Putnam
Diversified
Income
Trust
SEMIANNUAL REPORT
March 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "In view of the fund's long term record . . . its continuity of
strategy is reassuring. . . . Its return for the five-year period is in
the category's top third, while its risk score for the same period makes
it one of the safer multisector bond funds. It remains a decent choice."
-- Morningstar Mutual Funds, January 23, 1997
* According to Lipper Analytical Services, Putnam Diversified Income
Trust's class A shares ranked 10 out of 38 (top 26%) general bond funds
for the 1-year period ended March 31, 1997.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
32 Financial statements
* Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. Their rankings vary over time
and do not reflect the effects of sales charges. For periods ended
3/31/97, class A shares ranked 4 out of 13 funds for 5-year performance;
class B shares ranked 24 out of 38 and 12 out of 19 for 1- and 3-year
performance, respectively. Class M shares ranked 15 out of 38 for 1-year
performance.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Global diversification, astute currency strategies, and careful security
selection all contributed to Putnam Diversified Income Trust's positive
performance during the semiannual period ended March 31, 1997. Supervision of
such a diverse multinational portfolio requires a depth and breadth of
expertise your fund's management team is superbly equipped to provide.
I am pleased to announce the addition of Kenneth J. Taubes and Gail A.
Attridge to that team. Ken becomes the fund's lead manager and will oversee
the taxable investment grade sector. He has been managing funds at Putnam for
nearly six years. Before joining Putnam, Ken was employed by United States
Trust Company of Boston, Home Owners Savings Bank, and Bank of New England,
N.A. He has 15 years of investment experience. Gail came to Putnam in 1993
from Keystone Custodian Funds, prior to which she was employed by County
NatWest Securities Asia and Data Resources/McGraw-Hill. She has 12 years of
investment experience. She will manage the fund's emerging markets securities.
In the following report, your fund's managers discuss overall results for the
fiscal year and then review prospects for the year ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 21, 1997
Report from the Fund Managers
Kenneth J. Taubes, lead manager
Jin W. Ho
Michael Martino
D. William Kohli
Gail A. Attridge
For most of the first half of Putnam Diversified Income Trust's fiscal year,
U.S. financial markets enjoyed a continuing trend of steady growth, falling
interest rates, and low inflation. In March, however, the tables turned. In
the midst of a sharply declining U.S. stock market, the Federal Reserve Board
raised short-term interest rates by a quarter percentage point in what
appeared to be the first in a series of interest-rate increases.
Both the stock market correction and the rate increase -- a much-anticipated
preemptive move designed to keep inflation in check -- were viewed as
necessary events in an economy that may have been overheating. Fortunately
they were also events for which your fund's portfolio was strategically
positioned. Anticipating this changing environment, we began to adjust the
portfolio's allocations in February, taking a more defensive position in the
U.S. government sector of the portfolio and trimming back exposure to the
high-yield market. High-yield bonds tend to mirror the direction of the stock
market, and so this move enabled us to cushion the fund against the expected
stock market correction. Meanwhile the international sector, specifically
investments in European countries, produced attractive results through most of
the period. For complete performance information, see page 9 of this report.
* TELECOMMUNICATIONS AND MEDIA STRONG IN HIGH-YIELD SECTOR
Even with the cutback, the high-yield sector, or sleeve, still made a handsome
contribution to the fund's performance over the period. Because we began
reducing exposure before the stock market correction began, we were able to
realize gains on most of the sales. In addition, this sector still includes
some of the fund's best-performing holdings.
Among the period's strongest performers were bonds of competitive local
exchange carriers, or CLECs -- smaller telephone companies that compete with
the large telephone providers, such as the Bell operating companies, within
local markets. CLECs benefited substantially from the Telecommunications Act
of 1996, which allowed them to enter local markets on a much wider basis. Also
contributing stellar performance were bonds of foreign cellular companies,
which are profiting from consumers who use cellular telephones as a
replacement for traditional wire-line telephones. These companies are
especially profitable in countries such as Venezuela and Brazil, where it is
difficult to get wire-line phones installed. At the close of the period,
the fund maintained a relatively heavy weighting in telecommunications, an
industry we believe has positive fundamentals and strong long-term potential.
Broadcasting was another industry to profit from the Telecommunications Act
of 1996. Passage of this legislation allowed for ownership of multiple radio
and television stations, which boosted the value of many broadcasting
companies poised for expansion. Two examples in the fund's portfolio are
Chancellor Broadcasting Company, which owns and operates about 50 stations in
more than a dozen major markets, and SFX Broadcasting, Inc., which owns and
provides programming for 80 AM and FM radio stations in the southern United
States. Just after the close of the semiannual period, SFX announced the
acquisition of three more stations in Indiana. While these holdings, along
with others discussed in this report, were viewed favorably as of March 31,
1997, all portfolio holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may well vary in the
future.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP FIVE COUNTRY ALLOCATIONS]
TOP FIVE COUNTRY ALLOCATIONS*
(international sector)
Germany 9.2%
United Kingdom 7.0%
France 5.8%
Mexico 1.7%
Australia 1.4%
Footnote reads:
* Based on net assets as of 3/31/97. Holdings will vary over time.
Outdoor advertising -- or billboards -- was another profitable sector for the
fund's high-yield portfolio. One example is Universal Outdoor, Inc., which
operates over 30,000 displays in 23 markets in the Midwest, in the Southeast,
and on the East Coast. Universal, which has proved to be a profitable holding
for the fund, recently completed its acquisition of Klein Outdoor Advertising,
Inc., a privately held company based in New Jersey. In the gaming sector of
the high-yield holdings, Argosy Gaming Company was a standout. Argosy operates
several riverboat casinos in the Midwestern and Southeastern United States and
is building a new riverboat casino and entertainment complex near Cincinnati.
* CONTINUED EMPHASIS ON MORTGAGE-BACKED SECURITIES
The taxable investment grade sector of the portfolio consists primarily of
mortgage-backed securities and U.S. Treasuries, in varying proportions.
Throughout the semiannual period, we have maintained a relatively heavy
weighting of mortgage-backed securities, which have been offering higher
yields and greater potential price appreciation than U.S. Treasury holdings
and appear likely to do so for some time.
Please note that this portion of the portfolio was formerly known as the U.S.
government securities sector. Within this sector, the fund has always had the
flexibility to invest in investment-grade bonds as well as U.S. government
securities, and we believe the new name is a more accurate reflection of its
strategy.
The emphasis on mortgage-backed securities remains in place as we begin the
second half of the year. However, in February, anticipating that the Fed would
begin to tighten monetary policy, we began shifting the U.S. government sleeve
into a more defensive position. We sold a significant portion of
intermediate-term Treasury securities in favor of a combination of cash and
long-term bonds. This configuration, known as a barbell strategy, emphasizes
the shorter and longer ends of the yield curve in order to shorten the average
maturity of the portfolio. This barbell positioning can be beneficial in a
period of rising interest rates. We took the same approach with the fund's
mortgage-backed securities, swapping current coupon mortgages -- which had
performed very well -- for a combination of shorter-duration high-coupon
mortgages and long-term mortgage securities. This defensive configuration was
still in effect at the close of the period.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR}
TOP THREE HOLDINGS PER SECTOR*
HIGH-YIELD BONDS
Midland Funding Corp.
Terex Corp.
Adelphia Communications Corp.
FOREIGN BONDS
Federal Republic of Germany bonds
United Kingdom Treasury bonds
France Treasury bills
U.S. GOVERNMENT OBLIGATIONS
Government National Mortgage Association, 7.5%
Federal National Mortgage Association, 7.5%
Government National Mortgage Association, 7%
Footnote reads:
* Based on net assets as of 3/31/97. Portfolio holdings will vary over time.
* INTERNATIONAL FOCUS SHIFTS TO CORE EUROPE
Early in the fiscal year, the fund's international sector profited from
holdings in higher-yielding markets in Europe, such as Italy, Spain, and
Sweden. We had focused on bonds in these peripheral regions rather than those
in core Europe because of the attractive yields they offered. These countries
had been making significant efforts to rein in fiscal budgets in order to gain
acceptance into the European Monetary Union (EMU), which intends to create a
single currency to be used among member nations. As a result of these efforts,
Italy, Spain, and Sweden made significant reductions in their inflation levels
- -- which resulted in lower bond yields. As yields declined, the fund's
holdings in these markets benefited from price appreciation.
Toward the middle of the period, we began to reduce the fund's position in
peripheral Europe, taking profits and shifting the portfolio's focus toward
core European markets such as Germany and France. This positioning was
successful, as the higher-yielding markets later declined while bonds from the
core European markets proved less volatile and delivered strong performance.
Keeping a low exposure to Japanese bonds had helped the fund's performance
during much of fiscal '96. Unfortunately this was not the case during the
first half of fiscal '97, as Japanese bonds performed better than we expected.
