Putnam
Master Income
Trust
Item 1. Report to Stockholders:
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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
4-30-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Looking back on the past six months in financial markets, stocks and
bonds had generally steady and satisfying results for most of the
period. Markets were lifted by the resurgence of the economy, prompted
in part by the 2003 tax cuts and the Federal Reserve Board's low
interest-rate policy. Corporate earnings rose to their most impressive
levels in years and many states even experienced a minor improvement in
tax revenues. However, since March 2004, uncertainty and volatility have
returned to the markets. Bonds in particular experienced broad setbacks
in April because of concerns that inflation could be sparked by vigorous
job creation and rising energy prices. Markets continue to show
vulnerability to these concerns and to the situation in Iraq.
As observers of financial markets for many years, we have gained the
perspective that periods of uncertainty and transition like the one we
are witnessing today usually reflect an effort by investors to
incorporate new facts into their thinking, a process that takes time.
The resulting volatility is uncomfortable, but over time, it allows
investors to set more realistic expectations for future investment
performance. Uncertainty on its own is no reason to alter a well-planned
investment strategy.
Putnam's portfolio management teams have vigilantly monitored these
conditions. While the retreat in financial markets has been broad, the
teams have relied on their research and analysis to manage risks and
identify opportunities. During the period ended April 30, 2004, your
fund's managers have maintained a strategy of keeping the fund well
diversified in a wide array of sectors and holdings, while taking
advantage of those parts of the market that have outperformed, such as
corporate high- yield bonds. As a result, your fund outperformed both
its benchmark index and its Lipper average based on results at net asset
value. In the following report, your fund's management teams discuss
their approach to the market environment that prevailed during the
period, as well as their 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
June 16, 2004
Report from Fund Management
Fund highlights
* For the semiannual period ended April 30, 2004, Putnam Master Income
Trust had a total return at net asset value (NAV) of 5.26%. The fund's
return at market price was 0.41%.
* Due to its emphasis on high-yield bonds, investments in
emerging-market securities, and a beneficial currency strategy, the
fund's results at NAV outperformed the 1.17% return of its primary
benchmark, the Lehman Government/Credit Bond Index.
* The fund's return at NAV outperformed the 4.09% average return of the
Lipper Flexible Income Funds (closed end) category -- also as a result
of its emphasis on higher-yielding securities. This Lipper category is
relatively small, however, so comparisons can be difficult and may
change quickly.
* In January 2004, the fund's dividend for class A shares was reduced to
$0.037 per share. Please see page 5 for details.
* 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 Income Trust
generally benefited from a variety of positive factors. The U.S. economy
continued to show solid growth, which was especially helpful for
corporate high-yield bonds, the largest portion of your fund's
portfolio. In February 2004, bonds rallied on weak jobs data; however,
stronger-than-expected job growth in March and April renewed inflation
fears and caused bond prices to decline. In fact, management believes
that the fund's lower return at market price may have been a reflection
of investors' concerns about a Federal Reserve interest rate hike in
June, which dampened enthusiasm for bonds. Overseas, emerging markets
performed well until the latter part of the period, while slower growth
in Europe generally helped bond performance in that region. Amid these
changing conditions, the fund's focus on a variety of fixed-income
sources proved beneficial for both its absolute and relative
performance.
FUND PROFILE
Putnam Master Income Trust seeks high current income, consistent with
preservation of capital, by investing in a portfolio that consists of
U.S. investment-grade, corporate high-yield, and international
fixed-income securities. The fund may be appropriate for investors
seeking high current income, asset class diversification, or both.
Market overview
For most of the period, global bond markets generally benefited from a
downward trend in interest rates brought on by a change in the outlook
for economic growth. During the first two months of the period, interest
rates were 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. As the new calendar year began, low
inflation, an accommodative Federal Reserve monetary policy, and weak
jobs data in February 2004 all helped bond yields to continue trending
downward. In the final month of the period, however, there was strong
evidence that the U.S. recovery was steaming along and that the
lackluster jobs market was finally springing to life. Strong employment
gains in the U.S. caused a sharp sell-off in bonds in April, as
investors factored in a 100% chance of a Federal Reserve rate hike in
June, with others to follow in subsequent months.
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. When the U.S. bond market declined in April, however, European
bond markets generally followed suit.
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. High-yield bond
prices declined in April, though to a lesser extent than Treasuries.
Emerging-market bonds initially benefited from increased commodity
exports but sold off sharply in the second half of the period.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/04
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Bonds
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Lehman Government/Credit Bond Index (U.S. Treasury and
agency securities) 1.17%
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Lehman Aggregate Bond Index (broad bond market) 1.25%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 3.68%
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JP Morgan Chase Global High Yield Index (global high-yield
corporate bonds) 6.39%
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Equities
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S&P 500 Index (broad stock market) 6.27%
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S&P/Citigroup World Ex-U.S. Primary Markets Growth Index
(international growth stocks) 11.03%
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Russell 2000 Index (stocks of small and midsize companies) 6.54%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/04.
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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 for most of the semiannual
period and remained the fund's largest weighting. However, after one of
the best periods ever for this sector, which began in October 2002, well
before the start of this period, 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. Fortunately, we were able to find alternative securities
within this sector that performed well. The fund's holdings of U.S.
Treasuries benefited from a 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
maintained the fund's exposure to the yen in the second half, which
helped performance because the yen continued to appreciate throughout
the period. We also emphasized the euro, which generally appreciated
during the period.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 10/31/03 as of 4/30/04
High yield 48.7% 45.8%
U.S. investment grade 25.6% 36.5%
International 25.7% 17.7%
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 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, which helps 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 (some Canadian
holdings were sold near the end of the period, as we took advantage of
strong performance to reduce the position). 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 Brazil, which tended 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 PSF Group Holdings, Inc.
144A, Class A
2 Conseco Finance Securitizations Corp.
Series 00-4, Class A6, 8.31%, 2032
3 Conseco Finance Securitizations Corp.
Series 02-1, Class A, 6.681%, 2032
International Sector
1 United Kingdom
Treasury bonds, 5%, 2004
2 United Kingdom
Treasury bonds, 7.5%, 2006
3 Germany (Federal Republic of)
Bonds, Ser. 97 6%, 2007
U.S. Investment-Grade Sector
1 U.S. government Treasury bonds
6.25%, May 15, 2030
2 Federal National
Mortgage Association
Pass-through certificates, 5%, TBA,
May 1, 2019
3 U.S. government Treasury notes
3.25%, August 15, 2008
Footnote reads:
These holdings represent 13.4% of the fund's net assets as of 4/30/04.
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 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.
OF SPECIAL INTEREST
Approximately half of your fund's portfolio is invested in corporate
high-yield securities, which have seen dramatic yield declines, as well
as significant narrowing in the spread, or difference, over Treasury
yields. Since the beginning of the high-yield market's rebound in
October 2002, the spread over Treasuries has narrowed by more than 600
basis points, or six percentage points. As a result, in January 2004,
your fund's distribution rate was reduced to $0.037 per share from
$0.042 per share.
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 continued to be higher
than the historical average for global fixed-income securities because
of the optimal conditions that existed until the final month of the
period. 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.
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.
The strengthening global economy and, in particular, evidence of strong
job growth in the United States, have changed the equation.
Historically, a tighter job market causes concerns that companies may
raise wages and pass along these higher labor costs to consumers in the
form of higher prices, leading to higher inflation. Inflation is bad for
bond investors because interest payments are fixed and lose purchasing
power when prices rise. As a result, higher inflation typically leads to
higher interest rates, and in the bond market, when rates rise, bond
prices decline.
