Putnam
Master Income
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
A significant change in investor sentiment took place shortly after fiscal
1999 began for Putnam Master Income Trust. The third successive
interest-rate cut effected by the Federal Reserve Board on November 17,
1998, sufficiently calmed investors' fears about a worldwide recession and
restored confidence in the higher-yielding, or spread, sectors of the
global fixed-income market. These include areas such as U.S. high-yield
bonds, investment-grade corporate bonds, mortgage-backed securities, and
emerging-markets bonds. Consequently the historic and pronounced global
flight to quality that took place last summer/early fall reversed itself
quite dramatically through the six months ended April 30, 1999.
As fixed-income investors reached a greater level of comfort with the
so-called spread sectors, your fund's management team -- Jennifer E.
Leichter, D. William Kohli, and David L. Waldman -- increased the
portfolio's exposure to U.S. high-yield bonds and emerging-markets issues,
taking advantage of highly attractive valuations. The shift in focus in
both the market and the portfolio enabled your fund to deliver solid
results at net asset value, outperforming two of the three competitive
indexes used as benchmarks. See page 7 and 8 for complete performance
information.
Total return for 6 months ended 4/30/99
Net asset value Market price
- ----------------------------------------------------------------
5.32% -2.64%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 7.
[GRAPHIC OMITTED: horizontal bar chart TOP FIVE COUNTRY ALLOCATIONS
(INTERNATIONAL SECTOR)]
TOP FIVE COUNTRY ALLOCATIONS
(INTERNATIONAL SECTOR)*
United
Kingdom 6.7%
Mexico 3.3%
Brazil 2.7%
Canada 2.5%
Argentina 1.2%
Footnote reads:
*Based on net assets as of 4/30/99. Holdings will vary over time.
* TREASURY RALLY OF 1998 UNWINDS IN 1999
In the fourth quarter of 1998, the pace of U.S. economic growth exceeded
economists' expectations. With each new report signaling further growth
ahead, speculation arose about the possibility of the Fed raising interest
rates to curb any inflationary pressures. This new wave of concern
combined with a more relaxed attitude toward riskier investments served to
push interest rates higher and the prices of U.S. Treasury securities
lower in the first four months of calendar 1999. As a result, your fund's
U.S. Treasury holdings detracted somewhat from performance. Given the
change in market dynamics, your fund's managers trimmed back exposure to
the Treasury sector in favor of U.S. high-yield bonds and emerging-markets
debt as the period progressed. The remaining allocation to Treasury
securities provides the fund with a neutral duration stance, since your
fund's managers saw no reason to make any definitive bets on interest-rate
movements at that point in time.
"High-yield bonds have regained their footing and we believe they are poised
to continue their trek upward given the market's very favorable fundamentals."
-- Jennifer E. Leichter, fund manager
Your fund's weighting in mortgage-backed and asset-backed securities was
also scaled back modestly as the flight to quality lost momentum. The
positions that do remain in the portfolio are mostly residential
mortgage-backed and commercial mortgage-backed issues. Strong economic
activity and solid real estate fundamentals indicate a more promising
environment for these securities.
* HIGH-YIELD BONDS RETURN TO GLORY
Until 1998's midsummer rout, the price performance of U.S. high-yield
bonds had outstripped that of U.S. Treasury securities for most of the
decade. As investors became more accepting of credit risk and returned to
the spread sectors, the U.S. high-yield market once again took center
stage, rallying significantly. Your fund's high-yield holdings provided
the lion's share of performance, as in many years past.
Your fund's managers favored bonds in the telecommunications, media, and
finance industries -- fast-growing industries brisk with merger and
acquisition activity -- creating the potential for credit upgrades and
therefore price appreciation opportunities.
Telecommunications and financial services were, in fact, two of the
top-performing subsectors within the high-yield market in the past four
months. Individual security selection within the telecom area further
boosted returns, with Global Crossing and NEXTEL (listed under cellular
communications) being two of the fund's most successful performers. Of the
fund's financial services holdings, specialty financing companies and
banks, such as Ocwen, Aames Financial, Contifinancial, and Delta
Financial, produced notable results.
Over the period, your fund's managers selectively added to some
high-quality cyclical and energy issues. Riverwood Packaging is one
holding in the paper industry that we believe shows promise. R&B Falcon
and Ocean Energy Reserve are two energy issues recently purchased. 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.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS
PER SECTOR
HIGH YIELD SECTOR
Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008
Dial Call Communications, Inc. sr. disc. notes Ser. B, 10 1/4s, 2005
Millicom International Cellular S.A. sr. disc. notes stepped-coupon zero %
(13 1/2s, 6/1/01), 2006 (Luxembourg)
INTERNATIONAL SECTOR
United Kingdom Treasury bonds 8s, 2000
United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002
Canada (Government of) bonds Ser. WB60, 7 1/4s, 2007
GOVERNMENT SECTOR
Government National Mortgage Association Pass-Through Certificates 6 1/2s,
with due dates from December 15, 2027 to March 15, 2029
Government National Mortgage Association Pass-Through Certificates 7 1/2s,
with due dates from September 15, 2022 to February 15, 2027
U. S. Treasury Bonds 6 1/8s, November 15, 2027
EMERGING MARKET SECTOR
United Mexican States Ser. B, 6 1/4s, 2019
Brazil (Government of) stepped-coupon zero %, (8s, 4/30/00), 2014
Argentina (Republic of) 11 3/4s, 2009
Footnote reads:
Based on net assets as of 4/30/99. Holdings will vary over time.
* CORE EUROPE REMAINS INTERNATIONAL FOCUS
The fund had international holdings in the core bond markets of Europe,
primarily those of the Netherlands, Germany, France, and the United
Kingdom. A stronger U.S. dollar and a shaky start to the euro in the early
months of 1999 dampened the return potential of these holdings. As the
period progressed, your fund's managers turned their attention to some of
the peripheral, non-euro-bloc markets of Europe, adding to attractively
valued, higher-yielding issues from Denmark and Sweden. Your fund's
exposure to emerging markets was increased slightly, with bonds from
Mexico, Brazil, and Bulgaria being the more heavily weighted holdings.
Your fund's exposure to Japanese government bonds was minimal.
* FAVORABLE BACKDROP SEEN FOR POSITIVE NEAR-TERM PERFORMANCE
Your fund enters the second half of fiscal 1999 in a fixed-income market
that seems to have come to terms with last year's volatility and
unexpected events. High-yield bonds, which now make up the bulk of your
fund's net assets, have regained their footing, and the fund's management
believes they are poised to continue their trek upward, given the market's
favorable fundamentals, such as solid economic growth, subdued inflation,
relatively stable interest rates, and low defaults. Of course, 1998 is
proof positive that market performance can turn on a dime. Therefore, the
managers remain committed to conducting painstaking research in order to
develop and maintain a portfolio that offers the best return-to-risk
profile for your investment.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 16, 1999
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 4/30/99, there is no guarantee the fund will
continue to hold these securities in the future.
