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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Fixed-income markets demonstrated impressive resilience during your fund's
fiscal year, which ended July 31, 2004. Although there was concern that
the economy's resurgence would jeopardize the performance of bonds,
especially given that bonds had posted impressive returns for several
years in a row, most fixed-income sectors performed well over the 12-month
period. High-yield bonds did particularly well, as the economy's strength
diminished worries about credit and default risk, and the generous yield
of these securities insulated them from interest-rate volatility.
Government bonds and other issues with high credit ratings treaded water
until the spring of 2004, when a surge in new job creation caused interest
rates to spike. However, after that abrupt rise in rates, economic
indicators cooled considerably and rates again fell. While interest rates
for bonds of all maturities have risen in the past year, most
investment-grade bond indexes nevertheless had positive performance.
The recent volatility in the fixed-income market reminds us how
difficult it can be to forecast short-term market movements. The
managers of Putnam Premier Income Trust rely on training, experience,
and Putnam's analytical tools in an effort to keep the portfolio
positioned to take advantage of opportunities and risks in the market.
The fund's diversification across multiple sectors of the bond market
allows the management team to pull many levers in pursuit of strong
performance. This capability was particularly helpful during the past 12
months, when market conditions changed significantly. For example,
during the first half of the period, when high-yield bonds and
emerging-market securities performed strongly, the fund benefited from
being well positioned in these sectors -- especially high yield, in
which the fund was overweighted relative to its benchmark. In the second
half of the period, your fund's managers grew wary of excessive
valuations in these sectors and reduced their weightings, focusing more
on security selection. These strategies helped the fund produce strong
absolute and relative returns during a challenging and volatile 12-month
period.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
September 15, 2004
Report from Fund Management
Fund highlights
* During the fiscal year ended July 31, 2004, Putnam Premier Income
Trust had a total return at net asset value (NAV) of 11.98%. The fund's
return at market price was 7.18%.
* Due to its portfolio of lower-quality, higher-yielding securities, as
well as strong security selection, especially in the high-yield bond
sector, the fund significantly outperformed at NAV the 3.86% return of
its primary benchmark, the Lehman Government Bond Index.
* At NAV, the fund also outperformed the 10.66% average return of funds
in the Lipper Flexible Income Funds (closed-end) category.
* See the Performance Summary beginning on page 8 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
During its fiscal year, Putnam Premier Income Trust performed well amid
significant changes in the U.S. and international bond markets. During
the first six months, the fund benefited from a variety of factors that
drove strong returns in the global bond markets, especially among
lower-quality bond sectors. In the second half of the year, however, the
bond market became skittish, as investors became increasingly concerned
about higher interest rates and the potential for inflation, especially
in the United States. Consequently, nearly all bond sectors saw flat to
slightly positive returns during that period. The exception has been the
high-yield market, where year-to-date returns are in the low single
digits. In this uncertain environment, your fund's management team
focused on investing in specific securities and sectors that it believed
could outperform. This strategy produced strong relative and absolute
returns for the fund. 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.
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
In the past 12 months, international bond market performance has been
generally positive, although sluggish growth in Europe and rising
interest rates in the U.K. sent mixed signals to investors. Low
inflation in Europe reduced the likelihood of a rate increase by the
European Central Bank, and European government and government agency
bonds had solid returns. In emerging markets, the strengthening global
economy boosted commodities exports, helping performance in both the
stock and bond markets of these countries in the first half. Concerns
about high valuations and geopolitical conflicts, however, have dampened
enthusiasm for this sector since the beginning of the calendar year.
In the United States, low inflation and an accommodative Federal Reserve
Board monetary policy helped bond yields decline in the first half of
the period, but a strengthening economy and rising interest rates
dampened returns in the second half. The U.S. dollar weakened for much
of the period as the country's trade deficit ballooned, but it gained
value relative to other major currencies toward the end of the fund's
fiscal year.
U.S. high-yield corporate bonds were strong during the first half of the
period, but in the second half performance slowed, although returns were
still positive. Default rates continued to decline throughout the
12-month period, and credit quality improved as companies retired or
refinanced debt. Responding to the strong performance, investor demand
for high-yield bonds remained generally strong, and there were ample new
high-yield issues. U.S. Treasury, agency, and mortgage-backed securities
(MBSs) saw moderate returns, with Treasuries losing steam in the face of
rising interest rates in the second half.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 7/31/04
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Bonds
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Lehman Government Bond Index (U.S. Treasury and agency securities) 3.86%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 9.48%
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JP Morgan Global High Yield Index (global high-yield corporate bonds) 13.83%
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JP Morgan Global Diversified Emerging Markets Index
(global emerging-market securities) 11.24%
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Equities
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S&P 500 Index (broad stock market) 13.17%
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MSCI EAFE Index (international stocks) 25.05%
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Russell 2000 Index (stocks of small and midsize companies) 17.06%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 7/31/04.
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Strategy overview
Over the 12-month period, we continued to emphasize U.S. high-yield
corporate bonds. Although we reduced the fund's exposure to this sector
during the second half of the period, it still made a substantial
contribution to results for the year. By the end of the fiscal year,
high-yield bonds -- still the fund's largest single sector weighting --
outperformed the other sectors in which the fund invests, primarily due
to the strong economy, improving credit quality among high-yield
issuers, declining default rates, and generally strong demand. We
reduced the fund's high-yield allocation primarily because we believed
that high-yield bonds were not as attractively valued as they had been
over the past few years. We used the proceeds of the sales to increase
the fund's weighting in MBSs, asset-backed securities (ABSs), and
commercial mortgage-backed securities (CMBSs), all of which saw improved
performance in the second half of the year after solid, albeit
unspectacular, returns in the first half.
In a period characterized by uncertainty about the economy's strength,
the impact of U.S. Federal Reserve interest-rate increases, and
continued geopolitical turmoil, we avoided positioning the portfolio
based on an analysis of interest rates and the economy -- the so called
"top-down" approach. Instead, we focused on finding specific securities
and sectors that we believed could outperform, such as high-yield bonds
issued by companies with strong cash flows; certain types of MBSs and
ABSs; and international government bonds from countries we felt had
sound economies and strong currencies.
[GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED]
SECTOR WEIGHTINGS COMPARED
as of 1/31/04 as of 7/31/04
High yield 47.3% 40.9%
U.S. investment grade 33.2% 39.1%
International* 19.5% 20.0%
Footnotes read:
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.
* Includes emerging markets.
How fund holdings and sectors affected performance
In the first half of the period, the U.S. economy was recovering
strongly and the equity and high-yield bond markets responded with
impressive returns. During this period, the fund's U.S. high-yield
corporate bond holdings (its largest single sector weighting)
significantly outperformed all other bond sectors and contributed
strongly to the fund's returns. High-yield bonds, especially those with
lower credit quality, outperformed Treasuries in each of the six months
from August 2003 through January 2004. Within this sector, we sought, on
a selective basis, opportunities in lower-quality bonds that offered
both higher yields and the potential for an improvement in credit
quality. Our primary rationale was that, in an environment of economic
recovery and declining corporate default rates, these securities offered
the greatest total return potential within the high-yield universe. As
the economy and stock market improved, many high-yield bonds --
especially those with lower ratings and higher yields -- had impressive
price gains in addition to their attractive yields. To take advantage of
this trend, we generally de-emphasized BB-rated bonds and emphasized
those with CCC ratings. We also sought bonds issued by companies with
adequate liquidity and a strong ability to meet their obligations. Bonds
with CCC ratings were among the strongest performers in the high-yield
market during the first half of the fund's fiscal year.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 7/31/04)
High-Yield Sector
1 Conseco Finance Securitizations Corp. (1.1%)
Series 00-4, Class A6, 8.31%, 2032
2 PSF Group Holdings, Inc. (1.0%)
144A, Class A
3 Qwest Corp. (1.0%)
144A notes 9.125%, 2012
International Sector
1 France (Government of) (0.4%)
Bonds, 4%, 2013
2 United Kingdom (0.4%)
Treasury bonds, 7.25%, 2007
3 United Kingdom (0.4%)
Treasury bonds, 4.5%, 2007
U.S. Investment-Grade Sector
1 Federal National Mortgage Association (5.0%)
Pass-through certificates, 5%, TBA, August 15, 2019
2 Federal National Mortgage Association (5.0%)
Pass-through certificates, 6.5%, TBA
August 15, 2034
3 U.S. government Treasury bonds (3.8%)
6.25%, May 15, 2030
Footnote reads:
Holdings will vary over time.
In the second half of the year, we reduced the fund's exposure to
high-yield bonds and increased the fund's allocation to mortgage-backed
securities (MBSs), asset-backed securities (ABSs), and commercial
mortgage-backed securities (CMBSs). Within the MBS group, we acquired
high-coupon Government National Mortgage Association securities (GNMAs),
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 and, as a result, the securities are less likely to be refinanced. We
believed these securities did not represent a major credit risk, and the
fund benefited from the higher income that they produced. Lower-quality,
BBB-rated MBSs also performed well for the fund, as did manufactured
housing bonds issued by Conseco. These ABSs benefited from problems that
affected Conseco on a corporate level but did not jeopardize the near-term
income stream of the securities. We acquired them at attractive valuation
levels, and the fund benefited both from their high coupons as well as
price appreciation, which occurred when investors realized their intrinsic
value in early 2004. Also in the first quarter of 2004, we added to the
fund's international government bond holdings, including bonds from the
United Kingdom and Australia, both of which saw strong economic growth
through the first seven months of 2004. These securities made positive
contributions to performance.
In the first six months of the year, the fund's emerging-markets
weighting was neutral, or roughly the same as many of the fund's
competitors, and this sector contributed strongly to returns during this
period. These securities had surged as a result of strong growth in many
emerging-market countries, due in large part to gains in manufacturing
and exports to other rapidly growing countries. In the second half of
the period, the fund's emerging-markets holdings did not make as strong
a contribution because investors generally became more cautious.
Finally, the fund's currency strategy positioned the portfolio to
benefit from a weakening U.S. dollar and euro, and rising value in
Japanese yen, British sterling, and Australian dollar. These positions
generally made solid positive contributions 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 PROPOSED
The fund's Trustees have approved in principle the merger of Putnam Master
Income Trust into your fund. 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 may result in
lower expenses for shareholders of each fund due to the larger asset base
of the combined fund. A prospectus/proxy statement containing more
information about the proposed merger is expected to be sent to
shareholders of each fund in November. Completion of the merger is subject
to a number of conditions, including final approval by each fund's
Trustees and approval by shareholders of each fund at a joint shareholder
meeting expected to be held within the coming months.
This report is not an offer to sell, nor a solicitation of an offer to
buy, shares of any fund, nor is it a solicitation of a proxy. To receive
a free copy of the prospectus/proxy statement relating to the proposed
merger (which contains important information about fees, expenses and
risk considerations) after a registration statement has been filed with
the SEC and becomes effective, please call 1-800-255-1581. The
prospectus/proxy statement will also be available without charge on the
SEC's website (www.sec.gov). Read the prospectus/proxy statement
carefully before making any investment decisions.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income Team. The members of
the team are D. William Kohli (Portfolio Leader), David Waldman
(Portfolio Member), Carl Bell, Rob Bloemker, Andrea Burke, Kevin Cronin,
Steve Horner, Michael Salm, and John Van Tassel.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
The past 18 months have seen strong returns in the U.S. equity markets,
emerging markets, and the high-yield corporate bond market, all of which
reflect an economic recovery in the United States and generally strong
growth overseas. At this point, however, we believe there are certain
headwinds that could have a negative impact on the performance of
lower-quality bond sectors. The most important of these are rising
interest rates in the United States, high U.S. federal and consumer
debt, the inflationary impact of high energy prices, and the persistent
threat of terrorism around the world.
We have changed the portfolio's composition significantly from a year
ago. The primary change has been to improve overall credit quality by
reducing the fund's allocation to high-yield bonds and emerging-market
securities and using the proceeds to increase the fund's MBS and ABS
weightings. We believe this more defensive positioning should help the
fund better withstand any shocks to the lower-rated sectors of the
global fixed-income markets.
Despite our concerns, our outlook is not necessarily pessimistic.
International economic growth is generally on a sound footing --
especially in Japan and other parts of Asia -- while U.S. growth is
slowing but moderate, which may cause interest rates to rise at a slower
pace than what had been expected this past spring. As returns from
different global fixed-income sectors continue to fluctuate, we believe
the fund's diversified portfolio of sectors and holdings can be
beneficial for shareholders.
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. 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.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended July 31, 2004. 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 7/31/04
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NAV Market price
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1 year 11.98% 7.18%
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5 years 43.09 35.73
Annual average 7.43 6.30
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10 years 103.81 98.27
Annual average 7.38 7.08
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Annual average
Life of fund (since 2/29/88) 8.35 7.14
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Performance does not reflect taxes on reinvested distributions.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/04
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Lipper
Flexible
Citigroup Non- Income Funds
Lehman U.S. World JP Morgan (closed-end)
Government Government Global High category
Bond Index Bond Index Yield Index* average+
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1 year 3.86% 9.48% 13.83% 10.66%
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5 years 39.95 33.28 34.41 32.29
Annual average 6.95 5.91 6.09 5.57
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10 years 97.87 79.41 112.79 103.44
Annual average 7.06 6.02 7.84 7.25
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Annual average
Life of fund
(since 2/29/88) 7.68 7.07 -- 8.12
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Index and Lipper results should be compared to fund performance at net
asset value.
* The inception date of the JP Morgan Global High Yield Index was
12/31/93.
+ Over the 1-, 5-, and 10-year periods ended 7/31/04, there were 11, 11,
and 11 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/04
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Putnam Premier Income Trust
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Distributions (number) 12
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Income $0.468
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Capital gains --
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Total $0.468
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Share value: NAV Market price
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7/31/03 $6.75 $6.31
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7/31/04 7.03 6.29
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Current return (end of period)
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Current dividend rate 1 6.66% 7.44%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
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TOTAL RETURN FOR PERIODS ENDED 6/30/04 (MOST RECENT CALENDAR QUARTER)
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NAV Market price
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1 year 8.94% -1.71%
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5 years 41.11 21.53
Annual average 7.13 3.98
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10 years 103.53 89.80
Annual average 7.37 6.62
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Annual average
Life of fund (since 2/29/88) 8.32 6.89
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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 Government Bond Index is an unmanaged index of
government bonds from 10 countries.
JP Morgan Global Diversified Emerging Markets Index is an unmanaged
index of global emerging-market fixed-income securities.
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
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 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.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, by distributions to
shareholders, and by changes in the number of the fund's shares. It
lists distributions and their sources (net investment income or realized
capital gains) over the current reporting period and the most recent
fiscal year-end. The distributions listed here may not match the sources
listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the
one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Premier Income Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Premier Income Trust, including the fund's portfolio, as of July
31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years
in the period then ended and the financial highlights for each of the
five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of July 31, 2004 by correspondence
with the custodian and brokers or by other appropriate auditing
procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Premier Income Trust as of July 31, 2004,
the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then
ended in conformity with accounting principles generally accepted in the
United States of America.
