funding Certificates
185,000 FRB Ser. 03-WF1, Class M4, 4.35s, 2032 168,545
607,000 FRB Ser. 03-WF1, Class M3, 4.15s, 2032 607,000
156,347 Asset Backed Funding Corp. NIM Trust Ser. 02-WF1, 9.32s, 2032 156,347
249,504 Asset Backed Funding Corp. NIM Trust 144A
Ser. 03-WF1, Class N1, 8.35s, 2032 249,504
222,000 Asset Backed Securities Corp. FRB Ser. 03-HE5, 5.366s, 2033 193,032
Asset Backed Securities Corp. Home Equity Loan Trust
350,000 FRB Ser. 02-HE3, Class M4, 4.11s, 2032 304,951
546,000 FRN Ser. 03-HE3, Class M5, 5.11s, 2033 474,702
1,125,000 FRN Ser. 03-HE2, Class M4, 4.96s, 2033 1,105,637
2,571,000 Bank One Issuance Trust FRN Ser. 02-C1, Class C1, 2.07s, 2009 2,555,634
Bayview Financial Acquisition Trust
1,390,000 Ser. 02-CA, Class A, IO, 7.15s, 2004 68,197
1,063,936 FRN Ser. 01-DA, Class M3, 2 1/2s, 2031 1,053,297
CDC Mortgage Capital Trust
358,000 FRB Ser. 03-HE3, Class B3, 1s, 2033 295,604
450,000 FRN Ser. 03-HE2, Class B3, 4.85s, 2033 379,296
Chase Funding Net Interest Margin
41,590 Ser. 02-1, Class Note, 8 1/2s, 2035 41,407
337,659 Ser. 02-2, 8 1/2s, 2035 337,220
1,092,000 Ser. 03-4, 6 3/4s, 2036 1,090,799
Chase Funding Net Interest Margin 144A
717,617 Ser. 03-2A, Class Note, 8 3/4s, 2035 714,890
313,560 Ser. 03-1A, Class Note, 8 3/4s, 2004 313,748
Conseco Finance Securitizations Corp.
1,436,000 Ser. 01-4, Class B1, 9.4s, 2010 502,600
346,000 Ser. 00-2, Class A4, 8.48s, 2021 360,492
6,061,000 Ser. 00-4, Class A6, 8.31s, 2032 5,127,604
1,535,000 Ser. 00-6, Class M2, 8.2s, 2032 767,500
400,000 Ser. 01-3, Class M2, 7.44s, 2033 132,000
32,000 Ser. 01-4, Class A4, 7.36s, 2019 29,230
692,000 Ser. 01-3, Class A4, 6.91s, 2033 613,102
4,297,606 Ser. 02-1, Class A, 6.681s, 2032 4,203,195
18,000 Ser. 01-3, Class A3, 5.79s, 2024 17,415
1,100,000 Consumer Credit Reference IDX Securities FRB
Ser. 02-1A, Class A, 3.03s, 2007 1,086,602
237,000 First Franklin Mortgage Loan Asset Backed
Certificates Ser. 03-FF3, 4.1s, 2033 222,015
973,401 First Plus 144A Ser. 98-A, Class A, 8 1/2s, 2023 700,848
Green Tree Financial Corp.
1,739,000 Ser. 99-5, Class A5, 7.86s, 2031 1,480,897
385,000 Ser. 95-F, Class B2, 7.1s, 2021 355,403
239,000 Ser. 99-3, 6.16s, 2031 242,734
Greenpoint Manufactured Housing
3,019,016 Ser. 00-3, Class IA, 8.45s, 2031 2,958,636
50,000 Ser. 99-5, Class A4, 7.59s, 2028 50,000
GSAMP Trust
236,778 Ser. 02-HE2N, Class Note, 8 1/4s, 2032 236,778
299,000 FRB Ser. 03-FM1, Class B3, 5.6s, 2033 266,858
228,146 Home Equity Asset Trust Ser. 02-1N, Class A, 8s, 2032 224,154
1,116,903 Home Equity Asset Trust 144A Ser. 02-5N, Class A, 8s, 2033 1,094,565
480,000 LBAHC Ser. 03-4, 6.535s, 2033 480,000
1,755,000 LNR CDO, Ltd. Ser. 02-1A, Class FFL, 3.85s, 2037 1,620,567
1,070,000 LNR CDO, Ltd. 144A FRB Ser. 03-1A, Class EFL,
4.119s, 2036 (Cayman Islands) 1,070,000
965,494 Long Beach Asset Holdings Corp. 144A Ser. 03-2,
Class N1, 7.627s, 2033 965,192
588,000 Long Beach Mortgage Loan Trust FRN Ser. 03-3,
Class M4, 4.6s, 2033 479,955
1,457,253 Madison Avenue Manufactured Housing Contract FRN
Ser. 02-A, Class B1, 4.35s, 2032 947,214
Mastr Asset Backed Securities Trust
191,000 FRB Ser. 03-NC1, Class M6, 5.12s, 2033 157,336
287,000 FRB Ser. 03-OPT1, Class MV5, 4.6s, 2032 253,446
736,000 FRN Ser. 03-OPT2, Class M5, 4.85s, 2033 647,910
957,000 Merrill Lynch Mortgage Investors, Inc. FRB
Ser. 03-WMC1, Class B2, 4.1s, 2033 818,235
Mid-State Trust
638,046 Ser. 11, Class B, 8.221s, 2038 591,937
786,421 Ser. 10, Class B, 7.54s, 2036 683,664
Morgan Stanley Capital I
495,000 FRB Ser. 02-NC6, Class B2, 4.85s, 2032 429,610
560,000 FRN Ser. 03-NC6, Class B3, 4.85s, 2033 459,903
Morgan Stanley Dean Witter Capital I
2,318,000 FRN Ser. 01-NC4, Class B1, 3.6s, 2032 2,165,717
545,000 FRN Ser. 01-NC3, Class B1, 3.55s, 2031 512,398
890,000 FRN Ser. 02-AM2, Class B1, 3.35s, 2032 786,254
Morgan Stanley Dean Witter Capital I 144A
22,589 Ser. 01-AM1N, Class Note, 12 3/4s, 2032 22,589
239,994 Ser. 01-NC4N, Class Note, 8 1/2s, 2032 239,707
560,000 New Century Home Equity Loan Trust FRN Ser. 03-2,
Class M4, 4.7s, 2033 477,400
51,916 NovaStar Caps Trust Ser. 02-C1, Class A, 7.15s, 2031 151,916
527,000 Option One Mortgage Loan Trust FRN Ser. 03-3,
Class M6, 4.6s, 2033 465,510
414,791 Option One Mortgage Securities Corp. Ser. 02-2A,
Class CFTS, 8.83s, 2032 414,791
Option One Mortgage Securities Corp. 144A
289,000 Ser. 03-5, 6.9s, 2033 289,000
361,654 Ser. 02-1, Class CTFS, 6 3/4s, 2032 360,126
381,721 Option One Mortgage Securities Corp. NIM Trust
144A Ser. 03-2B, Class N1, 7.63s, 2033
(Cayman Islands) 381,602
1,537,496 Pass-Through Amortizing Credit Card Trust
Ser. 02-1A, Class A4FL, 6.601s, 2012 1,531,915
6,414,344 Residential Asset Mortgage Products, Inc.
