Putnam
Master
Intermediate
Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the Trustees
and President of the Funds. As you know, both of us have been members of
the Board of Trustees for a number of years -- years during which the global
securities markets, the mutual fund industry, and Putnam itself have
experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be breathtaking
in their scope. What will not change is the Trustees' dedication to serving
the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam and
your Board will continue to face those challenges successfully as they have
for more than 60 years. We look forward to helping you meet your financial
objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 15, 2000
REPORT FROM FUND MANAGEMENT
David L. Waldman
and the Core Fixed
Income Team
Putnam Master Intermediate Income Trust weathered changing market environments
in the 12 months ended September 30, 2000. At the beginning of fiscal 2000,
investors were uncertain of what to expect, given Y2K-related concerns, but
they also were confident enough to focus attention on the riskier sectors of
the market. This confidence contributed to positive performance for these
sectors into the new year. After the Y2K transition passed without incident,
the euphoria of the market quickly dissipated into an environment filled with
fears of inflation and fallout from the Federal Reserve Board's decisions to
increase interest rates. After mid 2000, a more stable market environment
returned. Inflation appeared to remain benign, the U.S. economy showed signs
of slowing down, and the risk of further Fed rate increases ceased to be a
real threat. This most recent environment, combined with the fund's diversified
portfolio, helped to deliver a competitive performance over the period.
Total return for 12 months ended 9/30/00
NAV Market price
-------------------------------
4.29% 10.72%
-------------------------------
Past performance is not indicative of future results. Performance information
for longer periods begins on page 5.
* YIELD CURVE INVERSION IMPACTS FIXED-INCOME MARKET
Within the investment-grade market, the action of the U.S. Treasury yield
curve affected all sectors. The increases in short-term interest rates made
short-term fixed-income securities much more attractive to investors. At the
same time, the U.S. Treasury's buyback of long-term Treasury securities
reduced supply and increased demand for longer-term Treasury debt. This
combination created an inverted yield curve for most of the fiscal year, in
which yields offered by short-term investments actually became higher than
those of long-term bonds. As Treasuries serve as a benchmark for most other
segments of the fixed-income market, the chain of events caused a volatile
environment for fixed-income investments.
[GRAPHIC OMITTED: horizontal bar chart TOP FIVE COUNTRY ALLOCATIONS
(INTERNATIONAL SECTOR)]
TOP FIVE COUNTRY ALLOCATIONS
(INTERNATIONAL SECTOR)*
Canada 4.1%
Denmark 3.1%
Mexico 3.0%
Brazil 2.5%
Russia 2.1%
Footnote reads:
*Based on net assets as of 9/30/00. Holdings will vary over time.
Because of the fund's focus on fixed-income investments with limited
maturities, we were unable to take advantage of the demand for long-term U.S.
Treasury bonds. Fortunately, the fund's position in U.S. Treasuries of 7- to
10-year maturities was rewarded by these same market dynamics. Our position
in mortgage-backed securities also served the fund well. With rising interest
rates, fewer mortgages were being refinanced and we focused on mortgage-backed
securities likely to benefit from the resulting decline in prepayments.
* EMERGING MARKETS, DEVELOPED MARKETS BOLSTER RETURNS WHILE HIGH-YIELD BONDS
DISAPPOINT
Emerging markets have proved their resiliency since the correction in 1998.
During the fiscal year, global growth was sustained, valuations were very
cheap, and commodity prices were firm. The fund's holdings in Russia benefited
from higher oil prices as well as the country's restructuring into a more
market-oriented economy. Holdings in Mexico benefited both from U.S. economic
growth and the increased economic stability.
Within the developed market universe, the fund took advantage of opportunities
over the fiscal year in various countries. The potential for further European
integration was an incentive to have positions in Greece and Denmark. In
addition, the fund remained underweight in Japan as economic growth and
potential supply of Japanese government securities weighed on the market.
Unfortunately, the fund's currency exposure did not contribute to positive
performance. The euro in particular continued its slow deterioration since the
beginning of the period. The attractiveness of the U.S. economy lured capital
flows from abroad, and as a result, investors tended to buy the dollar and
sell foreign securities.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS
PER SECTOR
HIGH-YIELD BONDS
Nextel Communications, Inc.
sr. notes, 9 3/8s, 2009
Hanvit Bank 144A
sub. notes 11 3/4s, 2010 (Korea)
Midland Funding II Corp.,
deb. Series A, 11 3/4s, 2005
FOREIGN BONDS
Brazil (Federal Republic of)
notes 14 1/2s, 2009
Denmark (Kingdom of)
bonds 6s, 2009
United Mexican States
bonds Series XW, 10 3/8s, 2009
U.S. INVESTMENT-GRADE
SECURITIES
U.S. Treasury Notes,
6 3/4s, May 15, 2005
U.S. Treasury Strip,
zero %, August 15, 2009
Federal National Mortgage Association
TBA 7 1/2s, 2015
Footnote reads:
These holdings represent 19.2% of the fund's net assets as of 9/30/00.
Portfolio holdings will vary over time.
The combination of poor equity markets, defaults, and negative industry-wide
mutual fund cash flows contributed to the underperformance of high-yield bonds
during the period. Although the sector delivered attractive yields, the price
performance was negative as spreads widened throughout the period.
The high-yield bond market rallied in the fourth quarter of 1999, consistent
with the performance of U.S. equity markets. However, throughout most of 2000,
as equity markets were experiencing corrections, this volatility also spilled
over into the high-yield market.
Rising default rates over the past two years reduced demand for high-yield
bonds even more. The rise in the default rate has received a great deal of
attention. Historically, the most stressful time for a corporation is the
three-year period following the issuance of high-yield bonds. The pattern of
defaults that is now emerging can be attributed in part to the strong issuance
in 1997 and 1998.
As it did in the equity markets, the technology and telecommunications sector
of the high-yield market hit a rough patch in 2000. The fund trimmed back its
holdings in the sector but did not completely escape the effects.
* OUTLOOK REMAINS POSITIVE
Looking forward, we believe that increasing stability is on the horizon as the
opportunity for a U.S. economic soft landing has become a stronger probability.
With the threat of continued Fed tightening dissipating, bond prices should
trade within a relatively narrow range. We remain supportive on the long-term
performance of the high-yield bond market. Given the attractive valuations and
our expectation that defaults will peak in 2001, we believe that many of the
uncertainties that have caused the high-yield market to struggle show signs of
subsiding.
Emerging markets have shown continued strength in volatile times. But, despite
global economic stability and firm commodity prices, we remain neutral on this
sector because of pockets of specific country risk. With regard to developed
country interest rates, we expect to minimize exposure to Japan and continue
to take advantage of opportunities in Greece, Canada, and Denmark. We will
continue to monitor events closely and maintain the fund's diversification
while emphasizing strong valuations and working to minimize risk.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 9/30/00, there is no guarantee the fund will continue to hold
these securities in the future. International investments are subject to
certain risks, such as currency fluctuations, economic instability, and
political developments. While the U.S. government backing of individual
securities does not insure your principal, which will fluctuate, it does
guarantee that the fund's government-backed holdings will make timely payments
of interest and principal. Mortgage-backed securities in the portfolio may be
subject to prepayment risk. The lower credit ratings of high-yield bonds
reflect a greater possibility that adverse changes in the economy or poor
performance by the issuers of these bonds will affect the issuers' ability
to pay principal and interest.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Master
Intermediate Income Trust is designed for investors seeking high current
income and relative stability of net asset value through U.S. investment-grade
high-yield, and international fixed-income securities with limited maturities.
TOTAL RETURN FOR PERIODS ENDED 9/30/00
NAV Market price
---------------------------------------------------------------------------
1 year 4.29% 10.72%
---------------------------------------------------------------------------
5 years 32.20 35.62
Annual average 5.74 6.28
---------------------------------------------------------------------------
10 years 135.94 153.96
Annual average 8.96 9.77
---------------------------------------------------------------------------
Annual average
(life of fund,
since 4/29/88) 7.88 6.37
---------------------------------------------------------------------------
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 redeemed may be worth more or less than their
original cost.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/00
Lehman Bros. Salomon Bros.
