Putnam
Master
Intermediate
Income Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The broad fixed-income market made little headway in the six months
ended March 31, 2000. While there existed bouts of strength in the
spread sectors -- those securities offering a yield advantage over U.S.
Treasury securities, such as high-yield, mortgage-backed, and
investment-grade corporate issues -- during late 1999, the upturns were
short lived. The general malaise persisted and most bond sectors, with
the exception of emerging-markets debt, posted anemic returns. Putnam
Master Intermediate Income Trust was not immune to the problems of the
day, but your fund's experienced management team and Putnam's extensive
credit research abilities enabled your fund to post a slight gain at net
asset value.
Total return for 6 months ended 3/31/00
NAV Market price
- -----------------------------------------------------------------
2.48% -5.09%
- -----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 7.
* INVESTOR FEAR AND DISINTEREST HOBBLED PERFORMANCE POTENTIAL
The considerable amount of volatility that occurred within the
fixed-income market was due to technical factors rather than fundamental
concerns involving issuers. The primary adverse drivers of performance
were the threat of inflation and rising interest rates. Over the
six-month period, the Federal Reserve Board raised short-term interest
rates three times in the hopes of moderating growth in the U.S. economy.
This was accompanied by monetary tightening by other central banks
around the world as global growth also picked up steam. As the U.S.
economy sustained its momentum, the rate hikes did not pacify investors'
inflation fears. Many believed that the Fed may not have been aggressive
enough and that additional rate increases could not be ruled out.
The dynamic price appreciation being realized in technology stocks in
comparison to the presently lackluster returns of the fixed-income
market was reason enough for many investors to turn their backs on
bonds. As a result, liquidity, or lack thereof, increasingly became an
issue in the marketplace.
* HIGH-YIELD SECTOR LADEN WITH "NEW ECONOMY" POTENTIAL
Throughout the period, high-yield bonds remained your fund's anchor
weighting, representing nearly 50% of net assets. Deregulation and
ongoing consolidation have created a favorable backdrop for many
high-yield issuers not only in the United States but also overseas,
where privatization and corporate restructurings are accelerating. As
technological innovation spearheads the new era in global economic
growth, the telecommunications and broadcasting/media industries are
fertile with opportunities for both growth and income investors.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR
HIGH-YIELD BONDS
Midland Funding II Corp.
deb. Series A, 11 3/4s, 2005
Nextel Communications, Inc.
sr. notes 9 3/8s, 2009
Charter Communications Holdings LLC
sr. notes 8 5/8s, 2009
FOREIGN BONDS
Brazil (Federal Republic of)
bonds 11 5/8s, 2004
Canada (Government of)
bonds Sr. WH31, 6s, 2008
United Mexican States
bonds Series XW, 10 3/8s, 2009
U.S. INVESTMENT-GRADE SECURITIES
U.S. Treasury Notes,
5 7/8s, November 15, 2004
U.S. Treasury Strip,
zero % August 15, 2009
U.S. Treasury Bonds,
11 5/8s, November 15, 2004
Footnote reads:
These holdings represent 19.1% of the fund's net assets as of
3/31/00. Portfolio holdings will vary over time.
Because these relatively new industries lend themselves well to
leverage, telecommunications and broadcasting/media companies together
now make up 25%-30% of the high-yield bond market. Many companies are
now at the stage at which they are generating positive cash flow and
reporting increased revenue. Overall credit quality has also improved as
an ever-increasing number of companies receive strategic investments
from established firms or are able to generate capital by issuing stock.
Therefore, it is not surprising that foreign and domestic
telecommunications and cable companies dominate your fund's high-yield
bond exposure. Holdings that have performed well include Covad
Communication Group, Inc., Rhythms NetConnections, Inc., United
Pan-Europe, NorthPoint Communications Group, Inc., Carrier I
International, Netia Holdings, Focal Communications Corp., Nextel
Communications, Inc., VoiceStream Wireless Corp., and Metromedia Fiber
Network Inc., to name a few. While these holdings, as well as others
discussed in this report, were viewed favorably at the end of the
period, all holdings are subject to review and adjustment in accordance
with the fund's investment strategy and may well vary in the future.
[GRAPHIC OMITTED: TOP FIVE COUNTRY ALLOCATIONS: (INTERNATIONAL SECTOR)]
TOP FIVE COUNTRY ALLOCATIONS (INTERNATIONAL SECTOR)*
Canada 5.0%
Brazil 3.7%
Mexico 3.0%
Netherlands 2.9%
United Kingdom 1.9%
Footnote reads:
* Based on net assets as of 3/31/00. Holdings will vary over time.
Your fund's managers also took advantage of high-yield bond
opportunities outside technology. Economic recovery in Asia and Latin
America as well as continued growth in the United States and Europe have
boosted the performance of commodity-based, cyclically oriented
securities, such as those in the chemical, paper, metal, and oil
services industries. Over the period, the managers favored such issues
as Lyondell Petrochemical Co., Sterling Chemicals, Inc., and Doman
Industries Ltd.
* EMERGING-MARKET EXPOSURE INCREASED
Emerging-markets bonds have been the single best-performing fixed-income
asset class in the past six months -- and over the past year -- as
accelerating global economic growth provided them with a gratifyingly
positive backdrop. Markets such as Mexico, Bulgaria, and Brazil have
become especially attractive due to their improved fiscal horizons,
strengthened sovereign creditworthiness, and attractive valuations. Your
fund's managers maintained the portfolio's exposure to emerging-markets
securities, enabling your fund to participate in this sector's run-up
through period's end.
The sovereign bonds of the United Kingdom, Germany, Canada, Sweden, and
Australia were also well represented in the portfolio. At the period's
outset, your fund's managers had in place some defensive currency hedges
to protect the dollar value of several holdings against the depreciating
euro. However, as the period progressed, management decreased the hedges
to give the portfolio greater exposure to the home currencies. They
believed that the euro was undervalued relative to the U.S. dollar and
to the yen from a long-term perspective and should return to fair value
in the months ahead.
* NEAR TERM MAY BE CHOPPY; LONGER TERM LOOKS BRIGHTER
Because of the excessive volatility within the U.S. Treasury market, the
fund's Treasury holdings were employed mainly as a duration management
tool. The managers maintained a relatively neutral short duration stance
throughout the period, as there existed uncertainty surrounding the
direction of interest rates. With the most recent decline in technology
stocks combined with current reports suggesting a continued upward trend
in economic growth, the direction of interest rates is once again
unclear. Management believes prudence dictates a steady course of
neutral positioning.
Although the current fundamental underpinnings of many fixed-income
sectors remain sound, your fund's managers will proceed with particular
caution in the months ahead. Although nothing is certain, the Fed seems
to be inclined to raise short-term rates yet again this year and this
could cause some more turbulence in the broad market. However, the
managers believe that Putnam's extensive resources combined with your
fund's ability to generate incremental excess returns from multiple
sources should serve shareholders well once the volatility subsides.
* UPCOMING TRANSITION
This is my last letter to you and other Putnam Master Intermediate
Income Trust shareholders. After more than 30 years as Chairman of the
Trustees and President of the Putnam Funds, the time has come for me to
step aside. In June, John Hill will become Chairman. John is currently
an independent Trustee and has served on the Board for the past 14
years. In addition, my son, George Putnam, III, will take on the role of
President. I am confident that the leadership of the funds will be in
exceptionally strong hands. I will become Chairman Emeritus, remain a
shareholder, and stay in close touch with the funds.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 17, 2000
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 3/31/00, there is no guarantee the fund will
continue to hold these securities in the future.
Please see page 44 for information about recent changes in the fund's
investment policy.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Master Intermediate Income Trust is designed for investors seeking high
current income and relative stability of net asset value through U.S.
government, high-yield, and international fixed-income securities with
limited maturities.
TOTAL RETURN FOR PERIODS ENDED 3/31/00
Market
NAV price
- ----------------------------------------------------------------------------
6 months 2.48% -5.09%
- ----------------------------------------------------------------------------
1 year 2.05 -12.51
- ----------------------------------------------------------------------------
5 years 40.86 25.50
Annual average 7.09 4.65
- ----------------------------------------------------------------------------
10 years 140.48 115.16
Annual average 9.17 7.96
- ----------------------------------------------------------------------------
Life of fund (since 4/29/88) 152.00 84.59
Annual average 8.06 5.28
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/00
Lehman Bros. Salomon Bros.
