Putnam
Master Income
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Investor perception is one of the most difficult and perplexing aspects of
investment management. Analysts can crunch numbers and fund managers can
draw all sorts of inferences from the steady inflow of data. But so far no
one has found a reliable way of measuring what investors are going to
think at any given point.
During Putnam Master Income Trust's fiscal year, which ended October 31,
1999, there were challenges aplenty as the world's central banks either
raised interest rates or considered raising them, and inflation looked as
though it might heat up in many areas of the globe. In general, investors'
cautious response to these uncertainties during the period had a dampening
effect on the markets and, therefore, on your fund's results. The managers
discuss these events in detail in the report that follows.
Meanwhile, I am pleased to announce the appointment of Robert M. Paine to
your fund's management team. Bob is a member of the High Yield Group and
will oversee that aspect of your fund's portfolio. He has been with Putnam
since 1987 and has 12 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 15, 1999
Report from the Fund Managers
Robert M. Paine
David L. Waldman
D. William Kohli
The broad fixed-income market was beset with challenges during the 12
months ended October 31, 1999. Putnam Master Income Trust began fiscal
1999 just as world financial markets were regaining their equilibrium
following Russia's default and the Long-Term Capital Management debacle.
After a relatively brief period wherein most fixed-income sectors rallied,
bond prices worldwide declined under the pressure of rising interest rates
and inflation concerns. While there were pockets of strength, including
the emerging markets and Japan, the bouts of weakness had greater
influence on your fund's performance over the year.
Total return for 12 months ended 10/31/99
NAV Market price
- ------------------------------------------------------------------------
1.86% -10.50%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* INVESTOR SENTIMENT REIGNS SUPREME
Investor sentiment played a leading role in worldwide bond performance
this past year. Stronger-than-expected economic growth in the United
States and Europe fostered an atmosphere of unease as investors jockeyed
to position their portfolios for the next turn in the road. During the
fiscal year's second half, preemptive increases in short-term interest
rates by the Federal Reserve Board and the Bank of England -- along with
indications by other national banks that similar actions would follow --
drove yields higher and prices lower in the United States and across the
Continent. Inflation concerns restrained these markets through the
period's end even though their fundamental underpinnings were sound.
[GRAPHIC OMITTED: horizontal bar chart SECTOR ALLOCATION]
SECTOR ALLOCATION*
High-yield
corporate 45.8%
U.S. government 16.8%
Foreign bonds 15.2%
Other 21.2%
Footnote reads:
*Based on net assets as of 10/31/99. Holdings will vary over time.
At the opposite end of the globe, investors renewed their interest in
Japanese government bonds in response to proposed fiscal stimulatory
packages. It remains to be seen whether the government's plans will be
approved by Parliament and if so, whether they will become the long-sought
catalyst that sparks a definitive economic recovery.
Latin American markets also performed well. The attractive valuations and
higher-yielding potential of most emerging-markets debt became too
compelling for investors to ignore, given higher commodity prices and a
revival in manufactured exports there. The possibility that Mexico's bonds
might be elevated to investment-grade status in 2000 also helped.
* HIGH-YIELD BONDS DOMINATE
Over the course of the fiscal year, we increased your fund's exposure to
U.S. high-yield bonds, bringing the portfolio's weighting up to roughly
46% of net assets. Despite a pall that has fallen over the sector because
of interest-rate volatility, Y2K-related liquidity concerns, and a rising
default rate, we believe the group is laden with income and price
appreciation opportunities. The solid fundamentals of the U.S. economy and
sustained overseas demand for U.S. products continue to create a favorable
backdrop for many high-yield debt issuers. Nowhere is this more apparent
than in the telecommunications and broadcasting/media industries where
deregulation and consolidation also have helped drive performance
potential.
Over the year, several telecommunication companies decreased their
reliance on debt by issuing stock, thereby decreasing their credit risk.
Fund holdings NTL, Covad Communications Group, and Rhythms NetConnections
were among them. Other issues that worked well for the fund include
NEXTEL, Citadel Broadcasting, and Metromedia Fiber Network. While the
securities discussed in this report were viewed favorably at the end of
the period, all holdings are subject to review in accordance with the
fund's investment strategy and may vary in the future.
"Participating in the income and total return potential of a globally
diversified bond fund might be the answer to some portfolio rebalancing
questions as 1999 draws to a close."
- -- Robert Paine, fund manager
The booming U.S. economy created pockets of opportunity in other areas as
well. In gaming, for example, new jurisdiction areas such as Mississippi,
Illinois, and Louisiana have provided solid growth potential without the
overcapacity that exists in Las Vegas and Atlantic City. Argosy Gaming
Company is one fund holding that enjoyed substantial appreciation during
the period.
We view the late stage of the current business cycle as an opportunity to
add some higher-quality cyclical issues to the portfolio, such as those in
the paper, chemical, and energy sectors. Repap New Brunswick, Riverwood
International, Ocean Energy, and Pioneer America are all new holdings that
we believe hold promise. In the energy sector we also sold some holdings
in cases where our research uncovered credit concerns.
In other areas, credit problems grew over the fiscal year, with the
nursing home, cinema, and sub-prime lending sectors suffering. Stricter
Medicare reimbursement formulas negatively affected many long-term nursing
care bonds, including portfolio holdings Sun Healthcare and Mariner
Post-Acute Network. Overbuilding of movieplexes has resulted in earnings
disappointments for movie exhibition companies, including fund holding
United Artists Theatre.
* EMERGING MARKETS SHINE, OTHERS LANGUISH
As the period progressed, we substantially increased the fund's allocation
to emerging-markets debt to approximately 12% of net assets, up from
roughly 5% at mid year. Not only are valuations and yields highly
attractive in this sector, the risk premium associated with these bonds
has come down over the period. Year to date, emerging-market bonds have
been the best performing fixed-income asset class. This is largely the
result of the recoveries under way in many world economies. The fund has
solid representation in the bonds of Mexico, Brazil, and Bulgaria. Among
the developed nations, U.K., German, and Canadian government securities
were present in the portfolio.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR
HIGH YIELD SECTOR
Midland Funding II Corp.
debentures. Series A, 11 3/4s, 2005
Dial Call Communications, Inc.
senior discount notes, Series B, 10 1/4s, 2005
US Air, Inc.
pass-through certificates, Series 93-A2,
9 5/8s, 2003
FOREIGN GOVERNMENT
Germany (Federal Republic of)
bonds, series 132, 4 1/8s, 2004
Australia (Government of)
bonds, Series 808, 8 3/4s, 2008
Sweden (Government of)
bonds, Series 104, 6 3/4s, 2014
U.S. GOVERNMENT
U.S. Treasury Notes
5 1/4s, May 15, 2004
U.S. Treasury Notes,
5 3/4s, June 30, 2001
U.S. Treasury Notes,
5 1/2s, May 15, 2009
Footnote reads:
Holdings will vary over time.
The fund's U.S. investment-grade holdings produced mixed results as market
conditions changed. We used the fund's Treasury exposure to keep the
portfolio's average duration relatively neutral, which we believed to be
prudent given the uncertain interest rate environment. Duration is a
measure of a fund's sensitivity to interest rate changes. We also took
advantage of opportunities in interest-only and principal-only
collateralized mortgage obligations. Despite recent weakness, real estate
fundamentals are solid, and we anticipate price appreciation opportunities
once the interest rate picture becomes clearer.
