Putnam
Diversified
Income Trust
(COVER ARTWORK)
SEMIANNUAL REPORT
March 31, 1995
(GRAPHIC OF SCALES)
BOSTON LONDON TOKYO
<PAGE>
Performance highlights
> "Behind the bond market's gains in the first quarter were signs that the U.S.
economy is starting to slow down from last year's heady pace and that the
Federal Reserve may not have to raise interest rates again. Money managers
believe that the slowing of the economy will ultimately help contain any
pickup in inflation that may occur over the next 12 months."
-- The Wall Street Journal, April 12, 1995
> Performance should always be considered in light of a fund's investment
strategy. Putnam Diversified Income Trust is designed for investors seeking
high current income consistent with capital preservation through U.S.
government, high-yield, and international fixed-income securities.
SEMIANNUAL RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B Class M(1)
Total return: NAV POP NAV CDSC NAV POP
.................................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(change in value during period plus
reinvested distributions)
6 months ended 3/31/95 2.98% -1.91% 2.52% -2.41% -- --
Life of class M (12/1/94) -- -- -- -- 3.99% 0.62%
Class A Class B Class M
Share value: NAV POP NAV NAV POP
.................................................................................................................................
9/30/94 $11.64 $12.22 $11.61 -- --
12/1/94 -- -- -- $11.34 $11.72
3/31/95 11.49 12.06 11.45 11.47 11.86
Distributions: No. Income Total
.................................................................................................................................
Class A 6 $0.480 $0.480
Class B 6 0.438 0.438
Class M 4 0.312 0.312
Class A Class B Class M
Current return: NAV POP NAV NAV POP
.................................................................................................................................
End of period
Current dividend rate(2) 8.36% 7.96% 7.76% 8.16% 7.89%
Current 30-day SEC yield(3) 8.48 8.07 7.72 7.26 7.00
</TABLE>
Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 4.75%
maximum sales charge for class A shares and 3.25% for class M shares. CDSC
assumes 5% maximum contingent deferred sales charge. (1)Effective 12/1/94, the
fund began offering class M shares. (2)Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period. (3)Based
only on investment income, calculated using SEC guidelines.
<PAGE>
From the Chairman
(George Putnam photo)
(C) Karsh, Ottawa
Dear Shareholder:
Confidence levels in the U.S. bond market have increased substantially since
Putnam Diversified Income Trust began its fiscal year this past October. Your
fund's performance as of March 31, 1995, the fiscal year's halfway point,
reflects this change for the better in two of its three portfolio sectors.
The fund's high-yield and U.S. government bond sectors benefited from the
market's improved disposition. Last year's rising rates may have rattled the
financial markets, but they seem to have succeeded in heading off inflation.
The latter, after all, was the Federal Reserve Board's intent as it nudged
short-term rates higher throughout 1994 and into early 1995. By concentrating
its international holdings in Europe, your fund avoided the downturn in
emerging markets.
In the following report, your fund's management team looks back on the first
half of fiscal 1995, and offers some thoughts regarding the outlook for the
rest of the year.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
May 17, 1995
<PAGE>
Report from the Fund Managers
Jennifer E. Leichter, lead manager
D. William Kohli
Michael Martino
Neil J. Powers
Mark Siegel
For the first six months of fiscal 1995, all three sectors--or sleeves--of
Putnam Diversified Income Trust's portfolio showed improved performance. The
fund took particular advantage of opportunities in its U.S. government sleeve,
as bonds began to offer attractive value following 1994's dramatic selloffs.
The fund's total return for the six months ended March 31, 1995, was 2.98% for
class A shares and 2.52% for class B shares at net asset value.
> U.S. GOVERNMENT: A STRONG MORTGAGE MARKET
Early in the semiannual period, the Federal Reserve Board raised short-term
interest rates for the sixth time in 11 months. At that point, the U.S. bond
market appeared to have regained confidence in the Fed's efforts to moderate
economic growth and to reduce the risk of inflation. Previous rate increases
had resulted in volatility and a flattening of the yield curve as the bond
market prepared for--and priced in--even higher rates.
After the sixth rate increase, we reallocated a portion of the portfolio's
high-yield assets into the U.S. government sleeve, anticipating that interest
rates would begin to stabilize. Because we have become less concerned about the
portfolio's sensitivity to interest-rate increases, we took the opportunity to
increase its duration, resulting in a higher-yielding portfolio with a longer
average maturity. Duration is a measure of sensitivity to interest rate
changes.
We also continued to emphasize holdings in mortgage-backed securities to take
advantage of attractive income opportunities they have been providing. It is
important to note that prepayment risk over this period was relatively low in
comparison with the record increases in mortgage prepayments in late 1993 and
early 1994. Upturns in interest rates, like those we experienced in 1994, have
historically reduced prepayment risk.
<PAGE>
> HIGH YIELD: REALLOCATING ASSETS AS GROWTH SLOWS
During fiscal 1994, investments in lower-rated higher-yielding bonds proved to
be the fund's greatest strength. Our strategy of concentrating holdings in this
sector was based on the tendency of high-yield investments to do well in
periods of growing economic activity, as well as the belief that the high-yield
market in general was undervalued. Over the past six months, however, the
robust economic activity finally showed signs of abating and high-yield bond
prices have moved closer to fair value. The prospects for additional
appreciation have diminished, and we have therefore reduced the fund's holdings
in this sector from 41% to 36% of net assets.
Although they now compose a smaller portion of the portfolio, high-yield
holdings continue to make a solid contribution to fund performance. Mergers and
consolidations in the health care and cable industries proved especially
beneficial for the fund. One example is the merger of Columbia/HCA Healthcare
Corporation, an investment grade (A rated) bond and HealthTrust, Inc., a
higher-yielding, lower-rated (B) bond. The HealthTrust securities rose sharply
in value and we currently expect them to be rated in line with post-merger
Columbia/HCA securities.
MORTGAGE-BACKED SECURITIES VERSUS GOVERNMENT BONDS
[Bar chart]
4/94 -0.09
5/94 0.24
6.94 0
7/94 0.69
8/94 0.72
9/94 0.13
10/94 0.04
11/94 0.19
12/94 0.66
1/95 1.17
2/95 1.8
3/95 1.72
Chart illustrates how mortgage-backed securities have outperformed U.S.
government securities of similar maturities during the 12 months ended March 31,
1995. With the exception of April 1994, mortgage-backed securities outperformed
government bonds. Numbers represent the cumulative relative total return of
mortgage-backed securities in relation to government bonds. Sources: Lehman
Brothers Mortgage-Backed Index and Lehman Brothers Government Intermediate Bond
Index. Indexes are unmanaged and do not reflect fund performance. Past
performance is not indicative of future results.
<PAGE>
Despite excellent results in the high-yield sector, one position proved
disappointing: Grand Union Company, a supermarket operator in the Northeast. In
November, the company announced that it would reorganize its capital structure
in an effort to reduce debt, to improve liquidity, and to refurbish its
supermarket base. The announcement caused the prices of the company's high-yield
bonds to drop sharply. Fortunately, the fund's Grand Union holdings amounted to
0.3% of net assets, so the impact on performance was not substantial.
> INTERNATIONAL: MORE FAVORABLE BOND MARKETS
Around the world, many fixed-income investments have become more attractively
priced as a result of 1994's widespread bond market selloffs. While we
increased our international holdings slightly during the six-month period, the
international sleeve remains underweighted at 26% of the overall portfolio.
Early in fiscal 1995, the fund's international holdings were concentrated in
smaller European markets, where stronger performance was expected as a result
of structural reforms and proactive monetary policies. However, many of the
uncertainties that were prevalent in 1994's international markets began to
resurface. As a result, we've shifted assets out of some countries, such as
Canada, and increased the fund's exposure in stronger core markets such as
Germany and Japan.
Early in the period, to protect the fund from adverse foreign-currency
movements, a portion of its foreign currency holdings were hedged back into
U.S. dollars. In February, however, we began to adjust the fund's currency
exposure as the U.S. dollar weakened significantly against other currencies,
especially the German deutschemark and the Japanese yen. At the end of the
semiannual period, the fund had eliminated all its U.S. dollar hedges and had
full exposure to international currencies.
Our emerging markets holdings peaked at about 5% during the period, and were
reduced to 2%, primarily due to recent intense volatility in many of these
areas.
> OUTLOOK: WATCHING FOR MORE EVIDENCE OF AN ECONOMIC SLOWDOWN
Heading into the second half of fiscal 1995, we will continue to adjust the
portfolio's asset allocation to seek to take advantage of changing market
conditions. We expect to reduce the fund's
<PAGE>
TOP THREE HOLDINGS PER SECTOR
Market
HIGH-YIELD BONDS Value Percentage
.................................................................
PSF Finance (L.P.) sr.
exch. notes 12-1/4s,
2004 21,927,344 0.71%
.................................................................
OSI Specialties Corp. sr.
secd. disc. deb. zero%,
2004 21,318,000 0.69%
.................................................................
Del Monte Produce Corp.
sr. notes, Ser. B, 10s,
2003 19,365,500 0.63%
.................................................................
FOREIGN BONDS
.................................................................
Germany (Republic of)
bonds
7-3/8s, 2005 125,865,438 4.07%
.................................................................
Japan Government
Guarantee
4.4s, 2004 121,684,369 3.94%
.................................................................
United Kingdom Treasury
bonds 9-3/4s, 2002 54,003,125 1.75%
.................................................................
U.S. GOVERNMENT OBLIGATIONS
.................................................................
Government National
Mortgage Assn. 7-1/2s 236,819,143 7.66%
.................................................................
Government National
Mortgage Assn. 8s 212,176,769 6.87%
.................................................................
Federal National Mortgage
Assn 8s, TBA 167,814,900 5.43%
Based on net assets as of 3/31/95. Portfolio holdings will vary over time.
high-yield holdings as the year progresses, but will wait until we see stronger
evidence of a slowdown in economic activity. We believe there is value in the
international sector, and we anticipate that the U.S. dollar may stabilize. As
always, we expect the fund will continue to benefit from its multisector
strategy, which allows strengths in one sector to offset weaknesses in another.
The views expressed in this report are exclusively those of Putnam Management,
and are not meant as investment advice. Although the described holdings were
viewed favorably as of 3/31/95, there is no guarantee the fund will continue to
hold these securities in the future. Investments in international securities
may be subject to certain risks such as currency fluctuations and political
developments. The lower ratings of high-yield debt securities reflect a greater
possibility that adverse changes in an issuer's business or financial
condition, or in general economic conditions, may impair the issuer's ability
to pay principal and interest on the securities. Although the U.S. government
guarantees the timely payment of principal and interest on the U.S. government
and agency obligations, the value of the fund shares is not guaranteed and will
fluctuate.
