Putnam
Master Income
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 20, 2000
REPORT FROM FUND MANAGEMENT
David L. Waldman
and the Core
Fixed-Income team
During the 12 months ended October 31, 2000, Putnam Master Income Trust
experienced market environments that were anything but ordinary. At this
time last year, investors were uncertain what to expect from the market,
given Y2K-related concerns, but they were also confident enough to focus
on the riskier sectors of the market. After the Y2K transition passed
without incident, the euphoria of the market quickly dissipated into a
quagmire of uncertainty. Fears of inflation and fallout from the Federal
Reserve Board's decisions to increase interest rates created an
unfavorable environment for bonds. At midyear, a more stable market
environment returned; inflation appeared to remain benign, the U.S.
economy showed signs of slowing down, and the threat of further Fed rate
increases seemed to diminish. In the final months of the period, the
performance of sectors such as high-yield corporates and emerging
markets significantly deteriorated as the economic outlook grew
uncertain and the equity markets dramatically underperformed.
Total return for 12 months ended 10/31/00
NAV Market price
-----------------------------------------------------------------------
2.37% 7.70%
-----------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods begins on page 6.
* FIXED-INCOME MARKETS EXHIBIT TOPSY-TURVY BEHAVIOR
The economic environment and the action of the U.S. Treasury yield curve
dominated the performance of investment-grade securities during fiscal
2000. In part, this atmosphere was the result of the federal
government's decision to use the government budget surplus to buy back
long-term U.S. Treasury bonds. The resulting shrinking supply of these
securities, combined with increasing demand, pushed prices sharply
higher. Meanwhile, at the other end of the yield spectrum, the Fed's six
increases in short-term interest rates from June 1999 through May 2000
depressed the prices of short-term Treasury investments. This
combination created an inverted yield curve for most of the fiscal year,
in which yields offered by short-term investments actually became higher
than those of long-term bonds. The yield curve resumed a more typical
shape towards the end of the period as a result of a slowing economic
environment.
[GRAPHIC OMITTED: horizontal bar chart SECTOR ALLOCATIONS]
SECTOR ALLOCATIONS*
High-yield 46.0%
U.S. investment-grade 33.0%
International 21.0%
Footnote reads:
*Based on net assets as of 10/31/00. Holdings will vary over time.
Another unique characteristic of the performance over the fiscal year
was the dispersion of returns across market sectors. The two best
performing sectors were emerging markets and long-term Treasury bonds,
with returns of approximately 20% and 10%, respectively. This was a
particularly intriguing occurrence in light of the performance of these
sectors during the flight to quality environment in 1998. At that time,
emerging markets underperformed dramatically while long-term Treasury
bonds were considered a safe haven. At the other end of the return
spectrum, international bonds -- hurt by a declining euro -- and
high-yield corporate bonds had negative returns. Given the dispersion
of returns across sectors, the fund's strategy of diversification has
allowed it to minimize risk in this volatile environment.
* INVESTMENT-GRADE SECURITIES REMAIN RELIABLE BUT HIGH-YIELD BONDS DISAPPOINT
Within the investment-grade sector, the fund benefited from the
performance of both long-term Treasury bonds and mortgage-backed
securities. Although Treasury yields followed a volatile pattern, they
remained within a 50 basis-point trading range at the start and at the
end of the fiscal year, which in turn allowed the securities to benefit
from attractive yields and some price appreciation. In addition, the
fund took advantage of longer maturity bonds which had benefited from
the federal government's buy back program. Within the mortgage-backed
sector, the fund benefited from stable prepayments and rising mortgage
rates.
The combination of poor equity markets, defaults, and negative mutual
fund cash flows contributed to the underperformance of high-yield bonds
during the period, especially towards the end of the fiscal year.
Although the sector delivered attractive yields, the price performance
was negative as spreads widened throughout the period. The spread is the
difference between the yields of high-yield corporate securities and
treasury securities that have the same maturity.
The high-yield bond market rallied in the fourth quarter of 1999,
consistent with the performance of U.S. equity markets, especially
technology stocks. However, throughout most of 2000, as equity markets
experienced corrections, the volatility also spilled over into the
high-yield market.
Rising default rates over the past two years reduced demand for
high-yield bonds even further. The rise in defaults has received a great
deal of attention. Historically the most stressful time for a
corporation is the three-year period following issuance of high-yield
bonds. The pattern of defaults that is now emerging can be attributed in
part to the strong issuance in 1997 and 1998.
As they did in the equity markets, the technology and telecommunications
sectors of the high-yield market have experienced rough patches
throughout the period. We have trimmed back the fund's
telecommunications holdings in the sector, but it did not completely
escape the negative effects.
* EMERGING MARKETS, DEVELOPED MARKETS BOLSTER RETURNS
Despite overall market volatility, many emerging markets have performed
well during the period, and we found attractive fundamentals in those
areas. The general health of the global economy was sustained during the
period, and commodity prices remained firm. Many of these emerging
markets are exporters of oil; the sharp increase in oil prices improved
the financial picture of these countries.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR
HIGH YIELD SECTOR
Echostar Broadband Corp.
144A sr. notes 10 3/8s, 2007
Midland Funding II Corp.
deb. Series A, 11 3/4s, 2005
Huntsman Packaging Corp. bank term loan,
Series B, FRN 9.688s, 2008
FOREIGN GOVERNMENT
Denmark (Kingdom of) bonds 6s, 2009
Canada (Government of) bonds Series
WE00, 5 1/2s, 2002
Hellenic Greece (Republic of) bonds
6 1/2s, 2014
U.S. GOVERNMENT
U.S. Treasury Notes
6 1/2s, 2/15/10
U.S. Treasury Bonds
6 1/8s, 11/15/27
U.S. Treasury Notes
6 3/4s, 5/15/05
Footnote reads:
These holdings represent 18.4% of the fund's net assets as of
10/31/00. Portfolio holdings will vary over time.
The fund's positions in Mexico and Russia were among the strongest
performers. Mexican securities did well as the country experienced
increased economic stability and the beneficial effects of the
still-stable U.S. economy continued to spill across the border. Russian
holdings benefited not only from a more market-oriented government but
also from the increase in oil prices.
Within the developed market universe, the fund took advantage of
opportunities in various countries during the fiscal year, such as
Australia and Denmark. We limited exposure to Japan, as the potential
supply of Japanese government securities weighed heavily on the market.
Unfortunately, the fund's exposure in international markets was hurt by
the underperformance of foreign currencies. In particular the euro has
continued its slow deterioration, as the attractiveness of the U.S.
economy and its financial markets lured capital flows from abroad. As a
result, investors tended to buy the dollar and sell foreign currencies.
* OUTLOOK: WE REMAIN CAUTIOUSLY OPTIMISTIC
While the market continues its bumpy ride, we continue to monitor the
fixed-income universe closely and look for positive fundamentals and
attractive valuations. With the most recent Fed decision to leave rates
untouched, the probability that the economy will experience a soft
landing has increased. Within the investment grade market, we continue
to favor mortgage-backed securities.
A recovery for high-yield bonds may very well be in sight. There are
several factors to support this: defaults should peak and start to
decline in 2001, yields are attractive on a historical basis, and many
of the uncertainties that have caused the high-yield market to struggle
show signs of subsiding. However, we continue to remain cautious in the
short term with a more positive outlook for 2001.
Within the international marketplace, we continue to take advantage of
opportunities in the developed market universe. We remain positive on
Denmark, but we continue to be cautious towards Japan. Despite economic
stability and supportive commodity prices, we remain cautious on
emerging markets due to pockets of specific country risks.
Although more volatility and uncertainty may be in store until the end
of the year, we believe the fund is well positioned to meet the
challenges of fiscal 2001.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 10/31/00, there is no guarantee the fund
will continue to hold these securities in the future. International
investments are subject to certain risks, such as currency fluctuations,
economic instability, and political developments. While the U.S.
government backing of individual securities does not insure your
principal, which will fluctuate, it does guarantee that the fund's
government-backed holdings will make timely payments of interest and
principal. Mortgage-backed securities in the portfolio may be subject to
prepayment risk. The lower credit ratings of high-yield bonds reflect a
greater possibility that adverse changes in the economy or poor
performance by the issuers of these bonds will affect the issuer's
ability to pay principal and interest.
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. investment grade, high yield, and international
fixed-income securities.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 10/31/00
Salomon Bros. First
Lehman Bros. Non-U.S. Boston
Market Government World Govt. High Yield
NAV price Bond Index Bond Index Index
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 year 2.37% 7.70% 8.02% -9.70% -0.76%
----------------------------------------------------------------------------------
5 years 25.65 26.23 35.63 3.90 29.46
Annual average 4.67 4.77 6.28 0.77 5.30
----------------------------------------------------------------------------------
10 years 134.73 146.92 113.87 84.42 202.29
Annual average 8.91 9.46 7.90 6.31 11.70
----------------------------------------------------------------------------------
Life of fund
(since 12/28/87)
Annual average 8.53 7.05 8.17 5.82 9.35
----------------------------------------------------------------------------------
</TABLE>
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value, and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their
original cost.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/00
-------------------------------------------------------------------------------
Distributions (number) 12
-------------------------------------------------------------------------------
Income $0.5573
-------------------------------------------------------------------------------
Return of
capital1 0.1087
-------------------------------------------------------------------------------
Capital gains --
-------------------------------------------------------------------------------
Total $0.6660
-------------------------------------------------------------------------------
Share value: NAV Market price
-------------------------------------------------------------------------------
10/31/99 $7.72 $6.625
-------------------------------------------------------------------------------
10/31/00 7.13 6.438
-------------------------------------------------------------------------------
Current return (end of period)
-------------------------------------------------------------------------------
Current
dividend
rate2 9.26% 10.25%
-------------------------------------------------------------------------------
1 See page 43.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 9/30/00 (most recent calendar quarter)
NAV Market price
-------------------------------------------------------------------------------
1 year 4.70% 8.79%
-------------------------------------------------------------------------------
5 years 30.05 30.92
Annual average 5.39 5.54
-------------------------------------------------------------------------------
10 years 143.18 171.99
Annual average 9.29 10.52
-------------------------------------------------------------------------------
Life of fund
(since 12/28/87)
Annual average 8.77 7.35
-------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE BENCHMARKS
First Boston High Yield Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged
list of bonds issued by 10 countries.