Govt. Non-U.S. First Boston
Intermediate World Govt. High Yield Consumer
Bond Index Bond Index Bond Index price index
----------------------------------------------------------------------------
1 year 6.21% -7.86% 1.92% 3.46%
----------------------------------------------------------------------------
5 years 34.19 6.47 35.09 13.32
Annual average 6.06 1.26 6.20 2.53
----------------------------------------------------------------------------
10 years 101.03 101.90 204.16 30.82
Annual average 7.23 7.28 11.76 2.72
----------------------------------------------------------------------------
Annual average
(life of fund,
since 4/29/88) 7.51 6.14 9.41 3.22
----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns may
be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment returns,
net asset value and market price will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/00
----------------------------------------------------------------------------
Distributions from common shares
----------------------------------------------------------------------------
Number 12
----------------------------------------------------------------------------
Income $0.642
----------------------------------------------------------------------------
Capital gains --
----------------------------------------------------------------------------
Total $0.642
----------------------------------------------------------------------------
Share value NAV Market price
----------------------------------------------------------------------------
9/30/99 $7.57 $6.438
----------------------------------------------------------------------------
9/30/00 7.13 6.438
----------------------------------------------------------------------------
Current return
----------------------------------------------------------------------------
Current dividend rate1 8.92% 9.88%
----------------------------------------------------------------------------
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 Brothers 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, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type and
industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price are determined. All investment and noninvestment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
sources listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-end funds, a separate table is provided
for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Putnam Master Intermediate Income Trust
We have audited the accompanying statement of assets and liabilities of Putnam
Master Intermediate Income Trust, including the fund's portfolio, as of
September 30, 2000, the related statement of operations for the year then
ended, statement of changes in net assets for the year then ended and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets for the year ended
September 30, 1999 and the financial highlights for each of the years or
periods in the four-year period ended September 30, 1999 were audited by other
auditors whose report dated November 11, 1999 expressed an unqualified opinion
on that financial statement and those financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform our audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of September 30, 2000 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam Master Intermediate Income Trust as of September 30, 2000, and the
results of its operations, changes in its net assets and financial highlights
for the year described above, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
November 2, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
September 30, 2000
CORPORATE BONDS AND NOTES (44.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising and Marketing Services (0.5%)
-------------------------------------------------------------------------------------------------------------------
$ 165,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 169,950
688,200 Interact Operating Co. notes 14s, 2003 34,410
360,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 354,600
1,450,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 1,471,750
860,000 SFX Entertainment, Inc. company guaranty
9 1/8s, 2008 898,700
730,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 762,850
-------------
3,692,260
Aerospace and Defense (0.8%)
-------------------------------------------------------------------------------------------------------------------
1,140,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 940,500
665,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 650,038
530,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 475,675
580,000 Decrane Aircraft Holdings company guaranty
Ser. B, 12s, 2008 536,500
330,000 L-3 Communications Corp. company guaranty
Ser. B, 8s, 2008 298,650
1,130,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,053,725
140,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 143,150
600,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 595,500
1,150,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 1,159,200
-------------
5,852,938
Agriculture (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,979,455 Premium Standard Farms, Inc. sr. sec. notes
11s, 2003 (PIK) 1,801,304
Airlines (0.5%)
-------------------------------------------------------------------------------------------------------------------
1,030,000 Calair LLC 144A company guaranty 8 1/8s, 2008 968,200
180,000 Continental Airlines notes 8s, 2005 170,827
70,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 67,609
240,000 Northwest Airlines, Inc. company guaranty 8 3/8s, 2004 229,898
490,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 458,238
2,000,000 US Air, Inc. pass-thru certificates Ser. 93-A2,
9 5/8s, 2003 1,911,440
-------------
3,806,212
Automotive (1.0%)
-------------------------------------------------------------------------------------------------------------------
844,000 Aftermarket Technology Corp. sr. sub. notes
12s, 2004 844,000
50,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 50,000
220,000 Collins & Aikman Products company guaranty
11 1/2s, 2006 213,400
910,000 Dura Operating Corp. company guaranty
Ser. B, 9s, 2009 782,600
370,000 Exide Corp. sr. notes 10s, 2005 284,900
410,000 Federal Mogul Corp. notes 7 7/8s, 2010 155,800
1,220,000 Federal Mogul Corp. notes 7 3/4s, 2006 475,800
630,000 Federal Mogul Corp. notes 7 1/2s, 2009 239,400
420,000 Federal Mogul Corp. notes 7 3/8s, 2006 163,800
225,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 200,250
780,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 682,500
490,000 Lear Corp. company guaranty 8.11s, 2009 465,823
760,000 Lear Corp. sub. notes 9 1/2s, 2006 766,924
990,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 891,000
200,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 (In default) (NON) 80,000
1,020,000 Tenneco Automotive, Inc. company guaranty
Ser. B, 11 5/8s, 2009 652,800
-------------
6,948,997
Banking (1.2%)
-------------------------------------------------------------------------------------------------------------------
180,000 Bank United Corp. sub. notes 8 7/8s, 2007 178,085
110,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2008 101,475
590,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 555,338
1,060,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 978,719
4,320,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 4,287,600
670,000 Local Financial Corp. sr. notes 11s, 2004 670,000
1,100,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 1,116,500
630,000 Superior Financial Corp. sr. notes 8.65s, 2003 610,796
-------------
8,498,513
Beverage (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,370,000 Trairc Consumer Products, Inc. company guaranty
10 1/4s, 2009 1,532,688
Broadcasting (3.3%)
-------------------------------------------------------------------------------------------------------------------
1,140,000 Acme Television sr. disc. notes 10 7/8s, 2004 1,083,000
970,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 906,950
245,900 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 281,556
10,263 Australis Media, Ltd. sr. disc. notes 15 3/4s, 2003
(In default) (Australia) (PIK) (NON) 1
1,480,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01),
2006 (STP) 1,276,500
2,105,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 2,015,538
2,025,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 2,065,500
115,000 Central European Media Enterprises, Ltd. sr. notes
9 3/8s, 2004 (In default) (Bermuda) (NON) 25,300
256,020 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 266,261
2,542,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 1,118,480
3,340,000 Echostar Broadband Corp. 144A sr. notes
10 3/8s, 2007 3,340,000
580,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 421,950
380,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 363,850
890,000 Golden Sky Systems company guaranty Ser. B,
12 3/8s, 2006 974,550
560,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 392,000
950,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 498,750
1,650,000 Lin Holdings Corp. sr. disc. notes stepped-coupon
zero % (10s, 3/1/2003), 2008 (STP) 1,188,000
520,000 OnePoint Communications Corp. company guaranty
Ser. B, 14 1/2s, 2008 522,600
610,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 625,250
70,000 Pegasus Communications sr. notes Ser. B, 12 1/2s, 2007 74,200
2,170,000 Pegasus Communications sr. notes Ser. B, 9 3/4s, 2006 2,115,750
140,000 Pegasus Communications sr. notes Ser. B, 9 5/8s, 2005 136,500
90,000 Pegasus Media & Communications sr. sub.notes
Ser. B, 12 1/2s, 2005 93,600
997,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 937,978
275,000 Radio One, Inc. company guaranty Ser. B, 12s, 2004 291,500
490,000 RCN Corp. sr. notes 10 1/8s, 2010 350,350
510,000 Spanish Broadcasting System, Inc. sr. sub notes
9 5/8s, 2009 508,725
1,530,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s,
2007 (Mexico) 1,413,338
590,000 XM Satellite Radio, Inc. 144A sr. notes 14s, 2010 436,600
-------------
23,724,577
Building Materials (0.4%)
-------------------------------------------------------------------------------------------------------------------
130,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 (In default) (NON) 23,400
765,000 American Standard, Inc. company guaranty
7 5/8s, 2010 721,013
80,000 American Standard, Inc. company guaranty
7 1/8s, 2003 77,800
230,000 Atrium Companies, Inc. company guaranty
Ser. B, 10 1/2s, 2009 207,000
