Putnam
Master
Intermediate
Income Trust
Item 1. Report to Stockholders:
-------------------------------
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Although generally benign, recent conditions in financial markets have
hardly been predictable. Over the past 12 months, massive stimulus from
the 2003 tax cuts and from the Federal Reserve Board's low interest-rate
policy has vanquished recessionary forces, restored economic growth, and
recharged corporate earnings. In this environment, bonds have generally
performed well but have been negatively influenced by an
uncharacteristic lack of job growth that has kept bond yields near their
lowest levels in 40 years. However, in months when job creation has
surged, concerns about higher interest rates have caused bond prices to
fall. In addition to these issues, terrorism and geopolitical
uncertainty remain factors that occasionally influence markets, as when
stocks slid and bonds rallied following the March terrorist bombings in
Spain.
Putnam's portfolio management teams have vigilantly monitored all of
these factors and know there are opportunities and risks in any
environment. They consistently adjust fund portfolios to pursue the
opportunities their research identifies while seeking to manage risk
exposure. During the period ended March 31, 2004, your fund benefited
from being well diversified in a variety of sectors -- nearly all of
which showed solid performance -- and from a favorable currency
strategy. Your fund's largest sector, high-yield corporate bonds, was
also its best-performing, while mortgage-backed securities, the
performance of which was dampened by bond market volatility, still had
positive returns. Meanwhile, because of its attractive yield compared
with historically low market interest rates, your fund's return at
market price was higher than its return at net asset value, reflecting
an increase in demand from investors seeking higher income.
In the following report, the fund's management teams provide a detailed
discussion of their approach to the market environment that prevailed
during the period, as well as an outlook for the remainder of 2004.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
May 19, 2004
Report from Fund Management
Fund highlights
* During the semiannual period ended March 31, 2004, Putnam Master
Intermediate Income Trust had a total return at net asset value (NAV) of
7.66%. The fund's return at market price was 11.56%.
* Due to its emphasis on high-yield bonds and investments in
emerging-market securities, as well as a beneficial currency strategy,
the fund's results at NAV outperformed the 3.05% return of its primary
benchmark, the Lehman Government/Credit Bond Index.
* The fund's return at NAV was in line with the 7.61% average return of
the Lipper Flexible Income Funds (closed-end) category. This relatively
small category -- consisting of 12 funds at period-end -- contains some
funds with significant emerging-market weightings.
* The fund's return at market price was significantly higher than its
return at NAV, reflecting an increase in demand among investors seeking
higher yields in a market in which yields have continued to decline.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
In the first half of its fiscal year, Putnam Master Intermediate Income
Trust benefited from a variety of positive factors. The U.S. economy
continued to show solid growth, which was especially beneficial for
corporate high-yield bonds -- which make up the largest portion of your
fund's portfolio. In the second half of the reporting period, the U.S.
economy faltered on significant weakness in new job creation, causing a
correction in the stock market and a strong rally in Treasury bonds, as
investors believed that the sluggish job market could keep interest
rates low. Overseas, emerging markets continued to perform well, due in
part to higher commodity prices, and slower growth in Europe generally
helped bond performance in that region. In this environment, the fund's
strategy of seeking returns from a variety of fixed-income sources
proved beneficial for both its absolute and relative performance.
FUND PROFILE
Putnam Master Intermediate Income Trust seeks high current income and
relative stability by investing in limited-maturity bonds in the
investment-grade and high-yield sectors, as well as non-U.S. bond
markets. The fund is designed for investors seeking high current income,
asset class diversification, or both.
Market overview
The global bond markets have benefited from a downward trend in interest
rates brought on by a change in the outlook for economic growth. During
the first half of the period, interest rates were more volatile, rising
and falling within a broad range with each bit of news that either
challenged or supported the possibility of a sustained economic
recovery. However, low inflation and an accommodative Federal Reserve
monetary policy helped bond yields to trend generally downward. In the
second half of the period, there was increasing evidence that the U.S.
recovery would not be as strong as anticipated, particularly when the
February jobs report indicated lackluster employment creation. This news
(which appeared premature after stronger data was reported after the
period's end), combined with increasing geopolitical concerns
surrounding the bombings in Spain, made investors somewhat more risk
averse and sparked a rally in U.S. Treasuries.
In Europe, low inflation reduced the likelihood of a rate increase by
the European Central Bank, and European government bonds and securities
produced solid returns that were similarly enhanced by a flight to
quality. Although both U.S. Treasuries and European government bonds
performed well, investors continued to seek out bonds that could provide
higher levels of income.
High-yield corporate bonds in both the United States and Europe
continued to benefit from declining default rates, an attractive yield
advantage over Treasuries, and improved credit quality. In emerging
markets, the strengthening global economy has helped boost commodities
exports, bolstering both the stock and bond markets of these countries,
and attracting yield-hungry investors.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 3/31/04
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Bonds
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Lehman Government/Credit Bond Index
(U.S. Treasury and agency securities) 3.05%
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JP Morgan Chase Global Diversified Emerging
Markets Index (global emerging-market bonds) 8.03%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 8.38%
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JP Morgan Chase Global High Yield Index
(global high-yield corporate bonds) 8.78%
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Equities
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S&P 500 Index (broad stock market) 14.08%
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Russell 2000 Growth Index (small-company growth stocks) 18.97%
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Russell 2000 Value Index (small-company value stocks) 24.42%
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These indexes provide an overview of performance in different market
sectors for the six months ended 3/31/04.
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Strategy overview
During the past six months, we continued to seek out a diverse variety
of sectors and securities in our efforts to enhance the fund's
performance while managing its risk exposure. High-yield corporate bonds
continued to provide strong performance and remained the fund's largest
weighting. However, after one of the best periods ever for this sector
-- which began well before this period, in October 2002, and continued
through December 2003 -- we felt that returns going forward would
probably not be as strong and reduced the weighting. Similarly, we
sharply reduced the fund's emerging-market holdings in January 2004,
near the peak of their performance. Traditional mortgage-backed
securities experienced greater volatility later in the period because,
with home mortgage rates at such low levels, prepayments increased as
borrowers refinanced their mortgages. However, we found alternative
securities within this sector that performed well. The fund's holdings
of U.S. Treasuries benefited from the rally in the second half of the
period, while European government agency securities benefited from their
attractive risk/reward characteristics amid a forecast for slower growth
in Europe in 2004.
We continued to use currency strategies to enhance returns. We
deemphasized the Japanese yen in the first three months, when that
currency declined. However, we increased the fund's exposure to the yen
in the second half, when it appreciated, so both positions helped
performance. We emphasized the euro, which generally appreciated during
the period, and maintained emphasis on the Australian dollar, which also
appreciated due to higher commodities prices and increasing exports to
China and Japan.
[GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED]
SECTOR WEIGHTINGS COMPARED
as of 9/30/03 as of 3/31/04
High yield 48.1% 46.3%
U.S. investment grade 27.2% 34.2%
International 24.7% 19.5%
Footnote reads:
This chart shows how the fund's weightings have changed over the last
six months. Weightings are shown as a percentage of total investment
portfolio. Holdings will vary over time.
How sectors and fund holdings affected performance
While the mortgage-backed securities (MBS) sector generally
underperformed due to prepayment concerns associated with low mortgage
rates, we found two types of securities within this sector that
performed well -- home equity loans and manufactured housing bonds.
Unlike mortgages, home equity loans are not as susceptible to
prepayments when interest rates decline, helping boost the performance
of securities that are backed by these loans. Similarly, holdings backed
by manufactured housing companies benefited from a significant
turnaround in this industry over the past few years accompanied by an
increase in demand for low-income housing.
From a geographic standpoint, the fund continued to invest in Colombia,
Mexico, and Russia, which performed well because of higher prices of oil
and other commodities -- although we reduced these weightings near the
end of the period. We also invested in Australia and Canada (the latter
was reduced near the end of the period, as we took advantage of strong
performance). As demand for oil and basic materials has increased from
high-growth regions such as China, these countries have seen significant
increases in exports of oil, metals, and other commodities used for
building infrastructure. We reduced the fund's holdings in Turkey and
Brazil, which tend to be much more volatile and performed poorly near
the end of the period when emerging-market securities sold off.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
High Yield Sector
1 Qwest Corp.
144A notes 8 7/8%, 2012
2 Conseco Finance Securitizations Corp.
Series 00-4, Class A6, 8.31%, 2032
3 Dow Jones Trac-x NA HY
144A notes 7 3/8%, 2009
International Sector
1 United Kingdom
Treasury bonds, 7 1/2%, 2006
2 Germany (Federal Republic of)
Bonds, Ser. 95 7 3/8%, 2005
3 Russia (Federation of)
Unsubordinated bonds 8 1/4%, 2010
U.S. Investment Grade Sector
1 Federal National Mortgage Association
Pass-through certificates, 5%, TBA
April 1, 2018
2 U.S. Government Treasury notes
3 1/4%, August 15, 2008
3 U.S. Government Treasury bonds
4 1/4%, August 15, 2013
Footnote reads:
These holdings represent 19.6% of the fund's net assets as of 3/31/04.
The fund's holdings will change over time.
The fund's corporate high-yield bond holdings, which were reduced during
the period, remained the largest weighting and performed well, with
nearly every holding contributing positively to returns. Among the
fund's larger positions, bonds issued by cable television company
Charter Communications were key contributors. While the firm faced
competitive and financial pressures, the company met expectations and
management's moves to refinance debt eased investor concerns about the
company's liquidity.
In addition, bonds issued by finance company Finova Group provided solid
returns. The company had encountered significant difficulties a few
years ago, particularly in its airplane leasing business. The firm has
worked to liquidate assets and manage its sizeable portfolio of loans,
and was helped by a significant loan in 2001 from noted investor Warren
Buffett through a joint venture. The company repaid the loan earlier
this year, ahead of schedule, and prospects for the airline sector have
improved more than expected.
The fund's sizeable stake in the chemicals sector also boosted returns,
including investments in Huntsman International, a major producer of
basic chemicals and petrochemicals like ethylene and propylene, and
Millennium America (a subsidiary of Millennium Chemicals), which owns
three specialty chemical businesses. Although energy prices were high,
leading to skepticism about the sector's prospects, this cyclical sector
benefited from the improving economy.
Among the few detractors to performance during the period were
high-yield bonds issued by Solutia, a diversified specialty chemical
company. The firm made news when it settled a high-profile PCB
contamination lawsuit in Alabama, and appeared to be on its way to
working out balance sheet problems. However, the company surprised the
market by filing for bankruptcy. We eliminated the bonds from the
portfolio, although we still hold a small warrant position, which gives
the fund's management the option to purchase the company's stock in the
future.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary
in the future.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income Team. The members of
the team are D. William Kohli (Portfolio Leader), David Waldman
(Portfolio Member), Carl Bell, Rob Bloemker, Andrea Burke, Kevin Cronin,
Steve Horner, Michael Salm, and John Van Tassel.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
The fund's returns over this six-month period -- and indeed, for the 12
months preceding it -- have been much higher than the historical average
for these types of securities because of optimal conditions. In the
United States, there has been tremendous stimulus in the form of tax
cuts, a weaker dollar, increased government spending, and interest rates
that have been at historically low levels for some time. Meanwhile,
there have been few clear signs from the Federal Reserve Board that
significant rate increases will occur in 2004. The greater willingness
among investors to accept risk has helped boost the capital markets,
which has also provided economic stimulus. Abroad, moderate growth and
low inflation in Europe has kept rates low and government bonds have had
solid performance, while high-yield bonds have seen strong returns
similar to their U.S. counterparts.
While we believe it is not likely that the performance of the past six
months will be repeated in the near future, that doesn't necessarily
mean, in our view, that the environment for these markets will turn
negative. Instead, we believe there is enough uncertainty in the outlook
to warrant cautiousness. On the one hand, the global economy and the
world's fixed-income markets appear on sound footing in most regions. On
the other hand, a significant rise in interest rates or an increase in
geopolitical turmoil -- or both -- could produce shock waves in the
financial markets. Given these uncertainties, we plan to keep the
portfolio well diversified and as balanced as possible among a variety
of geographic regions, sectors, and holdings. We will continue seeking
opportunities for positive returns, and, as always, monitor economic and
market developments and make necessary adjustments to the portfolio as
we see fit.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. International
investing involves certain risks, such as currency fluctuations,
economic instability, and political developments. Additional risks may
be associated with emerging-market securities, including illiquidity and
volatility. Lower-rated bonds may offer higher yields in return for more
risk. Mutual funds that invest in government securities are not
guaranteed. Mortgage-backed securities are subject to prepayment risk.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended March 31, 2004. Performance should always be
considered in light of a fund's investment strategy. Data represents
past performance. Past performance does not guarantee future results.
More recent returns may be less or more than those shown. Investment
return, net asset value, and market price will fluctuate and you may
have a gain or a loss when you sell your shares.
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TOTAL RETURN FOR PERIODS ENDED 3/31/04
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NAV Market price
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6 months 7.66% 11.56%
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1 year 18.47 17.58
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5 years 41.12 45.98
Annual average 7.13 7.86
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10 years 98.49 110.52
Annual average 7.10 7.73
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Life of fund
(since 4/29/88)
Annual average 8.16 7.32
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Performance does not reflect taxes on reinvested distributions.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/04
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Lehman Citigroup JP Morgan Lipper Flexible
Government/ Non-U.S. Chase Income Funds
Credit World Govt. Global High (closed-end)
Bond Index Bond Index Yield Index+ category average*
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6 months 3.05% 8.38% 8.78% 7.61%
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1 year 6.15 16.05 22.85 18.95
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5 years 44.00 37.59 34.77 37.60
Annual average 7.57 6.59 6.15 6.33
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10 years 108.94 91.01 111.03 103.68
Annual average 7.65 6.69 7.75 7.23
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Life of fund
(since 4/29/88)
Annual average 8.43 7.34 -- 8.31
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 3/31/04, there
were 12, 12, 12, and 10 funds, respectively, in this Lipper category.
+ The JP Morgan Chase Global High Yield Index's inception date was
12/31/93.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/04
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Distributions (number) 6
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Income $0.257
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Capital gains --
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Total $0.257
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Share value: NAV Market price
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9/30/03 $6.99 $6.41
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3/31/04 7.24 6.88
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Current return (end of period)
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Current dividend rate 1 6.30% 6.63%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on
exchanges such as the American Stock Exchange and the New York Stock
Exchange.
