Putnam
Master
Intermediate
Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Global fixed-income markets exhibited a split personality during the first
half of Putnam Master Intermediate Income Trust's fiscal 1999. In August
1998, as the fiscal year began, most fixed-income sectors were still
reeling from the global financial crisis caused by Russia's default on its
sovereign debt, hedge fund liquidations, Asia's ongoing fiscal woes, and
Latin America's intensifying troubles. Along with relatively stable core
European bond markets, the U.S. Treasury market became a coveted safe
haven.
By the new year, however, investor sentiment had changed. The Federal
Reserve Board's quick actions on reducing interest rates, combined with
repeated rate cuts in Europe, successfully served to inject liquidity into
the global marketplace and calm investors' fears. Confidence in the
world's so-called higher-yielding bond markets -- U.S. high-yield,
high-grade corporate issues, mortgage-backed securities, and
emerging-markets debt -- was further restored by positive U.S. and
European economic fundamentals and modest economic improvement in
Southeast Asia. After what probably seemed to investors to be an
interminable period of volatility, markets regained their equilibrium and
began the slow road to recovery.
During the semiannual period, your fund's managers -- Jennifer Leichter,
D. William Kohli, and David L. Waldman -- took advantage of several
opportunities that presented themselves. As a result, there has been an
increase in the allocation of assets to the U.S. high-yield bond sector
and a slight increase in emerging-markets issues. This reallocation of
assets enabled your fund to improve its performance considerably, which,
in turn, led to modest gains at net asset value by period's end. Complete
performance results at both net asset value and market price can be found
on pages 6 and 7.
* U.S. HIGH-YIELD BONDS STAGE COMEBACK
The U.S. high-yield bond market staged a modest recovery in the final
months of the period, shaking off earlier negative sentiment as investors
worldwide became increasingly comfortable taking on more risk in return
for higher yields. Indeed, while most investment-grade U.S. bonds posted
negative returns in the first quarter of calendar 1999, high-yield bonds
produced positive results. Solid economic growth, continued low inflation,
and low interest rates as well as a sector default rate of less than 1.5%
combined to provide a favorable backdrop for high-yield bonds. By period's
end, approximately 40% of the fund's net assets had been allocated to the
U.S. high-yield sector, up from roughly one third.
Your fund's managers favored bonds in the telecommunications, media, and
finance industries -- fast-growing industries brisk with merger and
acquisition activity -- creating the potential for credit upgrades and
therefore price appreciation opportunities. Telecommunications Inc. is one
holding on which the fund reaped profits during the period as its price
appreciated in anticipation of its purchase by AT&T. Other holdings worth
mentioning include Covad, Intermedia Communications, International Cable
Tel, Allegiance Telecom, and Global Crossing. In the cyclical sector,
Riverwood International Corporation is one holding in the packaging and
container industry that fund management believes shows promise. Going
forward, your fund's managers are looking to add selectively some
high-quality cyclical holdings. They believe cyclical issues stand to
benefit if commodity prices should improve but are unlikely to be hurt if
no positive change occurs.
[GRAPHIC OMITTED: horizontal bar chart TOP FIVE COUNTRY ALLOCATIONS
INTERNATIONAL SECTOR]
TOP FIVE COUNTRY ALLOCATIONS*
(INTERNATIONAL SECTOR)
United Kingdom 4.7%
Mexico 3.2%
Germany 2.5%
Canada 2.2%
Netherlands 1.8%
Footnote reads:
*Based on net assets as of 3/31/99. Holdings will vary over time.
Within the investment-grade corporate bond area, highly liquid
large-capitalization issues were favored, mainly in the finance and
industrial sectors. While the securities discussed in this report were
viewed favorably at the end of the period, all holdings are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
* TREASURIES GIVE BACK GAINS, FUND RETAINS MORTGAGE-BACKED BIAS
Your fund's U.S. Treasury holdings, while boosting overall performance in
the fall, detracted from performance in the past few months as the global
flight to quality lost momentum. With no clear signals from leading
indicators as to the state of the economy and therefore the direction of
interest rates, your fund's managers have decided to maintain a neutral
duration among the portfolio's Treasury holdings, making no definitive
bets on interest-rate movements. Residential mortgage-backed securities
and commercial mortgage-backed issues continue to be emphasized.
* CORE EUROPE REMAINS INTERNATIONAL FOCUS
The fund's international focus continued to be in the core bond markets of
Europe, primarily those of the Netherlands, Germany, France, and the
United Kingdom. A stronger U.S. dollar and a shaky start to the euro in
the first three months of 1999 dampened the solid returns the fund's
European holdings had produced in 1998.
Better-quality emerging markets that have greater access to capital, such
as Bulgaria and Mexico, gained increased exposure within the portfolio as
the period progressed. Your fund's exposure to Japanese government bonds
was kept to a minimum.
* OUTLOOK: FAVORABLE INDICATORS POINT TO CONTINUED RECOVERY
As your fund enters the second half of fiscal 1999, there is much to be
said for the market recovery that is currently under way.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR
HIGH-YIELD BONDS
Global Crossing Holdings, Ltd. 9 5/8s, 2008
Echostar DBS Corp. 9 3/8s, 2009
Charter Communications Holdings LLC 8 5/8s, 2009
FOREIGN BONDS
United Kingdom Treasury bonds, 8s, 2000
Germany (Federal Republic of) bonds Series 98, 5 1/4s, 2008
United Mexican States bonds 10 3/8s, 2009
U.S. INVESTMENT-GRADE SECURITIES
Federal National Mortgage Association 6 1/2s, 2026-2029
Government National Mortgage Association pass-through
certificates, 7s, 2023-2028
Government National Mortgage Association pass-through
certificates, 7 1/2s, 2023-2027
Footnote reads:
These holdings represent 22.6% of the fund's net assets as of 3/31/99.
Portfolio holdings will vary over time.