* GLOBAL PICTURE APPEARS BRIGHT
We enter the new fiscal year with cautious optimism. We have already begun
to see that Y2K concerns are fading and that the overall pulse of the
global economy shows marked improvement over this time last year.
Worldwide, inflation remains relatively dormant. In the months ahead, we
view security selection and sector allocation as the keys to investment
success. As always, we expect that your fund will continue to benefit from
its multisector strategy, which allows strength in one sector to offset
weakness in another.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 10/31/99, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield bonds reflect a greater possibility that adverse changes in
the economy or poor performance by the issuers of these bonds may affect
the issuer's ability to pay principal and interest. International
investing involves certain risks, such as currency fluctuations, economic
instability and political developments. While the U.S. government backing
of individual securities does not insure your principal, which will
fluctuate, it does guarantee the fund's government-backed holdings will
make timely payments of interest and principal. Mortgage-backed securities
in the portfolio may be subject to prepayment risk.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Master
Income Trust is designed for investors seeking high current income,
consistent with preservation of capital, through a portfolio diversified
among U.S. government, high-yield, and international fixed-income securities.
TOTAL RETURN FOR PERIODS ENDED 10/31/99
Salomon Bros. First
Lehman Bros. Non-U.S. Boston
Market Government World Govt. High-Yield
NAV price Bond Index Bond Index Index
- ----------------------------------------------------------------------------
1 year 1.86% -10.50% -1.22% -2.96% 5.54%
- ----------------------------------------------------------------------------
5 years 39.29 31.82 44.88 32.54 50.33
Annual average 6.85 5.68 7.70 5.80 8.50
- ----------------------------------------------------------------------------
10 years 135.37 118.28 109.76 138.95 177.51
Annual average 8.94 8.12 7.69 9.10 10.75
- ----------------------------------------------------------------------------
Life of fund
(since 12/28/87) 177.78 122.84 153.56 128.91 217.46
Annual average 9.01 7.00 8.18 7.25 10.25
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their original
cost.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/99
- ----------------------------------------------------------------------------
Distributions (number) 12
- ----------------------------------------------------------------------------
Income $0.6515
- ----------------------------------------------------------------------------
Return of capital1 0.0595
- ----------------------------------------------------------------------------
Capital gains --
- ----------------------------------------------------------------------------
Total $0.7110
- ----------------------------------------------------------------------------
Share value NAV Market price
- ----------------------------------------------------------------------------
10/31/98 $8.27 $8.125
- ----------------------------------------------------------------------------
10/31/99 7.72 6.625
- ----------------------------------------------------------------------------
Current return
- ----------------------------------------------------------------------------
Current dividend rate2 9.02% 10.51%
- ----------------------------------------------------------------------------
1See page 41.
2Income portion of most recent distribution annualized and divided by NAV
or Market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 9/30/99
Market
NAV price
- ----------------------------------------------------------------------------
1 year -0.46% -8.03%
- ----------------------------------------------------------------------------
5 years 39.80 39.93
Annual average 6.93 6.95
- ----------------------------------------------------------------------------
10 years 134.34 112.19
Annual average 8.89 7.81
- ----------------------------------------------------------------------------
Life of fund
(since 12/28/87) 177.84 127.23
Annual average 9.08 7.23
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
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 benchmarks
First Boston High-Yield Index* is an unmanaged list of lower-rated,
higher-yielding U.S. corporate bonds.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged
list of bonds issued by 10 countries.
Lehman Bros. Government Bond Index* is an unmanaged list of publicly
issued U.S. Treasury obligations.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended October 31, 1999
The Board of Trustees and Shareholders
Putnam Master Income Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Master Income Trust, including the fund's portfolio, as of October
31, 1999, and the related statement of operations, statement of changes in
net assets and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audit.
The statement of changes in net assets for the year ended October 31, 1998
and the financial highlights for each of the years in the four-year period
ended October 31, 1998 were audited by other auditors whose report dated
December 11, 1998 expressed an unqualified opinion on that financial
statement and those financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 1999 by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam Master Income Trust as of October 31, 1999, the results of its
operations, changes in its net assets and financial highlights for the
year then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Boston, Massachusetts
December 7, 1999
<TABLE>
<CAPTION>
The fund's portfolio
October 31, 1999
CORPORATE BONDS AND NOTES (45.8%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,000,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 1,030,000
Aerospace and Defense (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
700,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 591,500
250,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 211,250
520,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 416,000
750,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 731,250
160,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 152,800
240,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 209,400
120,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 114,900
425,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 438,281
280,000 L-3 Communications Corp. sr. notes 9 1/8s, 2008 260,400
220,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 200,200
--------------
3,325,981
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,297,335 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 1,193,548
Airlines (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
540,000 Airbus Industries 144A 12.266s, 2020 540,000
310,000 Calair LLC 144A company guaranty 8 1/8s, 2008 286,363
340,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 217,600
530,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 437,250
670,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 321,600
355,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 248,500
650,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 299,000
1,500,000 US Air Inc. pass-through certificates Ser. 93-A2, 9 5/8s, 2003 1,483,425
--------------
3,833,738
Apparel (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Fruit of the Loom company guaranty 8 7/8s, 2006 125,000
610,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 616,100
250,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 247,500
--------------
988,600
Automotive (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 462,500
1,220,000 Federal Mogul Corp. notes 7 3/8s, 2006 1,119,240
250,000 Lear Corp. sub. notes 9 1/2s, 2006 256,250
1,120,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 1,072,400
260,000 Transportation Manufacturing Operations Inc. 144A
company guaranty 11 1/4s, 2009 261,300
--------------
3,171,690
Automotive Parts (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 180,900
383,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 384,915
420,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
8 1/4s, 2008 371,700
200,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 188,000
290,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 185,600
--------------
1,311,115
Banks (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
DKK 1,851,000 Bank Realkredit Danmark mortgage 7s, 2029 (Denmark) 257,021
$ 500,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 360,000
295,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 291,127
150,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 141,846
230,000 North Fork Capital Trust I company guaranty 8.7s, 2026 223,254
890,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 850,288
285,000 Provident Capital Trust company guaranty 8.6s, 2026 267,780
165,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 151,655
230,000 Sovereign Capital Trust company guaranty 9s, 2027 219,054
440,000 Webster Capital Trust I 144A bonds 9.36s, 2027 433,079
--------------
3,195,104
Basic Industrial Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 Axia, Inc. company guaranty 10 3/4s, 2008 552,000
270,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 234,900
460,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 417,409
740,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 694,875
220,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 74,800
205,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 178,350
--------------
2,152,334
Broadcasting (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
625,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 550,000
920,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 876,300
820,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 717,500
1,020,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 872,100
340,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 352,750
992,458 Capstar Broadcasting bank term loan FRN 7.813s, 2005 992,458
170,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s,
2004 (Bermuda) 64,600
1,190,000 Chancellor Media Corp. company guaranty 8s, 2008 1,169,175
327,990 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 339,470
270,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 264,600
590,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 544,275
480,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 487,200
720,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 693,000
450,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 450,000
170,000 Paxson Communications Corp. 144A sr. sub. notes 11 5/8s, 2002 175,525
120,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 116,400
