Putnam
Master
Intermediate
Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The past year provided little joy for investors in global fixed-income
securities. Concerns over rising interest rates and renewed inflation cast
a pall over virtually all the world's bond markets. Even the U.S. Treasury
and core European government bonds that were doing so well a year ago as
other fixed-income markets were faltering are feeling the heat now. About
the only bright spots have been emerging-markets bonds, which as a group
recovered smartly from the financial crisis that nearly did them in during
the summer and fall of 1998.
The results of this general market malaise are reflected in the
performance of Putnam Master Intermediate Income Trust during the fiscal
year that ended on September 30, 1999. In the following report, your
fund's management team reviews performance and concludes that while more
near-term volatility lies ahead, long-term prospects remain positive. I am
pleased to announce that Robert M. Paine has been appointed to your fund's
management team. Bob has been with Putnam since 1987 and has more than 10
years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 17, 1999
Report from the Fund Managers
Robert M. Paine
David L. Waldman
D. William Kohli
Putnam Master Intermediate Income Trust began fiscal 1999 in the midst of
a global financial meltdown that drove bond yields up and prices down in
all areas except the U.S. Treasury and core European government bond
sectors. At period's end, bond prices were once again depressed and yields
pushed upward on worries of both rising inflation and rising interest
rates in many markets around the world -- this time with U.S. Treasury and
European securities participating in the general decline. The unsettled
nature of the world's financial markets and bouts of volatility are
reflected in your fund's performance for the 12 months ended September 30,
1999.
Total return for 12 months ended 9/30/99
Net asset value Market price
- ----------------------------------------------------------------
1.35% -9.09%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* GLOBAL BONDS FALTER
Year to date, 1999 has been the worst period for domestic bonds since
1994. The yield on the bellwether 30-year U.S. Treasury bond hovered
around 6.25% at period's end, up from the 5% level last seen in September
1998. Although the difference in yield between domestic high-yield bonds
and U.S. Treasury securities narrowed as the first nine months of fiscal
1999 progressed, it widened considerably in the final months and ended the
year relatively unchanged.
The sovereign bonds of Continental Europe provided weak results for the
same reasons that domestic bonds did -- stronger-than-expected economic
growth and expectations of central bank monetary tightening. The outlook
and performance of Japanese government bonds vastly improved as the period
progressed.
[GRAPHIC OMITTED: horizontal bar chart TOP FIVE COUNTRY ALLOCATIONS
(INTERNATIONAL SECTOR)]
TOP FIVE COUNTRY ALLOCATIONS
(INTERNATIONAL SECTOR)*
Canada 5.5%
Mexico 3.3%
Brazil 3.1%
United Kingdom 2.8%
Sweden 2.7%
*Based on net assets as of 9/30/99. Holdings will vary over time.
* TELECOM BONDS REMAIN KEY FOCUS IN HIGH-YIELD SECTOR
For several years now, high-yield bonds issued by telecommunications and
media companies have enjoyed a substantial representation in your fund's
portfolio. We believe the higher-yielding potential and growth opportunity
offered by these bonds have made them worthwhile to own, particularly in
light of the brisk merger and acquisition activity that has been spurred
on by deregulation. Moreover, strong corporate profitability and
accelerating economic growth have enabled many telecommunications
companies to issue stock, prompting credit improvements and therefore
higher bond prices.
Fund holdings such as NTL, Covad Communications Group, and Rhythms
NetConnections have brought equity into their capital structure, thereby
helping to decrease credit risk and push the bonds' prices higher. In the
case of NTL, an owner/operator of United Kingdom Cable, an infusion of
equity in the baLLPark of $6 billion was provided by Microsoft and France
Telecom.
Covad and Rhythms, two high-speed digital communications services
providers, successfully completed initial public offerings. Global
Crossing is another fine example of a bond that appreciated in price on
the heels of a credit upgrade. Other issues that worked well for the fund
include Nextel, Charter Communications, Citadel, Chancellor Media (now
AMFM, Inc.), and Network Plus. 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.
* GAMING, PAPER, ENERGY BONDS PRESENT OPPORTUNITIES
Favorable supply/demand dynamics provided a favorable backdrop for your
fund's gaming securities. In gaming, new jurisdiction areas such as
Mississippi, Illinois, and Louisiana provide solid growth potential, since
they have not yet experienced the overcapacity that now exists in Las
Vegas and Atlantic City. Argosy Gaming Company is one fund holding that
enjoyed substantial appreciation as a result of being refinanced. The fund
owned the older debt, participated in the upgrade, and then purchased the
new issue, which has continued to perform well. Coast Hotels and Casinos
is another bond that contributed to performance. Following a run-up in
price, we took profits on the Coast position in the fiscal year's second
half.
"Those who believe history repeats itself may derive some comfort from the
fact that bond yields peaked in early November 1994 before the bond market
began on the road to recovery when investors decided plus-8% yields were
tempting."
- -- "Bond Market's 1999 Losses Look Like Horrors of 1994,"The Wall Street
Journal Interactive Edition, October 14, 1999
As the period progressed, we selectively increased the fund's exposure to
certain high-quality cyclical issues in the paper and energy sectors.
Repap New Brunswick, Riverwood International, and Ocean Energy are all new
holdings that offer attractive total return potential.
Stricter Medicare reimbursement formulas negatively affected the
performance of several health-care issues, particularly long-term nursing
care bonds such as Sun Healthcare and Mariner Post-Acute Network. We
continue to hold these bonds in the portfolio, however, since we believe
the bad news has been fully priced into the market and price appreciation
going forward appears a possibility in the wake of recent public
discourse.
* U.S. BOND RESULTS MIXED; EMERGING-MARKETS BONDS EXCEL
The fixed-income market's unpredictability this past year took its toll on
U.S. Treasury and government agency securities, causing the fund's U.S.
investment-grade holdings to produce mixed results. Throughout the period,
we used the fund's Treasury exposure to keep the portfolio's average
duration relatively neutral. Duration is a measure of a fund's sensitivity
to interest-rate changes and given the uncertain interest-rate
environment, we considered a neutral duration the most prudent course. We
also rotated in and out of interest-only and principal-only commercial
mortgage-backed securities (CMBSs) as market conditions and interest rate
movements dictated. In general, the CMBS holdings added relative value to
the portfolio, given strong economic activity and solid real estate
fundamentals.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS
PER SECTOR
HIGH-YIELD BONDS
Charter Communications Holdings LLC,
144A senior notes, 8 5/8s, 2009
Midland Funding II Corp.,
debentures, Series A, 11 3/4s, 2005
Viatel, Inc.,
senior notes, 11 1/4s, 2008
FOREIGN BONDS
Brazil (Government of),
bonds, 11 5/8s, 2004
Canada (Government of),
bonds, 6s, 2008
United Mexican States,
bonds, Series XW, 10 3/8s, 2009
U.S. INVESTMENT-GRADE
SECURITIES
U.S. Treasury Notes,
5 1/4s, 2004
Government National Mortgage Association,
Pass-through certificates, 71/2s, 2023-2025
Government National Mortgage Association,
Pass-through certificates, 7s, 2023-2028
Footnote reads:
These holdings represent 21.7% of the fund's net assets as of 9/30/99.
Portfolio holdings will vary over time.
As the fiscal year progressed, we bolstered the fund's position in
emerging-markets securities from approximately 5% to roughly 9% of net
assets. With emerging-markets bond prices hitting such extremely cheap
levels last autumn, we believed the yields they provided more than
compensated for the risks associated with these bonds. Our decision proved
both timely and profitable as the emerging-markets bond sector provided
the best relative performance over the period. The fund has exposure to
bonds in Mexico and Brazil, which offer attractive yields relative to
their medium-term sovereign creditworthiness.