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's performance.
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 back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 3/31/95
most recent calendar quarter
Class A Class B Class M
NAV POP NAV CDSC NAV POP
6 months 2.98% -1.91% 2.52% -2.41% -- --
1 year 1.40 -3.44 0.57 -4.07 -- --
5 years 70.09 61.99 -- -- -- --
Annual average 11.21 10.13 -- -- -- --
Life of class A 78.68 70.22 -- -- -- --
Annual average 9.36 8.54 -- -- -- --
Life of class B -- -- 8.12 5.38 -- --
Annual average -- -- 3.83 2.55 -- --
Life of class M -- -- -- -- 3.99% 0.62%
Comparative indexes and benchmarks
Salomon
Bros.
Lehman Non-U.S. First
Bros. World Boston
Aggregate Govt. High Consumer
Bond Bond Yield Price
Index Index Index Index
6 months 5.44% 15.09% 4.66% 1.34%
1 year 4.99 18.98 4.83 2.85
5 years 53.16 109.03 98.78 17.64
Annual average 8.90 15.89 14.73 3.30
Life of class A 75.33 105.76 98.76 26.38
Annual average 9.03 11.75 11.15 3.67
Life of class B 7.93 35.07 17.73 5.80
Annual average 3.73 15.52 8.15 2.75
Life of class M 5.77 14.50 5.82 1.14
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class A shares, distribution fees prior to
implementation of the class A distribution plan in 1990. The fund began
operations on 10/3/88 offering shares now known as class A. Effective 3/1/93,
the fund began offering class B shares. Effective 12/1/94, the fund began
offering class M shares. Performance data represent past results and will
differ for each share class. Investment returns and principal value will
fluctuate so an investor's shares, when sold, may be worth more or less than
their original cost.
<PAGE>
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 4.75% sales charge for class A shares and 3.25%
for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Aggregate Bond Index* is composed of securities from Lehman
Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and
the Asset-Backed Securities Index.
Lehman Brothers Government Intermediate Bond Index* is composed of all bonds
covered by the Lehman Brothers Government Bond Index with maturities between
one and 9.99 years.
Lehman Brothers Intermediate Treasury Index* is an unmanaged list of Treasury
bonds; it is used as a general gauge of the market for intermediate-term
fixed-income securities.
Lehman Brothers Mortgage-Backed Securities Index* reflects performance of 15-
and 30-year fixed-rate securities backed by mortgage pools of the Government
National Mortgage Association, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.
Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged list of
government bonds issued by 10 countries.
First Boston High Yield Index* is an unmanaged list of lower-rated higher-
yielding U.S. corporate bonds.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in the
fund do not match those in the indexes and performance of the fund will differ.
<PAGE>
Relative risk/reward potential of Putnam funds
These illustrations provide a simplified guide to the risk/reward potential for
funds within each category of the Putnam Family of Funds and are not intended as
investment advice. Your financial advisor can help you evaluate your risk
tolerance.
These rankings are relative only to Putnam funds and should not be compared to
other investments. There is no guarantee that one Putnam fund will be less
volatile than another, since each fund has its own investment risks. That's why
it is essential to read the fund's prospectus before investing.
PUTNAM GROWTH FUNDS
(Illustration as described above)
Putnam Growth Funds in order of
Lower Risk, Lower Reward Potential to Higher Risk Higher Reward Potential
Investors, Diversified Equity(1), Global Growth(1), Vista, Natural Resources,
Health Sciences, Voyager, Overseas Growth(1), Europe Growth(1),
New Opportunities(2), OTC Emerging Growth(2), Asia Pacific Growth(1)
PUTNAM GROWTH AND INCOME FUNDS
(Illustration as described above)
Putnam Growth and Income Funds in order of
Lower Risk, Lower Reward Potential to Higher Risk, Higher Reward Potential
Managed Income, Utilities Growth and Income, George Putnam, Convertible Income-
Growth, Equity Income, Fund for Growth and Income, Putnam Growth and Income
Fund II, Dividend Growth
(1) Foreign investments are subject to certain risks, such as currency
fluctuations and political developments, that are not present with domestic
investments.
(2) This fund invests all or a portion of its assets in small to medium-sized
companies, which increases the risk of price fluctuations.
(3) While 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.
<PAGE>
PUTNAM INCOME FUNDS
(Illustration as described above)
Putnam Income Funds in order of
Lower Risk, Lower Reward Potential to Higher Risk Higher Reward Potential
Money Market(4), Adjustable Rate U.S. Gov't(3), Balanced Gov't(3), U.S. Gov't
Income(3), American Gov't Income(3), Federal Income(3), Diversified
Income(1)(3)(5), Income, Preferred Income, Gobal Gov't(1)(5), High Yield(5),
High Yield Advantage(5)
PUTNAM TAX-FREE FUNDS(6)
(Illustration as described above)
Putnam Tax-Free Funds in order of
Lower Risk, Lower Reward Potential to Higher Risk Higher Reward Potential
Tax Exempt Money Market(4), Intermediate Tax Exempt, Tax-Free Insured(7),
Tax Exempt Income, Single-state tax-free funds*, Municipal Income,
Tax-Free High Yield(5)
*State tax-free funds available for Arizona, California, Florida,
Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, and
Pennsylvania. Not available in all states.
LIFESTAGE(sm) FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments. The
three portfolios are:
> Putnam Asset Allocation: Balanced Portfolio
> Putnam Asset Allocation: Conservative Portfolio
> Putnam Asset Allocation: Growth Portfolio
Please call your financial advisor -- or Putnam at 1-800-225-1581 -- to obtain
a prospectus for any Putnam fund. The prospectus contains more complete
information, including risk considerations, charges, and expenses. Read it
carefully before you invest or send money.
(4) The fund is managed to maintain a steady price of $1.00 per share, although
there is no assurance this price can be maintained in the future.
(5) The lower credit ratings of high-yield corporate and municipal bonds
reflect a greater possibility that adverse changes in the economy or their
issuers may affect their ability to pay principal and interest on the
bonds.
(6) Income may be subject to state and local taxes. Capital gains, if any, are
taxable for federal and, in most cases, state purposes.
(7) Bond insurance does not guarantee principal or protect against changes in
market price.
<PAGE>
Portfolio of investments owned
March 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (40.4%)*
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
$ 401,724 Federal National Mortgage Association
12s, with various due dates to January 1, 2015 $ 441,898
109,720,000 8-1/2s, TBA, April 14, 2025 +++ 110,851,488
169,510,000 8s, TBA, April 14, 2025 +++ 167,814,900
Government National Mortgage Association
116,984 9-1/2s, with various due dates to February 15, 2015 122,796
151,565,784 8-1/2s, with various due dates to October 15, 2024 153,701,357
214,014,362 8s, with various due dates to September 15, 2024 212,176,769
245,266,437 7-1/2s, with various due dates to March 15, 2023 236,819,143
1,421,315 7s, with various due dates to March 15, 2024 1,351,970
29,300,000 U.S. Treasury Bonds 10-3/4s, May 15, 2003 35,535,406
60,875,000 U.S. Treasury Bonds 7-1/2s, November 15, 2024 60,989,141
34,740,000 U.S. Treasury Bonds 6-1/4s, August 15, 2023 29,594,138
36,000,000 U.S. Treasury Notes 11-1/4s, May 15, 1995 36,202,500
45,000,000 U.S. Treasury Notes 9-1/4s, August 15, 1998 48,009,375
42,800,000 U.S. Treasury Notes 8-7/8s, February 15, 1996 43,642,625
50,000,000 U.S. Treasury Notes 8-7/8s, November 15, 1998 52,953,125
13,470,000 U.S. Treasury Notes 7-7/8s, April 15, 1998 13,810,959
251,375,000 U.S. Treasury Strip zero %, August 15, 2020 36,685,039
42,225,000 U.S. Treasury Strip zero %, May 15, 2017 7,851,211
Total U.S. Government and Agency Obligations
(cost $1,249,590,129) $1,248,553,840
CORPORATE BONDS AND NOTES (30.4%)*
PRINCIPAL AMOUNT VALUE
Advertising (0.6%)
$ 2,575,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $ 2,510,625
3,000,000 Outdoor Systems, Inc. sr. notes 10-3/4s, 2003 2,790,000
7,740,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 7,159,500
10,950,000 Universal Outdoor, Inc. sr. note stepped-coupon zero
%, (14s, 7/1/99), 2004 ++ 6,077,250
18,537,375
Aerospace and Defense (0.3%)
1,500,000 MacAndrews & Forbes Group, Inc. deb. 12-1/4s, 1996 1,500,000
2,000,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes
13s, 1999 2,000,000
5,900,000 Talley Industries, Inc. sr. disc. deb.