Govt. Non-U.S. First Boston
Intermediate World Govt. High Yield Consumer
Bond Index Bond Index Bond Index price index
- ----------------------------------------------------------------------------
6 months 1.59% -2.72% 0.77% 2.03%
- ----------------------------------------------------------------------------
1 year 2.41 -1.40 0.30 3.69
- ----------------------------------------------------------------------------
5 years 36.43 15.04 45.56 13.15
Annual average 6.41 2.84 7.79 2.50
- ----------------------------------------------------------------------------
10 years 102.16 140.50 189.22 33.02
Annual average 7.29 9.17 11.20 2.89
- ----------------------------------------------------------------------------
Life of fund
(since 4/29/88) 135.10 121.19 202.04 46.20
Annual average 7.44 6.89 9.72 3.24
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns, net asset value and market price will fluctuate so that an
investor's shares when sold may be worth more or less than their
original cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/00
- ----------------------------------------------------------------------------
Distributions
- ----------------------------------------------------------------------------
Number 6
- ----------------------------------------------------------------------------
Income $0.324
- ----------------------------------------------------------------------------
Capital gains --
- ----------------------------------------------------------------------------
Total $0.324
- ----------------------------------------------------------------------------
Share value NAV Market price
- ----------------------------------------------------------------------------
9/30/99 $7.57 $6.438
- ----------------------------------------------------------------------------
3/31/00 7.38 5.813
- ----------------------------------------------------------------------------
Current return
- ----------------------------------------------------------------------------
Current dividend rate 1 8.62% 10.94%
- ----------------------------------------------------------------------------
1 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 Bond 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 into account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A guide to the financial statements
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
The fund's portfolio
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (46.4%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Advertising (0.5%)
- ----------------------------------------------------------------------------------------------------------------------------
$ 610,000 Ackerly Group, Inc. sr. sub. notes Ser. B, 9s, 2009 $ 573,400
1,325,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 1,348,188
1,450,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 1,428,250
360,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 343,800
----------------
3,693,638
Aerospace and Defense (0.9%)
- ----------------------------------------------------------------------------------------------------------------------------
1,220,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 927,200
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 304,000
665,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 571,900
740,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 588,300
450,000 Burke Industries, Inc. company guaranty 10s, 2007 207,000
400,000 Decrane Aircraft Holdings company guaranty
Ser. B, 12s, 2008 352,000
150,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 148,875
1,050,000 L-3 Communications Corp. sr. notes 9 1/8s, 2008 903,000
1,130,000 L-3 Communications Corp. sr. sub. notes
8 1/2s, 2008 1,008,525
330,000 L-3 Communications Corp. company guaranty
Ser. B, 8s, 2008 284,625
1,150,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 1,166,480
----------------
6,778,255
Agriculture (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
1,979,455 Premium Standard Farms, Inc. sr. sec. notes
11s, 2003 (PIK) 1,801,304
Airlines (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
490,000 Calair LLC 144A company guaranty 8 1/8s, 2008 423,238
800,000 Canadian Airlines Corp. secd. notes 10s, 2005
(In default) (Canada) 672,000
2,000,000 US Air, Inc. pass thru certificates Ser. 93-A2,
9 5/8s, 2003 1,928,180
----------------
3,023,418
Apparel (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
905,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 911,788
405,000 William Carter Holdings Co. sr. sub. notes
Ser. A, 12s, 2008 370,575
1,000,000 William Carter Holdings Co. sr. sub. notes Ser. A,
10 3/8s, 2006 840,000
----------------
2,122,363
Automotive Parts (1.3%)
- ----------------------------------------------------------------------------------------------------------------------------
959,000 Aftermarket Technology Corp. sr. sub. notes
12s, 2004 954,205
165,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 164,175
850,000 Dura Operating Corp. company guaranty
Ser. B, 9s, 2009 756,500
370,000 Federal Mogul Corp. notes 7 3/8s, 2006 302,375
1,260,000 Federal Mogul Corp. notes 7 3/4s, 2006 1,037,534
1,000,000 Federal Mogul Corp. notes 7 1/2s, 2009 769,660
390,000 Hayes Lemmerz International, Inc. company guaranty
Ser. B, 8 1/4s, 2008 323,700
135,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 129,938
690,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 617,550
900,000 Lear Corp. sub. notes 9 1/2s, 2006 893,250
410,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 393,600
120,000 Oxford Automotive, Inc. company guaranty
Ser. D, 10 1/8s, 2007 113,100
2,750,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 2,530,000
200,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 (In default) (NON) 44,000
390,000 Transportation Manufacturing Operations, Inc.
144A company guaranty 11 1/4s, 2009 370,500
----------------
9,400,087
Banks (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
310,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2008 275,900
720,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 684,000
1,020,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 622,200
1,060,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 962,300
1,140,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 1,140,000
620,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 582,800
500,000 Ocwen Financial Corp. notes 11 7/8s, 2003 458,750
1,100,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 1,083,500
----------------
5,809,450
Basic Industrial Products (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
580,000 Azurix Corp. 144A notes 10 3/8s, 2007 580,000
140,000 Koppers Industries, Inc. 144A company guaranty
9 7/8s, 2007 128,100
350,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 115,500
320,000 Roller Bearing Co. company guaranty Ser. B,
9 5/8s, 2007 292,800
----------------
1,116,400
Broadcasting (2.9%)
- ----------------------------------------------------------------------------------------------------------------------------
296,000 21st Century Telecom Group, Inc. sub. deb.
13 3/4s, 2010 (PIK) 266,400
920,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03),
2008 (STP) 644,000
1,680,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 1,537,200
550,000 Allbritton Communications Co. sr. sub. deb. Ser. B,
9 3/4s, 2007 517,000
3,090,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 2,781,000
245,900 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 277,867
10,263 Australis Media, Ltd. sr. disc. notes stepped-coupon
zero % (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) 1,278,000
765,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 673,200
2,025,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 2,025,000
115,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 46,863
2,990,000 Chancellor Media Corp. company guaranty 8s, 2008 2,945,150
396,020 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 395,030
1,550,000 Citadel Broadcasting, Inc. company guaranty
9 1/4s, 2008 1,445,375
280,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 170,800
910,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 791,700
570,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 570,000
560,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 481,600
650,000 Lenfest Communications, Inc. sr. sub. notes
8 1/4s, 2008 663,556
610,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 628,300
997,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 865,595
275,000 Radio One, Inc. company guaranty stepped-coupon
Ser. B, zero % (12s, 5/15/00), 2004 (STP) 286,000
510,000 SFX Entertainment, Inc. company guaranty
9 1/8s, 2008 504,900
270,000 Spanish Broadcasting Systems sr. sub notes
9 5/8s, 2009 256,500
1,530,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s,
2007 (Mexico) 1,453,500
----------------
21,504,537
Building and Construction (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
130,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 32,500
230,000 Atrium Companies, Inc. company guaranty Ser. B,
10 1/2s, 2009 217,350
720,000 D.R. Horton, Inc. company guaranty 8s, 2009 590,400
485,000 GS Superhighway Holdings sr. notes 10 1/4s,
2007 (China) 341,900
1,030,000 GS Superhighway Holdings sr. notes 9 7/8s,
2004 (China) 731,300
290,000 Jackson Products, Inc. company guaranty Ser. B,
9 1/2s, 2005 265,350
410,000 NCI Building Systems, Inc. sr. sub. notes Ser. B,
9 1/4s, 2009 390,525
520,000 Toll Corp. company guaranty 8 1/8s, 2009 456,300
----------------
3,025,625
Building Products (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
195,000 American Standard, Inc. company guaranty
7 5/8s, 2010 173,550
540,000 Building Materials Corp. company guaranty 8s, 2008 467,100
670,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 355,100
130,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 107,575
----------------
1,103,325
Business Equipment and Services (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
1,320,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,174,800
125,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B,
11s, 2006 110,000
900,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 924,750
686,000 U.S. Office Products Co. company guaranty
9 3/4s, 2008 226,380
----------------
2,435,930
Cable Television (2.8%)
- ----------------------------------------------------------------------------------------------------------------------------
1,123,000 Adelphia Communications Corp. sr. notes Ser. B,
9 7/8s, 2007 1,089,310
548,000 Adelphia Communications Corp. sr. notes Ser. B,
8 3/8s, 2008 487,720
3,810,000 Charter Communications Holdings LLC sr. notes
8 5/8s, 2009 3,352,800
150,000 Charter Communications Holdings LLC bank term
loans FRN 8.518s, 2008 149,625
720,000 Classic Cable, Inc. 144A sr. sub. notes 10 1/2s, 2010 711,000
2,365,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 2,344,188
550,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 524,409
2,700,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 2,133,000
2,462,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 1,181,760
1,000,000 Jones Intercable, Inc. sr. notes 8 7/8s, 2007 1,031,190
1,650,000 Lin Holdings Corp. sr. disc. notes stepped-coupon
zero % (10s, 3/1/2003), 2008 (STP) 1,018,875
165,000 NTL, Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 160,875
310,000 NTL, Inc. sr. notes stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 196,850
180,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 115,200
170,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s,
2005 (Canada) 176,800
560,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s,
2005 (In default) (Argentina) (NON) 252,000
410,000 TeleWest Communications PLC 144A notes
10 7/8s, 2005 (Cayman Islands) 412,091
1,570,000 TeleWest Communications PLC 144A 9 7/8s, 2010 1,554,300
520,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (9 1/4, 4/15/04), 2009
(United Kingdom) (STP) 293,800
1,220,000 United Pan-Europe N.V. 144A sr. notes 10 7/8s,
2009 (Netherlands) 1,122,400
1,443,000 United Pan-Europe N.V. 144A sr. notes zero %, 2010
(Netherlands) 707,070
2,870,000 United Pan-Europe N.V. 144A sr. notes stepped-coupon
zero % (12 1/2s, 8/1/00), 2009 (Netherlands) (STP) 1,435,000
----------------
20,450,263
Cellular Communications (2.4%)
- ----------------------------------------------------------------------------------------------------------------------------
360,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 199,800
933,333 American Cellular Corp. bank term loan FRN 9.609s, 2008 928,666
1,066,666 American Cellular Corp. bank term loan FRN 9.26s, 2008 1,061,333
850,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 452,625
