Putnam
Diversified
Income
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The past year provided little joy for investors in global fixed-income
securities. Concerns over rising interest rates and renewed inflation cast
a pall over virtually all the world's bond markets. Even the U.S. Treasury
and core European government bonds that were doing so well a year ago as
other fixed-income markets were faltering are feeling the heat now. About
the only bright spots have been bonds of emerging markets, which as a
group recovered smartly from the financial crisis that nearly did them in
during the summer and fall of 1998.
The results of this general market malaise are reflected in the
performance of Putnam Diversified Income Trust during the fiscal year that
ended on September 30, 1999. In the following report, your fund's
management team reviews performance and concludes that while more
near-term volatility lies ahead, long-term prospects remain positive.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 17, 1999
Report from the Fund Managers
Jennifer E. Leichter
Jeffrey A. Kaufman
D. William Kohli
David L. Waldman
At home and overseas, it was tough going for most bond investments in the
12 months ended September 30, 1999. The accelerating pace of global
economic growth combined with the unpredictable nature of investor
sentiment created formidable challenges in most sectors of the
fixed-income universe. Putnam Diversified Income Trust's performance for
the 12 months ended September 30, 1999, reflects the unfavorable global
investment climate.
Total return for 12 months ended 9/30/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------
0.31% -4.45% -0.47% -5.08% -0.46% -1.38% 0.09% -3.17%
- -------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
* BOND YIELDS RISE AS FED BOOSTS RATES
The Federal Reserve Board raised rates twice during this past summer -- by
a quarter percentage point each time -- in preemptive strikes against
inflation. Yields, which move in the opposite direction from prices, rose
across the board as the period progressed. In the United States, the yield
on the 30-year bellwether Treasury bond rose from below 5% at the fiscal
year's outset to roughly 6.25% by September's end.
High-yield debt rebounded during the year only to retreat as the year drew
to a close. Yields on investment-grade corporate bonds and mortgage- and
asset-backed securities experienced similar movements. For the most part,
European bond markets also remained depressed.
* HIGH-YIELD EMPHASIS MAINTAINED
As unnerving as the market's volatility has been this past year, we held
steady on your fund's exposure to high-yield bonds, keeping them the
portfolio's anchor weighting throughout the period. Among our reasons were
the extremely attractive valuations currently available and the market's
positive fundamental underpinnings -- relatively subdued inflation,
healthy corporate profitability, and a robust U.S. economy.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS FOR CORPORATE
BONDS AND NOTES]
TOP INDUSTRY SECTORS FOR CORPORATE BONDS AND NOTES*
Telecommunications 6.5%
Broadcasting 4.1%
Cable television 2.7%
Gaming 2.2%
Telephone services 1.9%
Footnote reads:
*Based on net assets as of 9/30/99. Holdings will vary over time.
The year began with a difference in yield between high-yield bonds and
Treasuries of nearly 7 percentage points. High-yield debt then rebounded
only to retreat back to a spread of roughly 6 percentage points when the
fiscal year ended. Inflation fears, Y2K-related liquidity concerns, the
loss of momentum from flagging equity markets, and a rising default rate
were to blame.
* TELECOM BONDS REMAIN KEY FOCUS IN HIGH-YIELD SECTOR
Telecommunications holdings were our main focus given the very positive
operating results, high equity valuations, brisk merger and acquisition
activity, and dynamic long-term growth potential of these industries. The
various media subsectors, such as broadcasting and cable operators, were
also fairly represented, although we have moved the portfolio's weighting
in these areas to neutral against its benchmark because we believe the
period of heavy consolidation is waning.
Many companies in these industries have issued or are in the process of
issuing stock, prompting credit improvements and therefore higher bond
prices. Fund holdings such as NTL, Covad Communications Group, and Rhythms
NetConnections have brought equity into their capital structure, thereby
helping to decrease credit risk and push the bonds' prices higher. For
example, both Covad and Rhythms, high-speed digital communications
services providers, successfully completed initial public offerings. Other
high-yield issues that worked well for the fund include Global Crossing
Holdings Ltd., Metromedia Fiber Network, NEXTEL, Charter Communications,
Citadel, Chancellor Media (now AMFM, Inc.), and Network Plus (now Carrier
International). While the securities discussed in this report were viewed
favorably at the end of the period, all holdings are subject to review in
accordance with the fund's investment strategy and may vary in the future.
* INDUSTRY SECTOR SHIFTS, EMERGING-MARKETS EMPHASIS PROVIDE MIXED RESULTS
As the period progressed, we selectively increased the fund's exposure to
certain higher-quality cyclical issues in the paper, chemical, and energy
sectors. Ocean Energy, R&B Falcon, and Lyondel are all new holdings that
we believe offer attractive total return potential. Over the period, we
sold energy-related securities that our research showed did not have the
capital structure in place to sustain a period of low energy prices.
"[D]on't revamp your bond portfolio ahead of the year 2000 - just tweak it,
experts say. That's because any problems and nervousness that arise will
likely pass quickly. And 2000 could be a better year for bonds if the dollar
firms and the U.S. economy slows somewhat, possibly as a result of this
year's rising interest rates."
-- "Mutual Funds Quarterly Review," The Wall Street Journal, 10/4/99
Stricter Medicare reimbursement formulas negatively affected the
performance of several health-care issues, particularly long-term nursing
care bonds such as Sun Healthcare and Mariner Post-Acute Network.
Overbuilding of movieplexes has resulted in earnings disappointments for
movie exhibition companies, including fund holding United Artists Theatre.
As the fiscal year progressed, we moved out of the satellite
communications sector. We believe the cost of constructing the necessary
constellation to establish satellite telephony to be largely prohibitive
to real profitability.
We bolstered the fund's exposure to emerging-markets securities, a
strategy that contributed significantly to performance, since these
markets rallied impressively. We emphasized bonds in Mexico and Brazil,
believing they offer attractive yields relative to their medium-term
sovereign creditworthiness. The fund also held positions in Bulgaria, one
of eastern Europe's more solidly growing economies.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR
HIGH-YIELD BONDS
Global Crossing Holdings Ltd.,
company guaranty 9 5/8s, 2008
Charter Communications Holdings LLC,
144A senior notes, 8 5/8s, 2009
Midland Funding II Corp.,
debentures, Series A, 11 3/4s, 2005
FOREIGN BONDS
Germany (Federal Republic of),
bonds, Series 132, 4 1/8s, 2004
United Kingdom,
Treasury bonds, 8s, 2000
Australia (Government of),
bonds, 8 3/4s, 2008
U.S. INVESTMENT-GRADE
SECURITIES
U.S. Treasury notes, 5 1/4s, 2004
U.S. Treasury notes, 5 1/2s, 2009
U.S. Treasury notes, 4 1/4s, 2003
Footnote reads:
These holdings represent 17.2% of the fund's net assets as of 9/30/99.
Portfolio holdings will vary over time.
Sweden, Greece, the United Kingdom, Germany, and Canada were fairly
represented in the portfolio and performed in line with most world
markets.
The portfolio's minimal position in Japanese government bonds during the
period limited performance, as these issues experienced a dramatic rebound
in the period's second half. Although we slightly increased their
representation within the portfolio near the period's end, we continue to
underweight them, fearing a glut of supply will likely follow government
spending initiatives.
Throughout the period, we used the fund's Treasury and government agency
exposure to keep the portfolio's average duration relatively neutral given
the uncertain interest-rate environment. (Duration is a measure of a
fund's sensitivity to interest-rate changes.) We also rotated in and out
of interest-only and principal-only commercial mortgage-backed securities
(CMBSs) as market conditions and interest-rate movements dictated. In
general, the CMBS holdings added relative value to the portfolio given
strong economic activity and solid real estate fundamentals.
"The year's rapidly changing markets brought home once again the value of
multisector bond investing."
-- Jennifer Leichter, fund manager
* OUTLOOK: CURRENT VOLATILITY COULD HAVE SILVER LINING
Despite the real possibility of another rate increase by the Fed, which
would likely cause further market turbulence and investor unease, we
believe fiscal year 2000 holds promise for the fund. We believe the U.S.
economy remains in good shape and the Fed's actions in 1999 should only
serve to fortify the strength of U.S. corporate profitability. In the long
run, we expect the liquidity concerns and uncertainty associated with Y2K
to be veritable nonevents shortly after the beginning of the new year. We
are confident that your fund's ability to invest across the fixed-income
spectrum will allow us to minimize volatility and maximize the resulting
opportunities.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 9/30/99, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield corporate bonds reflect a greater possibility that adverse
changes in the economy or their issuers may affect their ability to pay
principal and interest on the bonds. Investments in non-U.S. securities
may be subject to certain risks such as currency fluctuations, economic
instability, and political developments, which may be increased in
emerging-markets securities. Although the U.S. government guarantees the
timely payment of principal and interest on some of the underlying
securities, the value of the fund shares is not guaranteed and will
fluctuate.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Diversified
Income Trust is designed for investors seeking current income consistent with
capital preservation through U.S. government, high-yield, and international
fixed-income securities.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99
Class A Class B Class C Class M
(inception dates) (10/3/88) (3/1/93) (2/1/99) (12/1/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 0.31% -4.45% -0.47% -5.08% -0.46% -1.38% 0.09% -3.17%
- ------------------------------------------------------------------------------------------
5 years 35.01 28.61 29.92 28.07 30.05 30.05 33.15 28.83
Annual average 6.19 5.16 5.37 5.07 5.40 5.40 5.89 5.20
- ------------------------------------------------------------------------------------------
10 years 120.33 109.85 104.10 104.10 104.58 104.58 114.30 107.32
Annual average 8.22 7.69 7.40 7.40 7.42 7.42 7.92 7.56
- ------------------------------------------------------------------------------------------
Life of fund 134.24 123.15 114.89 114.89 115.79 115.79 126.69 119.29
Annual average 8.05 7.58 7.21 7.21 7.25 7.25 7.73 7.41
- ------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/99
Salomon Bros.
