Putnam
Master
Intermediate
Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-02
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FROM THE TRUSTEES
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Dear Fellow Shareholder:
In an environment that was somewhat challenging for higher-yielding
bonds but still far more settled than the stock market, Putnam Master
Intermediate Income Trust was able to deliver positive results for the
fiscal year ended September 30, 2002. It also outperformed the Lipper
average for its category. However, because of its portfolio focus toward
lower-rated issues, the fund lagged its primary benchmark, the Lehman
Government Credit Index.
During periods such as this, in which wary investors place more emphasis
on safety than on returns, funds such as yours cannot be expected to
perform as well as those with more conservative orientations. However,
in a period in which other asset classes, such as stocks, saw
significant losses, the fund's solid positive return illustrated the
value of diversifying into bond funds.
The following report provides a detailed review of the fund's strategy
and results for the period. The managers also offer their views of the
fund's prospects for the fiscal year that just began.
Respectfully yours,
/S/JOHN A. HILL /S/GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 20, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Core Fixed-Income Team
The year ended September 30, 2002, was, on balance, a highly favorable
period for the bond market. With significant volatility in the U.S. and
foreign equity markets, concerns about global terrorism, corporate
scandals in the U.S., and a cyclical economic slowdown causing
lackluster profits, investors have flocked to bonds. High-quality bonds
have benefited the most, as nervous investors have generally avoided
investments with risk attached. However, while the lower-quality sectors
have underperformed high-quality bonds, these sectors -- such as
high-yield corporate bonds and emerging-markets bonds -- still have
generally outperformed equities by a large margin. By and large,
investors who have diversified their portfolios into fixed-income
securities have been rewarded.
Total return for 12 months ended 9/30/02
NAV Market price
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4.21% 14.81%
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Past performance does not indicate future results. Performance based on
market prices for the shares will vary from performance based on the
portfolio's net asset value. Performance information for longer periods
begins on page 7.
Putnam Master Intermediate Income Trust is a multi-sector portfolio that
may invest in high-yield corporate, investment-grade corporate, emerging
markets, foreign investment-grade, and high-quality U.S. government
bonds, such as Treasuries and mortgage-backed securities (MBS). Over the
reporting period, these sectors had mixed results for the reasons
described above. The fund has significant holdings in high-yield
corporate bonds, which hurt overall performance and caused it to
underperform its primary benchmark, the Lehman Government Credit Index.
Fund holdings in U.S. government and MBS, international bonds, and
emerging-markets bonds all helped boost returns during the period. The
fund's performance was ahead of the CSFB High Yield Index, which tracks
global high-yield bonds, but it lagged the SSB Non-U.S. World Government
Bond Index, which tracks international government securities (these
indexes are used as references only). Within its Lipper category, the
fund outperformed its category average (see page 7 for details).
[GRAPHIC OMITTED: horizontal bar chart TOP FIVE COUNTRY ALLOCATIONS
(INTERNATIONAL SECTOR*)]
Russia 4.0%
Canada 2.9%
Mexico 2.6%
Sweden 2.6%
Germany 2.5%
Footnote reads:
*Based on net assets as of 9/30/02. Holdings will vary over time.
The fund's return at market price was sharply higher than its return at
net asset value because of the dramatic flight to quality that occurred
toward the end of the period. When stock market prices plummeted in the
third quarter, investors flocked to bonds, which helped boost the fund's
market price considerably.
* UNPREDICTABLE YEAR DROVE INVESTORS TOWARD QUALITY
Beginning with the terrorist attacks that shook the financial markets a
year ago, the past fiscal year has been unusually challenging.
Immediately following September 11, investors sought safety in
high-quality bonds and shunned all risky investments. However, in the
fourth quarter of 2001, investors were buoyed by evidence of economic
strengthening, U.S. military success in Afghanistan, and consequential
rising equity prices. High- quality bonds ended up having a turbulent
quarter, marked by a sharp sell-off in November. High-yield bonds and
emerging- markets bonds (except for trouble spots such as Argentina) had
solid returns during the fourth quarter. In fact, it was the strongest
quarterly performance for high-yield bonds in many years.
With renewed optimism to start 2002, U.S. investors, in particular, were
blindsided by a wave of corporate scandals. Beginning with Enron, these
scandals included former investment darlings such as Global Crossing,
Qwest, Tyco, and WorldCom. Each time, just as investors were catching
their breath, it seemed that another large, well-known company was being
accused of malfeasance.
Fund Profile
Putnam Master Intermediate Income Trust seeks high current income and
relative stability by investing in the intermediate-maturity,
investment-grade, and high-yield bond sectors, as well as in foreign
bond markets. The fund is designed for investors seeking high current
income, asset class diversification, or both.
The economy was also unpredictable. In the first quarter of 2002, many
analysts were forecasting slow growth that would begin to pick up by
midyear. In fact, sagging consumer confidence, continued rounds of
layoffs, and steep declines in the stock market -- exemplified by an
exceptionally poor third quarter, in which the Dow Jones Industrial
Average and the S&P 500 Index each lost more than 17% -- resulted in a
change in the forecast, calling for slow growth well into 2003. While
many had predicted in early 2002 that the Federal Reserve Board could
raise rates sometime this year, by the end of the fund's fiscal year, it
appeared possible that the Fed could ease at least once more before
beginning to tighten again. (This belief was confirmed on November 6,
2002, when the Fed reduced short-term rates by one half of one
percentage point.)
The result of this uncertainty and risk aversion has been a surging U.S.
Treasury market that brought the yield on the 10-year Treasury bond to
the 3.60%-3.65% range by the end of the period -- a level not seen since
the late 1950s.
* MANAGEMENT EMPHASIZED HIGH-YIELD BONDS DURING FISCAL YEAR
During 2000 and 2001, bonds outperformed other asset classes. This
two-year rally and the general feeling that the economy would begin to
strengthen in 2002 caused your fund's management team to believe that
bonds with greater yield spreads over Treasuries would outperform in
2002. The high-yield market typically anticipates an economic recovery,
and with a peak in default rates occurring in January 2002, it appeared
that high-yield bonds were poised to have a strong year -- especially
given the strong performance this sector had in the fourth quarter of
2001. However, the high-yield rally never materialized; rather, it was
eclipsed by sharp declines in the equity markets and general uncertainty
and risk aversion among investors.
"We all need bonds
in our investment mix, now more than ever."
-- Bloomberg Personal Finance, September 2002
In spite of the disappointing performance in the fund's high-yield
holdings, we remain confident in their potential and expect to keep the
fund's weighting in high-yield bonds at its current level of
approximately 50% of total net assets. Our high-yield strategy is
supported by a number of positive trends: yield spreads relative to
Treasuries are wide; default rates, having peaked earlier in the year,
are improving; and demand is growing. Yields are high -- often exceeding
10% -- and there is potential for price appreciation. Finally, large
companies are now entering the high-yield universe, having been recently
downgraded from investment-grade status. Many of these "fallen angels"
have strong cash flows and manageable amounts of debt and offer
attractive yields relative to their credit-risk profile.
* OTHER FUND SECTORS WERE AFFECTED BY INVESTOR AVERSION TO RISK
The remaining sectors of the fund's portfolio -- including emerging
markets, international developed markets, and U.S. Treasury and MBS --
had varying performance, depending on the level of risk attached to the
sector.
Despite a difficult year for the emerging-markets sector, the fund's
emerging-markets holdings actually boosted performance. In particular,
the fund benefited from strong performance among our holdings in Russia,
Bulgaria, and Mexico, which have benefited from rising oil prices and
greater economic stability.
In developed international markets, the fund's holdings of high-quality
government bonds and mortgage-backed securities performed well. We
emphasized Germany, the U.K., and Canada. In addition, all non-U.S.
dollar-denominated holdings benefited from a declining dollar during the
fiscal year.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP THREE HOLDINGS PER SECTOR
HIGH-YIELD BONDS
HMH Properties, Inc.
Company guaranty, Series B, 7.875%, 2008
Lodging/tourism
Allied Waste North America, Inc.
Company guaranty, Series B, 10%, 2009
Capital goods
Echostar Broadband Corp.
Senior notes, 10.375%, 2007
Consumer staples
FOREIGN BONDS
United Mexican States
notes, Series A, 9.875%, 2010
Germany (Federal Republic of)
bonds, Series 95, 7.375%, 2005
Russia (Federation of)
unsubordinated notes, 10%, 2007
U.S. INVESTMENT-GRADE SECURITIES
Federal National Mortgage Association
pass-through certificates, 7.25%, 1/15/10
U.S. Treasury Notes
4.375%, 8/15/12
Federal National Mortgage Association
pass-through certificates, 6.5%, due dates
from 6/1/29 to 9/1/32
These holdings represented 20.8% of the fund's net
assets as of 9/30/02. Portfolio holdings will vary
over time.
The fund's U.S. investment-grade holdings, which accounted for
approximately one-quarter of total net assets, included U.S. Treasuries,
government agency securities, and MBS. These performed well during the
year, with Treasuries benefiting from the flight to quality and MBS
benefiting from attractive yield spreads over Treasuries. There has been
some concern that MBS yields may decline as a result of high refinancing
rates, so we will continue to monitor this situation and take necessary
action, such as trimming back our holdings, if appropriate.
* OUTLOOK POSITIVE FOR LOWER-RATED SECTORS, UNCERTAIN FOR TREASURIES
By the end of 2002, if current trends continue, bonds will have had
three consecutive years of strong performance. Short-term interest rates
are at lows not seen for nearly half a century, and may even be reduced
further. The yield curve is extremely steep, meaning that there is a
large difference between short-term and long-term yields. These trends
suggest that the bond market is poised for change, and that the change
will probably come in the form of higher bond yields. With the market in
such a "hair-trigger" state, it probably would not take much more than a
hint of stronger growth, greater optimism, or a sustained rally in
stocks, to cause yields to rise. This would cause bond prices to drop,
which could also produce negative total returns for the fund. And, in
fact, we have already seen a sharp rise in yields in October as a result
of an increase in optimism about the economy. In such an environment,
we have seen that, historically, bonds with greater credit risk and
higher coupons have tended to outperform higher-quality, more
interest-rate sensitive bonds.
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 9/30/02, there is no guarantee the fund will
continue to hold these securities in the future. International
investing involves certain risks, such as currency fluctuations,
economic instability, and political developments. Lower-rated bonds may
offer higher yields in return for more risk. Mutual funds that invest in
government securities are not guaranteed. Mortgage-backed securities
are subject to prepayment risk.
This fund is managed by the Putnam Core Fixed-Income Team. The members
of this team are D. William Kohli (Portfolio Leader), David Waldman
(Portfolio Member), Kevin Cronin, Carl Bell, Rob Bloemker, Andrea Burke,
James Prusko, Michael Salm, and John Van Tassel.
PUTNAM'S POLICY ON CONFIDENTIALITY
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 9/30/02
SSB Non-
Lehman U.S. World CSFB
Market Govt. Credit Govt. Bond High Yield Consumer
NAV price Index Index Index price index
-------------------------------------------------------------------------------------------------------------------
1 year 4.21% 14.81% 9.24% 10.45% 2.84% 1.46%
-------------------------------------------------------------------------------------------------------------------
5 years 12.23 23.74 46.45 19.12 3.03 12.09
Annual average 2.33 4.35 7.93 3.56 0.60 2.31
-------------------------------------------------------------------------------------------------------------------
10 years 73.61 81.31 104.90 64.51 80.26 27.95
Annual average 5.67 6.13 7.44 5.10 6.07 2.50
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Life of fund
(since 4/29/88)
Annual average 7.10 6.70 8.64 6.31 7.88 3.06
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Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return, net asset
value, and market price will fluctuate and you may have a gain or a loss
when you sell your shares. Performance does not reflect taxes on
reinvested distributions.
LIPPER INFORMATION:
The average annualized return for the 12 funds in the Lipper Flexible
Income Funds category over the 12 months ended 9/30/02 was 1.46%. Over
the 5- and 10-year periods ended 9/30/02, annualized returns for the
category were 1.01% and 5.52%, respectively.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/02
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Distributions from common shares
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Number 12
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Income $0.529
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Capital gains --
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Return of
capital 1 0.011
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Total $0.540
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Share value: NAV Market price
-------------------------------------------------------------------------------
9/30/01 $6.54 $6.05
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9/30/02 6.26 6.38
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Current return (end of period)
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Current
dividend
rate 2 8.63% 8.46%
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1 See page 47 for details.
2 Income portion of most recent distribution, excluding capital gains,
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 Government Credit Index* is an unmanaged index of U.S.
fixed-income securities.
Salomon Smith Barney (SSB) Non-U.S. World Government Bond Index* is an
unmanaged index of government bonds from 10 countries.
Credit Suisse First Boston (CSFB) High Yield Index* is an unmanaged
index of high-yield debt securities.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Footnote reads:
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ.
