Putnam
Premier
Income
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-05
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of reforms
for the benefit of shareholders, including increasing the amount of
disclosure for our funds. We are now including additional disclosure about
your fund's management team. Following the Outlook for Your Fund, we
provide manager compensation information that pertains to your fund and
list any changes in your fund's Portfolio Leader and Portfolio Members
during the prior year period, as well as these individuals' other fund
management responsibilities at Putnam. We also show how much these
individuals have invested in the fund (in dollar ranges), and fund
ownership (in dollar ranges) is also shown for the members of Putnam's
Executive Board. Finally, on page 13, we provide certain information about
the most recent approval of your fund's management contract with Putnam by
the Trustees.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as ex-officio
member and past Chair of the New York Stock Exchange (NYSE) Pension
Managers Advisory Committee and as a Trustee of Commonfund, a
not-for-profit asset management firm. Richard B. Worley is Managing
Partner of Permit Capital LLC, an investment management firm. Both Ms.
Drucker and Mr. Worley are independent Trustees (i.e., Trustees who are
not "interested persons" of your fund or its investment advisor). Charles
E. Haldeman, Jr., the third new Trustee, is President and Chief Executive
Officer of Putnam Investments. We also announce the departure of one of
your fund's Trustees, A.J.C. Smith, formerly Chairman of Putnam
Investments and Consultant to Marsh & McLennan Companies, Inc.
Finally, we would like to welcome shareholders of Putnam Master Income
Trust, a multi-sector fixed-income fund with a similar objective and
strategy as your fund, who have become shareholders of this fund as a
result of a recently completed merger between the two funds.
In the following pages, your fund's management team discusses performance,
strategy, and its outlook for the remainder of fiscal 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
March 16, 2005
Report from Fund Management
Fund highlights
* During the semiannual period ended January 31, 2005, Putnam Premier
Income Trust had a total return at net asset value (NAV) of 7.43%. The
fund's return at market price was 9.53%.
* The fund's primary benchmark, the Lehman Government Bond Index,
returned 3.30% for the same period.
* The average return for the fund's Lipper category, Flexible Income
Funds (closed-end), was 8.25%.
* After the end of the period, Putnam Master Income Trust was merged
into your fund. See page 5 for details.
* See the Performance Summary beginning on page 10 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
During the past six months, shorter-maturity bond yields have risen as
the U.S. Federal Reserve Board (the Fed) has continued its gradual
series of interest-rate increases. Meanwhile, yields on longer-term
bonds declined somewhat, responding to generally moderate global
inflation. Longer-maturity bond performance was also bolstered by
increased demand from pension funds. The fund's high-yield and
emerging-market bonds performed well, enabling the fund to outperform
its benchmark by a significant margin although results at NAV lagged the
average for the fund's Lipper category. It is important to note that a
fund's performance at market price may differ from its results at NAV.
Although market price performance generally reflects investment results,
it may also be influenced by several other factors, including changes in
investor perceptions of the fund or its investment advisor, market
conditions, fluctuations in supply and demand for the fund's shares, and
changes in fund distributions.
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TOTAL RETURN FOR
PERIODS ENDED 1/31/05
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Market
(inception 2/29/88) NAV Price
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6 months 7.43% 9.53%
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1 year 8.48 6.47
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5 years 51.16 68.91
Annual average 8.61 11.05
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10 years 118.62 121.70
Annual average 8.14 8.29
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Annual average
(life of fund) 8.55 7.50
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Data is historical. Past performance does not guarantee future results.
More recent returns may be less or more than those shown. Investment
return, net asset value, and market price will fluctuate and you may
have a gain or a loss when you sell your shares. Performance assumes
reinvestment of distributions and does not account for taxes.
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
Global bond markets have enjoyed a favorable set of circumstances during
the past six months. Most sectors have produced positive returns, with
riskier sectors -- including corporate high-yield bonds and
emerging-market bonds -- continuing to outperform the higher-quality
investment-grade corporate, government, and agency sectors. While
short-term interest rates generally rose during the period, following
the Fed's lead, the Fed's clear communication of its tightening policy
and its measured pace of rate increases resulted in no surprises. This
clarity was beneficial for longer-term bondholders, who remained focused
on economic data. Consequently, while the federal funds rate rose from
1.00% in June 2004 to 2.50% on February 2, 2005 (just after the end of
the reporting period), long-term rates moved downward, as low inflation
and stable economic conditions helped investors remain generally
positive. The rise in short rates and decline in long rates therefore
caused a narrowing in the spread between the two, causing the yield
curve -- a graphical depiction of all bond yields -- to flatten.
Although turmoil continued in Iraq and the Middle East, other
uncertainties that have preoccupied investors -- including fears of
terrorism and the close U.S. presidential election -- have lessened.
Generally positive economic conditions, low interest rates on
high-quality bonds, and a weak dollar drew investors into riskier bond
sectors that provided higher income levels. As a result, high-yield
corporate bonds and emerging-market securities outperformed. In the
high-yield sector, default rates continued to decline, and, combined
with positive global economic growth, attracted investors and resulted
in strong demand for these securities. Emerging markets generally
benefited from high energy and commodities prices, solid economic
growth, and an overall reduction of perceived risk. The weak dollar also
helped bolster returns in emerging-market securities for U.S. investors.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 1/31/05
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Bonds
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Lehman Government Bond Index (U.S. Treasury and agency securities) 3.30%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 13.07%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 7.72%
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JP Morgan Global Diversified Emerging Markets Bond Index
(global emerging-market bonds) 11.03%
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Equities
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S&P 500 Index (broad stock market) 8.16%
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MSCI EAFE Index (international stocks) 16.68%
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Russell 2000 Index (small-company stocks) 13.88%
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These indexes provide an overview of performance in different market
sectors for the six months ended 1/31/05.
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Strategy overview
While the fund's emerging-market and high-yield corporate bond holdings
provided the strongest performance, we had begun trimming these
positions before the period began and reduced these weightings further
during the period. These sectors have seen such strong performance over
the past few years that we believed they were no longer attractively
valued. Moreover, although global economic growth continued at a solid
pace, it has slowed from prior years.
Within the high-yield corporate sector, we upgraded credit quality by
selling CCC-rated and B-rated bonds and buying bonds with BB-ratings. We
used the proceeds of the sales to increase the fund's weighting in
mortgage-backed securities (MBSs), asset-backed securities (ABSs), and
commercial mortgage-backed securities (CMBSs), all of which had solid
returns during the period. These securities are generally high in credit
quality and have shorter maturities, or durations, meaning that they are
likely to be less sensitive to an increase in interest rates. Moreover,
their shorter maturities give us the flexibility to reinvest more
frequently, which would be beneficial if interest rates were to rise. We
found CMBSs particularly attractive because they offered higher yields
than corporate bonds of roughly the same credit quality.
We increased the fund's position in bank loans during the period. These
securities offer a higher level of credit quality than high-yield bonds.
In addition, they offer floating interest rates that, like an adjustable
home mortgage, move with market rates and therefore can provide
protection of principal from interest-rate risk.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 7/31/04 as of 1/31/05
High yield 40.9% 42.1%
U.S. investment grade 39.1% 40.9%
International 20.0% 17.0%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings and sectors affected performance
As already mentioned, we reduced the fund's exposure to corporate
high-yield bonds and increased its allocation to mortgage-backed
securities (MBSs), asset-backed securities (ABSs), and commercial
mortgage-backed securities (CMBSs). Within the MBS group, we acquired
high-coupon GNMA (Government National Mortgage Association) securities,
which were less likely to be prepaid and therefore performed well. The
fund also owned reperforming GNMAs, which are traditional MBSs in which
the borrowers have become delinquent in making payments for a period of
time. As a result, these securities are less likely to be refinanced
than other types of MBSs. We believed the reperforming GNMAs did not
represent a major credit risk, and the fund benefited from the higher
income that they produced.
The fund's CMBS holdings performed well, as investors were attracted to
their combination of relatively high income and strong credit quality.
These securities are backed both by the issuers that pool the securities
and the individual corporations issuing the mortgages. Given the
relative strength of the economic recovery over the past few years, this
credit quality has generally been strong.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 1/31/05)
High-yield sector
1 AT&T Corp (0.7%)
Sr. notes 9 3/4%, 2031
2 Conseco Finance Securitizations Corp.
(0.4%)
Ser. 01-3, Class A4, 6.91%, 2033
3 Conseco Finance Securitizations Corp.
(0.4%)
Ser. 00-4, Class A6, 8.31s, 2032
International sector
1 France (Government of) (1.2%)
Bonds 4%, 2013
2 Germany (Federal Republic of) (1.0%)
Bonds Ser. 97, 6%, 2007
3 Russia (Federation of) (0.9%)
144A unsub. Stepped-coupon 5%
(7 1/2%, 3/31/07), 2030
U.S. investment-grade sector
1 Federal Home Loan Mortgage
Corporation (4.2%)
6 1/2%, with due dates from July 1, 2028 to
September 1, 2034
2 U.S. Government Treasury Bonds (4.0%)
6 1/4%, May 15, 2030
3 Federal National Mortgage Association
Pass-Through Certificates (3.2%)
4 1/2%, TBA, February 1, 2020
The fund's holdings will change over time.
The fund's international government bond holdings, including bonds from
the United Kingdom, Germany, France, and Canada, performed well,
responding to solid economic growth and declining longer-term interest
rates. The fund's European government holdings were also bolstered by
the currency effect of the weak dollar.
Although the fund's emerging-market weighting had been reduced prior to
the beginning of the period, we continued to pare back these holdings
during their strong performance of the past six months. These securities
have performed well over the past several years as a result of strong
growth in many emerging-market countries, due to gains in manufacturing
and exports to other rapidly growing countries, as well as exports of
metals, oil, and natural gas, all of which have risen significantly in
price. Bonds from Russia, Colombia, and Brazil delivered particularly
strong performance.
Finally, with over 10% of the fund's assets invested in foreign bonds,
currency appreciation due to the decline in the dollar versus other
major currencies -- especially the euro -- made a significant and
positive contribution to returns.
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.
OF SPECIAL INTEREST
Merger with Putnam Master Income Trust completed
During the period, shareholders of Putnam Master Income Trust and Putnam
Premier Income Trust approved a merger of Putnam Master Income Trust
into Putnam Premier Income Trust, and the merger was recently completed
on February 28, 2005. Putnam Master Income Trust is a closed-end,
multi-sector fixed-income fund whose objectives, strategy, and
investments are substantially similar to those of your fund. The merger,
which occurred on February 25, 2005, should result in lower expenses for
shareholders of each fund due to the larger asset base of the combined
fund.
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 past two years have seen strong returns in the emerging and
high-yield corporate bond markets, reflecting a global economic
recovery. We continue to believe, as we did six months ago, that certain
headwinds could have a negative impact on the performance of
lower-quality bond sectors. First, the current high level of energy
prices may act as a tax and reduce both consumer and corporate spending.
And second, higher short-term interest rates and lower long-term
interest rates have resulted in a flattening of the yield curve, which
represents yields on bonds of all maturities. This flattening has
reduced the incentive for investors to take more risk by buying
longer-maturity bonds. Similarly, the narrowing of the credit yield
spread -- the difference in yield between lower- and higher-quality
bonds -- has also reduced the incentive for investors to take on greater
credit risk because lower-quality bonds are not paying as high an
interest rate as they did a year or two ago.
On the positive side, inflation remains low and there do not appear to
be any imminent threats to the stability of the global economy, which is
still growing at a solid, positive rate. Nevertheless, we have
positioned the fund to have a shorter average maturity and shorter
duration -- or lower interest-rate sensitivity -- and we have generally
improved the overall credit quality in the portfolio. We believe these
are prudent measures given the current state of the global economy and
bond markets.
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. Mutual funds that invest in bonds are subject to certain
risks, including interest-rate risk, credit risk, and inflation risk. As
interest rates rise, the prices of bonds fall. Long-term bonds are more
exposed to interest-rate risk than short-term bonds. Unlike bonds, bond
funds have ongoing fees and expenses. 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.
Your fund's management
Your fund is managed by the members of the Putnam Core Fixed-Income and
Core Fixed-Income High-Yield teams. D. William Kohli is the Portfolio
Leader, and Rob Bloemker, Jeffrey Kaufman, Stephen Peacher, and David
Waldman are Portfolio Members of your fund. The Portfolio Leader and
Portfolio Members coordinate the teams' management of the fund.
For a complete listing of the members of the Putnam Core Fixed-Income
and Core Fixed-Income High-Yield teams, including those who are not
Portfolio Leaders or Portfolio Members of your fund, visit Putnam's
Individual Investor Web site at www.putnaminvestments.com.
Fund ownership
The table below shows how much the fund's current Portfolio Leader and
Portfolio Members have invested in the fund (in dollar ranges).
Information shown is for the current and prior year ended January 31.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001 - $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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D. William Kohli 2005 *
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Portfolio Leader 2004 *
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Rob Bloemker N/A
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Portfolio Member N/A
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Jeffrey Kaufman N/A
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Portfolio Member N/A
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Stephen Peacher N/A
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Portfolio Member N/A
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David Waldman 2005 *
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Portfolio Member 2005 *
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N/A indicates that the individual became a Portfolio Member after the reporting date.
Fund manager compensation
The total 2004 fund manager compensation that is attributable to your
fund is approximately $800,000. This amount includes a portion of 2004
compensation paid by Putnam Management to the fund managers listed in
this section for their portfolio management responsibilities, calculated
based on the fund assets they manage as a percentage of the total assets
they manage. The compensation amount also includes a portion of the 2004
compensation paid to the Chief Investment Officers of the teams and the
Group Chief Investment Officer responsible for the fund's broader
investment category for their oversight responsibilities, calculated
based on the fund assets they oversee taken as a percentage of the total
assets they oversee. These percentages are determined as of the fund's
fiscal period-end. For personnel who joined Putnam Management during or
after 2004, the calculation reflects annualized 2004 compensation or an
estimate of 2005 compensation, as applicable.
Other Putnam funds managed by
the Portfolio Leader and Portfolio Members
D. William Kohli is also a Portfolio Leader of Putnam Diversified Income
Trust and Putnam Master Intermediate Income Trust, and a Portfolio
Member of Putnam Global Income Trust.
Rob Bloemker is also a Portfolio Member of Putnam American Government
Income Fund, Putnam Diversified Income Trust, Putnam Income Fund, Putnam
Limited Duration Government Income Fund, Putnam Master Intermediate
Income Trust, and Putnam U.S. Government Income Trust.
Jeffrey Kaufman is also a Portfolio Member of Putnam Diversified Income
Trust and Putnam Master Intermediate Income Trust.
Stephen Peacher is also a Portfolio Leader of Putnam Floating Rate
Income Fund, Putnam High Yield Advantage Fund, Putnam High Yield Trust,
and Putnam Managed High Yield Trust. He is also a Portfolio Member of
Putnam Diversified Income Trust and Putnam Master Intermediate Income
Trust.
David Waldman is also a Portfolio Member of Putnam Diversified Income
Trust and Putnam Master Intermediate Income Trust.
D. William Kohli, Rob Bloemker, Jeffrey Kaufman, Stephen Peacher, and
David Waldman may also manage other accounts and variable trust funds
advised by Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
Your fund's Portfolio Leader and Portfolio Members did not change during
the year ended January 31, 2005. After the close of the period, Rob
Bloemker, Jeffrey Kaufman, and Stephen Peacher became Portfolio Members
of your fund.
Fund ownership
The table below shows how much the members of Putnam's Executive Board
have invested in the fund (in dollar ranges). Information shown is for
the current and prior year ended January 31.
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PUTNAM EXECUTIVE BOARD
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$1 - $10,001 - $50,001- $100,001
Year $0 $10,000 $50,000 $100,000 and over
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Philippe Bibi 2005 *
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Chief Technology Officer 2004 *
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John Boneparth 2005 *
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Head of Global Institutional Mgmt 2004 *
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Joshua Brooks N/A
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Deputy Head of Investments N/A
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Kevin Cronin 2005 *
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Head of Investments N/A
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Charles Haldeman, Jr. 2005 *
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President and CEO 2004 *
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Amrit Kanwal 2005 *
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Chief Financial Officer N/A
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Steven Krichmar 2005 *
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Chief of Operations N/A
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Francis McNamara, III 2005 *
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General Counsel N/A
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Richard Monaghan 2005 *
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Head of Retail Management 2004 *
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Richard Robie, III 2005 *
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Chief Administrative Officer N/A
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Edward Shadek N/A
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Deputy Head of Investments N/A
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N/A indicates the individual joined Putnam's Executive Board after the reporting date.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended January 31, 2005. 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. Data represents past performance. Past
performance does not guarantee 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.
