Putnam
Diversified
Income
Trust
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
year 2000. In the following report, the fund's managers discuss
performance for the period and prospects for the months ahead. Please
see page 49 for information about recent changes in the fund's
investment policy.
This is the last letter to you and the other shareholders of Putnam
Diversified Income Trust that I will be signing. After more than 30
years as Chairman of the Trustees and President of the Putnam Funds, the
time has come for me to step aside. In June, John Hill will become
Chairman. John is currently an independent Trustee and has served on the
board for the past 14 years. In addition, my son, George Putnam, III,
will take on the role of President. I am confident that the leadership
of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/ GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 17, 2000
Report from the fund managers
David L. Waldman
and the Core Fixed Income Team
Volatility continued to be an unwanted bedfellow for fixed-income
investors during the six months ended March 31, 2000. The broad market's
movements continued to be influenced by the robust pace of economic
growth worldwide coupled with tightened monetary policy by central banks
across the globe. The dramatic strength of stock markets at home and
abroad further dampened the performance potential of most bonds as
investors turned their attention, seemingly en masse, to the gains being
realized in stocks, particularly technology issues. Putnam Diversified
Income Trust's multisector strategy served the portfolio relatively well
in this difficult environment.
Total return for 6 months ended 3/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------
2.89% -2.02% 2.61% -2.31% 2.52% 1.53% 2.78% -0.55%
- ------------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* RISING RATES AND DAZZLING TECH STOCK RETURNS KEPT INVESTORS AT BAY
Investor sentiment continued to rule the day during the first half of
fiscal 2000, having negative implications for most bond sectors as it
did for most of the preceding fiscal year. In the early months of the
period, the perceived havoc that the Y2K problem could cause to global
financial markets put downward pressure on bonds. The arrival of the
year 2000 occurred with little disruption, however, and investors turned
their full attention to global economic activity and the threat of
inflation.
For some time now, U.S. economic growth has continued to defy
convention. Although the Federal Reserve Board has enacted five
interest-rate increases in nine months, economic growth did not abate
and investors grew increasingly worried that the Fed might not be acting
aggressively enough to contain inflationary pressures. Indeed, the index
of leading indicators, rebounding employment growth, and
lower-than-expected inventory accumulations are all sending signals of
continued strength. Worldwide, economic activity also has gained
momentum as commodity and oil prices rise and Asia recovers. While
inflation remains subdued in most corners of the world, its mere threat
has been enough to cause bond investors dismay.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS FOR CORPORATE
BONDS AND NOTES]
TOP INDUSTRY SECTORS FOR CORPORATE BONDS AND NOTES*
Telecommunications 6.9%
Cable television 2.9%
Broadcasting 2.2%
Electric utilities 2.0%
Gaming 1.9%
Footnote reads:
*Based on net assets as of 3/31/00. Holdings will vary over time.
The explosive price appreciation that technology stocks experienced for
most of the past six months further added insult to injury. Investors
shunned almost any security, bonds and stocks alike, that did not offer
the stratospheric return potential that tech stocks were providing.
Liquidity became an issue in the marketplace and for all intents and
purposes, bond fund inflows halted. A rising default rate in the
high-yield sector, though still historically low, exacerbated investors'
anxiety.
* TREASURY BUY-BACK PROGRAM AFFECTS YIELD CURVE AS MUCH AS RISING RATES
In addition to rising interest rates and investor unease, U.S. Treasury
securities experienced an added layer of volatility because of a
technical development that influenced the shape of the Treasury yield
curve as much as the Fed's actions. This development came in the form of
an announcement in early January by Treasury Secretary Lawrence Summers
that the U.S. Treasury would buy back $30 billion in securities, most
likely longer-term issues. The yield curve, a plotting of yields across
the maturity spectrum, shifted from flat to inverted as investors bid up
the price of the bellwether 30-year bond. As the price appreciated, the
yield dropped to below that of the 10-year note, resulting in a dramatic
dislocation of the yield curve's historic norm.
Given the uncertain direction of interest rates, our yield curve
positioning remained somewhat defensive. We focused mainly on 10-year
notes with some exposure to longer-term issues that helped contribute to
performance as prices rose at the longer end of the curve. Elsewhere in
the U.S. investment-grade sector, we took advantage of opportunities in
seasoned mortgage-backed securities, such as commercial mortgage-backed
securities that offer structural prepayment protection and benefited
from improving real estate fundamentals.
We kept the portfolio's average duration neutral relative to its
benchmark indexes. As you may know, duration is a measure of a fund's
sensitivity to interest-rate changes. The shorter the duration, the more
defensive a portfolio's orientation and the less sensitive it is likely
to be to rising interest rates.
* "NEW ECONOMY" ISSUERS REMAIN KEY FOCUS IN HIGH-YIELD SECTOR
Your fund's primary emphasis was high-yield corporate bonds, those rated
below investment grade. With the new era in global economic growth,
companies that can effectively leverage technological innovation and
intellectual capital stand to experience rapid business growth. At the
forefront of this new economy are companies in the telecommunications
industry -- wireless communications, fixed communications, and digital
service line (DSL) software firms. The growing global appetite for
information technology and the high growth potential of such
corporations make their business cycles seemingly indifferent to
traditional market forces and thus, we believe, make them attractive
holdings to own.
"Look for a strong bounce-back from the bond market's funk when the
Energizer Bunny economy slows, which should happen by the fall... Now is
the time to get into bonds, while they're cheap."
- -- Forbes, April 3, 2000
Still in its infancy, the telecommunications industry lends itself well
to leverage and, therefore, it is not surprising that telecommunications
issues make up roughly 25% to 30% of the high-yield market and dominate
your fund's high-yield exposure.
"Given the likelihood of further near-term volatility, a diversified
approach to the fixed-income market should help even out dramatic swings
in any one sector."
- -- David L. Waldman, lead manager,
Putnam Diversified Income Trust
During the past year, many communications companies have moved further
along in their business plans and are now generating cash flows. Many
are decreasing their debt burden by issuing stock, which, in turn,
decreases their credit risk. Industry consolidation also continues to
help the credit profile of many issuers, with credit upgrades occurring
more frequently. We are now seeing the growth in communications services
taking hold overseas and we were able to tap into foreign and domestic
high-yield opportunities that benefited from this trend as well. Cable
and media holdings, which are becoming increasingly close relatives to
telecom companies as time goes, were also well represented in the
portfolio.
* GLOBAL GROWTH FUELS EMERGING-MARKETS ISSUES
Emerging-markets bonds have been the best-performing fixed-income asset
class over the semiannual period and for the past year, in fact.
Attractive valuations, stabilizing commodity prices, a strong U.S.
economy, recovery in Asian markets, and improving national fundamentals
have made such markets as Mexico, Bulgaria, and Brazil attractive
investment opportunities. Over the period, we maintained your fund's
exposure to emerging-markets bonds and participated in their dramatic
price appreciation. In the developed world, the sovereign bonds of the
United Kingdom, Germany, Canada, and Australia were also held in the
portfolio.
* VALUE AND OPPORTUNITY TO BE FOUND IN TODAY'S MARKET
The fund enters the second half of fiscal 2000 with cautious optimism.
Clearly there is value and opportunity to be found in today's bond
market, particularly given the excessive valuations in technology stocks
and the turbulence caused by the guilty verdict returned on Microsoft
related to monopoly charges. Investors are just now digesting the impact
this most recent development will likely have on the technology sector
and their individual stock portfolios. We cannot, however, rule out the
likely possibility that volatility will continue in the fixed-income
market, at least in the near term as the Fed and other central banks
around the world strive to contain inflation in the current growth
environment.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR
HIGH-YIELD BONDS
Midland Funding II Corp.
deb. Series A, 11 3/4s, 2005
Echostar DBS Corp.
sr. notes 9 3/8s, 2009
Millicom International Cellular S.A.
sr. disc. notes stepped-coupon zero %
(13 1/2s, 6/1/01), 2006 (Luxembourg)
FOREIGN BONDS
Germany (Federal Republic of)
bonds Ser. 132, 4 1/8s, 2004
Denmark (Kingdom of)
bonds 6s, 2009
United Kingdom
Treasury bonds 8s, 2000
U.S. INVESTMENT-GRADE SECURITIES
U.S. Treasury notes 6s, 2009
U.S. Treasury bonds 6 1/8s, 2029
U.S. Treasury notes 5 1/4s, 2004
These holdings represent 16.6% of the fund's net assets as of 3/31/00.
Portfolio holdings will vary over time.
We believe individual security selection will become increasing
important to investment success as the year progresses, particularly in
the corporate sector, as we do not foresee any macro trend pushing
prices higher from current levels. In this uncertain environment, we are
confident that Putnam's extensive research capabilities and disciplined
risk management will work in your fund's favor.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 3/31/00, there is no guarantee the fund will
continue to hold these securities in the future. 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. 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 and
investment-grade high-yield, and international fixed-income securities.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 3/31/00
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>
- ----------------------------------------------------------------------------------------
6 months 2.89% -2.02% 2.61% -2.31% 2.52% 1.53% 2.78% -0.55%
- ----------------------------------------------------------------------------------------
1 year 1.82 -3.05 1.14 -3.52 1.04 0.11 1.60 -1.69
- ----------------------------------------------------------------------------------------
5 years 34.90 28.51 30.03 28.19 29.88 29.88 33.33 28.95
Annual average 6.17 5.14 5.39 5.09 5.37 5.37 5.92 5.22
- ----------------------------------------------------------------------------------------
10 years 129.40 118.51 112.86 112.86 112.91 112.91 123.52 116.29
Annual average 8.66 8.13 7.85 7.85 7.85 7.85 8.38 8.02
- ----------------------------------------------------------------------------------------
Life of fund 141.01 129.59 120.50 120.50 121.22 121.22 133.00 125.39
Annual average 7.96 7.50 7.12 7.12 7.15 7.15 7.64 7.33
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/00
Salomon Bros.