Lehman Bros. Non-U.S. First Boston
Aggregate World Govt. High Yield Consumer
Bond Index Bond Index Index price index
- -------------------------------------------------------------------------
1 year -0.37% 1.53% 3.95% 2.75%
- -------------------------------------------------------------------------
5 years 45.85 36.11 51.18 12.38
Annual average 7.84 6.36 8.62 2.36
- -------------------------------------------------------------------------
10 years 117.97 137.21 171.90 34.32
Annual average 8.10 9.02 10.52 2.99
- -------------------------------------------------------------------------
Life of fund
(since 10/3/88) 142.52 143.30 186.99 40.15
Annual average 8.39 8.42 10.06 3.12
- -------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25% respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares the
higher operating expenses applicable to such shares. For class C shares,
returns for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
CDSC currently applicable to class C shares, which is 1% for the first
year and is eliminated thereafter, and the higher operating expenses
applicable to class C shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/30/89
Lehman Brothers
Fund's class A Aggregate Bond Consumer price
Date shares at POP Index index
9/30/89 9,525 10,000 10,000
9/30/90 9,715 10,756 10,616
9/30/91 11,796 12,477 10,976
9/30/92 13,905 14,042 11,304
9/30/93 15,691 15,443 11,608
9/30/94 15,543 14,945 11,952
9/30/95 17,392 17,047 12,256
9/30/96 19,192 17,882 12,624
9/30/97 21,277 19,619 12,896
9/30/98 20,921 21,877 13,072
9/30/99 $20,985 $21,797 $13,432
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $20,410 and $20,458, respectively and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $21,430 ($20,732 at public
offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 12 12 8 12
- --------------------------------------------------------------------------------------
Income $0.9214 $0.8349 $0.6004 $0.8966
- --------------------------------------------------------------------------------------
Return of capital* 0.0056 0.0051 0.0036 0.0054
- --------------------------------------------------------------------------------------
Capital gains -- -- -- --
- --------------------------------------------------------------------------------------
Total $0.9270 $0.8400 $0.6040 $0.9020
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------
9/30/98 $11.66 $12.24 $11.61 -- $11.62 $12.01
- --------------------------------------------------------------------------------------
2/1/99+ -- -- -- $11.51 -- --
- --------------------------------------------------------------------------------------
9/30/99 10.77 11.31 10.72 10.75 10.73 11.09
- --------------------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------------------
Current dividend rate1 9.03% 8.59% 8.28% 8.26% 8.84% 8.55%
- --------------------------------------------------------------------------------------
Current 30-day SEC yield2 8.87 8.44 8.11 8.07 8.61 8.33
- --------------------------------------------------------------------------------------
*See page 52.
+Inception of class C shares.
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.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B or class C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one year
after purchase.
Comparative benchmarks
Lehman Bros. Aggregate Bond Index* is composed of securities from Lehman
Brothers Government/Corporate Bond Index, Mortgage-Backed Securities
Index, and 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 an unmanaged
list of bonds issued by 10 countries.
First Boston High Yield Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended September 30, 1999
To the Trustees and Shareholders of
Putnam Diversified Income Trust
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Diversified
Income Trust (the "fund") at September 30, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at September 30, 1999 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 12, 1999
<TABLE>
<CAPTION>
The fund's portfolio
September 30, 1999
CORPORATE BONDS AND NOTES (47.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
$ 7,275,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 7,420,500
9,715,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 9,617,850
7,390,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 7,279,150
--------------
24,317,500
Aerospace and Defense (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,900,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 1,624,500
2,900,000 Argo-Tech Corp. company guaranty Ser. D,
8 5/8s, 2007 2,479,500
5,910,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 5,200,800
1,000,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 995,000
1,870,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 1,827,925
4,620,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 4,169,550
2,700,000 Burke Industries, Inc. company guaranty 10s, 2007 1,890,000
670,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 649,900
2,160,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 2,073,600
3,170,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 3,276,988
1,870,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,781,175
2,500,000 L-3 Communications Corp. company guaranty
Ser. B, 8s, 2008 2,306,250
850,000 Sequa Corp. med. term notes 10s, 2001 875,228
--------------
29,150,416
Agriculture (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
11,609,574 Premium Standard Farms, Inc. sr. sec. notes
11s, 2003 (PIK) 10,622,760
Airlines (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,400,000 Calair LLC 144A company guaranty 8 1/8s, 2008 3,140,750
3,220,000 Canadian Airlines Corp. sr. notes 12 1/4s,
2006 (Canada) 1,899,800
6,360,000 Canadian Airlines Corp. secd. notes 10s,
2005 (Canada) 5,088,000
3,630,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 3,012,900
7,970,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 5,100,800
--------------
18,242,250
Apparel (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
9,530,000 Fruit of the Loom company guaranty 8 7/8s, 2006 3,430,800
2,190,000 GFSI, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/8s, 9/15/04), 2009 (STP) 1,204,500
7,280,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 7,352,800
2,215,000 William Carter Holdings Co. sr. sub. notes
Ser. A, 12s, 2008 2,215,000
1,000,000 William Carter Holdings Co. sr. sub. notes
Ser. A, 10 3/8s, 2006 960,000
--------------
15,163,100
Automotive Parts (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,030,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 2,060,450
1,837,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 1,864,555
5,370,000 Dura Operating Corp. company guaranty
Ser. B, 9s, 2009 4,980,675
800,000 Exide Corp. sr. notes 10s, 2005 796,000
6,700,000 Federal Mogul Corp. notes 7 1/2s, 2009 6,047,621
850,000 Federal Mogul Corp. notes 7 3/8s, 2006 787,508
1,670,000 Hayes Lemmerz International, Inc. company
guaranty Ser. B, 8 1/4s, 2008 1,469,600
4,450,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 4,160,750
980,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 968,975
165,000 Lear Corp. sub. notes 9 1/2s, 2006 168,300
7,295,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 7,003,200
8,475,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 8,157,188
4,600,000 Oxford Automotive, Inc. company guaranty
Ser. D, 10 1/8s, 2007 4,002,000
2,780,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 1,779,200
2,920,000 Transportation Manufacturing Operations Inc.
144A company guaranty 11 1/4s, 2009 2,905,400
--------------
47,151,422
Banks (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
3,850,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2008 3,869,250
6,425,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 6,457,125
5,165,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 4,132,000
3,250,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 3,233,328
2,700,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 2,574,396
2,495,000 North Fork Capital Trust I company guaranty 8.7s, 2026 2,445,374
1,355,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 880,750
2,265,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 2,129,100
2,540,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 2,447,290
2,400,000 Provident Capital Trust company guaranty 8.6s, 2026 2,274,120
DKK 19,709,000 Realkredit Danmark mortgage 7s, 2029 (Denmark) 2,741,692
$ 1,610,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 1,492,164
2,260,000 Sovereign Capital Trust company guaranty 9s, 2027 2,162,707
2,495,000 Webster Capital Trust I 144A bonds 9.36s, 2027 2,398,568
--------------
39,237,864
Basic Industrial Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
7,360,000 Blount Inc. 144A sr. sub. notes 13s, 2009 7,580,800
3,000,000 Blount Inc. bank term loan FRN 9.375s, 9/1/06 2,992,500
1,090,000 Koppers Industries, Inc. 144A company guaranty
9 7/8s, 2007 970,100
4,250,000 Newcor, Inc. company guaranty Ser. B, 9 7/8s, 2008 3,060,000
2,860,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 972,400
4,700,000 Roller Bearing Co. company guaranty Ser. B,
9 5/8s, 2007 4,183,000
--------------
19,758,800
Broadcasting (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,735,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 5,926,800
2,925,000 Allbritton Communications Co. sr. sub. deb. Ser. B,
9 3/4s, 2007 2,910,375
6,740,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 6,436,700
13,120,000 AMFM Inc. company guaranty 8s, 2008 12,726,400
50,635 Australis Media, Ltd. sr. disc. notes stepped-coupon
1 3/4s, (15 3/4s 5/15/00), 2003 (In default)
(Australia) (NON) (STP) (PIK) 5
856,252 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000
(in default) (Australia) (NON) 131,863
15,175,000 Benedek Communications Corp. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 13,202,250
6,860,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 5,762,400
8,055,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 8,115,413
9,899,812 Capstar Broadcasting bank term loan FRN 7.688s, 2005 9,924,561
7,040,000 CD Radio Inc. sr. disc. notes stepped-coupon zero %,
(15s, 12/1/02), 2007 (STP) 3,361,600
1,665,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 666,000
2,914,720 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 2,994,875
4,960,000 Citadel Broadcasting, Inc. company guaranty
9 1/4s, 2008 4,860,800
13,667,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 12,368,635
16,180,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 15,937,300
5,585,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 5,138,200
6,160,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 6,252,400
1,610,000 Globo Communicacoes 144A sr. notes
10 5/8s, 2008 (Brazil) 1,179,325
3,325,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 2,460,500
175,000 Granite Broadcasting Corp. sr. sub. notes
10 3/8s, 2005 178,500
7,940,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 7,662,100
125,000 Gray Communications Systems, Inc. sr. sub. notes
10 5/8s, 2006 129,375
10,235,000 Grupo Televisa S.A. de C.V. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 8,495,050
5,410,000 Grupo Televisa S.A. de C.V. 144A sr. notes
11 7/8s, 2006 (Mexico) 5,599,350
2,565,000 Jacor Communications, Inc. company guaranty
Ser. B, 8 3/4s, 2007 2,693,250
4,250,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 4,292,500
920,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 952,200
1,420,000 Pegasus Communications Corp. sr. notes Ser. B,
9 3/4s, 2006 1,363,200
7,826,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 6,572,275
3,635,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 3,762,225
6,060,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 5,726,700
2,050,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 1,916,750
2,285,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 2,536,350
6,140,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 4,758,500
970,000 TV Azteca S.A. de C.V. sr. notes Ser. A, 10 1/8s,
2004 (Mexico) 785,700
--------------
177,780,427
Building and Construction (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,040,000 American Architectural Products Corp. company
guaranty 11 3/4s, 2007 918,000
2,000,000 American Standard, Inc. company guaranty
7 1/8s, 2006 2,055,900
1,740,000 Atrium Companies Inc. company guaranty Ser. B,
10 1/2s, 2009 1,661,700
155,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 148,025
4,170,000 Building Materials Corp. company guaranty 8s, 2008 3,815,550
2,080,000 Cia Latino Americana 144A company guaranty
11 5/8s, 2004 (Argentina) 1,310,400
235,000 D.R. Horton Inc. company guaranty 10s, 2006 239,113
11,910,000 D.R. Horton, Inc. company guaranty 8s, 2009 10,927,425
2,410,000 Jackson Products, Inc. company guaranty Ser. B,
9 1/2s, 2005 2,229,250
3,060,000 NCI Building Systems Inc. sr. sub. notes Ser. B,
9 1/4s, 2009 2,968,200
7,864,623 Terex Corp. bank term loan FRN 8.375s, 2005 7,825,300
4,050,000 Toll Corp. company guaranty 8 1/8s, 2009 3,837,375
--------------
37,936,238