Toward the end of the period, while many world bond markets declined in
response to the U.S. market decline, Japanese bonds began to rally. In fact,
Japan's bond market became one of the top-performing bond markets of the
period.
* OUTLOOK: POTENTIAL FOR MORE RATE INCREASES
In bond markets around the world, we expect a modest acceleration in economic
growth with low inflation during 1997. In the United States, we expect that
concern about inflation may cause a series of interest-rate increases
throughout the year. At the same time, we anticipate a modest acceleration
in economic growth. We believe that the fund's portfolio is positioned
appropriately for this environment and that its multisector strategy will
allow it to continue to take advantage of opportunities in fixed-income
markets around the world.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 3/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
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.
TOTAL RETURN FOR PERIODS ENDED 3/31/97
Class A Class B Class M
(inception date) (10/3/88) (3/1/93) (12/1/94)
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------
6 months 2.12% -2.71% 1.74% -3.18% 1.93% -1.37%
- --------------------------------------------------------------------------
1 year 7.57 2.48 6.80 1.80 7.26 3.73
- --------------------------------------------------------------------------
5 years 54.20 46.83 -- -- -- --
Annual average 9.05 7.98 -- -- -- --
- --------------------------------------------------------------------------
Life of class 118.77 108.42 30.39 28.47 26.73 22.62
Annual average 9.66 9.04 6.72 6.33 10.70 9.15
- --------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/97
Salomon Bros.
Lehman Bros. Non-U.S. First Boston Consumer
Aggregate World Govt. High Yield Price
Bond Index Bond Index Index Index
- ------------------------------------------------------------------------------
6 months 2.42% -3.78% 5.95% 1.39%
- ------------------------------------------------------------------------------
1 year 4.91 -0.25 11.66 2.76
- ------------------------------------------------------------------------------
5 years 41.52 57.45 70.03 14.86
Annual average 7.19 9.51 11.20 2.81
- ------------------------------------------------------------------------------
Life of class A 103.79 110.76 154.09 33.56
Annual average 8.74 9.17 11.60 3.47
- ------------------------------------------------------------------------------
Life of class B 25.44 38.37 50.51 11.81
Annual average 5.71 8.27 10.53 2.77
- ------------------------------------------------------------------------------
Life of class M 22.93 17.30 35.33 6.88
Annual average 9.25 7.08 13.85 2.90
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 4.75% maximum sales charge for class A shares
and 3.25% for class M shares. CDSC for class B shares assumes the
applicable sales charge, with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 3/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.4430 $0.3970 $0.430
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.4430 $0.3970 $0.430
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
9/30/96 $12.29 $12.90 $12.24 $12.27 $12.68
- ------------------------------------------------------------------------------
3/31/97 12.11 12.71 12.06 12.08 12.49
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 7.04% 6.70% 6.37% 6.85% 6.63%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 7.29 6.94 6.58 7.08 6.85
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
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.
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 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.
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. Total return
comprises price appreciation/depreciation and income as a percentage of
the original investment. Indexes are rebalanced monthly by market
capitalization.
Salomon Brothers Non-U.S. World Government Bond Index* is a market
capitalization-weighted benchmark that tracks the performance of the
government bond markets tracked by the Salomon Brothers World Government
Bond Index, excluding the United States.
First Boston High Yield Index* is an unmanaged index of lower-rated,
higher-yielding U.S. corporate bonds. It includes over 180 issues with an
average maturity range of 7 to 10 years.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
* Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGERS]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM 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:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured
up to certain limits by federal/state agencies. Savings
accounts may also be insured up to certain limits. Please
call your financial advisor or Putnam at 1-800-225-1581
to obtain a prospectus for any Putnam fund. It contains
more complete information, including charges and expenses.
Please read it carefully before you invest or send money.
Portfolio of investments owned
March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (33.7%) *
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.1%)
- ------------------------------------------------------------------------------------------------------------
$ 1,425,000 Adams Outdoor Advertising, Ltd. sr. notes 10 3/4s, 2006 $ 1,503,375
2,840,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 2,811,600
--------------
4,314,975
Aerospace and Defense (0.6%)
- ------------------------------------------------------------------------------------------------------------
4,400,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 4,708,000
9,350,000 BE Aerospace sr. notes 9 3/4s, 2003 9,583,750
1,000,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 1,025,000
4,080,000 K&F Industries, Inc. sr. sub. notes Ser. B, 10 3/8s, 2004 4,263,600
2,000,000 Sequa Corp. med. term notes 10s, 2001 2,038,180
2,405,000 Tracor, Inc. 144A sr. sub. notes 8 1/2s, 2007 2,308,800
--------------
23,927,330
Agriculture (0.4%)
- ------------------------------------------------------------------------------------------------------------
7,046,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon
Ser. B, zero % (11 1/2s, 9/1/00), 2005 ++ 5,143,580
10,791,585 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 11,331,165
--------------
16,474,745
Apparel (0.3%)
- ------------------------------------------------------------------------------------------------------------
2,125,000 Anvil Knitwear Inc. 144A sr. notes 10 7/8s, 2007 2,061,250
1,135,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 1,106,625
2,500,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 2,500,000
2,215,000 William Carter Co. 144A sr. sub. notes 12s, 2008 2,237,150
4,930,000 William Carter Co. 144A sr. sub. notes 10 3/8s, 2006 4,991,625
--------------
12,896,650
Automotive (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,825,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 2,853,250
2,710,000 Dra Inc. 144A notes 11 1/2s, 2004 [2 DBL. DAGGERS] 2,737,100
1,145,000 Hawk Corp. 144A sr. notes 10 1/4s, 2003 1,156,450
770,000 Titan Wheel International Inc. sr. sub. notes 8 3/4s, 2007 758,450
--------------
7,505,250
Automotive Parts (0.5%)
- ------------------------------------------------------------------------------------------------------------
7,875,000 A.P.S. Inc. company guaranty 11 7/8s, 2006 7,914,375
1,837,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 2,020,700
4,280,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 2,204,200
2,700,000 Key Plastics Corp. 144A sr. sub. notes 10 1/4s, 2007 2,679,750
5,700,000 Lear Corp. sub. notes 9 1/2s, 2006 5,928,000
--------------
20,747,025
Banks (0.5%)
- ------------------------------------------------------------------------------------------------------------
1,425,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 1,396,500
2,525,000 First Federal Financial Corp. notes 11 3/4s, 2004 2,575,500
5,150,000 First Nationwide Holdings sr. notes 12 1/2s, 2003 5,613,500
2,145,000 North Fork Bancorp, Inc. 144A bonds 8.7s, 2026 2,047,660
1,195,000 Onbank Capital Trust I 144A company guaranty 9 1/4s,
2027 1,178,031
2,540,000 Peoples Heritage Capital Trust I 144A company guaranty
9.06s, 2027 2,531,618
2,400,000 Provident Capital Trust 144A jr. sub. notes 8.6s, 2026 2,330,400
1,385,000 Riggs Capital Trust 144A bonds 8 5/8s, 2029 1,371,441
2,045,000 Sovereign Capital Trust 144A company guaranty 9s, 2027 1,993,875
1,845,000 Webster Capital Trust I 144A bonds 9.36s, 2027 1,857,823
--------------
22,896,348
Basic Industrial Products (--%)
- ------------------------------------------------------------------------------------------------------------
1,830,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 1,948,950
Beverages (--%)
- ------------------------------------------------------------------------------------------------------------
1,885,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 1,894,425
Broadcasting (2.1%)
- ------------------------------------------------------------------------------------------------------------
5,875,000 Affinity Group sr. sub. notes 11 1/2s, 2003 6,168,750
4,880,000 Affinity Group Holdings 144A sr. notes 11s, 2007 4,855,600
2,800,000 Allbritton Communications sr. sub. deb. Ser. B, 9 3/4s, 2007 2,604,000
3,550,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 3,692,000
7,760,000 Capstar Broadcasting 144A sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 ++ 4,112,800
15,257,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 9,917,050
9,135,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 9,774,450
1,500,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 1,500,000
12,600,000 International Cabletel, Inc. 144A sr. notes 10s, 2007 11,970,000
1,000,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 ++ 620,000
1,900,000 Pegasus Media & Communications notes
Ser. B, 12 1/2s, 2005 2,052,000
7,237,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 6,947,520
8,975,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 9,378,875
2,700,000 Spanish Broadcasting Systems 144A sr. notes 11s, 2004 2,686,500
2,840,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 2,470,800
10,266,000 Telemedia Broadcasting Corp. 144A deb. stepped-coupon
3.8s, (16s, 6/15/99), 2004 ++ + 9,342,060
1,235,000 TV Azteca S.A. De Cv 144A sr. notes 10 1/2s, 2007
(Mexico) 1,203,310
--------------
89,295,715
Building Products (0.3%)
- ------------------------------------------------------------------------------------------------------------
6,750,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 7,576,875
2,960,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 2,915,600
1,475,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 1,578,250
1,895,000 Waxman Industries Inc. sr. notes stepped-coupon
Ser. B, zero % (12 3/4s, 6/1/99), 2004 ++ 1,591,800
--------------
13,662,525
Building and Construction (1.1%)
- ------------------------------------------------------------------------------------------------------------
7,060,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2006 6,989,400
1,450,000 Continental Homes Holding Corp. sr. notes 10s, 2006 1,500,750
860,000 Inter-City Products sr. notes 9 3/4s, 2000 881,500
3,065,000 NVR, Inc. sr. notes 11s, 2003 3,256,563
8,145,000 Presley Cos. sr. notes 12 1/2s, 2001 7,921,013
7,925,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 7,964,625
16,710,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 18,381,000
--------------
46,894,851
Buses (0.3%)
- ------------------------------------------------------------------------------------------------------------
810,000 Atlantic Express, Inc. 144A company guaranty
10 3/4s, 2004 824,175
5,265,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 5,396,625
9,740,000 Consorcio/MCII Holdings secd. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 8,352,050
--------------
14,572,850
Business Services (0.2%)
- ------------------------------------------------------------------------------------------------------------
4,800,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 4,632,000
2,335,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 2,364,188
710,000 Loomis Fargo & Co. 144A sr. sub. notes 10s, 2004 710,000
2,125,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 2,295,000
--------------
10,001,188
Cable Television (2.9%)
- ------------------------------------------------------------------------------------------------------------
20,622,521 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 17,529,143
16,120,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 4,836,000
6,500,000 Cablevision Systems Corp. sr. sub. deb. 10 1/2s, 2016 6,532,500
2,000,000 Century Communications Corp. sr. notes 9 1/2s, 2005 1,960,000
6,150,000 Charter Communications International, Inc. disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 ++ 3,720,750
5,950,000 Charter Communications International, Inc. sr. notes
Ser. B, 11 1/4s, 2006 6,158,250
12,000,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 7,680,000
8,555,000 Diamond Cable Communication Co. 144A sr. disc.