The fund also had investment-grade positions in Sweden, the United
Kingdom, Germany, and Canada. The portfolio's minimal position in Japanese
government bonds limited performance, since these issues experienced a
dramatic rebound in the period's second half. Although we slightly
increased their representation within the portfolio near period's end, we
continue to underweight Japanese bonds, concerned that a glut of supply
will likely follow government spending initiatives.
* NEAR-TERM VOLATILITY LIKELY; LONG-TERM OUTLOOK STILL BRIGHT
By the time you receive this report, the Federal Reserve Board may have
raised interest rates yet again in response to the stronger-than-expected
economic data reported in September. The market volatility surrounding the
mere expectation of such an action may cause alarm for many investors. Add
to this the perceived problems of Y2K and illiquidity could become an
issue. While these events may hinder the near-term performance of bonds,
we view it as a potential buying opportunity for the portfolio. We believe
the fundamental underpinnings of the U.S. economy remain sound and the
Fed's actions in 1999 should prove to fortify the strength of U.S.
corporations. In the long run, we expect Y2K to be viewed largely as a
nonevent. We embark upon the new fiscal year with confidence in our
ability to minimize potential volatility and maximize the resulting
opportunities.
"Participating in the income and total return potential of a globally
diversified bond fund -- particularly in light of today's attractive prices
and higher yields -- might be the answer to some portfolio rebalancing
questions as 1999 draws to a close."
- -- Robert M. Paine, lead manager
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 9/30/99, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield bonds reflect a greater possibility that adverse changes in
the economy or poor performance by the issuers of these bonds may affect
the issuer's ability to pay principal and interest. International
investing involves certain risks, such as currency fluctuations, economic
instability, and political developments. While the U.S. government backing
of individual securities does not insure your principal, which will
fluctuate, it does guarantee the fund's government-backed holdings will
make timely payments of interest and principal. Mortgage-backed securities
in the portfolio may be subject to prepayment risk.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Master
Intermediate Income Trust is designed for investors seeking high current
income and relative stability of net asset value through U.S. government,
investment-grade, high-yield, and international fixed-income securities with
limited maturities.
TOTAL RETURN FOR PERIODS ENDED 9/30/99
Market
NAV price
- -------------------------------------------------------------------------
1 year 1.35% -9.09%
- -------------------------------------------------------------------------
5 years 41.84 35.87
Annual average 7.24 6.32
- -------------------------------------------------------------------------
10 years 126.24 98.92
Annual average 8.51 7.12
- -------------------------------------------------------------------------
Life of fund
(since 4/29/88) 144.85 94.53
Annual average 8.16 6.00
- -------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/99
Lehman Bros. Salomon Bros.
Govt. Non-U.S. First Boston
Intermediate World Govt. High Yield Consumer
Bond Index Bond Index Index price index
- ------------------------------------------------------------------------------
1 year 0.78% 1.53% 3.95% 2.75%
- ------------------------------------------------------------------------------
5 years 39.74 36.11 51.18 12.38
Annual average 6.92 6.36 8.62 2.36
- ------------------------------------------------------------------------------
10 years 105.51 137.21 171.90 34.32
Annual average 7.47 9.02 10.52 2.99
- ------------------------------------------------------------------------------
Life of fund
(since 4/29/88) 131.42 127.38 199.73 43.38
Annual average 7.63 7.46 10.09 3.21
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their original
cost.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/99
- ------------------------------------------------------------------
Distributions
- ------------------------------------------------------------------
Number 12
- ------------------------------------------------------------------
Income $0.557
- ------------------------------------------------------------------
Return of capital1 0.123
- ------------------------------------------------------------------
Total $0.680
- ------------------------------------------------------------------
Share value NAV Market price
- ------------------------------------------------------------------
9/30/98 $8.14 $7.750
- ------------------------------------------------------------------
9/30/99 7.57 6.438
- ------------------------------------------------------------------
Current return
- ------------------------------------------------------------------
Current dividend rate2 8.73% 10.25%
- ------------------------------------------------------------------
1 See page 41.
2 Income 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 common shares.
Market price is the current trading price of one share of the fund. Market
prices are set by transactions between buyers and sellers on the New York
Stock Exchange.
Comparative benchmarks
Lehman Bros. Government Intermediate Bond Index* is an unmanaged list of
U.S. government and mortgage-backed securities composed of all bonds
covered by the Lehman Brothers Government Bond Index with maturities
between 1 and 9.99 years.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged
list of bonds issued by 10 countries.
First Boston High Yield Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended September 30, 1999
To the Trustees and Shareholders of
Putnam Master Intermediate Income Trust
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Master
Intermediate Income Trust (the "fund") at September 30, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of investments owned at September 30, 1999 by
correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 11, 1999
<TABLE>
<CAPTION>
The fund's portfolio
September 30, 1999
CORPORATE BONDS AND NOTES (49.0%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,325,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 1,351,500
950,000 Big Flower Holdings, Inc. sr. sub. notes 8 7/8s, 2007 893,000
365,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 382,338
--------------
2,626,838
Aerospace and Defense (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,220,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 1,043,100
370,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 316,350
760,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 668,800
715,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 711,425
250,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 244,375
1,370,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 1,236,425
445,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 427,200
150,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 155,063
380,000 L-3 Communications Corp. sr. notes 9 1/8s, 2008 343,900
1,130,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,076,325
330,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 304,425
1,150,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 1,186,697
1,400,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 1,438,500
--------------
9,152,585
Agriculture (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,979,455 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 1,811,201
Airlines (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
490,000 Calair LLC 144A company guaranty 8 1/8s, 2008 452,638
510,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 300,900
840,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 672,000
270,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 224,100
1,220,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 780,800
2,370,000 United Pan-Europe N.V. 144A stepped-coupon zero %
(12 1/2s, 2004), 2009 (Netherlands) (STP) 1,327,200
1,140,000 United Pan-Europe N.V. 144A 10 7/8s, 2009 (Netherlands) 1,148,550
2,000,000 US Air Inc. pass through certificates Ser. 93-A2, 9 5/8s, 2003 1,987,040
--------------
6,893,228
Apparel (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
910,000 Fruit of the Loom company guaranty 8 7/8s, 2006 327,600
905,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 914,050
405,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 405,000
1,000,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 960,000
--------------
2,606,650
Automotive Parts (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
959,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 973,385
165,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 167,475
850,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 788,375
1,000,000 Federal Mogul Corp. notes 7 1/2s, 2009 902,630
1,890,000 Federal Mogul Corp. notes 7 3/8s, 2006 1,751,047
390,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
8 1/4s, 2008 343,200
1,000,000 Hayes Wheels International, Inc. 144A sr. sub. notes 9 1/8s, 2007 935,000
135,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 133,481
900,000 Lear Corp. sub. notes 9 1/2s, 2006 918,000
410,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 393,600
2,780,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 2,675,750
200,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 128,000
390,000 Transportation Manufacturing Operations Inc. 144A
company guaranty 11 1/4s, 2009 388,050
--------------
10,497,993
Banks (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,800,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2008 2,814,000
900,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 720,000
500,000 First Federal Financial Corp. notes 11 3/4s, 2004 505,000
200,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 188,000
120,000 Ocwen Financial Corp. notes 11 7/8s, 2003 112,800
--------------
4,339,800
Basic Industrial Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 124,600
350,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 119,000
70,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 62,300
--------------
305,900
Broadcasting (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
10,263 Australis Media, Ltd. sr. disc. notes stepped-coupon 1 3/4s,
(15 3/4s 5/15/00), 2003 (In default) (Australia) (STP) (PIK) (NON) 1
1,420,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 1,235,400
765,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 642,600
2,025,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 2,040,188
992,462 Capstar Broadcasting bank term loan FRN 4.999s, 2005 994,943
115,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s,
2004 (Bermuda) 46,000
2,370,000 Chancellor Media Corp. company guaranty 8s, 2008 2,298,900
396,020 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 406,911
1,550,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 1,519,000
910,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 837,200
1,980,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 2,009,700
2,260,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 2,180,900
375,000 Jacor Communications, Inc. company guaranty Ser. B,
8 3/4s, 2007 393,750
700,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 791,000