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TOTAL RETURN FOR PERIODS ENDED 1/31/05
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NAV Market price
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6 months 7.43% 9.53%
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1 year 8.48 6.47
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5 years 51.16 68.91
Annual average 8.61 11.05
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10 years 118.62 121.70
Annual average 8.14 8.29
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Annual average
Life of fund
(since 2/29/88) 8.55 7.50
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Performance assumes reinvestment of distributions and does not account for
taxes.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/05
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Citigroup Lipper Flexible
Lehman Non-U.S. JP Morgan Income Funds
Government World Global (closed-end)
Bond Government High Yield category
Index Bond Index Index* average+
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6 months 3.30% 13.07% 7.72% 8.25%
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1 year 3.27 9.85 9.55 8.39
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5 years 44.10 53.99 44.87 43.18
Annual average 7.58 9.02 7.70 7.28
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10 years 102.78 94.70 125.81 121.05
Annual average 7.33 6.89 8.49 8.07
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Annual average
Life of fund
(since 2/29/88) 7.65 7.64 -- 8.33
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Index and Lipper results should be compared to fund performance at net asset value. Lipper calculations
for reinvested dividends may differ from actual performance.
* The inception date of the JP Morgan Global High Yield Index was 12/31/93.
+ Over the 6-month and 1-, 5-, and 10-year periods ended 1/31/05, there were 10 funds in this Lipper
category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/05
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Putnam Premier Income Trust
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Distributions (number) 6
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Income $0.234
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Capital gains --
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Total $0.234
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Share value: NAV Market price
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7/31/04 $7.03 $6.29
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1/31/05 7.29 6.65
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Current return (end of period)
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Current dividend rate 1 6.42% 7.04%
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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 12/31/04 (MOST RECENT CALENDAR QUARTER)
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NAV Market price
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6 months 8.07% 12.52%
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1 year 9.84 7.27
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5 years 49.36 65.88
Annual average 8.35 10.65
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10 years 119.31 127.75
Annual average 8.17 8.58
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Annual average
Life of fund
(since 2/29/88) 8.56 7.43
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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 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
exchanges such as the American Stock Exchange and the New York Stock
Exchange.
Comparative indexes
Citigroup Non-U.S. World Govern ment Bond Index is an unmanaged index of
global investment-grade fixed-income securities, excluding the United
States.
JP Morgan Global Diversified Emerging Markets Bond Index is an unmanaged
index of global emerging-market fixed-income securities.
JP Morgan Global High Yield Index is an unmanaged index of global
high-yield fixed-income securities.
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 equity securities from developed countries in Western Europe,
the Far East, and Australasia.
Russell 2000 Index is an unmanaged index of the 2,000 smallest companies
in 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 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.
Trustee approval of
management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of
each fund and, as required by law, determines annually whether to
approve the continuance of each fund's management contract with Putnam
Management. In this regard the Board of Trustees, with the assistance of
its Contract Committee consisting solely of Independent Trustees,
requests and evaluates all information it deems reasonably necessary in
the circumstances. Over the course of several months beginning in March
and ending in June of 2004, the Contract Committee reviewed the
information provided by Putnam Management and other information
developed with the assistance of the Board's independent counsel and
independent staff. The Contract Committee reviewed and discussed key
aspects of this information with all of the Independent Trustees. Upon
completion of this review, the Contract Committee recommended and the
Independent Trustees approved the continuance of your fund's contract,
effective July 1, 2004.
This approval was based on the following conclusions:
* That the fee schedule currently in effect for your fund represents
reasonable compensation in light of the nature and quality of the
services being provided to the fund, the fees paid by competitive funds
and the costs incurred by Putnam Management in providing such service,
and
* That such fee schedule represents an appropriate sharing between fund
shareholders and Putnam Management of such economies of scale as may
exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all
information provided to the Trustees and were not the result of any
single factor. Some of the factors that figured particularly in the
Trustees' deliberations are described below.
Model fee schedules and categories; total expenses
The Trustees, working in cooperation with Putnam Management, have
developed and implemented a series of model fee schedules for the Putnam
funds designed to ensure that each fund's management fee is consistent
with the fees for similar funds in the Putnam complex and compares
favorably with fees paid by competitive funds sponsored by other advisors.
The Trustees reviewed the model fee schedule currently in effect for the
fund, including fee levels and breakpoints, and the assignment of the fund
to a particular fee category under this structure. The Trustees also
reviewed comparative fee and expense information for competitive funds.
The Trustees concluded that no changes should be made in the fund's
current fee schedule at this time. The Trustees noted that expense ratios
for a number of Putnam funds had been increasing recently as a result of
declining net assets and the natural operation of fee breakpoints. They
noted that such expense ratio increases were currently being controlled by
expense limitations implemented in January 2004. They also noted that the
competitive landscape regarding mutual fund fees may be changing as a
result of fee reductions accepted by various other fund groups in
connection with recent regulatory settlements and greater focus on fees
and expenses in the mutual fund industry generally. The Trustees indicated
an intention to monitor these developments closely.
Economies of scale
As noted above, the Trustees concluded that the fee schedule currently
in effect for your fund represents an appropriate sharing of economies
of scale at current asset levels. The Trustees indicated their intention
to continue their ongoing consideration of economies of scale and in
particular to consider further the possible operation of such economies
in the event that a significant recovery in the equity markets or net
fund sales were to raise asset levels substantially above current
levels. In this regard, the Trustees noted that they had reviewed data
relating to the substantial increase in asset levels of the Putnam funds
that occurred during the years leading up to the market peak in 2000,
the subsequent decline in assets and the resulting impact on revenues
and expenses of Putnam Management. The Trustees also noted that recent
declines in net assets in many Putnam funds, together with significant
changes in the cost structure of Putnam Management have altered the
economics of Putnam Management's business in significant ways. The
Trustees concluded that they would monitor these changes carefully and
evaluate the resulting impact on Putnam Management's economics and the
sharing of economies of scale between the parties.
Investment performance
The quality of the investment process provided by Putnam Management
represented a major factor in the Trustees' evaluation of the quality of
services provided by Putnam Management under the Management Contracts.
The Trustees recognized that a high quality investment process -- as
measured by the experience and skills of the individuals assigned to the
management of fund portfolios, the resources made available to such
personnel, and in general the ability of Putnam Management to attract
and retain high-quality personnel -- does not guarantee favorable
investment results for every fund in every time period. The Trustees
considered the investment performance of each fund over multiple time
periods and considered information comparing the fund's performance with
various benchmarks and with the performance of competitive funds. The
Trustees noted the satisfactory investment performance of many Putnam
funds.
They also noted the disappointing investment performance of certain
funds in recent years and continued to discuss with senior management of
Putnam Management the factors contributing to such under-performance and
actions being taken to improve performance. The Trustees recognized
that, in recent years, Putnam Management has made significant changes in
its investment personnel and processes and in the fund product line in
an effort to address areas of underperformance. The Trustees indicated
their intention to continue to monitor performance trends to assess the
effectiveness of these changes and to evaluate whether additional
remedial changes are warranted. As a general matter, the Trustees
concluded that consultation between the Trustees and Putnam Management
represents the most effective way to address investment performance
problems. The Trustees believe that investors in the Putnam funds and
their financial advisors have, as a general matter, effectively placed
their trust in the Putnam organization, under the supervision of the
funds' Trustees, to make appropriate decisions regarding the management
of the funds. The Trustees believe that the termination of the
Management Contract and engagement of a new investment adviser for
under-performing funds, with all the attendant disruptions, would not
serve the interests of fund shareholders at this time and would not
necessarily provide any greater assurance of improved investment
performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam
Management may receive in connection with the services it provides under
the Management Contract with your fund. These include principally
benefits related to brokerage and soft-dollar allocations, which pertain
mainly to funds investing in equity securities. The Trustees believe
that soft-dollar credits and other potential benefits associated with
the allocation of fund brokerage represent assets of the funds that
should be used for the benefit of fund shareholders. The Trustees noted
recent trends in the allocation of fund brokerage, including commission
costs, the allocation of brokerage to firms that provide research
services to Putnam Management, and the sources and application of
available soft-dollar credits. Effective December 31, 2003, reflecting a
decision made by the Trustees earlier that year, Putnam Management
ceased allocating brokerage in connection with the sale of fund shares.
In addition, in preparing its budget for commission allocations in 2004,
Putnam Management voluntarily reduced substantially the allocation of
brokerage commissions to acquire research services from third-party
service providers. In light of evolving best practices in the mutual
fund industry, the Trustees concluded that this practice should be
further curtailed and possibly eliminated in the near future. The
Trustees indicated that they would continue to monitor the allocation of
the funds' brokerage to ensure that the principle of "best price and
execution" remains paramount in the portfolio trading process.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of the annual contract
reviews included information regarding fees charged by Putnam Management
and its affiliates to institutional clients such as defined benefit
pension plans and college endowments. This information included
comparison of such fees with fees charged to the Putnam funds, as well
as a detailed assessment of the differences in the services provided to
these two types of clients. The Trustees devoted special attention to
these issues and reviewed recent articles by critics of mutual fund
fees, articles by the ICI defending such fee differences, and relevant
guidance provided by decisions of the courts. The Trustees observed, in
this regard, that the differences in fee rates between institutional
clients and mutual funds are by no means uniform when examined by
individual asset sectors, suggesting that differences in the pricing of
investment management services to these types of clients reflects to a
substantial degree historical competitive forces operating in separate
market places. In reaching their conclusions, the Trustees considered
the fact that fee rates across all asset sectors are higher on average
for mutual funds than for institutional clients, and also considered the
differences between the services that Putnam provides to the Putnam
funds and those that it provides to institutional clients of the firm.
Settlement of regulatory charges related to market timing
Finally, in reaching their conclusions, the Trustees considered all
matters pertinent to the administrative charges filed against Putnam
Management by the SEC and the Commonwealth of Massachusetts in October
2003 relating to market timing, the firm's settlement of those charges,
and the conclusions and recommendations of the Trustees' Audit and
Pricing Committee based on its review of these matters. The Trustees
considered the actions taken by the owner of Putnam Management and its
new senior management to terminate or discipline the individuals
involved, to implement new compliance systems, to indemnify the funds
against all costs and liabilities related to these matters, and
otherwise to ensure that the interests of the funds and their
shareholders are fully protected. The Trustees noted that, in addition
to the settlements of the regulatory charges which will provide
comprehensive restitution for any losses suffered by shareholders, the
new senior management of Putnam Management has moved aggressively to
control expense ratios of funds affected by market timing, to reduce
charges to new investors, to improve disclosure of fees and expenses,
and to emphasize the paramount role of investment performance in
achieving shareholders' investment goals.
Other information for shareholders
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
The fund's portfolio
January 31, 2005 (Unaudited)
Corporate bonds and notes (36.2%) (a)
Principal amount Value
Basic Materials (3.6%)
-------------------------------------------------------------------------------
$575,000 AK Steel Corp. company guaranty
7 3/4s, 2012 $590,813
630,000 ALROSA Finance SA 144A company
guaranty 8 7/8s, 2014 (Luxembourg) 653,625
260,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 274,300
1,020,000 BCP Caylux Holdings Luxembourg SCA
144A sr. sub. notes 9 5/8s, 2014
(Luxembourg) 1,132,200
405,000 Century Aluminum Co. 144A company
guaranty 7 1/2s, 2014 432,338
EUR 775,000 Cognis GMBH 144A sr. notes 9 1/2s,
2014 (Germany) 1,133,877
$1,035,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 1,161,788
400,000 Compass Minerals International, Inc.
sr. disc. notes
stepped-coupon Ser. B, zero % (12s,
6/1/08), 2013 (STP) 326,000
1,070,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 920,200
738,000 Crystal US Holdings, LLC/US Sub 3
Corp. 144A sr. disc. notes
stepped-coupon zero % (10s,
10/1/09), 2014 (STP) 512,910
265,000 Equistar Chemicals LP notes 8 3/4s,
2009 291,500
2,345,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 2,673,300
615,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 701,100
1,340,000 Georgia-Pacific Corp. debs. 7.7s,
2015 1,541,000
60,000 Georgia-Pacific Corp. sr. notes 8s,
2024 70,350
4,000 Georgia-Pacific Corp. sr. notes
7 3/8s, 2008 4,330
950,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 1,097,250
1,385,000 Hercules, Inc. company guaranty
11 1/8s, 2007 1,627,375
280,000 Huntsman Advanced Materials, LLC
144A sec. FRN 10.89s, 2008 300,300
330,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 387,750
1,099,000 Huntsman Co., LLC sr. disc. notes
zero %, 2008 733,583
2,190,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 1,229,138
555,000 Huntsman, LLC company guaranty
11 5/8s, 2010 646,575
415,000 Huntsman, LLC 144A company guaranty
11 1/2s, 2012 491,775
325,000 Innophos, Inc. 144A sr. sub. notes
8 7/8s, 2014 350,188
180,000 International Steel Group, Inc. sr.
notes 6 1/2s, 2014 194,400
912,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 1,012,320
310,000 Jefferson Smurfit Corp. company
guaranty 8 1/4s, 2012 328,600
55,000 Jefferson Smurfit Corp. company
guaranty 7 1/2s, 2013 56,788
EUR 700,000 JSG Holding PLC 11 1/2s, 2015 914,661
$100,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 117,500
980,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 1,058,400
895,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 977,788
125,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 138,125
EUR 610,000 MDP Acquisitions PLC sr. notes
Ser. EUR, 10 1/8s, 2012 (Ireland) 906,384
$892,474 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 1,039,732
EUR 100,000 Nalco Co. sr. notes 7 3/4s, 2011 144,352
EUR 100,000 Nalco Co. sr. sub. notes 9s, 2013 144,352
$1,490,000 Nalco Co. sr. sub. notes 8 7/8s,
2013 1,624,100
795,000 Norske Skog Canada, Ltd. sr. notes
7 3/8s, 2014 (Canada) 802,950
1,140,000 Novels, Inc. 144A sr. notes 7 1/4s,
2015 (Canada) 1,162,800
609,379 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 645,942
112,580 Pioneer Companies, Inc. sec.
sr.notes FRN 6.05s, 2006 118,209
EUR 500,000 Rockwood Specialties Group, Inc.
company guaranty 7 5/8s, 2014 664,734
$200,000 Rockwood Specialties Group, Inc.