You cannot invest directly in an index.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
preceded by the Report of independent accountants, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Putnam Master Intermediate Income Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Master Intermediate Income Trust, including the fund's portfolio,
as of September 30, 2002, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of
the years in the two-year period then ended and financial highlights for
each of the years in the three-year period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of September 30, 2002 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Master Intermediate Income Trust as of
September 30, 2002, the results of its operations for the year then
ended, changes in its net assets for each of the years in the two-year
period then ended and financial highlights for each of the years in the
three-year period then ended in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
November 5, 2002
THE FUND'S PORTFOLIO
September 30, 2002
CORPORATE BONDS AND NOTES (48.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.2%)
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$902,089 Interact Operating Co. notes 14s, 2003 (PIK) $90
440,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 461,450
600,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 627,750
-------------
1,089,290
Automotive (1.1%)
-------------------------------------------------------------------------------------------------------------------
341,992 Collins & Aikman Products, Inc. bank term loan FRN Ser. B,
7s, 2005 (acquired 12/20/01, cost $339,425) (RES) 342,541
495,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 450,450
980,000 Collins & Aikman Products, Inc. company guaranty 10 3/4s, 2011 953,050
400,000 Dana Corp. notes 9s, 2011 376,000
360,000 Dana Corp. notes 6 1/4s, 2004 345,600
EUR 40,000 Dana Corp. sr. notes 9s, 2011 35,967
$185,000 Dana Corp. 144A sr. notes 10 1/8s, 2010 185,000
115,000 Delco Remy International, Inc. company guaranty 11s, 2009 78,200
215,000 Delco Remy International, Inc. company guaranty 10 5/8s, 2006 146,200
110,000 Delco Remy International, Inc. sr. notes 8 5/8s, 2007 91,300
450,000 Dura Operating Corp. company guaranty Ser. B, 8 5/8s, 2012 448,875
545,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 502,763
510,000 Exide Corp. sr. notes 10s, 2005 (In default) (NON) 79,050
260,000 Federal Mogul Corp. notes 7 7/8s, 2010 (In default) (NON) 59,800
810,000 Federal Mogul Corp. notes 7 3/4s, 2006 (In default) (NON) 186,300
270,000 Ford Motor Credit Corp. notes 7 7/8s, 2010 262,667
190,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 182,031
190,000 Ford Motor Credit Corp. notes 7 1/4s, 2011 176,121
140,000 Hayes Lemmerz International, Inc. 144A company guaranty 11 7/8s,
2006 (In default) (NON) 88,200
600,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 625,260
1,070,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 1,107,375
EUR 215,000 Lear Corp. sr. notes 8 1/8s, 2008 212,442
$260,000 Tenneco Automotive, Inc. company guaranty Ser. B, 11 5/8s, 2009 200,200
-------------
7,135,392
Basic Materials (6.1%)
-------------------------------------------------------------------------------------------------------------------
850,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 892,500
190,000 Airgas, Inc. company guaranty 9 1/8s, 2011 201,400
370,000 AK Steel Corp. company guaranty 7 7/8s, 2009 366,300
1,020,000 AK Steel Corp. 144A company guaranty 7 3/4s, 2012 1,002,150
120,400 Anker Coal Group, Inc. company guaranty Ser. B, 14 1/4s,
2007 (In default) (NON) 24,080
166,927 Appleton Papers, Inc. bank term loan FRN 5.058s, 2006
(acquired 6/4/02, cost $184,131) (RES) 167,761
1,050,000 Appleton Papers, Inc. company guaranty Ser. B, 12 1/2s, 2008 1,107,750
780,000 Armco, Inc. sr. notes 9s, 2007 787,800
980,000 Avecia Group PLC company guaranty 11s, 2009 (United Kingdom) 965,300
610,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 524,600
530,000 Compass Minerals Group, Inc. company guaranty 10s, 2011 561,800
900,000 Doe Run Resources Corp. company guaranty Ser. B(a), 11 1/4s,
2005 (In default) (NON) 234,000
130,000 Doe Run Resources Corp. company guaranty Ser. B, 11 1/4s,
2005 (In default) (NON) 41,600
300,000 Doe Run Resources Corp. company guaranty FRN Ser. B,
8.119s, 2003 (In default) (NON) 69,000
1,660,000 Equistar Chemicals LP/Equistar Funding Corp. company
guaranty 10 1/8s, 2008 1,510,600
260,000 Ferro Corp. sr. notes 9 1/8s, 2009 282,289
810,000 Four M Corp. sr. notes Ser. B, 12s, 2006 834,300
170,000 Georgia Gulf Corp. company guaranty 10 3/8s, 2007 177,650
350,000 Georgia-Pacific Corp. deb. 9 1/2s, 2011 300,836
1,305,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 1,088,970
110,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 90,750
250,000 Haynes International, Inc. sr. notes 11 5/8s, 2004 182,500
1,440,000 Hercules, Inc. company guaranty 11 1/8s, 2007 1,526,400
246,022 Huntsman Corp. bank term loan FRN Ser. A, 6.048s, 2002
(acquired various dates 3/1/02 to 3/28/02, cost $180,927) (RES) 207,643
140,000 Huntsman Corp. bank term loan FRN Ser. B, 5.298s, 2004
(acquired 7/17/02, cost $121,450) (RES) 118,650
230,000 Huntsman Corp. bank term loan FRN Ser. C, 5.355s, 2005
(acquired various dates 3/6/02 to 7/17/02, cost $188,986) (RES) 194,120
1,625,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 1,381,250
1,020,000 Huntsman ICI Holdings sr. disc. notes zero %, 2009 244,800
360,000 IMC Global, Inc. company guaranty Ser. B, 11 1/4s, 2011 390,877
525,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 570,224
1,160,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 1,160,000
60,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 (In default) (NON) 40,800
1,685,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s,
2003 (In default) (NON) 202,200
20,000 LTV Corp. company guaranty 8.2s, 2007 (In default) (NON) 2
200,000 Lyondell Chemical Co. bonds 11 1/8s, 2012 192,000
320,000 Lyondell Chemical Co. company guaranty 9 1/2s, 2008 288,000
1,570,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 1,452,250
190,000 Lyondell Chemical Co. sec. notes Ser. B, 9 7/8s, 2007 175,750
765,000 Lyondell Chemical Co. sr. sub. notes 10 7/8s, 2009 633,038
EUR 580,000 MDP Acquisitions PLC sr. notes 10 1/8s, 2012 (Ireland) 567,367
$25,000 MDP Acquisitions PLC 144A sr. notes 9 5/8s, 2012 (Ireland) 25,000
EUR 210,000 Messer Griesheim Holdings AG sr. notes 10 3/8s, 2011 (Germany) 214,452
$535,00 Millenium America, Inc. company guaranty 9 1/4s, 2008 537,675
230,000 Millenium America, Inc. company guaranty 7s, 2006 215,243
380,000 Millenium America, Inc. 144A sr. notes 9 1/4s, 2008 389,500
430,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 432,150
330,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 332,475
90,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 87,300
460,000 Noveon, Inc. company guaranty Ser. B, 11s, 2011 496,800
1,000,000 OM Group, Inc. company guaranty 9 1/4s, 2011 985,000
605,000 Oregon Steel Mills, Inc. 144A 1st mtge. 10s, 2009 601,975
347,000 P&L Coal Holdings Corp. company guaranty Ser. B, 9 5/8s, 2008 365,651
1,170,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 1,170,000
509,465 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 331,152
256,488 Pioneer Companies, Inc. FRN 5.298s, 2006 164,152
510,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s,
2008 (In default) (NON) 96,900
805,000 Potlatch Corp. company guaranty 10s, 2011 871,413
1,160,000 Premium Standard Farms, Inc. sr. notes 9 1/4s, 2011 788,800
273,625 Riverwood International Corp. bank term loan FRN Ser. C,
4.586s, 2007 (acquired 4/24/02, cost $275,000) (RES) 273,497
275,000 Riverwood International Corp. bank term loan FRN Ser. C,
4.36s, 2008 (acquired 4/24/02, cost $275,000) (RES) 274,399
2,190,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 2,211,900
810,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 567,000
250,000 Silgan Holdings, Inc. bank term loan FRN 3.85s, 2007
(acquired 6/25/02, cost $249,953) (RES) 249,688
390,000 Smurfit-Stone Container Corp. 144A sr. notes 8 1/4s, 2012 386,100
960,000 Steel Dynamics, Inc. 144A sr. notes 9 1/2s, 2009 950,400
325,000 Sterling Chemicals Holdings sr. disc. notes 13 1/2s,
2008 (In default) (NON) 1,625
430,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s,
2006 (In default) (NON) 438,600
930,000 Stone Container Corp. sr. notes 9 3/4s, 2011 957,900
350,000 Stone Container Corp. sr. notes 9 1/4s, 2008 360,500
310,000 Stone Container Corp. 144A company guaranty 11 1/2s,
2006 (Canada) 331,700
570,000 Stone Container Corp. 144A sr. notes 8 3/8s, 2012 561,450
800,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 804,000
80,000 Tembec Industries, Inc. company guaranty 7 3/4s, 2012 (Canada) 77,200
50,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 31,500
200,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 130,000
205,000 United States Steel, LLC sr. notes 10 3/4s, 2008 201,925
510,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 193,800
38,500 Weirton Steel Corp. sr. notes FRN 10s, 2008 5,775
780,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 (In default) (NON) 23,400
410,000 WHX Corp. sr. notes 10 1/2s, 2005 328,000
-------------
38,225,304
Building Materials (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,075,000 American Standard Companies, Inc. company guaranty 7 5/8s, 2010 1,112,625
80,000 American Standard Companies, Inc. company guaranty 7 1/8s, 2003 80,400
230,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 223,100
320,000 Building Materials Corp. company guaranty 8s, 2008 259,200
890,000 Dayton Superior Corp. company guaranty 13s, 2009 747,600
200,000 NCI Building Systems, Inc. bank term loan FRN Ser. B, 5.08s,
2008 (acquired 9/4/02, cost $200,000) (RES) 199,875
1,510,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 483,200
-------------
3,106,000
Capital Goods (4.6%)
-------------------------------------------------------------------------------------------------------------------
485,000 ABB Finance, Inc. company guaranty Ser. E MTN, 6 3/4s, 2004 406,915
250,000 Advanced Glass Fiber Yarns bank term loan FRN Ser. A, 1.86s,
2004 (acquired 9/12/02, cost $175,000) (RES) 162,500
230,000 Advanced Glass Fiber Yarns sr. sub. notes 9 7/8s, 2009 (In default) (NON) 34,500
700,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 679,000
468,929 Alliant Techsystems, Inc. bank term loan FRN Ser. C, 4.063s,
2009 (acquired 5/7/02, cost $468,929) (RES) 469,398
46,601 Allied Waste Industries, Inc. bank term loan FRN 4.855s, 2007
(acquired 2/27/02, cost $46,019) (RES) 44,933
781,521 Allied Waste Industries, Inc. bank term loan FRN 4.61s, 2006
(acquired various dates 10/18/01 to 2/27/02, cost $766,751) (RES) 752,842
3,585,000 Allied Waste North America, Inc. company guaranty Ser. B, 10s, 2009 3,334,050
285,000 Allied Waste North America, Inc. company guaranty Ser. B,
8 7/8s, 2008 273,600
1,020,000 Allied Waste North America, Inc. company guaranty Ser. B,
8 1/2s, 2008 963,900
75,000 Allied Waste North America, Inc. company guaranty Ser. B,
7 7/8s, 2009 70,125
20,000 Allied Waste North America, Inc. company guaranty Ser. B,
7 5/8s, 2006 19,250
330,000 Allied Waste North America, Inc. 144A structured notes 8.2s,
2006 (issued by Credit and Repackaged Securities, Ltd.)
(Cayman Islands) 310,613
640,000 Applied Extrusion Technologies, Inc. company guaranty Ser. B,
10 3/4s, 2011 470,400
200,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 156,000
1,320,000 Argo-Tech Corp. 144A company guaranty 8 5/8s, 2007 1,029,600
535,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 403,925
135,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 97,875
1,120,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 806,400
560,000 Berry Plastics Corp. company guaranty 10 3/4s, 2012 579,600
1,060,000 Blount, Inc. company guaranty 13s, 2009 646,600
555,000 Briggs & Stratton company guaranty 8 7/8s, 2011 593,528
270,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 246,375
1,000,000 Decrane Aircraft Holdings Co. company guaranty Ser. B, 12s, 2008 810,000
800,000 Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 788,000
232,312 Flowserve Corp. bank term loan FRN Ser. C, 4.707s, 2009
(acquired 4/30/02, cost $233,312) (RES) 230,735
580,000 Flowserve Corp. company guaranty 12 1/4s, 2010 597,400
310,000 Fonda Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 232,500
750,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 517,500
530,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 190,800
340,000 IESI Corp. 144A sr. sub. notes 10 1/4s, 2012 326,400
460,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 23,000
510,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 331,500
440,000 JLG Industries, Inc. 144A sr. sub. notes 8 3/8s, 2012 396,000
430,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 253,700
330,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 339,900
1,150,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,184,500
140,000 L-3 Communications Corp. 144A structured notes 8 1/2s, 2006
(issued by Credit and Repackaged Securities, Ltd.)