Ser. 03-RZ1, Class A, IO, 5 3/4s, 2005 448,002
Sasco Arc Net Interest Margin Notes 144A
1,211,291 Ser. 03-BC2A, Class A, 7 3/4s, 2033 1,207,771
675,571 Ser. 03-3, Class A, 7 3/4s, 2033 672,180
246,629 Ser. 03-4, Class A, 7 1/2s, 2033 246,370
1,263,158 Ser. 03-5, Class A, 7.35s, 2033 1,262,789
200,000 SCF III Class A2, 2.316s, 2038 200,000
233,000 SHARP 144A Ser. 03-TC1N, 7 3/4s, 2033 233,000
Structured Asset Investment Loan Trust
1,318,441 Ser. 03-BC1A, Class A, 7 3/4s, 2033 1,312,034
193,000 Ser. 03-BC2, Class B, 7s, 2033 182,715
15,576,000 Ser. 03-BC2, Class A, IO, 6s, 2005 957,206
1,332,000 Ser. 03-BC1, Class M3, 4.1s, 2033 1,320,137
514,000 FRN Ser. 03-BC3, Class B, 4.6s, 2033 470,471
544,000 TIAA Commercial Real Estate Securitization
Ser. 02-1A, Class IV, 6.84s, 2037 443,863
-------------
Total Asset-backed securities (cost $67,763,418) $63,394,107
Brady bonds (1.8%) (a)
Principal amount Value
-------------------------------------------------------------------------------------------------------------------
$4,710,000 Argentina (Republic of) govt. guaranty Ser. L-GP,
6s, 2023 (In default) (NON) $2,260,800
628,019 Brazil (Federal Republic of) bonds 8s, 2014 541,666
1,610,000 Brazil (Federal Republic of) govt. guaranty FRB
Ser. RG, 2.188s, 2012 1,227,625
2,376,000 Peru (Republic of) bonds Ser. PDI, 5s, 2017 2,007,720
1,020,000 Peru (Republic of) coll. FLIRB 4 1/2s, 2017
(acquired various dates from 5/14/02 to 8/23/02,
cost $679,294) (RES) 793,050
4,615,000 Peru (Republic of) coll. FLIRB Ser. 20YR, 4 1/2s, 2017 3,588,163
7,928,571 Venezuela (Republic of) FRB 1 7/8s, 2007 6,967,629
-------------
Total Brady bonds (cost $15,977,570) $17,386,653
Preferred stocks (1.3%) (a)
Number of shares Value
-------------------------------------------------------------------------------------------------------------------
20,475 Chevy Chase Preferred Capital Corp. Ser. A, $5.188 pfd. $1,144,348
3,805 Chevy Chase Savings Bank, Inc. $3.25 pfd. 103,686
28,919 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. 3,000,346
69,460 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 695
20,000 Doane Pet Care Co. $7.125 pfd. 800,000
1,192 Dobson Communications Corp. 13.00% pfd. (PIK) 1,209,880
658 Dobson Communications Corp. 12.25% pfd. (PIK) 658,090
540 First Republic Capital Corp. 144A 10.50% pfd. 567,000
69 Leiner Health Products Ser. C, zero % pfd. 1
22,867 Lodgian, Inc. Ser. A, $7.06 cum. pfd. (PIK) 445,677
196 Metrocall Holdings, Inc. Ser. A, 15.00% cum. pfd. 2,156
5,003 Microcell Telecommunications, Inc. zero % pfd. (Canada) 43,528
1,188 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 1,283,040
1,807 North Atlantic Trading Co. 12.00% pfd. (PIK) 32,526
20 NTL Europe, Inc. Ser. A, zero % cum. pfd. 70
182 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 1,783,600
1,687 Rural Cellular Corp. 12.25% pfd. (PIK) 894,110
-------------
Total Preferred stocks (cost $13,442,671) $11,968,753
Common stocks (1.1%) (a)
Number of shares Value
Basic Materials (--%)
-------------------------------------------------------------------------------------------------------------------
39,407 Pioneer Cos., Inc. (NON) $124,132
6,814 Polymer Group, Inc. Class A (NON) 58,873
368 Sterling Chemicals, Inc. (NON) 5,152
-------------
188,157
Capital Goods (0.1%)
-------------------------------------------------------------------------------------------------------------------
70,373 Laidlaw International Inc (NON) 728,361
Communication Services (--%)
-------------------------------------------------------------------------------------------------------------------
4,883 Birch Telecom, Inc. (NON) 16,895
21,241 Covad Communications Group, Inc. (NON) 25,277
48,165 Globix Corp. (NON) 139,679
228 Metrocall Holdings, Inc. (NON) 29,640
41 Microcell Telecommunications, Inc. Class A (Canada) (NON) 335
4,973 Microcell Telecommunications, Inc. Class B (Canada) (NON) 38,852
348 WilTel Communications, Inc. (NON) 4,406
-------------
255,084
Consumer Cyclicals (0.5%)
-------------------------------------------------------------------------------------------------------------------
27,093 Lodgian, Inc. (NON) 132,214
160,000 Loewen Group International, Inc. (NON) 16
1,250,000 Morrison Knudsen Corp. (NON) 109,375
234 Quorum Broadcast Holdings, Inc. Class E (acquired
5/15/01, cost $1,056,491) (RES) (NON) 125,055
236,020 Regal Entertainment Group 144A 3,919,112
39,603 Safety Components International, Inc. (NON) 336,626
3,068 Washington Group International, Inc. (NON) 70,595
-------------
4,692,993
Consumer Staples (0.5%)
-------------------------------------------------------------------------------------------------------------------
2,452 Archibald Candy Corp. (NON) 6,988
19,924 Aurora Foods, Inc. (NON) 2,750
1,186 Premium Holdings (LP) 144A (NON) 24,900
2,502 PSF Group Holdings, Inc. 144A Class A (NON) 4,379,340
1,292,248 VFB LLC 245,527
-------------
4,659,505
Energy (--%)
-------------------------------------------------------------------------------------------------------------------
2,319 York Research Corp. 144A (NON) 145
Financial (--%)
-------------------------------------------------------------------------------------------------------------------
1,005,000 AMRESCO Creditor Trust (NON) (R) 89,445
3,390,037 Contifinancial Corp. Liquidating Trust Units 33,900
-------------
123,345
Health Care (--%)
-------------------------------------------------------------------------------------------------------------------
3,074 Alderwoods Group, Inc. (NON) 20,869
3,058 Genesis Health Ventures, Inc. (NON) 64,983
2,359 Mariner Health Care, Inc. (NON) 17,693
1,971 Mediq, Inc. (NON) 197
1,195 Sun Healthcare Group, Inc. (NON) 3,167
-------------
106,909
Technology (--%)
-------------------------------------------------------------------------------------------------------------------
638 Comdisco Holding Co., Inc. 60,610
Utilities (--%)
-------------------------------------------------------------------------------------------------------------------
11,334 Jasper Energy 144A (NON) 708
-------------
Total Common stocks (cost $27,111,734) $10,815,817
Convertible bonds and notes (0.5%) (a)
Principal amount Value
-------------------------------------------------------------------------------------------------------------------
$155,000 AES Corp. (The) cv. sub. notes 4 1/2s, 2005 $140,275
1,235,000 American Tower Corp. cv. notes 5s, 2010 1,114,588
280,000 Amkor Technologies, Inc. cv. notes 5 3/4s, 2006 264,600
325,000 CenterPoint Energy, Inc. 144A cv. sr. notes 3 3/4s, 2023 317,281
3,080,000 Cybernet Internet Services International, Inc.