144A sub. notes 7 1/2s, 2014 206,000
EUR 620,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 903,465
$965,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 1,054,263
207,976 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 206,936
345,000 Stone Container Corp. sr. notes
8 3/8s, 2012 365,700
210,000 Stone Container Finance company
guaranty 7 3/8s, 2014 (Canada) 216,300
529,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 591,819
498,000 United Agri Products 144A sr. notes
8 1/4s, 2011 535,350
706,000 United States Steel Corp. sr. notes
9 3/4s, 2010 806,605
77,422 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 65,034
150,487 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 126,409
260,000 WHX Corp. sr. notes 10 1/2s, 2005 247,000
--------------
36,660,583
Capital Goods (2.6%)
-------------------------------------------------------------------------------
698,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 711,960
1,670,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 1,736,800
511,000 Amsted Industries, Inc. 144A sr.
notes 10 1/4s, 2011 574,875
775,000 Argo-Tech Corp. sr. notes 9 1/4s,
2011 848,625
260,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 257,400
776,000 Blount, Inc. sr. sub. notes 8 7/8s,
2012 843,900
455,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 389,025
597,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 585,060
1,240,000 Crown Euro Holdings SA sec. notes
10 7/8s, 2013 (France) 1,453,900
EUR 115,000 Crown Euro Holdings SA sec. notes
10 1/4s, 2011 (France) 172,000
$387,000 Crown Euro Holdings SA sec. notes
9 1/2s, 2011 (France) 431,505
EUR 151,000 Crown Euro Holdings SA sec. notes
6 1/4s, 2011 (France) 207,835
$2,596,000 Decrane Aircraft Holdings Co.
company guaranty zero %, 2008 986,480
1,010,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 1,128,675
840,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 993,300
EUR 500,000 Flender Holdings 144A sr. notes 11s,
2010 (Germany) 786,928
$770,000 Flowserve Corp. company guaranty
12 1/4s, 2010 847,000
1,370,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 1,469,325
2,050,000 L-3 Communications Corp. 144A sr.
sub. notes 5 7/8s, 2015 2,039,750
1,025,000 Legrand SA debs. 8 1/2s, 2025
(France) 1,209,500
78,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 89,505
EUR 240,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 349,572
$305,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 326,350
305,000 Mueller Group, Inc. sec. FRN 7.493s,
2011 313,388
370,000 Mueller Group, Inc. sr. sub. notes
10s, 2012 399,600
775,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 842,813
613,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 658,975
1,345,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 1,496,313
206,000 Owens-Illinois, Inc. debs. 7.8s,
2018 214,240
405,000 Pliant Corp. sec. notes 11 1/8s,
2009 441,956
EUR 201,000 Polypore, Inc. notes 8 3/4s, 2012 272,463
$363,000 Polypore, Inc. sr. sub. notes
8 3/4s, 2012 372,983
1,650,000 Sequa Corp. sr. notes 9s, 2009 1,823,250
325,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 307,531
265,000 Terex Corp. company guaranty 9 1/4s,
2011 293,488
995,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 1,104,450
--------------
26,980,720
Communication Services (3.9%)
-------------------------------------------------------------------------------
469,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 546,385
371,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 399,753
270,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 249,750
1,040,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 1,086,800
770,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 38,500
5,725,000 AT&T Corp. sr. notes 9 3/4s, 2031 7,292,219
1,775,000 AT&T Corp. sr. notes 9.05s, 2011 2,059,000
205,000 Cincinnati Bell Telephone Co.
company guaranty 6.3s, 2028 186,550
750,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 761,250
565,000 Cincinnati Bell, Inc. sr. sub. notes
7 1/4s, 2023 553,700
1,475,000 Citizens Communications Co. notes
9 1/4s, 2011 1,722,063
2,993,000 Citizens Communications Co. sr.
notes 6 1/4s, 2013 2,985,518
437,472 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) (F) --
365,000 Eircom Funding company guaranty
Ser. US$, 8 1/4s, 2013 (Ireland) 398,763
540,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 587,250
300,220 Globix Corp. company guaranty 11s,
2008 (PIK) 283,708
810,000 Inmarsat Finance PLC company
guaranty 7 5/8s, 2012 (United
Kingdom) 826,200
1,060,000 Inmarsat Finance PLC company
guaranty stepped-coupon zero %
(10 3/8s, 10/15/08), 2012 768,500
420,000 iPCS, Inc. sr. no 11 1/2s, 2012 479,850
115,000 IWO Escrow Co. 144A sec. FRN 6.32s,
2012 115,000
115,000 IWO Escrow Co. 144A sr. disc. notes
stepped-coupon zero %
(10 3/4s, 1/15/10), 2015 (STP) 73,313
780,000 Level 3 Financing, Inc. 144A sr.
notes 10 3/4s, 2011 672,750
1,005,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 1,075,350
1,458,000 MCI, Inc. sr. notes 8.735s, 2014 1,594,688
358,000 MCI, Inc. sr. notes 7.688s, 2009 373,663
1,000 MCI, Inc. sr. notes 6.908s, 2007 1,023
1,628,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 1,794,870
2,602,000 Nextel Communications, Inc. sr.
notes 5.95s, 2014 2,699,575
915,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 1,006,500
390,000 PanAmSat Corp. notes 6 3/8s, 2008 403,650
610,000 Qwest Communications International,
Inc. 144A sr. notes 7 3/4s, 2014 620,675
3,360,000 Qwest Corp. 144A notes 9 1/8s, 2012 3,822,000
505,000 Qwest Services Corp. 144A notes
14 1/2s, 2014 632,513
240,000 Rogers Cantel, Inc. debs. 9 3/4s,
2016 (Canada) 288,000
380,000 Rogers Wireless Communications, Inc.
sec. notes 9 5/8s, 2011 (Canada) 445,550
365,000 Rogers Wireless Communications, Inc.
sec. notes 7 1/2s, 2015 (Canada) 390,550
420,000 Rural Cellular Corp. sr. sub. notes
9 3/4s, 2010 405,300
322,000 SBA Communications Corp. 144A sr.
notes 8 1/2s, 2012 335,283
445,000 SBA Telecommunications Inc./SBA
Communication Corp. sr. disc. notes
stepped-coupon zero % (9 3/4s,
12/15/07), 2011 (STP) 383,256
935,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 1,054,213
510,000 UbiquiTel Operating Co. sr. notes
9 7/8s, 2011 562,275
336,000 UbiquiTel Operating Co. 144A sr.
notes 9 7/8s, 2011 370,440
337,135 Verado Holdings, Inc. sr. disc.
notes zero %, 2008 (In default)
(NON) (F) 10
--------------
40,346,206
Consumer Cyclicals (8.2%)
-------------------------------------------------------------------------------
730,000 Advertising Direct 144A sr. notes
9 1/4s, 2012 (Canada) 770,150
395,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 442,400
468,000 Argosy Gaming Co. sr. sub. notes 7s,
2014 514,800
870,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 973,313
640,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 641,600
1,230,000 Autonation, Inc. company guaranty
9s, 2008 1,383,750
210,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 230,475
820,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 904,050
230,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 247,250
190,000 Boyd Gaming Corp. sr. sub. notes
6 3/4s, 2014 194,750
1,480,646 CanWest Media, Inc. 144A sr. sub.
notes 8s, 2012 (Canada) 1,580,590
500,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 547,500
1,192,000 Coinmach Corp. sr. notes 9s, 2010 1,227,760
277,000 Cooper Standard Auto 144A notes
8 3/8s, 2014 263,150
91,000 Cooper Standard Auto 144A notes 7s,
2012 89,408
145,000 D.R. Horton, Inc. company guaranty
8s, 2009 162,069
880,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 1,009,800
220,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 241,450
600,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 615,199
220,000 Dana Corp. notes 10 1/8s, 2010 243,143
785,000 Dana Corp. notes 9s, 2011 924,338
135,000 Dana Corp. notes 7s, 2029 134,104
405,000 Dana Corp. notes 6 1/2s, 2009 423,633
780,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 838,500
295,000 Delco Remy International, Inc.
company guaranty 11s, 2009 311,225
740,000 Delco Remy International, Inc. sr.
sub. notes 9 3/8s, 2012 736,300
825,000 Dex Media West, LLC/Dex Media
Finance Co. sr. notes Ser. B,
8 1/2s, 2010 897,188
705,000 Dex Media, Inc. disc. notes zero %,
2013 530,513
805,000 Dex Media, Inc. notes 8s, 2013 855,313
265,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 272,288
661,000 FelCor Lodging LP company guaranty
9s, 2008 (R) 743,625
680,000 Finlay Fine Jewelry Corp. sr. notes
8 3/8s, 2012 683,400
965,000 Gaylord Entertainment Co. sr. notes
8s, 2013 1,032,550
1,160,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 1,171,600
285,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 295,688
5,000 Harrah's Operating Co., Inc. company
guaranty 8s, 2011 5,794
585,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 (R) 600,356
389,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 404,560
1,050,000 Host Marriott LP 144A sr. notes 7s,
2012 (R) 1,097,250
475,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 495,188
825,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 709,500
725,000 ITT Corp. debs. 7 3/8s, 2015 812,000
815,000 ITT Corp. notes 6 3/4s, 2005 832,319
1,370,000 JC Penney Co., Inc. debs. 7.95s,
2017 1,596,050
615,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 666,506
40,000 JC Penney Co., Inc. notes 8s, 2010 45,350
1,445,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 1,618,400
728,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 509,600
1,602,000 Jostens IH Corp. 144A company
guaranty 7 5/8s, 2012 1,630,035
795,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 882,450
540,000 K. Hovnanian Enterprises, Inc.
company guaranty 6 3/8s, 2014 552,150
405,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 418,163
243,000 K2, Inc. sr. notes 7 3/8s, 2014 260,921
328,000 KB Home company guaranty 5 7/8s,
2015 332,202
472,000 KB Home sr. notes 5 3/4s, 2014 477,479
1,885,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 2,167,750
780,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 838,500
1,406,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 1,518,480
780,000 Levi Strauss & Co. 144A sr. notes
9 3/4s, 2015 758,550
600,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 627,000
985,000 MeriStar Hospital Corp. company
guaranty 9 1/8s, 2011 (R) 1,063,800
410,000 Meritage Corp. company guaranty
9 3/4s, 2011 453,050
275,000 Meritage Corp. sr. notes 7s, 2014 284,625
560,000 Meritor Automotive, Inc. notes 6.8s,
2009 576,800
615,000 Metaldyne Corp. 144A sr. notes 10s,
2013 575,025
1,085,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 1,228,763
680,000 MGM Mirage, Inc. company guaranty
6s, 2009 693,600
250,000 Mirage Resorts, Inc. debs. 7 1/4s,
2017 261,875
165,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8s, 2012 177,375
430,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 436,988
415,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 284,275
1,185,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 817,650
635,000 Oxford Industries, Inc. sr. notes
8 7/8s, 2011 676,275
1,250,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 1,390,625
680,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 754,800
545,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 613,806
1,320,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 1,425,600
395,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 427,588
1,068,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 1/4s, 2012 1,137,420
1,515,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 1,598,325
1,110,000 PRIMEDIA, Inc. sr. notes 8s, 2013 1,137,750
470,000 R. H. Donnelley Corp. 144A sr. notes
6 7/8s, 2013 471,175
510,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 536,775
995,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 1,166,638
175,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 193,813
1,290,000 RH Donnelley Finance Corp. I 144A
company guaranty 8 7/8s, 2010 1,428,675
650,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 760,500
791,000 Russell Corp. company guaranty
9 1/4s, 2010 848,348
1,538,000 Saks, Inc. company guaranty 7s, 2013 1,576,450
1,665,000 Samsonite Corp. sr. sub. notes
8 7/8s, 2011 1,791,956
530,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 605,525
466,000 Scientific Games Corp. 144A sr. sub.
notes 6 1/4s, 2012 472,990
1,545,000 Sealy Mattress Co. sr. sub. notes
8 1/4s, 2014 1,575,900
590,000 Standard Pacific Corp. sr. notes
7 3/4s, 2013 638,675
785,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 894,900
535,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 569,106
665,000 Station Casinos, Inc. sr. notes 6s,
2012 681,625
715,000 Station Casinos, Inc. sr. sub. notes
6 7/8s, 2016 741,813
470,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 524,050
305,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 327,875
463,000 Technical Olympic USA, Inc. 144A sr.
sub. notes 7 1/2s, 2015 449,110
EUR 185,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 226,058
$1,040,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 1,222,000
596,000 Tenneco Automotive, Inc. 144A sr.
sub. notes 8 5/8s, 2014 619,840
870,000 THL Buildco, Inc. (Nortek, Inc.) sr.
sub. notes 8 1/2s, 2014 893,925
494,000 Toys R Us, Inc. notes 7 5/8s, 2011 512,525
715,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 779,350
835,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 897,625
1,015,000 Vertis, Inc. 144A sub. notes
13 1/2s, 2009 1,078,438
1,135,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 1,265,525
552,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 622,380
770,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 729,575
785,000 Wynn Las Vegas, LLC/Wynn Las Vegas
Capital Corp. 144A 1st mtge. 6 5/8s,
2014 771,263
--------------
83,879,843
Consumer Staples (4.5%)
-------------------------------------------------------------------------------
560,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 484,400
25,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2011 (In default)
(NON) 22,063
75,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 64,500
765,000 Affinity Group, Inc. sr. sub. notes
9s, 2012 818,550
416,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 449,280
1,269,000 AMC Entertainment, Inc. sr. sub.
notes 8s, 2014 1,257,896
165,822 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) (F) 35,320
790,000 Brand Services, Inc. company
guaranty 12s, 2012 888,750
700,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 785,750
360,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 230,400
735,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 510,825
980,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 828,100
1,195,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 1,018,738
2,310,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 1,824,900
265,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 212,000
625,000 Church & Dwight Co., Inc. 144A sr.
sub. notes 6s, 2012 631,250
35,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 39,200
1,385,000 Cinemark, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s,
3/15/07), 2014 (STP) 1,045,675
1,155,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 1,258,950
595,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 645,575
600,000 CSC Holdings, Inc. debs. 7 5/8s,
2018 663,000
515,000 CSC Holdings, Inc. sr. notes Ser. B,
7 5/8s, 2011 561,350
1,460,000 CSC Holdings, Inc. 144A sr. notes
6 3/4s, 2012 1,533,000
1,297,000 Dean Foods Co. sr. notes 6 5/8s,
2009 1,352,123
780,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 866,775
465,000 Del Monte Corp. 144A sr. sub. notes
6 3/4s, 2015 470,813
3,586,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 15,689
1,150,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 1,115,500
678,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 725,460
1,038,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 1,060,058
2,991,000 Echostar DBS Corp. 144A company
guaranty 6 5/8s, 2014 3,020,910
452,000 Elizabeth Arden, Inc. company
guaranty 7 3/4s, 2014 473,470
1,353,000 Granite Broadcasting Corp. sec.
notes 9 3/4s, 2010 1,302,263
440,000 Intelsat Bermuda, Ltd. 144A sr.
notes 8 1/4s, 2013 (Bermuda) 455,400
500,000 Jean Coutu Group, Inc. 144A sr.
notes 7 5/8s, 2012 (Canada) 520,000
603,000 Jean Coutu Group, Inc. 144A sr. sub.
notes 8 1/2s, 2014 (Canada) 601,493
1,170,000 Kabel Deutsheland GmbH 144A sr.
notes 10 5/8s, 2014 (Germany) 1,322,100
59,690 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 57,302
1,374,000 Pinnacle Foods Holding Corp. sr.
sub. notes 8 1/4s, 2013 1,257,210
1,165,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 1,246,550
1,075,000 Playtex Products, Inc. sec. notes
8s, 2011 1,171,750
1,050,000 Prestige Brands, Inc. sr. sub. notes
9 1/4s, 2012 1,107,750
45,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 44,550
1,010,000 Rainbow National Services, LLC 144A
sr. notes 8 3/4s, 2012 1,136,250
1,030,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 991,375
780,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 838,500
50,000 Rite Aid Corp. debs. 6 7/8s, 2013 45,250
105,000 Rite Aid Corp. notes 7 1/8s, 2007 104,475
710,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 706,450
455,000 Rite Aid Corp. 144A sec. notes
7 1/2s, 2015 448,175
1,220,000 Sbarro, Inc. company guaranty 11s,
2009 1,226,100
355,000 Scotts Co. (The) sr. sub. notes
6 5/8s, 2013 368,313
945,000 Six Flags, Inc. sr. notes 9 5/8s,
2014 890,663
EUR 288,000 United Biscuits Finance company
guaranty 10 5/8s, 2011 (United
Kingdom) 396,213
$1,235,000 United Rentals (North America), Inc.
company guaranty 6 1/2s, 2012 1,213,388
529,000 Universal City Florida Holding Co.
144A sr. notes 8 3/8s, 2010 550,160
664,000 Universal City Florida Holding Co.
144A sr. notes FRN 7.2s, 2010 690,560
405,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 413,606
1,010,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 1,010,000
610,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 643,550
510,000 Young Broadcasting, Inc. sr. sub.
notes 8 3/4s, 2014 507,450
--------------
46,177,116
Energy (3.7%)
-------------------------------------------------------------------------------
1,085,000 Amerada Hess Corp. unsub notes
6.65s, 2011 1,193,882
1,390,000 Arch Western Finance, LLC sr. notes
6 3/4s, 2013 1,417,800
483,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 492,660
677,000 Bluewater Finance, Ltd. company
guaranty 10 1/4s, 2012 (Cayman
Islands) 744,700
890,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 930,050
795,000 CHC Helicopter Corp. sr. sub. notes
7 3/8s, 2014 (Canada) 832,763
475,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 535,563
371,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 402,999
1,365,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 1,487,850
400,000 Chesapeake Energy Corp. sr. notes
7s, 2014 424,000
720,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 734,400
974,000 Dresser, Inc. company guaranty
9 3/8s, 2011 1,056,790
301,000 Dresser-Rand Group, Inc. 144A sr.
sub. notes 7 3/8s, 2014 307,773
755,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 832,388
360,000 Encore Acquisition Co. sr. sub.
notes 6 1/4s, 2014 359,100
1,020,000 Exco Resources, Inc. company
guaranty 7 1/4s, 2011 1,076,100
480,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 516,000
770,000 Forest Oil Corp. sr. notes 8s, 2011 872,988
275,000 Forest Oil Corp. sr. notes 8s, 2008 299,063
555,000 Hanover Compressor Co. sr. notes 9s,
2014 610,500
449,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 484,920
745,000 Hanover Compressor Co. sub. notes
zero %, 2007 659,325
241,000 Hanover Equipment Trust sec. notes
Ser. B, 8 3/4s, 2011 260,280
824,000 Harvest Operations Corp. 144A sr.
notes 7 7/8s, 2011 (Canada) 832,240
730,000 Hornbeck Offshore Services, Inc.