notes stepped-coupon zero % (10 3/4s, 2/15/02),
2007(United Kingdom) ++ 4,619,700
8,019,903 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 6,977,316
9,475,000 Grupo Televisa S.A. 144A sr. notes 11 7/8s, 2006
(Mexico) 10,588,313
16,600,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2008 (Mexico) ++ 10,831,500
1,040,000 Heartland Wireless Communications, Inc. sr. notes 13s, 2003 416,000
950,000 Heartland Wireless Communications, Inc. sr. notes
Ser. D, 13s, 2003 396,625
4,090,000 Heartland Wireless Communications, Inc. 144A sr.
notes 14s, 2004 1,840,500
4,200,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 4,242,000
3,000,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 3,120,000
10,490,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 ++ 7,238,100
3,640,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 2,893,800
19,050,000 Telewest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) ++ 12,382,500
2,255,000 Tevecap S.A. 144A sr. notes 12 5/8s, 2004 (Brazil) 2,322,650
1,430,000 TV Filme, Inc. 144A sr. notes 12 7/8s, 2004 (Brazil) 1,459,415
14,235,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 (Australia) ++ 7,402,200
--------------
125,147,262
Cellular Communications (1.9%)
- ------------------------------------------------------------------------------------------------------------
23,310,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 ++ 16,083,900
12,400,000 Comunicacion Celular bonds stepped-coupon zero %
(13 1/8s, 11/15/00), 2003 (Colombia)++ 8,556,000
6,500,000 Dial Call Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (10 1/4s, 12/15/98), 2005 ++ 4,452,500
9,000,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 ++ 5,535,000
10,900,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 6,431,000
2,780,000 International Wireless Communications, Inc. sr. disc. notes
zero %, 2001 1,556,800
24,590,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) ++ 15,983,500
14,985,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9 3/4s, 2/15/99), 2004 ++ 10,189,800
8,925,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/97), 2001 ++ 9,103,500
1,500,000 Western Wireless Corp. sr. sub. notes 10 1/2s, 2007 1,455,000
--------------
79,347,000
Chemicals (0.7%)
- ------------------------------------------------------------------------------------------------------------
6,650,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 6,517,000
5,130,000 Freedom Chemicals, Inc. sr. sub. notes 10 5/8s, 2006 5,335,200
2,500,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 2,475,000
8,000,000 ISP Holdings, Inc. 144A sr. notes 9 3/4s, 2002 8,320,000
3,630,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 3,257,925
7,160,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 4,403,400
--------------
30,308,525
Computer Equipment (0.2%)
- ------------------------------------------------------------------------------------------------------------
7,450,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 7,729,375
Computer Services (0.2%)
- ------------------------------------------------------------------------------------------------------------
7,000,000 Unisys Corp. sr. notes 11 3/4s, 2004 7,315,000
Conglomerates (--%)
- ------------------------------------------------------------------------------------------------------------
1,820,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 1,824,550
Consumer Durable Goods (0.2%)
- ------------------------------------------------------------------------------------------------------------
4,250,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
zero % (14s, 11/15/01), 2006 ++ 2,295,000
8,850,000 Remington Products Co. LLC sr. sub. notes Ser. B, 11s, 2006 7,345,500
--------------
9,640,500
Consumer Non Durables (--%)
- ------------------------------------------------------------------------------------------------------------
1,175,000 E&S Holdings Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 1,198,500
Consumer Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
2,747,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 3,035,435
Containers (0.6%)
- ------------------------------------------------------------------------------------------------------------
6,115,000 Amtrol, Inc. sr. sub. notes 10 5/8s, 2006 6,405,463
3,490,000 Innova S De R.L. 144A sr. notes 12 7/8s, 2007 (Mexico) 3,468,188
9,250,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 10,059,375
845,000 Printpack, Inc. sr. sub. notes Ser. B, 10 5/8s, 2006 866,125
1,400,000 Radnor Holdings Corp. 144A sr. notes 10s, 2003 1,421,000
1,395,000 US Can Corp. company guaranty Ser. B, 10 1/8s, 2006 1,450,800
--------------
23,670,951
Cosmetics (0.3%)
- ------------------------------------------------------------------------------------------------------------
18,370,000 Revlon Worldwide Corp. 144A sr. disc. notes zero %, 2001 11,389,400
Electric Utilities (1.9%)
- ------------------------------------------------------------------------------------------------------------
7,075,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 7,464,125
4,125,000 Cleveland Electric Illuminating Co. 1st mtge.