144A cv. sr. disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In default) (NON) (STP) 3,080
690,000 DaVita, Inc. cv. sub. notes 7s, 2009 714,150
380,000 Kulicke & Soffa Industries, Inc. cv. sub. notes 4 3/4s, 2006 316,350
26,000 Millicom International Cellular SA
144A cv. bonds 2s, 2006 (Luxembourg) (PIK) 52,000
1,955,000 Nextel Communications, Inc. cv. sr. notes 6s, 2011 2,084,519
150,000 Rogers Communications, Inc. cv. debs. 2s, 2005 (Canada) 134,250
-------------
Total Convertible bonds and notes (cost $7,131,339) $5,141,093
Convertible preferred stocks (0.2%) (a)
Number of shares Value
-------------------------------------------------------------------------------------------------------------------
2,821 Knology, Inc. 144A Ser. D, zero % cv. pfd. $28
6,800 LTV Corp. 144A $4.125 cv. pfd. (In default) (NON) 68
7,495 Omnicare, Inc. $2.00 cv. pfd. 410,351
81 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 696,600
9,916 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 9,916
9,530 Williams Cos., Inc. (The) 144A $2.75 cv. pfd. 449,101
1,503 XCL, Ltd. 144A Ser. A, 9.5--% cum. cv. pfd. (In default) (NON) (PIK) 752
-------------
Total Convertible preferred stocks (cost $2,020,693) $1,566,816
Units (0.1%) (a)
Number of units Value
-------------------------------------------------------------------------------------------------------------------
1,654 HMP Equity Holdings Corp. units zero %, 2008 $810,460
912 XCL Equity units zero % 127,999
960 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 288,000
7,615 XCL, Ltd. 144A units cum. cv. pfd. zero
% (In default) (NON) (PIK) 3,808
-------------
Total Units (cost $2,525,934) $1,230,267
Warrants (--%) (a) (NON) Expiration
Number of warrants Date Value
-------------------------------------------------------------------------------------------------------------------
1,360 American Tower Corp. Class A 8/1/08 $149,600
1,420 Dayton Superior Corp. 144A 6/15/09 355
2,919 Diva Systems Corp. 144A 5/15/06 29
4 Doe Run Resources Corp. 144A 12/31/12 1
395 MDP Acquisitions PLC 144A (Ireland) 10/1/13 988
3,079 Microcell Telecommunications (Canada) 5/1/08 1,815
1,847 Microcell Telecommunications (Canada) 5/1/05 603
550 Mikohn Gaming Corp. 144A 8/15/08 6
560 ONO Finance PLC 144A (United Kingdom) 2/15/11 1
570 Pliant Corp. 144A 6/1/10 285
682 Solutia, Inc. 144A 7/15/09 341
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) (Rights) 6/30/04 20,621
1,650,000 United Mexican States Ser. C (Mexico) (Rights) 6/30/05 4,125
1,650,000 United Mexican States Ser. D (Mexico) (Rights) 6/30/06 1,650
1,650,000 United Mexican States Ser. E (Mexico) (Rights) 6/30/07 825
50 Versatel Telecom NV (Netherlands) 5/15/08 1
1,895 Washington Group International, Inc. Ser. A 1/25/06 5,969
2,165 Washington Group International, Inc. Ser. B 1/25/06 4,980
1,170 Washington Group International, Inc. Ser. C 1/25/06 2,574
800 XM Satellite Radio Holdings, Inc. 144A 3/15/10 8
-------------
Total Warrants (cost $987,703) $201,679
Short-term investments (3.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------------------------------------------
$30,943,000 Interest in $513,000,000 joint tri-party
repurchase agreement dated July 31, 2003 with UBS
Securities, LLC due August 1, 2003 with respect
to various U.S. Government obligations -- maturity
value of $30,943,954 for an effective yield of 1.11% $30,943,000
65,249 Short-term investments held as collateral for loaned
securities with yields ranging from 0.91% to 1.23%
and due dates ranging from August 1, 2003 to
September 19, 2003 (d) 65,225
1,781,000 U.S. Treasury Bills zero %, November 6, 2003 (SEG) 1,775,734
-------------
Total Short-term investments (cost $32,783,959) $32,783,959
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $999,069,587) $973,376,997
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $952,729,532.