The Lehman Brothers Government Bond Index* is composed of all publicly
issued, non-convertible, domestic debt of the U.S. government or any
agency thereof, quasi-federal corporations, or corporate debt guaranteed
by the U.S. government. Flower bonds and pass-through issues are
excluded. Total return comprises price appreciation/depreciation and
income as a percentage of the original investment. Indexes are
rebalanced monthly by market capitalization.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take into account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees
Putnam Master Income Trust
We have audited the accompanying statement of assets and liabilities of
Putnam Master Income Trust, including the fund's portfolio, as of
October 31, 2000, and the related statement of operations for the year
then ended, statement of changes in net assets for each of the years in
the two-year period then ended and financial highlights for each of the
years in the two-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the years in the three-year period ended October
31, 1998 were audited by other auditors whose report dated December 11,
1998 expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of October 31, 2000 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Master Income Trust as of October 31, 2000,
the results of its operations, changes in its net assets and financial
highlights for each of the years or periods described above, in
conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
Boston, Massachusetts
December 5, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
October 31, 2000
CORPORATE BONDS AND NOTES (42.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising and Marketing Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
$ 80,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 81,800
392,262 Interact Operating Co. notes 14s, 2003 19,613
180,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 177,750
460,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 448,500
-------------
727,663
Aerospace and Defense (0.7%)
-------------------------------------------------------------------------------------------------------------------
760,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 615,600
440,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 435,600
100,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 91,000
370,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 333,000
495,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 505,519
220,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 199,100
185,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 183,150
30,000 Sequa Corp. med. term notes 10s, 2001 30,191
210,000 Sequa Corp. sr. notes 9s, 2009 203,700
-------------
2,596,860
Agriculture (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,297,335 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 1,174,088
Airlines (0.8%)
-------------------------------------------------------------------------------------------------------------------
540,000 Airbus Industries 144A equipment trust 12.266s, 2020 571,226
560,000 Calair LLC 144A company guaranty 8 1/8s, 2008 526,400
100,000 Continental Airlines, Inc. notes 8s, 2005 95,165
40,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 38,683
130,000 Northwest Airlines, Inc. company guaranty 8 3/8s, 2004 124,709
10,000 Northwest Airlines, Inc. company guaranty 7 7/8s, 2008 9,134
270,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 252,955
100,000 US Air, Inc. pass-through certificates Ser. 93-A3, 10 3/8s, 2013 92,250
1,500,000 US Air, Inc. pass-through certificates Ser. 93-A2, 9 5/8s, 2003 1,454,100
-------------
3,164,622
Automotive (1.0%)
-------------------------------------------------------------------------------------------------------------------
180,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 178,200
300,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 297,000
120,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 106,200
500,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 407,500
150,000 Exide Corp. sr. notes 10s, 2005 105,375
80,000 Federal Mogul Corp. notes 7 7/8s, 2010 20,000
1,060,000 Federal Mogul Corp. notes 7 3/4s, 2006 275,600
220,000 Federal Mogul Corp. notes 7 3/8s, 2006 57,200
70,000 Hayes Wheels International, Inc. company guaranty 11s, 2006 61,950
510,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 408,000
60,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 47,400
140,000 Lear Corp. sub. notes 9 1/2s, 2006 139,373
460,000 Lear Corp. company guaranty 8.11s, 2009 417,004
310,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 289,277
530,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 445,200
290,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 (In default) (NON) 116,000
360,000 Tenneco, Inc. company guaranty Ser. B, 11 5/8s, 2009 (Malaysia) 208,800
500,000 Transportation Manufacturing Operations, Inc.
company guaranty 11 1/4s, 2009 230,000
-------------
3,810,079
Banking (1.2%)
-------------------------------------------------------------------------------------------------------------------
195,000 Bangko Sentral NG Pilipinas bonds 8.6s, 2027 (Philippines) 118,619
100,000 Bank United Corp. sub. notes 8 7/8s, 2007 98,600
520,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 494,000
335,000 Colonial Capital II 144A company guaranty 8.92s, 2027 311,209
45,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 42,739
550,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 509,240
865,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 821,750
370,000 Local Financial Corp. sr. notes 11s, 2004 368,150
70,000 North Fork Capital Trust I company guaranty 8.7s, 2026 67,109
40,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 39,565
285,000 Provident Capital Trust company guaranty 8.6s, 2026 243,875
165,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 112,634
420,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 426,300
230,000 Sovereign Capital Trust company guaranty 9s, 2027 169,929
340,000 Superior Financial 144A sr. notes 8.65s, 2003 329,887
240,000 Webster Capital Trust I 144A bonds 9.36s, 2027 205,982
-------------
4,359,588
Broadcasting (2.6%)
-------------------------------------------------------------------------------------------------------------------
515,000 Acme Television sr. disc. notes 10 7/8s, 2004 484,100
270,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 248,400
367,800 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 406,419
570,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 484,500
170,000 Central European Media Enterprises, Ltd. sr. notes 9 3/8s, 2004
(In default) (Bermuda) (NON) 51,000
510,000 Chancellor Media Corp. company guaranty 8s, 2008 514,463
257,990 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 250,250
2,050,000 Echostar Broadband Corp. 144A sr. notes 10 3/8s, 2007 2,050,000
310,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 223,200
210,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 198,975
190,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 190,950
350,000 Golden Sky DBS, Inc. sr. disc. notes, stepped-coupon Ser. B,
zero % (13 1/2s, 3/1/04), 2007 (STP) 238,000
360,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 385,200
230,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 158,700
480,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 345,600
120,000 LIN Television Corp. company guaranty 8 3/8s, 2008 111,600
185,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 188,931
20,000 Pegasus Communications Corp. sr. notes 12 1/2s, 2007 21,200
120,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 117,000
20,000 Pegasus Communications Corp. 144A sr. notes Ser. B,
9 5/8s, 2005 19,500
120,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 124,800
1,424,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 1,351,091
405,000 Radio One, Inc. company guaranty Ser. B, 7s, 2004 421,200
90,000 Sinclair Broadcast Group, Inc. 144A company guaranty 9s, 2007 79,200
120,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 104,400
270,000 Spanish Broadcasting System, Inc. sr. sub notes 9 5/8s, 2009 263,250
665,000 TV Azteca SA de CV sr. notes 10 1/2s, 2007 (Mexico) 598,500
320,000 XM Satellite Radio, Inc. sec. notes 14s, 2010 224,000
-------------
9,854,429
Building Materials (0.4%)
-------------------------------------------------------------------------------------------------------------------
415,000 American Standard, Inc. company guaranty 7 5/8s, 2010 385,950
40,000 American Standard, Inc. company guaranty 7 1/8s, 2003 38,700
150,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 126,750
360,000 Building Materials Corp. company guaranty 8s, 2008 108,000
510,000 Dayton Superior Corp. company guaranty 13s, 2009 495,975
270,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 253,800
-------------
1,409,175
Cable Television (2.3%)
-------------------------------------------------------------------------------------------------------------------
680,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 615,400
270,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 224,100
160,000 Century Communications Corp. sr. notes 8 7/8s, 2007 137,600
60,000 Charter Communications Holdings LLC sr. disc. notes,
stepped-coupon zero % (11 3/4s, 1/15/05), 2010 (STP) 33,900
290,000 Charter Communications Holdings LLC bank term loan
Ser. B, FRN, 9.27s, 2008 290,000
1,290,000 Charter Communications Holdings LLC sr. notes 8 5/8s, 2009 1,151,325
20,000 Classic Cable, Inc. company guaranty 10 1/2s, 2010 16,600
990,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 1,009,800
990,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 722,700
1,162,000 Diva Systems Corp. sr. disc. notes stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 522,900
520,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 182,000
730,000 NTL Communications Corp. 144A sr. notes 11 7/8s, 2010 686,200
720,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 662,400
325,000 Onepoint Communications, Inc. company guaranty
Ser. B, 14 1/2s, 2008 326,625
260,000 RCN Corp. sr. notes 10 1/8s, 2010 182,000
130,000 Rogers Cablesystems, Ltd. deb. 10 1/8s, 2012 (Canada) 135,850
370,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(In default) (Argentina) (NON) 122,100
690,000 TeleWest Communications PLC sr. discount notes
stepped-coupon zero % (11 3/8s, 2/1/05), 2010
(United Kingdom) (STP) 296,700
110,000 TeleWest Communications PLC deb. 11s, 2007
(United Kingdom) 96,800
250,000 TeleWest Communications PLC structured note
(issued by DLJ International Capital) 10 7/8s, 2005
(United Kingdom) 245,775
90,000 TeleWest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 74,700
110,000 TeleWest Communications PLC sr. disc. notes
stepped-coupon zero % (9 1/4s, 4/15/04), 2009
(United Kingdom) (STP) 49,500
610,000 United Pan-Europe NV sr. disc. notes stepped-coupon
zero % (13 3/4s, 2/01/05), 2010 (Netherlands) (STP) 237,900
280,000 United Pan-Europe NV 144A sr. disc. notes stepped-coupon,
Ser. B, zero % (12.5s, 8/1/04), 2009 (Netherlands) (STP) 106,400
470,000 United Pan-Europe NV sr. notes 10 7/8s, 2009 (Netherlands) 366,600
-------------
8,495,875
Chemicals (1.4%)
-------------------------------------------------------------------------------------------------------------------
1,010,000 Arco Chemical Co. deb. 9.8s, 2020 939,300
300,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 240,000
500,000 Huntsman Corp. 144A sr. sub. notes FRN 10.2625s, 2007 290,000
50,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 30,000
860,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 817,000
480,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 384,000
80,000 ISP Holdings, Inc. sr. notes Ser. B, 9s, 2003 65,600
360,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 351,000
230,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 223,100
825,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 297,000
200,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 145,000
190,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 135,850
536,893 Polytama International notes 11 1/4s, 2007 (Indonesia) 43,649
480,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 360,000
380,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 106,400
370,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 353,350
30,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 16,500