While we cannot predict the future, the prospect of a tighter monetary
policy for the remainder of 2004 has caused our management team to seek
ways to mitigate the effects that rising rates can have on the fund's
performance. These strategies include keeping the portfolio well
diversified across a variety of geographic regions, sectors, and
holdings and reducing its interest-rate sensitivity. As always, we will
continue seeking opportunities for positive returns, while monitoring
economic and market developments and making necessary adjustments 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. 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 April 30, 2004. In accordance with regulatory
requirements, we also include performance for the most current calendar
quarter-end. Performance should always be considered in light of a
fund's investment strategy. Data represent 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 4/30/04
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NAV Market price
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6 months 5.26% 0.41%
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1 year 12.97 6.11
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5 years 36.30 31.20
Annual average 6.39 5.58
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10 years 97.65 85.20
Annual average 7.05 6.36
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Annual average
Life of fund (since
12/28/87) 8.72 7.34
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Performance does not reflect taxes on reinvested distributions.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/04
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Citigroup Lipper Flexible
Lehman Non-U.S. JP Morgan Income Funds
Government/ World Chase (closed end)
Credit Government Global High category
Bond Index Bond Index Yield Index* average+
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6 months 1.17% 3.68% 6.39% 4.09%
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1 year 1.80 9.22 16.61 11.24
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5 years 39.23 31.51 30.94 30.66
Annual average 6.84 5.63 5.54 5.30
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10 years 104.21 81.12 112.58 109.29
Annual average 7.40 6.12 7.83 7.49
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Annual average
Life of fund
(since 12/28/87) 8.20 6.89 -- 8.53
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Index and Lipper results should be compared to fund performance at net
asset value.
* The JP Morgan Chase Global High Yield Index's inception date was
12/31/93.
+ Over the 6-month and 1-, 5-, and 10-year periods ended 4/30/04, there
were 12, 12, 12, and 11 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/04
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Putnam Master Income Trust
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Distributions (number) 6
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Income $0.369
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Capital gains --
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Total $0.369
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Share value: NAV Market price
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10/31/03 $7.18 $6.57
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4/30/04 7.16 6.25
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Current return (end of period)
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Current dividend rate 1 6.20% 7.10%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
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TOTAL RETURN FOR PERIODS ENDED 3/31/04 (MOST RECENT CALENDER QUARTER)
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NAV Market price
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6 months 7.98% 4.52%
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1 year 18.96 14.50
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5 years 40.73 40.25
Annual average 7.07 7.00
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10 years 98.16 107.26
Annual average 7.08 7.56
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Annual average
Life of fund (since
12/28/87) 8.86 7.77
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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 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 Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government/Credit Bond Index is an unmanaged index of U.S.
Treasury and agency securities and corporate bonds.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P/Citigroup World Ex-U.S. Primary Markets Growth Index is an unmanaged
index of mostly large- and some small-capitalization stocks from
developed countries excluding the United States chosen for their growth
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.
The fund's portfolio
April 30, 2004 (Unaudited)
Corporate bonds and notes (46.2%) (a)
Principal amount Value
Advertising and Marketing Services (0.1%)
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$81,481 Lamar Media Corp. bank term loan FRN
3.188s, 2010 (acquired 2/27/03,
cost $81,481) (RES) $82,398
305,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 327,875
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410,273
Automotive (1.2%)
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155,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 168,950
540,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 558,900
90,000 Dana Corp. notes 10 1/8s, 2010 103,050
310,000 Dana Corp. notes 9s, 2011 365,800
50,000 Dana Corp. notes 7s, 2029 48,000
155,000 Dana Corp. notes 6 1/2s, 2009 162,750
85,000 Delco Remy International, Inc.
company guaranty 11s, 2009 89,888
285,000 Delco Remy International, Inc. 144A
sr. sub. notes 9 3/8s, 2012 282,150
100,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 104,500
330,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 328,350
93,302 Hayes Lemmerz International, Inc.
bank term loan FRN 4.956s,
2009 (acquired 6/3/03, cost $92,369)
(RES) 95,090
345,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 396,319
EUR 110,000 Lear Corp. sr. notes 8 1/8s, 2008 150,317
$215,000 Meritor Automotive, Inc. notes 6.8s,
2009 219,300
340,000 Metaldyne Corp. 144A sr. notes 10s,
2013 329,800
20,000 Plastech 2nd. lien bank term loan
FRN 5.62s, 2011 (acquired
2/9/04, cost $20,000) (RES) 20,313
46,174 SPX Corp. bank term loan FRN Ser. B,
3 1/8s, 2009 (acquired various dates
from 7/23/02 to 8/26/03, cost
$46,174) (RES) 46,742
EUR 200,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 242,137
$260,000 Tenneco Automotive, Inc. company
guaranty Ser. B, 11 5/8s, 2009 284,700
410,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 472,525
70,000 TRW Automotive bank term loan FRN
3.438s, 2011 (acquired 1/7/04, cost
$69,947) (RES) 70,975
--------------
4,540,556
Basic Materials (5.1%)
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325,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 357,500
280,000 AK Steel Corp. company guaranty
7 7/8s, 2009 257,600
345,000 AK Steel Corp. company guaranty
7 3/4s, 2012 310,500
72,457 Appleton Papers, Inc. bank term loan
FRN 3.6s, 2006 (acquired
6/4/02, cost $72,729) (RES) 72,910
295,000 Appleton Papers, Inc. company
guaranty Ser. B, 12 1/2s, 2008 331,875
435,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 345,825
315,000 Better Minerals & Aggregates Co.
company guaranty 13s, 2009 242,550
Corporate bonds and notes (46.2%) (a)
Principal amount Value
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$390,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 $444,600
155,000 Compass Minerals International, Inc.
sr. disc. notes stepped-coupon
zero % (12s, 6/1/08), 2013 (STP) 117,800
420,000 Compass Minerals International, Inc.
sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 340,200
617,759 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s,
2008 (acquired various dates from
7/27/01 to 11/26/03, cost $326,820)
(RES) (PIK) 358,300
415,000 Dow Chemical Co. (The) notes 5 3/4s,
2009 438,236
910,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 1,012,375
210,000 Equistar Chemicals LP/Equistar
Funding Corp. sr. notes 10 5/8s,
2011 235,200
200,000 Four M Corp. sr. notes Ser. B, 12s,
2006 202,500
230,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 232,300
500,000 Georgia-Pacific Corp. debs. 7.7s,
2015 546,250
365,000 Gerdau Ameristeel Corp. sr. notes
10 3/8s, 2011 (Canada) 410,625
74,625 Graphics Packaging bank term loan
FRN 3.86s, 2010 (acquired
8/6/03, cost $74,625) (RES) 75,667
175,000 Hercules, Inc. bank term loan FRN
3.61s, 2010 (acquired 4/7/04, cost
$175,000) (RES) 177,188
550,000 Hercules, Inc. company guaranty
11 1/8s, 2007 660,000
410,000 Hercules, Inc. 144A sr. sub. notes
6 3/4s, 2029 405,900
105,000 Huntsman Advanced Materials, LLC
144A sec. FRN 10s, 2008 109,200
130,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 147,550
426,000 Huntsman Co., LLC 144A sr. disc.
