Putnam
Master
Intermediate
Income Trust
SEMIANNUAL REPORT
March 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "We expect that economic weakness and uncertainty in Asia may
continue to impact foreign bond markets, while the demand for domestic
high-yield bonds is likely to remain strong in the months ahead. Our
management team will continue to closely monitor all the fixed-income
sectors in which your fund invests, seeking to position the portfolio
defensively while taking advantage of attractive income opportunities."
-- Jennifer E. Leichter, lead manager
Putnam Master Intermediate Income Trust
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
10 Portfolio holdings
29 Financial statements
38 Results of December 18, 1997 shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Access to a wide variety of fixed-income assets was one of Putnam Master
Intermediate Income Trust's particularly useful attributes in the challenging
global market environment that prevailed during the first half of the fund's
fiscal year. As you might imagine, events in Asia dominated the thinking of
your fund's management team throughout the period.
The U.S. bond market actually thrived in the wake of the Asian currency and
debt crisis as investors worldwide shifted assets to the safe haven
represented by U.S. Treasury securities. Once again, the U.S. high-yield bonds
in your fund's portfolio continued to show the strongest performance. European
bonds also delivered solid results, as your fund's managers point out in the
following report.
I am pleased to announce the appointment of Jeffrey Kobylarz to your fund's
management team. Jeffrey came to Putnam in 1993 as a senior credit analyst in
the High-Yield Bond Group. Before joining Putnam, he was with Dean Witter
InterCapital and W.R. Huff Asset Management. He has 11 years of investment
industry experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 20, 1998
Report from the Fund Managers
Jennifer E. Leichter, lead manager
Jeffrey J. Kobylarz
D. William Kohli
Gail A. Attridge
As Putnam Master Intermediate Income Trust began its fiscal year last October,
we were reasonably optimistic about prospects for fixed-income markets around
the world. Less than one month into the period, however, several Asian
economies experienced economic meltdowns, sparking the largest single-day
point decline in the history of the Dow Jones Industrial Average. This event,
combined with continued economic weakness and uncertainty in Asia, put the
world's financial markets, as well as investors' nerves, on edge.
While this backdrop has created a tumultuous environment for many markets, two
of the three key sectors in which your fund invests -- U.S. taxable
investment-grade securities and high-yield bonds -- actually fared quite well
during the semiannual period, the six months ended March 31, 1998. The third
sector, international bonds, obviously faced tougher times. But strategic
portfolio shifts allowed us to soften the blow of Asia's currency and debt
crisis. For complete performance information, please refer to the summary that
begins on page 8.
* U.S. BONDS BENEFIT FROM ASIAN CRISIS
Throughout the period, the Asian crisis actually boosted performance in the
domestic bond market. Nervous international investors flocked to the high
credit quality and attractive yields offered by U.S. bonds, bidding up prices
of Treasuries dramatically. While this flight to quality was good news for
your fund, our focus on mortgage-backed securities, which also performed well
early in the period, meant we didn't take full advantage of the Treasury
rally. Toward the end of the period, the momentum of Treasuries slowed, while
the performance of mortgage-backed securities began to lag as well.
Our decision to focus on mortgage-backed securities was based on the
interest-rate climate during the period. When interest rates are falling,
mortgage-backed securities present a higher prepayment risk -- that is the
chance that homeowners will refinance or pay off their mortgage loans early,
which tends to dampen the value of these securities. To compensate investors
for this prepayment risk, mortgage-backed securities will carry a higher yield
than most other U.S. government issues. The fund's emphasis on mortgage-backed
securities was designed to take advantage of those higher yield opportunities.
* EMERGING MARKETS PLUNGE, THEN REBOUND
The Asian currency and debt crisis took its toll on many international
markets, hitting the emerging markets especially hard. As investors deserted
these bonds in favor of more established markets, emerging markets plunged in
October, although they posted handsome gains for most of calendar 1997. After
that rather brief swoon, however, these bonds staged a remarkable recovery. In
a situation similar to the Treasury rally, this rebound helped your fund, but
because we had positioned this portion of the portfolio defensively, the fund
did not take full advantage of the comeback in emerging-markets securities.
In Europe, bond markets turned in robust returns as a result of sluggish
economic growth in Germany and expectations that the European Economic and
Monetary Union (EMU) would begin as scheduled in January 1999. The EMU will
unify the monetary policy and interest rates of 11 European countries.
Europe's peripheral markets, such as Spain, Italy, and Sweden, posted the best
performance, but your fund's underweight position in these areas dragged
performance somewhat.
[GRAPHIC OMITTED: horizontal bar chart TOP 5 COUNTRY ALLOCATIONS
(international sector)]
TOP 5 COUNTRY ALLOCATIONS
(international sector)*
United Kingdom 6.8%
Germany 4.0%
Mexico 2.9%
Australia 2.6%
South Africa 2.0%
Footnote reads:
*Based on net assets as of 3/31/98. Holdings will vary over time.
The fund benefited from a significant position in the United Kingdom, where
the bond market was buoyed by slowing economic growth and low inflation. Our
decision to underweight Japanese government bonds meant the fund had only
minimal exposure to these bonds, which were hurt by the country's troubled
political and economic climate and increasing concerns about the long-term
health of its economy.
* HIGH-YIELD SECTOR POWERS PORTFOLIO ONCE AGAIN
The high-yield bond market was the strongest-performing sector of the domestic
bond market in the first calendar quarter of 1998, propelled by the same
forces that pushed Treasury bonds and stocks higher. These forces included
solid economic growth and low inflation, which kept the Federal Reserve Board
from increasing interest rates.
Leading the way among high-yield issues were those of companies in the
telecommunications, cable TV, and broadcasting industries -- following a
pattern that has prevailed for well over a year. New issuance in the
high-yield market has continued at a record-breaking pace, driven by favorable
interest rates, expanding businesses, and strong investor demand. Another
factor boosting the high-yield bond market has been the tremendous amount of
merger and acquisition activity. Larger, more creditworthy companies that have
completed cost-cutting programs are buying smaller high-yield bond issuers in
an effort to further grow their businesses or add niche products. This
consolidation trend was evident in many sectors, including consumer products,
telecommunications, and cable TV.
Highlights among your fund's high-yield holdings included NEXTEL
Communications, which provides digital wireless communications service, and
Teleport Communications Group, a long-distance provider acquired by AT&T.
Several cable companies in your fund's portfolio also contributed to
performance during the period. The cable TV industry as a whole was boosted by
increasing interest in the delivery of Internet technology through
conventional cable systems.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR
HIGH-YIELD BONDS
Banco Nacional de Comercio, 7 1/4s, 2004
Banco Nacional de Desenvolvimiento Economico e Social (BNDES), 9s, 2007
Banco Nacional de Comercio, 8s, 2003
FOREIGN BONDS
United Kingdom Treasury bonds, 8s, 2007
Germany (Federal Rebublic of) Unity bonds, 8s, 2002
Government of Australia, 8 3/4s, 2008
U.S. INVESTMENT-GRADE SECURITIES
Government National Mortgage Association (GNMA), 7 1/2s
GNMA, 6 1/2s
U.S. Treasury notes, 5 3/4s
Footnote reads:
These holdings represent 35.2% of the fund's net assets as of 3/31/98.
Portfolio holdings will vary over time.
Technology giant Microsoft's recent decision to invest $1 billion in
Philadelphia cable operator Comcast Corp. was a signal to investors that this
is an area with strong growth potential. While these holdings, along with
others discussed in this report, were viewed favorably at the end of the
fiscal period, all portfolio holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future.
* OUTLOOK: CURRENT TRENDS SHOULD CONTINUE
In general, we believe the domestic economy, driven by consumer demand, is
poised for continued strong growth with relatively low inflation. As a result,
we expect that demand for high-yield bonds will remain strong in the months
ahead as investor confidence remains high. We are more cautious about
international bond markets and the outlook for global economic growth.
Valuations in most foreign markets appear stretched, particularly after the
global flight to quality that has driven bond yields lower worldwide. We will
continue to monitor the Asian turbulence closely, realizing that its impact
may be greater than previously forecast. Your fund's ability to invest across
multiple fixed-income sectors should enable us to position the portfolio
defensively while taking advantage of attractive income opportunities.