KPMG LLP
Boston, Massachusetts
September 3, 2004
The fund's portfolio
July 31, 2004
Corporate bonds and notes (40.9%) (a)
Principal amount Value
Basic Materials (4.3%)
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$850,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) $928,625
1,085,000 AK Steel Corp. company guaranty
7 7/8s, 2009 1,033,463
575,000 AK Steel Corp. company guaranty
7 3/4s, 2012 531,875
915,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 699,975
815,000 BCP Caylux Holdings Luxembourg SCA
144A sr. sub. notes 9 5/8s, 2014
(Luxembourg) 843,525
1,035,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 1,148,850
400,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon zero %
(12s, 6/1/08), 2013 (STP) 312,000
1,070,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 877,400
1,603,487 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s, 2008
(PIK) 1,202,615
1,065,000 Dow Chemical Co. (The) notes 5 3/4s,
2009 1,122,225
265,000 Equistar Chemicals LP notes 8 3/4s,
2009 273,613
2,345,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 2,556,050
600,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 600,000
1,340,000 Georgia-Pacific Corp. debs. 7.7s,
2015 1,447,200
4,000 Georgia-Pacific Corp. sr. notes
7 3/8s, 2008 4,300
950,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 1,059,250
222,750 Graphics Packaging bank term loan
FRN 4.35s, 2010 (acquired 8/6/03,
cost $222,750) (RES) 225,998
349,125 Hercules, Inc. bank term loan FRN
3.497s, 2010 (acquired 4/7/04, cost
$349,125) (RES) 350,871
1,385,000 Hercules, Inc. company guaranty
11 1/8s, 2007 1,620,450
280,000 Huntsman Advanced Materials, LLC
144A sec. FRN 11.86, 2008 294,000
330,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 374,550
1,099,000 Huntsman Co., LLC sr. disc. notes
zero %, 2008 637,420
695,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 707,163
2,190,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 1,095,000
EUR 590,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 709,236
$555,000 Huntsman LLC company guaranty
11 5/8s, 2010 617,438
415,000 Huntsman, LLC 144A company guaranty
11 1/2s, 2012 417,075
180,000 International Steel Group, Inc. 144A
sr. notes 6 1/2s, 2014 170,550
1,910,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 2,129,650
80,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 84,400
910,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (DEF) (NON) 172,900
100,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 111,625
980,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 1,025,325
895,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 945,344
EUR 610,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 813,325
$125,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 140,000
515,217 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 600,228
1,390,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 1,501,200
210,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 226,800
186,761 Nalco Co. bank term loan FRN Ser. B,
4.126s, 2010 (acquired 11/6/03,
cost $186,761) (RES) 189,475
EUR 100,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 126,410
EUR 100,000 Nalco Co. 144A sr. sub. notes 9s,
2013 125,928
$1,490,000 Nalco Co. 144A sr. sub. notes
8 7/8s, 2013 1,564,500
795,000 Norska Skog Canada Ltd. sr. notes
7 3/8s, 2014 (Canada) 791,025
609,379 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 591,098
192,965 Pioneer Companies, Inc. sec. FRN
5.086s, 2006 182,352
1,095,000 Potlatch Corp. company guaranty 10s,
2011 1,231,875
180,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 188,100
EUR 620,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 725,518
$233,752 SGL Carbon, LLC bank term loan FRN
4.22s, 2009 (acquired 2/26/04, cost
$234,921) (RES) 233,752
310,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 330,925
55,000 Smurfit-Stone Container Corp.
company guaranty 7 1/2s, 2013 55,825
965,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 1,071,150
207,976 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 195,497
710,000 Stone Container Corp. sr. notes
9 3/4s, 2011 784,550
345,000 Stone Container Corp. sr. notes
8 3/8s, 2012 369,150
210,000 Stone Container Finance 144A company
guaranty 7 3/8s, 2014 (Canada) 213,675
1,225,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 1,372,000
550,000 United Agri Products 144A sr. notes
8 1/4s, 2011 596,750
706,000 United States Steel Corp. sr. notes
9 3/4s, 2010 785,425
350,000 Wellman 1st. lien bank term loan FRN
6s, 2009 (acquired 2/4/04, cost
$350,000) (RES) 355,104
380,000 Wellman 2nd. lien bank term loan FRN
8 3/4s, 2010 (acquired 2/4/04, cost
$372,400) (RES) 371,133
77,422 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 52,647
147,827 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 99,044
260,000 WHX Corp. sr. notes 10 1/2s, 2005 241,800
--------------
42,456,222
Capital Goods (3.4%)
-------------------------------------------------------------------------------
698,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 715,450
1,340,093 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 13
209,491 Allied Waste Industries, Inc. bank
term loan FRN 4.136s, 2010 (acquired
4/25/03, cost $209,491) (RES) 212,070
35,357 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 1.369s, 2010
(acquired 4/25/03, cost $35,357)
(RES) 35,902
1,670,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 1,824,475
765,000 Allied Waste North America, Inc.
sec. notes 6 1/2s, 2010 757,350
297,000 Amsted Industries bank term loan FRN
5.364s, 2010 (acquired 8/12/03 cost
$295,515) (RES) 303,311
775,000 Argo-Tech Corp. 144A sr. notes
9 1/4s, 2011 809,875
840,000 BE Aerospace, Inc. sr. sub. notes
9 1/2s, 2008 850,500
285,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 277,875
660,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 636,900
190,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 211,375
1,195,000 Blount, Inc. company guaranty 13s,
2009 1,284,625
345,000 Blount, Inc. company guaranty 7s,
2005 352,763
970,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 863,300
880,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 897,600
285,000 Crown Cork & Seal Company, Inc. bank
term loan FRN Ser. B, 4.586s, 2008
(acquired 2/21/03, cost $282,150)
(RES) 288,919
EUR 115,000 Crown Holdings SA bonds 10 1/4s,
2011 (France) 156,101
$1,240,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 1,422,900
545,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 596,775
1,310,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 851,500
214,772 EaglePicher bank term loan FRN
4.41s, 2009 (acquired 8/6/03, cost
$216,085) (RES) 216,249
985,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 1,083,500
840,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 966,000
EUR 500,000 Flender Holdings 144A sr. notes 11s,
2010 (Germany) 686,524
$181,134 Flowserve Corp. bank term loan FRN
Ser. C, 4.212s, 2009 (acquired
various dates from 4/30/02 to
2/26/04, cost $182,534) (RES) 183,285
770,000 Flowserve Corp. company guaranty
12 1/4s, 2010 872,025
297,895 Graham Packaging bank term loan FRN
4.291s, 2010 (acquired 2/18/03,
cost $296,405) (RES) 299,260
915,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 958,463
DEM 1,075,000 Impress Metal Packaging Holding NV
sr. sub. notes 9 7/8s, 2007
(Netherlands) 638,550
$159,668 Invensys, PLC bank term loan FRN
5.477s, 2009 (acquired 3/11/04,
cost $159,268) (United Kingdom)
(RES) 162,063
1,370,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 1,380,275
710,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 775,675
1,025,000 Legrand SA debs. 8 1/2s, 2025
(France) 1,081,375
120,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 136,800
EUR 240,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 321,152
$305,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 309,575
188,991 Mueller Group bank term loan FRN
4.559s, 2011 (acquired 4/22/04,
cost $188,991) (RES) 190,526
265,000 Mueller Group Inc. 144A sec. FRN
5.919s, 2011 272,950
370,000 Mueller Group Inc. 144A sr. sub.
notes 10s, 2012 388,500
775,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 811,813
725,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 768,500
955,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 1,050,500
715,000 Pliant Corp. sec. notes 11 1/8s,
2009 772,200
195,000 Roper bank term loan FRN 3.61s, 2008
(acquired 12/22/03, cost $195,000)
(RES) 197,600
1,650,000 Sequa Corp. sr. notes 9s, 2009 1,782,000
325,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 292,500
199,500 Solo Cup Co. bank term loan FRN
3.945s, 2011 (acquired 2/19/04, cost
$200,639) (RES) 201,661
210,000 Solo Cup Co. 144A sr. sub. notes
8 1/2s, 2014 193,200
1,090,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 1,062,750
640,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 620,000
265,000 Terex Corp. company guaranty 9 1/4s,
2011 294,813
995,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 1,109,425
74,625 Transdigm, Inc. bank term loan FRN
3.61s, 2010 (acquired 4/19/04, cost
$74,625) (RES) 75,512
575,000 Trimas Corp. company guaranty
9 7/8s, 2012 600,875
510,000 Vought Aircraft Industries, Inc.
144A sr. notes 8s, 2011 499,800
--------------
34,605,475
Communication Services (3.3%)
-------------------------------------------------------------------------------
469,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 512,383
371,000 Alamosa Delaware, Inc. company
guaranty stepped-coupon zero %
(12s, 7/31/05), 2009 (STP) 362,653
580,000 Alamosa Delaware, Inc. 144A sr.
notes 8 1/2s, 2012 566,950
270,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 232,200
1,115,000 American Cellular Corp. sr. notes
Ser. B, 10s, 2011 970,050
515,000 American Tower Corp. 144A sr. notes
7 1/2s, 2012 505,988
1,040,000 American Towers, Inc. company
guaranty 7 1/4s, 2011 1,047,800
770,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 69,300
1,245,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 1,282,350
205,000 Cincinnati Bell Telephone Co.
company guaranty 6.3s, 2028 178,350
505,000 Cincinnati Bell, Inc. company
guaranty 7 1/4s, 2013 470,913
565,000 Cincinnati Bell, Inc. notes 7 1/4s,
2023 502,850
1,145,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 1,007,600
441,450 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 44
100,000 Consolidated Communications bank
term loan FRN 4.081s, 2012
(acquired 4/7/04, cost $100,000)
(RES) 101,750
148,875 Crown Castle International Corp.
bank term loan FRN 5.09s, 2010
(acquired 10/3/03, cost $148,875)
(RES) 149,061
1,060,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 1,195,150
148,875 Dobson Communications Corp. bank
term loan FRN 4.915s, 2010
(acquired 10/20/03, cost $148,875)
(RES) 149,038
585,000 Dobson Communications Corp. sr.
notes 8 7/8s, 2013 447,525
365,000 Eircom Funding notes 8 1/4s, 2013
(Ireland) 383,250
540,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 588,600
337,135 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 34
300,220 Globix Corp. company guaranty 11s,
2008 (PIK) 250,684
1,200,000 Inmarsat Finance PLC 144A company
guaranty 7 5/8s, 2012 (United
Kingdom) 1,149,000
420,000 iPCS, Inc. 144A sr. notes 11 1/2s,
2012 433,650
1,055,000 Level 3 Financing Inc. 144A sr.
notes 10 3/4s, 2011 902,025
1,005,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 1,067,813
1,458,000 MCI, Inc. sr. notes 7.735s, 2014 1,314,023
358,000 MCI, Inc. sr. notes 6.688s, 2009 329,808
1,000 MCI, Inc. sr. notes 5.908s, 2007 969
348,250 Nextel bank term loan FRN Ser. E,
3.813s, 2010 (acquired 12/19/02,
cost $322,044) (RES) 350,489
2,080,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 2,184,000
58,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 67,570
1,765,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 1,817,950
1,160,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 1,338,350
268,125 Qwest Communications International,
Inc. bank term loan FRN 6 1/2s,
2007 (acquired 6/5/03, cost
$265,444) (RES) 277,677
1,765,000 Qwest Communications International,
Inc. 144A sr. notes 7 1/2s, 2014 1,650,275
240,000 Qwest Communications International,
Inc. 144A sr. notes FRN 4.75s, 2009 229,200
3,360,000 Qwest Corp. 144A notes 9 1/8s, 2012 3,695,945
505,000 Qwest Services Corp. 144A notes
14 1/2s, 2014 606,000
380,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 427,500
420,000 Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 399,000
225,000 SBA Communications Corp. sr. notes
10 1/4s, 2009 232,875
100,000 SBA Senior Finance, Inc. bank term
loan FRN 4.687s, 2008 (acquired
2/3/04, cost $100,000) (RES) 100,656
445,000 SBA Telecommunications Inc./SBA
Communication Corp. sr. disc. notes
stepped-coupon zero % (9 3/4s,
12/15/07), 2011 337,088
540,000 Triton PCS, Inc. company guaranty
8 3/4s, 2011 417,150
935,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 1,005,125
577,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 (STP) 579,885
510,000 UbiquiTel Operating Co. sr. notes
9 7/8s, 2011 506,175
765,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 782,213
--------------
33,176,934
Consumer Cyclicals (9.9%)
-------------------------------------------------------------------------------
84,124 Advance Stores bank term loan FRN
Ser. C, 3.312s, 2007
(acquired 3/4/03, cost $84,124)
(RES) 85,123
395,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 444,375
230,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 255,300
915,000 Argosy Gaming Co. 144A sr. sub.
notes 7s, 2014 911,569
640,000 Asbury Automotive Group, Inc. sr.
sub. notes 8s, 2014 601,600
1,230,000 Autonation, Inc. company guaranty
9s, 2008 1,389,900
210,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 224,700
237,336 Borgata Resorts bank term loan FRN
Ser. B, 4.126s, 2007 (acquired
6/5/02, cost $236,742) (RES) 238,967
820,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 885,600
230,000 Boyd Gaming Corp. sr. sub. notes
7 3/4s, 2012 236,900
450,000 Building Materials Corp. company
guaranty 8s, 2008 450,000
500,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 545,000
188,259 Coinmach Corp. bank term loan FRN
Ser. B, 4.316s, 2009 (acquired
1/31/02, cost $188,024) (RES) 189,765
1,655,000 Coinmach Corp. sr. notes 9s, 2010 1,679,825
1,090,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 1,100,900
73,858 Corrections Corporation of America
bank term loan FRN 3.36s, 2008
(acquired 8/5/03, cost $73,858) (RES) 74,874
145,000 D.R. Horton, Inc. company guaranty
8s, 2009 161,675
880,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 976,800
220,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 228,250
600,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 584,250
220,000 Dana Corp. notes 10 1/8s, 2010 250,800
785,000 Dana Corp. notes 9s, 2011 926,300
135,000 Dana Corp. notes 7s, 2029 133,650
405,000 Dana Corp. notes 6 1/2s, 2009 425,250
780,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 799,500
295,000 Delco Remy International, Inc.
company guaranty 11s, 2009 316,388
740,000 Delco Remy International, Inc. 144A
sr. sub. notes 9 3/8s, 2012 714,100
661,675 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 66
DEM 1,700,694 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 105
$1,545,000 Dex Media East, LLC/Dex Media East
Finance Co. sr. notes Ser. B,
8 1/2s, 2010 1,699,500
267,361 Dex Media West, LLC bank term loan
FRN 3.691s, 2010 (acquired 9/9/03,
cost $267,361) (RES) 272,207
705,000 Dex Media, Inc. 144A disc. notes
stepped-coupon zero % (9s,
11/15/08), 2013 (STP) 489,975
805,000 Dex Media, Inc. 144A notes 8s, 2013 809,025
265,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 262,350
710,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 678,050
140,000 FelCor Lodging LP company guaranty
10s, 2008 (R) 147,700
680,000 Finlay Fine Jewelry Corp. 144A sr.