1,424,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 1,207,979
405,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 (STP) 421,200
140,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 130,200
505,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 555,500
180,000 Spanish Broadcasting Systems sr. sub notes 9 5/8s, 2009 180,900
175,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002 (Mexico) 142,625
360,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 282,600
--------------
11,586,357
Building and Construction (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
195,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 78,000
150,000 Atrium Companies Inc. company guaranty Ser. B, 10 1/2s, 2009 142,500
360,000 Building Materials Corp. company guaranty 8s, 2008 326,700
370,000 Cia Latino Americana 144A company guaranty 11 5/8s,
2004 (Argentina) 233,100
1,230,000 D.R. Horton, Inc. company guaranty 8s, 2009 1,073,175
740,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 392,200
180,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 162,900
270,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 249,075
350,000 Toll Corp. company guaranty 8 1/8s, 2009 315,000
--------------
2,972,650
Business Equipment and Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 102,000
550,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 517,000
930,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 843,975
190,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 188,100
962,354 Outsourcing Solutions, Inc. 144A bank term loan FRN
8.409s, 2004 955,136
500,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 528,750
--------------
3,134,961
Cable Television (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
595,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 606,900
510,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 481,950
160,000 Century Communications Corp. sr. notes 8 7/8s, 2007 155,200
360,000 Century Communications Corp. sr. notes 8 3/4s, 2007 343,800
1,440,000 Charter Communications Holdings LLC sr. notes 8 5/8s, 2009 1,353,600
50,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 51,500
100,000 CSC Holdings, Inc. sr. sub. notes 9 1/4s, 2005 100,250
120,000 CSC Holdings, Inc. deb. Ser. B, 8 1/8s, 2009 120,052
140,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 132,691
250,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 246,150
360,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 340,330
760,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00),
2005 (United Kingdom) (STP) 689,700
870,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02),
2007 (United Kingdom) (STP) 682,950
505,000 Grupo Televisa S.A. de C.V. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 431,775
130,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 137,800
1,000,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 985,000
840,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 823,200
410,000 Rogers Cablesystems Ltd. company guaranty 10s,
2007 (Canada) 435,625
120,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 128,100
370,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s,
2005 (Argentina) 173,900
1,300,000 United Pan-Europe N.V. 144A stepped-coupon zero %
(12 1/2s, 2004), 2009 (Netherlands) (STP) 682,500
510,000 United Pan-Europe N.V. 144A 10 7/8s, 2009 (Netherlands) 497,250
--------------
9,600,223
Cellular Communications (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
960,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 700,800
1,658,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 331,600
610,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 622,200
1,985,000 Dial Call Communications, Inc. sr. disc. notes Ser. B,
10 1/4s, 2005 2,024,700
865,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 927,713
1,265,000 McCaw International Ltd sr. disc. notes stepped-coupon zero %
(13s, 4/15/02), 2007 (STP) 774,813
2,045,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01),
2006 (Luxembourg) (STP) 1,482,625
420,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 425,250
520,000 US UnWired Inc. sr. disc. notes stepped-coupon zero %,
(13 3/8s, 11/1/04), 2009 (STP) 274,300
--------------
7,564,001
Chemicals (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 274,500
370,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 343,175
500,000 Huntsman Corp. 144A sr. sub. notes FRN 8.87s, 2007 457,500
1,040,000 Huntsman ICI Chemicals Inc. 144A sr. sub. notes 10 1/8s, 2009 1,034,800
830,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 827,925
1,260,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 1,263,150
795,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 612,150
504,125 Polytama International notes 11 1/4s, 2007 (Indonesia) 90,742
480,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 432,000
440,000 Scotts Co. 144A sr. sub. notes 8 5/8s, 2009 415,800
340,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 68,425
280,000 Sterling Chemicals Inc. 144A sec. notes 12 3/8s, 2006 271,600
435,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 243,600
--------------
6,335,367
Computer Services and Software (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 130,000
330,000 Cybernet Internet Service 144A sr. notes 14s, 2009 283,800
500,000 PSINet, Inc. sr. notes 11 1/2s, 2008 520,625
510,000 PSINet, Inc. 144A sr. notes 11s, 2009 520,200
390,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 383,175
300,000 Unisys Corp. sr. notes 11 3/4s, 2004 333,000
280,000 Unisys Corp. sr. notes 7 7/8s, 2008 268,100
180,000 Verio Inc. sr. notes 10 3/8s, 2005 180,000
--------------
2,618,900
Consumer Durable Goods (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 Albecca Inc. company guaranty 10 3/4s, 2008 290,700
70,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 26,600
130,000 Iron Age Corp. company guaranty 9 7/8s, 2008 100,100
175,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 170,188
--------------
587,588
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
860,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 890,100
190,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %,
(13 5/8s, 6/30/00), 2005 (STP) 41,800
--------------
931,900
Cosmetics (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
135,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 124,200
530,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 477,000
250,000 Revlon Consumer Products sr. notes 9s, 2006 197,500
1,000,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 530,000
140,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 109,200
--------------
1,437,900
Electric Utilities (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,200,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 732,000
565,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 535,338
1,190,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 1,129,334
361,954 Midland Funding I Corp. deb. Ser. C-94, 10.33s, 2002 375,694
750,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 899,715
1,900,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 2,089,563
416,482 Northeast Utilities System notes Ser. A, 8.58s, 2006 420,113
--------------
6,181,757
Electronics & Electrical Equipment (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
295,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 309,013
280,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 266,000
685,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 678,150
95,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 57,000
185,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 188,238
535,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 497,550
85,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 68,000
690,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 552,000
400,000 Wavetek Corp. company guaranty 10 1/8s, 2007 328,000
--------------
2,943,951
Energy-Related (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
840,000 Calpine Corp. sr. notes 8 3/4s, 2007 834,473
470,000 Calpine Corp. sr. notes 7 7/8s, 2008 441,800
189,024 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 190,735
24,195 Niagara Mohawk Power Corp. sr. notes Ser. E, 7 3/8s, 2003 24,240
850,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 484,500
660,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 673,200
--------------
2,648,948
Entertainment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 95,975
440,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 389,400
820,000 ITT Corp. notes 6 3/4s, 2005 737,295
340,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 312,800
495,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 454,163
440,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 193,600
830,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 840,441
360,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 324,000
585,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 117,731
--------------
3,465,405
Environmental Control (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,730,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10s, 2009 1,464,013
1,070,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 910,838
--------------
2,374,851
Financial Services (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 480,000
500,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 466,940
460,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 418,158
350,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 192,500
100,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 57,000
750,000 Capital One Financial Corp. notes 7 1/4s, 2006 712,500
425,000 Cellco Finance Corp. NV 144A sr. sub. notes 15s,
2005 (Netherlands) 437,750
165,000 Colonial Capital II 144A company guaranty 8.92s, 2027 150,437
70,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 14,000
610,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 122,000
840,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 142,800
470,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 371,300
480,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 369,600
345,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 342,413
600,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 336,000
140,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 88,200
290,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 272,600
1,060,000 RBF Finance Co. company guaranty 11s, 2006 1,123,600
435,000 Resource America Inc. 144A sr. notes 12s, 2004 361,050
--------------
6,458,848
Food and Beverages (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
340,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 193,800
500,000 Ameriserve Food Distribution Inc. 144A sec. notes 12s, 2006 472,500
400,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 407,000
