Putnam
Master
Intermediate
Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-01
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
Putnam Master Intermediate Income Trust participated in the favorable
bond markets created by equity investors' flight to safety during the
first half of the fund's fiscal year, though to a lesser degree than
portfolios with greater exposure to U.S. Treasury and top-rated
corporate bonds.
This is as it should be; the fund's more aggressive positioning within
the fixed-income spectrum is designed to provide higher levels of
current income over time than more conservative portfolios. The
tradeoff, of course, is that in market environments such as we are now
experiencing, the fund's net asset value will tend to fare less well
than its conservative siblings, though your fund's management team
remains steadfast in its commitment to the fund's secondary objective of
capital preservation.
In the following report, Fund Manager David Waldman reviews performance
and strategy during the semiannual period and offers his insights on
prospects for the remainder of fiscal 2001.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
May 18, 2001
REPORT FROM FUND MANAGEMENT
David L. Waldman
and the Core Fixed Income Team
Volatility dominated the U.S. economic environment during Putnam Master
Intermediate Income Trust's semiannual period, which ended March 31, 2001.
In the fall of 2000, a rapidly decelerating economy combined with sharp
declines in the equity markets to signal an end to the Federal Reserve
Board's short-term interest rate increases. U.S. bond markets rallied as
investors became more averse to risk, moving assets into the relative
safety of bonds and away from stocks. As 2001 approached, equities
continued to lose ground while consumer confidence quickly deteriorated
over uncertainty regarding the U.S. slowdown. In response to the sagging
economy, the Fed adopted an aggressive easing policy, which resulted in a
series of interest-rate reductions, totaling 1.5 percentage points in the
first quarter 2001. This, along with a continued flight to quality by
investors from the beleaguered equity markets, provided your fund with
positive returns.
Total return for 6 months ended 3/31/01
NAV Market price
-------------------------------------------------------------------------
2.19% 7.32%
-------------------------------------------------------------------------
Past performance is not indicative of future results. Performance based
on market price will vary from performance based on the fund's net asset
value. Performance information for longer periods begins on page 6.
* HIGH YIELD BONDS BEGIN RECOVERY
In the fourth quarter of 2000, profit warnings and economic indicators
suggesting a rapidly decelerating U.S. economy sent high-yield markets
plunging, consistent with the performance of U.S. equity markets. Overall,
the high-yield corporate sector was one of the weakest fixed-income sectors
in 2000. However, the market environment for high-yield bonds changed
dramatically when the Fed reduced rates in January.
[GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY ALLOCATIONS
(INTERNATIONAL SECTOR)]
TOP COUNTRY ALLOCATIONS
(INTERNATIONAL SECTOR)*
Germany 4.8%
Canada 2.5%
Italy 2.1%
United Kingdom 2.0%
Brazil 2.0%
Footnote reads:
*Based on net assets as of 3/31/01. Holdings will vary over time.
The interest-rate cuts resuscitated performance of the non-Treasury sectors of
the bond market, including high-yield bonds, which experienced a sharp rebound
that endured through mid-February. Deteriorating economic and corporate
fundamentals forced the sector to give back some of its gains in March,
although it remained the strongest-performing fixed income sector for the first
quarter 2001. Although the sector was unable to recoup all of its losses
sustained in fourth quarter of 2000, our increased weighting to the sector
beginning in December, benefited the fund once the rally began.
Investment-grade bonds advanced during the period, posting solid absolute gains
in a volatile and uncertain economic environment. U.S. Treasuries were the
best-performing issues in the fourth quarter of 2000 as the yield curve
continued to reverse its inverted posture and the Fed adopted an easing bias.
* FIXED-INCOME SECTOR SHINES
As equity markets plummeted, a flight to quality boosted the performance of
U.S. Treasury bonds. Bond outperformance continued into 2001, facilitated by
an aggressive Fed easing policy and continued equity market volatility. In
January, the yield curve steepening began to accelerate, with short- and
intermediate-term yields falling more than longer-term yields. The fund's
focus on short- and intermediate-maturity fixed-income securities was a
significant benefit to its performance during the period. As the yield curve
dramatically steepened, shorter-maturity issues outperformed longer maturities.
In addition to Treasury securities, other investment-grade sectors benefited
as investors found these higher-yielding securities more attractive. Corporate
bonds represented the best-performing investment-grade sector in the first
quarter of 2001, reversing some of their poor performance of last year. Despite
increased volatility combined with higher prepayments, mortgage-backed
securities generated attractive absolute returns, which contributed to the
fund's overall performance. Asset-backed securities and commercial
mortgage-backed securities performed relatively well during the period, and
the increased weighting in these sectors was a small benefit to the fund as
well.
* INTERNATIONAL MARKETS: MIXED RESULTS
Within the developed-market universe, global bonds advanced during the period.
Escalating evidence of a global economic slowdown at year's end led to central
banks' initiation of monetary easing cycles in the first quarter of 2001.
Additionally, sovereign bonds benefited from growing investor risk aversion
caused by steep equity-market declines. Specifically, holdings in Greece and
New Zealand contributed to positive performance.
In the fourth quarter of 2000, the fund's currency exposure helped as
investors' outlook for the U.S. economy grew gloomier and the U.S. dollar
weakened, whereas in the first quarter of 2001, the U.S. dollar strengthened
and the fund's non-U.S. currency exposure detracted from performance.
The semiannual period proved extremely volatile for emerging market bonds. An
increase in geopolitical risks combined with slowing economic growth created
uncertainty for emerging market investors. While the market rebounded in
December and January along with the Fed's easing bias, liquidity issues in
Argentina and Turkey lingered throughout the period. The fund's limited
exposure to Argentina helped performance as the country's markets performed
poorly in the wake of political and economic uncertainties. In addition, the
fund's position in Russia, an outperforming country during the period, also
contributed positively to performance.
* OUTLOOK POSITIVE FOR REST OF 2001
As we look toward the future, we expect that the economic environment will
eventually stabilize and low inflation should remain a reality. Further
interest-rate cuts by the Fed and the likelihood of a federal income-tax cut
should help the economy rebound in the second half of 2001. With regard to
the investment-grade sectors, we believe mortgage-backed securities should
remain attractive, despite the uncertainty surrounding prepayments. High-yield
bonds were temporarily paralyzed by fears of negative corporate earnings
developments; however, these fears will most likely dissipate as the Fed
continues to cut interest rates and the economy stabilizes. In addition,
investors have begun to take notice of the value offered in the
current yields of this sector and are reversing their previous cash outflow
patterns.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS
PER SECTOR
HIGH-YIELD BONDS
Echostar Broadband Corp.
sr. notes 10 3/8s, 2007
Voicestream Wireless Corp.
sr. notes 10 3/8s, 2009
Nextel Communications, Inc.
144A sr. notes 9 1/2s. 2011
FOREIGN BONDS
Italy (Government of)
treasury bonds 5 1/2s, 2010
Germany (Federal Republic of)
bonds Ser. 132, 4 1/8s, 2004
Germany (Federal Republic of)
bonds Ser. 97, 6s, 2007
U.S. INVESTMENT-GRADE
SECURITIES
U.S. Treasury Notes,
5 3/4s, August 15, 2010
U.S. Treasury Strip,
zero %, August 15, 2009
Federal National Mortgage Association,
Pass-Through Certificates,
8s, with due dates from July 1, 2028
to March 1, 2031
Footnote reads:
These holdings represent 19.5% of the fund's net assets as of 3/31/01.
Portfolio holdings will vary over time.
Looking ahead at international markets, we remain cautious on Japan as we
perceive little additional value in the Japanese bond market with interest
rates returning to zero. In addition, we see value in core Europe as slowing
growth should lead to lower yields. We have become more cautious on
emerging-market debt, given the risks associated with specific countries.
Recent U.S. equity-market declines have increased investor risk aversion,
thereby diminishing opportunities for financing. With the probability of
continued currency volatility, we have reduced the fund's non-U.S. currency
exposure. Although some volatility and uncertainty may be in store, we believe
the fund is well diversified and positioned to perform well the rest of the
fiscal year.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 3/31/01, there is no guarantee the fund will continue to hold
these securities in the future. International investments are subject to
certain risks, such as currency fluctuations, economic instability, and
political developments. While the U.S. government backing of individual
securities does not insure your principal, which will fluctuate, it does
guarantee that the fund's government-backed holdings will make timely payments
of interest and principal. Mortgage-backed securities in the portfolio may be
subject to prepayment risk. The lower credit ratings of high-yield bonds
reflect a greater possibility that adverse changes in the economy or poor
performance by the issuers of these bonds will affect the issuer's ability to
pay principal and interest.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing regulations
for semiannual and annual reports and prospectuses. Putnam is now able to
send a single copy of these materials to customers who share the same
address. This change will automatically apply to all shareholders except
those who notify us. If you prefer to receive your own copy, please call
Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Master Intermediate Income Trust is designed for investors seeking high
current income and relative stability of net asset value through U.S.
government, investment-grade high-yield, and international fixed-income
securities with limited maturities.
TOTAL RETURN FOR PERIODS ENDED 3/31/01
Market
NAV price
-----------------------------------------------------------------
6 months 2.19% 7.32%
-----------------------------------------------------------------
1 year 3.78 24.94
-----------------------------------------------------------------
5 years 28.55 39.81
Annual average 5.15 6.93
-----------------------------------------------------------------
10 years 118.38 125.33
Annual average 8.12 8.46
-----------------------------------------------------------------
Annual average
(life of fund, since 4/29/88) 7.74 6.70
-----------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/01
Lehman Bros. Salomon Bros. Credit Suisse
Government Non-U.S. First Boston
Intermediate World Govt. High Yield Consumer
Bond Index Bond Index Index price index
-------------------------------------------------------------------------------------------------------
6 months 7.09% -1.10% -0.38% 1.56%
-------------------------------------------------------------------------------------------------------
1 year 11.96 -6.32 0.76 2.92
-------------------------------------------------------------------------------------------------------
5 years 40.00 4.94 28.05 13.23
Annual average 6.96 0.97 5.07 2.52
-------------------------------------------------------------------------------------------------------
10 years 101.87 91.36 155.85 30.59
Annual average 7.28 6.70 9.85 2.70
-------------------------------------------------------------------------------------------------------
Annual average
(life of fund,
since 4/29/88) 7.78 5.80 9.00 3.22
-------------------------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their
original cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/01
--------------------------------------------------
Distributions from common shares
--------------------------------------------------
Number 6
--------------------------------------------------
Income $0.318
--------------------------------------------------
Capital gains --
--------------------------------------------------
Total $0.318
--------------------------------------------------
Share value: NAV Market price
--------------------------------------------------
9/30/00 $7.13 $6.438
--------------------------------------------------
3/31/01 6.94 6.580
--------------------------------------------------
Current return
--------------------------------------------------
Current dividend rate 1 9.16% 9.67%
--------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Brothers Government Intermediate Bond Index* is an unmanaged
list of U.S. government and mortgage-backed securities composed of all
bonds covered by the Lehman Brothers Government Bond Index with
maturities between 1 and 9.99 years.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged
list of bonds issued by 10 countries.