393,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 208,290
110,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 90,200
465,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 353,400
-------------
5,449,639
Coal (--%)
-------------------------------------------------------------------------------------------------------------------
710,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 85,200
Commercial and Consumer Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
640,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 646,400
100,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 68,000
605,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 423,500
-------------
1,137,900
Computers (--%)
-------------------------------------------------------------------------------------------------------------------
80,000 Unisys Corp. sr. notes 11 3/4s, 2004 83,200
Construction (0.4%)
-------------------------------------------------------------------------------------------------------------------
770,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 617,925
480,000 Morrison Knudsen Corp. 144A sr. notes 11s, 2010 408,000
590,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 590,000
-------------
1,615,925
Consumer (0.3%)
-------------------------------------------------------------------------------------------------------------------
160,000 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 19,413
430,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 189,200
620,000 Jostens, Inc. 144A sr. sub notes 12 3/4s, 2010 595,200
530,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 406,775
-------------
1,210,588
Consumer Finance (0.4%)
-------------------------------------------------------------------------------------------------------------------
410,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 209,613
150,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 58,500
380,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 262,200
600,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 (In default) (NON) 82,500
610,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (In default) (NON) 83,875
840,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 (In default) (NON) 117,600
760,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 342,000
210,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 69,300
310,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 257,300
-------------
1,482,888
Consumer Goods (0.8%)
-------------------------------------------------------------------------------------------------------------------
450,000 Albecca, Inc. company guaranty 10 3/4s, 2008 403,875
135,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 131,625
530,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 503,500
310,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 139,500
740,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 617,900
100,000 Playtex Products, Inc. sr. sub. notes 9s, 2003 96,000
230,000 Revlon Consumer Products sr. notes 9s, 2006 163,300
170,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 119,000
650,000 Sealy Mattress Co. company guaranty stepped-coupon Ser. B,
zero % (10 7/8s, 12/15/02), 2007 (STP) 494,000
175,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 165,813
-------------
2,834,513
Consumer Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
930,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 855,600
Consumer Staples (--%)
-------------------------------------------------------------------------------------------------------------------
310,000 Doskcil Manufacturing Co. 144A sr. sub. notes 10 1/8s, 2007 102,300
Containers (0.6%)
-------------------------------------------------------------------------------------------------------------------
585,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 479,700
60,000 Owens-Illinois, Inc. deb. 7 1/2s, 2010 39,600
170,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 112,200
520,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 369,200
145,000 Radnor Holdings, Inc. sr. notes 10s, 2003 128,325
50,000 Stone Container Corp. sr. sub. deb. 12 1/4s, 2002 (Canada) 50,000
170,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006
(Canada) 173,400
740,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 666,000
200,000 U.S. Can Corp. 144A sr. sub. notes 12 3/8s, 2010 196,000
-------------
2,214,425
Electric Utilities (0.8%)
-------------------------------------------------------------------------------------------------------------------
440,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 308,000
120,000 CMS Energy Corp. sr. notes 7 1/2s, 2009 103,370
1,020,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 938,400
341,800 Northeast Utilities System notes Ser. A, 8.58s, 2006 348,041
104,533 Northeast Utilities System notes Ser. B, 8.38s, 2005 104,702
850,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 374,000
652,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 652,000
-------------
2,828,513
Energy (0.5%)
-------------------------------------------------------------------------------------------------------------------
610,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 597,800
200,000 RBF Finance Co. company guaranty 11 3/8s, 2009 228,500
1,010,000 RBF Finance Co. company guaranty 11s, 2006 1,151,400
-------------
1,977,700
Entertainment (0.3%)
-------------------------------------------------------------------------------------------------------------------
300,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 141,000
345,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 131,100
825,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 750,750
890,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 89,000
410,000 Regal Cinemas, Inc. sr. sub. notes 8 7/8s, 2010 47,150
440,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 35,200
373,000 United Artists Theatre 144A notes, FRN, 10.65625s, 2007
(In default) (NON) 6,994
941,000 United Artists Theatre sr. sub. notes, Ser. B, 9 3/4s, 2008 17,644
-------------
1,218,838
Financial (0.6%)
-------------------------------------------------------------------------------------------------------------------
50,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 29,375
500,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 480,060
460,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 414,281
350,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 189,000
100,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 54,000
80,000 Finova Capital Corp. sr. notes 7 5/8s, 2009 47,200
240,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 96,000
230,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 103,500
200,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 100,000
320,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 289,600
260,000 Ocwen Financial Corp. notes 11 7/8s, 2003 228,800
425,000 Resource America, Inc. 144A sr. notes 12s, 2004 386,750
-------------
2,418,566
Food (0.2%)
-------------------------------------------------------------------------------------------------------------------
100,000 Archibald Candy Corp. company guaranty 10 1/4s, 2004 58,000
150,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 112,500
370,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 277,500
30,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 15,825
150,000 Premier International Foods PLC sr. notes 12s, 2009
(United Kingdom) 108,000
475,000 Vlasic Foods International., Inc. sr. sub notes Ser. B,
10 1/4s, 2009 255,313
-------------
827,138
Gaming & Lottery (2.8%)
-------------------------------------------------------------------------------------------------------------------
140,000 Ameristar Casinos, Inc. company guaranty Ser. B, 10 1/2s, 2004 140,700
340,000 Anchor Gaming 144A sr. sub notes 9 7/8s, 2008 343,400
500,000 Autotote Corp. 144A company guaranty 12 1/2s, 2010 492,500
1,000,000 Autotote Corp. bank term loan Ser. B, FRN 6.625s, 2007 997,500
790,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 422,650
180,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 169,884
310,000 Harrahs Operating Co., Inc. company guaranty 7 7/8s, 2005 300,700
740,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 775,150
270,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 290,250
40,000 International Game Technology 144A sr. notes 8 3/8s, 2009 38,800
930,000 International Game Technology sr. notes 7 7/8s, 2004 906,750
215,000 Isle of Capri Black Hawk LLC 144A 1st mtge. Ser. B, 13s, 2004 234,350
510,000 Isle of Capri Black Hawk LLC company guaranty 8 3/4s, 2009 462,825
500,000 Mandalay Resort Group sr. sub. notes Ser. B, 10 1/4s, 2007 512,500
450,000 MGM Grand, Inc. company guaranty 9 3/4s, 2007 466,313
460,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 448,500
150,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 144,750
50,000 Park Place Entertainment Corp. sr. sub. notes 9 3/8s, 2007 50,375
520,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 510,900
1,770,000 Trump A.C. 1st mtge. 11 1/4s, 2006 1,203,600
130,000 Trump Castle Funding, Inc. 144A sr. sub. notes 11 3/4s, 2003 108,225
1,250,000 Trump Castle Funding, Inc. 144A sub. notes 10 1/4s, 2003 1,250,000
460,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 464,600
-------------
10,735,222
Health Care (1.6%)
-------------------------------------------------------------------------------------------------------------------
355,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 177,500
170,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 175,100
200,000 Columbia/HCA Healthcare Corp. notes 8 3/4s, 2010 202,554
640,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 594,400
150,000 Columbia/HCA Healthcare Corp. med. term notes notes
7.69s, 2025 124,875
150,000 Columbia/HCA Healthcare Corp. notes 7s, 2007 137,625
600,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 576,744
270,000 Conmed Corp. company guaranty 9s, 2008 216,000
320,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 267,200
370,000 Lifepoint Hospital Holdings company guaranty Ser. B,
10 3/4s, 2009 392,200
510,000 Magellan Health Services sr. sub. notes 9s, 2008 336,600
856,029 Magellan Health Services bank term loan FRN 8s, 2005 761,865
380,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 38
440,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 13,200
530,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 (In default) (NON) 202,725
150,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 150,750
720,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 696,600
150,000 Tenet Healthcare Corp. sr. notes 8s, 2005 147,938
250,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 237,188
410,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 427,425
-------------
5,838,527
Homebuilding (0.5%)
-------------------------------------------------------------------------------------------------------------------
270,000 D.R. Horton, Inc. company guaranty 8s, 2009 238,950
70,000 Del Webb Corp. sr. sub. deb. 10 1/4s, 2010 65,275
160,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 145,600
30,000 Del Webb Corp. sr. sub. debs 9s, 2006 27,150
360,000 K. Hovnanian Enterprises, Inc. 144A company guaranty
10 1/2s, 2007 338,400
110,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 112,200
120,000 Lennar Corp. sr. notes 7 5/8s, 2009 108,000
330,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 334,125
310,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 310,000
350,000 Toll Corp. company guaranty 8 1/8s, 2009 328,125
-------------
2,007,825
Lodging/Tourism (0.8%)
-------------------------------------------------------------------------------------------------------------------
GBP 698,090 Blackstone Hotel Acquisition Co. jr. mtge. loan FRN
10 1/4s, 2003 (United Kingdom) 962,813
$ 390,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 117,000
300,000 Felcor Lodging 144A sr. notes 9 1/2s, 2008 297,750
1,135,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,042,781
670,000 ITT Corp. notes 6 3/4s, 2005 627,395
100,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 96,301
-------------
3,144,040
Manufacturing (0.9%)
-------------------------------------------------------------------------------------------------------------------
800,000 Blount, Inc. company guaranty 13s, 2009 728,000
98,997 Blount, Inc. bank term loan Ser. B2, FRN 10.68s, 2006 97,760