Ser. B, 9 1/2s, 2005 4,409,048
7,050,000 El Paso Electric Co. 1st mtge. Ser. E, 9.4s, 2011 7,557,459
2,800,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 2,918,860
8,769,000 First PV Funding Corp. deb. 10.15s, 2016 9,262,256
995,000 Hidro Electric Pierda Aguila 144A bonds 10 5/8s,
2001 (Argentina) 1,038,531
5,000,000 Long Island Lighting Co. deb. 9s, 2022 5,349,800
925,000 Long Island Lighting Co. deb. 8.9s, 2019 966,116
3,650,000 Long Island Lighting Co. refunding mtge. notes 9 5/8s, 2024 3,757,894
1,585,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 1,868,858
24,320,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 27,623,872
3,490,000 Niagara Mohawk Power Corp. med. term notes 9.99s, 2004 3,490,000
2,667,780 Northeast Utilities System notes Ser. A, 8.58s, 2006 2,518,277
2,653,846 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,538,430
--------------
80,763,526
Electronics (0.4%)
- ------------------------------------------------------------------------------------------------------------
4,405,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (India) 4,625,250
2,078,260 Cirent Semiconductor sr. sub. notes 10.22s, 2002 2,075,662
2,086,789 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 2,084,180
7,200,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003
(Canada) ++ 3,672,000
700,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 726,250
4,715,000 Motors and Gears Inc. 144A sr. notes Ser. A, 10 3/4s,
2006 4,785,725
--------------
17,969,067
Energy-Related (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 Calpine Corp. sr. notes 10 1/2s, 2006 1,080,000
1,900,000 Calpine Corp. sr. notes 9 1/4s, 2004 1,942,750
--------------
3,022,750
Entertainment (0.5%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 5,500,000
8,850,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 8,584,500
5,500,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 6,215,000
--------------
20,299,500
Environmental Control (0.1%)
- ------------------------------------------------------------------------------------------------------------
3,645,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10 1/4s,
2006 3,717,900
Financial Services (0.6%)
- ------------------------------------------------------------------------------------------------------------
3,545,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 3,474,100
1,425,000 Colonial Capital Trust I 144A company guaranty 8.92s,
2027 1,398,727
2,090,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 2,110,900
5,365,000 Dollar Financial Group Inc. 144A sr. notes 10 7/8s, 2006 5,445,475
1,505,000 Imperial Credit Industries, Inc. 144A sr. notes 9 7/8s,
2007 1,474,900
2,890,000 Investors Capital Trust I 144A company guaranty 9.77s,
2027 2,829,021
2,265,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 2,502,825
3,910,000 Ocwen Financial Corp. notes 11 7/8s, 2003 4,222,800
1,505,000 Outsourcing Solutions Inc. 144A sr. sub. notes 11s, 2006 1,572,725
--------------
25,031,473
Food (0.2%)
- ------------------------------------------------------------------------------------------------------------
3,000,000 Chiquita Brands sr. notes 9 5/8s, 2004 3,045,000
1,323,000 Del Monte Corp. notes 12 1/4s, 2002 [2 DBL. DAGGERS] 1,442,070
2,750,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 2,908,125
985,000 Specialty Foods Corp. sr. notes Ser. B, 10 1/4s, 2001 962,838
--------------
8,358,033
Food Chains (0.6%)
- ------------------------------------------------------------------------------------------------------------
2,402,000 Southland Corp. deb. 4s, 2004 1,722,714
10,700,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 8,132,000
12,475,000 Stater Brothers sr. notes 11s, 2001 13,597,750
--------------
23,452,464
Gaming (2.4%)
- ------------------------------------------------------------------------------------------------------------
6,420,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 6,997,800
5,915,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 5,175,625
6,370,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 3,630,900
1,480,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000
(In Default) + 370,000
2,475,000 Casino Magic Corp. 144A 1st mtge. 13s, 2003 2,394,563
9,185,000 Coast Hotels & Casinos, Inc. company guaranty
Ser. B, 13s, 2002 10,333,125
8,804,200 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 [2 DBL. DAGGERS] 8,716,158
3,850,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 3,782,625
4,250,000 Grate Bay Property Funding Corp. 1st mtge. 10 7/8s, 2004 3,485,000
9,250,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 9,203,750
13,875,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 13,320,000
8,593,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 8,678,930
12,250,000 Mohegan Tribal Gaming sr. notes Ser. B, 13 1/2s, 2002 16,108,750
1,500,000 Players International Inc. sr. notes 10 7/8s, 2005 1,545,000
2,000,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 1,400,000
5,000,000 Trump A.C. 1st mtge. 11 1/4s, 2006 4,550,000
3,456,000 Trump Castle Funding Corp. notes 11 1/2s, 2000 3,456,000
--------------
103,148,226
Health Care (1.1%)
- ------------------------------------------------------------------------------------------------------------
11,245,000 Columbia/HCA Healthcare Corp. med. term notes
7.58s, 2025 10,894,943
1,235,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 1,228,825
4,395,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 4,526,850
3,200,000 Integrated Health Services, Inc. sr. sub. notes 10 3/4s, 2004 3,472,000
3,800,000 Integrated Health Services, Inc. sr. sub. notes 9 5/8s, 2002 3,914,000
5,000,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 5,450,000
11,095,000 Paracelsus Healthcare Corp. sr. sub. notes 10s, 2006 10,429,300
5,975,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 5,825,625
--------------
45,741,543
Insurance (0.1%)
- ------------------------------------------------------------------------------------------------------------
3,000,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 3,090,000
Lodging (0.3%)
- ------------------------------------------------------------------------------------------------------------
6,300,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 6,394,500
4,500,000 John Q Hammons Hotels, Inc. 1st mtge. 9 3/4s, 2005 4,545,000
1,000,000 Sun International Hotels Ltd. 144A sr. sub. notes 9s, 2007 945,000
--------------
11,884,500
Media (--%)
- ------------------------------------------------------------------------------------------------------------
1,670,000 RBS Participacoes S.A. 144A company guaranty 11s,
2007 (Brazil) 1,659,646
Medical Supplies and Devices (0.3%)
- ------------------------------------------------------------------------------------------------------------
5,300,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 6,015,500
4,915,000 Wright Medical Technology, Inc. sr. secd. notes
Ser. B, 10 3/4s, 2000 4,964,150
--------------
10,979,650
Metals and Mining (0.4%)
- ------------------------------------------------------------------------------------------------------------
1,140,000 Acindar Industria Argentina de Aceros S.A. bonds
11 1/4s, 2004 (Argentina) 1,145,700
2,705,000 Continental Global Group 144A sr. notes
Ser. A, 11s, 2007 2,691,475
1,820,000 Echo Bay Mines jr. sub. deb. 11s, 2027 (Canada) 1,838,200
4,280,000 Maxxam Group Holdings Inc. sr. notes Ser. B, 12s, 2003 4,280,000
2,160,000 Renco Metals, Inc. sr. notes 11 1/2s, 2003 2,246,400
3,930,000 Royal Oak Mines, Inc. company guaranty Ser. B,
11s, 2006 (Canada) 3,969,300
--------------
16,171,075
Motion Picture Distribution (0.5%)
- ------------------------------------------------------------------------------------------------------------
7,620,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 8,267,700
4,515,000 AMC Entertainment, Inc. 144A sr. sub. notes
9 1/2s, 2009 4,390,838
2,344,000 Cinemark Mexico USA notes Ser. B, 13s, 2003
(Mexico) [2 DBL. DAGGERS] 2,261,960
81,600 Cinemark Mexico USA notes Ser. D, 13s, 2003
(Mexico) [2 DBL. DAGGERS] 78,744
4,780,000 Cinemark USA, Inc. notes 9 5/8s, 2008 4,780,000
--------------
19,779,242
Oil and Gas (2.0%)
- ------------------------------------------------------------------------------------------------------------
12,430,000 Abraxas Petroleum Corp. 144A sr. notes
Ser. B, 11 1/2s, 2004 12,958,275
2,600,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 2,905,500
3,750,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 4,012,500
1,455,000 CIA Naviera Perez Companc S.A. 144A bonds 9s,
2004 (Argentina) 1,440,450
4,530,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 4,665,900
6,230,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 6,541,500
5,290,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 6,189,300
1,100,000 Maxus Energy Corp. deb. 11 1/4s, 2013 1,138,500
1,500,000 Maxus Energy Corp. deb. 8 1/2s, 2008 1,447,500
5,030,000 Maxus Energy Corp. notes 9 7/8s, 2002 5,206,050
950,000 Maxus Energy Corp. notes 9 1/2s, 2003 983,250
4,490,000 Maxus Energy Corp. notes 9 3/8s, 2003 4,579,800
4,175,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 4,404,625
4,200,000 Transamerican Refining Corp. variable rate 1st mtge.
Ser. 2, 16 1/2s, 2002 4,536,000
2,675,000 Transamerican Refining 144A sr. notes 15s, 1998 2,675,000
8,407,000 TransTexas Gas Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/16/01), 2003 ++ 5,296,410
14,600,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 15,987,000
--------------
84,967,560
Paging (0.7%)
- ------------------------------------------------------------------------------------------------------------
8,980,000 Arch Communications Group sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/15/01), 2008 ++ 3,861,400
10,325,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 9,705,500
9,450,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-
coupon zero % (15s, 2/1/00), 2005 ++ 6,426,000
8,000,000 Paging Network, Inc. sr. sub. notes 10s, 2008 7,200,000
3,050,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 2,836,500
--------------
30,029,400
Paper and Forest Products (1.8%)
- ------------------------------------------------------------------------------------------------------------
10,500,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 11,182,500
5,000,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 5,100,000
13,695,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 14,037,375
8,125,000 Gaylord Container Corp. sr. sub. disc. deb. 12 3/4s, 2005 8,856,250
2,000,000 Gaylord Container Corp. sr. notes 11 1/2s, 2001 2,105,000
1,000,000 Rainy River Forest Products sr. notes 10 3/4s, 2001
(Canada) 1,090,000
13,950,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 13,950,000
8,800,000 Riverwood International Corp. company guaranty 10 7/8s,
2008 7,216,000
8,500,000 Riverwood International Corp. company guaranty 10 1/4s,
2006 7,820,000
1,000,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 1,062,500
4,000,000 Stone Container Corp. sr. notes 11 7/8s, 2016 3,920,000
--------------
76,339,625
Publishing (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,745,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 1,675,200
1,745,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 1,688,288
--------------
