Putnam
Master
Intermediate
Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-03
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FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
During the semiannual period ended March 31, 2003, Putnam Master
Intermediate Income Trust turned in solid results at net asset value
and outperformed its primary benchmark. As you will see in the
management report that follows, this outcome was helped by the spread in
yields that favored the lower-rated issues in which your fund typically
invests, as well as the ongoing stock market volatility that is still
driving equity investors to the fixed-income markets.
The fund's returns at market price, however, were more modest. As your
fund's management team explains in the following report, the decline in
market price reflects a decline in demand resulting from the dividend
reduction implemented during this semiannual period. The managers also
discuss the reasons for the fund's performance relative to its benchmark
and other comparative indexes in the context of the prevailing market
and economic environment. They conclude by offering their views on
prospects for the fund during the second half of its fiscal year.
As we look back on one of the most challenging periods in recent
investment history, we would like you to know how much we appreciate
your patience and continued confidence in Putnam. We believe those who
maintain a long-term focus and a diversified approach to investing
should eventually be rewarded for their fortitude.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
May 21, 2003
REPORT FROM FUND MANAGEMENT
FUND HIGHLIGHTS
* During the semiannual period ended March 31, 2003, Putnam Master
Intermediate Income Trust had a total return at net asset value (NAV) of
9.44%. The fund's return at market price was 2.81% for the six-month
period.
* At NAV, the fund outperformed its primary benchmark, the Lehman
Government Credit Index, which returned 3.40% during the period. The
fund lagged its other comparative indexes, the Citigroup Non-U.S. World
Government Bond Index, and the JP Morgan Global High Yield Index, which
returned 10.02% and 12.61%, respectively.
* The fund underperformed the average return for the Lipper Flexible
Income Funds category, which was 10.16% for the six-month period.
* In February 2003, the fund's dividend was reduced to $0.038 per
share. See page 6 for more information.
* See the Performance Summary on page 8 for complete fund performance,
comparative performance, and Lipper data.
* PERFORMANCE COMMENTARY
In mid October, shortly after the start of the fund's fiscal year, the
higher-yielding, non-Treasury bonds that we refer to as "credit sectors"
began to significantly outperform Treasuries. Since the fund held a
significant position in corporate high-yield bonds, which rallied during
the period, it outperformed the Lehman Government Credit Index, which is
composed mainly of Treasuries and other investment-grade bonds. The fund
underperformed its Lipper peer group because the stronger-performing
funds in the Lipper category generally had a larger weighting in
emerging-markets bonds, which generally performed well during the
period.
The fund's lower return at market price reflects February's dividend
reduction. Due to the lower dividend, investor demand for the fund, a
key factor in market price performance, declined over the period.
Fund Profile
Putnam Master Intermediate Income Trust seeks high current income and
relative stability by investing in limited-maturity bonds in the
investment-grade and high-yield sectors, as well as non-U.S. bond
markets. The fund may be appropriate for investors seeking high current
income, asset class diversification, or both.
* MARKET OVERVIEW
The fund was fortunate to have started its fiscal year just weeks before
a significant turning point in the bond market. The change in market
sentiment occurred after a dismal four-month period for both the stock
market and the economy, during which investors flocked to the relative
safety of Treasuries. This flight to quality had a severe negative
effect on high-yield bonds, which had reached historically attractive
price levels by the beginning of October. When Treasury yields became
abnormally low and economic forecasts for 2003 improved in mid October,
the Treasury sell-off commenced. From that point through the end of the
fund's semiannual period, the credit sectors -- namely, corporate
high-yield bonds and corporate investment-grade bonds -- outperformed
Treasuries. Mortgage-backed securities (MBSs), which are not considered
part of the credit sectors but offer higher yields than Treasuries, also
outperformed Treasuries. In addition, as the outlook for the economy
became more uncertain and uncertainty about the situation in Iraq kept
investors out of the stock market, the bond market generally performed
well.
Slower growth in Europe helped reduce inflationary pressure, which was
positive for the European government-bond markets. In emerging markets,
higher oil prices helped some countries, while political and economic
turmoil hurt others (see page 5 for more details).
MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 3/31/03
Bonds
Lehman Government Credit Index (fund benchmark) 3.40%
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Lehman Aggregate Bond Index (broader bond market) 2.99%
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Citigroup Non-U.S. World Government Bond Index (intl. govt. bonds) 10.02%
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JP Morgan Global High Yield Index (high-yield bonds) 12.61%
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Equities
S&P 500 Index (broad U.S. stock market) 5.02%
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Russell 2000 Growth Index (growth stocks) 3.34%
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Russell 2000 Value Index (value stocks) -0.41%
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These indexes provide an overview of performance in different market
sectors for the six months ended March 31, 2003.
* STRATEGY OVERVIEW
The fund's multisector strategy, which focuses on investing in a diverse
array of higher-yielding bond sectors, was well-suited to the market and
economic conditions of this six-month period. Virtually all of the
fund's areas of emphasis -- high-yield corporate bonds, investment-grade
corporate bonds, MBSs, international government bonds, and
emerging-markets bonds -- performed well during the period. When the
rally in these sectors materialized, we began adding to those that had
been especially beaten down, i.e., the corporate investment-grade and
corporate high-yield sectors.
The fund's emerging-markets strategy focused on careful fundamental
analysis of country-related risks. The currency strategy continued to
favor a weakening dollar, versus other currencies (primarily the euro),
and was based on our belief that the U.S. economy is still fundamentally
in a fragile state. While we do not believe the economy will contract
in 2003, we are awaiting more solid evidence of sustained growth before
we begin favoring the dollar.
The fund is designed to keep duration, a measure of interest-rate
sensitivity, relatively short. As a result, the fund's holdings have
been more affected by sharp declines in short- and intermediate-maturity
yields in the marketplace. These yield declines contributed to a
reduction in the fund's dividend during the period (please see page 6
for details).
[GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED*]
SECTOR WEIGHTINGS COMPAREDS*
as of 9/30/02 as of 3/31/03
Mortgage-backed
securities 3.1% 10.0%
U.S.
investment grade 27.0% 19.2%
Corporate
high yield 44.3% 45.9%
Non-U.S.
(ex-emerging markets) 12.9% 13.5%
Emerging markets 10.0% 9.6%
Footnote reads:
*This chart shows how the fund's top sector weightings have changed over
the last six months. Weightings are shown as a percentage of net assets.
Holdings and sectors will vary over time.
* HOW FUND HOLDINGS/SECTOR ALLOCATIONS AFFECTED PERFORMANCE
The fund's largest sector weighting (approximately half of the
portfolio) was in high-yield corporate bonds, and this position was a
significant contributor to the fund's strong returns during the period.
High-yield bonds have performed well during the past six months for
several reasons. Among the most important is the decline in default
rates. Although still high by historical standards, corporate defaults
have steadily declined since hitting a peak in January 2002. This trend
has been seen as a positive sign that, if it continues, may help
high-yield bond performance over the next several years. Second,
investors have been seeking higher yields in the marketplace and have
become more willing to take on risk in exchange. As a result, high-yield
bonds have significantly outperformed Treasuries, causing a narrowing in
the yield spread between Treasuries and high-yield bonds. This narrowing
has been another strong driver of high-yield bond performance. Finally,
corporations are generally focusing on reducing debt and improving their
balance sheets, which has led to higher overall credit quality and has
helped attract investors.
[GRAPHIC OMITTED: TOP 3 HOLDINGS]
TOP 3 HOLDINGS BY SECTOR*
High-yield bonds
JP Morgan Corp., HYDI 144A notes,
8.75%, 2007
HMH Properties, Inc., Company guaranty,
series B, 7.875%, 2008
Echostar DBS Corp., Senior notes,
10.375%, 2007
Foreign bonds
Germany (Federal Republic of) bonds,
Series 95, 7.375%, 2005
Russia (Federation of), Unsubordinated
bonds, 8.25%, 2010
United Mexican States, Notes,
6.375%, 2013
U.S. Investment-grade securities
Federal National Mortgage Association,
Pass-through certificates, 7.0%, due dates
from 9/1/27 to 1/1/33
Federal National Mortgage Association,
Series 03-W3, class 1A3, 7.5%, 2042
Holmes Financing PLC, FRB series 1,
class 2C, 2.526%, 2040
Footnote reads:
*These holdings represent 20.4% of the fund's net assets as of 3/31/03.
The fund's holdings will change over time.
Among the fund's high-yield holdings, DirecTV and Nextel Communications
performed well. Both companies have seen an increase in subscribers and
have solid businesses, and both have taken steps to reduce debt. Nextel,
in particular, has retired several billion dollars in corporate debt in
the past year. Within the high-yield sector, however, the fund's
aerospace holdings detracted from performance as a result of significant
declines in air travel. In addition, some health-care holdings
underperformed, including Healthsouth, a hospital owner that is
struggling with allegations of accounting problems, and Fleming
Companies, a food distributor serving the grocery-store industry. The
fund has reduced these holdings, but we believe there is still value in
both firms and anticipate that we will maintain the fund's current
weightings.
We increased the fund's corporate investment-grade bond holdings at the
beginning of the period and kept this sector's weighting high before
cutting it back significantly near the period's end. This helped
performance, as the sector rallied. Corporate investment-grade bonds had
suffered greatly early in 2002 from the weakening economy and a wave of
corporate-malfeasance allegations. Beginning in October 2002, however,
these securities began to attract investors for many of the same reasons
that corporate high-yield bonds had -- narrowing yield spreads, fewer
credit problems, and a trend toward stronger balance sheets and lower
debt. Toward the end of the period, after the fund had benefited from
the rally, we felt that the sector's attractiveness had diminished and
we reduced the weighting.
The mortgage-backed securities (MBSs) sector was another strong area for
the fund, attracting investors who sought higher returns than Treasuries
but also demanded higher credit quality and were willing to forego the
additional yield that accompanied riskier bond sectors. Putnam's MBS
team focused on keeping duration, or interest sensitivity, low, and
diversified the fund's holdings across a range of maturities, coupons,
and agencies.
The fund's international government bonds benefited from slowing global
economies, especially in Europe, where the Swedish, French, and German
bond markets performed well as inflation remained low and equity
performance was weak. Our security and country selections in emerging
markets were on target, but we were underweight in this sector, which
detracted from the fund's performance relative to its benchmarks. Within
emerging markets, the fund favored oil-exporting countries that were
benefiting from higher oil prices and strengthening economies, such as
Russia, Mexico, Colombia, and Bulgaria. Also as a result of our ongoing
risk management, we were able to avoid being overexposed to countries
such as Venezuela, Brazil, and Turkey, which performed poorly due to
political and economic turmoil.
Please note that all sectors and holdings discussed in this report are
subject to review in accordance with the fund's investment strategy and
may vary in the future.
* THE FUND'S MANAGEMENT TEAM
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,
Steve Horner, James Prusko, Michael Salm, and John Van Tassel.
OF SPECIAL INTEREST
* As a result of significant declines in the yields of shorter- and
intermediate-duration bonds over the past several years, the level of
income produced by the fund's holdings has declined. In February 2003,
the fund lowered its distribution rate from $0.045 per share to $0.038
per share.
THE OUTLOOK FOR YOUR FUND
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
The outlook for the remainder of 2003 appears uncertain, as the end of
the U.S. military campaign in Iraq has caused investors to refocus on
the economy and corporate earnings. While consumer mortgage refinancing
continues at a brisk pace due to low mortgage rates, which has helped
keep consumer spending from sagging, corporate spending remains in the
doldrums. Moreover, we have not seen a decrease in the unemployment
rate.
Despite these uncertainties, we do not believe the economy is likely to
contract, resulting in a "double-dip" recession. We expect moderate,
albeit slow, growth for 2003, with the possibility of an increase in
interest rates, especially if economic growth appears likely to
strengthen. Overseas, we anticipate more of the same: with continued
slow growth in Europe and uneven returns in emerging markets, some
countries should continue to outperform, while others will likely remain
volatile.
In such an environment, we believe that the sectors in which this fund
invests, which are less sensitive to interest-rate movements than
Treasuries, are well positioned to perform. In addition, the fund's
emphasis on a shorter duration, which is designed to reduce sensitivity
to interest-rate changes, may mitigate the impact of rising interest
rates, if rates do indeed rise this year. In general, if investors
remain skeptical about the stock market, we believe that they may
continue to seek higher-yielding fixed-income securities.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. International
investing involves certain risks, such as currency fluctuations,
economic instability, and political developments. Lower-rated bonds may
offer higher yields in return for more risk. Mutual funds that invest in
government securities are not guaranteed. Mortgage-backed securities are
subject to prepayment risk.
PERFORMANCE SUMMARY
This section provides information about your fund's performance during
its semiannual period, which ended March 31, 2003. Performance should
always be considered in light of a fund's investment strategy. Past
performance does not indicate future results. More recent returns may be
less or more than those shown. Investment return and principal value
will fluctuate and you may have a gain or a loss when you sell your
shares. A profile of your fund's strategy appears on the first page of
this report. See page 9 for definitions of some terms used in this
section.
TOTAL RETURN FOR PERIODS ENDED 3/31/03
NAV Market price
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6 months 9.44% 2.81%
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1 year 8.45 11.63
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5 years 19.90 25.95
Annual average 3.70 4.72
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10 years 80.43 80.07
Annual average 6.08 6.06
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Life of fund
(since 4/29/88)
Annual average 7.50 6.67
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Performance does not reflect taxes on reinvested distributions.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/03
Citigroup Non- JP Morgan Lipper Flexible
Lehman U.S. World Global Income Funds
Government Government High Yield category
Credit Index Bond Index Index+ average*
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6 months 3.40% 10.02% 12.61% 10.16%
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1 year 13.43 28.94 6.50 5.56
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5 years 44.53 32.35 8.88 11.15
Annual average 7.65 5.77 1.72 1.89
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10 years 102.30 82.32 -- 74.71
Annual average 7.30 6.19 -- 5.66
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Life of fund
(since 4/29/88)
Annual average 8.59 6.78 -- 7.63
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+ This comparative index replaced the CSFB High Yield Index on 12/30/02
because, in Putnam Management's opinion, the securities tracked by this
index more accurately reflect the types of securities generally held by
the fund. The JP Morgan Global High Yield Index's inception date was
12/31/93.