305,000 Continental Global Group sr. notes Ser. B, 11s, 2007 112,850
500,000 Flowserve Corp. 144A company guaranty 12 1/4s, 2010 512,500
625,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 600,000
205,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 182,450
992,500 Transportation Technologies Industries, Inc. bank term loan
Ser. B, FRN 10.41s, 2007 985,056
-------------
3,218,616
Medical Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
600,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 324,000
490,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 4,288
250,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 2,188
210,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (In default) (STP) (NON) 2,100
1,000,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 10,000
1,080,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 56,700
620,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 465,000
70,000 Service Corp. International debs. 7 7/8s, 2013 35,700
50,000 Service Corp. International notes 7.7s, 2009 26,750
390,000 Service Corp. International notes 6s, 2005 214,500
520,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 12,350
430,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 10,213
-------------
1,163,789
Medical Technology (0.1%)
-------------------------------------------------------------------------------------------------------------------
320,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 224,000
Metals (0.9%)
-------------------------------------------------------------------------------------------------------------------
540,000 AK Steel Corp. company guaranty 7 7/8s, 2009 486,000
299,950 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 143,976
515,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 386,250
30,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 25,500
60,000 Kaiser Aluminum & Chemical Corp. sr. notes 9 7/8s, 2002 51,000
660,000 LTV Corp. company guaranty 11 3/4s, 2009 343,200
825,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 371,250
160,000 Oregon Steel Mills 1st mtge. 11s, 2003 118,400
110,000 P & L Coal Holdings Corp. company guaranty Ser. B,
9 5/8s, 2008 106,838
990,000 Union Carbide Global bank term loan, Ser. B, FRN 9.43s, 2008 970,200
290,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 233,450
40,000 Weirton Steel Corp. 144A sr. notes 10 3/4s, 2005 26,800
380,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 106,400
270,000 WHX Corp. sr. notes 10 1/2s, 2005 162,000
-------------
3,531,264
Oil & Gas (1.4%)
-------------------------------------------------------------------------------------------------------------------
700,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 705,250
220,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 207,350
230,000 Giant Industries Corp. company guaranty 9s, 2007 211,600
60,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 61,725
440,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 435,600
320,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 336,000
320,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 319,200
190,000 Nuevo Energy Co. 144A sr. sub. notes 9 3/8s, 2010 189,050
430,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 435,375
480,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 477,600
180,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 189,900
50,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 49,500
170,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 37,400
325,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 335,384
120,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 116,400
400,000 Triton Energy, Ltd. 144A sr. notes 8 7/8s, 2007 (Cayman Islands) 400,000
670,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 700,150
-------------
5,207,484
Paper & Forest Products (2.2%)
-------------------------------------------------------------------------------------------------------------------
635,000 APP China Group, Ltd. 144A sr. disc. notes 14s, 2010 (Bermuda) 254,000
490,000 APP Finance II Mauritius, Ltd. bonds stepped-coupon zero %
(12s, 2/15/04), 2049 (Indonesia) (STP) 132,300
450,000 Doman Industries, Ltd. company guaranty 12s, 2004 (Canada) 434,250
580,000 Doman Industries, Ltd. sr. notes 8 3/4s, 2004 (Canada) 330,600
170,000 Four M Corp. sr. notes Ser. B, 12s, 2006 161,075
240,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 72,000
325,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 211,250
230,000 Huntsman Packaging Corp. company guaranty 13s, 2010 179,400
1,750,000 Huntsman Packaging Corp. bank term loan, Ser. B,
FRN 9.688s, 2008 1,684,375
640,000 Indah Kiat Financial Mauritius, Ltd. company guaranty 10s,
2007 (Indonesia) 243,200
120,000 Norampac, Inc. sr. notes 9 1/2s, 2008 (Canada) 119,850
630,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 622,125
260,000 Packaging Corp. company guaranty 9 5/8s, 2009 265,850
1,085,000 Pindo Deli Finance Mauritius, Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 390,600
770,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004
(Indonesia) 346,500
1,058,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 1,087,095
910,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 828,100
450,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 439,875
70,000 Stone Container Corp. sr. notes 12.58s, 2016 72,100
40,000 Stone Container Corp. 1st. mtge. 10 3/4s, 2002 40,400
500,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 495,000
-------------
8,409,945
Pharmaceuticals (0.3%)
-------------------------------------------------------------------------------------------------------------------
480,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 474,000
530,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 527,350
-------------
1,001,350
Power Producers (1.2%)
-------------------------------------------------------------------------------------------------------------------
930,000 AES Corp. sr. notes 9 3/8s, 2010 907,215
210,000 Calpine Corp. sr. notes 10 1/2s, 2006 215,250
90,000 Calpine Corp. sr. notes 9 1/4s, 2004 89,931
250,000 Calpine Corp. sr. notes 8 3/4s, 2007 249,775
150,000 Calpine Corp. sr. notes 7 7/8s, 2008 142,246
10,000 Calpine Corp. sr. notes 7 3/4s, 2009 9,350
620,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 698,194
1,630,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 1,763,823
254,093 Midland Funding II Corp. deb. Ser. C-94, 10.33s, 2002 258,923
-------------
4,334,707
Publishing (0.4%)
-------------------------------------------------------------------------------------------------------------------
855,000 Affinity Group Holdings sr. notes 11s, 2007 701,100
285,879 Big Flower Holdings bank term loan 9.625s, 2010 285,165
200,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 185,000
400,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 352,000
130,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 123,825
40,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 36,100
-------------
1,683,190
Railroads (0.3%)
-------------------------------------------------------------------------------------------------------------------
400,000 Kansas City Southern Railway 144A sr. notes 9 1/2s, 2008 406,000
250,000 Railamerica Transportation Corp. company guaranty
12 7/8s, 2010 232,500
650,000 TFM SA de CV company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 468,000
-------------
1,106,500
Regional Bells (0.1%)
-------------------------------------------------------------------------------------------------------------------
260,000 Alaska Communications Systems Corp. company guaranty
9 3/8s, 2009 223,600
Restaurants (0.3%)
-------------------------------------------------------------------------------------------------------------------
410,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 147,600
500,000 Sbarro, Inc. company guaranty 11s, 2009 510,000
380,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 355,574
90,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 85,467
-------------
1,098,641
Retail (0.8%)
-------------------------------------------------------------------------------------------------------------------
780,000 Amazon.com, Inc. sr. disc. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 390,000
585,000 Groupo Elektra SA de CV 144A sr. notes 12s, 2008 (Mexico) 532,350
220,000 Iron Age Corp. company guaranty 9 7/8s, 2008 136,400
20,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon zero %
(12 1/8s, 5/1/03), 2009 (STP) 2,000
400,000 K mart Corp. pass-through certificates Ser. 95-K4, 9.35s, 2020 268,000
500,000 K mart Corp. notes 8 3/8s, 2004 430,990
405,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 360,450
1,420,000 Saks, Inc. company guaranty 8 1/4s, 2008 781,000
70,000 Southland Corp. sr. sub. deb. 5s, 2003 61,848
-------------
2,963,038
Semiconductor (0.1%)
-------------------------------------------------------------------------------------------------------------------
190,000 ChipPac Intl., Ltd. company guaranty Ser. B, 12 3/4s, 2009 195,700
Shipping (0.2%)
-------------------------------------------------------------------------------------------------------------------
46,000 International Shipholding Corp. sr. notes 9s, 2003 45,770
140,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 121,275
130,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 67,600
510,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 466,650
75,000 Transportacion Maritima Mexicana SA de CV notes
9 1/4s, 2003 (Mexico) 57,750
-------------
759,045
Software (--%)
-------------------------------------------------------------------------------------------------------------------
420,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 75,600
Specialty Printing (0.2%)
-------------------------------------------------------------------------------------------------------------------
400,000 Perry-Judd company guaranty 10 5/8s, 2007 354,000
131,002 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 113,317
250,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 225,000
-------------
692,317
Technology (0.9%)
-------------------------------------------------------------------------------------------------------------------
210,000 Amkor Technologies, Inc., structured note (issued by STEERS,
Credit Linked Trust 2000) 12.58s, 2005 203,700
200,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 194,000
295,000 Celestica International, Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 303,113
30,000 Fairchild Semiconductor Corp. company guaranty 10 3/8s, 2007 29,175
530,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 511,450
685,000 Flextronics International, Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 659,313
700,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 651,000
210,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 182,700
690,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 617,550
-------------
3,352,001
Technology Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
390,000 Equinix, Inc. sr. notes 13s, 2007 292,500
310,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 282,100
295,000 Globix Corp. sr. notes 12 1/2s, 2010 188,800
320,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 307,200
280,000 Rhythms Netconnections sr. notes Ser. B, 14s, 2010 137,200
-------------
1,207,800
Telecommunications (6.4%)
-------------------------------------------------------------------------------------------------------------------
320,000 360Networks, Inc. sr. notes 13s, 2008 268,800
560,000 American Cellular Corp. bank term loan Ser B, FRN 9.64s, 2008 560,000
640,000 American Cellular Corp. bank term loan 9.26s, 2008 640,000
60,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 44,100
230,000 Arch Communications Group sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/15/01), 2008 (STP) 110,400
440,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 228,800
330,000 Bestel SA de CV sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 201,300
270,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 94,500
460,000 Carrier1 Intl. SA sr. notes Ser. B, 13 1/4s, 2009 (Luxembourg) 354,200
960,000 Celcaribe SA sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 710,400
2,158,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (In default) (STP) (NON) 21,580
50,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 53,063