While no guarantees can be made, your fund's managers look to the second half
of fiscal 1999 with optimism, given the positive global big-picture
fundamentals, such as the stabilization of many foreign economies, the
convergence of European interest rates, and fairly dormant inflation
worldwide. However, the team remains quite aware that greater volatility
in the world's financial markets may yet occur. Consequently, the managers
remain heavily committed to fundamental, quantitative, and macroeconomic
research in order to develop and maintain a portfolio that offers the best
return-to-risk profile.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 19, 1999
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 3/31/99, 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
This section provides information about your fund's performance, which
should always be considered in light of its 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 3/31/99
Market
NAV price
- ------------------------------------------------------------------------------
6 months 2.15% -1.39%
- ------------------------------------------------------------------------------
1 year 0.59 1.45
- ------------------------------------------------------------------------------
5 years 40.56 44.21
Annual average 7.05 7.60
- ------------------------------------------------------------------------------
10 years 129.87 125.25
Annual average 8.68 8.46
- ------------------------------------------------------------------------------
Life of fund (4/29/88) 146.78 111.00
Annual average 8.62 7.08
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/99
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 -0.03% 0.17% 4.43% 0.98%
- ------------------------------------------------------------------------------
1 year 6.58 11.63 -0.75 1.73
- ------------------------------------------------------------------------------
5 years 38.90 38.83 52.09 12.09
Annual average 6.79 6.78 8.75 2.31
- ------------------------------------------------------------------------------
10 years 119.86 134.55 177.17 34.91
Annual average 8.20 8.90 10.73 3.04
- ------------------------------------------------------------------------------
Life of fund 129.56 124.34 201.12 40.91
Annual average 7.91 7.68 10.63 3.19
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their original
cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 3/31/99
- ------------------------------------------------------------------------------
Distributions
- ------------------------------------------------------------------------------
Number 6
- ------------------------------------------------------------------------------
Income $0.350
- ------------------------------------------------------------------------------
Capital gains --
- ------------------------------------------------------------------------------
Total $0.350
- ------------------------------------------------------------------------------
Share value NAV Market price
- ------------------------------------------------------------------------------
9/30/98 $8.14 $7.750
- ------------------------------------------------------------------------------
3/31/99 7.96 7.313
- ------------------------------------------------------------------------------
Current return (end of period) NAV Market price
- ------------------------------------------------------------------------------
Current dividend rate1 8.29% 9.03%
- ------------------------------------------------------------------------------
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, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
COMPARATIVE BENCHMARKS
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.
<TABLE>
<CAPTION>
Portfolio of investments owned
March 31, 1999 (Unaudited)
CORPORATE BONDS AND NOTES (40.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,325,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 1,444,250
950,000 Big Flower Holdings, Inc. sr. sub. notes 8 7/8s, 2007 955,938
400,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 432,000
840,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 884,100
1,450,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 1,562,375
--------------
5,278,663
Aerospace and Defense (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 123,500
370,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 351,500
760,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 761,900
715,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 754,325
250,000 BE Aerospace sr. sub. notes 9 1/2s, 2008 266,875
1,370,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 1,363,150
650,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 578,500
145,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 148,444
600,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 609,000
--------------
4,957,194
Agriculture (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,876,261 Premium Standard Farms, Inc. sr. secd. notes
11s, 2003 (PIK) 1,801,211
Airlines (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
490,000 Calair LLC company guaranty 8 1/8s, 2008 465,500
510,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 224,400
840,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 630,000
270,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 206,550
1,220,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 671,000
2,000,000 US Air Inc. pass-thru certificates Ser. 93-A2, 9 5/8s, 2003 2,084,020
--------------
4,281,470
Apparel (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
650,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 651,625
905,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 905,000
315,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 310,275
170,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 182,750
--------------
2,049,650
Automotive Parts (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 267,150
1,000,000 Cambridge Industries, Inc. company guaranty Ser. B,
10 1/4s, 2007 825,000
1,000,000 Federal Mogul Corp. 144A notes 7 1/2s, 2009 975,740
1,990,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 1,950,280
990,000 Hayes Lemmerz International, Inc. 144A company
guaranty 8 1/4s, 2008 994,950
135,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 140,738
1,000,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 1,042,500
900,000 Lear Corp. sub. notes 9 1/2s, 2006 986,625
410,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 423,325
2,280,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 2,359,800
200,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 188,000
--------------
10,154,108
Banks (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2008 2,500,000
500,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 375,000
500,000 First Federal Financial Corp. notes 11 3/4s, 2004 515,000
200,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 194,500
120,000 Ocwen Financial Corp. notes 11 7/8s, 2003 107,400
--------------
3,691,900
Basic Industrial Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Koppers Industries, Inc. 144A company guaranty
9 7/8s, 2007 142,100
350,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 273,000
70,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 66,500
--------------
481,600
Broadcasting (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
550,000 Allbritton Communications sr. sub. deb. Ser. B,
9 3/4s, 2007 583,688
3,090,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 3,144,075
10,263 Australis Media, Ltd. sr. disc. notes stepped-coupon 1 3/4s,
(15 3/4s 5/15/00), 2003 (In default) (Australia) (NON) (STP) (PIK) 103
1,420,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 1,079,200
515,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 435,175
2,025,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 2,126,250
997,487 Capstar Broadcasting bank term loan
Ser. B 4.999s, 2005 999,981
115,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 109,250
2,370,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 2,467,763
216,020 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 237,622
1,550,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 1,658,500
3,090,000 Echostar DBS Corp. 144A sr. notes 9 3/8s, 2009 3,198,150
910,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 862,225
1,980,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 2,049,300
2,260,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 2,271,300
2,000,000 Jacor Communications, Inc. company guaranty Ser. B,
8 3/4s, 2007 2,135,000
700,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 822,500
650,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 669,500
1,180,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 1,227,200
200,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 220,000
997,000 PHI Holdings, Inc. sr. sub. notes 16s, 2001 821,927
275,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 283,250
986,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 1,105,553
2,000,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 2,050,000
200,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 204,000
1,210,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 1,318,900
2,545,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 2,099,625
--------------
34,180,037
Building and Construction (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 110,500
2,870,000 D.R. Horton, Inc. company guaranty 8s, 2009 2,805,425
1,030,000 GS Superhighway Holdings sr. notes
9 7/8s, 2004 (China) 525,300
290,000 Jackson Products, Inc. company guaranty Ser. B,
9 1/2s, 2005 290,725
520,000 Toll Corp. company guaranty 8 1/8s, 2009 517,400
--------------
4,249,350
Building Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
540,000 Building Materials Corp. 144A sr. notes 8s, 2008 531,900
570,000 Morris Material Handling, Inc. company guaranty
9 1/2s, 2008 302,100
500,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 555,000
--------------
1,389,000
Buses (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
855,000 MCII Holdings sec. notes 12s, 2002 752,400
Business Equipment and Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
745,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 700,300
2,000,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 2,160,000
996,377 Outsourcing Solutions bank term loan 8 5/8s, 2003 966,486
125,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 123,125
710,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 468,600
130,000 United Stationer Supply, Inc. sr. sub. notes 8 3/8s, 2008 129,675
--------------
4,548,186
Cable Television (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 21st Century Telecom Group, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 18,500
660,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 557,700
1,313,000 Adelphia Communications Corp. sr. notes Ser. B,