Comparative indexes
Citigroup Non-U.S. World Government Bond Index is an unmanaged index of
government bonds from 10 countries.
JP Morgan Chase Global Diversified Emerging Markets Index is an
unmanaged index of global emerging-market fixed-income securities.
JP Morgan Chase Global High Yield Index is an unmanaged index used to
mirror the investable universe of the U.S. dollar global high-yield
corporate debt market of both developed and emerging markets.
Lehman Government/Credit Bond Index is an unmanaged index of U.S
Treasury and government agency securities.
Russell 2000 Growth Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their growth orientation.
Russell 2000 Value Index is an unmanaged index of those companies in the
Russell 2000 Index chosen for their value orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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, 2004 (Unaudited)
Corporate bonds and notes (47.2%) (a)
Principal amount Value
Advertising and Marketing Services (0.1%)
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$236,833 Adams Outdoor Advertising bank term
loan FRN 4.37s, 2008 (acquired
4/2/03, cost $236,241) (RES) $236,981
162,963 Lamar Media Corp. bank term loan FRB
3.188s, 2010 (acquired 2/27/03,
cost $162,963) (RES) 164,593
560,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 607,600
--------------
1,009,174
Automotive (1.2%)
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285,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 317,063
1,020,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 1,040,400
160,000 Dana Corp. notes 10 1/8s, 2010 184,800
675,000 Dana Corp. notes 9s, 2011 813,375
295,000 Dana Corp. notes 6 1/2s, 2009 314,175
160,000 Delco Remy International, Inc.
company guaranty 11s, 2009 169,600
520,000 Delco Remy International, Inc.
company guaranty 10 5/8s, 2006 529,750
190,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 202,350
615,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 621,150
172,700 Hayes Lemmerz International, Inc.
bank term loan FRN 4.955s,
2009 (acquired 6/3/03, cost
$170,973) (RES) 175,578
805,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 951,913
EUR 215,000 Lear Corp. sr. notes 8 1/8s, 2008 301,154
$405,000 Meritor Automotive, Inc. notes 6.8s,
2009 420,188
630,000 Metaldyne Corp. 144A sr. notes 10s,
2013 623,700
60,000 Plastech bank term loan FRN 3.84s,
2010 (acquired 2/9/04, cost $60,000)
(RES) 60,788
30,000 Plastech 2nd. Lien bank term loan
FRN 5.62s, 2011 (acquired 2/9/04,
cost $30,000) (RES) 30,450
92,580 SPX Corp. bank term loan FRN Ser. B,
3.114s, 2009 (acquired various
dates from 7/23/02 to 8/26/03, cost
$92,580) (RES) 93,718
EUR 300,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 374,139
$485,000 Tenneco Automotive, Inc. company
guaranty Ser. B, 11 5/8s, 2009 525,013
750,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 862,500
105,000 TRW Automotive bank term loan FRN
3.438s, 2011 (acquired 1/7/04, cost
$105,000) (RES) 106,444
--------------
8,718,248
Basic Materials (4.8%)
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540,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 592,650
455,000 AK Steel Corp. company guaranty
7 3/4s, 2012 406,088
144,914 Appleton Papers, Inc. bank term loan
FRN 3.59s, 2006 (acquired 6/4/02,
cost $145,457) (RES) 145,819
545,000 Appleton Papers, Inc. company
guaranty Ser. B, 12 1/2s, 2008 615,850
780,000 Armco, Inc. sr. notes 9s, 2007 752,700
825,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 701,250
575,000 Better Minerals & Aggregates Co.
company guaranty 13s, 2009 425,500
740,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 839,900
775,000 Compass Minerals International Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 627,750
285,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon zero %
(12s, 6/1/08), 2013 (STP) 216,600
1,101,773 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s,
2008 (acquired various dates from
7/27/01 to 11/26/03, cost $578,312)
(RES) (PIK) 605,975
765,000 Dow Chemical Co. (The) notes 5 3/4s,
2009 839,678
185,000 Equistar Chemicals LP notes 8 3/4s,
2009 188,700
1,690,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 1,816,750
390,000 Equistar Chemicals LP/Equistar
Funding Corp. sr. notes 10 5/8s,
2011 420,225
365,000 Four M Corp. sr. notes Ser. B, 12s,
2006 361,350
405,000 Georgia-Pacific Corp. company
guaranty 8 7/8s, 2010 472,838
1,000 Georgia-Pacific Corp. sr. notes
7 3/8s, 2008 1,093
680,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 768,400
149,250 Graphics Packaging bank term loan
FRN 3.921s, 2010 (acquired
8/6/03, cost $149,250) (RES) 151,116
197,500 Hercules, Inc. bank term loan FRN
Ser. B, 3.625s, 2007
(acquired 12/17/02, cost $197,006)
(RES) 198,652
1,050,000 Hercules, Inc. company guaranty
11 1/8s, 2007 1,260,000
560,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 632,800
1,003,000 Huntsman Co., LLC 144A sr. disc.
notes zero %, 2008 521,560
275,782 Huntsman Corp. bank term loan FRN
Ser. A, 5.938s, 2007
(acquired various dates from 5/1/03
to 9/24/03, cost $255,276) (RES) 265,555
177,713 Huntsman Corp. bank term loan FRN
Ser. B, 9 3/8s, 2007
(acquired various dates from 7/17/02
to 9/24/03, cost $163,717) (RES) 171,123
815,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 819,075
1,565,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 719,900
EUR 415,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 486,965
$400,000 Huntsman LLC company guaranty
11 5/8s, 2010 420,000
1,385,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 1,565,050
60,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 54,900
645,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (DEF) (NON) 77,400
70,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 75,250
135,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 137,363
5,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 5,113
1,685,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 1,743,975
EUR 440,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 605,233
$235,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 265,550
356,611 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 420,355
1,065,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 1,136,888
155,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 165,463
133,983 Nalco Co. bank term loan FRN 3.6s,
2010 (acquired 11/6/03, cost
$133,983) (RES) 135,051
280,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 292,600
EUR 75,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 93,535
EUR 75,000 Nalco Co. 144A sr. sub. notes 9s,
2013 92,153
$1,085,000 Nalco Co. 144A sr. sub. notes
8 7/8s, 2013 1,131,113
470,000 Norske Skog Canada 144A sr. notes
7 3/8s, 2014 (Canada) 486,232
532,500 Noveon International bonds 13s, 2011 564,450
140,000 Noveon International company
guaranty Ser. B, 11s, 2011 160,300
135,000 OM Group, Inc. company guaranty
9 1/4s, 2011 139,725
509,465 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 481,444
243,657 Pioneer Cos., Inc. sec. FRN 4.61s,
2006 233,911
805,000 Potlatch Corp. company guaranty 10s,
2011 909,650
410,000 Resolution Performance Products, LLC
sec. notes 8s, 2009 418,200
110,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 111,650
EUR 75,000 Rhodia SA unsub. Ser. EMTN, 6 1/4s,
2005 (France) 92,383
$520,000 Rhodia SA 144A sr. notes 7 5/8s,
2010 (France) 478,400
EUR 440,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 546,034
$180,000 SGL Carbon, LLC bank guaranty FRN
4.22s, 2009 (acquired 2/26/04, cost
$180,900) (RES) 180,450
80,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 87,200
695,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 778,400
146,606 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 141,475
930,000 Stone Container Corp. sr. notes
9 3/4s, 2011 1,039,275
240,000 Stone Container Corp. sr. notes
8 3/8s, 2012 262,200
80,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 77,200
915,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 1,065,975
390,000 United Agri Products 144A sr. notes
8 1/4s, 2011 405,600
509,000 United States Steel Corp. sr. notes
9 3/4s, 2010 580,260
510,000 WCI Steel, Inc. sr. notes Ser. B,
10s, 2004 (In default) (NON) 285,600
255,000 Wellman 1st. Lien bank term loan FRN
6s, 2009 (acquired 2/4/04, cost
$255,000) (RES) 257,869
270,000 Wellman 2nd. Lien bank term loan FRN
8 3/4s, 2010 (acquired 2/4/04, cost
$264,600) (RES) 261,450
44,691 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 29,105
89,383 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 59,105
410,000 WHX Corp. sr. notes 10 1/2s, 2005 372,588
--------------
34,948,985
Building Materials (0.4%)
-------------------------------------------------------------------------------
320,000 Building Materials Corp. company
guaranty 8s, 2008 320,000
565,000 Dayton Superior Corp. 144A sec.
notes 10 3/4s, 2008 581,950
225,000 Interface, Inc. 144A sr. sub. notes
9 1/2s, 2014 222,750
139,000 NCI Building Systems, Inc. bank term
loan FRN Ser. B, 4.163s,
2008 (acquired 9/4/02, cost
$139,000) (RES) 140,100
545,000 Nortek Holdings, Inc. 144A sr. notes
stepped-coupon zero % (10s,
11/15/07), 2011 (STP) 414,200
400,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 446,000
1,510,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 662,513
--------------
2,787,513
Capital Goods (4.5%)
-------------------------------------------------------------------------------
250,000 Advanced Glassfiber Yarns bank term
loan FRN Ser. A, 6 1/2s,
2005 (acquired 9/12/02, cost
$175,000) (RES) 201,250
830,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 854,900
196,819 Alliant Techsystems, Inc. bank term
loan FRN Ser. C, 3.469s,
2009 (acquired 5/7/02, cost
$196,819) (RES) 197,342
152,357 Allied Waste Industries, Inc. bank
term loan FRN 3.866s, 2010 (acquired
4/25/03, cost $152,357) (RES) 154,398
25,714 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 1.12s,
2010 (acquired 4/25/03, cost
$25,714) (RES) 26,063
1,430,000 Allied Waste North America, Inc.
company guaranty Ser. B, 9 1/4s,
2012 1,626,625
1,175,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 1,313,063
20,000 Allied Waste North America, Inc.
company guaranty Ser. B, 7 5/8s,
2006 21,300
550,000 Allied Waste North America, Inc.
144A sec. notes 6 1/2s, 2010 558,250
198,500 Amsted Industries bank term loan FRN
5.129s, 2010 (acquired 8/12/03, cost
$197,508) (RES) 199,493
1,320,000 Argo-Tech Corp. company guaranty
8 5/8s, 2007 1,326,600
200,000 Argo-Tech Corp. company guaranty
Ser. D, 8 5/8s, 2007 201,000
220,000 BE Aerospace, Inc. sr. notes 8 1/2s,
2010 235,400
500,000 BE Aerospace, Inc. sr. sub. notes
9 1/2s, 2008 480,000
205,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 187,575
600,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 549,000
290,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 327,700
865,000 Blount, Inc. company guaranty 13s,
2009 935,281
680,000 Blount, Inc. company guaranty 7s,
2005 693,600
270,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 278,100
190,000 Crown Cork & Seal Company, Inc. bank
term loan FRN Ser. B, 4.17s, 2008
(acquired 2/21/03, cost $188,100)
(RES) 193,325
535,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 623,275
1,585,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 1,779,163
1,000,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 661,250
148,875 EaglePicher bank term loan FRN
4.61s, 2009 (acquired 8/6/03, cost
$149,750) (RES) 148,782
715,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 804,375
775,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 922,250
EUR 360,000 Flender Holdings 144A sr. notes 11s,
2010 (Denmark) 506,470
$143,121 Flowserve Corp. bank term loan FRN
Ser. C, 3.895s, 2009
(acquired various dates from 4/30/02
to 2/26/04, cost $144,171) (RES) 144,516
555,000 Flowserve Corp. company guaranty
12 1/4s, 2010 641,025
EUR 95,000 Flowserve Finance BV company
guaranty 12 1/4s, 2010 (Netherlands) 131,609
$198,947 Graham Packaging bank term loan FRN
3.875s, 2010 (acquired 2/18/03, cost
$197,953) (RES) 201,434
665,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 696,588
DEM 685,000 Impress Metal Packaging Holding NV
sr. sub. notes 9 7/8s,
2007 (Netherlands) 404,514
$120,000 Invensys, PLC bank term loan FRN
1.11s, 2009 (acquired 3/11/04, cost
$119,700) (RES) 120,300
730,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 748,250
EUR 275,000 Invensys, PLC sr. unsub. notes
5 1/2s, 2005 (United Kingdom) 345,495
$294,000 JII Holdings LLC 144A secd. notes
13s, 2007 264,600
510,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 571,200
239,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 249,755
330,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 340,725
85,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 97,113
EUR 190,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 258,899
$220,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 234,300
315,000 Motors and Gears, Inc. sr. notes
Ser. D, 10 3/4s, 2006 267,750
560,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 576,800
520,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 543,400
685,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 744,938
155,420 Pike Electric bank term loan FRN
4 3/8s, 2010 (acquired 2/27/04, cost
$157,557) (RES) 156,343
515,000 Pliant Corp. sec. notes 11 1/8s,
2009 538,175
550,000 Roller Bearing Company of America
company guaranty Ser. B, 9 5/8s,
2007 541,750
98,750 Roper bank term loan FRN 3.113s,
2008 (acquired 12/22/03, cost
$98,750) (RES) 99,923
1,140,000 Sequa Corp. sr. notes 9s, 2009 1,282,500
240,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 266,400
230,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 209,875
150,000 Solo Cup Co. bank guaranty FRN
3.598s, 2011 (acquired 2/19/04, cost
$150,854) (RES) 152,381
510,000 Solo Cup Co. 144A sr. sub. notes
8 1/2s, 2014 528,488
505,000 TD Funding Corp. company guaranty
8 3/8s, 2011 535,300
1,245,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 1,307,250
455,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 452,725
190,000 Terex Corp. company guaranty 9 1/4s,
2011 212,800
730,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 830,375
294,759 Titan Corp. (The) bank term loan FRN
Ser. B, 4.334s, 2009 (acquired
various dates from 5/14/02 to
6/3/02, cost $295,891) (RES) 294,759
370,000 Titan Corp. (The) 144A sr. sub.
notes 8s, 2011 421,800
49,875 Transdigm, Inc. bank term loan FRN
6s, 2010 (acquired 7/21/03, cost
$49,875) (RES) 50,265
600,000 Trimas Corp. company guaranty
9 7/8s, 2012 654,000
365,000 Vought Aircraft Industries, Inc.