650,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 656,500
610,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 631,350
2,060,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 1,977,600
200,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 216,000
997,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 837,281
275,000 Radio One, Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 (STP) 284,625
986,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 1,094,460
510,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 469,200
525,000 Sinclair Broadcast Group, Inc. sr. sub. notes 10s, 2005 522,375
2,000,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 1,890,000
200,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 187,000
1,210,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 1,343,100
2,870,000 TV Azteca S.A. de C.V. sr. notes Ser. B, 10 1/2s, 2007 (Mexico) 2,224,250
--------------
27,730,234
Building and Construction (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 58,500
230,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 219,650
2,870,000 D.R. Horton, Inc. company guaranty 8s, 2009 2,633,225
1,030,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 515,000
290,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 268,250
410,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 397,700
520,000 Toll Corp. company guaranty 8 1/8s, 2009 492,700
--------------
4,585,025
Building Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
195,000 American Standard, Inc. company guaranty 7 5/8s, 2010 175,500
540,000 Building Materials Corp. company guaranty 8s, 2008 494,100
--------------
669,600
Business Equipment and Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
745,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 748,725
2,000,000 Iron Mountain, Inc. company guaranty 10 1/8s, 2006 2,070,000
1,320,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,240,800
125,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 121,250
989,130 Outsourcing Solutions, Inc. bank term loan FRN 8 5/8s, 2003 959,457
1,000,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 1,060,000
710,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 362,100
--------------
6,562,332
Cable Television (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,130,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 994,400
1,423,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 1,437,230
166,000 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 (PIK) 166,830
718,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 676,715
150,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 134,813
760,000 Century Communications Corp. sr. notes 8 7/8s, 2007 729,600
530,000 Century Communications Corp. sr. notes 8 3/4s, 2007 507,475
5,040,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 4,687,200
1,625,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 1,714,603
180,000 CSC Holdings, Inc. deb. Ser. B, 8 1/8s, 2009 181,593
2,365,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 2,341,279
550,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 522,874
270,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00),
2005 (United Kingdom) (STP) 242,325
3,500,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02),
2007 (United Kingdom) (STP) 2,756,250
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) 2,282,500
140,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 148,750
1,000,000 Jones Intercable, Inc. sr. notes 8 7/8s, 2007 1,067,500
2,050,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 2,085,875
1,450,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 1,435,500
840,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 827,400
170,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 182,325
560,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s,
2005 (In default) (Argentina) (NON) 263,200
800,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (9 1/4, 4/15/04) 2009
(United Kingdom) (STP) 490,000
--------------
25,876,237
Cellular Communications (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,290,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 12/3/99), 2004 (Colombia) (STP) 948,150
2,418,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 870,480
255,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 (In default) (NON) 25,500
710,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 749,050
2,325,000 McCaw International Ltd sr. disc. notes stepped coupon
zero % (13s, 4/15/02), 2007 (STP) 1,395,000
3,030,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01),
2006 (Luxembourg) (STP) 2,166,450
1,400,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 1,032,500
1,240,000 NEXTEL Communications, Inc. sr. disc. notes 10 1/8s, 2004 1,243,100
950,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.95s, 2/15/03), 2008 (STP) 662,625
135,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 (STP) 95,513
645,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 657,900
--------------
9,846,268
Chemicals (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,430,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 1,322,750
770,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 719,950
600,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 561,000
15,000 Huntsman Corp. 144A sr. sub. notes FRN 8.8725s, 2007 13,350
1,570,000 Huntsman ICI Chemicals Inc. 144A sr. sub. notes 10 1/8s, 2009 1,530,750
1,000,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 997,500
1,520,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 1,504,800
2,310,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 2,298,450
200,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 206,500
466,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 358,820
336,084 Polytama International notes 11 1/4s, 2007 (Indonesia) 60,495
810,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 737,100
660,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 630,300
185,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 37,000
570,000 Sterling Chemicals Inc. 144A sec. notes 12 3/8s, 2006 535,800
555,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 310,800
--------------
11,825,365
Computer Services and Software (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
85,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 85,850
750,000 PSINet, Inc. sr. notes 11 1/2s, 2008 757,500
1,150,000 PSINet, Inc. 144A sr. notes 11s, 2009 1,127,000
670,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 640,688
1,245,000 Unisys Corp. sr. notes 11 3/4s, 2004 1,385,063
1,400,000 Unisys Corp. sr. notes 7 7/8s, 2008 1,354,500
360,000 Verio Inc. sr. notes 11 1/4s, 2008 367,200
360,000 Verio Inc. sr. notes 10 3/8s, 2005 357,300
--------------
6,075,101
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Axia, Inc. company guaranty 10 3/4s, 2008 925,000
1,075,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 516,000
--------------
1,441,000
Consumer Durable Goods (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
630,000 Albecca Inc. company guaranty 10 3/4s, 2008 483,525
50,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 18,500
190,000 Iron Age Corp. company guaranty 9 7/8s, 2008 146,300
410,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 397,700
--------------
1,046,025
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,050,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 1,110,375
280,000 Protection One, Inc. sr. disc. notes 13 5/8s, 2005 254,800
--------------
1,365,175
Cosmetics (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 178,425
320,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 288,000
380,000 Revlon Consumer Products sr. notes 9s, 2006 343,900
1,700,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 1,385,500
1,390,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 1,240,575
--------------
3,436,400
Electric Utilities (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,050,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 981,750
1,500,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,506,240
700,000 Calpine Corp. sr. notes 7 7/8s, 2008 665,000
1,000,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 943,660
1,810,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 1,739,410
1,000,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 1,206,700
3,000,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 3,315,870
1,692,337 Northeast Utilities System notes Ser. A, 8.58s, 2006 1,715,420
113,333 Northeast Utilities System notes Ser. B, 8.38s, 2005 112,636
1,130,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 1,130,000
--------------
13,316,686
Electronics and Electrical Equipment (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
905,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (Canada) 950,250
540,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 510,300
675,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 664,875
120,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 79,200
1,160,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 1,119,400
100,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 102,000
1,400,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 1,207,500
15,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 12,938
570,000 Wavetek Corp. company guaranty 10 1/8s, 2007 478,800
--------------
5,125,263
Energy-Related (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
279,756 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 281,496
272,195 Niagara Mohawk Power Corp. sr. notes Ser. E, 7 3/8s, 2003 273,548
1,290,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 735,300
400,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 198,000
--------------
1,488,344
Entertainment (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
280,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 229,600
640,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 534,400
2,240,000 ITT Corp. notes 6 3/4s, 2005 2,016,448
500,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 471,250
730,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 689,850
800,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 352,000
1,050,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 210,000
--------------
4,503,548
Environmental Control (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
910,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10s, 2009 848,575
900,000 Allied Waste Industries, Inc. bank term loan 8.311s, 2007 915,444
740,000 Allied Waste Industries, Inc. bank term loan 8.078s, 2006 743,744
2,610,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 2,300,063
--------------
4,807,826
Financial Services (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,050,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 703,500
1,350,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,258,538
1,060,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 961,590
630,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 387,450
190,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 119,700
1,250,000 Capital One Financial Corp. notes 7 1/4s, 2006 1,187,500
780,000 Cellco Finance Corp. NV 144A sr. sub. notes 15s,
2005 (Netherlands) 820,950
120,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 41,400
1,340,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 455,600
1,320,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 316,800