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 4/30/99
Salomon Bros. First
Lehman Bros. Non-U.S. Boston
Market Government World Govt. High-Yield
NAV price Bond Index Bond Index Index
- ------------------------------------------------------------------------------
6 months 5.32% -2.64% -0.95% -4.30% 8.91%
- ------------------------------------------------------------------------------
1 year -2.00 -2.69 6.43 9.06 0.69
- ------------------------------------------------------------------------------
5 years 44.77 41.17 45.24 37.72 57.56
Annual average 7.68 7.14 7.75 6.61 9.52
- ------------------------------------------------------------------------------
10 years 149.90 134.58 130.05 132.22 183.97
Annual average 9.59 8.90 8.69 8.79 11.00
- ------------------------------------------------------------------------------
Life of fund
(since 12/28/87) 187.22 142.41 154.18 125.77 227.59
Annual average 9.75 8.12 8.58 7.45 11.04
- ------------------------------------------------------------------------------
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.
TOTAL RETURN FOR PERIODS ENDED 3/31/99
Market
NAV price
- ----------------------------------------------------------------------------
6 months 1.20% -2.62%
- ----------------------------------------------------------------------------
1 year -2.93 -2.01
- ----------------------------------------------------------------------------
5 years 40.64 47.81
Annual average 7.06 8.13
- ----------------------------------------------------------------------------
10 years 147.46 135.19
Annual average 9.48 8.93
- ----------------------------------------------------------------------------
Life of fund
(since 12/28/97) 182.50 140.62
Annual average 9.66 8.11
- ----------------------------------------------------------------------------
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.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/99
- ----------------------------------------------------------------------------
Distributions (common shares)
- ----------------------------------------------------------------------------
Number 6
- ----------------------------------------------------------------------------
Income $0.363
- ----------------------------------------------------------------------------
Capital gains1 --
- ----------------------------------------------------------------------------
Total $0.363
- ----------------------------------------------------------------------------
Share value NAV Market price
- ----------------------------------------------------------------------------
10/31/98 $8.27 $8.125
- ----------------------------------------------------------------------------
4/30/99 8.34 7.563
- ----------------------------------------------------------------------------
Current return
- ----------------------------------------------------------------------------
Current dividend rate2 8.34% 9.21%
- ----------------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding common shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
Comparative benchmarks
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.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take 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.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you invest
or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund + [DBL. DAGGER]
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread
your money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
+ Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment 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
amounts 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-ended funds, a separate table is
provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
April 30, 1999 (Unaudited)
CORPORATE BONDS AND NOTES (44.6%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,000,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 1,092,478
840,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 879,900
1,000,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 1,062,500
--------------
3,034,878
Aerospace and Defense (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 184,775
250,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 243,125
520,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 521,300
750,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 791,250
160,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 170,400
240,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 238,200
200,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 182,000
210,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 216,825
1,210,000 Raytheon Co. 144A bonds 6.4s, 2018 1,143,039
--------------
3,690,914
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,229,703 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 1,168,218
Airlines (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
310,000 Calair LLC company guaranty 8 1/8s, 2008 295,182
340,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 136,000
530,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005 (Canada) 384,250
355,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 298,200
650,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 338,000
1,500,000 US Air Inc. pass-thru certificates Ser. 93-A2, 9 5/8s, 2003 1,559,325
--------------
3,010,957
Apparel (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
970,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 950,600
610,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 611,525
250,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 266,875
--------------
1,829,000
Automotive Parts (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 189,450
383,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 403,108
500,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 506,875
1,320,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 1,296,900
540,000 Hayes Lemmerz International, Inc. 144A company
guaranty 8 1/4s, 2008 544,050
200,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 209,000
250,000 Lear Corp. sub. notes 9 1/2s, 2006 273,750
535,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 552,388
900,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 929,250
290,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 282,750
--------------
5,187,521
Banks (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 203,750
145,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 155,542
305,000 Fuji JGB Inv. LLC 144A FLIRB Ser. A, 9.87s, 2049 (Japan) 285,175
280,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 290,788
240,000 North Fork Capital Trust I company guaranty 8.7s, 2026 251,155
140,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 109,200
290,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 282,025
290,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 283,536
285,000 Provident Capital Trust company guaranty 8.6s, 2026 283,980
165,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 160,675
230,000 Sovereign Capital Trust company guaranty 9s, 2027 228,581
220,000 Webster Capital Trust I 144A bonds 9.36s, 2027 221,683
--------------
2,756,090
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
150,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 153,375
220,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 132,000
205,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 196,800
--------------
482,175
Broadcasting (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
920,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 943,000
820,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 625,250
765,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 644,513
340,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 363,800
997,487 Capstar Broadcasting bank term loan 4.999s, 2005 999,981
170,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 146,200
1,580,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 1,627,400
327,990 Citadel Broadcasting Inc. sr. sub. notes 10 1/4s, 2007 362,429
270,000 Citadel Broadcasting Inc. company guaranty 9 1/4s, 2008 290,250
1,390,000 Echostar DBS Corp. 144A sr. notes 9 3/8s, 2009 1,442,125
590,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 572,300
480,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 523,800
890,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 887,775
450,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 468,000
120,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 124,800
1,424,000 PHI Holdings, Inc. sr. sub. notes 16%, 2001 1,123,963
405,000 Radio One Inc. company guaranty stepped-coupon Ser. B,
zero %, (12s, 5/15/00), 2004 (STP) 420,188
340,000 SFX Broadcasting, Inc. 144A sr. sub. notes 9 1/8s, 2008 349,350
140,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 140,700
505,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 550,450
175,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002 (Mexico) 159,250
140,000 TV Azteca Holdings S.A. de C.V. sr. notes 10 1/2s,
2007 (Mexico) 121,450
--------------
12,886,974
Building and Construction (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
195,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 161,850
1,230,000 D.R. Horton, Inc. company guaranty 8s, 2009 1,217,700
370,000 Cia Latino Americana 144A company guaranty 11 5/8s,
2004 (Argentina) 225,700
740,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 370,000
180,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 180,450
270,000 NCI Building Systems 144A sr. sub. notes 9 1/4s, 2009 270,000
350,000 Toll Corp. company guaranty 8 1/8s, 2009 350,875
--------------
2,776,575
Building Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
360,000 Building Materials Corp. 144A sr. notes 8s, 2008 355,500
380,000 Morris Material Handling, Inc. company guaranty 9 1/2s, 2008 207,100
--------------
562,600
Buses (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,250,000 MCII Holdings sec. notes, stepped-coupon 12s
(15s,11/15/99), 2002 (STP) 1,125,000
Business Equipment and Services (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
490,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 461,825