550,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 559,625
75,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 75,375
620,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 384,400
710,000 Triarc Consumer Products, Inc. 144A sr. sub. notes
10 3/4s, 2009 (STP) 686,925
380,000 Vlassic Foods Intl. Inc. sr. sub notes Ser. B, 10 1/4s, 2009 353,400
--------------
3,133,025
Gaming (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
470,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 484,100
500,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 506,250
810,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 785,700
695,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 613,442
720,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 388,800
180,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 168,397
790,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 793,950
270,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 259,200
540,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 514,350
930,000 International Game Technology sr. notes 7 7/8s, 2004 892,800
215,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 233,275
450,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 434,250
330,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 311,025
825,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 787,875
210,000 Sun International Hotels Ltd. company guaranty 9s, 2007 195,300
390,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 354,900
--------------
7,723,614
Health Care (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
640,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 592,000
150,000 Columbia/HCA Healthcare Corp. med term notes notes
7.69s, 2025 118,500
70,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 60,850
600,000 Columbia/HCA Healthcare Corp. med term notes 6.63s, 2045 570,546
270,000 Conmed Corp. company guaranty 9s, 2008 240,300
410,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 320,825
490,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 39,200
250,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 20,000
590,000 Lifepoint Hospital Holdings 144A sr. sub. notes 10 3/4s, 2009 581,150
921,233 Magellan Health Services, Inc. bank term loan FRN 8.25s, 2004 875,172
1,000,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 30,000
210,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 4,200
280,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 270,200
1,080,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 324,000
670,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 355,100
520,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 31,200
430,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 25,800
120,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 111,900
150,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 145,875
720,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 648,000
150,000 Tenet Healthcare Corp. sr. notes 8s, 2005 140,250
250,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 222,500
310,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 304,575
--------------
6,032,143
Lodging (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
430,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 361,200
1,135,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 984,613
840,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 858,900
350,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 318,500
--------------
2,523,213
Manufacturing (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
680,000 Blount Inc. 144A sr. sub. notes 13s, 2009 700,400
Medical Supplies and Devices (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
455,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 364,000
465,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 480,113
210,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 151,200
340,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 255,000
380,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 38,000
360,000 Mediq, Inc. company guaranty 11s, 2008 115,200
--------------
1,403,513
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
280,000 Anker Coal Group, Inc. 144A sec. notes 14 1/4s, 2007 (PIK) 140,000
950,000 Better Minerals & Aggregates Co. 144A sr. sub. notes 13s, 2009 940,500
305,000 Continental Global Group sr. notes Ser. B, 11s, 2007 158,600
710,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 426,000
320,000 Neenah Corp. company guaranty Ser. F, 11 1/8s, 2007 295,200
270,000 WHX Corp. sr. notes 10 1/2s, 2005 254,475
--------------
2,214,775
Motion Picture Distribution (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
345,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 276,000
1,202,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 300,500
--------------
576,500
Office Equipment (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
480,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 235,200
666,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 718,448
--------------
953,648
Oil and Gas (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
360,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 369,000
50,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 32,500
120,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 121,500
300,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 293,451
250,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 247,773
180,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 184,500
700,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 693,000
450,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 433,125
250,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 110,000
240,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 96,000
105,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 103,163
700,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 710,500
--------------
3,394,512
Packaging and Containers (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
175,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 166,250
310,000 Ball Corp. company guaranty 7 3/4s, 2006 302,250
630,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 589,050
365,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 293,825
640,000 Packaging Corp. company guaranty 9 5/8s, 2009 648,000
398,636 Packaging Corp. bank term loan FRN 9.438s, 2007 392,619
145,000 Radnor Holdings Inc. sr. notes 10s, 2003 145,000
--------------
2,536,994
Paper and Forest Products (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
480,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 429,600
500,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 321,250
530,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 539,275
1,085,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s,
2007 (Mauritius) 688,975
770,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s,
2004 (Mauritius) 500,500
1,128,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 1,001,100
590,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 545,750
880,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 860,200
560,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 562,800
--------------
5,449,450
Pharmaceuticals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 573,000
250,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 228,125
--------------
801,125
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 63,000
Publishing (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,275,000 Affinity Group Holdings sr. notes 11s, 2007 1,185,750
855,000 American Media Operation, Inc. sr. sub. notes 10 1/4s, 2009 837,900
500,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 460,000
490,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 438,550
100,000 Hollinger International Publishing, Inc. sr. sub. notes 9 1/4s, 2006 98,000
400,000 Perry-Judd company guaranty 10 5/8s, 2007 360,000
114,960 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 104,614
250,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 245,000
--------------
3,729,814
Railroads (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
155,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 111,600
565,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %,
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 336,175
--------------
447,775
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
700,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 525,000
Retail (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 144,000
400,000 K mart Corp. pass-through certificates Ser. 95K4, 9.35s, 2020 385,000
460,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 397,900
625,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 625,000
300,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 255,750
680,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 639,200
--------------
2,446,850
Satellite Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
470,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 493,500
270,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 194,400
--------------
687,900
Semiconductors (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
800,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 784,000
400,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 369,000
--------------
1,153,000
Shipping (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 International Shipholding Corp. sr. notes 9s, 2003 100,000
140,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 127,400
510,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 518,925
560,000 Pegasus Shipping 144A units company guaranty
stepped-coupon zero % (14 1/2s. 6/20/03), 2008 (STP) 56,000
375,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 (Mexico) 287,813
--------------
1,090,138
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
420,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 365,400
Steel (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,040,000 AK Steel Corp. company guaranty 7 7/8s, 2009 946,400
500,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 475,000
575,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 569,250
500,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 450,000
--------------
2,440,650
Telecommunications (8.4%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 18,000
160,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 175,200
610,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 411,750
880,000 Alaska Communications Systems 144A sr. sub. notes
9 3/8s, 2009 827,200
440,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 237,600
330,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 204,600
310,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 306,900
525,000 Caprock Communications Corp. sr. notes 11 1/2s, 2009 509,250