Business Equipment and Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,650,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 5,678,250
1,225,000 Iron Mountain, Inc. med. term notes company
guaranty 10 1/8s, 2006 1,267,875
5,870,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 5,517,800
10,490,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 9,493,450
1,505,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,459,850
989,130 Outsourcing Solutions bank term loan FRN 8.313s, 10/15/03 959,457
250,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 265,000
9,300,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 4,743,000
--------------
29,384,682
Cable Television (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
590,000 21st Century Telecom Group, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 271,400
733,537 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 737,205
7,720,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 7,276,100
2,990,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 2,687,263
3,380,000 Century Communications Corp. sr. notes 8 7/8s, 2007 3,244,800
4,370,000 Century Communications Corp. sr. notes 8 3/4s, 2007 4,184,275
5,000,000 Charter Communications bank term loan Ser. B
FRN 7.89s, 2008 4,981,250
22,310,000 Charter Communications Holdings LLC 144A
sr. notes 8 5/8s, 2009 20,748,300
5,750,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 6,274,688
1,323,000 CSC Holdings, Inc. deb. Ser. B, 8 1/8s, 2009 1,334,709
1,650,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 1,580,205
4,190,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 3,983,349
7,560,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 6,785,100
15,065,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 11,863,688
6,570,000 Insight Midwest 144A sr. notes 9 3/4s, 2009 6,627,488
1,500,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 1,593,750
4,670,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 4,996,900
3,925,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 2,590,500
1,430,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 922,350
1,770,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 1,898,325
4,170,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(In default) (Argentina) (NON) 1,959,900
1,750,000 TeleWest Communications PLC 144A 11 1/4s, 2008
(United Kingdom) 1,946,875
5,090,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero %, (9 1/4s, 4/15/04) 2009
(United Kingdom) (STP) 3,117,625
13,660,000 United Pan-Europe N.V. 144A stepped-coupon zero %
(12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 7,649,600
6,540,000 United Pan-Europe N.V. 144A sr. notes 10 7/8s,
2009 (Netherlands) 6,589,050
--------------
115,844,695
Cellular Communications (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
11,140,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 12/3/99), 2004 (Colombia) (STP) 8,187,900
4,645,000 Cellco Finance Corp. NV 144A sr. sub. notes
15s, 2005 (Netherlands) 4,888,863
3,815,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 (In default) (NON) 381,500
6,500,000 Dial Call Communications, Inc. sr. disc. notes
Ser. B, 10 1/4s, 2005 6,548,750
9,325,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 9,837,875
14,200,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 8,520,000
22,350,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 15,980,250
3,370,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 1,693,425
9,180,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 10,189,800
8,030,000 NEXTEL Communications Corp. sr. disc. notes 10 1/8s, 2004 8,050,075
4,280,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9.95s, 2/15/03), 2008 (STP) 2,985,300
2,610,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 1,846,575
5,640,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 5,752,800
--------------
84,863,113
Chemicals (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,540,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 4,199,500
1,250,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 1,168,750
4,690,000 Huntsman Corp. 144A sr. sub. notes FRN 9.031s, 2007 4,174,100
500,000 Huntsman ICI Chemicals Inc. sr. sub. notes 10 1/8s, 2009 520,650
11,850,000 Huntsman ICI Chemicals Inc. 144A sr. sub. notes
10 1/8s, 2009 11,553,750
7,000,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 6,982,500
8,800,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 8,712,000
13,220,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 13,153,900
2,175,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 1,631,250
2,590,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 1,994,300
5,571,737 Polytama International notes 11 1/4s, 2007 (Indonesia) 1,002,913
5,140,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 4,677,400
5,090,000 Scotts Co. 144A sr. sub. notes 8 5/8s, 2009 4,860,950
4,450,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 890,000
3,300,000 Sterling Chemicals Inc. 144A sec. notes 12 3/8s, 2006 3,102,000
4,790,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 2,682,400
--------------
71,306,363
Computer Services and Software (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,345,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 1,358,450
9,490,000 IPC Information Systems Inc. sr. disc. notes zero %
(10 7/8s, 5/1/01), 2008 (STP) 7,022,600
5,780,000 PSINet, Inc. sr. notes 11 1/2s, 2008 5,837,800
6,570,000 PSINet, Inc. 144A sr. notes 11s, 2009 6,438,600
1,000,000 PSINet, Inc. 144A sr. notes 11s, 2009 1,046,640
2,760,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 2,639,250
5,660,000 Unisys Corp. sr. notes 7 7/8s, 2008 5,476,050
2,790,000 Verio Inc. sr. notes 11 1/4s, 2008 2,845,800
2,020,000 Verio Inc. sr. notes 10 3/8s, 2005 2,004,850
--------------
34,670,040
Conglomerates (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,870,000 Axia, Inc. company guaranty 10 3/4s, 2008 6,354,750
7,420,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 3,561,600
6,300,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 3,276,000
1,870,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 935,000
--------------
14,127,350
Consumer Durable Goods (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,460,000 Albecca Inc. company guaranty 10 3/4s, 2008 3,423,050
660,000 Hedstrom Holdings, Inc. 144A sr. disc. notes
stepped-coupon zero % (12s, 6/1/02), 2009 (STP) 244,200
1,440,000 Iron Age Corp. company guaranty 9 7/8s, 2008 1,108,800
1,750,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 1,697,500
--------------
6,473,550
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,156,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 7,567,470
2,190,000 Protection One, Inc. sr. disc. notes 13 5/8s, 2005 1,992,900
--------------
9,560,370
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,800,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 1,620,000
1,225,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 1,214,281
2,900,000 Revlon Consumer Products sr. notes 9s, 2006 2,624,500
9,455,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 7,705,825
960,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 856,800
--------------
14,021,406
Electric Utilities (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
7,625,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 4,651,250
2,030,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 1,898,050
150,000 Calpine Corp. sr. notes 10 1/2s, 2006 157,500
1,900,000 Calpine Corp. sr. notes 9 1/4s, 2004 1,919,000
7,165,000 Calpine Corp. sr. notes 8 3/4s, 2007 7,194,806
5,400,000 Calpine Corp. sr. notes 7 7/8s, 2008 5,130,000
6,310,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 5,954,495
2,385,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 2,415,266
3,080,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 3,316,975
2,985,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 3,602,000
16,170,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 17,872,539
2,162,440 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 2,175,890
2,124,635 Niagara Mohawk Power Corp. sr. notes Ser. E, 7 3/8s, 2003 2,135,194
2,313,201 Northeast Utilities System notes Ser. A, 8.58s, 2006 2,344,753
2,460,205 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,445,075
9,535,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 5,434,950
7,170,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 7,170,000
--------------
75,817,743
Electronics (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
3,145,000 Celestica International Ltd. 144A sr. sub. notes
10 1/2s, 2006 (Canada) 3,302,250
2,760,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 2,608,200
8,655,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 8,525,175
845,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 557,700
700,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 714,000
7,360,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 6,992,000
7,120,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 6,141,000
2,940,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 2,535,750
4,920,000 Wavetek Corp. company guaranty 10 1/8s, 2007 4,132,800
--------------
35,508,875
Entertainment (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
7,320,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon
zero %, (10s, 4/1/03), 2008 (STP) 4,611,600
5,675,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 5,334,500
3,940,000 SFX Entertainment Inc. company guaranty 9 1/8s, 2008 3,624,800
5,270,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 4,980,150
5,000,000 SFX Entertainment bank term loan Ser. B FRN 9s, 2006 4,968,750
--------------
23,519,800
Environmental Control (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
9,020,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10s, 2009 8,411,150
4,700,000 Allied Waste Industries, Inc. bank term loan Ser. C.
FRN 8.438s, 6/30/07 4,780,652
3,830,000 Allied Waste Industries, Inc. bank term loan Ser. B FRN
8.188s, 6/30/06 3,849,380
12,650,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 11,147,813
1,860,000 Waste Management, Inc. sr. notes 7 1/8s, 2007 1,657,725
225,000 Waste Management, Inc. 144A sr. notes 6 7/8s, 2009 194,344
--------------
30,041,064
Financial Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,520,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 4,368,400
9,995,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 9,317,839
2,525,000 Advanta Corp. med. term notes Ser. D, 6.98s, 2002 2,293,129
3,570,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 2,195,550
937,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 590,310
1,425,000 Colonial Capital II 144A company guaranty 8.92s, 2027 1,308,895
2,135,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 736,575
7,380,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 2,509,200
5,880,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 1,411,200
250,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 233,278
5,405,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 4,324,000
4,455,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 3,558,431
2,490,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 2,412,188
2,800,000 Local Financial Corp. sr. notes 11s, 2004 2,912,000
2,665,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 1,625,650
4,055,000 Resource America Inc. 144A sr. notes 12s, 2004 3,446,750
2,900,000 Superior Financial 144A sr. notes 8.65s, 2003 2,785,813
--------------
46,029,208
Food and Beverages (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Ameriserve Food Distribution Inc. 144A sec. notes 12s, 2006 2,443,750
7,640,000 Ameriserve Food Co. company guaranty
10 1/8s, 2007 4,966,000
135,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 136,013
5,960,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 6,004,700
5,590,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 5,478,200
2,809,722 Imperial Holly bank term loan Ser. A FRN 7.828s, 2003 2,774,601
6,900,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 4,347,000
7,680,000 Triarc Consumer Products, Inc. 144A sr. sub. notes
10 3/4s, 2009 7,430,400
6,160,000 Vlassic Foods Intl. Inc. 144A sr. sub. notes 10 1/4s, 2009 5,544,000
--------------
39,124,664
Gaming (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,940,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 5,063,500
4,785,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 4,868,738
8,390,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 8,138,300
2,544,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 2,252,076
7,804,200 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 (PIK) 7,413,990
6,040,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 3,246,500
2,230,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 2,096,958
9,260,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 9,329,450
4,000,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 3,840,000
5,730,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 5,414,850
9,920,000 International Game Technology sr. notes 7 7/8s, 2004 9,473,600