(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 July 31, 2003 was
$25,763,001 or 2.7% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at July 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 July 31, 2003.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at July 31, 2003: (as a percentage of Market Value)
Austria 0.7%
Brazil 0.5
Bulgaria 0.6
Canada 3.2
Cayman Islands 0.5
Colombia 0.9
France 1.7
Germany 0.8
Luxembourg 0.6
Malaysia 0.7
Mexico 0.8
New Zealand 1.3
Peru 0.7
Russia 1.5
South Africa 0.5
Sweden 1.3
United Kingdom 2.9
United States 74.4
Venezuela 0.9
Other 5.5
-------
Total 100.0%
Forward currency contracts to buy at July 31, 2003
(aggregate face value $92,059,711)
Market Aggregate Delivery Unrealized
value face value date depreciation
------------------------------------------------------------------------------
Australian Dollars $29,173,043 $29,531,883 9/17/03 $(358,840)
British Pounds 13,487,836 13,766,551 9/17/03 (278,715)
Canadian Dollars 9,678,038 9,895,217 9/17/03 (217,179)
Danish Krone 1,393,184 1,469,696 9/17/03 (76,512)
Euro 2,946,988 2,999,977 9/17/03 (52,989)
Japanese Yen 29,667,914 30,158,742 9/17/03 (490,828)
Swiss Francs 598,074 625,524 9/17/03 (27,450)
Taiwan Dollars 3,602,460 3,612,121 9/17/03 (9,661)
------------------------------------------------------------------------------
$(1,512,174)
------------------------------------------------------------------------------
Forward currency contracts to sell at July 31, 2003
(aggregate face value $97,705,074)
Unrealized
Market Aggregate Delivery appreciation/
value face value date (depreciation)
------------------------------------------------------------------------------
Australian Dollars $1,342,898 $1,406,599 9/17/03 $63,701
British Pounds 12,609,120 12,800,448 9/17/03 191,328
Canadian Dollars 10,542,071 10,731,868 9/17/03 189,797
Euro 40,415,264 41,197,335 9/17/03 782,071
Japanese Yen 7,090,264 7,161,905 9/17/03 71,641
New Zealand
Dollars 12,552,784 12,452,726 9/17/03 (100,058)
Swedish Krona 11,285,620 11,954,193 9/17/03 668,573
------------------------------------------------------------------------------
$1,867,053
------------------------------------------------------------------------------
Futures contracts outstanding at July 31, 2003
Unrealized
Market Aggregate Expiration appreciation/
value face value date (depreciation)
------------------------------------------------------------------------------
CBT Interest Rate Swap
10yr (Long) $2,453,094 $2,769,082 Sep-03 $(315,988)
Euro 90 day (Long) 46,011,950 46,272,684 Sep-06 (260,734)
Euro 90 day (Long) 43,988,375 44,348,536 Jun-06 (360,161)
Euro 90 day
(Short) 47,382,075 47,558,736 Sep-04 176,661
Euro 90 day
(Short) 45,371,250 45,533,381 Jun-04 162,131
Euro Bobl (Long) 21,043,178 21,539,367 Sep-03 (496,189)
Euro Bund (Long) 30,021,169 31,075,704 Sep-03 (1,054,535)
Japanese
Government Bond
10yr-TSE (Long) 7,061,898 7,206,793 Sep-03 (144,895)
Japanese
Government Bond
Mini 10yr-SIMEX
(Long) 9,656,024 9,845,681 Sep-03 (189,657)
U.S. Treasury Bond
(Long) 47,848,125 53,342,675 Sep-03 (5,494,550)
U.S. Treasury Note
5yr (Short) 37,740,234 39,070,957 Sep-03 1,330,723
U.S. Treasury Note
10yr (Long) 26,550,000 27,877,888 Sep-03 (1,327,888)
U.S. Treasury Note
10yr (Short) 25,775,625 27,385,776 Sep-03 1,610,151
------------------------------------------------------------------------------
$(6,364,931)
------------------------------------------------------------------------------
Credit default contracts outstanding at July 31, 2003
(premiums received $115,918)
Notional Market
amount value
------------------------------------------------------------------------------
Agreement with Deutsche Bank effective
July 17, 2003,
maturing on
September 20,
2008 to receive a
premium equal to
9.795% times the
notional amount.
Upon a credit
default event of
Petroleos
Mexicanos, 6.125%
due 8/15/08 the
fund makes a
payment of the
proportional
notional amount
times the
difference
between the par
value and the
then-market value
of Petroleos
Mexicanos 6.125%,
2008. $585,000 $59,512
------------------------------------------------------------------------------
Agreement with Lehman Brothers Special
Financing, Inc.
effective July 17,
2003, maturing on
September 20,
2008 to receive a
premium equal to
10.02% times the
notional amount.
Upon a credit
default event of
Petroleos
Mexicanos, 9.50%
due 9/15/27 the
fund makes a
payment of the
proportional
notional amount
times the
difference
between the par
value and the
then-market value
of Petroleos
Mexicanos 9.50%,
2027. 585,000 59,103
------------------------------------------------------------------------------
$118,615
------------------------------------------------------------------------------
TBA sale commitments outstanding at July 31, 2003
(proceeds receivable $10,689,332)
Principal Settlement Market
Agency amount date value
------------------------------------------------------------------------------
FNMA, 5s, August 1, 2033 $10,099,000 8/13/03 $9,654,038
GNMA, 5s, August 1, 2033 649,000 8/20/03 622,028
------------------------------------------------------------------------------
$10,276,066
------------------------------------------------------------------------------
Swap contracts outstanding at July 31, 2003
Unrealized
Notional Termination appreciation/
amount date (depreciation)
------------------------------------------------------------------------------
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 $882,723
------------------------------------------------------------------------------
Agreement with Merrill Lynch
Capital Services,
Inc. dated
September 27,
2002 to receive
semi-annually the
notional amount
multiplied by the
six month
JPY-LIBOR-BBA and
pay monthly the
notional amount
multiplied by
0.399%. JPY 3,417,000,000 10/1/07 445,708
------------------------------------------------------------------------------
Agreement with Goldman Sachs
Capital Markets,
L.P. dated
February 12, 2003
to receive
quarterly the
notional amount
multiplied by the
three month
USD-LIBOR-BBA and
pay semi-annually
the notional
amount multiplied
by 1.59%. $54,000,000 2/14/05 (118,800)
------------------------------------------------------------------------------
Agreement with Goldman Sachs
Capital Markets,
L.P. dated
February 12, 2003
to pay quarterly
the notional
amount multiplied
by the three
month CAD-BA-CDOR
and receive
semi-annually the
notional amount
multiplied by
3.5076%. CAD 82,485,000 2/14/05 (704,739)
------------------------------------------------------------------------------
$504,892
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
July 31, 2003
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value, including $49,338 of securities on loan
(identified cost $999,069,587) (Note 1) $973,376,997
-------------------------------------------------------------------------------------------
Cash 1,847,186
-------------------------------------------------------------------------------------------
Foreign currency (cost $2,444,564) (Note 1) 2,356,186
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 17,770,290
-------------------------------------------------------------------------------------------
Receivable for securities sold 18,069,692
-------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 1,328,431
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 1,977,536
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 722,230
-------------------------------------------------------------------------------------------
Total assets 1,017,448,548
Liabilities
-------------------------------------------------------------------------------------------
Payable for variation margin (Note 1) 1,200,728
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,497,253
-------------------------------------------------------------------------------------------
Payable for securities purchased 43,086,158
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,721,315
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 153,256
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 81,905
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 889
-------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 65,225
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 1,622,657
-------------------------------------------------------------------------------------------
Credit default contracts outstanding, at value (premiums
received $115,918) (Note 1) 118,615
-------------------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 823,539
-------------------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable $10,689,332)
(Note 1) 10,276,066
-------------------------------------------------------------------------------------------
Other accrued expenses 71,410
-------------------------------------------------------------------------------------------
Total liabilities 64,719,016
-------------------------------------------------------------------------------------------
Net assets $952,729,532
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $1,206,682,449
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 11,156,565
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (234,858,984)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (30,250,498)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $952,729,532
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value per share ($952,729,532 divided by 141,198,870
shares) $6.75
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended July 31, 2003
Investment income:
-------------------------------------------------------------------------------------------
Interest $75,630,882
-------------------------------------------------------------------------------------------
Dividends 4,528,808
-------------------------------------------------------------------------------------------
Securities lending 3,776
-------------------------------------------------------------------------------------------
Total investment income 80,163,466