1,650,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 1,402,500
2,418,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 290,160
2,325,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 1,674,000
3,090,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 2,626,500
1,180,000 Nextel Communications, Inc. sr. notes 12s, 2008 1,280,300
5,530,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 5,087,600
770,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 746,900
645,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 638,550
1,130,000 Telecorp PCS Inc. company guaranty stepped-coupon
zero % (11 5/8s, 4/15/04), 2009 (STP) 694,950
1,130,000 US Unwired, Inc. sr. disc. notes stepped-coupon zero %
(13 3/8s, 11/1/04), 2009 (STP) 604,550
----------------
17,688,434
Chemicals (1.9%)
- ----------------------------------------------------------------------------------------------------------------------------
1,430,000 Geo Specialty Chemicals, Inc. sr. sub. notes
10 1/8s, 2008 1,158,300
760,000 Georgia Gulf Corp. 144A sr. sub. notes 10 3/8s, 2007 765,700
600,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 546,000
345,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 315,675
2,370,000 Huntsman ICI Chemicals, Inc. company guaranty
10 1/8s, 2009 2,269,275
1,000,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 985,000
390,000 Lyondell Petrochemical Co. sr. sub. notes
10 7/8s, 2009 365,625
1,520,000 Lyondell Petrochemical Co. sec. notes Ser. B,
9 7/8s, 2007 1,447,800
1,740,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 1,657,350
2,000,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 1,635,000
466,000 Pioneer Americas Acquisition 144A sr. notes
9 1/4s, 2007 387,945
336,083 Polytama International notes 11 1/4s, 2007 (Indonesia) 50,413
810,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 688,500
185,000 Sterling Chemicals Holdings sr. disc. notes stepped-
coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 60,588
470,000 Sterling Chemicals, Inc. company guaranty Ser. B,
12 3/8s, 2006 481,750
200,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 170,000
100,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 81,000
830,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 639,100
----------------
13,705,021
Computer Services and Software (0.9%)
- ----------------------------------------------------------------------------------------------------------------------------
85,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 91,588
490,000 Cybernet Internet Services Intl., Inc. 144A sr. notes
14s, 2009 382,200
210,000 Exodus Communications, Inc. 144A sr. notes
11 1/4s, 2008 210,000
920,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 906,200
790,000 Globix Corp. 144A sr. notes 12 1/2s, 2010 718,900
278,200 Interact Operating Co. notes 14s, 2003 83,460
240,000 PSINet, Inc. sr. notes 11 1/2s, 2008 238,800
1,040,000 PSINet, Inc. sr. notes 11s, 2009 1,008,800
1,245,000 Unisys Corp. sr. notes 11 3/4s, 2004 1,340,443
1,400,000 Unisys Corp. sr. notes 7 7/8s, 2008 1,316,000
360,000 Verio, Inc. sr. notes 11 1/4s, 2008 356,400
----------------
6,652,791
Conglomerates (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
1,000,000 Axia, Inc. company guaranty 10 3/4s, 2008 770,000
1,075,000 Cathay International Ltd. 144A sr. notes 13s,
2008 (China) 537,500
----------------
1,307,500
Consumer Durable Goods (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
990,000 Albecca, Inc. company guaranty 10 3/4s, 2008 782,100
190,000 Iron Age Corp. company guaranty 9 7/8s, 2008 134,900
810,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 684,450
1,000,000 Sealy Mattress Co. company guaranty stepped-coupon
Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 707,500
410,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 399,750
----------------
2,708,700
Consumer Services (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
1,330,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 1,263,500
Cosmetics (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
180,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 171,900
320,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 302,400
380,000 Revlon Consumer Products sr. notes 9s, 2006 269,800
110,000 Revlon Consumer Products sr. sub. notes
8 5/8s, 2008 47,850
1,390,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 973,000
----------------
1,764,950
Electric Utilities (2.1%)
- ----------------------------------------------------------------------------------------------------------------------------
800,000 AES China Generating Co. sr. notes 10 1/8s,
2006 (China) 536,000
1,050,000 Applied Power, Inc. sr. sub. notes 8 3/4s, 2009 1,076,250
1,500,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,493,520
700,000 Calpine Corp. sr. notes 7 7/8s, 2008 658,255
1,960,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 1,803,200
1,000,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 1,178,520
5,540,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 6,007,244
869,216 Northeast Utilities System notes Ser. A, 8.58s, 2006 872,649
246,400 Northeast Utilities System notes Ser. B, 8.38s, 2005 245,493
1,290,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 451,500
1,130,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 1,107,400
----------------
15,430,031
Electronics and Electrical Equipment (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
905,000 Celestica International Ltd. 144A sr. sub. notes
10 1/2s, 2006 (Canada) 932,150
540,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 537,300
675,000 Flextronics International Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 634,500
120,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 68,400
680,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 642,600
1,160,000 Metromedia Fiber Network, Inc. sr. notes Ser. B,
10s, 2008 1,096,200
600,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 604,500
1,400,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 1,190,000
180,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 153,000
----------------
5,858,650
Entertainment (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
630,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 321,300
1,100,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 561,000
1,600,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 1,072,000
2,775,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,580,750
315,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 140,175
730,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 730,000
800,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 128,000
1,145,000 United Artists Theatre sr. sub. notes, Ser. B, 9 3/4s, 2008 45,800
586,000 United Artists Theatre 144A notes FRN 10.415s, 2007 23,440
----------------
5,602,465
Environmental Control (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
3,230,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 10s, 2009 2,422,500
740,000 Allied Waste Industries, Inc. bank term loan FRN
8 7/8s, 2006 724,149
900,000 Allied Waste Industries, Inc. bank term loan FRN
8.311s, 2007 886,392
745,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 584,825
310,000 Waste Management, Inc. company guaranty
6 1/2s, 2004 276,706
1,300,000 WMX Technologies, Inc. notes 7.7s, 2002 1,240,096
----------------
6,134,668
Financial Services (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
1,110,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 663,225
1,350,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,271,106
1,060,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 982,631
820,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 615,000
240,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 180,000
505,000 Cellco Finance Corp. NV sr. sub. notes 15s, 2005
(Netherlands) 550,450
120,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 10,800
1,340,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 120,600
1,320,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 118,800
750,000 Imperial Credit Capital Trust I 144A company
guaranty 10 1/4s, 2002 577,500
125,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 91,563
500,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 355,000
820,000 Resource America, Inc. 144A sr. notes 12s, 2004 639,600
----------------
6,176,275
Food and Beverages (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
665,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 266,000
920,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 368,000
1,490,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 1,370,800
400,000 Eagle Family Foods company guaranty Ser. B,
8 3/4s, 2008 300,000
990,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 653,400
1,560,000 Triarc Consumer Products, Inc. company guaranty
10 1/4s, 2009 (STP) 1,505,400
1,015,000 Vlasic Foods Intl. Inc. sr. sub notes Ser. B, 10 1/4s, 2009 649,600
----------------
5,113,200
Gaming (2.0%)
- ----------------------------------------------------------------------------------------------------------------------------
820,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 836,400
1,240,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 1,140,800
720,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 403,200
110,000 Hard Rock Hotel, Inc. sr. sub. notes Ser. B,
9 1/4s, 2005 92,400
270,000 Harrahs Entertainment, Inc. company guaranty
7 1/2s, 2009 258,641
2,070,000 Hollywood Casino Corp. company guaranty
11 1/4s, 2007 2,101,050
510,000 Hollywood Park, Inc. company guaranty Ser. B,
9 1/4s, 2007 502,350
660,000 Horseshoe Gaming Holdings company guaranty
8 5/8s, 2009 600,600
1,710,000 International Game Technology sr. notes 7 7/8s, 2004 1,590,300
150,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 163,500
1,330,000 ITT Corp. notes 6 3/4s, 2005 1,191,215
560,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 525,000
680,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 630,700
500,000 Park Place Entertainment 144A sr. sub. notes
9 3/8s, 2007 492,500
300,000 Park Place Entertainment sr. notes 8 1/2s, 2006 294,372
1,900,000 Trump Atlantic City 1st mtge. 11 1/4s, 2006 1,273,000
2,430,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 2,454,300
660,000 Venetian Casino company guaranty 12 1/4s, 2004 613,800
----------------
15,164,128
Health Care (1.7%)
- ----------------------------------------------------------------------------------------------------------------------------
330,000 Bio-Rad Labs Corp. 144A sr. sub. notes 11 5/8s, 2007 332,063
1,500,000 Columbia/HCA Healthcare Corp. med. term notes
8.85s, 2007 1,451,250
260,000 Columbia/HCA Healthcare Corp. notes
7 1/4s, 2008 230,750
230,000 Columbia/HCA Healthcare Corp. notes 7s, 2007 202,400
2,310,000 Conmed Corp. company guaranty 9s, 2008 2,102,100
1,140,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 615,600
660,000 Hudson Respiratory Care, Inc. sr. sub. notes
9 1/8s, 2008 513,975
1,000,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 20,000
380,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 7,600
1,390,000 Lifepoint Hospital Holdings company guaranty
Ser. B, 10 3/4s, 2009 1,376,100
865,465 Magellan Health bank term loan FRN 8s, 2005 830,846
310,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02),
2007 (In default) (STP) (NON) 1,550
1,480,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 (In default) (NON) 7,400
1,130,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 1,084,800
1,590,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 63,600
695,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 312,750
500,000 Sun Healthcare Group, Inc. 144A sr. sub. notes
9 3/8s, 2008 (In default) (NON) 10,000
1,005,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 20,100
370,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 348,725
230,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 222,525
500,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 455,000
1,370,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 1,239,850
1,270,000 Triad Hospitals Holdings company guaranty
Ser. B, 11s, 2009 1,263,650
----------------
12,712,634
Lodging (1.0%)
- ----------------------------------------------------------------------------------------------------------------------------
530,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 371,000
220,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 190,300
1,665,000 HMH Properties, Inc. company guaranty Ser. B,
7 7/8s, 2008 1,390,275
3,000,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 2,970,000
550,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 523,875
1,000,000 Starwood Hotels & Resorts Worldwide, Inc.