* Over the 6-month and 1-, 5-, and 10-year periods ended 3/31/03, there
were 12, 12, 12, and 9 funds, respectively, in this Lipper category.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/03
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Distributions (number) 6
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Income $0.256
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Capital gains --
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Total $0.256
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Share value: NAV Market price
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9/30/02 $6.26 $6.38
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3/31/03 6.58 6.30
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Current return (end of period)
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Current dividend rate 1 6.93% 7.24%
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1 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 shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE INDEXES
Lehman Government Credit Index is an unmanaged index of U.S.
fixed-income securities.
Citigroup (formerly Salomon Smith Barney) Non-U.S. World Government Bond
Index is an unmanaged index of government bonds from 10 countries.
JP Morgan Global High Yield Index is an unmanaged index of global
high-yield debt securities.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Russell 2000 Growth Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their growth orientation.
Russell 2000 Value Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their value orientation.
Standard & Poor's (S&P) 500 Index is an unmanaged index of common stock
performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these materials
to customers who share the same address. This change will automatically
apply to all shareholders except those who notify us. If you would prefer
to receive your own copy, please call Putnam at 1-800-225-1581.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
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 period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios, and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
THE FUND'S PORTFOLIO
March 31, 2003 (Unaudited)
CORPORATE BONDS AND NOTES (52.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.1%)
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$186,044 Adams Outdoor Advertising bank term loan FRN Ser. B,
4 7/8s, 2008 (acquired 8/1/01, cost $186,044) (RES) $186,091
902,089 Interact Operating Co. notes 14s, 2003 (In default) (DEF) (NON) (PIK) 90
200,000 Lamar Media Corp. bank term loan FRN 3 5/8s, 2010
(acquired 2/27/03, cost $200,000) (RES) 199,850
560,000 Lamar Media Corp. 144A sr. sub. notes 7 1/4s, 2013 581,700
-------------
967,731
Automotive (1.1%)
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190,000 American Axle & Manufacturing, Inc. company guaranty 9 3/4s, 2009 204,250
495,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 426,938
980,000 Collins & Aikman Products, Inc. company guaranty 10 3/4s, 2011 950,600
185,000 Dana Corp. notes 10 1/8s, 2010 189,163
710,000 Dana Corp. notes 9s, 2011 695,800
295,000 Dana Corp. notes 6 1/2s, 2009 264,025
360,000 Dana Corp. notes 6 1/4s, 2004 359,100
EUR 50,000 Dana Corp. sr. notes 9s, 2011 51,277
$115,000 Delco Remy International, Inc. company guaranty 11s, 2009 60,950
215,000 Delco Remy International, Inc. company guaranty 10 5/8s, 2006 109,650
110,000 Delco Remy International, Inc. sr. notes 8 5/8s, 2007 91,850
265,000 Dura Operating Corp. company guaranty Ser. B, 8 5/8s, 2012 253,075
1,085,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 878,850
260,000 Federal Mogul Corp. notes 7 7/8s, 2010 (In default) (NON) 33,800
545,000 Federal Mogul Corp. notes 7 3/4s, 2006 (In default) (NON) 70,850
805,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 871,413
1,070,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 1,120,825
EUR 215,000 Lear Corp. sr. notes 8 1/8s, 2008 243,361
$260,000 Tenneco Automotive, Inc. company guaranty Ser. B, 11 5/8s, 2009 198,250
200,000 TRW Automotive bank term loan FRN 5.313s, 2011
(acquired 2/21/03, cost $199,000) (RES) 196,844
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7,270,871
Basic Materials (6.1%)
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10,000 Abitibi-Consolidated Finance LP company guaranty 7 7/8s, 2009 10,594
960,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 1,036,800
50,000 Airgas, Inc. company guaranty 9 1/8s, 2011 54,875
255,000 AK Steel Corp. company guaranty 7 7/8s, 2009 234,600
1,020,000 AK Steel Corp. company guaranty 7 3/4s, 2012 938,400
154,657 Appleton Papers, Inc. bank term loan FRN 4.596s, 2006
(acquired 6/4/02, cost $155,237) (RES) 154,980
1,050,000 Appleton Papers, Inc. company guaranty Ser. B, 12 1/2s, 2008 1,183,875
780,000 Armco, Inc. sr. notes 9s, 2007 744,900
845,000 Avecia Group PLC company guaranty 11s, 2009 (United Kingdom) 718,250
610,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 222,650
530,000 Compass Minerals Group, Inc. company guaranty 10s, 2011 583,000
200,000 Crown Cork & Seal Company, Inc. bank term loan FRN
5.54s, 2008 (acquired 2/21/03, cost $198,000) (RES) 199,250
989,400 Doe Run Resources Corp. company guaranty Ser. A1, 11 3/4s, 2008 (PIK) 395,760
765,000 Dow Chemical Co. (The) notes 5 3/4s, 2009 780,500
195,000 Equistar Chemical notes 6 1/2s, 2006 175,500
185,000 Equistar Chemicals LP notes 8 3/4s, 2009 167,425
1,200,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty
10 1/8s, 2008 1,149,000
105,000 Ferro Corp. sr. notes 9 1/8s, 2009 116,083
EUR 215,000 Fort James Corp. company guaranty 4 3/4s, 2004 222,837
$450,000 Four M Corp. sr. notes Ser. B, 12s, 2006 460,125
505,000 Georgia-Pacific Corp. debs. 9 1/2s, 2011 499,950
300,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 282,000
265,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 255,725
685,000 Georgia-Pacific Corp. 144A sr. notes 8 7/8s, 2010 710,688
200,000 Graham Packaging bank term loan FRN 5.563s, 2010
(acquired 2/18/03, cost $199,000) (RES) 198,602
90,000 Haynes International, Inc. sr. notes 11 5/8s, 2004 48,600
200,000 Hercules, Inc. bank term loan FRN Ser. B, 4.466s, 2007
(acquired 12/17/02, cost $199,500) (RES) 199,917
1,495,000 Hercules, Inc. company guaranty 11 1/8s, 2007 1,689,350
571,184 Huntsman Corp. bank term loan FRN Ser. A, 6.004s, 2007
(acquired various dates from 3/1/02 to 7/17/02, cost $459,742) (RES) 473,511
274,005 Huntsman Corp. bank term loan FRN Ser. B, 7.375s, 2007
(acquired various dates from 3/1/02 to 6/10/02, cost $220,684) (RES) 227,150
1,250,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 1,187,500
1,450,000 Huntsman ICI Holdings sr. disc. notes zero %, 2009 362,500
EUR 495,000 Huntsman International, LLC sr. sub. notes Ser. EXCH, 10 1/8s, 2009 467,139
$270,000 IMC Global, Inc. company guaranty Ser. B, 11 1/4s, 2011 292,950
440,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 479,600
75,000 IMC Global, Inc. notes 6.55s, 2005 74,250
185,000 IMC Global, Inc. 144A sr. notes 11 1/4s, 2011 197,025
1,385,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 1,476,756
235,000 ISP Holdings, Inc. sec. sr. notes Ser. B, 10 5/8s, 2009 226,775
60,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006
(In default) (NON) 37,200
1,685,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2049
(In default) (NON) 67,400
40,000 Louisiana-Pacific Corp. sr. notes 8 7/8s, 2010 44,539
340,000 Louisiana-Pacific Corp. sr. sub. notes 10 7/8s, 2008 374,000
335,000 Lyondell Chemical Co. bonds 11 1/8s, 2012 346,725
190,000 Lyondell Chemical Co. company guaranty 9 1/2s, 2008 184,300
1,170,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 1,170,000
765,000 Lyondell Chemical Co. sr. sub. notes 10 7/8s, 2009 711,450
350,000 Lyondell Chemical Co. 144A sec. notes 9 1/2s, 2008 339,500
EUR 800,000 MDP Acquisitions PLC sr. notes, 10 1/8s, 2012 (Ireland) 885,892
$11,304 MDP Acquisitions PLC 144A sub. notes 15 1/2s, 2013 (Ireland) 12,152
EUR 210,000 Messer Griesheim Holdings AG sr. notes 10 3/8s, 2011 (Germany) 247,668
$1,155,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 1,247,400
325,000 Millenium America, Inc. company guaranty 7s, 2006 320,938
500,000 Noveon International bonds 13s, 2011 500,000
460,000 Noveon International company guaranty Ser. B, 11s, 2011 503,700
935,000 OM Group, Inc. company guaranty 9 1/4s, 2011 748,000
475,000 Oregon Steel Mills, Inc. company guaranty 10s, 2009 460,750
347,000 P&L Coal Holdings Corp. company guaranty Ser. B, 9 5/8s, 2008 364,784
975,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 1,011,563
509,465 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 392,288
185,000 Phelps Dodge Corp. sr. notes 8 3/4s, 2011 200,407
256,488 Pioneer Cos., Inc. sec. FRN 4.79s, 2006 189,801
805,000 Potlatch Corp. company guaranty 10s, 2011 871,413
275,000 Riverwood International Corp. bank term loan FRN Ser. C,
3.861s, 2008 (acquired 4/24/02, cost $275,000) (RES) 273,024
2,215,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 2,292,525
755,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 588,900
415,000 Salt Holdings Corp. 144A sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 263,525
120,000 Smurfit-Stone Container Corp. company guaranty 8 1/4s, 2012 128,400
750,000 Solutia, Inc. company guaranty 11 1/4s, 2009 577,500
960,000 Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 984,000
137,417 Sterling Chemicals, Inc. sec. notes 10s, 2007 (PIK) 116,117
930,000 Stone Container Corp. sr. notes 9 3/4s, 2011 1,036,950
350,000 Stone Container Corp. sr. notes 9 1/4s, 2008 383,250
760,000 Stone Container Corp. sr. notes 8 3/8s, 2012 807,500
500,000 Stone Container Corp. 144A company guaranty
11 1/2s, 2006 (Canada) 536,250
705,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 721,744
150,000 Tembec Industries, Inc. company guaranty 8 1/2s, 2011 (Canada) 153,563
80,000 Tembec Industries, Inc. company guaranty 7 3/4s, 2012 (Canada) 78,800
300,000 Tembec Industries, Inc. sr. notes 8 5/8s, 2009 304,500
50,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 29,000
200,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 116,000
610,000 Ucar Finance, Inc. company guaranty 10 1/4s, 2012 542,900
510,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 153,000
38,500 Weirton Steel Corp. sr. notes FRN 10s, 2008 3,850
780,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 (In default) (NON) 3,900
410,000 WHX Corp. sr. notes 10 1/2s, 2005 319,800
-------------
40,546,260
Building Materials (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,075,000 American Standard Cos., Inc. company guaranty 7 5/8s, 2010 1,171,750
270,000 Atrium Cos., Inc. company guaranty Ser. B, 10 1/2s, 2009 280,125
320,000 Building Materials Corp. company guaranty 8s, 2008 256,000
890,000 Dayton Superior Corp. company guaranty 13s, 2009 738,700
195,000 NCI Building Systems, Inc. bank term loan FRN Ser. B,
4.29s, 2008 (acquired 9/4/02, cost $195,000) (RES) 195,244
450,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 465,750
90,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 92,925
330,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 340,725
1,510,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 362,400
-------------
3,903,619
Capital Goods (4.7%)
-------------------------------------------------------------------------------------------------------------------
250,000 Advanced Glass Fiber Yarns bank term loan FRN Ser. A, 6 3/4s, 2004
(acquired 9/12/02, cost $175,000) (RES) 150,000
230,000 Advanced Glass Fiber Yarns sr. sub. notes 9 7/8s, 2009 (In default) (NON) 11,500
700,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 633,500
222,462 Alliant Techsystems, Inc. bank term loan FRN Ser. C, 3.68s, 2009
(acquired 5/7/02, cost $222,462) (RES) 222,490
36,385 Allied Waste Industries, Inc. bank term loan FRN 4.304s, 2007
(acquired 2/27/02, cost $35,931) (RES) 36,271
298,502 Allied Waste Industries, Inc. bank term loan FRN 4.04s, 2006
(acquired various dates from 10/22/01 to 2/27/02, cost $293,729) (RES) 297,569
2,135,000 Allied Waste North America, Inc. company guaranty Ser. B, 10s, 2009 2,215,063
400,000 Allied Waste North America, Inc. company guaranty Ser. B, 8 7/8s, 2008 421,500
980,000 Allied Waste North America, Inc. company guaranty Ser. B, 8 1/2s, 2008 1,025,325
20,000 Allied Waste North America, Inc. company guaranty Ser. B, 7 5/8s, 2006 20,275
1,430,000 Allied Waste North America, Inc. 144A company guaranty 9 1/4s, 2012 1,521,163
330,000 Allied Waste North America, Inc. 144A Structured Notes 8.2s, 2006
(issued by Credit and Repackaged Securities, Ltd.) (Cayman Islands) 341,055
640,000 Applied Extrusion Technologies, Inc. company guaranty Ser. B,
10 3/4s, 2011 438,400
1,320,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 1,089,000
200,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 165,000
535,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 353,100
135,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 84,375
670,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 432,150
290,000 Berry Plastics Corp. company guaranty 10 3/4s, 2012 303,050
1,180,000 Blount, Inc. company guaranty 13s, 2009 826,000
280,000 Blount, Inc. company guaranty 7s, 2005 247,800
555,000 Briggs & Stratton company guaranty 8 7/8s, 2011 599,400
270,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 255,150
125,000 Casella Waste Systems, Inc. bank term loan FRN Ser. B, 4.563s, 2010
(acquired 1/22/03, cost $125,000) (RES) 125,430
1,440,000 Crown Holdings SA 144A sec. notes 9 1/2s, 2011 (France) 1,438,200
1,000,000 Decrane Aircraft Holdings Co. company guaranty Ser. B, 12s, 2008 510,000
615,000 Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 633,450
820,000 FIMEP SA 144A sr. notes 10 1/2s, 2013 (France) 869,200
103,657 Flowserve Corp. bank term loan FRN Ser. C, 4.165s, 2009
(acquired 4/30/02, cost $103,657) (RES) 103,462
505,000 Flowserve Corp. company guaranty 12 1/4s, 2010 560,550
EUR 95,000 Flowserve Finance BV company guaranty 12 1/4s, 2010 (Netherlands) 113,491
$95,000 Fonda Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 54,150
665,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 598,500
530,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 132,500
460,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (In default) (NON) (STP) 9,200
420,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 235,200
375,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 5/8s, 2010 397,500
305,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 323,300
330,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 346,088
1,150,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,206,063
140,000 L-3 Communications Corp. 144A Structured Notes 8 1/2s, 2006
(Issued by Credit and Repackaged Securities, Ltd.) (Cayman Islands) 156,310
1,570,000 Laidlaw, Inc. notes 7.65s, 2006 (Canada) (In default) (NON) 785,000
245,000 Manitowoc Co., Inc. (The) company guaranty 10 1/2s, 2012 254,800
EUR 190,000 Manitowoc Co., Inc. (The) company guaranty 10 3/8s, 2011 205,217
$396,876 Michigan Electric Transmission Co./Michigan Electric Transmission, Inc.