Credit Suisse First Boston High Yield Index* is an unmanaged list of
lower-rated higher-yielding U.S. corporate bonds.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take into account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
THE FUND'S PORTFOLIO
March 31, 2001 (Unaudited)
CORPORATE BONDS AND NOTES (49.4%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
$ 165,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 169,950
620,000 AOA Holdings LLC sr. notes 10 3/8s, 2006 589,000
787,920 Interact Operating Co. 144A notes 14s, 2003 15,759
460,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 480,700
600,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 615,000
110,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 112,200
-------------
1,982,609
Aerospace and Defense (1.2%)
-------------------------------------------------------------------------------------------------------------------
200,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 179,000
1,140,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 1,020,300
1,035,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 1,063,463
810,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 781,650
1,000,000 Decrane Aircraft Holdings Co. company guaranty
Ser. B, 12s, 2008 952,500
1,130,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,135,650
330,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 325,050
410,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 412,050
1,150,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 1,153,940
10,000 Sequa Corp. sr. notes 9s, 2009 10,075
1,150,000 Sequa Corp. 144A sr. notes 8 7/8s, 2008 1,158,625
-------------
8,192,303
Agriculture (0.3%)
-------------------------------------------------------------------------------------------------------------------
2,009,455 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 1,908,982
Airlines (0.6%)
-------------------------------------------------------------------------------------------------------------------
360,000 Air Canada Corp. 144A sr. notes 10 1/4s, 2011 (Canada) 349,200
1,030,000 Calair LLC 144A company guaranty 8 1/8s, 2008 991,375
240,000 Northwest Airlines, Inc. company guaranty 8 3/8s, 2004 237,634
540,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 529,340
2,000,000 US Air, Inc. pass-thru certificates Ser. 93-A2, 9 5/8s, 2003 1,992,760
-------------
4,100,309
Automotive (1.2%)
-------------------------------------------------------------------------------------------------------------------
844,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 793,360
250,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 235,000
540,000 Collins & Aikman Products, Inc. company guaranty
11 1/2s, 2006 445,500
640,000 Dana Corp. notes 6 1/4s, 2004 574,266
750,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 652,500
210,000 Exide Corp. sr. notes 10s, 2005 159,600
260,000 Federal Mogul Corp. notes 7 7/8s, 2010 33,800
1,220,000 Federal Mogul Corp. notes 7 3/4s, 2006 170,800
1,090,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
8 1/4s, 2008 741,200
460,000 Hayes Wheels International, Inc. company guaranty 11s, 2006 381,800
845,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 608,400
940,000 Hayes Wheels International, Inc. 144A sr. sub. notes 9 1/8s, 2007 667,400
580,000 Lear Corp. sub. notes 9 1/2s, 2006 596,414
580,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 579,490
650,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 657,774
1,860,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 1,134,600
200,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 (In default) (NON) 80,500
360,000 Tenneco, Inc. company guaranty 11 5/8s, 2009 (Malaysia) 127,800
-------------
8,640,204
Banking (1.0%)
-------------------------------------------------------------------------------------------------------------------
460,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 457,700
1,060,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 1,040,644
2,180,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 2,158,200
670,000 Local Financial Corp. sr. notes 11s, 2004 670,000
2,130,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 2,257,800
-------------
6,584,344
Beverage (0.1%)
-------------------------------------------------------------------------------------------------------------------
150,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 151,500
470,000 Constellation Brands, Inc. 144A sr. notes 8s, 2008 480,575
-------------
632,075
Broadcasting (3.5%)
-------------------------------------------------------------------------------------------------------------------
1,140,000 Acme Television 144A sr. disc. notes 10 7/8s, 2004 1,060,200
350,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 348,250
245,900 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 271,720
10,263 Australis Media, Ltd. sr. disc. notes 15 3/4s, 2003 (Australia)
(In default) (NON) (PIK) 1
840,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 562,800
120,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009
(United Kingdom) 120,887
210,000 British Sky Broadcasting PLC company guaranty 7.3s, 2006
(United Kingdom) 208,937
400,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 372,404
115,000 Central European Media Enterprises, Ltd. sr. notes 9 3/8s, 2004
(Bermuda) 40,250
1,910,000 Chancellor Media Corp. company guaranty 8s, 2008 1,979,238
256,020 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 273,941
490,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 524,300
4,030,000 Echostar Broadband Corp. sr. notes 10 3/8s, 2007 4,110,600
1,190,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 1,184,050
400,000 Emmis Escrow Corp. 144A sr. disc. notes stepped-coupon
zero % (12 1/2s, 3/15/06), 2011 (STP) 221,000
770,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 662,200
1,010,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,010,000
350,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 359,625
560,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 568,400
530,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 360,400
1,650,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 1,188,000
300,000 LIN Television Corp. company guaranty 8 3/8s, 2008 270,000
600,000 News America, Inc. sr. notes 6 5/8s, 2008 580,668
610,000 Paxson Communications Corp. 144A sr. sub. notes 11 5/8s, 2002 623,725
25,000 Pegasus Communications Corp. sr. notes 12 1/2s, 2007 25,500
2,170,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 2,094,050
90,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 91,800
997,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 985,535
275,000 Radio One, Inc. company guaranty Ser. B, 12s, 2004 288,750
30,000 Sinclair Broadcast Group, Inc. sr. sub notes 10s, 2005 28,650
390,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 358,800
440,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 398,200
1,530,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 1,507,050
590,000 XM Satellite Radio Holdings, Inc. sec. notes 14s, 2010 324,500
990,000 Young Broadcasting Inc. 144A sr. sub notes 10s, 2011 955,350
-------------
23,959,781
Building Materials (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,455,000 American Standard, Inc. company guaranty 7 5/8s, 2010 1,440,450
80,000 American Standard, Inc. company guaranty 7 1/8s, 2003 80,000
230,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 189,750
320,000 Building Materials Corp. of America company guaranty 8s, 2008 169,600
1,020,000 Dayton Superior Corp. company guaranty 13s, 2009 1,025,100
410,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 395,650
360,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 347,400
-------------
3,647,950
Cable Television (3.3%)
-------------------------------------------------------------------------------------------------------------------
1,610,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010 1,698,550
2,013,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 2,018,033
1,450,000 Charter Communications Holdings, LLC sr. notes 11 1/8s, 2011 1,555,125
170,000 Charter Communications Holdings, LLC sr. notes 10 3/4s, 2009 181,050
490,000 Charter Communications Holdings, LLC sr. notes 10s, 2009 508,375
2,020,000 Charter Communications Holdings, LLC sr. notes 8 5/8s, 2009 1,944,250
310,000 Charter Communications Holdings, LLC sr. notes 8 1/4s, 2007 296,825
230,000 Charter Communications Holdings, LLC sr. disc. notes
zero %, 2011 144,900
30,000 Comcast UK Cable, Ltd. deb. 10 3/4s, 2007 (Bermuda) 27,000
1,600,000 CSC Holdings, Inc. sr. sub notes 9 7/8s, 2006 1,664,000
2,700,000 Diamond Cable Communication PLC sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,930,500
2,742,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 685,500
1,850,000 Insight Communications Company, Inc. 144A sr. disc. notes
zero %, 2011 1,012,875
1,000,000 Insight Media bank term loan FRN 8.188s, 2009
(acquired 1/9/01, cost $998,500) (RES) 1,005,000
530,000 Insight Midwest LP/Insight Capital, Inc. 144A sr. notes
10 1/2s, 2010 565,775
650,000 International Cabletel, Inc. sr. disc. notes 11 1/2s, 2006 575,250
60,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 15,000
420,000 NTL Communications Corp. sr. notes stepped-coupon Ser. B,
zero % (12 3/8s, 10/1/03), 2008 (STP) 247,800
1,740,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 1,548,600
1,090,000 NTL, Inc. sr. notes Ser. A, 12 3/4s, 2005 1,046,400
100,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 28,000
490,000 RCN Corp. sr. notes 10 1/8s, 2010 196,000
470,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 117,500
230,000 Rogers Cablesystems, Ltd. deb. 10 1/8s, 2012 (Canada) 246,100
560,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) (In default) (NON) 128,800
1,200,000 TeleWest Communications PLC sr. disc. notes stepped-coupon
zero % (11 3/8s, 2/1/05), 2010 (United Kingdom) (STP) 684,000
390,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008
(United Kingdom) 397,800
410,000 TeleWest Communications PLC structured note
(issued by DLJ International Capital) 10 7/8s, 2005
(Cayman Islands) 389,500
40,000 TeleWest Communications PLC sr. notes 9 7/8s, 2010
(United Kingdom) 37,600
260,000 TeleWest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 249,600
510,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon
zero % (13 3/4s, 2/1/05), 2010 (Netherlands) (STP) 173,400
250,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon
zero % (12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 75,000
2,170,000 United Pan-Europe N.V. 144A sr. disc. notes stepped-coupon
zero % (12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 759,500
890,000 United Pan-Europe N.V. 144A bonds 10 7/8s, 2009
(Netherlands) 596,300
50,000 United Pan-Europe N.V. sr. notes Ser. B, 10 7/8s, 2007
(Netherlands) 33,000
-------------
22,782,908
Chemicals (1.7%)
-------------------------------------------------------------------------------------------------------------------
910,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 809,900
210,000 Georgia Gulf Corp. company guaranty 10 3/8s, 2007 218,400
160,000 Hercules, Inc. 144A company guaranty 11 1/8s, 2007 161,600
30,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 23,400
2,100,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 2,163,000
910,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 855,400
2,150,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 2,203,750
1,520,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 1,561,800