(Cayman Islands) 153,650
1,570,000 Laidlaw, Inc. notes 7.65s, 2006 (Canada) (In default) (NON) 812,475
320,000 Manitowoc Company, Inc. (The) 144A sr. sub. notes 10 1/2s, 2012 336,000
410,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 412,050
1,060,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 975,200
199,500 Mueller Industries, Inc. bank term loan FRN 4.561s, 2008
(acquired 6/21/02, cost $199,500) (RES) 199,101
870,000 Navistar International Corp. company guaranty Ser. B, 9 3/8s, 2006 835,200
210,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 180,600
1,135,000 Owens-Brockway Glass company guaranty 8 7/8s, 2009 1,146,350
410,000 Owens-Illinois, Inc. deb. 7 1/2s, 2010 342,350
390,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 354,900
410,000 Pliant Corp. company guaranty 13s, 2010 393,600
145,000 Pliant Corp. sr. sub. notes 13s, 2010 139,200
660,000 Roller Bearing Company of America company guaranty Ser. B,
9 5/8s, 2007 633,600
93,516 SPX Corp. bank term loan FRN Ser. B, 4.063s, 2009
(acquired 7/23/02, cost $93,516) (RES) 93,218
155,859 SPX Corp. bank term loan FRN Ser. C, 4.313s, 2010
(acquired 7/23/02, cost $155,859) (RES) 155,470
1,070,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 1,048,600
299,250 Terex Corp. bank term loan FRN Ser. B, 3.87s, 2009
(acquired 6/26/02, cost $299,250) (RES) 288,153
85,000 Terex Corp. company guaranty 8 7/8s, 2008 82,025
425,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 425,000
260,000 Terex Corp. company guaranty Ser. D, 8 7/8s, 2008 247,000
370,000 Trimas Corp. 144A sr. sub. notes 9 7/8s, 2012 373,700
200,000 Trimas Corp. bank term loan FRN 4.563s, 2009
(acquired 6/5/02, cost $200,000) (RES) 200,250
396,107 United Defense Industries, Inc. bank term loan FRN Ser. B,
4.57s, 2009 (acquired various dates 10/19/01 to 7/1/02,
cost $196,107) (RES) 395,810
120,000 Waste Management, Inc. sr. notes 7 3/8s, 2010 125,947
-------------
29,123,313
Commercial and Consumer Services (0.9%)
-------------------------------------------------------------------------------------------------------------------
226,550 Coinmach Corp. bank term loan FRN Ser. B, 4.718s, 2009
(acquired 1/31/02, cost $226,267) (RES) 227,569
1,380,000 Coinmach Corp. sr. notes 9s, 2010 1,431,750
1,150,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 1,178,750
270,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 268,650
390,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 389,025
655,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 360,250
1,220,000 Sequa Corp. sr. notes 9s, 2009 1,085,800
160,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 141,600
290,000 United Rentals (North America), Inc. company guaranty Ser. B,
10 3/4s, 2008 287,100
-------------
5,370,494
Communication Services (2.7%)
-------------------------------------------------------------------------------------------------------------------
790,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 79,000
640,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 137,600
280,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 56,000
1,383,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 110,640
1,090,000 American Cellular Corp. company guaranty 9 1/2s, 2009 147,150
1,105,000 American Tower Corp. sr. notes 9 3/8s, 2009 651,950
400,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 (In default) (NON) 2,000
550,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda)
(In default) (NON) 88,000
460,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 (In default) (NON) 46
94,805 Call-Net Enterprises, Inc. company guaranty 10 5/8s, 2008
(Canada) (In default) (NON) 28,442
775,631 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 15,513
850,000 Crown Castle International Corp. sr. disc. notes stepped-coupon
zero % (10 3/8s, 5/15/04), 2011 (STP) 391,000
765,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 485,775
90,000 Crown Castle International Corp. sr. notes 9s, 2011 56,025
2,430,000 Cybernet Internet Services International, Inc. 144A sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (Denmark) (STP) 243
940,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 592,200
850,000 Equinix, Inc. sr. notes 13s, 2007 (In default) (NON) 85,000
1,250,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13s, 4/15/03), 2008 (In default) (NON) (STP) 115,625
580,000 Flag, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) (In default) (NON) 14,500
1,500,000 Globix Corp. sr. notes 12 1/2s, 2010 (In default) (NON) 247,500
160,000 Horizon PCS, Inc. company guaranty 13 3/4s, 2011 32,000
1,000,000 Hughes Electronics bank term loan FRN Ser. L, 4.82s, 2002
(acquired 3/15/02, cost $1,000,000) (RES) 988,750
60,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s,
2008 (In default) (NON) 11,400
910,000 iPCS, Inc. sr. disc. notes stepped-coupon zero %
(14s, 7/15/05), 2010 (STP) 45,500
760,000 IWO Holdings, Inc. company guaranty 14s, 2011 152,000
1,020,000 Leap Wireless International, Inc. company guaranty 12 1/2s, 2010 81,600
650,000 MCI WorldCom, Inc. sr. notes 7 3/4s, 2007 (In default) (NON) 79,625
530,000 MCI WorldCom, Inc. sr. notes 6.4s, 2005 (In default) (NON) 64,925
190,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 (In default) (NON) 3,800
530,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 (In default) (NON) 5,300
570,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s,
2008 (In default) (NON) 5,700
900,000 Microcell Telecommunications sr. disc. notes Ser. B, 14s,
2006 (Canada) 6,750
221,000 Millicom International Cellular SA sr. disc. notes 13 1/2s,
2006 (Luxembourg) 61,880
110,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon zero %
(9.95s, 2/15/03), 2008 (STP) 83,600
1,090,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon zero %
(9 3/4s, 10/31/02), 2007 (STP) 850,200
600,000 Nextel Communications, Inc. sr. notes 12s, 2008 504,000
1,225,000 Nextel Communications, Inc. sr. notes 9 1/2s, 2011 943,250
2,265,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 1,727,063
200,000 Nextel Communications, Inc. 144A sr. disc. notes 10.65s, 2007 167,000
280,000 Nextel Partners, Inc. sr. disc. notes stepped-coupon zero %
(14s, 2/1/04), 2009 (STP) 145,600
520,000 Nextel Partners, Inc. sr. notes 12 1/2s, 2009 379,600
340,000 Nextel Partners, Inc. sr. notes 11s, 2010 224,400
320,000 Nextel Partners, Inc. sr. notes 11s, 2010 211,200
250,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 (In default) (NON) 31,250
620,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 (In default) (NON) 74,400
490,000 PanAmSat Corp. bank term loan FRN Ser. B, 5.314s, 2009
(acquired 2/21/02, cost $489,388) (RES) 470,155
880,000 PanAmSat Corp. 144A sr. notes 8 3/4s, 2012 726,000
530,000 PSINet, Inc. sr. notes 11 1/2s, 2008 (In default) (NON) 53,000
130,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 (In default) (NON) 13,000
130,000 Qwest Capital Funding, Inc. company guaranty 7.9s, 2010 58,500
560,000 Qwest Capital Funding, Inc. company guaranty 7 3/4s, 2006 291,200
1,570,000 Qwest Capital Funding, Inc. company guaranty 7 1/4s, 2011 690,800
1,420,000 Qwest Capital Funding, Inc. company guaranty 7s, 2009 617,700
190,000 Qwest Capital Funding, Inc. company guaranty 6 3/8s, 2008 82,650
450,000 Qwest Communications International, Inc. sr. notes Ser. B, 7 1/2s, 2008 175,500
490,000 Qwest Communications International, Inc. sr. notes Ser. B, 7 1/4s, 2008 191,100
108,864 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010 (In default) (NON) 5,443
550,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 544,500
650,000 Rogers Cablesystems, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 344,500
330,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 237,600
270,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 143,100
620,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 322,400
1,000,000 Startec Global Communications Corp. sr. notes 12s, 2008 (In default) (NON) 20,000
280,000 Tele1 Europe BV sr. notes 13s, 2009 (Netherlands) 30,800
93,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 85,560
250,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 110,000
340,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 146,200
80,000 Triton PCS, Inc. company guaranty 9 3/8s, 2011 54,400
595,000 Triton PCS, Inc. company guaranty 8 3/4s, 2011 392,700
255,000 Triton PCS, Inc. company guaranty zero %, 2008 167,025
510,000 TSI Telecommunication Services, Inc. company guaranty Ser. B,
12 3/4s, 2009 428,400
1,670,000 UbiquiTel Operating Co. company guaranty stepped-coupon
zero % (14s, 4/15/05), 2010 (STP) 75,150
900,000 US UnWired, Inc. company guaranty stepped-coupon Ser. B,
zero % (13 3/8s, 11/1/04), 2009 (STP) 108,000
390,000 US West, Inc. notes 5 5/8s, 2008 303,806
950,000 WebLink Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (In default) (NON) (STP) 2,375
10,000 Williams Communications Group, Inc. sr. notes 11 7/8s,
2010 (In default) (NON) 1,025
220,000 Williams Communications Group, Inc. sr. notes 11.7s,
2008 (In default) (NON) 22,550
200,000 Williams Communications Group, Inc. sr. notes 10.7s,
2007 (In default) (NON) 20,500
250,000 WorldCom, Inc. notes 8 1/4s,
2010 (In default) (NON) 30,625
-------------
17,151,266
Conglomerates (0.5%)
-------------------------------------------------------------------------------------------------------------------
165,000 Tyco International Group SA company guaranty 6 3/4s,
2011 (Luxembourg) 135,300
2,310,000 Tyco International Group SA company guaranty 6 3/8s,
2006 (Luxembourg) 2,009,700
225,000 Tyco International Group SA company guaranty 6 3/8s,
2005 (Luxembourg) 192,375
645,000 Tyco International Group SA notes 6 3/8s, 2011 (Luxembourg) 522,450
-------------
2,859,825
Consumer Cyclicals (0.8%)
-------------------------------------------------------------------------------------------------------------------
503,128 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 10,063
DEM 1,519,975 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 15,358
$720,000 Icon Health & Fitness 144A sr. sub. notes 11 1/4s, 2012 698,400
250,000 Jostens, Inc. bank term loan FRN Ser. C, 4.548s, 2009
(acquired 7/30/02, cost $250,000) (RES) 249,792
870,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 965,700
1,681,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 1,336,395
248,777 Sealy Mattress Co. bank term loan FRN Ser. B, 3 7/8s, 2004
(acquired 12/17/01, cost $249,554) (RES) 246,238
248,869 Sealy Mattress Co. bank term loan FRN Ser. C, 4 1/8s, 2005
(acquired 12/17/01, cost $249,647) (RES) 246,329
248,894 Sealy Mattress Co. bank term loan FRN Ser. D, 4 3/8s, 2005
(acquired 12/17/01, cost $249,672) (RES) 246,353
701,000 Sealy Mattress Co. company guaranty stepped-coupon Ser. B,
zero % (10 7/8s, 12/15/02), 2007 (STP) 567,810
880,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 708,400
-------------
5,290,838
Consumer Staples (8.4%)
-------------------------------------------------------------------------------------------------------------------
50,000 Acme Communications, Inc. sr. disc. notes Ser. B, 12s, 2005 45,750
1,020,000 Acme Television company guaranty 10 7/8s, 2004 1,004,700
207,530 Adams Outdoor Advertising bank term loan FRN Ser. B,
5.36s, 2008 (acquired 8/1/01, cost $208,052) (RES) 207,832
40,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s,
2005 (In default) (NON) 14,600
215,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010 (In default) (NON) 79,550
50,000 Adelphia Communications Corp. sr. notes 9 3/8s, 2009 (In default) (NON) 18,250
365,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 (In default) (NON) 133,225
341,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s,
2007 (In default) (NON) 124,465
145,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s,
2008 (In default) (NON) 52,925
790,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s,
2009 (In default) (NON) 288,350
1,565,000 Affinity Group Holdings sr. notes 11s, 2007 1,510,225
680,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 605,200
640,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 571,200
496,875 American Seafood Group, LLC bank term loan FRN Ser. B,
5.112s, 2009 (acquired 4/11/02, cost $496,378) (RES) 498,945
506,483 AMF Bowling Worldwide bank term loan FRN Ser. B, 6.482s,
2008 (acquired 3/1/02, cost $505,217) (RES) 506,061
1,090,000 Archibald Candy Corp. company guaranty 10 1/4s,
2004 (In default) (NON) 577,700
410,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 434,600
235,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 138,650
720,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 424,800
10,263 Australis Media, Ltd. sr. disc. notes 15 3/4s, 2003 (Australia)
(In default) (NON) 1
660,000 Benedek Communications Corp. sr. disc. notes 13 1/4s,
2006 (In default) (NON) 699,600
230,000 British Sky Broadcasting PLC company guaranty 8.2s,
2009 (United Kingdom) 239,616
1,660,000 British Sky Broadcasting PLC company guaranty 6 7/8s,
2009 (United Kingdom) 1,642,271
900,000 Century Cable Holdings bank term loan FRN 6 3/4s,
2009 (acquired 6/11/02, cost $407,677) (RES) 643,125
1,680,000 Chancellor Media Corp. company guaranty 8s, 2008 1,738,800
299,250 Charter Communications Holdings, LLC/Capital Corp. bank term
loan FRN Ser. B, 4.61s, 2008 (acquired 10/22/01, cost $293,250) (RES) 261,189
1,330,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 438,900
610,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 1/15/05), 2010 (STP) 256,200
840,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
11 1/8s, 2011 533,400
440,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10 3/4s, 2009 277,200
210,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10s, 2011 131,250
550,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10s, 2009 343,750
1,015,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
9 5/8s, 2009 629,300
355,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
8 5/8s, 2009 218,325
90,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
8 1/4s, 2007 55,350
1,600,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 1,456,000
150,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 154,500
500,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 512,500
860,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 881,500
570,000 Cott Beverages USA, Inc. company guaranty 8s, 2011 584,250
150,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 125,244
360,000 Cumulus Media, Inc. bank term loan FRN Ser. B, 4.81s,
2007 (acquired 3/20/02, cost $360,000) (RES) 361,530
210,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 210,000
150,000 Diamond Cable Communications PLC sr. disc. notes 11 3/4s,
2005 (United Kingdom) (In default) (NON) 21,750
2,550,000 Diamond Cable Communications PLC sr. disc. notes 10 3/4s,
2007 (United Kingdom) (In default) (NON) 357,000
2,742,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (In default) (NON) (STP) 27,420
1,370,000 Doane Pet Care Co. sr. sub. deb. 9 3/4s, 2007 1,181,625
390,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 419,250
380,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 265,050
3,170,000 Echostar Broadband Corp. sr. notes 10 3/8s, 2007 3,122,450