500,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009 (Luxembourg) 512,500
375,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 33,750
910,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 891,800
425,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 238,000
2,380,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B, zero %
(12 1/2s, 03/01/03), 2008 (STP) 833,000
1,390,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 1,376,100
900,000 Econophone, Inc. company guaranty 13 1/2s, 2007 918,000
580,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 319,000
230,000 Esprit Telecom Group PLC sr. notes 11 1/2s,
2007 (United Kingdom) 228,850
1,370,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 698,700
890,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 507,300
780,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 791,700
495,000 GST Equipment Funding sr. notes 13 1/4s, 2007 495,000
1,360,000 GST Network, Inc. sr. disc. notes stepped-coupon
zero % (10 1/2s, 5/1/03), 2008 (STP) 659,600
747,000 GST USA, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 567,720
100,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 100,500
265,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 226,575
635,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 673,100
750,000 Hyperion Telecommunications Inc. sr. sub. notes 12s, 2007 772,500
575,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 491,625
770,000 ICG Services, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 392,700
1,130,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 559,350
630,000 Insight Midwest 144A sr. notes 9 3/4s, 2009 645,750
760,000 Interact Systems, Inc. 144A 14s, 2003 121,600
525,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 362,250
720,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 637,200
320,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 281,600
1,195,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 1,042,638
850,000 IPC Information Systems Inc. sr. disc. notes 10 7/8s, 2008 616,250
1,695,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 881,400
440,000 KMC Telecomunications 144A sr. notes 13 1/2s, 2009 431,200
1,315,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %,
(11 7/8s, 10/15/02), 2007 (STP) 762,700
420,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 352,800
760,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 744,800
850,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 699,125
90,000 Netia Holdings B.V. 144A company guaranty
stepped-coupon zero % (11 1/4s, 11/1/01),
2007 (Poland) (STP) 55,800
150,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 127,500
790,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 878,875
180,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 135,000
950,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 978,500
400,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 430,000
185,000 Onepoint Communications, Inc. company guaranty Ser. B,
14 1/2s, 2008 111,000
690,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 379,500
525,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 416,593
90,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 68,014
470,000 Qwest Communications International, Inc. sr. notes Ser. B,
7 1/4s, 2008 458,762
800,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 392,000
650,000 Startec Global Communications Corp. sr. notes 12s, 2008 520,000
700,000 Telecom Tech, Inc. company guaranty 9 3/4s, 2008 665,000
480,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 48,000
90,000 TeleWest Communications PLC 144A 11 1/4s,
2008 (United Kingdom) 98,100
470,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero %, 2009 (9 1/4, 4/15/04)
(United Kingdom) (STP) 285,525
110,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 1/2s, 3/1/03), 2008 (STP) 58,025
580,000 Teligent, Inc. sr. notes 11 1/2s, 2007 532,150
890,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 907,800
490,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 485,100
1,250,000 Williams Communications Group Inc. sr. notes 10 7/8s, 2009 1,287,500
545,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 632,200
410,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 364,900
1,010,000 WinStar Communications, Inc. sr. sub. notes 10s, 2008 878,700
610,000 Worldwide Fiber Inc. 144A sr. notes 12s, 2009 610,000
--------------
34,361,727
Telephone Services (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,080,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 918,000
630,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 365,400
560,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) (STP) 366,800
970,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 562,600
360,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 306,000
1,235,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01),
2006 (United Kingdom) (STP) 1,037,400
250,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 215,000
625,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 553,125
150,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 112,500
420,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 319,200
380,000 ITC Deltacom, Inc. sr. notes 11s, 2007 397,100
100,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 50,000
1,130,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 1,127,175
530,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 461,100
130,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 89,700
705,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 701,475
300,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 273,000
130,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 113,100
175,000 Transtel S.A. pass through certificates 12 1/2s, 2007 85,750
280,000 US Xchange LLC sr. notes 15s, 2008 271,600
580,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 324,800
1,190,000 Viatel, Inc. sr. notes 11 1/4s, 2008 1,124,550
--------------
9,775,375
Textiles (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
540,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 91,800
290,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 278,400
190,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 179,075
390,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 362,700
--------------
911,975
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 218,500
Wireless Communications (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 209,000
240,000 Omnipoint Corp. 144A sr. notes 11 1/2s, 2009 250,200
390,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 273,000
125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 25,000
620,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon zero %,
(11 5/8s, 4/15/04), 2009 (STP) 378,200
--------------
1,135,400
--------------
Total Corporate Bonds and Notes (cost $214,564,978) $ 187,841,133
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (16.8%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,880,257 Federal Home Loan Mortgage Corporation 7 1/2s, May 1, 2027 $ 1,887,308
Federal National Mortgage Association
Pass-Through Certificates
952,142 7s, May 1, 2011 950,647
1,747,571 6 1/2s, with due dates from July 1, 2013 to
November 1, 2028 1,691,851
Government National Mortgage Association
Pass-Through Certificates
6,393,293 8s, with due dates from March 15, 2017 to March 15, 2028 6,531,306
6,804,389 7s, with due dates from May 15, 2023 to December 15, 2028 6,698,041
698,903 6 1/2s, December 15, 2027 667,885
--------------
18,427,038
U.S. Treasury Obligations (12.3%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
2,135,000 6 1/2s, November 15, 2026 (SEG) 2,160,022
1,910,000 6 1/8s, November 15, 2027 1,846,435
1,485,000 U. S. Treasury Bond Strip, 6.85s, February 15, 2019 421,265
U.S. Treasury Notes
3,960,000 6s, August 15, 2009 3,954,416
2,861,000 6s, August 15, 2004 2,867,695
10,600,000 5 3/4s, June 30, 2001 10,590,036
65,000 5 5/8s, May 15, 2008 62,715
1,930,000 5 5/8s, September 30, 2001 1,923,361
9,490,000 5 1/2s, May 15, 2009 9,102,998
14,137,000 5 1/4s, May 15, 2004 13,737,206
2,780,000 4 3/4s, November 15, 2008 2,515,900
1,240,000 4 1/4s, November 15, 2003 1,165,017
--------------
50,347,066
--------------
Total U.S. Government and Agency Obligations
(cost $69,260,763) $ 68,774,104
FOREIGN GOVERNMENT BONDS AND NOTES (15.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD 4,840,000 Argentina (Republic of) 11 3/4s, 2009 $ 4,743,200
AUD 9,925,000 Australia (Government of) bonds Ser. 808,
8 3/4s, 2008 7,191,073
USD 2,653,000 Brazil (Federal Republic of) 14 1/2s, 2009 2,749,304
USD 1,085,000 Brazil (Federal Republic of) 11 5/8s, 2004 1,034,873
CAD 530,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 386,545
CAD 7,990,000 Canada (Government of) bonds Ser. WL43,
5 3/4s, 2029 5,200,997
EUR 11,790,000 Germany (Federal Republic of) bonds Ser. 132,
4 1/8s, 2004 12,178,127
USD 800,000 Colombia (Republic of) unsub. 9 3/4s, 2009 726,000
USD 310,000 Colombia (Republic of) unsub. 8 5/8s, 2008 264,678
USD 7,510,000 Russia (Federation of) deb. principal loans FRB
6.063s, 2020 694,675
USD 1,410,000 Russia (Federation of) 144A bonds 12 3/4s, 2028 768,450
USD 1,565,000 Russia (Federation of) unsub. 10s, 2007 759,025
SEK 51,800,000 Sweden (Government of) bonds, Ser. 104, 6 3/4s, 2014 6,774,872
SEK 8,700,000 Sweden (Government of) bonds, Ser. 1035, 6s, 2005 1,086,187
GBP 820,000 United Kingdom Treasury bonds 10s, 2003 1,517,172
GBP 2,460,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 4,397,843
GBP 3,070,000 United Kingdom Treasury bonds 8s, 2000 5,160,325
USD 5,095,000 United Mexican States bonds Ser. XW, 10 3/8s, 2009 5,184,163
USD 1,610,000 United Mexican States sr. notes Ser. EMTN,
9 3/4s, 2005 1,614,025
--------------
Total Foreign Government Bonds and Notes
(cost $63,528,420) $ 62,431,534
COLLATERALIZED MORTGAGE OBLIGATIONS (7.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.
$ 905,000 Ser. 97-ML1, Class D, 6.977s, 2030 $ 839,953
905,000 Ser. 98-C2, Class D, 6.757s, 2009 819,591
16,224,533 Ser. 97-ML1, Interest Only (IO), 0.899s, 2017 768,130
1,060,000 Countrywide Home Loan Ser. 98-3, Class A5, 6 3/4s, 2028 996,566
1,625,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C,
Class A8, 6 1/2s, 2024 1,502,865
Criimi Mae Commercial Mortgage Trust
4,310,000 Ser. 98-C1, Class A2, 7s, 2011 3,686,397
1,860,000 Ser. 98-C1, Class B, 7s, 2011 1,382,213
10,872,501 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 1.243s, 2031 593,740
Fannie Mae Strip
4,469,111 Ser. 281, Class 2, IO, 9s, 2026 1,191,996
1,074,935 Ser. 217, Class 2, IO, 8s, 2023 317,946
385,252 Ser. 176, Class 2, IO, 8s, 2022 113,950
2,359,735 Ser. 266, Class 2, IO, 7.5s, 2024 684,323
2,415,999 Financing Corp. 6 1/2s, 2023 2,064,169
4,998,051 First Union-Lehman Brothers Commercial Mortgage Co.