notes 8 3/8s, 2012 714,000
965,000 Gaylord Entertainment Co. sr. notes
8s, 2013 992,744
160,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 6.059s, 2006
(acquired 2/19/04, cost $160,000)
(RES) 161,550
1,700,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 1,581,000
285,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 267,900
236,225 Hayes Lemmerz International, Inc.
bank term loan FRN 5.1s,
2009 (acquired 6/3/03, cost
$233,863) (RES) 240,581
565,000 Herbst Gaming, Inc. 144A sr. sub.
notes 8 1/8s, 2012 557,938
1,175,000 Hilton Hotels Corp. notes 7 5/8s,
2012 1,296,906
1,235,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 1,268,963
1,848,767 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 2,163,057
1,370,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 1,404,250
1,250,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 1,303,125
389,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 411,368
1,050,000 Host Marriott LP 144A sr. notes 7s,
2012 1,036,875
475,000 Houghton Mifflin Co. sr. sub. notes
9 7/8s, 2013 488,063
1,205,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 1,313,450
148,875 IESI Corp. bank term loan FRN
4.601s, 2010 (acquired various
dates from 10/20/03 to 10/21/03,
cost $149,719) (RES) 151,108
895,000 IESI Corp. company guaranty 10 1/4s,
2012 971,075
385,000 Inn of the Mountain Gods sr. notes
12s, 2010 431,200
725,000 ITT Corp. debs. 7 3/8s, 2015 741,313
815,000 ITT Corp. notes 6 3/4s, 2005 844,544
1,370,000 JC Penney Co., Inc. debs. 7.95s,
2017 1,548,100
245,000 JC Penney Co., Inc. debs. 7.65s,
2016 269,500
615,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 639,600
40,000 JC Penney Co., Inc. notes 8s, 2010 44,900
2,245,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 2,469,500
1,310,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 877,700
258,638 Jostens, Inc. bank term loan FRN
Ser. B, 3.869s, 2010 (acquired
7/28/03, cost $258,638) (RES) 261,871
730,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 824,900
180,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 207,900
795,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 868,538
540,000 K. Hovnanian Enterprises, Inc.
company guaranty 6 3/8s, 2014 504,900
405,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 383,738
500,000 K2, Inc. 144A sr. notes 7 3/8s, 2014 508,750
1,885,000 Laidlaw International, Inc. sr.
notes 10 3/4s, 2011 2,087,638
244,444 Lamar Media Corp. bank term loan FRN
3 3/8s, 2010 (acquired 2/27/03,
cost $244,444) (RES) 246,644
780,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 805,350
100,000 Landsource bank term loan FRN 4s,
2010 (acquired 1/12/04, cost
$100,000) (RES) 101,313
1,310,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 1,329,650
600,000 Mandalay Resort Group sr. notes
6 3/8s, 2011 612,000
985,000 Meristar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 1,017,013
530,000 Meristar Hospitality Corp. company
guaranty 9s, 2008 (R) 548,550
410,000 Meritage Corp. company guaranty
9 3/4s, 2011 453,050
275,000 Meritage Corp. sr. notes 7s, 2014 264,000
560,000 Meritor Automotive, Inc. notes 6.8s,
2009 562,800
875,000 Metaldyne Corp. 144A sr. notes 10s,
2013 875,000
1,085,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 1,198,925
680,000 MGM Mirage, Inc. company guaranty
6s, 2009 674,900
75,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 80,438
270,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 307,125
165,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8s, 2012 179,231
1,605,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 1,615,031
760,000 Nortek Holdings, Inc. 144A sr. notes
stepped-coupon zero % (10s,
11/15/07), 2011 (STP) 635,360
555,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 647,963
415,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 180,525
1,185,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 515,475
635,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 676,275
1,250,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 1,362,500
680,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 709,750
545,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 606,313
5,000 Park Place Entertainment Corp. sr.
sub. notes 8 1/8s, 2011 5,519
189,118 Penn National Gaming, Inc. bank term
loan FRN 4.07s, 2010 (acquired
2/19/03, cost $188,882) (RES) 191,766
640,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 702,400
1,320,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 1,443,750
310,000 Phillips-Van Heusen Corp. 144A sr.
notes 7 1/4s, 2011 316,200
157,325 Pinnacle Entertainment, Inc. bank
term loan FRN 4.84s, 2009 (acquired
12/15/03, cost $157,325) (RES) 159,291
765,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 761,175
360,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 1/4s, 2012 345,600
190,762 PRIMEDIA, Inc. bank term loan FRN
Ser. B, 4 1/4s, 2009 (acquired
2/10/03, cost $182,654) (RES) 182,654
1,515,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 1,488,488
1,110,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 1,032,300
510,000 Reader's Digest Association, Inc.
(The) sr. notes 6 1/2s, 2011 504,900
995,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 1,119,375
369,472 RH Donnelley Finance Corp. I bank
term loan FRN Ser. B, 3.786s, 2010
(acquired 12/4/02, cost $369,472)
(RES) 373,513
175,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 192,500
1,290,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 1,419,000
650,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 760,500
920,000 Russell Corp. company guaranty
9 1/4s, 2010 984,400
1,538,000 Saks, Inc. company guaranty 7s, 2013 1,507,240
1,665,000 Samsonite Corp. 144A sr. sub. notes
8 7/8s, 2011 1,694,138
530,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 606,850
370,327 Scientific Gaming bank term loan FRN
3.84s, 2008 (acquired 12/11/02,
cost $368,475) (RES) 374,338
155,714 Sealy Mattress Co. bank term loan
FRN 4.221s, 2012 (acquired 4/2/04,
cost $155,714) (RES) 157,920
1,545,000 Sealy Mattress Co. 144A sr. sub.
notes 8 1/4s, 2014 1,545,000
138,175 SPX Corp. bank term loan FRN Ser. B,
3 3/8s, 2009 (acquired various
dates from 7/23/02 to 8/26/03, cost
$138,175) (RES) 140,162
590,000 Standard Pacific Corp. sr. notes
7 3/4s, 2013 606,225
70,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 75,425
535,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 564,425
665,000 Station Casinos, Inc. sr. notes 6s,
2012 648,375
715,000 Station Casinos, Inc. sr. sub. notes
6 7/8s, 2016 695,338
470,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 497,025
305,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 314,150
EUR 185,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 192,654
$1,040,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 1,185,600
1,700,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 1,496,000
745,000 Trump Casino Holdings, LLC company
guaranty 12 5/8s, 2010 761,763
154,613 TRW Automotive bank term loan FRN
4 1/8s, 2011 (acquired 1/7/04, cost
$154,613) (RES) 157,222
715,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 782,925
1,215,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 1,327,388
1,015,000 Vertis, Inc. sub. notes 13 1/2s,
2009 1,035,300
370,000 Von Hoffman Press, Inc. company
guaranty 10 3/8s, 2007 373,700
1,060,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 1,155,400
534,185 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 520,830
1,135,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 1,222,963
552,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 621,000
220,000 WRC Media Corp. bank term loan FRN
6.761s, 2009 (acquired 3/25/04,
cost $220,000) (RES) 219,313
770,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 700,700
87,000 Yell Finance BV sr. notes 10 3/4s,
2011 (Netherlands) 99,920
--------------
98,496,685
Consumer Staples (5.8%)
-------------------------------------------------------------------------------
110,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 94,600
560,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 490,000
25,000 Adelphia Communications Corp. sr.
notes 10 1/4s, 2011 (In default)
(NON) 22,375
75,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 65,625
1,505,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 1,264,200
47,669 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.528s, 2009
(acquired 5/27/03, cost $47,550)
(RES) 48,086
119,173 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.321s, 2009
(acquired 5/27/03, cost $118,875)
(RES) 120,215
765,000 Affinity Group, Inc. 144A sr. sub.
notes 9s, 2012 792,731
915,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 937,875
770,000 AMC Entertainment, Inc. 144A sr.
sub. notes 8s, 2014 710,325
440,565 American Seafood Group, LLC bank
term loan FRN Ser. B, 4.59s, 2009
(acquired 4/11/02, cost $440,124)
(RES) 441,574
239,400 AMF Bowling Worldwide bank term loan
FRN 4.372s, 2009 (acquired 2/25/04,
cost $239,400) (RES) 241,196
458,590 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) 302,669
890,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 967,875
790,000 Brand Services, Inc. company
guaranty 12s, 2012 908,500
945,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 928,463
700,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 755,082
1,120,000 Century Cable Holdings bank term
loan FRN 6 1/4s, 2009 (acquired
various dates from 5/22/02 to
6/11/02, cost $980,796) (RES) 1,081,033
320,000 Charter bank term loan FRN 4.42s,
2011 (acquired 4/21/04, cost
$320,000) (RES) 315,160
360,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 195,300
735,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 433,650
980,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 776,650
1,195,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 961,975
585,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 454,838
2,310,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 1,749,825
265,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 200,075
910,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 998,725
1,385,000 Cinemark, Inc. 144A sr. disc. notes
stepped-coupon zero % (9 3/4s,
3/15/09), 2014 (STP) 914,100
154,685 Constellation Brands, Inc. bank term
loan FRN 3.213s, 2008 (acquired
11/3/03, cost $154,685) (RES) 156,812
420,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 458,850
595,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 641,113
600,000 CSC Holdings, Inc. debs. 7 5/8s,
2018 568,500
515,000 CSC Holdings, Inc. sr. notes Ser. B,
7 5/8s, 2011 520,150
515,000 CSC Holdings, Inc. 144A sr. notes
6 3/4s, 2012 496,975
240,000 Dean Foods Co. sr. notes 6 5/8s,
2009 248,400
310,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 337,900
780,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 850,200
239,688 Del Monte Foods Co. bank term loan
FRN Ser. B, 3.505s, 2010 (acquired
12/16/02, cost $238,490) (RES) 242,984
202,350 DirecTV bank term loan FRN Ser. B,
3.607s, 2010 (acquired various dates
from 3/4/03 to 8/5/03, cost
$202,350) (RES) 204,930
3,586,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 4,483
1,150,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 1,081,000
22,277 Dole Food Co. bank term loan FRN
Ser. D, 4.386s, 2009 (acquired
3/28/03, cost $22,278) (RES) 22,612
365,000 Dole Food Co. sr. notes 8 7/8s, 2011 385,988
275,000 Dole Food Co. sr. notes 8 5/8s, 2009 288,750
160,000 Dole Holding Co. bank term loan FRN
6.61s, 2010 (acquired 7/20/04, cost
$159,200) (RES) 159,300
678,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 725,460
175,000 Duane Reade, Inc. 144A sr. sub.
notes 9 3/4s, 2011 174,563
560,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 392,000
1,305,000 Echostar DBS Corp. sr. notes 6 3/8s,
2011 1,295,213
350,000 Elizabeth Arden, Inc. company
guaranty 7 3/4s, 2014 357,438
2,035,000 Granite Broadcasting Corp. sec.
notes 9 3/4s, 2010 1,862,025
104,475 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 3.938s, 2009
(acquired 11/5/01, cost $104,279)
(RES) 105,941
500,000 Jean Coutu Group, Inc. 144A sr.
notes 7 5/8s, 2012 (Canada) 503,750
1,005,000 Jean Coutu Group, Inc. 144A sr. sub.
notes 8 1/2s, 2014 (Canada) 996,206
1,515,000 Kabel Deutsheland GmbH 144A sr.
notes 10 5/8s, 2014 (Germany) 1,554,769
59,690 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 56,109
815,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 753,875
850,000 Mediacom LLC/Mediacom Capital Corp.
sr. notes 9 1/2s, 2013 786,250
240,000 MGM bank term loan FRN 3.84s, 2011
(acquired 4/21/04, cost $240,000)
(RES) 241,020
1,270,000 News America Holdings, Inc. company
guaranty 9 1/4s, 2013 1,605,893
515,000 North Atlantic Trading Co. sr. notes
9 1/4s, 2012 504,700
465,000 Olympus Cable bank term loan FRN
Ser. B, 6 1/4s, 2010 (acquired
various dates from 6/20/02 to
11/06/02, cost $374,206) (RES) 448,559
965,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 926,400
1,165,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 1,173,738
1,075,000 Playtex Products, Inc. 144A secd.
notes 8s, 2011 1,115,313
900,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 958,500
1,030,000 Prestige Brands, Inc. 144A sr. sub.
notes 9 1/4s, 2012 1,045,450
45,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 42,188
800,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 916,000
144,309 Rayovac Corp. bank term loan FRN
Ser. B, 3.903s, 2009 (acquired
9/26/02, cost $144,165) (RES) 145,933
1,030,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 1,009,400
164,587 Rite Aid Corp. bank term loan FRN
4.408s, 2008 (acquired 5/16/03,
cost $164,382) (RES) 167,879
780,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 856,050
50,000 Rite Aid Corp. debs. 6 7/8s, 2013 45,750
105,000 Rite Aid Corp. notes 7 1/8s, 2007 106,838
525,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 549,938
710,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 743,725
55,000 Rite Aid Corp. 144A notes 6s, 2005 55,275
293,263 Roundy's bank term loan FRN 3.11s,
2009 (acquired 6/3/02, cost
$293,263) (RES) 295,646
1,220,000 Sbarro, Inc. company guaranty 11s,
2009 1,079,700
119,700 Scotts Co. (The) bank term loan FRN
3.328s, 2010 (acquired 10/16/03,
cost $119,700) (RES) 120,256
355,000 Scotts Co. (The) sr. sub. notes
6 5/8s, 2013 358,550
127,328 Six Flags, Inc. bank term loan FRN
Ser. B, 3.87s, 2009
(acquired 1/15/03, cost $127,169)
(RES) 128,495
1,350,000 Six Flags, Inc. sr. notes 9 5/8s,
2014 1,252,125
3,140,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 2,908,425
235,736 Sum Media bank term loan FRN Ser. B,
3.42s, 2009 (acquired 2/4/03, cost
$235,736) (RES) 237,603
405,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 392,850
165,000 Vivendi Universal SA bank term loan
FRN Ser. B, 4.07s, 2008 (acquired
6/23/03, cost $165,000) (France)
(RES) 165,619
1,070,000 Vivendi Universal SA sr. notes
6 1/4s, 2008 (France) 1,139,550
399,000 Warner Music bank term loan FRN
4.173s, 2011 (acquired 4/8/04, cost
$400,812) (RES) 404,486
1,010,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 999,900
1,068,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 1,078,680
510,000 Young Broadcasting, Inc. sr. sub.