2,000,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (Canada) (In default) (NON) 770,000
466,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007
(In default) (NON) 125,820
370,000 PMD Group, Inc. 144A sr. sub notes 11s, 2011 384,800
340,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 176,800
760,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 349,600
357,928 Polytama International notes 11 1/4s, 2007 (Netherlands) 17,896
810,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 648,000
470,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 474,700
325,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 39,000
680,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 639,200
220,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 99,000
200,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 165,000
-------------
11,887,066
Commercial and Consumer Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,530,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 1,552,950
190,000 Travel Centers of America notes 12 3/4s, 2009 185,725
-------------
1,738,675
Communications Equipment (--%)
-------------------------------------------------------------------------------------------------------------------
290,000 Telex Communications, Inc. 144A company guaranty
10 1/2s, 2007 130,500
Components (--%)
-------------------------------------------------------------------------------------------------------------------
330,000 Seagate Technology, Inc. 144A company guaranty
12 1/2s, 2007 (Cayman Islands) 329,175
Construction (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,390,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 1,167,600
870,000 Morrison Knudsen Corp. 144A sr. notes 11s, 2010 208,800
-------------
1,376,400
Consumer (0.5%)
-------------------------------------------------------------------------------------------------------------------
680,000 Derby Cycle Corp. (The) sr. notes 10s, 2008 188,700
600,000 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 67,774
930,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 376,650
1,140,000 Jostens, Inc. sr. sub notes 12 3/4s, 2010 1,188,450
810,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 656,100
1,000,000 Sealy Mattress Co. company guaranty stepped-coupon Ser. B,
zero % (10 7/8s, 12/15/02), 2007 (STP) 862,500
410,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 420,250
-------------
3,760,424
Consumer Finance (0.4%)
-------------------------------------------------------------------------------------------------------------------
640,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 364,800
700,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 651,000
1,090,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 (In default) (NON) 185,300
1,340,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (In default) (NON) 227,800
1,320,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 (In default) (NON) 224,400
1,380,000 Delta Financial Corp. company guaranty 9 1/2s, 2004 496,800
420,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 147,000
565,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 452,000
50,000 Xerox Credit Corp. sr. notes 6.1s, 2003 38,000
-------------
2,787,100
Consumer Goods (0.9%)
-------------------------------------------------------------------------------------------------------------------
1,350,000 Albecca, Inc. company guaranty 10 3/4s, 2008 1,333,125
70,000 Chattem, Inc. company guaranty Ser. B, 8 7/8s, 2008 59,500
1,370,000 Doane Pet Care Corp. sr. sub. deb. 9 3/4s, 2007 1,096,000
550,000 Elizabeth Arden, Inc. 144A notes 11 3/4s, 2011 577,500
320,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 317,600
500,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 40,000
760,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 638,400
1,700,000 Playtex Products, Inc. sr. sub notes 9s, 2003 1,695,750
140,000 Playtex Products, Inc. 144A company guaranty Ser. B,
8 7/8s, 2004 141,750
810,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 405,000
-------------
6,304,625
Consumer Staples (--%)
-------------------------------------------------------------------------------------------------------------------
570,000 Doskcil Manufacturing Co sr. sub. notes 10 1/8s, 2007
(In default) (NON) 142,500
Containers (0.6%)
-------------------------------------------------------------------------------------------------------------------
870,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 835,200
700,000 Consumers International 144A sr. notes 10 1/4s, 2005
(In default) (NON) 238,000
410,000 Huntsman Packaging Corp. company guaranty 13s, 2010 225,500
370,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 277,500
560,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 448,000
100,000 Radnor Holdings, Inc. sr. notes 10s, 2003 85,000
1,470,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 1,337,700
370,000 U.S. Can Corp. 144A sr. sub. notes 12 3/8s, 2010 384,800
-------------
3,831,700
Electric Utilities (0.5%)
-------------------------------------------------------------------------------------------------------------------
273,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (Bermuda) 203,385
260,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 258,050
270,000 CMS Energy Corp. sr. notes 7 1/2s, 2009 255,204
1,410,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 1,360,650
476,634 Luannan Energy Co. sec. notes 12 1/4s, 2002
(Cayman Islands) 238,317
771,079 Northeast Utilities System notes Ser. A, 8.58s, 2006 799,470
193,600 Northeast Utilities System notes Ser. B, 8.38s, 2005 201,052
-------------
3,316,128
Electronics (0.1%)
-------------------------------------------------------------------------------------------------------------------
905,000 Celestica International, Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 941,200
Energy (0.8%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Cliffs Drilling Co. company guaranty Ser. D, 10 1/4s, 2003 1,030,000
180,000 Compagnie Generale de Geophysique SA 144A sr. notes
10 5/8s, 2007 (Canada) 191,250
400,000 Grant Prideco, Inc. 144A sr. notes 9 5/8s, 2007 414,000
150,000 Key Energy Services, Inc. 144A sr. notes 8 3/8s, 2008 154,346
1,120,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 1,148,000
800,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 840,000
1,440,000 RBF Finance Co. company guaranty 11 3/8s, 2009 1,742,400
-------------
5,519,996
Entertainment (0.9%)
-------------------------------------------------------------------------------------------------------------------
180,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 144,000
1,600,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 1,200,000
2,775,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,802,750
1,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 (In default) (NON) 115
146,029 Regal Cinemas, Inc. bank term loan FRN Ser. C, 9 1/2s, 2006
(acquired 3/26/01, cost $131,426) (RES) 130,696
1,264,428 Regal Cinemas, Inc. bank term loan FRN Ser. B, 9 1/4s, 2006
(acquired 3/14/01, cost $1,112,506) (RES) 1,131,663
699,791 Regal Cinemas, Inc. bank term loan FRN Ser. A, 9s, 2006
(acquired 3/14/01, cost $627,188) (RES) 626,313
800,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 62,000
350,000 Six Flags, Inc. 144A sr. notes 9 1/2s, 2009 358,750
586,000 United Artists Theatre 144A notes 10.415s, 2007
(In default) (NON) 23,440
1,475,000 United Artists Theatre sr. sub. notes Ser. B, 9 3/4s, 2008
(In default) (NON) 59,000
-------------
6,538,727
Financial (1.1%)
-------------------------------------------------------------------------------------------------------------------
1,270,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,263,383
1,060,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 1,053,661
820,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 446,900
880,000 Finova Capital Corp. sr. notes 7 5/8s, 2009 (In default) (NON) 745,800
1,040,000 Finova Capital Corp. notes 7 1/4s, 2004 (In default) (NON) 881,400
250,000 Finova Capital Corp. notes 6 1/4s, 2002 (In default) (NON) 211,875
60,000 Finova Capital Corp. notes 6 1/8s, 2004 (In default) (NON) 50,850
440,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 264,000
620,000 Ocwen Federal Bank sub. deb. 12s, 2005 592,100
360,000 Ocwen Financial Corp. notes 11 7/8s, 2003 342,000
760,000 Resource America, Inc. 144A sr. notes 12s, 2004 718,200
630,000 Superior Financial 144A sr. notes 8.65s, 2003 632,248
340,000 Willis Corron Corp. 144A sr. sub notes 9s, 2009 333,200
-------------
7,535,617
Food (0.4%)
-------------------------------------------------------------------------------------------------------------------
700,000 Archibald Candy Corp. company guaranty 10 1/4s, 2004 378,000
235,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 193,875
730,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 602,250
150,000 Chiquita Brands International, Inc. sr. notes 10 1/4s, 2006 70,500
380,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 226,100
630,000 Premier International Foods PLC sr. notes 12s, 2009
(United Kingdom) 592,200
990,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 693,000
895,000 Vlasic Foods Intl., Inc. sr. sub. notes Ser. B, 10 1/4s, 2009 179,000
-------------
2,934,925
Gaming & Lottery (3.1%)
-------------------------------------------------------------------------------------------------------------------
530,000 Anchor Gaming company guaranty 9 7/8s, 2008 559,813
650,000 Argosy Gaming Co. 144A sr. sub notes 10 3/4s, 2009 697,125
1,067,000 Autotote Corp. bank term loan FRN Ser. B, 9.188s, 2007
(acquired 10/13/00, cost $1,064,333) (RES) 1,013,650
1,230,000 Autotote Corp. company guaranty Ser. B, 12 1/2s, 2010
(acquired 8/3/00, cost $1,217,238) (RES) 1,143,900
1,367,882 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 820,729
370,000 Harrah's Entertainment, Inc. 144A company guaranty 8s, 2011 377,211
250,000 Harrah's Entertainment, Inc. company guaranty 7 7/8s, 2005 250,625
270,000 Harrah's Entertainment, Inc. company guaranty 7 1/2s, 2009 268,655
920,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 977,500
510,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 504,900
720,000 International Game Technology 144A sr. notes 8 3/8s, 2009 736,200
1,710,000 International Game Technology sr. notes 7 7/8s, 2004 1,718,550
150,000 Isle of Capri Black Hawk LLC 144A 1st mtge. Ser. B, 13s, 2004 163,500
730,000 Isle of Capri Casinos company guaranty 8 3/4s, 2009 660,650
910,000 Mandalay Resort Group sr. sub notes Ser. B, 10 1/4s, 2007 937,300
1,450,000 MGM Mirage company guaranty 8 3/8s, 2011 1,455,438
800,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 817,000
330,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 334,950
80,000 Park Place Entertainment Corp. sr. sub. notes 9 3/8s, 2007 82,800
1,220,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 1,238,300
360,000 Penn National Gaming, Inc. 144A sr. sub notes 11 1/8s, 2008 360,000
290,000 Station Casinos, Inc. sr. sub notes 9 7/8s, 2010 299,425
560,000 Station Casinos, Inc. 144A sr. notes 8 3/8s, 2008 562,800
2,000,000 Trump A.C. 1st mtge. 11 1/4s, 2006 1,320,000
1,320,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 1,056,000
2,430,000 Trump Castle Funding, Inc. sub. notes 10 1/4s, 2003 2,460,375
700,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 724,500
-------------
21,541,896
Health Care (2.0%)
-------------------------------------------------------------------------------------------------------------------