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 3/31/98, there is no guarantee the fund will continue to hold
these securities in the future. The lower credit ratings of high-yield
corporate bonds reflect a greater possibility that adverse changes in the
economy or their issuers may affect their ability to pay principal and
interest on the bonds. Investments in non-U.S. securities may be subject to
certain risks such as currency fluctuations, economic instability, and
political developments. Although the U.S. government guarantees the timely
payment of principal and interest on some of the underlying securities, the
value of the fund shares is not guaranteed and will fluctuate.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Master Intermediate Income Trust is designed for
investors seeking high current income and relative stability of net asset
value through U.S. government, high-yield, and international fixed-income
securities with limited maturities.
TOTAL RETURN FOR PERIODS ENDED 3/31/98
Market
NAV price
- ------------------------------------------------------------------------------
6 months 2.43% 1.00%
- ------------------------------------------------------------------------------
1 year 10.77 14.02
- ------------------------------------------------------------------------------
5 years 50.48 42.97
Annual average 8.52 7.41
- ------------------------------------------------------------------------------
Life (4/29/88) 145.35 107.98
Annual average 9.47 7.66
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/98
Lehman Bros. Salomon Bros.
Govt. Non-U.S First Boston Consumer
Intermediate World Govt High Yield Price
Bond Index Bond Index Index Index
- ------------------------------------------------------------------------------
6 months 3.76% -0.98% 4.67% 0.62%
- ------------------------------------------------------------------------------
1 year 9.38 2.03 14.33 1.38
- ------------------------------------------------------------------------------
5 years 33.38 37.76 68.52 12.95
Annual average 5.93 6.62 11.00 2.47
- ------------------------------------------------------------------------------
Life of fund 115.40 100.97 203.39 38.51
Annual average 8.04 7.29 11.84 3.34
- ------------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. 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
6 months ended 3/31/98
- ------------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------------
Income $0.34
- ------------------------------------------------------------------------------
Capital gains --
- ------------------------------------------------------------------------------
Total $0.34
- ------------------------------------------------------------------------------
Share value NAV Market price
- ------------------------------------------------------------------------------
9/30/97 $8.79 $8.125
- ------------------------------------------------------------------------------
3/31/98 8.64 7.875
- ------------------------------------------------------------------------------
Current return (end of period) NAV Market price
- ------------------------------------------------------------------------------
Current dividend rate1 7.78% 8.53%
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or Market price at end of period.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, divided by
the number of outstanding common shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
Lehman Bros. Government Intermediate Bond Index* is an unmanaged list of
U.S. government and mortgage-backed securities composed of all bonds
covered by the Lehman Brothers Government Bond Index with maturities
between 1 and 9.99 years.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged
list of bonds issued by 10 countries.
First Boston High Yield Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
* Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Portfolio of investments owned
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (37.1%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (22.6%)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Home Loan Mortgage Corp.
$601,529 7s, February 1, 2012 $611,863
192,690 6 1/2s, September 1, 2002 192,270
Federal National Mortgage Association
4,908 8 1/2s, Dwarf, with due dates from
March 1, 2006 to March 1, 2006 5,117
1,374,042 6 1/2s, with due dates from March 1, 2026
to October 1, 2026 1,358,584
Federal National Mortgage Association
Adjustable Rate Mortgages
563,832 7.837s, May 1, 2025 587,795
859,940 7.143s, July 1, 2027 872,839
Government National Mortgage Association
8,510,000 7s, TBA, April 15, 2028 8,595,100
2,840,000 5 1/2s, TBA, April 15, 2028 2,855,080
Government National Mortgage Association
Adjustable Rate Mortgages
1,057,017 7s, July 20, 2024 1,084,764
Government National Mortgage Association
Pass-through Certificates
14,066,668 8s, with due dates from July 15, 2023 to February 15, 20281 4,568,636
91,113,663 7 1/2s, with due dates from January 15, 2023 to
November 15, 2027 93,516,584
30,613,475 7s, with due dates from July 20, 2024 to
November 15, 2027 30,922,916
40,986,015 6 1/2s, with due dates from December 15, 2027
to February 15, 2028 40,563,043
--------------
195,734,591
U.S. Treasury Obligations (14.5%)
- --------------------------------------------------------------------------------------------
U.S. Treasury Bonds
9,540,000 12 3/8s, May 15, 2004 # 12,771,675
12,680,000 11 5/8s, November 15, 2004 16,737,600
U.S. Treasury Notes
2,100,000 7s, July 15, 2006 2,269,638
12,805,000 6 7/8s, May 15, 2006 13,729,393
18,790,000 6 5/8s, June 30, 2001 19,321,381
4,000 6 1/2s, October 15, 2006 4,197
1,600,000 6 1/4s, August 31, 2002 # 1,634,992
11,255,000 6 1/8s, August 15, 2007 # 11,575,092
830,000 6s, July 31, 2002 840,242
990,000 5 3/4s, November 30, 2002 992,940
40,025,000 5 3/4s, November 15, 2000 # 40,137,470
1,425,000 5 5/8s, December 31, 1999 1,425,670
650,000 5 1/2s, February 28, 2003 646,139
2,875,000 5 1/2s, February 28, 2000 2,869,595
--------------
124,956,024
--------------
Total U.S. Government and Agency Obligations
(cost $321,177,914) $320,690,615
CORPORATE BONDS AND NOTES (36.2%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.8%)
- --------------------------------------------------------------------------------------------
$1,400,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $1,540,000
950,000 Big Flower Holdings, Inc. sr. sub. notes 8 7/8s, 2007 978,500
400,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 434,000
1,660,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 1,718,100
1,750,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 1,820,000
--------------
6,490,600
Aerospace and Defense (0.6%)
- --------------------------------------------------------------------------------------------
250,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 275,000
130,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 132,925
570,000 Aviation Sales Co. 144A sr. sub. notes 8 1/8s, 2008 561,450
715,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 766,838
370,000 BE Aerospace, Inc. 144A sr. sub. notes 8s, 2008 369,075
650,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 682,500
145,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 150,075
100,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 108,500
800,000 Sabreliner Corp. sr. notes Ser. B, 12 1/2s, 2003 840,000
600,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 630,000
500,000 Sequa Corp. bonds 8 3/4s, 2001 510,000
185,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 191,244
160,000 United Defense Industries Inc. company guaranty 8 3/4s, 20071 63,600
--------------
5,381,207
Agriculture (0.2%)
- --------------------------------------------------------------------------------------------
830,580 Premium Standard Farms, Inc. sr. secd. notes 11s,
2003 [2DBL. DAGGERS] 897,027
700,000 Purina Mills, Inc. 144A sr. sub. notes 9s, 2010 722,750
--------------
1,619,777
Airlines (0.1%)
- --------------------------------------------------------------------------------------------
270,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 285,525
520,000 Trans World Airlines, Inc. 144A notes 11 3/8s, 2006 523,900
--------------
809,425
Apparel (0.1%)
- --------------------------------------------------------------------------------------------
85,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 89,250
125,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 127,500
395,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 416,725
170,000 William Carter Co. 144A sr. sub. notes 12s, 2008 184,450
--------------
817,925
Automotive Parts (0.6%)
- --------------------------------------------------------------------------------------------
3,000,000 Cambridge Industries Inc. company guaranty Ser. B,
10 1/4s, 2007 3,120,000