Lehman Bros. Non-U.S. First Boston
Aggregate World Govt. High Yield Consumer
Bond Index Bond Index Bond Index price index
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
6 months 2.08% -2.72% 0.77% 2.03%
- --------------------------------------------------------------------------------------------
1 year 1.87 -1.40 0.30 3.69
- --------------------------------------------------------------------------------------------
5 years 41.20 15.04 45.56 13.15
Annual average 7.14 2.84 7.79 2.50
- --------------------------------------------------------------------------------------------
10 years 116.26 140.50 189.22 33.02
Annual average 8.02 9.17 11.20 2.89
- --------------------------------------------------------------------------------------------
Life of fund 147.57 136.69 189.20 42.90
Annual average 8.20 7.78 9.67 3.15
- --------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/00
Class A Class B Class C Class M
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 6 6 6 6
- -----------------------------------------------------------------------------------
Income $0.486 $0.446 $0.447 $0.474
- -----------------------------------------------------------------------------------
Capital gains -- -- -- --
- -----------------------------------------------------------------------------------
Total $0.486 $0.446 $0.447 $0.474
- -----------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- -----------------------------------------------------------------------------------
9/30/99 $10.77 $11.31 $10.72 $10.75 $10.73 $11.09
- -----------------------------------------------------------------------------------
3/31/00 10.59 11.12 10.55 10.57 10.55 10.90
- -----------------------------------------------------------------------------------
Current return (end of period)
- -----------------------------------------------------------------------------------
Current dividend rate 1 9.18% 8.74% 8.42% 8.51% 8.99% 8.70%
- -----------------------------------------------------------------------------------
Current 30-day SEC yield 2 9.11 8.67 8.34 8.35 8.85 8.56
- -----------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based 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 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 Bond Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take into account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A guide to the financial statements
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
The fund's portfolio
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (45.5%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Advertising (0.6%)
- ----------------------------------------------------------------------------------------------------------------------------
$2,960,000 Ackerly Group, Inc. sr. sub. notes Ser. B, 9s, 2009 $ 2,782,400
7,275,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 7,402,313
3,226,050 Interact Operating Co. notes 14s, 2003 967,815
3,755,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 3,698,675
4,365,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 4,168,575
2,000,000 TDL Infomedia Group, Ltd. 144A bonds 12 1/8s, 2009
(United Kingdom) 3,185,000
----------------
22,204,778
Aerospace and Defense (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
1,900,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 1,444,000
2,900,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 2,479,500
3,750,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 1,500,000
290,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 258,825
1,750,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 1,505,000
4,870,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 3,871,650
2,810,000 Burke Industries, Inc. company guaranty 10s, 2007 1,292,600
1,970,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 1,733,600
3,170,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 3,146,225
5,800,000 L-3 Communications Corp. sr. notes 9 1/8s, 2008 4,988,000
1,870,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,668,975
2,500,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 2,156,250
850,000 Sequa Corp. med. term notes 10s, 2001 860,829
----------------
26,905,454
Agriculture (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
11,609,573 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 10,564,711
Airlines (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
5,350,000 Airbus Industries 144A notes Ser. D. 12.266s, 2020 5,655,218
3,400,000 Calair LLC 144A company guaranty 8 1/8s, 2008 2,936,750
5,110,000 Canadian Airlines Corp. secd. notes 10s, 2005 (In default)
(Canada) (NON) 4,292,400
----------------
12,884,368
Apparel (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
2,190,000 GFSI, Inc. sr. disc.notes Ser. B stepped-coupon , zero %
(11 3/8s, 9/15/04), 2009 (STP) 503,700
7,280,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 7,334,600
2,215,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 2,026,725
1,000,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 840,000
----------------
10,705,025
Automotive (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
8,475,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 7,797,000
Automotive Parts (0.9%)
- ----------------------------------------------------------------------------------------------------------------------------
2,030,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 2,019,850
1,837,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 1,827,815
5,370,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 4,779,300
1,870,000 Federal Mogul Corp. notes 7 3/4s, 2006 1,539,833
6,700,000 Federal Mogul Corp. notes 7 1/2s, 2009 5,156,722
300,000 Federal Mogul Corp. notes 7 3/8s, 2006 245,169
2,991,429 Federal Mogul Corp. bank term loan Ser. B, FRN 7.94s, 2010 2,901,686
1,670,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
8 1/4s, 2008 1,386,100
980,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 943,250
3,180,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 2,846,100
4,250,000 Newcor, Inc. company guaranty Ser. B, 9 7/8s, 2008 1,487,500
4,990,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 4,703,075
2,780,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 (In default) (NON) 611,600
2,920,000 Transportation Manufacturing Operations, Inc.
company guaranty 11 1/4s, 2009 2,774,000
----------------
33,222,000
Banks (1.1%)
- ----------------------------------------------------------------------------------------------------------------------------
9,995,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 9,410,892
2,525,000 Advanta Corp. med. term notes Ser. D, 6.98s, 2002 2,342,594
2,670,000 Bangko Sentral NG Pilipinas bonds 8.6s, 2027 (Philippines) 2,122,650
1,700,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2008 1,513,000
3,385,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 3,215,750
6,455,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 3,937,550
440,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 431,433
250,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 226,958
6,105,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 6,105,000
635,000 North Fork Capital Trust I company guaranty 8.7s, 2026 602,444
660,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 647,341
2,400,000 Provident Capital Trust company guaranty 8.6s, 2026 2,316,648
1,610,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 1,343,964
4,440,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 4,373,400
2,260,000 Sovereign Capital Trust company guaranty 9s, 2027 1,829,380
2,495,000 Webster Capital Trust I 144A bonds 9.36s, 2027 2,434,945
----------------
42,853,949
Basic Industrial Products (0.4%)
- ----------------------------------------------------------------------------------------------------------------------------
6,500,000 Axia, Inc. company guaranty 10 3/4s, 2008 5,005,000
1,500,000 Azurix Corp. sr. notes 10 3/8s, 2007 2,448,469
2,880,000 Azurix Corp. 144A notes 10 3/8s, 2007 2,880,000
1,090,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 997,350
2,860,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 943,800
4,700,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 4,300,500
----------------
16,575,119
Broadcasting (2.2%)
- ----------------------------------------------------------------------------------------------------------------------------
2,925,000 Allbritton Communications Co. sr. sub. deb. Ser. B, 9 3/4s, 2007 2,749,500
6,740,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 6,066,000
3,198,500 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 3,614,305
50,635 Australis Media, Ltd. sr. disc. notes stepped-coupon zero %
(15 3/4s 5/15/00), 2003 (In default) (Australia) (STP) (PIK) (NON) 5
856,252 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000 (In default)
(Australia) (NON) 128,438
8,795,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 7,915,500
6,860,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 6,036,800
2,535,900 Capstar Broadcasting sub. deb. 12s, 2009 (PIK) 2,859,227
1,665,000 Central European Media Enterprises, Ltd. sr. notes 9 3/8s, 2004
(Bermuda) 678,488
14,615,000 Chancellor Media Corp. company guaranty 8s, 2008 14,395,775
2,914,720 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 2,907,433
4,960,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 4,625,200
910,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 555,100
4,022,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 3,499,140
3,000,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 3,000,000
175,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 168,000
1,690,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 1,453,400
130,000 Pegasus Communications Corp. notes Ser. B, 12 1/2s, 2005 139,100
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 6,794,533
3,635,000 Radio One, Inc. company guaranty Ser. B, stepped-coupon, 7s,
(12s, 5/15/00), 2004 (STP) 3,780,400
4,400,000 Spanish Broadcasting Systems sr. sub notes 9 5/8s, 2009 4,180,000
7,700,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 7,315,000
970,000 TV Azteca S.A. de C.V. sr. notes Ser. A, 10 1/8s, 2004 (Mexico) 923,925
----------------
85,148,469
Building and Construction (0.5%)
- ----------------------------------------------------------------------------------------------------------------------------
2,040,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 510,000
1,740,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 1,644,300
3,260,000 D.R. Horton, Inc. company guaranty 8s, 2009 2,673,200
6,300,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 4,441,171
1,870,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 1,327,700
2,410,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 2,205,150
2,490,000 Lennar Corp. sr. notes 7 5/8s, 2009 2,148,086
3,060,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 2,914,650
4,100,000 Toll Corp. company guaranty 8 1/8s, 2009 3,597,750
----------------
21,462,007
Building Products (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
2,000,000 American Standard, Inc. company guaranty 7 1/8s, 2006 1,900,450
4,170,000 Building Materials Corp. company guaranty 8s, 2008 3,607,050
4,690,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 2,485,700
620,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 513,050
----------------
8,506,250
Business Equipment and Services (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
5,870,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 5,224,300
5,490,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 4,611,600
1,505,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,324,400
7,021,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 2,316,930
----------------
13,477,230
Cable Television (2.9%)
- ----------------------------------------------------------------------------------------------------------------------------
1,662,000 21st Century Telecom Group sub. deb. 13 3/4s, 2010 (PIK) 1,495,800
4,970,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 3,479,000
8,235,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 7,535,025
1,380,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 1,228,200
4,370,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 3,714,500
3,380,000 Century Communications Corp. sr. notes 8 7/8s, 2007 3,109,600
14,365,000 Charter Communications Holdings LLC sr. notes 8 5/8s, 2009 12,641,200
5,000,000 Charter Communications Holdings LLC bank term loan Ser. B,
FRN 8.64s, 2008 4,987,500
3,570,000 Classic Cable, Inc. 144A sr. sub. notes 10 1/2s, 2010 3,525,375
3,017,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 2,866,150
5,750,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 6,238,750
4,190,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 3,995,039
4,595,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 3,630,050
9,918,000 Diva Systems Corp. sr. disc. notes Ser. B, stepped-coupon
zero % (12 5/8s, 3/1/03), 2008 (STP) 4,760,640
4,490,000 Lin Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 2,772,575
4,670,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 4,740,050