100,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 108,250
550,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 562,375
930,000 Iron Mountain, Inc. 144A sr. sub. notes 8 1/4s, 2011 932,325
190,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 188,100
966,664 Outsourcing Solutions Inc. 144A bank term loan 8.621s, 2004 944,914
666,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 738,428
90,000 United Stationer Supply, Inc. sr. sub. notes 8 3/8s, 2008 89,775
480,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 321,600
--------------
4,347,592
Cable Television (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
455,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 393,575
835,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 914,325
510,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 520,200
160,000 Century Communications Corp. sr. notes 8 7/8s, 2007 167,200
360,000 Century Communications Corp. sr. notes 8 3/4s, 2007 374,400
1,440,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 1,476,000
50,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 56,000
120,000 CSC Holdings, Inc. deb. Ser. B, 8 1/8s, 2009 128,374
140,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 143,168
360,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 364,705
760,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 685,900
870,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 693,825
505,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon zero %
(13 1/4s, 5/15/01), 2008 (Mexico) (STP) 426,725
625,000 Grupo Televisa S.A. 144A sr. notes 11 7/8s, 2006 (Mexico) 662,500
130,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 140,725
400,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 450,000
680,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 727,600
120,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 135,600
370,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s,
2005 (Argentina) 177,600
90,000 TeleWest Communications PLC 144A sr. notes 11 1/4s,
2008 (United Kingdom) 103,725
470,000 TeleWest Communications PLC 144A sr. disc. notes stepped-
coupon zero % (9 1/4, 4/15/04), 2009 (United Kingdom) (STP) 318,425
40,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 18,400
520,000 United International Holdings sr. disc. notes
stepped-coupon Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 356,200
--------------
9,435,172
Cellular Communications (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
960,000 Celcaribe S.A. sr. notes zero % (13 1/2s, 3/15/04),
2004 (Colombia) (STP) 816,000
1,658,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 634,185
610,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 (STP) 634,400
375,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 48,750
1,985,000 Dial Call Communications, Inc. sr. disc. notes Ser. B,
10 1/4s, 2005 2,059,438
865,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 960,150
1,265,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 847,550
2,045,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 1,574,650
790,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 928,250
350,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 273,000
420,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 442,050
--------------
9,218,423
Chemicals (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Geo Specialty Chemicals, Inc. 144A sr. sub. notes 10 1/8s, 2008 301,500
100,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 98,000
500,000 Huntsman Corp. 144A sr. sub. notes FRN 9.188s, 2007 455,000
145,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 123,250
480,192 Polytama International notes 11 1/4s, 2007 (Indonesia) 84,034
480,000 Royster-Clark Inc. 144A 1st mtge. 10 1/4s, 2009 487,200
440,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 455,400
340,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 156,400
435,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 217,500
--------------
2,378,284
Computer Services and Software (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 140,625
850,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 641,750
500,000 PSINet, Inc. sr. notes 11 1/2s, 2008 556,250
250,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 261,875
280,000 Unisys Corp. sr. notes 7 7/8s, 2008 293,300
240,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 270,000
180,000 Verio Inc. sr. notes 10 3/8s, 2005 191,700
--------------
2,355,500
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
510,000 Axia, Inc. company guaranty 10 3/4s, 2008 516,375
670,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 167,500
200,000 Dine S.A. de C.V. company guaranty 8 3/4s, 2007 (Mexico) 177,000
--------------
860,875
Consumer Durable Goods (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 Albecca Inc. company guaranty 10 3/4s, 2008 323,000
70,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 27,300
130,000 Iron Age Corp. company guaranty 9 7/8s, 2008 94,900
175,000 Sealy Mattress Co. 144A sr. sub. notes Ser. B, 9 7/8s, 2007 176,750
--------------
621,950
Consumer Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
860,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 946,000
190,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %,
(13 5/8s, 6/30/00), 2005 (STP) 217,075
--------------
1,163,075
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 142,800
135,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 137,025
250,000 Revlon Consumer Products sr. notes 9s, 2006 255,000
560,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 537,600
140,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 138,600
--------------
1,211,025
Electric Utilities (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,200,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 804,000
190,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 194,750
840,000 Calpine Corp. sr. notes 8 3/4s, 2007 854,398
470,000 Calpine Corp. sr. notes 7 7/8s, 2008 474,700
750,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 923,513
1,600,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 1,811,776
402,478 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 426,498
250,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 257,628
240,000 Niagara Mohawk Power Corp. sr. notes Ser. E, 7 3/8s, 2003 251,002
480,663 Northeast Utilities System notes Ser. A, 8.58s, 2006 486,354
850,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 399,500
660,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 663,300
--------------
7,547,419
Electronics (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
295,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 327,450
280,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 283,500
685,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 708,975
180,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 173,700
760,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 817,000
185,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 192,631
75,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 72,563
600,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 558,000
400,000 Wavetek Corp. company guaranty 10 1/8s, 2007 376,000
--------------
3,509,819
Entertainment (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
820,000 ITT Corp. notes 6 3/4s, 2005 769,898
905,000 News America Inc. deb. 7 1/8s, 2028 882,511
330,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon
zero %, (10s, 4/1/03), 2008 (STP) 234,300
825,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 862,125
495,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 512,325
400,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 192,000
1,475,000 Time Warner, Inc. company guaranty 6 5/8s, 2029 1,393,831
585,000 United Artists Theatre sr. sub. notes Ser. B, 9 3/4s, 2008 497,250
--------------
5,344,240
Environmental Control (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,070,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 1,045,925
Financial Services (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 511,875
500,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 454,745
460,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 400,628
425,000 Cellco Finance Corp. NV 144A sr. sub. notes 15s,
2005 (Netherlands) 422,875
1,720,000 Citicorp sub. notes 6 3/8s, 2008 1,710,609
165,000 Colonial Capital II 144A company guaranty 8.92s, 2027 157,342
70,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 49,175
120,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 91,200
840,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 663,600
1,510,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 1,432,960
645,000 Household Netherlands N.V. company guaranty 6.2s,
2003 (Netherlands) 646,077
470,000 Imperial Credit Capital Trust I 144A company
guaranty 10 1/4s, 2002 380,700
480,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 393,600
345,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 331,200
600,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 324,000
1,060,000 RBF Finance 144A company guaranty 11s, 2006 1,107,700
17,400,000 Realkredit Danmark mortgage 7s, 2029 (Denmark) 2,530,625
395,000 Resource America Inc. 144A sr. notes 12s, 2004 359,450
--------------
11,968,361
Food and Beverages (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
340,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 278,800
30,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 27,825
550,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 596,063
75,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 79,031
620,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 341,000
710,000 Triarc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 715,325
--------------
2,038,044
Gaming (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
655,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 741,788
500,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 530,000
810,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 836,325
220,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 205,280
720,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 306,000
180,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 180,720