135,000 Hayes Wheels International, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2007 142,425
900,000 Lear Corp. sub. notes 9 1/2s, 2006 999,000
700,000 Navistar International Corp. 144A sr. sub.notes 8s, 2008 697,375
200,000 Safety Component International, Inc. 144A sr. sub. notes
Ser. B, 10 1/8s, 2007 207,000
--------------
5,165,800
Banks (3.7%)
- --------------------------------------------------------------------------------------------
6,719,000 Banco Nacional de Comercio Exterior bank guaranteed
8s, 2003 (Mexico) 6,618,215
9,246,000 Banco Nacional de Comercio Exterior bank guaranteed
7 1/4s, 2004 (Mexico) 8,760,585
8,500,000 Banco National de Desenvolvimiento Economico e Social
(BNDES) 144A bonds 9s, 2007 (Brazil) 8,181,250
2,500,000 Chevy Chase Savings Bank sub. deb. 9 1/4s, 2008 2,612,500
500,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 495,000
500,000 First Federal Financial Corp. notes 11 3/4s, 2004 540,000
3,040,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 3,412,400
125,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 124,375
500,000 Korea Development Bank bonds 7 3/8s, 2004 (Korea) 450,825
250,000 Korea Developmental Bank bonds 7 1/8s, 2001 (Korea) 235,085
200,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 223,000
120,000 Owen Financial Corp. notes 11 7/8s, 2003 136,200
--------------
31,789,435
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------
405,000 American Standard Companies Inc. sr. notes 7 3/8s, 2008 398,925
140,000 Koppers Industries, Inc. 144A company guaranty
9 7/8s, 2007 146,650
70,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 71,925
400,000 W. R. Carpenter North America, Inc. company guaranty
10 5/8s, 2007 428,000
--------------
1,045,500
Broadcasting (2.6%)
- --------------------------------------------------------------------------------------------
1,250,000 Allbritton Communications sr. sub. deb. Ser. B, 9 3/4s, 2007 1,315,625
3,000,000 American Radio Systems Corp. company guaranty 9s, 2006 3,210,000
200,000 Australis Hldngs PTY Ltd. sr. disc, notes stepped-coupon
zero % (15s, 11/01/00), 2002 (in default) (Australia) ++ + 80,000
1,000,000 Benedek Communications Corp. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2006 ++ 800,000
515,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
3/4s, 2/1/02), 2009 ++ 388,825
215,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 225,750
115,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 117,300
1,500,000 Chancellor Media Corp. 144A sr. sub. notes 8 1/8s, 2007 1,526,250
216,020 Citadel Broadcasting Inc. sr. sub. notes 10 1/4s, 2007 239,242
750,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 622,500
480,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 538,800
600,000 Fox/Liberty Networks LLC sr. disc. notes stepped-coupon
zero % (9 3/4s, 8/15/02), 2007 ++ 411,000
1,920,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 1,992,000
2,750,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon zero %
(13 1/4s, 5/15/01), 2008 (Mexico) ++ 2,200,000
380,000 Heartland Wireless Communications, Inc. sr. notes Ser. B,
14s, 2004 + 114,000
2,000,000 Jacor Communications, Inc. company guaranty Ser. B,
8 3/4s, 2007 2,090,000
200,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 229,000
929,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 933,645
275,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 ++ 280,500
1,500,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 1,657,500
460,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 453,100
210,000 Spanish Broadcasting sr. notes Ser. B, 11s, 2004 231,000
220,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 232,650
2,545,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 2,710,425
--------------
22,599,112
Building Products (0.2%)
- --------------------------------------------------------------------------------------------
400,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 484,000
500,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 520,000
500,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 546,875
248,000 Waxman Industries Inc. sr. notes stepped-coupon
Ser. B, zero % (12 3/4s, 6/1/99), 2004 ++ 226,300
--------------
1,777,175
Building and Construction (0.6%)
- --------------------------------------------------------------------------------------------
130,000 American Architectural Products Corp. 144A sr. notes
11 3/4s, 2007 135,850
1,725,000 Atrium Companies Inc. 144A sub. notes 10 1/2s, 2006 1,811,250
450,000 Beazer Homes USA, Inc. 144A sr. notes 8 7/8s, 2008 450,563
600,000 Brand Scaffold Services 144A sr. notes 10 1/4s, 2008 618,000
400,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 340,000
630,000 GS Superhighway Holdings, sr. notes 9 7/8s, 2004 554,400
650,000 Johns Manville International Group sr. notes 10 7/8s, 2004 719,875
180,000 Presley Cos. sr. notes 12 1/2s, 2001 173,700
--------------
4,803,638
Buses (0.1%)
- --------------------------------------------------------------------------------------------
855,000 Consorcio/MCII Holdings sec. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 790,875
Business Equipment and Services (0.5%)
- --------------------------------------------------------------------------------------------
600,000 Axiohm Transactions Solutions Inc. company guaranty
9 3/4s, 2007 610,500
500,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 512,500
2,000,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 2,210,000
920,000 Morris Material Handling Inc. 144A sr. notes 9 1/2s, 2008 924,600
125,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 133,750
--------------
4,391,350
Cable Television (3.2%)
- --------------------------------------------------------------------------------------------
240,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 ++ 197,400
1,340,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 1,457,250
1,981,594 Adelphia Communications Corp. sr. notes 9 1/2s,
2004 [2DBL. DAGGERS] 2,075,720
5,314 Australis Media, Ltd. sr. disc. notes stepped-coupon 1 3/4s,
(15 3/4s 5/15/00), 2003 (in default)
(Australia) ++ [2DBL. DAGGERS] + 1,063
300,000 Charter Communications International, Inc. disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 ++ 240,750
2,000,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 2,141,300
2,000,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 2,060,000
3,500,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 2,467,500
700,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 556,500
980,287 Falcon Holdings Group, Inc. sr. sub. notes 11s,
2003 [2DBL. DAGGERS] 1,052,583
1,290,000 Falcon Holdings Group, Inc. 144A deb. stepped-coupon
zero % (9.285s, 4/15/03), 2010 ++ 816,944
605,000 Fox Kids Worldwide Inc. 144A sr. discount notes
stepped-coupon zero % (10 1/4s, 11/1/02), 2007 ++ 385,688
3,280,000 Fox Kids Worldwide Inc. 144A sr. notes 9 1/4s, 2007 3,296,400
600,000 FrontierVision Holdings LP sr. disc. notes stepped-coupon
zero % (11 7/8s, 9/15/01), 2007 ++ 465,000
140,000 FrontierVision Operating Partners L.P. sr. sub.
notes 11s, 2006 156,100
380,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 386,175
280,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 284,900
1,390,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 ++ 1,132,850
1,000,000 Jones Intercable, Inc. sr. notes 8 7/8s, 2007 1,055,000
1,000,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 1,140,000
1,050,000 Lenfest Communications, Inc. 144A sr. sub. notes 8 1/4s, 2008 1,063,125
460,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 437,000
640,000 RCN Corp. sr. disc. notes stepped-coupon zero % (11 1/8s,
10/15/02), 2007 ++ 427,200
2,000,000 RCN Corp. 144A sr. disc. notes stepped-coupon zero %
(9.8s, 2/15/03), 2008 ++ 1,255,000
1,500,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 1,661,250
1,260,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 (Australia) ++ 869,400
1,250,000 United International Holdings 144A sr. disc. notes stepped-
coupon zero % (10 3/4s, 2/15/03), 2008 ++ 781,250
--------------
27,863,348
Cellular Communications (2.0%)
- --------------------------------------------------------------------------------------------
2,618,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 ++ 1,498,805
1,240,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 ++ 1,202,800
1,500,000 Comunicacion Cellular bonds stepped-coupon zero %
(13 1/8s, 11/15/00), 2003 (Colombia) ++ 1,170,000
2,285,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 2,513,500
520,000 Interact Systems, Inc. 144A sr. notes stepped-coupon
zero % (14s, 8/1/99), 2003 ++ 197,600
1,500,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 ++ 1,170,000
540,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 413,100
510,000 International Wireless Communications, Inc. sr. disc.