750,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 600,000
125,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 99,844
500,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 305,000
1,500,000 RBF Finance Co. company guaranty 11 3/8s, 2009 1,575,000
1,710,000 RBF Finance Co. company guaranty 11s, 2006 1,765,575
120,000 Resource America, Inc. 144A sr. notes 12s, 2004 102,000
--------------
10,700,447
Food and Beverages (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Ameriserve Food Co. 144A sec. notes 12s, 2006 1,466,250
500,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 325,000
665,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 669,988
920,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 926,900
400,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 320,000
990,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 623,700
2,050,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 2,009,000
1,210,000 Trairc Consumer Products, Inc. 144A sr. sub. notes 10 3/4s, 2009 1,170,675
690,000 Vlassic Foods Intl. Inc. 144A sr. sub. notes 10 1/4s, 2009 621,000
--------------
8,132,513
Gaming (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
860,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 881,500
1,950,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 1,891,500
1,245,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 1,102,136
1,370,300 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 1,301,785
720,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s,
2004 (In default) (NON) 387,000
270,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 253,892
1,440,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 1,450,800
510,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 489,600
990,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 935,550
1,710,000 International Game Technology sr. notes 7 7/8s, 2004 1,633,050
150,000 Isle of Capri Black Hawk LLC 1st mortgage Ser. B, 13s, 2004 162,750
2,000,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 1,960,000
680,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 659,600
500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 223,750
1,320,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 1,336,606
--------------
14,669,519
Health Care (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
530,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 463,835
2,310,000 Conmed Corp. company guaranty 9s, 2008 2,125,200
1,250,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 750,000
660,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 514,800
1,000,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 160,000
380,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 64,600
1,390,000 Lifepoint Hospital Holdings 144A sr. sub. notes 10 3/4s, 2009 1,386,525
921,233 Magellan Health bank term loan FRN 8s, 2005 875,171
310,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
zero % Ser. B, (10 1/2s, 11/1/02), 2007 (STP) 15,500
1,480,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 88,800
1,130,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 1,079,150
1,590,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 604,200
1,045,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 710,600
1,005,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s,
2007 (In default) (NON) 100,500
500,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s,
2008 (In default) (NON) 50,000
370,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 351,500
230,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 225,400
500,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 457,500
1,370,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 1,246,700
470,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 467,650
--------------
11,737,631
Lodging (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
830,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 722,100
220,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 203,500
1,665,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,486,013
1,750,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 1,793,750
550,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 528,000
1,000,000 Starwood Hotels & Resorts bank term loan 7.861s, 2003 1,000,000
2,240,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 2,115,098
360,000 Sun International Hotels Ltd. company guaranty 9s, 2007 334,800
740,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 669,700
--------------
8,852,961
Manufacturing (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,020,000 Blount, Inc. 144A sr. sub. notes 13s, 2009 1,050,600
1,000,000 Blount, Inc. bank term loan FRN 9.315s, 2006 997,500
--------------
2,048,100
Medical Supplies and Devices (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
340,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 315,350
550,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 570,625
140,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 100,800
500,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 390,000
560,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 140,000
610,000 Mediq, Inc. company guaranty 11s, 2008 396,500
--------------
1,913,275
Metals and Mining (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 980,000
200,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 (In default) (NON) 74,000
1,000,000 Armco, Inc. sr. notes 9s, 2007 1,002,500
1,440,000 Better Minerals & Aggregates Co. 144A sr. sub. notes 13s, 2009 1,445,400
210,000 Continental Global Group sr. notes Ser. B, 11s, 2007 123,900
1,030,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 772,500
470,000 Neenah Corp. company guaranty Ser. F, 11 1/8s, 2007 432,400
1,250,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 1,240,625
490,000 WHX Corp. sr. notes 10 1/2s, 2005 463,050
--------------
6,534,375
Motion Picture Distribution (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,600,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 1,248,000
2,142,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 642,600
--------------
1,890,600
Networking (--%)
- --------------------------------------------------------------------------------------------------------------------------
210,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 212,100
Oil and Gas (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
640,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 464,000
75,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 45,750
1,000,000 Cliffs Drilling Co. company guaranty Ser. D, 10 1/4s, 2003 977,500
550,000 Coda Energy Inc. company guaranty Ser. B, 10 1/2s, 2006 565,125
220,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 226,600
450,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 442,076
350,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 349,269
270,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 276,750
1,320,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 1,313,400
680,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 656,200
890,000 Petro Geo-Services notes 7 1/2s, 2007 (Norway) 878,946
300,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 286,500
360,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 144,000
1,050,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 1,068,375
500,000 Vintage Petroleum sr. sub. notes 9s, 2005 495,000
500,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 (In default) (NON) 175,000
--------------
8,364,491
Packaging and Containers (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 112,200
480,000 Ball Corp. company guaranty 7 3/4s, 2006 465,600
990,000 Jefferson Smurfit bank term loan 8.65s, 2006 991,238
665,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 532,000
370,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 359,940
700,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 657,881
1,110,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 1,046,841
1,080,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 1,090,800
918,441 Packaging Corp. bank term loan FRN 5 1/2s, 2007 918,441
2,170,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 2,045,225
450,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 446,625
--------------
8,666,791
Paper and Forest Products (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
215,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 201,025
780,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 694,200
1,035,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 579,600
780,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 791,700
1,080,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 604,800
1,745,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s,
2004 (Indonesia) 994,650
1,513,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 1,320,093
850,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 786,250
--------------
5,972,318
Pharmaceuticals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
900,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 893,250
660,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 602,250
--------------
1,495,500
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
190,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 95,000
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Affinity Group Holdings sr. notes 11s, 2007 346,875
1,545,000 American Media Operation, Inc. sr. sub. notes 10 1/4s, 2009 1,494,788
750,000 Garden State Newspapers sr. sub. notes Ser. B, 8 3/4s, 2009 708,750
1,450,000 Garden State Newspapers sr. sub. notes 8 5/8s, 2011 1,305,000
1,390,000 Perry-Judd company guaranty 10 5/8s, 2007 1,264,900
77,614 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 70,629
100,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 98,000
--------------
5,288,942
Railroads (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
290,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 200,100
1,300,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,140,750
--------------
1,340,850
Recreation (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,775,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,608,500
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 435,000
Retail (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
560,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 490,000
315,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 285,075
600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 600,000
440,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 368,500
1,745,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 1,649,025
260,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 257,400
--------------
3,650,000
Satellite Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
700,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 745,500
Semiconductors (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,375,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,347,500
670,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 611,375
--------------
1,958,875
Shipping (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
145,000 International Shipholding Corp. sr. notes 9s, 2003 145,000
240,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 220,800
1,590,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 1,621,800
--------------
1,987,600
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
670,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 596,300