notes zero %, 2008 251,340
147,724 Huntsman Corp. bank term loan FRN
Ser. A, 5.938s, 2007 (acquired
various dates from 5/1/03 to
9/24/03, cost $136,709) (RES) 147,016
95,088 Huntsman Corp. bank term loan FRN
Ser. B, 10.188s, 2007
(acquired various dates from 5/1/03
to 9/24/03, cost $87,638) (RES) 94,633
435,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 456,750
845,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 424,613
EUR 225,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 270,921
$215,000 Huntsman LLC company guaranty
11 5/8s, 2010 236,500
50,000 International Steel Group, Inc. 144A
sr. notes 6 1/2s, 2014 48,000
765,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 864,450
30,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 29,100
345,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (NON) (DEF) 34,931
40,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 44,400
400,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 418,000
490,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 518,175
EUR 235,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 313,244
$45,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 50,625
188,351 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 220,371
660,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 719,400
80,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 87,200
66,198 Nalco Co. bank term loan FRN Ser. B,
3.629s, 2010 (acquired 11/6/03, cost
$66,198) (RES) 66,704
150,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 157,875
EUR 40,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 48,763
EUR 40,000 Nalco Co. 144A sr. sub. notes 9s,
2013 48,284
$585,000 Nalco Co. 144A sr. sub. notes
8 7/8s, 2013 617,175
310,000 Norske Skog Canada 144A sr. notes
7 3/8s, 2014 (Canada) 318,162
306,241 Noveon International bonds 13s, 2011 324,615
80,000 Noveon International company
guaranty Ser. B, 11s, 2011 93,200
233,383 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 219,380
73,902 Pioneer Companies, Inc. sec. FRN
4.61s, 2006 69,837
430,000 Potlatch Corp. company guaranty 10s,
2011 483,750
225,000 Resolution Performance Products, LLC
sec. notes 8s, 2009 232,875
70,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 71,400
EUR 5,000 Rhodia SA unsub. Ser. EMTN, 6 1/4s,
2005 (France) 6,098
$280,000 Rhodia SA 144A sr. notes 7 5/8s,
2010 (France) 253,400
EUR 235,000 SGL Carbon SA 144A sr. notes 8 1/2s,
2012 (Luxembourg) 290,286
$120,000 SGL Carbon, LLC bank term loan FRN
4.22s, 2009 (acquired 2/26/04, cost
$120,600) (RES) 119,700
105,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 112,350
20,000 Smurfit-Stone Container Corp.
company guaranty 7 1/2s, 2013 20,700
370,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 412,550
81,826 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 78,962
450,000 Stone Container Corp. sr. notes
9 3/4s, 2011 495,000
120,000 Stone Container Corp. sr. notes
8 3/8s, 2012 129,000
475,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 542,688
215,000 United Agri Products 144A sr. notes
8 1/4s, 2011 238,650
274,000 United States Steel Corp. sr. notes
9 3/4s, 2010 310,305
280,000 WCI Steel, Inc. sr. notes Ser. B,
10s, 2004 (In default) (NON) 134,400
160,000 Wellman 1st. lien bank term loan FRN
6s, 2009 (acquired 2/4/04, cost
$160,000) (RES) 162,000
145,000 Wellman 2nd. lien bank term loan FRN
8 3/4s, 2010 (acquired 2/4/04, cost
$142,100) (RES) 141,617
21,772 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 13,499
43,545 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 26,998
230,000 WHX Corp. sr. notes 10 1/2s, 2005 207,000
--------------
19,509,543
Building Materials (0.4%)
-------------------------------------------------------------------------------
180,000 Building Materials Corp. company
guaranty 8s, 2008 179,550
305,000 Dayton Superior Corp. sec. notes
10 3/4s, 2008 305,000
120,000 Interface, Inc. 144A sr. sub. notes
9 1/2s, 2014 120,600
77,100 NCI Building Systems, Inc. bank term
loan FRN Ser. B, 4.108s,
2008 (acquired 9/4/02, cost $77,100)
(RES) 77,710
300,000 Nortek Holdings, Inc. 144A sr. notes
stepped-coupon zero % (10s,
11/15/07), 2011 (STP) 224,250
220,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 246,400
115,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 47,725
460,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 190,900
--------------
1,392,135
Capital Goods (4.4%)
-------------------------------------------------------------------------------
425,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 437,750
520,612 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 5
82,526 Allied Waste Industries, Inc. bank
term loan FRN 3.866s, 2010 (acquired
4/25/03, cost $82,526) (RES) 83,801
13,929 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 1.09s,
2010 (acquired 4/25/03, cost $13,929)
(RES) 14,125
645,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 719,175
295,000 Allied Waste North America, Inc.
144A sec. notes 6 1/2s, 2010 295,738
99,250 Amsted Industries bank term loan FRN
5.102s, 2010 (acquired 8/12/03,
cost $98,754) (RES) 100,801
615,000 Argo-Tech Corp. company guaranty
8 5/8s, 2007 618,075
335,000 BE Aerospace, Inc. sr. sub. notes
9 1/2s, 2008 335,000
110,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 106,150
245,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 233,975
70,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 79,450
465,000 Blount, Inc. company guaranty 13s,
2009 502,200
105,000 Blount, Inc. company guaranty 7s,
2005 109,200
825,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 771,375
290,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 295,800
95,000 Crown Cork & Seal Company, Inc. bank
term loan FRN Ser. B, 4.1s, 2008
(acquired 2/21/03, cost $94,050)
(RES) 96,544
290,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 337,850
845,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 947,456
500,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 327,500
71,772 EaglePicher bank term loan FRN
4.11s, 2009 (acquired 8/6/03, cost
$72,209) (RES) 72,175
380,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 426,550
345,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 401,925
EUR 195,000 Flender Holdings 144A sr. notes 11s,
2010 (Denmark) 271,380
$102,340 Flowserve Corp. bank term loan FRN
Ser. C, 3 7/8s, 2009 (acquired
various dates from 4/30/02 to
2/26/04, cost $103,040) (RES) 103,543
297,000 Flowserve Corp. company guaranty
12 1/4s, 2010 341,550
99,474 Graham Packaging bank term loan FRN
3 7/8s, 2010 (acquired 2/18/03,
cost $98,976) (RES) 100,748
365,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 384,163
EUR 405,000 Impress Metal Packaging Holding NV
sr. sub. notes 9 7/8s,
2007 (Netherlands) 231,092
$80,000 Invensys, PLC bank term loan FRN
4.611s, 2009 (acquired 3/11/04, cost
$79,800) (RES) 80,200
390,000 Invensys, PLC notes 9 7/8s, 2011
(United Kingdom) 411,450
161,000 JII Holdings, LLC 144A sec. notes
13s, 2007 144,900
275,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 308,000
129,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 134,160
120,000 L-3 Communications Corp. company
guaranty 7 5/8s, 2012 129,300
220,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 218,900
385,000 Legrand SA debs. 8 1/2s, 2025
(France) 405,694
40,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 45,600
EUR 100,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 131,977
$120,000 Manitowoc Co., Inc. (The) sr. notes
7 1/8s, 2013 125,400
105,000 Motors and Gears, Inc. sr. notes
Ser. D, 10 3/4s, 2006 89,250
100,000 Mueller Group bank term loan FRN
4.35s, 2011 (acquired 4/22/04, cost
$100,000) (RES) 100,500
100,000 Mueller Group Inc. 144A sec. FRN
5.919s, 2011 102,500
140,000 Mueller Group Inc. 144A sr. sub.
notes 10s, 2012 147,000
300,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 309,750
280,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 293,300
370,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 404,225
103,613 Pike Electric bank term loan FRN
4 3/8s, 2010 (acquired 2/27/04,
cost $105,010) (RES) 104,229
275,000 Pliant Corp. sec. notes 11 1/8s,
2009 292,875
205,000 Roller Bearing Company of America
company guaranty Ser. B, 9 5/8s,
2007 199,875
98,750 Roper bank term loan FRN 3.127s,
2008 (acquired 12/22/03, cost
$98,750) (RES) 99,984
630,000 Sequa Corp. sr. notes 9s, 2009 702,450
110,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 121,550
110,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 102,300
100,000 Solo Cup Co. bank guaranty FRN
3.61s, 2011 (acquired 2/19/04, cost
$100,569) (RES) 101,588
290,000 Solo Cup Co. 144A sr. sub. notes
8 1/2s, 2014 298,700
275,000 TD Funding Corp. company guaranty
8 3/8s, 2011 290,813
675,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 696,938
245,000 Tekni-Plex, Inc. 144A sr. sec. notes
8 3/4s, 2013 241,325
100,000 Terex Corp. company guaranty 9 1/4s,
2011 111,500
380,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 433,200
24,938 Transdigm, Inc. bank term loan FRN
3.34s, 2010 (acquired 4/19/04, cost
$24,938) (RES) 25,156
315,000 Trimas Corp. company guaranty
9 7/8s, 2012 340,200
200,000 Vought Aircraft Industries, Inc.