3,363,488
Real Estate (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,060,000 Prime Hospitality Corp. 144A sr. sub. notes 9 3/4s, 2007 4,019,400
Recreation (0.1%)
- ------------------------------------------------------------------------------------------------------------
2,570,621 Elsinore Corp. 144A exch. 1st mortgage 11 1/2s, 2000 2,467,797
Restaurants (0.3%)
- ------------------------------------------------------------------------------------------------------------
1,580,000 AmeriKing. Inc. sr. notes 10 3/4s, 2006 1,595,800
9,200,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 9,568,000
--------------
11,163,800
Retail (0.6%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Brylane (L.P.) sr. sub. notes 10s, 2003 4,200,000
3,685,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 3,942,950
2,900,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 3,016,000
1,925,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 2,021,250
5,000,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 5,312,500
2,750,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 2,860,000
3,310,000 Waban, Inc. sr. sub. notes 11s, 2004 3,690,650
--------------
25,043,350
Satellite Services (--%)
- ------------------------------------------------------------------------------------------------------------
2,250,000 Net Sat Servicos Ltd. sr. notes 12 3/4s, 2004 (Brazil) 2,328,750
Semiconductors (0.1%)
- ------------------------------------------------------------------------------------------------------------
6,335,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
10 1/8s, 2007 6,303,325
Shipping (0.1%)
- ------------------------------------------------------------------------------------------------------------
5,200,000 Viking Star Shipping sr. secd. notes 9 5/8s, 2003 5,252,000
Specialty Consumer Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,955,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 1999 5,004,550
Steel (0.3%)
- ------------------------------------------------------------------------------------------------------------
2,755,000 AK Steel Corp. sr. notes 9 1/8s, 2006 2,713,675
11,450,000 Ispat Mexicana, S.A. 144A deb. 10 3/8s, 2001 (Mexico) 11,478,625
--------------
14,192,300
Supermarkets (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,250,000 Eagle Food Centers. Inc. sr. notes 8 5/8s, 2000 1,225,000
2,670,325 Food 4 Less Supermarkets, Inc. sr. sub. deb. 13 5/8s,
2007 [2 DBL. DAGGERS] 3,124,280
1,895,000 Quality Food Centers, Inc. 144A sr. sub. notes 8.7s, 2007 1,828,675
1,690,000 Supermercados Norte 144A bonds 10 7/8s, 2004
(Argentina) 1,643,525
--------------
7,821,480
Telecommunications (3.1%)
- ------------------------------------------------------------------------------------------------------------
5,230,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 2,876,500
19,975,000 Brooks Fiber Properties, Inc. sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/1/01), 2006 ++ 12,384,500
21,575,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/00), 2005 ++ 13,700,125
7,250,000 Dobson Communications Corp. 144A sr. notes 11 3/4s, 2007 7,268,125
8,580,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s, 2006 8,494,200
7,931,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 ++ 4,996,530
9,165,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 4,994,925
25,910,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 17,359,700
9,475,000 Intelcom Group (USA), Inc. company guaranty stepped-
coupon zero % (12 1/2s, 5/1/01), 2006 ++ 5,874,500
9,400,000 Intermedia Communication, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 5/15/01), 2006 ++ 5,969,000
8,050,000 Intermedia Communication, Inc. sr. notes
Ser. B, 13 1/2s, 2005 9,076,375
3,650,000 MFS Communications sr. disc. notes stepped-coupon
zero % (8 7/8s, 1/1/01), 2006 ++ 2,755,750
4,250,000 Nextlink Communications, Inc. sr. notes 12 1/2s, 2006 4,313,750
8,310,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 7,229,700
2,000,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 1,660,000
14,550,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 9,748,500
2,750,000 Winstar Equipment Corp. 144A company guaranty
12 1/2s, 2004 2,688,125
15,670,000 Winstar Communications, Inc. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 9,245,300
--------------
130,635,605
Telephone Services (0.4%)
- ------------------------------------------------------------------------------------------------------------
1,990,000 Call-Net Enterprises sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/1/99), 2004 ++ 1,656,675
1,500,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 1,676,250
5,025,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 5,075,250
17,820,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon
zero % (10 1/2s, 3/1/02), 2007 ++ 9,801,000
--------------
18,209,175
Textiles (0.4%)
- ------------------------------------------------------------------------------------------------------------
4,825,000 Foamex (L.P.) Capital Corp. sr. disc. notes stepped-
coupon Ser. B, zero % (14s, 7/1/99), 2004 ++ 4,390,750
1,355,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 1,346,531
1,150,000 Polysindo International Eka company guaranty 13s, 2001
(Indonesia) 1,288,000
8,125,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 8,714,063
--------------
15,739,344
Transportation (0.1%)
- ------------------------------------------------------------------------------------------------------------
5,775,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s,
2003 (Greece) 5,760,563
--------------
Total Corporate Bonds and Notes (cost $1,414,000,026) $1,431,349,432
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (24.7%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Obligations (1.8%)
- ------------------------------------------------------------------------------------------------------------
$ 74,495,000 Federal Home Loan Mortgage Association 8 1/2s, TBA,
April 16, 2027 $ 76,333,537
U.S. Government Agency Mortgage Pass-Through Certificates (17.1%)
- ------------------------------------------------------------------------------------------------------------
31,744,843 Federal Home Loan Mortgage Corp. 8 1/2s, with various
due dates from July 1, 2026 to November 1, 2026 32,528,310
Federal National Mortgage Association
61,090,980 8s, with due dates from May 1, 2026 to October 1, 2026 61,320,087
92,465,181 7 1/2s, with due dates from June 1, 2026 to April 16, 2027 90,731,488
66,000,000 7 1/2s, TBA, April 16, 2007 64,762,500
6,929,806 7s, with due dates from August 1, 2024 to April 16, 2027 6,624,417
36,655,000 7s, TBA, April 16, 2007 35,039,614
Government National Mortgage Association
82,851,918 8s, with due dates from January 15, 2026 to
February 15, 2027 83,188,375
227,486,310 7 1/2s, with due dates from January 15, 2024 to
February 15, 2027 222,873,650
138,733,590 7s, with due dates from October 15, 2024 to
December 15, 2026 132,317,266
--------------
729,385,707
U.S. Treasury Obligations (5.8%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
28,845,000 8 1/8s, August 15, 2019 31,648,446
116,795,000 6 1/2s, November 15, 2026 107,523,813
U.S. Treasury Notes
101,342,000 6 1/2s, October 15, 2006 98,191,277
7,400,000 5 5/8s, November 30, 1998 7,314,456
--------------
244,677,992
--------------
Total U.S. Government and Agency Obligations
(cost $1,077,810,330) $ 1,050,397,236
FOREIGN GOVERNMENT BONDS AND NOTES (24.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
AUD 62,140,000 Australia (Government of) bonds
Ser. 101 8 3/4s, 2001 $ 51,049,775
CAD 22,340,000 Canada (Government of) deb. Ser. A55, 8s, 2023 17,445,308
DKK 147,185,000 Denmark (Government of) bonds 8s, 2001 25,513,949
DKK 137,635,000 Denmark (Government of) bonds 8s, 2006 23,534,152
FRF 470,710,000 France Treasury bill 7s, 2000 90,572,479
FRF 519,505,000 France Treasury bill 5 1/2s, 2001 94,990,996
FRF 346,560,000 France Treasury bill 4 1/2s, 1998 62,201,504
DEM 109,590,000 Germany (Federal Republic of) 8s bonds, 2002 73,822,857
DEM 58,230,000 Germany (Federal Republic of) bonds
Ser. 95, 7 3/8s, 2005 38,374,126
DEM 19,525,000 Germany (Federal Republic of) bonds
Ser. 95, 6 7/8s, 2005 12,494,369
DEM 46,565,000 Germany (Federal Republic of) bonds
Ser. 96, 6 1/4s, 2006 28,561,348
DEM 153,520,000 Germany (Federal Republic of) bonds
Ser. 118, 5 1/4s, 2001 93,889,022
DEM 240,185,000 Germany (Federal Republic of) bonds
Ser. 121, 4 3/4s, 2001 143,451,781
USD 2,245,000 Morocco (Government of) FRN
Ser. A, 6.5563s, 2009 1,919,475
USD 28,338,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan FRN,
2020 +##+++ 15,904,703
ZAR 13,655,000 South Africa (Republic of) bonds
Ser. 153, 13s, 2010 2,682,177
GBP 80,385,000 United Kingdom Treasury bonds 7 1/2s, 2006 130,513,086
GBP 49,830,000 United Kingdom Treasury bonds 7s, 2002 80,470,048
GBP 32,100,000 United Kingdom Treasury bonds 6s, 1999 51,541,635
--------------
Total Foreign Government Bonds and Notes
(cost $1,080,060,521) $1,038,932,790
UNITS (1.5%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
2,740 Advanced Radio Telecommunications units 14s, 2007 $ 2,986,600
720 Anvil Holdings Inc. 144A pfd. units 13s, 2009[2 DBL. DAGGERS] 698,400
2,960 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (Australia) ++ 1,716,800
877 Celcaribe S.A. 144A units stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 11,488,700
13,520 Colt Telecommunications Group PLC units stepped-
coupon zero % (12s, 12/15/01), 2006
(United Kingdom) ++ 8,551,400
4,650 Diva Systems Corp. 144A units stepped-coupon zero %
(13s, 5/15/01), 2006 ++ 2,737,688
3,200 Esat Holdings Ltd. 144A units stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 ++ 1,792,000
4,200 Globalstar L.P. Capital units 11 3/8s, 2004 4,095,000
3,980 Health-O-Meter Product units 13s, 2002 4,298,400
6,030 Interact Systems, Inc. 144A units stepped-coupon
zero % (14s, 8/1/99), 2003 ++ 3,256,200
2,185 Ionica PLC zero % (15s, 5/1/02), 2007 ++ 972,233
5,540 Mccaw International, Ltd. 144A units stepped-coupon
zero%, (13s, 4/15/02) 2007 ++ 2,770,000
89,945 Nextlink Communications 144A pfd. units 14s, 2009 [2 DBL. DAGGERS] 3,957,580
7,800 RSL Communications, Ltd. 144A units 12 1/4s, 2006 7,995,000
3,450 Spanish Broadcasting Systems units 14 1/4s, 2005 3,381,000
8,155 Wireless One Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 2,446,500
--------------
Total Units (cost $64,031,169) $ 63,143,501
PREFERRED STOCKS (2.1%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
5,381 Alliance Gaming Corp. Ser. B, $15.00 pfd. $ 548,862
18,800 American Radio Systems Corp. 144A $11.375 pfd. 1,842,400
70,000 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 1,855,000
104,246 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. 9,303,956
97,000 Cal Fed Bankcorp Inc. Ser. B, $11.50 pfd. 10,864,000
62,000 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 1,511,250
20,000 California Federal Bank Ser. B, $10.625 exch. pfd. 2,190,000
55,850 Chancellor Radio Broadcasting 144A $12.00 pfd. 5,445,375
99,570 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 4,679,790
109,800 Diva Systems Corp. Ser. C, $6.00 pfd. 905,850
27,878 El Paso Electric Co. $11.40 pfd 3,094,458
172,935 Fitzgeralds Gaming Co. $3.75 pfd. + 2,939,895
11,950 Grand Union Holdings 144A Ser. C, $12.00 pfd.