bank term loan FRN Ser. B, 3.81s, 2007 (acquired various dates
from 4/22/02 to 5/3/02, cost $399,126) (RES) 397,041
410,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 412,050
1,035,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 905,625
1,405,000 Owens-Brockway Glass company guaranty 8 7/8s, 2009 1,433,100
550,000 Owens-Brockway Glass 144A sec. sr. notes 8 3/4s, 2012 558,250
135,000 Owens-Brockway Glass 144A sec. sr. notes 8 3/4s, 2012 (Fungible) 137,025
700,000 Pliant Corp. company guaranty 13s, 2010 637,000
145,000 Pliant Corp. sr. sub. notes 13s, 2010 131,950
295,000 Rexnord Corp. 144A sr. sub. notes 10 1/8s, 2012 313,438
660,000 Roller Bearing Company of America company guaranty Ser. B,
9 5/8s, 2007 554,400
1,220,000 Sequa Corp. sr. notes 9s, 2009 1,207,800
160,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 157,200
42,524 SPX Corp. bank term loan FRN Ser. B, 3.563s, 2009
(acquired 7/23/02, cost $42,524) (RES) 42,362
70,837 SPX Corp. bank term loan FRN Ser. C, 3.813s, 2010
(acquired 7/23/02, cost $70,837) (RES) 70,567
235,000 Sweetheart Cup Co. sr. sub. notes 12s, 2003 193,875
955,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 859,500
135,000 Terex Corp. company guaranty 8 7/8s, 2008 132,638
750,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 772,500
260,000 Terex Corp. company guaranty Ser. D, 8 7/8s, 2008 257,400
198,558 Trimas Corp. bank term loan FRN 4.438s, 2009
(acquired 6/5/02, cost $198,558) (RES) 198,637
435,000 Trimas Corp. company guaranty 9 7/8s, 2012 439,350
150,000 Trimas Corp. 144A company guaranty 9 7/8s, 2012 151,500
272,973 United Defense Industries, Inc. bank term loan FRN Ser. B, 3.56s, 2009
(acquired various dates from 10/19/01 to 7/1/02, cost $272,973) (RES) 272,973
-------------
30,982,928
Commercial and Consumer Services (0.5%)
-------------------------------------------------------------------------------------------------------------------
380,000 Brand Services, Inc. 144A sr. sub. notes 12s, 2012 414,200
143,242 Coinmach Corp. bank term loan FRN Ser. B, 4.412s, 2009
(acquired 1/31/02, cost $143,062) (RES) 143,331
1,195,000 Coinmach Corp. sr. notes 9s, 2010 1,260,725
150,000 Corrections Corporation of America bank term loan FRN 4.841s,
2008 (acquired 2/24/03, cost $150,188) (RES) 149,775
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) 16,957
$645,000 IESI Corp. company guaranty 10 1/4s, 2012 651,450
655,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 (In default) (NON) 6,550
290,000 United Rentals (North America), Inc. company guaranty Ser. B,
10 3/4s, 2008 300,150
675,000 Williams Scotsman, Inc. company guaranty 9 7/8s, 2007 656,438
-------------
3,609,639
Communication Services (3.8%)
-------------------------------------------------------------------------------------------------------------------
420,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 75,600
640,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 320,000
280,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 131,600
1,623,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 503,130
1,090,000 American Cellular Corp. company guaranty 9 1/2s, 2009 267,050
475,000 American Tower Corp. sr. notes 9 3/8s, 2009 427,500
550,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda)
(In default) (NON) 66,000
249,375 Bell Actimedia bank term loan FRN Ser. C, 5.661s, 2010
(acquired 11/26/02, cost $246,881) (RES) 250,985
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) 688,500
765,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 699,975
90,000 Crown Castle International Corp. sr. notes 9s, 2011 77,850
2,430,000 Cybernet Internet Services International, Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (Denmark)
(In default) (NON) (STP) 2,430
940,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 893,000
80,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13s, 4/15/03), 2008 (In default) (NON) (STP) 8
295,080 Globix Corp. company guaranty 11s, 2008 (PIK) 209,507
160,000 Horizon PCS, Inc. company guaranty 13 3/4s, 2011 19,200
60,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008
(In default) (NON) 38,700
910,000 iPCS, Inc. sr. disc. notes stepped-coupon zero % (14s, 7/15/05), 2010
(In default) (NON) (STP) 45,500
506,000 IWO Holdings, Inc. company guaranty 14s, 2011 91,080
580,000 Leap Wireless International, Inc. company guaranty 12 1/2s, 2010 81,200
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) 15,900
570,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 (In default) (NON) 17,100
900,000 Microcell Telecommunications sr. disc. notes Ser. B, 14s, 2006 (Canada)
(In default) (NON) 51,750
221,000 Millicom International Cellular SA sr. disc. notes 13 1/2s,
2006 (Luxembourg) 152,490
950,000 Nextel Communications, Inc. bank term loan FRN Ser. A, 2 5/8s, 2007
(acquired 11/1/02, cost $828,875) (RES) 898,278
124,375 Nextel Communications, Inc. bank term loan FRN Ser. B, 4 3/4s, 2008
(acquired 12/19/02, cost $115,046) (RES) 121,010
124,375 Nextel Communications, Inc. bank term loan FRN Ser. C, 5s, 2008
(acquired 12/19/02, cost $115,046) (RES) 121,010
15,000 Nextel Communications, Inc. sr. disc. notes zero %, 2008 15,638
15,000 Nextel Communications, Inc. sr. notes 12s, 2008 16,125
735,000 Nextel Communications, Inc. sr. notes 9 1/2s, 2011 775,425
1,195,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 1,254,750
165,000 Nextel Communications, Inc. 144A sr. disc. notes 10.65s, 2007 172,013
1,995,000 Nextel Partners, Inc. sr. disc. notes stepped-coupon zero %
(14s, 2/1/04), 2009 (STP) 1,835,400
520,000 Nextel Partners, Inc. sr. notes 12 1/2s, 2009 533,000
620,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 (In default) (NON) 136,400
490,000 PanAmSat Corp. bank term loan FRN Ser. B, 4.81s, 2009
(acquired 2/21/02, cost $489,388) (RES) 484,079
830,000 PanAmSat Corp. company guaranty 8 1/2s, 2012 854,900
1,785,000 Qwest Corp. 144A notes 8 7/8s, 2012 1,896,563
2,611,000 Qwest Services Corp. 144A notes 13 1/2s, 2010 2,754,605
103,011 Rhythms NetConnections, Inc. sr. notes Ser. B, 14s, 2010 (In default) (NON) 2,060
50,000 Rogers Cantel, Ltd. debs. 9 3/8s, 2008 (Canada) 51,625
770,000 Rogers Cantel, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 766,150
280,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 296,800
270,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 195,075
93,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 106,253
2,120,000 Telus Corp. notes 8s, 2011 (Canada) 2,247,200
1,300,000 Telus Corp. notes 7 1/2s, 2007 (Canada) 1,371,500
199,500 Time Warner Telecom, Inc. bank term loan FRN Ser. B, 5.29s, 2009
(acquired 1/15/03, cost $174,563) (RES) 169,376
350,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 276,500
340,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 268,600
80,000 Triton PCS, Inc. company guaranty 9 3/8s, 2011 68,400
810,000 Triton PCS, Inc. company guaranty stepped-coupon zero %,
(11s, 5/1/03), 2008 (STP) 741,150
510,000 TSI Telecommunication Services, Inc. company guaranty Ser. B,
12 3/4s, 2009 470,475
390,000 U S West, Inc. notes 5 5/8s, 2008 354,900
417,000 UbiquiTel Operating Co. 144A company guaranty stepped-coupon,
zero % (14s, 4/15/05), 2010 (STP) 104,250
900,000 US UnWired, Inc. company guaranty stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 148,500
405,000 US West Capital Funding, Inc. company guaranty 6 1/4s, 2005 341,213
-------------
24,994,591
Conglomerates (0.6%)
-------------------------------------------------------------------------------------------------------------------
365,000 Tyco International Group SA company guaranty 6 3/4s,
2011 (Luxembourg) 348,575
1,860,000 Tyco International Group SA company guaranty 6 3/8s,
2006 (Luxembourg) 1,813,500
225,000 Tyco International Group SA company guaranty 6 3/8s,
2005 (Luxembourg) 222,750
1,420,000 Tyco International Group SA notes 6 3/8s, 2011 (Luxembourg) 1,327,700
-------------
3,712,525
Consumer Staples (8.8%)
-------------------------------------------------------------------------------------------------------------------
50,000 Acme Communications, Inc. sr. disc. notes Ser. B, 12s, 2005 51,500
1,020,000 Acme Television company guaranty 10 7/8s, 2004 1,048,050
40,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005
(In default) (NON) 16,000
215,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010
(In default) (NON) 87,075
50,000 Adelphia Communications Corp. sr. notes 9 3/8s, 2009
(In default) (NON) 20,500
341,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007
(In default) (NON) 136,400
580,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009
(In default) (NON) 232,000
260,000 Ahold Finance USA eurobonds 6 3/8s, 2005 235,438
530,000 AMC Entertainment, Inc. sr. sub. notes 9 7/8s, 2012 528,675
245,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 243,775
640,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 638,400
447,726 American Seafood Group, LLC bank term loan FRN Ser. B, 4.56s, 2009
(acquired 4/11/02, cost $447,279) (RES) 448,986
222,585 AMF Bowling Worldwide bank term loan FRN Ser. B, 6.003s, 2008
(acquired 3/1/02, cost $222,028) (RES) 221,843
325,931 Archibald Candy Corp. company guaranty 10s, 2007 (PIK) 228,152
635,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 696,913
140,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 65,800
415,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 195,050
10,263 Australis Media, Ltd. sr. disc. notes 15 3/4s, 2003 (Australia) (In default) (NO 1
230,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009
(United Kingdom) 257,600
1,660,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 1,776,200
194,278 Carmike Cinemas, Inc. bank term loan FRN Ser. B, 7 3/4s, 2005
(acquired 10/4/02, cost $189,382) (RES) 191,970
900,000 Century Cable Holdings bank term loan FRN 6 1/4s, 2009
(acquired various dates from 6/5/02 to 6/11/02, cost $749,082) (RES) 635,000
1,680,000 Chancellor Media Corp. company guaranty 8s, 2008 1,896,300
159,597 Charter Communications Holdings, LLC bank term loan FRN Ser. B,
4.12s, 2008 (acquired 1/9/03, cost $138,650) (RES) 138,813
410,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 120,950
610,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (13 1/2s, 1/15/06), 2011 (STP) 183,000
610,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s, 1/15/05), 2010 (STP) 216,550
1,595,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
11 1/8s, 2011 709,775
860,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10 3/4s, 2009 397,750
420,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10 1/4s, 2010 185,850
660,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10s, 2011 306,900
600,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
9 5/8s, 2009 279,000
95,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
8 5/8s, 2009 43,938
90,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
8 1/4s, 2007 41,850
1,600,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 1,632,000
185,000 Cinemark USA, Inc. 144A sr. sub. notes 9s, 2013 196,563
150,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 158,250
305,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 322,538
425,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 444,125
570,000 Cott Beverages USA, Inc. company guaranty 8s, 2011 604,200
150,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 151,500
360,000 Cumulus Media, Inc. bank term loan FRN Ser. B, 4.313s, 2007
(acquired 3/20/02, cost $360,000) (RES) 361,736
170,000 Dean Foods Co. sr. notes 6 5/8s, 2009 173,400
210,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 222,600
560,000 Del Monte Corp. 144A sr. sub. notes 8 5/8s, 2012 593,600
250,000 Del Monte Foods Co. bank term loan FRN Ser. B, 5.049s, 2010
(acquired 12/16/02, cost $248,750) (RES) 251,750
120,000 DirecTV bank term loan FRN 4.83s, 2010
(acquired 3/4/03, cost $120,000) (RES) 119,738
1,675,000 DirecTV Holdings, LLC 144A sr. notes 8 3/8s, 2013 1,846,688
2,742,000 Diva Systems Corp. sr. disc. notes Ser. B, zero %, 2008 (In default) (NON) 75,405
1,370,000 Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 1,233,000
90,000 Dole Food Co. bank term loan FRN Ser. B 5.13s, 2008
(acquired 3/28/03, cost $90,000) (RES) 90,338
460,000 Dole Food Co. 144A sr. notes 8 7/8s, 2011 478,400
420,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 450,450
380,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 254,600
2,515,000 Echostar DBS Corp. sr. notes 10 3/8s, 2007 2,766,500
390,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 415,350
2,325,000 Echostar DBS Corp. sr. notes 9 1/8s, 2009 2,534,250
GBP 120,000 EMI Group eurobonds 8 1/4s, 2008 (United Kingdom) 166,532
$198,000 Emmis Communications Corp. bank term loan FRN Ser. C, 3.606s, 2009
(acquired 6/20/02, cost $197,753) (RES) 198,000
235,000 Emmis Communications Corp. company guaranty Ser. B, 8 1/8s, 2009 244,988
309,000 Emmis Communications Corp. sr. disc. notes stepped-coupon zero %
(12 1/2s, 3/15/06), 2011 (STP) 264,195
625,000 Fleming Cos., Inc. company guaranty 10 1/8s, 2008 128,125
515,000 Fleming Cos., Inc. sr. notes 9 1/4s, 2010 103,000
290,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 284,200
265,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 265,000
45,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 44,213
610,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 587,125
820,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 709,300
415,000 Gray Television, Inc. company guaranty 9 1/4s, 2011 451,313
880,000 Icon Health & Fitness company guaranty 11 1/4s, 2012 906,400
445,000 Insight Communications Co., Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 2/15/06), 2011 (STP) 315,950
70,000 Insight Midwest LP/Insight Capital, Inc. bank term loan FRN 4.063s, 2009
(acquired 1/9/01, cost $69,895) (RES) 67,506
95,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 9 3/4s, 2009 98,088
228,186 Jostens, Inc. bank term loan FRN Ser. C, 4.042s, 2009