144A sr. notes 6 1/8s, 2014 728,175
875,000 Inergy LP/Inergy Finance Corp. 144A
sr. notes 6 7/8s, 2014 870,625
515,000 KCS Energy, Inc. sr. notes 7 1/8s,
2012 539,463
646,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 646,000
1,081,000 Massey Energy Co. sr. notes 6 5/8s,
2010 1,113,430
980,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 1,097,600
505,000 Newfield Exploration Co. 144A sr.
sub. notes 6 5/8s, 2014 532,775
655,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 653,363
764,138 Oslo Seismic Services, Inc. 1st
mtge. 8.28s, 2011 806,748
505,000 Pacific Energy Partners/Pacific
Energy Finance Corp. sr. notes
7 1/8s, 2014 532,775
266,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 279,300
1,065,000 Peabody Energy Corp. sr. notes
5 7/8s, 2016 1,059,675
880,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 1,042,800
795,000 Petro Geo-Services notes 10s, 2010
(Norway) 908,288
1,045,000 Petronas Capital, Ltd. company
guaranty 7 7/8s, 2022 (Malaysia) 1,320,671
683,000 Plains Exploration & Production Co.
sr. notes 7 1/8s, 2014 749,593
1,132,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 1,253,690
920,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 984,400
1,166,000 Pride sr. notes 7 3/8s, 2014 1,282,600
830,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 888,100
420,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default)
(NON) (F) 4
1,273,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 1,352,563
460,000 Stone Energy Corp. 144A sr. sub.
notes 6 3/4s, 2014 449,650
410,000 Tengizchevroll Finance Co. 144A sec.
notes 6.124s, 2014 (Luxembourg) 414,100
205,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 216,531
900,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 987,750
205,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 218,838
--------------
38,293,641
Financial (0.7%)
-------------------------------------------------------------------------------
820,000 China Development Bank bonds and
notes 4 3/4s, 2014 810,305
435,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 449,138
1,075,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 1,161,000
1,390,000 E(a)Trade Finance Corp. 144A sr.
notes 8s, 2011 1,494,250
1,679,020 Finova Group, Inc. notes 7 1/2s,
2009 772,349
1,745,000 VTB Bank (VTB Capital) 144A notes
7 1/2s, 2011 (Luxembourg) 1,875,875
760,000 Western Financial Bank sub. debs.
9 5/8s, 2012 858,800
--------------
7,421,717
Government (0.2%)
-------------------------------------------------------------------------------
1,626,000 Pemex Project Funding Master Trust
144A company guaranty 9 1/2s, 2027 2,065,020
Health Care (3.0%)
-------------------------------------------------------------------------------
486,000 Alderwoods Group, Inc. 144A sr.
notes 7 3/4s, 2012 521,235
805,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 887,513
780,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 861,900
1,375,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 1,423,125
456,000 Community Health Systems, Inc. 144A
sr. sub. notes 6 1/2s, 2012 456,000
455,000 Coventry Health Care, Inc. 144A sr.
notes 5 7/8s, 2012 461,825
655,000 Elan Finance PLC/Elan Finance Corp.
144A sr. notes 7 3/4s, 2011
(Ireland) 684,475
470,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 521,700
745,000 Extendicare Health Services, Inc.
sr. sub. notes 6 7/8s, 2014 754,313
920,000 HCA, Inc. debs. 7.19s, 2015 959,548
350,000 HCA, Inc. notes 8.36s, 2024 384,510
750,000 HCA, Inc. notes 7.69s, 2025 779,934
1,385,000 HCA, Inc. notes 7s, 2007 1,450,049
371,000 HCA, Inc. notes 6 3/8s, 2015 373,181
775,000 HCA, Inc. notes 6 1/4s, 2013 782,568
364,000 HCA, Inc. notes 5 3/4s, 2014 352,841
1,365,000 Healthsouth Corp. notes 7 5/8s, 2012 1,371,825
705,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 728,794
340,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 352,750
290,000 Healthsouth Corp. sr. notes 7s, 2008 292,538
340,845 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 367,260
795,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 930,150
1,170,000 MQ Associates, Inc. sr. disc. notes
stepped-coupon zero %
(12 1/4s, 8/15/08), 2012 (STP) 900,900
1,045,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 1,029,325
1,022,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 1,154,860
915,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 1,024,800
390,000 Service Corp. International debs.
7 7/8s, 2013 417,300
105,000 Service Corp. International notes
7.2s, 2006 108,675
35,000 Service Corp. International notes
6 7/8s, 2007 36,575
155,000 Service Corp. International notes
6 1/2s, 2008 159,069
370,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 392,200
1,085,000 Service Corp. International/US 144A
sr. notes 7s, 2016 1,085,000
1,010,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 1,089,538
530,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 487,600
359,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 319,510
1,240,000 Tenet Healthcare Corp. 144A sr.
notes 9 7/8s, 2014 1,286,500
311,000 Tenet Healthcare Corp. 144A sr.
notes 9 1/4s, 2015 311,000
1,150,000 Triad Hospitals, Inc. sr. notes 7s,
2012 1,203,188
992,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 1,004,400
740,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 765,900
350,000 US Oncology, Inc. 144A sr. notes 9s,
2012 379,750
250,000 US Oncology, Inc. 144A sr. sub.
notes 10 3/4s, 2014 285,625
594,000 Vanguard Health Holding Co. II, LLC
sr. sub. notes 9s, 2014 635,580
425,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 (R) 493,000
243,000 Ventas Realty LP/Capital Corp. 144A
sr. notes 6 5/8s, 2014 (R) 245,430
--------------
30,513,759
Technology (1.5%)
-------------------------------------------------------------------------------
1,218,000 Advanced Micro Devices, Inc. 144A
sr. notes 7 3/4s, 2012 1,214,955
639,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 747,630
1,960,000 Celestica, Inc. sr.sub. notes
7 7/8s, 2011 (Canada) 2,043,300
1,925,000 Freescale Semiconductor, Inc. sr.
notes Ser. B, 7 1/8s, 2014 2,076,594
305,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 322,156
770,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 793,100
100,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 89,000
1,435,000 Lucent Technologies, Inc. debs.
6.45s, 2029 1,280,738
465,000 SCG Holding Corp. 144A notes zero %,
2011 662,625
855,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 919,125
1,744,000 UGS Corp. 144A sr. sub. notes 10s,
2012 1,944,560
1,075,000 Xerox Capital Trust I company
guaranty 8s, 2027 1,120,688
555,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 585,525
1,565,000 Xerox Corp. sr. notes 7 5/8s, 2013 1,686,288
255,000 Xerox Corp. sr. notes 6 7/8s, 2011 269,025
--------------
15,755,309
Transportation (0.5%)
-------------------------------------------------------------------------------
760,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 718,200
1,075,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 876,125
1,270,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 1,422,400
260,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 270,400
1,037,000 Navistar International Corp. sr.
notes 7 1/2s, 2011 1,106,998
322,492 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 338,617
260,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 292,500
--------------
5,025,240
Utilities & Power (3.8%)
-------------------------------------------------------------------------------
77,000 AES Corp. (The) sr. notes 8 7/8s,
2011 86,433
43,000 AES Corp. (The) sr. notes 8 3/4s,
2008 46,870
1,085,000 AES Corp. (The) 144A sec. notes 9s,
2015 1,226,050
1,530,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 1,713,600
740,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 823,250
475,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 532,000
1,190,000 CMS Energy Corp. sr. notes 8.9s,
2008 1,304,538
315,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 351,619
250,000 CMS Energy Corp. sr. notes 7 3/4s,
2010 269,688
536,000 DPL, Inc. bonds 8 1/8s, 2031 609,039
875,000 DPL, Inc. sr. notes 6 7/8s, 2011 948,932
425,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 395,250
1,990,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 2,208,900
525,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 530,250
800,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 776,000
370,000 Edison Mission Energy sr. notes 10s,
2008 427,350
15,000 Edison Mission Energy sr. notes
9 7/8s, 2011 17,531
750,000 El Paso Corp. sr. notes 8.05s, 2030 738,750
560,000 El Paso Corp. sr. notes 7 3/8s, 2012 564,200
525,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 510,563
265,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 307,400
1,390,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 1,445,600
910,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance sr. notes 6 3/4s,
2014 905,450
1,135,000 FirstEnergy Corp. notes Ser. B,
6.45s, 2011 1,231,708
300,000 Kansas Gas & Electric debs. 8.29s,
2016 309,104
1,765,000 Midwest Generation, LLC sec. sr.
notes 8 3/4s, 2034 1,972,388
1,180,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 1,472,050
560,000 Monongahela Power Co. 144A 1st.
mtge. 6.7s, 2014 628,600
739,000 Nevada Power Co. 2nd mtge. 9s, 2013 853,545
330,000 Nevada Power Co. 144A general ref.
mtge. 5 7/8s, 2015 330,825
451,000 Northwest Corp. 144A sec. notes
5 7/8s, 2014 464,130
1,400,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 1,545,250
90,000 Northwestern Corp. debs. 6.95s, 2028
(In default) (NON) (F) --
160,000 Northwestern Corp. notes 8 3/4s,
2012 (In default) (NON) (F) --
2,186,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 2,355,415
805,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 1,006,250
850,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 887,188
670,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 723,561
210,000 Sierra Pacific Power Co. general
ref. mtge. 6 1/4s, 2012 218,400
1,285,000 Sierra Pacific Resources sr. notes
8 5/8s, 2014 1,427,956
130,000 Southern California Edison Co. notes
6 3/8s, 2006 133,545
440,000 Teco Energy, Inc. notes 10 1/2s,
2007 504,900
250,000 Teco Energy, Inc. notes 7.2s, 2011 271,563
400,000 Teco Energy, Inc. notes 7s, 2012 432,000
105,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 106,050
555,000 Tennessee Gas Pipeline Co. unsecd.
notes 7 1/2s, 2017 613,275
826,000 Texas Genco LLC/Texas Genco
Financing Corp. 144A sr. notes
6 7/8s, 2014 854,910
135,000 Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 149,175
1,460,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 1,511,100
510,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 574,388
547,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 611,273
200,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 240,000
210,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 241,500
755,000 Williams Cos., Inc. (The) notes
7 5/8s, 2019 838,050
334,976 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) (F) 34
--------------
39,247,396
--------------
Total Corporate bonds and notes
(cost $355,214,506) $372,366,550
U.S. government and agency mortgage obligations (15.8%) (a)
Principal amount Value
-------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corporation
$7,500,000 6 1/2s, TBA, February 1, 2035 $7,852,734
9,200,000 6 1/2s, TBA, March 1, 2035 9,616,875
18,938 7 1/2s, March 1, 2026 20,430
40,803,336 6 1/2s, with due dates from July 1,
2028 to September 1, 2034 42,767,407
Federal National Mortgage
Association Pass-Through
Certificates
118,360 7 1/2s, with due dates from October
1, 2022 to January 1, 2030 127,089
10,767,379 6 1/2s, with due dates from April 1,
2024 to January 1, 2035 11,286,019
99,218 6 1/2s, April 1, 2016 104,299
47,900,000 6 1/2s, TBA, February 1, 2035 50,122,857
203,855 5s, June 1, 2019 207,398
3,100,000 5s, TBA, February 1, 2020 3,148,922
4,912,756 4 1/2s, with due dates from August
1, 2033 to June 1, 2034 4,805,096
32,600,000 4 1/2s, TBA, February 1, 2020 32,536,329
--------------
Total U.S. government and agency
mortgage obligations
(cost $162,259,306) $162,595,455
U.S. treasury obligations (13.1%) (a)
Principal amount Value
-------------------------------------------------------------------------------
U.S. Treasury Bonds
$21,600,000 7 1/2s, November 15, 2016 $27,891,000
33,514,000 6 1/4s, May 15, 2030 41,395,025
12,260,000 6 1/4s, August 15, 2023 14,704,338
U.S. Treasury Notes
22,594,000 4 1/4s, August 15, 2013 22,876,425
13,910,000 3 1/4s, August 15, 2008 13,791,548
6,273,000 1 1/8s, June 30, 2005 6,234,774
20,460,000 U.S. Treasury Strip zero %, November
15, 2024 7,948,624
--------------
Total U.S. treasury obligations
(cost $127,539,353) $134,841,734
Foreign government bonds and notes (11.3%) (a)
Principal amount Value
-------------------------------------------------------------------------------
EUR 6,000,000 Austria (Republic of) 144A notes
Ser. EMTN, 3.8s, 2013 $8,016,692
$700,000 Brazil (Federal Republic of) bonds
10 1/2s, 2014 813,750
2,415,000 Brazil (Federal Republic of) bonds
8 7/8s, 2019 2,493,488
2,465,000 Brazil (Federal Republic of) notes
8 3/4s, 2025 2,430,737
2,000,000 Brazil (Federal Republic of) unsub.
notes 11s, 2040 2,318,000
1,300,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 1,644,500
CAD 2,725,000 Canada (Government of) bonds 5 1/2s,
2010 2,384,512
CAD 930,000 Canada (Government of) bonds
Ser. WL43, 5 3/4s, 2029 858,779
$560,000 Colombia (Republic of) bonds
10 3/8s, 2033 635,600
1,285,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 1,444,340
1,480,000 Colombia (Republic of) notes
10 3/4s, 2013 1,726,420
460,000 Dominican (Republic of) notes 9.04s,
2013 416,300
2,085,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 7s (8s,
8/15/05), 2030 (STP) 1,928,625
395,000 El Salvador (Republic of) bonds
8 1/4s, 2032 403,888
EUR 1,845,000 France (Government of) bonds 5 3/4s,
2032 3,086,526
EUR 4,830,000 France (Government of) bonds 5 1/2s,
2010 7,091,793
EUR 9,000,000 France (Government of) bonds 4s,
2013 12,240,881
EUR 1,080,000 France (Government of) deb. 4s, 2009 1,473,833
EUR 7,250,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 10,210,347
EUR 6,340,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 8,813,082
EUR 1,875,000 Greece (Hellenic Republic of) bonds
3 1/2s, 2008 2,500,817
$645,000 Indonesia (Republic of) FRN 3.205s,
2005 638,550
260,000 Indonesia (Republic of) FRN 2.795s,
2006 256,100
110,000 Indonesia (Republic of) 144A sr.
notes 6 3/4s, 2014 112,200
925,000 Intelsat Bermuda, Ltd. 144A sr.
notes 8 5/8s, 2015 963,156
520,000 Peru (Republic of) bonds 8 3/4s,
2033 556,400
1,735,000 Philippines (Republic of) bonds
9 1/2s, 2030 1,724,156
1,930,000 Philippines (Republic of) bonds
8 3/8s, 2011 1,981,145
8,662,500 Russia (Federation of) 144A unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 9,095,625
1,335,000 Russia (Ministry of Finance) deb.
Ser. V, 3s, 2008 1,246,623
1,195,000 South Africa (Republic of) notes
7 3/8s, 2012 1,368,275
1,210,000 South Africa (Republic of) notes
6 1/2s, 2014 1,327,975
SEK 37,600,000 Sweden (Government of) bonds Ser.
3101, 4s, 2008 6,719,304
SEK 43,075,000 Sweden (Government of) debs. Ser.
1041, 6 3/4s, 2014 7,642,209
$3,610,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 4,375,320
2,875,000 United Mexican States notes 6 5/8s,
2015 3,117,938
570,000 Venezuela (Republic of) bonds
9 3/8s, 2034 588,240
225,000 Venezuela (Republic of) notes
10 3/4s, 2013 259,425
495,000 Venezuela (Republic of) notes
8 1/2s, 2014 503,663
1,020,000 Venezuela (Republic of) unsub. bonds
5 3/8s, 2010 938,400
--------------
Total Foreign government bonds and
notes (cost $100,078,837) $116,347,614
Asset-backed securities (9.9%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$507,774 ABSC NIMS Trust 144A Ser. 03-HE5,
Class A, 7s, 2033 $509,805
Aegis Asset Backed Securities Trust
144A
100,138 Ser. 04-1N, Class Note, 5s, 2034 100,138
255,730 Ser. 04-2N, Class N1, 4 1/2s, 2034 255,130
218,898 Ser. 04-4N, Class Note, 5s, 2034 219,035
427,000 Ameriquest Finance NIM Trust 144A
Ser. 04-RN9, Class N2, 10s, 2034 395,530
4,491,818 Amortizing Residential Collateral
Trust Ser. 02-BC1, Class A,
IO (Interest only), 6s, 2005 17,921
54,558 AQ Finance NIM Trust 144A Ser.