(acquired 11/5/93, cost $1,380,255) (In Default) [DBL. DAGGER]+ 120
8,125 Granite Broadcasting Corp. 144A 12.75% pfd. [2 DBL. DAGGERS] 7,515,625
6,905 ICG Holdings, Inc. 14.25% pfd. 7,595,500
6,650 ICG Holdings, Inc. 144A 14.00% pfd. 6,650,000
880 Intermedia Communications, Inc. 144A 13.50% pfd. 8,316,000
6,300 International CableTel, Inc. 144A 13.00% pfd. [2 DBL. DAGGERS] 5,985,000
5,000 Pantry Pride Inc. Ser. B, $14.875 pfd. 505,000
60,000 Public Service Co. of New Hampshire Ser. A, $2.65
1st mtge. pfd. 1,440,000
70,200 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 6,809,400
--------------
Total Preferred Stocks (cost $94,634,040) $ 89,997,481
BRADY BONDS (2.2%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 42,700,370 Argentina (Republic of) deb. 6.75s, 2005 $ 38,163,456
32,882,619 Brazil (Republic of) 4.5s, 2014 +++ 24,456,448
3,245,000 Bulgaria (Republic of) deb. Ser. IAB 6.563s, 2011 1,837,481
4,395,650 Ecuador (Government of) PDI 3 1/4s, 2015 2,494,531
32,434,000 United Mexican States deb. Ser. B, 6 1/4s, 2019 22,865,970
5,714,285 Venezuela (Government of) deb. Ser. B 6 3/4s, 2007 5,028,571
--------------
Total Brady Bonds (cost $97,036,955) $ 94,846,457
COMMON STOCKS (1.2%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
1,750 AmeriKing, Inc. + $ 87,500
252,474 Chesapeake Energy Corp. + 5,270,395
82,812 Computervision Corp. + 445,115
125,552 Conseco Inc. 4,472,790
84,033 Elsinore Corp. + 9,244
250,000 Exide Corp. 4,093,750
7,795 Federated Department Stores, Inc. + 256,261
3,026 Finlay Enterprises, Inc. 47,660
539,505 Grand Union Co.(acquried various dates from
6/14/93to 3/14/95 cost $24,484,117) [DBL. DAGGER]+ 1,921,987
7,541 IFINT Diversified Holdings 144A + 120,656
49,679 Lady Luck Gaming Corp.+ 86,938
480,000 NEXTEL Communications, Inc. Class A + 6,420,000
1,184 PMI Holdings Corp. 144A + 296,000
1,942 Premium Holdings (L.P.) 144A + 9,710
979,968 PSF Holdings LLC Class A 25,969,219
7,500 Southdown, Inc. 256,875
1,480 Southland Corp. + 4,671
66,840 Terex Corp. Rights (expiration date 5/15/02) 334,200
--------------
Total Common Stocks (cost $78,334,263) $ 50,102,971
ASSET-BACKED SECURITIES (1.0%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 12,195,000 Chemical Master Credit Card Trust Ser. 95-2, Class A,
6.23s, 2003 $ 11,966,344
29,845,000 Sears Credit Account Master Trust Ser. 95-5, Class A,
6.05s, 2004 28,427,363
--------------
Total Asset-Backed Securities (cost $42,310,278) $ 40,393,707
CONVERTIBLE BONDS AND NOTES (0.7%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 2,500,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 1,550,000
2,600,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 2,223,000
6,950,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 3,935,438
2,782,000 GST Telecommunications, Inc. sr. disc. notes stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 ++ 1,947,400
2,310,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s,
2002 1,865,325
1,500,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 1,509,375
9,500,000 Pricellular Wireless Corp. 144A cv. sub. notes stepped-
coupon zero % (10 3/4s, 8/15/00) ++ 8,075,000
5,050,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 4,778,563
7,835,000 Winstar Communications. Inc. cv sr. disc. notes zero%,
2005 4,857,700
--------------
Total Convertible Bonds and Notes (cost $28,512,391) $ 30,741,801
COLLATERALIZED MORTGAGE OBLIGATIONS (0.8%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 5,010,090 Citicorp Mtge. Securities, Inc. Ser. 92-14M, 7 1/2s, 2022 $ 4,981,909
6,412,187 Federal Home Mortgage Corp. Ser. 35, Class JZ, 7s, 2027 5,338,082
6,520,000 Federal National Mortgage Association Ser. 97-25,
Class Z, 7s, 1999 5,470,688
7,284,244 Federal National Mortgage Association Ser. 97-5,
Class Z, 7s, 2027 6,067,485
12,677,351 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 12,309,074
--------------
Total Collateralized Mortgage Obligations
(cost $34,697,480) $ 34,167,238
CONVERTIBLE PREFERRED STOCKS (0.3%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
53,268 Cablevision Systems Corp. Ser. H, $11.75 cv. pfd. $ 4,913,973
314,000 Cablevision Systems Corp. Ser. I, $2.125 cv. pfd. 6,476,250
31,300 Granite Broadcasting $1.938 cv. pfd. 1,533,700
--------------
Total Convertible Preferred Stocks (cost $14,757,833) $ 12,923,923
WARRANTS (0.1%) *
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ------------------------------------------------------------------------------------------------------------
185,000 Becker Gaming Corp. 144A 11/15/00 $ 1,850
44,363 Capital Gaming International, Inc. 2/1/99 1,775
86,300 Cellnet Data Systems 6/15/05 1,251,350
12,400 Comunicacion Cellular 144A (Colombia) 11/15/03 868,000
9,350 County Seat Holdings, Inc. + 10/15/98 187
72,000 DeGeorge Financial Corp. 4/1/97 720
6,850 Fitzgerald Gaming Co. 144A 3/15/99 685
4,885 Foamex (L.P.) Capital Corp. 144A 7/15/97 24,425
2,352 Grand Union Co.(acquired various dates from
6/16/93 to 10/4/94, cost $941) [DBL. DAGGER]+ 6/16/00 612
4,705 Grand Union Co.(acquired various dates from
6/16/93 to 10/4/94, cost $471) [DBL. DAGGER]+ 6/16/00 188
6,240 Heartland Wireless Communications, Inc. 144A 4/15/00 62
9,165 Hyperion Telecommunications 144A 4/15/01 274,950
65,538 Intelcom Group 7/15/97 917,532
6,030 Interact Systems Inc. 7/15/97 1,508
28,800 Intercel, Inc. 2/1/06 207,360
8,050 Intermedia Communications 144A 6/1/00 161,000
2,780 International Wireless Communications Holdings 8/15/01 28
8,025 Louisiana Casino Cruises, Inc. 144A 12/1/98 401,250
21,500 NEXTEL Communications Inc. Ser. 99-A 4/25/99 215
10,030 NEXTEL Communications Inc. Ser. 98-A 12/15/98 100
13,800 Pagemart, Inc. 144A 12/31/03 89,700
17,500 Petracom Holdings, Inc. 2/1/03 124,688
37,527 President Riverboat Casinos, Inc. 9/30/99 18,764
2,160 Sterling Chemicals Holdings 8/15/08 75,600
215 Telemedia Broadcasting Corp. 144A 4/1/04 160,995
54,910 UCC Investor Holding, Inc.(acquired various
dates from 3/1/94 to 5/2/95 cost $713,986) [DBL. DAGGER] 10/30/99 741,285
6,375 Wireless One, Inc. 10/19/00 638
1,001 Wright Medical Technology, Inc. 144A 6/30/03 120,070
--------------
Total Warrants (cost $7,016,614) $ 5,445,537
PURCHASED OPTIONS OUTSTANDING (--%)
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE VALUE
- ------------------------------------------------------------------------------------------------------------
61,300,000 U.S. Dollars in exchange for
Japanese Yen (Call) Apr. 97/125 JPY $ 312,630
184,500,000 U.S. Dollars in exchange for
Deutschemarks (Call) May 97/1.692 DEM 1,501,740
--------------
Total Purchased Options Outstanding
(cost $1,936,970) $ 1,814,370
SHORT-TERM INVESTMENTS (10.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 25,000,000 Corporate Receivables Corp. effective yield of
5.35%, April 5, 1997 $ 24,977,709
25,000,000 Federal Home Loan Mortgage Corp. effective yield of
5.30%, April 18, 1997 24,827,014
26,010,000 Federal Home Loan Mortgage Corp. effective yield of
5.23%, April 10, 1997 25,975,992
25,000,000 Federal Home Loan Banks effective yield of 5.24%,
May 1, 1997 24,687,055
15,000,000 Federal National Mortgage Assn. effective yield of 5.45%,
April 15, 1997 14,968,208
25,000,000 Ford Motor Credit Co. effective yield of 5.52%,
April 4, 1997 24,988,500
30,000,000 General Motors Acceptance Corp. effective yield
of 5.36%, April 16, 1997 29,933,000
23,891,000 Morgan (J.P.) & Co. Inc. effective yield of 5.45%,
April 8, 1997 23,807,275
36,109,000 Morgan (J.P.) & Co. Inc. effective yield of 5.32%,
May 13, 1997 35,980,810
25,000,000 Merrill Lynch & Co. Inc. effective yield of 5.34%,
April 23, 1997 24,918,417
20,148,000 Metlife Funding Inc. effective yield of 5.47%,
April 22, 1997 20,083,711
25,000,000 Preferred Receivables Funding Corp. effective yield
of 5.33%, May 12, 1997 24,848,243
25,000,000 Sears Roebuck Acceptance Corp. effective yield
of 5.33%, May 27, 1997 24,792,722
30,000,000 Sheffield Receivables Corp. effective yield of 5.37%,
April 18, 1997 29,923,925
89,653,000 Interest in $576,440,000 joint repurchase agreement
dated March 31, 1997 with S.B.C. Warburg Inc.