2,000,000 NTL Communications Corp. 144A sr. notes 9 1/4s, 2006 1,919,550
1,075,000 NTL, Inc. sr. notes Ser. B, stepped-coupon, zero %
(9 3/4s, 4/1/03), 2001 (United Kingdom) (STP) 682,625
1,430,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 915,200
1,770,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 1,840,800
4,170,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(In default) (Argentina) (NON) 1,876,500
2,010,000 TeleWest Communications Plc structured notes (issued by
DLJ International Capital) 10.8758s, 2005 (Cayman Islands) 2,020,251
3,000,000 TeleWest Communications Plc sr. notes 9 7/8s, 2010
(United Kingdom) 4,681,950
4,310,000 TeleWest Communications Plc 144A sr. notes 9 7/8s, 2010
(United Kingdom) 4,266,900
2,090,000 TeleWest Communications Plc 144A sr. disc. notes
stepped-coupon zero % (9 1/4s, 4/15/04), 2009
(United Kingdom) (STP) 1,180,850
10,680,000 United Pan-Europe N.V. 144A sr. discount notes
stepped-coupon zero % (13.75s, 8/1/05) 2010 (STP)
(Netherlands) 5,233,200
14,440,000 United Pan-Europe N.V. 144A sr. discount notes
stepped-coupon zero % (12 1/2s, 8/1/04) 2009 (STP)
(Netherlands) 7,220,000
2,750,000 United Pan-Europe N.V. 144A bonds 11 1/4s, 2010
(Netherlands) 2,691,906
7,190,000 United Pan-Europe N.V. 144A senior notes 10 7/8s, 2009
(Netherlands) 6,614,800
----------------
111,863,986
Cellular Communications (1.9%)
- ----------------------------------------------------------------------------------------------------------------------------
3,200,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 1,776,000
1,780,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) (STP) 947,850
13,015,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 11,062,750
20,412,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 2,449,440
9,145,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 6,584,400
18,260,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 15,521,000
3,370,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 2,089,400
9,180,000 Nextel Communications, Inc. sr. notes 12s, 2008 9,960,300
12,320,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 11,334,400
3,600,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 3,492,000
2,640,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 2,613,600
7,800,000 US Unwired, Inc. sr. disc. notes stepped-coupon zero %
(13 3/8s, 11/1/04), 2009 (STP) 4,173,000
----------------
72,004,140
Chemicals (1.7%)
- ----------------------------------------------------------------------------------------------------------------------------
4,540,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 3,677,400
4,200,000 Georgia Gulf Corp. 144A sr. sub. notes 10 3/8s, 2007 4,231,500
320,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 292,800
4,690,000 Huntsman Corp. 144A sr. sub. notes FRN 9.188s, 2007 4,221,000
11,780,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 11,279,350
300,000 Huntsman ICI Chemicals, Inc. sr. sub. notes 10 1/8s, 2009 295,811
7,100,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 6,993,500
1,920,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 1,800,000
8,800,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 8,382,000
6,860,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 6,534,150
5,175,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 4,230,563
2,590,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 2,156,175
5,481,801 Polytama International notes 11 1/4s, 2007 (Indonesia) 822,270
5,140,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 4,369,000
4,450,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 1,457,375
2,120,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 2,173,000
730,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 620,500
120,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 97,200
5,090,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 3,919,300
----------------
67,552,894
Computer Services and Software (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
1,345,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 1,449,238
3,710,000 Cybernet Internet Services Intl., Inc. 144A sr. notes 14s, 2009 2,893,800
2,140,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 2,107,900
1,850,000 Exodus Communications, Inc. 144A sr. notes 10 3/4s, 2009 1,815,333
3,810,000 Globix Corp. 144A sr. notes 12 1/2s, 2010 3,467,100
2,210,000 PSINet, Inc. sr. notes 11 1/2s, 2008 2,198,950
3,130,000 PSINet, Inc. 144A sr. notes 11s, 2009 3,036,100
800,000 PSINet, Inc. 144A sr. notes 11s, 2009 748,720
6,160,000 Unisys Corp. sr. notes 7 7/8s, 2008 5,790,400
2,790,000 Verio, Inc. sr. notes 11 1/4s, 2008 2,762,100
----------------
26,269,641
Conglomerates (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
7,420,000 Cathay International, Ltd. 144A sr. notes 13s, 2008 (China) 3,710,000
Consumer Durable Goods (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
4,645,000 Albecca, Inc. company guaranty 10 3/4s, 2008 3,669,550
5,680,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 4,799,600
2,010,000 Sealy Mattress Co. company guaranty Ser. B, stepped-coupon
zero % (10 7/8s, 12/15/02), 2007 (STP) 1,422,075
1,750,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 1,706,250
----------------
11,597,475
Consumer Services (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
7,090,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 6,735,500
Cosmetics (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
1,225,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 1,169,875
1,800,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 1,701,000
3,300,000 Revlon Consumer Products sr. notes 9s, 2006 2,343,000
9,455,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 4,112,925
560,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 392,000
----------------
9,718,800
Electric Utilities (2.0%)
- ----------------------------------------------------------------------------------------------------------------------------
4,710,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 3,155,700
2,030,000 Applied Power, Inc. sr. sub. notes 8 3/4s, 2009 2,080,750
1,900,000 Calpine Corp. sr. notes 9 1/4s, 2004 1,900,000
7,165,000 Calpine Corp. sr. notes 8 3/4s, 2007 7,134,047
5,400,000 Calpine Corp. sr. notes 7 7/8s, 2008 5,077,965
1,850,000 CMS Energy Corp. pass-through certificates 7s, 2005 1,688,995
7,930,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 7,295,600
2,985,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 3,517,882
29,180,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 31,641,041
2,830,608 Northeast Utilities System notes Ser. A, 8.58s, 2006 2,841,789
2,044,720 Northeast Utilities System notes Ser. B, 8.38s, 2005 2,037,195
9,535,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004
(China) 3,337,250
7,170,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 7,026,600
----------------
78,734,814
Electronic Components (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
2,760,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 2,746,200
8,655,000 Flextronics International, Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 8,135,700
845,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 481,650
4,210,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 3,978,450
800,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 725,800
6,090,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 5,755,050
7,295,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 7,003,200
----------------
28,826,050
Electronics (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
3,145,000 Celestica International, Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 3,239,350
2,690,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 2,710,175
7,120,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 6,052,000
580,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 493,000
----------------
12,494,525
Entertainment (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
3,250,000 Premier Parks, Inc. bank term loan Ser. B, FRN 9.38s, 2005 3,270,313
5,675,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 5,277,750
1,770,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 787,650
5,000,000 SFX Entertainment, Inc. bank term loan Ser. B, FRN 9.563s, 2006 5,000,000
3,940,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 3,900,600
5,270,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 5,270,000
4,610,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 737,600
2,773,000 United Artists Theatre 144A notes FRN 10.415s, 2007 110,920
7,440,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 297,600
4,867,393 United Artists Theatre bank term loan Ser. C, FRN 12.25s, 2007 3,309,827
----------------
27,962,260
Environmental Control (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
15,470,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 11,602,500
3,830,000 Allied Waste Industries, Inc. bank term loan Ser. B., FRN
8 7/8s, 2006 3,747,961
4,700,000 Allied Waste Industries, Inc. bank term loan Ser. C., FRN
9.188s, 2007 4,628,936
5,750,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 3,910,000
7,016,000 USA Waste Services, Inc. sr. notes 6 1/2s, 2002 6,474,926
1,860,000 Waste Management, Inc. sr. notes 7 1/8s, 2007 1,624,505
225,000 Waste Management, Inc. company guaranty 6 7/8s, 2009 187,945
----------------
32,176,773
Financial Services (1.1%)
- ----------------------------------------------------------------------------------------------------------------------------
7,080,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 4,230,300
5,090,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 3,817,500
1,247,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 935,250
1,425,000 Colonial Capital II 144A company guaranty 8.92s, 2027 1,323,365
3,850,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 3,212,017
2,135,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 192,150
7,380,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 664,200
5,880,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 529,200
5,405,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 4,161,850
4,055,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 2,970,288
2,490,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 2,371,725
2,800,000 Local Financial Corp. sr. notes 11s, 2004 2,800,000
2,665,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 1,892,150
1,875,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 1,087,500
2,995,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 2,815,300
2,490,000 Ocwen Financial Corp. notes 11 7/8s, 2003 2,284,575
4,545,000 Resource America, Inc. 144A sr. notes 12s, 2004 3,545,100
2,900,000 Superior Financial 144A sr. notes 8.65s, 2003 2,772,273
----------------
41,604,743
Food and Beverages (0.6%)
- ----------------------------------------------------------------------------------------------------------------------------
1,235,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 494,000
3,960,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 1,584,000
1,000,000 Aurora Foods, Inc. bank term loan Ser. B, FRN 10.02s, 2110 902,500
5,590,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 5,142,800
2,225,632 Imperial Holly bank term loan Ser. A, FRN 8.936s, 2003 1,780,506
6,900,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 4,554,000
7,650,000 Triarc Consumer Products, Inc. company guaranty 10 1/4s, 2009 7,382,250
4,780,000 Vlasic Foods Intl., Inc. sr. sub notes Ser. B, 10 1/4s, 2009 3,059,200
----------------
24,899,256
Gaming (1.9%)
- ----------------------------------------------------------------------------------------------------------------------------
4,480,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 4,569,600
4,355,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 4,300,563
6,050,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 5,566,000
6,040,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 3,382,400
690,000 Hard Rock Hotel, Inc. sr. sub. notes Ser. B, 9 1/4s, 2005 579,600
2,230,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 2,136,184
9,940,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 10,089,100
5,000,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 4,925,000
3,680,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 3,348,800
2,085,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 2,272,650
756,000 Isle of Capri Black Hawk LLC bank term loan Ser. C, FRN
11.125s, 3/1/06 759,780
864,000 Isle of Capri Black Hawk LLC bank term loan Ser. B, FRN
11s, 2006 868,320
5,280,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 4,897,200
1,030,000 Park Place Entertainment 144A sr. sub. notes 9 3/8s, 2007 1,014,550
2,770,000 Park Place Entertainment sr. notes 8 1/2s, 2006 2,718,035
8,040,000 Trump A.C. 1st mtge. 11 1/4s, 2006 5,386,800
11,360,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 11,473,600
3,840,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 2,112,000
3,160,000 Venetian Casino company guaranty 12 1/4s, 2004 2,938,800
----------------
73,338,982