9 7/8s, 2007 1,444,300
718,000 Adelphia Communications Corp. 144A sr. notes
8 3/8s, 2008 732,360
230,000 Century Communications Corp. sr. notes 8 7/8s, 2007 241,500
530,000 Century Communications Corp. sr. notes 8 3/4s, 2007 552,525
3,110,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 3,176,088
1,625,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 1,730,544
180,000 CSC Holdings, Inc. deb. Ser. B, 8 1/8s, 2009 193,424
1,620,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 1,685,088
550,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 557,524
270,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 238,613
3,500,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 2,730,000
2,750,000 Grupo Televisa S.A. de C.V. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 2,303,125
140,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 147,350
1,000,000 Jones Intercable, Inc. sr. notes 8 7/8s, 2007 1,062,500
600,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 676,500
1,675,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 1,775,500
310,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 210,800
170,000 Rogers Cablesystems Ltd. sr. notes Ser. B,
10s, 2005 (Canada) 191,675
560,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s,
2005 (Argentina) 224,000
200,000 TeleWest Communications PLC 144A sr. notes 11 1/4s,
2008 (United Kingdom) 232,500
770,000 United International Holdings sr. disc. notes stepped-
coupon Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 523,600
--------------
21,205,716
Cellular Communications (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,290,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 1,096,500
2,418,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 797,940
1,240,000 Cencall Communications Corp. sr. disc.notes 10 1/8s, 2004 1,277,200
255,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 51,000
710,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 760,588
1,875,000 McCaw International Ltd sr. disc. notes stepped coupon
zero % (13s, 4/15/02), 2007 (STP) 1,106,250
3,030,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 2,253,563
1,180,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 1,368,800
3,880,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (10.65s, 9/15/02), 2007 (STP) 2,832,400
1,600,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9.95s, 2/15/03), 2008 (STP) 1,120,000
135,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 95,850
645,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 670,800
--------------
13,430,891
Chemicals (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 112,800
1,430,000 Geo Specialty Chemicals, Inc. 144A sr. sub. notes
10 1/8s, 2008 1,422,850
370,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 368,150
15,000 Huntsman Corp. 144A sr. sub. notes FRN 9.031s, 2007 13,800
1,000,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 1,027,500
1,000,000 Lyondell Petrochemical bank term loan Ser. D, 7 1/4s, 2003 982,500
200,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 214,250
200,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 168,000
318,186 Polytama International notes 11 1/4s, 2007 (Indonesia) 22,273
660,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 681,450
185,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 78,625
555,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 194,250
--------------
5,286,448
Computer Services and Software (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
85,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 98,175
1,360,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 887,400
750,000 PSINet, Inc. sr. notes 11 1/2s, 2008 843,750
370,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 390,350
545,000 Unisys Corp. sr. notes 11 3/4s, 2004 617,213
1,400,000 Unisys Corp. sr. notes 7 7/8s, 2008 1,470,000
360,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 405,000
--------------
4,711,888
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
740,000 Axia, Inc. company guaranty 10 3/4s, 2008 736,300
140,000 Dine S.A. de C.V. company guaranty 8 3/4s, 2007 (Mexico) 116,200
1,075,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 247,250
--------------
1,099,750
Consumer Durable Goods (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
630,000 Albecca Inc. company guaranty 10 3/4s, 2008 535,500
50,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-
coupon zero % (12s, 6/1/02), 2009 (STP) 18,500
520,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 (STP) 67,600
190,000 Iron Age Corp. company guaranty 9 7/8s, 2008 138,700
120,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 119,100
--------------
879,400
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,050,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 1,155,000
280,000 Protection One, Inc. sr. disc. notes stepped-coupon
zero %, (13 5/8s, 6/30/00), 2005 (STP) 319,200
--------------
1,474,200
Cosmetics (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 326,400
95,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 94,288
380,000 Revlon Consumer Products sr. notes 9s, 2006 380,000
850,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 790,500
--------------
1,591,188
Electric Utilities (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
320,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 324,800
1,500,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,531,050
700,000 Calpine Corp. sr. notes 7 7/8s, 2008 703,500
1,000,000 Cleveland Electric Illuminating Co. bonds 6.86s, 2008 1,004,530
2,300,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 2,607,050
1,000,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 1,233,030
360,000 Niagara Mohawk Power Corp. sr. notes Ser. E, 7 3/8s, 2003 377,435
370,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 381,374
215,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 230,848
1,692,337 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,763,905
113,333 Northeast Utilities System notes Ser. B, 8.38s, 2005 116,928
1,290,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 645,000
660,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 663,300
--------------
11,582,750
Electronics (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
905,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 997,763
120,000 Details, Inc. sr. sub. notes Ser. B, 10s, 2005 108,600
190,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 190,950
675,000 Flextronics International Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 691,875
120,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 115,200
1,160,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 1,241,200
100,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 104,125
130,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 132,600
1,250,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 1,168,750
5,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 4,706
570,000 Wavetek Corp. company guaranty 10 1/8s, 2007 530,100
--------------
5,285,869
Entertainment (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,240,000 ITT Corp. notes 6 3/4s, 2005 2,031,322
1,275,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 1,319,625
730,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 738,213
510,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 515,100
640,000 Silver Cinemas Inc. sr. sub. notes 10 1/2s, 2005 339,200
1,050,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 861,000
--------------
5,804,460
Environmental Control (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,610,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 2,531,700
Financial Services (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,050,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 714,000
1,060,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 920,854
350,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 312,753
780,000 Cellco Finance Corp. NV 144A sr. sub. notes 15s, 2005
(Netherlands) 754,650
320,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 236,800
1,320,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 1,003,200
750,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 585,000
125,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 107,500
500,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 217,500
1,500,000 RBF Finance 144A company guaranty 11 3/8s, 2009 1,586,250
1,710,000 RBF Finance 144A company guaranty 11s, 2006 1,795,500
120,000 Resource America Inc. 144A sr. notes 12s, 2004 106,800
--------------
8,340,807
Food and Beverages (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 355,000
870,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 731,888
65,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 70,200
920,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 993,600
1,050,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 1,106,438
200,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 (STP) 76,000
990,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 495,000
610,000 Triarc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 608,475
--------------
4,436,601
Gaming (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
970,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 1,096,100
1,200,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 1,230,000
185,000 Casino America, Inc. sr. notes 12 1/2s, 2003 211,131
330,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 301,376
1,370,300 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 1,411,409
720,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 378,000
270,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 269,260
900,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 976,500
510,000 Hollywood Park Inc. 144A sr. sub. notes 9 1/4s, 2007 522,750
150,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 162,750
2,000,000 Mohegan Tribal Gaming, Auth. 144A sr. sub. notes 8 3/4s,
2009 2,085,000
680,000 Mohegan Tribal Gaming, Auth. 144A sr. notes 8 1/8s, 2006 695,300
500,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 491,250
500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 224,375
1,320,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 1,333,200
--------------
11,388,401
Health Care (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
530,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 483,943
430,000 Conmed Corp. company guaranty 9s, 2008 432,150
1,250,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 1,000,000
550,000 Global Health Sciences company guaranty 11s, 2008 346,500
660,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 534,600
1,400,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 910,000
710,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 454,400
1,720,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 1,470,600