144A sr. notes 8s, 2011 203,000
--------------
16,692,885
Commercial and Consumer Services (0.6%)
-------------------------------------------------------------------------------
87,949 Coinmach Corp. bank term loan FRN
Ser. B, 3 7/8s, 2009
(acquired 1/31/02, cost $87,839)
(RES) 88,608
650,000 Coinmach Corp. sr. notes 9s, 2010 690,625
24,619 Corrections Corporation of America
bank term loan FRN 3.871s,
2008 (acquired 8/5/03, cost $24,619)
(RES) 24,912
240,472 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 24
EUR 688,142 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 42
$49,750 IESI Corp. bank term loan FRN
4.147s, 2010 (acquired various
dates from 10/20/03 to 10/21/03,
cost $50,021) (RES) 50,434
345,000 IESI Corp. company guaranty 10 1/4s,
2012 374,325
93,600 Laidlaw International, Inc. bank
term loan FRN 5 1/2s, 2009
(acquired 6/18/03, cost $91,728)
(RES) 95,160
720,000 Laidlaw International, Inc. 144A sr.
notes 10 3/4s, 2011 808,200
--------------
2,132,330
Communication Services (4.1%)
-------------------------------------------------------------------------------
318,000 Alamosa Delaware, Inc. company
guaranty 11s, 2010 344,235
285,000 Alamosa Delaware, Inc. 144A sr.
notes 8 1/2s, 2012 275,738
105,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 (In default)
(NON) 97,650
430,000 American Cellular Corp. sr. notes
Ser. B, 10s, 2011 414,950
155,000 American Tower Corp. sr. notes
9 3/8s, 2009 166,238
195,000 American Tower Corp. 144A sr. notes
7 1/2s, 2012 188,175
405,000 American Towers, Inc. 144A sr. sub.
notes 7 1/4s, 2011 414,113
300,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 33,000
805,000 Centennial Cellular Operating Co.
company guaranty 10 1/8s, 2013 829,150
80,000 Cincinnati Bell Telephone Co.
company guaranty 6.3s, 2028 72,000
200,000 Cincinnati Bell, Inc. company
guaranty 7 1/4s, 2013 194,000
215,000 Cincinnati Bell, Inc. notes 7 1/4s,
2023 203,175
440,000 Cincinnati Bell, Inc. sr. sub. notes
8 3/8s, 2014 415,800
191,573 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 19
50,000 Consolidated Communications bank
term loan FRN 3.85s, 2012 (acquired
4/7/04, cost $50,000) (RES) 50,438
49,750 Crown Castle International Corp.
bank term loan FRN 4.61s, 2010
(acquired 10/3/03, cost $49,750)
(RES) 50,502
410,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 448,950
49,750 Dobson Communications Corp. bank
term loan FRN 4.366s, 2010
(acquired 10/20/03, cost $49,750)
(RES) 49,661
590,000 Dobson Communications Corp. sr.
notes 8 7/8s, 2013 463,150
140,000 Eircom Funding notes 8 1/4s, 2013
(Ireland) 151,200
210,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 231,000
187,182 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 19
106,256 Globix Corp. company guaranty 11s,
2008 (PIK) 95,630
455,000 Inmarsat Finance PLC 144A company
guaranty 7 5/8s, 2012 (United
Kingdom) 464,100
160,000 iPCS, Inc. 144A sr. notes 11 1/2s,
2012 163,200
540,000 iPCS, Inc. sr. disc. notes
stepped-coupon zero % (14s,
7/15/05), 2010 (In default) (NON)
(STP) 221,400
405,000 Level 3 Financing Inc. 144A sr.
notes 10 3/4s, 2011 358,425
390,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 423,150
492,000 MCI Inc. sr. notes 7.735s, 2014 456,330
138,000 MCI Inc. sr. notes 6.688s, 2009 131,100
116,375 Nextel bank term loan FRN Ser. E,
3 3/8s, 2010 (acquired 12/19/02,
cost $107,647) (RES) 117,570
220,000 Nextel Communications, Inc. sr.
notes 9 1/2s, 2011 249,700
15,000 Nextel Communications, Inc. sr.
notes 9 3/8s, 2009 16,219
795,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 825,806
20,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 23,550
290,000 Nextel Partners, Inc. sr. notes 11s,
2010 327,700
700,000 Nextel Partners, Inc. sr. notes
8 1/8s, 2011 710,500
94,264 PanAmSat Corp. bank term loan FRN
3.6s, 2010 (acquired 10/29/03, cost
$94,264) (RES) 94,382
450,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 508,500
105,625 Qwest Communications International,
Inc. bank term loan FRN 6 1/2s, 2007
(acquired 6/5/03, cost $104,569)
(RES) 109,775
675,000 Qwest Communications International,
Inc. 144A sr. notes 7 1/2s, 2014 619,313
120,000 Qwest Communications International,
Inc. 144A sr. notes FRN 4.63s, 2009 111,000
1,300,000 Qwest Corp. 144A notes 9 1/8s, 2012 1,381,250
195,000 Qwest Services Corp. 144A notes 14s,
2014 232,538
145,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 168,200
170,000 Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 160,650
50,000 SBA bank term loan FRN 4.65s, 2008
(acquired 2/3/04, cost $50,000)
(RES) 50,266
90,000 SBA Communications Corp. sr. notes
10 1/4s, 2009 90,000
175,000 SBA Telecommunications Inc. 144A sr.
disc. notes stepped- coupon zero %
(9 3/4s, 12/15/07), 2011 (STP) 129,500
150,000 Time Warner Telecom, Inc. 144A sec.
notes FRN 5.12s, 2011 142,500
195,000 Time Warner Telecom, Inc. 144A sr.
notes 9 1/4s, 2014 181,350
205,000 Triton PCS, Inc. company guaranty
8 3/4s, 2011 189,113
365,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 397,850
220,000 U S West, Inc. notes 5 5/8s, 2008 213,400
225,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 (STP) 220,500
195,000 UbiquiTel Operating Co. 144A sr.
notes 9 7/8s, 2011 195,000
210,000 US UnWired, Inc. company guaranty
stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 208,950
390,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 400,725
--------------
15,482,305
Conglomerates (0.3%)
-------------------------------------------------------------------------------
175,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 178,475
160,000 Tyco International Group SA company
guaranty 6 7/8s, 2029 (Luxembourg) 161,404
90,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 97,059
665,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 700,256
140,000 Tyco International Group SA 144A sr.
notes 6s, 2013 (Luxembourg) 141,922
--------------
1,279,116
Consumer (0.6%)
-------------------------------------------------------------------------------
470,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 528,750
510,000 Jostens Holding Corp. sr. disc.
notes stepped-coupon zero %
(10 1/4s, 12/1/08), 2013 (STP) 342,975
94,778 Jostens, Inc. bank term loan FRN
Ser. B, 3.72s, 2010
(acquired 7/28/03, cost $94,778)
(RES) 95,512
285,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 320,625
900,000 Samsonite Corp. sr. sub. notes
10 3/4s, 2008 936,000
--------------
2,223,862
Consumer Staples (6.8%)
-------------------------------------------------------------------------------
50,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 54,000
250,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 272,500
30,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 32,700
110,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 118,800
405,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 421,200
18,836 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.12s,
2009 (acquired 5/27/03, cost $18,789)
(RES) 18,978
47,092 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.16s,
2009 (acquired 5/27/03, cost $46,974)
(RES) 47,445
290,000 Affinity Group, Inc. 144A sr. sub.
notes 9s, 2012 305,950
350,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 378,000
180,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2011 188,100
295,000 AMC Entertainment, Inc. 144A sr.