340,000 ALARIS Medical Systems, Inc. 144A company guaranty
9 3/4s, 2006 190,400
360,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 388,800
1,500,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 1,575,000
2,310,000 Conmed Corp. company guaranty 9s, 2008 2,171,400
560,000 HCA-The Healthcare Co. notes 8 3/4s, 2010 595,000
1,370,000 HCA-The Healthcare Co. notes 7s, 2007 1,332,325
350,000 HCA-The Healthcare Co. notes 6.91s, 2005 343,000
495,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 470,250
680,000 Lifepoint Hospital Holdings company guaranty Ser. B,
10 3/4s, 2009 751,400
910,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 851,988
560,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009
(In default) (NON) (STP) 56
760,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 7,600
780,000 Omnicare, Inc. 144A sr. sub notes 8 1/8s, 2011 795,600
815,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 (In default) (NON) 260,800
220,000 Tenet Healthcare Corp. sr. notes Ser. B, 9 1/4s, 2010 243,100
320,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 330,000
60,000 Tenet Healthcare Corp. sr. notes 8s, 2005 61,500
1,500,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 1,511,250
1,710,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 1,881,000
-------------
13,760,469
Homebuilding (1.2%)
-------------------------------------------------------------------------------------------------------------------
740,000 D.R. Horton, Inc. company guaranty 8s, 2009 723,350
270,000 Del Webb Corp. sr. sub. deb. 10 1/4s, 2010 265,275
260,000 Del Webb Corp. sr. sub. deb. 9 3/4s, 2008 253,500
360,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 342,000
60,000 Del Webb Corp. sr. sub. Deb. 9s, 2006 57,600
670,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 686,750
920,000 KB Home sr. sub notes 9 1/2s, 2011 910,800
1,280,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 1,372,800
510,000 Lennar Corp. sr. notes 7 5/8s, 2009 502,350
80,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 79,500
640,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 659,200
140,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 130,200
630,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 636,300
830,000 Toll Corp. sr. sub notes 8 1/4s, 2011 820,472
360,000 Toll Corp. company guaranty 8 1/8s, 2009 356,400
230,000 WCI Communications, Inc. 144A sr. sub notes 10 5/8s, 2011 236,900
-------------
8,033,397
Industrial (0.1%)
-------------------------------------------------------------------------------------------------------------------
550,000 BRL Universal Equipment 144A sec. notes 8 7/8s, 2008 566,500
Lodging/Tourism (0.9%)
-------------------------------------------------------------------------------------------------------------------
720,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 187,200
510,000 Felcor Lodging company guaranty 9 1/2s, 2008 525,779
680,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 668,100
3,335,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 3,176,588
110,000 Host Marriott L.P. 144A sr. notes 9 1/4s, 2007 113,300
660,000 ITT Corp. notes 6 3/4s, 2005 651,057
900,000 Meristar Hospitality Corp. 144A sr. notes 9 1/8s, 2011 918,000
-------------
6,240,024
Machinery (0.1%)
-------------------------------------------------------------------------------------------------------------------
330,000 Terex Corp. 144A sr. sub notes 10 3/8s, 2011 331,650
Manufacturing (0.7%)
-------------------------------------------------------------------------------------------------------------------
2,470,000 Blount, Inc. 144A company guaranty 13s, 2009 1,482,000
1,673 Blount, Inc. bank term loan FRN Ser. B 9.245s, 2006
(acquired 1/28/00, cost $1,689) (RES) 1,531
210,000 Continental Global Group sr. notes Ser. B, 11s, 2007 88,200
1,320,000 Flowserve Corp. company guaranty 12 1/4s, 2010 1,392,600
460,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 269,100
1,550,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 1,503,500
60,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 54,600
-------------
4,791,531
Medical Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
430,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 456,875
1,000,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 10,000
380,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 3,800
310,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (In default) (NON) (STP) 2,942
1,480,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 14,045
1,590,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 63,600
80,000 Service Corp. International notes 7.7s, 2009 53,600
960,000 Service Corp. International notes 6s, 2005 669,600
1,005,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 10,050
500,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 10,000
-------------
1,294,512
Medical Technology (--%)
-------------------------------------------------------------------------------------------------------------------
480,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 201,600
Metals (0.9%)
-------------------------------------------------------------------------------------------------------------------
1,800,000 AK Steel Corp. company guaranty 7 7/8s, 2009 1,665,000
171,400 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 75,416
1,000,000 Armco, Inc. sr. notes 9s, 2007 960,000
1,375,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 1,182,500
60,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 55,800
30,000 Kaiser Aluminum & Chemical Corp. sr. notes 9 7/8s, 2002 29,250
1,200,000 LTV Corp. company guaranty 11 3/4s, 2009 (In default) (NON) 126,000
20,000 LTV Corp. (The) 144A company guaranty 8.2s, 2007
(In default) (NON) 1,600
150,000 Murrin Murrin Holdings Property, Ltd sr. notes 9 3/8s, 2007
(Australia) 118,500
540,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 199,800
348,000 Oregon Steel Mills 1st mortgage 11s, 2003 306,240
430,000 P & L Coal Holdings Corp. company guaranty Ser. B,
9 5/8s, 2008 452,575
940,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 817,800
70,000 Weirton Steel Co. 144A sr. notes 10 3/4s, 2005 27,300
780,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007
(In default) (NON) 21,450
490,000 WHX Corp. sr. notes 10 1/2s, 2005 313,600
-------------
6,352,831
Oil & Gas (2.0%)
-------------------------------------------------------------------------------------------------------------------
410,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 403,850
300,000 Chesapeake Energy Corp. company guaranty Ser. B,
9 5/8s, 2005 324,000
1,460,000 Chesapeake Energy Corp. 144A sr. notes 8 1/8s, 2011 1,435,662
1,350,000 Coda Energy, Inc. company guaranty Ser. B, 10 1/2s, 2006 1,380,375
60,000 Giant Industries Corp. company guaranty 9s, 2007 54,900
110,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s, 2005
(Canada) 113,850
840,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 861,000
580,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 616,250
350,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 356,125
1,540,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 1,524,600
210,000 Nuevo Energy Co. sr. sub notes Ser. B, 9 3/8s, 2010 206,850
450,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 478,759
800,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 846,168
1,820,000 Pioneer Natural Resources Co. company guaranty
9 5/8s, 2010 1,988,350
90,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 88,875
270,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 108,000
580,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 617,880
230,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 232,875
50,000 Triton Energy, Ltd. sr. notes 9 1/4s, 2005 52,000
740,000 Triton Energy, Ltd. sr. notes 8 7/8s, 2007 (Cayman Islands) 765,900
960,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 1,046,400
500,000 Vintage Petroleum sr. sub. notes 9s, 2005 520,000
500,000 XCL, Ltd. 144A company guaranty 13 1/2s, 2004 (In default) (NON) 150,000
-------------
14,172,669
Paper & Forest Products (1.8%)
-------------------------------------------------------------------------------------------------------------------
1,330,000 Abitibi-Consolidated, Inc. bonds 8.55s, 2010 (Canada) 1,416,463
1,150,000 App China Group, Ltd. 144A sr. disc. notes 14s, 2010
(Bermuda) (In default) (NON) 143,750
1,025,000 Doman Industries, Ltd. 144A sr. notes 8 3/4s, 2004 (Canada) 584,250
1,310,000 Four M Corp. sr. notes Ser. B, 12s, 2006 1,283,800
890,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 275,900
140,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/4s, 2007 91,000
160,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 100,800
1,275,000 Indah Kiat Financial Mauritius, Ltd. company guaranty 10s, 2007
(Indonesia) (In default) (NON) 229,500
920,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 993,600
1,575,000 Pindo Deli Finance Mauritius, Ltd. company guaranty
10 3/4s, 2007 (Mauritius) (In default) (NON) 252,000
1,925,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004
(Mauritius) (In default) (NON) 308,000
2,190,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 2,124,300
310,000 Stone Container Corp. 144A company guaranty
11 1/2s, 2006 (Canada) 320,850
1,900,000 Stone Container Corp. 144A sr. notes 9 3/4s, 2011 1,933,250
700,000 Stone Container Corp. 144A sr. notes 9 1/4s, 2008 707,000
515,552 Stone Container Corp. bank term loan FRN Ser. H,
8.813s, 2006 (acquired 7/17/00, cost $515,551) (RES) 514,263
1,180,000 Tembec Industries, Inc. company guaranty
8 5/8s, 2009 (Canada) 1,206,550
-------------
12,485,276
Pharmaceuticals (0.4%)
-------------------------------------------------------------------------------------------------------------------
890,000 ICN Pharmaceuticals, Inc. sr. notes Ser. B, 9 1/4s, 2005 903,350
890,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 907,800
80,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 81,600
650,000 PharMerica, Inc. company guaranty 8 3/8s, 2008 633,750
-------------
2,526,500
Power Producers (1.1%)
-------------------------------------------------------------------------------------------------------------------
2,270,000 AES Corp. sr. notes 9 3/8s, 2010 2,386,111
630,000 AES Corp. sr. notes 8 7/8s, 2011 640,275
390,000 Calpine Corp. sr. notes 10 1/2s, 2006 401,700
170,000 Calpine Corp. sr. notes 9 1/4s, 2004 170,187
460,000 Calpine Corp. sr. notes 8 3/4s, 2007 472,747
700,000 Calpine Corp. sr. notes 7 7/8s, 2008 697,819
30,000 Calpine Corp. sr. notes 7 3/4s, 2009 29,639
1,650,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 1,838,909
1,118,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 1,201,850
-------------
7,839,237
Publishing (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,565,000 Affinity Group Holdings 144A sub. notes 11s, 2007 1,252,000
395,799 Big Flower Holdings bank term loan FRN 9.25s, 2010
(acquired 3/9/00, cost $393,805) (RES) 389,862
80,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 77,600
670,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 646,550
550,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 555,500
370,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 352,425
-------------
3,273,937
Railroads (0.2%)
-------------------------------------------------------------------------------------------------------------------
740,000 Kansas City Southern Railway 144A sr. notes 9 1/2s, 2008 758,500
790,000 Railamerica Transportation Corp. company guaranty
12 7/8s, 2010 762,350
910,000 Transportation Manufacturing Operations, Inc.