03-N9A, Class Note, 7.385s, 2033 54,662
Arcap REIT, Inc. 144A
535,000 Ser. 03-1A, Class E, 7.11s, 2038 570,109
304,000 Ser. 04-1A, Class E, 6.42s, 2039 310,033
Argent NIM Trust 144A
44,689 Ser. 03-N6, Class A, 6.4s, 2034
(Cayman Islands) 44,801
61,553 Ser. 04-WN2, Class A, 4.55s, 2034
(Cayman Islands) 61,553
Asset Backed Funding Corp. NIM Trust
144A
5,538 Ser. 03-WF1, Class N1, 8.35s, 2032 5,538
220,000 Ser. 04-0PT1, Class N2, 6.9s, 2033
(Cayman Islands) 219,999
249,507 Ser. 04-0PT5, Class N1, 4 1/2s, 2034
(Cayman Islands) 249,507
350,566 Ser. 04-FF1, Class N1, 5s, 2034
(Cayman Islands) 349,413
27,000 Ser. 04-FF1, Class N2, 5s, 2034
(Cayman Islands) 24,886
356,000 Ser. 04-HE1, Class N2, 8s, 2034
(Cayman Islands) 345,895
424,974 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 3.2s, 2033 425,605
480,000 Bank One Issuance Trust FRB Ser.
03-C4, Class C4, 3.51s, 2011 489,563
23,554,107 Bayview Financial Acquisition Trust
Ser. 03-X, Class A, IO, 0.9s, 2006 409,735
Bear Stearns Asset Backed Securities
NIM Trust 144A
267,832 Ser. 04-HE10, Class A1, 4 1/4s, 2034
(Cayman Islands) 267,832
387,479 Ser. 04-HE6, Class A1, 5 1/4s, 2034
(Cayman Islands) 388,145
356,713 Ser. 04-HE7N, Class A1, 5 1/4s, 2034
(Cayman Islands) 357,382
352,000 Bear Stearns Asset Backed
Securities, Inc. Ser. 04-FR3, Class
M6, 5.668s, 2034 352,000
Bombardier Capital Mortgage
Securitization Corp.
903,189 Ser. 00-A, Class A4, 8.29s, 2030 758,678
1,105,472 Ser. 99-B, Class A3, 7.18s, 2015 851,214
1,149,109 Ser. 99-B, Class A4, 7.3s, 2016 892,054
259,163 Bombardier Capital Mortgage
Securitization Corp. FRB Ser.
00-A, Class A1, 2.64s, 2030 132,510
CARSSX Finance, Ltd. 144A
227,474 FRB Ser. 04-AA, Class B3, 5.83s,
2011 (Cayman Islands) 232,459
831,685 FRB Ser. 04-AA, Class B4, 7.98s,
2011 (Cayman Islands) 853,744
490,000 Chase Credit Card Master Trust FRB
Ser. 03-3, Class C, 3.56s, 2010 501,865
37,560 Chase Funding Net Interest Margin
144A Ser. 03-4A, Class Note,
6 3/4s, 2036 37,654
CHEC NIM Ltd., 144A
407,566 Ser. 04-2, Class N1, 4.45s, 2034
(Cayman Islands) 407,543
132,000 Ser. 04-2, Class N2, 8s, 2034
(Cayman Islands) 131,246
81,000 Ser. 04-2, Class N3, 8s, 2034
(Cayman Islands) 69,660
Conseco Finance Securitizations
Corp.
425,579 Ser. 00-2, Class A4, 8.48s, 2030 427,112
2,765,461 Ser. 00-4, Class A4, 7.73s, 2031 2,699,185
340,000 Ser. 00-4, Class A5, 7.97s, 2032 293,182
4,814,000 Ser. 00-4, Class A6, 8.31s, 2032 4,262,006
1,111,634 Ser. 00-6, Class M2, 8.2s, 2032 111,163
378,000 Ser. 01-4, Class A4, 7.36s, 2033 388,130
1,230,000 Ser. 01-1, Class A5, 6.99s, 2032 1,176,208
18,000 Ser. 01-3, Class A3, 5.79s, 2033 18,356
4,335,000 Ser. 01-3, Class A4, 6.91s, 2033 4,332,399
400,000 Ser. 01-3, Class M2, 7.44s, 2033 66,000
1,064,829 Ser. 01-4, Class B1, 9.4s, 2033 143,752
2,987,493 Ser. 02-1, Class A, 6.681s, 2033 3,111,574
414,000 FRB Ser. 01-4, Class M1, 4.03s, 2033 174,584
1,100,000 Consumer Credit Reference IDX
Securities 144A FRB Ser. 02-1A,
Class A, 4.521s, 2007 1,117,270
Countrywide Asset Backed
Certificates 144A
1,807,343 Ser. 04-6N, Class N1, 6 1/4s, 2035 1,807,343
258,088 Ser. 04-BC1N, Class Note, 5 1/2s,
2035 257,602
603,000 Crest, Ltd. 144A Ser. 03-2A, Class
E2, 8s, 2038 608,849
722,000 CS First Boston Mortgage Securities
Corp. 144A Ser. 05-6N, Class
A, 5 1/4s, 2035 719,574
2,500,000 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class E, 7.863s, 2039 2,598,047
807,786 First Consumers Master Trust FRN
Ser. 01-A, Class A, 2.79s, 2008 803,747
First Franklin NIM Trust 144A
172,597 Ser. 03-FF3A, Class A, 6 3/4s, 2033 171,927
397,999 Ser. 04-FF10, Class N1, 4.45s, 2034
(Cayman Islands) 397,973
Fremont NIM Trust 144A
14,172 Ser. 03-B, Class Note, 5.65s, 2033 14,189
86,692 Ser. 04-3, Class B, 7 1/2s, 2034 84,984
333,142 Ser. 04-A, Class Note, 4 3/4s, 2034 332,309
602,581 Fremont Trust 144A Ser. 04-3, Class
A, 4 1/2s, 2034 601,556
Granite Mortgages PLC
490,000 FRB Ser. 02-1, Class 1C, 3.97s, 2042
(United Kingdom) 497,693
EUR 2,005,000 FRB Ser. 03-2, Class 2C1, 5.2s, 2043
(United Kingdom) 2,784,489
GBP 1,505,000 FRB Ser. 03-2, Class 3C, 6.42s, 2043
(United Kingdom) 2,940,458
Green Tree Financial Corp.
$517,182 Ser. 94-4, Class B2, 8.6s, 2019 367,716
1,251,681 Ser. 94-6, Class B2, 9s, 2020 1,016,866
525,430 Ser. 95-4, Class B1, 7.3s, 2025 495,546
509,436 Ser. 95-8, Class B1, 7.3s, 2026 383,911
187,270 Ser. 95-F, Class B2, 7.1s, 2021 171,118
545,000 Ser. 96-8, Class M1, 7.85s, 2027 482,216
135,592 Ser. 99-3, Class A5, 6.16s, 2031 136,925
1,739,000 Ser. 99-5, Class A5, 7.86s, 2030 1,560,295
Greenpoint Manufactured Housing
3,117,333 Ser. 00-3, Class IA, 8.45s, 2031 3,032,937
50,000 Ser. 99-5, Class A4, 7.59s, 2028 52,780
1,663,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 1,638,221
GSAMP Trust 144A
54,229 Ser. 03-HE1N, Class Note, 7 1/4s,
2033 54,262
164,311 Ser. 04-FM1N, Class Note, 5 1/4s,
2033 164,196
187,980 Ser. 04-HE1N, Class N1, 5s, 2034 187,642
1,898,317 Ser. 04-NIM1, Class N1, 5 1/2s, 2034 1,897,367
732,000 Ser. 04-NIM1, Class N2, zero %, 2034 541,534
1,847,818 Ser. 04-NIM2, Class N, 4 7/8s, 2034 1,839,872
100,538 Ser. 04-RENM, Class Note, 5 1/2s,
2032 100,538
267,205 Ser. 04-SE2N, Class Note, 5 1/2s,
2034 267,071
Holmes Financing PLC FRB
331,000 Ser. 8, Class 2C, 3.38s, 2040
(United Kingdom) 332,490
300,000 Ser. 4, Class 3C, 3.96s, 2040
(United Kingdom) 303,840
Home Equity Asset Trust 144A
112,898 Ser. 02-5N, Class A, 8s, 2033 112,898
3,318 Ser. 03-4N, Class A, 8s, 2033 3,318
137,011 Ser. 03-7N, Class A, 5 1/4s, 2034 137,096
97,493 Ser. 04-1N, Class A, 5s, 2034 97,493
439,865 Ser. 04-5N, Class A, 5 1/4s, 2034 440,387
LNR CDO, Ltd. 144A
1,755,000 FRB Ser. 02-1A, Class FFL, 5.27s,
2037 (Cayman Islands) 1,755,000
1,070,000 FRB Ser. 03-1A, Class EFL, 5.52s,
2036 (Cayman Islands) 1,161,164
Long Beach Asset Holdings Corp. NIM
Trust 144A
8,418 Ser. 03-2, Class N1, 7.627s, 2033 8,418
4,482 Ser. 03-4, Class N1, 6.535s, 2033 4,482
247,537 Ser. 04-2, Class N1, 4.94s, 2034 247,537
353,635 Ser. 04-5, Class Note, 5s, 2034 354,413
2,369,228 Long Beach Mortgage Loan Trust Ser.
04-3, Class S1, IO, 4 1/2s, 2006 122,904
GBP 1,200,000 Lothian Mortgages PLC 144A FRN Ser.
3A, Class D, 5.67s, 2039 (United
Kingdom) 2,263,080
$1,457,253 Madison Avenue Manufactured Housing
Contract FRB Ser. 02-A, Class B1,
5.78s, 2032 801,489
Master Asset Backed Securities NIM
Trust 144A
200,000 Ser. 04-CI5, Class N2, 10s, 2034 199,800
310,531 Ser. 04-HE1, Class A, 5 1/4s, 2034 310,500
490,000 MBNA Credit Card Master Note Trust
FRN Ser. 03-C5, Class C5, 3.66s,
2010 500,782
82,957 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 83,172
Merrill Lynch Mortgage Investors,
Inc. 144A
200,026 Ser. 04-FM1N, Class N1, 5s, 2035 199,146
164,464 Ser. 04-HE1N, Class N1, 5s, 2006 163,313
236,886 Mid-State Trust Ser. 11, Class B,
8.221s, 2038 230,558
303,000 Morgan Stanley ABS Capital I FRB
Ser. 04-HE8, Class B3, 5.73s, 2034 305,996
35,134 Morgan Stanley ABS Capital I 144A
Ser. 04-NC2N, Class Note, 6 1/4s,
2033 35,345
240,000 Morgan Stanley Auto Loan Trust 144A
Ser. 04-HB2, Class E, 5s, 2012 232,575
Morgan Stanley Dean Witter Capital I
156,114 FRN Ser. 01-NC3, Class B1, 4.98s,
2031 154,635
419,893 FRN Ser. 01-NC4, Class B1, 5.03s,
2032 416,499
97,079 New Century Mortgage Corp. NIM Trust
144A Ser. 03-B, Class Note, 6 1/2s,
2033 97,352
132,576 Novastar NIM Trust 144A Ser. 04-N1,
Class Note, 4.458s, 2034 132,576
Oakwood Mortgage Investors, Inc.
1,451,000 Ser. 00-D, Class A4, 7.4s, 2030 948,083
1,990,970 Ser. 01-C, Class A2, 5.92s, 2017 1,254,710
982,969 Ser. 01-C, Class A4, 7.405s, 2030 684,933
310,727 Ser. 01-D, Class A2, 5.26s, 2019 240,099
1,196,000 Ser. 01-D, Class A4, 6.93s, 2031 945,677
2,228,129 Ser. 01-E, Class A2, 5.05s, 2019 1,824,628
662,886 Ser. 02-A, Class A2, 5.01s, 2020 558,084
627,000 Ser. 02-B, Class A4, 7.09s, 2032 564,300
2,692,813 Ser. 02-C, Class A1, 5.41s, 2032 2,393,103
1,074,358 Ser. 99-B, Class A4, 6.99s, 2026 973,804
1,928,159 Ser. 99-D, Class A1, 7.84s, 2029 1,829,437
535,920 Oakwood Mortgage Investors, Inc.
144A Ser. 01-B, Class A4, 7.21s,
2030 510,785
683,000 Ocean Star PLC 144A FRB Ser. 04-A,
Class E, 8.606s, 2018 (Ireland) 683,000
47,470 Option One Mortgage Securities Corp.
NIM Trust 144A Ser. 03-5, Class
Note, 6.9s, 2033 47,708
100,000 Park Place Securities NIM Trust 144A
Ser. 04-WCW2, Class D, 7.387s, 2034 100,000
279,835 Pass-Through Amortizing Credit Card
Trust Ser. 02-1A, Class A4FL, 7.98s,
2012 280,283
145,000 People's Choice Net Interest Margin
Note 144A Ser. 04-2, Class B, 5s,
2034 131,370
Permanent Financing PLC FRB
380,000 Ser. 1, Class 3C, 3.66s, 2042
(United Kingdom) 383,648
490,000 Ser. 3, Class 3C, 3.61s, 2042
(United Kingdom) 496,664
GBP 1,251,000 Ser. 6, Class 3C, 5.54s, 2042
(United Kingdom) 2,359,261
$1,848,000 Providian Gateway Master Trust Ser.
02, Class B, zero %, 2006 1,734,732
2,977,378 Residential Asset Mortgage Products,
Inc. Ser. 03-RZ1, Class A,
IO, 5 3/4s, 2005 61,212
659,709 Residential Asset Securities Corp.
144A Ser. 04-N10B, Class A1, 5s,
2034 659,709
332,714 Rural Housing Trust Ser. 87-1, Class
D, 6.33s, 2026 341,448
SAIL Net Interest Margin Notes 144A
333,585 Ser. 03-10A, Class A, 7 1/2s, 2033
(Cayman Islands) 335,253
138,684 Ser. 03-12A, Class A, 7.35s, 2033
(Cayman Islands) 140,071
107,171 Ser. 03-3, Class A, 7 3/4s, 2033
(Cayman Islands) 107,975
46,133 Ser. 03-4, Class A, 7 1/2s, 2033
(Cayman Islands) 46,082
233,038 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 232,970
79,693 Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) 79,693
189,888 Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) 188,479
43,934 Ser. 03-8A, Class A, 7s, 2033
(Cayman Islands) 43,713
122,098 Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) 121,463
215,091 Ser. 03-BC2A, Class A, 7 3/4s, 2033
(Cayman Islands) 214,466
1,097,590 Ser. 04-10A, Class A, 5s, 2034
(Cayman Islands) 1,098,029
553,161 Ser. 04-2A, Class A, 5 1/2s, 2034
(Cayman Islands) 553,161
677,328 Ser. 04-4A, Class A, 5s, 2034
(Cayman Islands) 676,312
179,523 Ser. 04-7A, Class A, 4 3/4s, 2034
(Cayman Islands) 179,274
44,852 Ser. 04-7A, Class B, 6 3/4s, 2034
(Cayman Islands) 44,107
1,065,573 Ser. 04-8A, Class A, 5s, 2034
(Cayman Islands) 1,065,573
274,100 Ser. 04-8A, Class B, 6 3/4s, 2034
(Cayman Islands) 267,946
SAIL Net Interest Margin Notes 144A
376,748 Ser. 04-AA, Class A, 4 1/2s, 2034
(Cayman Islands) 375,429
Sasco Net Interest Margin Trust 144A
102,399 Ser. 03-AM1, Class A, 7 3/4s, 2033
(Cayman Islands) 102,115
381,625 Ser. 03-BC1, Class B, zero %, 2033 324,381
87,922 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 87,922
Sharps SP I, LLC Net Interest Margin
Trust 144A
81,866 Ser. 03-0P1N, Class NA, 4.45s, 2033 81,768
70,927 Ser. 03-HS1N, Class N, 7.48s, 2033 71,104
87,701 Ser. 03-NC1N, Class N, 7 1/4s, 2033 88,061
37,688 Ser. 03-TC1N, Class N, 7.45s, 2033 37,688
153,255 Ser. 04-HE2N, Class NA, 5.43s, 2034 152,872
44,232 Ser. 04-HS1N, Class Note, 5.92s,
2034 44,232
200,000 South Coast Funding 144A FRB Ser.