Steel (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,570,000 AK Steel Corp. company guaranty 7 7/8s, 2009 1,444,400
930,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 883,500
920,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 913,100
--------------
3,241,000
Supermarkets (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 164,500
1,250,000 Southland Corp. deb. Ser. B, 4s, 2004 962,500
--------------
1,127,000
Telecommunications (8.4%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 23,000
1,320,000 Alaska Communications Systems 144A sr. sub. notes
9 3/8s, 2009 1,237,500
230,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 249,550
1,055,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 685,750
300,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 166,500
480,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 302,400
460,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 450,800
965,000 Caprock Communications Corp. sr. notes 11 1/2s, 2009 936,050
750,000 Carrier1 International S.A. 144A sr. notes 13 1/4s,
2009 (Switzerland) 750,000
2,660,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01),
2006 (United Kingdom) (STP) 2,174,550
1,115,000 Covad Communications Group sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 568,650
1,400,000 Covad Communications Group sr. notes 12 1/2s, 2009 1,316,000
4,455,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B, zero %
(12 1/2s, 03/01/03), 2008 (STP) 1,559,250
3,090,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 3,043,650
1,500,000 Econophone, Inc. company guaranty 13 1/2s, 2007 1,575,000
1,110,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 621,600
535,000 Esprit Telecom Group PLC sr. notes 11 1/2s,
2007 (United Kingdom) 543,025
2,050,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13s, 4/15/03), 2008 (STP) 1,045,500
2,050,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 1,153,125
2,910,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 2,990,025
1,000,000 GST Equipment Funding sr. notes 13 1/4s, 2007 1,010,000
2,937,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 2,232,120
1,210,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 568,700
380,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 319,200
650,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 682,500
940,000 Hyperion Telecommunications Corp., Inc. sr. sub. notes 12s, 2007 944,700
860,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 748,200
3,750,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 2,081,250
1,150,000 Insight Midwest 144A sr. notes 9 3/4s, 2009 1,160,063
520,000 Interact Systems, Inc. 144A 14s, 2003 83,200
670,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 448,900
1,600,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 1,376,000
790,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 675,450
2,590,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 2,253,300
1,360,000 IPC Information Systems, Inc. sr. disc. notes 10 7/8s, 2008 1,006,400
1,110,000 KMC Telecom Holdings, Inc. 144A sr. notes 13 1/2s, 2009 1,076,700
2,445,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 1,222,500
2,120,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 1,234,900
610,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 512,400
1,270,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,060,450
60,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 37,800
100,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 88,000
1,180,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 1,309,800
1,810,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 1,828,100
600,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 642,000
1,765,000 NTL, Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 1,800,300
310,000 NTL, Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 204,600
280,000 Onepoint Communications, Inc. company guaranty Ser. B,
14 1/2s, 2008 182,000
1,260,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 683,550
510,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 404,292
670,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 493,395
520,000 Qwest Communications International, Inc. sr. notes Ser. B,
7 1/4s, 2008 503,521
1,720,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 842,800
390,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 300,300
860,000 Startec Global Communications Corp. sr. notes 12s, 2008 713,800
1,645,000 Telecom Tech, Inc. company guaranty 9 3/4s, 2008 1,562,750
410,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 102,500
160,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008 178,000
960,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 1/2s, 3/1/03), 2008 (STP) 504,000
1,115,000 Teligent, Inc. sr. notes 11 1/2s, 2007 1,020,225
1,300,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 1,309,750
730,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 722,700
1,900,000 Williams Communications Group, Inc. sr. notes 10 7/8s, 2009 1,885,731
1,770,000 WinStar Communications, Inc. sr. sub. notes 11s, 2008 1,539,900
1,590,000 WinStar Communications, Inc. sr. sub. notes 10s, 2008 1,319,700
1,120,000 Worldwide Fiber, Inc. 144A sr. notes 12s, 2009 1,094,800
--------------
63,363,172
Telephone Services (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,750,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,470,000
1,880,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 996,400
1,440,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) (STP) 849,600
1,630,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 839,450
520,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 416,000
170,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 144,500
1,370,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,195,325
380,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 278,350
280,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 207,200
1,142,000 ITC Deltacom, Inc. sr. notes 11s, 2007 1,199,100
160,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 80,000
1,500,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 (STP) 1,177,500
1,580,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 1,572,100
970,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 853,600
180,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 116,100
1,340,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 1,333,300
450,000 RSL Communications, Ltd. 144A company guaranty
10 1/2s, 2008 409,500
200,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 167,000
760,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon zero %
(12 1/2s, 8/15/01), 2006 (STP) 703,836
275,000 Sprint Spectrum L.P. sr. notes 11s, 2006 307,876
115,000 Transtel S.A. pass through certificates 12 1/2s, 2007 56,350
500,000 US Xchange LLC sr. notes 15s, 2008 487,500
270,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 151,200
3,300,000 Viatel, Inc. sr. notes 11 1/4s, 2008 3,102,000
--------------
18,113,787
Textiles (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
960,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 220,800
190,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 180,025
580,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 543,750
700,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 654,500
--------------
1,599,075
Transportation (--%)
- --------------------------------------------------------------------------------------------------------------------------
350,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 336,000
Wireless Communications (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
550,000 Allbritton Communications Co. sr. sub. deb. Ser. B, 9 3/4s, 2007 547,250
3,090,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 2,950,950
390,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 278,850
670,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 629,800
490,000 Omnipoint Corp. 144A sr. notes 11 1/2s, 2009 504,700
620,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 471,200
255,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 76,500
750,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon zero %,
(11 5/8s, 4/15/04), 2009 (STP) 433,114
--------------
5,892,364
--------------
Total Corporate Bonds and Notes (cost $412,474,901) $ 371,504,210
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (22.1%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (7.0%)
- --------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
$ 368,038 7s, February 1, 2012 $ 368,152
98,268 6 1/2s, September 1, 2002 97,315
Federal National Mortgage Association
Pass-Through Certificates
3,363 8 1/2s, March 1, 2006 3,456
1,745,198 7s, May 1, 2011 1,743,558
858,609 6 1/2s, with due dates from August 1, 2010 to August 1, 2013 842,510
Government National Mortgage Association
Pass-Through Certificates
8,111,303 8s, with due dates from July 15, 2023 to March 15, 2028 8,288,747
22,890,128 7 1/2s, with due dates from January 15, 2023 to
December 15, 2025 22,983,096
16,771,983 7s, with due dates from April 15, 2023 to June 15, 2028 16,479,731
2,096,450 6 1/2s, with due dates from December 15, 2027 to
January 15, 2029 2,011,222
--------------
52,817,787
U.S. Treasury Obligations (15.1%)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
9,540,000 12 3/8s, May 15, 2004 (SEG) 11,953,334
12,680,000 11 5/8s, November 15, 2004 15,768,721
U.S. Treasury Notes
745,000 6s, August 15, 2009 751,049
205,000 6s, August 15, 2004 206,986
4,635,000 5 1/2s, May 15, 2009 4,485,104
2,320,000 5 1/2s, July 31, 2001 2,314,200
61,395,000 5 1/4s, May 15, 2004 60,003,789
6,375,000 5 1/4s, May 31, 2001 6,336,176
12,215,000 4 7/8s, March 31, 2001 12,089,063
465,000 4 3/4s, November 15, 2008 423,295
--------------
114,331,717
--------------
Total U.S. Government and Agency Obligations
(cost $170,738,153) $ 167,149,504
FOREIGN GOVERNMENT BONDS AND NOTES (19.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD 13,700,000 Argentina (Republic of) unsub. 11 3/4s, 2009 $ 13,220,500
AUD 16,765,000 Australia (Government of) bonds Ser. 1007, 10s, 2007 13,494,789
USD 23,700,000 Brazil (Government of) bonds 11 5/8s, 2004 22,249,560
CAD 8,025,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 5,974,155
CAD 24,850,000 Canada (Government of) bonds 6s, 2008 17,237,082
CAD 11,575,000 Canada (Government of) bonds 5 1/2s, 2009 7,758,233
USD 1,450,000 Colombia (Republic of) unsub. 9 3/4s, 2009 1,243,375
USD 560,000 Colombia (Republic of) unsub. 8 5/8s, 2008 450,800
EUR 11,045,000 Germany (Federal Republic of) bonds 4 1/8s, 2004 11,654,507
USD 5,500,000 Russia (Federation of) unsub. 10s, 2007 2,310,000
SEK 79,900,000 Sweden (Government of) bonds 9s, 2009 12,101,329
SEK 60,900,000 Sweden (Government of) bonds Ser. 1041, 6s, 2005 7,662,185
SEK 7,000,000 Sweden (Government of) bonds Ser. 1039,
5 1/2s, 2002 871,160
GBP 2,715,000 United Kingdom Treasury bonds 10s, 2003 5,033,610
GBP 1,775,000 United Kingdom Treasury bonds 8s, 2000 2,994,873
GBP 2,730,000 United Kingdom Treasury bonds 7 1/4s, 2007 4,857,854
USD 13,935,000 United Mexican States bonds Ser. XW, 10 3/8s, 2009 14,102,220
USD 2,940,000 United Mexican States sr. notes Ser. EMTN,
9 3/4s, 2005 2,964,990
--------------
Total Foreign Government Bonds and Notes
(cost $149,651,120) $ 146,181,222
COLLATERALIZED MORTGAGE OBLIGATIONS (3.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 1,660,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
Class D, 6.977s, 2030 $ 1,562,994
50,652,322 First Union-Lehman Brothers Commercial Mortgage Co.