2,085,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 2,262,225
5,230,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 5,073,100
3,790,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 3,572,075
2,550,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 1,141,125
2,250,000 Sun International Hotels Ltd. company guaranty 9s, 2007 2,092,500
2,400,000 Sun International Hotels Ltd. sr. sub. notes 8 5/8s, 2007 2,172,000
775,000 Trump A.C. 1st mtge. 11 1/4s, 2006 658,750
10,820,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 10,956,116
3,840,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 3,801,600
--------------
92,867,453
Health Care (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,030,000 Columbia/HCA Healthcare Corp. med. term notes
8.85s, 2007 4,879,100
1,750,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 1,548,750
1,850,000 Columbia/HCA Healthcare Corp. med. term notes notes
7.69s, 2025 1,470,750
820,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 717,631
1,950,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 1,857,707
2,930,000 Conmed Corp. company guaranty 9s, 2008 2,695,600
4,690,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 2,814,000
750,000 Fresenius Medical Capital Trust II company guaranty
7 3/8s, 2008 (Germany) 415,688
4,680,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 748,800
2,940,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 499,800
2,840,000 Lifepoint Hospital Holdings 144A sr. sub. notes 10 3/4s, 2009 2,832,900
4,606,163 Magellan Health bank term loan FRN 8s, 2004 4,375,855
2,410,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon , zero % (10 1/2s, 11/1/02), 2007 (STP) 120,500
11,280,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 676,800
3,180,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 3,036,900
12,585,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 4,782,300
7,105,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 4,831,400
4,975,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 497,500
5,820,000 Sun Healthcare Group, Inc. 144A sr. sub. notes
9 3/8s, 2008 (In default) (NON) 582,000
2,560,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 2,432,000
1,188,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 1,164,240
5,150,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 4,712,250
462,000 Tenet Healthcare Corp. sr. notes 8s, 2005 438,900
3,850,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 3,503,500
3,530,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 3,512,350
--------------
55,147,221
Lodging (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,320,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 3,758,400
1,615,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 1,493,875
2,960,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 2,641,800
8,400,000 Host Marriott L.P. sr. notes Ser. E, 8 3/8s, 2006 7,896,000
11,300,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 11,582,500
9,526,000 ITT Corp. notes 6 3/4s, 2005 8,575,305
3,855,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 3,700,800
--------------
39,648,680
Medical Supplies and Devices (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,395,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 4,076,363
4,160,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 4,316,000
2,155,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 1,551,600
3,650,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 2,847,000
4,350,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 1,087,500
3,800,000 Mediq, Inc. company guaranty 11s, 2008 2,470,000
--------------
16,348,463
Metals and Mining (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,535,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 (In default) (NON) 1,307,950
9,320,000 Better Minerals & Aggregates Co. 144A sr. sub. notes 13s, 2009 9,354,950
2,705,000 Continental Global Group sr. notes Ser. B, 11s, 2007 1,595,950
8,130,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 6,097,500
3,630,000 Neenah Corp. company guaranty Ser. F, 11 1/8s, 2007 3,339,600
--------------
21,695,950
Motion Picture Distribution (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,450,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 1,189,000
4,560,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 3,807,600
475,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 408,500
1,535,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 1,297,075
1,970,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 1,536,600
15,328,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 4,598,400
4,610,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 2,028,400
4,892,101 United Artist bank term loan Ser. C FRN, 10.5s, 2007 3,889,220
6,790,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 1,358,000
--------------
20,112,795
Oil and Gas (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 2,537,500
625,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 381,250
4,120,000 Coda Energy, Inc. company guaranty Ser. B, 10 1/2s, 2006 4,233,300
1,850,000 CMS Energy Corp. pass through certificates 7s, 2005 1,763,846
12,490,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 12,002,890
1,210,000 Gulf Canada Resources Ltd. sr. sub. notes
9 5/8s, 2005 (Canada) 1,246,300
3,550,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 3,487,485
2,800,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 2,794,148
2,050,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 2,101,250
3,800,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 3,781,000
5,880,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 5,674,200
6,830,000 Petro Geo-Services notes 7 1/2s, 2007 (Norway) 6,745,171
2,710,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 1,341,450
12,520,000 RBF Finance Co. company guaranty 11s, 2006 12,926,900
2,865,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 1,146,000
8,100,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 8,241,750
--------------
70,404,440
Packaging and Containers (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,365,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 1,276,275
2,250,000 Ball Corp. company guaranty 8 1/4s, 2008 2,182,500
960,000 Ball Corp. company guaranty 7 3/4s, 2006 931,200
2,000,000 BSN Financing Co. 144A company guaranty 10 1/4s, 2009 2,168,040
3,800,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 3,040,000
4,000,000 Kappa Beheer BV. 144A 10 5/8s, 2009 (Netherlands) 4,314,720
2,740,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 2,665,499
5,110,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 4,802,531
8,440,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 7,959,764
6,870,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 6,938,700
5,733,471 Packaging Corp. bank term loan FRN 8.625s, 2007 5,733,471
1,400,000 Radnor Holdings Inc. sr. notes 10s, 2003 1,428,000
11,680,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 11,008,400
2,185,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 2,141,300
--------------
56,590,400
Paper and Forest Products (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,389,941 Alabama River Newsprint bank term loan FRN 7.375s, 2002 3,599,751
3,750,000 APP Finance II Mauritius Ltd. bonds stepped-coupon
12s, (16s, 2/15/04), 2049 (Indonesia) (STP) 2,175,000
3,290,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 3,076,150
5,280,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 4,699,200
4,095,000 Indah Kiat Financial Mauritius Ltd. company guaranty
10s, 2007 (Indonesia) 2,293,200
5,680,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 5,765,200
5,600,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 3,136,000
7,645,000 PT Pabrik Kertas Tjiwi Kimia company guaranty
10s, 2004 (Indonesia) 4,357,650
8,695,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 7,586,388
2,740,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 2,534,500
--------------
39,223,039
Pharmaceuticals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,020,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 3,989,850
7,370,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 6,725,125
--------------
10,714,975
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,550,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 775,000
Publishing (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
7,505,000 Affinity Group Holdings sr. notes 11s, 2007 6,942,125
3,120,000 American Media Operation, Inc. sr. sub. notes 10 1/4s, 2009 3,018,600
5,560,000 Garden State Newspapers sr. sub. notes 8 5/8s, 2011 5,004,000
5,270,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 4,980,150
400,000 Hollinger International Publishing, Inc. company
guaranty 9 1/4s, 2007 396,000
4,520,000 Perry-Judd company guaranty 10 5/8s, 2007 4,113,200
1,039,188 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 945,661
2,625,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 2,572,500
--------------
27,972,236
Railroads (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,615,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 1,114,350
7,900,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero %, (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 4,424,000
2,340,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 2,053,350
--------------
7,591,700
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,465,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 2,144,550
4,000,000 Sbarro Inc. 144A sr. notes 11s, 2009 3,950,000
--------------
6,094,550
Retail (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,280,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 2,870,000
6,030,000 Interact Systems, Inc. 144A sr. discount notes 14s, 2003 964,800
4,600,000 K mart Corp. pass-thru certificates Ser. 95K4, 9.35s, 2020 4,439,000
3,945,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 3,570,225
3,350,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 3,350,000
7,115,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 5,958,813
6,965,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 6,581,925
2,750,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 2,612,500
--------------
30,347,263
Satellite Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,530,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 5,889,450
2,915,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes
10 1/8s, 2004 (Mexico) 2,244,550
4,430,000 Satelites Mexicanos S.A. de C.V. 144A company
guaranty FRB 9 3/8s, 2004 (Mexico) 4,144,855
--------------
12,278,855
Semiconductors (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,400,000 Amkor Technologies, Inc. 144A sr. sub. notes 10 1/2s, 2009 2,310,000
6,300,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 6,205,500
9,090,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 8,908,200
4,185,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 3,818,813
--------------
21,242,513
Shipping (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,530,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 1,407,600
1,000,000 Pegasus Shipping 144A 11 7/8s, 2004 360,000
--------------
1,767,600
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,690,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 4,174,100
Steel (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
9,440,000 AK Steel Corp. company guaranty 7 7/8s, 2009 8,684,800
4,920,000 Ameristeel Corp. company guaranty Ser. B, 8 3/4s, 2008 4,821,600
5,910,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 5,614,500
7,285,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 7,230,363
5,791,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 5,747,568
2,490,000 WHX Corp. sr. notes 10 1/2s, 2005 2,353,050
--------------
34,451,881
Telecommunications (6.5%)
- --------------------------------------------------------------------------------------------------------------------------
8,670,000 Alaska Communications Systems 144A sr. sub. notes
9 3/8s, 2009 8,128,125
1,840,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 1,996,400
6,365,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 4,137,250
4,590,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 2,547,450
3,630,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 2,286,900
3,630,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 3,557,400
3,230,000 CapsRock Communications Corp. sr. notes Ser. B, 12s, 2008 3,165,400
2,400,000 CapsRock Communications Corp. sr. notes 11 1/2s, 2009 2,328,000
5,620,000 Carrier 1 International S.A. 144A sr. notes 13 1/4s,
2009 (Switzerland) 5,620,000
13,235,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 10,819,613
9,960,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 9,362,400
4,910,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 2,504,100
23,755,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 1/2s, 03/01/03), 2008 (STP) 8,314,250
8,555,000 Econophone, Inc. company guaranty 13 1/2s, 2007 8,982,750
6,830,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 3,824,800
2,420,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 2,456,300