1,000,000 Magellan Health Services, Inc. bank term loan 8s, 2005 930,000
310,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-
coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 58,900
1,480,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 458,800
530,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 413,400
1,130,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 995,813
1,590,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 1,065,300
620,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 440,200
1,005,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 302,756
230,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 234,600
370,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 371,850
680,000 Tenet Healthcare Corp. 144A sr. sub. notes 8 1/8s, 2008 656,200
1,370,000 Tenet Healthcare Corp.144A sr. notes 7 5/8s, 2008 1,322,050
--------------
12,882,062
Lodging (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
460,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 432,400
1,665,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,598,400
1,750,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 1,835,313
550,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 568,563
1,000,000 Starwood Hotels & Resorts bank term loan 7.861s, 2003 997,500
2,240,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 2,088,128
1,000,000 Sun International Hotels Ltd. company guaranty 9s, 2007 1,047,500
100,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 103,500
--------------
8,671,304
Medical Supplies and Devices (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
340,000 ALARIS Medical Systems, Inc. company guaranty
9 3/4s, 2006 344,250
450,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 502,875
140,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 135,800
500,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 507,500
610,000 Mediq, Inc. company guaranty 11s, 2008 530,700
560,000 Mediq, Inc. deb. stepped-coupon zero %, (13s, 6/1/03)
2009 (STP) 224,000
--------------
2,245,125
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 996,250
200,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 110,000
210,000 Continental Global Group sr. notes Ser. B, 11s, 2007 184,800
1,030,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 824,000
470,000 Neenah Foundry Co. 144A sr. sub. notes 11 1/8s, 2007 495,850
750,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 720,000
490,000 WHX Corp. sr. notes 10 1/2s, 2005 472,850
--------------
3,803,750
Motion Picture Distribution (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 2011 472,500
640,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 611,200
900,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 (Mexico) 929,250
2,142,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 631,890
--------------
2,644,840
Oil and Gas (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
625,000 Abraxas Petroleum Corp. 144A company guaranty Ser. D,
11 1/2s, 2004 375,000
550,000 Belco Oil & Gas Corp. company guaranty Ser. B,
10 1/2s, 2006 558,938
640,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 448,000
75,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 45,000
1,020,000 Chesapeake Energy Corp. company guaranty Ser. B,
9 5/8s, 2005 846,600
1,000,000 Cliffs Drilling Co. company guaranty Ser. D, 10 1/4s, 2003 960,000
1,810,000 CMS Energy Corp. sr. notes 6 3/4s, 2004 1,784,045
460,000 Dailey Petroleum Services Corp. company guaranty
9 1/2s, 2008 184,000
440,000 Eagle Geophysical, Inc. company guaranty Ser. B,
10 3/4s, 2008 264,000
100,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (14 1/8s, 5/1/03), 2006 (STP) 31,000
450,000 Gothic Production Corp. company guaranty Ser. B,
11 1/8s, 2005 342,000
570,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s,
2005 (Canada) 582,825
450,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 447,750
450,000 Michael Petroleum Corp. sr. notes Ser. B, 11 1/2s, 2005 328,500
620,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 615,350
680,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 646,000
890,000 Petro Geo-Services notes ADR 7 1/2s, 2007 (Norway) 918,062
300,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 279,000
400,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 256,000
360,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 216,000
55,000 Transamerican Energy sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/99), 2002 (STP) 13,819
2,150,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 537,500
335,000 Transamerican Refining Corp. sr. sub. notes Ser. B, 16s, 2003 33,500
518,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 155,400
1,050,000 Vintage Petroleum 144A sr. sub. notes 9 3/4s, 2009 1,071,000
500,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 410,000
--------------
12,349,289
Packaging and Containers (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 123,000
480,000 Ball Corp. company guaranty 7 3/4s, 2006 494,400
370,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 386,961
700,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 693,630
1,110,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 1,092,873
970,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 970,000
2,510,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 2,422,150
450,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 472,500
--------------
6,655,514
Paper and Forest Products (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
215,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 215,000
780,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 772,200
1,310,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 720,500
995,000 Jefferson Smurfit bank term loan 8.65s, 2006 996,244
2,375,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 1,246,875
780,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 797,550
2,445,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s,
2004 (Indonesia) 1,295,850
850,000 Republic Group Inc. sr. sub. notes 9 1/2s, 2008 858,500
--------------
6,902,719
Pharmaceuticals (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
900,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 929,250
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 110,200
Publishing (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Affinity Group Holdings sr. notes 11s, 2007 375,000
500,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 540,000
1,450,000 Garden State Newspapers 144A sr. sub. notes 8 5/8s, 2011 1,460,875
750,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 750,000
1,390,000 Perry-Judd company guaranty 10 5/8s, 2007 1,438,650
72,732 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 75,641
100,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 102,750
--------------
4,742,916
Railroads (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,475,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,320,125
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 505,000
Retail (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
510,000 Fred Meyer, Inc. company guaranty 7.45s, 2008 537,387
260,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 262,600
600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 624,000
440,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 411,400
995,000 North Atlantic Trading Co. company guaranty Ser. B,
11s, 2004 1,004,950
260,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 265,200
--------------
3,105,537
Satellite Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
700,000 Golden Sky Systems 144A sr. sub. notes 12 3/8s, 2006 777,000
390,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 319,800
--------------
1,096,800
Semiconductors (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
147,667 Cirent Semiconductor sr. sub. notes 10.22s, 2002 151,912
148,696 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 152,971
261,498 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 (PIK) 253,653
1,375,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,361,250
800,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 664,000
--------------
2,583,786
Shipping (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
240,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 230,400
900,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 976,500
360,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 228,600
840,000 Pegasus Shipping 144A units company guaranty stepped-
coupon zero % (14 1/2s. 6/20/03), 2008 (Bermuda) (STP) 336,000
--------------
1,771,500
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
670,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 646,550
Steel (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,570,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 1,566,075
930,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 939,300
490,000 National Steel Corp. 144A 1st mtge. 9 7/8s, 2009 503,475
430,000 National Steel Corp. 144A 1st mtge. Ser. B, 9 7/8s, 2009 441,825
--------------
3,450,675
Supermarkets (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 167,750
1,250,000 Southland Corp. deb. 4s, 2004 978,125
--------------
1,145,875
Telecommunications (5.4%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 168,000
480,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 297,600
460,000 Birch Telecom, Inc. sr. notes 14s, 2008 420,900
460,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 468,050
1,910,000 Colt Telecommunications Group PLC sr. disc. notes stepped-
coupon zero %, (12s, 12/15/01), 2006 (United Kingdom) (STP) 1,621,113
615,000 Covad Communications Group, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 341,325
1,400,000 Covad Communications Group, Inc. 144A sr. notes
12 1/2s, 2009 1,407,000
2,795,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 1/2s, 03/01/03), 2008 (STP) 768,625
1,500,000 Econophone Inc. company guaranty 13 1/2s, 2007 1,597,500
1,060,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 583,000
155,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 166,304
2,050,000 Firstworld Communication Corp. sr. disc. notes stepped-
coupon zero % (13, 4/15/03), 2008 (STP) 758,500
1,300,000 Focal Communications Corp. sr. disc. notes, stepped-
coupon zero % (12 1/8s, 02/15/03), 2008 (STP) 728,000
2,910,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 3,241,013
1,000,000 GST Equipment Funding sr. notes 13 1/4s, 2007 1,046,250
2,437,000 GST Telecommunications, Inc. company guaranty stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 1,925,230
860,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 447,200
380,000 Hyperion Telecommunications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 313,500
400,000 Hyperion Telecommunications, Inc. sr. notes Ser. B,
12 1/4s, 2004 435,000
940,000 Hyperion Telecommunications, Inc. 144A sr. sub.