(acquired 7/30/02, cost $228,186) (RES) 228,091
870,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 993,975
35,000 Knology, Inc. 144A sr. notes 12s, 2009 (PIK) 25,550
400,000 Land O'Lakes, Inc. sr. notes 8 3/4s, 2011 240,000
250,000 LIN Television Corp. company guaranty 8s, 2008 266,250
300,000 MGM Studios bank term loan FRN 4.28s, 2008
(acquired 6/10/02, cost $300,000) (RES) 298,406
320,000 Moore North America Finance, Inc. 144A sr. notes 7 7/8s, 2011 329,600
910,000 News America Holdings, Inc. company guaranty 9 1/4s, 2013 1,155,471
61,486 Nexstar Broadcasting bank term loan FRN 4.34s, 2011
(acquired 2/05/03, cost $61,486) (RES) 61,576
26,014 Nexstar Mission Broadcasting bank term loan FRN 4.34s, 2011
(acquired 2/05/03, cost $26,014) (RES) 26,052
1,115,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 1,115,000
500,000 Olympus Cable bank term loan FRN Ser. B, 6 1/4s, 2010
(acquired 6/20/02, cost $435,750) (RES) 401,364
$15,000 Pegasus Communications Corp. sr. notes 12 1/2s, 2007 $11,850
60,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 45,600
400,000 Pegasus Satellite sr. notes 12 3/8s, 2006 316,000
199,000 Playtex Products, Inc. bank term loan FRN 3.626s, 2009
(acquired 6/3/02, cost $199,000) (RES) 198,046
625,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 678,125
480,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 30,000
650,000 Premier International Foods PLC sr. notes 12s, 2009 (United Kingdom) 708,500
260,000 Premier Parks, Inc. sr. disc. notes stepped-coupon, zero %
(10s, 4/1/03), 2008 (STP) 253,175
1,000,000 Premier Parks, Inc. sr. notes 10s, 2007 970,000
1,160,000 Premium Standard Farms, Inc. sr. notes 9 1/4s, 2011 1,009,200
1,896,149 Quorum Broadcast Holdings, LLC notes stepped-coupon zero %
(15s, 5/15/06), 2009 (STP) 1,303,223
835,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 (In default) (NON) 334,000
133,500 Rayovac Corp. bank term loan FRN Ser. B, 5.086s, 2009
(acquired 9/26/02, cost $133,367) (RES) 133,500
352,000 RCN Corp. sr. disc. notes Ser. B, zero %, 2008 96,800
400,000 Regal Cinemas, Inc. company guaranty Ser. B, 9 3/8s, 2012 432,000
295,000 Remington Arms Co., Inc. 144A company guaranty 10 1/2s, 2011 315,650
465,000 Revlon Consumer Products sr. notes 9s, 2006 279,000
360,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 216,000
675,000 Rite Aid Corp. notes 7 1/8s, 2007 594,844
560,000 Rite Aid Corp. 144A notes 9 1/2s, 2011 579,600
550,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 583,000
247,503 Roundy's, Inc. bank term loan FRN 3.774s, 2009
(acquired 6/3/02, cost $247,503) (RES) 247,039
1,681,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 1,475,078
550,000 Sbarro, Inc. company guaranty 11s, 2009 503,250
470,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 498,200
306,645 Shoppers Drug Mart bank term loan FRN Ser. F, 3.273s, 2009
(acquired various dates from 5/22/02 to 5/29/02, cost $307,895) (RES) 306,677
800,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 80
340,000 Sinclair Broadcast Group, Inc. company guaranty 8 3/4s, 2011 360,400
375,000 Sinclair Broadcast Group, Inc. 144A company guaranty 8s, 2012 387,188
187,500 Six Flags, Inc. bank term loan FRN Ser. B, 3.59s, 2009
(acquired 1/15/03, cost $187,266) (RES) 184,727
200,000 Six Flags, Inc. sr. notes 9 1/2s, 2009 190,000
1,455,000 Six Flags, Inc. sr. notes 8 7/8s, 2010 1,349,513
200,000 Southland Corp. debs. Ser. A, 4 1/2s, 2004 198,000
1,437,000 Southland Corp. debs. Ser. B, 4s, 2004 1,411,853
164,605 Suiza Foods Corp. bank term loan FRN Ser. B, 3.54s, 2008
(acquired 12/10/01, cost $165,702) (RES) 164,306
1,270,000 TeleWest Communications PLC debs. 11s, 2007 (United Kingdom)
(In default) (NON) 241,300
260,000 TeleWest Communications PLC debs. 9 5/8s, 2006 (United Kingdom)
(In default) (NON) 49,400
200,000 TeleWest Communications PLC sr. notes Ser. S, 9 7/8s, 2010
(United Kingdom) (In default) (NON) 39,000
80,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008
(United Kingdom) (In default) (NON) 15,200
1,749,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009 (Netherlands)
(In default) (NON) 113,685
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) 115,050
130,000 United Pan-Europe NV 144A bonds 10 7/8s, 2009 (Netherlands)
(In default) (NON) 12,350
895,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B, 10 1/4s, 2009
(In default) (NON) 196,900
1,196,000 Young Broadcasting, Inc. company guaranty 10s, 2011 1,267,760
82,000 Young Broadcasting, Inc. company guaranty Ser. B, 8 3/4s, 2007 82,820
60,000 Yum! Brands, Inc. sr. notes 8 7/8s, 2011 67,650
265,000 Yum! Brands, Inc. sr. notes 8 1/2s, 2006 288,850
1,060,000 Yum! Brands, Inc. sr. notes 7.65s, 2008 1,139,500
-------------
57,822,144
Energy (4.5%)
-------------------------------------------------------------------------------------------------------------------
710,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 743,725
640,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 684,800
340,000 Chesapeake Energy Corp. company guaranty 9s, 2012 369,750
770,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 810,425
155,000 Chesapeake Energy Corp. sr. notes Ser. B, 8 1/2s, 2012 163,525
580,000 Chesapeake Energy Corp. 144A sr. notes 7 1/2s, 2013 593,050
875,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 936,250
130,000 Denbury Resources, Inc. company guaranty Ser. B, 9s, 2008 135,850
695,000 Dresser, Inc. company guaranty 9 3/8s, 2011 688,050
215,000 El Paso Energy Partners LP company guaranty Ser. B, 8 1/2s, 2011 218,763
400,000 Encore Acquisition Co. company guaranty 8 3/8s, 2012 420,000
200,000 Forest Oil Corp. company guaranty 7 3/4s, 2014 201,000
300,000 Forest Oil Corp. sr. notes 8s, 2011 312,750
450,000 Forest Oil Corp. sr. notes 8s, 2008 469,125
3,710,000 Gazprom OAO 144A notes 9 5/8s, 2013 (Russia) 3,832,430
395,000 Hornbeck Offshore Services, Inc. sr. notes 10 5/8s, 2008 420,181
80,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 83,800
145,000 Magnum Hunter Resources, Inc. company guaranty 9.6s, 2012 155,513
480,000 Mission Resources Corp. company guaranty Ser. C, 10 7/8s, 2007 288,000
700,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 752,500
540,000 Parker Drilling Co. company guaranty Ser. B, 10 1/8s, 2009 564,300
90,000 Peabody Energy Corp. bank term loan FRN 3.778s, 2010
(acquired 3/20/03, cost $90,000) (RES) 90,300
EUR 360,000 Pemex Project Funding Master Trust 144A company guaranty
6 5/8s, 2010 393,938
$2,750,000 Petronas Capital, Ltd. company guaranty 7s, 2012 (Malaysia) 2,976,875
2,170,000 Petronas Capital, Ltd. 144A company guaranty 7s, 2012 (Malaysia) 2,349,025
2,260,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 2,694,917
115,000 Pioneer Natural Resources Co. company guaranty 6 1/2s, 2008 119,225
380,000 Plains All American Pipeline LP/Plains All American Finance Corp.
company guaranty 7 3/4s, 2012 410,400
670,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 720,250
800,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 830,000
270,000 Seven Seas Petroleum, Inc. sr. notes Ser. B, 12 1/2s, 2005 (In default) (NON) 29,700
745,000 Star Gas Partners LP/Star Gas Finance Co. 144A sr. notes 10 1/4s, 2013 737,550
160,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 166,400
710,000 Stone Energy Corp. sr. sub. notes 8 1/4s, 2011 734,850
330,000 Swift Energy Co. sr. sub. notes 10 1/4s, 2009 343,200
470,000 Swift Energy Co. sr. sub. notes 9 3/8s, 2012 470,000
740,000 Trico Marine Services, Inc. company guaranty 8 7/8s, 2012 680,800
670,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 702,663
405,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 429,300
145,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 145,000
700,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 747,250
380,000 Westport Resources Corp. 144A company guaranty 8 1/4s, 2011 406,600
500,000 XCL, Ltd. 144A company guaranty 13 1/2s, 2004 (In default) (NON) 150,000
195,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 210,113
110,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s, 2009 114,950
-------------
29,497,093
Financial (2.1%)
-------------------------------------------------------------------------------------------------------------------
460,000 Chevy Chase Savings Bank, Inc. sub. debs. 9 1/4s, 2005 461,150
23,126 Comdisco Holding Co., Inc./Comdisco, Inc. sec. notes Ser. B, 11s, 2005 23,126
790,000 Conseco, Inc. 144A company guaranty 10 3/4s, 2009 (In default) (NON) 213,300
120,000 Crescent Real Estate Equities LP notes 7 1/2s, 2007 (R) 119,550
765,000 Crescent Real Estate Equities LP sr. notes 9 1/4s, 2009 (R) 803,250
2,192,000 Finova Group, Inc. notes 7 1/2s, 2009 772,680
220,724 Hilb, Rogal & Hamilton Co. bank term loan FRN 4.063s, 2007
(acquired 6/20/02, cost $220,724) (RES) 221,000
302,000 Imperial Credit Industries, Inc. sec. notes 12s, 2005 (In default) (NON) 755
825,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 (R) 888,938
250,000 iStar Financial, Inc. sr. notes 7s, 2008 257,500
200,000 ITC Holdings Corp. bank term loan FRN 5.05s, 2009
(acquired 2/27/03, cost $200,000) (RES) 200,500
200,000 ITC OPCO bank term loan FRN 3.8s, 2009
(acquired 2/27/03, cost $199,750) (RES) 199,375
4,530,000 JP Morgan HYDI 144A notes 8 3/4s, 2007 4,699,875
258,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 (In default) (NON) 1,290
112,000 Ocwen Financial Corp. notes 11 7/8s, 2003 113,120
770,000 Resource America, Inc. 144A sr. notes 12s, 2004 770,000
2,065,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 2,472,838
630,000 Superior Financial Corp. 144A sr. notes 8.65s, 2003 629,908
355,543 Veridian Corp. bank term loan FRN 4.756s, 2008
(acquired 9/20/02, cost $355,543) (RES) 356,565
540,000 Western Financial Bank sub. debs. 9 5/8s, 2012 540,000
95,000 Yell Finance BV sr. notes 10 3/4s, 2011 (Netherlands) 105,450
-------------
13,850,170
Gaming & Lottery (3.5%)
-------------------------------------------------------------------------------------------------------------------
470,000 Aladdin Gaming Holdings, LLC sr. disc. notes Ser. B, 13 1/2s, 2010
(In default) (NON) 3,525
420,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 455,700
650,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 705,250
160,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 169,600
330,000 Borgata Resorts bank term loan FRN 5.339s, 2007
(acquired 6/5/02, cost $329,175) (RES) 326,700
750,000 Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 791,250
310,000 Chumash Casino & Resort Enterprise 144A sr. notes 9s, 2010 326,275
675,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 722,250
225,000 Herbst Gaming, Inc. 144A sec. sr. notes 10 3/4s, 2008 240,750
1,030,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 1,107,250
520,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 451,100
940,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 991,700
720,000 International Game Technology sr. notes 8 3/8s, 2009 858,853
1,710,000 International Game Technology sr. notes 7 7/8s, 2004 1,801,429
855,000 Majestic Investor Holdings/Capital Corp. company guaranty
11.653s, 2007 820,800
80,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 87,600
50,000 Mandalay Resort Group sr. sub. notes 9 3/8s, 2010 52,375
1,970,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 2,176,850
490,000 Mirage Resorts, Inc. notes 6 3/4s, 2008 502,250
105,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 110,250
970,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 1,020,925
200,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 208,750
700,000 Mohegan Tribal Gaming Authority sr. sub. notes 8s, 2012 722,750
155,000 MTR Gaming Group, Inc. 144A company guaranty 9 3/4s, 2010 158,100
1,020,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 1,040,400
395,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 419,688
115,000 Park Place Entertainment Corp. sr. sub. notes 8 1/8s, 2011 118,738
200,000 Penn National Gaming, Inc. bank term loan FRN 5.31s, 2010
(acquired 2/19/03, cost $199,750) (RES) 199,800
330,000 Penn National Gaming, Inc. company guaranty Ser. B, 11 1/8s, 2008 356,400
865,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 882,300
220,000 Pinnacle Entertainment, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 191,400
750,000 Resorts International Hotel and Casino, Inc. company guaranty
11 1/2s, 2009 652,500
450,000 Riviera Holdings Corp. company guaranty 11s, 2010 388,125
249,375 Scientific Gaming bank term loan FRN Ser. B, 4.81s, 2008
(acquired 12/11/02, cost $248,128) (RES) 249,297
750,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 800,625
410,000 Trump Atlantic City Associates company guaranty 11 1/4s, 2006 319,800
1,145,000 Trump Casino Holdings, LLC 144A mtge. 11 5/8s, 2010 1,096,338
90,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 90,338
1,420,000 Venetian Casino Resort, LLC company guaranty 11s, 2010 1,485,675
100,000 Wheeling Island Gaming, Inc. company guaranty 10 1/8s, 2009 99,000
-------------
23,202,706
Health Care (4.0%)
-------------------------------------------------------------------------------------------------------------------
149,625 Advanced Medical Optics, Inc. bank term loan FRN 4.64s, 2008
(acquired 6/17/02, cost $149,438) (RES) 149,775
290,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 298,700
275,000 ALARIS Medical Systems, Inc. sec. notes Ser. B, 11 5/8s, 2006 314,531
1,010,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 8/1/03), 2008 (STP) 1,030,200
1,725,700 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 1,561,759
14,200 Alderwoods Group, Inc. company guaranty 11s, 2007 14,200
697,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 665,635
560,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 604,800
435,000 AmerisourceBergen Corp. 144A sr. notes 7 1/4s, 2012 456,750
360,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 397,800
870,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 906,975