270,000 Hollywood Park, Inc. 144A sr. sub. notes 9 1/4s, 2007 278,775
215,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 238,650
450,000 Mohegan Tribal Gaming, Auth. 144A sr. notes 8 1/8s, 2006 459,000
330,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 323,400
500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 224,375
830,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 838,300
360,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 360,450
--------------
5,523,063
Health Care (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 123,217
150,000 Columbia/HCA Healthcare Corp. notes 7.69s, 2025 123,404
210,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 190,556
600,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 566,862
270,000 Conmed Corp. company guaranty 9s, 2008 274,050
275,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 209,000
410,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 333,125
750,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 540,000
480,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 326,400
90,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 76,950
939,788 Magellan Health Services, Inc. bank term loan 8s, 2005 874,003
1,000,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 520,000
210,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 77,700
540,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 453,600
280,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 257,600
1,080,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 842,400
810,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 599,400
430,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 94,600
520,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 130,000
120,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 121,200
150,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 151,875
420,000 Tenet Healthcare Corp. 144A sr. sub. notes 8 1/8s, 2008 411,600
150,000 Tenet Healthcare Corp. sr. notes 8s, 2005 150,375
250,000 Tenet Healthcare Corp.144A sr. notes 7 5/8s, 2008 243,750
310,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 310,000
--------------
8,001,667
Lodging (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
310,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 288,300
1,135,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,095,275
350,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 361,375
600,000 Sun International Hotels Ltd. company guaranty 9s, 2007 631,500
--------------
2,376,450
Medical Supplies and Devices (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
455,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 460,688
415,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 462,725
210,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 203,700
340,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 341,700
380,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 152,000
360,000 Mediq, Inc. company guaranty 11s, 2008 313,200
--------------
1,934,013
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 175,000
305,000 Continental Global Group sr. notes Ser. B, 11s, 2007 280,600
710,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 553,800
320,000 Neenah Foundry Co. 144A sr. sub. notes 11 1/8s, 2007 323,200
500,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 490,000
310,000 WHX Corp. sr. notes 10 1/2s, 2005 310,000
--------------
2,132,600
Motion Picture Distribution (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 2011 224,825
440,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 433,400
355,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 (Mexico) 365,650
80,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 80,000
1,202,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 420,700
--------------
1,524,575
Oil and Gas (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
310,000 Abraxas Petroleum Corp. 144A company guaranty Ser. D,
11 1/2s, 2004 179,025
360,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 374,400
50,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 36,500
1,190,000 CMS Energy Corp. sr. notes 6 3/4s, 2004 1,167,854
310,000 Eagle Geophysical, Inc. company guaranty Ser. B, 10 3/4s, 2008 186,000
70,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (14 1/8s, 5/1/03), 2006 (STP) 24,500
300,000 Gothic Production Corp. company guaranty Ser. B,
11 1/8s, 2005 229,500
370,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s,
2005 (Canada) 378,325
300,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 305,250
400,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 408,000
450,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 441,000
590,000 Petro Geo-Services notes 7 1/2s, 2007 (Norway) 612,196
250,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 133,750
240,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 132,000
35,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B,
zero % (13s, 6/15/99), 2002 (In default) (NON) (STP) 5,250
1,370,000 Transamerican Energy sr. notes Ser. B, 11 1/2s,
2002 (In default) (NON) 239,750
500,000 Transamerican Refining Corp. sr. sub. notes Ser. B, 16s,
2003 (In default) (NON) 50,000
774,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s,
2001 (In default) (NON) 38,700
700,000 Vintage Petroleum 144A sr. sub. notes 9 3/4s, 2009 722,750
--------------
5,664,750
Packaging and Containers (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
175,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 182,000
310,000 Ball Corp. company guaranty 7 3/4s, 2006 320,075
250,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 259,778
460,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 452,171
740,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 728,767
640,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 659,200
550,000 Packaging Corp. bank term loan 6s, 2008 554,125
145,000 Radnor Holdings Inc. sr. notes 10s, 2003 152,975
1,070,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 1,059,300
615,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 639,600
--------------
5,007,991
Paper and Forest Products (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
330,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 330,000
480,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 480,000
500,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 340,000
530,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 551,200
480,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 326,400
770,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s,
2004 (Indonesia) 523,600
590,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 604,750
--------------
3,155,950
Pharmaceuticals (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 619,500
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 85,400
Publishing (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
555,000 Affinity Group Holdings sr. notes 11s, 2007 555,000
300,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 324,000
280,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 280,000
500,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 503,750
490,000 Garden State Newspapers 144A sr. sub. notes 8 5/8s, 2011 497,350
400,000 Perry-Judd company guaranty 10 5/8s, 2007 397,000
107,729 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 112,038
150,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 156,000
--------------
2,825,138
Railroads (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
565,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero %, (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 361,600
510,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 478,125
--------------
839,725
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
700,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 717,500
Retail (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Fred Meyer, Inc. company guaranty 7.45s, 2008 366,905
180,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 182,700
400,000 K mart Corp. pass-thru certificates Ser. 95K4, 9.35s, 2020 439,000
460,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 443,900
625,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 657,813
300,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 273,000
680,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 686,800
--------------
3,050,118
Satellite Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
470,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 528,750
270,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 230,850
--------------
759,600
Semiconductors (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
192,054 Cirent Semiconductor sr. sub. notes 10.22s, 2002 196,855
209,533 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 214,771
408,792 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s,
2008 (PIK) 384,264
800,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 808,000
450,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 409,500
--------------
2,013,390
Shipping (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 134,400
510,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 553,350
220,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 147,400
--------------
835,150
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
420,000 Decora Industries, Inc. sec. Ser. B, 11s, 2005 407,400
Steel (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,040,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 1,037,400
540,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 552,150
330,000 National Steel Corp. 144A 1st mtge. 9 7/8s, 2009 347,325
245,000 National Steel Corp. 144A 1st mtge. Ser. B, 9 7/8s, 2009 257,863
--------------
2,194,738
Telecommunications (7.0%)
- --------------------------------------------------------------------------------------------------------------------------
440,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 255,200
330,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 224,400
310,000 Birch Telecom, Inc. sr. notes 14s, 2008 291,400
310,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 327,825
1,235,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 1,055,925