144A sr. notes 8s, 2011 377,775
--------------
32,501,925
Commercial and Consumer Services (0.6%)
-------------------------------------------------------------------------------
143,242 Coinmach Corp. bank term loan FRN
Ser. B, 3 7/8s, 2009
(acquired 1/31/02, cost $143,063)
(RES) 144,459
1,190,000 Coinmach Corp. sr. notes 9s, 2010 1,267,350
49,239 Corrections Corporation of America
bank term loan FRN 3.871s,
2008 (acquired 8/5/03, cost $49,239)
(RES) 49,823
441,621 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 19,431
DEM 1,265,879 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 34,991
$99,500 IESI Corp. bank term loan FRN
4.287s, 2010 (acquired various
dates from 10/20/03 to 10/21/03,
cost $100,042) (RES) 100,868
645,000 IESI Corp. company guaranty 10 1/4s,
2012 709,500
172,800 Laidlaw International, Inc. bank
term loan FRN 5 1/2s, 2009
(acquired 6/18/03, cost $169,344)
(RES) 175,608
1,340,000 Laidlaw International, Inc. 144A sr.
notes 10 3/4s, 2011 1,500,800
--------------
4,002,830
Communication Services (4.1%)
-------------------------------------------------------------------------------
598,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 638,365
2,000 Alamosa Delaware, Inc. company
guaranty zero % (12s, 7/31/05),
2009 (STP) 1,820
715,000 Alamosa Delaware, Inc. 144A sr.
notes 8 1/2s, 2012 679,250
195,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 (In default)
(NON) 185,250
850,000 American Cellular Corp. sr. notes
Ser. B, 10s, 2011 816,000
295,000 American Tower Corp. sr. notes
9 3/8s, 2009 311,225
365,000 American Tower Corp. 144A sr. notes
7 1/2s, 2012 348,575
750,000 American Towers, Inc. 144A sr. sub.
notes 7 1/4s, 2011 766,875
550,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 61,875
1,505,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 1,550,150
490,000 Cincinnati Bell, Inc. company
guaranty 7 1/4s, 2013 494,900
1,085,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 1,063,300
749,632 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 7,496
GBP 220,000 Colt Telecommunications Group PLC
sr. notes 10 1/8s, 2007 (United
Kingdom) 404,092
EUR 110,000 Colt Telecommunications Group PLC
sr. notes 7 5/8s, 2009 (United
Kingdom) 135,968
$99,500 Crown Castle International Corp.
bank term loan FRN 4.66s,
2010 (acquired 10/3/03, cost
$99,500) (RES) 100,961
765,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 830,025
99,500 Dobson Communications Corp. bank
term loan FRN 4.38s, 2010 (acquired
10/20/03, cost $99,500) (RES) 99,313
1,100,000 Dobson Communications Corp. sr.
notes 8 7/8s, 2013 874,500
265,000 Eircom Funding notes 8 1/4s, 2013
(Ireland) 295,475
390,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 436,800
71,307 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 7
193,192 Globix Corp. company guaranty 11s,
2008 (PIK) 193,192
855,000 Inmarsat Finance PLC 144A company
guaranty 7 5/8s, 2012 (United
Kingdom) 891,338
985,000 iPCS, Inc. sr. disc. notes
stepped-coupon zero % (14s,
7/15/05), 2010 (In default) (NON)
(STP) 268,413
800,000 Level 3 Financing Inc. 144A sr.
notes 10 3/4s, 2011 780,000
725,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 790,250
235,000 MCI Communications Corp. sr. notes
6.95s, 2006 (In default) (NON) 186,825
460,000 MCI Communications Corp. sr. notes
Ser. D, 7 1/2s, 2004 (In default)
(NON) 365,700
230,000 MCI Communications Corp. sr. notes
Ser. D, 6 1/2s, 2010 (In default)
(NON) 182,850
232,750 Nextel bank term loan FRN 3 3/8s,
2010 (acquired 12/19/02, cost
$215,294) (RES) 235,010
1,325,000 Nextel Communications, Inc. sr.
notes 9 1/2s, 2011 1,513,813
605,000 Nextel Communications, Inc. sr.
notes 9 3/8s, 2009 657,938
445,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 481,713
263,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 307,710
550,000 Nextel Partners, Inc. sr. notes 11s,
2010 610,500
1,300,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 1,374,750
171,071 PanAmSat Corp. bank term loan FRN
3.59s, 2010 (acquired 10/29/03,
cost $171,071) (RES) 172,836
830,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 867,350
195,000 Qwest Communications International,
Inc. bank term loan FRN 6 1/2s,
2007 (acquired 6/5/03, cost $193,050)
(RES) 201,256
1,255,000 Qwest Communications International,
Inc. 144A sr. notes 7 1/2s, 2014 1,182,838
120,000 Qwest Communications International,
Inc. 144A sr. notes FRN 4.63s, 2009 112,200
2,415,000 Qwest Corp. 144A notes 8 7/8s, 2012 2,741,025
360,000 Qwest Services Corp. 144A notes 14s,
2014 434,700
280,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 341,950
270,000 Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 246,375
50,000 SBA bank term loan FRN 4.65s, 2008
(acquired 2/3/04, cost $50,000)
(RES) 49,938
165,000 SBA Communications Corp. sr. notes
10 1/4s, 2009 162,525
320,000 SBA Telecommunications Inc. 144A sr.
disc. notes stepped-coupon zero %
(9 3/4s, 12/15/07), 2011 (STP) 224,800
225,000 Time Warner Telecom, Inc. 144A sec.
notes FRN 5.12s, 2011 220,500
365,000 Time Warner Telecom, Inc. 144A sr.
notes 9 1/4s, 2014 368,650
385,000 Triton PCS, Inc. company guaranty
8 3/4s, 2011 363,825
670,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 733,650
390,000 U S West, Inc. notes 5 5/8s, 2008 389,025
417,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 (STP) 396,150
365,000 UbiquiTel Operating Co. 144A sr.
notes 9 7/8s, 2011 355,875
390,000 US UnWired, Inc. company guaranty
stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 364,650
795,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 816,863
--------------
29,689,205
Conglomerates (0.3%)
-------------------------------------------------------------------------------
365,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 406,457
1,670,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 1,826,609
255,000 Tyco International Group SA 144A sr.
notes 6s, 2013 (Luxembourg) 268,879
--------------
2,501,945
Consumer (0.6%)
-------------------------------------------------------------------------------
870,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 996,150
940,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 615,700
189,555 Jostens, Inc. bank term loan FRN
Ser. B, 3.72s, 2010
(acquired 7/28/03, cost $189,555)
(RES) 191,498
510,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 576,300
1,681,000 Samsonite Corp. sr. sub. notes
10 3/4s, 2008 1,752,443
--------------
4,132,091
Consumer Services (0.4%)
-------------------------------------------------------------------------------
75,000 Service Corp. International notes
7.2s, 2006 79,875
25,000 Service Corp. International notes
6 7/8s, 2007 26,250
110,000 Service Corp. International notes
6 1/2s, 2008 114,125
1,580,000 Service Corp. International notes
6s, 2005 1,647,150
270,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 289,575
775,000 Service Corp. International 144A sr.
notes 6 3/4s, 2016 771,125
--------------
2,928,100
Consumer Staples (7.6%)
-------------------------------------------------------------------------------
40,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 38,400
215,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 208,550
50,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 48,875
341,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 327,360
580,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 553,900
34,775 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.12s,
2009 (acquired 5/27/03, cost
$34,689) (RES) 34,978
86,939 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.16s,
2009 (acquired 5/27/03, cost
$86,721) (RES) 87,446
545,000 Affinity Group Inc. 144A sr. sub.
notes 9s, 2012 580,425
660,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 719,400
503,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2011 525,635
545,000 AMC Entertainment, Inc. 144A sr.
sub. notes 8s, 2014 540,913
442,815 American Seafood Group, LLC bank
term loan FRN Ser. B, 4.415s,
2009 (acquired 4/11/02, cost
$442,372) (RES) 444,014
180,000 AMF Bowling Worldwide bank term loan
FRN 4.152s, 2009 (acquired 2/25/04,
cost $180,000) (RES) 180,900
359,338 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) 143,735
635,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 696,913
430,000 Atlantic Broadband Finance LLC 144A
sr. sub. notes 9 3/8s, 2014 422,475
565,000 Brand Services, Inc. company
guaranty 12s, 2012 658,225
1,830,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 1,830,000
655,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 743,425
900,000 Century Cable Holdings bank term
loan FRN 6s, 2009 (acquired various
dates from 6/5/02 to 6/11/02, cost
$749,082) (RES) 858,562
157,985 Charter Communications Holdings, LLC
bank term loan FRN Ser. B,
3.87s, 2008 (acquired 1/9/03, cost
$137,249) (RES) 157,121
100,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 61,000
525,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 333,375
415,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
1/15/05), 2010 (STP) 338,225
835,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 730,625
860,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 752,500
420,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 355,950
1,560,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 1,310,400
960,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 811,200
190,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 156,750
650,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 706,875
1,600,000 Cinemark USA, Inc. sr. sub. notes
Ser. B, 8 1/2s, 2008 1,660,000
990,000 Cinemark, Inc. 144A sr. disc. notes
stepped-coupon 9 3/4s (9 3/4s,
3/15/09), 2014 (STP) 617,513
112,500 Constellation Brands, Inc. bank term
loan FRN 3.213s, 2008 (acquired
11/3/03, cost $112,500) (RES) 113,977
305,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 343,125
425,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 469,625
570,000 Cott Beverages USA, Inc. company
guaranty 8s, 2011 629,850
150,000 CSC Holdings, Inc. sr. notes 7 7/8s,
2007 161,250
170,000 Dean Foods Co. sr. notes 6 5/8s,
2009 182,750
210,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 235,200
560,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 630,000
201,730 Del Monte Foods Co. bank term loan
FRN Ser. B, 3.381s, 2010 (acquired
12/16/02, cost $200,721) (RES) 204,882
178,200 DirecTV bank term loan FRN Ser. B,
3.397s, 2010 (acquired various dates
from 3/4/03 to 8/5/03, cost
$178,200) (RES) 180,205
2,742,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 6,855
1,370,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 1,209,025
22,736 Dole Food Co. bank term loan FRN
4.009s, 2009 (acquired 12/8/03, cost
$22,736) (RES) 23,067
260,000 Dole Food Co. sr. notes 8 7/8s, 2011 283,400
200,000 Dole Food Co. sr. notes 8 5/8s, 2009 219,000
665,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 716,538
380,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 307,800
1,015,000 Echostar DBS Corp. sr. notes
10 3/8s, 2007 1,103,813
1,509,000 Echostar DBS Corp. sr. notes 9 1/8s,
2009 1,701,398
1,660,000 Echostar DBS Corp. 144A sr. notes
6 3/8s, 2011 1,763,750
125,000 Echostar DBS Corp. 144A sr. notes
FRN 4.405s, 2008 130,000
250,000 Elizabeth Arden, Inc. 144A company
guaranty 7 3/4s, 2014 261,875
197,010 Emmis Communications Corp. bank term
loan FRN Ser. C, 3 3/8s, 2009
(acquired 6/20/02, cost $196,764)
(RES) 199,281
235,000 Emmis Communications Corp. company
guaranty Ser. B, 8 1/8s, 2009 244,694
1,455,000 Granite Broadcasting Corp. 144A sec.
notes 9 3/4s, 2010 1,404,075
415,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 462,725
70,000 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 3.938s, 2009
(acquired 1/9/01, cost $69,895)
(RES) 70,292
40,033 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 39,833
585,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 520,650
605,000 Mediacom LLC/Mediacom Capital Corp.
sr. notes 9 1/2s, 2013 598,950
910,000 News America Holdings, Inc. company
guaranty 9 1/4s, 2013 1,195,620
365,000 North Atlantic Trading Co. 144A sr.
notes 9 1/4s, 2012 365,000
500,000 Olympus Cable bank term loan FRN
Ser. B, 6s, 2010 (acquired 6/20/02,
cost $435,750) (RES) 473,750
EUR 70,000 ONO Finance PLC company guaranty
13s, 2009 (United Kingdom) 91,385
$240,000 ONO Finance PLC sr. notes 14s, 2011
(United Kingdom) 262,200
30,000 ONO Finance PLC sr. notes 13s, 2009
(United Kingdom) 31,800
EUR 150,000 ONO Finance PLC sr. notes Ser. REGS,
14s, 2011 (United Kingdom) 197,206
$15,000 Pegasus Communications Corp. sr.
notes 12 1/2s, 2007 12,750
60,000 Pegasus Communications Corp. sr.
notes Ser. B, 9 3/4s, 2006 52,800
400,000 Pegasus Satellite sr. notes 12 3/8s,
2006 353,000
385,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 409,063
1,235,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 1,185,600
770,000 Playtex Products, Inc. 144A secd.
notes 8s, 2011 800,800
650,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 702,000
735,000 Prestige Brands, Inc. 144A sr. sub.
notes 9 1/4s, 2012 725,860
165,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 150,150
1,055,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 1,210,613
108,232 Rayovac Corp. bank term loan FRN
Ser. B, 3.614s, 2009 (acquired
9/26/02, cost $108,124) (RES) 109,044
352,000 RCN Corp. sr. disc. notes Ser. B,
zero %, 2008 (In default) (NON) 163,680
400,000 Regal Cinemas, Inc. company guaranty
Ser. B, 9 3/8s, 2012 450,500
700,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 708,750
120,000 Rite Aid Corp. bank term loan FRN
4.093s, 2008 (acquired 5/16/03,
cost $119,850) (RES) 122,820
560,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 621,600
35,000 Rite Aid Corp. debs. 6 7/8s, 2013 32,375
75,000 Rite Aid Corp. notes 7 1/8s, 2007 75,000
380,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 406,600
505,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 535,300
40,000 Rite Aid Corp. 144A notes 6s, 2005 39,800
245,633 Roundy's, Inc. bank term loan FRN
3.682s, 2009 (acquired 6/3/02, cost
$245,633) (RES) 247,168
815,000 Sbarro, Inc. company guaranty 11s,
2009 695,806
99,900 Scotts Co. (The) bank term loan FRN
3 1/8s, 2010 (acquired 10/16/03,
cost $99,900) (RES) 101,133
255,000 Scotts Co. (The) 144A sr. sub. notes
6 5/8s, 2013 270,300
340,000 Sinclair Broadcast Group, Inc.
company guaranty 8 3/4s, 2011 374,000
375,000 Sinclair Broadcast Group, Inc.
company guaranty 8s, 2012 406,406
93,750 Six Flags, Inc. bank term loan FRN
Ser. B, 3.6053s, 2009 (acquired
1/15/03, cost $93,633) (RES) 94,453
1,490,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 1,542,150
870,000 Six Flags, Inc. 144A sr. notes
9 5/8s, 2014 924,375
167,163 Sum Media bank term loan FRN Ser. B,
3.37s, 2009 (acquired 2/4/03, cost
$167,163) (RES) 168,417
1,270,000 TeleWest Communications PLC debs.