3A, Class A2, 3.46s, 2038 202,620
Structured Asset Investment Loan
Trust
164,935 Ser. 03-BC1A, Class A, 7 3/4s, 2033 165,450
5,664,011 Ser. 03-BC2, Class A, IO, 6s, 2005 50,789
2,688,674 Ser. 03-BC8, Class A, IO, 6s, 2005 50,626
15,461,232 Ser. 04-1, Class A, IO, 6s, 2005 444,559
650,000 TIAA Real Estate CD0, Ltd. Ser.
03-1A, Class E, 8s, 2038 (Cayman
Islands) 629,620
544,000 TIAA Real Estate CD0, Ltd. 144A Ser.
02-1A, Class IV, 6.84s, 2037 516,898
3,438,400 Washington Mutual Ser. 03-S1, Class
A11, IO, 5 1/2s, 2033 131,089
Wells Fargo Home Equity Trust 144A
1,216,931 Ser. 04-2, Class N1, 4.45s, 2034 1,216,859
303,000 Ser. 04-2, Class N2, 8s, 2034 287,850
Whole Auto Loan Trust 144A
763,414 Ser. 03-1, Class D, 6s, 2010 760,670
814,000 Ser. 04-1, Class D, 5.6s, 2011 811,583
--------------
Total Asset-backed securities
(cost $103,539,946) $101,869,206
Collateralized mortgage obligations (4.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
Banc of America Commercial Mortgage,
Inc. 144A
$231,000 Ser. 01-1, Class J, 6 1/8s, 2036 $227,752
519,000 Ser. 01-1, Class K, 6 1/8s, 2036 385,864
298,000 Banc of America Large Loan 144A FRN
Ser. 02-FL2A, Class L1, 5.4s, 2014 298,874
348,000 Bear Stearns Commercial Mortgage
Securitization Corp. Ser.
00-WF2, Class F, 8.195s, 2032 416,691
490,000 Bear Stearns Commercial Mortgage
Securitization Corp. 144A Ser.
04-ESA, Class K, 4.95s, 2016 489,998
5,071,253 Commercial Mortgage Acceptance Corp.
Ser. 97-ML1, IO, 0.916s, 2017 112,518
754,000 Commercial Mortgage Pass-Through
Certificates 144A Ser.
01-FL4A, Class D, 3.253s, 2013 736,431
1,858,000 Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2033 1,976,448
2,814,000 Criimi Mae Commercial Mortgage Trust
144A Ser. 98-C1, Class B, 7s, 2033 3,001,607
CS First Boston Mortgage Securities
Corp. 144A
501,000 FRB Ser. 03-TF2A, Class L, 6.48s,
2014 498,291
1,360,000 Ser. 98-C1, Class F, 6s, 2040 998,590
499,000 Ser. 02-CP5, Class M, 5 1/4s, 2035 358,532
52,512,417 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X,
IO, 1.082s, 2031 1,367,118
DLJ Commercial Mortgage Corp.
399,789 Ser. 98-CF2, Class B4, 6.04s, 2031 391,913
1,281,541 Ser. 98-CF2, Class B5, 5.95s, 2031 878,124
DLJ Mortgage Acceptance Corp. 144A
390,000 Ser. 97-CF1, Class B2, 8.16s, 2030 97,500
375,000 Ser. 97-CF1, Class B1, 7.91s, 2030 408,093
192,091 European Loan Conduit 144A FRN Ser.
6A, Class F, 7.148s, 2010 (United
Kingdom) 366,793
Fannie Mae
942 Ser. 92-15, Class L, IO, 1037.606s,
2022 9,935
159,850 Ser. 98-51, Class SG, IO, 24.04s,
2022 76,820
538,690 Ser. 02-36, Class SJ, 14.081s, 2029 568,674
566,479 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 606,659
10,925 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 11,704
1,238 Ser. 02-W1, Class 2A, 7 1/2s, 2042 1,318
4,792 Ser. 02-14, Class A2, 7 1/2s, 2042 5,126
696,684 Ser. 01-T10, Class A2, 7 1/2s, 2041 744,105
3,092 Ser. 02-T4, Class A3, 7 1/2s, 2041 3,303
7,674 Ser. 01-T8, Class A1, 7 1/2s, 2041 8,188
2,701,505 Ser. 01-T7, Class A1, 7 1/2s, 2041 2,879,451
404,383 Ser. 01-T3, Class A1, 7 1/2s, 2040 431,333
1,234,429 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,319,114
512,533 Ser. 99-T2, Class A1, 7 1/2s, 2039 548,010
257,763 Ser. 00-T6, Class A1, 7 1/2s, 2030 274,741
1,208,048 Ser. 01-T4, Class A1, 7 1/2s, 2028 1,296,795
2,471 Ser. 02-W3, Class A5, 7 1/2s, 2028 2,644
1,283,032 Ser. 03-58, Class ID, IO, 6s, 2033 222,927
1,255,472 Ser. 03-26, Class IG, IO, 6s, 2033 185,275
1,010,497 Ser. 322, Class 2, IO, 6s, 2032 181,574
1,274,280 Ser. 318, Class 2, IO, 6s, 2032 233,502
1,700,007 Ser. 03-118, Class S, IO, 5.57s,
2033 187,001
1,896,785 Ser. 03-118, Class SF, IO, 5.57s,
2033 223,465
1,167,161 Ser. 02-36, Class QH, IO, 5.52s,
2029 39,658
6,128,565 Ser. 338, Class 2, IO, 5 1/2s, 2033 1,210,870
2,773,214 Ser. 329, Class 2, IO, 5 1/2s, 2033 543,593
3,620,712 Ser. 03-37, Class IC, IO, 5 1/2s,
2027 327,562
470,612 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 7,762
10,461,013 Ser. 03-W10, Class 1A, IO, 1.651s,
2043 235,373
12,299,229 Ser. 03-W10, Class 3A, IO, 1.615s,
2043 284,420
6,782,489 Ser. 03-W17, Class 12, IO, 1.158s,
2033 221,111
10,936,063 Ser. 00-T6, IO, 0.755s, 2030 196,507
19,287,264 Ser. 02-T18, IO, 0.52s, 2042 273,362
207,812 Ser. 99-51, Class N, PO (Principal
only), zero %, 2029 178,978
84,120 Ser. 99-52, Class MO, PO, zero %,
2026 80,195
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
14,740 Ser. T-58, Class 4A, 7 1/2s, 2043 15,754
6,378,995 Ser. T-57, Class 1AX, IO, 0.446s,
2043 61,876
18,395,364 FFCA Secured Lending Corp. Ser.
00-1, Class X, IO, 1.562s, 2020 1,079,091
Freddie Mac
721,062 IFB Ser. 2763, Class SC, 18.68s,
2032 835,032
3,954,596 Ser. 216, IO, 6s, 2032 704,876
2,008,400 Ser. 2515, Class IG, IO, 5 1/2s,
2032 466,785
964,069 Ser. 2626, Class IK, IO, 5 1/2s,
2030 171,040
1,033,400 Ser. 2590, Class IH, IO, 5 1/2s,
2028 184,074
712,362 Ser. 2833, Class IK, IO, 5 1/2s,
2023 96,169
427,901 Ser. 215, PO, zero %, 2031 384,994
424,978 Ser. 2235, PO, zero %, 2030 361,630
GE Capital Commercial Mortgage Corp.
144A
838,000 Ser. 00-1, Class G, 6.131s, 2033 748,585
522,000 Ser. 00-1, Class H, 6.131s, 2033 373,909
739,550 GMAC Commercial Mortgage Securities,
Inc. 144A Ser. 99-C3, Class
G, 6.974s, 2036 589,435
Government National Mortgage
Association
361,041 Ser. 01-43, Class SJ, IO, 5.1s, 2029 3,892
196,730 Ser. 98-2, Class EA, PO, zero %,
2028 167,374
300,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 5.73s,
2015 300,375
GBP 1,578,529 Hermione (European Loan Conduit No.
14) 144A FRB Class A, 4.489s, 2011
(Ireland) 2,993,320
LB Commercial Conduit Mortgage Trust
144A
$355,850 Ser. 99-C1, Class G, 6.41s, 2031 343,765
1,396,000 Ser. 98-C4, Class J, 5.6s, 2035 1,020,661
825,000 Lehman Brothers Floating Rate
Commercial Mortgage Trust 144A
FRN Ser. 03-LLFA, Class L, 6.2s,
2014 814,277
Mach One Commercial Mortgage Trust
144A
594,000 Ser. 04-1A, Class J, 5.45s, 2040 497,653
297,000 Ser. 04-1A, Class K, 5.45s, 2040 242,798
135,000 Ser. 04-1A, Class L, 5.45s, 2040 98,803
9,214,581 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, Class JS,
IO, 2.13s, 2028 455,620
8,113,000 Merrill Lynch Mortgage Trust 144A
Ser. 04-BPC1, Class XC, IO, 0.059s,
2041 157,189
1,439,162 Mezz Cap Commercial Mortgage Trust
144A Ser. 04-C1, Class X, IO, 6.18s,
2037 639,809
2,430,000 Morgan Stanley Capital I 144A Ser.
04-RR, Class F7, 6s, 2039 1,791,061
7,079,343 Mortgage Capital Funding, Inc. Ser.
97-MC2, Class X, IO, 1.483s, 2012 173,132
459,501 Mortgage Capital Funding, Inc. FRB
Ser. 98-MC2, Class E, 7.146s, 2030 497,270
174,000 PNC Mortgage Acceptance Corp. 144A
Ser. 00-C1, Class J, 6 5/8s, 2010 154,141
Starwood Asset Receivables Trust
144A
245,003 FRB Ser. 03-1A, Class F, 3.63s, 2022 245,322
308,522 FRB Ser. 03-1A, Class E, 3.58s, 2022 308,923
STRIPS 144A
229,000 Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands) 189,727
272,000 Ser. 03-1A, Class N, 5s, 2018
(Cayman Islands) 203,102
245,000 Ser. 04-1A, Class M, 5s, 2018
(Cayman Islands) 205,335
235,000 Ser. 04-1A, Class N, 5s, 2018
(Cayman Islands) 178,882
EUR 563,000 Titan Europe PLC 144A FRN Ser.
04-2A, Class D, 3.08s, 2014
(Ireland) 733,814
--------------
Total Collateralized mortgage
obligations (cost $51,493,443) $45,121,687
Senior loans (2.2%) (a) (c)
Principal amount Value
Basic Materials (0.1%)
-------------------------------------------------------------------------------
$205,323 Graphics Packaging bank term loan
FRN Ser. Ser. C, 5.133s, 2010 $208,660
347,375 Hercules, Inc. bank term loan FRN
Ser. B, 3.985s, 2010 350,523
171,674 Nalco Co. bank term loan FRN Ser. B,
4.635s, 2010 173,939
230,518 SGL Carbon, LLC bank term loan FRN
4.95s, 2009 231,671
--------------
964,793
Capital Goods (0.1%)
-------------------------------------------------------------------------------
205,589 Allied Waste Industries, Inc. bank
term loan FRN 5 1/8s, 2010 208,526
35,003 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 2.4s, 2010 35,441
274,304 Amsted Industries bank term loan FRN
5.432s, 2010 278,761
191,187 EaglePicher bank term loan FRN
Ser. B, 5.46s, 2009 191,426
89,236 Flowserve Corp. bank term loan FRN
Ser. C, 5.358s, 2009 90,742
158,173 Invensys, PLC bank term loan FRN
Ser. B-1, 6.091s, 2009 (United
Kingdom) 160,644
188,991 Mueller Group bank term loan FRN
5.099s, 2011 190,645
198,500 Solo Cup Co. bank term loan FRN
4.993s, 2011 201,850
98,517 SPX Corp. bank term loan FRN
Ser. B-1, 4.438s, 2009 98,886
74,251 Transdigm, Inc. bank term loan FRN
Ser. C, 4.67s, 2010 75,133
--------------
1,532,054
Communication Services (0.1%)
-------------------------------------------------------------------------------
99,333 Consolidated Communications bank
term loan FRN Ser. C, 4.95s, 2012 100,823
109,172 PanAmSat Corp. bank term loan FRN
Ser. B, 5 1/4s, 2011 109,948
268,125 Qwest Communications International,
Inc. bank term loan FRN
Ser. A, 7.39s, 2007 279,425
99,500 SBA Senior Finance, Inc. bank term
loan FRN 4.862s, 2008 100,713
--------------
590,909
Consumer Cyclicals (0.5%)
-------------------------------------------------------------------------------
650,000 Advertising Direct bank term loan
FRN 4.48s, 2011 655,455
650,000 Boise Cascade Corp. bank term loan
FRN Ser. C, 4.688s, 2011 650,222
800,000 Borgata Resorts bank term loan FRN
Ser. B, 3.93s, 2011 806,666
187,294 Coinmach Corp. bank term loan FRN
Ser. B, 5.448s, 2009 189,167
245,288 Dex Media West, LLC bank term loan
FRN Ser. B, 4.26s, 2010 248,220
160,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 7.03s, 2006 162,240
150,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 4.6s, 2007 151,359
234,988 Hayes Lemmerz International, Inc.
bank term loan FRN 6.148s, 2009 238,953
244,444 Lamar Media bank term loan FRN
Ser. D, 4.063s, 2010 246,965
100,000 Landsource bank term loan FRN
Ser. B, 5.063s, 2010 101,375
135,230 Penn National Gaming, Inc. bank term
loan FRN Ser. D, 4.99s, 2010 135,535
190,762 PRIMEDIA, Inc. bank term loan FRN
Ser. B, 5 3/8s, 2009 188,377
469,726 RH Donnelley Finance Corp. bank term
loan FRN Ser. A-3, 4.236s, 2009 472,341
322,920 RH Donnelley Finance Corp. bank term
loan FRN Ser. B, 4.275s, 2011 325,913
134,286 Sealy Mattress Co. bank term loan
FRN Ser. C, 4.535s, 2012 136,076
761,406 TRW Automotive bank term loan FRN
Ser. B, 4 3/8s, 2010 762,516
220,000 WRC Media Corp. bank term loan FRN
6.761s, 2009 218,350
--------------
5,689,730
Consumer Staples (0.7%)
-------------------------------------------------------------------------------
47,374 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.514s, 2009 47,809
118,436 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.474s, 2009 119,522
155,910 AMF Bowling Worldwide bank term loan
FRN Ser. B, 5.506s, 2009 157,275
1,120,000 Century Cable Holdings bank term
loan FRN 7 1/4s, 2009 1,111,000
966,771 Charter Communications Holdings,
LLC/Capital Corp. bank term loan
FRN Ser. B, 5.38s, 2011 962,714
1,000,000 Constellation Brands, Inc. bank term
loan FRN Ser. B, 4.404s, 2011 1,012,321
237,890 Del Monte Foods Co. bank term loan
FRN Ser. B, 4.96s, 2010 238,882
202,350 DirecTV bank term loan FRN Ser. B-2,
4.465s, 2010 205,031
19,616 Dole Food Co. bank term loan FRN
Ser. D, 4.843s, 2009 19,904
160,000 Dole Holding Co. bank term loan FRN
8s, 2010 163,800
103,950 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 5.188s, 2009 105,457
239,400 MGM Studios bank term loan FRN
Ser. B, 5.06s, 2011 239,340
465,000 Olympus Cable bank term loan FRN
Ser. B, 7 1/4s, 2010 460,931
135,518 Rayovac Corp. bank term loan FRN
Ser. C, 4.871s, 2009 136,761
291,767 Roundy's bank term loan FRN Ser. B,
4.263s, 2009 294,594
126,691 Six Flags, Inc. bank term loan FRN
Ser. B, 4.9s, 2009 128,631
228,717 Sum Media bank term loan FRN Ser. B,
4.144s, 2009 230,290
900,000 Universal City Development bank term
loan FRN Ser. B, 4.583s, 2011 913,500
397,000 Warner Music Group bank term loan
FRN Ser. B, 5.209s, 2011 401,549
--------------
6,949,311
Energy(--%)
-------------------------------------------------------------------------------
240,000 Dresser, Inc. bank term loan FRN
5.84s, 2010 243,600
Financial (0.2%)
-------------------------------------------------------------------------------
1,300,000 General Growth Property bank term
loan FRN Ser. B, 4.64s, 2008 1,308,802
326,082 Hilb, Rogal & Hamilton Co. bank term
loan FRN Ser. B, 4.813s, 2011 330,362
--------------
1,639,164
Health Care (0.2%)
-------------------------------------------------------------------------------
185,156 Beverly Enterprises, Inc. bank term
loan FRN 5.082s, 2008 187,471
159,600 Community Health Systems, Inc. bank
term loan FRN Ser. B, 4.15s, 2011 160,772
295,513 Concentra bank term loan FRN 5.045s,
2009 298,591
492,985 DaVita, Inc. bank term loan FRN
Ser. B, 4.458s, 2009 493,513
159,200 Fisher Scientific International,
Inc. bank term loan FRN
Ser. B, 3.92s, 2011 160,328
148,125 Hanger Orthopedic Group, Inc. bank
term loan FRN 6.06s, 2009 149,051
162,938 Kinetic Concepts, Inc. bank term
loan FRN Ser. B, 4.31s, 2011 163,752
203,156 Medex, Inc. bank term loan FRN
Ser. B, 5 1/2s, 2009 204,849
--------------
1,818,327
Transportation (--%)
-------------------------------------------------------------------------------
174,382 Pacer International, Inc. bank term
loan FRN 4.371s, 2010 176,562
Utilities & Power (0.3%)
-------------------------------------------------------------------------------
1,132,452 EL Paso Corp. bank term loan FRN
Ser. B, Class B, 5.188s, 2009 1,143,462
293,000 El Paso Corp. bank Corp. term loan
FRN Ser. C, 2.3s, 2009 295,289
707,692 Texas Genco bank term loan FRN
Ser. B, 4.48s, 2011 716,440
292,308 Texas Genco bank term loan FRN
Ser. DD, 4.02s, 2011 295,799
160,000 Unisource Energy bank term loan FRN
Ser. B, 5.652s, 2011 160,600
162,533 Williams Products bank term loan FRN
Ser. C, 4.99s, 2007 164,700
--------------
2,776,290
--------------
Total Senior loans
(cost $22,090,335) $22,380,740
Common stocks (0.7%) (a)
Number of shares Value
-------------------------------------------------------------------------------
2,767 AboveNet, Inc. (NON) (S) $83,702
3,074 Alderwoods Group, Inc. (NON) 36,996
1,005,000 AMRESCO Creditor Trust (acquired
6/17/99, cost $174,438) (NON) (RES)
(R) (F) 1,005
1,522 Birch Telecom, Inc. (NON) (F) 15
652 Comdisco Holding Co., Inc. (S) 16,137
3,390,037 Contifinancial Corp. Liquidating
Trust Units 84,751
21,241 Covad Communications Group, Inc.