Ser. 98-C2, Interest Only (IO), 0.617s, 2028 1,901,443
586,836 Fannie Mae Ser. 1998-30, Class TH, IO, 6 1/2s 2012 109,298
Freddie Mac
410,456 Ser. 1717, Class L, 6 1/2s, 2024 400,050
5,865,686 Ser. 1954, Class MG, IO, 6s, 2027 1,776,203
1,338,000 Ser. 2039, Class PI, IO, 6 1/2s, 2012 221,606
1,150,110 Ser. 2050, Class PI, IO, 6 1/2s, 2011 208,098
693,000 Ser. 2100, Class GI, IO, 6 1/2s, 2012 129,071
1,852,213 Ser. 2103, Class PI, IO, 6 1/2s, 2012 330,064
964,238 Ser. 2113, Class ZM, 6 1/2s, 2028 867,814
Freddie Mac Strip
539,240 Ser. 176, Principal Only (PO), zero %, 2026 373,761
1,062,670 Ser. 177, PO, zero %, 2026 736,563
1,208,134 Ser. 203, PO, zero %, 2029 758,859
1,025,000 GGP-Ivanhoe Ser. 1999-C1, Class G, FRB, 8.666s, 2004 1,025,000
862,000 GGP-Ivanhoe Ser. 1999-C1, Class F, FRB, 7.916s, 2004 862,000
1,990,000 GGP-Ivanhoe Ser. 1999-C1, Class E, FRB, 7.63s, 2009 1,990,000
Merrill Lynch Mortgage Investors, Inc.
233,973 Ser. 98-C2, Class A1, 6.22s, 2030 228,160
4,990,000 Ser. 98-C2, Class D, 6.956s, 2030 4,630,564
17,771,226 Ser. 96-C2, IO, 1.562s, 2028 1,245,374
17,967,524 Ser. 98-C2, IO, 1.449s, 2030 1,308,260
995,000 Morgan Stanley Capital I Ser. 98-XL1, Class E, 7.15s, 2030 932,502
Mortgage Capital Funding, Inc.
9,403,439 Ser. 97-MC2, Class X, IO, 1.581s, 2012 661,179
3,456,814 Ser. 98-MC1, Class X, IO, 0.86s, 2009 133,087
483,862 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 480,862
474,140 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 466,819
--------------
Total Collateralized Mortgage Obligations
(cost $24,342,191) $ 23,339,631
PREFERRED STOCKS (2.3%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
276 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) $ 138,000
8,245 AmeriKing, Inc. $3.25 pfd. (PIK) 131,920
2,459 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 285,244
409 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 376,280
8,323 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 894,723
19,200 Diva Systems Corp. Ser. C, $6.00 pfd. 76,800
381 Dobson Communications Corp. 13.00% pfd. 367,665
1,435 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 1,241,275
320 First Republic 144A 10.50% pfd. 320,000
11,765 Fitzgeralds Gaming $3.75 cum. pfd. 23,530
1,540 Fresenius Medical Capital Trust I company guaranty Ser. D,
9.00% pfd. (Germany) 1,513,050
900 Fresenius Medical Capital Trust II company guaranty
7.875% pfd. (Germany) 830,250
13,600 Global Crossing Holdings 144A $10.50 pfd. 1,428,000
1,503 Granite Broadcasting 144A 12.75% pfd. (PIK) 1,442,880
1,071 ICG Holdings, Inc., 144A 14.00% pfd. (Canada) (PIK) 996,030
1,574 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 1,416,600
520 IXC Communications, Inc. 12.50% pfd. (PIK) 546,000
14,704 Lady Luck Gaming Corp. $11.25 pfd. 617,568
32,829 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 1,625,035
123 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 1,328,400
1,105 Spanish Broadcasting Systems 14.25% cum. pfd. 1,160,250
390 WinStar Communications, Inc. 144A 14.25% pfd. (PIK) 327,600
--------------
Total Preferred Stocks (cost $18,602,593) $ 17,087,100
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 $ 1,099,080
350,000 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2,
7.67s, 2028 336,546
3,280,000 Green Tree Financial Corp. Ser. 98-2, Class A5, 6.24s, 2016 3,237,975
631,790 Green Tree Recreational Equipment & Cons. Ser. 97-B,
Class A1, 6.55s, 2028 628,878
1,132,510 Resolution Trust Corp. Ser. 94-1, Class M1, 7.14s, 2029 1,132,510
--------------
Total Asset-Backed Securities (cost $6,375,769) $ 6,434,989
BRADY BONDS (0.6%) (a) (cost $3,923,707)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 5,535,678 Venezuela (Republic of) deb. Ser. A, FRB 6.875s, 2007 $ 4,168,360
CONVERTIBLE BONDS AND NOTES (0.3%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,430,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) $ 1,342,575
164,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 (STP) 196,800
490,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 379,138
290,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 273,687
--------------
Total Convertible Bonds and Notes (cost $2,095,336) $ 2,192,200
COMMON STOCKS (0.3%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
150 AmeriKing, Inc. (NON) $ 1,500
2,955 Axia Holding Inc. 144A (NON) 38,415
72,407 Celcaribe S.A. (Colombia) (NON) 27,153
209,754 Celcaribe S.A. 144A (Colombia) (NON) 262,193
12,124 Chesapeake Energy Corp. 46,981
23,404 Fitzgerald Gaming Corp. 5,851
3,033 Hedstrom Holdings, Inc. 144A (NON) 3,033
3,770 IFINT Diversified Holdings 144A 7,540
5,887 Lady Luck Gaming Corp. (NON) 47,096
175 Mothers Work, Inc. (NON) 1,378
1,770 NEXTEL Communications, Inc. Class A (NON) 120,028
255 Paging Do Brazil Holdings Co., LLC 144A, Class B (NON) 3
327 Premium Holdings (L.P.) 144A (NON) 1,308
71,533 PSF Holdings LLC Class A (NON) 894,163
113 Spanish Broadcasting System, Inc. (NON) 73,450
10,050 Specialty Foods Acquisition Corp. (NON) 201
5,075 Viatel, Inc. (NON) 150,030
10,875 WinStar Communications. Inc. (NON) 424,806
--------------
Total Common Stocks (cost $3,211,369) $ 2,105,129
WARRANTS (0.2%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
390 American Mobile Satellite Corp. 4/1/08 $ 15,600
480 Bestel S.A. (Mexico) 5/15/05 14,400
460 Birch Telecommunications, Inc. 144A 6/15/08 25,300
750 Carriel International 144A 2/19/09 15,000
2,428 Cellnet Data Systems, Inc. 10/1/07 60,700
1,220 Club Regina, Inc. 144A 12/1/04 1,220
1,910 Colt Telecommunications Group PLC 12/31/06 725,800
1,500 Comunicacion Cellular 144A (Colombia) 11/15/03 81,000
3,442 Conscel 144A (Ecuador) 10/1/00 344
475 Diva Systems Corp. 5/15/06 85,500
6,426 Diva Systems Corp. 3/1/08 51,408
13,775 DTI Holdings, Inc. 3/1/08 138
10 E. Spire Communications, Inc. 11/1/05 100
830 Epic Resorts 6/15/05 8
255 Esat Holdings, Inc. (Ireland) 2/1/07 17,850
2,050 Firstworld Communication 4/15/08 143,500
770 Hyperion Telecommunications 144A 4/15/01 96,250
9,768 ICG Communications 10/15/05 175,824
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 0
400 Iridium World Com 144A 7/15/05 4
2,085 KMC Telecom Holdings, Inc. 4/15/08 6,255
1,180 Knology Holdings, Inc. 144A 10/15/07 2,950
160 Long Distance International, Inc. 144A 4/13/08 320
930 McCaw International Ltd. 4/15/07 3,953
560 Mediq, Inc. 144A 6/1/09 6
840 MGC Communications, Inc. 144A 10/1/04 75,180
280 Onepoint Communications, Inc. 6/1/08 280
620 Orbital Imaging Corp. 144A 3/1/05 12,400
1,840 Pagemart, Inc. 144A 12/31/03 13,800
990 Pathnet, Inc. 144A 4/15/08 9,900
960 Paxson Communications Corp. 144A 6/30/03 3,840
860 Startec Global Communications Corp. 5/15/08 860
185 Sterling Chemicals Holdings 8/15/08 2,220
410 Telehub Communications Corp. 7/31/05 4,100
1,260 UIH Australia/Pacific, Inc. 144A 5/15/06 37,800
730 Versatel 144A 5/15/08 116,800
100 Wright Medical Technology, Inc. 144A 6/30/03 1
--------------
Total Warrants (cost $815,426) $ 1,863,791
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) (STP) (NON) $ 60
490 Cybernet 144A units 14s, 2009 482,650
840 Pegasus Shipping 144A units company guaranty zero %, 2008 84,000
500 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 175,000
--------------
Total Units (cost $2,052,909) $ 741,710
CONVERTIBLE PREFERRED STOCKS (--%) (a) (cost $300,000)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
30 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) $ 336,000
SHORT-TERM INVESTMENTS (2.4%) (a) (cost $18,347,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$18,347,000 Interest in $750,000,000 joint tri-party repurchase agreement
dated September 30, 1999 with Goldman Sachs due
October 1, 1999 with respect to various U.S. Treasury
obligations -- maturity value of $18,349,696 for an
effective yield of 5.29% $ 18,347,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $812,930,474) (b) $ 761,450,846
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $757,533,330.
(b) The aggregate identified cost on a tax basis is $813,996,392, resulting in gross unrealized appreciation and
depreciation of $5,610,231 and $58,155,777, respectively, or net unrealized depreciation of $52,545,546.
(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.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at September 30, 1999.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional
buyers.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at
September 30, 1999, which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at September 30, 1999: (as percentage of Market Value)
Argentina 1.8%
Australia 1.8
Brazil 3.1
Canada 5.5
Germany 1.8
Mexico 3.3
Sweden 2.7
United Kingdom 2.8
United States 74.4
Other 2.8
-----
Total 100.0%
=====
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at September 30, 1999
(aggregate face value $103,893,295)