notes 8 3/4s, 2014 484,500
--------------
57,110,202
Energy (3.8%)
-------------------------------------------------------------------------------
1,105,000 Arch Western Finance, LLC 144A sr.
notes 7 1/4s, 2013 1,121,575
300,000 Belden & Blake Corp. 144A sec. notes
8 3/4s, 2012 305,625
890,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 950,075
795,000 CHC Helicopter Corp. 144A sr. sub.
notes 7 3/8s, 2014 (Canada) 793,013
475,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 542,688
371,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 392,333
1,365,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 1,450,313
400,000 Chesapeake Energy Corp. sr. notes
7s, 2014 403,000
720,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 707,400
240,000 Dresser, Inc. bank term loan FRN
4.68s, 2010 (acquired 2/27/04, cost
$241,683) (RES) 244,380
975,000 Dresser, Inc. company guaranty
9 3/8s, 2011 1,053,000
208,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 227,760
755,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 819,175
360,000 Encore Acquisition Co. 144A sr. sub.
notes 6 1/4s, 2014 346,500
1,020,000 Exco Resources, Inc. company
guaranty 7 1/4s, 2011 1,055,700
480,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 498,000
320,000 Forest Oil Corp. sr. notes 8s, 2011 344,800
275,000 Forest Oil Corp. sr. notes 8s, 2008 295,625
450,000 Forest Oil Corp. 144A sr. notes 8s,
2011 484,875
1,190,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Russia) 1,245,038
555,000 Hanover Compressor Co. sr. notes 9s,
2014 584,138
495,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 524,700
745,000 Hanover Compressor Co. sub. notes
zero %, 2007 607,175
495,000 Hanover Equipment Trust sec. notes
Ser. A, 8 1/2s, 2008 528,413
670,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 733,650
515,000 KCS Energy, Inc. 144A sr. notes
7 1/8s, 2012 515,000
410,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 386,425
91,928 Magellan Midstream Holdings bank
term loan FRN 4.65s, 2008 (acquired
6/13/03, cost $91,009) (RES) 93,077
765,000 Massey Energy Co. sr. notes 6 5/8s,
2010 780,300
980,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 1,053,500
655,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 635,350
804,693 Oslo Seismic Services, Inc. 1st
mtge. 8.28s, 2011 748,364
505,000 Pacific Energy Partners/Pacific
Energy Finance Corp. 144A sr. notes
7 1/8s, 2014 516,363
150,000 Parker Drilling Co. bank term loan
FRN 5.72s, 2007 (acquired 10/22/03,
cost $150,000) (RES) 150,469
755,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 800,300
122,203 Peabody Energy Corp. bank term loan
FRN Ser. B, 3.252s, 2010 (acquired
3/20/03, cost $122,203) (RES) 123,425
1,065,000 Peabody Energy Corp. sr. notes
5 7/8s, 2016 985,125
880,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 941,600
795,000 Petro Geo-Services notes 10s, 2010
(Norway) 842,700
1,626,000 Petroleos Mexicanos company guaranty
9 1/2s, 2027 (Mexico) 1,869,900
1,410,000 Petronas Capital, Ltd. company
guaranty 7 7/8s, 2022 (Malaysia) 1,570,458
315,000 Petronas Capital, Ltd. company
guaranty 7s, 2012 (Malaysia) 345,335
350,000 Petronas Capital, Ltd. 144A company
guaranty 7 7/8s, 2022 (Malaysia) 389,830
525,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 592,582
800,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 880,000
420,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 462,000
520,000 Plains Exploration & Production Co.
144A sr. notes 7 1/8s, 2014 534,300
920,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 1,007,400
925,000 Pride International, Inc. 144A sr.
notes 7 3/8s, 2014 953,906
830,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 859,050
420,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default)
(NON) 4
1,285,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 1,374,950
465,385 Star Gas Propane 1st Mtge. 8.04s,
2009 500,288
205,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 213,200
900,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 963,000
205,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 212,175
--------------
37,559,327
Financial (0.7%)
-------------------------------------------------------------------------------
435,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 441,525
1,075,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 1,128,750
1,255,000 E(a)Trade Finance Corp. 144A sr.
notes 8s, 2011 1,261,275
2,305,466 Finova Group, Inc. notes 7 1/2s,
2009 1,302,588
326,916 Hilb, Rogal & Hamilton Co. bank term
loan FRN Ser. B, 3 7/8s,
2007 (acquired 6/20/02, cost
$326,916) (RES) 331,003
792,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 891,000
180,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 190,800
595,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 596,488
760,000 Western Financial Bank sub. debs.
9 5/8s, 2012 836,000
--------------
6,979,429
Government (0.2%)
-------------------------------------------------------------------------------
1,750,000 Aries Vermogensverwaltng 144A notes
9.6s, 2014 (Germany) 1,850,625
Health Care (3.4%)
-------------------------------------------------------------------------------
116,293 Alderwoods Group, Inc. bank term
loan FRN 4.17s, 2008 (acquired
9/9/03, cost $116,293) (RES) 117,940
1,183,400 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 1,306,178
805,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 839,213
780,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 846,300
1,375,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 1,491,875
186,094 Beverly Enterprises, Inc. bank term
loan FRN 4.258s, 2008 (acquired
10/20/03, cost $185,629) (RES) 188,575
442,125 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.6s, 2010
(acquired 7/11/02, cost $442,125)
(RES) 442,263
297,000 Concentra bank term loan FRN 4.957s,
2009 (acquired 8/12/03, cost
$297,000) (RES) 300,836
230,846 Dade Behring, Inc. company guaranty
11.91s, 2010 263,164
495,684 DaVita, Inc. bank term loan FRN
Ser. B, 3.483s, 2009 (acquired
various dates from 7/17/03 to
1/30/04, cost $497,997) (RES) 500,110
470,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 523,463
745,000 Extendicare Health Services, Inc.
144A sr. sub. notes 6 7/8s, 2014 711,475
165,993 Fisher Scientific International,
Inc. bank term loan FRN 3.34s,
2010 (acquired 2/13/03, cost
$165,993) (RES) 166,685
160,000 Fisher Scientific International,
Inc. bank term loan FRN 2.61s,
2011 (acquired 6/15/04, cost
$160,000) (RES) 161,300
148,875 Hanger Orthopedic Group, Inc. bank
term loan FRN 4.34s, 2009 (acquired
9/29/03, cost $148,875) (RES) 149,681
1,070,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 1,075,350
920,000 HCA, Inc. debs. 7.19s, 2015 964,816
350,000 HCA, Inc. notes 8.36s, 2024 376,507
750,000 HCA, Inc. notes 7.69s, 2025 752,219
1,385,000 HCA, Inc. notes 7s, 2007 1,477,525
285,000 HCA, Inc. notes 5 3/4s, 2014 274,594
1,365,000 Healthsouth Corp. notes 7 5/8s, 2012 1,279,688
705,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 699,713
340,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 328,100
290,000 Healthsouth Corp. sr. notes 7s, 2008 281,300
565,000 IASIS Healthcare/IASIS Capital Corp.
144A sr. sub. notes 8 3/4s, 2014 587,600
515,000 Insight Health Services Corp. 144A
company guaranty 9 7/8s, 2011 554,913
186,375 Kinetic Concepts, Inc. bank term
loan FRN 3.59s, 2011 (acquired
8/5/03, cost $186,891) (RES) 188,705
340,845 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 365,556
200,000 MedCath Holdings Corp. 144A sr.
notes 9 7/8s, 2012 203,500
204,188 Medex, Inc. bank term loan FRN
4.38s, 2009 (acquired various dates
from 5/16/03 to 6/16/03, cost
$204,090) (RES) 205,655
940,000 Mediq, Inc. debs. 13s, 2009 (In
default) (NON) 94
1,285,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 1,458,475
260,000 Omega Health Care Investors 144A sr.
notes 7s, 2014 247,650
1,045,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 992,750
1,022,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 1,162,525
1,055,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 1,033,900
390,000 Service Corp. International debs.
7 7/8s, 2013 398,775
105,000 Service Corp. International notes
7.2s, 2006 109,725
35,000 Service Corp. International notes
6 7/8s, 2007 36,138
155,000 Service Corp. International notes
6 1/2s, 2008 158,100
370,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 389,425
1,085,000 Service Corp. International 144A sr.
notes 6 3/4s, 2016 1,023,969
1,010,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 1,122,363
530,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 490,250
25,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 22,125
645,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 575,663
1,240,000 Tenet Healthcare Corp. 144A sr.
notes 9 7/8s, 2014 1,288,050
1,150,000 Triad Hospitals, Inc. sr. notes 7s,
2012 1,175,875
2,275,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 2,240,875
740,000 Universal Hospital Services, Inc.
sr. notes 10 1/8s, 2011 745,550
425,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 471,750
80,000 VWR International Inc. bank term
loan FRN 3.77s, 2011 (acquired
4/5/04, cost $80,000) (RES) 81,460
480,000 VWR International, Inc. 144A sr.
notes 6 7/8s, 2012 484,800
--------------
33,335,086
Technology (1.3%)
-------------------------------------------------------------------------------
625,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 728,125
1,030,000 Celestica Inc. sr.sub. notes 7 7/8s,
2011 (Canada) 1,053,175
705,000 DigitalNet Holdings, Inc. sr. notes
9s, 2010 752,588
1,000,000 Freescale Semiconductor, Inc. 144A
sr. notes 7 1/8s, 2014 1,015,000
305,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 327,875
770,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 799,838
100,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 76,000
1,435,000 Lucent Technologies, Inc. debs.
6.45s, 2029 1,094,188
75,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 70,875
530,000 Nortel Networks Corp. notes 6 1/8s,
2006 (Canada) 529,338
711,000 ON Semiconductor Corp. company
guaranty 13s, 2008 801,653
465,000 SCG Holding Corp. 144A notes zero %,
2011 646,350
855,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 887,063
850,000 UGS Corp. 144A sr. sub. notes 10s,
2012 901,000
1,075,000 Xerox Capital Trust I company
guaranty 8s, 2027 972,875
255,000 Xerox Corp. company guaranty 9 3/4s,
2009 290,700
555,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 530,025
1,565,000 Xerox Corp. sr. notes 7 5/8s, 2013 1,604,125
--------------
13,080,793
Transportation (0.5%)
-------------------------------------------------------------------------------
65,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 56,550
760,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 680,200
1,365,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 1,037,400
445,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s,
2005 274,888
325,588 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s,
2012 169,306
1,270,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 1,384,300
260,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 261,625
770,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 746,900
332,615 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 330,952
207,221 Pacer International, Inc. bank term
loan FRN 4.356s, 2010 (acquired
6/10/03, cost $208,157) (RES) 209,811
260,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 301,600
--------------
5,453,532
Utilities & Power (4.3%)
-------------------------------------------------------------------------------
77,000 AES Corp. (The) sr. notes 8 7/8s,
2011 81,428
43,000 AES Corp. (The) sr. notes 8 3/4s,
2008 45,150
1,085,000 AES Corp. (The) 144A sec. notes 9s,
2015 1,182,650
1,530,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 1,671,525
740,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 743,700
475,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 517,750
299,250 Allegheny Energy, Inc. bank term
loan FRB 5.622s, 2011 (acquired
3/5/04, cost $299,250) (RES) 304,425
800,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 500,000
225,000 Calpine Corp. 144A sec. notes
8 3/4s, 2013 180,000
2,315,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 1,863,575
390,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 415,967
335,000 CenterPoint Energy Resources Corp.
sr. notes Ser. B, 7 7/8s, 2013 387,039
130,000 CMS Energy Corp. pass-through
certificates 7s, 2005 130,813
1,190,000 CMS Energy Corp. sr. notes 8.9s,
2008 1,270,325
315,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 330,750
250,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 255,625
875,000 DPL, Inc. sr. notes 6 7/8s, 2011 890,313
160,000 Dynegy Holdings, Inc. bank term loan
FRN 5.36s, 2010 (acquired
6/8/04, cost $160,000) (RES) 162,800
425,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 382,500
1,990,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 2,193,975
525,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 509,250
800,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 704,000
370,000 Edison Mission Energy sr. notes 10s,
2008 419,950
15,000 Edison Mission Energy sr. notes
9 7/8s, 2011 16,800
560,000 El Paso Corp. sr. notes 7 3/8s, 2012 499,800
1,275,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 1,035,938
265,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 268,313
240,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 248,400
1,390,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 1,323,975
910,000 Ferrellgas Partners LP/Ferrellgas
Partners Finance 144A sr. notes
6 3/4s, 2014 880,425
300,000 Kansas Gas & Electric debs. 8.29s,
2016 312,257
1,765,000 Midwest Generation LLC 144A sec.
notes 8 3/4s, 2034 1,870,900
1,180,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 1,463,200
560,000 Monongahela Power Co. 144A 1st.
mtge. 6.7s, 2014 570,904
930,000 Nevada Power Co. 2nd mtge. 9s, 2013 1,036,950
1,400,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 1,552,250
90,000 Northwestern Corp. debs. 6.95s, 2028
(In default) (NON) 78,075
160,000 Northwestern Corp. notes 8 3/4s,
2012 (In default) (NON) 140,000
655,000 Northwestern Corp. notes 7 7/8s,
2007 (In default) (NON) 573,125
2,795,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 2,857,888
805,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 966,000
1,185,000 PG&E Corp. sec. notes 6 7/8s, 2008 1,257,581
220,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 224,950
850,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 896,750
670,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 703,500
210,000 Sierra Pacific Power Co. 144A
general ref. mtge. 6 1/4s, 2012 205,800
1,285,000 Sierra Pacific Resources 144A sr.
notes 8 5/8s, 2014 1,329,975
130,000 Southern California Edison Co. notes
6 3/8s, 2006 136,030
440,000 Teco Energy, Inc. notes 10 1/2s,
2007 503,800
250,000 Teco Energy, Inc. notes 7.2s, 2011 256,875
400,000 Teco Energy, Inc. notes 7s, 2012 403,000
105,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 93,319
181,538 Teton Power Funding bank term loan
FRN 4.8s, 2011 (acquired 2/4/04,
cost $181,538) (RES) 183,127
135,000 Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 135,000
160,000 Unisource Energy bank term loan FRN
5.652s, 2011 (acquired 3/25/04,
cost $158,400) (RES) 157,800
1,460,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 1,361,450
510,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 517,650
547,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 623,165
200,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 210,750
210,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 229,425
755,000 Williams Cos., Inc. (The) notes
7 5/8s, 2019 762,550
975,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 1,094,438
163,354 Williams Products bank term loan FRN
3.88s, 2007 (acquired 6/4/03, cost
$163,354) (RES) 165,260
334,976 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 34
--------------
42,290,939
--------------
Total Corporate bonds and notes
(cost $401,372,494) $406,395,249
Foreign government bonds and notes (14.2%) (a)
Principal amount Value
-------------------------------------------------------------------------------
AUD 4,500,000 Australia (Government of) bonds
6 1/4s, 2015 $3,237,550
EUR 6,000,000 Austria (Republic of) 144A notes
Ser. EMTN, 3.8s, 2013 6,999,908
USD 980,000 Brazil (Federal Republic of) bonds
10 1/2s, 2014 979,020
USD 940,000 Brazil (Federal Republic of) bonds
10 1/8s, 2027 871,850
USD 1,360,000 Brazil (Federal Republic of) unsub.