11s, 2007 (United Kingdom) (In
default) (NON) 806,450
260,000 TeleWest Communications PLC debs.
9 5/8s, 2006 (United Kingdom) (In
default) (NON) 161,200
200,000 TeleWest Communications PLC sr.
notes Ser. S, 9 7/8s, 2010 (United
Kingdom) (In default) (NON) 119,000
80,000 TeleWest Communications PLC 144A sr.
notes 11 1/4s, 2008 (United Kingdom)
(In default) (NON) 50,600
290,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 303,050
120,000 Vivendi Universal SA bank term loan
FRN Ser. B, 3.84s, 2008 (acquired
6/23/03, cost $120,000) (France)
(RES) 120,750
455,000 Vivendi Universal SA sr. notes
9 1/4s, 2010 (France) 543,725
770,000 Vivendi Universal SA sr. notes
6 1/4s, 2008 (France) 831,600
720,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 720,000
1,421,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 1,520,470
365,000 Young Broadcasting, Inc. 144A sr.
sub. notes 8 3/4s, 2014 375,950
60,000 Yum! Brands, Inc. sr. notes 8 7/8s,
2011 74,925
420,000 Yum! Brands, Inc. sr. notes 7.7s,
2012 498,225
640,000 Yum! Brands, Inc. sr. notes 7.65s,
2008 735,200
--------------
55,223,969
Energy (3.5%)
-------------------------------------------------------------------------------
810,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 862,650
845,000 Belden & Blake Corp. company
guaranty Ser. B, 9 7/8s, 2007 830,213
640,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 691,200
340,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 392,700
105,000 Chesapeake Energy Corp. company
guaranty 8 3/8s, 2008 115,500
269,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 297,918
1,135,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 1,254,175
510,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 520,200
180,000 Dresser, Inc. bank term loan FRB
4.61s, 2010 (acquired 2/27/04, cost
$181,263) (RES) 182,644
695,000 Dresser, Inc. company guaranty
9 3/8s, 2011 757,550
144,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 165,960
550,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 605,000
255,000 Encore Acquisition Co. 144A sr. sub.
notes 6 1/4s, 2014 257,550
535,000 Exco Resources, Inc. 144A company
guaranty 7 1/4s, 2011 552,388
200,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 212,500
300,000 Forest Oil Corp. sr. notes 8s, 2011 331,500
335,000 Forest Oil Corp. sr. notes 8s, 2008 368,500
500,000 Gazprom OAO notes Ser. REGS, 9 5/8s,
2013 (Russia) 575,000
2,160,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Russia) 2,484,000
355,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 381,625
530,000 Hanover Compressor Co. sub. notes
zero %, 2007 408,100
355,000 Hanover Equipment Trust sec. notes
Ser. A, 8 1/2s, 2008 379,850
480,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 528,000
365,000 KCS Energy, Inc. 144A sr. notes
7 1/8s, 2012 368,650
295,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 299,425
80,000 Leviathan Gas Corp. company guaranty
Ser. B, 10 3/8s, 2009 84,800
85,641 Magellan Midstream Holdings bank
term loan FRN 4.67s, 2008 (acquired
6/13/03, cost $87,785) (RES) 86,926
550,000 Massey Energy Co. sr. notes 6 5/8s,
2010 559,625
700,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 794,500
655,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 651,725
609,149 Oslo Seismic Services, Inc. 1st
mtge. 8.28s, 2011 609,149
100,000 Parker Drilling Co. bank term loan
FRN 5.355s, 2007 (acquired 10/22/03,
cost $100,000) (RES) 101,063
540,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 583,200
89,100 Peabody Energy Corp. bank term loan
FRN Ser. B, 2.859s, 2010 (acquired
3/20/03, cost $89,100) (RES) 89,434
565,000 Petro Geo-Services notes 10s, 2010
(Norway) 617,263
115,000 Pioneer Natural Resources Co.
company guaranty 6 1/2s, 2008 128,084
380,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 451,725
485,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 545,625
670,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 753,750
425,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 432,438
600,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 627,000
270,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default)
(NON) 3
745,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 830,675
180,000 Star Gas Partners LP/Star Gas
Finance Co. 144A sr. notes 10 1/4s,
2013 200,700
334,231 Star Gas Propane 1st Mtge. 8.04s,
2009 (acquired 5/7/03, cost
$327,546) (RES) 344,258
930,000 Trico Marine Services, Inc. company
guaranty 8 7/8s, 2012 483,600
150,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 160,875
670,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 740,350
145,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 156,238
1,205,000 Westport Resources Corp. company
guaranty 8 1/4s, 2011 1,340,563
--------------
25,196,367
Financial (0.6%)
-------------------------------------------------------------------------------
310,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 328,988
765,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 851,063
2,192,000 Finova Group, Inc. notes 7 1/2s,
2009 1,353,560
218,500 Hilb, Rogal & Hamilton Co. bank term
loan FRN Ser. B, 3.938s,
2007 (acquired 6/20/02, cost
$218,500) (RES) 221,231
576,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 653,040
125,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 135,000
425,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 447,313
540,000 Western Financial Bank sub. debs.
9 5/8s, 2012 615,600
--------------
4,605,795
Gaming & Lottery (3.0%)
-------------------------------------------------------------------------------
500,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 578,125
160,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 179,200
650,000 Argosy Gaming Co. 144A sr. sub.
notes 7s, 2014 680,875
164,175 Borgata Resorts bank term loan FRN
Ser. B, 5.2013s, 2007 (acquired
6/5/02, cost $163,765) (RES) 166,309
750,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 825,000
370,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 408,850
900,000 Herbst Gaming, Inc. sec. notes
Ser. B, 10 3/4s, 2008 1,012,500
995,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 1,018,631
940,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 985,825
335,000 Inn of the Mountain Gods 144A sr.
notes 12s, 2010 362,638
430,000 Mandalay Resort Group sr. notes
6 1/2s, 2009 461,713
1,590,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 1,856,325
490,000 MGM Mirage, Inc. company guaranty
6s, 2009 514,500
105,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 113,400
200,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 221,000
1,420,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 1,491,000
905,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 1,022,650
495,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 539,550
395,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 451,288
126,396 Penn National Gaming, Inc. bank term
loan FRN 3.626s, 2010 (acquired
2/19/03, cost $126,238) (RES) 127,659
455,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 510,738
955,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 1,040,950
114,418 Pinnacle Entertainment, Inc. bank
term loan FRN 4.59s, 2009 (acquired
12/15/03, cost $114,418) (RES) 115,657
555,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 564,713
255,000 Pinnacle Entertainment, Inc. 144A
sr. sub. notes 8 1/4s, 2012 248,625
725,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 801,125
565,000 Riviera Holdings Corp. company
guaranty 11s, 2010 593,956
247,505 Scientific Games Holdings bank term
loan FRB 3.85s, 2008 (acquired
12/11/02, cost $246,267) (RES) 250,599
665,000 Station Casinos, Inc. 144A sr. notes
6s, 2012 684,950
1,220,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 1,012,600
1,535,000 Trump Casino Holdings, LLC company
guaranty 12 5/8s, 2010 1,535,000
945,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 1,086,750
--------------
21,462,701
Health Care (3.2%)
-------------------------------------------------------------------------------
39,958 ALARIS Medical Systems, Inc. bank
term loan FRN 3.405s, 2009
(acquired 6/30/03, cost $39,958)
(RES) 40,408
87,413 Alderwoods Group, Inc. bank term
loan FRN 3.929s, 2008 (acquired
9/9/03, cost $87,413) (RES) 88,451
1,385,700 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 1,551,984
179,000 Alliance Imaging, Inc. sr. sub.
notes 10 3/8s, 2011 178,553
580,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 630,750
560,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 624,400
990,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 1,098,900
124,375 Beverly Enterprises, Inc. bank term
loan FRN 4.407s, 2008 (acquired
10/20/03, cost $124,064) (RES) 125,696
130,000 Biovail Corp. sr. sub. notes 7 7/8s,
2010 (Canada) 125,450
296,250 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.629s, 2010
(acquired 7/11/02, cost $296,250)
(RES) 301,064
198,500 Concentra bank term loan FRN 4.941s,
2009 (acquired 8/12/03, cost
$198,500) (RES) 200,733
175,648 Dade Behring, Inc. company guaranty
11.91s, 2010 202,215
298,113 DaVita, Inc. bank term loan FRN
Ser. B, 3.402s, 2009 (acquired
various dates from 7/17/03 to
1/30/04, cost $299,269) (RES) 301,094
500,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 558,750
110,662 Fisher Scientific International,
Inc. bank term loan FRN 3.17s,
2010 (acquired 2/13/03, cost
$110,662) (RES) 111,492
99,500 Hanger Orthopedic Group, Inc. bank
term loan FRN 3.86s, 2009 (acquired
9/29/03, cost $99,500) (RES) 100,619
605,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 678,356
1,500,000 HCA, Inc. med. term notes 8.85s,
2007 1,701,389
1,240,000 HCA, Inc. notes 7s, 2007 1,367,517
980,000 Healthsouth Corp. notes 7 5/8s, 2012 962,850
510,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 508,725
245,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 243,775
205,000 Healthsouth Corp. sr. notes 7s, 2008 197,313
400,000 IASIS Healthcare Corp. company
guaranty 13s, 2009 444,000
75,000 IASIS Healthcare Corp. company
guaranty 8 1/2s, 2009 80,250
365,000 Insight Health Services Corp. 144A
company guaranty 9 7/8s, 2011 365,913
133,625 Kinetic Concepts, Inc. bank term
loan FRN 3.42s, 2011
(acquired 8/5/03, cost $133,969)
(RES) 134,850
252,132 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 268,521
149,250 Medex, Inc. bank term loan FRN
4.128s, 2009 (acquired various
dates from 5/16/03 to 6/16/03, cost
$149,177) (RES) 150,276
560,000 Mediq, Inc. debs. 13s, 2009 (In
default) (NON) 56
925,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 1,045,250
365,000 NeighborCare, Inc. 144A sr. sub.
notes 6 7/8s, 2013 380,513
185,000 Omega Health Care Investors 144A sr.
notes 7s, 2014 189,625
740,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 771,450
737,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 865,975
670,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 696,800
720,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 810,000
390,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 351,975
45,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 38,813
720,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 622,800
995,000 Tenet Healthcare Corp. sr. notes
5 3/8s, 2006 935,300
481,736 Triad Hospitals, Inc. bank term loan
FRN Ser. B, 3.34s, 2008 (acquired
4/24/01, cost $481,255) (RES) 487,307
1,100,000 Triad Hospitals, Inc. 144A sr. sub.
notes 7s, 2013 1,127,500
840,000 Universal Hospital Services, Inc.
144A sr. notes 10 1/8s, 2011 907,200
305,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 352,275
--------------
22,927,133
Homebuilding (0.9%)
-------------------------------------------------------------------------------
430,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 479,450
155,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 173,213
125,000 Beazer Homes USA, Inc. 144A sr.
notes 6 1/2s, 2013 131,563
630,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 737,100
155,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 171,275
440,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 457,600
450,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 528,750
600,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 678,000
205,000 K. Hovnanian Enterprises, Inc.
company guaranty 8s, 2012 228,063
295,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 301,638
385,000 K. Hovnanian Enterprises, Inc. 144A
sr. notes 6 3/8s, 2014 387,888
50,000 Landsource bank term loan FRN
3 5/8s, 2010 (acquired 1/12/04, cost
$50,000) (RES) 50,750
295,000 Meritage Corp. company guaranty
9 3/4s, 2011 334,825
385,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 454,300
335,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 377,713
300,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 326,250
185,000 Technical Olympic USA, Inc. 144A
sub. notes 7 1/2s, 2011 184,075
810,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 903,150
--------------
6,905,603
Household Furniture and Appliances (0.4%)
-------------------------------------------------------------------------------
701,000 Sealy Mattress Co. company guaranty
Ser. B, zero %, 2007 728,164
890,000 Sealy Mattress Co. sr. sub. notes
Ser. B, 9 7/8s, 2007 922,040
1,100,000 Sealy Mattress Co. 144A sr. sub.
notes 8 1/4s, 2014 1,097,250
--------------
2,747,454
Lodging/Tourism (1.4%)
-------------------------------------------------------------------------------
445,000 FelCor Lodging LP company guaranty
9 1/2s, 2008 (R) 472,813
700,000 Gaylord Entertainment Co. 144A sr.
notes 8s, 2013 746,375
850,000 Hilton Hotels Corp. notes 7 5/8s,
2012 977,500
1,848,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 1,919,610
250,000 Host Marriott LP sr. notes 7 1/8s,
2013 (R) 259,375
279,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 297,833
470,000 ITT Corp. debs. 7 3/8s, 2015 507,600
585,000 ITT Corp. notes 6 3/4s, 2005 615,713
1,625,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 1,795,625
525,000 Meristar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 552,563
565,000 Meristar Hospitality Corp. company
guaranty 9s, 2008 (R) 587,600
75,000 MeriStar Hospitality Operating
Partnership/MeriStar
Hospitality Finance Corp. company
guaranty 10 1/2s, 2009 80,625
680,000 RFS Partnership LP company guaranty
9 3/4s, 2012 734,400
100,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 113,000
390,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 424,125
--------------
10,084,757
Other (0.3%)
-------------------------------------------------------------------------------
2,350,000 Dow Jones TRAC-X NA HY T1 144A notes
7 3/8s, 2009 2,376,438
Publishing (1.9%)
-------------------------------------------------------------------------------
185,926 Dex Media West, LLC bank term loan
FRN 3.873s, 2010 (acquired 9/9/03,
cost $185,926) (RES) 188,848
1,115,000 Dex Media West, LLC 144A sr. notes
8 1/2s, 2010 1,229,288
505,000 Dex Media, Inc. 144A disc. notes
stepped-coupon zero % (9s,
11/15/08), 2013 (STP) 323,200
580,000 Dex Media, Inc. 144A notes 8s, 2013 575,650
670,000 Garden State Newspapers, Inc. sr.
sub. notes 8 5/8s, 2011 706,850
1,605,218 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 1,850,014
187,517 PRIMEDIA, Inc. bank term loan FRN
Ser. B, 3.887s, 2009 (acquired
2/10/03, cost $179,547) (RES) 185,923
1,095,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 1,122,375
350,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 350,875
800,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 804,000
365,000 Reader's Digest Association, Inc.