425,000 Covad Communications Group sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 3/15/03), 2008 (STP) 250,750
910,000 Covad Communications Group Inc. 144A sr. notes
12 1/2s, 2009 923,650
1,920,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 1/2s, 3/01/03), 2008 (STP) 748,800
900,000 Econophone Inc. company guaranty 13 1/2s, 2007 976,500
720,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 405,000
230,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 247,825
1,370,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 712,400
890,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 2/15/03), 2008 (STP) 525,100
1,960,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 2,180,500
620,000 GST Equipment Funding sr. notes 13 1/4s, 2007 669,600
747,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 620,010
1,190,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 737,800
100,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 109,500
265,000 Hyperion Telecommunications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 221,938
310,000 Hyperion Telecommunications Inc. 144A sr. sub. notes 12s, 2007 327,050
550,000 Hyperion Telecommunications, Inc. sr. notes Ser. B,
12 1/4s, 2004 596,750
575,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 524,688
770,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 2/15/03), 2008 (STP) 488,950
1,420,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 880,400
760,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 (STP) 136,800
700,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 528,500
1,120,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 1,114,400
550,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 544,500
1,070,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 933,575
510,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 512,550
1,695,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 957,675
1,015,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero %, (11 7/8s, 10/15/02), 2007 (STP) 629,300
425,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 468,563
220,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 223,850
420,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 411,600
210,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02),
2007 (Canada) (STP) 171,675
840,000 MetroNet Communications Corp. 144A sr. notes 10 5/8s,
2008 (Canada) 984,900
530,000 MetroNet Communications Corp. sr. disc. stepped-coupon
notes zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 410,750
850,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 714,000
90,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 62,100
150,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 142,500
650,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 685,750
620,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 347,200
595,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 485,092
290,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 224,060
470,000 Qwest Communications International, Inc. 144A sr. notes
7 1/4s, 2008 484,894
800,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 452,000
650,000 Startec Global Communications Corp. sr. notes 12s, 2008 588,250
700,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 707,000
480,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 331,200
790,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 1/2s, 3/1/03), 2008 (STP) 458,200
580,000 Teligent, Inc. sr. notes 11 1/2s, 2007 580,000
890,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 961,200
150,000 Versatel Telecom B. V. sr. notes 13 1/4s, 2008 (Netherlands) 162,000
340,000 Versatel Telecom B. V. sr. notes 13 1/4s, 2008 (Netherlands) 367,200
545,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 572,250
200,000 WinStar Communications, Inc. sr. sub. notes 10s, 2008 173,000
--------------
30,828,495
Telephone Services (2.9%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 180,800
710,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 468,600
1,080,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,007,100
600,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 423,000
900,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 585,000
360,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 347,400
425,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 3/4s, 4/1/01), 2006 (STP) 284,750
250,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 195,000
500,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 496,250
150,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 118,500
420,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 336,000
380,000 ITC Deltacom, Inc. sr. notes 11s, 2007 420,850
280,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 286,300
180,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 126,000
790,000 McLeodUSA, Inc. 144A sr. notes 8 1/8s, 2009 782,100
185,000 OnePoint Communications Corp. 144A sr. notes 14 1/2s, 2008 94,350
760,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 748,600
130,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 90,025
705,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 782,550
300,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 310,500
130,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 126,750
2,415,000 Sprint Capital Corp. company guaranty 5.7s, 2003 2,372,544
500,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon zero %
(12 1/2s, 8/15/01), 2006 (STP) 445,000
190,000 Sprint Spectrum L.P. sr. notes 11s, 2006 217,981
175,000 Transtel S.A. 144A pass-through certificates 12 1/2s,
2007 (Colombia) 78,750
260,000 US Xchange LLC sr. notes 15s, 2008 282,100
580,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 377,000
890,000 Viatel, Inc. sr. notes 11 1/4s, 2008 925,600
--------------
12,909,400
Textiles (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
540,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 415,800
290,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 295,800
190,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 191,900
--------------
903,500
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 232,875
Wireless Communications (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
410,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 303,400
220,000 Clearnet Communications, Inc. sr. disc. notes
stepped-coupon zero % (14 3/4s, 12/15/00), 2005 (STP) 203,500
390,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 374,400
125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 58,750
500,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon
zero %, (11 5/8s, 4/15/04), 2009 (STP) 281,250
200,000 Telesystem International Wireless Inc. sr. disc. notes
stepped-coupon Ser. C, zero %, (10 1/2s, 11/1/02),
2007 (Canada) (STP) 107,000
--------------
1,328,300
--------------
Total Corporate Bonds and Notes (cost $209,905,941) $ 197,427,894
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (20.1%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (11.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 2,199,547 Federal Home Loan Mortgage Corp. 7 1/2s, May 1, 2027 $ 2,260,717
Federal National Mortgage Association
Pass-Through Certificates
1,077,145 7s, Dwarf, May 1, 2011 1,100,368
1,214,044 6 1/2s, with due dates from January 1, 2027 to
November 1, 2028 1,206,369
828,828 6 1/2s, Dwarf, with due dates from July 1, 2013 to
August 1, 2013 835,558
3,606,456 6s, Dwarf, July 1, 2013 3,572,627
Government National Mortgage Association
1,300,000 8s, TBA, May 15, 2029 1,355,250
2,780,000 6 1/2s, TBA, May 15, 2029 2,761,735
Government National Mortgage Association
Pass-Through Certificates
6,276,976 8s, with due dates from February 15, 2024 to
March 15, 2028 6,546,116
11,314,653 7 1/2s, with due dates from September 15, 2022 to
February 15, 2027 11,671,654
15,461 7 1/2s, Midget, February 15, 2024 15,964
7,570,489 7s, with due dates from January 15, 2023 to April 15, 2028 7,693,026
12,839,544 6 1/2s, with due dates from December 15, 2027 to
March 15, 2029 12,755,189
--------------
51,774,573
U.S. Treasury Obligations (8.4%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
2,985,000 6 1/2s, November 15, 2026 3,230,337
10,765,000 6 1/8s, November 15, 2027 11,143,497
1,875,000 5 1/2s, August 15, 2028 1,786,819
5,385,000 5 1/4s, February 15, 2029 5,055,169
3,360,000 5 1/4s, November 15, 2028 3,109,042
U.S. Treasury Notes
4,500,000 5s, February 28, 2001 4,493,655
3,165,000 4 3/4s, November 15, 2008 3,023,050
355,000 4 3/4s, February 15, 2004 348,010
3,475,000 4 1/4s, November 15, 2003 3,337,633
6,215,000 U.S. Treasury Strip, zero %, November 15, 2019 1,802,536
--------------
37,329,748
--------------
Total U.S. Government and Agency Obligations
(cost $89,474,622) $ 89,104,321
FOREIGN GOVERNMENT BONDS AND NOTES (9.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
CAD 3,970,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 $ 3,092,859
USD 800,000 Colombia (Republic of) 9 3/4s, 2009 779,680
USD 310,000 Colombia (Republic of) 8 5/8s, 2008 281,325
EUR 2,467,926 France (Government of) bonds 5 1/2s, 2007 2,920,477
EUR 1,326,916 France (Government of) deb. 6s, 2025 1,629,199
EUR 1,227,101 Germany (Federal Republic of) bonds Ser. 97,
6 1/2s, 2027 1,611,156
EUR 821,165 Italy (Government of) bonds 7 1/4s, 2026 1,149,847
EUR 1,363,609 Netherlands (Government of) bonds 5 1/2s, 2028 1,572,541
EUR 1,026,649 Spain (Government of) bonds 6s, 2029 1,248,581
SEK 9,900,000 Sweden (Government of) bonds Ser. 1035,
6 3/4s, 2014 1,447,845
SEK 8,700,000 Sweden (Government of) deb. Ser. 1041, 6s, 2005 1,158,580
RUB 16,500,000 U.S. Dollar GKO Pass Through Structured Note
(Issued by Deutsche Bank. The principal USD is
linked to the bid price for the Russian Treasury
Bill at maturity, and the change in the spot rate
of the Russian Ruble from issue date), zero %,
1999 (In default) (NON) 20,205
GBP 3,535,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 6,492,641
GBP 11,345,000 United Kingdom Treasury bonds 8s, 2000 19,066,413
--------------
Total Foreign Government Bonds and Notes
(cost $47,033,862) $ 42,471,349
COLLATERALIZED MORTGAGE OBLIGATIONS (9.0%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.