Health Care (1.3%)
- ----------------------------------------------------------------------------------------------------------------------------
1,690,000 Bio-Rad Labs Corp. 144A sr. sub. notes 11 5/8s, 2007 1,700,563
5,400,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 5,224,500
1,750,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 1,579,375
1,850,000 Columbia/HCA Healthcare Corp. med. term notes notes
7.69s, 2025 1,482,313
1,950,000 Columbia/HCA Healthcare Corp. med term notes 6.63s, 2045 1,843,530
2,930,000 Conmed Corp. company guaranty 9s, 2008 2,666,300
4,690,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 2,532,600
4,680,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 93,600
2,940,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 58,800
2,840,000 Lifepoint Hospital Holdings company guaranty Ser. B,
10 3/4s, 2009 2,811,600
4,327,325 Magellan Health bank term loan Ser. B, FRN 8.688s, 2/12/04 4,154,232
2,410,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007
(In default) (STP) (NON) 12,050
11,280,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 56,400
3,180,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 3,052,800
12,585,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 503,400
3,915,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 1,761,750
4,975,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 99,500
5,820,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 116,400
2,560,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 2,412,800
1,188,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 1,149,390
5,150,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 4,686,500
462,000 Tenet Healthcare Corp. sr. notes 8s, 2005 435,435
4,090,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 3,701,450
6,190,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 6,159,050
3,000,000 Vanguard Health bank term loan Ser. B, FRN 10.25s, 2001 3,015,000
----------------
51,309,338
Lodging (0.7%)
- ----------------------------------------------------------------------------------------------------------------------------
3,340,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 2,338,000
1,615,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 1,396,975
2,960,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 2,471,600
3,440,000 Host Marriott L.P. sr. notes Ser. E, 8 3/8s, 2006 3,096,000
1,300,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 1,287,000
6,146,000 ITT Corp. notes 6 3/4s, 2005 5,504,665
3,855,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 3,671,888
970,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 904,845
2,992,500 Strategic Hotel bank term loan FRN 9.63s, 2004 2,999,981
2,250,000 Sun International Hotels, Ltd. company guaranty 9s, 2007 2,025,000
1,730,000 Sun International Hotels, Ltd. sr. sub. notes 8 5/8s, 2007 1,522,400
----------------
27,218,354
Manufacturing (0.5%)
- ----------------------------------------------------------------------------------------------------------------------------
7,310,000 Blount, Inc. company guaranty 13s, 2009 7,565,850
3,982,494 Blount, Inc. bank term loan Ser. B, FRN 9.92s, 2006 4,007,384
7,864,623 Terex bank term loan Ser. B, FRN 8.686s, 2005 7,825,300
----------------
19,398,534
Medical Supplies and Devices (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
4,395,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 3,658,838
4,160,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 4,014,400
2,555,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 1,801,275
3,540,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 2,646,150
4,350,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 217,500
4,510,000 Mediq, Inc. company guaranty 11s, 2008 451,000
----------------
12,789,163
Metals and Mining (0.5%)
- ----------------------------------------------------------------------------------------------------------------------------
2,828,000 Anker Coal Group, Inc. company guaranty Ser. B,
14 1/4s, 2007 (PIK) 1,272,600
9,320,000 Better Minerals & Aggregates Co. 144A sr. sub. notes 13s, 2009 9,250,100
2,705,000 Continental Global Group sr. notes Ser. B, 11s, 2007 676,250
3,735,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 3,454,875
8,130,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 1,544,700
3,630,000 Neenah Corp. company guaranty Ser. F, 11 1/8s, 2007 3,121,800
----------------
19,320,325
Motion Picture Distribution (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
3,120,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 1,591,200
5,270,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 2,687,700
1,535,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 1,043,800
1,970,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 1,319,900
----------------
6,642,600
Oil and Gas (1.3%)
- ----------------------------------------------------------------------------------------------------------------------------
6,520,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 6,666,700
625,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 371,875
2,110,000 Giant Industries Corp. company guaranty 9s, 2007 1,877,900
1,210,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s, 2005
(Canada) 1,213,025
1,040,000 Gulf Canada Resources, Ltd. sr. sub. deb. 9 1/4s, 2004 (Canada) 1,050,566
1,560,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 1,497,600
2,050,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 2,091,000
2,910,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 2,786,325
7,770,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 7,264,950
2,710,000 RAM Energy, Inc. sr. notes 11 1/2s, 2008 1,361,775
13,695,000 RBF Finance Co. company guaranty 11s, 2006 14,140,088
2,865,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 802,200
2,050,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 2,024,375
8,100,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 8,160,750
----------------
51,309,129
Packaging and Containers (1.5%)
- ----------------------------------------------------------------------------------------------------------------------------
6,925,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 5,332,250
2,250,000 Ball Corp. company guaranty 8 1/4s, 2008 2,115,000
960,000 Ball Corp. company guaranty 7 3/4s, 2006 907,200
2,300,000 Clondalkin Ind. sr. notes 10 5/8s, 2010 (United Kingdom) 2,240,430
2,140,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 1,797,600
3,160,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/4s, 2007 2,923,000
3,290,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 3,076,150
3,800,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 3,572,000
3,800,000 Kappa Beheer BV company guaranty 10 5/8s, 2009
(Netherlands) 3,792,305
2,740,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 2,616,371
5,110,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 4,736,408
440,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 410,824
5,660,000 Packaging Corp. company guaranty 9 5/8s, 2009 5,575,100
3,956,611 Packaging Corp. bank term loan Ser. B, FRN 9.188s, 2007 3,961,557
1,400,000 Radnor Holdings, Inc. sr. notes 10s, 2003 1,190,000
13,865,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 13,310,400
----------------
57,556,595
Paging (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
2,160,000 Arch Communications Group sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/15/01), 2008 (STP) 1,728,000
4,710,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (STP) 2,590,500
----------------
4,318,500
Paper and Forest Products (1.3%)
- ----------------------------------------------------------------------------------------------------------------------------
4,199,921 Alabama River Newsprint bank term loan FRN 7.938s, 2002 3,359,937
3,750,000 APP Finance II Mauritius, Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 2,212,500
1,100,000 APP Global Finance III sec. notes FRN 10.345s, 2002
(Cayman Islands) 863,500
3,000,000 BSN Financing Co. 144A company guaranty 10 1/4s, 2009
(Luxembourg) 2,950,950
1,990,000 Doman Industries, Ltd. 144A sr. notes 8 3/4s, 2004 (Canada) 1,691,500
5,280,000 Impac Group, Inc. company guaranty Ser. B, 10 1/8s, 2008 4,329,600
4,095,000 Indah Kiat Financial Mauritius, Ltd. company guaranty 10s, 2007
(Indonesia) 2,866,500
5,680,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 5,552,200
10,335,000 Pindo Deli Finance Mauritius, Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 7,131,150
9,275,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004
(Indonesia) 6,724,375
10,695,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 9,732,450
2,740,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 2,438,600
----------------
49,853,262
Pharmaceuticals (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
4,570,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 4,341,500
4,770,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 4,412,250
----------------
8,753,750
Publishing (0.8%)
- ----------------------------------------------------------------------------------------------------------------------------
7,505,000 Affinity Group Holdings sr. notes 11s, 2007 6,529,350
3,120,000 American Media Operation, Inc. sr. sub. notes 10 1/4s, 2009 3,088,800
2,810,000 Big Flower Holdings bank term loan FRN 9.004s, 2010 2,810,000
5,270,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 4,584,900
5,560,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 4,726,000
400,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 374,000
4,520,000 Perry-Judd company guaranty 10 5/8s, 2007 3,729,000
1,109,333 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 1,009,493
2,625,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 2,454,375
2,900,000 Ziff Davis bank term loan Ser. B, FRN 10.26s, 2007 2,896,375
----------------
32,202,293
Railroads (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
7,900,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 5,609,000
1,385,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,315,750
----------------
6,924,750
Restaurants (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
3,415,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 1,878,250
4,000,000 Sbarro, Inc. 144A sr. notes 11s, 2009 3,960,000
----------------
5,838,250
Retail (1.1%)
- ----------------------------------------------------------------------------------------------------------------------------
5,320,000 Amazon.com, Inc. sr. disc. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 3,178,700
6,940,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 5,552,000
1,440,000 Iron Age Corp. company guaranty 9 7/8s, 2008 1,022,400
3,550,000 Grupo Elektra SA 144A notes 12s, 2008 (Mexico) 3,443,500
4,600,000 K mart Corp. pass-thru certificates Ser. 95K4, 9.35s, 2020 4,745,176
8,410,000 K mart Corp. notes 8 3/8s, 2004 8,265,432
3,945,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 2,169,750
3,350,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 3,165,750
7,115,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 6,083,325
6,965,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 6,268,500
----------------
43,894,533
Satellite Services (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
2,330,000 Golden Sky DBS, Inc. sr. disc. notes Ser. B, stepped-coupon,
zero % (13 1/2s, 3/1/04), 2007 (STP) 1,561,100
3,600,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 3,960,000
2,915,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004
(Mexico) 2,448,600
2,622,000 Satelites Mexicanos S.A. de C.V. 144A company guaranty
FRB 9 3/8s, 2004 (Mexico) 2,490,900
----------------
10,460,600
Semiconductor (0.6%)
- ----------------------------------------------------------------------------------------------------------------------------
2,400,000 Amkor Technologies, Inc. sr. sub. notes 10 1/2s, 2009 2,364,000
6,300,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 6,126,750
1,320,000 ChipPac Intl., Ltd. 144A company guaranty 12 3/4s, 2009 1,389,300
6,280,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 6,091,600
700,000 Loral Space & Communication, Ltd. sr. notes 9 1/2s, 2006 472,500
6,155,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 5,477,950
----------------
21,922,100
Shipping (0.2%)
- ----------------------------------------------------------------------------------------------------------------------------
1,875,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 1,687,500
1,530,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 1,331,100
1,000,000 Pegasus Shipping 144A company guaranty 11 7/8s, 2004
(In default) (NON) 380,000
3,210,000 Transportacion Maritima Mexicana S.A. de C.V. sr. notes
10s, 2006 (Mexico) 2,696,400
1,015,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 (Mexico) 883,050
----------------
6,978,050
Steel (1.0%)
- ----------------------------------------------------------------------------------------------------------------------------
9,280,000 AK Steel Corp. company guaranty 7 7/8s, 2009 8,398,400
2,790,000 California Steel Industries sr. notes Ser. B, 8 1/2s, 2009 2,566,800