bank term loan FRN 8.763s, 2003 1,005,000
150,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 139,925
360,000 Sun International Hotels Ltd. company guaranty
9s, 2007 324,000
410,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 360,800
----------------
7,275,175
Manufacturing (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
1,020,000 Blount, Inc. company guaranty 13s, 2009 1,055,700
1,219,436 Blount, Inc. bank term loan FRN 9.315s, 2006 1,227,058
----------------
2,282,758
Medical Supplies and Devices (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
340,000 ALARIS Medical Systems, Inc. company guaranty
9 3/4s, 2006 283,050
550,000 Dade International, Inc. sr. sub. notes Ser. B,
11 1/8s, 2006 530,750
140,000 Kinetic Concepts, Inc. company guaranty Ser. B,
9 5/8s, 2007 98,700
500,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 373,750
560,000 Mediq, Inc. deb. stepped-coupon zero %
(13s, 6/1/03), 2009 (STP) 28,000
760,000 Mediq, Inc. company guaranty 11s, 2008 76,000
----------------
1,390,250
Metals and Mining (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
160,000 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 72,000
1,440,000 Better Minerals & Aggregates Co. 144A sr. sub. notes
13s, 2009 1,429,200
210,000 Continental Global Group sr. notes Ser. B, 11s, 2007 52,500
775,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 716,875
1,030,000 Lodestar Holdings, Inc. company guaranty
11 1/2s, 2005 195,700
470,000 Neenah Corp. company guaranty Ser. F,
11 1/8s, 2007 404,200
----------------
2,870,475
Oil and Gas (1.7%)
- ----------------------------------------------------------------------------------------------------------------------------
1,350,000 Belco Oil & Gas Co. company guaranty Ser. B,
10 1/2s, 2006 1,380,375
75,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 44,625
1,000,000 Cliffs Drilling Co. company guaranty Ser. D,
10 1/4s, 2003 1,005,000
440,000 Giant Industries Corp. company guaranty 9s, 2007 391,600
220,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s,
2005 (Canada) 220,550
220,000 Gulf Canada Resources, Ltd. sr. sub. deb. 9 1/4s,
2004 (Canada) 222,235
230,000 Gulf Canada Resources, Ltd. sr. notes 8.35s,
2006 (Canada) 223,675
320,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 307,200
270,000 Leviathan Gas Corp. company guaranty Ser. B,
10 3/8s, 2009 275,400
1,060,000 Ocean Energy, Inc. company guaranty Ser. B,
8 7/8s, 2007 1,014,950
1,130,000 Ocean Energy, Inc. company guaranty Ser. B,
8 3/8s, 2008 1,056,550
300,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 277,500
400,000 RAM Energy, Inc. sr. notes 11 1/2s, 2008 201,000
1,500,000 RBF Finance Co. company guaranty 11 3/8s, 2009 1,593,750
1,710,000 RBF Finance Co. company guaranty 11s, 2006 1,765,575
360,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 100,800
420,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 414,750
230,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 213,900
1,050,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 1,057,875
500,000 Vintage Petroleum sr. sub. notes 9s, 2005 488,750
500,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004
(In default) (NON) 100,000
----------------
12,356,060
Packaging and Containers (1.4%)
- ----------------------------------------------------------------------------------------------------------------------------
1,400,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 1,078,000
480,000 Ball Corp. company guaranty 7 3/4s, 2006 453,600
490,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 411,600
420,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/4s, 2007 388,500
160,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 146,400
127,779 Jefferson Smurfit bank term loan FRN 8.65s, 2006 127,140
215,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 201,025
965,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 907,100
370,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 353,306
700,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 648,823
1,110,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 1,036,396
1,080,000 Packaging Corp. company guaranty 9 5/8s, 2009 1,063,800
637,521 Packaging Corp. bank term loan FRN 5 1/2s, 2007 638,318
2,680,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 2,572,800
----------------
10,026,808
Paper and Forest Products (1.2%)
- ----------------------------------------------------------------------------------------------------------------------------
200,000 APP Global Finance III sec. notes 10.345s, 2002
(Cayman Islands) 157,000
575,000 Doman Industries, Ltd. 144A 8 3/4s, 2004 488,750
780,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 639,600
1,295,000 Indah Kiat Financial Mauritius Ltd. company guaranty
10s, 2007 (Indonesia) 906,500
1,690,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 1,651,975
1,620,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 1,117,800
1,745,000 PT Pabrik Kertas Tjiwi Kimia company guaranty
10s, 2004 (Indonesia) 1,265,125
2,183,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 1,986,530
850,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 756,500
----------------
8,969,780
Pharmaceuticals (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
650,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 617,500
1,000,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 925,000
----------------
1,542,500
Publishing (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
375,000 Affinity Group Holdings sr. notes 11s, 2007 326,250
1,545,000 American Media Operation, Inc. sr. sub. notes
10 1/4s, 2009 1,529,550
570,000 Big Flower Holdings bank term loan FRN
9.004s, 2010 570,000
750,000 Garden State Newspapers, Inc. sr. sub. notes
Ser. B, 8 3/4s, 2009 652,500
1,450,000 Garden State Newspapers sr. sub. notes 8 5/8s, 2011 1,232,500
1,390,000 Perry-Judd company guaranty 10 5/8s, 2007 1,146,750
82,852 Von Hoffman Press, Inc. 144A sr. sub. notes
1/2s, 2009 75,395
100,000 Von Hoffman Press, Inc. 144A sr. sub. notes
10 3/8s, 2007 93,500
----------------
5,626,445
Railroads (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
780,000 TFM S.A. de C.V. company guaranty 10 1/4s,
2007 (Mexico) 741,000
Restaurants (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
540,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 297,000
500,000 Sbarro, Inc. 144A sr. notes 11s, 2009 495,000
----------------
792,000
Retail (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
1,080,000 Amazon.com, Inc. sr. disc. notes stepped-coupon
zero % (10s,05/01/03), 2008 (STP) 645,300
710,000 Home Interiors & Gifts, Inc. company guaranty
10 1/8s, 2008 568,000
1,730,000 K mart Corp. notes 8 3/8s, 2004 1,700,261
315,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 173,250
600,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 567,000
440,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 376,200
1,745,000 North Atlantic Trading Co. company guaranty
Ser. B, 11s, 2004 1,570,500
260,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 247,650
----------------
5,848,161
Satellite Services (0.9%)
- ----------------------------------------------------------------------------------------------------------------------------
3,090,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 2,981,850
890,000 Golden Sky Systems company guaranty Ser. B,
12 3/8s, 2006 979,000
2,060,000 Pegasus Communications Corp. sr. notes Ser. B,
9 3/4s, 2006 1,977,600
90,000 Pegasus Media & Communications notes Ser. B,
12 1/2s, 2005 96,300
390,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes
10 1/8s, 2004 (Mexico) 327,600
----------------
6,362,350
Semiconductors (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
270,000 ChipPac Intl. Ltd. 144A company guaranty
12 3/4s, 2009 284,175
1,375,000 Fairchild Semiconductor Corp. sr. sub. notes
10 1/8s, 2007 1,333,750
190,000 Loral Space & Communication, Ltd. sr. notes
9 1/2s, 2006 128,250
660,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 587,400
----------------
2,333,575
Shipping (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
145,000 International Shipholding Corp. sr. notes 9s, 2003 142,825
240,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 208,800
840,000 Pegasus Shipping 144A units company guaranty
stepped-coupon zero % (14 1/2s, 6/20/03), 2008
(Bermuda) (STP) 63,000
230,000 Transportacion Maritima Mexicana S.A. de C.V.