540,000 Building Materials Corp. company guaranty 8s, 2008 340,200
940,000 Dayton Superior Corp. company guaranty 13s, 2009 944,700
410,000 NCI Building Systems, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2009 386,425
-------------
2,700,538
Cable Television (1.9%)
-------------------------------------------------------------------------------------------------------------------
1,123,000 Adelphia Communications Corp. sr. notes Ser. B,
9 7/8s, 2007 1,055,620
100,000 Charter Communications Holdings LLC sr. disc.
notes, stepped-coupon zero % (11 3/4s, 1/15/05),
2010 (STP) 58,500
2,580,000 Charter Communications Holdings LLC sr. notes
8 5/8s, 2009 2,309,100
150,000 Charter Communications Holdings LLC bank term
loan FRN 8.518s, 2008 150,000
210,000 Classic Cable, Inc. company guaranty 10 1/2s, 2010 178,500
1,600,000 CSC Holdings, Inc. sr. sub notes 9 7/8s, 2006 1,640,000
2,700,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 2,072,250
860,000 NTL Communications Corp. 144A sr. notes
11 7/8s, 2010 842,800
1,130,000 NTL Communications Corp. sr. notes Ser. B,
11 1/2s, 2008 1,098,925
560,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(In default) (Argentina) (NON) 235,200
1,200,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (11 3/8s, 2/1/05), 2010
(United Kingdom) (STP) 636,000
150,000 TeleWest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) (STP) 143,250
410,000 TeleWest Communications PLC structured note
10 7/8s, 2005 (issued by DLJ International Capital)
(United Kingdom) 421,480
610,000 TeleWest Communications PLC 144A 9 7/8s, 2010 561,200
90,000 TeleWest Communications PLC sr. disc. notes
stepped-coupon zero % (9.25s, 4/15/04), 2009
(United Kingdom) (STP) 47,700
1,270,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon
zero % (13 3/4s, 2/01/05), 2010 (Netherlands) (STP) 584,200
1,090,000 United Pan-Europe N.V. sr. discount notes Ser. B,
12 1/2s, 2009 (Netherlands) 523,200
890,000 United Pan-Europe N.V. sr. notes 10 7/8s, 2009
(Netherlands) 754,275
560,000 Williams Communications Group, Inc. 144A
sr. notes 11.7s, 2008 543,200
-------------
13,855,400
Chemicals (1.7%)
-------------------------------------------------------------------------------------------------------------------
1,430,000 Geo Specialty Chemicals, Inc. sr. sub. notes
10 1/8s, 2008 1,258,400
635,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 546,100
600,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 522,000
2,070,000 Huntsman ICI Chemicals, Inc. company guaranty
10 1/8s, 2009 2,038,950
450,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 439,875
390,000 Lyondell Petrochemical Co. sr. sub. notes
10 7/8s, 2009 378,300
1,700,000 Lyondell Petrochemical Co. sec. notes Ser. B,
9 7/8s, 2007 1,666,000
590,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 578,200
2,000,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 990,000
466,000 Pioneer Americas Acquisition 144A sr. notes
9 1/4s, 2007 298,240
120,000 Polymer Group, Inc. company guaranty Ser. B,
9s, 2007 96,000
580,000 Polymer Group, Inc. company guaranty Ser. B,
8 3/4s, 2008 458,200
357,928 Polytama International notes 11 1/4s, 2007
(In default ) (Indonesia) (NON) 29,100
810,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 607,500
325,000 Sterling Chemicals Holdings sr. disc. notes stepped-
coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 130,000
680,000 Sterling Chemicals, Inc. company guaranty Ser. B,
12 3/8s, 2006 693,600
720,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 504,000
220,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A,
11 1/4s, 2007 149,600
200,000 Texas Petrochemical Corp. sr. sub. notes Ser. B,
11 1/8s, 2006 170,000
830,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 651,550
-------------
12,205,615
Coal (--%)
-------------------------------------------------------------------------------------------------------------------
1,030,000 Lodestar Holdings, Inc. company guaranty
11 1/2s, 2005 144,200
Commercial and Consumer Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
1,170,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 1,170,000
485,000 GS Superhighway Holdings sr. notes
10 1/4s, 2007 (China) 344,332
790,000 GS Superhighway Holdings sr. notes
9 7/8s, 2004 (China) 576,700
-------------
2,091,032
Communications Equipment (--%)
-------------------------------------------------------------------------------------------------------------------
30,000 USA Mobile Communication, Inc. sr. notes
9 1/2s, 2004 22,050
Computers (0.1%)
-------------------------------------------------------------------------------------------------------------------
885,000 Unisys Corp. sr. notes 11 3/4s, 2004 935,888
Construction (0.4%)
-------------------------------------------------------------------------------------------------------------------
1,390,000 Better Minerals & Aggregates Co. company guaranty
13s, 2009 1,292,700
850,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 841,500
980,000 Washington Group, Intl. 144A company guaranty
11s, 2010 1,004,500
-------------
3,138,700
Consumer (0.1%)
-------------------------------------------------------------------------------------------------------------------
710,000 Home Interiors & Gifts, Inc. company guaranty
10 1/8s, 2008 212,113
810,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 639,900
-------------
852,013
Consumer Finance (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,090,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 (In default) (NON) 152,600
1,340,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (In default) (NON) 187,600
1,320,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 (In default) (NON) 184,800
150,000 Finova Capital Corp. sr. notes 7 5/8s, 2009 104,250
565,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B,
11s, 2006 480,250
-------------
1,109,500
Consumer Goods (0.3%)
-------------------------------------------------------------------------------------------------------------------
320,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 312,000
180,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 179,100
500,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 215,000
1,370,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 1,171,350
460,000 Revlon Consumer Products sr. notes 9s, 2006 331,200
270,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 191,700
-------------
2,400,350
Consumer Staples (--%)
-------------------------------------------------------------------------------------------------------------------
570,000 Doskcil Manufacturing Co., Inc. sr. sub. notes
10 1/8s, 2007 193,800
Containers (1.3%)
-------------------------------------------------------------------------------------------------------------------
1,100,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 929,500
2,210,000 Huntsman Packaging Corp. bank term loan FRN
9.72s, 2008 2,154,750
410,000 Huntsman Packaging Corp. 144A company guaranty
13s, 2010 358,750
127,779 Jefferson Smurfit bank term loan FRN 8.65s, 2006 127,779
550,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 473,732
1,110,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 1,014,684
100,000 Radnor Holdings, Inc. sr. notes 10s, 2003 89,000
207,000 Stone Container Corp. sr. sub. notes 12 1/4s, 2002 209,070
310,000 Stone Container 144A company guaranty
11 1/2s, 2006 (Canada) 318,525
903,500 Stone Container bank term loan FRN
10.105s, 2006 (Canada) 903,500
1,094,261 Stone Container bank term loan FRN 9 3/8s,
2006 (Canada) 1,091,525
1,360,000 Tekni-Plex, Inc. 144A sr. sub. notes 12 3/4s, 2010 1,339,600
-------------
9,010,415
Distribution (0.1%)
-------------------------------------------------------------------------------------------------------------------
990,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 792,000
Electric Utilities (0.6%)
-------------------------------------------------------------------------------------------------------------------
800,000 AES China Generating Co. sr. notes 10 1/8s,
2006 (China) 560,000
270,000 CMS Energy Corp. sr. notes 7 1/2s, 2009 241,064
1,700,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 1,589,500
869,216 Northeast Utilities System notes Ser. A, 8.58s, 2006 884,210
246,400 Northeast Utilities System notes Ser. B, 8.38s, 2005 247,068
1,290,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 580,500
-------------
4,102,342
Energy (0.8%)
-------------------------------------------------------------------------------------------------------------------
1,710,000 AES Corp. sr. notes 9 3/8s, 2010 1,735,650
1,000,000 Cliffs Drilling Co. company guaranty Ser. D,
10 1/4s, 2003 1,030,000
580,000 Leviathan Gas Corp. company guaranty Ser. B,
10 3/8s, 2009 611,900
590,000 Parker Drilling Co. company guaranty Ser. D,
9 3/4s, 2006 594,425
1,440,000 RBF Finance Co. company guaranty 11 3/8s, 2009 1,663,200
-------------
5,635,175
Entertainment (0.7%)
-------------------------------------------------------------------------------------------------------------------
180,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 82,800
690,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 317,400
920,000 Autotote Corp. 144A company guaranty
12 1/2s, 2010 933,800
1,600,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s,
2008 (Mexico) 768,000
2,775,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,584,219
1,480,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 177,600
640,000 Regal Cinemas, Inc. sr. sub. notes 8 7/8s, 2010 70,400
800,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005
(In default) (NON) 64,000
1,475,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008
(In default) (NON) 25,813
586,000 United Artists Theatre 144A notes, FRN,
10.415s, 2007 (In default) (NON) 11,720
-------------
5,035,752
Financial (0.9%)
-------------------------------------------------------------------------------------------------------------------
640,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 328,000
1,270,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,211,948
1,060,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 949,113
820,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 369,000
240,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 108,000
700,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 525,000
1,380,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 621,000
950,000 Imperial Credit Capital Trust I 144A company
guaranty 10 1/4s, 2002 617,500
125,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 68,750