Aggregate Face Delivery Unrealized
Market Value Value Date Appreciation
- -------------------------------------------------------------------------------
Danish Krone $ 4,005,518 $ 3,984,745 2/03/00 $ 20,773
Euro 47,170,702 46,862,319 2/03/00 308,383
Japanese Yen 54,163,835 53,046,231 2/03/00 1,117,604
- -------------------------------------------------------------------------------
$1,446,760
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at September 30, 1999
(aggregate face value $122,483,727)
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
- -------------------------------------------------------------------------------
Australian Dollars $ 7,099,678 $ 7,050,730 2/03/00 $ (48,948)
British Pounds 5,069,915 5,069,718 2/03/00 (197)
Canadian Dollar 31,811,835 31,227,300 2/03/00 (584,535)
Euro 30,997,105 30,781,420 2/03/00 (215,685)
Japanese Yen 49,433,690 48,354,559 2/03/00 (1,079,131)
- -------------------------------------------------------------------------------
$(1,928,496)
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1999
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Bank Accept (Short) $16,335,197 $16,293,018 Dec-99 $ (42,179)
Euro Euribor (Short) 10,228,765 10,237,766 Dec-00 9,001
Euro Euribor (Short) 1,292,012 1,292,401 Dec-99 389
Euro Euribor (Long) 7,771,500 7,760,990 Mar-00 10,510
Euro Euribor (Short) 7,993,400 7,979,171 Jun-00 14,229
Euro Euribor (Long) 31,902,855 31,894,430 Jun-00 (8,425)
Euro Euribor (Short) 1,019,566 1,020,717 Jun-01 1,151
Euro Euribor (Short) 1,290,010 1,289,704 Mar-00 (306)
Euro Euribor (Short) 1,021,542 1,024,412 Mar-01 2,870
Euro Euribor (Short) 1,026,454 1,028,836 Sep-00 2,382
Euro Schatz (Long) 4,867,429 4,873,806 Dec-99 (6,377)
Euroyen (Long) 20,181,279 20,172,702 Jun-00 8,577
Euroyen (Long) 13,386,018 13,383,016 Mar-00 3,002
Euroyen (Short) 33,511,841 33,501,250 Sep-00 (10,591)
GBP Euribor (Long) 30,765,584 30,729,322 Jun-00 36,262
GBP Euribor (Long) 9,180,292 9,163,905 Dec-00 16,387
U.S. Treasury Note 10yr
(Short) 21,804,750 21,701,619 Dec-99 (103,131)
- -------------------------------------------------------------------------------
$ (66,249)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $812,930,474) (Note 1) $761,450,846
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $242,595) 245,626
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 16,911,017
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 3,681,880
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,446,760
- -----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 789,404
- -----------------------------------------------------------------------------------------------
Total assets 784,525,533
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,890,360
- -----------------------------------------------------------------------------------------------
Payable for variation margin 48,921
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,484,063
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 15,804,518
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,392,963
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 87,178
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 47,846
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,598
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 1,928,496
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 250,892
- -----------------------------------------------------------------------------------------------
Other accrued expenses 54,368
- -----------------------------------------------------------------------------------------------
Total liabilities 26,992,203
- -----------------------------------------------------------------------------------------------
Net assets $757,533,330
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $862,198,016
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (5,255,468)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investment and
foreign currency transactions (Note 1) (47,271,369)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (52,137,849)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $757,533,330
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($757,533,330 divided by 100,133,127 shares) $7.57
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $98,884) $ 64,210,451
- -----------------------------------------------------------------------------------------------
Dividends 1,494,273
- -----------------------------------------------------------------------------------------------
Total investment income 65,704,724
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,635,256
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 900,686
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 20,487
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,379
- -----------------------------------------------------------------------------------------------
Reports to shareholders 70,539
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 70,319
- -----------------------------------------------------------------------------------------------
Legal 32,782
- -----------------------------------------------------------------------------------------------
Postage 155,569
- -----------------------------------------------------------------------------------------------
Other 142,972
- -----------------------------------------------------------------------------------------------
Exchange listing fees 288,874
- -----------------------------------------------------------------------------------------------
Total expenses 7,327,938
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (42,852)
- -----------------------------------------------------------------------------------------------
Net expenses 7,285,086
- -----------------------------------------------------------------------------------------------
Net investment income 58,419,638
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (26,226,175)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,671,810)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions 5,775,814
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 2,394,288
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures and
TBA sale commitments during the year (28,417,765)
- -----------------------------------------------------------------------------------------------
Net loss on investments (48,145,648)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 10,273,990
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 58,419,638 $ 55,514,106
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (22,122,171) (14,776,228)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (26,023,477) (36,989,992)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 10,273,990 3,747,886
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (55,752,154) (55,414,822)
- ---------------------------------------------------------------------------------------------------------------
From return of capital (12,290,601) --
- ---------------------------------------------------------------------------------------------------------------
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 (56,808,492) 476,678,259
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 814,341,822 337,663,563
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $5,255,468 and
$13,561,328, respectively) $757,533,330 $814,341,822
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 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 118,477 --
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at end of year 100,133,127 100,014,650
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.14 $8.79 $8.58 $8.38 $8.13
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .58 .71 .64 .63 .67
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.47) (.67) .21 .19 .21
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .11 .04 .85 .82 .88
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.56) (.69) (.64) (.61) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.12) -- -- (.01) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.68) (.69) (.64) (.62) (.63)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.57 $8.14 $8.79 $8.58 $8.38
- ------------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.438 $7.750 $8.125 $7.500 $7.375
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (9.09) 3.91 17.54 10.34 10.90
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $757,533 $814,342 $337,664 $332,537 $326,735
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .93 .92 1.04 .99 1.03
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.39 8.13 7.47 7.44 8.24
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 133.72 179.84(c) 220.61 232.90 219.63
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total return does not reflect the effect of sales charges.