sr. notes 10s, 2006 (Mexico) 193,200
550,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 (Mexico) 478,500
----------------
1,086,325
Steel (1.2%)
- ----------------------------------------------------------------------------------------------------------------------------
860,000 AK Steel Corp. company guaranty 7 7/8s, 2009 778,300
1,000,000 Armco, Inc. sr. notes 9s, 2007 972,500
850,000 California Steel Industries sr. notes Ser. B, 8 1/2s, 2009 782,000
1,710,000 LTV Corp. sr. notes 11 3/4s, 2009 1,658,700
1,610,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 1,569,750
1,000,000 UCAR Global bank term loan FRN 8.626s, 2008 1,001,250
870,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 887,400
780,000 Wheeling -Pittsburgh Steel Corp. sr. notes
9 1/4s, 2007 698,100
490,000 WHX Corp. sr. notes 10 1/2s, 2005 445,900
----------------
8,793,900
Supermarkets (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 164,000
1,437,000 Southland Corp. deb. Ser. B, 4s, 2004 1,113,675
----------------
1,277,675
Telecommunications (5.7%)
- ----------------------------------------------------------------------------------------------------------------------------
510,000 Alaska Communications Systems Corp. company
guaranty 9 3/8s, 2009 459,000
140,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 153,300
875,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 498,750
480,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 364,800
460,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 460,000
485,000 CapRock Communications Corp. sr. notes
11 1/2s, 2009 470,450
750,000 Carrier1 Intl. S.A. 144A sr. notes Ser. B, 13 1/4s,
2009 (Sweden) 761,250
780,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) (STP) 680,550
805,000 Covad Communications Group, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 466,900
1,100,000 Covad Communications Group Inc. sr. notes
12 1/2s, 2009 1,012,000
90,000 Covad Communications Group 144A sr. notes
12s, 2010 79,200
1,500,000 Econophone, Inc. company guaranty 13 1/2s, 2007 1,530,000
535,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 494,875
1,740,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 843,900
1,170,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 1,012,050
1,555,000 Focal Communications Corp. sr. disc. notes, stepped-
coupon Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 1,010,750
850,000 Focal Communications Corp. 144A sr. notes
11 7/8s, 2010 845,750
1,360,000 Global Crossing Holdings Ltd. company guaranty
9 5/8s, 2008 1,312,400
800,000 Global Crossing Holdings Ltd. 144A sr. notes
9 1/2s, 2009 768,000
490,000 Global Crossing Holdings Ltd. 144A sr. notes
9 1/8s, 2006 467,950
410,000 GST Equipment Funding sr. notes 13 1/4s, 2007 291,100
154,000 GST Telecommunications, Inc. sr. disc. notes stepped-
coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 70,070
410,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 422,300
860,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 804,100
2,270,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 1,225,800
1,150,000 Insight Midwest 144A sr. notes 9 3/4s, 2009 1,144,250
710,000 Intira Corp. bonds 13s, 2010 379,850
2,240,000 IPC Information Systems, Inc. sr. disc. notes
10 7/8s, 2008 (STP) 1,948,800
1,110,000 KMC Telecom Holdings, Inc. sr. notes 13 1/2s, 2009 1,065,600
2,445,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 1,283,625
1,310,000 Level 3 Communication, Inc. 144A sr. notes
11 1/4s, 2010 1,244,500
270,000 Level 3 Communication, Inc. 144A sr. notes 11s, 2008 257,850
1,190,000 Logix Communications Enterprises sr. notes
12 1/4s, 2008 559,300
1,510,000 Madison River Capital 144A sr. notes 13 1/4s, 2010 1,434,500
470,000 MGC Communications, Inc. 144A sr. notes 13s, 2010 459,425
1,270,000 Microcell Telecommunications sr. disc. notes stepped-
coupon Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,123,950
765,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 539,325
100,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 84,500
180,000 Nextlink Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (12 1/8s, 12/1/04), 2009 (STP) 97,200
420,000 Nextlink Communications, Inc. 144A sr. notes
10 1/2s, 2009 401,100
1,220,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 1,220,000
1,820,000 NorthPoint Communications Group, Inc. 144A notes
12 7/8s, 2010 1,619,800
600,000 NTL Communications Corp. sr. notes Ser. B,
11 1/2s, 2008 609,000
1,120,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 739,200
970,000 Primus Telecommunications Group, Inc. sr. notes
Ser. B, 9 7/8s, 2008 863,300
670,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 537,327
520,000 Qwest Communications International, Inc. sr. notes
Ser. B, 7 1/4s, 2008 509,834
530,000 Rhythms Netconnections, Inc. 144A sr. notes
14s, 2010 461,100
270,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 4/15/04), 2009 (STP) 147,150
860,000 Startec Global Communications Corp. sr. notes
12s, 2008 718,100
1,645,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 1,501,063
410,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 20,500
330,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 1/2s, 3/1/03), 2008 (STP) 174,900
275,000 Teligent, Inc. sr. notes 11 1/2s, 2007 247,500
800,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 784,000
180,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008
(Netherlands) 184,500
510,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008
(Netherlands) 522,750
1,020,000 Williams Communications Group, Inc. sr. notes
10 7/8s, 2009 1,004,700
680,000 WinStar Communications, Inc. sr. sub. notes 11s, 2008 838,100
170,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 147,900
790,000 Worldwide Fiber, Inc. sr. notes 12s, 2009 (Canada) 742,600
----------------
42,122,344
Telephone Services (1.7%)
- ----------------------------------------------------------------------------------------------------------------------------
2,220,000 Alamosa PCS Holdings, Inc. company guaranty
stepped-coupon zero % (12 7/8s, 2/15/05),
2010 (STP) 1,087,800
1,210,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,067,825
220,000 Call-Net Enterprises, Inc. sr. notes 9 3/8s, 2009 167,200
1,630,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 782,400
400,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 295,000
1,220,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 780,800
1,580,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 1,516,800
280,000 Onepoint Communications, Inc. company guaranty
Ser. B, 14 1/2s, 2008 182,000
710,000 RSL Communications, Ltd. 144A 12 7/8s, 2010 674,500
770,000 RSL Communications, Ltd. company guaranty
12 1/4s, 2006 762,300
450,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 384,750
500,000 RSL Communications, Ltd. company guaranty, stepped-
coupon zero % (10 1/8s, 3/1/03), 2008 (STP) 270,000
770,000 RSL Communications, Ltd. company guaranty
9 1/8s, 2008 616,000
370,000 Transtel S.A. pass-through certificates 12 1/2s, 2007 236,800
460,000 US Xchange LLC sr. notes 15s, 2008 276,000
270,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 151,200