sub. notes 8s, 2014 289,100
441,690 American Seafood Group, LLC bank
term loan FRN Ser. B, 4.35s, 2009
(acquired 4/11/02, cost $441,248)
(RES) 442,886
120,000 AMF Bowling Worldwide bank term loan
FRN 4.152s, 2009 (acquired 2/25/04,
cost $120,000) (RES) 120,900
179,185 Archibald Candy Corp. company
guaranty 10s, 2007 (In default)
(NON) (PIK) 123,638
350,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 383,250
90,000 Atlantic Broadband Finance, LLC 144A
sr. sub. notes 9 3/8s, 2014 87,300
300,000 Brand Services, Inc. company
guaranty 12s, 2012 348,000
980,000 Cablevision Systems Corp. 144A sr.
notes 8s, 2012 982,450
265,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 294,150
100,000 Century Cable Holdings bank term
loan FRN 6s, 2009 (acquired
6/11/02, cost $80,500) (RES) 97,792
160,000 Charter bank term loan FRN 4.36s,
2011 (acquired 4/21/04, cost
$160,000) (RES) 159,378
225,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 134,438
285,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 185,963
240,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
1/15/05), 2010 (STP) 198,600
300,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 264,000
440,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 386,100
225,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 192,375
955,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 797,425
495,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 420,750
50,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 41,500
350,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 383,250
530,000 Cinemark, Inc. 144A sr. disc. notes
stepped-coupon zero %
(9 3/4s, 3/15/09), 2014 (STP) 331,913
60,935 Constellation Brands, Inc. bank term
loan FRN 3.213s, 2008
(acquired 11/3/03, cost $60,935)
(RES) 61,805
210,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 227,850
90,000 Dean Foods Co. sr. notes 6 5/8s,
2009 96,075
120,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 133,200
305,000 Del Monte Corp. sr. sub. notes
8 5/8s, 2012 337,025
79,897 Del Monte Foods Co. bank term loan
FRN Ser. B, 3.408s, 2010 (acquired
12/16/02, cost $79,498) (RES) 81,121
82,592 DirecTV bank term loan FRN Ser. B,
3.399s, 2010 (acquired various dates
from 3/4/03 to 8/5/03, cost $82,592)
(RES) 83,851
695,000 DirecTV Holdings, LLC sr. notes
8 3/8s, 2013 776,663
1,162,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 116
430,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 395,600
12,315 Dole Food Co. bank term loan FRN
4.34s, 2009 (acquired 12/8/03, cost
$12,315) (RES) 12,490
145,000 Dole Food Co. sr. notes 8 7/8s, 2011 154,425
105,000 Dole Food Co. sr. notes 8 5/8s, 2009 112,350
365,000 Domino's, Inc. sr. sub. notes
8 1/4s, 2011 394,200
30,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 24,000
890,000 Echostar DBS Corp. 144A sr. notes
6 3/8s, 2011 900,013
62,500 Echostar DBS Corp. 144A sr. notes
FRN 4.36s, 2008 65,000
135,000 Elizabeth Arden, Inc. 144A company
guaranty 7 3/4s, 2014 139,556
98,505 Emmis Communications Corp. bank term
loan FRN Ser. C, 3 3/8s, 2009
(acquired 6/20/02, cost $98,382)
(RES) 98,505
130,000 Emmis Communications Corp. company
guaranty Ser. B, 8 1/8s, 2009 135,688
790,000 Granite Broadcasting Corp. 144A sec.
notes 9 3/4s, 2010 774,200
220,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 244,750
34,913 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 3.937s, 2009
(acquired 11/5/01, cost $34,847)
(RES) 35,144
19,444 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 19,395
305,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 291,275
325,000 Mediacom LLC/Mediacom Capital Corp.
sr. notes 9 1/2s, 2013 323,375
120,000 MGM bank term loan FRN 3.61s, 2011
(acquired 4/21/04, cost $120,000)
(RES) 120,300
490,000 News America Holdings, Inc. company
guaranty 9 1/4s, 2013 622,010
195,000 North Atlantic Trading Co. 144A sr.
notes 9 1/4s, 2012 197,438
270,000 Olympus Cable bank term loan FRN
Ser. B, 6s, 2010 (acquired
6/20/02, cost $235,305) (RES) 263,057
EUR 40,000 ONO Finance PLC company guaranty
13s, 2009 (United Kingdom) 51,065
$125,000 ONO Finance PLC sr. notes 14s, 2011
(United Kingdom) 144,844
15,000 ONO Finance PLC sr. notes 13s, 2009
(United Kingdom) 16,031
EUR 80,000 ONO Finance PLC sr. notes Ser. REGS,
14s, 2011 (United Kingdom) 110,280
$60,000 Pegasus Communications Corp. sr.
notes Ser. B, 9 3/4s, 2006 45,000
210,000 Pegasus Satellite sr. notes 12 3/8s,
2006 147,000
210,000 Pinnacle Foods Holding Corp. 144A
sr. sub. notes 8 1/4s, 2013 219,188
660,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 653,400
415,000 Playtex Products, Inc. 144A secd.
notes 8s, 2011 435,750
350,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 378,000
395,000 Prestige Brands, Inc. 144A sr. sub.
notes 9 1/4s, 2012 382,163
10,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero %
(13 3/4s, 7/15/06), 2011 (Canada)
(STP) 9,200
445,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 511,750
72,155 Rayovac Corp. bank term loan FRN
Ser. B, 3.623s, 2009
(acquired 9/26/02, cost $72,082)
(RES) 72,696
210,000 RCN Corp. sr. disc. notes Ser. B,
zero %, 2008 (In default) (NON) 107,625
215,000 Regal Cinemas, Inc. company guaranty
Ser. B, 9 3/8s, 2012 255,313
405,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 402,975
65,000 Rite Aid Corp. bank term loan FRN
4.1s, 2008 (acquired 5/16/03, cost
$64,919) (RES) 66,463
305,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 342,363
20,000 Rite Aid Corp. debs. 6 7/8s, 2013 18,800
40,000 Rite Aid Corp. notes 7 1/8s, 2007 40,600
205,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 221,400
270,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 286,200
20,000 Rite Aid Corp. 144A notes 6s, 2005 19,925
435,000 Sbarro, Inc. company guaranty 11s,
2009 371,925
49,950 Scotts Co. (The) bank term loan FRN
3 1/8s, 2010 (acquired
10/16/03, cost $49,950) (RES) 50,613
140,000 Scotts Co. (The) 144A sr. sub. notes
6 5/8s, 2013 144,200
205,000 Sinclair Broadcast Group, Inc.
company guaranty 8s, 2012 217,813
42,443 Six Flags, Inc. bank term loan FRN
Ser. B, 3.594s, 2009
(acquired 1/15/03, cost $42,390)
(RES) 42,796
1,105,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 1,124,338
475,000 Six Flags, Inc. 144A sr. notes
9 5/8s, 2014 497,563
83,363 Sum Media bank term loan FRN Ser. B,
3.418s, 2009 (acquired 2/4/03, cost
$83,363) (RES) 84,092
590,000 TeleWest Communications PLC debs.
11s, 2007 (United Kingdom) (In
default) (NON) 371,700
190,000 TeleWest Communications PLC debs.