company guaranty 11 1/4s, 2009 136,500
-------------
1,657,350
Regional Bells (0.1%)
-------------------------------------------------------------------------------------------------------------------
450,000 Alaska Communications Systems Corp. company guaranty
9 3/8s, 2009 382,500
Restaurants (0.4%)
-------------------------------------------------------------------------------------------------------------------
350,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 355,250
810,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 202,500
600,000 Sbarro, Inc. company guaranty 11s, 2009 636,000
1,060,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 1,016,688
560,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 553,101
-------------
2,763,539
Retail (1.1%)
-------------------------------------------------------------------------------------------------------------------
1,620,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 955,800
330,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 333,300
730,000 Fleming Companies, Inc. 144A sr. notes 10 1/8s, 2008 746,425
260,000 Great Atlantic & Pacific Tea Co. notes 7 3/4s, 2007 189,800
260,000 Great Atlantic & Pacific Tea Co. sr. notes 7.7s, 2004 213,200
30,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon
zero % (12 1/8s, 5/1/03), 2009 (STP) 3,000
1,330,000 K mart Corp. notes 8 3/8s, 2004 1,336,477
510,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 465,375
2,650,000 Saks, Inc. company guaranty 8 1/4s, 2008 2,332,000
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 168,000
1,437,000 Southland Corp. deb. Ser. B, 4s, 2004 1,207,080
-------------
7,950,457
Semiconductor (0.2%)
-------------------------------------------------------------------------------------------------------------------
550,000 ChipPac Intl., Ltd. company guaranty Ser. B, 12 3/4s, 2009 495,000
90,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 10 1/2s, 2009 85,725
1,180,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,100,350
-------------
1,681,075
Shipping (0.2%)
-------------------------------------------------------------------------------------------------------------------
65,000 International Shipholding Corp. sr. notes 9s, 2003 65,650
250,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 77,500
1,270,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 1,165,225
130,000 Newport News Shipbuilding, Inc. sr. notes 8 5/8s, 2006 133,900
-------------
1,442,275
Software (--%)
-------------------------------------------------------------------------------------------------------------------
410,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005
(In default) (NON) (STP) 24,600
Specialty Printing (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,390,000 Perry-Judd company guaranty 10 5/8s, 2007 1,264,900
94,414 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 75,531
100,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 92,000
-------------
1,432,431
Technology (0.8%)
-------------------------------------------------------------------------------------------------------------------
390,000 Amkor Technologies, Inc. structured notes
(issued by STEERS Credit Linked Trust 2000)
12.58s, 2005 390,000
280,000 Amkor Technologies, Inc. sr. sub. notes 10 1/2s, 2009 270,200
690,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2008 658,950
410,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 390,525
1,520,000 Flextronics International, Ltd. sr. sub. notes 9 7/8s, 2010
(Singapore) 1,474,400
215,000 Flextronics International, Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007
(Singapore) 197,800
450,000 SCG Holding & Semiconductor Corp. company guaranty
12s, 2009 346,500
705,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 578,100
1,400,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 882,000
270,000 Viasystems, Inc. sr. sub. notes 9 3/4s, 2007 170,100
350,000 Xerox Cap Europe PLC company guaranty 5 7/8s, 2004
(United Kingdom) 217,000
150,000 Xerox Corp. notes 5 1/2s, 2003 106,500
-------------
5,682,075
Technology Services (0.9%)
-------------------------------------------------------------------------------------------------------------------
2,430,000 Cybernet Internet Services Intl., Inc. 144A sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) 121,500
850,000 Equinix, Inc. sr. notes 13s, 2007 595,000
1,760,000 Exodus Communications, Inc. sr. notes 11 5/8s, 2010 1,416,800
220,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 174,900
940,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 723,800
1,250,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13s, 4/15/03), 2008 (STP) 231,250
1,500,000 Globix Corp. sr. notes 12 1/2s, 2010 450,000
710,000 Intira Corp. stepped-coupon zero % (13s, 2/1/05), 2010
(acquired 1/31/00, cost $378,366) (RES) (STP) 248,500
1,150,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,173,000
270,000 Pierce Leahy Command Co. company guaranty
8 1/8s, 2008 (Canada) 268,650
700,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 735,000
530,000 PSINet, Inc. sr. notes 11 1/2s, 2008 47,700
840,000 PSINet, Inc. sr. notes 11s, 2009 75,600
130,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 11,700
-------------
6,273,400
Telecommunications (4.6%)
-------------------------------------------------------------------------------------------------------------------
1,070,000 360Networks, Inc. sr. notes 13s, 2008 (Canada) 406,600
820,000 American Cellular Corp. 144A sr. sub notes 9 1/2s, 2009 795,400
613,027 American Cellular Corp. bank term loan FRN Ser. C,
8.53s, 2008 (acquired 2/29/00, cost $613,027) (RES) 613,027
1,480,000 American Tower Corp. 144A sr. notes 9 3/8s, 2009 1,413,400
400,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 141,000
230,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda) 227,700
1,210,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 181,500
400,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 132,000
180,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009 (Luxembourg) 122,400
1,780,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 1,299,400
900,000 Colo.com, Inc. sr. notes 13 7/8s, 2010 180,000
145,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 3/15/03), 2008 (STP) 8,700
600,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 96,000
30,000 Covad Communications Group, Inc. sr. notes Ser. B, 12s, 2010 4,500
350,000 Crown Castle International Corp. sr. disc. notes
stepped-coupon zero % (11 1/4s, 8/1/04), 2011 (STP) 248,500
1,330,000 Crown Castle International Corp. sr. notes 10 3/4s, 2011 1,369,900
200,000 Dobson Communications Corp. sr. notes 10 7/8s, 2010 204,000
940,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 965,850
1,500,000 Econophone, Inc. company guaranty 13 1/2s, 2007
(In default) (NON) 150,000
535,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) (In default) (NON) 16,050
110,000 FLAG Telecom Holdings, Ltd. sr. notes 11 5/8s, 2010
(Bermuda) 85,800
810,000 FLAG, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 729,000
830,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 782,275
730,000 Global Crossing Holdings, Ltd. company guaranty 9 1/2s, 2009
(Bermuda) 682,550
800,000 Global Crossing Holdings, Ltd. 144A sr. notes 8.7s, 2007
(Bermuda) 738,000
50,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 12,500
120,000 Hermes Europe Railtel sr. notes 10 3/8s, 2009 30,000
1,280,000 Level 3 Communication, Inc. sr. notes 11s, 2008 1,008,000
500,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 355,000
1,040,000 Maxcom Telecomunicaciones SA de CV company guaranty
Ser. B, 13 3/4s, 2007 (Mexico) 447,200
940,000 McCaw International, Ltd. sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 601,600
220,000 Metrocall, Inc. sr. sub. notes 11s, 2008 (In default) (NON) 17,600
180,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 (In default) (NON) 32,400
190,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 34,200
1,481,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 1,318,090
1,180,000 Nextel Communications, Inc. sr. notes 12s, 2008 1,123,950
4,420,000 Nextel Communications, Inc. 144A sr. notes 9 1/2s, 2011 3,729,375
1,350,000 Nextel International, Inc. sr. notes 12 3/4s, 2010 1,012,500
480,000 Nextel Partners, Inc. sr. notes 11s, 2010 420,000
370,000 Nextel Partners, Inc. sr. notes 11s, 2010 320,050
610,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 274,500
620,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005
(In default) (NON) 86,800
410,000 Orion Network systems, Inc. sr. notes 11 1/4s, 2007 151,700
950,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (STP) 114,000
1,680,000 Pinnacle Holdings, Inc. sr. disc. notes stepped-coupon zero %
(10s, 3/15/03), 2008 (STP) 1,008,000
645,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 664,350
970,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 291,000
110,000 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010 8,800
650,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 663,000
710,000 RSL Communications PLC company guaranty 12 7/8s, 2010
(United Kingdom) (In default) (NON) 12,425
450,000 RSL Communications PLC 144A company guaranty
10 1/2s, 2008 (United Kingdom) (In default) (NON) 7,875
500,000 RSL Communications PLC company guaranty
stepped-coupon zero % (10 1/8s, 3/1/03), 2008
(In default) (NON) (STP) 8,750
70,000 RSL Communications PLC company guaranty 9 1/8s, 2008
(In default) (NON) 1,225
770,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006
(Bermuda) (In default) (NON) 13,475
750,000 SBA Communications Corp. 144A sr. notes 10 1/4s, 2009 712,500
800,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (12 7/8s, 3/15/05), 2010 (STP) 352,000
720,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 4/15/04), 2009 (STP) 324,000
30,000 USA Mobile Communication, Inc. sr. notes 9 1/2s, 2004 10,500
270,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (In default) (NON) (STP) 43,200
1,760,000 Viatel, Inc. sr. notes 11 1/4s, 2008 (In default) (NON) 264,000
1,500,000 Western Wireless Corp. notes 8.65s, 2008 1,500,000
1,420,000 Williams Communications Group, Inc. sr. notes 11.7s, 2010 1,093,400
650,000 Williams Communications Group, Inc. sr. notes 11.7s, 2008 513,500
1,540,000 Williams Communications Group, Inc. sr. notes 10 7/8s, 2009 1,131,900