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,446,466
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 894,641
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 24,557
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 13,497
-------------------------------------------------------------------------------------------
Other 376,864
-------------------------------------------------------------------------------------------
Total expenses 7,756,025
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (46,318)
-------------------------------------------------------------------------------------------
Net expenses 7,709,707
-------------------------------------------------------------------------------------------
Net investment income 72,453,759
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (15,190,436)
-------------------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 950,182
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 788,006
-------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 1,939,878
-------------------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 218,473
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in foreign
currencies during the year 608,424
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts, swap contracts,
credit default contracts and TBA sale commitments during the
year 84,784,574
-------------------------------------------------------------------------------------------
Net gain on investments 74,099,101
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $146,552,860
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended July 31
Increase (decrease) in net assets 2003 2002
-------------------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------
Net investment income $72,453,759 $77,407,229
-------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (11,293,897) (55,420,916)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and
assets and liabilities in foreign currencies 85,392,998 (10,330,603)
-------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 146,552,860 11,655,710
-------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
From net investment income (72,810,386) (74,641,521)
-------------------------------------------------------------------------------------------------------
From return of capital -- (1,490,807)
-------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in connection
with reinvestment of distributions 1,338,341 --
-------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 75,080,815 (64,476,618)
Net assets
-------------------------------------------------------------------------------------------------------
Beginning of year 877,648,717 942,125,335
-------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income and
distributions in excess of net investment income of $11,156,565
and 9,613,815, respectively) $952,729,532 $877,648,717
-------------------------------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 140,989,259 140,989,259
-------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of
distributions 209,611 --
-------------------------------------------------------------------------------------------------------
Shares outstanding at end of year 141,198,870 140,989,259
-------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended July 31
operating performance 2003 2002 2001 2000 1999
------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.22 $6.68 $7.19 $7.62 $8.71
------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------
Net investment income (a) .51 .55 .61 .63 .64
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .54 (.47) (.50) (.39) (.99)
------------------------------------------------------------------------------------------------
Total from
investment operations 1.05 .08 .11 .24 (.35)
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.52) (.53) (.51) (.67) (.62)
------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- -- (.12)
------------------------------------------------------------------------------------------------
From return
of capital -- (.01) (.11) -- --
------------------------------------------------------------------------------------------------
Total distributions (.52) (.54) (.62) (.67) (.74)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.75 $6.22 $6.68 $7.19 $7.62
------------------------------------------------------------------------------------------------
Market price,
end of period $6.31 $6.03 $6.29 $6.38 $7.19
------------------------------------------------------------------------------------------------
Total return at
market price (%)(b) 13.41 4.44 8.56 (1.51) (7.24)
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $952,730 $877,649 $942,125 $1,013,487 $1,073,980
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .85 .86 .85 .83 .86
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.91 8.39 8.87 8.48 8.05
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 96.21(d) 175.78 (d) 231.58 133.80 165.79
------------------------------------------------------------------------------------------------
(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
July 31, 2003
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, the high yield sector
and the international sector of the fixed-income securities market.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The fund invests in higher yielding, lower rated bonds that
have a higher rate of default due to the nature of the investments. 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 the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at market value on the
basis of valuations furnished by an independent pricing service or
dealers, approved by the Trustees. Such services or dealers determine
valuations for normal institutional-size trading units of such
securities using methods based on market transactions for comparable
securities and various 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 fair
value. Other investments, including restricted securities, are valued at
fair value following procedures approved by the Trustees. Such
valuations and procedures are reviewed periodically 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 recorded 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
recognized on the ex-dividend. 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 earned 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 buy and sell 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 and the broker
agree to exchange 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.
Futures and written option contracts outstanding at period end are
listed after The fund's portfolio.
H) Total return swap contracts The fund may enter into total return swap
contracts, 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 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 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 enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap 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 made or received
are recognized as part of interest income. A portion of the payments
received or made upon early termination are recognized 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 enter into 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 recognized,
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 counterparty 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) 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 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 agents, 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 the fund's agents; 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 July 31, 2003, the value of
securities loaned amounted to $49,338. The fund received cash collateral
of $65,225, which is pooled with collateral of other Putnam funds into
30 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, 2003, the fund had a capital loss carryover of $234,718,499
available to the extent allowed by tax law to offset future net capital
gains, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
--------------------------------
$39,893,260 July 31, 2007
44,857,570 July 31, 2008
24,930,247 July 31, 2009
44,917,486 July 31, 2010
80,119,936 July 31, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending July 31, 2004 $2,541,873 of losses recognized during the period
November 1, 2002 to July 31, 2003.
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. These differences include temporary and permanent
differences of losses on wash sale transactions, post-October loss
deferrals, dividends payable, defaulted bond interest, realized and
unrealized gains and losses on certain futures contracts, market
discount and interest on payment-in-kind securities. 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. For the year ended July 31, 2003, the fund
reclassified $21,127,007 to decrease distributions in excess of net
investment income and $123,243 to increase paid-in-capital, with an
increase to accumulated net realized losses of $21,250,250.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $52,218,623
Unrealized depreciation (81,715,125)
--------------
Net unrealized depreciation (29,496,502)
Undistributed ordinary income 21,457,186
Capital loss carryforward (234,718,499)
Post-October loss (2,541,873)
Cost for federal income
tax purposes $1,002,873,499
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services 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% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam, 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 year ended July 31, 2003, the
fund's expenses were reduced by $46,318 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 year ended July 31, 2003, cost of purchases and proceeds from
sales of investment securities other than U.S. government obligations
and short-term investments aggregated $397,201,340 and $383,807,567,
respectively. Purchases and sales of U.S. government obligations
aggregated $594,058,519 and $610,912,132, respectively.