notes zero %, 2001 163,200
930,000 McCaw International Ltd sr. discount notes stepped-
coupon zero % (13s, 4/15/02), 2007 ++ 618,450
2,775,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) ++ 2,164,500
345,000 NEXTEL Communications sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 ++ 224,250
5,090,000 NEXTEL Communications sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 ++ 3,410,300
1,900,000 NEXTEL Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (9.95s, 2/15/03), 2008 ++ 1,213,625
550,000 Omnipoint Corp, 144A sr. notes FRN 8.906s, 2006 552,750
190,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 209,000
460,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 506,000
410,000 Powertel, Inc. sr. notes 11 1/8s, 2007 446,900
--------------
17,674,780
Chemicals (0.6%)
- --------------------------------------------------------------------------------------------
1,000,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 1,035,000
1,000,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 1,090,000
320,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 332,000
15,000 Huntsman Corp. 144A sr. sub. notes FRN 9.187s, 2007 15,038
1,000,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 1,065,000
200,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 222,500
140,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes
9 3/4s, 2007 (Switzerland) 145,250
200,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 203,000
370,000 Polytama International company guaranty 11 1/4s, 2007 229,400
250,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 263,750
185,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 110,075
205,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 194,750
--------------
4,905,763
Computer Services (0.1%)
- --------------------------------------------------------------------------------------------
545,000 Unisys Corp. sr. notes 11 3/4s, 2004 630,838
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------
518,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 528,360
300,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 301,125
--------------
829,485
Consumer Durable Goods (0.1%)
- --------------------------------------------------------------------------------------------
100,000 Foamex, L.P. company guaranty 9 7/8s, 2007 106,000
50,000 Hedstrom Holdings, Inc. 144A sr. disc. notes zero %
(12s, 6/01/02), 2009 ++ 31,000
345,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/01), 2006 ++ 172,500
120,000 Sealy Mattress Co. 144A sr. sub. notes 9 7/8s, 2007 127,200
--------------
436,700
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------
65,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 67,844
Consumer Services (0.3%)
- --------------------------------------------------------------------------------------------
2,332,000 Coinmach Corp. sr. notes 11 3/4s, 2005 2,600,180
Cosmetics (0.4%)
- --------------------------------------------------------------------------------------------
360,000 Chattem, Inc. 144A sr. sub. notes 8 7/8s, 2008 364,500
95,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 101,175
1,900,000 Revlon Consumer Products 144A sr. sub. notes 8 5/8s, 2008 1,926,125
915,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 699,975
--------------
3,091,775
Electric Utilities (0.9%)
- --------------------------------------------------------------------------------------------
245,000 AES Corp. sr. sub. notes 8 3/8s, 2007 249,900
240,000 Espirito Santo Centrais 144A sr. notes 10s, 2007 (Brazil) 234,600
4,100,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 4,917,376
1,825,387 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,825,314
133,333 Northeast Utilities System notes Ser. B, 8.38s, 2005 135,765
--------------
7,362,955
Electronics and Electrical Equipment (0.5%)
- --------------------------------------------------------------------------------------------
1,390,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 1,515,100
145,918 Cirent Semiconductor sr. sub. notes 10.22s, 2002 152,120
170,559 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 178,234
120,000 Details, Inc. sr. sub. notes Ser. B, 10s, 2005 125,700
190,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 191,900
200,000 Flextronics International Ltd. 144A sr. sub. notes 8 3/4s, 2007 201,500
120,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 125,400
410,000 Motors and Gears Inc. sr. notes Ser. D, 10 3/4s, 2006 442,800
100,000 Therma-Wave Inc. sr. notes Ser. B, 10 5/8s, 2004 104,000
570,000 Wavetek Corp. company guaranty 10 1/8s, 2007 601,350
1,000,000 Zilog Inc. 144A sr. notes 9 1/2s, 2005 972,500
--------------
4,610,604
Energy-Related (0.1%)
- --------------------------------------------------------------------------------------------
710,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 674,500
400,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 393,000
--------------
1,067,500
Entertainment (0.8%)
- --------------------------------------------------------------------------------------------
640,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 675,200
1,100,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 1,104,125
2,500,000 Six Flags Term Loan B 10s, 2004 ## 2,509,375
2,500,000 Viacom International, Inc. sub. deb. 8s, 2006 2,553,125
--------------
6,841,825
Environmental Control (0.2%)
- --------------------------------------------------------------------------------------------
250,000 Allied Waste Industries, Inc. company guaranty 10 1/4s, 2006 277,500
1,920,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/07), 2007 ++ 1,411,200
--------------
1,688,700
Financial Services (0.3%)
- --------------------------------------------------------------------------------------------
260,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 262,600
140,000 Dine S.A. de C.V. 144A company guaranty
8 3/4s, 2007 (Mexico) 136,675
1,615,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 20061, 768,425
190,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006 203,300
100,000 Nationwide Credit Inc. 144A sr. notes 10 1/4s, 2008 103,000
120,000 Resource America Inc. 144A sr. notes 12s, 2004 126,900
--------------
2,600,900
Food and Beverages (0.4%)
- --------------------------------------------------------------------------------------------
500,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 540,000
270,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 278,100
65,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 69,875
920,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 989,000
310,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 316,200
500,000 Doane Products Co. sr. notes 10 5/8s, 2006 547,500
200,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 ++ 138,000
130,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 138,450
50,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 53,250
--------------
3,070,375
Gaming (1.3%)
- --------------------------------------------------------------------------------------------
850,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 941,375
1,500,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 1,601,250
185,000 Casino America, Inc. sr. notes 12 1/2s, 2003 205,350
1,400,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B, 13s, 2002 1,627,500
370,300 Colorado Gaming & Entertainment Co. sr. notes 12s,
2003 [2DBL. DAGGERS] 401,776
513,970 Elsinore Corp. 144A exch. 1st mtge. 11 1/2s, 2000 513,970
720,000 Fitzgeralds Gaming Corp. 144A company guaranty
12 1/4s, 2004 727,200
250,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 270,000
900,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 994,500
150,000 Isle of Capri Black Hawk LLC 1st mtge. Ser. B, 13s, 2004 152,250
1,200,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 1,233,000
444,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 448,440
250,000 Mohegan Tribal Gaming Auth. sr notes Ser. B, 13 1/2s, 2002 320,625
90,000 Penn National Gaming, Inc. 144A sr. notes 10 5/8s, 2004 95,400
500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 375,000
1,040,000 Trump A.C. company guaranty 11 1/4s, 2006 1,068,600
594,000 Trump Castle Funding Corp. notes 11 1/2s, 2000 599,940
--------------
11,576,176
Health Care (1.6%)
- --------------------------------------------------------------------------------------------
550,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 513,931
1,250,000 Extendicare Inc. 144A sr. sub. notes 9.35s, 2007 (Canada) 1,300,000
300,000 Genesis Eldercare 144A sr. sub. notes 9s, 2007 307,500
500,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 522,500
1,000,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 1,117,500
1,600,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s,
2008 1,686,000
960,000 Magellan Health Services, Inc. 144A sr. sub. notes 9s, 2008 967,200
210,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 188,154
1,000,000 MedPartners, Inc. sr. sub.notes 6 7/8s, 2000 952,500
620,000 Paracelsus Healthcare Corp. sr. sub. notes 10s, 2006 641,700
350,000 Paragon Corp. Holdings 144A sr. notes 9 5/8s, 2008 347,375
2,720,000 Paragon Health Networks, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 2,788,000
2,365,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 2,483,250
--------------
13,815,610
Insurance and Finance (0.4%)
- --------------------------------------------------------------------------------------------
750,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 750,000
500,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 522,175
2,000,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 2,092,040
--------------
3,364,215
Lodging (0.3%)
- --------------------------------------------------------------------------------------------
1,750,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 1,859,375
1,000,000 HMH Properties, Inc. company guaranty Ser. B, 8 7/8s, 2007 1,052,500
--------------
2,911,875
Medical Supplies and Devices (0.3%)
- --------------------------------------------------------------------------------------------
340,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 363,800
430,000 Conmed Corp. 144A sr. sub. notes 9s, 2008 436,450
250,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 279,375
900,000 Fresenius Medical Care AG 144A company guaranty
7 7/8s, 2008 (Germany) 900,000
240,000 Imagyn Medical Technologies company guaranty, 12 1/2s, 2004 144,000