notes 12s, 2007 979,950
860,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 761,100
4,580,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 2,736,550
820,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 623,200
1,790,000 Intermedia Communications, Inc. sr. notes Ser. B,
8.6s, 2008 1,790,000
830,000 Intermedia Communications, Inc. sr. notes Ser. B,
8 1/2s, 2008 825,850
1,390,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 1,209,300
810,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 842,400
2,445,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 1,344,750
1,420,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero %, (11 7/8s, 10/15/02), 2007 (STP) 766,800
150,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 165,375
530,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 552,525
330,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 334,125
610,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 549,000
140,000 MetroNet Communications Corp. sr. disc. notes stepped-
coupon zero % (10 3/4s, 11/1/02), 2007 (Canada) (STP) 112,700
810,000 MetroNet Communications Corp. sr. disc. notes stepped-
coupon zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 625,725
1,370,000 MetroNet Communications Corp. 144A sr. notes
10 5/8s, 2008 (Canada) 1,596,050
1,270,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,035,050
100,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 92,500
60,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 38,700
770,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 800,800
990,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 534,600
520,000 Qwest Communications International, Inc. 144A sr. notes
7 1/4s, 2008 534,300
1,040,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 800,800
540,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 427,950
1,220,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 671,000
860,000 Startec Global Communications Corp. sr. notes 12s, 2008 778,300
895,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 903,950
370,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 222,000
1,115,000 Teligent, Inc. sr. notes 11 1/2s, 2007 1,059,250
1,300,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 1,391,000
220,000 Versatel Telecom B.V. 144A sr. notes 13 1/4s, 2008 (Netherlands) 231,550
510,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 536,775
1,000,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 580,000
--------------
43,188,035
Telephone Services (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 254,725
1,055,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 656,738
1,650,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,501,500
520,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 514,800
1,570,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 1,036,200
1,000,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon
zero % (13s, 11/1/00), 2005 (STP) 680,000
445,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 3/4s, 4/1/01), 2006 (STP) 295,907
170,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 131,325
1,340,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,299,800
380,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 243,200
280,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 182,000
1,142,000 ITC Deltacom, Inc. sr. notes 11s, 2007 1,257,628
380,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 380,950
270,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 189,000
1,200,000 McLeodUSA, Inc. 144A sr. notes 8 1/8s, 2009 1,197,000
1,500,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %,
(10 1/2s, 3/1/02), 2007 (STP) 1,203,750
280,000 OnePoint Communications, Corp. 144A sr. notes
14 1/2s, 2008 145,600
1,490,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 1,437,850
180,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 121,500
1,340,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 1,463,950
450,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 477,000
120,000 RSL Communications, Ltd. company guaranty, stepped-
coupon zero % (10 1/8s, 3/1/03), 2008 (STP) 79,200
410,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 407,950
275,000 Sprint Spectrum L.P. sr. notes 11s, 2006 322,138
760,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon zero %
(12 1/2s, 8/15/01), 2006 (STP) 676,400
115,000 Transtel S.A. 144A pass through certificates 12 1/2s,
2007 (Colombia) 48,300
380,000 US Xchange LLC sr. notes 15s, 2008 410,400
2,260,000 Viatel, Inc. sr. notes 11 1/4s, 2008 2,316,500
--------------
18,931,311
Textiles (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,020,000 Galey & Lord Inc. company guaranty 9 1/8s, 2008 795,600
190,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 194,275
580,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 587,250
--------------
1,577,125
Transportation (--%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 352,625
Wireless Communications (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 345,000
330,000 Clearnet Communications, Inc. sr. disc. notes
stepped-coupon zero % (14 3/4s, 12/15/00), 2005 (STP) 302,363
620,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 620,000
255,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 107,100
135,000 Telesystem International Wireless Inc. sr. disc. notes
stepped-coupon Ser. C, zero %, (10 1/2s, 11/1/02),
2007 (Canada) (STP) 65,138
--------------
1,439,601
--------------
Total Corporate Bonds and Notes (cost $345,166,559) $ 319,916,352
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (35.7%) (a)
PRINCIPAL AMOUNT VALUE
U. S. Government Agency Mortgage Obligations (21.2%)
- --------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
$ 149,662 6 1/2s, September 1, 2002 $ 149,684
427,253 7s, February 1, 2012 436,729
Federal National Mortgage Association Pass-through