8,320,000 LTV Corp. sr. notes 11 3/4s, 2009 8,070,400
7,695,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 7,502,625
2,000,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 1,970,000
3,301,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 3,367,020
2,590,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 2,318,050
3,120,000 WHX Corp. sr. notes 10 1/2s, 2005 2,839,200
----------------
37,032,495
Telecommunications (6.9%)
- ----------------------------------------------------------------------------------------------------------------------------
2,320,000 Alaska Communications Systems Corp. company guaranty
9 3/8s, 2009 2,088,000
4,590,000 Barak I.T.C. sr. disc. notes Ser. B, stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 2,616,300
3,630,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 2,758,800
3,630,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 3,630,000
8,670,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 7,651,275
1,060,000 Call-Net Enterprises, Inc. sr. notes 9 3/8s, 2009 805,600
9,140,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 4,387,200
2,950,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 2,175,625
1,830,000 Caprock Communications Corp. sr. notes Ser. B, 12s, 2008 1,793,400
650,000 Caprock Communications Corp. sr. notes 11 1/2s, 2009 630,500
5,620,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009 (Luxembourg) 5,704,300
1,530,000 Colt Telecommunications Group Plc sr. disc. notes
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) (STP) 1,334,925
1,800,000 Colt Telecommunications Group Plc cv. notes 7 5/8s, 2009 1,641,645
7,840,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 7,212,800
621,000 Covad Communications Group, Inc. 144A sr. notes 12s, 2010 546,480
2,400,000 Crown Castle International bank term loan FRN 8.768s 2008 2,394,000
16,180,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 15,613,700
8,555,000 Econophone, Inc. company guaranty 13 1/2s, 2007 8,726,100
2,500,000 Esat Telecom Group Plc sr. unsub. notes 11 7/8s, 2009 (Ireland) 3,032,125
2,420,000 Esprit Teleom Group Plc sr. notes 11 1/2s, 2007
(United Kingdom) 2,238,500
12,300,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13s, 4/15/03), 2008 (STP) 5,965,500
5,800,000 Flag, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 5,017,000
8,005,000 Focal Communications Corp. sr. disc. notes Ser. B,
stepped-coupon zero % (12 1/8s, 02/15/03), 2008 (STP) 5,203,250
4,625,000 Focal Communications Corp. 144A sr. notes 11 7/8s, 2010 4,601,875
4,790,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 4,622,350
5,240,000 Global Crossing Holdings, Ltd. 144A sr. notes 9 1/2s, 2009 5,030,400
2,770,000 Global Crossing Holdings, Ltd. 144A sr. notes 9 1/8s, 2006 2,645,350
1,780,000 GST Equipment Funding sr. notes 13 1/4s, 2007 1,263,800
495,000 GST Telecommunications, Inc. sr. disc. notes stepped-coupon
zero % (10 1/2s, 5/1/03), 2008 (STP) 225,225
210,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 201,600
6,850,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 2/15/03), 2008 (STP) 3,767,500
4,680,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 4,375,800
4,940,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 2,667,600
6,570,000 Insight Midwest 144A sr. notes 9 3/4s, 2009 6,537,150
1,470,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 (STP) 1,198,050
550,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 (STP) 511,500
5,120,000 Initira Corp. bonds 13s, 2010 2,739,200
10,230,000 IPC Information Systems, Inc. sr. disc. notes stepped-coupon
zero % (10 7/8s, 5/1/00), 2008 (STP) 8,900,100
1,800,000 Jazztel Plc 144A notes 13 1/4s, 2009 (United Kingdom) 1,787,760
2,960,000 KMC Telecommunications Holdings, Inc. sr. notes 13 1/2s, 2009 2,841,600
18,000,000 KMC Telecommunications Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 9,450,000
1,970,000 Level 3 Communication, Inc. 144A sr. notes 11 1/4s, 2010 1,871,500
1,320,000 Level 3 Communication, Inc. 144A sr. notes 11s, 2008 1,260,600
7,860,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 3,694,200
7,380,000 Madison River Capital 144A sr. notes 13 1/4s, 2010 7,011,000
2,250,000 MGC Communications, Inc. 144A sr. notes 13s, 2010 2,199,375
1,995,000 Microcell Telecommunications sr. disc. notes Ser. B,
stepped-coupon zero % (14s, 12/1/01), 2006 (Canada) (STP) 1,765,575
2,960,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 2,086,800
1,570,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 1,326,650
1,080,000 NEXTLINK Communications 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 12/1/04), 2009 (STP) 583,200
2,180,000 NEXTLINK Communications Inc. 144A sr. notes 10 1/2s, 2009 2,081,900
5,940,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 5,940,000
10,240,000 NorthPoint Communications Group, Inc. 144A notes
12 7/8s, 2010 9,113,600
7,095,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 4,682,700
5,390,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 4,797,100
5,130,000 Qwest Communications International, Inc. sr. notes Ser. B,
7 1/4s, 2008 5,029,709
2,570,000 Rhythms Netconnections, Inc. 144A sr. notes 14s, 2010 2,235,900
2,500,000 Rural Cellular bank term loan FRN 9.229s, 2009 2,493,750
1,370,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 4/15/04), 2009 (STP) 746,650
8,690,000 Startec Global Communications Corp. sr. notes 12s, 2008 7,256,150
7,360,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 6,716,000
2,980,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 149,000
3,000,000 Tele1 Europe BV 144A notes 11 7/8s, 2009 (Netherlands) 2,907,975
730,000 Teligent, Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(11 1/2s, 3/1/03), 2008 (STP) 386,900
2,000,000 Teligent, Inc. sr. notes 11 1/2s, 2007 1,800,000
4,480,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 4,390,400
3,820,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 3,915,500
1,275,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 1,306,875
5,070,000 Williams Communications Group, Inc. sr. notes 10 7/8s, 2009 4,993,950
6,375,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 10,136,250
2,340,000 WinStar Communications, Inc. sr. sub. notes 11s, 2008 2,884,050
3,170,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 2,757,900
3,480,000 Worldwide Fiber, Inc. sr. notes 12s, 2009 (Canada) 3,271,200
----------------
268,326,244
Telephone Services (1.2%)
- ----------------------------------------------------------------------------------------------------------------------------
10,815,000 Alamosa PCS Holdings, Inc. company guaranty
stepped-coupon zero % (12 7/8s, 2/15/05), 2010 (STP) 5,299,350
1,100,000 Global Telesystems 144A bonds 10 1/2s, 2006 1,008,480
8,865,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 5,673,600
2,510,000 Onepoint Communications, Inc. company guaranty Ser. B,
14 1/2s, 2008 1,631,500
1,500,000 RSL Communications, Ltd. 144A company guaranty
12 7/8s, 2010 1,425,000
3,976,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 3,936,240
3,430,000 RSL Communications, Ltd. 144A company guaranty
10 1/2s, 2008 2,932,650
1,000,000 RSL Communications, Ltd. company guaranty, stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 (STP) 540,000
4,475,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 3,580,000
1,800,000 Transtel S.A. pass-through certificates 12 1/2s, 2007 1,152,000
2,600,000 US Xchange LLC sr. notes 15s, 2008 1,560,000
3,800,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 2,128,000
4,685,000 Viatel, Inc. sr. notes 11 1/2s, 2009 4,357,050
10,880,000 Viatel, Inc. sr. notes 11 1/4s, 2008 9,683,200
----------------
44,907,070
Textiles (0.3%)
- ----------------------------------------------------------------------------------------------------------------------------
5,570,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 2,005,200
1,725,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 1,518,000
2,560,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 2,227,200
5,100,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 3,978,000
----------------
9,728,400
Transportation (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------
2,260,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 2,079,200
Utilities (--%)
- ----------------------------------------------------------------------------------------------------------------------------
740,000 Public Service Co. of New Mexico sr. notes Ser. A, 7.1s, 2005 709,120
Wireless Communications (0.6%)
- ----------------------------------------------------------------------------------------------------------------------------
3,275,000 Neuvo Grupo Iusacell S.A. 144A sr. notes 14 1/4s, 2006
(Mexico) 3,508,344
4,250,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 2,890,000
900,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 117,000
5,360,000 Telecorp PCS, Inc. company guaranty stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 3,296,400
830,000 VoiceStream Wire Corp. sr. disc. notes stepped-coupon
zero % (11 7/8s, 11/15/04), 2009 (STP) 498,000
14,040,000 VoiceStream Wire Corp. 144A sr. notes 10 3/8s, 2009 13,969,800
----------------
24,279,544
----------------
Total Corporate Bonds and Notes (cost $2,041,742,855) $ 1,765,548,398
FOREIGN GOVERNMENT BONDS AND NOTES (15.2%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
USD 27,809,000 Argentina (Republic of) unsub. 11 3/4s, 2009 $ 27,461,388
AUD 42,225,000 Australia (Government of) bonds Ser. 909, 7 1/2s, 2009 27,635,143
USD 27,638,000 Brazil (Federal Republic of) notes 14 1/2s, 2009 30,092,254
USD 9,980,000 Brazil (Federal Republic of) bonds 12 3/4s, 2020 9,930,100
CAD 8,915,000 Canada (Government of) bonds Ser. WB60, 7 1/4s, 2007 6,579,826
CAD 86,570,000 Canada (Government of) bonds Ser. WL43, 5 3/4s, 2029 60,596,611
USD 8,175,000 Colombia (Republic of) bonds 11 3/4s, 2020 7,940,378
DKK 127,205,000 Denmark (Kingdom of) bonds 7s, 2024 18,989,623
DKK 524,950,000 Denmark (Kingdom of) bonds 6s, 2009 69,497,312
EUR 15,295,000 Germany (Federal Republic of) bonds Ser. 98,
5 5/8s, 2028 14,533,691
EUR 76,200,000 Germany (Federal Republic of) bonds Ser. 132,
4 1/8s, 2004 70,842,569
USD 6,660,000 Philippines (Republic of) notes 10 5/8s, 2025 6,343,650
USD 3,620,000 Philippines (Republic of) bonds 9 7/8s, 2019 3,321,350
USD 14,630,000 Russia (Federation of) 144A bonds 12 3/4s, 2028 12,398,925
USD 22,790,000 Russia (Federation of) unsub. 10s, 2007 16,864,600
USD 98,615,000 Russia (Federation of) deb. FRN 6.91s, 2020
(In default) (NON) 28,598,350
USD 5,760,000 Turkey (Republic of) sr. unsub. 12 3/8s, 2009 6,163,200
GBP 13,975,000 United Kingdom Treasury bonds 10s, 2003 24,781,151
GBP 11,245,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 19,214,922
GBP 40,035,000 United Kingdom Treasury bonds 8s, 2000 64,457,051
USD 10,320,000 United Mexican States bonds 11 3/8s, 2016 12,203,400
USD 45,937,000 United Mexican States bonds Ser. XW, 10 3/8s, 2009 49,083,685
USD 6,430,000 Venezuela (Republic of) bonds 9 1/4s, 2027 4,243,800
----------------
Total Foreign Government Bonds and Notes
(cost $578,250,046) $ 591,772,979
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (14.1%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (3.7%)
- ----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
Pass- Through Certificates
$ 1,843,484 7 1/2s, with due dates from August 1, 2017 to March 1, 2018 $ 1,812,938
11,494,049 7s, July 1, 2012 11,303,592
39,451,994 6s, with due dates from February 1, 2029 to
November 1, 2029 35,925,775
7,515,000 Federal National Mortgage Association 7 1/2s, TBA,
April 1, 2030 7,387,020
Federal National Mortgage Association
Pass-Through Certificates
3,961,124 7s, with due dates from January 1, 2006 to February 1, 2012 3,890,536
5,911,000 6 5/8s, September 15, 2009 5,684,727
625,622 6 1/2s, with due dates from September 1, 2010 to
November 1, 2010 602,356
99,247 6s, May 1, 2029 90,346
2,190,000 6s, May 1, 2029 2,032,933
461,833 5 1/2s, August 15, 2014 425,173
Government National Mortgage Association
Pass-Through Certificates
37,951,663 8s, with due dates from January 15, 2022 to
December 15, 2027 38,392,310
30,411,081 7 1/2s, with due dates from December 15, 2022 to
August 15, 2026 30,267,877
4,875,811 7s, with due dates from January 15, 2024 to
November 15, 2026 4,742,228
1,364,647 6 1/2s, with due dates from August 15, 2027 to
November 15, 2028 1,288,269
----------------
143,846,080
U.S. Treasury Obligations (10.4%)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
9,280,000 6 1/4s, May 15, 2030 9,810,723
93,445,000 6 1/8s, August 15, 2029 95,241,013
U.S. Treasury Notes
1,755,000 6 3/8s, January 31, 2002 1,750,068
7,921,000 6 1/8s, December 31, 2001 7,869,038
133,117,000 6s, August 15, 2009 131,431,739
70,120,000 5 7/8s, November 15, 2004 68,848,724
94,041,000 5 1/4s, May 15, 2004 (SEG) 90,294,405
40,000 U. S. Treasury Interest Strip, zero %, February 15, 2019 12,721
----------------
405,258,431
----------------
Total U.S. Government and Agency Obligations
(cost $539,599,578) $ 549,104,511
COLLATERALIZED MORTGAGE OBLIGATIONS (11.6%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.