9 5/8s, 2006 (United Kingdom) (In
default) (NON) 116,375
130,000 TeleWest Communications PLC sr.
notes Ser. S, 9 7/8s, 2010 (United
Kingdom) (In default) (NON) 79,300
50,000 TeleWest Communications PLC 144A sr.
notes 11 1/4s, 2008 (United Kingdom)
(In default) (NON) 31,250
155,000 Videotron Ltee company guaranty
6 7/8s, 2014 (Canada) 156,550
65,000 Vivendi Universal SA bank term loan
FRN Ser. B, 3.85s, 2008
(acquired 6/23/03, cost $65,000)
(France) (RES) 65,386
540,000 Vivendi Universal SA sr. notes
6 1/4s, 2008 (France) 563,625
200,000 Warner Music bank term loan FRN
3.894s, 2011 (acquired 4/8/04, cost
$200,908) (RES) 202,600
390,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 388,050
754,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 795,470
200,000 Young Broadcasting, Inc. 144A sr.
sub. notes 8 3/4s, 2014 202,000
--------------
26,066,985
Energy (4.1%)
-------------------------------------------------------------------------------
430,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 442,900
455,000 Belden & Blake Corp. company
guaranty Ser. B, 9 7/8s, 2007 453,863
350,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 377,563
300,000 CHC Helicopter Corp. 144A sr. sub.
notes 7 3/8s, 2014 (Canada) 303,750
180,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 205,650
142,000 Chesapeake Energy Corp. company
guaranty 7 3/4s, 2015 153,360
685,000 Chesapeake Energy Corp. sr. notes
7 1/2s, 2013 739,800
275,000 Comstock Resources, Inc. sr. notes
6 7/8s, 2012 269,500
120,000 Dresser, Inc. bank term loan FRN
4.61s, 2010 (acquired 2/27/04, cost
$120,900) (RES) 121,838
380,000 Dresser, Inc. company guaranty
9 3/8s, 2011 410,400
77,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 86,048
295,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 321,550
140,000 Encore Acquisition Co. 144A sr. sub.
notes 6 1/4s, 2014 137,900
390,000 Exco Resources, Inc. 144A company
guaranty 7 1/4s, 2011 393,900
330,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 353,100
560,000 Forest Oil Corp. sr. notes 8s, 2011 616,000
115,000 Forest Oil Corp. sr. notes 8s, 2008 125,350
200,000 Gazprom OAO notes Ser. REGS, 9 5/8s,
2013 (Russia) 205,500
560,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Russia) 575,400
195,000 Hanover Compressor Co. sr. notes
8 5/8s, 2010 206,700
290,000 Hanover Compressor Co. sub. notes
zero %, 2007 223,300
190,000 Hanover Equipment Trust sec. notes
Ser. A, 8 1/2s, 2008 201,400
265,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 290,838
195,000 KCS Energy, Inc. 144A sr. notes
7 1/8s, 2012 195,000
160,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 158,000
40,000 Leviathan Gas Corp. company guaranty
Ser. B, 10 3/8s, 2009 41,800
46,389 Magellan Midstream Holdings bank
term loan FRN 4.67s, 2008 (acquired
6/13/03, cost $45,925) (RES) 47,085
295,000 Massey Energy Co. sr. notes 6 5/8s,
2010 296,475
380,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 418,000
255,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 242,250
325,977 Oslo Seismic Services, Inc. 1st
mtge. 8.28s, 2011 329,237
50,000 Parker Drilling Co. bank term loan
FRN 5.35s, 2007 (acquired
10/22/03, cost $49,500) (RES) 50,531
290,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 311,025
48,263 Peabody Energy Corp. bank term loan
FRN Ser. B, 2.859s, 2010 (acquired
3/20/03, cost $48,263) (RES) 48,574
405,000 Peabody Energy Corp. sr. notes
5 7/8s, 2016 387,788
335,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 385,250
300,000 Petro Geo-Services notes 10s, 2010
(Norway) 327,000
630,000 Petroleos Mexicanos company guaranty
9 1/2s, 2027 (Mexico) 748,125
550,000 Petronas Capital, Ltd. company
guaranty 7 7/8s, 2022 (Malaysia) 608,465
125,000 Petronas Capital, Ltd. company
guaranty 7s, 2012 (Malaysia) 136,725
205,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 234,014
310,000 Plains Exploration & Production Co.
company guaranty Ser. B,
8 3/4s, 2012 341,000
260,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 286,000
350,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 392,875
209,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 212,658
320,000 Seabulk International, Inc. company
guaranty 9 1/2s, 2013 332,800
170,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default)
(NON) 2
400,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 438,000
95,000 Star Gas Partners LP/Star Gas
Finance Co. 144A sr. notes 10 1/4s,
2013 104,025
181,923 Star Gas Propane 1st Mtge. 8.04s,
2009 (acquired 5/7/03, cost
$178,285) (RES) 198,296
500,000 Trico Marine Services, Inc. company
guaranty 8 7/8s, 2012 230,000
80,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 85,800
170,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 186,575
80,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 85,000
650,000 Westport Resources Corp. company
guaranty 8 1/4s, 2011 729,625
--------------
15,803,610
Financial (0.6%)
-------------------------------------------------------------------------------
165,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 173,250
420,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 464,100
1,102,000 Finova Group, Inc. notes 7 1/2s,
2009 658,445
109,250 Hilb, Rogal & Hamilton Co. bank term
loan FRN Ser. B, 3 3/8s,
2007 (acquired 6/20/02, cost
$109,250) (RES) 110,616
305,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 341,600
70,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 73,150
230,000 iStar Financial, Inc. sr. notes 6s,
2010 (R) 230,000
290,000 Western Financial Bank sub. debs.
9 5/8s, 2012 327,700
--------------
2,378,861
Gaming & Lottery (2.9%)
-------------------------------------------------------------------------------
265,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 307,400
90,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 101,250
350,000 Argosy Gaming Co. 144A sr. sub.
notes 7s, 2014 358,313
69,650 Borgata Resorts bank term loan FRN
Ser. B, 5.192s, 2007
(acquired 6/5/02, cost $69,476)
(RES) 70,555
400,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 441,500
190,000 Chumash Casino & Resort Enterprise
144A sr. notes 9s, 2010 211,375
480,000 Herbst Gaming, Inc. sec. notes
Ser. B, 10 3/4s, 2008 541,200
530,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 543,250
490,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 512,050
150,000 Inn of the Mountain Gods 144A sr.
notes 12s, 2010 164,250
235,000 Mandalay Resort Group sr. notes
6 1/2s, 2009 245,575
605,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 682,138
260,000 MGM Mirage, Inc. company guaranty
6s, 2009 263,250
30,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 31,950
100,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 109,000
685,000 Mohegan Tribal Gaming Authority sr.
sub. notes 6 3/8s, 2009 698,700
490,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 539,000
265,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 278,250
200,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 223,000
63,198 Penn National Gaming, Inc. bank term
loan FRN 3.609s, 2010
(acquired 2/19/03, cost $63,119)
(RES) 63,988
255,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 284,963
500,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 543,750
61,976 Pinnacle Entertainment, Inc. bank
term loan FRN 4.6s, 2009
(acquired 12/15/03, cost $61,976)
(RES) 62,648
300,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 303,000
135,000 Pinnacle Entertainment, Inc. 144A
sr. sub. notes 8 1/4s, 2012 129,938
375,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 418,125
305,000 Riviera Holdings Corp. company
guaranty 11s, 2010 324,825
123,752 Scientific Games Holdings bank term
loan FRN 4.673s, 2008 (acquired
12/11/02, cost $123,134) (RES) 125,402
245,000 Station Casinos, Inc. 144A sr. notes
6s, 2012 246,531
275,000 Station Casinos, Inc. 144A sr. sub.
notes 6 7/8s, 2016 273,625
655,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 560,025
830,000 Trump Casino Holdings, LLC company
guaranty 12 5/8s, 2010 840,375
515,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 602,550
--------------
11,101,751
Health Care (3.4%)
-------------------------------------------------------------------------------
21,644 ALARIS Medical Systems, Inc. bank
term loan FRN 3.36s, 2009
(acquired 6/30/03, cost $21,644)
(RES) 21,894
43,337 Alderwoods Group, Inc. bank term
loan FRN 3.9292s, 2008
(acquired 9/9/03, cost $43,337)
(RES) 43,905
460,100 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 513,012
95,000 Alliance Imaging, Inc. sr. sub.
notes 10 3/8s, 2011 95,000
315,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 335,475
310,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 342,550
535,000 Ardent Health Services, Inc. sr.
sub. notes 10s, 2013 585,825
62,188 Beverly Enterprises, Inc. bank term
loan FRN 4.457s, 2008
(acquired 10/20/03, cost $62,032)
(RES) 62,848
70,000 Biovail Corp. sr. sub. notes 7 7/8s,
2010 (Canada) 68,600
147,750 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.62s,
2010 (acquired 7/11/02, cost
$147,750) (RES) 150,151
99,250 Concentra bank term loan FRN 4.941s,
2009 (acquired 8/12/03, cost
$99,250) (RES) 100,573
92,795 Dade Behring, Inc. company guaranty
11.91s, 2010 107,178
198,921 DaVita, Inc. bank term loan FRN
Ser. B, 3.164s, 2009 (acquired
various dates from 7/17/03 to
1/30/04, cost $200,077) (RES) 200,910
185,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 205,350
285,000 Extendicare Health Services, Inc.