761,000 Viatel, Inc. sr. notes 11 1/2s, 2009 707,730
2,650,000 Viatel, Inc. sr. notes 11 1/4s, 2008 2,358,500
----------------
12,317,605
Textiles (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
960,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 345,600
190,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 167,200
580,000 Polymer Group, Inc. company guaranty Ser. B,
8 3/4s, 2008 504,600
700,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 567,000
----------------
1,584,400
Transportation (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
350,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 322,000
2,000,000 Transportation Tech. bank term loan FRN 9.859s, 2007 1,987,500
----------------
2,309,500
Wireless Communications (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
440,000 Arch Communications Group sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/15/01), 2008 (STP) 352,000
670,000 Clearnet Communications, Inc. sr. disc. notes stepped-
coupon zero % (14 3/4s, 12/15/00), 2005 (STP) 668,325
585,000 Neuvo Grupo Iusacell S.A. 144A sr. notes 14 1/4s,
2006 (Mexico) 626,681
620,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 421,600
950,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 2/1/03), 2008 (STP) 522,500
255,000 Paging Network Do Brasil sr. notes 13 1/2s,
2005 (Brazil) 33,150
220,000 VoiceStream Wireless Corp. sr. disc. notes stepped-coupon
zero % (11 7/8s, 11/15/04), 2009 (STP) 132,000
2,890,000 VoiceStream Wireless Corp. 144A sr. notes 10 3/8s, 2009 2,875,550
----------------
5,631,806
----------------
Total Corporate Bonds and Notes
(cost $386,250,380) $ 343,088,434
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (19.7%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (6.2%)
- ----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
$ 337,296 7s, February 1, 2012 $ 331,077
74,134 6 1/2s, September 1, 2002 73,052
13,983,904 6s, June 1, 2029 12,734,022
400,000 Federal National Mortgage Association 7 1/2s,
TBA, April 1, 2030 393,188
Federal National Mortgage Association
Pass-Through Certificates
1,105 8 1/2s, March 1, 2006 1,124
974,664 8s, with due dates from July 1, 2028 to
November 1, 2029 977,403
1,586,309 7s, May 1, 2011 1,558,041
12,285 6 1/2s, August 1, 2010 11,828
369,247 6s, with due dates from May 15, 2008 to May 1, 2029 340,982
400,000 Government National Mortgage Association 8s,
TBA, April 1, 2030 404,564
Government National Mortgage Association
Pass-Through Certificates
6,524,160 8s, with due dates from July 15, 2023 to
December 15, 2027 6,597,668
5,210,238 7 1/2s, with due dates from January 15, 2023 to
May 15, 2024 5,185,803
16,005,672 7s, with due dates from April 15, 2023 to
June 15, 2028 15,546,787
2,010,574 6 1/2s, with due dates from December 15, 2027 to
January 15, 2029 1,902,589
----------------
46,058,128
U.S. Treasury Obligations (13.5%)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
$ 5,725,000 12 3/8s, May 15, 2004 (SEG) 6,927,250
12,680,000 11 5/8s, November 15, 2004 (SEG) 15,263,550
U.S. Treasury Notes
6,000,000 6 1/2s, February 15, 2010 6,210,000
5,560,000 6 3/8s, January 31, 2002 5,544,376
11,415,000 6s, August 15, 2009 11,270,486
32,738,000 5 7/8s, November 15, 2004 32,144,460
40,000,000 U.S. Treasury Strip zero % August 15, 2009 22,290,400
----------------
99,650,522
----------------
Total U.S. Government and Agency Obligations
(cost $148,394,840) $ 145,708,650
FOREIGN GOVERNMENT BONDS AND NOTES (17.6%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
USD 6,016,000 Argentina (Republic of) unsub. 11 3/4s, 2009 $ 5,940,800
AUD 7,575,000 Australia (Government of) Ser. 909,
7 1/2s, 2009 4,957,637
USD 2,905,000 Brazil (Federal Republic of) notes
14 1/2s, 2009 3,162,964
USD 23,035,000 Brazil (Federal Republic of) 11 5/8s, 2004 23,180,121
CAD 24,850,000 Canada (Government of) bonds
Sr. WH31, 6s, 2008 17,157,680
CAD 11,575,000 Canada (Government of) bonds
5 1/2s, 2009 7,739,563
DKK 105,890,000 Denmark (Kingdom of) bonds 6s, 2009 14,018,611
DKK 44,955,000 Denmark (Kingdom of) bonds 4s, 2001 5,735,670
EUR 11,045,000 Germany (Federal Republic of) bonds
Ser. 132, 4 1/8s, 2004 10,268,454
USD 12,935,000 Russia (Federation of) unsub. 10s, 2007 9,571,900
USD 2,170,000 Turkey (Republic of) sr. unsub. 12 3/8s, 2009 2,321,900
GBP 2,715,000 United Kingdom Treasury bonds 10s, 2003 4,814,370
GBP 2,730,000 United Kingdom Treasury bonds
7 1/4s, 2007 4,775,756
USD 15,295,000 United Mexican States bonds Ser. XW,
10 3/8s, 2009 16,342,708
----------------
Total Foreign Government Bonds and Notes
(cost $128,313,234) $ 129,988,134
COLLATERALIZED MORTGAGE OBLIGATIONS (5.8%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$ 4,100,000 Amresco Commercial Mortgage Funding I Ser. 97-C1,
Class F .64s, 2029 $ 3,837,984
1,660,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
Class D, 6.977s, 2030 1,534,463
54,885,663 Commercial Mortgage Asset Trust Ser. 99-C1,
Class X, Interest Only (IO), 0.99s, 2020 3,456,082
575,000 CS First Boston Mortgage Corp. Ser. 99-C1,
Class A2, 7.29s, 2009 564,039
31,600,099 Deutsche Mortgage & Asset Receiving Corp.
Ser. 98-C1, Class X, IO, 0.86s, 2031 1,663,943
Fannie Mae Strip
1,212,000 Ser. 92-207, Class S, IO, 7.781s, 2022 243,915
8,228,169 Ser. 266, Class 2, IO, 7.5s, 2024 2,450,452
5,168,740 Ser. 221, Class 2, IO, 7.5s, 2023 1,557,083
9,933,657 Ser. 218, Class 2, IO, 7.5s, 2023 2,998,723
2,155,712 Ser. 250, Class 2, IO, 7s, 2023 659,513
129,187 Ser. 302, Class 2, IO, 6s, 2029 41,421
3,762,597 Ser. 304, Class 2, IO, 6s, 2028 1,079,395
Freddie Mac
410,456 Ser. 1717, Class L, 6.5s, 2024 397,277
607,243 Ser. 2113, Class ZM, 6.5s, 2028 519,193
Freddie Mac Strip
1,714,928 Ser. 180, Principal Only (PO), zero %, 2026 1,169,367
2,524,318 Ser. 202, PO, zero %, 2029 1,542,201
1,990,000 General Growth Properties-ALA MOANA
Ser. 99-C1, Class E, FRB, 8.38s, 2009 1,994,975
410,000 General Growth Properties-Homart Ser. 99-C1,
Class G, 8.63s, 2003 411,025
General Growth Properties-Ivanhoe
862,000 Ser. 99-C1, Class F, 2004 864,155
510,000 Ser. 99-C1, Class G, 2004 511,275
Government National Mortgage Association
1,462,682 Ser. 00-17, Class SB, 11.6s, 2026 1,416,516
2,512,952 Ser. 99-25, Class QA, 8.675s, 2026 2,096,744
230,547 Ser. 99-34, Class S, 6.31s, 2025 184,149
1,077,232 Ser. 99-40, Class US, 3.715s, 2027 797,152
7,672,876 Ser. 98-2, Class SA, IO, 2.37s, 2028 462,770
Merrill Lynch Mortgage Investors, Inc.
1,070,000 Ser. 96-C2, Class E, 6.96s, 2028 928,225
4,330,000 Ser. 98-C2, Class D, 6.796s, 2030 4,026,900
223,777 Ser. 98-C2, Class A1, 6.22s, 2030 215,316
22,087,808 Ser. 96-C2, IO, 1.607s, 2028 1,472,860
17,790,590 Ser. 98-C2, IO, 1.076s, 2030 1,242,562
995,000 Morgan Stanley Capital I Ser. 98-XL1, Class A3,
6.48s, 2030 930,325
6,110,241 Mortgage Capital Funding, Inc. Ser. 97-MC2,
Class X, IO, 0.817s, 2012 405,758
345,453 Prudential Home Mortgage Securities Ser. 93-57,
Class A4, 5.9s, 2023 338,544
427,031 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 412,085
----------------
Total Collateralized Mortgage Obligations
(cost $42,473,999) $ 42,426,387
BRADY BONDS (1.1%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$ 3,500,000 Bulgaria (Government of) deb. Ser. PDI, FRB,