(The) 144A sr. notes 6 1/2s, 2011 375,950
246,918 RH Donnelley Finance Corp. I bank
term loan FRN Ser. B, 3.392s, 2010
(acquired 12/4/02, cost $244,449)
(RES) 250,454
125,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 140,625
925,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 1,040,625
475,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 566,438
875,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 879,375
455,000 Vertis, Inc. sec. notes 9 3/4s, 2009 492,538
730,000 Vertis, Inc. sub. notes 13 1/2s,
2009 708,100
190,000 Von Hoffman Corp. company guaranty
10 1/4s, 2009 198,313
100,000 Von Hoffman Press, Inc. company
guaranty 10 3/8s, 2007 100,250
920,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 961,400
139,712 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 125,741
165,000 WRC Media Corp. bank term loan FRN
6.152s, 2009 (acquired 3/25/04,
cost $165,000) (RES) 165,413
540,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 544,050
62,000 Yell Finance BV sr. notes 10 3/4s,
2011 (Netherlands) 72,633
--------------
13,958,928
Retail (0.6%)
-------------------------------------------------------------------------------
76,705 Advance Stores bank term loan FRN
Ser. C, 3.154s, 2007 (acquired
3/4/03, cost $76,705) (RES) 77,472
455,000 Asbury Automotive Group, Inc. 144A
sr. sub. notes 8s, 2014 455,000
885,000 Autonation, Inc. company guaranty
9s, 2008 1,035,450
335,000 Gap, Inc. (The) notes 6.9s, 2007 371,850
575,000 JC Penney Co., Inc. notes 9s, 2012 728,813
30,000 JC Penney Co., Inc. notes 8s, 2010 35,175
1,107,000 Saks, Inc. 144A company guaranty 7s,
2013 1,162,350
515,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 574,225
--------------
4,440,335
Technology (1.1%)
-------------------------------------------------------------------------------
448,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 524,160
126,000 Avaya, Inc. sec. sr. notes 11 1/8s,
2009 150,255
509,000 DigitalNet Holdings Inc. sr. notes
9s, 2010 549,084
1,150,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 1,253,500
390,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 411,450
513,000 ON Semiconductor Corp. company
guaranty 13s, 2008 620,730
560,000 SCG Holding & Semiconductor Corp.
company guaranty 12s, 2009 604,800
330,000 SCG Holding Corp. 144A notes zero %,
2011 471,900
620,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 677,350
180,000 Xerox Corp. company guaranty 9 3/4s,
2009 209,700
EUR 195,000 Xerox Corp. sr. notes 9 3/4s, 2009 278,172
$1,255,000 Xerox Corp. sr. notes 7 5/8s, 2013 1,336,575
735,000 Xerox Corp. sr. notes 7 1/8s, 2010 780,938
--------------
7,868,614
Textiles (0.4%)
-------------------------------------------------------------------------------
940,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 709,700
460,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 494,500
220,000 Phillips-Van Heusen Corp. 144A sr.
notes 7 1/4s, 2011 227,700
670,000 Russell Corp. company guaranty
9 1/4s, 2010 715,225
399,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 460,845
--------------
2,607,970
Tire & Rubber (0.2%)
-------------------------------------------------------------------------------
120,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 5.61s, 2006
(acquired 2/19/04, cost $120,000)
(RES) 119,550
190,000 Goodyear Tire & Rubber Co. (The)
notes 8 1/2s, 2007 180,975
1,430,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 1,179,750
200,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 172,000
--------------
1,652,275
Transportation (0.9%)
-------------------------------------------------------------------------------
445,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 429,425
550,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 506,000
985,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 842,175
930,000 CSX Corp. notes 6 1/4s, 2008 1,039,109
390,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s,
2005 339,423
242,104 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s,
2012 208,209
910,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 1,012,375
190,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 195,700
135,000 Navistar International Corp. sr.
notes Ser. B, 8s, 2008 138,375
540,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 526,500
255,231 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 262,888
163,882 Pacer International, Inc. bank term
loan FRN 3.919s, 2010 (acquired
6/10/03, cost $164,564) (RES) 165,521
190,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 223,250
620,000 United AirLines, Inc. debs. 9 1/8s,
2012 (In default) (NON) 83,700
1,370,337 US Air, Inc. pass-through
certificates Ser. 93-A2,
9 5/8s, 2004 (In default) (NON) 438,508
--------------
6,411,158
Utilities & Power (4.2%)
-------------------------------------------------------------------------------
54,000 AES Corp. (The) sr. notes 8 7/8s,
2011 57,780
30,000 AES Corp. (The) sr. notes 8 3/4s,
2008 31,538
1,885,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 2,068,788
940,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 935,300
340,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 370,600
150,000 Allegheny Energy, Inc. bank term
loan FRB 7 1/4s, 2011 (acquired
3/5/04, cost $150,000) (RES) 150,900
1,610,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 1,187,375
1,940,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 1,784,800
280,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 302,697
240,000 CenterPoint Energy Resources Corp.
sr. notes Ser. B, 7 7/8s, 2013 277,801
150,000 CMS Energy Corp. pass-through
certificates 7s, 2005 152,250
600,000 CMS Energy Corp. sr. notes 8.9s,
2008 645,000
230,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 245,525
180,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 186,750
295,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 256,650
1,810,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 1,986,475
385,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 365,750
265,000 Edison Mission Energy sr. notes 10s,
2008 278,913
440,000 Edison Mission Energy sr. notes
9 7/8s, 2011 463,100
320,000 Edison Mission Energy sr. notes
7.73s, 2009 308,800
200,000 El Paso CGP Co. notes 6 3/8s, 2009 168,000
275,000 El Paso Corp. notes Ser. MTN, 6.95s,
2007 250,250
670,000 El Paso Corp. sr. notes 7 3/8s, 2012 576,200
365,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 373,213
1,190,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 1,103,725
100,000 Gemstone Investor, Ltd. 144A company
guaranty 7.71s, 2004 99,750
380,323 Midland Funding II Corp. debs.
Ser. A, 11 3/4s, 2005 402,192
385,000 Midwest Generation LLC pass-through
certificates Ser. A, 8.3s, 2009 396,550
270,000 Mirant Americas Generation, Inc. sr.
notes 8.3s, 2011 (In default) (NON) 199,800
220,000 Mirant Americas Generation, Inc. sr.
notes 7 5/8s, 2006 (In default)
(NON) 162,800
280,000 Mirant Americas Generation, Inc. sr.
notes 7.2s, 2008 (In default) (NON) 207,200
280,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 288,400
670,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 752,075
1,020,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 1,127,100
335,000 Northwestern Corp. notes 7 7/8s,
2007 (In default) (NON) 283,075
201,855 NRG bank term loan FRN 5.494s, 2010
(acquired 12/19/03, cost $200,846)
(RES) 207,596
113,021 NRG bank term loan FRN 1.07s, 2010
(acquired 12/19/03, cost $112,456)
(RES) 116,235
1,795,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 1,853,338
655,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 810,563
360,000 Pacific Gas & Electric Co. 144A sr.
notes 10 3/8s, 2005 (In default)
(NON) 361,800
855,000 PG&E Corp. 144A sec. notes 6 7/8s,
2008 933,019
160,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 166,504
615,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 650,363
485,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 516,525
915,000 Sierra Pacific Resources 144A sr.
notes 8 5/8s, 2014 928,725
90,000 Southern California Edison Co. notes
6 3/8s, 2006 96,463
320,000 Teco Energy, Inc. notes 10 1/2s,
2007 372,800
185,000 Teco Energy, Inc. notes 7.2s, 2011 196,563
480,000 Teco Energy, Inc. notes 7s, 2012 506,400
375,000 Teco Energy, Inc. sr. notes 7 1/2s,
2010 404,063
150,000 Teton Power Funding bank term loan
FRN 4.36s, 2011 (acquired 2/4/04,
cost $150,000) (RES) 151,125
120,000 Unisource Energy bank term loan FRN
5.652s, 2011 (acquired 3/25/04,
cost $118,800) (RES) 118,200
1,050,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 1,008,000
190,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 198,550
595,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 687,969
150,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 165,563
545,000 Williams Cos., Inc. (The) notes
6 1/2s, 2006 568,844
705,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 775,500
375,000 Williams Holdings Of Delaware notes
6 1/2s, 2008 389,531
119,102 Williams Products bank term loan FRN
3.605s, 2007 (acquired 6/4/03, cost
$119,102) (RES) 120,144
226,429 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 23
--------------
30,751,528
--------------
Total Corporate bonds and notes
(cost $327,565,456) $342,441,041
U.S. government and agency mortgage obligations (8.3%) (a)
Principal amount Value
U.S. Government Agency Mortgage Obligations (8.3%)
-------------------------------------------------------------------------------
Federal National Mortgage
Association Pass-Through
Certificates
$129 8 1/2s, March 1, 2006 $137
24,329 8s, with due dates from October 1,
2025 to July 1, 2028 26,479
31,834 7 1/2s, December 1, 2029 34,135
17,890,332 6 1/2s, with due dates from May 1,
2026 to November 1, 2033 18,823,373
45,230 6 1/2s, October 1, 2018 47,592
39,858,000 5s, TBA, April 1, 2018 40,966,531
--------------
Total U.S. government and agency
mortgage obligations
(cost $59,773,090) $59,898,247
U.S. treasury obligations (10.8%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$23,608,000 U.S. Treasury Bonds 4 1/4s, August
15, 2013 $24,463,790
U.S. Treasury Notes
7,500,000 6 1/2s, February 15, 2010 8,891,603
33,242,000 3 1/4s, August 15, 2008 34,178,228
10,518,000 1 5/8s, March 31, 2005 10,567,719
--------------
Total U.S. treasury obligations
(cost $76,720,535) $78,101,340
Foreign government bonds and notes (14.3%) (a)
Principal amount Value
-------------------------------------------------------------------------------
AUD 3,177,000 Australia (Government of) bonds
6 1/2s, 2013 $2,599,945
$4,610,000 Brazil (Federal Republic of) bonds
2.063s, 2012 4,033,750
1,525,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 1,860,500
CAD 3,680,000 Canada (Government of) bonds
Ser. WH31, 6s, 2008 3,096,398
$900,000 Chile (Republic of) bonds 5 1/2s,
2013 950,850
695,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 807,243
2,150,000 Colombia (Republic of) notes
10 3/4s, 2013 2,578,925
500,000 Colombia (Republic of) unsub.
9 3/4s, 2009 579,000
EUR 275,000 Colombia (Republic of) unsub. bonds
Ser. 15A, 11 3/8s, 2008 394,996
$330,000 Dominican (Republic of) 144A notes
9 1/2s, 2006 254,100
140,000 Dominican (Republic of) 144A notes
9.04s, 2013 101,500
500,000 Ecuador (Republic of) bonds
Ser. REGS, 12s, 2012 511,500
1,000,000 El Salvador (Republic of) 144A notes
8 1/2s, 2011 1,165,000
EUR 8,330,000 Germany (Federal Republic of) bonds
Ser. 95, 7 3/8s, 2005 10,644,474
EUR 1,345,000 Hellenic Greece (Republic of) bonds
3 1/2s, 2008 1,688,463
$185,000 Indonesia (Republic of) FRN 2.005s,
2006 172,513
460,000 Indonesia (Republic of) FRN 2.005s,
2005 441,600
1,600,000 Indonosia (Republic of) 144A sr.
notes 6 3/4s, 2014 1,586,400
EUR 3,400,000 Italy (Government of) treasury bonds
5 1/2s, 2010 4,652,237
NZD 5,470,000 New Zealand (Government of) bonds
8s, 2006 3,867,803
NZD 5,804,000 New Zealand (Government of) bonds
Ser. 709, 7s, 2009 4,102,041
$605,000 Philippines (Republic of) sr. notes
8 7/8s, 2015 601,219
9,190,000 Russia (Federation of) unsub.
8 1/4s, 2010 10,426,055
945,000 Russia (Ministry of Finance) deb.
Ser. V, 3s, 2008 867,038
EUR 305,000 South Africa (Republic of) bonds
5 1/4s, 2013 374,004
$2,855,000 South Africa (Republic of) notes
7 3/8s, 2012 3,311,800
EUR 1,000,000 Spain (Government of) bonds 5.4s,
2011 1,368,157
SEK 30,690,000 Sweden (Government of) bonds 6 3/4s,
2014 4,886,460
SEK 26,915,000 Sweden (Government of) bonds Ser.
3101, 4s, 2008 4,457,864
$344,406 Ukraine (Government of) sr. notes
Ser. REGS, 11s, 2007 385,735
730,000 Ukraine (Government of) 144A bonds
7.65s, 2013 761,390
1,080,000 Ukraine (Government of) 144A unsub.
notes 6 7/8s, 2011 1,108,404
GBP 4,030,000 United Kingdom treasury bonds
7 1/4s, 2007 8,068,762
GBP 6,900,000 United Kingdom treasury bonds
7 1/2s, 2006 13,624,800
$5,000,000 United Mexican States notes 6 3/8s,
2013 5,415,000
465,000 Venezuela (Republic of) notes
10 3/4s, 2013 485,925
2,095,000 Venezuela (Republic of) unsub. bonds
5 3/8s, 2010 1,744,088
--------------
Total Foreign government bonds and
notes (cost $89,260,728) $103,975,939
Asset-backed securities (6.1%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$184,880 AABST 144A Ser. 04-1N, 5s, 2034 $184,880
ABSC NIMS Trust 144A
397,059 Ser. 03-HE5, Class A, 7s, 2033 397,059
257,548 Ser. 03-HE7, Class A, 7s, 2033 257,548
201,000 Ser. 04-HE2, Class A1, 6 3/4s, 2034 201,000
164,000 Ameriquest Mortgage Securities, Inc.