Ser. 97-C2, IO, 1.916s, 2027 371,340
Freddie Mac
770,000 Ser. 2040, Class PE, 7.5s, 2028 769,407
435,000 Ser. 1439, Class I, 7.5s, 2022 429,138
610,284 Ser. 1717, Class L, 6 1/2s, 2024 590,235
1,711,407 Ser. 2182, Class EC, zero %, 2025 1,300,776
Freddie Mac Strip
515,639 Ser. 176, Principal Only (PO), zero %, 2026 355,066
791,724 Ser. 203, PO, zero %, 2029 494,085
620,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 588,225
1,085,000 General Growth Properties-Ala Moana Ser. 99-C1, Class E,
7.66s, 2009 1,085,000
560,000 General Growth Properities-Ivanhoe Ser. 99, Class C1,
8.666s, 2004 560,000
471,000 General Growth Properties-Ivanhoe Ser. 99, Class F,
7.916s, 2004 471,000
860,000 GMAC Commercial Mortgage Securities Inc. Ser. 98-C2,
Class D, 6 1/2s, 2031 759,588
700,000 Government National Mortgage Association Ser. 97-8,
Class PE 7 1/2s, 2027 695,844
800,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D,
7.191s, 2031 721,000
Merrill Lynch Mortgage Investors, Inc.
640,000 Ser. 95-C3, Class D, 7.782s, 2025 624,200
248,000 Ser. 98-C2, Class D, 6.956s, 2030 228,238
12,923,134 Ser. 96-C2, IO, 1.5467s, 2028 911,182
979,658 Ser. 98-C2, IO, 1.449s, 2030 70,719
Morgan Stanley Capital I
545,000 Ser. 98-XL1, Class E, 7.15s, 2030 507,872
12,255,201 Ser. 98-HF1, Class X, IO, 1.199s, 2018 677,866
Mortgage Capital Funding, Inc.
6,233,144 Ser. 97-MC2, Class X, IO, 1.581s, 2012 433,398
27,565,875 Ser. 98-MC1, Class X, IO, 0.748s, 2009 1,048,795
847,968 PNC Mortgage Securities Corp. Ser. 97-6, Class A2, 6.6s, 2027 850,088
257,531 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 255,249
696,713 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 682,849
--------------
Total Collateralized Mortgage Obligations
(cost $32,825,091) $ 30,442,999
BRADY BONDS (4.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 10,700,512 Brazil (Republic of) bonds 8s, 2014 $ 7,142,592
2,210,000 Bulgaria (Government of) Ser. A, FRB, 6 1/2s, 2024 1,638,273
3,625,000 Bulgaria (Government of) Ser. A, FLIRB 2 3/4s, 2012 2,442,344
7,980,000 United Mexican States sec. Ser. W-B, 6 1/4s, 2019 5,965,050
1,005,000 Venezuela (Republic of) bonds 9 1/4s, 2027 675,863
1,416,660 Venezuela (Republic of) deb. Ser. DL, FRB 6.313s, 2007 1,133,328
1,745,000 Venezuela (Republic of) Ser. W-A, 6 3/4s, 2020 1,204,050
--------------
Total Brady Bonds (cost $21,056,317) $ 20,201,500
PREFERRED STOCKS (4.0%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
134 21st Century Telecom Group 144A $13.75 cum. pfd. (PIK) $ 67,000
11,352 AmeriKing, Inc. $3.25 pfd. (PIK) 192,984
15,000 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 348,750
5,324 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 622,908
3,678 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 430,326
11,925 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 643,950
3,478 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 394,753
280 Concentric Network Corp. Ser. B, $13.50 pfd (PIK) 266,000
9,706 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 1,038,542
27,930 Diva Systems Corp. Ser. C, $6.00 pfd. 111,720
959 Dobson Communications $13.00 pfd. 973,385
4 E. Spire Communications, Inc. $12.75 pfd. (PIK) 1,360
210 First Republic 144A 10.50% pfd. 210,000
850 Fresenius Medical Capital Trust I company guaranty Ser. D,
9.00%, pfd. (Germany) 824,500
560 Fresenius Medical Capital Trust II company guaranty
$7.875, pfd. (Germany) 498,400
8,930 Global Crossing Holdings 144A $10.50 pfd. 942,115
991 Granite Broadcasting 144A $12.75 pfd. (PIK) 961,270
4 Hyperion Telecommunications Ser. B, $12.875 pfd. (PIK) 3,640
978 ICG Holdings, Inc. $14.25 pfd. (Canada) 889,980
420 ICG Holdings, Inc., 144A $14.00 pfd. (Canada) (PIK) 386,400
1,034 Intermedia Communication Ser. B, $13.50 pfd. (PIK) 935,770
635 IXC Communications, Inc. $12.50 pfd. (PIK) 682,625
9,189 Lady Luck Gaming Corp. $11.25 pfd. 385,938
466 NEXTEL Communications, Inc. Ser. D, $13.00 cum. pfd. (PIK) 493,960
170 NEXTEL Communications, Inc. Ser. E, $11.125 pfd. (PIK) 173,400
20,545 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 996,433
84 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 911,400
394 R&B Falcon Corp. 13.875% pfd. 386,120
5,000 Sinclair Capital $11.625 cum. pfd. 500,000
731 Spanish Broadcasting Systems $14.25 cum. pfd.(PIK) 778,515
580 WinStar Communications, Inc. 144A $14.25 cum. pfd. (PIK) 487,200
--------------
Total Preferred Stocks (cost $16,707,941) $ 16,539,344
ASSET-BACKED SECURITIES (1.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,235,000 Banco Nacional de Mexico , S.A., Ser. 99-A, Class A1,
7 1/2s, 2006 (Mexico) $ 1,239,656
505,000 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2,
7.67s, 2028 465,544
1,346,233 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 1,144,298
2,251,222 Provident Bank Home Equity Loan Trust 5.533s, 2029 2,251,222
--------------
Total Asset-Backed Securities (cost $5,331,030) $ 5,100,720
COMMON STOCKS (0.6%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
200 AmeriKing, Inc. (NON) $ 2,000
5,200 AMFM, Inc.(NON) 364,000
2,625 Axia Holding Inc. 144A (PIK) 34,125
53,884 Celcaribe S.A. 144A (Colombia) (NON) 20,207
156,096 Celcaribe S.A. (Colombia) (NON) 195,120
4,246 Hedstrom Holdings, Inc. 144A (NON) 4,246
4,148 IFINT Diversified Holdings 144A 8,296
5,804 Intermedia Communications, Inc. (NON) 150,891
182 Mothers Work, Inc. 1,911
125 Paging Do Brazil Holdings Co., LLC 144A Class B (Brazil) 1
480 Premium Holdings (L.P.) 144A (NON) 1,919
100,386 PSF Holdings LLC Class A 1,254,825
8,300 Spanish Broadcasting System, Inc. Class B (NON) 165,751
15,000 Specialty Foods Acquisition Corp. (NON) 300
3,136 Viatel, Inc. 104,664
--------------
Total Common Stocks (cost $4,152,852) $ 2,308,256
CONVERTIBLE BONDS AND NOTES (0.5%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 494,375
1,210,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero %, (13s, 8/15/04), 2009 (STP) 665,500
234,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon
zero %, (13 7/8s, 12/15/00), 2005 (STP) 234,000
320,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 240,800
280,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 272,650
--------------
Total Convertible Bonds and Notes (cost $1,798,846) $ 1,907,325
WARRANTS (0.4%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
330 Bestel S.A. (Mexico) 5/15/05 $ 9,900
310 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 17,050
2,498 Cellnet Data Systems, Inc. 10/1/07 24,980
325 Club Regina, Inc. 144A 12/1/04 325
1,235 Colt Telecommunications Group PLC 12/31/06 617,500
5,062 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 506
330 Cybernet Internet Service 144A 7/1/09 39,600
690 Diva Systems Corp. 5/15/06 124,200
3,606 Diva Systems Corp. 3/1/08 28,848
9,350 DTI Holdings Inc. 3/1/08 94
10 E. Spire Communications, Inc. 11/1/05 300
1,050 Econophone, Inc. 144A 7/1/07 99,750
430 Epic Resorts 6/15/05 4
370 Esat Holdings, Inc. (Ireland) 2/1/07 28,120
1,370 Firstworld Communication 4/15/08 95,900
380 Globalstar Telecommunications 144A 2/15/04 11,400
940 Hyperion Telecommunications 144A 4/15/01 164,500
8,514 ICG Communications 10/15/05 148,995
760 Interact Systems, Inc. 8/1/03 8
875 KMC Telecom Holdings, Inc. 4/15/08 2,625
875 Knology Holdings, Inc. 144A 10/15/07 2,188
100 Long Distance International, Inc. 144A 4/13/08 200
1,530 McCaw International Ltd. 4/15/07 6,503
380 Mediq Inc. 144A 6/1/09 4
140 MGC Communications, Inc. 144A 10/1/04 21,000
500 Network Plus Corp. 2/19/09 10,000
185 Onepoint Communications, Inc. 6/1/08 185
390 Orbital Imaging Corp. 144A 3/1/05 7,800
525 Orion Network Systems 1/15/07 5,906
5,290 Pagemart, Inc. 144A 12/31/03 39,675
620 Pathnet, Inc. 144A 4/15/08 6,200
640 Paxson Communications Corp. 144A 6/30/03 2,560
380 R&B Falcon Corp. 144A 5/1/09 95,000
650 Startec Global Communications Corp. 5/15/08 650
275 Sterling Chemicals Holdings 8/15/08 3,850
480 Telehub Communications Corp. 7/31/05 2,400
2,285 UIH Australia/Pacific, Inc. 144A 5/15/06 68,550
490 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 71,050
--------------
Total Warrants (cost $794,603) $ 1,758,326
UNITS (--%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
380 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 $ 133,000
4,732 XCL Ltd. 144A units cum. cv. pfd. zero % (PIK) 9,464
--------------
Total Units (cost $787,566) $ 142,464
CONVERTIBLE PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,290 Chesapeake Energy Corp. $3.50 cum. cv. pfd. $ 75,570
16,450 Global Telesystems, Inc. 144A $3.625 cv. pfd. 697,069
20 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 219,500
932 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. 1,864
--------------
Total Convertible Preferred Stocks (cost $1,211,517) $ 994,003
SHORT-TERM INVESTMENTS (2.0%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 3,000,000 Federal National Mortgage Corp effective yield of 5.25%,