6.688s, 2011 $ 2,773,750
6,476,150 Venezuela (Republic of) deb. Ser. DL, FRB,
6.762s, 2007 5,213,301
----------------
Total Brady Bonds (cost $8,140,178) $ 7,987,051
PREFERRED STOCKS (2.4%) (a)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
9,073 AmeriKing, Inc. $3.25 pfd. (PIK) $ 99,803
56,000 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 1,302,000
30,000 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 1,590,000
4,000 Chevy Chase Savings Bank $3.25 pfd. 98,000
438 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 445,939
14,991 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 1,622,776
19,200 Diva Systems Corp. Ser. C, $6.00 pfd. 96,000
406 Dobson Communications 13.00% pfd. 430,360
1,525 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 1,479,250
320 First Republic 144A 10.50% pfd. 308,800
11,765 Fitzgeralds Gaming $3.75 cum. pfd. 118
1,520 Fresenius Medical Capital Trust I company guaranty
Ser. D, 9.00% pfd. (Germany) 1,440,200
790 Fresenius Medical Capital Trust II company guaranty
7.875% pfd. (Germany) 711,000
5,200 Global Crossing Holdings 144A $10.50 pfd. 509,600
1,598 Granite Broadcasting 144A 12.75% pfd. (PIK) 1,406,240
1,044 ICG Holdings, Inc., 144A 14.00% pfd. (Canada) (PIK) 923,940
1,363 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 1,301,665
22,147 Nextlink Communications, Inc. 144A $7.00
cum. pfd. (PIK) 1,107,350
137 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 1,404,250
920 Rural Cellular Corp. 12.25% pfd. (PIK) 918,160
390 WinStar Communications, Inc. 144A 14.25%
cum. pfd. (PIK) 526,500
----------------
Total Preferred Stocks (cost $18,883,148) $ 17,721,951
UNITS (0.6%) (a)
NUMBER OF UNITS VALUE
- ----------------------------------------------------------------------------------------------------------------------------
1,150,000 App China Group Ltd. 144A units 14s, 2010 $ 971,750
600,000 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (In default)
(Australia) (STP) (NON) 60
270,000 Colo.com 144A units 13 7/8s, 2010 270,000
670,000 Equinix, Inc. 144A units 13s, 2007 703,500
830,000 Leap Wireless 144A units 12 1/2s, 2010 830,000
835,000 Maxcom Telecom 144A units 13 3/4s, 2007 843,350
500,000 XCL Ltd. units 13 1/2s, 2004 (In default) (NON) 50,000
470,000 XM Satellite Radio Inc, 144A units 14s, 2010 444,150
----------------
Total Units (cost $5,187,621) $ 4,112,810
ASSET-BACKED SECURITIES (0.6%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$ 302,371 Contimortgage Home Equity Loan Trust Ser. 97-1,
Class M2, 7.67s, 2028 $ 151,186
3,280,000 Green Tree Financial Corp. Ser. 98-2, Class A5,
6.24s, 2016 3,202,100
1,093,521 Resolution Trust Corp. Ser. 94-1, Class M1,
7.14s, 2029 1,093,521
----------------
Total Asset-Backed Securities (cost $4,531,336) $ 4,446,807
CONVERTIBLE BONDS AND NOTES (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$ 2,430,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) $ 1,227,150
1,130,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 649,750
164,000 GST Telecommunications, Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 127,920
490,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 382,813
675,000 Mahindra & Mahindra Ltd. cv. bonds 12s, 2008
(Mexico) 654,750
----------------
Total Convertible Bonds and Notes
(cost $3,188,461) $ 3,042,383
WARRANTS (0.2%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
4 Anker Coal Group, Inc. 144A 10/28/09 $ 1
480 Bestel S.A. (Mexico) 5/15/05 52,800
460 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 25,300
2,428 Cellnet Data Systems, Inc. 10/1/07 1
1,220 Club Regina, Inc. 144A 12/1/04 12
1,500 Comunicacion Cellular 144A (Colombia) 11/15/03 4,500
490 Cybernet Internet 144A 7/1/09 49,000
475 Diva Systems Corp. 5/15/06 190,000
7,326 Diva Systems Corp. 3/1/08 175,824
10 E. Spire Communications, Inc. 11/1/05 230
830 Epic Resorts 6/15/05 8
255 Esat Holdings, Inc. (Ireland) 2/1/07 57,375
680 Firstworld Communication 4/15/08 119,000
9,768 ICG Communications 10/15/05 244,200
520 Interact Systems, Inc. 8/1/03 5
520 Interact Systems, Inc. 144A 12/15/09 5
245 International Wireless Communications
Holdings 144A 8/15/01 1
11,713 Intira Corp. Class A 2/1/10 1
4,025 Intira Corp. Class B 2/1/10 1
400 Iridium World Com 144A 7/15/05 1
2,085 KMC Telecom Holdings, Inc. 4/15/08 7,298
1,180 Knology Holdings 10/22/07 3,835
930 McCaw International Ltd. 4/15/07 4,185
560 Mediq Inc. 144A 6/1/09 6
357 Network Plus Corp. 12/31/00 235,615
280 Onepoint Communications, Inc. 6/1/08 5,600
620 Orbital Imaging Corp. 144A 3/1/05 12,400
1,840 Pagemart, Inc. 144A 12/31/03 23,000
990 Pathnet, Inc. 144A 4/15/08 9,900
960 Paxson Communications Corp. 144A 6/30/03 2,880
860 Startec Global Communications Corp. 5/15/08 15,652
185 Sterling Chemicals Holdings 8/15/08 3,330
410 Telehub Communications Corp. 7/31/05 205
1,260 UIH Australia/Pacific, Inc. 144A 5/15/06 37,800
610 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 366,000
100 Wright Medical Technology, Inc. 144A 6/30/03 1
----------------
Total Warrants (cost $790,647) $ 1,645,972
COMMON STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
150 AmeriKing, Inc. (NON) $ 1,500
2,955 Axia Holding Inc. 144A (NON) (PIK) 38,415
149,352 Celcaribe (NON) 37,338
12,124 Chesapeake Energy Corp. (NON) 39,403
23,404 Fitzgerald Gaming Corp. (NON) 5,851
3,770 IFINT Diversified Holdings 144A 7,540
4,530 MGC Communications, Inc. (NON) 323,895
175 Mothers Work, Inc. (NON) 2,100
255 Paging Do Brazil Holdings Co., LLC 144A
Class B, (Brazil) (NON) 3
327 Premium Holdings (L.P.) 144A (NON) 3,270
71,533 PSF Holdings LLC Class A (NON) 715,330
5,650 Spanish Broadcasting Systems (NON) 101,700
10,050 Specialty Foods Acquisition Corp. (NON) 101
3,172 Viatel, Inc. (NON) 159,195
51 Waste Management, Inc. 1,033
----------------
Total Common Stocks (cost $2,906,299) $ 1,436,674
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
520 Interact Electronic $14.00 cv. pfd $ 520
3,800 LTV Corp. (The) 144A $4.13 cv. pfd. 203,539
30 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 276,000
4,460 RSL Communications Ltd. 144A 7.5s cv. pfd. (Bermuda) 270,945
107 World Access, Inc. Ser. D, zero % cv. pfd. 110,210
----------------
Total Convertible Preferred Stocks (cost $881,555) $ 861,214
SHORT-TERM INVESTMENTS (3.3%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$ 400,000 Salomon Smith Barney for an effective yield of 5.99%,
April 19, 2000 $ 398,802
24,035,000 Interest in $754,202,000 joint repurchase agreement
dated March 31, 2000 with Morgan (J.P.) & Co., Inc.
due April 3, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $24,047,198 for an
effective yield of 6.09% 24,035,000
----------------
Total Short-Term Investments (cost $24,498,514) $ 24,433,802
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $774,440,212) (b) $ 726,900,269
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Percentages indicated are based on net assets of $738,797,805.
(b) The aggregate identified cost on a tax basis is $775,506,130,
resulting in gross unrealized appreciation and depreciation of
$11,044,130 and $59,649,991, respectively, or net unrealized
depreciation of $48,605,861.