$ 1,395,000 Ser. 97-ML1, Class D, 7.11s, 2030 $ 1,376,037
1,525,000 Ser. 98-C2, Class D, 6.757s, 2009 1,470,910
16,318,840 Ser. 97-ML1, IO (Interest Only), 0.962s, 2017 856,739
1,060,000 Countrywide Home Loans Ser. 1998-3, Class A5, 6 3/4s, 2028 1,045,591
1,625,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C,
Class A8, 6 1/2s, 2024 1,580,865
Criimi Mae Commercial Mortgage Trust
4,665,000 Ser. 98-C1, Class A2, 7s, 2011 4,259,728
1,860,000 Ser. 98-C1, Class B, 7s, 2011 1,513,575
10,928,323 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 1.254s, 2031 645,881
2,338,947 Fannie Mae Ser. 1993-251, Class Z, 6 1/2s, 2023 2,268,778
Fannie Mae Strip
5,578,846 Ser. 281, Class 2, IO, 9s, 2026 1,258,727
4,320,834 Ser. 299, Class 2, IO, 6 1/2s, 2028 1,228,737
Freddie Mac
770,000 Ser. 2040, Class PE, 7.5s, 2028 808,616
435,000 Ser. 1439, Class I, 7.5s, 2022 449,358
610,284 Ser. 1717, Class L, 6 1/2s, 2024 605,802
Freddie Mac Strip
2,263,646 Ser. 188, IO, 7 1/2s, 2027 487,745
1,524,922 Ser. 176, PO (Principle Only), 7s, 2026 1,180,147
2,037,497 Ser. 177, PO, 7s, 2026 1,576,832
6,010,000 Ser. 2089, IO, 7s, 2023 1,134,388
3,305,010 Ser. 192, IO, 6 1/2s, 2028 910,943
First Union-Lehman Brothers Commercial Mortgage Co.
1,615,000 Ser. 97-C2, Class D, 7.12s, 2012 1,545,353
450,000 Ser. 98-C2, Class D, 6.778s, 2013 417,234
9,249,744 Ser. 97-C2, IO, 1.092s, 2027 725,888
620,000 GE Capital Mortgage Services, Inc. Ser. 1998-11,
Class 2A4, 6 3/4s, 2028 616,547
GMAC Commercial Mortgage Securities Inc.
1,710,000 Ser. 98-C2, Class D, 6 1/2s, 2031 1,598,650
9,229,050 Ser. 98-C2, Class X, IO, 0.823s, 2031 389,351
700,000 Government National Mortgage Association Ser. 97-8,
Class PE, 7.5s, 2027 733,906
800,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D,
7.191s, 2031 765,250
Merrill Lynch Mortgage Investors, Inc.
640,000 Ser. 1995-C3, Class D, 7.782s, 2025 655,200
248,000 Ser. 98-C2, Class D, 7.116s, 2030 240,948
18,851,489 Ser. 1996-C2, IO, 1.652s, 2028 1,408,707
2,814,778 Ser. 98-C2, IO, 1.587s, 2030 214,486
Morgan Stanley Capital I
455,000 Ser. 98-WF1, Class D, 7.12s, 2008 446,753
445,000 Ser. 98-XL1, Class E, 6.989s, 2030 434,709
12,372,479 Ser. 1998-HF1, Class X, IO, 1.238s, 2018 703,685
Mortgage Capital Funding, Inc.
585,000 Ser. 98-MC1, Class A2, 6.663s, 2008 593,775
5,060,330 Ser. 97-MC2, Class X, IO, 1.583s, 2012 375,374
27,693,295 Ser. 98-MC1, Class X, IO, 0.722s, 2009 1,125,040
1,033,603 PNC Mortgage Securities Corp. Ser. 97-6, Class A2, 6.6s, 2027 1,040,063
352,777 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 353,148
792,450 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 791,309
--------------
Total Collateralized Mortgage Obligations
(cost $40,982,601) $ 39,834,775
BRADY BONDS (8.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 4,840,000 Argentina (Republic of) 11 3/4s, 2009 $ 5,009,400
1,565,000 Brazil (Government of) 11 5/8s, 2004 1,518,050
1,460,000 Brazil (Government of) disc. bonds FRB 6.125s, 2024 956,300
12,759,614 Brazil (Government of) disc. bonds FRB 6.625s, 2024 8,804,134
2,210,000 Bulgaria (Government of) Ser. A, FRB 5.875s, 2024 1,513,850
4,910,000 Bulgaria (Government of) Ser. A, FRB, 2 1/2s, 2012 2,970,550
FRF 3,420,000 Ivory Coast -- 144A FLIRB collateralized FRB 2s, 2018 132,388
FRF 3,334,500 Ivory Coast -- 144A PDI bonds FRB 1.9s, 2018 150,591
$ 3,130,000 United Mexican States 10 3/8s, 2009 3,349,100
1,610,000 United Mexican States 9 3/4s, 2005 1,674,400
11,860,000 United Mexican States Ser. B, 6 1/4s, 2019 9,384,818
1,745,000 Venezuela (Government of) deb. Ser. W-A, 6 3/4s, 2020 1,273,850
--------------
Total Brady Bonds (cost $37,122,643) $ 36,737,431
PREFERRED STOCKS (3.7%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
10,649 AmeriKing, Inc. $3.25 pfd. (PIK) $ 271,550
15,000 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 390,000
5,023 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 617,829
3,460 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 429,040
11,925 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 640,969
5,019 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 604,790
263 Concentric Network Corp. Ser. B, 13.5% pfd. (PIK) 284,040
9,189 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 1,079,708
27,930 Diva Systems Corp. Ser. C, $6.00 pfd. 167,580
930,000 Dobson Communications 144A 13.00% pfd. (PIK) 930,000
4 E. Spire Communications, Inc. 12.75% pfd. (PIK) 2,140
100 Fresenius Medical Capital Trust I Ser. D, 9.00% pfd. (Germany) 104,250
560 Fresenius Medical Capital Trust II 7.875% company
guaranty, pfd. (Germany) 554,400
9,730 Global Crossing Holdings 144A $10.50 pfd. 1,123,815
932 Granite Broadcasting 144A 12.75% pfd. (PIK) 959,960
4 Hyperion Telecommunications Ser. B, 12.875% pfd. (PIK) 3,760
943 ICG Holdings, Inc. 14.25% pfd. (Canada) 961,860
392 ICG Holdings, Inc., 144A 14.00% pfd. (Canada) (PIK) 403,760
969 Intermedia Communication Ser. B, 13.5% pfd. (PIK) 1,046,520
598 IXC Communications, Inc. 12.5% pfd. (PIK) 598,000
9,189 Lady Luck Gaming Corp. $11.25 pfd. 358,371
438 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 503,700
162 NEXTEL Communications, Inc. Ser. E, 11.125% pfd. (PIK) 178,200
19,851 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 1,091,805
79 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 667,550
380 R & B Falcon Corp. $1.3875 cv. pfd. 398,050
5,000 Sinclair Capital $11.625 cum. pfd. 550,000
683 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 730,810
60,051 TCR Holding Corp. Class. E, zero % pfd. 3,783
126 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) 63,000
414 Viatel, Inc. Ser. A, $10.00 cv. pfd. (PIK) 93,150
580 WinStar Communications, Inc. 144A $14.25 pfd. (PIK) 464,000
--------------
Total Preferred Stocks (cost $15,419,496) $ 16,276,390