420,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 264,600
620,000 Ocwen Federal Bank sub. deb. 12s, 2005 570,400
500,000 Ocwen Financial Corp. notes 11 7/8s, 2003 451,250
760,000 Resource America, Inc. 144A sr. notes 12s, 2004 691,600
-------------
6,776,161
Food (0.4%)
-------------------------------------------------------------------------------------------------------------------
120,000 Archibald Candy Corp. company guaranty
10 1/4s, 2004 69,600
65,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 51,025
730,000 Aurora Foods, Inc. sr. sub. notes Ser. D, 9 7/8s, 2007 573,050
1,370,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 1,185,050
380,000 Eagle Family Foods company guaranty Ser. B,
8 3/4s, 2008 201,400
190,000 Premier International Foods PLC sr. notes 12s, 2009
(United Kingdom) 157,700
735,000 Vlasic Foods Intl., Inc. sr. sub notes Ser. B,
10 1/4s, 2009 404,250
-------------
2,642,075
Gaming & Lottery (2.0%)
-------------------------------------------------------------------------------------------------------------------
270,000 Ameristar Casinos, Inc. company guaranty Ser. B,
10 1/2s, 2004 270,675
720,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 388,800
270,000 Harrahs Entertainment, Inc. company guaranty
7 1/2s, 2009 254,416
1,360,000 Hollywood Casino Corp. company guaranty
11 1/4s, 2007 1,424,600
510,000 Hollywood Park, Inc. company guaranty Ser. B,
9 1/4s, 2007 520,200
1,710,000 International Game Technology sr. notes
7 7/8s, 2004 1,662,975
70,000 International Game Technology sr. notes 8 3/8s, 2009 68,600
1,220,000 Isle of Capri Black Hawk LLC company guaranty
8 3/4s, 2009 1,134,600
150,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 163,500
830,000 Mirage company guaranty 9 3/4s, 2007 856,975
800,000 Mohegan Tribal Gaming, Auth. sr. sub. notes
8 3/4s, 2009 794,000
330,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 321,750
590,000 Park Place Entertainment sr. sub. notes 8 7/8s, 2008 584,100
80,000 Park Place Entertainment sr. sub. notes 9 3/8s, 2007 81,500
3,310,000 Trump Atlantic City 1st mtge. 11 1/4s, 2006 2,292,175
2,430,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 2,430,000
100,000 Trump Castle Funding mortgage 11 3/4s, 2003 83,500
850,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 875,500
-------------
14,207,866
Health Care (1.6%)
-------------------------------------------------------------------------------------------------------------------
340,000 ALARIS Medical Systems, Inc. company guaranty
9 3/4s, 2006 248,200
330,000 Bio-Rad Labs sr. sub. notes 11 5/8s, 2007 346,500
1,500,000 Columbia/HCA Healthcare Corp. med. term notes
8.85s, 2007 1,503,750
600,000 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 564,000
2,310,000 Conmed Corp. company guaranty 9s, 2008 1,940,400
560,000 HCA-The Healthcare Co. notes 8 3/4s, 2010 567,511
660,000 Hudson Respiratory Care, Inc. sr. sub. notes
9 1/8s, 2008 462,000
290,000 Kinetic Concepts, Inc. company guaranty Ser. B,
9 5/8s, 2007 223,300
680,000 Lifepoint Hospital Holdings company guaranty
Ser. B, 10 3/4s, 2009 714,000
510,000 Magellan Health Services sr. sub. notes 9s, 2008 336,600
862,829 Magellan Health Services bank term loan FRN
8s, 2005 776,546
760,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 22,800
560,000 Mediq, Inc. deb. stepped-coupon zero %
(13s, 6/1/03), 2009 (STP) 56
815,000 Paracelsus Healthcare sr. sub. notes 10s, 2006
(In default) (NON) 326,000
370,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 364,450
230,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 231,150
500,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 476,875
1,370,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 1,291,225
960,000 Triad Hospitals Holdings company guaranty Ser. B,
11s, 2009 984,000
-------------
11,379,363
Homebuilding (0.5%)
-------------------------------------------------------------------------------------------------------------------
540,000 D.R. Horton, Inc. company guaranty 8s, 2009 504,225
140,000 Del Webb Corp. sr. sub. deb. 10 1/4s, 2010 135,100
280,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 257,600
670,000 K. Hovnanian Enterprises 144A company guaranty
10 1/2s, 2007 655,763
130,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 133,900
350,000 Lennar Corp. sr. notes 7 5/8s, 2009 322,000
590,000 Ryland Group sr. notes 9 3/4s, 2010 597,375
570,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 571,425
520,000 Toll Corp. company guaranty 8 1/8s, 2009 492,700
-------------
3,670,088
Household Furniture & Appliances (0.3%)
-------------------------------------------------------------------------------------------------------------------
830,000 Albecca, Inc. company guaranty 10 3/4s, 2008 749,075
1,000,000 Sealy Mattress Co. company guaranty stepped-coupon
Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 745,000
410,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 396,675
-------------
1,890,750
Lodging/Tourism (0.6%)
-------------------------------------------------------------------------------------------------------------------
720,000 Epic Resorts LLC company guaranty Ser. B,
13s, 2005 216,000
220,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 210,100
1,665,000 HMH Properties, Inc. company guaranty Ser. B,
7 7/8s, 2008 1,535,963
1,000,000 Starwood Hotels & Resorts bank term loan FRN
8.763s, 2003 1,002,500
150,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 144,135
1,330,000 Starwood Hotels & Resorts notes 6 3/4s, 2005 1,241,462
-------------
4,350,160
Manufacturing (1.2%)
-------------------------------------------------------------------------------------------------------------------
1,410,000 Blount, Inc. company guaranty 13s, 2009 1,448,775
1,216,372 Blount, Inc. bank term loan FRN 9.315s, 2006 1,220,934
210,000 Continental Global Group sr. notes Ser. B, 11s, 2007 69,300
1,210,000 Flextronics International Ltd. 144A sr. sub. notes
9 7/8s, 2010 1,252,350
920,000 Flowserve Corp. 144A company guaranty
12 1/4s, 2010 943,000
1,140,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 1,117,200
320,000 Roller Bearing Co. company guaranty Ser. B,
9 5/8s, 2007 294,400
1,995,000 Transportation Tech bank term loan FRN 9.859s, 2007 1,980,038
-------------
8,325,997
Medical Services (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 580,000
1,000,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 10,000
380,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 3,800
1,480,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 11,100
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) 2,325
1,590,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 87,450
240,000 Service Corp. International notes 6s, 2005 136,200
1,005,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 20,100
500,000 Sun Healthcare Group, Inc. 144A sr. sub. notes
9 3/8s, 2008 (In default) (NON) 10,625
-------------
861,600
Medical Technology (--%)
-------------------------------------------------------------------------------------------------------------------
360,000 Hanger Orthopedic Group sr. sub. notes 11 1/4s, 2009 322,200
Metals (0.9%)
-------------------------------------------------------------------------------------------------------------------
440,000 AK Steel Corp. company guaranty 7 7/8s, 2009 393,800
171,400 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 77,130
1,000,000 Armco, Inc. sr. notes 9s, 2007 960,000
935,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 832,150
60,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 59,100
110,000 Kaiser Aluminum & Chemical Corp. sr. notes
9 7/8s, 2002 107,800
1,410,000 LTV Corp. company guaranty 11 3/4s, 2009 733,200
1,310,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 786,000
348,000 Oregon Steel Mills 1st mortgage 11s, 2003 278,400
996,667 UCAR Global bank term loan FRN 8.663s, 2008 976,733
550,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 495,000
70,000 Weirton Steel Corp. sr. notes 10 3/4s, 2005 56,350
780,000 Wheeling-Pittsburgh Steel Corp. sr. notes
9 1/4s, 2007 273,000
490,000 WHX Corp. sr. notes 10 1/2s, 2005 271,950
-------------
6,300,613
Oil & Gas (1.3%)
-------------------------------------------------------------------------------------------------------------------
1,350,000 Belco Oil & Gas Corp. company guaranty Ser. B,
10 1/2s, 2006 1,353,375
410,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B,
8 7/8s, 2007 387,450
440,000 Giant Industries Corp. company guaranty 9s, 2007 405,900
110,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s,
2005 (Canada) 112,888
840,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 846,300
960,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 962,400
790,000 Ocean Energy, Inc. company guaranty Ser. B,
8 7/8s, 2007 797,900
870,000 Ocean Energy, Inc. company guaranty Ser. B,
8 3/8s, 2008 865,650
330,000 Pioneer Natural Resources Co. company guaranty
9 5/8s, 2010 349,800
90,000 Port Arthur Finance Corp. company guaranty
12 1/2s, 2009 90,000
270,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 64,800
580,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 593,537
230,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 219,650
740,000 Triton Energy, Ltd. 144A sr. notes 8 7/8s, 2007
(Cayman Islands) 740,000
740,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 773,300
500,000 Vintage Petroleum sr. sub. notes 9s, 2005 505,000
500,000 XCL, Ltd. 144A company guaranty 13 1/2s, 2004
(In default) (NON) 90,000
500,000 XCL Ltd. units sr. sec. notes 13 1/2s, 2004
(In default) (NON) 90,000
-------------
9,247,950
Paper & Forest Products (1.8%)
-------------------------------------------------------------------------------------------------------------------
1,150,000 APP China Group, Ltd. 144A sr. disc. notes
14s, 2010 (Bermuda) 563,500
830,000 Doman Industries, Ltd. company guaranty
12s, 2004 (Canada) 842,450
1,025,000 Doman Industries, Ltd. 144A 8 3/4s, 2004 (Canada) 738,000
300,000 Four M Corp. sr. notes Ser. B, 12s, 2006 285,750
820,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 369,000
160,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 107,200
1,295,000 Indah Kiat Financial Mauritius, Ltd. company guaranty
10s, 2007 (Indonesia) 634,550
1,370,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 1,376,850
490,000 Packaging Corp. company guaranty 9 5/8s, 2009 494,900
1,620,000 Pindo Deli Finance Mauritius, Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 793,800