Federal tax information
(Unaudited)
The fund has designated 4.18% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended July 31, 2003, the fund hereby designates 1.92%,
or the maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2004 will show the tax status of
all distributions paid to your account in calendar 2003.
Results of June 12, 2003
shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on June 12, 2003.
At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
---------------------------------------------------------------------------
Jameson Adkins Baxter 129,842,715 2,493,906
Charles B. Curtis 129,864,407 2,472,214
John A. Hill 129,885,192 2,451,429
Ronald J. Jackson 129,943,400 2,393,221
Paul L. Joskow 129,910,820 2,425,801
Elizabeth T. Kennan 129,841,038 2,495,583
Lawrence J. Lasser 129,892,082 2,444,539
John H. Mullin, III 129,867,947 2,468,674
Robert E. Patterson 129,921,601 2,415,020
George Putnam, III 129,895,032 2,441,589
A.J.C. Smith 129,979,420 2,357,201
W. Thomas Stephens 129,968,839 2,367,782
W. Nicholas Thorndike 129,779,344 2,557,277
All tabulations are rounded to nearest whole number.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
President, Baxter Associates, Inc. (a consulting and private investments firm)
Director of ASHTA Chemicals, Inc., Banta Corporation (a printing and
digital imaging firm), Ryerson Tull, Inc. (a steel service corporation),
Advocate Health Care, and the National Center for Nonprofit Boards.
Chairman Emeritus of the Board of Trustees, Mount Holyoke College. Until
2002, Mrs. Baxter was a director of Intermatic Corporation, a
manufacturer of energy control products. Also held various positions in
investment banking and corporate finance, including Vice President and
principal of the Regency Group and Vice President and consultant to
First Boston Corp.
Charles B. Curtis (4/27/40), Trustee since 2001
President and Chief Operating Officer, Nuclear Threat Initiative (a
private foundation dealing with national security issues), also serves
as Senior Advisor to the United Nations Foundation
Member of the Council on Foreign Relations and the Trustee Advisory
Council of the Applied Physics Laboratory at Johns Hopkins University.
Until 2003, Mr. Curtis was a member of the Electric Power Research
Institute Advisory Council, and the University of Chicago Board of
Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was
a member of the Board of Directors of the Gas Technology Institute and
the Board of Directors of the Environment and Natural Resources Program
Steering Committee, John F. Kennedy School of Government, Harvard
University. Until 2001, Mr. Curtis was a Member of the Department of
Defense's Policy Board and Director of EG&G Technical Services, Inc.
(fossil energy research and development support). Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1987 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the Securities and Exchange Commission. Mr.
Curtis is also a lawyer with over 15 years of experience.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Vice-Chairman and Managing Director, First Reserve Corporation (a
registered investment advisor investing in companies in the world-wide
energy industry on behalf of institutional investors)
Director of Devon Energy Corporation (formerly known as Snyder Oil
Corporation), TransMontaigne Oil Company, Continuum Health Partners of
New York, Sarah Lawrence College, and various private compa nies owned
by First Reserve Corporation. Trustee of TH Lee, Putnam Investment Trust
(a closed-end investment company). Prior to acquiring First Reserve in
1983, Mr. Hill held executive positions with several advisory firms and
various positions with the federal government, including Associate
Director of the Office of Manage ment and Budget and Deputy Director of
the Federal Energy Administration.
Ronald J. Jackson (12/17/43), Trustee since 1996
Private investor
Former Chairman, President, and Chief Executive Officer of Fisher-Price,
Inc. (a toy manufacturer). Previously served as President and Chief
Executive Officer of Stride-Rite, Inc. and Kenner Parker Toys. Also held
financial and marketing positions with General Mills, Parker Brothers,
and Talbots. President of the Kathleen and Ronald J. Jackson Foundation
(charitable trust). Member of the Board of Overseers of WGBH (public
television and radio). Member of the Board of Overseers of the Peabody
Essex Museum.
Paul L. Joskow (6/30/47), Trustee since 1997
Elizabeth and James Killian Professor of Economics and Management and
Director of the Center for Energy and Environmental Policy Research,
Massachusetts Institute of Technology
Director, National Grid Transco (formerly National Grid Group, a
UK-based holding company with interests in electric and gas transmission
and distribution and telecommunications infrastructure), and the
Whitehead Institute for Biomedical Research (a non-profit research
institution). President of the Yale University Council. Prior to
February 2002, March 2000, and September 1998, Dr. Joskow was a Director
of State Farm Indemnity Company (an automobile insurance company),
Director of New England Electric System (a public utility holding
company) and a consultant to National Economic Research Associates,
respectively.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Chairman, Cambus-Kenneth Bloodstock (a limited liability company
involved in thoroughbred horse breeding and farming), President Emeritus
of Mount Holyoke College
Director, Northeast Utilities, and Talbots (a distributor of women's
apparel). Trustee of Centre College. Prior to 2001, Dr. Kennan was a
member of the Oversight Committee of Folger Shakespeare Library. Prior
to September 2000, June 2000, and November 1999, Dr. Kennan was a
Director of Chastain Real Estate, Bell Atlantic, and Kentucky Home Life
Insurance, respectively. Prior to 1995, Dr. Kennan was a Trustee of
Notre Dame University. For 12 years, she was on the faculty of Catholic
University.
John H. Mullin, III (6/15/41), Trustee since 1997
Chairman and CEO of Ridgeway Farm (a limited liability company engaged
in timber and farming)
Director Alex. Brown Realty, Inc., Sonoco Products, Inc. (a packaging
company), The Liberty Corporation (a company engaged in the broadcasting
industry), and Progress Energy, Inc. (a utility company, formerly known
as Carolina Power & Light). Trustee Emeritus of Washington & Lee
University. Prior to October 1997, January 1998, and May 2001, Mr.
Mullin was a Director of Dillon, Read & Co. Inc., The Ryland Group,
Inc., and Graphic Packaging International Corp., respectively.
Robert E. Patterson (3/15/45), Trustee since 1984
Senior Partner of Cabot Properties, L.P. and Chairman of Cabot
Properties, Inc.
Chairman of the Joslin Diabetes Center, Trustee of SEA Education
Association, and Director of Brandywine Trust Company (a trust company).
Prior to February 1998, Mr. Patterson was Executive Vice President and
Director of Acquisitions of Cabot Partners Limited Partnership. Prior to
December 2001, Mr. Patterson was President and Trustee of Cabot
Industrial Trust (publicly traded real estate investment trust). Prior
to 1990, Mr. Patterson was Executive Vice President of Cabot, Cabot &
Forbes Realty Advisors, the predecessor of Cabot Partners, and prior to
that was Senior Vice President of the Beal Companies.