298,500 Community Health Systems, Inc. bank term loan FRN Ser. B, 3.84s,
2010 (acquired 7/11/02, cost $298,500) (RES) 296,914
760,000 Conmed Corp. company guaranty 9s, 2008 786,600
185,000 Dade Behring, Inc. company guaranty 11.91s, 2010 205,350
296,290 DaVita, Inc. bank term loan FRN Ser. B, 4.479s, 2009
(acquired 4/26/02, cost $295,920) (RES) 296,401
500,000 Extendicare Health Services, Inc. company guaranty 9 1/2s, 2010 495,000
200,000 Fisher Scientific International, Inc. bank term loan FRN 3.813s, 2010
(acquired 2/13/03, cost $200,000) (RES) 200,650
200,000 Fresenius Medical Care AG bank term loan FRN 3.821s, 2010
(acquired 2/18/03, cost $200,000) (RES) 200,229
37,719 Genesis Health Ventures, Inc. sec. notes FRN 6.38s, 2007 37,342
605,000 Hanger Orthopedic Group, Inc. company guaranty 10 3/8s, 2009 647,350
145,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 153,700
1,500,000 HCA, Inc. med. term notes 8.85s, 2007 1,694,552
560,000 HCA, Inc. notes 8 3/4s, 2010 649,886
1,240,000 HCA, Inc. notes 7s, 2007 1,332,680
905,000 Healthsouth Corp. notes 7 5/8s, 2012 (In default) (NON) 411,775
610,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 (In default) (NON) 280,600
245,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 (In default) (NON) 112,700
765,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 (In default) (NON) 95,625
400,000 IASIS Healthcare Corp. company guaranty 13s, 2009 440,000
1,000,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 21,250
380,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 8,550
165,320 Kinetic Concepts, Inc. bank term loan FRN Ser. C, 4.04s, 2005
(acquired 11/15/01, cost $165,527) (RES) 164,907
735,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 764,400
1,440,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 (In default) (NON) 374,400
270,000 Magellan Health Services, Inc. 144A sr. notes 9 3/8s, 2007 (In default) (NON) 226,800
560,000 Mediq, Inc. debs. stepped-coupon zero % (13s, 6/1/03), 2009
(In default) (NON) (STP) 56
925,000 MedQuest, Inc. company guaranty Ser. B, 11 7/8s, 2012 860,250
1,590,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 31,800
EUR 385,000 NYCO Holdings 144A 11 1/2s, 2013 420,035
$570,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 614,175
1,135,000 PacifiCare Health Systems, Inc. company guaranty 10 3/4s, 2009 1,231,475
160,000 Rotech Healthcare, Inc. 144A sr. sub. notes 9 1/2s, 2012 158,000
75,000 Service Corp. International notes 7.7s, 2009 74,063
75,000 Service Corp. International notes 7.2s, 2006 73,875
110,000 Service Corp. International notes 6 1/2s, 2008 105,325
1,580,000 Service Corp. International notes 6s, 2005 1,574,075
270,000 Service Corp. International notes Ser. (a), 7.7s, 2009 265,275
720,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 795,600
260,000 Tenet Healthcare Corp. sr. notes 6 1/2s, 2012 249,600
405,000 Tenet Healthcare Corp. sr. notes 6 3/8s, 2011 387,788
130,000 Tenet Healthcare Corp. sr. notes 5 3/8s, 2006 128,050
1,995,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 2,199,488
635,567 Triad Hospitals, Inc. bank term loan FRN Ser. B, 4.31s, 2008
(acquired 4/24/01, cost $634,931) (RES) 637,445
100,000 Triad Hospitals, Inc. company guaranty Ser. B, 8 3/4s, 2009 108,000
305,000 Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 326,350
-------------
26,539,511
Homebuilding (1.0%)
-------------------------------------------------------------------------------------------------------------------
430,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 449,350
290,000 D.R. Horton, Inc. company guaranty 8 1/2s, 2012 307,400
630,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 655,200
530,000 Del Webb Corp. sr. sub. debs. 9 3/8s, 2009 556,500
450,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 497,250
335,000 K. Hovnanian Enterprises, Inc. company guaranty 8 7/8s, 2012 336,675
130,000 K. Hovnanian Enterprises, Inc. company guaranty 8s, 2012 132,275
625,000 KB Home sr. sub. notes 9 1/2s, 2011 673,438
60,000 KB Home sr. sub. notes 7 3/4s, 2010 61,200
810,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 909,225
140,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 143,325
445,000 Schuler Homes, Inc. company guaranty 10 1/2s, 2011 485,050
40,000 Schuler Homes, Inc. company guaranty 9s, 2008 41,700
290,000 Toll Corp. company guaranty 8 1/8s, 2009 300,150
250,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 260,625
75,000 WCI Communities, Inc. company guaranty 10 5/8s, 2011 76,500
530,000 WCI Communities, Inc. company guaranty 9 1/8s, 2012 508,800
-------------
6,394,663
Household Furniture and Appliances (0.3%)
-------------------------------------------------------------------------------------------------------------------
701,000 Sealy Mattress Co. company guaranty Ser. B, zero %, 2002 733,421
890,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 916,700
-------------
1,650,121
Lodging/Tourism (1.6%)
-------------------------------------------------------------------------------------------------------------------
40,000 Capstar Hotel Co. sr. sub. notes 8 3/4s, 2007 26,400
1,290,000 FelCor Lodging LP company guaranty 9 1/2s, 2008 (R) 1,180,350
161,000 FelCor Lodging LP company guaranty 8 1/2s, 2008 (R) 140,070
850,000 Hilton Hotels Corp. notes 7 5/8s, 2012 854,250
4,820,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 4,530,800
250,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 241,250
585,000 ITT Corp. notes 6 3/4s, 2005 593,775
1,510,000 John Q. Hammons Hotels LP/John Q. Hammons Hotels
Finance Corp. III 1st mtge. Ser. B, 8 7/8s, 2012 1,483,575
215,000 Meristar Hospitality Corp. company guaranty 9 1/8s, 2011 (R) 183,825
520,000 RFS Partnership LP company guaranty 9 3/4s, 2012 525,200
100,000 Starwood Hotels & Resorts Worldwide, Inc. 144A notes 7 7/8s, 2012 100,000
390,000 Starwood Hotels & Resorts Worldwide, Inc. 144A notes 7 3/8s, 2007 388,538
-------------
10,248,033
Publishing (2.1%)
-------------------------------------------------------------------------------------------------------------------
1,565,000 Affinity Group Holdings sr. notes 11s, 2007 1,576,738
270,000 CanWest Media, Inc. 144A notes 7 5/8s, 2013 (Canada) 276,075
670,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 687,588
80,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 81,200
450,000 Hollinger International Publishing, Inc. 144A sr. notes 9s, 2010 475,875
1,944,015 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010 (Canada) (PIK) 1,963,455
530,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011 (In default) (NON) 7,950
490,000 Mail-Well I Corp. company guaranty 9 5/8s, 2012 476,525
120,000 Moore Wallace bank term loan FRN 6.25s, 2010
(acquired 3/13/03, cost $120,000) (RES) 120,225
200,000 PRIMEDIA, Inc. bank term loan FRN 4.589s, 2009
(acquired 2/10/03, cost $191,500) (RES) 190,100
1,455,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 1,465,913
350,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 336,875
770,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 762,300
350,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero %
(13 3/4s, 7/15/06), 2011 (Canada) (STP) 265,125
910,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 987,350
249,375 RH Donnelley Finance Corp. I bank term loan FRN Ser. B, 5.314s, 2010
(acquired 12/04/02, cost $246,881) (RES) 250,761
705,000 RH Donnelley Finance Corp. I 144A sr. notes 8 7/8s, 2010 777,263
820,000 RH Donnelley Finance Corp. I 144A sr. sub. notes 10 7/8s, 2012 936,850
168,913 Sum Media bank term loan FRN 3.849s, 2009
(acquired 2/4/03, cost $168,913) (RES) 168,860
690,000 Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 717,600
185,000 Vertis, Inc. 144A sr. notes 10 7/8s, 2009 192,400
920,000 Von Hoffman Press, Inc. company guaranty 10 1/4s, 2009 926,900
100,000 Von Hoffman Press, Inc. company guaranty FRN 10 3/8s, 2007 87,000
122,603 Von Hoffman Press, Inc. debs. 13s, 2009 (PIK) 85,822
-------------
13,816,750
Retail (1.1%)
-------------------------------------------------------------------------------------------------------------------
120,000 Advance Stores bank term loan FRN 4.081s Ser. C, 2007
(acquired 3/4/03, cost $120,000) (RES) 119,970
480,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 492,600
570,000 Asbury Automotive Group, Inc. company guaranty 9s, 2012 485,925
885,000 Autonation, Inc. company guaranty 9s, 2008 933,675
335,000 Gap, Inc. (The) notes 6.9s, 2007 345,888
375,000 Hollywood Entertainment Corp. sr. sub. notes 9 5/8s, 2011 388,125
1,315,000 JC Penney Co., Inc. notes 9s, 2012 1,387,325
30,000 JC Penney Co., Inc. notes 8s, 2010 31,050
320,000 JC Penney Co., Inc. notes Ser. A MTN, 7.05s, 2005 324,800
390,000 NBTY, Inc. sr. sub. notes Ser. B, 8 5/8s, 2007 398,775
1,580,000 Saks, Inc. company guaranty 8 1/4s, 2008 1,607,650
515,000 United Auto Group, Inc. company guaranty 9 5/8s, 2012 502,125
-------------
7,017,908
Technology (1.6%)
-------------------------------------------------------------------------------------------------------------------
630,000 AMI Semiconductor, Inc. 144A sr. sub. notes 10 3/4s, 2013 664,650
190,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 186,200
390,000 Amkor Technologies, Inc. Structured Notes 12.58s, 2005
(issued by STEERS Credit Linked Trust 2000) 347,100
195,000 Avaya, Inc. sec. sr. notes 11 1/8s, 2009 199,875
95,000 Fairchild Semiconductor International, Inc. company guaranty
10 3/8s, 2007 100,225
1,150,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 1,213,250
270,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 280,800
390,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 411,450
2,120,000 Lucent Technologies, Inc. notes 7 1/4s, 2006 1,865,600
360,000 Micron Technology, Inc. notes 6 1/2s, 2005 324,000
1,050,000 Nortel Networks Corp. notes 6 1/8s, 2006 (Canada) 958,125
335,000 ON Semiconductor Corp. company guaranty 13s, 2008 316,575
785,000 SCG Holding & Semiconductor Corp. company guaranty 12s, 2009 557,350
620,000 Seagate Technology Hdd Holdings company guaranty 8s, 2009
(Cayman Islands) 649,450
144,297 Telex Communications Group, Inc. sr. sub. notes Ser. A, zero %, 2006 79,363
297,752 Titan Corp. (The) bank term loan FRN Ser. B, 4.146s, 2009
(acquired various dates from 5/14/02 to 6/3/02, cost $298,880) (RES) 297,380
310,000 Unisys Corp. sr. notes 7 7/8s, 2008 322,400
EUR 185,000 Xerox Cap Europe PLC company guaranty 5 7/8s, 2004
(United Kingdom) 183,150
$570,000 Xerox Corp. notes 5 1/2s, 2003 567,150
535,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 571,781
EUR 195,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 217,000
$185,000 Xerox Credit Corp. sr. notes 6.1s, 2003 183,613
-------------
10,496,487
Textiles (0.3%)
-------------------------------------------------------------------------------------------------------------------
560,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 (In default) (NON) 9,800
65,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 61,425
585,000 Levi Strauss & Co. 144A sr. notes 12 1/4s, 2012 555,750
505,000 Russell Corp. company guaranty 9 1/4s, 2010 545,400
220,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 221,100
615,000 William Carter Holdings Co. (The) company guaranty Ser. B,
10 7/8s, 2011 682,650
-------------
2,076,125
Transportation (1.1%)
-------------------------------------------------------------------------------------------------------------------
60,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 14,100
445,000 Allied Holdings, Inc. company guaranty Ser. B, 8 5/8s, 2007 315,950
190,000 American Airlines, Inc. pass-through certificates Ser. 01-1, 6.817s, 2011 123,500
75,000 American Airlines, Inc. pass-through certificates Ser. 99-1, 7.024s, 2009 60,750
980,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 392,000
320,000 Continental Airlines, Inc. pass-through certificates Ser. D, 7.568s, 2006 137,600
930,000 CSX Corp. notes 6 1/4s, 2008 1,034,810
390,000 Delta Air Lines, Inc. pass-through certificates Ser. 00-1, Class C,
7.779s, 2005 251,744
267,352 Delta Air Lines, Inc. pass-through certificates Ser. C, 7.779s, 2012 181,799
EUR 400,000 Fixed-Link Finance BV sec. notes FRN Ser. B2-X, 7.85s,
2009 (Netherlands) 396,469
$167,942 Ingram Industries bank term loan FRN 3.85s, 2008
(acquired 6/17/02, cost $167,942) (RES) 165,423
1,100,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 1,212,750
1,280,000 Navistar International Corp. company guaranty Ser. B, 9 3/8s, 2006 1,292,800
135,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 122,850
540,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 302,400
850,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 437,750
268,154 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 252,065
105,000 Transportation Manufacturing Operations, Inc. company guaranty
11 1/4s, 2009 65,100
190,000 Travel Centers of America, Inc. company guaranty 12 3/4s, 2009 204,250
620,000 United AirLines, Inc. debs. 9 1/8s, 2012 (In default) (NON) 24,025
1,450,000 US Air, Inc. pass-through certificates Ser. 93A2, 9 5/8s, 2003
(In default) (NON) 580,000
-------------
7,568,135
Utilities & Power (2.5%)
-------------------------------------------------------------------------------------------------------------------
260,000 AES Corp. (The) sr. notes 8 7/8s, 2011 209,950
160,000 AES Corp. (The) sr. notes 8 3/4s, 2008 131,600
940,000 Allegheny Energy Supply 144A bonds 8 1/4s, 2012 714,400
260,000 Allegheny Energy, Inc. notes 7 3/4s, 2005 253,500
785,000 Calpine Canada Energy Finance company guaranty 8 1/2s,
2008 (Canada) 451,375
390,000 Calpine Corp. sr. notes 10 1/2s, 2006 250,575
460,000 Calpine Corp. sr. notes 8 3/4s, 2007 266,800
940,000 Calpine Corp. sr. notes 8 5/8s, 2010 521,700
1,370,000 Calpine Corp. sr. notes 8 1/2s, 2011 767,200
700,000 Calpine Corp. sr. notes 7 7/8s, 2008 369,250
280,000 CenterPoint Energy Resources Corp. debs. 6 1/2s, 2008 268,800
450,000 CenterPoint Energy Resources Corp. 144A general ref. mtge.