1,925,000 PT Pabrik Kertas Tjiwi Kimia company guaranty
10s, 2004 (Indonesia) 1,039,500
1,933,000 Repap New Brunswick sr. notes 10 5/8s,
2005 (Canada) 1,990,990
2,480,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 2,306,400
990,000 Tembec Industries, Inc. company guaranty
8 5/8s, 2009 (Canada) 965,250
-------------
12,508,140
Pharmaceuticals (0.3%)
-------------------------------------------------------------------------------------------------------------------
890,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 883,325
890,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 881,100
80,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 79,200
-------------
1,843,625
Power Producers (1.0%)
-------------------------------------------------------------------------------------------------------------------
390,000 Calpine Corp. sr. notes 10 1/2s, 2006 401,700
170,000 Calpine Corp. sr. notes 9 1/4s, 2004 169,978
460,000 Calpine Corp. sr. notes 8 3/4s, 2007 462,525
260,000 Calpine Corp. sr. notes 7 7/8s, 2008 249,363
30,000 Calpine Corp. sr. notes 7 3/4s, 2009 28,538
730,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 821,360
3,420,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 3,697,875
1,119,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 1,130,190
-------------
6,961,529
Publishing (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,665,000 Affinity Group Holdings sr. notes 11s, 2007 1,381,950
561,900 Big Flower Holdings bank term loan FRN
9.004s, 2010 560,495
750,000 Garden State Newspapers, Inc. sr. sub. notes
Ser. B, 8 3/4s, 2009 701,250
1,450,000 Garden State Newspapers, Inc. sr. sub. notes
8 5/8s, 2011 1,334,000
-------------
3,977,695
Railroads (0.2%)
-------------------------------------------------------------------------------------------------------------------
740,000 Kansas City Southern Railway 144A sr. notes
9 1/2s, 2008 751,100
1,335,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 1,011,263
-------------
1,762,363
Restaurants (0.3%)
-------------------------------------------------------------------------------------------------------------------
560,000 Felcor Lodging 144A sr. notes 9 1/2s, 2008 561,400
810,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 376,650
600,000 Sbarro, Inc. company guaranty 11s, 2009 618,000
700,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 653,674
-------------
2,209,724
Retail (1.0%)
-------------------------------------------------------------------------------------------------------------------
1,300,000 Amazon.com, Inc. sr. disc. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 689,000
1,055,000 Groupo Elektra S.A. de C.V. 144A sr. notes
12s, 2008 (Mexico) 1,020,713
400,000 Iron Age Corp. company guaranty 9 7/8s, 2008 280,000
30,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon
zero % (12 1/8s, 5/1/03), 2009 (STP) 4,500
1,730,000 K mart Corp. notes 8 3/8s, 2004 1,486,606
790,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 726,800
2,610,000 Saks, Inc. company guaranty 8 1/4s, 2008 1,566,000
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 165,000
1,437,000 Southland Corp. deb. 4s, 2004 1,171,155
-------------
7,109,774
Semiconductor (--%)
-------------------------------------------------------------------------------------------------------------------
270,000 ChipPac Intl., Ltd. 144A company guaranty Ser. B,
12 3/4s, 2009 286,200
Shipping (0.3%)
-------------------------------------------------------------------------------------------------------------------
65,000 International Shipholding Corp. sr. notes 9s, 2003 65,000
240,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 208,800
250,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004
(In default) (NON) 142,500
840,000 Pegasus Shipping stepped-coupon zero %
(14 1/2s, 12/20/03), 2008 (STP) 37,800
1,790,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 1,654,562
200,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 (Mexico) 162,000
-------------
2,270,662
Software (--%)
-------------------------------------------------------------------------------------------------------------------
410,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 73,800
Specialty Printing (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,390,000 Perry-Judd company guaranty 10 5/8s, 2007 1,237,100
88,444 Von Hoffman Press, Inc. 144A sr. sub. notes
13 1/2s, 2009 79,600
100,000 Von Hoffman Press, Inc. 144A sr. sub. notes
10 3/8s, 2007 92,000
-------------
1,408,700
Technology (1.0%)
-------------------------------------------------------------------------------------------------------------------
390,000 Amkor Technologies, Inc., structured note 12.58s,
2005 (issued by Steers, Credit Linked Trust 2000) 390,975
360,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 356,400
905,000 Celestica International, Ltd. 144A sr. sub. notes
10 1/2s, 2006 (Canada) 932,150
20,000 Fairchild Semiconductor Corp. company guaranty
10 3/8s, 2007 20,200
1,375,000 Fairchild Semiconductor Corp. sr. sub. notes
10 1/8s, 2007 1,375,000
745,000 Flextronics International, Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 730,100
1,645,000 Telecommunications Techniques, Inc. company
guaranty 9 3/4s, 2008 1,546,300
370,000 U.S. Can Corp. 144A sr. sub. notes 12 3/8s, 2010 373,700
1,400,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 1,274,000
320,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 300,800
-------------
7,299,625
Technology Services (1.2%)
-------------------------------------------------------------------------------------------------------------------
1,066,667 American Cellular Corp. bank term loan FRN
8.941s, 2008 1,066,667
933,333 American Cellular Corp. bank term loan FRN
9.609s, 2008 933,333
970,000 Covad Communications Group, Inc. sr. notes
12 1/2s, 2009 732,350
670,000 Equinix, Inc. sr. notes 13s, 2007 536,000
390,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 377,325
1,570,000 Exodus Communications, Inc. 144A sr. notes
11 5/8s, 2010 1,577,850
360,000 Globix Corp. sr. notes 12 1/2s, 2010 259,200
1,320,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,280,400
700,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 724,500
530,000 PSINet, Inc. sr. notes 11 1/2s, 2008 352,450
560,000 PSINet, Inc. sr. notes 11s, 2009 364,000
530,000 Rhythms Netconnections sr. notes Ser. B, 14s, 2010 349,800
-------------
8,553,875
Telecommunications (5.4%)
-------------------------------------------------------------------------------------------------------------------
730,000 360Networks, Inc. 144A sr. notes 13s, 2008 (Canada) 678,900
100,000 Motient Corp. company guaranty Ser. B, 12 1/4s, 2008 74,500
440,000 Arch Communications Group sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/15/01), 2008 (STP) 223,300
875,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 472,500
480,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 314,400
400,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 160,000
670,000 Carrier1 Intl. SA sr. notes Ser. B, 13 1/4s, 2009
(Luxembourg) 589,600
1,780,000 Celcaribe SA sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (STP) 1,352,800
4,238,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (In default) (STP) (NON) 296,660
90,000 Clearnet Communications, Inc. sr. disc. notes stepped-
coupon zero % (14 3/4s, 12/15/00), 2005 (STP) 94,500
1,000,000 Clearnet Racers notes Ser. 00-17A, 9.709s, 2007 995,000
740,000 Crown Castle Intl., Corp. sr. notes 10 3/4s, 2011 747,400
200,000 Dobson Communications Corp. sr. notes
10 7/8s, 2010 195,000
940,000 Dobson/Sygnet Communications, Inc. sr. notes
12 1/4s, 2008 944,700
1,500,000 Econophone, Inc. company guaranty 13 1/2s, 2007 930,000
535,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 250,113
220,000 Exodus Communications, Inc. sr. notes 11 1/4s, 2008 216,700
880,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 774,400
1,150,000 Global Crossing Holdings, Ltd. company guaranty
9 5/8s, 2008 (Bermuda) 1,147,125
130,000 Global Crossing Holdings, Ltd. company guaranty
9 1/2s, 2009 (Bermuda) 129,350
990,000 Global Crossing Holdings, Ltd. company guaranty
9 1/8s, 2006 (Bermuda) 977,625
585,000 Grupo Iusacell S.A. de C.V. sr. notes 14 1/4s,
2006 (Mexico) 621,563
790,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 750,500
710,000 Intira Corp. bonds 13s, 2010 369,200
550,000 Level 3 Communications, Inc. sr. notes 11 1/4s, 2010 530,750
700,000 Level 3 Communications, Inc. sr. notes 11s, 2008 679,000
440,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 379,500
330,000 Loral Space & Communication, Ltd. sr. notes
9 1/2s, 2006 239,250
1,040,000 Maxcom Telecomunicacione 144A sr. notes
13 3/4s, 2007 (Mexico) 587,600
220,000 Metrocall, Inc. sr. sub. notes 11s, 2008 147,400
180,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 111,600
190,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 125,875
740,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 691,900
1,160,000 Metromedia Fiber Network, Inc. sr. notes
Ser. B, 10s, 2008 1,084,600
1,971,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 1,695,060
1,180,000 Nextel Communications, Inc. sr. notes 12s, 2008 1,262,600
4,690,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 4,596,200
1,770,000 Nextel International, Inc. 144A sr. notes 12 3/4s, 2010 1,752,300
890,000 Nextel Partners, Inc. sr. notes 11s, 2010 894,450
690,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 690,000
610,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 524,600
520,000 NorthPoint Communications Group, Inc. sr. notes
12 7/8s, 2010 520,000
620,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 229,400
950,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 2/1/03), 2008 (STP) 380,000
310,000 Paging Network, Inc. sr. sub. notes 10s, 2008
(In default) (NON) 111,600
90,000 Paging Network, Inc. sr. sub. notes 8 7/8s, 2006
(In default) (NON) 32,400
255,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005
(In default) (Brazil) (NON) 16,575
1,540,000 Pinnacle Holdings, Inc. sr. disc. notes stepped-coupon
zero % (10s, 3/15/03), 2008 (STP) 1,108,800
645,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 645,000
970,000 Primus Telecommunications Group, Inc. sr. notes
Ser. B, 9 7/8s, 2008 543,200
770,000 RSL Communications company guaranty
12 1/4s, 2006 (Bermuda) 231,000
710,000 RSL Communications PLC company guaranty
12 7/8s, 2010 (United Kingdom) 127,800
450,000 RSL Communications PLC 144A company guaranty
10 1/2s, 2008 (United Kingdom) 114,750