W. Thomas Stephens (9/2/42), Trustee since 1997
Corporate Director
Director of Xcel Energy Incorporated (public utility company),
TransCanada Pipelines, Norske Canada, Inc. (paper manufacturer), and
Qwest Communications (communications company). Until 2003, Mr. Stephens
was a Director of Mail-Well, a printing and envelope company. Prior to
July 2001 and October 1999, Mr. Stephens was Chairman of Mail-Well and
MacMillan-Bloedel (forest products company). Prior to 1996, Mr. Stephens
was Chairman and Chief Executive Officer of Johns Manville.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Director of various corporations and charitable organizations, including
Courier Corporation (a book manufacturer and publisher) and Providence
Journal Co. (a newspaper publisher)
Trustee of Northeastern University and Honorary Trustee of Massachusetts
General Hospital. Prior to September 2000, April 2000, and December
2001, Mr. Thorndike was a Director of Bradley Real Estate, Inc., a
Trustee of Eastern Utilities Associates, and a Trustee of Cabot
Industrial Trust, respec tively. Previously served as Chairman of the
Board and managing partner of Wellington Management/Thorndike Doran
Paine & Lewis, and Chairman and Director of Ivest Fund.
Lawrence J. Lasser* (11/1/42), Trustee since 1992
President and Chief Executive Officer of Putnam Investments and Putnam
Management and Vice President since 1981
Director of Marsh & McLennan Companies, Inc. and the United Way of
Massachusetts Bay. Member of the Board of Governors of the Investment
Company Institute, Trustee of the Museum of Fine Arts, Boston, a Trustee
and Member of the Finance and Executive Committees of Beth Israel
Deaconess Medical Center, Boston, and a Member of the CareGroup Board of
Managers Investment Committee, the Council on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
President, New Generation Research, Inc. (a publisher of financial
advisory and other research services relating to bankrupt and distressed
companies) and New Generation Advisers, Inc. (a registered investment
adviser)
Director of The Boston Family Office, L.L.C. (registered investment
advisor), Trustee of St. Mark's School, and Trustee of Shore Country Day
School. Until 2002, Mr. Putnam was a Trustee of the SEA Education
Association. Previously, Mr. Putnam was an attorney with the firm of
Dechert Price & Rhoads.
A.J.C. Smith* (4/13/34), Trustee since 1986
Director of Marsh & McLennan Companies, Inc.
Director of Trident Corp. (a limited partnership with over 30
institutional investors). Trustee of the Carnegie Hall Society, the
Educational Broadcasting Corporation and the National Museums of
Scotland. Chairman of the Central Park Conservancy. Member of the Board
of Overseers of the Joan and Sanford I. Weill Graduate School of Medical
Sciences of Cornell University. Fellow of the Faculty of Actuaries in
Edinburgh, the Canadian Institute of Actuaries, and the Conference of
Actuaries. Associate of the Society of Actuaries. Member of the American
Actuaries, the International Actuarial Association and the International
Association of Consulting Actuaries. Prior to May 2000 and November
1999, Mr. Smith was Chairman and CEO, respectively, of Marsh & McLennan
Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of July 31, 2003, there were 104 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her resignation,
death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc., the parent
company of Putnam, LLC and its affiliated companies. Messrs. Putnam, III,
Lasser and Smith are deemed "interested persons" by virtue of their
positions as officers or shareholders of the fund or Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc.
George Putnam, III is the President of your fund and each of the other
Putnam funds. Lawrence J. Lasser is the President and Chief Executive
Officer of Putnam Investments and Putnam Management. Mr. Lasser and
Mr. Smith serve as Directors of Marsh & McLennan Companies, Inc.
Officers
In addition to George Putnam, III, the other officers of the fund are
shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer and
Principal Financial Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and
Putnam Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to
July 2001, Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments,
Putnam Management and Putnam Retail
Management
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
William H. Woolverton (1/17/51)
Vice President and Chief Legal Officer
Since 2003
Managing Director, Putnam Investments,
Putnam Management and Putnam Retail
Management
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
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 LLP
Independent Auditors
KPMG LLP
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
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
William H. Woolverton
Vice President and Chief Legal Officer
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
---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
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203376 073 9/03
Item 2. Code of Ethics:
-----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
-----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
Not applicable
Items 5-6. [Reserved]
---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
-------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy Voting Guidelines of the Putnam Funds
-------------------------------------------
The proxy voting guidelines below summarize the Funds' positions on
various issues of concern to investors, and give a general indication of
how Fund portfolio securities will be voted on proposals dealing with a
particular issue. The Funds' proxy voting service is instructed to vote
all proxies relating to Fund portfolio securities in accordance with
these guidelines, except as otherwise instructed by the Proxy
Coordinator.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the Funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and, although
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all Fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of Fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the Funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the Senior Vice President,
Executive Vice President and/or the Chair of the Board Policy and
Nominating Committee, as appropriate, will determine how the Funds'
proxies will be voted. When indicated, the Chair of the Board Policy
and Nominating Committee may consult with other members of the Committee
or the full board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals which
have been approved and recommended by a company's board of directors.
Part II deals with proposals submitted by shareholders for inclusion in
proxy statements. Part III addresses unique considerations pertaining
to foreign issuers.
I. Board-Approved Proposals
---------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and the Funds'
intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the Funds' proxies generally will be
voted in support of decisions reached by independent boards of
directors. Accordingly, the Funds' proxies will be voted for
board-approved proposals, except as follows:
A. Matters Relating to the Board of Directors
---------------------------------------------
The board of directors has the important role of overseeing management
and its performance on behalf of shareholders. The Funds' proxies will
be voted for the election of the company's nominees for directors and
for board-approved proposals on other matters relating to the board of
directors (provided that such nominees and other matters have been
approved by an independent nominating committee), except as follows:
* The Funds will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation committees
composed solely of independent directors.
Commentary: While these requirements will likely become mandatory for
most public companies in the near future as a result of pending NYSE and
NASDAQ rule proposals, the Funds' Trustees believe that there is no
excuse for public company boards that fail to implement these vital
governance reforms at their next annual meeting. For these purposes, an
"independent director" is a director who meets all requirements to serve
as an independent director of a company under the pending NYSE rule
proposals (i.e., no material business relationships with the company, no
present or recent employment relationship with the company (including
employment of immediate family members) and, in the case of audit
committee members, no compensation for non-board services). As
indicated below, the Funds will generally vote on a case-by-case basis
on board-approved proposals where the board fails to meet these basic
independence standards.