December 17, 1999 $ 2,980,222
5,153,000 Interest in $545,691,000 joint repurchase agreement dated
October 29, 1999 with Morgan (J.P.) & Co., Inc. due
November 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $5,155,233 for an
effective yield of 5.20% 5,153,000
--------------
Total Short-Term Investments (cost $8,133,222) $ 8,133,222
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $440,153,146) (b) $ 406,574,930
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $410,012,058.
(b) The aggregate identified cost on a tax basis is $440,974,047, resulting in gross unrealized appreciation and
depreciation of $5,395,956 and $39,795,073, respectively, or net unrealized depreciation of $34,399,117.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate to be paid
and the date the fund will begin receiving interest or dividend income at this rate.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) A portion of these securities were pledged and segregated with the custodian to cover margin requirements for
futures contracts at October 31, 1999.
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.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at
October 31, 1999, which are subject to change based on the terms of the security.
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at October 31, 1999
(aggregate face value $37,272,495)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Australian Dollars $ 1,330,702 $ 1,383,122 2/3/00 $ (52,420)
British Pounds 1,958,518 1,968,670 2/3/00 (10,152)
Danish Krone 1,856,444 1,871,456 2/3/00 (15,012)
Euro Dollars 9,034,042 9,124,287 2/3/00 (90,245)
Japanese Yen 23,789,644 22,924,960 2/3/00 864,684
- -------------------------------------------------------------------------------
$ 696,855
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at October 31, 1999
(aggregate face value $33,705,253)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Australian Dollars $ 3,711,772 $ 3,780,508 2/3/00 $ 68,736
Canadian Dollars 6,179,794 6,087,811 2/3/00 (91,983)
Euro Dollars 4,293,895 4,277,169 2/3/00 (16,726)
Japanese Yen 20,312,856 19,559,765 2/3/00 (753,091)
- -------------------------------------------------------------------------------
$(793,064)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1999
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Euro Euribor (short) $ 503,654 $ 505,072 Dec-00 $ 1,418
Euro Euribor (short) 508,344 510,184 Dec-99 1,840
Euro Euribor (short) 506,500 507,987 Jun-00 1,487
Euro Euribor (short) 502,047 503,669 Jun-01 1,622
Euro Euribor (short) 508,002 509,120 Mar-00 1,118
Euro Euribor (short) 503,074 505,492 Mar-01 2,418
Euro Euribor (short) 505,261 507,675 Sep-00 2,414
Euroyen (long) 11,256,940 11,257,312 Jun-00 (372)
Euroyen (long) 7,429,627 7,429,448 Mar-00 179
Euroyen (short) 18,661,133 18,652,426 Sep-00 (8,707)
Euro-Schatz (long) 2,286,000 2,295,643 Dec-99 (9,643)
US Treasury
Note 10yr (long) 8,519,531 8,459,599 Dec-99 59,932
- -------------------------------------------------------------------------------
$53,706
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $440,153,146) (Note 1) $406,574,930
- -----------------------------------------------------------------------------------------------
Cash 4,481,717
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $302,101) 316,812
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 7,984,076
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 1,945,734
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 106,041
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 34,574
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 933,420
- -----------------------------------------------------------------------------------------------
Total assets 422,377,304
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,113,470
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 7,100,471
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 791,441
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 62,549
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 16,453
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 593
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 166,422
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 1,029,629
- -----------------------------------------------------------------------------------------------
Other accrued expenses 84,218
- -----------------------------------------------------------------------------------------------
Total liabilities 12,365,246
- -----------------------------------------------------------------------------------------------
Net assets $410,012,058
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $475,111,545
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,244,473)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (28,250,618)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (33,604,396)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $410,012,058
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($410,012,058 divided by 53,095,749 shares) $7.72
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended October 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $14,518) $36,567,514
- -----------------------------------------------------------------------------------------------
Dividends 1,698,961
- -----------------------------------------------------------------------------------------------
Total investment income 38,266,475
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,237,167
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 581,602
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 15,782
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,962
- -----------------------------------------------------------------------------------------------
Reports to shareholders 52,506
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 25,396
- -----------------------------------------------------------------------------------------------
Legal 23,103
- -----------------------------------------------------------------------------------------------
Postage 48,442
- -----------------------------------------------------------------------------------------------
Exchange listing fees 48,410
- -----------------------------------------------------------------------------------------------
Other 18,859
- -----------------------------------------------------------------------------------------------
Total expenses 4,058,304
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (26,202)
- -----------------------------------------------------------------------------------------------
Net expenses 4,032,102
- -----------------------------------------------------------------------------------------------
Net investment income 34,234,373
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Note 1) (24,739,902)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (1,378,975)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 1,373,138
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 44,605
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (743,601)
- -----------------------------------------------------------------------------------------------
Net loss on investments (25,444,735)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 8,789,638
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 34,234,373 $ 37,591,575
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (24,745,739) (7,656,881)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (698,996) (43,111,797)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 8,789,638 (13,177,103)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (34,234,373) (34,469,475)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income (355,987) --
- ---------------------------------------------------------------------------------------------------------------
Return of capital (3,159,376) (5,032,778)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (28,960,098) (52,679,356)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 438,972,156 491,651,512
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $3,244,473 and
$2,101,458, respectively) $410,012,058 $438,972,156
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of period 53,095,749 53,095,749
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $8.27 $9.26 $9.33 $9.04 $8.63
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .64 .71 .66 .68 .68
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.48) (.96) .13 .30 .42
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .16 (.25) .79 .98 1.10
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.64) (.65) (.52) (.69) (.64)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) -- -- -- --
From net realized gain