(b) 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
September 30, 1999
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. 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 and convertible bonds and notes; such investments are
stated at fair value on the basis of valuations furnished by a pricing
service or dealers, approved by the Trustees, which determine valuations
for normal, institutional-size trading units of such securities using
methods based on market transactions for comparable securities and 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). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. 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, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At month September 30, 1999, the fund had a capital loss carryover of
approximately $21,675,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ------------------
$ 253,000 September 30, 2002
7,035,000 September 30, 2003
2,793,000 September 30, 2004
1,554,000 September 30, 2005
10,040,000 September 30, 2007
K) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. At
certain times, the fund may pay distributions at a level rate even though,
as a result of market conditions or investment decisions, the fund may not
achieve projected investment results for a given period. Capital gain
distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, post-October loss
deferrals, the expiration of a capital loss carryover, dividends payable,
defaulted bond interest, unrealized gains and losses on certain futures
contracts, paydown gains and losses on mortgage-backed securities, market
discount and interest on payment-in-kind securities. Reclassifications are
made to the fund's capital accounts to reflect income and gains available
for distribution (or available capital loss carryovers) under income tax
regulations. For the year ended September 30, 1999, the fund reclassified
$5,638,376 to decrease distributions in excess of net investment income
and $8,443,867 to decrease paid-in-capital, with a decrease to accumulated
net realized losses of $2,805,491. The calculation of net investment
income per share in the financial highlights table excludes these
adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average 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.
As part of the subcustodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At September 30, 1999, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
For the year ended September 30, 1999, fund expenses were reduced by
$42,852 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 $991 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the year ended September 30, 1999, purchases and sales of
investment securities other than U.S. government obligations and
short-term investments aggregated $546,282,198 and $369,214,137,
respectively. Purchases and sales of U.S. government obligations
aggregated $464,359,306 and $654,702,695, respectively.
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 year ended September 30, 1999, the fund repurchased no shares.
As of September 30, 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, Putnam Intermediate Government Income Trust had
unrealized depreciation of $1,224,904. The aggregate net assets of the
fund immediately following the acquisition were $857,994,026.
Federal tax information
(Unaudited)
The fund has designated 2.66% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of June 3, 1999 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on June 3, 1999. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 62,000,978 3,540,362
Hans H. Estin 61,999,980 3,541,360
John A. Hill 62,046,160 3,495,180
Ronald J. Jackson 62,042,526 3,498,814
Paul L. Joskow 61,984,813 3,556,527
Elizabeth T. Kennan 61,941,332 3,600,008
Lawrence J. Lasser 62,029,385 3,511,955
John H. Mullin III 62,007,973 3,533,367
Robert E. Patterson 62,049,384 3,491,956
William F. Pounds 61,977,588 3,563,752
George Putnam 61,964,920 3,576,420
George Putnam, III 61,986,630 3,554,710
A.J.C. Smith 62,040,430 3,500,910
W. Thomas Stephens 62,008,331 3,533,009
W. Nicholas Thorndike 62,004,706 3,536,634
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows: 62,952,059
votes for, and 1,049,211 votes against, with 1,540,070 abstentions and
broker non-votes.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to diversification was approved as follows:
50,697,526 votes for, and 4,970,274 votes against, with 9,873,540
abstentions and broker non-votes.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to investments in the voting securities of a
single issuer was approved as follows: 50,094,304 votes for, and 5,225,604
votes against, with 10,221,432 abstentions and broker non-votes.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to making loans was approved as follows:
48,217,363 votes for, and 7,047,239 votes against, with 10,276,738
abstentions and broker non-votes.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to investments in commodities was approved as
follows: 48,436,801 votes for, and 6,922,700 votes against, with
10,181,839 abstentions and broker non-votes.
A proposal to approve an amendment to the fund's fundamental investment
restriction with respect to investments in real estate was approved as
follows: 49,732,855 votes for, and 5,756,757 votes against, with
10,051,728 abstentions and broker non-votes.
A proposal to approve to eliminate the fund's fundamental investment
restriction with respect to investments in securities of issuers in which
management of the fund or Putnam Investment Management, Inc. owns
securities was approved as follows: 49,089,395 votes for, and 6,313,546
votes against, with 10,138,399 abstentions and broker non-votes.
A proposal to approve to eliminate the fund's fundamental investment
restriction with respect to margin transactions was approved as follows:
47,913,344 votes for, and 7,359,267 votes against, with 10,268,729
abstentions and broker non-votes.
A proposal to approve to eliminate the fund's fundamental investment
restriction with respect to short sales was approved as follows:
47,803,609 votes for, and 7,472,855 votes against, with 10,264,876
abstentions and broker non-votes.
A proposal to approve to eliminate the fund's fundamental investment
restriction with respect to pledging assets was approved as follows:
48,087,658 votes for, and 7,107,946 votes against, with 10,345,736
abstentions and broker non-votes.
A proposal to approve to eliminate the fund's fundamental investment
restriction with respect to investments in restricted securities was
approved as follows: 48,292,213 votes for, and 6,913,754 votes against,
with 10,335,373 abstentions and broker non-votes.
A proposal to approve to eliminate the fund's fundamental investment
restriction with respect to investments in oil, gas and mineral interests
was approved as follows: 49,850,581 votes for, and 5,707,697 votes
against, with 9,983,062 abstentions and broker non-votes.
A proposal to approve to eliminate the fund's fundamental investment
restriction with respect to investing to gain control of a company's
management was approved as follows: 49,324,726 votes for, and 5,975,897
votes against, with 10,240,717 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Robert M. Paine
Vice President and Fund Manager
David L. Waldman
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminv.com) any time for up-to-date information about
the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
56150 074 11/99