140,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 143,850
350,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 343,000
--------------
2,610,475
Metals and Mining (0.1%)
- --------------------------------------------------------------------------------------------
90,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 94,950
200,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 194,000
140,000 Armco, Inc. sr. notes 9s, 2007 145,250
210,000 Continental Global Group sr. notes Ser. B, 11s, 2007 224,700
250,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 270,000
--------------
928,900
Motion Picture Distribution (0.2%)
- --------------------------------------------------------------------------------------------
1,400,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 1,477,000
270,000 Panavision Inc. 144A sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 ++ 192,038
--------------
1,669,038
Oil and Gas (2.0%)
- --------------------------------------------------------------------------------------------
185,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 190,550
1,500,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 1,635,000
35,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 35,350
1,000,000 Cliffs Drilling Co. company guaranty Ser. D, 10 1/4s, 2003 1,082,500
180,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 169,200
1,500,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 1,515,000
460,000 Dailey International Inc. 144A sr. notes 9 1/2s, 2008 460,000
100,000 DI Industries Inc. sr. notes 8 7/8s, 2007 102,250
200,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 216,000
490,000 Market Hub Partners 144A sr. notes 8 1/4s, 2008 499,800
450,000 Michael Petroleum Corp. 144A sr. notes 11 1/2s, 2005 444,938
85,000 Newpark Resources, Inc. 144A sr. sub. notes 8 5/8s, 2007 86,913
100,000 Pacalta Resources Ltd. sr. notes Ser. B, 10 3/4s, 2004 (Canada) 101,500
870,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 878,700
300,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 310,500
150,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 159,750
335,000 Southwest Royalties, Inc. company guaranty 10 1/2s, 2004 301,500
7,175,000 Transamerican Energy sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/99), 2002 ++ 6,027,000
2,150,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 2,128,500
518,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 580,160
100,000 Wiser Oil Co. company guaranty 9 1/2s, 2007 96,500
500,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 540,000
--------------
17,561,611
Packaging and Containers (0.4%)
- --------------------------------------------------------------------------------------------
120,000 AEP Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 125,850
215,000 Huntsman Packaging Corp. 144A sr. sub. notes 9 1/8s, 2007 220,375
270,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 288,900
1,530,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 1,541,475
450,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 475,875
1,000,000 Vicap SA. 144A company guaranty 11 3/8s, 2007 1,102,500
--------------
3,754,975
Paging (0.1%)
- --------------------------------------------------------------------------------------------
410,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 482,775
255,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 258,188
400,000 Paging Network, Inc. sr. sub. notes 10s, 2008 418,000
--------------
1,158,963
Paper and Forest Products (1.3%)
- --------------------------------------------------------------------------------------------
1,670,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 1,786,900
780,000 Impac Group Inc. 144A sr. sub. notes 10 1/8s, 2008 793,650
2,500,000 Indah Kiat Financial Mauritius Ltd. company guaranty
10s, 2007 (Indonesia) 2,068,750
2,375,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
10 3/4s, 2007 (India) 1,923,750
2,445,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004
(Indonesia) 2,017,125
1,860,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 1,887,900
160,000 Radnor Holdings Corp. company guaranty 10s, 2003 167,600
850,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006 901,000
--------------
11,546,675
Pharmaceuticals and Biotechnology (0.3%)
- --------------------------------------------------------------------------------------------
900,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 952,875
110,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 112,200
530,000 PharMerica, Inc. 144A sr. sub. notes 8 3/8s, 2008 531,325
600,000 Twin Laboratories, Inc. company guaranty 10 1/4s, 2006 663,000
--------------
2,259,400
Publishing (0.4%)
- --------------------------------------------------------------------------------------------
375,000 Affinity Group Holdings sr. notes 11s, 2007 405,938
500,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 542,500
750,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 766,875
405,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 429,300
1,390,000 Perry-Judd 144A sr. sub. notes 10 5/8s, 2007 1,487,300
100,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 107,500
--------------
3,739,413
Railroads (0.2%)
- --------------------------------------------------------------------------------------------
1,575,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,638,000
Real Estate (0.1%)
- --------------------------------------------------------------------------------------------
240,000 Bluegreen Corp. 144A sr. notes 10 1/2s, 2008 238,800
840,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 907,200
--------------
1,146,000
Recreation (--%)
- --------------------------------------------------------------------------------------------
100,000 CLN Holdings, Inc. sr. disc. notes zero %, 2001 78,500
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------
500,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 546,250
Retail (0.4%)
- --------------------------------------------------------------------------------------------
120,000 Color Spot Nurseries sr. sub. notes 10 1/2s, 2007 118,200
434,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 481,740
1,500,000 K mart Corp. notes 8 1/8s, 2006 1,560,000
600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 651,000
260,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 266,500
--------------
3,077,440
Satellite Services (1.0%)
- --------------------------------------------------------------------------------------------
1,350,000 Echostar Satellite Broadcast Corp. sr. disc. notes stepped-
coupon zero % (13 1/8s, 3/15/00), 2004 ++ 1,231,875
255,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 191,250
1,500,000 Globalstar L.P. Capital sr. notes 11 3/8s, 2004 1,571,250
3,760,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 3,205,400
360,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 417,600
400,000 Iridium LLC/Capital Corp. company guaranty Ser. A, 13s, 2005 448,000
60,000 Iridium LLC/Capital Corp. 144A sr. notes 11 1/4s, 2005 63,600
1,500,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 1,545,000
--------------
8,673,975
Semiconductors (0.4%)
- --------------------------------------------------------------------------------------------
1,375,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,430,000
220,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 246,950
245,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 256,025
1,250,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 1,306,250
--------------
3,239,225
Shipping (0.2%)
- --------------------------------------------------------------------------------------------
240,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 235,800
900,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 1,005,750
360,000 MC Shipping, Inc. 144A sr. notes 11 1/4s, 2008 361,800
--------------
1,603,350
Steel (--%)
- --------------------------------------------------------------------------------------------
420,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 421,050
Supermarkets (0.3%)
- --------------------------------------------------------------------------------------------
780,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 836,550
400,000 Jitney-Jungle Stores company guaranty 12s, 2006 456,000
240,000 Jitney-Jungle Stores company guaranty 10 3/8s, 2007 249,600
1,250,000 Southland Corp. deb. 4s, 2004 976,375
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 166,500
--------------
2,685,025
Telecommunications (3.0%)
- --------------------------------------------------------------------------------------------
190,000 American Communication Services, Inc. sr. notes 13 3/4s, 2007 225,150
1,000,000 American Communication Services, Inc. sr. disc. notes stepped-
coupon zero % (13s, 11/1/00), 2005 ++ 852,500
1,890,000 American Communication Services, Inc. sr. disc. notes stepped-
coupon zero % (12 3/4s, 4/1/01), 2006 ++ 1,521,450
170,000 Antenna TV S.A. 144A sr. notes 9s, 2007 (Greece) 171,700
300,000 Barak ITC 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) ++ 175,500
105,000 Consorcio Ecuatoriano notes 14s, 2002 (Ecuador) 110,250
1,500,000 Econophone Inc. company guaranty 13 1/2s, 2007 1,725,000
370,000 Econophone Inc. 144A sr. disc. notes stepped-coupon zero %
(11s, 2/15/03), 2008 ++ 218,300
325,000 Echostar DBS Corp. company guaranty 12 1/2s, 2002 367,250
155,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 169,725
410,000 Focal Communications Corp. 144A sr. disc. notes stepped-
coupon zero % (12 1/8s, 2/15/03), 2008 ++ 239,850
2,597,000 GST Telecommunications,Inc. company guaranty stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 ++ 2,155,510
380,000 Hyperion Telecommunication Corp. sr. disc. notes stepped-
coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 291,650
400,000 Hyperion Telecommunications , Inc. sr. notes Ser. B,
12 1/4s, 2004 450,000
1,000,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 ++ 750,000
540,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 7/8s, 2007 577,800
300,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 314,250
1,180,000 Knology Holdings Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 ++ 708,000
150,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 166,125
750,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 781,875
140,000 MetroNet Communications Corp. sr. disc. notes stepped-
coupon zero % (10 3/4s, 11/1/02), 2007 (Canada) ++ 93,100