stepped-coupon zero % (12-1/4s, 10/15/98), 2005 ++ 3,304,000
2,800,000 UNC, Inc. sr. notes 9-1/8s, 2003 2,590,000
9,394,000
Aluminum (0.5%)
13,550,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12-3/4s, 2003 14,024,250
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
Agriculture (1.5%)
$ 3,521,000 PMI Acquisition Corp. sub. disc. deb. stepped-coupon
zero % (11-1/2s, 3/1/00), 2005 ++ $ 1,628,463
1,500,000 PRT Funding Corp. sr. notes 11-5/8s, 2004 1,230,000
21,250,000 PSF Finance (L.P.) sr. exch. note 12-1/4s, 2004 21,927,344
10,271,900 PSF Finance (L.P.) sr. notes 12s, 2000 10,708,456
13,436,000 PSF Finance (L.P.) sr. disc. note stepped-coupon
zero %, (12s, 9/15/96) 2003 ++ 10,950,340
46,444,603
Automotive (0.2%)
6,825,000 Key Plastics Corp. sr. notes 14s, 1999 7,302,750
Banks (0.3%)
2,600,000 First Federal Financial Corp. notes 11-3/4s, 2004 2,632,500
6,945,000 Westpac Banking Corp. sub. deb. 9-1/8s, 2001 7,357,359
9,989,859
Broadcasting (0.9%)
2,100,000 Granite Broadcasting Corp. sr. sub. deb. 12-3/4s,
2002 2,163,000
1,650,000 New City Broadcasting Corp. sr. sub. notes 11-3/8s,
2003 1,534,500
2,300,000 Outlet Broadcasting, Inc. sr. sub. notes 10-7/8s,
2003 2,300,000
10,200,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero %
(11-3/8s, 8/1/98), 2003 ++ 6,732,000
8,770,000 SFX Broadcasting, Inc. sr. sub. notes 11-3/8s, 2000 8,945,400
8,302,000 Telemedia Broadcasting Corp. 144A deb. 6.4s, 2004 7,222,740
28,897,640
Building and Construction (1.3%)
4,350,000 Miles Homes Services sr. notes 12s, 2001 3,045,000
11,650,000 Presley Co. sr. notes 12-1/2s, 2001 9,669,500
8,000,000 Schuller Intl. Corp. bonds 10-7/8s, 2004 8,420,000
7,925,000 Scotsman Group, Inc. sr. notes 9-1/2s, 2000 7,568,375
1,000,000 Webb (DEL. E.) sr. notes 10-7/8s, 2000 1,010,000
5,975,000 Webb (DEL. E.) Corp. sr. sub. deb. 9s, 2006 4,869,625
5,000,000 Walter Industries sr. notes 12.19s, 1999 5,075,000
39,657,500
Building Products (0.2%)
1,000,000 American Standard, Inc. sr. deb. 11-3/8s, 2004 1,085,000
3,500,000 American Standard, Inc. deb. 9-1/4s, 2016 3,325,000
1,250,000 Congoleum Corp. sr. notes 9s, 2001 1,200,000
1,000,000 Overhead Door Corp. sr. notes 12-1/4s, 2000 1,025,000
2,000,000 Southdown, Inc. sr. sub. notes Ser. B, 14s, 2001 2,207,500
8,842,500
Business Services (0.1%)
4,800,000 Corporate Express, Inc. sr. sub. notes 9-1/8s, 2004 4,536,000
Cable Television (2.0%)
1,550,000 Adelphia Communications Corp. sr. notes 12-1/2s,
2002 1,480,250
1,750,000 Adelphia Communications Corp. sr. deb. 11-7/8s, 2004
++++ 1,610,000
<PAGE>
PRINCIPAL AMOUNT VALUE
Cable Television (continued)
$ 5,750,000 Adelphia Communications Corp. notes, Ser. B, 9-7/8s,
2005 $ 4,830,000
17,128,750 Adelphia Communications Corp. sr. notes 9-1/2s, 2004 12,760,919
2,625,000 Cablevision Systems Corp. sr. sub. reset deb.
10-3/4s, 2004 2,703,750
5,420,000 Cablevision Industries Corp. sr. notes 10-3/4s, 2002 5,691,000
4,250,000 Cablevision Industries Corp. sub. deb. 9-1/4s, 2008 4,186,250
1,000,000 Century Communications Corp. sr. sub. deb. 11-7/8s,
2003 1,047,500
3,000,000 Century Communications Corp. sr. notes 9-1/2s, 2005 2,880,000
10,850,000 Continental Cablevision, Inc. sr. deb. 9-1/2s, 2013 10,361,750
1,325,000 Continental Cablevision, Inc. sr. deb. 9s, 2008 1,252,125
3,970,832 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003
++++ 3,454,624
6,050,000 Insight Communications Co. sr. sub. notes stepped-
coupon 8-1/4s (11-1/4s, 3/1/96), 2000 ++ 5,853,375
2,500,000 Jones Intercable, Inc. sub. deb. 11-1/2s, 2004 2,637,500
2,500,000 Jones Intercable, Inc. sr. sub. deb. 10-1/2s, 2008 2,531,250
63,280,293
Cellular Communications (1.6%)
7,475,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon
zero % (11-3/4s, 9/1/98), 2003 ++ 5,157,750
2,610,000 Cencall Communications Corp. sr. disc. notes
stepped- coupon zero % (10-1/8s, 1/15/99), 2004 ++ 978,750
6,000,000 Centennial Cellular Corp. sr. notes 8-7/8s, 2001 5,580,000
11,000,000 Comcast Cellular Corp. sr. participating notes Ser.
B, zero %, 2000 7,920,000
6,500,000 Dial Call Communication, Inc. sr. disc. notes Ser.
B, stepped-coupon zero % (10-1/4s, 12/15/98), 2005
++ 2,210,000
21,500,000 Dial Call Communication, Inc. sr. disc. notes
stepped coupon zero % (12-1/4s, 2004) 2000 ++ 8,062,500
7,400,000 Horizon Cellular Telephone Co. sr. sub. disc. notes
Ser. B, stepped-coupon zero % (11-3/8s, 10/1/97),
2000 ++ 5,605,500
2,750,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9-3/4s, 2/15/99), 2004 ++ 1,127,500
5,450,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (11-1/2s, 9/1/98), 2003 ++ 2,411,625
14,435,000 Pricecellular Wire 144A sr. disc. notes zero % (14s,
11/15/97), 2001 ++ 10,681,900
49,735,525
Chemicals (0.9%)
3,075,000 Carlisle Plastic sr. notes 10-1/4s, 1997 3,082,688
17,100,000 G-I Holdings, Inc. sr. notes zero %, 1998 11,029,500
12,500,000 Harris Chemical Corp. sr. sub. notes 10-3/4s, 2003 11,875,000
1,135,000 OSI Specialty Corp. sr. sub. notes 9-1/4s, 2003 1,089,600
27,076,788
Communications (0.1%)
5,255,000 MFS Communications sr. disc. notes stepped-coupon
zero% (9-3/8s, 1/15/99), 2004 ++ 3,323,788
Computer Equipment (0.2%)
7,500,000 Computervision Corp. sr. sub. notes 11-3/8s, 1999 6,862,500
<PAGE>
PRINCIPAL AMOUNT VALUE
Conglomerates (0.4%)
$ 500,000 ADT Ltd. sr. sub. notes 9-1/4s, 2003 $ 488,125
2,625,000 Haynes International, Inc. sr. sub. notes 13-1/2s,
1999 1,706,250
17,525,000 International Semi-Tech. Corp. sr. disc. notes
stepped- coupon zero % (11-1/2s, 8/15/00), 2003 ++ 7,711,000
2,400,000 Valcor, Inc. sr. note 9-5/8s, 2003 2,208,000
12,113,375
Consumer Products (0.2%)
1,249,000 Equitable Bag Co. sr. notes 11s, 2004 + 936,750
5,680,000 Playtex Family Products Corp. sr. sub. notes 9s,
2003 5,268,200
6,204,950
Consumer Services (0.1%)
750,000 Solon Automated Services, Inc. sr. sub. deb.
13-3/4s, 2002 750,000
2,750,000 Solon Automated Services, Inc. notes 12-3/4s, 2001 2,701,875
3,451,875
Containers (0.5%)
10,000,000 Ivex Holdings Corp. sr. disc. deb. stepped-coupon
zero % (13-1/4s, 3/15/00), 2005 ++ 4,800,000
8,600,000 Ivex Packaging Corp. sr. sub. notes 12-1/2s, 2002 8,987,000
1,525,000 United States Can Co. sr. sub. notes 13-1/2s, 2002 1,673,688
15,460,688
Defense Electronics (--%)
1,000,000 Alliant Techsystems, Inc. 144A sr. sub notes
11-3/4s, 2003 1,022,500
Electric Utilities (1.3%)
3,200,000 Cleveland Electric Illuminating 1st. mtge. 9s, 2023 2,846,000
8,300,000 First PV Funding Corp. deb. 10.15s, 2016 8,134,000
7,050,000 Long Island Lighting Co. deb. 9s, 2022 5,952,844
4,850,000 Long Island Lighting Co. deb. 8.9s, 2019 4,080,063
496,910 Midland Cogeneration Ventures (L.P.) deb. 10.33s,
2002 498,152
18,220,000 Midland Funding Corp. II deb. Ser. A, 11-3/4s, 2005 18,037,800
800,000 Texas New Mexico Power Corp. secd. deb. 12-1/2s,
1999 864,500
500,000 Toledo Edison 1st. mtge. 7-7/8s, 2004 433,125
40,846,484
Electronics (0.2%)
5,050,000 Amphenol Corp. sr. sub. notes 12-3/4s, 2002 5,656,000
1,000,000 Amphenol Corp. sr. notes 10.45s, 2001 1,038,125
6,694,125
Entertainment (0.6%)
20,450,000 Viacom International, Inc. sub. deb. 8s, 2006 18,507,250
Environmental Control (0.2%)
5,900,000 Envirosource, Inc. sr. notes 9-3/4s, 2003 5,192,000
<PAGE>
PRINCIPAL AMOUNT VALUE
Financial Services (0.4%)
$ 8,100,000 Comdata Network, Inc. sr. sub. deb. 13-1/4s, 2002 $ 8,829,000
3,550,000 Delaware Management Holdings, Inc. sr. notes Ser. B,
10-1/4s, 2004 3,869,500
12,698,500
Food (0.5%)
10,000,000 Chiquita Brands Intl., Inc. sr. notes 9-1/8s, 2004 9,200,000
1,552,000 Del Monte Corp. 144A sub. deb. notes 12-1/4s, 2002
++++ 1,342,480
2,750,000 Mafco, Inc. sr. sub. notes 11-7/8s, 2002 2,653,750
2,750,000 Specialty Foods Corp. sr. sub. notes 11-1/4s, 2003 2,653,750
15,849,980
Food Chains (0.9%)
12,050,000 Grand Union Co. Ser. A sr. sub. notes 12-1/4s, 2002
(In Default)+ 4,097,000
18,475,000 Grand Union Co. sr. sub. notes 12-1/4s, 2002 (In
Default)+ 6,281,500
14,000,000 Grand Union Capital Corp. gtd. sr. sub. notes zero
%, 2007 (In Default)+ 105,000
1,750,000 Grand Union Capital Corp. sr. notes Ser. A, stepped-
coupon zero % (15s, 7/15/99), 2004 (In Default)++ + 26,250