due April 1, 1997 with respect to various
U.S. Treasury obligations -- maturity value of
$89,668,938 for an effective yield of 6.40% 89,668,938
--------------
Total Short-Term Investments (cost $444,381,519) $ 444,381,519
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,479,520,389) *** $4,388,637,963
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,247,865,122.
*** The aggregate identified cost on a tax basis is $4,485,157,091,
resulting in gross unrealized appreciation and depreciation of
$65,141,534 and $161,660,662 respectively, or net unrealized
depreciation of $96,519,128.
+ 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.
+++ A portion of the income will be received in additional securities.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at March 31, 1997 was
$2,664,192 or 0.1% of net assets.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at the
discretion of the issuer.
## When-issued securities. (Note 1) The coupon rate will be LIBOR plus 13/16.
(R) Real Estate Investment Trust.
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 rate shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates shown at March 31, 1997, which are
subject to change based on the terms of the security.
Diversification by Country
Distribution of investments by country of issue at March 31, 1997: (as
percentage of market value)
Argentina 1.0%
Australia 1.4
Canada 1.3
Denmark 1.1
France 5.6
Germany 8.9
Mexico 1.6
United Kingdom 6.8
United States 69.2
Other 3.1
------
Total 100.0%
======
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at March 31, 1997
(aggregate face value $788,176,659)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $ 34,012,126 $ 34,006,762 6/18/97 $ 5,364
British Pounds 6,637,935 6,623,665 6/18/97 14,270
Canadian Dollars 96,454,700 98,100,628 6/18/97 (1,645,928)
Deutschemarks 252,850,225 250,264,425 6/18/97 2,585,800
Italian Lira 106,982,256 105,182,600 6/18/97 1,799,656
Japanese Yen 158,956,916 161,502,888 6/18/97 (2,545,972)
Spanish Peseta 63,189,250 62,970,389 6/18/97 218,861
Swedish Krona 2,854,661 2,823,574 6/18/97 31,087
Swiss Francs 66,638,670 66,701,728 6/18/97 (63,058)
- -----------------------------------------------------------------------------------------
$ 400,080
- -----------------------------------------------------------------------------------------
<CAPTION>
Forward Currency Contracts to Sell at March 31, 1997
(aggregate face value $676,819,944)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pounds $200,146,505 $195,254,819 6/18/97 $ (4,891,686)
Canadian Dollars 21,354,944 21,751,479 6/18/97 396,535
Danish Krone 12,126,614 12,075,833 6/18/97 (50,781)
Deutschemarks 175,429,996 173,810,263 6/18/97 (1,619,733)
French Francs 101,920,706 101,753,121 6/18/97 (167,585)
Japanese Yen 77,585,789 78,846,123 6/18/97 1,260,334
Swedish Krona 27,345,333 26,942,203 6/18/97 (403,130)
Swiss Francs 66,485,759 66,386,103 6/18/97 (99,656)
- ----------------------------------------------------------------------------------------
$ (5,575,702)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $4,479,520,389) (Note 1) $ 4,388,637,963
- ---------------------------------------------------------------------------------------------------
Cash 8,482,515
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 67,256,567
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 27,682,090
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 55,670,545
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 6,427,795
- ---------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 2,676,875
- ---------------------------------------------------------------------------------------------------
Total assets 4,556,834,350
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 256,873,468
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 22,286,156
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,705,494
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,284,070
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 39,136
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 9,671
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 3,192,651
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 11,603,417
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 7,482,265
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 492,900
- ---------------------------------------------------------------------------------------------------
Total liabilities 308,969,228
- ---------------------------------------------------------------------------------------------------
Net assets $ 4,247,865,122
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 4,315,164,690
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 9,972,204
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency
transactions (Note 1) 19,128,241
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and liabilities in
foreign currencies (96,400,013)
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $ 4,247,865,122
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,946,442,858 divided by 160,759,306 shares) $12.11
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.11)* $12.71
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($2,219,868,463 divided by 184,077,662 shares)** $12.06
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($64,356,193 divided by 5,326,139 shares) $12.08
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.08)* $12.49
- ---------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per class Y share
($17,197,608 divided by 1,420,097 shares ) $12.11
- ---------------------------------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest (net of foreign tax of $731,861) $ 169,399,717
- --------------------------------------------------------------------------------------------------
Dividends 3,480,154
- --------------------------------------------------------------------------------------------------
Total investment income 172,879,871
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 11,351,198
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,261,990
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 89,158
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 18,924
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,404,120
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 11,036,412
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 138,362
- --------------------------------------------------------------------------------------------------
Reports to shareholders 117,631
- --------------------------------------------------------------------------------------------------
Registration fees 63,372
- --------------------------------------------------------------------------------------------------
Auditing 41,808
- --------------------------------------------------------------------------------------------------
Legal 101,786
- --------------------------------------------------------------------------------------------------
Total expenses 28,624,761
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (599,774)
- --------------------------------------------------------------------------------------------------
Net expenses 28,024,987
- --------------------------------------------------------------------------------------------------
Net investment income 144,854,884
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 65,186,629
- --------------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 194,125
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions(Note 1) (1,739,417)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (4,785,254)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and written options
during the period (128,067,337)
- --------------------------------------------------------------------------------------------------
Net loss on investments (69,211,254)
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 75,643,630
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 144,854,884 $ 256,333,634
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 63,641,337 80,508,572
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and
liabilities in foreign currencies (132,852,591) 10,516,542
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 75,643,630 347,358,748
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A (68,768,813) (124,374,433)
- ----------------------------------------------------------------------------------------------------------------------
Class B (71,018,281) (130,679,613)
- ----------------------------------------------------------------------------------------------------------------------
Class M (1,915,146) (2,135,027)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (106,778) (57,653)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 283,992,115 532,684,820
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 217,826,727 622,796,842
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 4,030,038,395 3,407,241,553
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $9,972,204 and $6,926,338, respectively) $4,247,865,122 $4,030,038,395
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.29 $11.99 $11.64 $12.82 $12.66 $11.85
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .45 .89 .95 .78 .96 1.04
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.19) .30 .36 (.88) .56 .97
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .26 1.19 1.31 (.10) 1.52 2.01
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.44) (.89) (.80) (.71) (.94) (1.01)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- (.12) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.42) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.08) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.16) (.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.44) (.89) (.96) (1.08) (1.36) (1.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.11 $12.29 $11.99 $11.64 $12.82 $12.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.12* 10.35 11.89 (.93) 12.85 17.88
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,946,443 $1,845,901 $1,597,034 $1,539,076 $874,937 $365,253
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .48* 1.02 1.01 1.01 1.21 1.36
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.64* 7.32 8.22 7.96 6.80 8.27
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 126.56* 304.39 235.88 201.53 243.73 221.09 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2)
(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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 March 1, 1993+
operating performance (Unaudited) Year Ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.24 $11.95 $11.61 $12.79 $12.51
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .40 .80 .88 .72 .49
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18) .29 .33 (.91) .39
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .22 1.09 1.21 (.19) .88
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.80) (.72) (.65) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- -- (.10) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.15) (.16) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.40) (.80) (.87) (.99) (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.06 $12.24 $11.95 $11.61 $12.79
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 1.74* 9.47 11.01 (1.62) 7.21*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,219,868 $2,135,148 $1,795,456 $1,644,860 $504,417
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86* 1.77 1.76 1.76 1.91*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.27* 6.57 7.46 8.05 5.80*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 126.56* 304.39 235.88 201.53 243.73
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2)
(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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Year Ended Dec. 1, 1994+
operating performance (Unaudited) Sept. 30 to Sep. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $12.27 $11.97 $11.34
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .42 .86 .78
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18) .31 .63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .24 1.17 1.41
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.87) (.65)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.43) (.87) (.78)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.08 $12.27 $11.97
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 1.93* 10.12 12.90*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $64,356 $46,327 $14,751
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .61* 1.28 1.07*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.53* 7.09 6.30*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 126.56* 304.39 235.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2)
(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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 July 1, 1996+
operating performance (Unaudited) to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $12.29 $12.07
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .43 .24
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.15) .20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .28 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.46) (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.11 $12.29
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.24* 3.70*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $17,198 $2,662
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .36* .19*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.77* 1.95*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 126.56* 304.39
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2)
(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.