* The Funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal or financial advisory
fees).
Commentary: The Funds' Trustees believe that receipt of compensation
for services other than service as a director raises significant
independence issues. The Funds will withhold votes for any nominee for
director who is considered an independent director by the company and
who receives such compensation.
* The Funds will withhold votes for the entire board of directors if the
board has more than 19 members or fewer than five members, absent
special circumstances.
Commentary: The Funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
* The Funds will vote on a case-by-case basis in contested elections of
directors.
* The Funds will withhold votes for any nominee for director who attends
less than 75% of board and committee meetings without valid reasons for
the absences (i.e., illness, personal emergency, etc.).
Commentary: Being a director of a company requires a significant time
commitment to adequately prepare for and attend the company's board and
committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis.
The Funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives of
public companies (or other directors with substantially full-time
employment) who serve on more than a few outside boards. The Funds may
withhold votes from such directors on a case-by-case basis where it
appears that they may be unable to discharge their duties properly
because of excessive commitments.
* The Funds will withhold votes for any nominee for director of a public
company (Company A) who is employed as a senior executive of another
public company (Company B) if a director of Company B serves as a senior
executive of Company A (commonly referred to as an "interlocking
directorate").
Commentary: The Funds' Trustees believe that interlocking directorships
are inconsistent with the degree of independence required for outside
directors of public companies.
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward management.
Independent boards are committed to good corporate governance practices
and, by providing objective independent judgment, enhancing shareholder
value. The Funds may withhold votes on a case-by-case basis from some or
all directors that, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
* The Funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The Funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
B. Executive Compensation
-------------------------
The Funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The Funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for stock option plans which
will result in an average annual dilution of 1.67% or less (including
all equity-based plans).
* The Funds will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
* The Funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for employee stock purchase
plans that have the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value, (2)
the offering period under the plan is 27 months or less, and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should provide
absolute transparency to shareholders regarding the sources and amounts
of, and the factors influencing, executive compensation. Appropriately
designed equity-based compensation plans can be an effective way to
align the interests of long-term shareholders with the interests of
management. The Funds may vote against executive compensation proposals
on a case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide transparent
disclosure of executive compensation. In voting on proposals relating to
executive compensation, the Funds will consider whether the proposal has
been approved by an independent compensation committee of the board.
C. Capitalization
-----------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the repurchase of
outstanding stock or the approval of a stock split. The management of a
company's capital structure involves a number of important issues,
including cash flow, financing needs and market conditions that are
unique to the circumstances of each company. As a result, the Funds will
vote on a case-by-case basis on board-approved proposals involving
changes to a company's capitalization, except that where the Funds are
not otherwise withholding votes from the entire board of directors:
* The Funds will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
* The Funds will vote for proposals to effect stock splits (excluding
reverse stock splits.)
* The Funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The Funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization) or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that may
impact a shareholder's investment and warrant a case-by-case
determination.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
---------------------------------------------------------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations and sale of all or substantially all
of a company's assets, which may require their consent. Voting on such
proposals involves considerations unique to each transaction. As a
result, the Funds will vote on a case-by-case basis on board-approved
proposals to effect these types of transactions, except as follows:
* The Funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, generally speaking, shareholders must
carefully consider the reasons for a reincorporation into another
jurisdiction, including especially offshore jurisdictions.
E. Anti-Takeover Measures
-------------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include adoption
of a shareholder rights plan, requiring supermajority voting on
particular issues, adoption of fair price provisions, issuance of blank
check preferred stock and creating a separate class of stock with
disparate voting rights. Such proposals may adversely affect shareholder
rights, lead to management entrenchment, or create conflicts of
interest. As a result, the Funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The Funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The Funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The Funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the Funds will consider proposals to approve
such matters on a case-by-case basis.
F. Other Business Matters
-------------------------
Many proxies involve approval of routine business matters, such as
changing the company's name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The Funds will vote for board-approved
proposals approving such matters, except as follows:
* The Funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The Funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The Funds will vote on a case-by-case basis on other business matters
where the Funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the Funds do not view such items as routine business
matters. Putnam Management's investment professionals and the Funds'
proxy voting service may also bring to the Proxy Coordinator's attention
company-specific items which they believe to be non-routine and
warranting special consideration. Under these circumstances, the Funds
will vote on a case-by-case basis.
II. Shareholder Proposals
-------------------------
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of a company's corporate governance structure or to change
some aspect of its business operations. The Funds will vote in
accordance with the recommendation of the company's board of directors
on all shareholder proposals, except as follows:
* The Funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The Funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The Funds will vote for shareholder proposals that are consistent with
the Fund's proxy voting guidelines for board-approved proposals.
* The Funds will vote on a case-by-case basis on other shareholder
proposals where the Funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the Funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular, their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the Funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the Funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the Funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. Voting Shares of Foreign Issuers
-------------------------------------
Many of the Funds invest on a global basis and, as a result, they may be
required to vote shares held in foreign issuers - i.e., issuers that are
incorporated under the laws of a foreign jurisdiction and that are not
listed a U.S. securities exchange or the NASDAQ stock market. Because
foreign issuers are incorporated under the laws of countries and
jurisdictions outside the U.S., protection for shareholders may vary
significantly from jurisdiction to jurisdiction. Laws governing foreign
issuers may, in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are premised
on the existence of a sound corporate governance and disclosure
framework, may not be appropriate under some circumstances for foreign
issuers. The Funds will vote proxies of foreign issuers in accordance
with the foregoing guidelines where applicable, except as follows:
* The Funds will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
* The Funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit and compensation committees.
* The Funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The Funds will vote on case-by-case basis on proposals relating to (1)
the issuance of common stock in excess of 20% of a company's outstanding
common stock where shareholders do not have preemptive rights, or (2)
the issuance of common stock in excess of 100% of a company's
outstanding common stock where shareholders have preemptive rights.
Commentary: In many non-U.S. markets, shareholders who vote proxies for
shares of a foreign issuer are not able to trade in that company's stock
within a given period of time on or around the shareholder meeting date.
This practice is known as "share blocking." In countries where share
blocking is practiced, the Funds will vote proxies only with direction
from Putnam Management's investment professionals.
As adopted March 14, 2003
Proxy Voting Procedures of the Putnam Funds
-------------------------------------------
The Role of the Funds' Trustees
-------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
-------------------------------------
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
---------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
Item 8. [Reserved]
------------------
Item 9. Controls and Procedures:
--------------------------------
(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: September 26, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: September 26, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: September 26, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: September 26, 2003