1,000,000 Clearnet Racers notes Ser. 00-17A, 9.709s, 2007 995,000
275,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 3/15/03), 2008 (STP) 85,250
200,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 100,000
20,000 Covad Communications Group, Inc. sr. notes Ser. B, 12s, 2010 10,800
400,000 Crown Castle Intl., Corp. sr. notes 10 3/4s, 2011 411,000
630,000 Dobson Communications Corp. sr. notes 10 7/8s, 2010 614,250
470,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 467,650
900,000 Econophone, Inc. company guaranty 13 1/2s, 2007 450,000
230,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 52,038
760,000 Exodus Communications, Inc. 144A sr. notes 11 5/8s, 2010 699,200
110,000 Exodus Communications, Inc. sr. notes 11 1/4s, 2008 100,100
840,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13, 4/15/03), 2008 (STP) 184,800
485,000 Flag, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 407,400
380,000 Flextronics International, Ltd. 144A sr. sub. notes 9 7/8s, 2010 380,000
750,000 Global Crossing Holdings, Ltd. company guaranty 9 1/2s, 2009
(Bermuda) 714,375
500,000 Global Crossing Holdings, Ltd. company guaranty 9 1/8s, 2006
(Bermuda) 477,500
320,000 Grupo Iusacell sr. notes 14 1/4s, 2006 339,200
30,000 Hermes Europe Railtel B.V. sr. notes 11 1/2s, 2007
(Netherlands) 15,000
60,000 Hermes Europe Railtel B.V. sr. notes 10 3/8s, 2009
(Netherlands) 27,000
440,000 Innova S. De R.L. sr. notes 12 7/8s, 2007 (Mexico) 393,800
450,000 Intira Corp. bonds 13s, 2010 189,000
260,000 Level 3 Communications, Inc. sr. notes 11s, 2008 236,600
390,000 Level 3 Communications, Inc. sr. notes 9 1/8s, 2008 315,900
580,000 Maxcom Telecomunicaciones SA de CV company guaranty
Ser. B, 13 3/4s, 2007 (Mexico) 269,700
120,000 Metrocall, Inc. sr. sub. notes 11s, 2008 45,600
90,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 36,000
110,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 44,000
130,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 115,700
760,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 676,400
727,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 614,315
150,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 112,500
790,000 Nextel Communications, Inc. sr. notes 12s, 2008 845,300
1,570,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 1,522,900
960,000 Nextel International, Inc. 144A sr. notes 12 3/4s, 2010 873,600
1,010,000 Nextel Partners, Inc. sr. notes 11s, 2010 1,010,000
380,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 378,100
330,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 240,900
280,000 NorthPoint Communications Group, Inc. sr. notes 12 7/8s, 2010 263,200
390,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 132,600
500,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (STP) 198,750
125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (In default)
(Brazil) (NON) 8,125
200,000 Paging Network, Inc. sr. sub. notes 10s, 2008 (In default) (NON) 42,000
60,000 Paging Network, Inc. sr. sub. notes 8 7/8s, 2006 (In default) (NON) 12,600
920,000 Pinnacle Holdings, Inc. sr. disc. notes stepped-coupon zero %
(10s, 3/15/03), 2008 (STP) 533,600
420,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 417,900
530,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 263,675
90,000 PSINet, Inc. sr. notes 11 1/2s, 2008 45,000
350,000 PSINet, Inc. sr. notes 11s, 2009 169,750
360,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 349,200
300,000 RSL Communications, Ltd. company guaranty 12 7/8s, 2010
(United Kingdom) 51,000
405,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006
(United Kingdom) 95,175
300,000 RSL Communications, Ltd. 144A company guaranty
10 1/2s, 2008 (United Kingdom) 60,000
290,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008
(United Kingdom) 49,300
310,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (12 7/8s, 3/15/05), 2010 (STP) 150,350
160,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 4/15/04), 2009 (STP) 83,200
530,000 Startec Global Communications Corp. sr. notes 12s, 2008 394,850
180,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 154,800
20,000 USA Mobile Communication, Inc. sr. notes 9 1/2s, 2004 11,600
580,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 171,100
820,000 Viatel, Inc. sr. notes 11 1/4s, 2008 422,300
1,500,000 Western Wireless bank term loan FRN 9.44s, 2008 1,500,000
300,000 Williams Communications Group, Inc. 144A sr. notes
11.7s, 2008 264,000
240,000 Williams Communications Group, Inc. sr. notes 10 7/8s, 2009 202,200
490,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 355,863
-------------
24,140,159
Telephone (2.2%)
-------------------------------------------------------------------------------------------------------------------
310,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 176,700
470,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 230,300
150,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 150,750
30,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 21,000
310,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 186,000
690,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 276,000
545,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 2/15/03), 2008 (STP) 261,600
65,000 Focal Communications Corp. sr. notes 11 7/8s, 2010 49,400
770,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(10s, 2/15/03), 2008 (STP) 80,850
1,140,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 119,700
300,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (12 1/4s, 3/1/04), 2009 (STP) 201,000
1,695,000 KMC Telecommunications Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 186,450
790,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 568,800
1,130,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 1,050,900
240,000 MGC Communications, Inc. sr. notes 13s, 2010 146,400
650,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 624,000
290,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
Ser. B, zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 185,600
120,000 NEXTLINK Communications, Inc. sr. notes 10 1/2s, 2009 103,200
770,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 764,225
250,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 221,250
175,000 Transtel pass-through certificates 12 1/2s, 2007 52,500
90,000 Triton PCS, Inc. company guaranty stepped-coupon zero %
(11s, 5/1/03), 2008 (STP) 67,950
900,000 UbiquiTel Operating Co. company guaranty stepped-coupon
zero % (14s, 4/15/05), 2010 (STP) 414,000
735,000 US Unwired, Inc. company guaranty stepped-coupon Ser. B,
zero % (13 3/8s, 11/1/04), 2009 (STP) 360,150
340,000 Versatel Telecom BV sr. notes 13 1/4s, 2008 (Netherlands) 258,400
120,000 Versatel Telecom BV sr. notes 13 1/4s, 2008 (Netherlands) 91,200
870,000 VoiceStream Wire, Inc. sr. notes 10 3/8s, 2009 928,725
1,070,000 WinStar Communications, Inc. sr. disc. notes stepped-coupon
zero% (14 3/4s, 4/15/05), 2010 (STP) 347,750
400,000 WinStar Communications, Inc. sr. notes 12 3/4s, 2010 288,000
-------------
8,412,800
Textiles (0.6%)
-------------------------------------------------------------------------------------------------------------------
140,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 86,800
610,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 597,800
460,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 184,000
560,000 Levi Strauss & Co. notes 6.8s, 2003 456,400
220,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 151,800
980,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 735,000
250,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 227,500
-------------
2,439,300
Tobacco (0.1%)
-------------------------------------------------------------------------------------------------------------------
680,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 564,400
Utilities (--%)
-------------------------------------------------------------------------------------------------------------------
810,000 Cathay International, Ltd. 144A sr. notes 13s, 2008 (China) 162,000
Waste Management (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,170,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 1,039,350
710,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 505,875
170,000 Waste Management, Inc. company guaranty 6 1/2s, 2004 159,140
-------------
1,704,365
Water Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
210,000 Azurix Corp. 144A sr. notes Ser. B, 10 3/8s, 2007 201,600
-------------
Total Corporate Bonds and Notes (cost $197,234,709) $ 161,734,137
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (21.0%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
U.S. Government Agency Mortgage Obligations (6.8%)
-------------------------------------------------------------------------------------------------------------------
$ 218,655 Federal Home Loan Mortgage Corp. 7 1/2s, May 1, 2027 $ 218,594
Federal National Mortgage Association
Pass-Through Certificates
1,017,544 8s, with due dates from July 1, 2024 to August 1, 2030 1,030,415
11,626,988 7 1/2s, with due dates from June 1, 2015 to July 1, 2030 11,725,565
950,000 6s, May 15, 2008 912,447
Government National Mortgage Association
Pass-Through Certificates
5,294,016 8s, with due dates from March 15, 2017 to
December 15, 2027 5,386,624
5,968,386 7s, with due dates from May 15, 2023 to
December 15, 2028 5,892,857
640,661 6 1/2s, December 15, 2027 618,552
-------------
25,785,054
U.S. Treasury Obligations (14.2%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
$ 1,655,000 10 5/8s, August 15, 2015 $ 2,398,194
145,000 6 1/2s, November 15, 2026 (SEG) 154,992
11,905,000 6 1/8s, November 15, 2027 (SEG) 12,161,672
U.S. Treasury Notes
9,520,000 6 3/4s, May 15, 2005 9,869,574
25,545,000 6 1/2s, February 15, 2010 26,738,462
1,585,000 6s, September 30, 2002 1,585,983
290,000 5 3/4s, August 15, 2010 289,727
1,485,000 U.S. Treasury Strip zero %, February 15, 2019 501,485
-------------
53,700,089
-------------
Total U.S. Government and Agency Obligations
(cost $78,608,185) $ 79,485,143
<CAPTION>
FOREIGN GOVERNMENT BONDS AND NOTES (14.4%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
USD 900,000 Argentina (Republic of) bonds 11 3/4s, 2015 $ 762,750
USD 1,036,000 Argentina (Republic of) unsub. 11 3/4s, 2009 906,500
USD 845,000 Argentina (Republic of) notes Ser. XW, 11s, 2005 747,825
USD 668,000 Brazil (Federal Republic of) notes 14 1/2s, 2009 712,288
USD 1,420,000 Brazil (Federal Republic of) bonds 12 1/4s, 2030 1,235,400
CAD 530,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 372,090
CAD 1,890,000 Canada (Government of) bonds Ser. WL43,
5 3/4s, 2029 1,249,395
CAD 7,685,000 Canada (Government of) bonds Ser. WE00,
5 1/2s, 2002 5,001,693
USD 555,000 Colombia (Republic of) bonds 11 3/4s, 2020 441,225
DKK 11,970,000 Denmark (Kingdom of) bonds 7s, 2024 1,562,205
DKK 52,600,000 Denmark (Kingdom of) bonds 6s, 2009 6,184,817
EUR 1,500,000 Germany (Federal Republic of) bonds Ser. 98,
5 5/8s, 2028 1,266,165
EUR 5,190,000 Germany (Federal Republic of) bonds Ser. 132,
4 1/8s, 2004 4,251,174
GRD 1,726,000,000 Hellenic Greece (Republic of) bonds 6 1/2s, 2014 4,418,405
EUR 1,560,000 Italy (Government of) bonds 7 1/4s, 2026 1,539,321
EUR 1,940,000 Italy (Government of) sr. unsub. 4 1/4s, 2002 1,642,506
USD 480,000 Korea (Republic of) unsub. 8 7/8s, 2008 500,400
USD 533,611 Morocco (Kingdom of) floating rate govt. guaranty
Ser. A, 7 3/4s, 2009 464,242
NZD 5,985,000 New Zealand (Government of) bonds Ser. 709,
7s, 2009 2,420,514
USD 1,595,000 Philippines (Republic of) notes 10 5/8s, 2025 1,216,188
USD 645,000 Philippines (Republic of) notes 9 7/8s, 2019 477,300
USD 1,410,000 Russia (Federation of) 144A bonds 12 3/4s, 2028 1,170,300
USD 1,205,000 Russia (Federation of) unsub. 10s, 2007 896,279
USD 5,906,250 Russia (Federation of) 144A unsub. stepped-coupon
2 1/4s, (5s, 4/1/01), 2030 (STP) 2,185,313
GBP 820,000 United Kingdom Treasury bonds 10s, 2003 1,322,619
GBP 2,460,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 3,808,928
GBP 2,555,000 United Kingdom Treasury bonds 8s, 2000 3,716,768
USD 1,310,000 United Mexican States bonds 11 3/8s, 2016 1,483,575
USD 1,980,000 United Mexican States bonds Ser. XW, IO,
10 3/8s, 2009 2,093,850
USD 740,000 Venezuela (Republic of) bonds 9 1/4s, 2027 488,400
-------------
Total Foreign Government Bonds and Notes
(cost 59,327,041) $ 54,538,435
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATIONS (10.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.