1,175,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 1,133,875
1,540,000 Echostar DBS Corp. 144A sr. notes 9 1/8s, 2009 1,463,000
400,000 Emmis Communications Corp. bank term loan FRN Ser. C,
4 3/8s, 2009 (acquired 6/20/02, cost $399,500) (RES) 400,300
235,000 Emmis Communications Corp. company guaranty Ser. B,
8 1/8s, 2009 238,525
309,000 Emmis Communications Corp. sr. disc. notes stepped-coupon
zero % (12 1/2s, 3/15/06), 2011 (STP) 230,205
498,750 Fleming Companies, Inc. bank term loan FRN 4.063s, 2008
(acquired 6/18/02, cost $200,000) (RES) 482,541
440,000 Fleming Companies, Inc. company guaranty 10 1/8s, 2008 334,400
10,000 Fleming Companies, Inc. company guaranty Ser. D, 10 5/8s, 2007 5,900
515,000 Fleming Companies, Inc. sr. notes 9 1/4s, 2010 393,975
405,000 Fleming Companies, Inc. 144A sr. sub. notes 9 7/8s, 2012 218,700
290,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 269,700
160,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 148,800
10,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 8,200
570,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 464,550
700,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 560,000
320,000 Gray Television, Inc. company guaranty 9 1/4s, 2011 326,400
80,000 Hasbro, Inc. notes 7.95s, 2003 80,400
445,000 Insight Communications Company, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 2/15/06), 2011 (STP) 157,975
250,000 Insight Midwest LP/Insight Capital, Inc. bank term loan FRN 4.563s,
2009 (acquired 1/9/01, cost $249,625) (RES) 237,917
95,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 9 3/4s, 2009 83,600
650,000 International Cabletel, Inc. sr. disc. notes 11 1/2s, 2006 (In default) (NON) 97,500
30,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon zero %
(12 1/8s, 5/1/03), 2009 (STP) 2,063
60,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 23,400
280,000 Kroger Co. company guaranty 6.8s, 2011 312,150
1,320,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 1,306,800
120,000 LIN Holdings Corp. 144A sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 118,200
300,000 MGM Studios bank term loan FRN 4.8s, 2008
(acquired 6/10/02, cost $300,000) (RES) 299,100
298,500 National Dairy bank term loan FRN Ser. B, 4.06s, 2009
(acquired 4/30/02, cost $299,250) (RES) 298,002
1,115,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 1,081,550
170,000 NTL Communications Corp. sr. notes Ser. B, 11 7/8s,
2010 (In default) (NON) 24,650
500,000 NTL Communications Corp. sr. notes stepped-coupon Ser. B,
zero % (12 3/8s, 10/1/03), 2008 (In default) (NON) (STP) 60,000
430,000 NTL, Inc. sr. notes Ser. A, 12 3/4s, 2005 (In default) (NON) 64,500
220,000 NTL, Inc. sr. notes Ser. B, 10s, 2007 (In default) (NON) 33,000
500,000 Olympus Cable bank term loan FRN Ser. B, 6 3/4s, 2010
(acquired 6/20/02, cost $435,750) (RES) 398,462
400,000 ONO Finance PLC sr. notes 14s, 2011 (United Kingdom) 96,000
180,000 ONO Finance PLC sr. notes 13s, 2009 (United Kingdom) 37,800
15,000 Pegasus Communications Corp. sr. notes Ser. B, 12 1/2s, 2007 7,350
60,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 27,600
400,000 Pegasus Satellite sr. notes 12 3/8s, 2006 196,000
199,000 Playtex Products, Inc. bank term loan FRN 4.0569s, 2009
(acquired 6/3/02, cost $199,000) (RES) 198,834
550,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 587,125
650,000 Premier International Foods PLC sr. notes 12s, 2009
(United Kingdom) 689,000
150,000 Premier Parks, Inc. sr. disc. notes stepped-coupon zero %
(10s, 4/1/03), 2008 (STP) 122,250
1,000,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 860,000
1,896,149 Quorum Broadcast Holdings, LLC 144A notes
stepped-coupon zero % (15s, 5/15/06), 2009 1,060,516
950,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 475,000
150,000 Rayovac Corp. bank term loan FRN Ser. B, 5.61s, 2009
(acquired 9/26/02, cost $149,850) (RES) 150,000
352,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 61,600
710,000 Regal Cinemas, Inc. company guaranty Ser. B, 9 3/8s, 2012 727,750
270,000 Revlon Consumer Products sr. notes 9s, 2006 153,900
260,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 148,200
200,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 68,000
545,000 Rite Aid Corp. notes 7 1/8s, 2007 367,875
498,750 Roundy's, Inc. bank term loan FRN 4.412s, 2009
(acquired 6/3/02, cost $498,750) (RES) 498,335
550,000 Sbarro, Inc. company guaranty 11s, 2009 522,500
470,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 491,150
381,176 Shoppers Drug Mart bank term loan FRN Ser. F, 3 7/8s, 2009
(acquired various dates 5/22/02 to 5/29/02, cost $372,426) (RES) 381,772
800,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 80
300,000 Sinclair Broadcast Group, Inc. bank term loan FRN Ser. B,
4.11s, 2010 (acquired 7/12/02, cost $300,000) (RES) 300,150
1,010,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 1,040,300
340,000 Sinclair Broadcast Group, Inc. company guaranty 8 3/4s, 2011 351,050
90,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 91,800
250,000 Six Flags, Inc. bank term loan FRN Ser. B, 4.06s, 2009
(acquired 7/3/02, cost $250,000) (RES) 248,672
200,000 Six Flags, Inc. sr. notes 9 1/2s, 2009 168,000
910,000 Six Flags, Inc. sr. notes 8 7/8s, 2010 743,925
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 186,500
1,437,000 Southland Corp. deb. Ser. B, 4s, 2004 1,314,855
436,730 Suiza Foods Corp. bank term loan FRN Ser. B, 4.05s, 2008
(acquired 12/10/01, cost $439,641) (RES) 436,020
1,270,000 TeleWest Communications PLC deb. 11s, 2007 (United Kingdom) 215,900
260,000 TeleWest Communications PLC deb. 9 5/8s, 2006 (United Kingdom) 45,500
200,000 TeleWest Communications PLC sr. notes Ser. S, 9 7/8s,
2010 (United Kingdom) 32,000
80,000 TeleWest Communications PLC 144A sr. notes 11 1/4s,
2008 (United Kingdom) 14,000
60,000 Tricon Global Restaurants, Inc. sr. notes 8 7/8s, 2011 65,550
1,060,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 1,099,750
560,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 581,000
1,749,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009
(Netherlands) (In default) (NON) 69,960
1,770,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero %
(13 3/4s, 2/1/05), 2010 (Netherlands) (In default) (NON) (STP) 70,800
130,000 United Pan-Europe NV 144A bonds 10 7/8s, 2009
(Netherlands) (In default) (NON) 6,500
895,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B, 10 1/4s,
2009 (In default) (NON) 143,200
1,490,000 XM Satellite Radio Holdings, Inc. sec. notes 14s, 2010 610,900
1,101,000 Young Broadcasting, Inc. company guaranty 10s, 2011 999,158
82,000 Young Broadcasting, Inc. company guaranty Ser. B, 8 3/4s, 2007 74,210
-------------
53,222,051
Energy (3.3%)
-------------------------------------------------------------------------------------------------------------------
710,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 729,525
640,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 659,200
580,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 588,700
10,000 Chesapeake Energy Corp. company guaranty 8 1/8s, 2011 10,000
155,000 Chesapeake Energy Corp. sr. notes Ser. B, 8 1/2s, 2012 155,000
1,035,000 Chesapeake Energy Corp. 144A sr. notes 9s, 2012 1,063,463
875,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 914,375
790,000 Conoco Funding Co. company guaranty 6.35s, 2011 887,691
130,000 Denbury Resources, Inc. company guaranty Ser. B, 9s, 2008 128,700
695,000 Dresser, Inc. company guaranty 9 3/8s, 2011 681,100
530,000 El Paso Energy Partners LP company guaranty Ser. B, 8 1/2s, 2011 506,150
400,000 Encore Acquisition Co. 144A sr. sub. notes 8 3/8s, 2012 404,000
300,000 Forest Oil Corp. sr. notes 8s, 2011 310,500
445,000 Forest Oil Corp. sr. notes 8s, 2008 460,575
145,000 Hornbeck Offshore Services, Inc. sr. notes 10 5/8s, 2008 150,075
580,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 539,400
220,000 Magnum Hunter Resources, Inc. company guaranty 9.6s, 2012 228,250
480,000 Mission Resources Corp. company guaranty Ser. C, 10 7/8s, 2007 345,600
700,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 714,000
540,000 Parker Drilling Co. company guaranty Ser. B, 10 1/8s, 2009 507,600
1,245,000 Petronas Capital, Ltd. 144A company guaranty 7s, 2012 (Malaysia) 1,375,725
2,260,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 2,599,000
115,000 Pioneer Natural Resources Co. company guaranty 6 1/2s, 2008 114,425
380,000 Plains All American Pipeline LP/Plains All American Finance Corp.
144A sr. notes 7 3/4s, 2012 383,800
670,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 695,125
800,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 834,000
270,000 Seven Seas Petroleum, Inc. sr. notes Ser. B, 12 1/2s, 2005 (In default) (NON) 32,400
160,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 163,200
710,000 Stone Energy Corp. sr. sub. notes 8 1/4s, 2011 713,550
330,000 Swift Energy Co. sr. sub. notes 10 1/4s, 2009 326,700
470,000 Swift Energy Co. sr. sub. notes 9 3/8s, 2012 453,550
740,000 Trico Marine Services, Inc. 144A sr. notes 8 7/8s, 2012 636,400
670,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 683,400
550,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 558,250
370,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 392,200
500,000 XCL, Ltd. 144A company guaranty 13 1/2s, 2004 (In default) (NON) 150,625
195,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 204,750
310,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s, 2009 325,500
-------------
20,626,504
Financial (2.0%)
-------------------------------------------------------------------------------------------------------------------
820,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 (In default) (NON) 180,400
460,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 457,700
110,000 Comdisco, Inc. notes 7 1/4s, 2001 (In default) (NON) 94,875
350,000 Comdisco, Inc. notes 5.95s, 2002 (In default) (NON) 296,625
790,000 Conseco, Inc. 144A company guaranty 10 3/4s, 2009 (In default) (NON) 177,750
120,000 Crescent Real Estate Equities LP FRN 7 1/2s, 2007 (R) 114,600
1,010,000 Crescent Real Estate Equities LP 144A sr. notes 9 1/4s, 2009 (R) 1,021,976
2,857,000 Finova Group, Inc. notes 7 1/2s, 2009 857,100
1,010,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 1,094,133
299,250 Hilb, Rogal & Hamilton Co. bank term loan FRN 4.563s, 2007
(acquired 6/20/02, cost $299,250) (RES) 299,250
302,000 Imperial Credit Industries, Inc. sec. notes 12s, 2005 (In default) (NON) 24,160
710,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 724,200
420,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 (In default) (NON) 29,400
DKK 10,923,355 Nykredit mtge. 6s, 2032 (Denmark) 1,456,292
$620,000 Ocwen Federal Bank sub. deb. 12s, 2005 607,600
200,000 Ocwen Financial Corp. notes 11 7/8s, 2003 198,500
770,000 Resource America, Inc. 144A sr. notes 12s, 2004 777,700
2,065,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 2,312,800
630,000 Superior Financial Corp. 144A sr. notes 8.65s, 2003 639,940
450,000 Veridian Corp. bank term loan FRN 5.31s, 2008
(acquired 9/20/02, cost $450,000) (RES) 450,703
540,000 Western Financial Bank sub. deb. 9 5/8s, 2012 494,100
-------------
12,309,804
Gaming & Lottery (3.7%)
-------------------------------------------------------------------------------------------------------------------
470,000 Aladdin Gaming Holdings, LLC sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 3/1/03), 2010 (In default) (NON) (STP) 9,400
340,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 372,300
650,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 702,000
160,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 166,400
500,000 Borgata Resorts bank term loan FRN 5.789s, 2007
(acquired 6/5/02, cost $498,750) (RES) 496,250
120,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 123,900
750,000 Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 776,250
310,000 Chumash Casino & Resort Enterprise 144A sr. notes 9s, 2010 320,850
299,024 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s,
2004 (In default) (NON) 105,032
650,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 672,750
1,030,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 1,102,100
450,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 389,250
940,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 977,600
720,000 International Game Technology sr. notes 8 3/8s, 2009 783,900
1,710,000 International Game Technology sr. notes 7 7/8s, 2004 1,786,950
1,200,000 Majestic Investor Holdings/Capital Corp. company guaranty
11.653s, 2007 1,134,000
80,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 86,700
50,000 Mandalay Resort Group sr. sub. notes 9 3/8s, 2010 52,500
1,230,000 Mandalay Resort Group sr. sub. notes Ser. B, 10 1/4s, 2007 1,325,325
1,970,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 2,134,830
275,000 Mikohn Gaming Corp. company guaranty Ser. B, 11 7/8s, 2008 206,250
490,000 Mirage Resorts, Inc. notes 6 3/4s, 2008 495,370
220,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 228,250
970,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 1,013,650
200,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 205,000
700,000 Mohegan Tribal Gaming Authority sr. sub. notes 8s, 2012 719,250
940,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 949,400
860,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 903,000
140,000 Penn National Gaming, Inc. company guaranty Ser. B, 11 1/8s, 2008 151,200
1,025,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 1,027,563
565,000 Resorts International Hotel and Casino, Inc. company guaranty
11 1/2s, 2009 508,500
298,715 Scientific Gaming bank term loan FRN Ser. B, 6 1/8s, 2007
(acquired 10/13/00, cost $297,969) (RES) 298,715
710,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 738,400
40,000 Station Casinos, Inc. sr. sub. notes 9 7/8s, 2010 42,600
210,000 Station Casinos, Inc. 144A sr. sub. notes 9 3/4s, 2007 218,138
410,000 Trump Atlantic City Associates company guaranty 11 1/4s, 2006 303,400
40,000 Trump Atlantic City Associates company guaranty Ser. B,
11 1/4s, 2006 29,400
90,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 81,900
1,725,000 Venetian Casino Resort, LLC 144A 2nd mtge. 11s, 2010 1,673,250
199,500 Venetian Casino, Inc. bank term loan FRN 4.8s, 2008
(acquired 6/3/02, cost $199,500) (RES) 199,500
-------------
23,511,023
Health Care (4.3%)
-------------------------------------------------------------------------------------------------------------------
716,400 Accredo Health, Inc. bank term loan FRN Ser. B, 4.57s, 2009
(acquired 3/20/02, cost $715,684) (RES) 719,087
291,000 Advanced Medical Optics, Inc. bank term loan FRN 5.11s, 2008
(acquired 6/17/02, cost $290,636) (RES) 291,909
340,000 ALARIS Medical Systems, Inc. sec. notes Ser. B, 11 5/8s, 2006 370,600
290,000 ALARIS Medical Systems, Inc. 144A company guaranty 9 3/4s, 2006 276,950
1,010,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 8/1/03), 2008 (STP) 828,200
1,560,700 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 1,498,272
14,800 Alderwoods Group, Inc. company guaranty 11s, 2007 14,726
565,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 598,900