3,250,000 Safeway, Inc. sr. notes 8.57s, 2003 3,241,875
13,750,000 Stater Brothers sr. notes 144A 11s, 2001 13,200,000
26,951,625
Forest Products (1.4%)
5,000,000 Gaylord Container Corp. sr. notes 11-1/2s, 2001 5,250,000
15,850,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-
coupon zero % (12-3/4s, 5/15/96), 2005 ++ 15,057,500
2,200,000 Riverwood International Corp. sr. sub. notes
11-1/4s, 2002 2,321,000
5,250,000 Riverwood International Corp. sr. sub. notes
10-3/8s, 2004 5,381,250
1,000,000 Stone Container Corp. sr. notes 12-5/8s, 1998 1,075,000
1,000,000 Stone Container Corp. sr. sub. notes 11-1/2s, 1999 1,032,500
2,750,000 Stone Container Corp. sr. sub. notes 10-3/4s, 1997 2,825,625
9,200,000 Stone Container Corp. sr. sub. notes 9-7/8s, 2001 8,924,000
41,866,875
Health Care (2.2%)
2,215,000 Abbey Healthcare Group, Inc. sr. sub. notes 9-1/2s,
2002 2,264,838
790,470 Amerisource Health sr. notes 11-1/4s, 2005 ++++ 853,708
8,300,000 Charter Medical Corp. sr. sub. notes 11-1/4s, 2004 8,632,000
1,250,000 General Medical Corp. sr. sub. notes 10-7/8s, 2003 1,240,625
4,700,000 Healthsouth Rehablitaton sr. sub. notes 9-1/2s, 2001 4,711,750
16,250,000 Healthtrust, Inc. sub. notes 10-1/4s, 2004 17,996,875
3,200,000 Integrated Health Services sr. sub. notes 10-3/4s,
2004 3,312,000
9,400,000 McGaw, Inc. sr. notes 10-3/8s, 1999 9,729,000
11,250,000 National Medical Enterprises, Inc. sr. notes
10-1/8s, 2005 11,545,313
1,300,000 National Medical Enterprises, Inc. sr. notes 9-5/8s,
2002 1,329,250
4,250,000 Paracelsus Healthcare Corp. sr. sub. notes 9-7/8s,
2003 4,165,000
810,000 Quorum Health Group, Inc. sr. sub. notes 11-7/8s,
2002 874,800
66,655,159
<PAGE>
PRINCIPAL AMOUNT VALUE
Home Furnishings (--%)
$ 541,041 Simmons Mattress Corp. 144A deb. 8s, 2003 ++++ $ 535,631
Insurance (1.1%)
2,600,000 American Annuity Group, Inc. sr. sub. notes 11-1/8s,
2003 2,645,500
4,750,000 American Annuity Group, Inc. sr. notes 9-1/2s, 2001 4,643,125
5,900,000 American Life Holding Co. sr. sub. notes 11-1/4s,
2004 5,870,500
9,900,000 Penn Corp. Financial Group sr. sub. notes 9-1/4s,
2003 9,108,000
4,950,000 Reliance Group Holdings, Inc. sr. sub. deb. 9-3/4s,
2003 4,529,250
6,275,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 5,882,813
32,679,188
Lodging (0.4%)
6,400,000 John Q. Hammons Hotels 1st. mtge. notes 8-7/8s, 2004 5,968,000
2,500,000 La Quinta Motor Inns, Inc. deb. 9-1/4s, 2003 2,400,000
5,000,000 Red Roof Inns sr. notes 9-5/8s, 2003 4,800,000
13,168,000
Machinery (0.1%)
2,350,000 Specialty Equipment Co. sr. sub. notes 11-3/8s, 2003 2,314,750
Medical Supplies (0.2%)
4,915,000 Wright Medical Technology, Inc. sr. secd. notes Ser.
B, 10-3/4s, 2000 4,816,700
Metals and Mining (0.1%)
3,050,000 Kaiser Aluminum & Chemical Co. sr. notes 9-7/8s,
2002 2,859,375
Motion Picture Distribution (0.6%)
3,200,000 AMC Entertainment, Inc. sr. sub. deb. 12-5/8s, 2002 3,488,000
5,200,000 AMC Entertainment, Inc. sr. sub. deb. 11-7/8s, 2000 5,564,000
5,870,000 Act III Theatres, Inc. sr. sub. notes 11-7/8s, 2003 6,104,800
1,500,000 Cinemark USA, Inc. sr. sub. notes 12s, 2002 1,582,500
100,000 Plitt Theatres, Inc. sr. sub. notes 10-7/8s, 2004 98,750
1,000,000 United Artists notes 11-1/2s, 2002 1,070,000
17,908,050
Nursing Homes (0.1%)
2,437,000 Multicare Cos., Inc. sr. sub. notes 12-1/2s, 2002 2,753,810
Oil and Gas (1.2%)
6,100,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 6,344,000
5,290,000 Flores & Rucks, Inc. sr. notes 13-1/2s, 2004 5,528,050
5,000,000 Global Marine deb. notes 12-3/4s, 1999 5,393,750
950,000 Maxus Energy Corp. notes 9-1/2s, 2003 798,000
3,000,000 Maxus Energy Corp. notes 9-3/8s, 2003 2,550,000
1,500,000 Maxus Energy Corp. deb. 8-1/2s, 2008 1,256,250
1,000,000 Mesa Capital Corp. disc. notes stepped-coupon zero
%, (12-3/4s, 6/30/95), 2000 ++ 955,000
4,800,000 Mesa Capital Corp. disc. notes stepped-coupon zero %
(12-3/4s, 6/30/95), 1998 ++ 4,632,000
1,200,000 OPI International sr. notes 12-7/8s, 1998 1,320,000
2,500,000 Oryx Energy Co. deb. 9-3/4s, 1998 2,512,500
5,300,000 Triton Energy sr. sub. disc. notes stepped-coupon
zero % (9-3/4s, 12/15/96), 2000 ++ 4,266,500
35,556,050
<PAGE>
PRINCIPAL AMOUNT VALUE
Paging (0.3%)
$ 6,900,000 Mobile Telecommunications Tech. sr. notes 13-1/2s,
2002 $ 7,167,375
3,000,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12-1/4s, 11/1/98), 2003 ++ 1,848,750
9,016,125
Publishing (0.6%)
1,750,000 General Media Corp. sr. secd. notes 10-5/8s, 2000 1,452,500
9,050,000 Marvel Holdings, Inc. Ser. B sr. notes zero %, 1998 5,746,750
17,180,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes
zero %, 1998 10,737,500
17,936,750
Real Estate (0.3%)
530,000 Chelsea Piers 144A Ser. B, stepped-coupon zero %
(11s, 6/15/99), 2009 ++ 449,175
8,590,000 Chelsea Piers Ser. B stepped-coupon zero % (12-1/2s,
6/15/99), 2004 ++ 7,387,400
1,850,000 Kearny State Real Estate (L.P.) secd. notes 9.56s,
2003 1,850,000
9,686,575
Recreation (2.1%)
6,370,000 Arizona Charlies Corp. 1st. mtge. 12s, 2000 5,096,000
1,480,000 Capitol Queen Corp. 1st mtge. note Ser. B, 12s, 2000 1,332,000
6,210,000 Casino America, Inc. 1st mtge. deb. 11-1/2s, 2001 6,039,225
8,250,000 Fitzgerald Gaming Co. 1st mtge. 13s, 1996 5,115,000
3,000,000 GNS Finance Corp. sr. sub. notes 9-1/4s, 2003 3,000,000
4,135,000 Grand Casino Resorts, Inc. 1st mtg. 12-1/2s, 2000 4,217,700
12,750,000 Grate Bay Property Funding Corp. 1st. mtge. 10-7/8s,
2004 10,741,875
3,725,000 Lady Luck Gaming Corp. 1st. mtge. 10-1/2s, 2001 2,346,750
5,675,000 Louisiana Casino Cruises Corp. 1st mtge. 11-1/2s,
1998 4,880,500
500,000 MGM Grand Hotels Fing. Corp. 1st mtge. 12s, 2002 551,250
1,214,000 Pioneer Finance Corp. gtd. 1st mtge. 13-1/2s, 1998 965,130
5,250,000 President Riverboat Casinos, Inc. 1st mtge. 13s,
2001 4,948,125
7,150,000 Stratosphere Corp. 1st mtge 14-1/4s, 2002 7,293,000
3,456,000 Trump Castle Funding Corp. 1st mtge 11-1/2s, 2000 3,456,000
6,539,700 Trump Taj Mahal Funding, Inc. 1st mtge. notes Ser.
A, 11.35s, 1999 ++++ 4,953,823
64,936,378
Restaurants (0.7%)
950,000 American Restaurant Group, Inc. sr. secd. notes,
Ser. A, 12s, 1998 864,500
4,500,000 American Restaurant Group, Inc. sr. notes, Ser. B,
12s, 1998 4,140,000
15,000,000 American Restaurant Group, Inc. sr. notes stepped-
coupon zero %, (14s, 12/15/98), 2005 ++ 7,200,000
10,700,000 Flagstar Corp. sr. sub. notes 11-3/8s, 2003 9,014,750
21,219,250
Retail (2.1%)
3,540,000 Brylane (L.P.) sr. sub. notes 10s, 2003 3,451,500
9,350,000 County Seat Stores sr. sub. notes 12s, 2001 9,303,250
<PAGE>
PRINCIPAL AMOUNT VALUE
Retail (continued)
$ 1,335,000 Duane Reade Corp. sr. notes 12s, 2002 $ 1,027,950
3,425,000 Federated Department Stores 10s, 2001 3,570,563
650,000 Finlay Enterprises, Inc. sr. notes 10-5/8s, 2003 604,500
11,920,000 Finlay Enterprises, Inc. sr. disc. deb.
stepped-coupon zero % (12s, 5/1/98), 2005 ++ 7,390,400
7,435,000 Loehmanns' Holdings, Inc. sr. sub. notes 13-3/4s,
1999 7,230,538
13,000,000 Loehmanns' Holdings, Inc. sr. notes 10-1/2s, 1997 12,870,000
10,550,000 Parisian, Inc. sr. sub. notes 9-7/8s, 2003 7,279,500
9,750,000 Southland Corp. deb. Ser. A, 4-1/2s, 2004 6,240,000
2,402,000 Southland Corp. deb. 4s, 2004 1,420,183
5,710,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 5,253,200
250,000 Specialty Retailers, Inc. notes 10s, 2000 230,000
65,871,584
School Busses (--%)
1,500,000 Blue Bird Body Co. sr. sub. deb. Ser. B, 11-3/4s,
2002 1,515,000
Shipping (0.2%)
5,200,000 Viking Star Shipping sr. secd. notes 9-5/8s, 2003 4,888,000
Steel (0.4%)
2,300,000 Armco, Inc. sr. notes 11-3/8s, 1999 2,265,500
3,000,000 Armco, Inc. sr. notes 9-3/8s, 2000 2,730,000
3,750,000 Bayou Steel Corp. 1st. mtge. 10-1/4s, 2001 3,300,000
2,500,000 Inland Steel Industries, Inc. notes 12-3/4s, 2002 2,712,500
11,008,000
Telephone Services (--%)
1,990,000 Call-Net Enterprises stepped-coupon zero % (13-1/4s,
12/1/99), 2004 ++ 1,089,525
Textiles (0.3%)
2,300,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11-7/8s,
2004 2,231,000
512,000 Foamex (L.P.) Capital Corp. sr. secd. notes 9-1/2s,
2000 499,200
11,550,000 Foamex (L.P.) Capital Corp. sr. secd. disc. deb.