notes 11s, 2040 1,334,840
USD 1,300,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 1,537,250
CAD 2,725,000 Canada (Government of) bonds 5 1/2s,
2010 2,166,793
CAD 930,000 Canada (Government of) bonds
Ser. WL43, 5 3/4s, 2029 744,882
USD 220,000 Colombia (Republic of) bonds
10 3/8s, 2033 224,400
USD 1,145,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 1,249,768
USD 3,010,000 Colombia (Republic of) notes
10 3/4s, 2013 3,360,665
EUR 400,000 Colombia (Republic of) unsub. bonds
Ser. 15A, 11 3/8s, 2008 551,145
USD 460,000 Dominican (Republic of) notes 9.04s,
2013 296,700
USD 2,085,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 7s (8s,
8/15/04), 2030 (STP) 1,546,028
USD 380,000 El Salvador (Republic of) 144A bonds
8 1/4s, 2032 359,100
EUR 1,845,000 France (Government of) bonds 5 3/4s,
2032 2,529,942
EUR 4,830,000 France (Government of) bonds 5 1/2s,
2010 6,367,247
EUR 9,000,000 France (Government of) bonds 4s,
2013 10,726,749
EUR 1,080,000 France (Government of) deb. 4s, 2009 1,326,216
EUR 7,250,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 9,448,358
EUR 6,340,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 8,189,915
EUR 1,875,000 Hellenic Greece (Republic of) bonds
3 1/2s, 2008 2,272,436
USD 260,000 Indonesia (Republic of) FRN 2.005s,
2006 246,350
USD 645,000 Indonesia (Republic of) FRN 2.005s,
2005 627,263
USD 2,250,000 Indonesia (Republic of) 144A sr.
notes 6 3/4s, 2014 2,081,250
NZD 7,610,000 New Zealand (Government of) bonds
Ser. 1106, 8s, 2006 5,004,131
NZD 8,036,000 New Zealand (Government of) bonds
Ser. 709, 7s, 2009 5,246,076
USD 520,000 Peru (Republic of) bonds 8 3/4s,
2033 466,700
USD 495,000 Philippines (Republic of) bonds
9 7/8s, 2019 509,850
USD 845,000 Philippines (Republic of) sr. notes
8 7/8s, 2015 840,775
USD 5,772,500 Russia (Federation of) 144A unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 5,296,269
USD 1,335,000 Russia (Ministry of Finance) deb.
Ser. V, 3s, 2008 1,174,800
USD 2,705,000 South Africa (Republic of) notes
7 3/8s, 2012 2,956,565
USD 740,000 South Africa (Republic of) notes
6 1/2s, 2014 760,350
SEK 43,075,000 Sweden (Government of) bonds Ser.
1041, 6 3/4s, 2014 6,569,135
SEK 37,600,000 Sweden (Government of) bonds Ser.
3101, 4s, 2008 6,058,864
USD 935,000 Turkey (Republic of) notes 9s, 2011 979,413
USD 470,408 Ukraine (Government of) sr. notes
Ser. REGS, 11s, 2007 506,159
USD 1,025,000 Ukraine (Government of) 144A bonds
7.65s, 2013 984,000
USD 1,515,000 Ukraine (Government of) 144A unsub.
notes 6 7/8s, 2011 1,441,144
GBP 1,055,000 United Kingdom treasury bonds
8 3/4s, 2017 2,584,776
GBP 5,000,000 United Kingdom treasury bonds
7 1/4s, 2007 9,691,006
GBP 1,100,000 United Kingdom treasury bonds 5s,
2012 1,985,020
GBP 2,625,000 United Kingdom treasury bonds
7 1/2s, 2006 5,030,505
GBP 5,400,000 United Kingdom treasury bonds
4 1/2s, 2007 9,690,642
USD 1,855,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 2,003,400
USD 570,000 Venezuela (Republic of) bonds
9 3/8s, 2034 501,600
USD 650,000 Venezuela (Republic of) notes
10 3/4s, 2013 674,700
USD 1,020,000 Venezuela (Republic of) unsub. bonds
5 3/8s, 2010 844,050
--------------
Total Foreign government bonds and
notes (cost $132,628,270) $141,075,555
Asset-backed securities (6.5%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$380,732 ABSC NIMS Trust 144A Ser. 03-HE5,
Class A, 7s, 2033 $382,636
Aegis Asset Backed Securities Trust
144A
193,449 Ser. 04-1N, Class NOTE, 5s, 2034 193,237
421,202 Ser. 04-2N, Class N1, 4 1/2s, 2034 419,622
8,983,636 Amortizing Residential Collateral
Trust Ser. 02-BC1, Class A,
Interest Only (IO), 6s, 2005 170,653
AQ Finance NIM Trust 144A
152,366 Ser. 03-N2, Class NOTE, 9.3s, 2033 153,318
121,104 Ser. 03-N9A, Class NOTE, 7.385s,
2033 121,861
20,625 Arc Net Interest Margin Trust 144A
Ser. 02-8A, Class A1, 7 3/4s, 2032 20,455
Arcap REIT, Inc. 144A
535,000 Ser. 03-1A, Class E, 7.11s, 2038 (R) 555,564
304,000 Ser. 04-1A, Class E, 6.42s, 2039 (R) 301,767
Argent NIM Trust 144A
241,883 Ser. 03-N6, Class A, 6.4s, 2034 241,883
126,516 Ser. 04-WN2, Class A, 4.55s, 2034 126,042
Asset Backed Funding Corp. NIM Trust
144A
63,077 Ser. 03-WF1, Class N1, 8.35s, 2032 63,077
220,000 Ser. 04-0PT1, Class N2, 6.9s, 2033 220,000
444,757 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 2.12s,
2033 446,425
480,000 Bank One Issuance Trust FRB Ser.
03-C4, Class C4, 2.41s, 2011 488,121
Bayview Financial Acquisition Trust
694,990 Ser. 02-CA, Class A, IO, 5.1s, 2004 8,144
30,816,172 Ser. 03-X, Class A, IO, 0.89s, 2006 520,023
594,000 Bear Stearns Asset Backed Securities
NIM Trust 144A Ser. 04-HE6, Class
A1, 5 1/4s, 2034 (Cayman Islands) 594,000
CARSSX Finance, Ltd. 144A
170,000 FRB Ser. 04-AA, Class B3, 4.73s,
2011 (Cayman Islands) 170,000
220,000 FRB Ser. 04-AA, Class B4, 6.88s,
2011 (Cayman Islands) 220,000
490,000 Chase Credit Card Master Trust FRB
Ser. 03-3, Class C, 2.46s, 2010 499,972
Chase Funding Net Interest Margin
144A
58,649 Ser. 03-2A, Class NOTE, 8 3/4s, 2035 58,649
323,268 Ser. 03-4A, Class NOTE, 6 3/4s, 2036 323,268
Conseco Finance Securitizations Corp.
524,000 Ser. 00-2, Class A4, 8.48s, 2021 536,383
4,469,000 Ser. 00-4, Class A6, 8.31s, 2032 3,823,000
1,535,000 Ser. 00-6, Class M2, 8.2s, 2032 207,225
32,000 Ser. 01-04, Class A4, 7.36s, 2033 31,271
697,000 Ser. 01-1, Class A5, 6.99s, 2032 634,806
18,000 Ser. 01-3, Class A3, 5.79s, 2033 17,756
1,594,000 Ser. 01-3, Class A4, 6.91s, 2033 1,471,872
400,000 Ser. 01-3, Class M2, 7.44s, 2033 76,000
1,436,000 Ser. 01-4, Class B1, 9.4s, 2010 215,400
3,325,679 Ser. 02-1, Class A, 6.681s, 2033 3,411,180
414,000 FRB Ser. 01-4, Class M1, 3.11s, 2033 170,775
1,100,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class A,
3.55s, 2007 1,113,970
419,396 Countrywide Asset Backed
Certificates 144A Ser. 04-BC1N,
Class NOTE, 5 1/2s, 2035 418,085
603,000 Crest, Ltd. 144A Ser. 03-2A, Class
E2, 8s, 2038 552,122
371,490 First Franklin NIM Trust 144A Ser.
03-FF3A, Class A, 6 3/4s, 2033 370,048
Fremont NIM Trust 144A
89,375 Ser. 03-B, Class NOTE, 5.65s, 2033 89,152
700,457 Ser. 04-A, Class NOTE, 4 3/4s, 2034 698,356
Granite Mortgages PLC
GBP 1,505,000 FRB Ser. 03-2, Class 3C, 6.38s, 2043
(United Kingdom) 2,813,831
EUR 2,005,000 FRN Ser. 03-2, Class 2C1, 5.2s, 2043
(United Kingdom) 2,445,199
$490,000 FRB Ser. 02-1, Class 1C, 2.93s, 2042
(United Kingdom) 498,345
Green Tree Financial Corp.
248,473 Ser. 95-F, Class B2, 7.1s, 2021 223,470
162,816 Ser. 99-3, Class A5, 6.16s, 2031 164,851
1,739,000 Ser. 99-5, Class A5, 7.86s, 2030 1,523,684
Greenpoint Manufactured Housing
2,616,493 Ser. 00-3, Class IA, 8.45s, 2031 2,376,406
50,000 Ser. 99-5, Class A4, 7.59s, 2028 52,767
1,663,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 1,635,647
GSAMP Trust 144A
160,693 Ser. 03-HE1N, Class NOTE, 7 1/4s,
2033 160,308
537,128 Ser. 04, Class NOTE, 5 1/2s, 2032 536,323
332,856 Ser. 04-FM1N, Class NOTE, 5 1/4s,
2033 332,510
300,000 Ser. 04-HE1N, Class N1, 5s, 2034 299,640
331,000 Holmes Financing PLC FRB Ser. 8,
Class 2C, 2.32s, 2040 (United
Kingdom) 331,104
Holmes Financing PLC FRB
300,000 Ser. 4, Class 3C, 2.9s, 2040 (United
Kingdom) 304,294
690,000 Ser. 5, Class 2C, 3.05s, 2040
(United Kingdom) 694,960
Home Equity Asset Trust 144A
312,535 Ser. 02-5N, Class A, 8s, 2033 314,879
135,226 Ser. 03-4N, Class A, 8s, 2033 136,240
340,751 Ser. 03-7N, Class A, 5 1/4s, 2034 340,751
188,432 Ser. 04-1N, Class A, 5s, 2034 187,961
1,755,000 LNR CDO, Ltd. FRB Ser. 02-1A, Class
FFL, 4.2s, 2037 (Cayman Islands) 1,685,502
1,070,000 LNR CDO, Ltd. 144A FRB Ser. 03-1A,
Class EFL, 4.433s, 2036 (Cayman
Islands) 1,126,817
Long Beach Asset Holdings Corp. 144A
433,870 Ser. 04-2, Class N1, 4.94s, 2034 433,870
201,387 Ser. 03-2, Class N1, 7.627s, 2033 201,387
131,516 Long Beach Asset Holdings Corp. NIM
Trust 144A Ser. 03-4, Class N1,
6.535s, 2033 131,680
2,800,000 Long Beach Mortgage Loan Trust Ser.
04-3, Class S1, IO, 4 1/2s, 2006 196,980
GBP 1,200,000 Lothian Mortgages PLC 144A Ser. 3A,
Class D, 5.458s, 2039 (United
Kingdom) 2,181,840
$1,457,253 Madison Avenue Manufactured Housing
Contract FRB Ser. 02-A, Class B1,
4.7s, 2032 801,489
490,000 MBNA Credit Card Master Note Trust
FRN Ser. 03-C5, Class C5, 2.56s,
2010 499,953
194,554 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 196,257
252,149 Mid-State Trust Ser. 11, Class B,
8.221s, 2038 249,903
Morgan Stanley ABS Capital I 144A
92,423 Ser. 03-NC9N, Class NOTE, 7.6s, 2033 92,827
117,297 Ser. 04-NC2N, Class NOTE, 6 1/4s,
2033 117,553
Morgan Stanley Dean Witter Capital I
545,000 FRN Ser. 01-NC3, Class B1, 3.9s,
2031 539,136
499,000 FRN Ser. 01-NC4, Class B1, 3.95s,
2032 491,282
196,925 New Century Mortgage Corp. NIM Trust
144A Ser. 03-B, Class NOTE, 6 1/2s,
2033 198,094
304,064 Novastar NIM Trust 144A Ser. 04-N1,
Class NOTE, 4.458s, 2034 304,064
Oakwood Mortgage Investors, Inc.
2,111,934 Ser. 01-C, Class A2, 5.92s, 2017 1,357,762
2,897,455 Ser. 02-C, Class A1, 5.41s, 2032 2,557,004
1,098,362 Ser. 99-B, Class A4, 6.99s, 2026 986,604
Option One Mortgage Securities Corp.
NIM Trust 144A
114,311 Ser. 03-5, Class NOTE, 6.9s, 2033 114,883
71,538 Ser. 03-2B, Class N1, 7.63s, 2033
(Cayman Islands) 71,538
578,892 Pass-Through Amortizing Credit Card
Trust Ser. 02-1A, Class A4FL, 6.91s,
2012 580,529
Permanent Financing PLC FRB
380,000 Ser. 1, Class 3C, 2.61s, 2042
(United Kingdom) 384,216
490,000 Ser. 3, Class 3C, 2.56s, 2042
(United Kingdom) 498,422
1,848,000 Providian Gateway Master Trust Ser.
02, Class B, zero %, 2006 1,552,181
4,003,279 Residential Asset Mortgage Products,
Inc. Ser. 03-RZ1, Class A,
IO, 5 3/4s, 2005 161,382
413,647 Rural Housing Trust Ser. 87-1, Class
D, 6.33s, 2026 427,995
101,462 SAIL Net Interest Margin Notes Ser.