1,220,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 1,232,200
15,300,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 7,803,000
7,925,000 Focal Communications Corp. sr. disc. notes, stepped-
coupon Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 4,457,813
20,435,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 20,996,963
6,165,000 GST Equipment Funding sr. notes 13 1/4s, 2007 6,226,650
5,981,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 4,545,560
15,760,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 7,407,200
210,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 215,250
2,990,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 2,511,600
5,535,000 Hyperion Telecommunications Corp., Inc. sr. notes
Ser. B, 12 1/4s, 2004 5,811,750
4,420,000 Hyperion Telecommunications Inc. sr. sub. notes 12s, 2007 4,442,100
9,350,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 2/15/03), 2008 (STP) 5,376,250
5,700,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 4,959,000
9,120,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 5,061,600
1,470,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 (STP) 1,161,300
5,855,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 3,922,850
7,200,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 6,192,000
3,820,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 3,266,100
18,000,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 9,000,000
5,360,000 KMC Telecommunications 144A sr. notes 13 1/2s, 2009 5,199,200
10,745,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero %, (11 7/8s, 10/15/02), 2007 (STP) 6,258,963
4,730,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 3,973,200
6,090,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 5,876,850
20,000 McLeodUSA, Inc. sr. notes 8 1/8s, 2009 18,600
890,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 560,700
1,570,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 1,381,600
7,800,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 7,878,000
4,575,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 3,626,740
5,130,000 Qwest Communications International, Inc. sr. notes
Ser. B, 7 1/4s, 2008 4,967,430
10,080,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 4,939,200
2,980,000 Telehub Communications Corp. company guaranty stepped-
coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 745,000
2,580,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 1/2s, 3/1/03), 2008 (STP) 1,354,500
5,335,000 Teligent, Inc. sr. notes 11 1/2s, 2007 4,881,525
10,360,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 10,437,700
5,510,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 5,454,900
12,270,000 Williams Communications Group Inc. sr. notes 10 7/8s, 2009 12,239,325
6,375,000 WinStar Communications, Inc. sr. sub. notes stepped-
coupon zero % (15s, 3/1/02), 2007 (STP) 7,331,250
2,340,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 2,035,800
360,000 WinStar Communications, Inc. sr. sub. notes 10s, 2008 298,800
6,440,000 Worldwide Fiber Inc. 144A sr. notes 12s, 2009 6,295,100
--------------
280,374,707
Telephone Services (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
12,180,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 10,231,200
15,180,000 Call-Net Enterprises Inc. sr. disc. notes stepped-coupon
zero % (10.8s, 5/15/04), 2009 (Canada) (STP) 8,045,400
3,090,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 1,823,100
9,140,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 4,707,100
3,820,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 3,056,000
3,170,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 2,694,500
3,840,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 3,350,400
3,343,000 ITC Deltacom, Inc. sr. notes 11s, 2007 3,510,150
1,230,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 615,000
2,510,000 OnePoint Communications Corp. company guaranty
Ser. B, 14 1/2s, 2008 1,631,500
7,210,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 3,911,425
5,390,000 Primus Telecommunications Group, Inc. sr. notes
Ser. B, 9 7/8s, 2008 4,743,200
6,906,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 6,871,470
3,430,000 RSL Communications, Ltd. 144A company guaranty
10 1/2s, 2008 3,121,300
1,545,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 1,290,075
1,955,000 Sprint Spectrum L.P. sr. notes 11s, 2006 2,188,720
1,800,000 Transtel pass through certificates 12 1/2s, 2007 882,000
4,800,000 US Xchange LLC sr. notes 15s, 2008 4,680,000
3,800,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
1/2s, 4/15/03), 2008 (STP) 2,128,000
11,660,000 Viatel, Inc. sr. notes 11 1/4s, 2008 10,960,384
--------------
80,440,924
Textiles (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,570,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 1,281,100
1,725,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 1,634,438
2,560,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 2,400,000
5,100,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 4,564,500
--------------
9,880,038
Transportation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,775,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s,
2003 (Greece) 1,597,500
2,260,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 2,169,600
80,000 Johnstown America Industries, Inc. sr. sub. notes
11 3/4s, 2005 81,600
5,360,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 5,467,200
--------------
9,315,900
Utilities (--%)
- --------------------------------------------------------------------------------------------------------------------------
380,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 376,394
Wireless Communications (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,245,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 1,605,175
20,412,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 7,348,320
3,380,000 Clearnet Communications, Inc. sr. disc. notes stepped-
coupon zero % (14 3/4s, 12/15/00), 2005 (STP) 3,177,200
6,505,000 Microcell Telecommunications sr. disc. notes stepped-
coupon Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 5,431,675
3,680,000 Omnipoint Corp. 144A sr. notes 11 1/2s, 2009 3,790,400
4,250,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 3,230,000
900,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 270,000
5,850,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon
zero % (12 1/2s, 8/15/01), 2006 (STP) 5,417,685
8,690,000 Startec Global Communications Corp. sr. notes 12s, 2008 7,212,700
5,620,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon
zero % (11 5/8s, 4/15/04), 2009 (STP) 3,245,550
--------------
40,728,705
--------------
Total Corporate Bonds and Notes (cost $2,310,452,541) $2,040,219,482
FOREIGN GOVERNMENT BONDS AND NOTES (15.8%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD $ 51,500,000 Argentina (Republic of) unsub. 11 3/4s, 2009 $ 49,697,500
AUD 107,585,000 Australia (Government of) bonds 8 3/4s, 2008 81,686,838
USD 12,345,000 Brazil (Government of) bonds 11 5/8s, 2004 11,589,486
CAD 45,085,000 Canada (Government of) bonds Ser. WB60,
7 1/4s, 2007 33,563,209
CAD 86,570,000 Canada (Government of) bonds Ser. WL43,
5 3/4s, 2029 58,685,323
EUR 123,735,000 Germany (Federal Republic of) bonds
Ser. 132, 4 1/8s, 2004 130,563,192
USD 8,500,000 Colombia (Republic of) unsub. 9 3/4s, 2009 7,288,750
USD 3,370,000 Colombia (Republic of) unsub. 8 5/8s, 2008 2,712,850
USD 7,325,000 Russia (Federation of) 144A bonds 12 3/4s, 2028 3,451,906
USD 14,275,000 Russia (Federation of) unsub. 10s, 2007 5,995,500
USD 43,960,000 Russia (Federation of) deb. principal loans
FRB 6.063s, 2020 (In default) (NON) 4,011,350
SEK 582,800,000 Sweden (Government of) bonds, Ser. 1041,
6 3/4s, 2014 76,513,224
SEK 98,100,000 Sweden (Government of) bonds, Ser. 1035, 6s, 2005 12,342,535
GBP 13,975,000 United Kingdom Treasury bonds 10s, 2003 25,902,783
GBP 22,520,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 40,406,487
GBP 51,295,000 United Kingdom Treasury bonds 8s, 2000 86,547,617
USD 34,220,000 United Mexican States bonds Ser. XW,
10 3/8s, 2009 34,630,640
USD 17,340,000 United Mexican States sr. notes Ser.
EMTN, 9 3/4s, 2005 17,487,390
--------------
Total Foreign Government Bonds and Notes
(cost $699,576,361) $ 683,076,580
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (14.8%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
$19,692,615 7 1/2s, with due dates from August 1, 2017 to
September 1, 2028 $ 19,778,674
12,434,077 7s, July 1, 2012 12,437,932
Federal National Mortgage Association
Pass-Through Certificates
7,410,485 7s, with due dates from January 1, 2006 to
August 1, 2014 7,403,521
Federal National Mortgage Association
Pass-Through Certificates
1,480,826 6 1/2s, with due dates from September 1, 2010 to
July 15, 2013 1,453,060
477,607 5 1/2s, August 15, 2014 449,844
Government National Mortgage Association
Pass-Through Certificates
33,691,782 8s, with due dates from May 15, 2024 to
December 15, 2027 34,428,966
59,117,972 7 1/2s, with due dates from December 15, 2022 to
August 15, 2026 59,414,495
5,184,378 7s, with due dates from January 15, 2024 to
November 15, 2026 5,107,119
1,409,283 6 1/2s, with due dates from August 15, 2027 to
November 15, 2028 1,348,833
--------------
141,822,444
U.S. Treasury Obligations (11.5%)
- --------------------------------------------------------------------------------------------------------------------------
305,000 U.S. Treasury Bonds 6 1/8s, August 15, 2029 (SEG) 308,001
U.S. Treasury Notes
18,355,000 6s, August 15, 2009 18,504,043
5,465,000 6s, August 15, 2004 5,517,956
25,315,000 5 5/8s, May 15, 2008 (SEG) 24,571,245
128,200,000 5 1/2s, May 15, 2009 124,054,012
16,430,000 5 1/2s, July 31, 2001 16,388,925
179,915,000 5 1/4s, May 15, 2004 175,838,126
22,765,000 5 1/4s, May 31, 2001 22,626,361
22,520,000 4 3/4s, November 15, 2008 20,500,181
90,850,000 4 1/4s, November 15, 2003 85,711,524
16,040,000 U.S. Treasury Strip, zero %, November 15, 2019 4,546,378
--------------
498,566,752
--------------
Total U.S. Government and Agency Obligations
(cost $648,981,551) $ 640,389,196
COLLATERALIZED MORTGAGE OBLIGATIONS (9.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.
$ 9,470,000 Ser. 97-ML1, Class D, 6.977s, 2030 $ 8,916,597
10,555,000 Ser. 98-C2, Class D, 6.757s, 2009 9,662,773
188,820,665 Ser. 97-ML1, Interest Only (IO), 0.899s, 2017 8,968,982
11,914,010 Countrywide Home Loan Ser. 98-3, Class A5, 6 3/4s, 2028 11,279,217
16,405,000 Countrywide Mortgage Backed Securities, Inc.
Ser. 93-C, Class A8, 6 1/2s, 2024 15,328,668
Criimi Mae Commercial Mortgage Trust
55,935,000 Ser. 98-C1, Class A2, 7s, 2011 48,104,100
22,420,000 Ser. 98-C1, Class B, 7s, 2011 16,797,484
124,476,135 Deutsche Mortgage & Asset Receiving Corp.
Ser. 98-C1, Class X, IO, 1.243s, 2031 6,826,738
27,775,031 Fannie Mae Ser. 1993-251, Class Z, 6 1/2s, 2023 23,799,729
Fannie Mae Strip
49,963,144 Ser. 281, Class 2, IO, 9s, 2026 12,834,283
12,684,478 Ser. 217, Class 2, IO, 8s, 2023 3,583,365
Fannie Mae Strip
4,568,340 Ser. 176, Class 2, IO, 8s, 2022 1,290,556
3,413,627 Ser. 1998-30, Class TH, IO, 6 1/2s, 2012 635,788
8,982 Ser. 291, Class 1, Principal Only (PO), zero %, 2027 6,697
54,534,652 First Union-Lehman Brothers Commercial
Mortgage Co. Ser. 97-C2, IO, 1.916s, 2027 4,094,359
Freddie Mac
20,443,000 Ser. 2182, Class SA, 8.336% 2021 18,314,884
6,475,000 Ser. 2040, Class PE, 7 1/2s, 2028 6,552,506
4,625,000 Ser. 1439, Class I, 7 1/2s, 2022 4,611,270
6,345,872 Ser. 1717, Class L, 6 1/2s, 2024 6,184,994
Freddie Mac Strip
5,166,746 Ser.1208, Class F, PO, 9s, 2022 4,112,407
15,353 Ser. 1208, Class G, IO, 9s, 2022 383,988
5,702,214 Ser. 165, Class B, IO, 8s, 2024 1,582,365
10,832,332 Ser. 147, Class IO, 8s, 2023 3,029,668
3,353,683 Ser. 137, Class B, IO, 8s, 2022 930,647
5,255,600 Ser. 144, Class A, IO, 8s, 2022 1,458,429
20,748,908 Ser. 177, Class PO, 7s, 2026 14,381,587
67,583,572 Ser. 2089, Class PI, IO, 7s, 2023 12,147,539
7,780,307 Ser. 2039, Class PI, IO, 6 1/2s, 2012 1,288,613
4,033,346 Ser. 2100, Class GI, IO, 6 1/2s, 2012 751,211
10,773,024 Ser. 2103, Class PI, IO, 6 1/2s, 2012 1,919,753
6,689,197 Ser. 2050, Class PI, IO, 6 1/2s, 2011 1,210,327
34,110,819 Ser. 1954, Class MG, IO, 6s, 2027 10,329,182
13,071 Ser. 191, Class PO, zero %, 2028 9,738
14,252,914 Ser. 195, Class PO, zero %, 2028 10,264,325
5,024,832 GE Capital Mortgage Services, Inc. Ser. 98-11,
Class 2A4, 6 3/4s, 2028 4,767,309
11,505,000 General Growth Properties-Ala Moana Ser. 1999-C1,
Class E, 7.66s, 2009 11,505,000
5,620,000 General Growth Properties-Ivanhoe Ser. 1999,
Class C1, .8.666s, 2004 5,620,000
4,920,000 General Growth Properties-Ivanhoe Ser. 1999, Class F,
7.916s, 2004 4,920,000
6,200,000 GMAC Commercial Mortgage Securities Inc. Ser. 98-C2,
Class D, 6 1/2s, 2031 5,520,180
7,443,000 Government National Mortgage Association Ser. 1997-8,
Class PE 7 1/2s, 2027 7,498,823
9,595,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D,
7.191s, 2031 8,779,425
5,319,775 Headlands Mortgage Securities, Inc. Ser. 1998-1,
Class X2, 6 1/2s, 2028 1,037,356
Merrill Lynch Mortgage Investors, Inc.