$ 9,470,000 Ser. 97-ML1, Class D, 6.977s, 2030 $ 8,753,831
16,870,000 Ser. 98-C2, Class A2, 6.03s, 2008 15,373,446
187,566,429 Ser. 97-ML1, Interest Only (IO) 0.957s, 2017 8,557,718
Commercial Mortgage Asset Trust
2,140,000 Ser. 99-C1, Class A3, 6.64s, 2010 2,002,906
293,150,157 Ser. 99-C1, Class X, IO,1.156s, 2020 18,459,299
Criimi Mae Commercial Mortgage Trust
38,001,000 Ser. 98-C1, Class A2, 7s, 2011 33,132,122
16,806,000 Ser. 98-C1, Class B, 7s, 2011 13,492,067
3,556,000 CS First Boston Mortgage Corp. Ser. 99-C1, Class A2,
7.29s, 2009 3,488,214
298,633,105 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1,
Class X, IO, 1.231s, 2031 15,724,899
2,435,000 DLJ Commercial Mortgage Corp. Ser. 99-CG3, Class A1B,
7.34s, 2009 2,393,148
Fannie Mae
12,896,401 Ser. 98-51, Class SG, IO, 13.92s, 2022 6,561,044
9,667,500 Ser. 92-207, Class S, IO, 7.781s, 2022 1,945,584
8,745,693 Ser. 98-28, Class SD, IO, 6.79s, 2023 1,907,654
28,690,032 Ser. 93-251, Class Z, 6 1/2s, 2023 25,220,331
16,211,016 Ser. 96-34, Class SC, IO, 6.37s, 2023 3,282,731
27,732,356 Ser. 281, Class 2, IO, 9s, 2026 7,652,397
11,680,491 Ser. 217, Class 2, IO, 8s, 2023 3,427,494
4,211,667 Ser. 176, Class 2, IO, 8s, 2022 1,235,861
23,457,948 Ser. 266, Class 2, IO, 7.5s, 2024 6,986,070
4,143,145 Ser. 218, Class 2, IO, 7.5s, 2023 1,250,712
59,790,969 Ser. 221, Class 2, 7.5s, 2023 18,012,029
47,817,062 Ser. 252, Class 2, IO, 7.5s, 2023 14,658,918
1,928 Ser. 302, Class 2, IO, 6s, 2029 618
7,947,795 Ser. 304, Class 2, IO, 6s, 2028 2,280,024
9,521,215 Ser. 97-91, Class FB, IO, 3.765s, 2023 1,999,455
43,228,823 Ser. 99-51, Class S, IO, 2.87s, 2029 3,174,617
60,244,201 Ser. 99-64, Class SE, IO, 2.255s, 2030 3,068,689
Freddie Mac
15,187,695 Ser. 2200, Class S, 15.64s, 2023 13,991,664
7,749,985 Ser. 1849, Class DA, IO, 9.489s, 2022 2,581,714
4,366,545 Ser. 1208, Class F, Principal Only (PO), 9s, 2022 3,370,427
8,114,004 Ser. 2032, Class SK, IO, 8.363s, 2024 3,813,582
19,682,830 Ser. 147 Class IO, 8s, 2023 5,794,133
38,182,857 Ser. 1455 Class GA, IO, 7s, 2020 8,328,636
6,345,872 Ser. 1717, Class L, 6 1/2s, 2024 6,142,110
10,090,000 Ser. 2183, Class SG, 6.44s, 2014 7,630,563
6,199,115 Ser. 2122, Class ZA, 6 1/4s, 2028 4,868,242
38,761,181 Ser. 2141, Class SB, IO, 2.07s, 2029 2,168,204
13,939,731 Ser. 202, Class PO, zero % 2029 8,516,305
13,258,690 Ser. 195, Class PO, zero %, 2028 9,040,769
6,707,990 Ser. 180, Class PO, zero % 2026 4,574,011
16,931,259 Ser. 2182, Class EC, PO, zero %, 2025 12,677,280
5,024,832 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4,
6 3/4s, 2028 4,657,391
11,505,000 General Growth Properties-ALA MOANA Ser. 99-C1,
Class E, 7.65s, 2009 11,533,763
General Growth Properties-Homart
2,200,000 Ser. 99-C1, Class G, 8.089s, 2003 2,205,500
2,615,000 Ser. 99-C1, Class F, 7.839s, 2003 2,621,538
General Growth Properties-Ivanhoe
2,830,000 Ser. 99-C1, Class G, 9.38s, 2004 2,837,075
4,920,000 Ser. 99-C1, Class F, 7.916s, 2004 4,932,300
Government National Mortgage Association
2,534,986 Ser. 00-17, Class SB, 13.2s, 2026 2,454,975
670,392 Ser. 00-16, Class SA, 11.663s, 2026 585,755
6,430,461 Ser. 99-34, Class S, 8.112s, 2025 5,136,331
5,512,163 Ser. 99-40, Class US, 6s, 2027 4,079,000
40,799,411 Ser. 98-2 Class SA, IO, 2.37s, 2028 2,460,715
4,661,568 Headlands Mortgage Securities, Inc. Ser. 98-1, Class X2, IO,
6.5s, 2028 907,549
Merrill Lynch Mortgage Investors, Inc.
7,476,000 Ser. 1995-C3, Class D, 7.782s, 2025 7,311,294
1,283,000 Ser. 96-C2, Class E, 6.96s, 2028 1,113,003
656,000 Ser. 98-C2, Class D, 6.956s, 2030 610,080
98,769,377 Ser. 96-C2, IO, 1.602s, 2028 6,589,769
11,579,846 Ser. 98-C2, Class IO, 1.573s, 2030 808,780
Morgan Stanley Capital I
5,675,000 Ser, 98-XL1, Class A, 6.48s, 2030 5,306,125
101,554,981 Ser. 98-HF1, Class X, IO, 1.190s, 2018 5,426,844
Mortgage Capital Funding, Inc.
44,328,879 Ser. 97-MC2, Class X, IO, 1.58s, 2012 2,943,715
199,345,241 Ser. 98-MC1, Class X, IO, 0.856s, 2009 7,335,282
8,028,551 PNC Mortgage Securities Corp. Ser. 97-6, Class A2, 6.6s, 2027 7,928,194
2,098,186 Prudential Home Mortgage Securities Ser. 93-57, Class A4,
5.9s, 2023 2,056,223
6,800,000 Rural Housing Trust 144A, 7.35s, 2037 10,829,000
6,822,876 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 6,584,076
8,455,542 Structured Asset Security Corp. 144A, Ser. 98, 8.712s, 2027 8,625,974
14,273,987 Structured Asset Security Corp. Ser. 98-RF2, 8.58s, 2028 14,521,551
----------------
Total Collateralized Mortgage Obligations
(cost $464,208,430) $ 449,941,320
PREFERRED STOCKS (3.6%) (a)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
73,610 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 809,710
2 Anvil Holdings Ser. B, $3.25 pfd. (PIK) 10
2,182 Benedek Communications $11.50 pfd. (PIK) 1,756,510
272,400 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 6,333,300
130,000 CGA Group, Ltd. 144A Ser. A, $13.75 pfd. (PIK) 3,510,000
139,570 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 7,397,210
19,700 Chevy Chase Savings Bank $3.25 pfd. 482,650
35,430 Citadel Broadcasting, Inc. 144A $13.25 cum. pfd. (PIK) 3,959,303
3,457 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 3,519,658
111,233 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 12,040,972
219,600 Diva Systems Corp. Ser. C, $6.00 pfd. 1,098,000
10,903 Dobson Communications Corp. $13.00 pfd. 11,557,180
2,350 First Republic 144A 10.50% pfd. 2,267,750
172,935 Fitzgeralds Gaming $3.75 cum. pfd. 1,729
3,285 Fresenius Medical Capital Trust I company guaranty Ser. D,
9.00%, pfd. (Germany) 3,112,538
7,980 Fresenius Medical Capital Trust II company guaranty $7.875,
pfd. (Germany) 7,182,000
26,470 Global Crossing Holdings, LTD. 144A $10.50 pfd. 2,594,060
11,056 Granite Broadcasting 144A $12.75 pfd. (PIK) 9,729,280
7,106 ICG Holdings, Inc. 14.25% pfd. (Canada) 6,466,460
7,523 ICG Holdings, Inc., 144A 14.00% pfd. (Canada) (PIK) 6,657,855
9,744 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 9,305,520
4,762 Nextel Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 5,047,720
1,281 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 1,229,760
158,070 NEXTLINK Communications, Inc. 144A $7.00 cum. pfd. (PIK) 7,903,500
980 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 10,045,000
24,009 Public Service Co. of New Hampshire $2.651 1st mtge. cum. pfd. 600,225
3,211 R&B Falcon Corp. 13.875% cum. pfd. (POR) 3,564,210
4,530 Rural Cellular Corp. 12.25% pfd. (PIK) 4,520,940
6,080 WinStar Communications, Inc. 144A Ser. C, $14.25 cum. pfd. (PIK) 8,208,000
----------------
Total Preferred Stocks (cost $146,889,067) $ 140,901,050
BRADY BONDS (2.7%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$12,805,000 Argentina (Republic of) govt. guaranty 6s, 2023 $ 8,963,500
66,781,144 Brazil (Federal Republic of) bonds 8s, 2014 (POR) 50,005,721
23,825,000 Bulgaria (Government of) Ser. A, FLIRB 2 3/4s, 2012 17,034,875
10,655,000 Peru (Republic of) bonds Ser. PDI, FRB 4 1/2s, 2017 7,099,427
5,904,725 Venezuela (Republic of) deb. Ser. DL, FRB 7s, 2007 4,753,304
26,425,000 Venezuela (Republic of) Ser. W-A, 6 3/4s, 2020 18,827,813
----------------
Total Brady Bonds (cost $105,475,893) $ 106,684,640
UNITS (0.7%) (a)
NUMBER OF UNITS VALUE
- ----------------------------------------------------------------------------------------------------------------------------
5,990 App China Group 144A units 14s, 2010 $ 5,061,550
2,960 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (In default) (Australia) (STP) (NON) 296
1,970 Colo.com 144A units 13 7/8s, 2010 1,970,000
3,730 Equinix, Inc. 144A units 13s, 2007 3,916,500
4,110 Leap Wireless 144A units 12 1/2s, 2010 4,110,000
5,010 Maxcom Telecom 144A units 13 3/4s, 2007 5,060,100
6,600 Pegasus Shipping 144A units company guaranty
stepped-coupon zero % (14 1/2s, 6/20/03), 2008
(Bermuda) (STP) 495,000
2,740 Stone Container Corp. units sr. sub. stepped-coupon zero %
(12 1/4s, 10/1/00), 2002 (STP) 2,760,550
3,945 XCL, Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 394,500
3,350 XM Satellite Radio, Inc, 144A units 14s, 2010 3,165,750
----------------
Total Units (cost $37,289,548) $ 26,934,246
CONVERTIBLE BONDS AND NOTES (0.5%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$12,250,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) $ 6,186,250
7,915,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 4,551,125
2,782,000 GST Telecommunications, Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 2,169,960
3,660,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 2,859,375
2,500,000 Waste Management, Inc. cv. sub. notes 4s, 2002 2,193,750
----------------
Total Convertible Bonds and Notes (cost $18,310,509) $ 17,960,460
WARRANTS (0.4%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
450 American Mobile Satellite Corp. 4/1/08 $ 51,750
66 Anker Coal Group, Inc. 144A 10/28/09 1
3,630 Bestel S.A. de C.V. (Mexico) 5/15/05 399,300
3,630 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 199,650
28,657 Cellnet Data Systems, Inc. 10/1/07 3
130,000 CGA Group, Ltd. 144A 2/11/07 1,300
4,390 Club Regina, Inc. 144A 12/1/04 44
12,400 Comunicacion Cellular 144A (Colombia) 11/15/03 37,200
3,710 Cybernet Internet 144A 7/1/09 371,000
10,155 Destia Communications 144A 7/15/07 1,320,150
4,650 Diva Systems Corp. 5/15/06 1,860,000
30,644 Diva Systems Corp. 3/1/08 735,456
70 E. Spire Communications, Inc. 11/1/05 1,610
4,250 Epic Resorts 6/15/05 43
3,200 Esat Holdings, Inc. (Ireland) 2/1/07 720,000
4,820 Firstworld Communication 4/15/08 843,500
5,350 Globalstar Telecommunications 2/15/04 26,750
65,538 ICG Communications 10/15/05 1,638,450
6,030 Interact Systems, Inc. 8/1/03 60
6,030 Interact Systems, Inc. 144A 12/15/09 60
2,780 International Wireless Communications
Holdings 144A 8/15/01 3
84,592 Intira Corp. Class A 2/1/10 8
29,070 Intira Corp. Class B 2/1/10 3
6,500 Iridium World Com 144A 7/15/05 1
9,460 KMC Telecom Holdings, Inc. 4/15/08 33,110
8,835 Knology Holdings 10/22/07 28,713
14,715 McCaw International, Ltd. 4/15/07 66,218
4,350 Mediq, Inc. 144A 6/1/09 44
1,550 Metronet Communications 144A 8/15/07 232,500
5,612 Network Plus Corp. 2/19/09 3,703,920
2,510 Onepoint Communications, Inc. 6/1/08 50,200
4,250 Orbital Imaging Corp. 144A 3/1/05 85,000
8,485 Orion Network Systems 1/15/07 106,063
13,800 Pagemart, Inc. 144A 12/31/03 172,500
6,810 Pathnet, Inc. 144A 4/15/08 68,100
7,360 Paxson Communications Corp. 144A 6/30/03 22,080
28,800 Powertel, Inc. 2/1/06 288,000
2,890 R&B Falcon Corp. 144A 5/1/09 1,011,500
3,980 Signature Brands, Ltd. 8/15/02 40
8,690 Startec Global Communications Corp. 5/15/08 158,158
2,160 Sterling Chemicals Holdings 8/15/08 38,880
2,980 Telehub Communications Corp. 7/31/05 1,490
14,235 UIH Australia/Pacific, Inc. 144A 5/15/06 427,050
4,290 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 2,574,000
6,375 Wireless One, Inc. 10/19/00 6
1,001 Wright Medical Technology, Inc. 144A 6/30/03 10
----------------
Total Warrants (cost $7,964,639) $ 17,273,924
CONVERTIBLE PREFERRED STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
16,110 Chesapeake Energy Corp. $3.50 cum. cv. pfd. $ 600,098
137,070 Global Telesystems, Inc. 144A $3.625 cum. cv. pfd. 5,174,394
6,030 Interact Electronic $7.00 cv. pfd 6,030
27,900 LTV Corp. (The) 144A $4.125 cv. pfd. 1,494,408
263 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 2,419,600
26,400 PSINet, Inc. Ser. C, $3.375 cum. cv. pfd. 1,607,100
31,600 RSL Communications, Ltd. 144A $3.75 cv. pfd. (Bermuda) 1,919,700
9,390 Verio, Inc. 144A $3.375 cv. pfd. 509,999
819 World Access, Inc. 144A Ser. D, zero %, cv. pfd. 843,570
27,784 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. 27,784
----------------
Total Convertible Preferred Stocks (cost $18,934,129) $ 14,602,683
COMMON STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
1,750 AmeriKing, Inc. (NON) $ 17,500
1,289,757 Celcaribe (NON) 322,439
252,474 Chesapeake Energy Corp. (NON) 820,541
223,713 Fitzgerald Gaming Corp. (AFF) 55,928
7,541 IFINT Diversified Holdings 144A (NON) 15,082
7,496 MGC Communications, Inc. 535,964
844 Mothers Work, Inc. (NON) 10,128
900 Paging Do Brazil Holdings Co., LLC 144A Class B (Brazil) (NON) 9
1,942 Premium Holdings (L.P.) 144A (NON) 19,421
979,968 PSF Holdings LLC Class A (NON) (AFF) 9,799,680
73,800 Spanish Broadcasting Systems (NON) 1,328,400
22,818 Viatel, Inc. (NON) 1,145,176
----------------
Total Common Stocks (cost $36,918,737) $ 14,070,268
ASSET-BACKED SECURITIES (0.3%) (a) (cost $15,064,750)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$15,125,651 First Plus Ser. 98-A, Class A, 8 1/2s, 2023 $ 11,344,238
SHORT-TERM INVESTMENTS (2.6%) (a)
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
$ 8,000,000 Asset Securitization Cooperative Corp. effective yield
of 6.05%, April 13, 2000 $ 7,983,867
25,000,000 Associates First Capital Corp. effective yield of 6.25%,
April 3, 2000 24,986,979
66,132,000 Interest in $556,447,000 joint repurchase agreement
dated March 31, 2000 with Morgan Stanley & Co., Inc.
due April 3, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $66,165,176 for an
effective yield of 6.02% 66,132,000
----------------
Total Short-Term Investments (cost $99,102,846) $ 99,102,846
- ----------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,109,750,847) (b) $ 3,805,241,563
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Percentages indicated are based on net assets of $3,881,417,669.
(b) The aggregate identified cost on a tax basis is $4,114,723,248,
resulting in gross unrealized appreciation and depreciation of
$103,046,838 and $412,528,523, respectively, or net unrealized
depreciation of $309,481,685.
(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).
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at March
31, 2000.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced securities
(Note 1).
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 March 31, 2000,
which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at March 31, 2000:
(as percentage of Market Value)
Brazil 2.5%
Canada 3.3
Denmark 2.3
Germany 2.5
Mexico 2.6
Russia 1.5
United Kingdom 3.5
United States 74.6
Others 7.2
------
Total 100.0%
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Forward Currency Contracts to Buy at March 31, 2000 (Unaudited)
(aggregate face value $636,376,197)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollars $132,112,428 $134,511,179 6/21/00 $ (2,398,751)
Euro Dollars 287,197,348 302,516,422 6/21/00 (15,319,074)
Japanese Yen 204,765,015 179,341,294 6/21/00 25,423,721
Swedish Krona 9,868,991 9,773,706 6/21/00 95,285
Swiss Francs 9,817,186 10,233,596 6/21/00 (416,410)
- -------------------------------------------------------------------------------
$ 7,384,771
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 2000 (Unaudited)
(aggregate face value $556,931,547)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
British Pounds $167,867,938 $170,654,993 6/21/00 $ 2,787,055
Canadian Dollar 16,422,994 16,408,676 6/21/00 (14,318)
Danish Krone 85,705,496 86,414,973 6/21/00 709,477
Euro Dollars 47,136,883 49,657,227 6/21/00 2,520,344
Japanese Yen 261,672,993 233,795,678 6/21/00 (27,877,315)
- -------------------------------------------------------------------------------
$(21,874,757)
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 2000 (Unaudited)
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- -------------------------------------------------------------------------------
Euro Dollars 90 day
(Long) $269,641,350 $269,969,792 Sep-00 $ (328,442)
Euro Dollars 90 day
(Short) 268,612,738 268,684,411 Sep-01 71,673
Gilt (Short) 14,099,645 13,880,012 Jun-00 (219,633)
Euro Bonds (Short) 136,101,176 133,296,473 Jun-00 (2,804,703)
U. S. Treasury Bonds
10 year (Long) 157,023,079 152,920,143 Jun-00 4,102,936
U. S. Treasury Bonds
(Long ) 129,338,250 123,204,251 Jun-00 6,133,999
- -------------------------------------------------------------------------------
$ 6,955,830
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 2000 (Unaudited)
Assets
- ----------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost $4,109,750,847) (Note 1) $3,805,241,563
- ----------------------------------------------------------------------------------------------
Cash 10,801,879
- ----------------------------------------------------------------------------------------------
Foreign currency (cost $2,854,357) 3,168,521
- ----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 79,478,504
- ----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 7,183,389
- ----------------------------------------------------------------------------------------------
Receivable for securities sold 49,953,346
- ----------------------------------------------------------------------------------------------
Receivable for variation margin 335,001
- ----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 31,535,882
- ----------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 4,481,002
- ----------------------------------------------------------------------------------------------
Total assets 3,992,179,087
Liabilities
- ----------------------------------------------------------------------------------------------
Distributions payable to shareholders 72,688
- ----------------------------------------------------------------------------------------------
Payable for securities purchased 39,824,188
- ----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 11,746,206
- ----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,438,088
- ----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 366,359
- ----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 148,100
- ----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,549
- ----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 3,440,743
- ----------------------------------------------------------------------------------------------
Payable for open forward currency contracts 46,025,868
- ----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 3,517,512
- ----------------------------------------------------------------------------------------------
Other accrued expenses 174,117
- ----------------------------------------------------------------------------------------------
Total liabilities 110,761,418
- ----------------------------------------------------------------------------------------------
Net assets $3,881,417,669
Represented by
- ----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,625,189,762
- ----------------------------------------------------------------------------------------------
Distribution in excess of net investment income (Note 1) (14,476,975)
- ----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (417,124,955)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets
and liabilities in foreign currencies (312,170,163)
- ----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $3,881,417,669
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,385,466,803 divided by 130,799,370 shares) $10.59
- ----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $10.59)* $11.12
- ----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,430,715,200 divided by 135,648,985 shares)** $10.55
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class C share
($9,639,472 divided by 912,123 shares)** $10.57
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,042,593,663 divided by 98,829,370 shares) $10.55
- ----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $10.55)* $10.90
- ----------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per class Y share
($13,002,531 divided by 1,226,021 shares) $10.61
- ----------------------------------------------------------------------------------------------
* 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.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 2000 (Unaudited)
Investment income:
- ----------------------------------------------------------------------------------------------
<S> <C>
Interest income $183,709,650
- ----------------------------------------------------------------------------------------------
Dividends 9,219,077
- ----------------------------------------------------------------------------------------------
Total investment income 192,928,727
Expenses:
- ----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 11,200,187
- ----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,365,506
- ----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 38,707
- ----------------------------------------------------------------------------------------------
Administrative services (Note 2) 15,055
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,799,254
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 8,042,367
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 37,808
- ----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 2,664,330
- ----------------------------------------------------------------------------------------------
Reports to shareholders 214,870
- ----------------------------------------------------------------------------------------------
Auditing 44,405
- ----------------------------------------------------------------------------------------------
Legal 36,585
- ----------------------------------------------------------------------------------------------
Postage 169,278
- ----------------------------------------------------------------------------------------------
Other 260,638
- ----------------------------------------------------------------------------------------------
Total expenses 26,888,990
- ----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (459,683)
- ----------------------------------------------------------------------------------------------
Net expenses 26,429,307
- ----------------------------------------------------------------------------------------------
Net investment income 166,499,420
- ----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (100,286,387)
- ----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 234,607
- ----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (12,108,129)
- ----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (13,193,494)
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
during the period 73,441,026
- ----------------------------------------------------------------------------------------------
Net loss on investments (51,912,377)
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $114,587,043
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
2000* 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 166,499,420 $ 362,221,857
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (112,159,909) (196,140,309)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 60,247,532 (166,068,998)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 114,587,043 12,550
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (65,103,709) (138,363,215)
- -------------------------------------------------------------------------------------------------------
Class B (67,458,604) (143,702,788)
- -------------------------------------------------------------------------------------------------------
Class C (310,783) (190,341)
- -------------------------------------------------------------------------------------------------------
Class M (47,314,760) (78,578,491)
- -------------------------------------------------------------------------------------------------------
Class Y (689,435) (1,387,021)
- -------------------------------------------------------------------------------------------------------
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 return of capital
Class A -- (857,766)
- -------------------------------------------------------------------------------------------------------
Class B -- (890,868)
- -------------------------------------------------------------------------------------------------------
Class C -- (1,180)
- -------------------------------------------------------------------------------------------------------
Class M -- (487,138)
- -------------------------------------------------------------------------------------------------------
Class Y -- (8,599)
- -------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (371,378,796) (433,837,511)
- -------------------------------------------------------------------------------------------------------
Total decrease in net assets (437,669,044) (805,542,472)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 4,319,086,713 5,124,629,185
- -------------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $14,476,975 and
$99,104, respectively) $3,881,417,669 $4,319,086,713
- -------------------------------------------------------------------------------------------------------
* Unaudited
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.77 $11.66 $12.70 $12.29 $11.99 $11.64
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .45(c) .91(c) .99(c) .89(c) .89 .95
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.14) (.87) (1.17) .39 .30 .36
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .31 .04 (.18) 1.28 1.19 1.31
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.49) (.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 (.49) (.93) (.86) (.87) (.89) (.96)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.59 $10.77 $11.66 $12.70 $12.29 $11.99
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.89* 0.31 (1.67) 10.86 10.35 11.89
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,385,467 $1,506,532 $1,911,024 $2,104,971 $1,845,901 $1,597,034
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .47* .94 .97 .99 1.02 1.01
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.22* 8.04 7.88 7.17 7.32 8.22
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 88.91* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.72 $11.61 $12.65 $12.24 $11.95 $11.61
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .41(c) .82(c) .89(c) .79(c) .80 .88
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.13) (.87) (1.17) .40 .29 .33
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .28 (.05) (.28) 1.19 1.09 1.21
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.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 (.45) (.84) (.76) (.78) (.80) (.87)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.55 $10.72 $11.61 $12.65 $12.24 $11.95
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.61* (0.47) (2.42) 10.08 9.47 11.01
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,430,715 $1,722,284 $2,174,770 $2,366,410 $2,135,148 $1,795,456
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* 1.69 1.72 1.74 1.77 1.76
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.84* 7.29 7.13 6.42 6.57 7.46
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 88.91* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 February 1, 1999+
operating performance (Unaudited) to Sept. 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $10.75 $11.51
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .41 .59
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.14) (.75)
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .27 (.16)
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.59)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.01)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- --
- --------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (d)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.60)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.57 $10.75
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.52* (1.40)*
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $9,639 $6,301
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* 1.12*
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.86* 5.00*
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 88.91* 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