03-4, Class A, 7 1/2s, 2033 (Cayman
Islands) 101,350
SAIL Net Interest Margin Notes 144A
594,349 Ser. 03-10A, Class A, 7 1/2s, 2033
(Cayman Islands) 594,317
247,112 Ser. 03-12A, Class A, 7.35s, 2033
(Cayman Islands) 247,038
150,509 Ser. 03-6A, Class A, 7s, 2033
(Cayman Islands) 149,390
317,515 Ser. 03-7A, Class A, 7s, 2033
(Cayman Islands) 315,159
87,215 Ser. 03-8A, Class A, 7s, 2033
(Cayman Islands) 86,776
231,165 Ser. 03-9A, Class A, 7s, 2033
(Cayman Islands) 229,963
417,270 Ser. 03-BC2A, Class A, 7 3/4s, 2033 416,057
596,519 Ser. 04-2A, Class A, 5 1/2s, 2034
(Cayman Islands) 596,519
1,136,159 Ser. 04-4A, Class A, 5s, 2034
(Cayman Islands) 1,134,455
42,898 Sasco Arc Net Interest Margin Notes
Ser. 02-BC10, Class A, 7 3/4s, 2033 42,508
Sasco Arc Net Interest Margin Notes
144A
244,880 Ser. 03-3, Class A, 7 3/4s, 2033 243,651
507,188 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 507,040
367,911 Ser. 03-AM1, Class A, 7 3/4s, 2033 366,118
381,740 Sasco Arc Net Interest Margin Trust
144A Ser. 03-BC1, Class B, zero %,
2033 273,362
226,947 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 226,947
291,196 Sharp SP I, LLC Net Interest Margin
Trust Ser. 03-NC1N, Class N,
7 1/4s, 2033 292,826
Sharp SP I, LLC Net Interest Margin
Trust 144A
152,403 Ser. 03-0P1N, Class NA, 4.45s, 2033 152,387
159,868 Ser. 03-HS1N, Class N, 7.48s, 2033 160,268
75,774 Ser. 03-TC1N, Class N, 7.45s, 2033 75,774
72,633 Ser. 04-HS1N, Class NOTE, 5.92s,
2034 72,633
200,000 South Coast Funding FRB Ser. 3A,
Class A2, 2.38s, 2038 202,500
Structured Asset Investment Loan
Trust
389,075 Ser. 03-BC1A, Class A, 7 3/4s, 2033 387,184
9,912,019 Ser. 03-BC2, Class A, IO, 6s, 2005 258,221
3,360,837 Ser. 03-BC8, Class A, IO, 6s, 2005 133,076
20,615,000 Ser. 04-1, Class A, IO, 6s, 2005 1,099,763
544,000 TIAA Commercial Real Estate
Securitization Ser. 02-1A, Class
IV, 6.84s, 2037 422,553
650,000 TIAA Commercial Real Estate
Securitization 144A Ser. 03-1A,
Class E, 8s, 2038 583,146
4,068,400 Washington Mutual Ser. 03-S1, Class
A11, IO, 5 1/2s, 2033 301,316
1,180,243 Whole Auto Loan Trust 144A Ser.
03-1, Class D, 6s, 2010 1,180,981
--------------
Total Asset-backed securities
(cost $67,969,803) $64,503,716
Collateralized mortgage obligations (5.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$490,000 Bear Stearns Commercial Mortgage
Securitization Corp. 144A Ser.
04-ESA, Class K, 3.88s, 2016 $490,000
6,084,854 Commercial Mortgage Acceptance Corp.
Ser. 97-ML1, IO, 0.84s, 2017 135,958
402,000 Commercial Mortgage Pass-Through
Certificates 144A FRB Ser. 01-FL4A,
Class E, 2.68s, 2013 357,780
1,858,000 Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2011 1,982,254
2,814,000 Criimi Mae Commercial Mortgage Trust
144A Ser. 98-C1, Class B, 7s, 2033 2,917,881
501,000 CS First Boston Mortgage Securities
Corp. 144A FRB Ser. 03-TF2A, Class
L, 5.38s, 2014 497,471
55,274,206 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X, IO,
1.104s, 2023 1,500,093
DLJ Commercial Mortgage Corp.
399,789 Ser. 98-CF2, Class B4, 6.04s, 2031 326,015
1,281,541 Ser. 98-CF2, Class B5, 5.95s, 2031 786,195
Fannie Mae
816,744 Ser. 02-36, Class SJ, 16 1/2s, 2029 895,053
3,119,157 Ser. 329, Class 2, IO, 5.5s, 2033 780,765
712,461 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 768,380
13,870 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 14,959
1,554 Ser. 02-W1, Class 2A, 7 1/2s, 2042 1,676
5,972 Ser. 02-14, Class A2, 7 1/2s, 2042 6,441
851,806 Ser. 01-T10, Class A2, 7 1/2s, 2041 918,662
3,839 Ser. 02-T4, Class A3, 7 1/2s, 2041 4,140
9,567 Ser. 01-T8, Class A1, 7 1/2s, 2041 10,318
3,304,268 Ser. 01-T7, Class A1, 7 1/2s, 2041 3,563,612
499,183 Ser. 01-T3, Class A1, 7 1/2s, 2040 538,363
1,487,683 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,604,448
607,881 Ser. 99-T2, Class A1, 7 1/2s, 2039 655,592
314,313 Ser. 00-T6, Class A1, 7 1/2s, 2030 338,982
1,473,190 Ser. 01-T4, Class A1, 7 1/2s, 2028 1,588,817
3,071 Ser. 02-W3, Class A5, 7 1/2s, 2028 3,312
6,878,864 Ser. 338, Class 2, IO, 5.5s, 2033 1,792,804
2,663,700 Ser. 03-24, Class IC, IO, 5s, 2015 517,249
4,382,360 Ser. 03-34, Class SG, IO, 5.55s,
2033 392,358
532,189 Ser. 01-74, Class MI, IO, 6s, 2015 39,899
5,052,618 Ser. 03-49, Class TS, IO, 6 1/4s,
2018 605,525
1,721,632 Ser. 03-26, Class IG, IO, 6s, 2033 323,075
1,769,611 Ser. 02-36, Class QH, IO, 6.6s, 2029 110,949
23,630,034 Ser. 02-T18, IO, 0.519s, 2042 341,641
1,741,291 Ser. 345, Class 1, IO, 5s, 2033 477,767
7,691,395 Ser. 345, Class 3, IO, 5s, 2033 2,076,677
13,114,305 Ser. 03-34, Class SP, IO, 5.65s,
2032 1,124,961
640,000 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 41,990
1,232 Ser. 92-15, Class L, IO, 10.38s,
2022 15,136
4,413,638 Ser. 03-41, Class SP, IO, 5 3/4s,
2015 294,473
1,537,421 Ser. 318, Class 2, IO, 6s, 2032 357,030
2,136,717 Ser. 03-118, Class SF, IO, 6.65s,
2033 312,849
8,135,205 Ser. 03-W17, Class 12, IO, 1.162s,
2033 270,380
1,915,048 Ser. 03-118, Class S, IO, 6.65s,
2033 277,682
3,122,429 Ser. 03-45, Class PI, IO, 5.5s, 2029 368,025
4,146,072 Ser. 03-37, Class IC, IO, 5.5s, 2027 447,001
200,829 Ser. 98-51, Class SG, IO, 23.72s,
2022 90,100
1,206,657 Ser. 322, Class 2, IO, 6s, 2032 279,417
14,845,384 Ser. 03-W10, Class 3A, IO, 1.913s,
2043 491,753
13,315,531 Ser. 00-T6, IO, 0.74s, 2030 239,263
12,485,363 Ser. 03-W10, Class 1A, IO, 1.922s,
2043 401,873
168,328 Ser. 03-7, Class SM, IO, 6.3s, 2023 973
6,402,748 Ser. 03-23, Class AI, IO, 5s, 2017 809,216
391,480 Ser. 03-23, Class SC, IO, 6.1s, 2033 5,872
1,528,271 Ser. 03-58, Class ID, IO, 6s, 2033 350,308
2,014,030 Ser. 03-14, Class KS, IO, 6.15s,
2017 150,108
10,745,022 Ser. 03-34, Class ES, IO, 5.55s,
2033 956,978
254,384 Ser. 99-51, Class N, PO, zero %,
2029 213,166
133,908 Ser. 99-52, Class MO, PO, zero %,
2026 128,960
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
18,484 Ser. T-58, Class 4A, 7 1/2s, 2043 19,935
7,725,698 Ser. T-57, Class 1AX, IO, 0.439s,
2043 83,896
19,819,760 FFCA Secured Lending Corp. Ser.
00-1, Class X, IO, 1.603s, 2020 1,266,515
589,733 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class E, 7.922s, 2039 550,848
Freddie Mac
776,442 Ser. 2763, Class SC, 23.08s, 2032 925,877
3,003,531 Ser. 2448, Class SM, IO, 6.4s, 2032 315,371
3,296,003 Ser. 2579, Class GS, IO, 6.05s, 2017 306,224
1,033,400 Ser. 2590, Class IH, IO, 5 1/2s,
2028 266,101
4,756,941 Ser. 216, Class IO, IO, 6s, 2032 1,080,903
2,619,000 Ser. 2596, Class IQ, IO, 5 1/2s,
2026 277,197
2,008,400 Ser. 2515, Class IG, IO, 5 1/2s,
2032 662,584
352,770 Ser. 2478, Class SY, IO, 6.55s, 2021 19,805
561,982 Ser. 215, Class PO, Principal Only
(PO), zero %, 2031 502,316
515,000 Ser. 2235, PO, zero %, 2030 415,299
5 Ser. 2078, Class KC, P0, zero %, 2023 5
739,550 GMAC Commercial Mortgage Securities,
Inc. 144A Ser. 99-C3, Class G,
6.974s, 2036 544,185
Government National Mortgage
Association
244,234 Ser. 02-51, Class SA, IO, 6.68s,
2032 2,858
6,327,802 Ser. 03-83, Class SI, IO, 4.9s, 2032 435,036
945,932 Ser. 02-63, Class ST, IO, 4.03s,
2024 9,641
2,297,323 Ser. 02-47, Class SM, IO, 4.55s,
2032 117,379
3,001,517 Ser. 01-19, Class S, IO, 5.9s, 2031 281,392
953,445 Ser. 01-43, Class SJ, IO, 6.18s,
2029 23,687
252,907 Ser. 98-2, Class EA, PO, zero %,
2028 209,439
300,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 4.63s,
2015 300,375
GBP 1,837,845 Hermione (European Loan Conduit No.
14) 144A FRB Class A, 5.33s, 2011
(Ireland) 3,361,620
$355,850 LB Commercial Conduit Mortgage Trust
144A Ser. 99-C1, Class G, 6.41s,
2031 273,570
Mach One Commercial Mortgage Trust
144A
594,000 Ser. 04-1A, Class J, 5.45s, 2040 476,291
297,000 Ser. 04-1A, Class K, 5.45s, 2040 239,955
135,000 Ser. 04-1A, Class L, 5.45s, 2040 95,644
9,514,193 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, Class JS,
IO, 3.459s, 2028 549,654
1,440,985 Mezz Cap Commercial Mortgage Trust
144A Ser. 04-C1, Class X, IO,
7.85s, 2037 667,581
2,430,000 Morgan Stanley Capital I 144A Ser.
04-RR, Class F7, 6s, 2039 1,722,008
7,700,770 Mortgage Capital Funding, Inc. Ser.
97-MC2, Class X, IO, 1.282s, 2012 227,918
459,501 Mortgage Capital Funding, Inc. FRB
Ser. 98-MC2, Class E, 7.139s, 2030 496,852
Starwood Asset Receivables Trust
144A
245,003 FRB Ser. 03-1A, Class F, 2.55s, 2022 245,395
308,522 FRB Ser. 03-1A, Class E, 2 1/2s,
2022 309,016
STRIPS 144A
229,000 Ser. 03-1A, Class M, 5s, 2018
(Cayman Islands) 187,872
272,000 Ser. 03-1A, Class N, 5s, 2018 200,709
245,000 Ser. 04-1A, Class M, 5s, 2018 201,782
235,000 Ser. 04-1A, Class N, 5s, 2018 174,605
271,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3,
6.943s, 2013 287,767
--------------
Total Collateralized mortgage
obligations (cost $57,350,223) $53,327,732
Common stocks (0.7%) (a)
Number of shares Value
-------------------------------------------------------------------------------
2,767 AboveNet, Inc. (NON) $85,749
3,074 Alderwoods Group, Inc. (NON) 27,312
1,005,000 AMRESCO Creditor Trust (acquired
6/17/99, cost $174,438) (RES) (NON)
(R) 1,005
19 Arch Wireless, Inc. Class A (NON) 536
2,452 Archibald Candy Corp. (NON) 123
1,522 Birch Telecom, Inc. (NON) 15
643 Comdisco Holding Co., Inc. (S) 15,464
3,390,037 Contifinancial Corp. Liquidating
Trust Units 67,801
21,241 Covad Communications Group, Inc.
(NON) (S) 40,358
2,407 Crown Castle International Corp.
(NON) (S) 33,987
1,529 Genesis HealthCare Corp. (NON) (S) 41,054
64,253 Globix Corp. (NON) (S) 205,610
21,372 iPCS, Inc. (NON) 461,251
750,000 iPCS Escrow, Inc. (NON) 750
282 Knology, Inc. (NON) 1,230
147 Leucadia National Corp. (S) 7,569
9,031 Lodgian, Inc. (NON) 88,504
160,000 Loewen Group International, Inc.
(NON) 16
1,112 Polymer Group, Inc. Class A (NON) 14,678
2,502 PSF Group Holdings, Inc. 144A Class
A (NON) 3,753,720
74,020 Regal Entertainment Group (acquired
5/9/02, cost $74,020) (RES) 1,393,797
368 Sterling Chemicals, Inc. (NON) 8,832
1,195 Sun Healthcare Group, Inc. (NON) 8,257
1,292,251 VFB LLC (acquired various dates from
1/20/00 to 12/8/03, cost $955,585)
(RES) (NON) 245,528
6,378 Washington Group International, Inc.
(NON) 213,153
--------------
Total Common stocks
(cost $18,814,084) $6,716,299
Preferred stocks (0.5%) (a)
Number of shares Value
-------------------------------------------------------------------------------
41,533 Avecia Group PLC $4.00 pfd. (United
Kingdom) (PIK) $539,929
15,119 Doane Pet Care Co. $7.125 pfd. 634,998
38 Dobson Communications Corp. 13.00%
pfd. (PIK) 24,738
540 First Republic Capital Corp. 144A
10.50% pfd. 558,900
17,777 iStar Financial, Inc. $1.95 cum.
pfd. 444,425
132 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) (S) 1,151,700
277 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. 232,680
1,901 Rural Cellular Corp. 12.25% pfd.
(PIK) 1,197,630
--------------
Total Preferred stocks
(cost $5,399,667) $4,785,000
Brady bonds (0.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$1,181,181 Brazil (Federal Republic of) FRB
2 1/8s, 2012 $1,026,210
1,515,300 Brazil (Federal Republic of) govt.
guaranty FRB Ser. RG, 2 1/8s, 2012 1,316,492
985,000 Peru (Republic of) coll. FLIRB Ser.
20YR, 4 1/2s, 2017 815,088
882,700 Peru (Republic of) FRB Ser. PDI, 5s,
2017 767,949
--------------
Total Brady bonds (cost $3,273,044) $3,925,739
Convertible preferred stocks (0.2%) (a)
Number of shares Value
-------------------------------------------------------------------------------
12,672 Crown Castle International Corp.