500,000 RSL Communications PLC company guaranty,
stepped-coupon zero % (10 1/8s, 3/1/03), 2008
(United Kingdom) (STP) 85,000
70,000 RSL Communications PLC company guaranty 9 1/8s,
2008 (United Kingdom) 17,500
200,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 125,000
450,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (12 7/8s, 3/15/05), 2010 (STP) 229,500
310,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 4/15/04), 2009 (STP) 168,950
1,000,000 Startec Global Communications Corp. sr. notes
12s, 2008 800,000
270,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 97,200
1,890,000 Viatel, Inc. sr. notes 11 1/4s, 2008 963,900
1,500,000 Western Wireless bank term loan FRN 8.65s, 2008 1,500,000
440,000 Williams Communications Group, Inc. sr. notes
10 7/8s, 2009 401,500
900,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 702,000
-------------
38,449,596
Telephone (2.5%)
-------------------------------------------------------------------------------------------------------------------
760,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 456,000
1,430,000 Alamosa PCS Holdings, Inc. company guaranty stepped-
coupon zero % (12 7/8s, 2/15/05), 2010 (STP) 757,900
510,000 Alaska Communications Systems Corp. company
guaranty 9 3/8s, 2009 469,200
50,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 33,500
90,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 89,100
460,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 276,000
1,210,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 701,800
145,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03),
2008 (STP) 66,700
220,000 Covad Communications Group, Inc. sr. notes Ser. B,
12s, 2010 162,800
1,250,000 Firstworld Communication Corp. sr. disc. notes stepped-
coupon zero % (13, 4/15/03), 2008 (STP) 300,000
1,110,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 555,000
60,000 Focal Communications Corp. sr. notes 11 7/8s, 2010 46,200
10,000 ICG Holdings, Inc. company guaranty stepped-coupon
zero % (12 1/2s, 5/1/01), 2006 (STP) 2,000
550,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (12 1/4s, 3/1/04), 2009 (STP) 387,750
2,445,000 KMC Telecommunications Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 978,000
1,440,000 Madison River Capital Corp. 144A sr. notes
13 1/4s, 2010 1,152,000
1,580,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 1,477,300
440,000 MGC Communications, Inc. sr. notes 13s, 2010 264,000
1,130,000 Microcell Telecommunications sr. disc. notes stepped-
coupon Ser. B, zero % (14s, 12/1/01), 2006
(Canada) (STP) 1,081,975
765,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 512,550
100,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 77,000
420,000 NEXTLINK Communications, Inc. sr. notes
10 1/2s, 2009 382,200
1,740,000 Telecorp PCS, Inc. 144A sr. sub. notes 10 5/8s, 2010 1,748,700
490,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 454,475
370,000 Transtel S.A. pass-through certificates 12 1/2s, 2007 125,800
170,000 Triton PCS Inc. company guaranty 11s, 2008 129,200
1,670,000 UbiquiTel Operating Co. company guaranty stepped-
coupon zero % (14s, 4/15/05), 2010 (STP) 793,250
1,700,000 US Unwired, Inc. company guaranty, stepped-coupon
Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 901,000
510,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008
(Netherlands) 459,000
180,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008
(Netherlands) 162,000
1,660,000 Voicestream Wire, Inc. sr. notes 10 3/8s, 2009 1,784,500
3,096,000 WinStar Communications, Inc. 144A sr. disc. notes
zero % (14 3/4s, 4/15/05), 2010 (STP) 959,760
290,000 WinStar Communications, Inc. 144A sr. notes
12 3/4s, 2010 208,800
-------------
17,955,460
Textiles (0.7%)
-------------------------------------------------------------------------------------------------------------------
250,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 158,750
905,000 Guess, Inc. sr. sub. notes 9 1/2s, 2003 899,344
315,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 179,550
1,030,000 Levi Strauss & Co. notes 6.8s, 2003 865,200
400,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 332,000
1,620,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 1,401,300
405,000 William Carter Holdings Co. sr. sub. notes Ser. A,
12s, 2008 372,600
1,000,000 William Carter Holdings Co. sr. sub. notes Ser. A,
10 3/8s, 2006 965,000
-------------
5,173,744
Tobacco (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,745,000 North Atlantic Trading Co. company guaranty Ser. B,
11s, 2004 1,483,250
Trucks & Parts (0.1%)
-------------------------------------------------------------------------------------------------------------------
910,000 Transportation Manufacturing Operations, Inc. company
guaranty 11 1/4s, 2009 682,500
Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,470,000 Cathay International, Ltd. 144A sr. notes 13s,
2008 (China) 764,400
Waste Management (0.6%)
-------------------------------------------------------------------------------------------------------------------
550,000 Allied Waste Industries bank term loan FRN
8 7/8s, 2006 536,839
670,000 Allied Waste Industries bank term loan FRN
8.311s, 2007 656,868
2,440,000 Allied Waste Industries, Inc. company guaranty Ser. B,
10s, 2009 2,116,700
745,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 650,013
310,000 Waste Management, Inc. company guaranty
6 1/2s, 2004 291,029
-------------
4,251,449
Water Utilities (--%)
-------------------------------------------------------------------------------------------------------------------
380,000 Azurix Corp. 144A notes 10 3/8s, 2007 345,800
-------------
Total Corporate Bonds and Notes
(cost $362,790,247) $ 315,428,993
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (21.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
U.S. Government Agency Mortgage Obligations (8.6%)
-------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Association
$ 57,752 6 1/2s, September 1, 2002 $ 57,280
7,336,926 6s, June 1, 2029 6,855,404
21,170,000 Federal National Mortgage Association 7 1/2s, TBA,
October 1, 2015 21,322,212
Federal National Mortgage Association
Pass-Through Certificates
961 8 1/2s, March 1, 2006 984
1,429,236 8s, with due dates from July 1, 2028 to July 1, 2030 1,448,430
3,665,472 7 1/2s, with due dates from January 1, 2030 to
July 1, 2030 3,657,041
10,889 6 1/2s, August 1, 2010 10,676
270,000 6s, May 15, 2008 257,934
Government National Mortgage Association
Pass-Through Certificates
5,877,316 8s, with due dates from July 15, 2023 to
December 15, 2027 5,985,186
4,864,845 7 1/2s, with due dates from January 15, 2023 to
May 15, 2024 4,892,381
15,208,623 7s, with due dates from April 15, 2023 to
December 15, 2028 15,006,699
1,906,012 6 1/2s, with due dates from December 15, 2027 to
January 15, 2029 1,839,312
-------------
61,333,539
U.S. Treasury Obligations (12.6%)
-------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
5,725,000 12 3/8s, May 15, 2004 (SEG) 6,899,541
12,680,000 11 5/8s, November 15, 2004 (SEG) 15,263,550
U.S. Treasury Notes
29,130,000 6 3/4s, May 15, 2005 30,176,932
8,510,000 6 1/2s, February 15, 2010 8,867,675
5,000,000 6 3/8s, January 31, 2002 5,010,950
40,000,000 U.S. Treasury Strip zero % 8/15/2009 23,606,400
-------------
89,825,048
-------------
Total U.S. Government and Agency Obligations
(cost $152,840,853) $ 151,158,587
<CAPTION>
FOREIGN GOVERNMENT BONDS AND NOTES (18.4%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
USD 6,016,000 Argentina (Republic of) unsub. 11 3/4s, 2009 $ 5,662,861
USD 15,440,000 Brazil (Federal Republic of) notes 14 1/2s, 2009 16,984,000
CAD 19,250,000 Canada (Government of) bonds Ser. WH31,
6s, 2008 12,966,010
CAD 13,055,000 Canada (Government of) bonds Ser. WE00,
5 1/2s, 2002 8,637,947
COP 450,000 Colombia (Republic of) unsub. 9 3/4s, 2009 358,875
DKK 137,190,000 Denmark (Kingdom of) bonds 6s, 2009 16,641,928
DKK 44,955,000 Denmark (Kingdom of) bonds 4s, 2001 5,277,779
EUR 11,560,000 Germany (Federal Republic of) bonds
Ser. 99, 5 3/8s, 2010 10,315,512
GRD 4,000,000,000 Hellenic Greece (Republic of) bonds 6s, 2010 10,397,398
KRW 870,000 Korea (Republic of) unsub. 8 7/8s, 2008 912,456
MAD 972,778 Morocco (Government of) bonds Ser. A,
6.844s, 2009 875,500
NZD 9,690,000 New Zealand (Government of) bonds
Ser. 709, 7s, 2009 3,992,168
USD 19,680,000 Russia (Federation of) unsub. 10s, 2007 15,104,400
GBP 4,030,000 United Kingdom Treasury bonds 7 1/4s, 2007 6,575,799
USD 15,295,000 United Mexican States bonds Ser. XW,
10 3/8s, 2009 16,595,075
-------------
Total Foreign Government Bonds and Notes
(cost $132,962,952) $ 131,297,708
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATIONS (5.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 4,100,000 Amresco Commercial Mortgage Funding I Ser. 97-C1,
Class F, 7.64s, 2029 $ 3,912,297
1,660,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
Class D, 7.053s, 2010 1,575,703
54,651,402 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
IO, 1.17s, 2020 3,430,597
31,381,278 Deutsche Mortgage & Asset Receiving Corp.
Ser. 98-C1, Class X, Interest Only (IO), 1.241s, 2023 1,581,322
Fannie Mae
793,587 Ser. 203, Class 2, IO, 8s, 2023 225,180
897,663 Ser. 251, Class 2, IO, 8s, 2023 254,712
7,674,589 Ser. 266, Class 2, IO, 7.5s, 2024 2,163,275
10,813,433 Ser. 218, Class 2, IO, 7.5s, 2023 3,078,449
4,828,899 Ser. 221, Class 2, IO, 7.5s, 2023 1,376,236
3,871,261 Ser. 97-91, Class SL, IO, 2.763s, 2023 391,360
5,321,155 Ser. 98-66, Class SB, IO, 1.528s, 2028 281,023
Freddie Mac
2,171,513 Ser. 90, Class SC, IO, 2.179s, 2028 122,148
688,687 Ser. 147, Class IO, 8s, 2023 192,402
410,456 Ser. 1717, Class L, 6 1/2s, 2024 398,864
113,495 Ser. 2113, Class ZM, 6 1/2s, 2028 92,924
6,226,020 Ser. 90, Class SB, IO, 2.179s, 2028 350,214
1,434,000 Ser. 2044, Class SG, IO, 3.02s, 2023 217,789
241,466 Ser. 180, Principal Only (PO), zero %, 2026 173,591
1,990,000 General Growth Properties-Ala Moana Ser. 99-C1,
Class E, FRN, 8.87s, 2004 1,990,544
410,000 General Growth Properties-Homart Ser. 99-C1,
Class G, 9.12s, 2003 410,705
General Growth Properties-Ivanhoe
510,000 Ser. 99-C1, Class G, FRN, 9.87s, 2004 510,100
862,000 Ser. 99-C1, Class F, FRN, 9.12s, 2004 862,168
Government National Mortgage Association
1,153,012 Ser. 99-30, Class SG, 9.638s, 2025 1,119,863
1,885,325 Ser. 00-17, Class SB, 9.138s, 2026 1,945,693
820,352 Ser. 99-44, Class SZ, 9.13s, 2029 788,564
1,428,917 Ser. 98-2, Class EA, PO, zero %, 2028 1,000,242
Merrill Lynch Mortgage Investors, Inc.