560,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 585,200
360,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 399,600
870,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 873,417
400,000 Community Health Systems, Inc. bank term loan FRN Ser. B,
4.32s, 2010 (acquired 7/11/02, cost $400,000) (RES) 400,286
136,258 Concentra Operating Corp. bank term loan FRN Ser. B, 5.755s,
2006 (acquired 1/15/02, cost $136,563) (RES) 136,173
68,129 Concentra Operating Corp. bank term loan FRN Ser. C, 6.005s,
2007 (acquired 1/15/02, cost $68,278) (RES) 68,027
760,000 Conmed Corp. company guaranty 9s, 2008 767,600
397,153 DaVita, Inc. bank term loan FRN Ser. B, 4.955s, 2009
(acquired 4/26/02, cost $396,657) (RES) 397,004
500,000 Extendicare Health Services, Inc. 144A sr. notes 9 1/2s, 2010 507,500
37,719 Genesis Health Ventures, Inc. sec. notes FRN 6.86s, 2007 37,342
605,000 Hanger Orthopedic Group, Inc. company guaranty 10 3/8s, 2009 641,300
145,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 150,075
1,500,000 HCA, Inc. med. term notes 8.85s, 2007 1,674,165
560,000 HCA, Inc. notes 8 3/4s, 2010 638,609
1,370,000 HCA, Inc. notes 7s, 2007 1,456,009
610,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 454,450
245,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 181,300
1,025,000 Healthsouth Corp. 144A notes 7 5/8s, 2012 717,500
73,000 Insight Health Services Corp. company guaranty Ser. B, 9 7/8s, 2011 71,175
1,000,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s,
2007 (In default) (NON) 100
380,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s,
2008 (In default) (NON) 38
277,091 Kinetic Concepts, Inc. bank term loan FRN Ser. C, 4.8s,
2005 (acquired 11/15/01, cost $277,437) (RES) 276,167
735,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 716,625
895,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 290,875
270,000 Magellan Health Services, Inc. 144A sr. notes 9 3/8s, 2007 189,000
760,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 7,600
560,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03),
2009 (In default) (NON) (STP) 56
770,000 MedQuest, Inc. 144A sr. sub. notes 11 7/8s, 2012 762,300
1,590,000 Multicare Companies, Inc. sr. sub. notes 9s, 2007 (In default) (NON) 31,800
570,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 592,800
1,280,000 PacifiCare Health Systems, Inc. company guaranty 10 3/4s, 2009 1,267,200
885,000 Rotech Healthcare, Inc. 144A sr. sub. notes 9 1/2s, 2012 800,925
75,000 Service Corp. International notes 7.7s, 2009 63,000
1,655,000 Service Corp. International notes 6s, 2005 1,381,925
380,000 Service Corp. International 144A notes 7.7s, 2009 321,100
720,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 781,200
1,710,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 1,872,450
989,091 Triad Hospitals, Inc. bank term loan FRN Ser. B, 4.82s, 2008
(acquired 4/24/01, cost $988,102) (RES) 993,295
480,000 Triad Hospitals, Inc. company guaranty Ser. B, 8 3/4s, 2009 505,200
560,000 Vanguard Health Systems, Inc. company guaranty 9 3/4s, 2011 554,400
690,000 Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 707,250
-------------
26,870,682
Homebuilding (1.0%)
-------------------------------------------------------------------------------------------------------------------
430,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 434,300
290,000 D.R. Horton, Inc. company guaranty 8 1/2s, 2012 293,625
630,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 607,950
530,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 563,125
450,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 468,000
40,000 K. Hovnanian Enterprises, Inc. company guaranty 8 7/8s, 2012 35,400
130,000 K. Hovnanian Enterprises, Inc. company guaranty 8s, 2012 116,350
735,000 KB Home sr. sub. notes 9 1/2s, 2011 742,350
250,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 268,750
510,000 Lennar Corp. sr. notes 7 5/8s, 2009 517,650
80,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 79,600
640,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 684,800
140,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 135,800
185,000 Schuler Homes, Inc. company guaranty 10 1/2s, 2011 186,850
40,000 Schuler Homes, Inc. company guaranty 9s, 2008 40,000
240,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 242,400
100,000 Standard Pacific Corp. sr. notes 8 1/2s, 2009 98,000
260,000 Toll Corp. company guaranty 8 1/8s, 2009 254,150
250,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 246,250
570,000 WCI Communities, Inc. company guaranty 9 1/8s, 2012 527,250
-------------
6,542,600
Lodging/Tourism (1.4%)
-------------------------------------------------------------------------------------------------------------------
1,290,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 (R) 1,277,100
477,000 Felcor Lodging LP company guaranty 8 1/2s, 2008 (R) 441,225
3,990,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 3,720,675
660,000 ITT Corp. notes 6 3/4s, 2005 641,936
1,080,000 John Q. Hammons Hotels LP/John Q. Hammons Hotels
Finance Corp. III 1st mtge. Ser. B, 8 7/8s, 2012 1,042,200
700,000 Lodgian Financing Corp. company guaranty 12 1/4s,
2009 (In default) (NON) 381,500
330,000 Meristar Hospitality Corp. company guaranty 9 1/8s, 2011 (R) 292,050
170,000 Meristar Hospitality Corp. company guaranty 9s, 2008 (R) 153,000
520,000 RFS Partnership LP company guaranty 9 3/4s, 2012 520,000
490,000 Starwood Hotels & Resorts Worldwide, Inc. 144A notes 7 7/8s, 2012 478,975
-------------
8,948,661
Publishing (1.4%)
-------------------------------------------------------------------------------------------------------------------
300,000 Belo Corp. sr. notes 7 1/8s, 2007 318,156
670,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 649,900
80,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 78,800
360,000 Hollinger International Publishing, Inc. company guaranty 9 1/4s, 2007 369,000
1,832,034 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010 (Canada) (PIK) 1,593,870
530,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011 58,300
490,000 Mail-Well I Corp. 144A company guaranty 9 5/8s, 2012 338,100
680,000 Perry-Judd company guaranty 10 5/8s, 2007 646,000
1,360,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 1,020,000
350,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 259,000
770,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 629,475
350,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero %
(13 3/4s, 7/15/06), 2011 (Canada) (STP) 157,500
450,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 364,500
399,000 Reader's Digest Association, Inc. (The) bank term loan FRN
Ser. B, 4.258s, 2008 (acquired 5/15/02, cost $399,000) (RES) 389,274
690,000 Vertis, Inc. 144A sr. notes 10 7/8s, 2009 683,100
100,000 Von Hoffman Corp. 144A sr. sub. notes 10 3/8s, 2007 85,000
920,000 Von Hoffman Press, Inc. company guaranty 10 1/4s, 2009 874,000
114,851 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 80,396
-------------
8,594,371
Retail (1.0%)
-------------------------------------------------------------------------------------------------------------------
480,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 436,800
570,000 Asbury Automotive Group, Inc. company guaranty 9s, 2012 513,000
890,000 Autonation, Inc. company guaranty 9s, 2008 912,250
320,000 JC Penney Company, Inc. notes Ser. A MTN, 7.05s, 2005 310,400
1,315,000 JC Penney Company, Inc. 144A notes 9s, 2012 1,268,975
930,000 Kmart Corp. 144A notes 9 7/8s, 2008 (In default) (NON) 186,000
390,000 NBTY, Inc. sr. sub. notes Ser. B, 8 5/8s, 2007 393,900
1,580,000 Saks, Inc. company guaranty 8 1/4s, 2008 1,453,600
515,000 United Auto Group, Inc. 144A sr. sub. notes 9 5/8s, 2012 512,425
-------------
5,987,350
Technology (0.9%)
-------------------------------------------------------------------------------------------------------------------
190,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 138,700
390,000 Amkor Technologies, Inc. structured notes 12.58s, 2005
(issued by STEERS Credit Linked Trust 2000) 234,000
432,000 CSG Systems International, Inc. bank term loan FRN Ser. B,
4.507s, 2008 (acquired 3/4/02, cost $433,080) (RES) 402,840
95,000 Fairchild Semiconductor International, Inc. company guaranty
10 3/8s, 2007 97,850
1,000,000 Lucent Technologies, Inc. notes 7 1/4s, 2006 400,000
940,000 Micron Technology, Inc. notes 6 1/2s, 2005 794,300
1,050,000 Nortel Networks Corp. notes 6 1/8s, 2006 (Canada) 378,000
330,000 ON Semiconductor Corp. 144A company guaranty 12s, 2008 211,200
480,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 24,000
270,000 SCG Holding & Semiconductor Corp. company guaranty 12s, 2009 118,800
150,000 Seagate Technology Hdd Holdings bank term loan FRN Ser. B,
3 3/4s, 2007 (acquired 5/9/02, cost $150,000) (RES) 149,384
620,000 Seagate Technology Hdd Holdings 144A sr. notes 8s, 2009 579,700
144,297 Telex Communications Group, Inc. sr. sub. notes Ser. A, zero %, 2006 79,363
600,000 Titan Corp. (The) bank term loan FRN Ser. B, 4.782s, 2009
(acquired various dates 5/14/02 to 6/3/02, cost $600,750) (RES) 600,600
95,000 Unisys Corp. sr. notes 8 1/8s, 2006 90,250
310,000 Unisys Corp. sr. notes 7 7/8s, 2008 285,200
190,000 Unisys Corp. sr. notes 7 1/4s, 2005 179,550
185,000 Xerox Cap Europe PLC company guaranty 5 7/8s,
2004 (United Kingdom) 146,150
405,000 Xerox Corp. notes 5 1/2s, 2003 348,300
825,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 660,000
40,000 Xerox Credit Corp. sr. notes 6.1s, 2003 33,600
-------------
5,951,787
Textiles (0.3%)
-------------------------------------------------------------------------------------------------------------------
560,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 (In default) (NON) 90,300
320,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 254,400
EUR 120,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 87,892
$430,000 Russell Corp. 144A sr. notes 9 1/4s, 2010 447,200
220,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 217,800
1,160,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 348,000
600,000 William Carter Holdings Co. (The) company guaranty Ser. B,
10 7/8s, 2011 657,000
-------------
2,102,592
Transportation (1.1%)
-------------------------------------------------------------------------------------------------------------------
60,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 34,200
980,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 588,000
320,000 Continental Airlines, Inc. pass-through certificates Ser. D, 7.568s, 2006 176,000
930,000 CSX Corp. notes 6 1/4s, 2008 1,022,107
390,000 Delta Airlines, Inc. pass-through certificates Ser. 00-1, Class C,
7.779s, 2005 348,695
290,000 Delta Airlines, Inc. pass-through certificates Ser. C, 7.779s, 2012 261,000
199,500 Ingram Industries bank term loan FRN 4.32s, 2008
(acquired 6/17/02, cost $199,500) (RES) 198,503
16,000 International Shipholding Corp. sr. notes 9s, 2003 16,000
740,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 806,600
360,000 Kansas City Southern Railway Co. company guaranty 7 1/2s, 2009 366,300
540,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 297,000
850,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 425,000
274,615 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 263,631
790,000 RailAmerica Transportation company guaranty 12 7/8s, 2010 809,750
140,000 Transportation Manufacturing Operations, Inc. company
guaranty 11 1/4s, 2009 85,400
190,000 Travel Centers of America, Inc. company guaranty 12 3/4s, 2009 199,500
620,000 United AirLines, Inc. deb. 9 1/8s, 2012 99,200
1,450,000 US Air, Inc. pass-through certificates Ser. 93A2, 9 5/8s, 2003 667,000
-------------
6,663,886
Utilities & Power (1.7%)
-------------------------------------------------------------------------------------------------------------------
150,000 AES Corp. (The) sr. notes 9 3/8s, 2010 78,000
510,000 AES Corp. (The) sr. notes 8 7/8s, 2011 249,900
560,000 AES Corp. (The) sr. notes 8 3/4s, 2008 280,000
670,000 Calpine Canada Energy Finance company guaranty 8 1/2s,
2008 (Canada) 278,050
390,000 Calpine Corp. sr. notes 10 1/2s, 2006 179,400
460,000 Calpine Corp. sr. notes 8 3/4s, 2007 190,900
1,170,000 Calpine Corp. sr. notes 8 5/8s, 2010 462,150
1,255,000 Calpine Corp. sr. notes 8 1/2s, 2011 514,550
700,000 Calpine Corp. sr. notes 7 7/8s, 2008 308,000
600,000 CMS Energy Corp. sr. notes 8.9s, 2008 468,000
320,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 240,000
350,000 CMS Panhandle Holding Corp. sr. notes 6 1/2s, 2009 298,277
615,000 Consumers Energy bank term loan FRN 6.342s, 2004
(acquired 9/17/02, cost $350,400) (RES) 590,400
370,000 Edison Mission Energy sr. notes 10s, 2008 181,300
380,000 Edison Mission Energy sr. notes 9 7/8s, 2011 186,200
448,875 Michigan Electric Transmission Co./Michigan Electric
Transmission, Inc. bank term loan FRN Ser. B, 4.411s,
2007 (acquired various dates 4/22/02 to 5/3/02,
cost $248,875) (RES) 449,436
1,650,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 1,674,750
565,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 169,500
360,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005 (In default) (NON) 356,400
920,000 Southern California Edison Co. notes 8.95s, 2003 897,000
90,000 Southern California Edison Co. notes 6 3/8s, 2006 79,200
795,000 Western Resources, Inc. 1st mtge. 7 7/8s, 2007 795,000
300,000 Western Resources, Inc. bank term loan FRN 4.82s, 2005
(acquired 6/4/02, cost $300,000) (RES) 289,500
595,000 Western Resources, Inc. sr. notes 9 3/4s, 2007 547,400
1,116,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands)
(In default) (NON) 1,004,400
-------------
10,767,713
-------------
Total Corporate Bonds and Notes (cost $359,012,459) $ 301,450,746
FOREIGN GOVERNMENT BONDS AND NOTES (17.1%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
USD 1,145,000 Brazil (Federal Republic of) notes 11s, 2012 $494,068
CAD 8,510,000 Canada (Government of) bonds 6s, 2011 5,800,858
CAD 3,680,000 Canada (Government of) bonds Ser. WH31, 6s, 2008 2,514,976
EUR 345,000 Colombia (Republic of) notes Ser. E MTN, 11 1/2s, 2011 266,068
EUR 640,000 Colombia (Republic of) unsub. bonds Ser. 15A, 11 3/8s, 2008 506,223
USD 1,030,000 Ecuador (Republic of) bonds Ser. REGS, 12s, 2012 540,750
EUR 14,330,000 Germany (Federal Republic of) bonds Ser. 95, 7 3/8s, 2005 15,455,065
EUR 3,400,000 Italy (Government of) treasury bonds 5 1/2s, 2010 3,635,358
USD 360,000 Malaysia (Government of) bonds 7 1/2s, 2011 418,140
NZD 6,007,000 New Zealand (Government of) bonds 8s, 2006 3,030,750
NZD 5,804,000 New Zealand (Government of) bonds Ser. 709, 7s, 2009 2,868,456
USD 12,655,000 Russia (Federation of) unsub. 10s, 2007 13,699,038
USD 11,690,000 Russia (Federation of) unsub. 8 1/4s, 2010 11,678,310
USD 2,625,000 South Africa (Republic of) notes 7 3/8s, 2012 2,743,125
EUR 1,000,000 Spain (Government of) bonds 5.4s, 2011 1,058,749
EUR 1,690,000 Spain (Government of) bonds 4.8s, 2006 1,746,704
SEK 52,800,000 Sweden (Government of) bonds Ser. 1037, 8s, 2007 6,543,680
SEK 91,230,000 Sweden (Government of) bonds Ser. 1044, 3 1/2s, 2006 9,551,617
USD 1,070,000 Turkey (Republic of) bonds 11 3/4s, 2010 956,580