$ 905,000 Ser. 97-ML1, Class D, 6.977s, 2030 $ 863,823
5,049,227 Ser. 97-ML1, Interest Only (IO), 0.558s, 2017 223,681
28,694,238 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
IO, 0.727s, 2020 1,795,632
1,060,000 Countrywide Home Loan Ser. 98-3, Class A5, 6 3/4s, 2028 1,001,369
1,625,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C,
Class A8, 6 1/2s, 2024 1,505,871
Criimi Mae Commercial Mortgage Trust
4,837,000 Ser. 98-C1, Class A2, 7s, 2011 4,413,279
1,398,000 Ser. 98-C1, Class B, 7s, 2011 1,169,846
27,817,641 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 0.94s, 2031 1,386,536
Fannie Mae
4,934 Ser. 92-15, Class L, IO, 1037.606s, 2022 166,819
2,316,252 Ser. 254, Class 2, IO, 7 1/2s, 2024 670,989
2,577,803 Ser. 93-251, Class Z, 6 1/2s, 2023 2,297,467
1,057,853 Ser. 203, Class 2, IO, 4.371s, 2023 292,893
2,072,790 Ser. 266, Class 2, 4.319s, 2024 579,086
2,056,554 Ser. 281, Class 2, 4.284s, 2026 562,660
1,113,079 Ser. 251, Class 2, IO, 3.922s, 2023 308,184
328,198 Ser. 176, Class 2, 3.917s, 2022 87,793
2,265,791 Ser. 252, Class 2, 3.864s, 2023 654,955
1,346,834 Ser. 00-31, Class SC, IO, 3.43s, 2022 141,418
2,589,753 Ser. 221, Class 2, 3.257s, 2023 733,224
956,595 Ser. 97-92, Class SM, 3.256s, 2022 75,631
2,246,061 Ser. 222, Class 2, IO, 3.213s, 2023 633,810
5,815,806 Ser. 218, Class 2, IO, 3.17s, 2023 1,646,600
378,669 Ser. 92-124, Class SA, IO, 3.17s, 2022 36,388
915,101 Ser. 217, Class 2, IO, 2.946s, 2023 244,790
2,513,701 Ser. 98-66, Class SB, IO, 2.02s, 2028 131,184
1,822,917 Ser. 97-91, Class SL, IO, 0.921s, 2023 182,292
Freddie Mac
266,731 Ser. 2209, Class S, 10.62s, 2024 262,397
378,667 Ser. 147, IO, 8s, 2023 105,198
1,045,856 Ser. 2219, Class SA, 7.62s, 2030 917,164
610,284 Ser. 1717, Class L, 6 1/2s, 2024 594,073
780,000 Ser. 44, Class SG, IO, 2.89s, 2023 116,756
1,133,003 Ser. 2090, Class SA, IO, 2.18s, 2028 64,971
1,126,107 Ser. 2090, Class SB, IO, 2.18s, 2028 64,575
1,141,747 Ser. 2090, Class SC, IO, 2.18s, 2028 65,472
1,031,969 Ser. 2090, Class SD, IO, 2.18s, 2028 59,177
620,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 588,957
1,085,000 General Growth Properties Ala-Moana Ser. 99-C1, Class E,
FRB 7.65s, 2009 1,085,000
General Growth Properties-Homart
220,000 Ser. 99-C1, Class G, 8.089s, 2003 220,000
255,000 Ser. 99-C1, Class F, FRB, 7.839s, 2003 255,000
General Growth Properties-Ivanhoe
280,000 Ser. 99-C1, Class G, FRB 8.63s, 2004 280,000
471,000 Ser. 99-C1, Class F, FRB 7.88s, 2004 471,000
Government National Mortgage Association
542,892 Ser. 99-30, Class SG, 15.39s, 2025 527,284
773,253 Ser. 99-38, Class SL, 15.13s, 2026 737,007
1,492,128 Ser. 00-17, Class SB, 13.2s, 2026 1,537,667
427,069 Ser. 99-44, Class SZ, 11 1/2s, 2029 409,987
786,465 Ser. 00-11, Class SA, 8 1/4s, 2021 745,667
589,224 Ser. 99-29, Class WB, 6.555s, 2028 526,619
758,490 Ser. 98-2, Principal Only (PO), Class EA, zero %, 2028 532,365
2,660,000 Holmes Financing PLC Ser. 1, Class 2C, 2040 2,642,231
Merrill Lynch Mortgage Investors, Inc.
640,000 Ser. 95-C3, Class D, 7.782s, 2025 637,440
585,000 Ser. 96-C2, Class E, 6.96s, 2028 520,884
9,032,502 Ser. 96-C2, IO, 1.607s, 2028 594,169
958,536 Ser. 98-C2, IO, 1.076s, 2030 64,893
Mortgage Capital Funding, Inc.