7,476,000 Ser. 1995-C3, Class D, 7.782s, 2025 7,383,718
4,196,000 Ser. 98-C2, Class D, 6.956s, 2030 3,893,757
11,695,012 Ser. 98-C2, Class IO, 1.449s, 2030 851,543
70,411,386 Ser. 96-C2, Class IO, 1.563s, 2028 4,934,298
Morgan Stanley Capital I
610,000 Ser. 96-WF1, Class A2, 7.218s, 2006 616,005
5,675,000 Ser. 98-XL1, Class E, 7.15s, 2030 5,318,539
134,301,402 Ser. 98-HF1, Class X, IO, 1.199s, 2018 7,501,992
Mortgage Capital Funding, Inc.
68,243,981 Ser. 97-MC2, Class X, IO, 1.581s, 2012 4,798,405
307,937,125 Ser. 98-MC1, Class X, IO, 0.86s, 2009 11,862,797
9,123,489 PNC Mortgage Securities Corp. Ser. 97-6,
Class A2, 6.6s, 2027 9,146,298
2,938,849 Prudential Home Mortgage Securities Ser. 93-57,
Class A4, 5.9s, 2023 2,920,629
7,575,555 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 7,458,589
Structured Asset Security Corp.
9,339,709 144A 8.712s, 2027 9,748,321
15,744,801 Ser. 98-RF2, 8.58s, 2028 16,389,352
74,164,463 Ser. 98-RF3, Class IO, 6.1s, June 15, 2028 14,703,105
--------------
Total Collateralized Mortgage Obligations
(cost $454,220,951) $ 428,768,210
BRADY BONDS (5.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,110,000 Argentina (Republic of) Ser. L-GL, FRB 6s, 2023 $ 1,513,925
121,374,708 Brazil (Republic of) bonds 8s, 2014 (POR) 77,230,726
17,645,000 Brazil (Republic of) disc. bonds Ser. ZL, FRB 5.875s, 2024 11,160,463
8,000,000 Brazil (Republic of) Ser. L, FRB 5.938s, 2012 4,890,400
10,000,000 Bulgaria (Government of) FRB Ser. A, 6 1/2s, 2024 6,875,000
53,060,000 Bulgaria (Government of) Ser. A, FLIRB 2 3/4s, 2012 33,295,150
8,000,000 United Mexican States Ser. D FRB 6.068s, 2019 6,830,000
103,040,000 United Mexican States Sec. Ser. WB, 6 1/4s, 2019 75,734,400
26,425,000 Venezuela (Government of) deb. Ser. W-A, 6 3/4s, 2020 17,408,790
--------------
Total Brady Bonds (cost $256,188,127) $ 234,938,854
PREFERRED STOCKS (3.9%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,607 21st Century Telecom Group 144A $13.75 cum. pfd. (PIK) $ 803,500
69,049 AmeriKing, Inc. $3.25 pfd. (PIK) 1,104,784
2 Anvil Holdings Ser. B, $3.25 pfd. (PIK) 3
121,400 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 2,913,600
25,359 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 2,941,644
31,985 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 3,710,260
130,000 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 3,510,000
99,570 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 5,376,780
33,228 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 3,771,378
3,235 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 2,976,200
131,895 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 14,178,713
219,600 Diva Systems Corp. Ser. C, $6.00 pfd. 878,400
10,214 Dobson Communications $13.00 pfd. 9,856,510
2,350 First Republic 144A 10.50% pfd. 2,350,000
172,935 Fitzgeralds Gaming $3.75 cum. pfd. 345,870
3,725 Fresenius Medical Capital Trust I Ser. D, 9.00%
company guaranty, pfd. (Germany) 3,659,813
6,100 Fresenius Medical Capital Trust II $7.875 company
guaranty, pfd. (Germany) 5,627,250
102,370 Global Crossing Holdings, LTD 144A 10.50% pfd. 10,748,850
11,916 Granite Broadcasting 144A 12.75% pfd. (PIK) 11,439,360
9,795 ICG Holdings, Inc. $14.25 pfd. (Canada) 9,207,300
9,438 ICG Holdings, Inc., 144A $14.00 pfd. (Canada) (PIK) 8,777,340
10,083 Intermedia Communication Ser. B, 13.50% (PIK) 9,074,700
7,023 IXC Communications, Inc. 12.50% pfd. (PIK) 7,374,150
4,468 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 4,713,740
1,998 NEXTEL Communications, Inc. Ser. E, 11.125% pfd. (PIK) 1,958,040
204,178 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 10,106,810
1,071 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 11,566,800
24,009 Public Service Co. of New Hampshire $2.651 1st mtge. pfd. 600,225
3,000 R& B Falcon Corp. 13.875% pfd. 2,850,000
16,500 Sinclair Capital $11.625 cum. pfd. 1,654,125
8,318 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 8,733,900
6,080 WinStar Communications, Inc. 144A 14.25% cum. pfd. (PIK) 5,107,200
--------------
Total Preferred Stocks (cost $176,896,883) $ 167,917,245
ASSET-BACKED SECURITIES (0.7%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 12,195,000 Chemical Master Credit Card Trust Ser. 95-2, Class A,
6.23s, 2003 $ 12,229,268
15,250,198 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 12,962,668
4,044,741 Green Tree Recreational Equipment & Cons.
Ser. 97-B, Class A1, 6.55s, 2028 4,026,097
--------------
Total Asset-Backed Securities (cost $31,799,869) $ 29,218,033
COMMON STOCKS (0.7%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,750 AmeriKing, Inc. (NON) $ 17,500
59,600 AMFM, Inc. (NON) 3,628,150
625,283 Celcaribe (Colombia) (NON) 234,481
1,811,364 Celcaribe S.A. 144A (Colombia) (NON) 2,264,205
252,474 Chesapeake Energy Corp. (NON) 978,337
223,713 Fitzgerald Gaming Corp. (NON) (AFF) 55,928
32,500 French Fragrances Inc. (NON) 219,375
40,032 Hedstrom Holdings, Inc. 144A (NON) 40,032
7,541 IFINT Diversified Holdings 144A (NON) 15,082
8,280 Lady Luck Gaming Corp. (NON) 66,239
844 Mothers Work, Inc. (NON) 6,647
50,761 NEXTEL Communications, Inc. Class A (NON) 3,442,230
900 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 9
1,942 Premium Holdings (L.P.) 144A (NON) 7,768
979,968 PSF Holdings LLC Class A (NON) (AFF) 12,249,600
1,477 Spanish Broadcasting System, Inc. (NON) 959,790
51,205 Viatel, Inc. (NON) 1,513,743
62,769 WinStar Communications. Inc. (NON) 2,451,920
--------------
Total Common Stocks (cost $45,081,618) $ 28,151,036
CONVERTIBLE BONDS AND NOTES (0.5%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 4,200,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 4,116,000
12,250,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) 6,768,125
425,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 247,563
2,782,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 3,338,400
3,660,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 2,831,925
2,310,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 2,180,062
--------------
Total Convertible Bonds and Notes
(cost $17,205,792) $ 19,482,075
WARRANTS (0.4%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,695 American Mobile Satellite Corp. 4/1/08 $ 107,800
3,630 Bestel S.A. de C. V. (Mexico) 5/15/05 108,900
3,630 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 199,650
5,620 Carrier International 144A 2/19/09 112,400
28,657 Cellnet Data Systems, Inc. 10/1/07 716,425
130,000 CGA Group Ltd. 144A 2/11/07 1,300
4,390 Club Regina, Inc. 144A 12/1/04 4,390
15,295 Colt Telecommunications Group PLC
(United Kingdom) 12/31/06 5,812,100
12,400 Comunicacion Cellular 144A (Colombia) 11/15/03 669,600
51,502 Conscel 144A (Ecuador) 10/1/00 5,150
4,650 Diva Systems Corp. 5/15/06 837,000
45,984 Diva Systems Corp. 3/1/08 367,872
111,775 DTI Holdings Inc. 3/1/08 1,118
70 E. Spire Communications, Inc. 11/1/05 700
10,155 Econophone, Inc. 144A 7/1/07 964,725
4,320 Epic Resorts 6/15/05 43
3,200 Esat Holdings, Inc. (Ireland) 2/1/07 224,000
15,550 Firstworld Communication 4/15/08 1,088,500
5,350 Globalstar Telecommunications 2/15/04 385,200
11,465 Hyperion Telecommunications 144A 4/15/01 1,433,125
65,538 ICG Communications 10/15/05 1,179,684
6,030 Interact Systems, Inc. 8/1/03 60
8,050 Intermedia Communications 6/1/00 726,513
2,780 International Wireless Communications
Holdings 144A 8/15/01 3
6,500 Iridium World Com 144A 7/15/05 65
9,460 KMC Telecom Holdings, Inc. 4/15/08 28,380
8,835 Knology Holdings, Inc. 144A 10/15/07 22,088
1,170 Long Distance International, Inc. 144A 4/13/08 2,340
14,715 McCaw International Ltd. 4/15/07 62,539
4,350 Mediq Inc. 144A 6/1/09 44
1,550 Metronet Communications 144A 8/15/07 130,200
1,390 MGC Communications, Inc. 144A 10/1/04 124,405
2,510 OnePoint Communications, Corp. 6/1/08 2,510
4,250 Orbital Imaging Corp. 144A 3/1/05 85,000
8,485 Orion Network Systems 1/15/07 97,578
13,800 Pagemart, Inc. 144A 12/31/03 103,500
6,810 Pathnet, Inc. 144A 4/15/08 68,100
7,360 Paxson Communications Corp. 144A 6/30/03 29,440
28,800 Powertel, Inc. 2/1/06 129,600
2,890 R& B Falcon Corp. 144A 5/1/09 722,500
8,690 Startec Global Communications Corp. 5/15/08 8,690
2,160 Sterling Chemicals Holdings 8/15/08 25,920
2,980 Telehub Communications Corp. 7/31/05 29,800
14,235 UIH Australia/Pacific, Inc. 144A 5/15/06 427,050
5,510 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 881,600
6,375 Wireless One, Inc. 10/19/00 6
1,001 Wright Medical Technology, Inc. 144A 6/30/03 10
--------------
Total Warrants (cost $7,817,810) $ 17,927,623
CONVERTIBLE PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
16,110 Chesapeake Energy Corp. $3.50 cum. cv. pfd. $ 495,383
137,070 Global Telesystems, Inc. 144A $3.625 cv. pfd. 5,568,469
251 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 2,811,200
4,586 XCL Ltd 144A Ser. A, 9.50% cv. cum. pfd. 13,757
--------------
Total Convertible Preferred Stocks (cost $10,687,432) $ 8,888,809
UNITS (0.2%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,960 Australis Media, Ltd. units stepped-coupon 1zero %,
(15 3/4s, 5/15/00), 2003 (In Default) (Australia) (STP) (NON) $ 296
3,710 Cybernet 144A unit 14s, 2009 3,654,350
6,600 Pegasus Shipping 144A units company guaranty
stepped-coupon zero % (14 1/2s. 6/20/03), 2008
(Bermuda) (STP) 660,000
2,740 Stone Container Corp. units sr. sub. 12 1/4s, 2002 (STP) 2,753,700
3,945 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 1,380,750
23,198 XCL Ltd. 144A units cum. pfd. zero % 2006 (PIK) 69,599
--------------
Total Units (cost $19,103,121) $ 8,518,695
SHORT-TERM INVESTMENTS (2.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 46,000,000 Rabobank USA Financial Corp. effective yield of 5.6%,
October 1, 1999 (Netherlands) $ 45,992,844
67,589,000 Interest in $750,000,000 joint tri-party repurchase
agreement dated September 30, 1999 with Goldman
Sachs & Co. due October 1, 1999 with respect to
various U.S. Treasury obligations -- maturity value of
$67,598,932 for an effective yield of 5.29% 67,589,000
--------------
Total Short-Term Investments (cost $113,581,844) $ 113,581,844
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,791,593,900) (b) $4,421,077,682
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $4,319,086,713.