7 7/8s, 2013 479,250
600,000 CMS Energy Corp. sr. notes 8.9s, 2008 528,000
320,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 272,000
350,000 CMS Panhandle Holding Corp. sr. notes 6 1/2s, 2009 343,000
180,000 Constellation Energy Group, Inc. bank term loan FRN 6s Ser. B, 2008
(acquired 3/20/03, cost $180,000) (RES) 180,450
375,000 Consumers Energy Co. 1st. mtge., 6.25s, 2006 379,688
615,000 Consumers Energy bank term loan FRN 6.018s, 2004
(acquired various dates from 9/16/02 to 9/17/02, cost $590,400) (RES) 616,922
595,000 Dynegy Holdings, Inc. sr. notes 6 7/8s, 2011 377,825
370,000 Edison Mission Energy sr. notes 10s, 2008 284,900
380,000 Edison Mission Energy sr. notes 9 7/8s, 2011 285,000
1,000,000 El Paso Corp. bank term loan FRN 9 3/4s, 2005
(acquired 3/7/03, cost $982,500) (RES) 990,000
120,000 El Paso Corp. sr. notes 7 3/8s, 2012 91,800
200,000 El Paso Corp. sr. notes 7s, 2011 158,000
155,000 El Paso Energy Corp. sr. notes 6 3/4s, 2009 124,775
250,000 Gemstone Investor, Ltd. 144A company guaranty 7.71s, 2004 232,451
415,000 Midland Funding II Corp. debs. Ser. A, 11 3/4s, 2005 433,675
565,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 206,225
290,000 Northwest PIpeline Corp. 144A sr. notes 8 1/8s, 2010 303,050
260,000 Northwestern Corp. notes 8 3/4s, 2012 200,200
360,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005 (In default) (NON) 363,600
20,000 Sierra Pacific Power Co. general ref. mtge. Ser. A, 8s, 2008 19,400
185,000 Sierra Pacific Resources notes 8 3/4s, 2005 172,050
90,000 Southern California Edison Co. notes 6 3/8s, 2006 88,200
920,000 Southern California Edison Co. 144A 1st mtge. 8s, 2007 984,400
795,000 Western Resources, Inc. 1st mtge. 7 7/8s, 2007 838,725
595,000 Western Resources, Inc. sr. notes 9 3/4s, 2007 633,675
575,000 Williams Cos., Inc. (The) FRN Ser. A, 6 3/4s, 2006 529,000
755,000 Williams Cos., Inc. (The) notes 9 1/4s, 2004 741,788
725,000 Williams Cos., Inc. (The) notes 6 1/2s, 2006 656,125
185,000 Williams Holdings Of Delaware notes 6 1/2s, 2008 154,475
950,221 York Power Funding 144A notes 12s, 2007 (Cayman Islands)
(In default) (NON) 665,155
-------------
16,538,954
-------------
Total Corporate Bonds and Notes (cost $365,861,156) $342,706,964
FOREIGN GOVERNMENT BONDS AND NOTES (16.2%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
EUR 460,000 Bulgaria (Republic of) bonds Ser. REGS, 7 1/2s, 2013 $542,009
$3,000,000 Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 3,375,000
CAD 8,510,000 Canada (Government of) bonds 6s, 2011 6,162,055
CAD 3,680,000 Canada (Government of) bonds Ser. WH31, 6s, 2008 2,665,173
$900,000 Chile (Republic of) bonds 5 1/2s, 2013 903,150
379,475 Colombia (Republic of) bank guaranty 9 3/4s, 2011 402,244
2,640,000 Colombia (Republic of) notes 10 3/4s, 2013 2,795,100
EUR 345,000 Colombia (Republic of) notes Ser. E MTN, 11 1/2s, 2011 388,251
$1,040,000 Colombia (Republic of) unsub. 9 3/4s, 2009 1,081,600
EUR 1,010,000 Colombia (Republic of) unsub. bonds Ser. 15A, 11 3/8s, 2008 1,147,087
$185,000 Costa Rica (Republic of) 144A notes 8.05s, 2013 192,215
1,000,000 Ecuador (Republic of) bonds Ser. REGS, 12s, 2012 726,500
EUR 14,330,000 Germany (Federal Republic of) bonds Ser. 95, 7 3/8s, 2005 16,939,472
EUR 4,570,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 5,511,879
EUR 3,400,000 Italy (Government of) treasury bonds 5 1/2s, 2010 4,108,161
EUR 745,000 Netherlands (Government of) bonds 5s, 2012 871,723
NZD 9,290,000 New Zealand (Government of) bonds 6 1/2s, 2013 5,334,513
NZD 5,804,000 New Zealand (Government of) bonds Ser. 709, 7s, 2009 3,411,556
$1,945,000 Peru (Republic of) notes 9 7/8s, 2015 2,095,738
1,635,000 Peru (Republic of) notes 9 1/8s, 2008 1,761,713
1,115,000 Philippines (Republic of) bonds 9s, 2013 1,084,338
EUR 860,000 Philippines (Republic of) 144A bonds 9 1/8s, 2010 910,112
$13,605,000 Russia (Federation of) unsub. 8 1/4s, 2010 15,033,525
2,855,000 South Africa (Republic of) notes 7 3/8s, 2012 3,197,600
EUR 1,000,000 Spain (Government of) bonds 5.4s, 2011 1,204,464
SEK 61,825,000 Sweden (Government of) bonds 5 1/2s, 2012 7,767,601
$459,202 Ukraine (Government of) sr. notes Ser. REGS, 11s, 2007 500,989
GBP 4,030,000 United Kingdom treasury bonds 7 1/4s, 2007 7,267,962
$1,835,000 United Mexican States notes 7 1/2s, 2012 2,002,903
7,780,000 United Mexican States notes 6 3/8s, 2013 7,818,900
-------------
Total Foreign Government Bonds and Notes (cost $95,860,347) $107,203,533
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (11.4%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association Pass-Through Certificates
$286 8 1/2s, March 1, 2006 $307
32,208 8s, with due dates from October 1, 2025 to July 1, 2028 35,082
120,764 7 1/2s, December 1, 2029 128,791
66,473,604 7s, with due dates from September 1, 2027 to January 1, 2033 70,112,575
3,000,000 7s, TBA, March 1, 2033 3,158,961
197,020 6 1/2s, with due dates from August 1, 2010 to July 1, 2016 208,702
789,052 6 1/2s, TBA, April 1, 2033 822,833
Government National Mortgage Association Pass-Through Certificates
806,659 7 1/2s, with due dates from July 15, 2029 to January 15, 2030 863,509
149,926 6 1/2s, May 15, 2029 157,853
-------------
Total U.S. Government and Agency Obligations (cost $75,381,447) $75,488,613
COLLATERALIZED MORTGAGE OBLIGATIONS (8.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$254,518 Arc Net Interest Margin Trust Ser. 02-5A, Class A, 7 3/4s, 2032 $280,702
347,295 Arc Net Interest Margin Trust 144A Ser. 02-1A, Class A, 7 3/4s, 2032 387,212
30,363,398 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
Interest Only (IO), .912s, 2020 1,783,850
29,214,530 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, Class X, IO,
1.192s, 2023 1,047,623
18,171,151 DLJ Commercial Mortgage Corp. 144A Ser. 00-CKP1, Class S, IO,
1.328s, 2010 1,086,635
Euro Loan Conduit 144A
GBP 330,556 FRN Ser. 7A, Class D, 5.688s, 2006 (United Kingdom) 525,715
GBP 330,556 FRN Ser. 7A, Class E, 7.438s, 2006 (United Kingdom) 525,088
Fannie Mae
$384,677 Ser. 98-51, Class SG, 27.28s, 2022 162,390
2,743,462 Ser. 02-36, Class SJ, 16.744s, 2029 3,078,448
6,888,220 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 7,574,779
694,520 Ser. 02-14, Class A2, 7 1/2s, 2042 763,744
1,066,328 Ser. 01-T10, Class A2, 7 1/2s, 2041 1,172,611
4,076,678 Ser. 01-T7, Class A1, 7 1/2s, 2041 4,483,007
612,779 Ser. 01-T3, Class A1, 7 1/2s, 2040 673,855
1,786,994 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,965,107
718,671 Ser. 99-T2, Class A1, 7 1/2s, 2039 790,302
384,982 Ser. 00-T6, Class A1, 7 1/2s, 2030 423,353
1,817,677 Ser. 01-T4, Class A1, 7 1/2s, 2028 1,998,848
5,215,000 Ser. 03-26, IO, 7s, 2026 787,139
1,852,974 Ser. 02-21, Class PS, PO, 6.895s, 2025 55,033
7,341,741 Ser. 02-9, Class MS, IO, 6.795s, 2032 587,339
5,944,127 Ser. 02-36, Class QH, IO, 6.745s, 2029 385,396
1,926,006 Ser. 02-29, Class SL, IO, 6.745s, 2029 77,642
3,211,929 Ser. 02-63, Class SN, IO, 6.695s, 2032 300,091
3,059,628 Ser. 02-52, Class SL, IO, 6.695s, 2032 283,016
3,461,084 Ser. 03-7, Class SM, IO, 6.445s, 2023 257,959
2,320,300 Ser. 03-26, Class IG, IO, 6s, 2033 350,583
2,356,957 Ser. 322, Class 2, IO, 6s, 2032 366,801
3,122,206 Ser. 318, Class 2, IO, 6s, 2032 444,914
931,400 Ser. 01-58, Class HI, IO, 6.5s, 2026 15,135
1,351,118 Ser. 01-74, Class MI, IO, 6s, 2015 114,061
513,123 Ser. 02-27, Class IA, IO, 6s, 2013 8,579
1,800,400 Ser. 03-26, Class JO, PO, zero %, 2033 1,724,446
293,446 Ser. 03-18, PO, zero %, 2032 284,368
421,081 Ser. 99-51, Class N, PO, zero %, 2029 375,815
359,571 Ser. 99-52, Class MO, PO, zero %, 2026 348,854
60,986 Ser. 97-92, PO, zero %, 2025 60,643
337,739 Ser. 96-5, Class PB, PO, zero %, 2024 323,912
1,032 Ser. 93-159, Class D, PO, zero %, 2023 1,029
503,381 Ser. 93-146, Class H, PO, zero %, 2023 492,685
17,042,579 FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, 1.695s, 2020 1,340,601
Freddie Mac
1,309,500 Ser. 2412, Class GS, FRN, 17.602s, 2032 1,577,948
1,123,359 Ser. 2478, Class SY, IO, 6.87s, 2021 69,154
2,804,400 Ser. 2448, Class SE, IO, 6.82s, 2029 108,671
2,707,400 Ser. 2448, Class SM, IO, 6.72s, 2032 480,564
349,674 Ser. 1717, Class L, 6 1/2s, 2024 352,853
11,391,928 Ser. 216, IO, 6s, 2032 1,609,110
1,418,300 Ser. 2515, Class IG, IO, 5.5s, 2032 487,479
1,067,566 Ser. 2382, Class IM, IO, 6s, 2021 13,011
1,165,707 Ser. 215, Class PO, PO, zero %, 2031 1,083,015
1,131,927 Ser. 2235, PO, zero %, 2030 1,028,639
3 Ser. 2078, Class KC, PO, zero %, 2023 3
Government National Mortgage Association
1,762,177 Ser. 02-36, Class SD, IO, 6.866s, 2029 57,271
2,666,666 Ser. 02-51, Class SA, IO, 6.816s, 2032 130,460
3,898,738 Ser. 01-43, Class SJ, IO, 6.316s, 2029 222,959
3,988,361 Ser. 01-43, Class SD, IO, 6.276s, 2028 105,298
5,980,548 Ser. 02-47, Class SM, IO, 4.686s, 2032 328,930
993,247 Ser. 02-40, Class IB, IO, 6.5s, 2028 31,660
494,983 Ser. 98-2, Class EA, PO, zero %, 2028 451,725
1,075,000 Granite Mortgages PLC FRN Ser. 01-1, Class 1C, 2.769s, 2041
(United Kingdom) 1,068,365
5,065,000 Holmes Financing PLC FRB Ser. 1, Class 2C, 2.526s, 2040 5,032,336
12,570,637 Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2, IO, 1.973s, 2028 837,924
5,513,334 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO, .903s, 2012 245,518
12,590 Prudential Home Mortgage Securities Ser. 93-57, Class A4, 5.9s, 2023 12,640
190,902 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 201,372
215,554 Sasco Arc Net Interest Margin Notes Ser. 02-BC10, Class A,
7 3/4s, 2033 224,863
285,666 Sasco Net Interest Margin Trust 144A Ser. 03-BC1, Class B, IO,
zero %, 2033 205,905
Strategic Hotel Capital, Inc. 144A
605,000 Ser. 03-1, Class I, 3.741s, 2013 605,000
1,626,000 Ser. 03-1, Class H, 3.441s, 2013 1,626,000
2,877,000 Washington Mutual Ser. 03-S1, Class A11, IO, 5.5s, 2033 453,128
-------------
Total Collateralized Mortgage Obligations (cost $56,910,058) $56,361,111
ASSET-BACKED SECURITIES (6.0%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
Amortizing Residential Collateral Trust
$22,520,909 Ser. 02-BC1, Class AIO, IO, 6s, 2005 $1,366,003
2,270,000 Ser. 02-BC1, Class M2, FRN, 2.405s, 2032 2,195,427
853,000 AQ Finance NIM Trust Ser. 03-N1, Class Note, 9.37s, 2033 852,980
1,545,674 AQ Finance NIM Trust 144A Ser. 03-N2, Class Note, 9.3s, 2033 1,545,674
577,665 Arc Net Interest Margin Trust 144A Ser. 02-8A, Class A1, 7 3/4s, 2032 572,906
Asset Backed Funding Certificates
434,000 FRB Ser. 03-WF1, Class M3, 4.359s, 2032 434,000
132,000 FRB Ser. 03-WF1, Class M4, 4.559s, 2032 120,595
237,330 Asset Backed Funding Corp. NIM Trust Ser. 02-WF1, 9.32s, 2032 236,143
806,000 Asset Backed Securities Corp. FRB Ser. 03-HE2, Class M4, 1.338s, 2033 806,000
250,000 Asset Backed Securities Corp. Home Equity Loan Trust, FRB
Ser. 02-HE3, Class M4, 4.28s, 2032 212,477
1,845,000 Bank One Issuance Trust FRN Ser. 02-C1, Class C1, 2.24s, 2009 1,833,325
Bayview Financial Acquisition Trust
867,793 Ser. 01-DA, Class M3, FRN, 2.705s, 2031 856,709
995,000 Ser. 02-CA, Class A, IO, 10.5s, 2004 73,537
1,257,997 CDC Mortgage Capital Trust Ser. 02-HE1, Class M, FRN, 2.555s, 2033 1,213,350
Chase Funding Net Interest Margin
191,813 Ser. 02-1, Class Note, 8 1/2s, 2035 190,470
488,197 Ser. 02-2, 8 1/2s, 2035 484,584
115,821 Ser. 02-C1, Class Note, 8 1/2s, 2035 115,022
288,569 Chase Funding Net Interest Margin 144A Ser. 03-1A, Class Note,
8 3/4s, 2004 288,540
Conseco Finance Securitizations Corp.