430,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) ++ 319,275
100,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 102,750
60,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/02), 2007 (Poland) 40,950
400,000 NEXTLINK Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (9.45s, 4/15/03), 2008 ++ 253,000
1,050,000 NTL Inc. 144A sr.notes stepped-coupon zero % (9 3/4s,
4/01/03), 2008 ++ 682,500
525,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 612,938
340,000 Qwest Communications International Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 ++ 249,900
2,615,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 2,981,100
410,000 RSL Communications, Ltd. 144A sr. notes 9 1/8s, 2008 414,100
620,000 RSL Communications, Ltd. 144A sr. disc. notes stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 ++ 389,825
2,670,000 Teligent, Inc. sr. notes 11 1/2s, 2007 2,803,500
1,300,000 WinStar Communications, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/15/00), 2005 ++ 1,082,250
3,890,000 WinStar Communications. Inc. 144A sr. sub. notes 10s, 2008 3,948,350
250,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 286,250
310,000 Wireless One, Inc. sr. notes 13s, 2003 86,800
--------------
26,318,473
Telephone Services (1.2%)
- --------------------------------------------------------------------------------------------
1,330,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,393,175
1,910,000 Colt Telecom Group PLC sr. disc. notes stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 1,528,000
170,000 Facilicom International 144A sr. notes 10 1/2s, 2008 177,650
340,000 Flag Limited 144A sr. notes 8 1/4s, 2008 (Bermuda) 348,500
415,000 IDT Corp. 144A sr. notes 8 3/4s, 2006 412,925
800,000 Ionica Group PLC sr. disc. notes stepped-coupon zero %
(15s, 5/1/02), 2007 (United Kingdom) ++ 340,000
1,142,000 ITC Deltacom, Inc. sr. notes 11s, 2007 1,296,170
540,000 McLeod USA, Inc. 144A sr. notes 8 3/8s, 2008 558,900
840,000 MGC communications, Inc. sr. notes Ser. B, 13s, 2004 842,100
1,675,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 1,817,375
825,000 Sprint Spectrum L.P. sr. notes 11s, 2006 952,875
115,000 Transtel S.A. 144A pass through certificates 12 1/2s, 2007
(Colombia) 110,113
210,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(15s, 1/15/00), 2005 ++ 197,400
--------------
9,975,183
Textiles (0.2%)
- --------------------------------------------------------------------------------------------
105,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 113,663
240,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 247,800
580,000 Polymer Group, Inc. 144A sr. sub.notes 8 3/4s, 2008 590,150
250,000 Polysindo International Eka company guaranty 13s, 2001
(Indonesia) 182,500
250,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 170,000
170,000 Worldtex, Inc. 144A sr. notes 9 5/8s, 2007 172,550
--------------
1,476,663
Transportation (--%)
- --------------------------------------------------------------------------------------------
350,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 367,500
Utilities (0.2%)
- --------------------------------------------------------------------------------------------
1,500,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,548,750
Wireless Communications (--%)
- --------------------------------------------------------------------------------------------
135,000 Telesystem International Wireless Inc. sr. disc. notes stepped-
coupon Ser. C, zero % (10 1/2s, 11/1/02), 2007 ++ 85,755
--------------
Total Corporate Bonds and Notes (cost $304,103,496) $312,603,856
FOREIGN GOVERNMENT BONDS AND NOTES (16.3%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
AUD 26,395,000 Australia (Government of) bonds Ser. 808,
8 3/4s, 2008 $21,446,450
DEM 54,995,000 Germany (Federal Republic of) Unity Fund bonds
8s, 2002 33,428,625
FRF 70,060,000 France (Government of) bonds 5 1/2s, 2007 11,806,847
USD 5,230,000 Mendoza (Province of) 144A 10s, 2007 5,073,100
ZAR 90,907,000 South Africa (Republic of) bonds Ser. 150, 12s, 2005 17,292,829
GBP 27,995,000 United Kingdom Treasury bonds 8s, 2007 51,410,830
--------------
Total Foreign Government Bonds and Notes
(cost $140,308,799) $140,458,681
BRADY BONDS (1.5%) * (cost $12,560,740)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$13,655,300 Argentina (Republic of) deb. FRB 6.625s, 2005 $12,597,014
COLLATERALIZED MORTGAGE OBLIGATIONS (1.3%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$1,000,000 Citicorp Mtge. Securities, Inc. Ser. 92-10 M, Class M, 8s,
2022 $1,003,700
410,456 Freddie Mac Ser. 1717, Class L, 6 1/2s, 2024 407,337
3,113,509 GMAC Commercial Mortgage Securities Inc. Ser. 97-C2,
Class A1, 6.45s, 2004 3,138,806
4,990,000 Merrill Lynch Mortgage Investors, Inc. Ser. 98-C2, Class D,
6.96s, 2030 4,998,577
1,085,000 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 1,075,561
666,021 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 666,348
--------------
Total Collateralized Mortgage Obligations
(cost $11,259,996) $11,290,329
PREFERRED STOCKS (1.3%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
100 American Communications Services $12.75 pfd. [2DBL. DAGGERS] $116,250
6,812 AmeriKing, Inc. $3.25 pfd. [2DBL. DAGGERS] 183,924
7,062 CSC Holdings Inc. Ser. M, $11.125 cum. [2DBL. DAGGERS] 808,599
9,600 Diva Systems Corp. Ser. C, $6.00 pfd. 124,800
1,200 Dobson Communications 144A $12.25 pfd. [2DBL. DAGGERS] 1,314,000
185 Echostar Communications, Inc. $12.125 pfd. 206,275
11,765 Fitzgeralds Gaming Co. $3.75 pfd. 352,950
340,000 Fresenius Medical Care AG Ser. D, $9.00 pfd. (Germany) 355,300
1,250 Granite Broadcasting 144A $12.75 pfd. [2DBL. DAGGERS] 1,418,750
92 Hyperion Telecommunications Ser. B, $12.875 pfd. [2DBL. DAGGERS] 105,340
1,250 Intermedia Communication Ser. B, $13.50 pfd. 1,531,250
422 IXC Communications, Inc. $12.50 pfd. [2DBL. DAGGERS] 514,840
5,200 Nebco Evans Holding Co. 144A $11.25 pfd. [2DBL. DAGGERS] 540,800
26,006 Nextlink Communications, Inc. 144A $7.00 pfd. 1,638,378
3,850 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2DBL. DAGGERS] 456,225
807 Spanish Broadcasting Systems $14.25 cum. pfd. 847,311
2,390 Von Hoffman Corp. 144A $13.50 pfd. 80,663
390 WinStar Communications. Inc. 144A
$14.25 cum. pfd. [2DBL. DAGGERS] 475,800
--------------
Total Preferred Stocks (cost $10,323,457) $11,071,455
UNITS (1.1%) *
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------
1,095 Allegiance Telecom Inc. units sr. disc. notes zero %,
(11 3/4s, 2/15/08) 2008 ++ $635,100
150 American Mobile Satellite Corp. units 12 1/4s, 2008 156,000
600 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/03), 2003 (in default) (Australia) ++ + 120,000
91 Celcaribe S.A. 144A units 13 1/2s, 2004 (Columbia) 1,829,100
1,220 Club Regina, Inc. 144A units 13s, 2004 1,311,500
85 Concentric Network Corp. units 12 3/4s, 2007 99,875
255 Conecel Holdings 144A units 14s, 2000 276,675
1,752 Diva Systems Corp. 144A units stepped-coupon zero %
(12 5/8s, 3/1/03), 2008 ++ 963,600
1,600 DTI Holdings Inc. units stepped-coupon zero % (12 1/2s,
3/1/03), 2008 ++ 932,000
2,085 KMC Telecom Holdings, Inc. units stepped-coupon zero %
(12 1/2s, 2/15/03), 2008 ++ 1,240,575
620 Orbital Imaging Corp. units 11 5/8s, 2005 677,350
190 Real Time Data 144A units stepped-coupon zero % (13 1/2s,
8/15/01), 2006 ++ 96,900
200 Stone Container Corp. units sr. sub. 12 1/4s, 2002 205,500
335 Transam Refin P/p 144a, units 16s, 2003 355,100
200 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 24,000
500 XCL Ltd units sr. sec. notes 13 1/2s, 2004 650,000
--------------
Total Units (cost $8,470,427) $9,573,275
ASSET-BACKED SECURITIES (0.8%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$1,096,000 Chemical Master Credit Card Trust Ser. 95-2, Class A,
6.23s, 2003 $1,102,499
350,000 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2,
7.67s, 2025 352,296
3,280,000 Green Tree Financial Corp. Ser. 98-2, Class A5, 6.24s, 2016 3,271,288
1,192,939 Green Tree Recreational Equipment & Cons Ser. 97-B, Class A1,
6.55s, 2028 1,201,886
221,906 Resolution Trust Corp. Ser. 94-1, Class A2A, 7 3/4s, 2029 222,751
1,233,248 Resolution Trust Corp. Ser. 94-1, Class M1, 7.14s, 2029 1,217,832
--------------
Total Asset-Backed Securities (cost $7,271,176) $7,368,552
COMMON STOCKS (0.6%) *
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------
21,270 American Mobile Satellite Corp. + $303,098
150 AmeriKing, Inc. + 7,500
2,955 Axia Holding Inc. 144A + 236,400
13,880 CellNet Data Systems, Inc. + 152,680
17,630 Chattem, Inc. 449,565
12,124 Chesapeake Energy Corp. + 71,229
4,500 Exide Corp. 76,219
53,023 Grand Union Co. + 21,541
3,033 Hedstrom Holdings, Inc. 144A 4,170
3,770 IFINT Diversified Holdings 144A + 26,390
35,327 Lady Luck Gaming Corp. + 50,783
24,918 NEXTEL Communications, Inc. Class A + 840,983
255 Paging Do Brazil Holdings Co., LLC Class B 3
464 PMI Holdings Corp. 144A + 232,000
327 Premium Holdings L.P. + 1,308
71,533 PSF Holdings LLC Class A (acquired various dates
from 2/8/93 to 3/16/96, cost $2,464,394) +++ 2,145,990
10,050 Specialty Foods Acquisition Corp. + 1,508
4,400 Terex Corp. Rights + 88,000
490,000 WHX Corp. 490,000
--------------
Total Common Stocks (cost $6,429,615) $5,199,367
CONVERTIBLE BONDS AND NOTES (0.3%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
$280,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) $289,100
164,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 ++ 257,480
290,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s,
2002 260,275
125,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002120,469
900,000 Pricellular Wireless Corp. 144A cv. sub. notes stepped-
coupon zero % (10 3/4s, 8/15/00) ++ 994,500
650,000 WinStar Communications. Inc. 144A cv. sr. disc. notes stepped-
coupon zero % (14s, 10/15/00), 2005 ++ 908,375
--------------
Total Convertible Bonds and Notes (cost $1,586,610) $2,830,199
WARRANTS (0.2%) * +
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- --------------------------------------------------------------------------------------------
10 American Communication Services 11/1/05 $1,750
32,500 Becker Gaming Corp. 144A 11/15/00 325
6,825 Capital Gaming International, Inc. 2/1/99 273
2,428 Cellnet Data Systems, Inc. 10/1/07 48,560
1,910 Colt Telecom 12/31/06 257,850
1,500 Comunicacion Cellular 144A (Colombia) 11/15/03 97,500
1,200 County Seat Holdings, Inc. 10/15/98 24
475 Diva Systems Corp. 5/15/06 124,688
255 Esat Holdings, Inc. (Ireland) 2/1/07 8,925