$3.125 cv. pfd. $574,992
7,495 Omnicare, Inc. $2.00 cv. pfd. 359,760
89 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 631,900
9,530 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 681,395
--------------
Total Convertible preferred stocks
(cost $2,107,187) $2,248,047
Convertible bonds and notes (0.1%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$155,000 AES Corp. (The) cv. sub. notes
4 1/2s, 2005 $153,450
725,000 Amkor Technologies, Inc. cv. notes
5 3/4s, 2006 664,281
3,080,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In
default) (NON) (STP) 31
380,000 WCI Communities, Inc. cv. sr. sub.
notes 4s, 2023 408,975
--------------
Total Convertible bonds and notes
(cost $3,803,181) $1,226,737
Units (--%) (a)
Number of unitsValue
-------------------------------------------------------------------------------
1,250,000 Morrison Knudsen Corp., 2032 $65,625
951 XCL Equity Units 422,079
--------------
Total Units (cost $2,515,898) $487,704
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
1,001 AboveNet, Inc. 9/8/08 $5,005
1,178 AboveNet, Inc. 9/8/10 1,178
1,420 Dayton Superior Corp. 144A 6/15/09 1
4 Doe Run Resources Corp. 144A 12/31/12 1
1,654 Huntsman Co., LLC 144A 5/15/11 314,260
694 MDP Acquisitions PLC 144A (Ireland) 10/1/13 19,259
550 Mikohn Gaming Corp. 144A 8/15/08 165
560 ONO Finance PLC 144A (United
Kingdom) 2/15/11 6
570 Pliant Corp. 144A 6/1/10 6
682 Solutia, Inc. 144A 7/15/09 7
690 Travel Centers of America, Inc. 144A 5/1/09 3,450
2,310 Ubiquitel, Inc. 144A 4/15/10 1
3,937 Washington Group International, Inc.
Ser. A 1/25/06 28,543
4,500 Washington Group International, Inc.
Ser. B 1/25/06 25,650
2,432 Washington Group International, Inc.
Ser. C 1/25/06 11,430
800 XM Satellite Radio Holdings, Inc.
144A 3/15/10 42,800
--------------
Total Warrants (cost $1,029,372) $451,762
U.S. government and agency mortgage obligations (12.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$19,116 Federal Home Loan Mortgage
Corporation 7 1/2s, March 1, 2026 $20,637
Federal National Mortgage
Association
Pass-Through Certificates
149,784 7 1/2s, with due dates from October
1, 2022 to January 1, 2030 160,989
18,995,667 6 1/2s, with due dates from April 1,
2024 to November 1, 2033 19,873,362
47,100,000 6 1/2s, TBA, August 15, 2034 49,149,585
212,176 5s, June 1, 2019 214,049
49,000,000 5s, TBA, August 15, 2019 49,340,702
5,047,024 4 1/2s, with due dates from August
1, 2033 to June 1, 2034 4,771,655
--------------
Total U.S. government and agency
mortgage obligations
(cost $123,173,947) $123,530,979
U.S. Treasury obligations (13.8%) (a)
Principal amount Value
-------------------------------------------------------------------------------
U.S. Treasury Bonds
$21,600,000 7 1/2s, November 15, 2016 $26,929,126
33,514,000 6 1/4s, May 15, 2030 38,048,863
12,260,000 6 1/4s, August 15, 2023 13,752,272
22,594,000 4 1/4s, August 15, 2013 22,293,925
U.S. Treasury Notes
23,410,000 3 1/4s, August 15, 2008 23,238,082
6,273,000 1 1/8s, June 30, 2005 6,223,012
20,460,000 U.S. Treasury Strip zero %, November
15, 2024 6,686,146
--------------
Total U.S. Treasury obligations
(cost $137,236,894) $137,171,426
Short-term investments (17.6%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$171,516,53 Putnam Prime Money Market Fund (e) $171,516,532
1,317,039 Short-term investments held as
collateral for loaned securities
with yields ranging from 1.28% to
1.52% and due dates ranging from
August 2, 2004 to August 23,
2004 (d) 1,316,566
1,900,000 U.S. Treasury Bill zero %, August 5,
2004 (SEG) 1,899,766
--------------
Total Short-term investments
(cost $174,732,864) $174,732,864
-------------------------------------------------------------------------------
Total Investments
(cost $1,131,406,928) $1,120,578,809
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $992,675,806.
(DEF) Security is in default of principal and interest.
(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 income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at July 31, 2004 was
$20,966,002 or 2.1% 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 July 31, 2004.
(R) Real Estate Investment Trust.
(S) Securities on loan, in part or in entirety, at July 31, 2004.
(d) See Note 1 to the financial statements.
(e) See Note 4 to the financial statements regarding investments in the
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 Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates at July 31, 2004.
Forward currency contracts to buy at July 31, 2004
(aggregate face value $55,156,865)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Australian Dollar $10,703,542 $10,767,426 9/15/04 $(63,884)
British Pound 4,934,461 4,954,404 9/15/04 (19,943)
Danish Krone 1,625,806 1,649,315 9/15/04 (23,509)
Euro 6,999,341 7,134,813 9/15/04 (135,472)
Japanese Yen 29,023,373 28,898,333 9/15/04 125,040
Norwegian Krone 467,789 490,647 9/15/04 (22,858)
Polish Zloty 634,031 604,876 9/15/04 29,155
Swiss Franc 642,067 657,051 9/15/04 (14,984)
------------------------------------------------------------------------------------------------------
$(126,455)
------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at July 31, 2004
(aggregate face value $104,172,131)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Australian Dollar $5,414,359 $5,515,410 9/15/04 $101,051
British Pound 24,315,776 24,400,083 9/15/04 84,307
Canadian Dollar 1,320,801 1,288,907 9/15/04 (31,894)
Euro 49,069,847 49,332,699 9/15/04 262,852
Japanese Yen 1,212,436 1,245,830 9/15/04 33,394
New Zealand Dollar 9,972,087 9,783,991 9/15/04 (188,096)
Swedish Kronor 12,238,784 12,605,211 9/15/04 366,427
------------------------------------------------------------------------------------------------------
$628,041
------------------------------------------------------------------------------------------------------
Futures contracts outstanding at July 31, 2004
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Euro-Bobl 5 yr (Long) $18,705,230 $18,532,054 Sep-04 $173,176
Euro-Bund 10 yr (Long) 19,944,103 19,757,008 Sep-04 187,095
Interest Rate Swap
10 yr (Long) 2,474,656 2,393,312 Sep-04 81,344
Japanese Government Bond
10 yr-TSE (Long) 7,259,758 7,260,419 Sep-04 (661)
Japanese Government Bond
10 yr (Long) 8,951,709 8,971,230 Sep-04 (19,521)
U.K. Gilt (Long) 29,660,669 29,586,470 Sep-04 74,199
U.S. Treasury Bond (Long) 19,046,500 18,376,437 Sep-04 670,063
U.S. Treasury Note
10 yr (Long) 35,651,438 34,738,384 Sep-04 913,054
U.S. Treasury Note
10 yr (Short) 25,908,188 25,760,108 Sep-04 (148,080)
U.S. Treasury Note
5 yr (Short) 94,717,500 93,321,258 Sep-04 (1,396,242)
------------------------------------------------------------------------------------------------------
$534,427
------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at July 31, 2004
Unrealized
Notional Termination appreciation/
amount date (depreciation)
------------------------------------------------------------------------------------------------------
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 $800,053
------------------------------------------------------------------------------------------------------
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 1/26/06 194,054
------------------------------------------------------------------------------------------------------
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 12/4/05 5,964
------------------------------------------------------------------------------------------------------
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 1/27/14 232,389
------------------------------------------------------------------------------------------------------
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 (15,354)
------------------------------------------------------------------------------------------------------
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 (6,988)
------------------------------------------------------------------------------------------------------
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 1/26/06 198,449
------------------------------------------------------------------------------------------------------
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 three month
USD-LIBOR-BBA. 12,964,000 12/15/13 (195,451)
------------------------------------------------------------------------------------------------------
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 1/26/14 240,208
------------------------------------------------------------------------------------------------------
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 10/1/07 129,707
------------------------------------------------------------------------------------------------------
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 6.68%. $9,000,000 11/21/05 556,735
------------------------------------------------------------------------------------------------------
Agreement with UBS, AG dated April 23,
2004 to receive annually the notional amount
multiplied by 3.49% and pay quarterly the
notional amount multiplied by the three month
SEK-STIBOR-. SEK 555,000,000 4/27/06 79,576
------------------------------------------------------------------------------------------------------
$2,219,342
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
July 31, 2004
Assets
-------------------------------------------------------------------------------
Investment in securities, at value, including $1,258,023 of securities
on loan (Note 1):
-------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $959,890,396) $949,062,277
-------------------------------------------------------------------------------
Affiliated issuers (identified cost $171,516,532) (Note 4) 171,516,532
-------------------------------------------------------------------------------
Cash 1,210,484
-------------------------------------------------------------------------------
Foreign currency (cost $1,379,720) (Note 1) 1,359,982
-------------------------------------------------------------------------------
Dividends, interest and other receivables 15,168,695
-------------------------------------------------------------------------------
Receivable for securities sold 4,647,295
-------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 2,437,135
-------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 291,153
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 1,099,625
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 339,336
-------------------------------------------------------------------------------
Total assets 1,147,132,514
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 5,497,322
-------------------------------------------------------------------------------
Payable for securities purchased 144,495,751
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,679,186
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 169,042
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 98,773
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,273
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 598,039
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 311,459
-------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 217,793
-------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 1,316,566
-------------------------------------------------------------------------------
Other accrued expenses 71,504
-------------------------------------------------------------------------------
Total liabilities 154,456,708
-------------------------------------------------------------------------------
Net assets $992,675,806
Represented by
-------------------------------------------------------------------------------
Paid-in capital (Note 1) $1,206,712,544
-------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 15,779,069
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (222,203,704)
-------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (7,612,103)
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $992,675,806
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($992,675,806 divided by
141,198,870 shares) $7.03
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended July 31, 2004
Investment income:
-------------------------------------------------------------------------------
Interest (including interest income of $304,266 from
investments in affiliated issuers) (Note 4) $68,118,359
-------------------------------------------------------------------------------
Dividends 1,576,800
-------------------------------------------------------------------------------
Securities lending 2,134
-------------------------------------------------------------------------------
Total investment income 69,697,293
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,944,320
-------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 884,612
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 33,083
-------------------------------------------------------------------------------
Administrative services (Note 2) 16,590
-------------------------------------------------------------------------------
Other 405,981
-------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 4) (44,468)
-------------------------------------------------------------------------------
Total expenses 8,240,118
-------------------------------------------------------------------------------
Expense reduction (Note 2) (22,769)
-------------------------------------------------------------------------------
Net expenses 8,217,349
-------------------------------------------------------------------------------
Net investment income 61,479,944
-------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 26,756,700
-------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (6,487,131)
-------------------------------------------------------------------------------
Net realized gain on credit default (Note 1) 74,035
-------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 2,018,132
-------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (454,538)
-------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (429,315)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts, TBA sale commitments and credit
default contracts during the year 23,067,710
-------------------------------------------------------------------------------
Net gain on investments 44,545,593
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $106,025,537
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended July 31
Increase in net assets 2004 2003
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $61,479,944 $72,453,759
-------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 21,907,198 (11,293,897)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 22,638,395 85,392,998
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 106,025,537 146,552,860
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (66,079,263) (72,810,386)
-------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of
distributions -- 1,338,341
-------------------------------------------------------------------------------
Total increase in net assets 39,946,274 75,080,815
Net assets
-------------------------------------------------------------------------------
Beginning of year 952,729,532 877,648,717
-------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $15,779,069 and
$11,156,565, respectively) $992,675,806 $952,729,532
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning of year 141,198,870 140,989,259
-------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- 209,611
-------------------------------------------------------------------------------
Shares outstanding at end of year 141,198,870 141,198,870
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended July 31
operating performance 2004 2003 2002 2001 2000
-------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.75 $6.22 $6.68 $7.19 $7.62
-------------------------------------------------------------------------------------------------------------------
Investment operations:
-------------------------------------------------------------------------------------------------------------------
Net investment income (a) .44 (e) .51 .55 .61 .63
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .31 .54 (.47) (.50) (.39)
-------------------------------------------------------------------------------------------------------------------
Total from
investment operations .75 1.05 .08 .11 .24
-------------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.52) (.53) (.51) (.67)
-------------------------------------------------------------------------------------------------------------------
From return of
capital -- -- (.01) (.11) --
-------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.52) (.54) (.62) (.67)
-------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.03 $6.75 $6.22 $6.68 $7.19
-------------------------------------------------------------------------------------------------------------------
Market price,
end of period $6.29 $6.31 $6.03 $6.29 $6.38
-------------------------------------------------------------------------------------------------------------------
Total return at
market price (%)(b) 7.18 13.41 4.44 8.56 (1.51)
-------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $992,676 $952,730 $877,649 $942,125 $1,013,487
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .83 (e) .85 .86 .85 .83
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.19 (e) 7.91 8.39 8.87 8.48
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 78.43 96.21 (d) 175.78 (d) 231.58 133.80
-------------------------------------------------------------------------------------------------------------------
(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 during the period. As a result of such waivers, the expenses of
the fund for the period ended 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
July 31, 2004
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 seeks 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 restricted securities, are valued at fair value
following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, 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.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
F) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked to market daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. Forward currency contracts outstanding at
period end, if any, are listed after the fund's portfolio.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. 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.
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.
H) 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. Risks 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.
I) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront
payment to a counter party, the protection seller, in exchange for the
right to receive a contingent payment. 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. 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. The risk of loss may exceed the fair value of
these contracts recognized on the statement of assets and liabilities.
Credit default contracts outstanding at period end, if any, are listed
after the fund's portfolio.
J) 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.
K) 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.
L) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the statement of operations. At July 31, 2004, the value of
securities loaned amounted to $1,258,023. The fund received cash
collateral of $1,316,566 which is pooled with collateral of other Putnam
funds into 29 issuers of high grade short-term investments.
M) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986 (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
N) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Dis
tri butions from capital gains, if any, are recorded on the ex-dividend
date and paid at least annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations, which may differ from generally accepted accounting
principles. These differences include temporary and permanent differences
of losses on wash sale transactions, foreign currency gains and losses,
nontaxable dividends, dividends payable, defaulted bond interest,
unrealized and realized gains and losses on certain futures contracts,
market discount, interest on payment-in-kind securities, and income on
swap contracts. Reclassifications are made to the fund's capital accounts
to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year ended
July 31, 2004, the fund reclassified $9,221,823 to increase undistributed
net investment income and $30,095 to increase paid-in-capital, with an
increase to accumulated net realized losses of $9,251,918.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $39,855,708
Unrealized depreciation (52,382,071)
---------------
Net unrealized depreciation (12,526,363)
Undistributed ordinary income 22,381,555
Capital loss carryforward (221,029,478)
Cost for federal income
tax purposes $1,133,105,172
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.75% of the first $500 million
of average weekly net assets, 0.65% of the next $500 million, 0.60% of
the next $500 million and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the year ended July 31, 2004, the fund
paid PFTC $884,612 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 year ended July 31, 2004, the
fund's expenses were reduced by $22,769 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,906, 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 year ended July 31, 2004, cost of purchases and proceeds from
sales of investment securities other than U.S. government securities and
short-term investments aggregated $629,141,583 and $809,720,866,
respectively. Purchases and sales of U.S. government securities
aggregated $90,715,238 and $14,861,378, respectively.