248,000 Ser. 00-2, Class A4, 8.48s, 2030 263,373
3,087,000 Ser. 00-4, Class A6, 8.31s, 2032 2,773,558
1,100,000 Ser. 00-6, Class M2, 8.2s, 2032 550,000
23,000 Ser. 01-04, Class A4, 7.36s, 2019 21,185
13,000 Ser. 01-3, Class A3, 5.79s, 2024 12,789
33,000 Ser. 01-3, Class A4, 6.91s, 2033 29,508
1,030,000 Ser. 01-4, Class B1, 9.4s, 2010 360,500
3,342,540 Ser. 02-1, Class A, 6.681s, 2032 3,272,981
790,000 Consumer Credit Reference IDX Securities Ser. 02-1A, Class A,
FRB, 3.4s, 2007 774,694
33,000 Green Tree Financial Corp. Ser. 99-5, Class A5, 7.86s, 2031 29,653
Greenpoint Manufactured Housing
2,273,476 Ser. 00-3, Class IA, 8.45s, 2031 2,276,317
50,000 Ser. 99-5, Class A4, 7.59s, 2028 50,641
GSAMP Trust
271,874 Ser. 02-HE2N, Class NOTE, 8 1/4s, 2032 270,684
214,000 FRB Ser. 03-FM1, Class B3, 5.805s, 2033 199,823
249,342 Home Equity Asset Trust Ser. 02-1N, Class A, 8s, 2032 243,109
998,000 Home Equity Asset Trust 144A Ser. 02-5N, Class A, 8s, 2033 980,535
1,260,000 LNR CDO, Ltd. Ser. 02-1A, Class FFL, 4.589s, 2037 1,144,139
1,046,356 Madison Avenue Manufactured Housing Contract Ser. 02-A, Class B1,
FRN, 4.555s, 2032 732,449
205,000 Mastr Asset Backed Securities Trust FRB Ser. 03-OPT1, Class MV5,
4.805s, 2032 174,250
685,000 Merrill Lynch Mortgage Investors, Inc. FRB Ser. 03-WMC1, Class B2,
4.305s, 2033 582,250
583,481 Mid-State Trust Ser. 10, Class B, 7.54s, 2036 531,259
354,000 Morgan Stanley Capital I FRB Ser. 02-NC6, Class B2, 5.055s, 2032 344,399
Morgan Stanley Dean Witter Capital I
390,000 Ser. 01-NC3, Class B1, FRN, 3.755s, 2031 351,719
1,660,000 Ser. 01-NC4, Class B1, FRN, 3.805s, 2032 1,493,281
640,000 Ser. 02-AM2, Class B1, FRN, 3.555s, 2032 565,513
753,000 Ser. 02-NC3, Class M2, FRN, 2.605s, 2032 716,555
Morgan Stanley Dean Witter Capital I 144A
91,985 Ser. 01-AM1N, Class Note, 12 3/4s, 2032 91,985
382,722 Ser. 01-NC4N, Class Note, 8 1/2s, 2032 382,722
190,968 NovaStar Caps Trust Ser. 02-C1, Class A, 7.15s, 2031 190,968
Option One Mortgage Securities Corp.
559,362 Ser. 02-2A, Class CFTS, 8.83s, 2032 557,963
347,000 Ser. 03-2B, 7.63s, 2033 347,000
465,826 Option One Mortgage Securities Corp. 144A Ser. 02-1, Class CTFS,
6 3/4s, 2032 463,859
1,375,769 Pass-Through Amortizing Credit Card Trust Ser. 02-1A, Class A4FL,
6.78s, 2012 1,370,610
$5,300,000 Residential Asset Mortgage Products, Inc. Ser. 03-RZ1, Class A, IO,
5.75s, 2005 433,109
Structured Asset Investment Loan Trust
955,000 Ser. 03-BC1, Class M3, 4.305s, 2033 936,607
1,183,590 Ser. 03-BC1A, Class A, 7 3/4s, 2033 1,177,838
11,167,000 Ser. 03-BC2, Class A, IO, 6s, 2005 911,327
138,000 Ser. 03-BC2, Class B, 7s, 2033 130,712
390,000 TIAA Commercial Real Estate Securitization Ser. 02-1A, Class IV,
6.84s, 2037 325,056
-------------
Total Asset-Backed Securities (cost $42,709,196) $39,462,662
PREFERRED STOCKS (1.3%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
20,387 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. $1,141,672
3,150 Chevy Chase Savings Bank, Inc. $3.25 pfd. 85,050
23,612 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. 2,449,745
877 Delta Financial Corp. Ser. A, $10.00 cum. pfd. 4,824
19,200 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 192
1,256 Dobson Communications Corp. 12.25% pfd. (PIK) 1,005,144
320 First Republic Capital Corp. 144A 10.50% pfd. 336,000
11,765 Fitzgeralds Gaming Corp. zero % cum. pfd. 118
367 Granite Broadcasting Corp. 12.75% cum. pfd. 236,714
41 Leiner Health Products Ser. C, zero % pfd. 1
16,417 Lodgian, Inc. Ser. A, $7.06 cum. pfd. (PIK) 328,340
143 Metrocall Holdings, Inc. Ser. A, 15.00% cum. pfd. 11
396 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 419,760
1,223 North Atlantic Trading Co. 12.00% pfd. (PIK) 20,791
17 NTL Europe, Inc. Ser. A, zero % cum. pfd. 55
247 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 1,926,600
1,318 Rural Cellular Corp. 12.25% pfd. (PIK) 434,864
-------------
Total Preferred Stocks (cost $9,851,140) $8,389,881
BRADY BONDS (1.0%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$5,815,000 Brazil (Federal Republic of) govt. guaranty FRB 2 5/8s, 2012 $3,852,438
4,047,619 Venezuela (Republic of) debs. FRB Ser. DL, 2.313s, 2007 2,813,095
-------------
Total Brady Bonds (cost $7,675,343) $6,665,533
COMMON STOCKS (0.8%) (a)
NUMBER OF SHARES VALUE
Basic Materials (0.1%) (a)
-------------------------------------------------------------------------------------------------------------------
49,759 Pioneer Cos., Inc. (NON) $223,916
7,016 Polymer Group, Inc. Class A (NON) 60,618
110 Sterling Chemicals, Inc. (NON) 2,750
-------------
287,284
Broadcasting (0.4%)
-------------------------------------------------------------------------------------------------------------------
167 Quorum Broadcast Holdings, Inc. Class E
(acquired 5/15/01, cost $166,516) (RES) (NON) 32,873
167,520 Regal Entertainment Group 144A (NON) 2,706,286
-------------
2,739,159
Communication Services (--%)
-------------------------------------------------------------------------------------------------------------------
433 Arch Wireless, Inc. (NON) 1,108
28,107 Arch Wireless, Inc. (NON) 3
15,321 Covad Communications Group, Inc. (NON) 8,733
4,378 Equinix, Inc. (NON) 12,915
1,693 FLAG Telecom Group, Ltd. (Bermuda) (NON) 45,923
34,403 Globix Corp. (NON) 86,008
166 Metrocall Holdings, Inc. (NON) 174
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
-------------
156,868
Consumer Cyclicals (--%)
-------------------------------------------------------------------------------------------------------------------
22,904 Fitzgeralds Gaming Corp. (NON) 229
19,451 Lodgian, Inc. (NON) 97,255
870,000 Morrison Knudsen Corp. (NON) 47,850
10,704 Safety Components International, Inc. (NON) 61,548
1,886 Washington Group International, Inc. (NON) 33,080
-------------
239,962
Consumer Staples (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,770 Archibald Candy Corp. (NON) 5,045
14,080 Aurora Foods, Inc. (NON) 5,350
327 Premium Holdings (LP) 144A (NON) 6,867
715 PSF Group Holdings, Inc. 144A Class A (NON) 1,251,828
-------------
1,269,090
Financial (0.1%)
-------------------------------------------------------------------------------------------------------------------
820,000 AMRESCO Creditor Trust (NON) (R) 60,680
3,445,121 Contifinancial Corp. Liquidating Trust Units 60,290
840 Delta Funding Residual Exchange Co., LLC (NON) 163,380
840 Delta Funding Residual Management, Inc. (NON) 8
-------------
284,358
Health Care (--%)
-------------------------------------------------------------------------------------------------------------------
2,305 Alderwoods Group, Inc. (NON) 8,065
120,000 Loewen Group International, Inc. (NON) 12
1,400 Mariner Health Care, Inc. (NON) 10,500
1,400 Mediq, Inc. (NON) 140
740 Sun Healthcare Group, Inc. (NON) 118
-------------
18,835
Technology (--%)
-------------------------------------------------------------------------------------------------------------------
487 Comdisco Holding Co., Inc. (NON) 65,575
Telecommunications (--%)
-------------------------------------------------------------------------------------------------------------------
4,414 WilTel Communications, Inc. (NON) 55,616
Utilities (--%)
-------------------------------------------------------------------------------------------------------------------
7,661 Jasper Energy 144A (NON) $479
1,567 York Research Corp. 144A (NON) 98
-------------
577
-------------
Total Common Stocks (cost $14,188,925) $5,117,324
CONVERTIBLE BONDS AND NOTES (0.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$695,000 American Tower Corp. cv. notes 5s, 2010 $548,181
130,000 Amkor Technology, Inc. cv. notes 5 3/4s, 2006 97,663
550,000 DaVita, Inc. cv. sub. notes 7s, 2009 556,188
990,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 850,163
830,000 Province Healthcare Co. cv. sub. notes 4 1/2s, 2005 765,675
310,000 Rogers Communications cv. debs. 2s, 2005 (Canada) 246,450
475,000 Sierra Pacific Resources 144A cv. notes 7 1/4s, 2010 518,938
-------------
Total Convertible Bonds and Notes (cost $3,160,123) $3,583,258
UNITS (0.2%) (a)
NUMBER OF UNITS VALUE
-------------------------------------------------------------------------------------------------------------------
980,000 American Tower Escrow Corp. units zero %, 2008 $646,800
600,000 Australis Media, Ltd. units 15 3/4s, 2003 (Australia) (In default) (NON) 60
295,000 MDP Acquisitions PLC 144A units 15 1/2s, 2013 (Ireland) (PIK) 317,125
500,000 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 150,000
-------------
Total Units (cost $1,927,237) $1,113,985
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
55 Genesis Health Ventures, Inc. $6.00 cv. pfd. (PIK) $6,050
520 Interact Electronic Marketing, Inc. 14.00% cum. cv. pfd. (In default) (NON) 5
1,991 Knology, Inc. 144A Ser. D, zero % cv. pfd. 996
3,800 LTV Corp. 144A $4.125 cv. pfd. (In default) (NON) 475
45 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 225,000
6,847 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 6,847
8,500 Titan Capital Trust $2.875 cum. cv. pfd. 380,375
630 Weirton Steel Corp. Ser. C, zero % cv. pfd. 158
-------------
Total Convertible Preferred Stocks (cost $928,146) $619,906
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
-------------------------------------------------------------------------------------------------------------------
460 Birch Telecommunications, Inc. 144A 6/15/08 $1
1,500 Comunicacion Celular SA 144A (Colombia) 11/15/03 1,500
1,020 Dayton Superior Corp. 144A 6/15/09 255
8,173 Diva Systems Corp. 144A 3/1/08 82
809 Diva Systems Corp. 144A 5/15/06 8
3 Doe Run Resources Corp. 144A 12/31/12 1
1,050 Horizon PCS, Inc. 10/1/10 1
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
405 IWO Holdings, Inc. 1/15/11 101
544 Leap Wireless International, Inc. 144A 4/15/10 5
390 Mikohn Gaming Corp. 144A 8/15/08 195
400 ONO Finance PLC 144A (United Kingdom) 2/15/11 1
960 Paxson Communications Corp. 144A 6/30/03 1
410 Pliant Corp. 144A 6/1/10 205
491 Solutia, Inc. 144A 7/15/09 614
1,851 Sun Healthcare Group, Inc. 2/28/05 1
1,830 Travel Centers of America, Inc. 144A 5/1/09 18,300
1,670 Ubiquitel, Inc. 144A 4/15/10 1
680 Verado Holdings, Inc. 144A 4/15/08 7
30 Versatel Telecom NV (Netherlands) 5/15/08 1
1,163 Washington Group International, Inc. Ser. A 1/25/06 865
1,330 Washington Group International, Inc. Ser. B 1/25/06 665
719 Washington Group International, Inc. Ser. C 1/25/06 360
590 XM Satellite Radio Holdings, Inc. 144A 3/15/10 1
-------------
Total Warrants (cost $617,862) $23,405
SHORT-TERM INVESTMENTS (0.5%) (a)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$1,154,000 U.S. Treasury Note zero %, May 8, 2003 (SEG) $1,152,660
2,026,562 Short-term investments held in Putnam commingled cash account
with yields ranging from 1.18% to 1.43% and due dates ranging
from April 1, 2003 to May 23, 2003 (d) 2,026,562
13,793 Short-term investments held as collateral for loaned securities with
yields ranging from 1.20% to 1.44% and due dates ranging from
April 1, 2003 to May 20, 2003 (d) 13,788
-------------
Total Short-Term Investments (cost $3,193,010) $3,193,010
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $678,263,990) $649,929,185
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $659,974,165.