Certificates
3,767 8 1/2s, Dwarf, March 1, 2006 3,931
1,996,054 7s, Dwarf, with due dates from May 1, 2011 to
May 1, 2011 2,039,089
54,909,776 6 1/2s, with due dates from February 1, 2026 to
February 15, 2029 54,652,681
887,099 6 1/2s, Dwarf, with due dates from August 1, 2010
to August 1, 2013 895,135
6,428,760 6s, Dwarf, July 1, 2013 6,380,545
Government National Mortgage Association
Pass-through Certificates
8,988,903 8s, with due dates from July 15, 2023 to February 15, 2028 9,366,198
28,148,060 7 1/2s, with due dates from January 15, 2023 to
October 15, 2027 29,004,291
42,253,695 7s, with due dates from April 15, 2023 to May 15, 2028 42,917,631
23,019,775 6 1/2s, with due dates from December 15, 2027 to
March 15, 2029 22,920,871
--------------
168,766,785
U.S. Treasury Obligations (14.5%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
9,540,000 12 3/8s, May 15, 2004 (SEG) 12,507,799
12,680,000 11 5/8s, November 15, 2004 16,481,971
U.S. Treasury Notes
9,680,000 6 1/8s, August 15, 2007 (SEG) 10,133,702
22,965,000 5 5/8s, May 15, 2008 23,377,681
15,050,000 5 1/2s, May 31, 2003 (SEG) 15,209,831
9,325,000 5 1/2s, May 31, 2000 9,383,281
7,750,000 5s, February 28, 2001 7,751,240
10,910,000 4 3/4s, November 15, 2008 10,509,385
3,000,000 4 1/2s, September 30, 2000 2,977,980
7,930,000 4 1/4s, November 15, 2003 7,633,894
--------------
115,966,764
--------------
Total U.S. Government and Agency Obligations
(cost $286,759,799) $ 284,733,549
FOREIGN GOVERNMENT BONDS AND NOTES (12.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
CAD 8,025,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 $ 6,089,637
USD 560,000 Colombia (Republic of) 8.625, 2008 497,000
EUR 10,680,578 France (Government of) bonds 5 1/2s, 2007 12,721,636
EUR 15,758,016 Germany (Federal Republic of) bonds Ser. 98,
5 1/4s, 2008 18,464,455
EUR 4,036,104 Italy (Government of) 5s, 2008 4,593,066
EUR 9,211,738 Netherlands (Government of) 8 1/4s, 2007 12,818,939
EUR 2,878,547 Spain (Government of) 6s, 2008 3,499,810
SEK 60,900,000 Sweden (Government of) deb. Ser. 1041, 6s, 2005 8,202,499
RUB 28,930,000 U.S. Dollar GKO Pass Through Structured Note
(Issued by Deutsche Bank) The principal
at redemption is linked to the bid price
for the Russian Treasury Bill at maturity, and
the change in the spot rate of the Russian
Ruble from issue date, zero %, 1999
(in default) 34,888
GBP 14,495,000 United Kingdom Treasury bonds 8s, 2000 24,573,345
GBP 2,730,000 United Kingdom Treasury bonds 7 1/4s, 2007 5,217,682
--------------
Total Foreign Government Bonds and Notes
(cost $102,587,256) $ 96,716,957
BRADY BONDS (3.8%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 11,100,000 Brazil (Government of) bonds 9 3/8s, 2008 $ 8,325,000
14,630,000 United Mexican States bonds 10 3/8s, 2009 15,105,475
2,940,000 United Mexican States bonds 9 3/4s, 2005 2,942,940
5,904,732 Venezuela (Government of) deb., FRB Ser. A,
6 3/4s, 2007 3,956,171
--------------
Total Brady Bonds (cost $30,334,178) $ 30,329,586
COLLATERALIZED MORTGAGE OBLIGATIONS (2.5%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,878,546 Commercial Mortgage Acceptance Corp. Ser. 98-C2,
Class A1, 5.8s, 2006 $ 2,853,359
74,020,097 First Union-Lehman Brothers Commercial Mortgage Co.
Ser. 98-C2, Class IO (Interest Only), 0.80s, 2028 2,937,673
410,456 Freddie Mac Ser. 1717, Class L, 6 1/2s, 2024 410,024
Merrill Lynch Mortgage Investors, Inc.
3,282,823 Ser. 98-C2, Class A1, 6.22s, 2030 3,305,393
4,990,000 Ser. 98-C2, Class D, 7.116s, 2030 4,821,588
21,477,541 Ser. 98-C2, Class IO, 1.587s, 2030 1,652,664
1,741,998 Morgan Stanley Capital Ser. 98-HF1, Class A1,
6.19s, 2007 1,752,613
9,204,139 Mortgage Capital Funding, Inc. Ser. 97-MC2,
Class X, IO, 1.583s, 2012 687,085
657,445 Prudential Home Mortgage Securities Ser. 93-57,
Class A4, 5.9s, 2023 658,951
533,301 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 532,432
--------------
Total Collateralized Mortgage Obligations
(cost $20,291,916) $ 19,611,782
PREFERRED STOCKS (2.1%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
259 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) $ 116,550
7,986 AmeriKing, Inc. $3.25 pfd. (PIK) 207,636
2,313 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 284,499
384 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 414,720
7,879 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 921,843
19,200 Diva Systems Corp. Ser. C, $6.00 pfd. 115,200
1,351 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 1,202,390
11,765 Fitzgeralds Gaming $3.75 cum. pfd. 23,530
340 Fresenius Medical Capital Trust I Ser. D, 9.00% pfd. (Germany) 353,600
900 Fresenius Medical Capital Trust II 7.875% pfd. (Germany) 885,375
14,600 Global Crossing Holdings 144A 10.50% pfd. 1,682,650
1,413 Granite Broadcasting 144A $12.75 pfd. (PIK) 1,441,260
1,000 ICG Holdings, Inc., 144A $14.00 pfd. (Canada) (PIK) 1,040,000
1,474 Intermedia Communication Ser. B, 13.50% pfd (PIK) 1,577,180
490 IXC Communications, Inc. 12.50% pfd. (PIK) 539,000
14,704 Lady Luck Gaming Corp. $11.25 pfd. 588,160
8,451 Nebco Evans Holding Co. 144A $11.25 pfd. (PIK) 295,785
750,000 Network Plus Corp 13.5% cum. pfd. 785,625
30,163 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 1,613,721
116 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 968,600
1,032 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 1,104,240
100,079 TCR Holding Corp. Class E zero %, pfd. 6,305
390 WinStar Communications, Inc. 144A 14.25% cum. pfd. (PIK) 312,000
--------------
Total Preferred Stocks (cost $17,695,010) $ 16,479,869
ASSET-BACKED SECURITIES (0.8%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,096,000 Chemical Master Credit Card Trust Ser. 95-2, Class A,
6.23s, 2003 $ 1,107,979
350,000 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2,
7.67s, 2028 345,296
3,280,000 Green Tree Financial Corp. Ser. 98-2, Class A5, 6.24s, 2016 3,291,147