200,000 Williams Communications Group, Inc. sr. notes 10.7s, 2007 153,000
900,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 270,000
-------------
31,729,917
Telephone (3.0%)
-------------------------------------------------------------------------------------------------------------------
200,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 117,000
350,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 343,000
420,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 289,800
460,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 253,000
480,000 CFW Communications Co. sr. notes 13s, 2010 336,000
710,000 Focal Communications Corp. sr. sub. notes stepped-coupon
Ser. B, zero % (12 1/8s, 2/15/03), 2008 (STP) 340,800
110,000 Focal Communications Corp. sr. notes 11 7/8s, 2010 77,000
1,050,000 Horizon PCS, Inc. 144A company guaranty stepped-coupon
14s (14s, 10/1/05), 2010 (STP) 451,500
530,000 Hyperion Telecommunications Corp., Inc. sr. sub. notes
12s, 2007 318,000
2,420,000 ICG Holdings, Inc. sr. sub. notes 13 1/2s, 2005 (In default) (NON) 169,400
10,000 ICG Holdings, Inc. company guaranty stepped-coupon zero %
(12 1/2s, 5/1/01), 2006 (In default) (NON) (STP) 700
550,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (12 1/4s, 3/1/04), 2009 (STP) 396,000
60,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 58,800
430,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 421,400
910,000 IPCS, Inc. sr. disc. notes stepped-coupon zero % (14s, 7/15/05),
2010 (STP) 391,300
2,445,000 KMC Telecommunications Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 244,500
720,000 Leap Wireless International, Inc. company guaranty
12 1/2s, 2010 468,000
1,330,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 957,600
1,580,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 1,406,200
950,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 779,000
700,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 574,000
840,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 840,000
540,000 Nextlink Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 6/1/04), 2009 (STP) 178,200
130,000 Nextlink Communications, Inc. sr. notes 10 3/4s, 2009 78,000
140,000 Nextlink Communications, Inc. sr. notes 10 1/2s, 2009 81,900
1,000,000 Startec Global Communications Corp. sr. notes 12s, 2008 490,000
320,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 288,000
1,110,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 1,071,150
990,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 990,000
510,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 499,800
370,000 Transtel S.A. pass thru certificates 12 1/2s, 2007 (In default) (NON) 59,200
890,000 Tritel PCS, Inc. 144A sr. sub notes 10 3/8s, 2011 854,400
720,000 Triton PCS, Inc. 144A sr. sub notes 9 3/8s, 2011 691,200
1,670,000 UbiquiTel Operating Co. company guaranty stepped-coupon
zero % (14s, 4/15/05), 2010 (STP) 743,150
1,250,000 US Unwired, Inc. company guaranty stepped-coupon Ser. B,
zero % (13 3/8s, 11/1/04), 2009 (STP) 646,875
510,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008 (Netherlands) 311,100
180,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008 (Netherlands) 109,800
3,520,000 Voicestream Wireless Corp. sr. notes 10 3/8s, 2009 3,872,000
3,976,000 WinStar Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 4/15/05), 2010 (In default) (NON) (STP) 516,880
240,000 WinStar Communications, Inc. sr. notes 12 3/4s, 2010
(In default) (NON) 88,800
10,000 WinStar Communications, Inc. sr. notes 12 1/2s, 2008
(In default) (NON) 3,300
310,000 XO Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.45s, 4/15/03), 2008 (STP) 120,900
-------------
20,927,655
Textiles (1.0%)
-------------------------------------------------------------------------------------------------------------------
560,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 375,200
905,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 805,450
315,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 (In default) (NON) 94,500
2,200,000 Levi Strauss & Co. 144A sr. notes 11 5/8s, 2008 2,255,000
220,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 209,000
320,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 252,800
2,060,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 1,689,200
405,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 376,650
1,000,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 1,000,000
-------------
7,057,800
Tobacco (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,255,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 960,075
Transportation (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,841,085 Transportation Tech. Bank term loan FRN Ser. B, 8.91s, 2007
(acquired 2/29/00, cost $1,836,482) (RES) 1,583,333
Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,470,000 Cathay International, Ltd. 144A sr. notes 13s, 2008 (China) 367,500
Waste Management (0.8%)
-------------------------------------------------------------------------------------------------------------------
2,590,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 2,638,563
2,170,000 Allied Waste Industries, Inc. 144A company guaranty
8 7/8s, 2008 2,224,250
370,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 5/8s, 2006 360,288
410,000 Waste Management, Inc. sr. notes 7 3/8s, 2010 412,763
-------------
5,635,864
Water Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
370,000 Azurix Corp. sr. notes Ser. B, 10 3/4s, 2010 375,550
310,000 Azurix Corp. sr. notes Ser. B, 10 3/8s, 2007 313,100
-------------
688,650
-------------
Total Corporate Bonds and Notes (cost $400,435,155) $ 343,158,748
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (16.9%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (9.1%)
-------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Association
$ 41,833 6 1/2s, September 1, 2002 $ 41,779
4,315,406 6s, June 1, 2029 4,216,195
Federal National Mortgage Association
Pass-Through Certificates
788 8 1/2s, March 1, 2006 814
19,083,011 8s, with due dates from July 1, 2028 to March 1, 2031 19,679,424
3,145,558 7 1/2s, with due dates from January 1, 2030 to July 1, 2030 3,215,388
230,000 6 5/8s, September 15, 2009 244,518
9,978 6 1/2s, August 1, 2010 10,136
1,369,000 6s, April 1, 2031 1,334,775
Government National Mortgage Association
Pass-Through Certificates
26,951 8s, July 15, 2023 28,020
3,044,374 7 1/2s, with due dates from July 15, 2029
to January 15, 2030 3,122,126
4,482,136 7s, with due dates from January 15, 2025
to December 15, 2028 4,559,653
301,566 6 1/2s, January 15, 2029 301,744
40,000,000 U.S. Treasury Strip zero %, August 15, 2009 26,453,200
-------------
63,207,772
U.S. Treasury Obligations (7.8%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
8,510,000 6 1/2s, February 15, 2010 (SEG) 9,400,912
2,815,000 6 1/8s, August 15, 2007 3,016,441
36,855,000 5 3/4s, August 15, 2010 38,870,232
2,605,000 5s, February 15, 2011 2,618,442
-------------
53,906,027
-------------
Total U.S. Government and Agency Obligations
(cost $111,942,393) $ 117,113,799
FOREIGN GOVERNMENT BONDS AND NOTES (15.6%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
USD 5,290,000 Argentina (Republic of) unsub. 11 3/4s, 2009 $ 4,503,377
USD 7,795,000 Brazil (Federal Republic of) notes 14 1/2s, 2009 8,379,625
CAD 2,465,000 Canada (Government of) bonds 6s, 2011 1,634,219
CAD 9,250,000 Canada (Government of) bonds Ser. WH31, 6s, 2008 6,108,491
CAD 1,630,000 Canada (Government of) bonds 5 1/2s, 2010 1,042,036
USD 450,000 Colombia (Republic of) unsub. 9 3/4s, 2009 414,000
EUR 9,750,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 9,335,517
EUR 10,650,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 10,187,846
EUR 15,310,000 Germany (Federal Republic of) bonds Ser. 132,
4 1/8s, 2004 13,488,859
GRD 6,838,811 Hellenic Greece (Republic of) bonds 6s, 2010 6,368,595
EUR 16,250,000 Italy (Government of) treasury bonds 5 1/2s, 2010 14,819,649
USD 915,556 Morocco (Government of) bonds Ser. A, 6.844s, 2009 807,978
NZD 7,365,000 New Zealand (Government of) bonds Ser. 709,
7s, 2009 3,181,554
USD 11,290,000 Russia (Federation of) unsub. 10s, 2007 8,806,200
USD 5,395,000 Russia (Federation of) unsub. 8 1/4s, 2010 3,628,138
GBP 4,030,000 United Kingdom Treasury bonds 7 1/4s, 2007 6,483,914
USD 8,370,000 United Mexican States bonds Ser. XW, 10 3/8s, 2009 9,165,150
-------------
Total Foreign Government Bonds and Notes
(cost $109,622,444) $ 108,355,148
COLLATERALIZED MORTGAGE OBLIGATIONS (6.2%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 4,100,000 Amresco Commercial Mortgage Funding I Ser. 97-C-1,
Class F, 7.64s, 2029 $ 4,139,719
1,660,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
Class D, 6.821s, 2010 1,641,408
54,377,279 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
Interest Only (IO), 7.649s, 2020 3,379,463
31,143,589 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 1.22s, 2031 1,508,518
Fannie Mae Strip
1,054,234 Ser. 203, Class 2, IO, 8s, 2023 221,389
829,348 Ser. 251, Class 2, IO, 8s, 2023 174,163
7,628,597 Ser. 221, Class 2, IO, 7 1/2s, 2023 1,558,141
3,628,479 Ser. 97-91, Class SL, IO, 7 1/2s, 2023 428,000
1,149,140 Ser. 222, Class 2, IO, 7s, 2023 246,383
4,982,937 Federal National Mortgage Association Ser. 98-66,
Class SB, IO, 3.1s, 2028 311,328
8,917,408 FFCA Secured Lending Corp. Ser. 00-1, Class IO, 1.723s, 2027 847,154
Freddie Mac
5,523,047 Ser. 183, Class IO, 7s, 2027 1,135,677
410,456 Ser. 1717, Class, L, 6 1/2s, 2024 417,591
1,434,000 Ser. 2044, Class SG, IO, 6 1/2s, 2023 156,960
226,193 Ser. 180, Class Principal Only (PO), zero %, 2026 188,871
1,990,000 General Growth Properties Ala Moa Ser. 99-C1, Class E,
7.48s, 2009 1,990,000
410,000 General Growth Properties-Homart 144A Ser. 99-C1,
Class G, 8.072s, 2003 410,000
General Growth Properties-Ivanhoe
510,000 Ser. 99-C1, Class G, 8.48s, 2004 510,000
862,000 Ser. 99-C1, Class F, 7.73s, 2004 862,000
Government National Mortgage Association
7,782,602 Ser. 99-43, Class SJ, IO, 8 1/2s, 2029 488,747
1,732,933 Ser. 00-17, Class SB, 7 1/2s, 2026 1,986,652
1,309,733 Ser. 98-2, Class EA, PO, zero %, 2028 1,075,618
1,031,182 Ser. 99-42, PO, zero %, 2027 928,868
1,075,000 Granite Mortgages PLC FRN Ser. 01-1, Class 1C, 6.192s, 2041
(United Kingdom) 1,075,000
5,065,000 Holmes Financing PLC Ser. 1, Class 2C, 5.91s, 2040 5,034,610
Merrill Lynch Mortgage Investors, Inc.