stepped- coupon zero % (14s, 7/1/99), 2004 ++ 6,410,250
9,140,450
Total Corporate Bonds and Notes
(cost $984,396,384) $940,319,948
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOREIGN BONDS AND NOTES (25.0%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
AUD 7,215,000 Australia (Government of) bonds 13s, 2000 $ 6,024,525
AUD 65,520,000 Australia (Government of) bonds 9s, 2004 45,659,250
AUD 10,000,000 Australia (Government of) bonds 9s, 2002 6,831,250
AUD 22,655,000 Australia (Government of) bonds 7-1/2s, 2005 14,131,056
USD 4,000,000 Brazil (Republic of) floating rate notes (FRN)
6.6875s, 2005 1,985,000
CAD 20,230,000 Canada (Government of) deb. 9s, 2004 14,843,763
CAD 10,000,000 Canada (Government of) bonds 4-1/4s, 2021 6,868,750
DKK 61,600,000 Denmark (Government of) bonds 8s, 2006 10,549,000
DKK 195,230,000 Denmark (Government of) bonds 7s, 2024 27,698,256
DEM 171,100,000 Germany (Republic of) bonds 7-3/8s, 2005 125,865,438
DEM 57,035,000 Germany (Republic of) bonds 6-1/4s, 2024 33,900,178
FRF 333,550,000 France (Government of) strip zero %, 2023 6,671,000
FRF 277,280,000 France (Government of) strip zero %, 2019 7,451,900
IDR 1,657,000 Indonesia (Government of) bonds 9-3/4s, 2001 1,464,374
ITL 83,690,000,000 Italy (Government of) bonds 12s, 2003 46,814,094
ITL 98,195,000,000 Italy (Government of) bonds 8-1/2s, 2004 43,819,519
ITL 17,750,000,000 Italy (Government of) notes 8-1/2s, 1999 9,008,125
JPY 10,410,000,000 Japan Government Guarantee 4.4s, 2004 121,684,369
MAD 4,080,000 Morocco (Government of) notes 4-1/2s, 1999 2,356,200
USD 450,000 Petroleos Mexicanos 144A med. term notes 6-1/8s,
1996 390,375
USD 2,004,000 Philipines (Central Bank of) bonds 5-3/4s, 2017 1,192,380
USD 5,758,000 Poland (Government of) 144A FRN 6.8125s, 2024 3,685,120
USD 1,225,000 South Africa (Government of) 9-5/8s, 1999 1,197,438
ESP 1,590,000,000 Spain (Government of) bonds 10.55s, 1996 12,481,500
ESP 949,600,000 Spain (Government of) bonds 10-1/2s, 2003 6,575,140
ESP 2,432,700,000 Spain (Government of) bonds 10-1/4s, 1998 18,275,659
THB 50,000,000 Thailand (IFC of) bonds FRN 8s, 1996 2,000,000
DEM 49,230,000 Treuhandanstalt (Government Guarantee) 7-1/8s, 2003 35,722,519
GBP 15,830,000 United Kingdom Treasury bonds 10s, 2001 27,306,750
GBP 31,420,000 United Kingdom Treasury bonds 9-3/4s, 2002 54,003,125
GBP 10,225,000 United Kingdom Treasury bonds 9s, 2012 17,293,031
GBP 7,392,000 United Kingdom Treasury bonds 8-1/2s, 2007 11,956,560
GBP 30,300,000 United Kingdom Treasury notes 8s, 2013 46,946,063
GBP 2,080,000 United Kingdom Treasury war bonds 3-1/2s, 2049 1,401,400
Total Foreign Bonds and Notes
(cost $767,498,867) $774,053,107
</TABLE>
<TABLE>
<CAPTION>
UNITS (2.6%)*
NUMBER OF UNITS VALUE
<C> <S> <C>
1,077 Celcaribe S.A. 144A units stepped-coupon zero % (13-1/2s,
3/15/98), 2004 ++ $ 9,162,578
27,750 Echostar Communication Corp. units stepped-coupon zero %
(12-7/8s, 12/1/99), 2004 ++ 13,320,000
2,000,000 Elsinore Corp 144A 1st. property mtge. units 20s, 1996 2,000,000
3,980 Health-O-Meter Product units 13s, 2002 3,502,400
1,500,000 Hemmeter Enterprise sr. notes 12s, 2000 1,117,500
30,000 Hollywood Casino units 13-1/2s, 1998 31,200
4,800,000 Hollywood Casino 144A units 13-1/2s, 1998 4,992,000
18,400,000 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 16,698,000
1,460,680 New Street Acquisition Corp. 144A units 12s, 1998 (aquired
2/22/94 par 1,300,000 cost $1,300,000, acquired 2/22/94
par 78,000 cost $78,000, acquired 3/1/95 par 82,680 cost
$76,894)++ 1,460,680
<PAGE>
UNITS
NUMBER OF UNITS VALUE
32,300,000 OSI Specialties Corp. sr. secd. disc. deb. units stepped-
coupon zero % (11-1/2s, 4/15/99), 2004 ++ $21,318,000
4,587 Premium Standard Farms 144A exch. pfd. units 12-1/2s, 2000 504,570
4,510 Santa Fe Hotel, Inc. units 11s, 2000 4,374,700
5,595 Total Renal Care units stepped-coupon zero % (12s,
8/15/99), 2004 ++ 4,923,600
Total Units
(cost $82,724,619) $83,405,228
YANKEE BONDS AND NOTES (1.6%)*
PRINCIPAL AMOUNT VALUE
$13,250,000 Argentina (Government of) bonds 4s, 2023 $ 5,300,000
9,952,200 Brazil (Government of) bonds 8-3/4s, 2001 7,265,106
1,750,000 CF Cable TV., Inc. sr. notes 11-5/8s, 2005 1,793,750
2,065,000 Cinemark Mexico 144A notes 12s, 2003 1,920,450
25,150,000 Del Monte Produce Corp. sr. notes, Ser. B, 10s, 2003 19,365,500
5,775,000 Eletson Holdings, Inc. mtge. notes 9-1/4s, 2003 5,414,063
11,900,000 Grupo Industrial Durango notes 12s, 2001 10,070,375
Total Yankee Bonds and Notes
(cost $61,550,653) $51,129,244
PREFERRED STOCKS (1.3%)*
NUMBER OF SHARES VALUE
102,500 California Federal Bank Ser. B, $10.625, exch. pfd. $10,455,000
152,000 First Nationwide Bank $11.50, pfd. 15,314,000
130,884 Foxmeyer Health Corp. Ser. A, $4.20 pfd. 4,597,301
11,950 Grand Union Holdings Ser. C, $12.00 pfd. (acquired
11/5/93, cost $1,380,225) ++ 747
5,000 Pantry Pride, Inc. Ser. B, $14.875 pfd. 500,000
204,729 Pyramid Communications, Inc. Ser. C, $3.125, exch. pfd. 4,811,136
153,977 Supermarkets General Holdings Corp. $3.52 exch. pfd. 3,695,448
Total Preferred Stocks
(cost $42,074,414) $39,373,632
ASSET-BACKED SECURITIES (0.8%)*
PRINCIPAL AMOUNT VALUE
$ 7,035,000 First Chicago Master Trust II Ser. 1994-L Class A, 7.15s,
2001 $ 6,973,444
2,175,000 First Deposit Master Trust Ser. 93-2A, 5-3/4s, 2001 2,081,203
14,300,000 Standard Credit Card Master Trust 7.85s, 2002 14,460,875
Total Asset-Backed Securities
(cost $23,466,535) $23,515,522
EUROBONDS (0.5%)*
PRINCIPAL AMOUNT VALUE
$ 5,000,000 Banco del Sud S.A. sr. notes 10-1/8s, 1997 $ 3,450,000
1,536,000 Essar Gujarat Ltd. 144A deb. FRN 8.025s, 1999 1,497,600
11,500,000 Ispat Mexicana, SA 144A deb. 10-3/8s, 2001 8,050,000
2,471,000 Petroleo Brasileiro S.A. FRN 9.275s, 1998 2,452,468
Total Eurobonds
(cost $20,382,266) $15,450,068
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WARRANTS (0.3%)*+
NUMBER OF WARRANTS EXPIRATION DATE VALUE
<C> <S> <C> <C>
185,000 Becker Gaming Corp. 144A 11/15/00 $ 196,563
44,363 Capital Gaming International, Inc. 2/1/99 105,362
9,658 Casino America, Inc. 11/15/96 2,415
32,400 Casino Magic Finance Corp. 10/14/96 2,025
11,839 Cinemark Mexico USA, Inc. 8/1/03 109,511
9,350 County Seat Holdings, Inc. 10/15/98 187,000
10,030 Dial Call Communication 144 12/15/98 5,015
21,500 Dial Page, Inc. 1/1/97 10,750
47,500 Elsinore Corp. 144A 10/4/98 5,938
8,250 Fitzgerald Gaming Co. 144A 3/15/99 453,750
11,550 Foamex (L.P.) Capital Corp. 7/1/99 173,250
379,200 Gaylord Container Corp. 144A 7/31/96 3,981,600
750 General Media Corp. 144A 12/31/00 7,500
8,025 Louisiana Casino Cruises, Inc. 144A 12/1/98 120,375
72,000 Miles Homes, Inc. 4/1/97 36,000
32,300 OSI Specialties Corp. 144A 4/15/99 646,000
13,800 Pagemart, Inc. 144A 12/31/03 105,225
250 Payless Cashways, Inc. 11/1/96 375
37,527 President Riverboat Casinos, Inc. 9/30/99 150,108
6,300 President Riverboat Casinos, Inc. 144A 9/23/96 394
7,500 Southdown, Inc. 144A 10/31/96 26,250
1,480 Southland Corp. 3/5/96 3,700
196 Telemedia Broadcasting Corp. 144A 4/1/04 146,670
53,660 UCC Investor Holding, Inc. 10/30/99 697,580
10,950 Universal Outdoor, Inc. 144A 7/1/04 438,000
1,001 Wright Medical Technology, Inc. 144A 6/30/03 165,096
Total Warrants
(cost $5,920,354) $7,776,452
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS (0.3%)*
NUMBER OF SHARES VALUE
<C> <S> <C>
15,000 American Restaurant Group, Inc. $ 300,000
66,289 Ampex Corp. Class A 111,863
35,000 Arcadian Corp. 1,330,000
26,000 Capital Gaming International, Inc. 144A 133,250
125,050 Chesapeake Energy Corp. 2,657,313
79,125 Computervision Corp. (acquired 4/11/94 shares 77,141
cost $231,423, acquired 6/28/94 shares 1,984 cost
$5,952) ++ + 395,625
3,687 Computervision Corp. + 13,135
118,749 Equitable Bag Co. Class A + 282,029
7,795 Federated Department Stores + 172,464
4,540 Finlay Enterprises, Inc. Class A 49,940
12,831 Grand Casinos, Inc. + 293,509
7,541 IFINT Diversified Holdings 144A 533,526
49,679 Lady Luck Gaming Corp. (acquired 10/1/93, cost $40,922)
+++ 102,463
693,557 Loehmanns' Holdings, Inc. 144A + 693,557
1,184 PMI Holdings Corp. 144A 236,800
1,942 Premium Holdings (L.P.) (acquired 1/4/94 shares 1,271