(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 March 31, 2003, was
$18,657,395 or 2.8% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at March 31, 2003.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced
securities (Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at March 31, 2003,
which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at March 31, 2003: (as a percentage of Market Value)
Bulgaria 0.6%
Canada 3.9
Colombia 0.9
Germany 3.5
Italy 0.6
Luxembourg 0.6
Malaysia 0.8
Mexico 1.5
New Zealand 1.4
Peru 0.6
Russia 2.9
South Africa 0.5
Sweden 1.3
United Kingdom 2.1
United States 76.9
Other 1.9
---
Total 100.0%
------------------------------------------------------------------------------
Forward Currency Contracts to Buy at March 31, 2003 (Unaudited)
(aggregate face value $51,217,237)
Unrealized
Aggregate Delivery Appreciation/
Market Value Face Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollars $16,737,358 $16,639,191 6/18/03 $98,167
British Pounds 6,965,962 6,992,218 6/18/03 (26,256)
Canadian Dollars 10,175,685 10,076,330 6/18/03 99,355
Danish Krone 1,027,818 1,022,866 6/18/03 4,952
Euro 1,221,310 1,237,333 6/18/03 (16,023)
Japanese Yen 12,328,758 12,412,228 6/18/03 (83,470)
South Korean Won 2,318,131 2,399,527 6/18/03 (81,396)
Swiss Franc 437,477 437,544 6/18/03 (67)
------------------------------------------------------------------------------
$(4,738)
------------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 2003 (Unaudited)
(aggregate face value $42,787,256)
Unrealized
Market Aggregate Delivery Appreciation/
Value Face Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollars $2,507,782 $2,510,712 6/18/03 $2,930
British Pounds 2,329,027 2,326,292 6/18/03 (2,735)
Canadian Dollars 2,518,010 2,504,929 6/18/03 (13,081)
Euro 15,933,034 15,707,019 6/18/03 (226,015)
Japanese Yen 3,696,694 3,692,673 6/18/03 (4,021)
New Zealand Dollars 8,608,501 8,720,200 6/18/03 111,699
Swedish Krona 7,277,514 7,325,431 6/18/03 47,917
------------------------------------------------------------------------------
$(83,306)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 2003 (Unaudited)
Unrealized
Aggregate Expiration Appreciation/
Market Value Face Value Date (Depreciation)
------------------------------------------------------------------------------
3 Month Eurodollar
(Short) $1,729,875 $1,677,870 Jun-03 $(52,005)
3 Month Eurodollar
(Long) 1,729,175 1,670,492 Sep-03 58,683
Euro-Bobl 5yr
(Long) 14,380,039 14,488,741 Jun-03 (108,702)
Euro-Bund 10yr
(Long) 33,167,283 33,276,454 Jun-03 (109,171)
Interest Rate Swap
10yr (Long) 1,697,344 1,703,890 Jun-03 (6,546)
Japanese
Government Bond
10yr (Long) 6,033,232 6,010,900 Jun-03 22,332
Japanese
Government Bond
10yr (Long) 4,826,586 4,807,169 Jun-03 19,417
US Treasury Note
10yr (Long) 43,193,000 43,294,869 Jun-03 (101,869)
US Treasury Note
5yr (Short) 17,933,000 17,923,285 Jun-03 (9,715)
------------------------------------------------------------------------------
$(287,576)
------------------------------------------------------------------------------
TBA Sales Commitments at March 31, 2003 (Unaudited)
(proceeds receivable $9,878,351)
Principal Settlement
Agency Amount Date Value
------------------------------------------------------------------------------
FNMA, 7s, March
2033 $9,387,000 4/14/03 $9,891,551
------------------------------------------------------------------------------
Swap Contracts Outstanding at March 31, 2003 (Unaudited)
Unrealized
Notional Termination Appreciation/
Amount Date (Depreciation)
-------------------------------------------------------------------------------
Agreement with Merrill Lynch Capital
Services, Inc. dated November 17, 2000
to pay semi-annually the
notional amount multiplied by the
three month USD-LIBOR-BBA and
receive the notional amount
multiplied by 6.68% $6,500,000 11/21/05 $760,692
Agreement with Merrill Lynch
Capital Services, Inc. dated
September 27, 2002 to receive
semiannually the notional amount
multiplied by the six month
JPY-LIBOR-BBA and pay monthly the
notional amount multiplied by
0.399% JPY 2,443,000,00 10/01/07 597,601
Agreement with Goldman Sachs
Capital Markets, L.P. dated
February 12, 2003 to receive
quarterly the notional amount
multiplied by the three month USD
LIBOR-BBA and pay semiannually the
notional amount multiplied by 1.59% $38,000,000 02/14/05 (129,200)
Agreement with Goldman Sachs
Capital Markets, L.P. dated
February 12, 2003 to pay
quarterly the notional amount
multiplied by the three month
CAD-BA-CDOR and pay semiannually
the notional amount multiplied
by 3.5076% 58,045,000 02/14/05 1,254,450
------------------------------------------------------------------------------
$2,483,543
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2003 (Unaudited)
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value, including $7,859 of securities on loan
(identified cost $678,263,990) (Note 1) $649,929,185
-------------------------------------------------------------------------------------------
Foreign currency (cost $2,151,399) (Note 1) 2,201,535
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 12,342,964
-------------------------------------------------------------------------------------------
Receivable for securities sold 102,609,599
-------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 2,612,743
-------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 806,913
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 413,677
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 303,258
-------------------------------------------------------------------------------------------
Total assets 771,219,874
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,787,739
-------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,207,494
-------------------------------------------------------------------------------------------
Payable for securities purchased 94,392,924
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,148,081
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 80,594
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 63,448
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,257
-------------------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 129,200
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 501,721
-------------------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 27,619
-------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 13,788
-------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $9,878,351)
(Note 1) 9,891,551
-------------------------------------------------------------------------------------------
Other accrued expenses 293
-------------------------------------------------------------------------------------------
Total liabilities 111,245,709
-------------------------------------------------------------------------------------------
Net assets $659,974,165
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $845,074,870
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (7,474,634)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (149,351,995)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (28,274,076)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $659,974,165
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($659,974,165 divided by 100,313,083
shares) $6.58
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended March 31, 2003 (Unaudited)
Investment income:
-------------------------------------------------------------------------------------------
Interest (net of foreign tax of $942) $26,000,661
-------------------------------------------------------------------------------------------
Dividends 831,888
-------------------------------------------------------------------------------------------
Securities lending 31
-------------------------------------------------------------------------------------------
Total investment income 26,832,580
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,319,444
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 342,999
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,619
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,579
-------------------------------------------------------------------------------------------
Other 125,613
-------------------------------------------------------------------------------------------
Total expenses 2,807,254
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (14,373)
-------------------------------------------------------------------------------------------
Net expenses 2,792,881
-------------------------------------------------------------------------------------------
Net investment income 24,039,699
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,739,508
-------------------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 406,719
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 587,219
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (435,557)
-------------------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 157,278
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in foreign
currencies during the period (1,604,500)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts, swap contracts
and TBA sale commitments during the period 32,301,267
-------------------------------------------------------------------------------------------
Net gain on investments 33,151,934
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $57,191,633
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
March 31 September 30
2003* 2002
-------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
-------------------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------------------
Net investment income $24,039,699 $52,092,366
-------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 2,455,167 (50,122,603)
-------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 30,696,767 24,243,905
-------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 57,191,633 26,213,668
-------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------------------------------
From net investment income (25,667,659) (52,982,343)
-------------------------------------------------------------------------------------------------------
From return of capital -- (1,087,264)
-------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in connection
with reinvestment of distributions 829,775 315,588
-------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 32,353,749 (27,540,351)
Net assets
-------------------------------------------------------------------------------------------------------
Beginning of period 627,620,416 655,160,767
-------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net investment
income of $7,474,634 and $5,846,674, respectively) $659,974,165 $627,620,416
-------------------------------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 100,182,745 100,133,127
-------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of
distributions 130,338 49,618
-------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 100,313,083 100,182,745
-------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
------------------------------------------------------------------------------------------------------------------
Six months ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.26 $6.54 $7.13 $7.57 $8.14 $8.79
------------------------------------------------------------------------------------------------------------------
Investment operations:
------------------------------------------------------------------------------------------------------------------
From net investment income (a) .24 .52 .58 .63 .58 .71
------------------------------------------------------------------------------------------------------------------
From net realized and unrealized
gain (loss) on investments .34 (.26) (.57) (.43) (.47) (.67)
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .58 .26 .01 .20 .11 .04
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.26) (.53) (.46) (.64) (.56) (.69)
------------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) (.14) -- (.12) --
------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.54) (.60) (.64) (.68) (.69)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.58 $6.26 $6.54 $7.13 $7.57 $8.14
------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.300 $6.380 $6.050 $6.438 $6.438 $7.750
------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 2.81* 14.81 3.06 10.72 (9.09) 3.91
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $659,974 $627,620 $655,161 $713,894 $757,533 $814,342
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .44* .87 .90 .87 .93 .92
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.74* 7.97 8.50 8.60 7.39 8.13
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 100.67*(e) 193.33(e) 111.45 116.71 133.72 179.84 (d)
------------------------------------------------------------------------------------------------------------------
* Not annualized
(a) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Intermediate Government Income Trust.
(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
March 31, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Master Intermediate Income Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company and is authorized to issue an
unlimited number of shares. The fund's investment objective is to seek,
with equal emphasis, high current income and relative stability of net
asset value, by allocating its investments among the U.S. investment
grade sector, high-yield sector and international sector.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued 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 valued at fair value on the basis of valuations
furnished by an independent pricing service or dealers, approved by the
Trustees. Such services or dealers determine valuations for normal
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and various
relationships, generally recognized by institutional traders, between
securities. For foreign investments, if trading or events occurring in
other markets after the close of the principal exchange in which the
securities are traded are expected to materially affect the value of the
investments, then those investments are valued, taking into
consideration these events, at their fair value following procedures
approved by the Trustees. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates fair value. Other investments,
including restricted securities, are valued at fair value following
procedures approved by the Trustees.
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) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recognized on the ex-dividend 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.
D) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked to market daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. Forward currency contracts outstanding at
period end are listed after The fund's portfolio.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Future and written option contracts outstanding at period end
are listed after The fund's portfolio.
G) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss. Payments made or received
are recognized as part of interest income. A portion of the payments
received or made upon early termination are recognized as realized gain
or loss. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or if the
counterparty defaults on its obligation to perform. Interest rate swap
contracts outstanding at period end are listed after The fund's
portfolio.
H) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront
payment to a counter party, the protection seller, in exchange for the
right to receive a contingent payment as a result of a credit event
related to a specified security or index. The upfront payment received
by the fund, as the protection seller, is recorded as a liability on the
fund's books. The credit default contracts are marked to market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made as a
result of a credit event or termination of the contract are recognized,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counterparty may
default on its obligation to perform. Credit default contracts
outstanding at period end are listed after The fund's portfolio.
I) TBA purchase commitments The fund may enter into "TBA" (to be
announced) commitments to purchase securities for a fixed unit price at
a future date beyond customary settlement time. Although the unit price
has been established, the principal value has not been finalized.
However, the amount of the commitments will not significantly differ
from the principal amount. The fund holds, and maintains until
settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
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. TBA sale commitments outstanding at period
end are listed after The fund's portfolio.
K) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to the
market value of the securities loaned. The market value of securities
loaned is determined daily and any additional required collateral is
allocated to the fund on the next business day. The risk of borrower
default will be borne by the fund's agents, the fund will bear the risk of
loss with respect to the investment of the cash collateral. Income from
securities lending is included in investment income on the Statement of
operations. At March 31, 2003, the value of securities loaned amounted to
$7,859. The fund received cash collateral of $13,788 which is pooled with
collateral of other Putnam funds into 28 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.
The aggregate identified cost on a tax basis is $681,089,150, resulting
in gross unrealized appreciation and depreciation of $29,412,762 and
$60,572,727, respectively, or net unrealized depreciation of
$31,159,965.
M) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
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.
Under the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the
extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At March 31, 2003, the payable to the
subcustodian bank represents the amount due for cash advanced for the
settlement of a security purchased.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended March 31, 2003,
the fund's expenses were reduced by $14,373 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,143 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the six months ended March 31, 2003, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $404,027,336 and
$375,455,338, respectively. Purchases and sales of U.S. government
obligations aggregated $308,380,632 and $332,993,191, respectively.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
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
Brett C. Browchuk
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Kevin M. Cronin
Vice President
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
88630 074 5/03