(NON) (S) 35,897
689 Crown Castle International Corp.
(NON) (S) 11,300
1,529 Genesis HealthCare Corp. (NON) 53,026
64,253 Globix Corp. (NON) 227,456
750,000 iPCS Escrow, Inc. (NON) (F) 750
17,455 iPCS, Inc. (NON) 541,105
282 Knology, Inc. (NON) 649
220 Leucadia National Corp. 7,966
9,031 Lodgian, Inc. (NON) 106,114
160,000 Loewen Group International, Inc.
(NON) (F) 16
8,147 Northwestern Corp. (NON) 231,049
1,112 Polymer Group, Inc. Class A (NON) 20,016
2,502 PSF Group Holdings, Inc. 144A Class
A (NON) (F) 3,753,720
74,020 Regal Entertainment Group (F) 1,471,518
368 Sterling Chemicals, Inc. (NON) 14,536
1,195 Sun Healthcare Group, Inc. (NON) (S) 9,094
19 USA Mobility, Inc. (NON) 675
1,292,251 VFB LLC (acquired various dates from
6/22/99 to 12/8/03, cost $955,585)
(NON) (RES) 264,911
6,378 Washington Group International, Inc.
(NON) 251,166
--------------
Total Common stocks
(cost $18,398,220) $7,223,570
Brady bonds (0.5%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$2,350,000 Argentina (Republic of) govt.
guaranty FRB Ser. L-GL, 3 1/2s, 2023
(In default) (NON) $1,304,250
1,107,362 Brazil (Federal Republic of) FRB
Ser. 18 YR, 3 1/8s, 2012 1,058,970
591,181 Brazil (Federal Republic of) govt.
guaranty FRB Ser. RG, 3 1/8s, 2012 565,347
985,000 Peru (Republic of) coll. FLIRB Ser.
20YR, 4 1/2s, 2017 913,588
853,600 Peru (Republic of) FRB Ser. 20 YR,
5s, 2017 806,652
--------------
Total Brady bonds (cost $3,961,125) $4,648,807
Preferred stocks (0.4%) (a)
Number of shares Value
-------------------------------------------------------------------------------
$15,119 Doane Pet Care Co. $7.125 pfd. $786,188
38 Dobson Communications Corp. 13.00%
pfd. (PIK) 20,520
540 First Republic Capital Corp. 144A
10.50% pfd. 558,900
17,777 iStar Financial, Inc. Ser. F, $1.95
cum. pfd. (R) 464,869
100 Paxson Communications Corp. 14.25%
cum. pfd. (PIK) 820,000
1,234 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. (PIK) 1,116,770
--------------
Total Preferred stocks
(cost $3,655,277) $3,767,247
Convertible preferred stocks (0.2%) (a)
Number of shares Value
-------------------------------------------------------------------------------
3,471 Emmis Communications Corp. Ser. A,
$3.125 cum. cv. pfd. $152,290
7,495 Omnicare, Inc. $2.00 cv. pfd. 374,750
93 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 492,900
9,530 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 818,389
--------------
Total Convertible preferred stocks
(cost $1,845,110) $1,838,329
Units (0.1%) (a)
Number of units Value
-------------------------------------------------------------------------------
1,250,000 Morrison Knudsen Corp., 2032 $95,313
951 XCL Equity Units zero % (F) 422,079
--------------
Total Units (cost $2,522,752) $517,392
Convertible bonds and notes (--%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$3,080,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes 13s, 2009 (Denmark) (In
default) (NON) $31
380,000 WCI Communities, Inc. cv. sr. sub.
notes 4s, 2023 493,525
--------------
Total Convertible bonds and notes
(cost $2,972,768) $493,556
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
1,001 AboveNet, Inc. 9/8/08 $12,012
1,178 AboveNet, Inc. 9/8/10 9,424
1,420 Dayton Superior Corp. 144A 6/15/09 --
694 MDP Acquisitions PLC 144A 10/1/13 19,432
550 Mikohn Gaming Corp. 144A 8/15/08 4,818
560 ONO Finance PLC 144A (United
Kingdom) 2/15/11 6
570 Pliant Corp. 144A 6/1/10 6
690 Travel Centers of America, Inc. 144A 5/1/09 3,450
2,310 Ubiquitel, Inc. 144A 4/15/10 --
3,937 Washington Group International, Inc.
Ser. A 1/25/06 44,567
4,500 Washington Group International, Inc.
Ser. B 1/25/06 37,800
2,432 Washington Group International, Inc.
Ser. C 1/25/06 17,389
800 XM Satellite Radio Holdings, Inc.
144A 3/15/10 68,000
--------------
Total Warrants (cost $812,351) $216,904
Short-term investments (12.6%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$128,556,834 Putnam Prime Money Market (e) $128,556,834
148,965 Short-term investments held as
collateral for loaned securities with
yields ranging from 2.29% to 2.65%
and due dates ranging from February
1, 2005 to March 22, 2005 (d) 148,891
1,500,000 U.S. Treasury Bills zero %, March
31, 2005 (SEG) 1,494,792
--------------
Total Short-term investments
(cost $130,200,517) $130,200,517
-------------------------------------------------------------------------------
Total Investments
(cost $1,086,583,846) $1,104,429,308
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,030,013,719.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at January 31, 2005 was
$265,916 or less than 0.1% 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 January 31, 2005.
(F) Security is valued at fair value following procedures approved by
the Trustees.
(R) Real Estate Investment Trust.
(S) Securities on loan, in part or in entirety, at January 31, 2005.
(c) Senior loans are exempt from registration under the Security Act of
1933, as amended, but contain certain restrictions on resale and cannot
be sold publicly. These loans pay interest at rates which adjust
periodically. The interest rate shown for senior loans are the current
interest rates at January 31, 2005. Senior loans are also subject to
mandatory and/or optional prepayment which cannot be predicted. As a
result, the remaining maturity may be substantially less than the stated
maturity shown (Notes 1 and 5).
(d) See Note 1 to the financial statements.
(e) See Note 4 to the financial statements regarding investments in
Putnam Prime Money Market Fund.
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 IFB and IF COP, which are securities paying interest
rates that vary inversely to changes in the market interest rates, are
the current interest rates at January 31, 2005.
Forward currency contracts to buy at January 31, 2005 (Unaudited)
(aggregate face value $149,817,898)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Australian Dollar $29,080,827 $28,992,479 4/20/05 $88,348
British Pound 26,192,048 26,341,237 3/16/05 (149,189)
Canadian Dollar 80,066 80,420 4/20/05 (354)
Danish Krone 1,761,255 1,796,863 3/16/05 (35,608)
Euro 15,879,844 16,270,064 3/16/05 (390,220)
Japanese Yen 46,520,565 46,947,679 5/18/05 (427,114)
New Zealand Dollar 437,275 440,413 4/20/05 (3,138)
Polish Zloty 742,595 738,758 3/16/05 3,837
Swedish Krona 2,483,532 2,594,759 3/16/05 (111,227)
Swiss Franc 22,181,239 23,013,575 3/16/05 (832,336)
Taiwan Dollar 2,630,680 2,601,651 5/18/05 29,029
------------------------------------------------------------------------------------------------------
$(1,827,972)
------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at January 31, 2005 (Unaudited)
(aggregate face value $168,340,763)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Australian Dollar $8,826,611 $8,729,039 4/20/05 $(97,572)
British Pound 7,438,493 7,365,425 3/16/05 (73,068)
Canadian Dollar 22,752,945 23,519,098 4/20/05 766,153
Euro 78,448,230 80,064,917 3/16/05 1,616,687
Norwegian Krone 14,323,546 14,759,034 3/16/05 435,488
Swedish Krona 18,501,252 19,117,843 3/16/05 616,591
Swiss Franc 14,136,359 14,785,407 3/16/05 649,048
------------------------------------------------------------------------------------------------------
$3,913,327
------------------------------------------------------------------------------------------------------
Futures contracts outstanding at January 31, 2005 (Unaudited)
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
CBT Interest Rate Swap
10 yr (Long) $2,565,219 $2,551,765 Mar-05 $13,454
Euro-Bobl 5 yr (Long) 18,638,286 18,581,212 Mar-05 57,074
Euro-Bund 10 yr (Long) 28,449,657 28,023,151 Mar-05 426,506
Liffe-Gilt (Long) 6,697,507 6,695,529 Mar-05 1,978
Japanese Government
Bond 10 yr (Long) 9,444,992 9,353,229 Mar-05 91,763
Japanese Government
Bond 10 yr-TSE (Long) 16,194,896 16,034,252 Mar-05 160,644
U.S. Treasury Note
10 yr (Long) 8,644,453 8,602,311 Mar-05 42,142
U.S. Treasury Note
30 yr (Long) 12,977,344 12,854,188 Mar-05 123,156
U.S. Treasury Note
5 yr (Short) 150,437,250 150,271,167 Mar-05 (166,083)
------------------------------------------------------------------------------------------------------
$750,634
------------------------------------------------------------------------------------------------------
TBA sale commitments outstanding at January 31, 2005 (Unaudited)
(proceeds receivable $17,492,938)
Principal Settlement
amount date Value
------------------------------------------------------------------------------------------------------
FHLMC 6 1/2s, February 1, 2035 $9,200,000 2/10/05 $9,644,906
FNMA 6 1/2s, February 1, 2035 7,500,000 2/10/05 7,848,047
------------------------------------------------------------------------------------------------------
$17,492,953
------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at January 31, 2005 (Unaudited)
Unrealized
Notional Termination appreciation/
amount date (depreciation)
------------------------------------------------------------------------------------------------------
Agreement with Merrill Lynch International & CO.