cost $76,260, acquired 9/29/94 shares 671 cost
$50,332)++ 194,694
6,343 Pyramid Communications, Inc. New Class B 144A + 152,230
7,981 Taj Mahal Holding Corp. Class A 79,810
Total Common Stocks
(cost $5,969,946) $7,732,208
</TABLE>
<PAGE>
PUT OPTIONS ON FOREIGN CURRENCIES (0.2%)* + (cost $2,404,419)
EXPIRATION DATE/
CURRENCY STRIKE PRICE VALUE
JPY 498,822,240 Japanese Yen in Exchange
for U.S. Dollars May 95/JPY104.16 $5,834,918
<TABLE>
<CAPTION>
BRADY BONDS (0.2%)*
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
$ 3,196,000 Bulgaria (Government of) disc. bonds 7.563s, 2024 $ 1,334,330
9,250,000 Mexico (Government of) bonds 6-1/4s, 2019 4,324,375
Total Brady Bonds
(cost $5,740,729) $ 5,658,705
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)* (cost $7,016,313)
PRINCIPAL AMOUNT VALUE
$5,249,000 Citicorp Mortgage Secs. Ser. 1992-14M 7-1/2s, 2022 $ 5,093,170
CONVERTIBLE BONDS AND NOTES (0.2%)*
PRINCIPAL AMOUNT VALUE
$7,500,000 News America Holdings, Inc. cv. Liquid Yield Option
Notes (LYON), zero %, 2013 $ 3,168,750
1,710,000 Sahara Mission cv. sub. notes 12s, 1995 1,710,000
Total Convertible Bonds and Notes (cost $4,243,875) $ 4,878,750
CONVERTIBLE PREFERRED STOCKS (0.1%)*
NUMBER OF SHARES VALUE
40,020 Conseco, Inc. Ser. D, $3.25, cv. pfd. $ 1,600,800
39,200 Unisys Corp. Ser. A, $3.75 cv. pfd. 1,523,900
Total Convertible Preferred Stocks (cost $3,222,249) $ 3,124,700
SHORT-TERM INVESTMENTS (6.7%)*
PRINCIPAL AMOUNT VALUE
$20,000,000 Federal Home Loan Mortgage Corp. 5.96s, June 19,
1995 $ 19,738,422
1,000,000 Federal Home Loan Mortgage Assn. 5.9s, April 4, 1995 999,508
25,000,000 Federal Home Loan Mortgage Assn. 5.9s, April 3, 1995 24,991,805
500,000 Federal National Mortgage Assn. 5.9s, April 3, 1995 499,836
35,000,000 General Electric Capital Corp. 5.99s, May 30, 1995 34,656,407
27,000,000 Heinz (H.J.) Co. 5.95s, April 7, 1995 26,973,225
MXP 82,500,000 Mexican Cetes zero %, April 27, 1995 1,185,938
USD 1,240,000 Mexican Tesobono bonds zero %, October 19, 1995 1,054,000
USD 240,000 Mexican Tesobono bonds zero % June 22, 1995 224,250
USD 2,700,000 Mexican Tesobono bonds zero %, May 4, 1995 2,627,438
USD 4,968,000 Mexican Tesobono bonds zero %, April 12, 1995 4,924,530
30,000,000 Sears Roebuck Acceptance Corp. 6s, April 17, 1995 29,920,000
25,000,000 USAA Capital Corp. 5.95s, April 24, 1995 24,904,945
34,973,000 Interest in $510,221,000 joint repurchase agreement
dated March 31, 1995 with Goldman Sachs & Co.,
Inc., due April 3, 1995 with respect to various
U.S. Treasury Bonds--maturity value of $34,979,101
for an effective yield of 6.28% 34,979,101
Total Short-Term Investments
(cost $208,076,578) $ 207,679,405
Total Investments
(cost $3,474,278,330)*** $3,423,578,897
</TABLE>
<PAGE>
NOTES
* Percentages indicated are based on net assets of $3,090,002,481, which
correspond to a net asset value per share for class A, class B and class M
shareholders of $11.49, $11.45 and $11.47, respectively.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin receiving
interest at this rate.
+++ TBAs are mortgage backed securities traded under delayed delivery
commitments, settling after March 31, 1995. Although the unit price for
the trades has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate more
than 2% from the principal amount. Income on the securities will not be
earned until settlement date. The cost of TBA purchases held at March 31,
1995 was $279,105,366.
++ Restricted, excluding 144A securities, as to public resale. At the date of
acquisition, these securities were valued at cost. There were no
outstanding unrestricted securities of the same class as those held. Total
market value of restricted securities owned at March 31, 1995 was
$2,154,209 or --% of net assets.
++++ Income may be received in cash or additional securities at the discretion
of the issuer.
*** The aggregate identified cost on a tax cost basis is $3,474,278,330,
resulting in gross unrealized appreciation and depreciation of $75,414,549
and $126,113,982, respectively, or net unrealized depreciation of
$50,699,433.
The rate shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are
the current interest rates shown at March 31, 1995, which are subject to change
based on the terms of the security.
DIVERSIFICATION OF FOREIGN ASSETS AT MARCH 31, 1995
(AS A PERCENTAGE OF NET ASSETS)
Germany 6.33% Brazil 0.38%
United Kingdom 5.14 Argentina 0.17
Japan 3.94 Poland 0.12
Italy 3.22 Morocco 0.08
Australia 2.35 Thailand 0.06
Denmark 1.24 India 0.05
Spain 1.21 Indonesia 0.05
Mexico 0.91 Bulgaria 0.04
Canada 0.70 South Africa 0.04
France 0.46 Philipines 0.04
<PAGE>
FORWARD CURRENCY CONTRACTS OUTSTANDING AT MARCH 31, 1995
<TABLE>
<CAPTION>
Unrealized
Market Aggregate Delivery Appreciation
Value Face Value Date (Depreciation)
<S> <C> <C> <C> <C>
Australian Dollars (Sell) $ 9,506,900 $ 9,648,600 6/19/95 $ 141,700
Australian Dollars (Sell) 18,099,670 18,359,055 6/19/95 259,385
Australian Dollars (Sell) 10,753,050 10,614,135 6/14/95 (138,915)
Australian Dollars (Sell) 17,775,450 17,574,975 6/14/95 (200,475)
British Pounds (Sell) 61,055,150 61,215,375 5/9/95 160,225
British Pounds (Sell) 793,550 779,208 5/9/95 (14,342)
British Pounds (Sell) 47,107,080 46,923,750 6/14/95 (183,330)
Danish Krone (Buy) 12,386,250 12,062,834 4/19/95 323,416
Danish Krone (Sell) 24,992,700 22,492,692 4/18/95 (2,500,008)
Danish Krone (Sell) 23,928,400 21,525,611 4/18/95 (2,402,789)
Deutschemarks (Buy) 14,596,400 13,915,566 5/8/95 680,834
Deutschemarks (Buy) 31,740,240 30,696,540 5/15/95 1,043,700
Deutschemarks (Buy) 45,952,200 45,027,339 6/16/95 924,861
Deutschemarks (Buy) 21,859,200 21,357,000 5/22/95 502,200
Deutschemarks (Buy) 83,358,990 83,278,689 6/14/95 80,301
Deutschemarks (Sell) 12,627,330 11,566,667 5/2/95 (1,060,663)
Deutschemarks (Sell) 44,616,981 41,536,948 5/22/95 (3,080,033)
Deutschemarks (Sell) 22,535,590 20,955,285 5/23/95 (1,580,305)
Deutschemarks (Sell) 5,170,930 5,023,295 5/15/95 (147,635)
Deutschemarks (Sell) 42,605,550 41,598,521 5/15/95 (1,007,029)
Deutschemarks (Sell) 41,861,820 40,840,431 6/14/95 (1,021,389)
Deutschemarks (Sell) 35,725,900 33,650,957 6/6/95 (2,074,943)
French Francs (Buy) 42,121,560 40,702,459 5/15/95 1,419,101
French Francs (Buy) 39,421,460 38,116,859 5/15/95 1,304,601
French Francs (Buy) 20,218,940 19,557,396 5/9/95 661,544
French Francs (Sell) 4,218,340 4,073,882 5/9/95 (144,458)
French Francs (Sell) 17,347,000 16,839,052 6/8/95 (507,948)
French Francs (Sell) 7,747,210 7,471,506 5/16/95 (275,704)
French Francs (Sell) 6,927,160 6,814,588 6/21/95 (112,572)
Japanese Yen (Buy) 45,496,756 40,082,116 4/10/95 5,414,640
Japanese Yen (Buy) 37,437,961 34,077,572 5/8/95 3,360,389
Japanese Yen (Sell) 35,819,280 34,717,930 5/9/95 (1,101,350)
Swiss Francs (Buy) 22,747,070 22,049,865 5/3/95 697,205
Swiss Francs (Buy) 21,684,950 20,958,531 5/3/95 726,419
$ 146,633
</TABLE>
<PAGE>
FORWARD CROSS CURRENCY CONTRACTS OUTSTANDING AT MARCH 31, 1995
(AGGREGATE FACE VALUE $340,085,541)
<TABLE>
<CAPTION>
In Unrealized
Market Exchange Market Delivery Appreciation/
Contracts Value For Value Date Depreciation
<S> <C> <C> <C> <C> <C>
British Pounds (Buy) $44,365,750 Deutschemarks $44,711,741 6/12/95 $ (345,991)
British Pounds (Buy) 39,058,800 Deutschemarks 39,414,947 6/14/95 (356,147)
British Pounds (Sell) 62,942,100 Deutschemarks 61,968,344 6/14/95 (973,756)
Deutschemarks (Buy) 41,996,160 Spanish Peso 40,363,274 4/28/95 1,632,886
Deutschemarks (Buy) 41,335,400 Swiss Francs 42,221,589 6/1/95 (886,189)
Deutschemarks (Buy) 23,882,760 Italian Lira 24,576,194 5/22/95 (693,434)
Deutschemarks (Buy) 40,091,760 Swiss Francs 40,358,146 5/3/95 (266,386)
Deutschemarks (Sell) 22,589,700 French Francs 22,644,516 5/3/95 54,816
Deutschemarks (Buy) 33,142,000 French Francs 34,031,859 5/22/95 (889,859)
$(2,724,060)
</TABLE>
TBA SALE COMMITMENTS at March 31, 1995 (Proceeds receivable $177,494,011)
Principal Delivery Coupon Market
Agency Amount Month Rate Value
GNMA $98,720,000 April 8-1/2s $100,077,400
GNMA 8s
56,000,000 April 1/2 55,475,000
GNMA 22,210,000 April 7-1/2s 21,432,650
$176,985,050