FRB Ser. 03-AR3, Class M5, 4.84s,
2033 173,738
Amortizing Residential Collateral
Trust
6,434,545 Ser. 02-BC1, Class A, Interest Only
(IO), 6s, 2005 247,847
387,000 FRN Ser. 02-BC5, Class B, 3.34s,
2032 377,930
143,270 AQ Finance NIM Trust Ser. 03-N1,
Class NOTE, 9.37s, 2033 143,225
AQ Finance NIM Trust 144A
420,503 Ser. 03-N2, Class NOTE, 9.3s, 2033 423,657
136,122 Ser. 03-N9A, Class NOTE, 7.385s,
2033 136,887
Arc Net Interest Margin Trust 144A
42,046 Ser. 02-1A, Class A, 7 3/4s, 2032 42,038
9,370 Ser. 02-5A, Class A, 7 3/4s, 2032 9,190
94,072 Ser. 02-8A, Class A1, 7 3/4s, 2032 93,296
383,000 Arcap REIT, Inc. 144A Ser. 03-1A,
Class E, 7.11s, 2038 406,160
Argent NIM Trust 144A
281,703 Ser. 03-N6, Class A, 6.4s, 2034 280,295
114,000 Ser. 04-WN2, Class A, 4.55s, 2034 113,994
434,000 Asset Backed Funding Certificates
FRB Ser. 03-WF1, Class M3, 4.14s,
2032 434,576
Asset Backed Funding Corp. NIM Trust
144A
84,797 Ser. 03-WF1, Class N1, 8.35s, 2032 84,797
156,000 Ser. 04-0PT1, Class N2, 7s, 2033 155,999
806,000 Asset Backed Securities Corp. Home
Equity Loan Trust FRN Ser. 03-HE2,
Class M4, 4.94s, 2033 828,132
328,516 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 1.79s,
2033 329,337
1,845,000 Bank One Issuance Trust FRN Ser.
02-C1, Class C1, 2.05s, 2009 1,833,973
Bayview Financial Acquisition Trust
746,246 Ser. 02-CA, Class A, IO, 5.1s, 2004 14,925
26,373,259 Ser. 03-X, Class A, IO, 1.36s, 2006 391,478
601,169 FRN Ser. 01-DA, Class M3, 2.49s,
2031 603,048
Chase Funding Net Interest Margin
144A
34,782 Ser. 03-1A, 8 3/4s, 2004 34,782
153,224 Ser. 03-2A, Class NOTE, 8 3/4s, 2035 153,990
411,385 Ser. 03-4A, Class NOTE, 6 3/4s, 2036 413,442
198,000 Citigroup Mortgage Loan Trust, Inc.
FRB Ser. 03-HE3, Class M4, 4.09s,
2034 191,379
Conseco Finance Securitizations Corp.
248,000 Ser. 00-2, Class A4, 8.48s, 2021 256,158
3,066,000 Ser. 00-4, Class A6, 8.31s, 2032 2,710,704
1,100,000 Ser. 00-6, Class M2, 8.2s, 2032 165,000
23,000 Ser. 01-04, Class A4, 7.36s, 2019 23,373
1,352,000 Ser. 01-1, Class A5, 6.99s, 2032 1,273,400
13,000 Ser. 01-3, Class A3, 5.79s, 2024 13,065
494,000 Ser. 01-3, Class A4, 6.91s, 2033 474,157
300,000 Ser. 01-3, Class M2, 7.44s, 2033 60,000
1,030,000 Ser. 01-4, Class B1, 9.4s, 2010 103,000
2,585,580 Ser. 02-1, Class A, 6.681s, 2032 2,714,987
790,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class A,
3.11s, 2007 801,367
431,000 Crest, Ltd. 144A Ser. 03-2A, Class
E2, 8s, 2038 405,813
169,000 First Franklin Mortgage Loan Asset
Backed Certificates Ser.
03-FF3, 4.09s, 2033 158,315
366,485 First Franklin NIM Trust 144A Ser.
03-FF3A, Class A, 6 3/4s, 2033 365,062
Fremont NIM Trust 144A
155,947 Ser. 03-B, Class NOTE, 5.65s, 2033 155,947
684,786 Ser. 04-A, Class NOTE, 4 3/4s, 2034 683,759
Green Tree Financial Corp.
133,801 Ser. 99-3, Class A5, 6.16s, 2031 135,640
1,247,000 Ser. 99-5, Class A5, 7.86s, 2030 1,126,989
Greenpoint Manufactured Housing
1,967,446 Ser. 00-3, Class IA, 8.45s, 2031 1,689,441
50,000 Ser. 99-5, Class A4, 7.59s, 2028 51,674
1,180,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 1,172,210
14,187 GSAMP Trust Ser. 02-HE2N, Class
NOTE, 8 1/4s, 2032 14,204
187,075 GSAMP Trust 144A Ser. 03-HE1N, Class
NOTE, 7 1/4s, 2033 187,218
Home Equity Asset Trust
8,153 Ser. 02-1N, Class A, 8s, 2032 8,153
154,000 FRB Ser. 03-8, Class B3, 5.59s, 2034 157,328
Home Equity Asset Trust 144A
388,450 Ser. 02-5N, Class A, 8s, 2033 388,450
192,506 Ser. 03-4N, Class A, 8s, 2033 193,228
1,260,000 LNR CDO, Ltd. FRB Ser. 02-1A, Class
FFL, 3.84s, 2037 (Cayman Islands) 1,220,436
326,982 Long Beach Asset Holdings Corp. 144A
Ser. 2003-2, Class N1, 7.627s, 2033 329,026
177,208 Long Beach Asset Holdings Corp. NIM
Trust 144A Ser. 03-4, Class N1,
6.535s, 2033 177,429
1,046,356 Madison Avenue Manufactured Housing
Contract FRB Ser. 02-A, Class B1,
4.34s, 2032 680,131
210,645 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 213,038
73,000 Merrill Lynch Mortgage Investors,
Inc. 144A Ser. 04-FF1, Class
N1, 4 1/2s, 2034 72,802
189,002 Mid-State Trust Ser. 11, Class B,
8.221s, 2038 183,627
354,000 Morgan Stanley ABS Capital I FRB
Ser. 02-NC6, Class B2, 4.84s, 2032 358,339
119,519 Morgan Stanley ABS Capital I 144A
Ser. 03-NC9N, Class NOTE, 7.6s,
2033 120,714
Morgan Stanley Dean Witter Capital I
390,000 FRN Ser. 01-NC3, Class B1, 3.54s,
2031 388,614
358,000 FRN Ser. 01-NC4, Class B1, 3.59s,
2032 356,757
355,000 FRN Ser. 02-HE1, Class B1, 2.89s,
2032 355,766
198,829 New Century Mortgage Corp. NIM Trust
144A Ser. 03-B, Class NOTE, 6 1/2s,
2033 199,823
9,854 NovaStar Caps Trust Ser. 02-C1,
Class A, 7.15s, 2031 9,854
249,780 Novastar NIM Trust 144A Ser. 04-N1,
Class NOTE, 4.458s, 2034 249,780
2,168,867 Oakwood Mortgage Investors, Inc.
Ser. 02-C, Class A1, 5.41s, 2032 1,995,357
123,183 Option One Mortgage Securities Corp.
144A Ser. 03-5, Class NOTE, 6.9s,
2033 123,799
117,118 Option One Mortgage Securities Corp.
NIM Trust 144A Ser. 2003-2B, Class
N1, 7.63s, 2033 (Cayman Islands) 117,850
619,775 Pass-Through Amortizing Credit Card
Trust Ser. 02-1A, Class A4FL, 6.59s,
2012 621,923
1,313,000 PGMT Ser. 02, Class B, zero %, 2006 1,142,376
3,638,320 Residential Asset Mortgage Products,
Inc. Ser. 03-RZ1, Class A,
IO, 5 3/4s, 2005 194,423
130,143 Rural Housing Trust Ser. 87-1, Class
D, 6.33s, 2026 136,772
103,970 SAIL Net Interest Margin Notes Ser.
03-4, Class A, 7 1/2s, 2033 (Cayman
Islands) 103,856
SAIL Net Interest Margin Notes 144A
592,250 Ser. 03-10A, Class A, 7 1/2s, 2033 592,217
176,052 Ser. 03-12A, Class A, 7.35s, 2033 175,999
151,924 Ser. 03-6A, Class A, 7s, 2033 150,795
305,825 Ser. 03-7A, Class A, 7s, 2033 303,556
89,870 Ser. 03-8A, Class A, 7s, 2033 89,418
447,127 Ser. 03-BC2A, Class A, 7 3/4s, 2033 445,828
580,000 Ser. 04-2A, Class A, 5 1/2s, 2034 580,000
68,745 Sasco Arc Net Interest Margin Notes
Ser. 02-BC10, Class A, 7 3/4s, 2033 68,120
Sasco Arc Net Interest Margin Notes
144A
272,297 Ser. 03-3, Class A, 7 3/4s, 2033 270,930
529,388 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 529,233
443,675 Ser. 03-AM1, Class A, 7 3/4s, 2033 441,512
274,846 Sasco Arc Net Interest Margin Trust
144A Ser. 03-BC1, Class B, zero %,
2033 196,815
243,575 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 244,793
354,724 SHARPS SP I, LLC Net Interest Margin
Trust Ser. 03-NC1N, Class N,
7 1/4s, 2033 356,710
SHARPS SP I, LLC Net Interest Margin
Trust 144A
175,969 Ser. 03-HS1N, Class N, 7.48s, 2033 176,409
87,482 Ser. 03-TC1N, 7.45s, 2033 88,138
63,311 Ser. 04-FM1N, Class N, 6.16s, 2034 63,311
67,534 Ser. 04-HS1N, Class NOTE, 6.16s,
2034 67,534
218,469 Ser. 03-0P1N, Class NA, 4.45s, 2033 218,447
140,000 South Coast Funding FRB Ser. 3A,
Class A2, 2.33s, 2038 140,000
Structured Asset Investment Loan
Trust
955,000 Ser. 03-BC1, Class M3, 4.09s, 2033 985,441
457,191 Ser. 03-BC1A, Class A, 7 3/4s, 2033 454,969
7,106,287 Ser. 03-BC2, Class A, IO, 6s, 2005 323,362
2,410,002 Ser. 03-BC8, Class A, IO, 6s, 2005 141,985
14,645,000 Ser. 04-1, Class A, IO, 6s, 2005 865,798
395,000 Structured Asset Securities Corp.
FRN Ser. 02-HF2, Class M3, 3.09s,
2032 390,063
390,000 TIAA Commercial Real Estate
Securitization Ser. 02-1A, Class
IV, 6.84s, 2037 314,412
467,000 TIAA Commercial Real Estate
Securitization 144A Ser. 03-1A,
Class E, 8s, 2038 438,104
2,877,000 Washington Mutual Ser. 03-S1, Class
A11, IO, 5 1/2s, 2033 135,646
904,000 Whole Auto Loan Trust 144A Ser.
03-1, Class D, 6s, 2010 903,576
--------------
Total Asset-backed securities
(cost $47,320,919) $43,952,857
Collateralized mortgage obligations (5.4%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$356,000 CS First Boston Mortgage Securities
Corp. 144A FRB Ser. 03-TF2A, Class
L, 5.1s, 2014 $352,614
26,345,100 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X, IO,
0.898s, 2023 843,057
228,139 Entertainment Properties Trust 144A
Ser. 03-EPR, Class A1, 4.239s, 2018 231,927
Fannie Mae
171,652 Ser. 98-51, Class SG, IO, 27.08s,
2022 69,920
840,017 Ser. 02-36, Class SJ, 17.4s, 2029 940,807
603,362 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 664,924
13,249 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 14,601
1,525 Ser. 02-W1, Class 2A, 7 1/2s, 2042 1,680
5,347 Ser. 02-14, Class A2, 7 1/2s, 2042 5,892
709,954 Ser. 01-T10, Class A2, 7 1/2s, 2041 782,392
3,518 Ser. 02-T4, Class A3, 7 1/2s, 2041 3,877
9,293 Ser. 01-T8, Class A1, 7 1/2s, 2041 10,241
2,758,460 Ser. 01-T7, Class A1, 7 1/2s, 2041 3,039,911
404,400 Ser. 01-T3, Class A1, 7 1/2s, 2040 445,662
1,237,173 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,363,404
494,843 Ser. 99-T2, Class A1, 7 1/2s, 2039 545,332
263,682 Ser. 00-T6, Class A1, 7 1/2s, 2030 290,586
1,209,819 Ser. 01-T4, Class A1, 7 1/2s, 2028 1,333,259
3,052 Ser. 02-W3, Class A5, 7 1/2s, 2028 3,364
1,649,963 Ser. 03-118, Class SF, IO, 7.01s,
2033 215,526
1,820,025 Ser. 02-36, Class QH, IO, 6.96s,
2029 111,970
232,174 Ser. 02-29, Class SL, IO, 6.96s,
2029 1,997
887,800 Ser. 03-7, Class SM, IO, 6.66s, 2023 11,236
3,857,447 Ser. 03-49, Class TS, IO, 6.61s,
2018 502,071
1,608,026 Ser. 03-14, Class KS, IO, 6.51s,
2017 132,160
872,753 Ser. 03-23, Class SC, IO, 6.46s,
2033 16,910
3,314,600 Ser. 03-41, Class SP, IO, 6.11s,
2015 245,488
10,875,229 Ser. 03-34, Class SP, IO, 6.01s,
2032 873,417
1,313,779 Ser. 03-58, Class ID, IO, 6s, 2033 206,715
1,592,987 Ser. 03-26, Class IG, IO, 6s, 2033 210,573
1,037,893 Ser. 322, Class 2, IO, 6s, 2032 160,549
1,326,240 Ser. 318, Class 2, IO, 6s, 2032 208,883
484,251 Ser. 01-74, Class MI, IO, 6s, 2015 19,748
9,150,445 Ser. 03-34, Class ES, IO, 5.91s,
2033 736,325
3,701,988 Ser. 03-34, Class SG, IO, 5.91s,
2033 300,787
1,633,698 Ser. 343, Class 14, IO, 5 1/2s, 2033 292,024
1,696,176 Ser. 343, Class 15, IO, 5 1/2s, 2033 304,782
781,339 Ser. 343, Class 17, IO, 5 1/2s, 2033 143,815
2,488,742 Ser. 338, Class 2, 5 1/2s, 2033 505,137
2,461,690 Ser. 329, Class 2, IO, 5 1/2s, 2033 463,875
2,332,960 Ser. 03-45, Class PI, IO, 5 1/2s,
2029 239,857
3,129,122 Ser. 03-37, Class IC, IO, 5 1/2s,
2027 324,803
449,000 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 20,817
3,044,415 Ser. 343, Class 5, IO, 5s, 2033 618,397
3,411,151 Ser. 343, Class 9, IO, 5s, 2033 719,540
5,080,611 Ser. 03-23, Class AI, IO, 5s, 2017 396,923
1,880,500 Ser. 03-24, Class IC, IO, 5s, 2015 303,151
10,146,700 Ser. 03-W10, Class 1A, IO, 2.088s,
2043 355,134
12,096,479 Ser. 03-W10, Class 3A, IO, 2.081s,
2043 434,717
6,510,565 Ser. 03-W17, Class 12, IO, 1.165s,
2033 192,142
19,280,791 Ser. 02-T18, IO, 0.52s, 2042 240,913
57,498 Ser. 02-97, Principal Only (PO),
zero %, 2033 56,348
210,962 Ser. 99-51, Class N, PO, zero %,
2029 187,064
136,910 Ser. 99-52, Class MO, PO, zero %,
2026 135,122
14,886 Ser. 96-5, Class PB, PO, zero %,
2024 14,630
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
17,311 Ser. T-58, Class 4A, 7 1/2s, 2043 19,078
6,296,919 Ser. T-57, Class 1AX, IO, 0.441s,
2043 68,627
14,869,985 FFCA Secured Lending Corp. Ser.