ASSET-BACKED SECURITIES (1.0%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 505,000 Contimortgage Home Equity Loan Trust Ser. 97-1,
Class M2, 7.67s, 2028 $ 496,163
1,386,872 First Plus Ser. 98-A Class A, 8 1/2s, 2023 1,374,954
2,723,837 Provident Bank Home Equity Loan Trust Ser. 99-1,
Class A2, 5.08s, 2019 2,723,837
--------------
Total Asset-Backed Securities (cost $4,609,634) $ 4,594,954
WARRANTS (0.7%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
410 American Mobile Satellite Corp. 4/1/08 $ 12,300
330 Bestel SA (Mexico) 5/15/05 330
310 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 1,550
2,498 Cellnet Data Systems, Inc. 10/1/07 49,960
325 Club Regina, Inc. 144A 12/1/04 325
1,235 Colt Telecommunications Group PLC 12/31/06 586,625
5,062 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 506
425 Covad Communications Group 144A 3/15/08 549,100
690 Diva Systems Corp. 5/15/06 166,980
3,606 Diva Systems Corp. 3/1/08 46,878
9,600 DTI Holdings Inc. 3/1/08 96
10 E. Spire Communications, Inc. 11/1/05 150
1,050 Econophone, Inc. 144A 7/1/07 63,000
310 Epic Resorts 6/15/05 3
370 Esat Holdings, Inc. (Ireland) 2/1/07 27,380
1,370 Firstworld Communication 4/15/08 68,500
380 Globalstar Telecommunications 2/15/04 19,000
940 Hyperion Telecommunications 144A 4/15/01 65,800
8,514 ICG Communications 10/15/05 174,537
760 Interact Systems, Inc. 8/1/03 8
1,325 Intermedia Communications 6/1/00 141,775
450 International Wireless Communications
Holdings 144A 8/15/01 9
875 KMC Telecom Holdings, Inc. 4/15/08 2,625
875 Knology Holdings, Inc. 144A 10/15/07 1,750
180 Long Distance International, Inc. 144A 4/13/08 360
1,530 McCaw International Ltd. 4/15/07 6,503
380 Mediq Inc. 144A 6/1/09 4
3,130 Mexico-United Mexican States 2/18/00 161,195
140 MGC Communications, Inc. 144A 10/1/04 21,280
185 Onepoint Communications, Inc. 6/1/08 185
390 Orbital Imaging Corp. 144A 3/1/05 15,600
525 Orion Network Systems 1/15/07 6,300
5,290 Pagemart, Inc. 144A 12/31/03 43,643
620 Pathnet, Inc. 144A 4/15/08 6,200
640 Paxson Communications Corp. 144A 6/30/03 6
4,238 President Riverboat Casinos, Inc. 9/30/99 127
3,640 Rhythms Netcon 144A 5/15/08 817,362
390 Spanish Broadcasting Systems 144A 6/30/99 79,950
650 Startec Global Communications Corp. 5/15/08 650
275 Sterling Chemicals Holdings 8/15/08 5,500
480 Telehub Communications Corp. 7/31/05 2,400
500 Transamerican Refining Corp. 6/30/03 1
2,285 UIH Australia/Pacific, Inc. 144A 5/15/06 2,285
490 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 34,300
36 Wright Medical Technology, Inc. 144A 6/30/03 --
--------------
Total Warrants (cost $841,591) $ 3,183,038
CONVERTIBLE PREFERRED STOCKS (0.5%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,900 Adelphia Communications Corp. Ser. D, $5.50 cv. pfd. $ 590,150
2,600 Chancellor Media Corp. $3.00 cv. cum. pfd. 286,650
2,290 Chesapeake Energy Corp. $3.50 cum. cv. pfd. 52,098
16,450 Global Telesystems, Inc. 144A $3.625 cv. pfd. 908,863
20 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 192,000
932 XCL Ltd $8.075 cv. pfd. 37,280
--------------
Total Convertible Preferred Stocks (cost $2,055,656) $ 2,067,041
COMMON STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,254 Allegiance Telecom, Inc. (NON) $ 57,684
200 AmeriKing, Inc. (NON) 7,800
2,625 Axia Holding Inc. 144A (PIK) (NON) 36,094
156,096 Celcaribe S.A. 144A (Colombia) (NON) 390,240
14,280 CellNet Data Systems, Inc. (NON) 110,670
4,246 Hedstrom Holdings, Inc. 144A (NON) 4,246
4,148 IFINT Diversified Holdings 144A (NON) 8,296
182 Mothers Work, Inc. (NON) 1,968
125 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 1
480 Premium Holdings (L.P.) 144A (NON) 1,679
100,386 PSF Holdings LLC Class A (NON) 1,254,825
15,000 Specialty Foods Acquisition Corp. (NON) 375
--------------
Total Common Stocks (cost $3,834,719) $ 1,873,878
UNITS (0.3%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
500 Network Plus Corp. units pfd. 13 1/4s, 2009 $ 512,500
560 Pegasus Shipping 144A company guaranty stepped-coupon
zero % (14 1/2s, 6/20/03), 2008 (Bermuda) (STP) 218,400
380 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 292,600
4,732 XCL Ltd. 144A units cum. cv. pfd. 9 1/2s, 2006 (PIK) 189,280
--------------
Total Units (cost $1,601,530) $ 1,212,780
CONVERTIBLE BONDS AND NOTES (0.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 446,250
234,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero %, (13 7/8s, 12/15/00), 2005 (STP) 292,500
320,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 268,000
280,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 201,950
--------------
Total Convertible Bonds and Notes (cost $1,113,085) $ 1,208,700
SHORT-TERM INVESTMENTS (1.3%) (a) (cost $5,603,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 5,603,000 Interest in $292,698,000 joint repurchase agreement
dated April 30, 1999 with S.B.C. Warburg Inc. due
May 3, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $5,605,274 for an
effective yield of 4.87% $ 5,603,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $459,598,380) (b) $ 441,595,551
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $442,637,488.
(b) The aggregate identified cost on a tax basis is $459,792,961, resulting in gross unrealized appreciation and
depreciation of $13,273,360 and $31,470,770, respectively, or net unrealized depreciation of $18,197,410.
(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 this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at April 30, 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.
TBA after the name of a security represents to be announced securities (Note 1).
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at
April 30, 1999, which are subject to change based on the terms of the security.