USD 660,000 Turkey (Republic of) sr. unsub. bonds 12 3/8s, 2009 616,440
GBP 4,030,000 United Kingdom Treasury bonds 7 1/4s, 2007 7,230,717
USD 14,190,000 United Mexican States notes Ser. A, 9 7/8s, 2010 16,105,650
-------------
Total Foreign Government Bonds and Notes (cost $95,239,859) $107,461,322
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (16.2%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (12.1%)
-------------------------------------------------------------------------------------------------------------------
$49,446 Federal Home Loan Mortgage Corporation 6s, June 1, 2032 $50,900
Federal National Mortgage Association Pass-Through Certificates
384 8 1/2s, March 1, 2006 405
37,567 8s, with due dates from October 1, 2025 to July 1, 2028 40,364
140,260 7 1/2s, December 1, 2029 148,097
41,225,000 7 1/4s, January 15, 2010 49,808,240
7,642,237 6 1/2s, with due dates from June 1, 2029 to September 1, 2032 7,922,865
289,120 6 1/2s, with due dates from August 1, 2010 to March 1, 2015 303,699
5,700,000 TBA, 6 1/2s, October 1, 2032 5,904,858
169,648 6s, July 1, 2032 174,404
Government National Mortgage Association Pass-Through Certificates
15,970 8s, July 15, 2023 17,352
1,277,510 7 1/2s, with due dates from July 15, 2029 to January 15, 2030 1,357,878
2,391,130 7s, with due dates from January 15, 2025 to June 15, 2031 2,518,519
206,231 6 1/2s, May 15, 2029 215,358
7,200,000 TBA, 6 1/2s, October 1, 2032 7,510,464
-------------
75,973,403
U.S. Treasury Obligations (4.1%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
16,490,000 4 3/8s, August 15, 2012 17,533,487
1,705,000 3 1/4s, August 15, 2007 1,757,344
6,250,000 1 7/8s, September 30, 2004 6,270,938
-------------
25,561,769
-------------
Total U.S. Government and Agency Obligations (cost $97,230,453) $101,535,172
COLLATERALIZED MORTGAGE OBLIGATIONS (8.0%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
Amortizing Residential Collateral Trust
$28,955,455 Ser. 02-BC1, Class A, Interest Only (IO), 6s, 2005 $2,149,039
2,270,000 Ser. 02-BC1, Class M2, FRN, 2.91s, 2032 2,242,526
4,100,000 Amresco Commercial Mortgage Funding I Ser. 97-C1, Class F,
7.64s, 2029 4,633,000
235,000 Banc of America Commercial Mortgage, Inc. Ser. 02-PB2, Class K,
6.29s, 2035 217,302
125,000 Chase Commercial Mortgage Securities Corp. Ser. 00-3, Class G,
6.887s, 2019 117,539
1,660,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1, Class D,
7.043s, 2030 1,753,634
30,544,479 Commercial Mortgage Asset Trust Ser. 99-C1, Class X, IO,
1.16s, 2020 1,814,772
425,000 CS First Boston Mortgage Securities Corp. 144A Ser. 02-CKN2,
Class H, 6.122s, 2037 367,426
30,249,992 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, Class X,
IO, 1.07s, 2031 1,139,101
Euro Loan Conduit 144A
330,556 FRN Ser. 7A, Class D, 5.73s, 2006 (United Kingdom) 517,304
330,556 FRN Ser. 7A, Class E, 5.73s, 2006 (United Kingdom) 496,512
Fannie Mae
542,947 Ser. 98-51, Class SG, 26.1s, 2022 242,692
4,777,474 Ser. 02-36, Class SJ, 15 1/2s, 2029 5,306,342
931,400 Ser. 01-58, Class HI, IO, 6 1/2s, 2026 78,587
7,980,270 Ser. 02-9, Class MS, IO, 6.29s, 2032 678,323
10,351,123 Ser. 02-36, Class QH, IO, 6.24s, 2029 670,008
2,776,020 Ser. 02-29, Class SL, IO, 6.21s, 2029 145,741
3,888,736 Ser. 02-47, Class NS, IO, 6.19s, 2032 328,112
8,337,632 Ser. 02-34, Class SB, IO, 6.13s, 2032 667,011
1,997,528 Ser. 02-39, Class SB, IO, 6.13s, 2032 159,802
3,927,636 Ser. 318, Class 2, IO, 6s, 2032 694,088
1,598,980 Ser. 01-74, Class MI, IO, 6s, 2015 185,035
553,247 Ser. 99-51, Class N, Principal Only (PO), zero %, 2029 489,623
528,426 Ser. 99-52, Class MO, PO, zero %, 2026 502,333
223,433 Ser. 97-92, PO, zero %, 2025 222,769
651,160 Ser. 96-5, Class PB, PO, zero %, 2024 605,172
582,500 Ser. 93-159, Class D, PO, zero %, 2023 576,675
17,513,606 FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, 1.72s, 2020 1,431,190
Freddie Mac
407,866 Ser. 2154, Class SA, 24.83s, 2029 414,622
658,096 Ser. 2398, Class DT, 20.589s, 2032 667,968
920,468 Ser. 2413, Class SH, 20.199s, 2032 932,261
1,309,500 Ser. 2412, Class GS, 16.302s, 2032 1,530,478
363,057 Ser. 1717, Class L, 6 1/2s, 2024 381,323
Freddie Mac
4,429,704 Ser. 2448, Class SE, IO, 6.28s, 2029 229,791
2,707,400 Ser. 2448, Class SM, IO, 6.18s, 2032 504,253
7,376,352 Ser. 212, Class IO, IO, 6s, 2031 1,028,079
838,992 Ser. 2044, Class SG, IO, 4.66s, 2023 11,143
72,454 Ser. 2351, Class EO, PO, zero %, 2031 72,434
1,851,951 Ser. 215, Class PO, PO, zero %, 2031 1,697,719
269,844 Federal Home Loan Mortgage Corp. Ser. 57, Class A, PO,
zero %, 2023 268,706
Government National Mortgage Association
1,119,100 Ser. 02-49, Class QS, FRN, 16.1s, 2029 1,129,592
8,490,550 Ser. 02-47, Class SM, IO, 4.15s, 2032 387,381
5,897,680 Ser. 01-43, Class SJ, IO, 5.78s, 2029 329,901
696,035 Ser. 98-2, Class EA, PO, zero %, 2028 633,571
64,744 Ser. 99-42, PO, zero %, 2027 63,611
1,075,000 Granite Mortgages PLC FRN Ser. 01-1, Class 1C, 3.26s,
2041 (United Kingdom) 1,073,992
5,065,000 Holmes Financing PLC Ser. 1, Class 2C, 3.01s, 2040 5,063,417
LB-UBS Commercial Mortgage Trust
535,000 Ser. 01-C3, Class A2, 6.37s, 2011 601,373
655,000 Ser. 01-C3, Class J, 6.16s, 2036 547,703
Merrill Lynch Mortgage Investors, Inc.
13,712,744 Ser. 96-C2, IO, 1.9s, 2028 929,895
1,070,000 Ser. 96-C2, Class E, 6.96s, 2028 1,153,427
5,616,143 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO,
1.55s, 2027 279,052
31,686 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 32,181
223,049 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 234,611
1,821,922 Wells Fargo Mortgage Backed Securities Trust Ser. 01-31,
Class A5, 16.6s, 2032 1,807,119
-------------
Total Collateralized Mortgage Obligations (cost $51,240,486) $50,437,261
ASSET-BACKED SECURITIES (4.9%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$426,509 Arc Net Interest Margin Trust Ser. 02-5A, Class A, 7 3/4s, 2032 $423,765
579,441 Arc Net Interest Margin Trust 144A Ser. 02-1A, Class A, 7 3/4s, 2032 579,342
450,729 Asset Backed Funding Corp. NIM Trust Ser. 02-WF1, Class Note,
9.32s, 2032 446,222
1,845,000 Bank One Issuance Trust Ser. 02-C1, Class C1, FRN, 2.78s, 2009 1,821,362
Bayview Financial Acquisition Trust
1,010,900 Ser. 01-DA, Class M3, FRN, 3.21s, 2031 1,010,900
995,000 Ser. 02-CA, Class A, IO, 14s, 2004 125,463
1,257,997 CDC Mortgage Capital Trust Ser. 02-HE1, Class M, FRN, 3.06s, 2033 1,245,614
Chase Funding Net Interest Margin
400,946 Ser. 02-1, Class Note, 8 1/2s, 2035 397,578
790,481 Ser. 02-2, Class Note, 8 1/2s, 2035 790,481
315,527 Ser. 02-C1, Class Note, 8 1/2s, 2035 321,458
Conseco Finance Securitizations Corp.
3,055,000 Ser. 00-4, Class A6, 8.31s, 2032 3,192,839
1,100,000 Ser. 00-6, Class M2, 8.2s, 2032 982,942
1,030,000 Ser. 01-4, Class B1, 9.4s, 2033 710,700
3,659,943 Ser. 02-1, Class A, 6.681s, 2032 3,696,791
790,000 Consumer Credit Reference Index Securities Ser. 02-1A,
Class A, FRB, 3.99s, 2007 791,728
2,464,354 Greenpoint Manufactured Housing Ser. 00-3, Class IA, 8.45s, 2031 2,718,974
335,000 Home Equity Asset Trust Ser. 02-1N, Class A, 8s, 2032 329,001
1,260,000 LNR CDO, Ltd. Ser. 02-1A, Class FFL, 4.589s, 2012 1,195,031
1,046,356 Madison Avenue Manufactured Housing Contract Ser. 02-A,
Class B1, FRN, 5.06s, 2032 784,767
608,760 Mid-State Trust Ser. 10, Class B, 7.54s, 2036 645,857
Morgan Stanley Dean Witter Capital I
640,000 Ser. 02-AM2, Class B1, FRN, 4.21s, 2032 635,800
390,000 Ser. 01-NC3, Class B1, FRN, 4.26s, 2031 390,792
1,660,000 Ser. 01-NC4, Class B1, FRN, 4.35s, 2032 1,663,372
753,000 Ser. 02-NC3, Class M2, FRN, 3.1s, 2032 745,244
Morgan Stanley Dean Witter Capital I 144A
347,673 Ser. 01-AM1N, Class Note, 12 3/4s, 2032 347,673
778,114 Ser. 01-NC4N, Class Note, 8 1/2s, 2032 781,615
957,575 Option One Mortgage Securities Corp. Ser. 02-2A, Class CFTS,
8.83s, 2032 957,275
811,467 Option One Mortgage Securities Corp. 144A Ser. 02-1, Class CTFS,
6 3/4s, 2032 808,039
1,688,157 Pass-Through Amortizing Credit Card Trust Ser. 02-1A, Class A4FL,
7.339s, 2012 1,688,157
390,000 TIAA Commercial Real Estate Securitization Ser. 02-1A, Class IV,
6.84s, 2037 326,686
-------------
Total Asset-Backed Securities (cost $30,541,261) $30,555,468
BRADY BONDS (2.0%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$11,210,000 Brazil (Federal Republic of) govt. guaranty FRB 3 1/8s, 2012 $4,414,498
5,218,600 Bulgaria (Republic of) deb. FRB Ser. IAB, 2.688s, 2011 4,592,368
4,452,300 Venezuela (Republic of) deb. FRB Ser. DL, 2 7/8s, 2007 3,361,487
-------------
Total Brady Bonds (cost $15,891,147) $12,368,353
PREFERRED STOCKS (1.2%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
393 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $4
9,200 Brand Scaffold Services, Inc. 144A $3.625 pfd. 588,800
44,800 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 1,166,592
23,604 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 1,339,527
3,150 Chevy Chase Savings Bank, Inc. $3.25 pfd. 85,365
23,612 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. 1,534,780
877 Delta Financial Corp. Ser. A, $10.00 cum. pfd. 4,824
19,200 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 192
1,181 Dobson Communications Corp. 12.25% pfd. (PIK) 295,244
320 First Republic Capital Corp. 144A 10.50% pfd. 328,000
11,765 Fitzgeralds Gaming Corp. zero % cum. pfd. 118
510 Granite Broadcasting Corp. 12.75% cum. pfd. 280,500
41 Leiner Health Products Ser. C, zero % pfd. 1
376 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 225,600
1,188 North Atlantic Trading Co. 12.00% pfd. (PIK) 21,978
287 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 1,549,800
1,241 Rural Cellular Corp. 12.25% pfd. (PIK) 198,504
-------------
Total Preferred Stocks (cost $11,646,891) $7,619,829
COMMON STOCKS (0.7%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
2,305 Alderwoods Group, Inc. (NON) $14,983
28,107 Arch Wireless, Inc. (NON) 3
14,080 Aurora Foods, Inc. (NON) 9,152
4,556 Call-Net Enterprises, Inc. Class B (Canada) (NON) 1,321
149,352 Celcaribe SA (Colombia) (NON) 1,494
3,445,121 Contifinancial Corp. Liquidating Trust Units 120,579
15,321 Covad Communications Group, Inc. 144A (NON) 22,522
840 Delta Funding Residual Exchange Co., LLC (NON) 163,380
840 Delta Funding Residual Management, Inc. (NON) 8
20,520 Doskocil Manufacturing Company, Inc. (NON) 77,566
22,904 Fitzgeralds Gaming Corp. (NON) 229
6,936 Genesis Health Ventures, Inc. (NON) 114,028
120,000 Loewen Group International, Inc. (NON) 12
1,400 Mariner Health Care, Inc. (NON) 10,500
870,000 Morrison Knudsen Corp. (NON) 34,800
49,759 Pioneer Companies, Inc. (NON) 111,958
327 Premium Holdings (L.P.) 144A 6,867
715 PSF Group Holdings, Inc. 144A Class A 1,251,828
167 Quorum Broadcast Holdings, Inc. Class E (acquired 5/15/01,
cost $166,516) (RES) (NON) 113,972
167,520 Regal Entertainment Group 144A (acquired 5/9/02,
cost $1,327,636)(NON) (RES) 2,236,392
10,704 Safety Components International, Inc. (NON) 73,858
740 Sun Healthcare Group, Inc. (NON) 3,922
1,335 Vast Solutions, Inc. Class B1 (NON) 668
1,335 Vast Solutions, Inc. Class B2 (NON) 668
1,335 Vast Solutions, Inc. Class B3 (NON) 668
1,696 Washington Group International, Inc. (NON) 22,438
-------------
Total Common Stocks (cost $11,466,954) $4,393,816
CONVERTIBLE BONDS AND NOTES (0.2%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$37,000 American Tower Corp. cv. bonds 2 1/4s, 2009 $22,015
980,000 American Tower Corp. cv. notes 5s, 2010 396,900
550,000 DaVita, Inc. cv. sub. notes 7s, 2009 536,250
111,000 Hexcel Corp. cv. sub. notes 7s, 2003 91,575
310,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 209,250
310,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 215,063
-------------
Total Convertible Bonds and Notes (cost $1,677,340) $1,471,053
UNITS (0.1%) (a)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
600 Australis Media, Ltd. units 15 3/4s, 2003 (Australia) (In default) (NON) $60
295 MDP Acquisitions PLC 144A units 15 1/2s, 2013 (Ireland) (PIK) 295,000
360 Solutia, Inc. 144A units 11 1/4s, 2009 331,200
500 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 150,625
-------------
Total Units (cost $1,733,121) $776,885
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
51 Anker Coal Group, Inc. 14.25% cv. pfd. $255
55 Genesis Health Ventures, Inc. $6.00 cv. pfd. (PIK) 6,050
608 Hercules Trust II units 6.50% cum. cv. pfd. 322,240
520 Interact Systems, Inc. 144A 14.00% cv. pfd. (In default) (NON) 5
3,800 LTV Corp. 144A $4.125 cv. pfd. (In default) (NON) 475
43 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 172,000
6,847 Telex Communications, Inc. zero % cv. pfd. (NON) 6,847
630 Weirton Steel Corp. Ser. C, zero % cv. pfd. 630
-------------
Total Convertible Preferred Stocks (cost $877,035) $508,502
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
4 Anker Coal Group, Inc. 144A 10/28/09 $1
460 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 5
1,500 Comunicacion Cellular 144A (Colombia) 11/15/03 1,500
1,020 Dayton Superior Corp. 6/15/09 10,200
90 Decrane Aircraft Holdings Co. 9/30/08 1
809 Diva Systems Corp. 5/15/06 8
8,173 Diva Systems Corp. 144A 3/1/08 82
6,915 Genesis Health Ventures, Inc. 10/1/02 69
1,050 Horizon PCS, Inc. 10/1/10 11
520 Interact Systems, Inc. 8/1/03 1
520 Interact Systems, Inc. 144A 12/15/09 5
910 iPCS, Inc. 144A 7/15/10 228
590 IWO Holdings, Inc. 1/15/11 148
544 Leap Wireless International, Inc. 144A 4/15/10 5
1,322 Mariner Health Care, Inc. 5/1/04 41
390 Mikohn Gaming Corp. 144A 8/15/08 390
400 ONO Finance PLC 144A (United Kingdom) 2/15/11 1
960 Paxson Communications Corp. 144A 6/30/03 480
410 Pliant Corp. 144A 6/1/10 820
185 Sterling Chemicals Holdings 8/15/08 111
1,851 Sun Healthcare Group, Inc. 2/28/05 1
270 Telex Communications Group, Inc. 3/30/07 3
1,830 Travel Centers of America, Inc. 144A 5/1/09 18,224
1,670 Ubiquitel, Inc. 144A 4/15/10 1
680 Veraldo Holdings, Inc. 144A 4/15/08 7
30 Versatel Telecom NV (Netherlands) 5/15/08 15
1,046 Washington Group International, Inc. Ser. A 1/25/06 785
1,196 Washington Group International, Inc. Ser. B 1/25/06 598
647 Washington Group International, Inc. Ser. C 1/25/06 324
590 XM Satellite Radio Holdings, Inc. 144A 3/15/10 1
-------------
Total Warrants (cost $636,863) $34,066
SHORT-TERM INVESTMENTS (2.8%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$1,355,000 U.S. Treasury Bills zero %, December 12, 2002 (SEG) $1,350,108
3,998 Short-term investments held as collateral for loaned
securities with yields ranging from 1.73% to 2.00%
and due dates ranging from October 1, 2002 to
November 19, 2002 (d) 3,996
16,075,000 Interest in $138,000,000 joint tri-party repurchase
agreement dated September 30, 2002 with Goldman
Sachs & Co. due October 1, 2002 with respect to various
U.S. Government obligations -- maturity value of $16,075,871
for an effective yield of 1.95% 16,075,000
-------------
Total Short-Term Investments (cost $17,429,104) $17,429,104
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $694,622,973) $636,041,577
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $627,620,416.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at September 30, 2002
was $24,951,224 or 4.0% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for future contracts at September 30, 2002.