(b) The aggregate identified cost on a tax basis is $4,796,566,301, resulting in gross unrealized appreciation and
depreciation of $52,552,722 and $428,041,341, respectively, or net unrealized depreciation of $375,488,619.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund
will begin receiving interest at this rate.
(POR) A portion of the income will be received in additional securities.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(AFF) Affiliated Companies (Note 5).
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.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at
September 30, 1999, which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at September 30, 1999: (as percentage of Market Value)
Argentina 1.2% Mexico 3.9%
Australia 1.9 Sweden 2.0
Brazil 2.6 United Kingdom 4.5
Canada 3.9 United States 72.1
Germany 3.2 Others 4.7
-----
Total 100.0%
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at September 30, 1999
(aggregate face value $330,519,642)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -------------------------------------------------------------------------------
Danish Krone $ 17,064,703 $ 16,976,201 2/3/00 $ 88,502
Euro Dollars 103,918,035 103,287,625 2/3/00 630,410
Japanese Yen 214,687,878 210,255,816 2/3/00 4,432,062
- -------------------------------------------------------------------------------
$5,150,974
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at September 30, 1999
(aggregate face value $390,624,255)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Australian Dollars $ 43,315,073 $ 43,458,407 2/3/00 $ 143,334
British Pounds 26,086,453 25,653,768 2/3/00 (432,685)
Canadian Dollars 96,577,953 94,803,358 2/3/00 (1,774,595)
Euro Dollars 52,942,671 51,989,050 2/3/00 (953,621)
Japanese Yen 178,585,720 174,719,672 2/3/00 (3,866,048)
- -------------------------------------------------------------------------------
$(6,883,615)
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1999
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Bank Acceptance
(Short) $125,020,865 $124,699,455 Dec-99 $(321,410)
Euro Euribor (Short) 62,395,470 62,458,231 Dec-00 62,761
Euro Euribor (Short) 10,336,099 10,339,209 Dec-99 3,110
Euro Euribor (Short) 186,014,226 185,974,320 Jun-00 (39,906)
Euro Euribor (Short) 9,176,092 9,186,452 Jun-01 10,360
Euro Euribor (Short) 11,094,085 11,091,458 Mar-00 (2,627)
Euro Euribor (Short) 9,449,259 9,475,815 Mar-01 26,556
Euro Euribor (Short) 10,007,930 10,031,154 Sep-00 23,224
Euroyen (Long) 114,517,027 114,468,354 Jun-00 48,673
Euroyen (Long) 76,323,789 76,306,667 Mar-00 17,122
Euroyen (Short) 190,525,365 190,465,166 Sep-00 (60,199)
GBP Libor (Long) 175,171,544 174,964,959 Jun-00 206,585
GBP Libor (Long) 52,212,912 52,119,707 Dec-00 93,205
Euro Dollars (Long) 60,420,700 60,309,933 Jun-00 110,767
Euro Dollars (Long) 60,523,500 60,441,646 Mar-00 81,854
Euro-Schatz (Long) 42,147,512 42,202,728 Dec-99 (55,216)
U. S. Treasury Bond
20 year (Long) 109,038,188 109,721,309 Dec-99 (683,121)
- -------------------------------------------------------------------------------
$(478,262)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $4,791,593,900) (Note 1) $4,421,077,682
- -----------------------------------------------------------------------------------------------
Foreign currency (cost $1,715,505) 1,740,839
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 89,515,794
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 14,287,981
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 17,730,279
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 5,294,308
- -----------------------------------------------------------------------------------------------
Total assets 4,549,646,883
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 19,148,073
- -----------------------------------------------------------------------------------------------
Payable for variation margin 128,689
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 68,552
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 182,993,567
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 9,473,132
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,969,146
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 340,444
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 143,230
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 8,259
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 3,695,132
- -----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 7,026,949
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,345,029
- -----------------------------------------------------------------------------------------------
Other accrued expenses 219,968
- -----------------------------------------------------------------------------------------------
Total liabilities 230,560,170
- -----------------------------------------------------------------------------------------------
Net assets $4,319,086,713
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,996,568,558
- -----------------------------------------------------------------------------------------------
Distribution in excess of net investment income (Note 1) (99,104)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (304,965,046)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (372,417,695)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,319,086,713
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,506,531,982 divided by 139,916,029 shares) $10.77
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $10.77)* $11.31
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,722,283,630 divided by 160,700,567 shares)** $10.72
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class C share
($6,301,435 divided by 586,339 shares)** $10.75
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,066,820,780 divided by 99,452,619 shares) $10.73
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $10.73)* $11.09
- -----------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per class Y share
($17,148,886 divided by 1,591,259 shares) $10.78
- -----------------------------------------------------------------------------------------------
* 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
Year ended September 30, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income $ 405,126,883
- -----------------------------------------------------------------------------------------------
Dividends (Net of foreign tax of $311,496) 17,872,911
- -----------------------------------------------------------------------------------------------
Total investment income 422,999,794
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 25,340,329
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,824,823
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 92,560
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 33,213
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 4,321,184
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 19,737,395
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 24,788
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,988,648
- -----------------------------------------------------------------------------------------------
Reports to shareholders 165,668
- -----------------------------------------------------------------------------------------------
Registration fees 59,503
- -----------------------------------------------------------------------------------------------
Auditing 89,556
- -----------------------------------------------------------------------------------------------
Legal 139,276
- -----------------------------------------------------------------------------------------------
Postage 459,090
- -----------------------------------------------------------------------------------------------
Other 444,427
- -----------------------------------------------------------------------------------------------
Total expenses 61,720,460
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (942,523)
- -----------------------------------------------------------------------------------------------
Net expenses 60,777,937
- -----------------------------------------------------------------------------------------------
Net investment income 362,221,857
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (183,322,877)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (31,573,041)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 18,755,609
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 8,172,246
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
and TBA sale commitments during the year (174,241,244)
- -----------------------------------------------------------------------------------------------
Net loss on investments (362,209,307)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 12,550
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 362,221,857 $ 402,914,655
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (196,140,309) (153,894,588)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (166,068,998) (360,035,273)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 12,550 (111,015,206)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (138,363,215) (114,992,046)
- ---------------------------------------------------------------------------------------------------------------
Class B (143,702,788) (113,025,405)
- ---------------------------------------------------------------------------------------------------------------
Class C (190,341) --
- ---------------------------------------------------------------------------------------------------------------
Class M (78,578,491) (53,202,027)
- ---------------------------------------------------------------------------------------------------------------
Class Y (1,387,021) (1,263,192)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (2,769,429) --
- ---------------------------------------------------------------------------------------------------------------
Class B (2,876,304) --
- ---------------------------------------------------------------------------------------------------------------
Class C (3,810) --
- ---------------------------------------------------------------------------------------------------------------
Class M (1,572,799) --
- ---------------------------------------------------------------------------------------------------------------
Class Y (27,762) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain
Class A -- (26,647,112)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (29,842,995)
- ---------------------------------------------------------------------------------------------------------------
Class C -- --
- ---------------------------------------------------------------------------------------------------------------
Class M -- (8,746,851)
- ---------------------------------------------------------------------------------------------------------------
Class Y -- (238,299)
- ---------------------------------------------------------------------------------------------------------------
From return of capital
Class A (857,766) --
- ---------------------------------------------------------------------------------------------------------------
Class B (890,868) --
- ---------------------------------------------------------------------------------------------------------------
Class C (1,180) --
- ---------------------------------------------------------------------------------------------------------------
Class M (487,138) --
- ---------------------------------------------------------------------------------------------------------------
Class Y (8,599) --
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (433,837,511) 579,106,761
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (805,542,472) 120,133,628
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 5,124,629,185 5,004,495,557
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess
of net investment income of $99,104 and
$18,502,646, respectively) $4,319,086,713 $5,124,629,185
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.66 $12.70 $12.29 $11.99 $11.64
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .91(c) .99(c) .89(c) .89 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.87) (1.17) .39 .30 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .04 (.18) 1.28 1.19 1.31
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.91) (.70) (.87) (.89) (.80)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.16) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.01) -- -- -- (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.93) (.86) (.87) (.89) (.96)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.77 $11.66 $12.70 $12.29 $11.99
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.31 (1.67) 10.86 10.35 11.89
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,506,532 $1,911,024 $2,104,971 $1,845,901 $1,597,034
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .94 .97 .99 1.02 1.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.04 7.88 7.17 7.32 8.22
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 142.29 188.75 250.93 304.39 235.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Amount represents less than $.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.61 $12.65 $12.24 $11.95 $11.61
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .82(c) .89(c) .79(c) .80 .88
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.87) (1.17) .40 .29 .33
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.05) (.28) 1.19 1.09 1.21
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.82) (.60) (.78) (.80) (.72)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.16) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.01) -- -- -- (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.84) (.76) (.78) (.80) (.87)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.72 $11.61 $12.65 $12.24 $11.95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.47) (2.42) 10.08 9.47 11.01
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,722,284 $2,174,770 $2,366,410 $2,135,148 $1,795,456
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.69 1.72 1.74 1.77 1.76
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.29 7.13 6.42 6.57 7.46
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 142.29 188.75 250.93 304.39 235.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Amount represents less than $.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share February 1, 1999+
operating performance to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $11.51
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .59(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.75)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital --(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.40)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $6,301
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.00*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 142.29
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Amount represents less than $.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 1, 1994+
operating performance Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.62 $12.67 $12.27 $11.97 $11.34
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .87(c) .96(c) .82(c) .86 .78
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.86) (1.18) .43 .31 .63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .01 (.22) 1.25 1.17 1.41
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.87) (.67) (.85) (.87) (.65)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.16) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.01) -- -- -- (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.90) (.83) (.85) (.87) (.78)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.73 $11.62 $12.67 $12.27 $11.97
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.09 (1.97) 10.59 10.12 12.90*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,066,821 $1,019,477 $513,351 $46,327 $14,751
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.19 1.22 1.24 1.28 1.07*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.81 7.69 6.88 7.09 6.30*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 142.29 188.75 250.93 304.39 235.88
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Amount represents less than $.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 1, 1996+
operating performance Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $11.66 $12.70 $12.29 $12.07
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .93(c) 1.03(c) .93(c) .24
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.86) (1.18) .38 .20
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .07 (.15) 1.31 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.93) (.73) (.90) (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.16) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.95) (.89) (.90) (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.78 $11.66 $12.70 $12.29
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 0.63 (1.40) 11.14 3.70*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $17,149 $19,358 $19,763 $2,662
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .69 .72 .74 .19*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.27 8.15 7.29 1.95*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 142.29 188.75 250.93 304.39
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
(d) Amount represents less than $.01 per share.