00-1, Class X, IO, 1.631s, 2020 1,015,114
419,810 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class E, 7.965s, 2039 385,176
Freddie Mac
567,000 Ser. 2763, Class SC, 24.2s, 2032 754,376
1,309,500 Ser. 2412, Class GS, FRN, 18.096s,
2032 1,544,801
368,921 Ser. 2478, Class SY, IO, 7.06s, 2021 11,529
148,444 Ser. 2448, Class SE, IO, 7.01s, 2029 603
2,707,400 Ser. 2448, Class SM, IO, 6.91s, 2032 235,205
2,638,734 Ser. 2579, Class GS, IO, 6.56s, 2017 187,169
4,338,262 Ser. 216, IO, 6s, 2032 672,431
1,418,300 Ser. 2515, Class IG, IO, 5 1/2s,
2032 357,402
729,500 Ser. 2590, Class IH, IO, 5 1/2s,
2028 163,454
1,781,000 Ser. 2596, Class IQ, IO, 5 1/2s,
2026 152,765
501,440 Ser. 215, Class PO, PO, zero %, 2031 462,265
447,234 Ser. 2235, PO, zero %, 2030 394,416
3 Ser. 2078, C3
Government National Mortgage
Association
63,290 Ser. 02-36, Class SD, IO, 7.06s,
2029 396
530,079 Ser. 02-51, Class SA, IO, 7.01s,
2032 11,020
345,642 Ser. 02-29, Class SX, IO, 6.96s,
2029 2,108
1,246,125 Ser. 01-43, Class SJ, IO, 6.51s,
2029 36,636
13,193 Ser. 02-40, Class IB, IO, 6 1/2s,
2028 41
2,499,968 Ser. 01-19, Class S, IO, 6.41s, 2031 224,997
4,684,832 Ser. 03-83, Class SI, IO, 5.41s,
2032 370,395
2,173,230 Ser. 02-47, Class SM, IO, 4.88s,
2032 119,528
229,122 Ser. 98-2, Class EA, PO, zero %,
2028 209,100
Granite Mortgages PLC
GBP 1,075,000 Ser. 03-2, Class 3C, 5.578s, 2043 2,031,040
EUR 1,430,000 FRB Ser. 03-2, Class 2C1, 4 5/8s,
2043 1,829,431
$214,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 4.34s,
2015 214,268
1,318,449 Hermione (European Loan Conduit No.
14) 144A FRB Class A, 4.489s, 2011
(Ireland) 2,422,915
235,000 Holmes Financing PLC FRB Ser. 8,
Class 2C, 1.83s, 2040 235,000
9,513,634 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, Class JS,
IO, 3.199s, 2028 667,184
1,024,000 Mezz Cap Commercial Mortgage Trust
144A Ser. 04-C1, Class X, IO,
7.653s, 2037 503,480
5,047,570 Mortgage Capital Funding, Inc. Ser.
97-MC2, Class X, IO, 1.107s, 2012 163,962
Strategic Hotel Capital, Inc. 144A
605,000 Ser. 03-1, Class I, 3.49s, 2013 605,207
1,626,000 Ser. 03-1, Class H, 3.19s, 2013 1,627,964
STRIPS 144A
162,000 Ser. 03-1A, Class M, 5s, 2018 134,347
193,000 Ser. 03-1A, Class N, 5s, 2018 140,699
174,000 Ser. 04-1A, Class M, 5s, 2018 145,815
167,000 Ser. 04-1A, Class N, 5s, 2018 124,181
180,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3,
6.943s, 2013 195,295
--------------
Total Collateralized mortgage
obligations (cost $42,337,879) $39,286,419
Preferred stocks (0.6%) (a)
Number of shares Value
-------------------------------------------------------------------------------
27,506 Avecia Group PLC $4.00 pfd.
(acquired various dates from
12/3/03 to 2/11/04, cost $368,918)
(United Kingdom) (RES) (PIK) $598,256
473 Dobson Communications Corp. 13.00%
pfd. (PIK) 335,830
320 First Republic Capital Corp. 144A
10.50% pfd. 331,200
12,814 iStar Financial, Inc. $1.95 cum.
pfd. 329,561
18,428 Lodgian, Inc. Ser. A, $7.06 cum.
pfd. (PIK) 483,735
57 Metrocall Holdings, Inc. Ser. A,
15.00% cum. pfd. 799
3,574 Microcell Telecommunications, Inc.
zero % pfd. (Canada) 67,041
88 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) 792,000
197 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. 177,300
1,381 Rural Cellular Corp. 12.25% pfd.
(PIK) 1,046,108
--------------
Total Preferred stocks
(cost $4,477,678) $4,161,830
Common stocks (0.5%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,987 AboveNet, Inc. (NON) $75,506
2,305 Alderwoods Group, Inc. (NON) 23,972
820,000 AMRESCO Creditor Trust (acquired
various dates from 6/17/99 to
2/10/00, cost $138,193) (RES) (NON)
(R) 820
9 Arch Wireles 290
1,770 Archibald Candy Corp. (NON) 89
898 Birch Telecom, Inc. (NON) 9
494 Comdisco Holding Co., Inc. (NON) 18,278
3,445,121 Contifinancial Corp. Liquidating
Trust Units 60,290
15,321 Covad Communications Group, Inc.
(NON) 38,609
1,234 Crown Castle International Corp.
(NON) 15,585
903 Genesis HealthCare Corp. (NON) 21,988
45,911 Globix Corp. (NON) 151,047
199 Knology, Inc. (NON) 1,371
105 Leucadia National Corp. 5,594
19,451 Lodgian, Inc. (NON) 119,040
120,000 Loewen Group International, Inc.
(NON) 12
1,400 Mariner Health Care, Inc. (NON) 23,842
1,400 Mediq, Inc. (NON) 5,628
30 Microcell Telecommunications, Inc.
Class A (Canada) (NON) 562
3,552 Microcell Telecommunications, Inc.
Class B (Canada) (NON) 67,575
870,000 Morrison Knudsen Corp. 113,100
29,759 Pioneer Cos., Inc. (NON) 153,259
715 PSF Group Holdings, Inc. 144A Class
A (acquired 5/29/98, cost
$2,463,234) (RES) (NON) 1,072,995
53,520 Regal Entertainment Group (acquired
5/9/02, cost $425,923) (RES) (NON) 1,176,370
110 Sterling Chemicals, Inc. (NON) 2,805
740 Sun Healthcare Group, Inc. (NON) 8,436
948,004 VFB LLC (acquired various date from
12/8/03 to 10/27/00, cost $594,553)
(RES) (NON) 180,121
2,901 Washington Group International, Inc.
(NON) 106,206
--------------
Total Common stocks
(cost $12,182,853) $3,443,399
Convertible bonds and notes (0.2%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$115,000 AES Corp. (The) cv. sub. notes
4 1/2s, 2005 $113,419
520,000 Amkor Technologies, Inc. cv. notes
5 3/4s, 2006 518,050
2,430,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In
default) (NON) (STP) 24
770,000 Nextel Communications, Inc. cv. sr.
notes 6s, 2011 851,813
40,000 Tower Automotive, Inc. cv. sub.
notes 5s, 2004 38,400
--------------
Total Convertible bonds and notes
(cost $3,451,345) $1,521,706
Convertible preferred stocks (0.1%) (a)
Number of shares Value
-------------------------------------------------------------------------------
9,140 Crown Castle International Corp.
$3.125 cv. pfd. $412,443
50 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 392,500
6,135 Pegasus Communications Corp. Ser. C,
6.50% cum. cv. pfd. 264,572
--------------
Total Convertible preferred stocks
(cost $1,156,996) $1,069,515
Units (0.1%) (a) (cost $1,180,933)
Number of units Value
-------------------------------------------------------------------------------
991 XCL Equity Units zero % $439,663
Warrants (--%) (a) (NON) Expiration
Number of date Value
-------------------------------------------------------------------------------
846 AboveNet, Inc. 9/8/10 $12,056
719 AboveNet, Inc. 9/8/08 11,504
1,020 Dayton Superior Corp. 144A 6/15/09 10
3 Doe Run Resources Corp. 144A 12/31/12 1
1,193 Huntsman Co., LLC 144A 5/15/11 202,810
508 MDP Acquisitions PLC 144A (Ireland) 10/1/13 25,273
2,199 Microcell Telecommunications
(Canada) 5/1/08 11,714
1,319 Microcell Telecommunications
(Canada) 5/1/05 6,012
390 Mikohn Gaming Corp. 144A 8/15/08 156
400 ONO Finance PLC 144A (United
Kingdom) 2/15/11 4
410 Pliant Corp. 144A 6/1/10 4
491 Solutia, Inc. 144A 7/15/09 5
1,830 Travel Centers of America, Inc. 144A 5/1/09 9,150
1,670 Ubiquitel, Inc. 144A 4/15/10 1
1,790 Washington Group International, Inc.
Ser. A 1/25/06 17,542
2,046 Washington Group International, Inc.
Ser. B 1/25/06 15,140
1,106 Washington Group International, Inc.
Ser. C 1/25/06 8,295
590 XM Satellite Radio Holdings, Inc.
144A 3/15/10 33,040
--------------
Total Warrants (cost $752,756) $352,717
Short-term investments (10.1%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$69,999,421 Short-term investments held in
Putnam commingled cash account with
yields ranging from 1.00% to 1.06%
and due dates ranging from April 1,
2004 to May 28, 2004 (d) $69,999,421
1,032,837 Short-term investments held as
collateral for loaned securities
with yields ranging from 1.02% to
1.35% and due dates ranging from
April 1, 2004 to May 28, 2004 (d) 1,032,630
1,995,000 U.S. Treasury Note zero %, May 6,
2004 (SEG) 1,993,245
--------------
Total Short-term investments
(cost $73,025,291) $73,025,296
-------------------------------------------------------------------------------
Total Investments
(cost $739,206,459) $751,669,969
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $725,850,736.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin accruing interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at March 31, 2004 was
$20,060,579 or 2.8% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at March
31, 2004.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced securities
(Note 1).
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates shown at March 31, 2004.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at March 31, 2004: (as a
percentage of Market Value)
Brazil 0.5%
Canada 1.6
Colombia 0.6
France 0.7
Germany 1.4
Ireland 0.5
Italy 0.6
Luxembourg 0.5
Mexico 0.7
New Zealand 1.1
Russia 1.9
Sweden 1.2
United Kingdom 3.7
United States 81.4
Other 3.6
------
Total 100.0%
Forward currency contracts to buy at March 31, 2004 (Unaudited)
(aggregate face value $62,648,704)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Australian Dollar $18,227,051 $18,211,037 6/16/04 $16,014
Danish Krone 1,156,218 1,168,686 6/16/04 (12,468)
Euro 4,237,355 4,255,442 6/16/04 (18,087)
Japanese Yen 36,655,246 35,003,590 6/16/04 1,651,656
Norwegian Krone 361,530 355,929 6/16/04 5,601
Polish Zloty 460,955 451,982 6/16/04 8,973
Swiss Franc 466,741 461,923 6/16/04 4,818
Taiwan Dollar 2,760,526 2,740,115 6/16/04 20,411
------------------------------------------------------------------------------------------------------
$1,676,918
------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at March 31, 2004 (Unaudited)
(aggregate face value $61,502,843)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
British Pound $7,783,692 $7,835,874 6/16/04 $52,182
Canadian Dollar 2,046,199 2,014,315 6/16/04 (31,884)
Euro 34,999,006 35,422,253 6/16/04 423,247
New Zealand Dollar 7,526,118 7,730,967 6/16/04 204,849
Swedish Krona 8,421,553 8,499,434 6/16/04 77,881
------------------------------------------------------------------------------------------------------
$726,275
------------------------------------------------------------------------------------------------------
Futures contracts outstanding at March 31, 2004 (Unaudited)
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Euro-Bobl 5 yr (Long) $19,975,721 $19,698,619 Jun-04 $277,102
Euro-Bund 10 yr (Long) 45,351,654 44,902,901 Jun-04 448,753
Interest Rate Swap
10 yr (Long) 1,699,688 1,713,815 Jun-04 (14,127)
Japanese Government
Bond 10 yr (Long) 6,612,345 6,625,885 Jun-04 (13,540)
Japanese Government
Bond 10 yr (Long) 4,754,312 4,776,620 Jun-04 (22,308)
U.K. Gilt (Long) 17,195,006 17,116,389 Jun-04 78,617
U.S. Treasury Bond
20 yr (Short) 21,329,688 21,596,940 Jun-04 267,252
U.S. Treasury Note
10 yr (Long) 19,042,031 18,973,177 Jun-04 68,854
U.S. Treasury Note
10 yr (Short) 7,732,219 7,594,270 Jun-04 (137,949)
U.S. Treasury Note
5 yr (Long) 77,336,063 77,558,786 Jun-04 (222,723)
------------------------------------------------------------------------------------------------------
$729,931
------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at March 31, 2004 (Unaudited)
Unrealized
Notional Termination appreciation/
amount date (depreciation)
------------------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A.