(R) Real Estate Investment Trust.
(d) See footnote 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced
securities (Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at September 30, 2002,
which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at September 30, 2002:
(as percentage of Market Value)
Brazil 0.8%
Bulgaria 0.7
Canada 2.8
Germany 2.5
Italy 0.6
Mexico 2.5
New Zealand 0.9
Russia 4.0
Sweden 2.5
United Kingdom 2.2
United States 74.7
Venezuela 0.5
Other 5.3
----
Total 100.0%
------------------------------------------------------------------------------
Forward Currency Contracts to Buy at September 30, 2002
(aggregate face value $44,520,941)
Unrealized
Aggregate Delivery Appreciation/
Market Value Face Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollars $15,988,698 $15,991,827 12/18/02 $(3,129)
British Pounds 6,500,190 6,443,655 12/18/02 56,535
Canadian Dollars 7,250,596 7,277,579 12/18/02 (26,983)
Euro 1,193,600 1,186,972 12/18/02 6,628
Japanese Yen 10,674,291 10,904,640 12/18/02 (230,349)
South Korean Won 2,275,309 2,314,499 12/18/02 (39,190)
Swiss Franc 401,534 401,769 12/18/02 (235)
------------------------------------------------------------------------------
$(236,723)
------------------------------------------------------------------------------
Forward Currency Contracts to Sell at September 30, 2002
(aggregate face value $36,643,845)
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollars $1,168,878 $1,171,200 12/18/02 $2,322
British Pounds 1,517,088 1,505,862 12/18/02 (11,226)
Danish Krone 543,282 545,246 12/18/02 1,964
Euro 6,593,363 6,540,269 12/18/02 (53,094)
Japanese Yen 5,813,287 5,815,661 12/18/02 2,374
New Zealand
Dollars 5,807,955 5,822,460 12/18/02 14,505
Swedish Krona 15,374,229 15,243,147 12/18/02 (131,082)
------------------------------------------------------------------------------
$(174,237)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 2002
Unrealized
Total Aggregate Expiration Appreciation/
Value Face Value Date (Depreciation)
------------------------------------------------------------------------------
3 Month Eurodollar
(long) $ 1,715,350 $ 1,670,492 Sep-03 $ 44,858
3 Month Eurodollar
(short) 1,720,863 1,677,870 Jun-03 (42,993)
3 Month Euroyen
(long) 6,566,875 6,567,322 Dec-02 (447)
3 Month Euroyen
(short) 6,561,617 6,563,470 Dec-03 1,853
Euro-Bobl (long) 14,202,225 14,096,705 Dec-02 105,520
Euro-Bund 10yr
(long) 29,580,626 29,359,809 Dec-02 220,817
Interest Rate Swap
10yr (long) 1,698,281 1,646,548 Dec-02 51,733
Japanese
Government Bond
10yr (long) 5,767,335 5,782,963 Dec-02 (15,628)
Japanese
Government Bond
10yr (long) 4,843,871 4,858,720 Dec-02 (14,849)
US Treasury Bond
(short) 1,942,250 1,857,178 Dec-02 (85,072)
US Treasury Note
10yr (long) 36,278,375 34,937,507 Dec-02 1,340,868
US Treasury Note
10yr (short) 51,114,656 49,110,462 Dec-02 (2,004,194)
US Treasury Note
5yr (short) 43,998,281 43,087,444 Dec-02 (910,837)
------------------------------------------------------------------------------
$(1,308,371)
------------------------------------------------------------------------------
TBA Sales Commitments at September 30, 2002
(Proceeds receivable $20,340,308)
Principal Settlement Market
Agency Amount Date Value
------------------------------------------------------------------------------
FHLMC, 6s, October
2032 $48,000 10/15/02 $49,350
FNMA, 6 1/2s,
October 2032 12,187,000 10/15/02 12,625,002
FNMA, 6s, October
2032 163,000 10/15/02 167,381
GNMA, 6 1/2s,
October 2032 7,200,000 10/23/02 7,510,464
------------------------------------------------------------------------------
$20,352,197
------------------------------------------------------------------------------
Swap Contracts Outstanding at September 30, 2002
Notional Termination Unrealized
Amount Date Appreciation
------------------------------------------------------------------------------
Agreement with Lehman Brothers
Special Financing, Inc. dated
August 13, 2002 to receive
semiannually the notional
amount multiplied by
3.614% and pay quarterly the
notional amount multiplied by
three month USD LIBOR BBA
adjusted by a specified spread. $4,915,360 8/15/05 $64,883
Agreement with Merrill Lynch
Capital Services, Inc. dated
November 17, 2000 to pay
semi-annually the notional
amount multiplied by the
LIBOR-BBA and receive quarterly
the notional amount multiplied
by 6.68% 6,500,000 11/21/05 792,918
Agreement with Merrill Lynch
Capital Services, Inc. dated
September 27, 2002 to receive
semi-annually the notional amount
multiplied by the six month
JPY-LIBOR-BBA and pay monthly the
notional amount multiplied by
0.399% 19,863,404 10/01/07 181,680
Agreement with Deutsche Bank AG
dated August 8, 2002 to pay
quarterly the notional amount
multiplied by the three month
LIBOR-BBA and receive
semi-annually the notional amount
multiplied by 3.7575% 23,100,000 8/12/05 408,870
------------------------------------------------------------------------------
$1,448,351
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2002
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value, including $3,497 of securities on loan
(identified cost $694,622,973) (Note 1) $636,041,577
-------------------------------------------------------------------------------------------
Cash 2,637,811
-------------------------------------------------------------------------------------------
Foreign currency (cost $2,286,626) (Note 1) 2,334,937
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 12,487,525
-------------------------------------------------------------------------------------------
Receivable for securities sold 27,982,582
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 131,190
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 315,146
-------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 1,448,351
-------------------------------------------------------------------------------------------
Total assets 683,379,119
Liabilities
-------------------------------------------------------------------------------------------
Payable for variation margin (Note 1) 108,343
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 4,483,878
-------------------------------------------------------------------------------------------
Payable for securities purchased 28,853,644
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,172,417
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 77,934
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 63,797
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,522
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 542,150
-------------------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 4,648
-------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 3,996
-------------------------------------------------------------------------------------------
TBA sale commitments, at value (proceeds receivable $20,340,308)
(Note 1) 20,352,197
-------------------------------------------------------------------------------------------
Other accrued expenses 93,177
-------------------------------------------------------------------------------------------
Total liabilities 55,758,703
-------------------------------------------------------------------------------------------
Net assets $627,620,416
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $844,245,095
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (5,846,674)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (151,807,162)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (58,970,843)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $627,620,416
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($627,620,416 divided by 100,182,745
shares) $6.26
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Year ended September 30, 2002
Investment income:
-------------------------------------------------------------------------------------------
Interest $56,570,870
-------------------------------------------------------------------------------------------
Dividends 1,197,484
-------------------------------------------------------------------------------------------
Securities lending 368
-------------------------------------------------------------------------------------------
Total investment income 57,768,722
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,689,847
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 679,112
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 21,420
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 14,385
-------------------------------------------------------------------------------------------
Other 308,974
-------------------------------------------------------------------------------------------
Total expenses 5,713,738
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (37,382)
-------------------------------------------------------------------------------------------
Net expenses 5,676,356
-------------------------------------------------------------------------------------------
Net investment income 52,092,366
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (48,921,266)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,134,246)
-------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 630
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (67,721)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities
in foreign currencies during the year (378,871)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures, swap contracts
and TBA sales commitments during the year 24,622,776
-------------------------------------------------------------------------------------------
Net loss on investments (25,878,698)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $26,213,668
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Year ended September 30
------------------------------------
2002 2001
--------------------------------------------------------------------------------------------------
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $52,092,366 $58,649,683
--------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions (50,122,603) (30,897,824)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and
assets and liabilities in foreign currencies 24,243,905 (26,007,032)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,213,668 1,744,827
--------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
--------------------------------------------------------------------------------------------------
From net investment income (52,982,343) (45,980,550)
--------------------------------------------------------------------------------------------------
From return of capital (1,087,264) (14,497,458)
--------------------------------------------------------------------------------------------------
Increase from issuance of common shares in connection
with reinvestment of distributions 315,588 --
--------------------------------------------------------------------------------------------------
Total decrease in net assets (27,540,351) (58,733,181)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 655,160,767 713,893,948
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net investment
income of $5,846,674 and $9,436,074, respectively) $627,620,416 $655,160,767
--------------------------------------------------------------------------------------------------
Number of fund shares
--------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 100,133,127 100,133,127
--------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of distributions 49,618 --
--------------------------------------------------------------------------------------------------
Shares outstanding at end of year 100,182,745 100,133,127
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
-----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.54 $7.13 $7.57 $8.14 $8.79
-----------------------------------------------------------------------------------------------------
Investment operations:
-----------------------------------------------------------------------------------------------------
From net investment income (a) .52 .58 .63 .58 .71
-----------------------------------------------------------------------------------------------------
From net realized and unrealized
loss on investments (.26) (.57) (.43) (.47) (.67)
-----------------------------------------------------------------------------------------------------
Total from
investment operations .26 .01 .20 .11 .04
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.53) (.46) (.64) (.56) (.69)
-----------------------------------------------------------------------------------------------------
From return of capital (.01) (.14) -- (.12) --
-----------------------------------------------------------------------------------------------------
Total distributions (.54) (.60) (.64) (.68) (.69)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.26 $6.54 $7.13 $7.57 $8.14
-----------------------------------------------------------------------------------------------------
Market value,
end of period $6.380 $6.050 $6.438 $6.438 $7.750
-----------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 14.81 3.06 10.72 (9.09) 3.91
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $627,620 $655,161 $713,894 $757,533 $814,342
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .87 .90 .87 .93 .92
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.97 8.50 8.60 7.39 8.13
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 193.33(e) 111.45 116.71 133.72 179.84(d)
-----------------------------------------------------------------------------------------------------
(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.
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
September 30, 2002
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. 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,
generally recognized by institutional traders, between securities. For
foreign investments, if trading or events occurring in other markets
after the close of the principal exchange in which the securities are
traded are expected to materially affect the value of the investments,
then those investments are valued, taking into consideration these
events, at their fair value following procedures approved by the
Trustees. Securities quoted in foreign currencies are translated into
U.S. dollars at the current exchange rate. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost,
which approximates market value. Other investments, including restricted
securities, are stated at fair value following procedures approved by
the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. All
premiums/discounts are amortized/accreted on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short-term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
"marked-to-market" daily and the change in market value is recorded as
an unrealized gain or loss. When the contract is closed, the fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed. The fund could be exposed to risk if the value of
the currency changes unfavorably, if the counterparties to the contracts
are unable to meet the terms of their contracts or if the fund is unable
to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin." Exchange traded options are
valued at the last sale price, or if no sales are reported, the last bid
price for purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by
dealers.
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. A portion of the payments received or made upon
early termination are recorded as realized gain or loss. The fund could
be exposed to credit or market risk due to unfavorable changes in the
fluctuation of interest rates or that the counterparty may default on
its obligation to perform.
I) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the
unit price has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate
more than .01% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for their portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
J) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures
described under "Security valuation" above. The contract is
"marked-to-market" daily and the change in market value is recorded by
the fund as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
fund realizes a gain or loss. If the fund delivers securities under the
commitment, the fund realizes a gain or a loss from the sale of the
securities based upon the unit price established at the date the
commitment was entered into.
K) Security lending The fund may lend securities, through its agent
Citibank N.A., to qualified borrowers in order to earn additional
income. The loans are collateralized by cash and/or securities in an
amount at least equal to the market value of the securities loaned. The
market value of securities loaned is determined daily and any additional
required collateral is allocated to the fund on the next business day.
The risk of borrower default will be borne by Citibank N.A., the fund
will bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At September 30, 2002, the value
of securities loaned amounted to $3,497. The fund received cash
collateral of $3,996, which is pooled with collateral of other Putnam
funds into 24 issuers of high-grade short-term investments.
L) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code 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, 2002, the fund had a capital loss carryover of
approximately $99,088,000 available to the extent allowed by tax law to
offset future capital gains, if any. The amount of the carryover and the
expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$7,035,000 September 30, 2003
2,793,000 September 30, 2004
1,555,000 September 30, 2005
10,040,000 September 30, 2007
25,641,000 September 30, 2008
24,593,000 September 30, 2009
27,431,000 September 30, 2010
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending September 30, 2003 approximately $51,672,000 of losses recognized
during the period November 1, 2001 to September 30, 2002.
M) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, post-October loss deferrals, dividends payable, defaulted
bond interest, realized and unrealized gains and losses on certain
futures contracts, market discount and interest on payment-in-kind
securities. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year
ended September 30, 2002, the fund reclassified $4,479,377 to decrease
distributions in excess of net investment income and $117,010 to
increase paid-in-capital, with an increase to accumulated net realized
losses of $4,596,387.