(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 these securities were pledged and segregated with the
custodian to cover margin requirements for futures contracts at March
31, 2000.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced securities
(Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at March 31, 2000,
which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at March 31, 2000:
(as percentage of Market Value)
Brazil 3.7%
Canada 5.0
Germany 1.7
Mexico 3.0
Netherlands 2.9
Russia 1.3
United Kingdom 1.9
United States 77.1
Other 3.4
-------
Total 100.0%
=======
- ---------------------------------------------------------------------------
Forward Currency Contracts to Buy at March 31, 2000 (Unaudited)
(aggregate face value $157,683,344)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ---------------------------------------------------------------------------
Australian
Dollar $24,927,221 $25,442,024 6/21/00 $ (514,803)
Swiss Franc 1,782,136 1,857,729 6/21/00 (75,593)
Euro Dollar 79,376,662 83,678,592 6/21/00 (4,301,930)
Japanese Yen 54,990,071 53,796,689 6/21/00 1,193,382
Swedish Krona 1,870,161 1,852,105 6/21/00 18,056
- ---------------------------------------------------------------------------
$(3,680,888)
- ---------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 2000 (Unaudited)
(aggregate face value $144,978,429)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ---------------------------------------------------------------------------
British Pounds $16,975,167 $17,056,171 6/21/00 $ 81,004
Canadian Dollar 15,376,868 15,437,473 6/21/00 60,605
Danish Krone 19,237,767 19,396,220 6/21/00 158,453
Euro Dollar 27,597,907 29,073,528 6/21/00 1,475,621
Japanese Yen 65,744,615 64,015,037 6/21/00 (1,729,578)
- ---------------------------------------------------------------------------
$ 46,105
- ---------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 2000 (Unaudited)
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- ---------------------------------------------------------------------------
Euro-bund
(Short) $25,065,981 $24,549,426 Jun-00 $(516,555)
Eurodollar 3mo
(Long) 47,460,600 47,515,685 Sep-00 (55,085)
Eurodollar 3mo
(Short) 47,279,550 47,294,535 Sep-01 14,985
Gilt (Short) 2,530,705 2,491,284 Jun-00 (39,421)
U.S. Treasury
Note 10yr
(Long) 28,933,047 28,176,836 Jun-00 756,211
U.S. Treasury
Note 10yr
(Short) 6,375,078 6,216,283 Jun-00 (158,795)
U.S. Treasury
Note 5yr
(Short) 9,456,000 9,315,404 Jun-00 (140,596)
- ---------------------------------------------------------------------------
$(139,256)
- ---------------------------------------------------------------------------
TBA Sale Commitments at March 31, 2000 (Unaudited)
(Proceeds receivable $401,938)
Principal Settlement Market
Agency Amount Date Value
- ---------------------------------------------------------------------------
GNMA, 8s, April 2030 $400,000 04/19/00 $404,564
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 2000 (Unaudited)
Assets
- ----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $774,440,212) (Note 1) $726,900,269
- ----------------------------------------------------------------------------------------------
Cash 1,587,680
- ----------------------------------------------------------------------------------------------
Foreign currency (cost $500,563) 493,191
- ----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 15,669,454
- ----------------------------------------------------------------------------------------------
Receivable for securities sold 10,115,955
- ----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 3,118,822
- ----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 957,993
- ----------------------------------------------------------------------------------------------
Total assets 758,843,364
Liabilities
- ----------------------------------------------------------------------------------------------
Payable for variation margin 9,201
- ----------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,284,020
- ----------------------------------------------------------------------------------------------
Payable for securities purchased 5,337,673
- ----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,329,670
- ----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 93,705
- ----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 49,181
- ----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,422
- ----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 6,753,605
- ----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 661,108
- ----------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $401,938) 404,564
- ----------------------------------------------------------------------------------------------
Other accrued expenses 120,410
- ----------------------------------------------------------------------------------------------
Total liabilities 20,045,559
- ----------------------------------------------------------------------------------------------
Net assets $738,797,805
Represented by
- ----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $862,198,016
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (6,128,534)
- ----------------------------------------------------------------------------------------------
Accumulated net realized loss on investment and
foreign currency transactions (Note 1) (65,688,242)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (51,583,435)
- ----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $738,797,805
Computation of net asset value
- ----------------------------------------------------------------------------------------------
Net asset value per share ($738,797,805 divided by 100,133,127 shares) $7.38
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 2000 (Unaudited)
Investment income:
- ----------------------------------------------------------------------------------------------
<S> <C>
Interest income (net of foreign tax of $53,770) $33,984,968
- ----------------------------------------------------------------------------------------------
Dividends 937,742
- ----------------------------------------------------------------------------------------------
Total investment income 34,922,710
Expenses:
- ----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,699,378
- ----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 392,978
- ----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,541
- ----------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,924
- ----------------------------------------------------------------------------------------------
Reports to shareholders 23,185
- ----------------------------------------------------------------------------------------------
Auditing 34,870
- ----------------------------------------------------------------------------------------------
Legal 21,964
- ----------------------------------------------------------------------------------------------
Postage 24,297
- ----------------------------------------------------------------------------------------------
Other 50,370
- ----------------------------------------------------------------------------------------------
Exchange listing fees 105,912
- ----------------------------------------------------------------------------------------------
Total expenses 3,369,419
- ----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (15,617)
- ----------------------------------------------------------------------------------------------
Net expenses 3,353,802
- ----------------------------------------------------------------------------------------------
Net investment income 31,568,908
- ----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (16,308,819)
- ----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 668,249
- ----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (2,776,303)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (3,309,638)
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments,
futures and TBA sale commitments during the period 3,864,052
- ----------------------------------------------------------------------------------------------
Net loss on investments (17,862,459)
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $13,706,449
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
2000* 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 31,568,908 $ 58,419,638
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (18,416,873) (22,122,171)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies 554,414 (26,023,477)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 13,706,449 10,273,990
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income (32,441,974) (55,752,154)
- -------------------------------------------------------------------------------------------------------
From return of capital -- (12,290,601)
- -------------------------------------------------------------------------------------------------------
Increase in capital shares transactions from
reinvestment of distributions -- 960,273
- -------------------------------------------------------------------------------------------------------
Total decrease in net assets (18,735,525) (56,808,492)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of year 757,533,330 814,341,822
- -------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $6,128,534 and
$5,255,468 respectively) $738,797,805 $757,533,330
- -------------------------------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of year 100,133,127 100,014,650
- -------------------------------------------------------------------------------------------------------
Shares increased issued in connection with
reinvestment of distributions -- 118,477
- -------------------------------------------------------------------------------------------------------
Shares outstanding at end of year 100,133,127 100,133,127
- -------------------------------------------------------------------------------------------------------
* Unaudited
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.57 $8.14 $8.79 $8.58 $8.38 $8.13
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .32 .58 .71 .64 .63 .67
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.19) (.47) (.67) .21 .19 .21
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .13 .11 .04 .85 .82 .88
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.56) (.69) (.64) (.61) (.49)
- --------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.12) -- -- (.01) (.14)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.32) (.68) (.69) (.64) (.62) (.63)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.38 $7.57 $8.14 $8.79 $8.58 $8.38
- --------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $5.813 $6.438 $7.750 $8.125 $7.500 $7.375
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) (5.09)* (9.09) 3.91 17.54 10.34 10.90
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $738,798 $757,533 $814,342 $337,664 $332,537 $326,735
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .45* .93 .92 1.04 .99 1.03
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.20* 7.39 8.13 7.47 7.44 8.24
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 73.10* 133.72 179.84(c) 220.61 232.90 219.63
- --------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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
March 31, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Master Intermediate Income Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company and is authorized to issue an
unlimited number of shares. The fund's investment objective is to seek,
with equal emphasis, high current income and relative stability of net
asset value, by allocating its investments among the U.S. taxable
investment grade sector (formerly the U.S. government sector),
high-yield sector and international sector.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable relationships
between securities that are generally recognized by institutional
traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. 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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is "marked to market"
daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain
or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. The fund
could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet
the terms of their contracts or if the fund is unable to enter into a
closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
H) 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 .01% 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 September 30, 1999, the fund had a capital loss carryover of
approximately $21,675,000 available to offset future net capital gain,
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 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 gains distributions, if
any, are recorded on the ex-dividend date and paid at least annually.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average weekly net
assets of the fund. Such fee is based on the following annual rates:
0.75% of the first $500 million of average weekly net assets, 0.65% of
the next $500 million, 0.60% of the next $500 million, and 0.55%
thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the six months ended March 31, 2000, fund expenses were reduced by
$15,617 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 $999
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the six months ended March 31, 2000, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $406,596,147 and
$424,701,345, respectively. Purchases and sales of U.S. government
obligations aggregated $117,311,072 and $131,086,411, 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 six months ended March 31, 2000, the fund repurchased no shares.
As of March 31, 2000, 570,000 shares have been repurchased since the
inception of the program.
Trustees approve investment policy change for
Putnam Master Intermediate Income Trust
At their February 4, 2000, meeting, the Trustees of the Putnam Funds
approved changes in the investment policies of Putnam Master Intermediate
Income Trust and four other funds that also invest in the U.S.
government/investment-grade, high-yield, and international fixed-income
sectors of the securities markets.
The changes, proposed by Putnam Management, were made to standardize the
ways the three investment sectors are defined and to provide greater
clarity and consistency among the funds as to minimum and maximum
investments in each sector, and to establish consistent limits on
lower-rated securities that may be purchased by both the high-yield and
international sectors.
The changes will provide portfolio managers somewhat greater
flexibility, enhancing their ability to compete in the
multi-sector universe, which has evolved over recent years. However,
Putnam Management does not expect that the proposed changes will
significantly change the way the funds are managed.
Sector definitions clarified and standardized. To eliminate ambiguity
and inconsistency across funds, the following sector definitions were
adopted for each of the five funds:
* The U.S. investment-grade sector includes any security issued by an
entity domiciled or with its principal operations in the United States and
at least investment-grade in quality.
* The high-yield sector includes any security issued by an entity
domiciled or with its principal operations in the United States and is
below investment-grade in quality.
* The international sector includes any security issued by an entity
domiciled or with its principal operations outside the United States. The
revised investment policies also delete an expectation that the
international sector will primarily be invested in securities of
industrialized Western Europe (including the Scandinavian countries),
Canada, Japan, Australia, and New Zealand. This change will increase the
funds' flexibility to invest in nonindustrialized countries, including
emerging markets.
Uniform limit established on lower-rated securities. The new uniform
policy for all five funds limits securities below investment grade quality
to 70% of fund assets, provided that no more than 5% of assets be invested
in securities below CCC in quality. Putnam Master Intermediate Income
Trust and two other Putnam closed-end funds had limited securities below
investment grade in quality to 65% of fund assets. The increased limit
will enhance the competitiveness of the fund.
The change also eliminates a policy of the fund that prohibits it from
investing more than 20% of assets in foreign securities rated below
investment grade. This restriction could potentially restrict the fund's
ability to take advantage of attractive foreign fixed-income markets,
including high-yield corporate securities and emerging markets. Moreover,
the fund will be subject to an overall 70% restriction on lower-rated
securities.
Consistent minimum and maximum investment limits adopted. The required
20% minimum investment in U.S. government securities was lowered
to 15%, in light of the minimum investment of 15% in each sector. This
more flexible policy is consistent with that of other funds in the Lipper
multi-sector universe.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
David Waldman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminv.com) any time for up-to-date
information about the fund's NAV.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
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