144A sr. sub. notes 6 7/8s, 2014 277,163
55,331 Fisher Scientific International,
Inc. bank term loan FRN 3.11s,
2010 (acquired 2/13/03, cost
$55,331) (RES) 55,654
49,750 Hanger Orthopedic Group, Inc. bank
term loan FRN 3.86s, 2009 (acquired
9/29/03, cost $49,750) (RES) 50,372
325,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 363,188
115,000 HCA, Inc. debs. 7.19s, 2015 119,660
640,000 HCA, Inc. notes 8.36s, 2024 689,494
150,000 HCA, Inc. notes 7.69s, 2025 151,390
445,000 HCA, Inc. notes 7s, 2007 478,158
540,000 Healthsouth Corp. notes 7 5/8s, 2012 542,700
255,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 258,825
130,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 131,300
110,000 Healthsouth Corp. sr. notes 7s, 2008 108,900
215,000 IASIS Healthcare Corp. company
guaranty 13s, 2009 238,113
45,000 IASIS Healthcare Corp. company
guaranty 8 1/2s, 2009 48,150
195,000 Insight Health Services Corp. 144A
company guaranty 9 7/8s, 2011 196,950
66,813 Kinetic Concepts, Inc. bank term
loan FRN 3.36s, 2011
(acquired 8/5/03, cost $66,984)
(RES) 67,481
130,735 Magellan Health Services, Inc. sr.
notes Ser. A, 9 3/8s, 2008 141,357
80,641 Medex, Inc. bank term loan FRN
4.135s, 2009 (acquired various
dates from 5/16/03 to 6/16/03, cost
$80,602) (RES) 81,195
380,000 Mediq, Inc. debs. 13s, 2009 (In
default) (NON) 38
495,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 559,350
195,000 NeighborCare, Inc. 144A sr. sub.
notes 6 7/8s, 2013 198,900
100,000 Omega Health Care Investors 144A sr.
notes 7s, 2014 101,500
405,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 409,050
396,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 462,330
410,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 401,800
70,000 Service Corp. International debs.
7 7/8s, 2013 73,150
40,000 Service Corp. International notes
7.2s, 2006 42,500
15,000 Service Corp. International notes
6 7/8s, 2007 15,825
60,000 Service Corp. International notes
6 1/2s, 2008 61,950
65,000 Service Corp. International notes
6s, 2005 67,925
145,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 154,788
415,000 Service Corp. International 144A sr.
notes 6 3/4s, 2016 411,888
390,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 439,238
220,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 199,100
10,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 8,675
265,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 231,213
360,000 Tenet Healthcare Corp. sr. notes
5 3/8s, 2006 341,100
725,000 Triad Hospitals, Inc. sr. notes 7s,
2012 726,813
590,000 Triad Hospitals, Inc. sr. sub. notes
7s, 2013 570,825
285,000 Universal Hospital Services, Inc.
144A sr. notes 10 1/8s, 2011 303,525
165,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 186,450
40,000 VWR International, Inc. bank term
loan FRN 3.6s, 2011
(acquired 4/5/04, cost $40,000)
(RES) 40,560
185,000 VWR International, Inc. 144A sr.
notes 6 7/8s, 2012 191,475
95,000 VWR International, Inc. 144A sr.
sub. notes 8s, 2014 99,038
--------------
13,132,327
Homebuilding (0.8%)
-------------------------------------------------------------------------------
80,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 86,600
350,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 389,375
80,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 83,600
220,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 216,150
250,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 287,500
310,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 337,125
160,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 152,800
205,000 K. Hovnanian Enterprises, Inc. 144A
sr. notes 6 3/8s, 2014 192,700
50,000 Landsource bank term loan FRN
3.688s, 2010 (acquired 1/12/04, cost
$50,000) (RES) 50,750
160,000 Meritage Corp. company guaranty
9 3/4s, 2011 178,200
120,000 Meritage Corp. 144A sr. notes 7s,
2014 117,000
210,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 241,500
180,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 198,000
120,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 126,000
100,000 Technical Olympic USA, Inc. 144A
sub. notes 7 1/2s, 2011 95,500
435,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 474,150
--------------
3,226,950
Household Furniture and Appliances (0.2%)
-------------------------------------------------------------------------------
80,000 Sealy bank term loan FRN 3.86s, 2012
(acquired 4/2/04, cost $80,000)
(RES) 81,000
585,000 Sealy Mattress Co. 144A sr. sub.
notes 8 1/4s, 2014 570,375
--------------
651,375
Lodging/Tourism (1.1%)
-------------------------------------------------------------------------------
250,000 FelCor Lodging LP company guaranty
10s, 2008 (R) 266,875
375,000 Gaylord Entertainment Co. 144A sr.
notes 8s, 2013 390,000
455,000 Hilton Hotels Corp. notes 7 5/8s,
2012 511,875
324,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 334,530
140,000 Host Marriott LP sr. notes 7 1/8s,
2013 (R) 142,100
151,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 161,004
250,000 ITT Corp. debs. 7 3/8s, 2015 260,625
320,000 ITT Corp. notes 6 3/4s, 2005 336,000
870,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 959,175
280,000 Meristar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 291,200
305,000 Meristar Hospitality Corp. company
guaranty 9s, 2008 (R) 314,150
50,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 54,688
210,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 225,750
--------------
4,247,972
Publishing (1.8%)
-------------------------------------------------------------------------------
91,806 Dex Media West, LLC bank term loan
FRN 3.869s, 2010 (acquired
9/9/03, cost $91,806) (RES) 93,215
600,000 Dex Media West, LLC 144A sr. notes
8 1/2s, 2010 651,000
275,000 Dex Media, Inc. 144A disc. notes
stepped-coupon zero % (9s,
11/15/08), 2013 (STP) 167,750
310,000 Dex Media, Inc. 144A notes 8s, 2013 300,700
870,734 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 1,012,174
93,758 PRIMEDIA, Inc. bank term loan FRN
Ser. B, 3.887s, 2009
(acquired 2/10/03, cost $89,774)
(RES) 92,657
590,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 600,325
435,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 429,563
195,000 Reader's Digest Association, Inc.