19,934,731 Ser. 96-C2, IO, 9.045s, 2028 1,354,939
17,340,627 Ser. 98-C2, IO, 7.86s, 2030 1,147,950
1,070,000 Ser. 96-C2, Class E, 6.96s, 2028 1,010,401
4,330,000 Ser. 98-C2, Class D, 6.633s, 2030 4,327,835
1,150,000 Ser. 98-C2, Class F, 6 1/4s, 2030 801,320
6,034,433 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X,
IO, 0.935s, 2012 374,323
159,276 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 159,906
345,620 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 349,342
2,500,000 Starwood Asset Receivables Trust Ser. 00-1, Class E, 7.8s, 2005 2,514,000
-------------
Total Collateralized Mortgage Obligations
(cost $41,254,734) $ 42,756,276
BRADY BONDS (2.2%) (a)
PRINCIPAL AMOUNT
-------------------------------------------------------------------------------------------------------------------
$ 4,995,200 Argentina (Republic of) debs. FRB 7 5/8s, 2005 $ 4,202,462
7,595,000 Brazil (Federal Republic of) govt guaranty Ser. 18YR, FRN
7 11/16s, 2012 5,364,349
3,500,000 Bulgaria (Government of) deb. Ser. PDI, 6.688s, 2011 2,629,550
3,499,965 Venezuela (Republic of) deb. Ser. DL, 7s, 2007 2,922,471
-------------
Total Brady Bonds (cost $15,822,581) $ 15,118,832
PREFERRED STOCKS (1.6%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
10,309 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 10,309
56,000 California Federal Bancorp, Inc. Ser. A, $2.28 pfd. 1,400,000
30,000 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. (PIK) 1,605,000
3,150 Chevy Chase Savings Bank, Inc. $3.25 pfd. 81,900
18,412 CSC Holdings, Inc. Ser. M, $11.13 cum. pfd. (PIK) 2,006,908
19,200 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 153,600
1,722 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 1,549,800
320 First Republic 144A 10.50% pfd. 283,200
11,765 Fitzgeralds Gaming Corp. $3.75 cum. pfd. 118
1,049 Granite Broadcasting Corp. 144A 12.75% pfd. (PIK) 325,190
2,019 ICG Holdings, Inc. 144A 14.00% pfd. (Canada)
(In default) (NON) (PIK) 40,380
1,184 Intermedia Communications, Inc. Ser. B, 13.50% pfd. (PIK) 1,184,000
213 Paxson Communications Corp. 144A 13.25% cum. pfd. (PIK) 2,012,850
1,036 Rural Cellular Corp. 12.25% pfd. (PIK) 797,720
17 XO Communications, Inc. Ser. B, 13.50% pfd. 4,930
-------------
Total Preferred Stocks (cost $14,789,646) $ 11,455,905
ASSET-BACKED SECURITIES (1.4%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 7,205,000 Conseco Finance Securitization Ser. 00-4, Class A6, 8.31s, 2032 $ 7,684,583
1,100,000 Conseco Finance Securitization Ser. 00-6, Class M2, 8.2s, 2032 1,112,114
978,169 Resolution Trust Corp. Ser. 94-1, Class M1, 7.14s, 2029 963,497
-------------
Total Asset-Backed Securities (cost $9,152,088) $ 9,760,194
CONVERTIBLE BONDS AND NOTES (0.6%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 370,000 Amkor Technologies, Inc. cv. sub. notes 5s, 2007 $ 269,175
360,000 Davita, Inc. cv. sub. notes 7s, 2009 309,132
1,840,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 800,400
490,000 Healthsouth Corp. cv. sub. deb. 3 1/4s, 2003 444,063
280,000 Hexcel Corp. cv. sub. notes 7s, 2003 254,100
970,000 Level 3 Communication, Inc. cv. sub. deb. 6s, 2010 384,362
500,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 323,125
310,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 232,888
160,000 Spectrasite Holdings, Inc. cv. sr. notes 6 3/4s, 2010 95,200
970,000 Telewest Finance Corp. cv. sub. notes 6s, 2005
(United Kingdom) 754,175
-------------
Total Convertible Bonds and Notes (cost $4,052,212) $ 3,866,620
COMMON STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
150 AmeriKing, Inc. (NON) $ 150
28,107 Arch Wireless, Inc. (NON) 17,567
17,092 Aurora Foods, Inc. (NON) 117,935
2,955 Axia Holding, Inc. 144A (NON) (PIK) 35,460
149,352 Celcaribe S.A. (NON) 18,669
23,404 Fitzgeralds Gaming Corp. (NON) 234
6,795 MGC Communications, Inc. (NON) 17,200
327 Premium Holdings (L.P.) 144A (NON) 5,314
715 PSF Holdings LLC Class A (NON) 1,162,411
11 Safety Components International, Inc. (NON) 44
10,050 Specialty Foods Acquisition Corp. (NON) 101
1,335 Vast Solutions, Inc. Class B1 (NON) 4,005
1,335 Vast Solutions, Inc. Class B2 (NON) 4,005
1,335 Vast Solutions, Inc. Class B3 (NON) 4,005
-------------
Total Common Stocks (cost $2,793,628) $ 1,387,100
CONVERTIBLE PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
6,500 Global Crossing Ltd. 7.00% cv. pfd. $ 826,313
520 Interact Systems, Inc. 144A 14.00% cv. pfd. 5
3,800 LTV Corp. (The) 144A $4.13 cv. pfd. 3,800
35 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 320,250
115 World Access, Inc. 144A Ser. D, zero % cv. pfd. 23,004
-------------
Total Convertible Preferred Stocks (cost $1,494,391) $ 1,173,372
UNITS (0.2%) (a)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
600 Australis Media, Ltd. units 15 3/4s, 2003 (Australia)
(In default) (NON) $ 60
590 IWO Holdings, Inc. 144A units 14s, 2011 601,800
400 ONO Finance PLC 144A units 14s, 2011 (United Kingdom) 344,000
840 Pegasus Shipping 144A company guaranty stepped-coupon
zero % (14 1/2s, 6/20/03), 2008 (Bermuda)
(acquired 6/23/98, cost $417,816) (STP) (RES) 37,800
500 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 150,000
-------------
Total Units (cost $2,726,607) $ 1,133,660
WARRANTS (0.1%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
4 Anker Coal Group, Inc. 144A 10/28/09 $ 1
1,150 Asia Pulp & Paper Co., Ltd. 144A (In default) (NON) 3/15/05 12
480 Bestel S.A. de C.V. 5/15/05 57,600
460 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 460
2,428 CellNet Data Systems, Inc. 10/1/07 2
900 Colo.com, Inc. 144A 3/15/10 9
1,500 Comunicacion Cellular 144A (Colombia) 11/15/03 3,000
1,020 Dayton Superior Corp. 6/15/09 12,240
90 Decrane Aircraft Holdings Co. 9/30/08 1
14,628 Delta Financial Corp. 12/21/10 1
475 Diva Systems Corp. 5/15/06 213,744
8,173 Diva Systems Corp. 144A 3/1/08 49,038
830 Epic Resorts 144A 6/15/05 8
680 Firstworld Communication Corp. 4/15/08 3,400
1,050 Horizon PCS, Inc. 10/1/01 31,500
9,768 ICG Communications 10/15/05 9,768
520 Interact Systems, Inc. 8/1/03 5
520 Interact Systems, Inc. 144A 12/15/09 5
245 International Wireless Communications
Holdings 144A 8/15/01 1
11,713 Intira Corp. Class A
(acquired 1/31/00, cost $117) (RES) 2/1/10 1
69,097 Intira Corp. Class B 9/29/10 7
910 IPCS, Inc. 144A 7/15/10 18,200
400 Iridium World Com 144A 7/15/05 1
1,140 Jostens, Inc. 5/1/10 22,800
2,085 KMC Telecommunications Holdings, Inc. 144A 4/15/08 21
1,180 Knology Holdings 10/22/07 1,180
720 Leap Wireless International, Inc. 144A 4/15/10 180
1,040 Maxcom Telecomunicaciones SA de CV
144A (Mexico) 4/1/07 10
930 McCaw International, Ltd. 4/15/07 18,600
560 Mediq, Inc. 144A 6/1/09 6
760 Ntelos, Inc. 8/15/10 760
620 Orbital Imaging Corp. 144A 3/1/05 1
1,840 Pagemart, Inc. 144A 12/31/03 1,840
960 Paxson Communications Corp. 144A 6/30/03 3,360
410 Pliant Corp. 144A 6/1/10 3,280
790 Railamerica, Inc. 8/15/10 15,800
1,220 Raintree Resort 144A 12/1/04 12
860 Startec Global Communications Corp. 5/15/08 559
185 Sterling Chemicals Holdings 8/15/08 278
410 Telehub Communications Corp. 144A 7/31/05 103
1,830 Travel Centers of America 5/1/09 18
1,670 Ubiquitel, Inc. 144A 4/15/10 50,100
1,260 UIH Australia/Pacific, Inc. 144A 5/15/06 2,520
30 Versatel Telecom N.V. (Netherlands) 5/15/08 1,350
100 Wright Medical Technology, Inc. 144A 6/30/03 1
590 XM Satellite Radio Holdings, Inc. 144A 3/15/10 17,700
-------------
Total Warrants (cost $958,816) $ 539,483
PURCHASED OPTIONS OUTSTANDING (--%) (a) EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
-------------------------------------------------------------------------------------------------------------------
$ 1,000,000 USD/JPY Call May 01/137 JPY $ 200,319
3,702,000 USD/GBP Call Apr-01/1.4 GBP 2,105
3,702,000 USD/GBP Call Apr-01/1.4 GBP 526
-------------
Total Purchased Options Outstanding (cost $288,953) $ 202,950
SHORT-TERM INVESTMENTS (3.3%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 2,000,000 UBS Finance LLC effective yield of 5.5%, April 2, 2026 $ 1,999,083
20,721,000 Interest in $500,000,000 joint tri-party repurchase agreement
dated March 30, 2001 with Credit Suisse First Boston
due April 2, 2001 with respect to various U.S. Government
obligations -- maturity value of $20,730,255 for an effective
yield of 5.36% 20,721,000
-------------
Total Short-Term Investments (cost $22,720,083) $ 22,720,083
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $738,053,731) (b) $ 678,742,170
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $694,897,897.
(b) The aggregate identified cost on a tax basis is $739,033,188,
resulting in gross unrealized appreciation and depreciation of
$19,567,944 and $79,858,962, respectively, or net unrealized
depreciation of $60,291,018.
(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 receiving
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at March 31, 2001 was
$8,439,539 or 1.2% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts, forward
currency contracts and written options at March 31, 2001.