801,441 Green Tree Recreational Equipment & Cons. Ser. 97-B,
Class A1, 6.55s, 2028 810,676
1,166,514 Resolution Trust Corp. Ser. 94-1, Class M1, 7.14s, 2029 1,166,514
--------------
Total Asset-Backed Securities (cost $5,994,512) $ 6,721,612
WARRANTS (0.3%) (a) (NON)
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,235 Allegiance Telecom, Inc. 2/3/08 $ 39,520
750 American Mobile Satellite Corp. 4/1/08 2,468
32,500 Becker Gaming Corp. 144A 11/15/00 3
480 Bestel de C.V. SA (Mexico) 5/15/05 480
460 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 2,300
2,428 Cellnet Data Systems, Inc. 9/15/07 48,560
1,220 Club Regina, Inc. 144A 4/15/06 1,220
1,910 Colt Telecommunications Group PLC 12/31/06 1,002,750
1,500 Comunicacion Cellular 144A (Colombia) 11/15/03 105,000
85 Concentric Network Corp. 12/15/07 25,500
3,442 Consorcio Ecuatoriano 144A (Equador) 10/1/00 861
615 Covad Communications Group 144A
(acquired various dates, cost $25,171) (RES) 3/15/08 554,115
475 Diva Systems Corp. 5/15/06 114,950
6,426 Diva Systems Corp. 3/1/08 83,538
13,975 DTI Holdings Inc. 3/1/08 140
10 E. Spire Communications, Inc. 11/1/05 50
460 Epic Resorts 6/15/05 5
255 Esat Holdings, Inc. (Ireland) 2/1/07 18,488
2,050 Firstworld Communication 4/15/08 20,500
770 Hyperion Telecommunications 144A 4/15/01 39,617
9,768 ICG Communications 10/15/05 195,360
520 Interact Systems, Inc. 8/1/03 5
700 Intermedia Communications 6/1/00 63,175
245 International Wireless Communications
Holdings 144A 8/15/01 2
400 Iridium World Com 144A 7/15/05 8,000
2,085 KMC Telecom Holdings, Inc. 4/15/08 5,213
1,180 Knology Holdings, Inc. 144A 10/15/07 1,770
270 Long Distance International, Inc. 144A 4/13/08 675
930 McCaw International Ltd. 4/15/07 3,720
840 MGC Communications, Inc. 144A 10/1/04 28,770
750 NEXTEL Communications Inc. 4/25/99 7,860
280 OnePoint Communications, Inc. 6/1/08 280
620 Orbital Imaging Corp. 144A 3/1/05 24,800
1,840 Pagemart, Inc. 144A 12/31/03 14,720
990 Pathnet, Inc. 144A 4/15/08 9,900
960 Paxson Communications Corp. 144A 6/30/03 10
5,520 Rhythms Netcon 144A 5/15/08 220,800
265 Spanish Broadcasting Systems 144A 6/30/99 54,325
860 STARTEC Global Communications Corp. 5/15/08 860
185 Sterling Chemicals Holdings 8/15/08 3,700
370 Telehub Communications Corp. 7/31/05 370
335 Transamerican Refining Corp. 6/30/03 0
1,260 UIH Australia/Pacific, Inc. 144A 5/15/06 1,260
730 Versatel 144A 5/15/08 51,100
100,230 Wright Medical Technology, Inc. 144A 6/30/03 1
--------------
Total Warrants (cost $954,857) $ 2,756,741
CONVERTIBLE BONDS AND NOTES (0.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 625,000 APP Global Finance Ltd. 144A cv. company guaranty
3 1/2s, 2003 (United Kingdom) $ 372,656
164,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero %, (13 7/8s, 12/15/00), 2005 (STP) 178,760
490,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 398,738
290,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 205,538
650,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 1,040,000
--------------
Total Convertible Bonds and Notes (cost $1,908,303) $ 2,195,692
COMMON STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
150 AmeriKing, Inc. $ 6,000
2,955 Axia Holding Inc. 144A (PIK) 41,370
209,754 Celcaribe S.A. 144A (Colombia) (NON) 524,385
13,880 CellNet Data Systems, Inc. 79,810
12,124 Chesapeake Energy Corp. 17,428
23,404 Fitzgerald Gaming Corp. (NON) 11,702
3,033 Hedstrom Holdings, Inc. 144A (NON) 3,033
3,770 IFINT Diversified Holdings 144A (NON) 7,540
5,887 Lady Luck Gaming Corp. (NON) 29,435
175 Mothers Work, Inc.(NON) 1,838
255 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 3
327 Premium Holdings (L.P.) 144A (NON) 1,308
71,533 PSF Holdings LLC Class A (NON) 912,046
2,444 RSL Communications, Ltd. Class A (NON) 87,831
10,050 Specialty Foods Acquisition Corp. (NON) 503
--------------
Total Common Stocks (cost $2,879,788) $ 1,724,232
UNITS (0.1%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
600 Australis Media, Ltd. units stepped-coupon zero %,
(15 3/4s, 5/15/00), 2003 (In default) (Australia) (NON) (STP) $ 6,000
560 Mediq Inc. 144A units 13s, 2009 6
500 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 410,000
--------------
Total Units (cost $1,021,412) $ 416,006
CONVERTIBLE PREFERRED STOCKS (--%)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
30 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) $ 288,000
654 Viatel, Inc. Ser. A, $10.00 cv. pfd. (PIK) 94,830
--------------
Total Convertible Preferred Stocks (cost $433,980) $ 382,830
SHORT-TERM INVESTMENTS (2.9%) (a) (cost $23,303,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 23,303,000 Interest in $500,000,000 joint repurchase agreement
dated March 31, 1999 with Salomon, Smith Barney, Inc.
due April 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $23,306,204 for an
effective yield of 4.95% $ 23,303,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $839,330,570) (b) $ 805,284,208
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $796,630,277.
(b) The aggregate identified cost on a tax basis is $839,435,633, resulting in gross unrealized appreciation and
depreciation of $10,183,035 and $44,334,460, respectively, or net unrealized depreciation of $34,151,425.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the
fund will begin receiving interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at March 31, 1999 was $554,115 or less than 0.1% of net assets.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
TBA after the name of a security represents to be announced securities (Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates
shown at March 31, 1999, which are subject to change based on the terms of the security.
(SEG) A portion of these securities were pledged and segregated with the custodian to cover margin requirements for
futures contracts at March 31, 1999.