The tax basis components of distributable earnings and the federal tax
cost as of period end was as follows:
Unrealized appreciation $29,412,762
Unrealized depreciation (90,819,318)
---------------------
Net unrealized depreciation (61,406,556)
Undistributed ordinary income --
Capital loss carryforward (99,087,669)
Post-October loss (51,672,313)
Cost for federal income
tax purposes $697,448,133
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 wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended September 30, 2002,
the fund's expenses were reduced by $37,382 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,002 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended September 30, 2002, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $653,389,671 and
$578,743,896, respectively. Purchases and sales of U.S. government
obligations aggregated $1,024,740,791 and $1,058,213,278, respectively.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
---------------------------------------------------------------------------
Written options
outstanding
at beginning of year -- $--
---------------------------------------------------------------------------
Options opened 4,378,034 19,712
---------------------------------------------------------------------------
Options expired (4,378,000) (7,982)
---------------------------------------------------------------------------
Options closed (34) (11,730)
---------------------------------------------------------------------------
Written options
outstanding
at end of year -- $--
---------------------------------------------------------------------------
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 year ended September 30, 2002, the fund repurchased no shares.
As of September 30, 2002, 570,000 shares have been repurchased since the
inception of the program.
Note 5
New accounting pronouncement
As required, the fund has adopted the provisions of the AICPA Audit and
Accounting Guide, Audits of Investment Companies. this Guide requires
that the fund 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. Prior to October 1, 2001, the
fund did not amortize premium and accrete discounts for certain fixed
income securities and characterized as realized gains and losses
paydowns on mortgage backed securities. Adopting these accounting
principles did not affect the fund's net asset value, but did change the
classification of certain amounts between interest income and realized
and unrealized gain/loss in the Statement of operations. The adoption of
this principle was not material to the financial statements.
FEDERAL TAX INFORMATION
(Unaudited)
For the year ended September 30, 2002, a portion of the Fund's
distribution represents a return of capital and is therefore not
taxable to shareholders. The return of capital is entirely due to
foreign currency losses.
The fund has designated 1.04% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2003 will show the tax status of
all distributions paid to your account in calendar 2002.
RESULTS OF JUNE 13, 2002 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on June 13, 2002.
At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
Jameson A. Baxter 92,227,867 2,155,423
Charles B. Curtis 92,209,003 2,174,287
John A. Hill 92,230,983 2,152,307
Ronald J. Jackson 92,233,808 2,149,482
Paul L. Joskow 92,233,968 2,149,322
Elizabeth T. Kennan 92,227,257 2,156,033
Lawrence J. Lasser 92,225,330 2,157,960
John H. Mullin, III 92,233,968 2,149,322
Robert E. Patterson 92,231,922 2,151,368
George Putnam, III 92,203,881 2,179,409
A.J.C. Smith 92,204,930 2,178,360
W. Thomas Stephens 92,233,327 2,149,963
W. Nicholas Thorndike 92,222,852 2,160,438
All tabulations are rounded to nearest whole number.
TRUSTEES
Name, Address, 1 Date of Birth,
Position(s) Held with Fund
and Length of Service Principal Occupation(s)
as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee
------------------------------------------------------------------------------------------------------
Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc.,
Trustee since 1994 Associates, Inc. Banta Corporation (a printing and
(a management digital imaging firm), Intermatic
consulting and private Corporation (manufacturer of energy
investments firm) control products), Ryerson Tull, Inc.
(a steel service corporation),
Advocate Health Care, and the
National Center for Nonprofit
Boards. Chairman Emeritus
of the Board of Trustees, Mount
Holyoke College. Also held various
positions in investment banking and
corporate finance, including Vice
President and principal of the
Regency Group and consultant to
First Boston Corp.
Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign
Trustee since 2001 Operating Officer, Relations, the Electric Power
Nuclear Threat Research Institute Advisory Council,
Initiative (a private the Board of Directors of the Gas
foundation dedicated Technology Institute, the University
to reducing the threat of Chicago Board of Governors for
of weapons of mass Argonne National Laboratory, the
destruction), also serves Board of Directors of the
as Senior Advisor to the Environment and Natural Resources
United Nations Program Steering Committee,
Foundation John F. Kennedy School of
Government, Harvard University.
Prior to 2002, Mr. Curtis was a
member of the Board of Directors of
the Gas Technology Institute. Until
2001, Mr. Curtis was a Member of
the Department of Defense's Policy
Board and Director of EG&G
Technical Services, Inc. (fossil energy
research and development support)
and prior to May 1997, Mr. Curtis
was Deputy Secretary of Energy.
John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy
Trustee since 1985 and Managing Director, Corporation (formerly known as
Chairman since 2000 First Reserve Snyder Oil Corporation),
Corporation TransMontaigne Oil Company,
(a registered investment Continuum Health Partners of
advisor investing in New York, Sarah Lawrence College,
companies in the and various private companies owned
world-wide energy by First Reserve Corporation.
industry on behalf of Trustee of TH Lee, Putnam
institutional investors) Investment Trust (a closed-end
investment company). Prior to
acquiring First Reserve in 1983,
Mr. Hill held executive positions
with several advisory firms and
various positions with the federal
government, including Associate
Director of the Office of Manage
ment and Budget and Deputy
Director of the Federal Energy
Administration.
Ronald J. Jackson Private investor Former Chairman, President, and
(12/17/43), Chief Executive Officer of Fisher-
Trustee since 1996 Price, Inc. (a toy manufacturer).
Previously served as President and
Chief Executive Officer of Stride-
Rite, Inc. and Kenner Parker Toys.
Also held financial and marketing
positions with General Mills, Parker
Brothers, and Talbots. President of
the Kathleen and Ronald J. Jackson
Foundation (charitable trust).
Member of the Board of Overseers of
WGBH (public television and radio).
Member of the Board of Overseers of
the Peabody Essex Museum.
Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group
Trustee since 1997 Killian Professor of (a UK-based holding company
Economics and with interests in electric power,
Management and natural gas distribution, and
Director of the Center telecommunications networks), and
for Energy and the Whitehead Institute for
Environmental Policy Biomedical Research (a non-profit
Research, Massachusetts research institution). President of the
Institute of Technology Yale University Council. Prior to
February 2002, March 2000, and
September 1998, Dr. Joskow was a
Director of State Farm Indemnity
Company (an automobile insurance
company), Director of New England
Electric System (a public utility
holding company) and a consultant
to National Economic Research
Associates, respectively.
Elizabeth T. Kennan Chairman, Cambus- Director, Northeast Utilities, and
(2/25/38), Kenneth Bloodstock (a Talbots (a distributor of women's
Trustee since 1992 limited liability company apparel). Trustee of Centre College.
involved in thoroughbred Prior to 2001, Dr. Kennan was a
horse breeding and member of the Oversight Committee
farming), President of Folger Shakespeare Library.
Emeritus of Mount Prior to September 2000, June 2000,
Holyoke College and November 1999, Dr. Kennan
was a Director of Chastain Real
Estate, Bell Atlantic, and Kentucky
Home Life Insurance, respectively.
Prior to 1995, Dr. Kennan was a
Trustee of Notre Dame University.
For 12 years, she was on the faculty
of Catholic University.
John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc.,
(6/15/41), of Ridgeway Farm Sonoco Products, Inc. (a packaging
Trustee since 1997 (a limited liability company), The Liberty Corporation
company engaged in (a company engaged in the
timber and farming) broadcasting industry), and Progress
Energy, Inc. (a utility company,
formerly known as Carolina Power
& Light). Trustee Emeritus of
Washington & Lee University. Prior
to October 1997, January 1998, and
May 2001, Mr. Mullin was a Director
of Dillon, Read and Co. Inc.,
The Ryland Group, Inc., and
Graphic Packaging International
Corp., respectively.
Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes
(3/15/45), Properties, LLP and Center, Trustee of SEA Education
Trustee since 1984 Chairman of Cabot Association, and Director of
Properties, Inc. Brandywine Trust Company (a trust
company). Prior to February 1998,
Mr. Patterson was Executive Vice
President and Director of
Acquisitions of Cabot Partners
Limited Partnership. Prior to
December 2001, Mr. Patterson was
President and Trustee of Cabot
Industrial Trust (publicly traded real
estate investment trust). Prior to
1990, Mr. Patterson was Executive
Vice President of Cabot, Cabot &
Forbes Realty Advisors, the
predecessor of Cabot Partners, and
prior to that was Senior Vice
President of the Beal Companies.
W. Thomas Stephens Corporate Director Director of Qwest Communications
(9/2/42), (communications company), Xcel
Trustee since 1997 Energy Incorporated (public utility
company), TransCanada Pipelines,
Norske Canada, Inc. (paper
manufacturer) and Mail-Well
(printing and envelope company).
Prior to July 2001 and October 1999,
Mr. Stephens was Chairman of Mail-
Well and MacMillan-Bloedel (forest
products company). Prior to 1996,
Mr. Stephens was Chairman and
Chief Executive Officer of
Johns Manville.
W. Nicholas Thorndike Director of various Trustee of Northeastern University and
(3/28/33), corporations and Honorary Trustee of Massachusetts
Trustee since 1992 charitable General Hospital. Prior to
organizations, September 2000, April 2000, and
including Courier December 2001, Mr. Thorndike was
Corporation (a book a Director of Bradley Real Estate,
manufacturer) and Inc., a Trustee of Eastern Utilities
Providence Journal Co. Associates, and a Trustee of Cabot
(a newspaper publisher) Industrial Trust, respectively.
Previously served as Chairman of the
Board and managing partner of
Wellington Management/Thorndike
Doran Paine & Lewis, and Chairman
and Director of Ivest Fund.
Lawrence J. Lasser* President and Chief Director of Marsh & McLennan
(11/1/42), Executive Officer Companies, Inc. and the United Way
Trustee since 1992 of Putnam of Massachusetts Bay. Member of the
Vice President since 1981 Investments Trust Board of Governors of the Investment
and Putnam Investment Company Institute, Trustee of the
Management, LLC Museum of Fine Arts, Boston, a
Trustee and Member of the Finance
and Executive Committees of Beth
Israel Deaconess Medical Center,
Boston, and a Member of the
CareGroup Board of Managers
Investment Committee, the Council
on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* President, New Director of The Boston Family
(8/10/51), Generation Research, Office, L.L.C. (registered investment
Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA
President since 2000 financial advisory and Education Association, Trustee of
other research services St. Mark's School, and Trustee of
relating to bankrupt and Shore Country Day School.
distressed companies) Previously, Mr. Putnam was an
and New Generation attorney with the firm of Dechert
Advisers, Inc. Price & Rhoads.
(a registered
investment adviser)
A.J.C. Smith (4/13/34),* Director of Marsh & Director of Trident Corp. (a limited
Trustee since 1986 McLennan partnership with over 30 institutional
Companies, Inc. investors). Trustee of the Carnegie
Hall Society, the Educational
Broadcasting Corporation and the
National Museums of Scotland.
Chairman of the Central Park
Conservancy. Member of the Board
of Overseers of the Joan and
Sanford I. Weill Graduate School
of Medical Sciences of Cornell
University. Fellow of the Faculty of
Actuaries in Edinburgh, the
Canadian Institute of Actuaries, and
the Conference of Actuaries.
Associate of the Society of Actuaries.
Member of the American Actuaries,
the International Actuarial
Association and the International
Association of Consulting Actuaries.
Prior to May 2000 and November
1999, Mr. Smith was Chairman and
CEO, respectively, of Marsh &
McLennan Companies, Inc.
-------------------------------------------------------------------------------------------------------
1 The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of September 30, 2002, there were 103 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her resignation,
death, or removal.
*Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management or
Putnam Retail Management. Messrs. Putnam, III, Lasser, and Smith are
deemed "interested persons" by virtue of their positions as officers or
shareholders of the fund, or officers of Putnam Management, Putnam
Retail Management, or Marsh & McLennan Companies, Inc., the parent
company of Putnam Management and Putnam Retail Management.
George Putnam, III, is the President of your Fund and each of the
other Putnam Funds. Lawrence J. Lasser has been the President, Chief
Executive Officer, and a Director of Putnam Investments Trust and Putnam
Management since 1985, having begunhis career there in 1969. Mr. Lasser
currently also serves as a Director of Marsh & McLennan Companies, Inc.,
the parent company of Putnam Management. A.J.C. Smith is a Director of
Marsh & McLennan Companies, Inc.
OFFICERS
Name, Address, 1 Date of Birth, Inception of Service
Position(s) Held with Fund with the Putnam Funds Principal Occupation(s) During Past 5 Years
------------------------------------------------------------------------------------------------------------
Charles E. Porter (7/26/38), Since 1989 Managing Director, Putnam Investments
Executive Vice President, Trust and Putnam Management
Treasurer & Principal
Financial Officer
Patricia C. Flaherty Since 1993 Senior Vice President, Putnam
(12/1/46), Investments Trust and Putnam Management
Senior Vice President
Michael T. Healy (1/24/58), Since 2000 Managing Director, Putnam
Assistant Treasurer and Investments Trust
Principal Accounting
Officer
Karnig H. Durgarian Since 2002 Senior Managing Director of Putnam
(1/13/56),Vice President and Investments Trust
Principal Executive Officer
Steven D. Krichmar Since 2002 Managing Director of Putnam Investments
(6/27/58), Vice President and Trust
Principal Financial Officer
Gordon H. Silver (7/3/47), Since 1990 Senior Managing Director, Putnam
Vice President Investments Trust and Putnam Management
Brett C. Browchuk Since 1994 Managing Director, Putnam Investments
(2/27/63), Vice President Trust and Putnam Management
Ian C. Ferguson (7/3/57), Since 1997 Senior Managing Director, Putnam
Vice President Investments Trust and Putnam Management
Richard G. Leibovitch Since 1999 Managing Director of Putnam Investments
(10/31/63), Vice President Trust and Putnam Management. Prior to
February 1999, Managing Director at
J.P. Morgan.
Richard A. Monaghan Since 1998 Managing Director, Putnam Investments
(8/25/54), Trust, Putnam Management and Putnam
Vice President Retail Management
John R. Verani Since 1988 Senior Vice President, Putnam
(6/11/39), Investments Trust and Putnam Management
Vice President
Stephen M. Oristaglio Since 1998 Senior Managing Director of Putnam
(8/21/55), Management. Prior to July 1998,
Vice President Managing Director, Swiss Bank Corp.
Kevin M. Cronin Since 2000 Managing Director of Putnam
(6/13/61), Management
Vice President
------------------------------------------------------------------------------------------------------------
1 The address of each Officer is One Post Office Square, Boston, MA 02109.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded 65 years ago, Putnam Investments was
built around the concept that a balance between risk and reward is the
hallmark of a well-rounded financial program. We presently manage over
100 mutual funds in growth, value, blend, fixed income, and
international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer
and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and Principal
Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen M. Oristaglio
Vice President
Kevin M. Cronin
Vice President
Richard G. Leibovitch
Vice President
Richard A. Monaghan
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) anytime for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts,
and the latest on Putnam funds, visit
www.putnaminvestments.com
84070 074 11/02