500 Fitzgerald Gaming Co. 144A 3/15/99 50
8,151 Fitzgeralds Gaming Co. 12/19/98 82
770 Hyperion Telecommunications 144A 4/15/01 53,900
9,768 Intelcom Group 144A 10/15/05 322,344
520 Interact Systems Inc. 8/1/03 130
700 Intermedia Communications 6/1/00 112,700
245 International Wireless Communications
Holdings 144A 8/15/01 5,635
400 Iridium World Com 144A 7/15/05 98,000
1,180 Knology Holdings 144A 10/15/07 590
1,470 Louisiana Casino Cruises, Inc. 144A 12/1/98 73,500
840 MGC communications, Inc. 144A 10/1/04 29,400
750 NEXTEL Communications Inc. 4/15/07 2,168
930 Nextel Intl, Inc. 4/15/07 279
1,840 Pagemart, Inc. 144A 12/31/03 13,800
1,400 Petracom Holdings, Inc. 9/30/99 11,200
615 RSL Communications Ltd. 11/15/06 59,655
265 Spanish Broadcasting Systems 144A 6/30/99 54,325
185 Sterling Chemicals Holdings 8/15/08 4,810
1,260 UIH Australia/Pacific, Inc. 144A 5/15/06 15,120
240 Urohealth Systems Inc. 4/10/04 2
100 Wright Medical Technology, Inc. 144A 6/30/03 10,023
--------------
Total Warrants (cost $627,148) $1,407,608
SHORT-TERM INVESTMENTS (5.0%) *
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------
TRL 1,983,040,000,000 Turkey Treasury Bill zero %, June 17, 1998 $6,888,308
$36,371,000 Interest in $321,730,000 joint repurchase
agreement dated March 31, 1998 with
JP Morgan due April 1, 1998 with respect
to various U.S. Treasury obligations --
maturity value of $36,376,961 for an
effective yield of 5.90% 36,376,961
--------------
Total Short-Term Investments (cost $43,701,276) $43,265,269
- --------------------------------------------------------------------------------------------
Total Investments (cost $867,820,654) *** $878,356,220
- --------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $863,976,120.
*** The aggregate identified cost on a tax basis is $867,977,979,
resulting in gross unrealized appreciation and depreciation of $42,627,501 and
$32,249,260, respectively, or net unrealized appreciation of $10,378,241.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the new interest rate
to be paid and the date the fund will begin receiving interest at this rate.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at March 31, 1998 was
$2,145,990 or 0.2% of net assets.
[2DBL DAGGERS] Income may be received in cash or additional securities at the
discretion of the issuer.
+++ A portion of the income will be received in additional securities.
# A portion of these securities were pledged and segregated with the custodian
to cover margin requirements for futures contracts at March 31, 1998.
## When-issued, securities (Note 1).
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These securities may
be resold in transactions exempt from registration, normally to qualified
institutional buyers.
TBA after the name of a security represents to be announced
securities (Note 1).
The rate shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at March 31, 1998, which are
subject to change based on the terms of the security.
Distribution of investments by country of issue at March 31, 1998:
(as percentage of Market Value)
Argentina 1.4%
Australia 2.6
Brazil 1.1
France 1.3
Germany 4.0
Mexico 2.8
South Africa 2.0
United Kingdom 6.7
United States 75.0
Other 3.1
-----
Total 100.0%
=====
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Currency Contracts to Buy at March 31, 1998 (Unaudited)
(aggregate face value $237,526,041)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Danish Krone $7,833,705 $8,069,751 6/17/98 $(236,046)
Deutschemarks 76,467,442 78,059,576 6/17/98 (1,592,134)
Italian Lira 20,712,647 21,063,489 6/17/98 (350,842)
Japanese Yen 72,568,878 75,799,906 6/17/98 (3,231,028)
Mexican Peso 1,328,369 1,310,814 5/12/98 17,555
Mexican Peso 1,648,965 1,631,334 5/11/98 17,631
New Zealand Dollar 1,471,753 1,508,944 6/17/98 (37,191)
Philippines Peso 2,227,863 2,253,880 4/27/98 (26,017)
South Korean Won 3,851,067 3,487,718 3/11/99 363,349
Spanish Peseta 12,204,843 12,448,096 6/17/98 (243,253)
Swedish Krona 18,195,076 18,161,620 6/17/98 33,456
Swiss Franc 13,167,018 13,730,913 6/17/98 (563,895)
- --------------------------------------------------------------------------------------------
$(5,848,415)
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Currency Contracts to Sell at March 31, 1998 (Unaudited)
(aggregate face value $236,480,008)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $21,448,272 $21,577,688 6/17/98 $129,416
British Pounds 50,266,465 49,427,505 6/17/98 (838,960)
Deutschemarks 105,540,293 107,533,832 6/17/98 1,993,539
French Franc 10,523,529 10,825,868 6/17/98 302,339
Japanese Yen 30,452,877 31,635,817 6/17/98 1,182,940
New Zealand Dollar 1,771,253 1,851,431 6/17/98 80,178
Swiss Franc 13,051,958 13,627,867 6/17/98 575,909
- --------------------------------------------------------------------------------------------
$3,425,361
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 1998 (Unaudited)
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro Dm (long) $16,073,857 $16,087,804 March-99 $(13,947)
Muni Bond Index (long) 8,452,500 8,459,688 June-98 (7,188)
Euro Lira (short) 16,312,456 16,314,929 March-99 2,473
US Treasury 20 Year
Bond (short) 8,297,250 8,353,731 June-98 56,481
US Treasury 10 Year
Note (short) 9,439,500 9,447,298 June-98 7,798
- --------------------------------------------------------------------------------------------
$45,617
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $867,820,654) (Note 1) $878,356,220
- ---------------------------------------------------------------------------------------------------
Cash 4,624,090
- ---------------------------------------------------------------------------------------------------
Foreign currency (cost $412,310) 416,659
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 13,001,704
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 24,991,777
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 4,749,208
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 1,287,622
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 993,439
- ---------------------------------------------------------------------------------------------------
Total assets 928,420,719
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,519,412
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 43,595,678
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,234,598
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 175,623
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 4,455
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,857
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 7,172,262
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 6,640,379
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 94,335
- ---------------------------------------------------------------------------------------------------
Total liabilities 64,444,599
- ---------------------------------------------------------------------------------------------------
Net assets $863,976,120
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $881,485,897
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (5,748,047)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment and
foreign currency transactions (Note 1) (19,925,082)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 8,163,352
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $863,976,120
Computation of net asset value
- ---------------------------------------------------------------------------------------------------
Net asset value per share ($863,976,120 divided by
100,014,650 shares) $8.64
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest income: $23,037,606
- --------------------------------------------------------------------------------------------------
Dividends 351,990
- --------------------------------------------------------------------------------------------------
Total investment income 23,389,596
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,874,426
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 338,170
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,643
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,107
- --------------------------------------------------------------------------------------------------
Reports to shareholders 113,797
- --------------------------------------------------------------------------------------------------
Auditing 5,245
- --------------------------------------------------------------------------------------------------
Legal 11,771
- --------------------------------------------------------------------------------------------------
Postage 108,700
- --------------------------------------------------------------------------------------------------
Exchange listing fees 18,069
- --------------------------------------------------------------------------------------------------
Other 35,412
- --------------------------------------------------------------------------------------------------
Total expenses 2,516,340
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (42,682)
- --------------------------------------------------------------------------------------------------
Net expenses 2,473,658
- --------------------------------------------------------------------------------------------------
Net investment income 20,915,938
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,193,334
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,548,576
- --------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 70,622
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (4,238,192)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (1,250,282)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
and written options during the period (1,461,986)
- --------------------------------------------------------------------------------------------------
Net loss on investments (3,137,928)
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $17,778,010
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $20,915,938 $24,793,897
- ----------------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (425,660) (114,517)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies (2,712,268) 7,551,885
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 17,778,010 32,231,265
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (19,810,648) (24,795,303)
- ----------------------------------------------------------------------------------------------------------------------