Note 4
Investment in Putnam
Prime Money Market Fund
The fund invests in the 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. Income
distributions earned by the fund are recorded as income in the statement
of operations and totaled $304,266 for the period ended July 31, 2004.
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
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. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. 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 has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, 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.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing.
Federal tax information
(Unaudited)
The fund has designated 1.38% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended July 31, 2004, the fund hereby designates 1.34%,
or the maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
Results of June 10, 2004
shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on June 10, 2004.
At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
----------------------------------------------------------------
Jameson Adkins Baxter 126,407,006 5,275,000
Charles B. Curtis 126,426,502 5,255,504
John A. Hill 126,418,219 5,263,787
Ronald J. Jackson 126,475,901 5,206,105
Paul L. Joskow 126,483,372 5,198,634
Elizabeth T. Kennan 126,374,928 5,307,078
John H. Mullin, III 126,455,710 5,226,296
Robert E. Patterson 126,466,058 5,215,948
George Putnam, III 126,386,954 5,295,052
A.J.C. Smith 126,379,813 5,302,193
W. Thomas Stephens 126,439,081 5,242,925
All tabulations are rounded to nearest whole number.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy Associate
Director of the Office of Management and Budget and Deputy Director of the
Federal Energy Administration. He is active in various business
associations, including the Economic Club of New York, and lectures on
energy issues in the United States and Europe. Mr. Hill holds a B.A.
degree in Economics from Southern Methodist University and pursued
graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited
Partnership (a registered investment adviser involved in institutional
real estate investments). And, prior to 1990, he served as Executive
Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the
predecessor company of Cabot Partners) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Effective November 2004, Mr. Stephens is expected to become Chief
Executive Officer of Boise Cascade, L.L.C. (a paper, forest products and
timberland assets company). Mr. Stephens serves as a Director of Xcel
Energy Incorporated (a public utility company) and TransCanada Pipelines
Limited. Until 2004, Mr. Stephens was a Director of Qwest Communications
and Norske Canada, Inc. (a paper manufacturer). Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Director of and
Consultant to Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of July 31, 2004, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers of the fund, Putnam Management, Putnam
Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. George Putnam, III is
the President of your fund and each of the other Putnam funds. Mr. Smith
serves as a Director of and Consultant to Marsh & McLennan Companies,
Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer
and Principal Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments.
Prior to July 2001, Partner,
PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance
Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to
2004, Associate, Ropes & Gray LLP; prior to
2000, Law Clerk, Massachusetts Supreme
Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004,
General Counsel, State Street Research &
Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and
Putnam Management. From 2001 to 2002, Chief
Operating Officer, Atalanta/Sosnoff Management
Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003,
Senior Vice President, United Asset
Management Corporation
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square, Boston, MA 02109.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered
Public Accounting Firm
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
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
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9:00 a.m. to 5:00 p.m. Eastern Time,
or visit our Web site (www.putnaminvestments.com) anytime for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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216497 9/04
Item 2. Code of Ethics:
-----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
-----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
The following table presents fees billed in each of the last two fiscal
years for services rendered to the fund by the fund's independent
auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
----------------- ---------- ------------- ------- ---------
July 31, 2004 $40,150 $-- $4,150 $176
July 31, 2003 $34,900 $-- $3,600 $--
For the fiscal years ended July 31, 2004 and July 31, 2003, the fund's
independent auditors billed aggregate non-audit fees in the amounts of $
4,326 and $3,600 , respectively, to the fund, Putnam Management and any
entity controlling, controlled by or under common control with Putnam
Management that provides ongoing services to the fund.
Audit Fees represents fees billed for the fund's last two fiscal years.
Audit-Related Fees represents fees billed in the fund's last two fiscal
years for services traditionally performed by the fund's auditor,
including accounting consultation for proposed transactions or
concerning financial accounting and reporting standards and other audit
or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years for
tax compliance, tax planning and tax advice services. Tax planning and
tax advice services include assistance with tax audits, employee benefit
plans and requests for rulings or technical advice from taxing
authorities.
All Other Fees Fees represent fees billed for services relating to
interfund trading.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit and
Pricing Committee of the Putnam funds has determined that, as a matter
of policy, all work performed for the funds by the funds' independent
auditors will be pre-approved by the Committee and will generally not be
subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee believes
that it may be appropriate for Putnam Investment Management, LLC
("Putnam Management") and certain of its affiliates to engage the
services of the funds' independent auditors, but only after prior
approval by the Committee. Such requests are required to be submitted
in writing to the Committee and explain, among other things, the nature
of the proposed engagement, the estimated fees, and why this work must
be performed by that particular audit firm. The Committee will review
the proposed engagement at its next meeting.
Since May 6, 2003, all work performed by the independent auditors for
the funds, Putnam Management and any entity controlling, controlled by
or under common control with Putnam Management that provides ongoing
services to the fund was pre-approved by the Committee or a member of
the Committee pursuant to the pre-approval policies discussed above.
Prior to that date, the Committee had a general policy to pre-approve
the independent auditor's engagements for non-audit services with the
funds, Putnam Management and any entity controlling, controlled by or
under common control with Putnam Management that provides ongoing
services to the fund.
The following table presents fees billed by the fund's principal auditor
for services required to be approved pursuant to paragraph (c)(7)(ii) of
Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
----------------- ------------- ---- --------- ----------
June 30, 2004 $-- $-- $-- $--
June 30, 2003 $-- $-- $-- $--
Item 5. Audit Committee
------------------------
(a) The fund has a separately-designated audit committee
established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee of the fund's
Board of Trustees is composed of the following persons:
Paul L. Joskow (Chairperson)
Robert E. Patterson
W. Thomas Stephens
Elizabeth T. Kennan
(b) Not applicable
Item 6. Schedule of Investments: Not applicable
--------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
-------------------------------------------------------------------------
Management Investment Companies:
--------------------------------
Proxy Voting Guidelines of the Putnam Funds
-------------------------------------------
The proxy voting guidelines below summarize the Funds' positions on
various issues of concern to investors, and give a general indication of
how Fund portfolio securities will be voted on proposals dealing with a
particular issue. The Funds' proxy voting service is instructed to vote
all proxies relating to Fund portfolio securities in accordance with
these guidelines, except as otherwise instructed by the Proxy
Coordinator.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the Funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and, although
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all Fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of Fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the Funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the Senior Vice President,
Executive Vice President and/or the Chair of the Board Policy and
Nominating Committee, as appropriate, will determine how the Funds'
proxies will be voted. When indicated, the Chair of the Board Policy
and Nominating Committee may consult with other members of the Committee
or the full board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals which
have been approved and recommended by a company's board of directors.
Part II deals with proposals submitted by shareholders for inclusion in
proxy statements. Part III addresses unique considerations pertaining
to foreign issuers.
I. Board-Approved Proposals
---------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and the Funds'
intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the Funds' proxies generally will be
voted in support of decisions reached by independent boards of
directors. Accordingly, the Funds' proxies will be voted for
board-approved proposals, except as follows:
A. Matters Relating to the Board of Directors
---------------------------------------------
The board of directors has the important role of overseeing management
and its performance on behalf of shareholders. The Funds' proxies will
be voted for the election of the company's nominees for directors and
for board-approved proposals on other matters relating to the board of
directors (provided that such nominees and other matters have been
approved by an independent nominating committee), except as follows:
* The Funds will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation committees
composed solely of independent directors.
Commentary: While these requirements will likely become mandatory for
most public companies in the near future as a result of pending NYSE and
NASDAQ rule proposals, the Funds' Trustees believe that there is no
excuse for public company boards that fail to implement these vital
governance reforms at their next annual meeting. For these purposes, an
"independent director" is a director who meets all requirements to serve
as an independent director of a company under the pending NYSE rule
proposals (i.e., no material business relationships with the company, no
present or recent employment relationship with the company (including
employment of immediate family members) and, in the case of audit
committee members, no compensation for non-board services). As
indicated below, the Funds will generally vote on a case-by-case basis
on board-approved proposals where the board fails to meet these basic
independence standards.
* The Funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal or financial advisory
fees).
Commentary: The Funds' Trustees believe that receipt of compensation
for services other than service as a director raises significant
independence issues. The Funds will withhold votes for any nominee for
director who is considered an independent director by the company and
who receives such compensation.
* The Funds will withhold votes for the entire board of directors if the
board has more than 19 members or fewer than five members, absent
special circumstances.
Commentary: The Funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
* The Funds will vote on a case-by-case basis in contested elections of
directors.
* The Funds will withhold votes for any nominee for director who attends
less than 75% of board and committee meetings without valid reasons for
the absences (i.e., illness, personal emergency, etc.).
Commentary: Being a director of a company requires a significant time
commitment to adequately prepare for and attend the company's board and
committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis.
The Funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives of
public companies (or other directors with substantially full-time
employment) who serve on more than a few outside boards. The Funds may
withhold votes from such directors on a case-by-case basis where it
appears that they may be unable to discharge their duties properly
because of excessive commitments.
* The Funds will withhold votes for any nominee for director of a public
company (Company A) who is employed as a senior executive of another
public company (Company B) if a director of Company B serves as a senior
executive of Company A (commonly referred to as an "interlocking
directorate").
Commentary: The Funds' Trustees believe that interlocking directorships
are inconsistent with the degree of independence required for outside
directors of public companies.
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward management.
Independent boards are committed to good corporate governance practices
and, by providing objective independent judgment, enhancing shareholder
value. The Funds may withhold votes on a case-by-case basis from some or
all directors that, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
* The Funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The Funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
B. Executive Compensation
-------------------------
The Funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The Funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for stock option plans which
will result in an average annual dilution of 1.67% or less (including
all equity-based plans).
* The Funds will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
* The Funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for employee stock purchase
plans that have the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value, (2)
the offering period under the plan is 27 months or less, and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should provide
absolute transparency to shareholders regarding the sources and amounts
of, and the factors influencing, executive compensation. Appropriately
designed equity-based compensation plans can be an effective way to
align the interests of long-term shareholders with the interests of
management. The Funds may vote against executive compensation proposals
on a case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide transparent
disclosure of executive compensation. In voting on proposals relating to
executive compensation, the Funds will consider whether the proposal has
been approved by an independent compensation committee of the board.
C. Capitalization
-----------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the repurchase of
outstanding stock or the approval of a stock split. The management of a
company's capital structure involves a number of important issues,
including cash flow, financing needs and market conditions that are
unique to the circumstances of each company. As a result, the Funds will
vote on a case-by-case basis on board-approved proposals involving
changes to a company's capitalization, except that where the Funds are
not otherwise withholding votes from the entire board of directors:
* The Funds will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
* The Funds will vote for proposals to effect stock splits (excluding
reverse stock splits.)
* The Funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The Funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization) or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that may
impact a shareholder's investment and warrant a case-by-case
determination.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
---------------------------------------------------------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations and sale of all or substantially all
of a company's assets, which may require their consent. Voting on such
proposals involves considerations unique to each transaction. As a
result, the Funds will vote on a case-by-case basis on board-approved
proposals to effect these types of transactions, except as follows:
* The Funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, generally speaking, shareholders must
carefully consider the reasons for a reincorporation into another
jurisdiction, including especially offshore jurisdictions.
E. Anti-Takeover Measures
-------------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include adoption
of a shareholder rights plan, requiring supermajority voting on
particular issues, adoption of fair price provisions, issuance of blank
check preferred stock and creating a separate class of stock with
disparate voting rights. Such proposals may adversely affect shareholder
rights, lead to management entrenchment, or create conflicts of
interest. As a result, the Funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The Funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The Funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The Funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the Funds will consider proposals to approve
such matters on a case-by-case basis.
F. Other Business Matters
-------------------------
Many proxies involve approval of routine business matters, such as
changing the company's name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The Funds will vote for board-approved
proposals approving such matters, except as follows:
* The Funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The Funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The Funds will vote on a case-by-case basis on other business matters
where the Funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the Funds do not view such items as routine business
matters. Putnam Management's investment professionals and the Funds'
proxy voting service may also bring to the Proxy Coordinator's attention
company-specific items which they believe to be non-routine and
warranting special consideration. Under these circumstances, the Funds
will vote on a case-by-case basis.
II. Shareholder Proposals
-------------------------
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of a company's corporate governance structure or to change
some aspect of its business operations. The Funds will vote in
accordance with the recommendation of the company's board of directors
on all shareholder proposals, except as follows:
* The Funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The Funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The Funds will vote for shareholder proposals that are consistent with
the Fund's proxy voting guidelines for board-approved proposals.
* The Funds will vote on a case-by-case basis on other shareholder
proposals where the Funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the Funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular, their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the Funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the Funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the Funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. Voting Shares of Foreign Issuers
-------------------------------------
Many of the Funds invest on a global basis and, as a result, they may be
required to vote shares held in foreign issuers - i.e., issuers that are
incorporated under the laws of a foreign jurisdiction and that are not
listed a U.S. securities exchange or the NASDAQ stock market. Because
foreign issuers are incorporated under the laws of countries and
jurisdictions outside the U.S., protection for shareholders may vary
significantly from jurisdiction to jurisdiction. Laws governing foreign
issuers may, in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are premised
on the existence of a sound corporate governance and disclosure
framework, may not be appropriate under some circumstances for foreign
issuers. The Funds will vote proxies of foreign issuers in accordance
with the foregoing guidelines where applicable, except as follows:
* The Funds will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
* The Funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit and compensation committees.
* The Funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The Funds will vote on case-by-case basis on proposals relating to (1)
the issuance of common stock in excess of 20% of a company's outstanding
common stock where shareholders do not have preemptive rights, or (2)
the issuance of common stock in excess of 100% of a company's
outstanding common stock where shareholders have preemptive rights.
Commentary: In many non-U.S. markets, shareholders who vote proxies for
shares of a foreign issuer are not able to trade in that company's stock
within a given period of time on or around the shareholder meeting date.
This practice is known as "share blocking." In countries where share
blocking is practiced, the Funds will vote proxies only with direction
from Putnam Management's investment professionals.
As adopted March 14, 2003
Proxy Voting Procedures of the Putnam Funds
-------------------------------------------
The Role of the Funds' Trustees
-------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
------------------------------------
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
---------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
Item 8. 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) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
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: September 27, 2004
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: September 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: September 27, 2004