Distribution of investments by country of issue at March 31, 1999: (as percentage of Market Value)
Brazil 1.1%
Canada 2.7
France 1.6
Germany 2.4
Mexico 3.2
Netherlands 1.8
Sweden 1.0
United Kingdom 4.7
United States 78.9
Other 2.6
-----
Total 100.0%
=====
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at March 31, 1999 (Unaudited)
(aggregate face value $129,561,483)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Australian Dollars $ 4,110,329 $ 4,101,648 6/16/99 $ 8,681
Danish Krone 4,034,235 4,097,436 6/16/99 (63,201)
Euro Dollars 70,319,769 71,483,630 6/16/99 (1,163,861)
Japanese Yen 47,890,121 46,306,434 6/16/99 1,583,687
Swedish Krona 3,508,550 3,572,335 6/16/99 (63,785)
- -------------------------------------------------------------------------------
$ 301,521
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 1999 (Unaudited)
(aggregate face value $203,806,400)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
British Pounds $ 30,379,569 $ 30,394,027 6/16/99 $ 14,458
Canadian Dollar 6,244,090 6,181,511 6/16/99 (62,579)
Euro Dollars 123,077,354 125,014,755 6/16/99 1,937,401
Japanese Yen 43,707,862 42,216,107 6/16/99 (1,491,755)
- -------------------------------------------------------------------------------
$ 397,525
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- -------------------------------------------------------------------------------
US Treasury Note 10 yr
(short) $18,120,625 $18,209,450 Jun-99 $88,825
- -------------------------------------------------------------------------------
TBA Sale Commitments at March 31, 1999 (Unaudited)
(Proceeds receivable $15,511,687)
Principal Settlement Market
Amount Date Value
- -------------------------------------------------------------------------------
GNMA, 7s, April 2029 $15,266,000 4/22/99 $15,499,722
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $839,330,570) (Note 1) $805,284,208
- -----------------------------------------------------------------------------------------------
Cash 2,277,891
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 14,509,981
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 33,361,710
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 98,750
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 3,561,294
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 85,262
- -----------------------------------------------------------------------------------------------
Total assets 859,179,096
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,490,195
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 36,730,554
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,377,212
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 96,346
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 22,496
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,512
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 2,862,248
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 431,438
- -----------------------------------------------------------------------------------------------
TBA sales commitments at value (proceeds receivable $15,511,687) 15,499,722
- -----------------------------------------------------------------------------------------------
Other accrued expenses 36,096
- -----------------------------------------------------------------------------------------------
Total liabilities 62,548,819
- -----------------------------------------------------------------------------------------------
Net assets $796,630,277
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $882,932,484
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (19,277,368)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investment and
foreign currency transactions (Note 1) (33,465,923)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (33,558,916)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $796,630,277
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($796,630,277 divided by 100,133,126 shares) $7.96
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $98,884) $ 32,265,701
- -----------------------------------------------------------------------------------------------
Dividends 725,596
- -----------------------------------------------------------------------------------------------
Total investment income 32,991,297
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,830,444
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 474,652
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 9,194
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,023
- -----------------------------------------------------------------------------------------------
Reports to shareholders 30,225
- -----------------------------------------------------------------------------------------------
Auditing 43,813
- -----------------------------------------------------------------------------------------------
Legal 15,025
- -----------------------------------------------------------------------------------------------
Postage 38,657
- -----------------------------------------------------------------------------------------------
Other 13,676
- -----------------------------------------------------------------------------------------------
Exchange listing fees 246,547
- -----------------------------------------------------------------------------------------------
Total expenses 3,707,256
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (6,377)
- -----------------------------------------------------------------------------------------------
Net expenses 3,700,879
- -----------------------------------------------------------------------------------------------
Net investment income 29,290,418
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (8,654,935)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 408,851
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions 2,734,850
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 2,601,560
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
and TBA sale commitments during the period (10,046,104)
- -----------------------------------------------------------------------------------------------
Net loss on investments (12,955,778)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 16,334,640
- -----------------------------------------------------------------------------------------------
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
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $29,290,418 $55,514,106
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (5,511,234) (14,776,228)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and assets and liabilities in foreign currencies (7,444,544) (36,989,992)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 16,334,640 3,747,886
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (35,006,458) (55,414,822)
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with the merger of
Putnam Intermediate Government Income Trust (Note 5) -- 528,345,195
- ---------------------------------------------------------------------------------------------------------------
Increase in capital shares transactions from reinvestment
of distributions 960,273 --
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (17,711,545) 476,678,259
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 814,341,822 337,663,563
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $19,277,368 and
$13,561,328 respectively) $796,630,277 $814,341,822
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 100,014,650 38,435,338
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with the merger of
Putnam Intermediate Government Income Trust (Note 5) -- 61,579,312
- ---------------------------------------------------------------------------------------------------------------
Shares increased issued in connection with reinvestment
of distributions 118,476 --
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 100,133,126 100,014,650
- ---------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.14 $8.79 $8.58 $8.38 $8.13 $8.91
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .29 .71 .64 .63 .67 .62
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.12) (.67) .21 .19 .21 (.71)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .17 .04 .85 .82 .88 (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.69) (.64) (.61) (.49) (.55)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- (.06)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.01) (.14) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.35) (.69) (.64) (.62) (.63) (.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.96 $8.14 $8.79 $8.58 $8.38 $8.13
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $7.313 $7.750 $8.125 $7.500 $7.375 $7.250
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (1.39)* 3.91 17.54 10.34 10.90 (5.57)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $796,630 $814,342 $337,664 $332,537 $326,735 $317,296
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .46* .92 1.04 .99 1.03 .92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.66* 8.13 7.47 7.44 8.24 7.18
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 48.47* 179.84(c) 220.61 232.90 219.63 204.92
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized
(a) Total 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, 1999 (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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date. 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, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with
the intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of
a commitment prior to settlement if Putnam Management deems it appropriate
to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale commitments
are not received until the contractual settlement date. During the time a
TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market" daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the acquisition
of an offsetting purchase commitment, the fund realizes a gain or loss. If
the fund delivers securities under the commitment, the fund realizes a
gain or a loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
J) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, asamended. 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 month September 30, 1998, the fund had a capital loss carryover of
approximately $19,897,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ------------------
$8,261,000 September 30, 1999
253,000 September 30, 2001
7,035,000 September 30, 2003
2,793,000 September 30, 2004
1,555,000 September 30, 2005
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
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 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, 1999, fund expenses were reduced by
$6,377 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 $830 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, 1999, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $304,359,194 and $244,725,071,
respectively. Purchases and sales of U.S. government obligations
aggregated $69,486,088 and $134,260,956, respectively. In determining the
net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Share Repurchase Program
In November 1994, the Trustees authorized the fund to repurchase up to
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, 1999, the fund repurchased no shares.
As of March 31, 1999, 570,000 shares have 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 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, the fund had unrealized depreciation of $1,224,904. The
aggregate net assets of the fund immediately following the acquisition
were $857,994,026.
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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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
David L. Waldman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
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PUTNAM INVESTMENTS
The Putnam Funds
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