4,029,254 Ser. 97-MC2, Class X, IO, 0.817s, 2012 260,013
2,658,890 Ser. 98-MC1, Class X, IO, 0.493s, 2009 92,334
667,885 PNC Mortgage Securities Corp. Ser. 97-6, Class A2, 6.6s, 2027 666,216
124,788 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 122,959
700,000 Residential Mortgage Securities Ser. 8, Class M, FRB,
7.202s, 2038 1,003,150
563,587 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 550,472
1,370,000 Starwood Asset Receivables Trust Ser. 00-1, Class E, 9.32s, 2005 1,376,028
-------------
Total Collateralized Mortgage Obligations
(cost $41,142,843) $ 40,503,345
<CAPTION>
PREFERRED STOCKS (2.5%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
12,899 AmeriKing, Inc. 3.25 cum. pfd. (PIK) $ 12,899
207 Benedek Communications 11.50 pfd. (PIK) 101,430
11,925 Chevy Chase Preferred Corp. Ser. A, 5.188 pfd. 602,213
3,955 Citadel Broadcasting Co. Ser. B, 13.25 cum. pfd. (PIK) 431,095
130,000 CSBI Capital Trust I 144A company guaranty Ser. A, 11.75% pfd. 130,000
9,902 CSC Holdings, Inc. Ser. M, 11.13 cum. pfd. (PIK) 1,061,990
27,930 Diva Systems Corp. Ser. C, 6.00 pfd. 230,423
7,700 Doane Pet Care Enterprise 7.125 pfd. 246,400
320 Dobson Communications 13.00% pfd. 289,600
210 First Republic Capital Corp. 144A 10.50% pfd. 174,300
420 Fresenius Medical Capital Trust I company guaranty, Ser. D,
9.00% pfd. (Germany) 411,600
29,000 Golden State Bancorp Ser. A, 2.281 pfd. 674,250
540 Granite Broadcasting 144A 12.75% cum. pfd. (PIK) 318,600
698 ICG Holdings, Inc. 14.25% pfd. (Canada) (PIK) 14,135
373 ICG Holdings, Inc. 144A 14.00% cum. pfd. (Canada) (PIK) 7,460
695 Intermedia Communications Ser. B, 13.50% pfd. (PIK) 597,700
946 Nextel Communications, Inc. 13.00% cum. pfd. (PIK) 960,190
187 Nextel Communications, Inc. Ser. E, 11.125 pfd. (PIK) 173,910
92 Paxson Communications Corp. 144A 13.25% cum. pfd. (PIK) 897,000
3 Paxson Communications Corp. 12.50% pfd. (PIK) 2,910
160 Pegasus Communications Corp. Ser. A, 12.75% cum. pfd. 165,800
461 R&B Falcon Corp. 13.875% cum. pfd. (PIK) 587,890
509 Rural Cellular Corp. 12.25% pfd. (PIK) 397,020
14,855 XO Communications, Inc. 7.00 cum. pfd. (PIK) 623,910
310 XO Communications, Inc. Ser. B, 13.50% pfd. (PIK) 232,500
-------------
Total Preferred Stocks (cost $11,222,409) $ 9,345,225
BRADY BONDS (1.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 316,800 Argentina (Republic of) deb. FRB 7.625s, 2005 $ 277,200
1,583,593 Brazil (Federal Republic of) bonds FRB 8s, 2014 (POR) 1,177,877
190,000 Bulgaria (Government of) deb. Ser. PDI, FRB, 6.688s, 2011 141,550
645,000 Bulgaria (Government of) FRB Ser. A, 6 1/2s, 2024 480,525
1,815,000 Bulgaria (Government of) Ser. A, FLIRB, 2 1/4s, 2012 1,279,575
1,620,000 United Mexican States sec. Ser. W-B, 6 1/4s, 2019 1,423,656
1,071,420 Venezuela (Republic of) deb. Ser. DL, FRB, 6.762s, 2007 896,029
785,000 Venezuela (Republic of) Ser. W-A, 6 3/4s, 2020 580,900
-------------
Total Brady Bonds (cost $5,970,799) $ 6,257,312
<CAPTION>
ASSET-BACKED SECURITIES (1.6%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 3,955,000 Conseco Finance Securitization Ser. 00-4, Class A6, 8.31s, 2032 $ 4,039,044
339,645 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2,
7.67s, 2028 167,594
1,274,249 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 956,085
896,592 Provident Bank Home Equity Loan Trust Ser. 99-1, class A2,
6.77s, 2019 896,592
-------------
Total Asset-Backed Securities (cost $6,458,927) $ 6,059,315
<CAPTION>
CONVERTIBLE BONDS AND NOTES (0.6%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 80,000 Amkor Technologies, Inc. cv. sub. notes 5s, 2007 $ 57,900
1,210,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) 490,050
660,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 280,500
320,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 270,000
100,000 Hexcel Corp. cv. sub. notes 7s, 2003 89,875
1,000,000 Micron Technology, Inc cv. sub. notes 6 1/2s, 2005 850,000
190,000 Nextel Communications, Inc. sr. notes 5 1/4s, 2010 159,600
200,000 Pinnacle Holdings, Inc. 144A cv. sub. notes 5 1/2s, 2007 112,250
200,000 Telewest Finance Corp. cv. sub. notes 6s, 2005
(United Kingdom) 137,000
-------------
Total Convertible Bonds and Notes (cost $2,752,578) $ 2,447,175
<CAPTION>
COMMON STOCKS (0.5%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
16,450 360Networks, Inc. (Canada) (NON) $ 279,650
200 AmeriKing, Inc. (NON) 200
9,207 Aurora Foods, Inc. (NON) 25,895
2,625 Axia Holding, Inc. 144A (PIK) (NON) 31,500
111,146 Celcaribe SA (Colombia) (NON) 13,893
1 Intermedia Communications, Inc. (NON) 22
1,132 MGC Communications, Inc. (NON) 7,358
22 Mothers Work, Inc. (NON) 204
125 Paging Do Brazil Holdings Co., LLC 144A Class B (Brazil) (NON) 1
480 Premium Holdings (L.P.) 144A (NON) 6,237
1,004 PSF Holdings LLC Class A (acquired various dates from
(2/8/93 to 3/16/98, cost 3,443,871) (NON) (RES) 1,305,018
8,300 Spanish Broadcasting System, Inc. (NON) 77,813
15,000 Specialty Foods Acquisition Corp. (NON) 150
-------------
Total Common Stocks (cost $3,790,979) $ 1,747,941
<CAPTION>
UNITS (0.3%) (a)
NUMBER OF UNITS VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
520 CFW Communications Co. 144A units 13s, 2010 $ 416,000
230 Colo.com 144A units 13 7/8s, 2010 172,500
600 Horizon Pcs., Inc. units stepped-coupon zero %
(14s, 10/1/05), 2010 (STP) 285,000
500 iPcs, Inc. units stepped-coupon zero % (14s, 7/15/05), 2010 (STP) 230,000
560 Pegasus Shipping 144A units company guaranty stepped-
coupon zero % (14 1/2s, 12/20/03), 2008 (Bermuda) (STP) 25,200
380 XCL, Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 68,400
4,732 XCL, Ltd. 144A units cv. cum. pfd. 9.5s, 2006 2,366
-------------
Total Units (cost $2,497,735) $ 1,199,466
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
900 Global Crossing, Ltd. 7.00% cv. cum. pfd. (Bermuda) $ 144,900
1,200 Global Crossing, Ltd. 6.75% cv. cum. pfd (Bermuda) 245,400
16,450 Global Telesystems Group, Inc. 144A 3.625 cv. cum. pfd. 96,649
760 Interact Systems, Inc. 14.00% cv. cum. pfd 8
2,600 LTV Corp. (The) 144A 4.125 cv. cum. pfd. 52,000
20 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 189,000
12,000 PsiNet, Inc. 144A 3.50 cv. cum. pfd. 180,000
72 World Access, Inc. 144A Ser. D, zero % cv. pfd. 21,708
932 XCL, Ltd. 144A Ser. A, 9.50% cv. cum. pfd. 466
-------------
Total Convertible Preferred Stocks (cost $2,212,470) $ 930,131
<CAPTION>
WARRANTS (0.2%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
7 Anker Coal Group, Inc. 144A 10/28/09 $ 1
635 Asia Pulp & Paper Co., Ltd.144A 3/15/05 6
330 Bestel SA de CV (Mexico) 5/15/05 39,600
310 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 31,000
70 Carrier1 Intl. SA (Luxembourg) 2/19/09 11,340
2,498 CellNet Data Systems, Inc. 10/1/07 3
510 Dayton Superior Corp. 6/15/09 10,200
1,050 Destia Communications 144A 7/15/07 30,975
690 Diva Systems Corp. 5/15/06 393,300
2,868 Diva Systems Corp. 3/1/08 47,322
430 Epic Resorts 6/15/05 4
450 Firstworld Communication Corp. 4/15/08 6,750
380 Globalstar Telecommunications 2/15/04 380
230 Huntsman Packaging Corp. 144A 6/1/10 2,300
8,514 ICG Communications 10/15/05 8,514
760 Interact Systems, Inc. 8/1/03 8
760 Interact Systems, Inc. 144A 12/15/09 8
450 International Wireless Communications
Holdings 144A 8/15/01 1
7,412 Intira Corp. Class A 2/1/10 1
2,547 Intira Corp. Class B 2/1/10 1
620 Josten, Inc. 5/1/10 12,400
875 KMC Telecommunications Holdings, Inc. 4/15/08 1,750
875 Knology Holdings 10/22/07 3,938
580 Maxcom Telecomunicaciones SA de CV
144A (Mexico) 4/1/07 6
1,530 McCaw International, Ltd. 4/15/07 30,600
380 Mediq, Inc. 144A 6/1/09 4
60 Motient Corp. 144A 4/1/08 2,280
185 Onepoint Communications, Inc. 6/1/08 14,800
390 Orbital Imaging Corp. 144A 3/1/05 2,730
525 Orion Network Systems 1/15/07 2,231
5,290 Pagemart, Inc. 144A 12/31/03 52,900
640 Paxson Communications Corp. 144A 6/30/03 3,520
250 Railamerica, Inc. 144A 8/15/10 2,500
325 Raintree Resort 144A 12/1/04 3
650 Startec Global Communications Corp. 5/15/08 650
275 Sterling Chemicals Holdings 8/15/08 1,100
420 Telehub Communications Corp. 7/31/05 210
900 Ubiquitel, Inc. 144A 4/15/10 22,500
2,285 UIH Australia/Pacific, Inc. 144A 5/15/06 34,275
20 Versatel Telecom NV (Netherlands) 5/15/08 4,400
35,580 Wright Medical Technology, Inc. 144A 6/30/03 1
320 XM Satellite Radio Holdings, Inc. 144A 3/15/10 38,400
-------------
Total Warrants (cost $671,600) $ 812,912
<CAPTION>
SHORT-TERM INVESTMENTS (1.7%) (cost 6,471,000) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 6,471,000 Interest in $949,877,000 joint repurchase agreement dated
October 31, 2000 with Merrill Lynch, Pierce, Fenner &
Smith, Inc. due November 1, 2000 with respect to various
U.S. Government obligations -- maturity value of
$6,472,186 for an effective yield of 6.60% $ 6,471,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $418,361,275) (b) $ 371,531,537
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $378,800,074.
(b) The aggregate identified cost on a tax basis is $419,671,758,
resulting in gross unrealized appreciation and depreciation of
$5,861,474 and $54,001,695, respectively, or net unrealized depreciation
of $48,140,221.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin receiving interest or dividend income at this rate.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) A portion of these securities were pledged and segregated with the
custodian to cover margin requirements for futures contracts at October
31, 2000.
(RES) Restricted, excluding 144A securities as to public resale. The
total market value of restricted securities held at October 31, 2000 was
$1,305,018, or 0.3% of net assets.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at October 31, 2000,
which are subject to change based on the terms of the security.