Distribution of investments by country of issue at April 30, 1999 (as percentage of market value)
United States 75.1% Germany 0.5
United Kingdom 6.8 China 0.4
United Mexican States 3.3 Luxembourg 0.4
Brazil 2.7 Indonesia 0.3
Canada 2.5 Venezuela 0.3
Argentina 1.2 Spain 0.3
France 1.0 Italy 0.3
Bulgaria 1.0 Bermuda 0.2
Mexico 0.7 Israel 0.2
Netherlands 0.7 Norway 0.1
Sweden 0.6 Japan 0.1
Denmark 0.6 Ivory Coast 0.1
Colombia 0.5 Other 0.1
---
Total 100%
===
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at April 30, 1999 (Unaudited)
(aggregate face value $67,964,057)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Australian Dollars $ 2,423,666 $ 2,319,642 6/16/99 $ 104,024
Euro Dollars 40,265,946 41,542,825 6/16/99 (1,276,879)
Japanese Yen 20,562,585 20,012,135 6/16/99 550,450
Swedish Krona 3,985,199 4,089,455 6/16/99 (104,256)
- -------------------------------------------------------------------------------
$ (726,661)
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 1999 (Unaudited)
(aggregate face value $99,422,188)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
British Pounds $26,090,216 $26,133,821 6/16/99 $ 43,605
Canadian Dollar 3,195,067 3,058,015 6/16/99 (137,052)
Danish Krone 31,934 32,226 6/16/99 292
Euro Dollars 50,764,118 52,462,613 6/16/99 1,698,495
Japanese Yen 18,239,804 17,735,513 6/16/99 (504,291)
- -------------------------------------------------------------------------------
$1,101,049
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
U.S. Treasury
Bond 20 yr (Long) $23,556,750 $24,035,721 June-99 $(478,971)
- -------------------------------------------------------------------------------
TBA Sales Commitments at April 30, 1999 (Unaudited)
(proceeds receivable $4,118,813)
Settlement Market
Agency Principal Amount Date Value
- -------------------------------------------------------------------------------
GNMA, 6 1/2s, May 15, 2029 $3,994,000 5/24/99 $4,292,522
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $459,598,380) (Note 1) $441,595,551
- -----------------------------------------------------------------------------------------------
Cash 1,738,852
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 8,168,381
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 9,065,694
- -----------------------------------------------------------------------------------------------
Receivable for open forwards 2,396,868
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 29,569
- -----------------------------------------------------------------------------------------------
Total assets 462,994,915
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,971,149
- -----------------------------------------------------------------------------------------------
Payable for variation margin 322,906
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 9,640,979
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 827,696
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 67,019
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 14,351
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,667
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 2,022,480
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 146,123
- -----------------------------------------------------------------------------------------------
TBA sales commitment, at value (proceeds receivable $4,118,813) 4,292,522
- -----------------------------------------------------------------------------------------------
Other accrued expenses 50,535
- -----------------------------------------------------------------------------------------------
Total liabilities 20,357,427
- -----------------------------------------------------------------------------------------------
Net assets $442,637,488
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $478,647,593
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (4,363,238)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (Note 1) (13,889,046)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (17,757,821)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $442,637,488
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($442,637,488 divided by 53,095,749 shares) $8.34
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended April 30, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income: (net of foreign tax of $10,062) $18,209,936
- -----------------------------------------------------------------------------------------------
Dividends 816,665
- -----------------------------------------------------------------------------------------------
Total investment income 19,026,601
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,638,979
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 307,264
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,553
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,751
- -----------------------------------------------------------------------------------------------
Reports to shareholders 18,769
- -----------------------------------------------------------------------------------------------
Auditing 31,438
- -----------------------------------------------------------------------------------------------
Legal 10,229
- -----------------------------------------------------------------------------------------------
Postage 10,185
- -----------------------------------------------------------------------------------------------
Other 9,418
- -----------------------------------------------------------------------------------------------
Total expenses 2,036,586
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (21,301)
- -----------------------------------------------------------------------------------------------
Net expenses 2,015,285
- -----------------------------------------------------------------------------------------------
Net investment income 17,011,316
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (9,703,078)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (491,406)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 974,017
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in foreign
currencies during the period 1,022,179
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures, and TBA sale
commitments during the period 14,125,400
- -----------------------------------------------------------------------------------------------
Net gain on investments 5,927,112
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $22,938,428
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 17,011,316 $ 37,591,575
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (9,220,467) (7,656,881)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 15,147,579 (43,111,797)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 22,938,428 (13,177,103)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (19,273,096) (34,469,475)
- ---------------------------------------------------------------------------------------------------------------
Return of capital -- (5,032,778)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 3,665,332 (52,679,356)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 438,972,156 491,651,512
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $4,363,238 and
$2,101,458, respectively) $442,637,488 $438,972,156
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of period 53,095,749 53,095,749
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $8.27 $9.26 $9.33 $9.04 $8.63 $9.62
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .32 .71 .66 .68 .68 .74
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .11 (.96) .13 .30 .42 (.88)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .43 (.25) .79 .98 1.10 (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.36) (.65) (.52) (.69) (.64) (.52)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.17) -- -- (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- (.16) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Return of capital (.09) (.01) -- (.05) (.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.74) (.86) (.69) (.69) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.34 $8.27 $9.26 $9.33 $9.04 $8.63
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $7.563 $8.125 $8.500 $8.375 $8.125 $7.88
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (2.64)* 4.15 11.34 12.08 14.16 (1.92)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $442,637 $438,972 $491,652 $495,724 $481,914 $460,760
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .46* 1.00 .96 .95 1.02 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.85* 7.81 7.18 7.43 7.98 7.33
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 80.44* 202.83 246.84 280.38 290.44 201.95
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the periods ended October 31, 1995 and thereafter includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2).
</TABLE>
Notes to financial statements
April 30, 1999 (Unaudited)
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. government 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. 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, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value, 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
long-term corporate bonds and notes; such investments are stated at fair
value on the basis of valuations furnished by a pricing service, approved
by the Trustees, which determines valuations for normal, institutional-size
trading units of such securities using methods based on market transactions
for comparable securities and various 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). 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.
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 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) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with
the intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of
a commitment prior to settlement if Putnam Management deems it appropriate
to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale commitments
are not received until the contractual settlement date. During the time a
TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market" daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the acquisition
of an offsetting purchase commitment, the fund realizes a gain or loss. If
the fund delivers securities under the commitment, the fund realizes a
gain or a loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
J) 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, 1998, the fund had a capital loss carryover of
approximately $3,956,000 available to offset future net capital gain, if
any, which will expire on October 31, 2006.
K) 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. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.75% of the first $500
million of average weekly net assets, 0.65% of the next $500 million,
0.60% of the next $500 million, and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended April 30, 1999, fund expenses were reduced by
$21,301 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 $690 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
in the fund and are 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
Purchase and sales of securities
During the six months ended April 30, 1999, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $276,153,907 and $213,366,681,
respectively. Purchases and sales of U.S. government obligations
aggregated $105,299,145 and $130,301,756, 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, 1998 and the six months ended April 30,
1999, the fund repurchased no shares.
As of April 30, 1999, 279,900 shares have been repurchased since the
inception of the program.
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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
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
Donald S. Perkins
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
Jennifer E. Leichter
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
52498 072 6/99