WRITTEN CALL OPTIONS ON FOREIGN CURRENCIES at March 31, 1995
(premium received $1,500,500)
EXPIRATION DATE/
CURRENCY STRIKE PRICE Value
DEM 7,025,000 U.S. Dollars in Apr 95/DEM 1.41 $2,370,792
exchange for
Deutschemarks
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
March 31, 1995 (Unaudited)
Assets
Investments, at value (identified cost
$3,474,278,330 ) (Note 1) $3,423,578,897
Dividends, interest and other receivables 50,034,296
Receivable for shares of the fund sold 9,276,450
Receivable for securities sold 206,266,573
Receivable for open forward currency contracts 19,388,223
Receivable for closed forward currency
contracts 9,460,663
Total assets $3,718,005,102
Liabilities
Payable for securities purchased $ 402,185,602
Payable to subcustodian (Note 2) 230,553
Payable for shares of the fund repurchased 4,200,629
Payable for compensation of Manager (Note 2) 4,154,022
Payable for administrative services (Note 2) 12,760
Payable for compensation of Trustees (Note 2) 4,902
Payable for investor servicing and custodian
fees (Note 2) 1,089,437
Payable for distribution fees (Note 2) 2,248,723
Payable for open forward currency contracts 21,965,650
Payable for closed forward currency contracts 12,389,985
Other accrued expenses 164,516
Written options outstanding at value (premiums
received $1,500,500) 2,370,792
TBA sale commitments at value (proceeds
receivable $177,494,011) (Note 1) 176,985,050
Total liabilities 628,002,621
Net assets $3,090,002,481
Represented by
Paid-in capital (Note 4) $3,359,410,743
Distributions in excess of net investment
income (24,418,148)
Accumulated net realized loss on investment
transactions (191,441,782)
Net unrealized depreciation of investments
options, forward currency contracts and TBA
sale commitments (53,548,332)
Total -- Representing net assets applicable to
capital shares outstanding $3,090,002,481
Computation of net asset value and offering
price
Net asset value and redemption price of class A
shares ($1,475,147,115 divided by 128,387,003
shares) $11.49
Offering price per class A share (100/95.25 of
$11.49)* $12.06
Net asset value and offering price of class B
shares ($1,611,370,301 divided by
140,725,528)+ $11.45
Net asset value and redemption price of class M
shares ($3,485,065 divided by 303,712 shares) $11.47
Offering price per class M share (100/96.75 of
$11.47)* $11.86
*On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
+Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of operations
Six months ended March 31, 1995 (Unaudited)
Investment income:
Interest (net of foreign tax of $637,175) $ 143,435,667
Dividends 3,954,258
Total investment income 147,389,925
Expenses:
Compensation of Manager (Note 2) $ 8,483,913
Investor servicing and custodian fees (Note 2) 2,241,714
Compensation of Trustees (Note 2) 41,468
Registration fees 14,169
Reports to shareholders 160,238
Auditing 55,298
Legal 24,579
Postage 153,056
Administrative services (Note 2) 36,266
Distribution fees -- Class A (Note 2) 1,824,893
Distribution fees -- Class B (Note 2) 7,918,491
Distribution fees -- Class M (Note 2) 2,270
Other expenses 64,926
Total expenses 21,021,281
Net investment income 126,368,644
Net realized loss on investments and options (Notes 1 and 3) (124,632,780)
Net realized loss on forward currency contracts and foreign
currency (Notes 1 and 3) (27,682,915)
Net realized loss on futures contracts (Notes 1 and 3) (102,771)
Unrealized foreign currency translation gain during the
period 89,861
Net unrealized appreciation of investments, options, forward
currency contracts, and TBA sale commitments during the
period 107,347,161
Net loss on investment transactions (44,981,444)
Net increase in net assets resulting from operations $ 81,387,200
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
Six months
ended Year ended
March 31 September 30
1995* 1994
Increase (decrease) in net
assets
Operations:
Net investment income $ 126,368,644 $ 174,234,104
Net realized loss on
investments, options,
futures, forward currency
contracts, and foreign
currency (152,418,466) (61,866,985)
Net unrealized appreciation
(depreciation) of
investments, options, and
forward currency contracts
and TBA sale commitments 107,437,022 (189,806,575)
Net increase (decrease) in net
assets resulting from
operations 81,387,200 (77,439,456)
Distributions to shareholders
from:
Net investment income
Class A (61,811,796) (78,325,153)
Class B (61,370,606) (69,458,154)
Class M (32,959) --
In excess of net investment
income
Class A -- (12,620,912)
Class B -- (11,192,129)
In excess of net realized gain
on investments
Class A -- (7,510,985)
Class B -- (6,145,352)
Paid in capital
Class A -- (18,280,431)
Class B -- (15,971,156)
Increase (decrease) from
capital share transactions
(Note 4) (52,105,412) 2,101,525,758
Total increase (decrease) in
net assets (93,933,573) 1,804,582,030
Net assets
Beginning of period 3,183,936,054 1,379,354,024
End of period (including
distributions in excess of
net investment income of
$24,418,148 and $27,571,431,
respectively) $3,090,002,481 $3,183,936,054
*Unaudited.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the
period
March 1,
1993
(commencement
For the period of
December 1, 1994 Six Year operations)
(commencement months ended to Six months
of operations) to ended September September ended
March 31 March 31 30 30 March 31
1995* 1995* 1994 1993 1995*
Class M Class B Class A
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $ 11.34 $ 11.61 $ 12.79 $12.51 $ 11.64
Investment
operations
Net investment
income .32 .46 .72 .49 .48
Net realized and
unrealized
gain (loss) on
investments .12 (.18) (.91) .39 (.15)
Total from
investment
operations .44 .28 (.19) .88 .33
Distributions to
shareholders from:
Net investment
income (.31) (.44) (.65) (.46) (.48)
In excess of net
investment
income -- -- (.10) -- --
Net realized
gain on
investments -- -- -- (.14) --
In excess of net
realized gain
on investments -- -- (.08) -- --
Paid-in capital
(b) -- -- (.16) -- --
Total
distributions (.23) (.44) (.99) (.60) (.48)
Net asset value,
end of period $ 11.47 $ 11.45 $ 11.61 $12.79 $ 11.49
Total investment
return at net
asset value
(%) (d) 3.99(e) 2.52(e) (1.62) 7.21(e) 2.98(e)
Net assets, end
of period (in
thousands) $3,485 $1,611,370 $1,644,860 $504,417 $1,475,147
Ratio of
expenses to
average net
assets (%) .41(e) .87(e) 1.76 1.91(e) .49(e)
Ratio of net
investment
income to
average net
assets (%) 2.70(e) 3.96(e) 8.05 5.80(e) 4.33(e)
Portfolio
turnover (%) 102.86(e) 102.86(e) 201.53 243.73 102.86(e)
</TABLE>
<PAGE>
For the period
October 3, 1988
(commencement of
operations) to
Year ended September 30 September 30
1994 1993 1992 1991 1990 1989
Class A
$ 12.82 $ 12.66 $ 11.85 $ 10.91 $ 12.03 $ 12.50
.78 .96 1.04 1.05(a) 1.14(a) 1.13(a)
(.88) .56 .97 1.15 (.92) (.37)
(.10) 1.52 2.01 2.20 .22 .76
(.71) (.94) (1.01) (1.05) (1.16) (1.11)
(.12) -- -- -- -- --
-- (.42) (.19) (.21) -- (.12)
(.08) -- -- -- -- --
(.17) -- -- -- (.18) --
(1.08 (1.36) (1.20) (1.26) (1.34) (1.23)
$ 11.64 $ 12.82 $ 12.66 $ 11.85 $ 10.91 $ 12.03
(.93) 12.85 17.88 21.43 1.99 6.32(e)
$1,539,076 $874,937 $365,253 $168,106 $125,301 $106,818
1.01 1.21 1.36 1.47(a) 1.25(a) 1.26(a)(e)
7.96 6.80 8.27 9.18(a) 9.98(a) 9.71(a)(e)
201.53 243.73 221.09(c) 481.06 264.09 163.96(e)
* Unaudited.
(a) Reflects an expense limitation applicable during the years ended September
30, 1991, and 1990 and the period ended September 30, 1989. As a result of
such limitation, expenses of the fund for the year ended September 30, 1991
reflect a reduction of less than $0.01 per share. Expenses for the year
ended September 30, 1990 and the period ended September 30, 1989 reflect
reductions of $0.04 and $0.05 per share, respectively.
(b) Distributions from capital for the year ended 9/30/94 and six months ended
3/31/95 have been calculated in accordance with Statement of Position 93-2,
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies"
(c) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Diversified Premium Income Trust and subsequent sales
to realign the portfolio.
(d) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(e) Not annualized.