------------------------------------------------------------------------------
Forward Currency Contracts to Buy at October 31, 2000
(aggregate face value $64,886,329)
Total Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
------------------------------------------------------------------------------
Australian Dollars $ 4,903,035 $ 5,381,823 12/20/00 $ (478,788)
Canadian Dollars 2,875,694 2,967,476 12/20/00 (91,782)
Euro 30,411,248 31,772,693 12/20/00 (1,361,445)
Japenese Yen 22,441,575 23,445,095 12/20/00 (1,003,520)
Swedish Kronas 368,017 384,687 12/20/00 (16,670)
Swiss Francs 897,827 934,555 12/20/00 (36,728)
------------------------------------------------------------------------------
$ (2,988,933)
------------------------------------------------------------------------------
Forward Currency Contracts to Sell at October 31, 2000
(aggregate face value $80,841,845)
Total Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
------------------------------------------------------------------------------
British Pounds $ 5,084,566 $ 5,119,135 12/20/00 $ 34,569
Canadian Dollars 12,270,490 12,632,697 12/20/00 362,207
Danish Krones 7,472,211 7,870,358 12/20/00 398,147
Euro 24,754,955 25,812,564 12/20/00 1,057,609
Japanese Yen 25,814,566 26,777,159 12/20/00 962,593
New Zealand
Dollars 2,436,975 2,629,932 12/20/00 192,957
------------------------------------------------------------------------------
$3,008,082
------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 2000
Unrealized
Total Market Aggregate Face Expiration Appreciation/
Value Value Date (Depreciation)
------------------------------------------------------------------------------
EuroDollar 90-day
(Long) $ 934,850 $ 935,317 Mar-01 $ (467)
EuroDollar 90-day
(Short) 935,650 936,058 Mar-02 408
EuroYen 3-month
(Short) 5,463,088 5,457,494 Sep-01 (5,594)
Gilt (Short) 1,319,628 1,305,544 Dec-00 (14,084)
Japan Bond 10-year
(Long) 9,281,773 9,147,025 Dec-00 134,748
U.S. Treasury Bond
(Long) 798,750 804,909 Dec-00 (6,159)
U.S. Treasury Bond
(Short) 5,291,719 5,324,073 Dec-00 32,354
U.S. Treasury Note
10-year (Short) 1,510,547 1,513,999 Dec-00 3,452
------------------------------------------------------------------------------
$ 144,658
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $418,361,275) (Note 1) $371,531,537
-------------------------------------------------------------------------------------------
Cash 1,361,211
-------------------------------------------------------------------------------------------
Foreign currency (cost $256,411) 252,328
-------------------------------------------------------------------------------------------
Dividends and interest receivable 8,209,520
-------------------------------------------------------------------------------------------
Receivable for securities sold 14,530,355
-------------------------------------------------------------------------------------------
Receivable for variation margin 61,569
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 3,008,082
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 197,390
-------------------------------------------------------------------------------------------
Total assets 399,151,992
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,920,069
-------------------------------------------------------------------------------------------
Payable for securities purchased 12,436,595
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 752,264
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 113,956
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 20,258
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,089
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts 2,988,933
-------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,044,558
-------------------------------------------------------------------------------------------
Other accrued expenses 73,196
-------------------------------------------------------------------------------------------
Total liabilities 20,351,918
-------------------------------------------------------------------------------------------
Net assets $378,800,074
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $469,493,300
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,579,092)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (40,238,077)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (46,876,057)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $378,800,074
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($378,800,074 divided by 53,095,749 shares) $7.13
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Interest (net of foreign tax of $33,303) $ 37,158,840
-------------------------------------------------------------------------------------------
Dividend 1,439,473
-------------------------------------------------------------------------------------------
Total investment income 38,598,313
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 3,017,255
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 507,697
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 16,956
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,292
-------------------------------------------------------------------------------------------
Other 253,760
-------------------------------------------------------------------------------------------
Total expenses 3,801,960
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (52,183)
-------------------------------------------------------------------------------------------
Net expenses 3,749,777
-------------------------------------------------------------------------------------------
Net investment income 34,848,536
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (13,500,138)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 69,513
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (3,997,884)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and
liabilities in foreign currencies during the year (111,091)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts during the year (13,160,570)
-------------------------------------------------------------------------------------------
Net loss on investments (30,700,170)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 4,148,366
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended October 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 34,848,536 $ 34,234,373
--------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (17,428,509) (24,745,739)
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and assets and liabilities in foreign currencies (13,271,661) (698,996)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,148,366 8,789,638
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (29,588,055) (34,234,373)
--------------------------------------------------------------------------------------------------
In excess of net investment income -- (355,987)
--------------------------------------------------------------------------------------------------
Return of capital (5,772,295) (3,159,376)
--------------------------------------------------------------------------------------------------
Total decrease in net assets (31,211,984) (28,960,098)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 410,012,058 438,972,156
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess
of net investment income of $3,579,092
and $3,244,473, respectively) $378,800,074 $410,012,058
--------------------------------------------------------------------------------------------------
Number of fund shares
--------------------------------------------------------------------------------------------------
Shares outstanding at beginning and end of year 53,095,749 53,095,749
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.72 $8.27 $9.26 $9.33 $9.04
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .66 .64 .71 .66 .68
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.58) (.48) (.96) .13 .30
-----------------------------------------------------------------------------------------------------
Total from
investment operations .08 .16 (.25) .79 .98
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.56) (.64) (.65) (.52) (.69)
-----------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.01) -- -- --
-----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.17) --
-----------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.16) --
-----------------------------------------------------------------------------------------------------
Return of capital (.11) (.06) (.09) (.01) --
-----------------------------------------------------------------------------------------------------
Total distributions (.67) (.71) (.74) (.86) (.69)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.13 $7.72 $8.27 $9.26 $9.33
-----------------------------------------------------------------------------------------------------
Market value,
end of period $6.438 $6.625 $8.125 $8.500 $8.375
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) 7.70 (10.50) 4.15 11.34 12.08
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $378,800 $410,012 $438,972 $491,652 $495,724
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .94 .94 1.00 .96 .95
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.66 7.93 7.81 7.18 7.43
-----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 147.33 124.21 202.83 246.84 280.38
-----------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 2000
Note 1
Significant accounting policies
Putnam Master Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The investment objective of the fund is
to seek high current income consistent with the preservation of capital.
The fund intends to diversify its investments among the following three
sectors of the fixed-income securities market: a U.S. investment-grade
sector, consisting of debt obligations of the U.S. government and
investment-grade U.S. corporate bonds, a high-yield sector, consisting
of high yielding, lower-rated U.S. corporate fixed income securities and
an international sector, consisting of obligations of foreign
governments, their agencies and instrumentalities and other fixed-income
securities denominated in foreign currencies.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable relationships
between securities that are generally recognized by institutional
traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends, if any, are recorded at the fair
market value of the securities received. Discounts on zero coupon bonds,
stepped-coupon bonds and payment-in-kind bonds are accreted according to
the yield-to-maturity basis. Any premium resulting from the purchase of
securities is amortized on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is "marked-to-market"
daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain
or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. The fund
could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet
the terms of their contracts or if the fund is unable to enter into a
closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At October 31, 2000, the fund had a capital loss carryover of
approximately $38,898,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
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$ 3,956,000 October 31, 2006
23,414,000 October 31, 2007
11,528,000 October 31, 2008
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, dividends payable, defaulted bond interest, unrealized gains
and losses on certain futures contracts, paydown gains and losses on
mortgage-backed securities, market discount, interest on payment-in-kind
securities, book accretion/amortization adjustments and foreign market
discount. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year
ended October 31, 2000, the fund reclassed $5,595,100 to increase
distributions in excess of net investment income and $154,050 to
increase paid-in-capital, with a decrease to accumulated net realized
losses of $5,441,050. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of average weekly net assets, 0.65% of the next $500
million, 0.60% of the next $500 million, and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the year ended October 31, 2000, fund expenses were reduced by
$52,183 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 $663
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended October 31, 2000, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $357,677,460 and
$369,809,600, respectively. Purchases and sales of U.S. government
obligations aggregated $209,985,992 and $208,086,766, respectively.
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, 2000, the fund repurchased no shares.
As of October 31, 2000, 279,900 shares have been repurchased since the
inception of the program.
FEDERAL TAX INFORMATION
(Unaudited)
For the year ended October 31, 2000, a portion of the Fund's
distribution represents a return of capital and is therefore not taxable
to shareholders.
The fund has designated 0.73% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
RESULTS OF OCTOBER 5, 2000 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on October 5,
2000. At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
Jameson Adkins Baxter 47,843,237 1,283,097
Hans H. Estin 47,772,977 1,353,357
John A. Hill 47,869,473 1,256,861
Ronald J. Jackson 47,861,935 1,264,399
Paul L. Joskow 47,832,262 1,294,072
Elizabeth T. Kennan 47,825,502 1,300,832
Lawrence J. Lasser 47,783,103 1,343,231
John H. Mullin III 47,844,133 1,282,201
Robert E. Patterson 47,803,539 1,322,795
George Putnam, III 47,793,942 1,332,392
A.J.C. Smith 47,795,752 1,330,582
W. Thomas Stephens 47,834,054 1,292,280
W. Nicholas Thorndike 47,829,227 1,297,107
A proposal to ratify the selection of KPMG LLP as the independent
auditors of your fund was approved as follows: 48,176,827 votes for, and
270,419 votes against, with 679,088 abstentions.
A proposal to convert your fund from closed-end to open-end status and
authorize certain related amendments to the Agreement and Declaration of
Trust. The results were as follows: 6,129,578 votes for, and 18,488,559
votes against, with 2,172,871 abstentions and 22,335,326 broker
non-votes.
All tabulations are rounded to nearest whole number.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President
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
David L. Waldman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
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