Shares issued in connection with the merger of Putnam
Intermediate Government Income Trust (Note 5) 528,345,195 --
- ----------------------------------------------------------------------------------------------------------------------
Shares repurchased (Note 4) -- (2,308,913)
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 526,312,557 5,127,049
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 337,663,563 332,536,514
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $5,748,047 and $6,853,337,
respectively) 863,976,120 337,663,563
- ----------------------------------------------------------------------------------------------------------------------
Number of fund shares
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 38,435,338 38,737,138
- ----------------------------------------------------------------------------------------------------------------------
Shares issued in connection with the merger of Putnam
Intermediate Government Income Trust (Note 5) 61,579,312 --
- ----------------------------------------------------------------------------------------------------------------------
Shares repurchased -- (301,800)
- ----------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 100,014,650 38,435,338
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.79 $8.58 $8.38 $8.13 $8.91 $8.71
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .36 .64 .63 .67 .62 .68
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.17) .21 .19 .21 (.71) .29
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .19 .85 .82 .88 (.09) .97
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.34) (.64) (.61) (.49) (.55) (.68)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- -- -- (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.06) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.01) (.14) (.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.34) (.64) (.62) (.63) (.69) (.77)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.64 $8.79 $8.58 $8.38 $8.13 $8.91
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $7.875 $8.125 $7.500 $7.375 $7.250 $8.375
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) 1.00 * 17.54 10.34 10.90 (5.57) 7.89
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $863,976 $337,664 $332,537 $326,735 $317,296 $347,620
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .49 * 1.04 .99 1.03 .92 .96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.04 * 7.47 7.44 8.24 7.18 7.83
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (c)(%) 108.25 * 220.61 232.90 219.63 204.92 237.63
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total investment return does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended September 30,1995
and thereafter includes amounts paid through expense offset arrangements (Note 2).
(c) Portfolio turnover excludes the impact of assets received from the acquisition of
Putnam Intermediate Government Income Trust.
</TABLE>
Notes to financial statements
March 31, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam Master Intermediate Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company and is authorized to issue an unlimited number
of shares. The fund's investment objective is to seek, with equal emphasis,
high current income and relative stability of net asset value, by allocating
its investments among the U.S. taxable investment grade sector (formerly the
U.S. government sector), high-yield sector and international sector.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value, and
other investments, including restricted securities, are stated at fair value
following procedures approved by the Trustees. Market quotations are not
considered to be readily available for long-term corporate bonds and notes;
such investments are stated at fair value on the basis of valuations furnished
by a pricing service, approved by the Trustees, which determines valuations
for normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date. Discounts on zero coupon bonds, original
issue discount bonds, stepped-coupon bonds and payment in kind bonds are
accreted according to the yield-to-maturity basis. Any premium resulting from
the purchase of stepped-coupon securities in excess of maturity value 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, 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 exchange gains or
losses on closed forward currency contracts, disposition of foreign currencies
and the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using current forward currency
exchange rates supplied by a quotation service. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is "marked to market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The fund could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet the
terms of their contracts or if the fund is unable to enter into a closing
position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitments will not fluctuate more than 1.0% from the principal
amount. The fund holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward sale of
other securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Security valuation"
above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
I) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At September 30, 1997, the fund had a capital loss carryover of approximately
$18,987,000 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- --------------------
$9,158,000 September 30, 1999
7,035,000 September 30, 2003
2,794,000 September 30, 2004
J) Distributions to shareholders Distributions to shareholders are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though, as a result of market conditions or
investment decisions, the fund may not achieve projected investment results
for a given period. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average weekly net assets of the fund.
Such fee is based on the following annual rates: 0.75% of the first $500
million of average weekly net assets, 0.65% of the next $500 million, 0.60% of
the next $500 million, and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended March 31, 1998, fund expenses were reduced by $42,682
under expense offset arrangements with PFTC and brokerage service
arrangements. 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 $640 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended March 31, 1998, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $262,870,320 and $260,135,890, respectively. Purchases and sales of
U.S. government obligations aggregated $256,104,382 and $248,981,585,
respectively. In determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
Written option transactions during the six months are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------------------
Written options
outstanding at
beginning of year $2,995,000 37,288
- ------------------------------------------------------------
Options opened 10,500,000 33,234
- ------------------------------------------------------------
Options expired 13,495,000 70,522
- ------------------------------------------------------------
Options closed -- --
- ------------------------------------------------------------
Written options
outstanding at
end of year $-- $--
- ------------------------------------------------------------
Note 4
Share Repurchase Program
In November 1994, the Trustees authorized the fund to repurchase up to
1,950,000 of its shares in the open market. Repurchases will only be made when
the fund's shares are trading at less than net asset value and at such times
and amounts as is believed to be in the best interest of the fund's
shareholders. Any repurchases of shares will have the effect of increasing the
net asset value per share of remaining shares outstanding.
For the six months ended March 31, 1998, the fund repurchased no shares. As of
March 31, 1998, 570,000 shares had been repurchased since the inception of the
program.
Note 5
Acquisition of Putnam
Intermediate
Government Income Trust
On January 23, 1998, the fund issued 61,579,312 shares to the shareholders of
Putnam Intermediate Government Income Trust to acquire that fund's net assets
in a tax-free exchange approved by the shareholders. The net assets of the
fund and Putnam Intermediate Government Income Trust on January 23, 1998,
valuation date, were $329,648,831 and $528,345,195 respectively. On January
23, 1998, Putnam Intermediate Government Income Trust had unrealized
appreciation of $1,224,904. The aggregate net assets of the fund immediately
following the acquisition were $857,994,026.
Results of December 18, 1997 shareholder meeting
An annual meeting of shareholders of the fund was held on December 18, 1997.
At the meeting, each of the nominees for Trustees was elected, as follows:
An approval of the Agreement and Plan of Reorganization providing for the
acquisition by Putnam Master Intermediate Income Trust (the "Master Fund") of
all of the assets and assumption of all the liabilities of Putnam Intermediate
Government Income Trust at net asset value in exchange for shares of the
Master Fund was approved as follows: 20,402,721 votes for, 1,245,197 votes
against with 14,104,154 abstentions and broker non-votes.
Votes
Votes for withheld
Jameson Adkins Baxter 34,802,679 949,393
Hans H. Estin 34,775,537 976,535
John A. Hill 34,802,659 949,413
R.J. Jackson 34,805,103 946,969
Paul L. Joskow 34,792,567 959,505
Elizabeth T. Kennan 34,786,247 965,825
Lawrence J. Lasser 34,801,811 950,261
John H. Mullin III 34,794,449 957,623
Robert E. Patterson 34,816,129 935,943
Donald S. Perkins 34,769,397 982,675
William F. Pounds 34,781,363 970,709
George Putnam 34,782,347 969,725
George Putnam, III 34,790,857 961,215
A.J.C. Smith 34,809,144 942,928
W. Thomas Stephens 34,764,565 987,507
W. Nicholas Thorndike 34,798,492 953,580
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for
the fund was approved as follows: 34,616,282 votes for, and 503,663 votes
against, with 632,127 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
William J. Curtin
Vice President
Edward H. D'Alelio
Vice President
David Waldman
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
Jeffrey J. Kobylarz
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Gail A. Attridge
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit our
website (www.putnaminv.com) any time for up-to-date information about the
fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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42045 074 5/98