</TABLE>
Notes to financial statements
September 30, 1999
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 C, class M and class Y shares. The
fund began offering class C shares on February 1, 1999. 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 are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class C shares are
subject to the same fees and expenses as class B shares, except that class
C shares have a one-year 1.00% contingent deferred sales charge and do not
convert to class A shares. 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 and class C shares.
Class Y shares, which are sold at net asset value, are generally subject
to the same expenses as class A, class B, class C and class M shares, but
do not bear a distribution fee. Class Y shares are sold to defined
contribution plans that invest at least $150 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 consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported 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 including
restricted securities 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date 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 discount
bonds, stepped-coupon bonds and payment in kind bonds are accreted
according to the yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term investments).
The U.S. dollar value of forward currency contracts is determined using
current forward currency exchange rates supplied by a quotation service.
The market value of the contract will fluctuate with changes in currency
exchange rates. The contract is "marked to market" daily and the change in
market value is recorded as an unrealized gain or loss. When the contract
is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The fund could be exposed to risk if
the value of the currency changes unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns. The
potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the unit
price has been established, the principal value has not been finalized.
However, the amount of the commitments will not fluctuate more than 1.0%
from the principal amount. The fund holds, and maintains until settlement
date, cash or high-grade debt obligations in an amount sufficient to meet
the purchase price, or the fund may enter into offsetting contracts for
the forward sale of other securities it owns. Income on the securities
will not be earned until settlement date. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the
value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in the value of the
fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the
procedures described under "Security valuation" above.
Although the fund will generally enter into TBA purchase commitments with
the intention of acquiring securities for their portfolio or for delivery
pursuant to options contracts it has entered into, the fund may dispose of
a commitment prior to settlement if Putnam Management deems it appropriate
to do so.
I) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale commitments
are not received until the contractual settlement date. During the time a
TBA sale commitment is outstanding, equivalent deliverable securities, or
an offsetting TBA purchase commitment deliverable on or before the sale
commitment date, are held as "cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market" daily
and the change in market value is recorded by the fund as an unrealized
gain or loss. If the TBA sale commitment is closed through the acquisition
of an offsetting purchase commitment, the fund realizes a gain or loss. If
the fund delivers securities under the commitment, the fund realizes a
gain or a loss from the sale of the securities based upon the unit price
established at the date the commitment was entered into.
J) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
September 30, 1999, the fund had no borrowings against the line of credit.
K) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At September 30, 1999, the fund had a capital loss carryover of
approximately $93,983,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ------------------
$22,379,000 September 30, 2006
71,604,000 September 30, 2007
L) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, post-October loss
deferrals, defaulted bond interest, paydown gains and losses on
mortgage-backed securities, market discount and interest on
payment-in-kind securities. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations. For
the year ended September 30, 1999, the fund reclassified $25,653,645 to
decrease distributions in excess of net investment income and $2,980,273
to decrease paid-in-capital, with an increase to accumulated net realized
losses of $22,673,372. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the first $500
million of net assets, 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%
thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
As part of the subcustodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At September 30, 1999, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
For the year ended September 30, 1999, fund expenses were reduced by
$942,523 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.
Each Trustee of the fund receives an annual Trustee fee, of which $3,200
has been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.50% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the year ended September 30, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $354,564 and $1,856,305 from
the sale of class A and class M shares, respectively and received
$4,341,079 and $2,750 in contingent deferred sales charges from
redemptions of class B and C shares. A deferred sales charge of up to 1%
is assessed on certain redemptions of class A shares. For the year ended
September 30, 1999, Putnam Mutual Funds Corp., acting as underwriter
received $41,835 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended September 30, 1999, cost of purchases and proceeds
from sales of investment securities other than U.S. government obligations
and short-term investments aggregated $4,293,825,664 and $4,707,564,184,
respectively. Purchases and sales of U.S. government obligations
aggregated $2,220,256,841 and $1,988,985,936,respectively.
Note 4
Capital shares
At September 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 23,185,937 $ 262,223,067
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions: 8,899,020 99,795,354
- -----------------------------------------------------------------------------
32,084,957 362,018,421
Shares
repurchased (56,040,869) (631,115,193)
- -----------------------------------------------------------------------------
Net decrease (23,955,912) $(269,096,772)
- -----------------------------------------------------------------------------
Year ended September 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 36,293,097 $ 453,137,516
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions: 7,882,014 98,183,326
- -----------------------------------------------------------------------------
44,175,111 551,320,842
Shares
repurchased (46,064,113) (574,132,635)
- -----------------------------------------------------------------------------
Net decrease (1,889,002) $ (22,811,793)
- -----------------------------------------------------------------------------
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 20,095,147 $ 226,033,109
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,832,582 98,618,613
- -----------------------------------------------------------------------------
28,927,729 324,651,722
Shares
repurchased (55,520,167) (621,977,692)
- -----------------------------------------------------------------------------
Net decrease (26,592,438) $(297,325,970)
- -----------------------------------------------------------------------------
Year ended September 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 37,418,693 $ 466,071,389
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,604,144 94,361,790
- -----------------------------------------------------------------------------
45,022,837 560,433,179
Shares
repurchased (44,854,315) (557,097,611)
- -----------------------------------------------------------------------------
Net increase 168,522 $ 3,335,568
- -----------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations)
to September 30, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 698,506 $ 7,813,038
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 12,323 135,025
- -----------------------------------------------------------------------------
710,829 7,948,063
Shares
repurchased (124,490) (1,372,987)
- -----------------------------------------------------------------------------
Net increase 586,339 $ 6,575,076
- -----------------------------------------------------------------------------
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 65,331,032 $ 734,046,798
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 415,621 4,642,718
- -----------------------------------------------------------------------------
65,746,653 738,689,516
Shares
repurchased (53,993,131) (611,857,677)
- -----------------------------------------------------------------------------
Net increase 11,753,522 $ 126,831,839
- -----------------------------------------------------------------------------
Year ended September 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 82,461,493 $1,026,199,238
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 349,509 4,341,133
- -----------------------------------------------------------------------------
82,811,002 1,030,540,371
Shares
repurchased (35,639,555) (433,252,902)
- -----------------------------------------------------------------------------
Net increase 47,171,447 $ 597,287,469
- -----------------------------------------------------------------------------
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 684,770 $ 7,737,679
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 124,669 1,414,783
- -----------------------------------------------------------------------------
809,439 9,152,462
Shares
repurchased (877,835) (9,974,146)
- -----------------------------------------------------------------------------
Net decrease (68,396) $ (821,684)
- -----------------------------------------------------------------------------
Year ended September 30, 1998
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 828,036 $ 10,404,282
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 120,519 1,501,491
- -----------------------------------------------------------------------------
948,555 11,905,773
Shares
repurchased (845,466) (10,610,256)
- -----------------------------------------------------------------------------
Net increase 103,089 $ 1,295,517
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 5
Transactions with Affiliated 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
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name of affiliate
- -------------------------------------------------------------------------------------------------------------------
Fitzgeralds Gaming $110,600 $ -- $ -- $ 55,928
PSF Holdings L.L.C. CLA -- -- -- 12,249,600
- -------------------------------------------------------------------------------------------------------------------
Totals $110,600 $ -- $ -- $12,305,528
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Federal tax information
(Unaudited)
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
For the year ended September 30, 1999, a portion of the Fund's
distribution represents a return of capital and is therefore not taxable
to shareholders.
The fund has designated 4.84% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Edward H. D'Alelio
Vice President
Stephen Oristaglio
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
Jeffrey A. Kaufman
Vice President and Fund Manager
D. William Kohli
Vice President and Fund Manager
David L. Waldman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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 at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN028-56151 075/387/803/2BC 11/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Diversified Income Trust
Supplement to Annual Report dated 9/30/99
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to defined contribution plans
investing $150 million or more in one or more of Putnam's funds or
private accounts. Performance of class Y shares, which incur neither a
front-end load, distribution fee, nor contingent deferred sales charge,
will differ from performance of class A, class B, class C, and class M
shares, which are discussed more extensively in the annual report.
ANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return
for periods ended 9/30/99 NAV
1 year 0.63%
5 years 36.25
Annual average 6.38
10 years 122.35
Annual average 8.32
Life of fund
(since class A inception, 10/3/88) 136.40
Annual average 8.14
Share value: NAV
9/30/98 $11.66
9/30/99 $10.78
- ----------------------------------------------------------------------------
Return of
Distributions: No. Income Capital gains capital Total
12 $0.9482 -- $0.0058 $0.9540
- ----------------------------------------------------------------------------
Please note that past performance does not indicate future results.
Returns shown for class Y shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted
to reflect the initial sales charge currently applicable to class A
shares. These returns have not been adjusted to reflect differences in
operating expenses which, for class Y shares, are lower than the
operating expenses applicable to class A shares. All returns assume
reinvestment of distributions at net asset value. Investment return and
principal value will fluctuate so your shares, when redeemed, may be
worth more or less than their original cost. See full report for
information on comparative benchmarks. If you have questions, please
consult your fund prospectus or call Putnam toll free at 1-800-752-9894.