1,070,000 Ser. 96-C2, 6.96s, 2028 949,625
21,112,248 Ser. 96-C2, IO, 3.061s, 2028 1,372,296
209,094 Ser. 98-C2, Class A1, 6.22s, 2030 205,141
4,330,000 Ser. 98-C2, Class D, 7.105s, 2030 4,066,817
1,150,000 Ser. 98-C2, Class F, 6 1/4s, 2030 748,039
17,563,232 Ser. 98-C2, Class IO, 1.568s, 2030 1,199,239
6,074,873 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X,
IO, 1.579s, 2012 401,037
237,584 Prudential Home Mortgage Securities Ser. 93-57,
Class A4, 5.9s, 2023 234,010
383,155 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 374,082
2,500,000 Starwood Asset Receivables Trust Ser. 00-1, Class E,
9.372s, 2005 2,510,938
-------------
Total Collateralized Mortgage Obligations
(cost $39,976,944) $ 40,507,189
<CAPTION>
PREFERRED STOCKS (2.1%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
9,671 AmeriKing, Inc. 3.25 cum. pfd. $ 38,684
30,000 Chevy Chase Capital Corp. Ser. A, 5.188 pfd. 1,530,000
4,000 Chevy Chase Savings Bank, Inc. 3.25 pfd. 102,000
17,430 CSC Holdings, Inc. Ser. M, 11.125 cum. pfd. (PIK) 1,869,368
19,200 Diva Systems Corp. Ser. C, 6.00 cum. pfd. 158,400
1,620 Dobson Communications 12.25% pfd. (PIK) 1,522,941
89 Dobson Communications 13.00% pfd. (PIK) 84,105
320 First Republic 144A, 10.50% pfd. 270,400
11,765 Fitzgeralds Gaming Corp. 3.75 cum. pfd. 118
1,400,000 Fresenius Medical Capital Trust I company guaranty
9.00% pfd. (Germany) 1,389,500
56,000 Golden State Bancorp Ser. A, 2.281 pfd. 1,302,000
987 Granite Broadcasting 144A 12.75% cum. pfd. (PIK) 641,550
1,949 ICG Holdings, Inc. 144A 14.00% pfd. (Canada) (PIK) 38,980
1,196 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 1,136,200
23,724 NEXTLINK Communications, Inc. 7.00 cum. pfd. (PIK) 1,067,580
452 NEXTLINK Communications, Inc. Ser. B, 13.50% pfd. (PIK) 348,040
5 Paxson Communications Corp. 12.50% cum pfd. (PIK) 5,200
150 Paxson Communications Corp. 13.25 cum. pfd. (PIK) 1,470,000
140 Pegasus Communications Corp. Ser. A, 12.75 cum. pfd. 145,600
964 R&B Falcon Corp. 13.875% cum. pfd. (PIK) 1,233,754
977 Rural Cellular Corp. 12.25% pfd. (PIK) 830,450
-------------
Total Preferred Stocks (cost $18,473,784) $ 15,184,870
BRADY BONDS (1.3%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 1,339,200 Argentina (Republic of) deb. FRB 6.813s, 2005 1,225,368
3,500,000 Bulgaria (Government of) deb. Ser. PDI, FRB,
7.063s, 2011 2,660,000
6,071,380 Venezuela (Republic of) deb. Ser. DL, FRB, 7s, 2007 5,198,923
-------------
Total Brady Bonds (cost $9,042,850) $ 9,084,291
<CAPTION>
ASSET-BACKED SECURITIES (1.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 7,205,000 Conseco Finance Securitization Ser. 00-4, Class A6,
8.31s, 2032 $ 7,353,567
248,094 Contimortgage Home Equity Loan Trust Ser. 97-1,
Class M2, 7.67s, 2028 122,729
1,032,435 Resolution Trust Corp. Ser. 94-1, Class M1, 7.14s, 2029 1,032,435
-------------
Total Asset-Backed Securities (cost $8,347,607) $ 8,508,731
<CAPTION>
UNITS (0.6%) (a)
NUMBER OF UNITS VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
600 Australis Media, Ltd. units 15 3/4s, 2003
(In default) (Australia) (NON) $ 1
1,400 CFW Communications Co. units 13s, 2010 1,302,000
900 Colo.com 144A units 13 7/8s, 2010 918,000
1,110 Horizon Pcs., Inc. units stepped-coupon zero %
(14s, 10/1/05), 2010 (STP) 566,100
910 Investcorp units 12 3/4s, 2010 937,300
910 iPCS Inc. units stepped-coupon zero %
(14s 7/15/05), 2010 473,200
460 Railamerica Transportation Corp. units 12 7/8s, 2010 432,400
-------------
Total Units (cost $5,253,875) $ 4,629,001
<CAPTION>
CONVERTIBLE BONDS AND NOTES (0.3%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 2,430,000 Cybernet Internet Services 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) $ 1,044,900
1,130,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 525,450
490,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 407,925
490,000 Parker Drilling Corp. cv. sub. notes 5 1/2s, 2004 415,275
-------------
Total Convertible Bonds and Notes (cost $2,873,919) $ 2,393,550
<CAPTION>
COMMON STOCKS (0.2%) (a) (NON)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
150 AmeriKing, Inc. $ 1,500
14,079 Aurora Foods, Inc. 47,517
2,955 Axia Holding, Inc. 144A (PIK) 38,415
149,352 Celcaribe 18,669
23,404 Fitzgeralds Gaming Corp. 234
6,795 MGC Communications, Inc. 59,244
175 Mothers Work, Inc. 1,684
255 Paging Do Brazil Holdings Co., LLC 144A
Class B, (Brazil) 3
327 Premium Holdings (L.P.) 144A 4,578
715 PSF Holdings LLC Class A (acquired 5/29/98,
cost 2,463,234) (RES) 1,001,000
5,650 Spanish Broadcasting System, Inc. 67,094
10,050 Specialty Foods Acquisition Corp. 101
58 Waste Management, Inc. 1,133
-------------
Total Common Stocks (cost $2,659,688) $ 1,241,172
<CAPTION>
WARRANTS (0.1%) (a)(NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
4 Anker Coal Group, Inc. 144A 10/25/09 $ 1
1,150 Asia Pulp & Paper Co., Ltd.144A 3/15/05 1
480 Bestel S.A. (Mexico) 5/15/05 57,600
460 Birch Telecommunications, Inc. 144A 6/15/08 46,000
357 Carrier1 International 2/19/09 89,250
2,428 CellNet Data Systems, Inc. 10/1/07 2
1,500 Comunicacion Cellular 144A (Colombia) 11/15/03 3,000
940 Dayton Superior Corp. 6/15/09 18,800
475 Diva Systems Corp. 5/15/06 270,750
7,566 Diva Systems Corp. 3/1/08 124,839
830 Epic Resorts 6/15/05 8
680 Firstworld Communication 4/15/08 13,600
410 Huntsman Packaging Corp. 144A 6/1/10 4,100
9,768 ICG Communications 10/15/05 9,768
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 6,250
1,180 Knology Holdings 10/22/07 7,080
1,040 Maxcom Telecomunicaciones SA de CV
144A (Mexico) 4/1/07 10
930 McCaw International, Ltd. 4/15/07 18,600
560 Mediq, Inc. 144A 6/1/09 6
100 Motient Corp. 144A 4/1/08 3,800
280 OnePoint Communications, Inc. 6/1/08 22,400
620 Orbital Imaging Corp. 144A 3/1/05 3,100
1,840 Pagemart, Inc. 144A 12/31/03 21,160
960 Paxson Communications Corp. 144A 6/30/03 5,280
1,220 Raintree Resort 144A 12/1/04 12
860 Startec Global Communications Corp. 5/15/08 860
185 Sterling Chemicals Holdings 8/15/08 740
410 Telehub Communications Corp. 7/31/05 205
1,670 Ubiquitel, Inc. 144A 4/15/10 66,800
1,260 UIH Australia/Pacific, Inc. 144A 5/15/06 37,800
30 Versatel Telecom N.V. 144A (Netherlands) 5/15/08 7,800
100,230 Wright Medical Technology, Inc. 144A 6/30/03 1
590 XM Satellite Radio Holdings, Inc. 144A 3/15/10 112,100
-------------
Total Warrants (cost $785,754) $ 951,737
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
23,600 Global Telesystems Group, Inc. 3.63 cum. cv. pfd. $ 250,868
520 Interact Electronic 14.00 cum. cv. pfd 5
3,800 LTV Corp. (The) 144A 4.125 cum. cv. pfd. 87,400
30 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 291,000
107 World Access, Inc. Ser. D, zero % cv. pfd. 93,090
-------------
Total Convertible Preferred Stocks (cost $1,221,454) $ 722,363
<CAPTION>
PURCHASED OPTIONS OUTSTANDING (--%) (a) EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 7,124,774 USD/JPY Call Oct-00/110 $ 3,976
7,197,107 USD/JPY Call Oct-00/110 4,318
-------------
Total Purchased Options Outstanding (cost $133,593) $ 8,294
<CAPTION>
SHORT-TERM INVESTMENTS (5.4%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 19,810,000 Interest in $843,280,000 joint repurchase agreement
dated September 29, 2000 with Morgan Stanley &
Co., Inc. due October 2, 2000 with respect to various
U.S. Treasury obligations -- maturity value of
$19,820,945 for an effective yield of 6.63% $ 19,810,000
19,000,000 Interest in $789,642,000 joint repurchase agreement
dated September 29, 2000 with Morgan (J.P.) & Co., Inc.
due October 2, 2000 with respect to various U.S.
Treasury obligations -- maturity value of $19,010,529
for an effective yield, of 6.65% 19,000,000
-------------
Total Short-Term Investments (cost $38,810,000) $ 38,810,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $776,173,520) (b) $ 719,926,486
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $713,893,948.