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.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at March 31, 2001,
which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at March 31, 2001: (as percentage of Market Value)
Argentina 1.3%
Brazil 2.0
Canada 2.6
Germany 4.9
Greece 0.9
Italy 2.2
Mexico 1.8
Russia 1.8
United Kingdom 2.1
United States 76.7
Other 3.7
----
Total 100.0%
------------------------------------------------------------------------------
Forward Currency Contracts to Buy at March 31, 2001 (Unaudited)
(aggregate face value of $137,435,432)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollars $ 2,512,955 $ 2,590,332 6/20/2001 $ (77,377)
British Pounds 5,449,150 5,573,045 6/20/2001 (123,895)
Canadian Dollar 12,094,377 12,281,881 6/20/2001 (187,504)
Danish Krone 764,200 801,462 6/20/2001 (37,262)
Euro 55,490,266 57,766,391 6/20/2001 (2,276,125)
Japanese Yen 54,992,687 57,594,089 6/20/2001 (2,601,402)
Swedish Krona 660,843 694,527 6/20/2001 (33,684)
Swiss Franc 133,771 133,705 6/20/2001 66
------------------------------------------------------------------------------
$(5,337,183)
------------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 2001 (Unaudited)
(aggregate face value of $153,775,909)
Aggregate Face Delivery Unrealized
Market Value Value Date Appreciation
------------------------------------------------------------------------------
Australian Dollars $ 1,190,542 $ 1,200,492 6/12/2001 $ 9,950
British Pounds 2,725,707 2,787,768 6/20/2001 62,061
Canadian Dollar 15,104,023 15,334,871 6/20/2001 230,848
Euro 81,272,258 84,266,001 6/20/2001 2,993,743
Japanese Yen 45,028,449 47,061,917 6/20/2001 2,033,468
New Zealand Dollar 3,005,847 3,124,860 6/20/2001 119,013
------------------------------------------------------------------------------
$5,449,083
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 2001 (Unaudited)
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
------------------------------------------------------------------------------
3 Month Libor
(long) $12,082,717 $12,071,971 Sep-01 $ 10,746
3 Month Libor
(short) 12,061,572 12,056,969 Jun-02 (4,603)
Eurodollar 3 Month
(short) 6,213,350 6,201,540 Jun-02 (11,810)
Eurodollar 3 Month
(long) 6,209,775 6,195,911 Dec-01 13,864
Eurodollar 3 Month
(short) 4,066,825 4,040,762 Sep-01 (26,063)
Eurodollar 3 Month
(long) 4,056,838 4,030,263 Mar-02 26,575
JGB 10 Yr. (long) 7,226,776 7,195,815 Jun-01 30,961
US Treasury 10 Yr.
(long) 10,301,703 10,273,319 Jun-01 28,384
------------------------------------------------------------------------------
$ 68,054
------------------------------------------------------------------------------
Swap Contracts Outstanding at March 31, 2001 (Unaudited)
Notional Termination Unrealized
Amount Date Appreciation
------------------------------------------------------------------------------
Agreement with
Merrill Lynch
International &
Co. CV dated
November 17,
2000, to pay
semiannually the
notional amount
multiplied by the
LIBOR-BBA and
receive the
notional amount
multiplied by
6.7506%. $6,500,000 Nov-05 $343,684
------------------------------------------------------------------------------
Written Call Options Outstanding at March 31, 2001 (Unaudited)
(premium received $22,742)
Expiration Date/ Market
Contract Amount Strike Price Value
------------------------------------------------------------------------------
$1,000,000,000 U.S. Dollars in Exchange for
Japanese Government Bond Jun-01/JGB 141.5 $23,943
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2001 (Unaudited)
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $738,053,731) (Note 1) $678,742,170
-------------------------------------------------------------------------------------------
Cash 2,562,777
-------------------------------------------------------------------------------------------
Foreign currency (cost $331,065) 321,662
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 13,971,416
-------------------------------------------------------------------------------------------
Receivable for securities sold 36,039,389
-------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 21,437
-------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 343,684
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 5,449,149
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 155,271
-------------------------------------------------------------------------------------------
Total assets 737,606,955
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,284,396
-------------------------------------------------------------------------------------------
Payable for securities purchased 30,456,353
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,252,913
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 121,723
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 61,561
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,423
-------------------------------------------------------------------------------------------
Payable for written options outstanding (premiums received $22,742)
(Notes 1 and 3) 23,943
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 5,337,249
-------------------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 86,000
-------------------------------------------------------------------------------------------
Other accrued expenses 82,497
-------------------------------------------------------------------------------------------
Total liabilities 42,709,058
-------------------------------------------------------------------------------------------
Net assets $694,897,897
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $861,575,486
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (20,158,738)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investment and
foreign currency transactions (Note 1) (87,059,270)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (59,459,581)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $694,897,897
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($694,897,897 divided by 100,133,127 shares) $6.94
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended March 31, 2001 (Unaudited)
Investment income:
-------------------------------------------------------------------------------------------
Interest income $ 32,540,220
-------------------------------------------------------------------------------------------
Dividends 769,874
-------------------------------------------------------------------------------------------
Total investment income 33,310,094
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,509,725
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 354,863
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 35,215
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,872
-------------------------------------------------------------------------------------------
Other 240,176
-------------------------------------------------------------------------------------------
Total expenses 3,144,851
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (23,146)
-------------------------------------------------------------------------------------------
Net expenses 3,121,705
-------------------------------------------------------------------------------------------
Net investment income 30,188,389
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (13,024,020)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,065,678
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (3,406,980)
-------------------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 273,838
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities
in foreign currencies during the period 504,380
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures contracts,
swap contracts and written options during the period (2,756,245)
-------------------------------------------------------------------------------------------
Net loss on investments (17,343,349)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 12,845,040
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
March 31 September 30
2001* 2000
--------------------------------------------------------------------------------------------------
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 30,188,389 $ 63,571,481
--------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (15,091,484) (37,850,908)
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (2,251,865) (5,069,867)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 12,845,040 20,650,706
--------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
--------------------------------------------------------------------------------------------------
From net investment income (31,841,091) (64,290,088)
--------------------------------------------------------------------------------------------------
Total decrease in net assets (18,996,051) (43,639,382)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 713,893,948 757,533,330
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $20,158,738 and
$18,506,036, respectively) $694,897,897 $713,893,948
--------------------------------------------------------------------------------------------------
Number of fund shares
--------------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of period 100,133,127 100,133,127
--------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.13 $7.57 $8.14 $8.79 $8.58 $8.38
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income (a) .30 .63 .58 .71 .64 .63
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.17) (.43) (.47) (.67) .21 .19
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .13 .20 .11 .04 .85 .82
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.64) (.56) (.69) (.64) (.61)
------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.12) -- -- (.01)
------------------------------------------------------------------------------------------------------------------
Total distributions (.32) (.64) (.68) (.69) (.64) (.62)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.94 $7.13 $7.57 $8.14 $8.79 $8.58
------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.580 $6.438 $6.438 $7.750 $8.125 $7.500
------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 7.32* 10.72 (9.09) 3.91 17.54 10.34
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $694,898 $713,894 $757,533 $814,342 $337,664 $332,537
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .45* .87 .93 .92 1.04 .99
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.31* 8.60 7.39 8.13 7.47 7.44
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 186.65* 116.71 133.72 179.84(d) 220.61 232.90
------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Intermediate Government Income Trust.
NOTES TO FINANCIAL STATEMENTS
March 31, 2001 (Unaudited)
Note 1
Significant accounting policies
Putnam Master Intermediate Income Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company and is authorized to issue an
unlimited number of shares. The fund's investment objective is to seek,
with equal emphasis, high current income and relative stability of net
asset value, by allocating its investments among the U.S. investment
grade sector, high-yield sector and international sector.
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 stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by an independent pricing service or dealers,
approved by the Trustees, which determine valuations for normal
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and variable
relationships between securities that are generally recognized by
institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, LLC ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, LLC. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. Discounts
on zero coupon bonds, original issue discount bonds, stepped-coupon
bonds and payment in kind bonds are accreted according to the
yield-to-maturity basis. Any premium resulting from the purchase of
stepped-coupon securities is amortized on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short-term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
"marked to market" daily and the change in market value is recorded as
an unrealized gain or loss. When the contract is closed, the fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed. The fund could be exposed to risk if the value of
the currency changes unfavorably, if the counterparties to the contracts
are unable to meet the terms of their contracts or if the fund is unable
to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
H) Interest rate swap contracts. The fund may engage in interest rate
swap agreements, which are arrangements between two parties to exchange
cash flows based on a notional principal amount. The fund may enter into
interest rate swap agreements, to manage the funds exposure to interest
rates. Interest rate swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss. Payments made or received are included as part
of interest income. Payments received or made upon early termination are
recorded as realized gain or loss. The fund could be exposed to credit
or market risk due to unfavorable changes in the fluctuation of interest
rates or that the counterparty may default on its obligation to perform.
I) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At September 30, 2000, the fund had a capital loss carryover of
approximately $47,316,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$ 253,000 September 30, 2001
7,035,000 September 30, 2003
2,793,000 September 30, 2004
1,554,000 September 30, 2005
10,040,000 September 30, 2007
25,641,000 September 30, 2008
J) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. Capital gains distributions, if
any, are recorded on the ex-dividend date and paid at least annually.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of average weekly net assets, 0.65% of the next $500
million, 0.60% of the next $500 million, and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, LLC.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended March 31, 2001,
the fund's expenses were reduced by $23,146 these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $982 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the six months ended March 31, 2001, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $336,158,753 and
$296,959,936, respectively. Purchases and sales of U.S. government
obligations aggregated $882,013,706 and $899,364,076, respectively.
Written option transactions during the period are summarized as follows:
Contract Premiums
Amounts Received
---------------------------------------------------------------------------
Written options
outstanding at
beginning of
period $ -- $ --
---------------------------------------------------------------------------
Options opened 1,000,000,000 22,742
---------------------------------------------------------------------------
Options expired -- --
---------------------------------------------------------------------------
Options closed -- --
---------------------------------------------------------------------------
Written options
outstanding at
end of period $1,000,000,000 $22,742
---------------------------------------------------------------------------
Note 4
Share repurchase program
In November 1994, the Trustees authorized the fund to repurchase up to
1,950,000 of its shares in the open market. Repurchases will only be
made when the fund's shares are trading at less than net asset value and
at such times and amounts as is believed to be in the best interest of
the fund's shareholders. Any repurchases of shares will have the effect
of increasing the net asset value per share of remaining shares
outstanding.
For the six months ended March 31, 2001, the fund repurchased no shares.
As of March 31, 2001, 570,000 shares have been repurchased since the
inception of the program.
Note 5
New accounting pronouncement
In November 2000, the AICPA issued a revised Audit and Accounting Guide,
Audits of Investment Companies, which is effective for fiscal years
beginning after December 15, 2000. The revised Guide will require the
fund to amortize premium and accrete discount on all fixed-income
securities, and classify as interest income gains and losses realized on
paydowns on mortgage-backed securities which are presently included in
realized gain/loss. Adopting these accounting principles will not affect
the fund's net asset value, but will change the classification of
certain amounts between interest income and realized and unrealized
gain/loss in the Statement of operations. The fund has not at this time
quantified the impact, if any, resulting form the adoption of this
principle on the financial statements.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Kevin Cronin
Vice President
David L. Waldman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
71200 074 5/01