dated December 2, 2003 to pay semiannually
the notional amount multiplied by 2.444%
and receive quarterly the notional amount
multiplied by the three month USD-LIBOR. $6,270,000 12/5/05 $(121,838)
Agreement with Bank of America, N.A.
dated January 22, 2004 to pay semiannually
the notional amount multiplied by 1.97375%
and receive quarterly the notional amount
multiplied by the three month USD-LIBOR. 13,900,000 1/26/06 (69,922)
Agreement with Bank of America, N.A.
dated March 25, 2004 to pay semiannually
the notional amount multiplied by 3.075% and
receive quarterly the notional amount
multiplied by the three month USD-LIBOR. 16,800,000 3/30/09 69,076
Agreement with Bank of America, N.A. dated
January 22, 2004 to pay semiannually the
notional amount multiplied by 4.35% and
receive quarterly the notional amount
multiplied by the three month USD-LIBOR. 4,400,000 1/27/14 (79,204)
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semiannually the notional amount multiplied
by 1.955% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 13,900,000 1/26/06 (65,004)
Agreement with Lehman Brothers Special
Financing, Inc. dated December 9, 2003 to
receive semiannually the notional amount
multiplied by 4.641% and pay quarterly the
notional amount multiplied by the three
month USD-LIBOR-BBA. 9,188,000 12/15/13 457,868
Agreement with Lehman Brothers Special
Financing, Inc. dated January 22, 2004 to pay
semiannually the notional amount multiplied
by 4.3375% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR-BBA. 4,400,000 1/26/14 (71,184)
Agreement with Merrill Lynch Capital
Services, Inc. dated November 17, 2000 to
pay semiannually the notional amount
multiplied by the three month USD-LIBOR-
BBA and receive the notional amount
multiplied by 6.68%. 6,500,000 11/21/05 522,413
Agreement with Merrill Lynch Capital
Services, Inc. dated September 27, 2002 to
receive semiannually the notional amount
multiplied by the six month JPY-LIBOR-BBA
and pay semiannually the notional amount
multiplied by 0.399%. JPY 2,443,000,000 10/1/07 $46,920
Agreement with UBS, AG dated February 12,
2004 to pay semiannually the notional
amount multiplied by 2.56% and receive
quarterly the notional amount multiplied by
the three month CAD-BA-CDOR. CAD 48,500,000 2/16/06 (68,176)
Agreement with UBS, AG dated March 8,
2004 to pay semiannually the notional
amount multiplied by 2.47% and receive
quarterly the notional amount multiplied by
the three month CAD-BA-CDOR. CAD 20,200,000 3/8/06 (2,516)
------------------------------------------------------------------------------------------------------
$618,433
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
March 31, 2004 (Unaudited)
Assets
-------------------------------------------------------------------------------
Investments in securities, at value, including $1,004,245 of
securities on loan (identified cost $739,206,459) (Note 1) $751,669,969
-------------------------------------------------------------------------------
Cash 79,645
-------------------------------------------------------------------------------
Foreign currency (cost $4,311,666) (Note 1) 4,282,887
-------------------------------------------------------------------------------
Dividends, interest and other receivables 11,299,312
-------------------------------------------------------------------------------
Receivable for securities sold 10,251,851
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 2,640,317
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 223,025
-------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 1,096,277
-------------------------------------------------------------------------------
Total assets 781,543,283
Liabilities
-------------------------------------------------------------------------------
Payable for variation margin (Note 1) 68,300
-------------------------------------------------------------------------------
Distributions payable to shareholders 3,788,130
-------------------------------------------------------------------------------
Payable for securities purchased 48,178,521
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,276,779
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 172,933
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 82,928
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,643
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 237,124
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 290,462
-------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 477,844
-------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 1,032,630
-------------------------------------------------------------------------------
Other accrued expenses 83,253
-------------------------------------------------------------------------------
Total liabilities 55,692,547
-------------------------------------------------------------------------------
Net assets $725,850,736
Represented by
-------------------------------------------------------------------------------
Paid-in capital (Note 1) $837,942,450
-------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,503,794
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (130,979,526)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 16,384,018
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $725,850,736
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($725,850,736 divided by
100,313,083 shares) $7.24
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended March 31, 2004 (Unaudited)
Investment income:
-------------------------------------------------------------------------------
Interest $23,818,493
-------------------------------------------------------------------------------
Dividends 506,270
-------------------------------------------------------------------------------
Securities lending 626
-------------------------------------------------------------------------------
Total investment income 24,325,389
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,563,313
-------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 367,504
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 12,490
-------------------------------------------------------------------------------
Administrative services (Note 2) 6,286
-------------------------------------------------------------------------------
Other 127,634
-------------------------------------------------------------------------------
Total expenses 3,077,227
-------------------------------------------------------------------------------
Expense reduction (Note 2) (24,133)
-------------------------------------------------------------------------------
Net expenses 3,053,094
-------------------------------------------------------------------------------
Net investment income 21,272,295
-------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 12,074,293
-------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 928,282
-------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 2,968,174
-------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,407,282)
-------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 52,520
-------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 3,194,608
-------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts, credit default contracts and TBA
sales commitments during the period 11,853,209
-------------------------------------------------------------------------------
Net gain on investments 29,663,804
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $50,936,099
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
Increase in net assets 2004* 2003
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $21,272,295 $47,986,218
-------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 14,615,987 12,488,499
-------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 15,047,817 60,307,044
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 50,936,099 120,781,761
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (25,779,296) (48,538,019)
-------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of
distributions -- 829,775
-------------------------------------------------------------------------------
Total increase in net assets 25,156,803 73,073,517
Net assets
-------------------------------------------------------------------------------
Beginning of period 700,693,933 627,620,416
-------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $2,503,794 and
$7,010,795, respectively) $725,850,736 $700,693,933
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning of period 100,313,083 100,182,745
-------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- 130,338
-------------------------------------------------------------------------------
Shares outstanding at end of period 100,313,083 100,313,083
-------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Six months
ended
March 31
Per-share (Unaudited) Year ended September 30
operating performance 2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.99 $6.26 $6.54 $7.13 $7.57 $8.14
---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .21 .48 .52 .58 .63 .58
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 .73 (.26) (.57) (.43) (.47)
---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .51 1.21 .26 .01 .20 .11
---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.26) (.48) (.53) (.46) (.64) (.56)
---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.01) (.14) -- (.12)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.48) (.54) (.60) (.64) (.68)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.24 $6.99 $6.26 $6.54 $7.13 $7.57
---------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.880 $6.410 $6.380 $6.050 $6.438 $6.438
---------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 11.56* 8.35 14.81 3.06 10.72 (9.09)
---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $725,851 $700,694 $627,620 $655,161 $713,894 $757,533
---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .43* .89 .87 .90 .87 .93
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.97* 7.22 7.97 8.50 8.60 7.39
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 57.65* 141.60 (d) 193.33 (d) 111.45 116.71 133.72
---------------------------------------------------------------------------------------------------------------------------------
* Not annualized
(a) Per share net investment income has been determined on the basis of
weighted average number of shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
March 31, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam Master Intermediate Income Trust (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
closed-end management investment company and is authorized to issue an
unlimited number of shares. The fund's investment objective is to seek,
with equal emphasis, high current income and relative stability of net
asset value, by allocating its investments among the U.S. investment
grade sector, high-yield sector and international sector. The fund
invests in higher yielding, lower rated bonds that have a higher rate of
default due to the nature of the investments.
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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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 valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at fair value on the basis
of valuations furnished by an independent pricing service or dealers,
approved by the Trustees. Such services or dealers determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
various relationships, generally recognized by institutional traders,
between securities. Many securities markets and exchanges outside the
U.S. close prior to the close of the New York Stock Exchange and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the New York Stock Exchange. Accordingly, on certain
days, the fund will fair value foreign securities taking into account
multiple factors, including movements in the U.S. securities markets.
The number of days on which fair value prices will be used will depend
on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. 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 valued at amortized cost, which approximates fair value. Other
investments, including restricted securities, are valued at fair value
following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
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 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 recorded 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, net of applicable withholding taxes, is
recognized on the ex-dividend date. Non-cash dividends, if any, are
recorded at the fair market value of the securities received. All
premiums/ discounts are amortized/accreted 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 earned 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, currency gains and losses realized
between the trade and settlement dates on securities transactions 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 buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used 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. Forward currency contracts outstanding at
period end, if any, are listed after the fund's portfolio.
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. Risks may exceed amounts recognized on the statement
of assets and liabilities. 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. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." 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.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
H) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss. Payments received or made
are recorded as realized gains or loss. The fund could be exposed to
credit or market risk due to unfavorable changes in the fluctuation of
interest rates or if the counterparty defaults on its obligation to
perform. Risks may exceed amounts recognized on the statement of assets
and liabilities. Interest rate swap contracts outstanding at period end,
if any, are listed after the fund's portfolio.
I) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront
payment to a counter party, the protection seller, in exchange for the
right to receive a contingent payment. The maximum amount of the payment
may equal the notional amount, at par, of the underlying index or
security as a result of a related credit event. An upfront payment
received by the fund, as the protection seller, is recorded as a
liability on the fund's books. An upfront payment made by the fund, as
the protection buyer, is recorded as an asset on the fund's books. The
credit default contracts are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as
unrealized gain or loss. Payments received or made as a result of a
credit event or termination of the contract are recognized, net of a
proportional amount of the upfront payment, as realized gains or losses.
In addition to bearing the risk that the credit event will occur, the
fund could be exposed to market risk due to unfavorable changes in
interest rates or in the price of the underlying security or index, the
possibility that the fund may be unable to close out its position at the
same time or at the same price as if it had purchased comparable
publicly traded securities or that the counterparty may default on its
obligation to perform. The risk of loss may exceed the fair value of
these contracts recognized on the statement of assets and liabilities.
Credit default contracts outstanding at period end, if any, are listed
after the fund's portfolio.
J) TBA purchase commitments The fund may enter into "TBA" (to be
announced) 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 significantly differ
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 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 fair value of the underlying
securities, according to the procedures described under "Security
valuation" above. The contract is "marked-to-market" daily and the
change in market value is recorded by the fund as an unrealized gain or
loss.
Although the fund will generally enter into TBA purchase commitments
with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the fund may
dispose of a commitment prior to settlement if Putnam Management deems
it appropriate to do so.
K) TBA sale commitments The fund may enter into TBA sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it
owns under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement date.
During the time a TBA sale commitment is outstanding, equivalent
deliverable securities, or an offsetting TBA purchase commitment
deliverable on or before the sale commitment date, are held as "cover"
for the transaction.
Unsettled TBA sale commitments are valued at fair value of the
underlying securities, generally according to the procedures described
under "Security valuation" above. The contract is "marked-to-market"
daily and the change in market value is recorded by the fund as an
unrealized gain or loss. If the TBA sale commitment is closed through
the acquisition of an offsetting purchase commitment, the fund realizes
a gain or loss. If the fund delivers securities under the commitment,
the fund realizes a gain or a loss from the sale of the securities based
upon the unit price established at the date the commitment was entered
into. TBA sale commitments outstanding at period end, if any, are listed
after the fund's portfolio.
L) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At March 31, 2004, the value of
securities loaned amounted to $1,004,245. The fund received cash
collateral of $1,032,630 which is pooled with collateral of other Putnam
funds into 25 issuers of high grade short-term investments.
M) 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 (the "Code"), 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, 2003, the fund had a capital loss carryover of
$139,616,926 available to the extent allowed by tax law to offset future
capital gains, if any. The amount of the carryover and the expiration
dates are:
Loss Carryover Expiration
-----------------------------------
$2,792,982 September 30, 2004
1,554,563 September 30, 2005
10,039,981 September 30, 2007
25,640,537 September 30, 2008
24,593,458 September 30, 2009
27,431,170 September 30, 2010
47,564,235 September 30, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending September 30, 2004, $3,314,449 of losses recognized during the
period November 1, 2002 to September 30, 2003.
The aggregate identified cost on a tax basis is $741,433,623, resulting
in gross unrealized appreciation and depreciation of $45,426,861 and
$35,190,515, respectively, or net unrealized appreciation of
$10,236,346.
N) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, 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
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.75% of the first $500 million
of average weekly net assets, 0.65% of the next $500 million, 0.60% of
the next $500 million, and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor serving agent
functions to the fund. During the six months ended March 31, 2004, the
fund paid PFTC $367,504 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended March 31, 2004,
the fund's expenses were reduced by $24,133 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,175, as a quarterly retainer, 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 Trustee compensation and expenses in the
Statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the Statement of assets
and liabilities.
Note 3
Purchases and sales of securities
During the six months ended March 31, 2004, cost of purchases and
proceeds from sales of investment securities other than U.S. government
securities and short-term investments aggregated $314,329,693 and
$384,817,207, respectively. Purchases and sales of U.S. government
securities aggregated $57,537,974 and $6,182,166, respectively.
Note 4
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Treasurer and Principal Executive Officer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9:00 a.m. to 5:00 p.m. Eastern Time,
or visit our Web site (www.putnaminvestments.com) anytime for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Do you want to save paper and receive this document faster?
Shareholders can sign up for email delivery of shareholder reports on
www.putnaminvestments.com.
213215 074 5/04
Item 2. Code of Ethics:
-----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
-----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
-----------------------------------------------
Not applicable
Items 5-6. [Reserved]
---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
-------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
------------------
Item 9. Submission of Matters to a Vote of Security Holders:
------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
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(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
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(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: May 27, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
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Charles E. Porter
Principal Executive Officer
Date: May 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
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Steven D. Krichmar
Principal Financial Officer
Date: May 27, 2004