- --------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Dec. 1, 1994+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- --------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.73 $11.62 $12.67 $12.27 $11.97 $11.34
- --------------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------------
Net investment income .44(c) .87(c) .96(c) .82(c) .86 .78
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.15) (.86) (1.18) .43 .31 .63
- --------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .29 .01 (.22) 1.25 1.17 1.41
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.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 (.47) (.90) (.83) (.85) (.87) (.78)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.55 $10.73 $11.62 $12.67 $12.27 $11.97
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.78* 0.09 (1.97) 10.59 10.12 12.90*
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,042,594 $1,066,821 $1,019,477 $513,351 $46,327 $14,751
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .60* 1.19 1.22 1.24 1.28 1.07*
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.09* 7.81 7.69 6.88 7.09 6.30*
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 88.91* 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
- -----------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 July 1, 1996+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- -----------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.78 $11.66 $12.70 $12.29 $12.07
- -----------------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------------
Net investment income .46(c) .93(c) 1.03(c) .93(c) .24
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.13) (.86) (1.18) .38 .20
- -----------------------------------------------------------------------------------------------------------
Total from
investment operations .33 .07 (.15) 1.31 .44
- -----------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------
From net
investment income (.50) (.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 (.50) (.95) (.89) (.90) (.22)
- -----------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.61 $10.78 $11.66 $12.70 $12.29
- -----------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.10* 0.63 (1.40) 11.14 3.70*
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,003 $17,149 $19,358 $19,763 $2,662
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .35* .69 .72 .74 .19*
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.34* 8.27 8.15 7.29 1.95*
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 88.91* 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
March 31, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Diversified Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks high current income
consistent with preservation of capital by allocating its investments
among the U.S. government and investment grade 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.
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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable relationships
between securities that are generally recognized by institutional
traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam 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. Any premium resulting
from the purchases of stepped-coupon securities in excess
of maturity value is amortized on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date, to protect against a decline
in value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the
value of a currency in which securities a fund intends to buy are
denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is "marked-to-market"
daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain
or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. The fund
could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet
the terms of their contracts or if the fund is unable to enter into a
closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
H) TBA purchase commitments The fund may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed unit
price at a future date beyond customary settlement time. Although the
unit price has been established, the principal value has not been
finalized. However, the amount of the commitments will not fluctuate
more than 0.01% from the principal amount. The fund holds, and maintains
until settlement date, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or the fund may enter into
offsetting contracts for the forward sale of other securities it owns.
Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the
risk of decline in the value of the fund's other assets. Unsettled TBA
purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Security valuation" above.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for their portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
I) 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 six months
ended March 31, 2000, the fund had no borrowings against the line of
credit.
J) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At September 30, 1999, the fund had a capital loss carryover of
approximately $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
K) 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. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.70% of the
first $500 million 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.
For the six months ended March 31, 2000, fund expenses were reduced by
$459,683 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 $3,133
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
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 six months ended March 31, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $101,227 and $429,014
from the sale of class A and class M shares, respectively, and received
$1,761,823 and $1,441 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the six months ended March 31, 2000, Putnam Mutual Funds
Corp., acting as underwriter received $5,002 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended March 31, 2000, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $1,600,867,198 and
$2,096,410,812, respectively. Purchases and sales of U.S. government
obligations aggregated $1,918,746,320 and $2,010,609,765, respectively.
Note 4
Capital shares
At March 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 16,225,839 $173,456,545
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions: 4,257,191 45,491,072
- ---------------------------------------------------------------------------
20,483,030 218,947,617
Shares
repurchased (29,599,689) (316,779,685)
- ---------------------------------------------------------------------------
Net decrease (9,116,659) $(97,832,068)
- ---------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 7,627,691 $81,269,676
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,223,821 44,938,104
- ---------------------------------------------------------------------------
11,851,512 126,207,780
Shares
repurchased (36,903,094) (392,789,146)
- ---------------------------------------------------------------------------
Net decrease (25,051,582) $(266,581,366)
- ---------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 461,373 $4,928,194
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 22,058 235,242
- ---------------------------------------------------------------------------
483,431 5,163,436
Shares
repurchased (157,647) (1,683,013)
- ---------------------------------------------------------------------------
Net increase 325,784 $3,480,423
- ---------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 15,371,906 $163,981,840
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 207,846 2,212,176
- ---------------------------------------------------------------------------
15,579,752 166,194,016
Shares
repurchased (16,203,001) (172,719,101)
- ---------------------------------------------------------------------------
Net decrease (623,249) $(6,525,085)
- ---------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
Six months ended March 31, 2000
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 185,833 $1,984,256
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 64,452 689,435
- ---------------------------------------------------------------------------
250,285 2,673,691
Shares
repurchased (615,523) (6,594,391)
- ---------------------------------------------------------------------------
Net decrease (365,238) $(3,920,700)
- ---------------------------------------------------------------------------
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)
- ---------------------------------------------------------------------------
Note 5
Transactions with Affiliated Companies
Transactions during the period with companies in which the fund owned at
least 5% of the voting securities were as follows:
<TABLE>
<CAPTION>
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- ------------------------------------------------------------------------------------------------------------------
Name of affiliate
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fitzgeralds Gaming $-- $-- $-- $55,928
PSF Holdings, Inc. LLC, Class A -- -- -- 9,855,608
- ------------------------------------------------------------------------------------------------------------------
Totals $-- $-- $-- $9,911,536
</TABLE>
Trustees approve investment policy change for
Putnam Diversified Income Trust
At their February 4, 2000, meeting, the Trustees of the Putnam Funds
approved changes in the investment policies of Putnam Diversified Income
Trust and four other funds that also invest in the U.S.
government/investment-grade, high-yield, and international fixed-income
sectors of the securities markets.
The changes, proposed by Putnam Management, were made to standardize the
ways the three investment sectors are defined and to provide greater
clarity and consistency among the funds as to minimum and maximum
investments in each sector, and to establish consistent limits on
lower-rated securities that may be purchased by both the high-yield
and international sectors.
The changes will provide portfolio managers somewhat greater flexibility,
enhancing their ability to compete in the multi-sector universe, which has
evolved over recent years. However, Putnam Management does not expect that
the proposed changes will significantly change the way the funds are
managed.
Sector definitions clarified and standardized. To eliminate ambiguity and
inconsistency across funds, the following sector definitions were adopted
for each of the five funds:
* The U.S. investment-grade sector includes any security issued
by an entity domiciled or with its principal operations in the United
States and at least investment-grade in quality.
* The high-yield sector includes any security issued by an entity
domiciled or with its principal operations in the United States and is
below investment-grade in quality.
* The international sector includes any security issued by an
entity domiciled or with its principal operations outside the United
States.
The revised investment policies also delete an expectation that
the international sector will primarily be invested in securities of
industrialized Western Europe (including the Scandinavian countries),
Canada, Japan, Australia, and New Zealand. This change will increase the
funds' flexibility to invest in nonindustrialized countries, including
emerging markets.
Uniform limit established on lower-rated securities. The new uniform
policy for all five funds limits securities below investment grade quality
to 70% of fund assets, provided that no more than 5% of assets be invested
in securities below CCC in quality. This policy will limit the credit risk
of the fund.
Consistent minimum and maximum investment limits adopted. The required
20% minimum investment in U.S. government securities was lowered
to 15%, in light of the minimum investment of 15% in each sector. The
redundant separate restriction requiring Putnam Diversified Income Trust
to invest at least 65% of the U.S. government/investment-grade sector in
U.S. government securities was dropped. In addition, the fund's redundant,
separate policy that limited investment in foreign securities to no more
than 80% of fund assets was eliminated.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DOUBLE DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. Although the funds seek
to preserve your investment at $1.00 per share, it is
possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Welcome to www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name
or objective, use our glossary to decode investment terms . . . and much
more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape or Microsoft Internet Explorer,
using an independent Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminv.com
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
David L. Waldman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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
SA028/60366 075/387/803/2BC 5/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- --------------------------------------------------------------------------
Putnam Diversified Income Trust
Supplement to Semiannual Report dated 3/31/00
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, B, C, and M shares, which are discussed more
extensively in the semiannual report.
ANNUAL RESULTS AT A GLANCE
- --------------------------------------------------------------------------
Total return: NAV
Six months ended 03/31/00 3.10%
One year ended 3/31/00 2.16%
Life of class (since 7/01/96)
Annual average 4.49%
- --------------------------------------------------------------------------
Share value: NAV
9/30/99 10.78
3/31/00 10.61
- --------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 0.498 -- 0.498
- --------------------------------------------------------------------------
Please note that past performance does not indicate future results.
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.