on investments -- -- (.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- (.16) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital (.06) (.09) (.01) -- (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.71) (.74) (.86) (.69) (.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.72 $8.27 $9.26 $9.33 $9.04
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.625 $8.125 $8.500 $8.375 $8.125
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (10.50) 4.15 11.34 12.08 14.16
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $410,012 $438,972 $491,652 $495,724 $481,914
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .94 1.00 .96 .95 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.93 7.81 7.18 7.43 7.98
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 124.21 202.83 246.84 280.38 290.44
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
</TABLE>
Notes to financial statements
October 31, 1999
Note 1
Significant accounting policies
Putnam Master Income Trust (the "fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, closed-end management
investment company. The investment objective of the fund is to seek high
current income consistent with the preservation of capital. The fund
intends to diversify its investments among the following three sectors of
the fixed-income securities market: a U.S. investment grade sector,
consisting of debt obligations of the U.S. government and investment-grade
U. S. corporate bonds; a high-yield sector, consisting of high yielding,
lower-rated U.S. corporate fixed income securities; and an international
sector, consisting of obligations of foreign governments, their agencies
and instrumentalities and other fixed-income securities denominated in
foreign currencies.
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 generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the period. Actual results
could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale 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.
Short-term investments having remaining maturities of 60 days or less are
stated at amortized cost, which approximates market value, and other
investments, including restricted securities, are stated at fair value
following procedures approved by the Trustees. Market quotations are not
considered to be readily available for certain debt obligations; such
investments are stated at fair value on the basis of valuations furnished
by a pricing service or dealers, approved by the Trustees, which determine
valuations for normal, institutional-size trading units of such securities
using methods based on market transactions for comparable securities and
variable relationships between securities which are generally recognized
by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains and losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date except that
certain dividends from foreign securities are recorded as soon as the fund
is informed of the ex-dividend date. Discounts on zero coupon bonds,
original issue discount bonds, stepped-coupon bonds and payment in kind
bonds are accreted according to the yield-to-maturity basis. Any premium
resulting from the purchase of securities is amortized on a
yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate. Investments in foreign securities involve certain
risks, including those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar value of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
H) 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 October 31, 1999, the fund had a capital loss carryover of
approximately $27,370,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ----------------
$ 3,956,000 October 31, 2006
23,414,000 October 31, 2007
I) Distributions to shareholders Distributions to shareholders are
recorded by the fund on the ex-dividend date. At certain times, the fund
may pay distributions at a level rate even though, as a result of market
conditions or investment decisions, the fund may not achieve projected
investment results for a given period. The amount and character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent differences
of losses on wash sale transactions, foreign currency gains and losses,
dividends payable, defaulted bond interest, unrealized gains and losses on
certain futures contracts, paydown gains and losses on mortgage-backed
securities, market discount, interest on payment-in-kind securities.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended October 31,
1999, the fund reclassified $787,028 to increase distributions in excess
of net investment income and $376,672 to decrease paid-in-capital, with an
decrease to accumulated net realized losses of $1,163,700. The calculation
of net investment income per share in the financial highlights table
excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.75% of the first $500
million of average weekly net assets, 0.65% of the next $500 million,
0.60% of the next $500 million, and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended October 31, 1999, fund expenses were reduced by $26,202
under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized in
connection with the expense offset arrangements in an income producing
asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $693 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the 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 Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year October 31, 1999, cost of purchases and proceeds from
sales of investment securities other than U.S. government obligations and
short-term investments aggregated $296,954,010 and $227,362,906,
respectively. Purchases and sales of U.S. government obligations
aggregated $242,126,069 and $280,840,924, respectively. In determining the
net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Share Repurchase Program
In November 1994, the Trustees authorized the fund to repurchase up to
2,650,000 of its shares in the open market. Repurchases will only be made
when the fund's shares are trading at less than net asset value and at
such times and amounts as is believed to be in the best interest of the
fund's shareholders. Any repurchases of shares will have the effect of
increasing the net asset value per share of remaining shares outstanding.
For the year ended October 31, 1999, the fund repurchased no shares.
As of October 31, 1999, 279,900 shares have been repurchased since
the inception of the program.
Note 5 (Unaudited)
Change in independent accountants
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees determined not to retain PricewaterhouseCoopers LLP as this
fund's independent accountants and voted to appoint KPMG LLP for the
fund's fiscal year ended October 31, 1999. During the two previous fiscal
years, PricewaterhouseCoopers LLP audit reports contained no adverse
opinion or disclaimer of opinion; nor were its reports qualified or
modified as to uncertainty, audit scope, or accounting principle. Further,
in connection with its audits for the two previous fiscal years and
through July 14, 1999, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
For the year ended October 31, 1999, a portion of the Fund's distribution
represents a return of capital and is therefore not taxable to
shareholders.
The fund has designated 4.89% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of October 7, 1999 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7, 1999.
At the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 44,442,158 1,154,093
Hans H. Estin 44,407,699 1,188,552
John A. Hill 44,467,379 1,128,872
Ronald J. Jackson 44,472,789 1,123,462
Paul L. Joskow 44,462,432 1,133,819
Elizabeth T. Kennan 44,427,826 1,168,425
Lawrence J. Lasser 44,426,150 1,170,101
John H. Mullin III 44,465,075 1,131,176
Robert E. Patterson 44,473,277 1,122,974
William F. Pounds 44,394,015 1,202,236
George Putnam 44,398,759 1,197,492
George Putnam, III 44,426,961 1,169,290
A.J.C. Smith 44,410,327 1,185,924
W. Thomas Stephens 44,450,037 1,146,214
W. Nicholas Thorndike 44,424,194 1,172,057
A proposal to ratify the selection of KPMG LLP as the independent auditors
of your fund was approved as follows: 44,622,964 votes for, and 412,003
votes against, with 561,284 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Welcome to www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
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VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
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Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
KPMG LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Robert M. Paine
Vice President and Fund Manager
David L. Waldman
Vice President and Fund Manager
D.William Kohli
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminv.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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INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
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56799 072 12/99