</TABLE>
Notes to financial statements
March 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Diversified Income Trust (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, class M and class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge but pay a higher ongoing distribution fee than class A
shares, and may be 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 higher than class A shares but lower than class B shares. Class Y
shares, which are sold at net asset value, are generally subject to the same
expenses as class A shares, class B and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans that
invest at least $250 million in a combination of Putnam Funds and other
accounts managed by affiliates of Putnam Investment Management, Inc. ("Putnam
Management"), the fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc.
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
that fund were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
The following is a summary of significant accounting policies followed by the
fund in the preparation of its financial statements. The preparation of
financial statements is in conformity with generally accepted accounting
principles and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Market quotations are not considered to be readily available
for long term corporate bonds and notes; such investments are stated at fair
market value on the basis of valuations furnished by a pricing service,
approved by the Trustees, or dealers, which determine valuations for normal,
institutional-size trading units of such securities using methods based on
market translations for comparable securities and variable relationships
between securities that are generally recognized by institutional traders.
Short-term investments having remaining maturities of 60 days or less are
stated at amortized cost, which approximates market value, and other
investments are stated at fair market value following procedures approved by
the Trustees.
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 Management.
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. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date. Discounts on zero coupon bonds, original issue discounts, stepped-coupon
bonds and payment in kind bonds are accreted according to the effective yield
method.
Securities purchased or sold on a when-issued or delayed delivery basis may be
settled a month or more after the trade date; interest income is accrued based
on the terms of the security. Losses may arise due to changes in the market
value of the underlying securities or if the counterparty does not perform
under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, 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 fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized appreciation and depreciation of
assets and liabilities in foreign currencies arise from changes in the value
of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using 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.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be announced)
purchase commitments to purchase securities for a fixed unit price at a future
date beyond customary settlement time. Although the unit price has been
established, the principal value has not been finalized. However, the amount
of the commitments will not fluctuate more than 1.0% from the principal
amount. The fund holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the fund may enter into offsetting contracts for the forward sale of
other securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Security valuation"
above.
Although the fund will generally enter into TBA purchase commitments with the
intention of acquiring securities for their portfolio or for delivery pursuant
to options contracts it has entered into, the fund may dispose of a commitment
prior to settlement if Putnam Management deems it appropriate to do so.
I) 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. 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, 1996, the fund had a capital loss carryover of approximately
$38,876,000 available to offset future net capital gain, if any, which will
expire on September 30, 2003.
J) 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. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Reclassifications are
made to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% of the first $500 million,
0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% the next
$5 billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion,
0.44% of the next $5 billion and 0.43% of any excess thereafter. Prior to
January 20, 1997 any amount over $1.5 billion was based on 0.50%.
The fund reimburses Putnam Management 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 wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended March 31, 1997, fund expenses were reduced by
$599,774 under expense offset arrangements with PFTC. 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.
Trustees of the fund receive an annual Trustees fee of $3,960 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on
or after July 1, 1995. The deferred fees remain in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, 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 0.35%, 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 0.25%, 1.00%
and 0.50% of the average net assets attributable to class A, class B and class
M shares, respectively.
For the six months ended March 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $559,658 and $20,678 from the sale of
class A and class M shares, respectively and $2,214,921 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the six
months ended March 31, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $88 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended March 31, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $2,593,354,789 and $2,423,107,643, respectively. Purchases and
sales of U.S. government obligations aggregated $2,623,924,492 and
$2,638,626,845, 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 during the period are summarized as follows:
Contract Premiums
Amounts Received
- ------------------------------------------------------------
Written
options
outstanding
at beginning
of period $ -- $ --
- ------------------------------------------------------------
Options
opened 39,165,000,000 315,965
- ------------------------------------------------------------
Options
closed (39,165,000,000) (315,965)
- ------------------------------------------------------------
Written
options
outstanding
at end of
period $ -- $ --
- ------------------------------------------------------------
Note 4
Capital shares
At March 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 26,928,354 $ 333,793,581
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions: 3,651,475 45,172,773
- ------------------------------------------------------------
30,579,829 378,966,354
Shares
repurchased (20,043,422) (247,930,917)
- ------------------------------------------------------------
Net increase 10,536,407 $ 131,035,437
- ------------------------------------------------------------
Year ended
September 30, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 44,142,460 $ 538,311,863
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions: 6,502,010 75,921,259
- ------------------------------------------------------------
50,644,470 614,233,122
Shares
repurchased (33,624,593) (407,240,413)
- ------------------------------------------------------------
Net increase 17,019,877 $ 206,992,709
- ------------------------------------------------------------
Six months ended
March 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 25,448,836 $ 314,282,502
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,657,930 45,088,302
- ------------------------------------------------------------
29,106,766 359,370,804
Shares
repurchased (19,462,234) (240,181,409)
- ------------------------------------------------------------
Net increase 9,644,532 $ 119,189,395
- ------------------------------------------------------------
Year ended
September 30, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 53,705,203 $ 649,134,362
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,652,677 80,011,461
- ------------------------------------------------------------
60,357,880 729,145,823
Shares
repurchased (36,206,473) (436,896,456)
- ------------------------------------------------------------
Net increase 24,151,407 $ 292,249,367
- ------------------------------------------------------------
Six months ended
March 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 2,217,325 $ 27,448,179
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 121,432 1,499,080
- ------------------------------------------------------------
2,338,757 28,947,259
Shares
repurchased (789,457) (9,766,247)
- ------------------------------------------------------------
Net increase 1,549,300 $ 19,181,012
- ------------------------------------------------------------
Year ended
September 30, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 3,334,247 $40,396,232
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 136,559 1,643,817
- ------------------------------------------------------------
3,470,806 42,040,049
Shares
repurchased (925,979) (11,197,879)
- ------------------------------------------------------------
Net increase 2,544,827 $30,842,170
- ------------------------------------------------------------
Six months ended
March 31, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 1,226,477 $14,870,473
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,620 106,661
- ------------------------------------------------------------
1,235,097 14,977,134
Shares
repurchased (31,560) (390,863)
- ------------------------------------------------------------
Net increase 1,203,537 $14,586,271
- ------------------------------------------------------------
For the period
July 1, 1996
(commencement of operations)
to September 30, 1996
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 381,251 $ 4,602,196
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,801 57,653
- ------------------------------------------------------------
386,052 4,659,849
Shares
repurchased (169,492) (2,059,275)
- ------------------------------------------------------------
Net increase 216,560 $ 2,600,574
- ------------------------------------------------------------
Note 5
Transactions with Certain Companies
Transactions during the year with companies in which the fund owns at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates Cost Cost Income Value
- ----------------------------------------------------------------------
Name of affiliate
- ----------------------------------------------------------------------
Grand Union $ 24,485,117 $ $ $ 1,921,987
PSF Holding LLC 34,291,491 -- -- 25,969,219
- ----------------------------------------------------------------------
Totals $ 58,776,608 $-- $-- $ 27,891,206
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Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Kenneth J. Taubes
Vice President and Fund Manager
Jin W. Ho
Vice President and Fund Manager
Michael Martino
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
Gail A. Attridge
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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. You can also learn more
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Shares of mutual funds are not deposits or obligations of, or guaranteed or
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Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
[LOGO OMITTED]
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