<PAGE>
Notes to Financial Statements
March 31, 1995 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The fund seeks high
current income consistent with preservation of capital by allocating its
investments among the U.S. Government sector, high yield sector and
international sector of the fixed-income securities market.
The fund offers class A, class B and class M shares. The fund commenced its
public offering of class M shares on December 1, 1994. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than Class A
shares, and are subject to a contingent deferred sales charge if those shares
are redeemed within six years of purchase. Class M shares are sold with a
maximum front end sales charge of 3.25% and pay an ongoing distribution fee
that is lower than class B shares and higher than class A shares. Expenses of
the fund are borne pro-rata by the holders of each class of shares, except that
each class bears expenses unique to that class including the distribution fees
applicable to such class. Each class votes as a class only with respect to its
own distribution plan or other matters on which a class vote is required by law
or determined by the Trustees. Shares of each class would receive their
pro-rata share of the net assets of the fund, if the fund were liquidated. In
addition, the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles
A Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price, except that
certain U.S. government obligations are stated at the mean between the last
reported bid and asked prices. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which approximates
market value, and other investments, including restricted securities, are
stated at fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available for long- term corporate
bonds and notes; such investments are stated at fair value on the basis of
valuations furnished by a pricing service, approved by the Trustees, which
determines valuations for normal, institutional-size trading units of such
securities using methods based on market transactions for comparable securities
and various relationships between securities that are generally recognized by
institutional traders. See Section G of Note 1 with respect to valuations of
options, forward currency contracts and futures outstanding.
B 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 commitment will not fluctuate more than 2.0% from the principal amount. The
fund holds, and maintains until the settlement date, cash
<PAGE>
or high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund enters into offsetting contracts for the forward sale of
other securities it owns. 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, generally 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 its portfolio or for delivery pursuant to
options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if the fund Manager deems it appropriate to do so.
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 on the commitment without
regard to any unrealized gain or loss on the underlying security. If the fund
delivers securities under the commitment, the fund realizes a gain or loss from
the sale of the securities based upon the unit price established at the date
the commitment was entered into.
C 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 managed by Putnam Investment Management, Inc., the fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc. and certain other accounts.
These balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
D Repurchase agreements The fund, 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. The fund's Manager 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.
E Security transactions and related investment income Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis and dividend income is
recorded on the ex-dividend date.
Discount on zero-coupon bonds, original issue discount bonds and step-up bonds
is accreted according to the effective yield method. Certain securities held by
the fund pay interest in the form of additional
<PAGE>
securities; interest on such securities is recorded on the accrual basis at the
lower of the coupon rate or market value of the securities to be received, and
is allocated to the cost of the securities received on the payment date.
F Foreign currency translation Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. The fund does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investment.
Foreign currency denominated receivables and payables are "marked-to-market"
using the current exchange rate. The fluctuation between the original exchange
rate and the current exchange rate is recorded as unrealized translation gain
or loss. Upon receipt of payment, the fund realizes a gain or loss on foreign
currency amounting to the difference between the original value and the ending
value of the receivable or payable.
Foreign currency gains and losses related to interest receivable are reported
as part of interest income.
G Option accounting principles When the fund writes a call or put option, an
amount equal to the premium received by the fund is included in the fund's
"statement of assets and liabilities" as an asset and an equivalent liability.
The amount of the liability is subsequently "marked-to-market" to reflect the
current market value of an option written. The current market value of an
option is the last sale price or, in the absence of a sale, the last offering
price, except that certain options on U.S. government obligations are stated at
fair value on the basis of valuations furnished by a pricing service approved
by the Trustees. If an option expires on its stipulated expiration date, or if
the fund enters into a closing purchase transaction, the fund realizes a gain
(or loss if the cost of a closing purchase transaction exceeds the premium
received when the option was written) without regard to any unrealized gain or
loss on the underlying security, and the liability related to such option is
extinguished. If a written call option is exercised, the fund realizes a gain
or loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received. If a written put option is
exercised, the amount of the premium originally received reduces the cost of
the security which the fund purchases upon exercise of the option.
The premium paid by the fund for the purchase of a call or put option is
included in the fund's "statement of assets and liabilities" as an investment
and is subsequently "marked-to-market" to reflect the current market value of
the option. If an option which the fund has purchased expires on the stipulated
expiration date, the fund realizes a loss in the amount of the cost of the
option. If the fund enters into a closing sale transaction, the fund realizes a
gain or loss, depending on whether proceeds from the closing sale transaction
are greater or less than the cost of the option. If the fund exercises a call
option, the cost of securities acquired by exercising the call is increased by
the premium paid to buy the call. If the fund exercises a put option, it
realizes a gain or loss from the sale of the underlying security and the
proceeds from such sale are decreased by the premium originally paid.
Options on foreign currencies The fund writes and purchases put and call
<PAGE>
options on foreign currencies. The accounting principles and risks involved are
similar to those described above relating to options on securities. The amount
of potential loss to the fund upon exercise of a written call option is the
value (in U.S. dollars) of the currency sold, converted at the spot price, less
the value of U.S. dollars received in exchange. The amount of potential loss to
the fund upon exercise of a written put option is the value (in U.S. dollars)
of the currency received converted at the spot price, less the value of the
U.S. dollars paid in exchange.
Forward currency contracts A forward currency contract is an agreement between
two parties to buy and sell a currency at a set price on a future date. 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 by the fund 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 maximum potential loss from forward currency
contracts is the aggregate face value in U.S. dollars at the time the contract
was opened; however, management believes the likelihood of such a loss to be
remote.
H Federal taxes It is the policy of the fund to distribute all of its 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. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
Based on investment results for the period ended March 31, 1995, there is a
potential for a portion of the distributions for the calendar year 1995 to be
designated as a tax return of capital. The actual tax status of all of the
distributions for the calendar year 1995 will be sent to shareholders via IRS
Form 1099 DIV in January of 1996.
I 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.
Distributions of 15.6% made during fiscal year end December 31, 1994 have been
redesignated as a return of capital. The character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Investment Management, Inc., for management and
investment advisory services is paid quarterly based on the average net assets
of the fund for the quarter. Such fee is based on the following annual rates:
.70% of the first $500 million of average net assets, .60% of the next $500
million, .55% of the next $500 million and .50% of any amount over $1.5
billion. Both fees are subject to reduction in any year to the extent that
expenses (exclusive of brokerage, inter-
<PAGE>
est and taxes) of the fund exceed 2.5% of the first $30 million of average net
assets, 2.0% of the next $70 million and 1.5% of any amount over $100 million
and by the amount of certain brokerage commissions and fees (less expenses)
received by affiliates of the Manager on the fund's portfolio transactions.
The fund also reimburses the Manager 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.
Trustees of the fund receive an annual Trustee's fee of $ 4,690 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
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.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended March 31, 1995 have been reduced by credits allowed by
PFTC.
As part of the custodian 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 March 31, 1995, the payable to subcustodian bank represents the amount due
for cash advance for the settlement of a security purchased.
The fund has adopted distribution plans (the "Plans") with respect to its class
A shares, class B and class M shares pursuant to Rule 12B-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly- owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to .35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares respectively. The Trustees
have approved payment by the fund at an annual rate of .25%, 1.00%, and .50% of
the average net assets attributable to class A, class B and class M shares
respectively.
For the six months ended March 31, 1995 Putnam Mutual Funds Corp., acting as
underwriter, received net commissions of $345,046 from the sale of class A
shares, $3,396,729 in contingent deferred sales charges from redemptions of
class B shares and net commissions of $3,860 from the sale of class M shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of class A
shares purchased as part of an investment of $1 million or more. For the six
months ended March 31, 1995. Putnam Mutual Funds Corp., acting as underwriter
received $11,345 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended March 31, 1995, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $1,522,210,018 and $1,931,381,865, respectively. Purchases and sales
of U.S. government obligations aggregated $1,420,589,086 and
<PAGE>
$1,067,622,246, respectively. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Written option transactions on foreign currencies during the period are
summarized as follows:
Premiums Received
Options written $ 2,765,581
Options closed (1,265,081)
Written options outstanding at end of period $ 1,500,500
Transactions in forward currency contracts during the period are summarized as
follows:
Sales of
Forward Currency
Contracts
Aggregate Face Value
Outstanding at beginning of period $ 503,301,136
Contracts opened 2,992,089,940
Contracts closed (2,937,561,662)
Open at end of period $ 557,829,414
Note 4
Capital shares
At March 31, 1995, there was an unlimited number of shares of beneficial
interest authorized, divided into three classes, cass A, class B and class M
capital shares. Transactions in capital shares were as follows:
Six months ended Year ended
March 31 September 30
1995 1994
Class A Shares Amount Shares Amount
Shares sold 14,962,506 $ 169,996,281 84,902,277 $1,068,262,414
Shares issued in
connection
with
reinvestment
of
distributions: 3,161,447 35,714,886 5,314,495 65,110,997
18,123,953 205,711,167 90,216,772 1,133,373,411
Shares
repurchased (21,956,488) (249,688,412) (26,251,664) (322,650,602)
Net increase
(decrease) (3,832,535) $ (43,977,245) 63,965,108 $ 810,722,809
<PAGE>
Six months ended Year ended
March 31 September 30
1995 1994
Class B Shares Amount Shares Amount
Shares sold 17,201,479 $ 194,800,947 117,759,526 $1,478,591,215
Shares issued in
connection
with
reinvestment
of
distributions 3,269,117 36,816,674 5,061,958 61,608,578
20,470,596 231,617,621 122,821,484 1,540,199,793
Shares
repurchased (21,475,045) (243,176,476) (20,546,485) (249,396,844)
Net increase
(decrease) (1,004,449) $ (11,558,855) 102,274,999 $1,290,802,949
For the period
December 1, 1994
(commencement of
operations) to
March 31
1995
Class M Shares Amount
Shares sold 315,875 $3,568,803
Shares issued in connection with
reinvestment of distributions 2,440 27,438
318,315 3,596,241
Shares repurchased (14,603) (165,553)
Net increase 303,712 $3,430,688
<PAGE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Michael Martino
Vice President and Fund Manager
Neil Powers
Vice President and Fund Manager
Mark Siegel
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Diversified Income
Trust. It may also be used as sales literature when preceded or accompanied by
the current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information, or to request a
prospectus, call toll free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
<PAGE>
(Logo) PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
075/387/803-17787
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) are omitted.
(3) Certain tabular and columnar headings and symbols are displayed
differently in this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Trademark symbol replaced with (TM)