C.V. dated January 25, 2005 to pay semi-annually
the notional amount multiplied by 3.0425% and
receive quarterly the notional amount multiplied
by three month BA CDOR. CAD 119,500,000 1/25/07 $12,504
Agreement with Bank of America, N.A. dated
March 25, 2004 to pay semi-annually the notional
amount multiplied by 3.075% and receive quarterly
the notional amount multiplied by the three
month USD-LIBOR. $23,700,000 3/30/09 622,130
Agreement with Bank of America, N.A. dated
January 22, 2004 to pay semi-annually the notional
amount multiplied by 1.97375% and receive
quarterly the notional amount multiplied by the
three month USD-LIBOR. 17,400,000 1/26/06 217,572
Agreement with Bank of America, N.A. dated
December 2, 2003 to pay semi-annually the
notional amount multiplied by 2.444% and receive
quarterly the notional amount multiplied by the
three month USD-LIBOR. 8,912,000 12/5/05 54,630
Agreement with Bank of America, N.A. dated
January 22, 2004 to pay semi-annually the
notional amount multiplied by 4.35% and receive
quarterly the notional amount multiplied by the
three month USD-LIBOR. 5,500,000 1/27/14 35,727
Agreement with Credit Suisse First Boston
International dated July 7, 2004 to pay semi-
annually the notional amount multiplied by 4.945%
and receive quarterly the notional amount
multiplied by the three month USD-LIBOR. 8,099,800 7/9/14 (306,976)
Agreement with Credit Suisse First Boston
International dated July 7, 2004 to receive semi-
annually the notional amount multiplied by 2.931%
and pay quarterly the notional amount multiplied
by the three month USD-LIBOR. 7,174,500 7/9/06 (49,305)
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semi-annually the notional amount multiplied by
1.955% and receive quarterly the notional amount
multiplied by the three month USD-LIBOR-BBA. 17,400,000 1/26/06 219,704
Agreement with Lehman Brothers Special
Financing, Inc. dated December 9, 2003 to receive
semi-annually the notional amount multiplied by
4.641% and pay quarterly the notional amount
multiplied by the three month USD-LIBOR-BBA. 12,964,000 12/15/13 235,204
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay semi-
annually the notional amount multiplied by 4.3375%
and receive quarterly the notional amount
multiplied by the three month USD-LIBOR-BBA. 5,500,000 1/26/14 40,207
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 semi-annually the
notional amount multiplied by 0.399%. JPY 3,417,000,000 10/1/07 (161,665)
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 11/21/05 324,514
------------------------------------------------------------------------------------------------------
$1,244,246
------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at January 31, 2005 (Unaudited)
Unrealized
Notional appreciation/
amount (depreciation)
------------------------------------------------------------------------------------------------------
Agreement with Citigroup effective January 6, 2005, maturing on
December 20, 2009, to pay a premium based on the difference
between the original spread on issue and the market spread on day
of execution and pay quarterly 375 basis points times the notional
amount . Upon a credit default event of a reference entity within
CDX HY Series 3 Index, the fund receives a payment of the
proportional notional amount times the difference between the
pay value and the then-market value of the reference entity within
the CDX HY Series 3 Index. $7,000,000 $(381,354)
Agreement with JP Morgan effective January 14, 2005, maturing on
December 20, 2009, to receive a premium based on the difference
between the original spread on issue and the market spread on day
of execution and pay quarterly 375 basis points time the notional
amount. Upon a credit default event of a reference entity within
CDX BB HY Series 3 Index, the fund receives a payment of the
proportional notional amount times the difference between the par
value and the then-market value of the reference entity within
the CDX BB HY Series 3 Index. 4,000,000 (176,250)
Agreement with JP Morgan effective January 18, 2005, maturing on
December 20, 2009, to receive a premium based on the difference
between the original spread on issue and the market spread on day
of execution and pay quarterly 375 basis points time the notional
amount. Upon a credit default event of a reference entity within
CDX BB HY Series 3 Index, the fund receives a payment of the
proportional notional amount times the difference between the par
value and the then-market value of the reference entity within
the CDX BB HY Series 3 Index. 4,000,000 (167,917)
Agreement with Deutsche Bank AG effective January 6, 2005,
maturing on December 20, 2009, to receive a premium based on the
difference between the original spread on issue and the market
spread on day of execution and pay quarterly 375 basis points
time the notional amount. Upon a credit default event of a
reference entity within CDX BB HY Series 3 Index, the fund
receives a payment of the proportional notional amount times the
difference between the par value and the then-market value of the
reference entity within the CDX BB HY Series 3
Index. 3,000,000 (145,903)
Agreement with JP Morgan effective January 10, 2005, maturing on
December 20, 2009, to receive a premium based on the difference
between the original spread on issue and the market spread on day
of execution and pay quarterly 375 basis points time the notional
amount. Upon a credit default event of a reference entity within
CDX BB HY Series 3 Index, the fund receives a payment of the
proportional notional amount times the difference between the par
value and the then-market value of the reference entity within
the CDX BB HY Series 3 Index. 3,000,000 (143,313)
Agreement with Goldman Sachs effective January 13, 2005, maturing
on December 20, 2009, to receive a premium based on the
difference between the original spread on issue and the market
spread on day of execution and pay quarterly 375 basis points
time the notional amount. Upon a credit default event of a
reference entity within CDX BB HY Series 3 Index, the fund
receives a payment of the proportional notional amount times the
difference between the par value and the then-market value of the
reference entity within the CDX BB HY Series 3
Index. 3,000,000 (140,312)
Agreement with UBS Securities effective January 14, 2005,
maturing on December 20, 2009, to receive a premium based on the
difference between the original spread on issue and the market
spread on day of execution and pay quarterly 375 basis points
time the notional amount. Upon a credit default event of a
reference entity within CDX BB HY Series 3 Index, the fund
receives a payment of the proportional notional amount times the
difference between the par value and the then-market value of the
reference entity within the CDX BB HY Series 3
Index. 3,000,000 (133,440)
Agreement with Lehman Brothers effective January 14, 2005,
maturing on December 20, 2009, to receive a premium based on the
difference between the original spread on issue and the market
spread on day of execution and pay quarterly 375 basis points
time the notional amount. Upon a credit default event of a
reference entity within CDX BB HY Series 3 Index, the fund
receives a payment of the proportional notional amount times the
difference between the par value and the then-market value of the
reference entity within the CDX BB HY Series 3
Index. 1,000,000 (44,478)
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
standing notional amount times 2.35% and the fund pays in the
event of a credit default in one of the underlying securities in
the basket of BB CMBS securities. 1,604,741 82,697
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.55625% and the fund pays in
the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. 1,604,741 50,441
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.4625% and the fund pays in
the event of a credit default in one of the underlying securities
in the basket of BB CMBS securities. 802,370 38,453
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.433% and the fund pays in
the event of a credit default in one of the underlying securities in
the basket of BB CMBS securities. 601,778 27,287
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.475% and the fund pays in
the event of a credit default in one of the underlying securities in
the basket of BB CMBS securities. 401,185 16,913
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.5% and the fund pays in the
event of a credit default in one of the underlying securities in the
basket of BB CMBS securities. 200,593 13,193
Agreement with Goldman Sachs effective September 2, 2004,
terminating on the date on which the notional amount is reduced
to zero or the date on which the assets securing the reference
obligation are liquidated, the fund receives a payment of the
outstanding notional amount times 2.6% and the fund pays in the
event of a credit default in one of the underlying securities in the
basket of BB CMBS securities. 200,593 2,071
------------------------------------------------------------------------------------------------------
$(1,101,912)
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
January 31, 2005 (Unaudited)
Assets
-------------------------------------------------------------------------------
Investment in securities, at value, including $142,736 of securities on
loan (Note 1):
-------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $958,027,012) $975,872,474
-------------------------------------------------------------------------------
Affiliated issuers (identified cost $128,556,834) (Note 4) 128,556,834
-------------------------------------------------------------------------------
Cash 17,311,302
-------------------------------------------------------------------------------
Foreign currency (cost $2,182,882) (Note 1) 2,198,515
-------------------------------------------------------------------------------
Interest and other receivables 13,520,506
-------------------------------------------------------------------------------
Receivable for securities sold 48,798,082
-------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 1,762,192
-------------------------------------------------------------------------------
Receivable for open credit default contracts (Note 1) 231,055
-------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 211,163
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 4,312,861
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 2,229,119
-------------------------------------------------------------------------------
Total assets 1,195,004,103
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 5,497,338
-------------------------------------------------------------------------------
Payable for securities purchased 133,715,408
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,728,214
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 125,030
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 104,730
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,101
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 2,227,506
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 1,919,135
-------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 517,946
-------------------------------------------------------------------------------
Payable for open credit default contracts (Note 1) 1,332,967
-------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable
$17,492,938) (Note 1) 17,492,953
-------------------------------------------------------------------------------
Collateral on securities loaned, at value $142,736 (Note 1) 148,891
-------------------------------------------------------------------------------
Other accrued expenses 175,165
-------------------------------------------------------------------------------
Total liabilities 164,990,384
-------------------------------------------------------------------------------
Net assets $1,030,013,719
Represented by
-------------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Note 1) $1,206,712,544
-------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 9,022,827
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (206,598,610)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 20,876,958
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $1,030,013,719
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($1,030,013,719 divided by
141,198,870 shares) $7.29
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended January 31, 2005 (Unaudited)
Investment income:
-------------------------------------------------------------------------------
Interest (including interest income of $1,232,497 from
investments in affiliated issuers) (Note 4) $30,384,909
-------------------------------------------------------------------------------
Dividends 200,880
-------------------------------------------------------------------------------
Securities lending 1,837
-------------------------------------------------------------------------------
Total investment income 30,587,626
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Notes 2 and 4) 3,555,042
-------------------------------------------------------------------------------
Investor servicing (Note 2) 255,136
-------------------------------------------------------------------------------
Custodian fees (Note 2) 175,451
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 19,510
-------------------------------------------------------------------------------
Administrative services (Note 2) 22,532
-------------------------------------------------------------------------------
Other 388,306
-------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 4) (95,997)
-------------------------------------------------------------------------------
Total expenses 4,319,980
-------------------------------------------------------------------------------
Expense reduction (Note 2) (15,710)
-------------------------------------------------------------------------------
Net expenses 4,304,270
-------------------------------------------------------------------------------
Net investment income 26,283,356
-------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 10,977,792
-------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 498,330
-------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 659,675
-------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 3,419,430
-------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 49,867
-------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 1,676,296
-------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts, credit default contracts and TBA
sale commitments during the period 26,812,765
-------------------------------------------------------------------------------
Net gain on investments 44,094,155
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $70,377,511
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
Increase in net assets 2005* 2004
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $26,283,356 $61,479,944
-------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 15,605,094 21,907,198
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 28,489,061 22,638,395
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 70,377,511 106,025,537
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (33,039,598) (66,079,263)
-------------------------------------------------------------------------------
Total increase in net assets 37,337,913 39,946,274
Net assets
-------------------------------------------------------------------------------
Beginning of period 992,675,806 952,729,532
-------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $9,022,827 and
$15,779,069, respectively) $1,030,013,719 $992,675,806
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning and end of
period 141,198,870 141,198,870
-------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Six months
ended
January 31
Per-share (Unaudited) Year ended July 31
operating performance 2005 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.03 $6.75 $6.22 $6.68 $7.19 $7.62
---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 (e) .44 (e) .51 .55 .61 .63
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 .31 .54 (.47) (.50) (.39)
---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .49 .75 1.05 .08 .11 .24
---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.47) (.52) (.53) (.51) (.67)
---------------------------------------------------------------------------------------------------------------------------------
From return
of capital -- -- -- (.01) (.11) --
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.47) (.52) (.54) (.62) (.67)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.29 $7.03 $6.75 $6.22 $6.68 $7.19
---------------------------------------------------------------------------------------------------------------------------------
Market price,
end of period $6.65 $6.29 $6.31 $6.03 $6.29 $6.38
---------------------------------------------------------------------------------------------------------------------------------
Total return at
market price (%)(b) 9.53* 7.18 13.41 4.44 8.56 (1.51)
---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,030,014 $992,676 $952,730 $877,649 $942,125 $1,013,487
---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .42 (e)* .83 (e) .85 .86 .85 .83
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.58 (e)* 6.19 (e) 7.91 8.39 8.87 8.48
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 122.20* 78.43 96.21 (d) 175.78 (d) 231.58 133.80
---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions executed in connection with a short-term trading strategy.
(e) Reflects waivers of certain fund expenses in connection with Putnam Prime Money Market Fund during the period. As a result
of such waivers, the expenses of the fund for the periods ended January 31, 2005 and July 31, 2004 reflect a reduction of
less than 0.01% of average net assets (Note 4).
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
January 31, 2005 (Unaudited)
Note 1
Significant accounting policies
Putnam Premier Income Trust (the "fund"), a Massachusetts business
trust, is registered under the Investment Company Act of 1940, as
amended, as a non-diversified, closed-end management investment company.
The fund's investment objective is to seek high current income
consistent with the preservation of capital by allocating its
investments among the U.S. government sector, high yield sector and
international sector of the fixed-income securities market. The fund
invests in higher yielding, lower-rated bonds that have a higher rate of
default due to the nature of the investments.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at 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 fair 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. Many securities markets and exchanges outside the
U.S. close prior to the close of the New York Stock Exchange and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the New York Stock Exchange. Accordingly, on certain
days, the fund will fair value foreign securities taking into account
multiple factors, including movements in the U.S. securities markets.
The number of days on which fair value prices will be used will depend
on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. 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 certain 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 Pursuant to an exemptive order from the
Securities and Exchange Commission ("SEC"), 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 issues 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) 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, net
of applicable withholding taxes, is recognized on the ex-dividend date
except that certain dividends from foreign securities are recognized as
soon as the fund is informed of the ex-dividend date. Non-cash
dividends, if any, are recorded at the fair market value of the
securities received. All premiums/discounts are amortized /accreted on a
yield-to-maturity basis. The fund earned certain fees in connection with
its senior loan purchasing activities. These fees are treated as market
discount and are recorded as income in the statement of operations.
D) 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.
E) 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. Risks may exceed amounts recognized on the
statement of assets and liabilities. Forward currency contracts
outstanding at period end, if any, are listed after the fund's
portfolio.
F) 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. Risks may exceed amounts recognized on the statement of assets
and liabilities. 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. If a written call option is exercised,
the premium originally received is recorded as an addition to sales
proceeds. If a written put option is exercised, the premium originally
received is recorded as a reduction to the cost of investments.
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, if any,
are listed after the fund's portfolio.
G) 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 received or made
are recorded as realized gains 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. Risk of loss may exceed amounts recognized on the statement of
assets and liabilities. Interest rate swap contracts outstanding at
period end, if any, are listed after the fund's portfolio.
H) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront or
periodic payment to a counter party, the protection seller, in exchange
for the right to receive a contingent payment. The maximum amount of the
payment may equal the notional amount, at par, of the underlying index
or security as a result of a related credit event. An upfront payment
received by the fund, as the protection seller, is recorded as a
liability on the fund's books. An upfront payment made by the fund, as
the protection buyer, is recorded as an asset on the fund's books.
Periodic payments received or paid by the fund are recorded as realized
gains or losses. 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. Risks of loss may exceed amounts
recognized on the statement of assets and liabilities. Credit default
contracts outstanding at period end, if any, are listed after the fund's
portfolio.
I) 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 fair value of the
underlying securities, 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.
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.
J) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at fair 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, if any, are listed
after the fund's portfolio.
K) 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 January 31, 2005, the value of
securities loaned amounted to $142,736. The fund received cash
collateral of $148,891 which is pooled with collateral of other Putnam
funds into 25 issuers of high grade short-term investments.
L) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code of 1986 (the "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 Code, 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, 2004, the fund had a capital loss carryover of $221,029,478
available to the extent allowed by the Code to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
--------------------------------
$26,204,240 July 31, 2007
44,857,570 July 31, 2008
24,930,247 July 31, 2009
44,917,486 July 31, 2010
80,119,935 July 31, 2011
The aggregate identified cost on a tax basis is $1,088,282,090,
resulting in gross unrealized appreciation and depreciation of
$56,574,185 and $40,426,967, respectively, or net unrealized
appreciation of $16,147,218.
M) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
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.
Effective September 13, 2004, Putnam Investments Limited ("PIL"), an
affiliate of Putnam Management, is authorized by the Trustees to manage
a separate portion of the assets of the fund as determined by Putnam
Management from time to time. Putnam Management pays a quarterly
sub-management fee to PIL for its services at an annual rate 0.40% of
the average net assets of the portion of the fund managed by PIL.
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. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended January 31, 2005, the
fund paid PFTC $430,587 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended January 31,
2005, the fund's expenses were reduced by $15,710 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,940, as a quarterly retainer, 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 Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the statement of assets
and liabilities. The Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
Note 3
Purchases and sales of securities
During the six months ended January 31, 2005, purchases and proceeds
from sales of investment securities other than U.S. government
securities and short-term investments aggregated $1,070,017,708 and
$1,075,493,879, respectively. Purchases and sales of U.S. government
securities aggregated no monies and $9,566,797, respectively.
Note 4
Investment in Putnam
Prime Money Market Fund
Pursuant to an exemptive order from the SEC, the fund invests in Putnam
Prime Money Market Fund, an open-end management investment company managed
by Putnam Management. Management fees paid by the fund are reduced by an
amount equal to the management fees paid by Putnam Prime Money Market Fund
with respect to assets invested by the fund in Putnam Prime Money Market
Fund. For the period ended January 31, 2005, management fees paid were
reduced by $95,997 relating to the fund's investment in Putnam Prime Money
Market Fund. Income distributions earned by the fund are recorded as
income in the statement of operations and totaled $1,232,497 for the
period ended January 31, 2005.
Note 5
Senior loan commitments
Senior loans are purchased or sold on a when-issued or delayed delivery
basis and may be settled a month or more after the trade date; interest
income is accrued based on the terms of the securities. Senior loans can
be acquired through an agent, by assignment from another holder of the
loan, or as a participation interest in another holder's portion of the
loan. When the fund invests in a loan or participation, the fund is
subject to the risk that an intermediate participant between the fund
and the borrower will fail to meet its obligations to the fund, in
addition to the risk that the borrower under the loan may default on its
obligations.
Note 6
Merger of Putnam Master Income
Trust into the fund
On February 25, 2005 Putnam Master Income Trust transferred of all of
its assets into the fund in exchange for the shares of the fund and the
assumption by the fund of all of the liabilities of Putnam Master Income
Trust.
Note 7
Regulatory matters and litigation
Putnam Management has entered into agreements with the Securities and
Exchange Commission and the Massachusetts Securities Division settling
charges connected with excessive short-term trading by Putnam employees
and, in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans.
Pursuant to these settlement agreements, Putnam Management will pay a
total of $193.5 million in penalties and restitution, with $153.5
million being paid to shareholders and the funds. The restitution amount
will be allocated to shareholders pursuant to a plan developed by an
independent consultant, with payments to shareholders currently expected
by the end of the summer.
The SEC's and Massachusetts Securities Division's allegations and
related matters also serve as the general basis for numerous lawsuits,
including purported class action lawsuits filed against Putnam
Management and certain related parties, including certain Putnam funds.
Putnam Management will bear any costs incurred by Putnam funds in
connection with these lawsuits. Putnam Management believes that the
likelihood that the pending private lawsuits and purported class action
lawsuits will have a material adverse financial impact on the fund is
remote, and the pending actions are not likely to materially affect its
ability to provide investment management services to its clients,
including the Putnam funds.
Results of January 13, 2005
shareholder meeting
(Unaudited)
A special meeting of shareholders of the fund was held on January 13,
2005. At the meeting, the following proposal was approved:
Approving an Agreement and Plan of Reorganization and the transactions
contemplated thereby, including the transfer of all of the assets of
Putnam Master Income Trust to Putnam Premier Income Trust in exchange
for the issuance and delivery of shares of beneficial interest of Putnam
Premier Income Trust and the assumption by Putnam Premier Income Trust
of the liabilities of Putnam Master Income Trust, and the distribution
of such shares to the shareholders of Putnam Master income Trust in
complete liquidation of Putnam Master Income Trust.
Votes Votes
For Against Abstentions
------------------------------------------------------------------------------
67,764,834 4,292,013 3,413,230
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
Investment Sub-Manager
Putnam Investments Limited
57-59 St. James Street
London, England SW1A 1LD
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
W. Thomas Stephens
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Charles A. Ruys de Perez
Vice President and
Chief Compliance 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
Do you want to save paper and receive this document faster?
Shareholders can sign up for email delivery of shareholder
reports on www.putnaminvestments.com.
220213 3/05
Item 2. Code of Ethics:
-----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
-----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
Not applicable
Item 5. Audit Committee: Not applicable
-------------------------
Item 6. Schedule of Investments: Not applicable
--------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
-------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
--------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
---------------------------------
(a) The registrant's principal executive officer and principal
financial officer 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, that the design and operation of
such procedures are generally effective to provide reasonable
assurance that information required to be disclosed by the registrant
in this report 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 11. Exhibits:
------------------
(a) Not applicable
(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
and 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: March 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and 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/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: March 28, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: March 28, 2005