(b) The aggregate identified cost on a tax basis is $777,152,977,
resulting in gross unrealized appreciation and depreciation of
$13,042,511 and $70,269,002, respectively, or net unrealized
depreciation of $57,226,491.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin receiving
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at September 30, 2000
was $1,001,000 or 0.1% of nets assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) A portion of these securities was pledged and segregated with the
custodian to cover margin requirements for futures contracts at
September 30, 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 September 30, 2000,
which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at September 30, 2000:
(as percentage of Market Value)
Argentina 1.0%
Brazil 2.5
Canada 4.1
Denmark 3.0
Germany 1.6
Greece 1.4
Korea 0.7
Mexico 3.0
New Zealand 0.6
Russia 2.1
United Kingdom 1.5
United States 74.6
Venezuela 0.7
Other 3.2
------
Total 100.0%
======
------------------------------------------------------------------------------
Forward Currency Contracts to Buy at September 30, 2000
(aggregate face value of $174,198,567)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollars $20,332,682 $21,555,773 12/20/2000 $(1,223,091)
Canadian Dollars 12,234,179 12,454,686 12/20/2000 (220,507)
Euro 76,491,061 76,956,320 12/20/2000 (465,259)
Japanese Yen 7,349,997 7,405,703 10/16/2000 (55,706)
Japanese Yen 48,259,225 49,773,796 12/20/2000 (1,514,571)
Swedish Krona 4,307,989 4,339,375 12/20/2000 (31,386)
Swiss Franc 1,716,206 1,712,914 12/20/2000 3,292
------------------------------------------------------------------------------
$(3,507,228)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Forward Currency Contracts to Sell at September 30, 2000
(aggregate face value of $183,305,320)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
------------------------------------------------------------------------------
Australian Dollars $ 3,149,844 $ 3,199,599 12/20/2000 $ 49,755
British Pounds 6,338,264 6,264,358 12/20/2000 (73,906)
Canadian Dollar 35,294,344 35,963,601 12/20/2000 669,257
Danish Krone 21,596,191 21,891,325 12/20/2000 295,134
Euro 61,050,293 61,399,169 12/20/2000 348,876
Japanese Yen 48,806,625 50,329,224 12/20/2000 1,522,599
New Zealand Dollar 4,041,560 4,258,044 12/20/2000 216,484
------------------------------------------------------------------------------
$3,028,199
------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 2000
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
------------------------------------------------------------------------------
3 Month Libor
(long) $1,461,949 $1,461,469 Jun-02 $ 480
3 Month Libor
(short) 1,464,264 1,463,807 Jun-01 (457)
3 Month EuroYen
(short) 10,115,153 10,111,962 Sep-01 (3,191)
90 Day Libor
(short) 3,637,654 3,635,243 Jun-01 (2,411)
90 Day Libor
(long) 3,633,386 3,629,071 Jun-02 4,315
90 Day Libor
(short) 1,212,810 1,212,394 Mar-01 (416)
90 Day Libor
(long) 1,211,646 1,210,639 Mar-02 1,007
Euro-Bund (short) 11,054,582 11,036,621 Dec-00 (17,961)
Gilt (short) 2,343,783 2,325,933 Dec-00 (17,850)
JGB 10 Yr. (long) 17,278,145 17,150,789 Dec-00 127,356
U.S. Treasury Note
10 Yr. (long) 13,729,969 13,704,835 Dec-00 25,134
U.S. Treasury Note
10 Yr. (short) 6,113,344 6,099,593 Dec-00 (13,751)
------------------------------------------------------------------------------
$102,255
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $776,173,520) (Note 1) $719,926,486
-------------------------------------------------------------------------------------------
Foreign currency (cost $551,112) 545,230
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 15,614,635
-------------------------------------------------------------------------------------------
Receivable for securities sold 11,907,495
-------------------------------------------------------------------------------------------
Receivable for variation margin 35,782
-------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 3,111,843
-------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 164,730
-------------------------------------------------------------------------------------------
Total assets 751,306,201
Liabilities
-------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 361,148
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,284,207
-------------------------------------------------------------------------------------------
Payable for securities purchased 26,095,776
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,296,427
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 160,367
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 36,477
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,354
-------------------------------------------------------------------------------------------
Payable for open forward currency contracts 3,590,872
-------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 495,965
-------------------------------------------------------------------------------------------
Other accrued expenses 88,660
-------------------------------------------------------------------------------------------
Total liabilities 37,412,253
-------------------------------------------------------------------------------------------
Net assets $713,893,948
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $861,575,486
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (18,506,036)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investment and
foreign currency transactions (Note 1) (71,967,786)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (57,207,716)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $713,893,948
Computation of net asset value
-------------------------------------------------------------------------------------------
Net asset value per share ($713,893,948 divided by 100,133,127 shares) $7.13
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended September 30, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Interest income (net of foreign tax of $53,770) $68,237,629
-------------------------------------------------------------------------------------------
Dividends 1,716,580
-------------------------------------------------------------------------------------------
Total investment income 69,954,209
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 5,303,019
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 754,191
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 22,539
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,629
-------------------------------------------------------------------------------------------
Other 359,784
-------------------------------------------------------------------------------------------
Total expenses 6,449,162
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (66,434)
-------------------------------------------------------------------------------------------
Net expenses 6,382,728
-------------------------------------------------------------------------------------------
Net investment income 63,571,481
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (29,722,647)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 228,978
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (8,357,239)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (470,965)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments,
futures and TBA sale commitments during the year (4,598,902)
-------------------------------------------------------------------------------------------
Net loss on investments (42,920,775)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $20,650,706
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended September 30
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 63,571,481 $ 58,419,638
--------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (37,850,908) (22,122,171)
--------------------------------------------------------------------------------------------------
Net unrealized depreciation
of investments and assets and liabilities in
foreign currencies (5,069,867) (26,023,477)
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 20,650,706 10,273,990
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (64,290,088) (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 (43,639,382) (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 $18,506,036 and
$5,255,468 respectively) $713,893,948 $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
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.57 $8.14 $8.79 $8.58 $8.38
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .63 .58 .71 .64 .63
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.43) (.47) (.67) .21 .19
-----------------------------------------------------------------------------------------------------
Total from
investment operations .20 .11 .04 .85 .82
-----------------------------------------------------------------------------------------------------
Less distributions:
-----------------------------------------------------------------------------------------------------
From net
investment income (.64) (.56) (.69) (.64) (.61)
-----------------------------------------------------------------------------------------------------
From return of capital -- (.12) -- -- (.01)
-----------------------------------------------------------------------------------------------------
Total distributions (.64) (.68) (.69) (.64) (.62)
-----------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.13 $7.57 $8.14 $8.79 $8.58
-----------------------------------------------------------------------------------------------------
Market value,
end of period $6.438 $6.438 $7.750 $8.125 $7.500
-----------------------------------------------------------------------------------------------------
Ratios and supplemental data
-----------------------------------------------------------------------------------------------------
Total return at
market value (%)(a) 10.72 (9.09) 3.91 17.54 10.34
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $713,894 $757,533 $814,342 $337,664 $332,537
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .87 .93 .92 1.04 .99
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.60 7.39 8.13 7.47 7.44
-----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 116.71 133.72 179.84(c) 220.61 232.90
-----------------------------------------------------------------------------------------------------
(a) Total return does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Intermediate Government Income Trust.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
Note 1
Significant accounting policies
Putnam Master Intermediate Income Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company and is authorized to issue an
unlimited number of shares. The fund's investment objective is to seek,
with equal emphasis, high current income and relative stability of net
asset value, by allocating its investments among the U.S. investment
grade sector (formerly the U.S. government sector), high-yield sector
and international sector.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
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. Non-cash dividends, if any, are recorded at the fair
market value of the securities received. 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 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 0.01% 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, 2000, the fund had a capital loss carryover of approximately
$47,316,000 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- --------------------
$ 253,000 September 30, 2001
7,035,000 September 30, 2003
2,793,000 September 30, 2004
1,554,000 September 30, 2005
10,040,000 September 30, 2007
25,641,000 September 30, 2008
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. These differences include temporary and permanent differences
of losses on wash sale transactions, foreign currency gains and losses,
post-October loss deferrals, dividends payable, defaulted bond interest,
unrealized gains and losses on certain futures contracts, paydown gains and
losses on mortgage-backed securities, market discount, interest on
payment-in-kind securities, book accretion/amortization adjustment, and
foreign market discount. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. For the year ended
September 30, 2000, the fund reclassified $12,531,961 to increase
distributions in excess of net investment income and $622,530 to decrease
paid-in-capital, with a decrease to accumulated net realized losses of
$13,154,491. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average 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.
Under the subcustodian contract between the subcustodian bank and PFTC, the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At September 30, 2000, the payable to the subcustodian bank represents the
amount due for cash advance for the settlement of a security purchased.
For the year ended September 30, 2000, fund expenses were reduced by $66,434
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 $928 has
been allocated to the fund, and an additional fee for each Trustees meeting
attended. Trustees receive additional fees for attendance at certain
committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain invested in
certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as a
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
Note 3
Purchases and sales of securities
During the year ended September 30, 2000, cost of purchases and proceeds
from sales of investment securities other than U.S. government obligations
and short-term investments aggregated $689,974,000 and $686,736,388,
respectively. Purchases and sales of U.S. government obligations aggregated
$137,087,972 and $184,092,681, respectively.
Note 4
Share repurchase program
In November 1994, the Trustees authorized the fund to repurchase up to
1,950,000 of its shares in the open market. Repurchases will only be made
when the fund's shares are trading at less than net asset value and at such
times and amounts as is believed to be in the best interest of the fund's
shareholders. Any repurchases of shares will have the effect of increasing
the net asset value per share of remaining shares outstanding.
For the year ended September 30, 2000, the fund repurchased no shares.
As of September 30, 2000, 570,000 shares have been repurchased since the
inception of the program.
Note 5
Change in independent accountants
(unaudited)
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as this
fund's independent accountant and voted to appoint KPMG LLP for the fund's
fiscal year ended September 30, 2000. During the two previous fiscal years,
PricewaterhouseCoopers LLP audit reports contained no adverse opinion or
disclaimer of opinion; nor were its reports qualified or modified as to
uncertainty, audit scope, or accounting principle. Further, in connection
with its audits for the two previous fiscal years and through July 24,
2000, there were no disagreements between the fund and PricewaterhouseCoopers
LLP on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused it to make
reference to the disagreements in its report on the financial statements
for such years.
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 0.32% of the distributions from net investment
income as qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 2001 will show the tax status of all
distributions paid to your account in calendar 2000.
RESULTS OF JUNE 1, 2000 SHAREHOLDER MEETING
(Unaudited)
An annual meeting of shareholders of the fund was held on June 1, 2000. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 84,781,347 3,061,784
Hans H. Estin 84,680,557 3,162,573
J. A. Hill 84,802,648 3,040,483
Ronald J. Jackson 84,783,977 3,059,154
Paul L. Joskow 84,749,654 3,093,477
Elizabeth T. Kennan 84,728,632 3,114,499
Lawrence J. Lasser 84,771,993 3,071,138
John H. Mullin III 84,756,259 3,086,871
R. E. Patterson 84,799,728 3,043,403
George Putnam, III 84,750,875 3,092,256
A.J.C. Smith 84,747,183 3,095,948
W. Thomas Stephens 84,764,821 3,078,310
W. Nicholas Thorndike 84,676,532 3,166,599
A proposal to ratify the selection of PricewaterhouseCoopers LLP as the
independent auditors of your fund was approved as follows: 86,426,707
votes for, and 511,321 votes against, with 905,103 abstentions and
broker non-votes.*
All tabulations are rounded to nearest whole number.
*At their July, 2000 meeting, the Trustees approved the election of KPMG
LLP as the fund's auditors for fiscal year 2000 (see note 5).
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
David L. Waldman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit
our Web site (www.putnaminvestments.com) any time for up-to-date information
about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
074 65457 11/00