(The) 144A sr. notes 6 1/2s, 2011 196,950
123,456 RH Donnelley Finance Corp. I bank
term loan FRN Ser. B, 3.369s,
2010 (acquired 12/4/02, cost
$123,456) (RES) 125,138
70,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 78,050
500,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 557,500
250,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 297,500
470,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 495,850
245,000 Vertis, Inc. sec. notes 9 3/4s, 2009 266,438
390,000 Vertis, Inc. sub. notes 13 1/2s,
2009 397,800
170,000 Von Hoffman Press, Inc. company
guaranty 10 3/8s, 2007 170,425
370,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 384,800
206,939 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 190,901
110,000 WRC Media Corp. bank term loan FRN
6.761s, 2009 (acquired 3/25/04, cost
$110,000) (RES) 110,275
295,000 WRC Media Corp. sr. sub. notes
12 3/4s, 2009 295,000
36,000 Yell Finance BV sr. notes 10 3/4s,
2011 (Netherlands) 41,760
--------------
6,955,771
Retail (0.8%)
-------------------------------------------------------------------------------
37,592 Advance Stores bank term loan FRN
Ser. C, 3.157s, 2007
(acquired 3/4/03, cost $37,592)
(RES) 37,920
240,000 Asbury Automotive Group, Inc. 144A
sr. sub. notes 8s, 2014 235,200
475,000 Autonation, Inc. company guaranty
9s, 2008 541,500
180,000 Gap, Inc. (The) notes 6.9s, 2007 198,000
515,000 JC Penney Co., Inc. debs. 7.95s,
2017 589,675
95,000 JC Penney Co., Inc. debs. 7.65s,
2016 106,875
235,000 JC Penney Co., Inc. debs. 7 1/8s,
2023 253,800
15,000 JC Penney Co., Inc. notes 8s, 2010 17,100
108,863 PETCO Animal Supplies, Inc. bank
term loan FRN 3.61s, 2009
(acquired 8/6/03, cost $108,863)
(RES) 110,496
597,000 Saks, Inc. 144A company guaranty 7s,
2013 608,940
270,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 301,725
--------------
3,001,231
Technology (1.1%)
-------------------------------------------------------------------------------
242,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 283,745
69,000 Avaya, Inc. sec. sr. notes 11 1/8s,
2009 80,903
60,000 Caci International bank term loan
FRN 3.11s, 2011 (acquired
4/23/04, cost $60,000) (RES) 60,525
269,000 DigitalNet Holdings, Inc. sr. notes
9s, 2010 289,175
130,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 139,100
295,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 306,800
40,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 31,700
555,000 Lucent Technologies, Inc. debs.
6.45s, 2029 439,838
30,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 28,500
275,000 ON Semiconductor Corp. company
guaranty 13s, 2008 331,375
175,000 SCG Holding Corp. 144A notes zero %,
2011 246,750
235,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 253,800
420,000 Xerox Capital Trust I company
guaranty 8s, 2027 401,100
110,000 Xerox Corp. company guaranty 9 3/4s,
2009 124,850
215,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 215,000
615,000 Xerox Corp. sr. notes 7 5/8s, 2013 627,300
290,000 Xerox Corp. sr. notes 7 1/8s, 2010 294,350
--------------
4,154,811
Textiles (0.4%)
-------------------------------------------------------------------------------
505,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 451,975
245,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 261,538
120,000 Phillips-Van Heusen Corp. 144A sr.
notes 7 1/4s, 2011 120,600
360,000 Russell Corp. company guaranty
9 1/4s, 2010 378,900
214,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 245,030
--------------
1,458,043
Tire & Rubber (0.2%)
-------------------------------------------------------------------------------
80,000 Goodyear Tire & Rubber Co. (The)
bank term loan FRN 5.61s,
2006 (acquired 2/19/04, cost $80,000)
(RES) 80,460
100,000 Goodyear Tire & Rubber Co. (The)
notes 8 1/2s, 2007 96,500
770,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 646,800
110,000 Goodyear Tire & Rubber Co. (The)
notes 6 3/8s, 2008 95,150
--------------
918,910
Transportation (0.8%)
-------------------------------------------------------------------------------
240,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 231,600
295,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,2011 271,400
530,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 447,850
510,000 CSX Corp. notes 6 1/4s, 2008 550,043
210,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s, 2005 176,461
125,226 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s, 2012 93,920
500,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 550,000
100,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 103,000
310,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 303,800
131,262 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 133,230
86,539 Pacer International, Inc. bank term
loan FRN 4.044s, 2010
(acquired 6/10/03, cost $87,021)
(RES) 87,405
100,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 116,250
--------------
3,064,959
Utilities & Power (4.4%)
-------------------------------------------------------------------------------
30,000 AES Corp. (The) sr. notes 8 7/8s,
2011 31,650
17,000 AES Corp. (The) sr. notes 8 3/4s,
2008 17,723
420,000 AES Corp. (The) 144A sec. notes 9s,
2015 458,850
595,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 648,550
505,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 506,263
180,000 Allegheny Energy Supply 144A sec.
notes 10 1/4s, 2007 198,900
150,000 Allegheny Energy, Inc. bank term
loan FRB 7 1/4s, 2011
(acquired 3/5/04, cost $150,000)
(RES) 150,975
490,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 344,225
1,050,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 929,250
150,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 159,759
120,000 CenterPoint Energy Resources Corp.
sr. notes Ser. B, 7 7/8s, 2013 135,330
50,000 CMS Energy Corp. pass-through
certificates 7s, 2005 50,500
500,000 CMS Energy Corp. sr. notes 8.9s,
2008 530,000
120,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 125,700
100,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 101,750
340,000 DPL, Inc. sr. notes 6 7/8s, 2011 334,900
160,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 136,800
780,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 854,100
200,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 189,000
310,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 275,900
145,000 Edison Mission Energy sr. notes 10s,
2008 152,250
5,000 Edison Mission Energy sr. notes
9 7/8s, 2011 5,150
70,000 Edison Mission Energy sr. notes
7.73s, 2009 66,150
210,000 El Paso Corp. sr. notes 7 3/8s, 2012 179,550
505,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 393,900
105,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 104,475
90,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 92,250
645,000 El Paso Production Holding Co.
company guaranty 7 3/4s, 2013 612,750
240,000 Ferrellfas Partners LP/Ferrellgas
Partners Finance 144A sr. notes
6 3/4s, 2014 240,000
115,000 Kansas Gas & Electric debs. 8.29s,
2016 117,875
91,644 Midland Funding II Corp. debs.
Ser. A, 11 3/4s, 2005 96,226
610,000 Midwest Generation LLC 144A sec.
notes 8 3/4s, 2034 606,950
150,000 Mirant Americas Generation, Inc. sr.
notes 8.3s, 2011 (In default) (NON) 108,000
150,000 Mirant Americas Generation, Inc. sr.
notes 7.2s, 2008 (In default) (NON) 109,500
450,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 493,875
360,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 397,800
545,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 591,325
185,000 Northwestern Corp. notes 7 7/8s,
2007 (In default) (NON) 153,550
136,208 NRG bank term loan FRN 5 1/2s, 2010
(acquired 12/19/03, cost $135,526)
(RES) 140,055
76,562 NRG bank term loan FRN Ser. B,
1.07s, 2010 (acquired 12/19/03, cost
$76,179) (RES) 78,725
970,000 NRG Energy, Inc. 144A sr. sec. notes
8s, 2013 977,275
310,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 381,300
460,000 PG&E Corp. 144A sec. notes 6 7/8s,
2008 489,900
85,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 87,550
330,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 344,850
260,000 SEMCO Energy, Inc. sr. notes 7 3/4s,
2013 273,000
80,000 Sierra Pacific Power Co. 144A
general ref. mtge. 6 1/4s, 2012 78,600
490,000 Sierra Pacific Resources 144A sr.
notes 8 5/8s, 2014 494,900
50,000 Southern California Edison Co. notes
6 3/8s, 2006 52,876
170,000 Teco Energy, Inc. notes 10 1/2s,
2007 191,250
100,000 Teco Energy, Inc. notes 7.2s, 2011 100,000
150,000 Teco Energy, Inc. notes 7s, 2012 148,125
40,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 36,200
100,000 Teton Power Funding bank term loan
FRN 4.36s, 2011 (acquired
2/4/04, cost $100,000) (RES) 100,750
50,000 Transcontinental Gas Pipeline Corp.
debs. 7 1/4s, 2026 50,750
80,000 Unisource Energy bank term loan FRN
5.652s, 2011 (acquired 3/25/04, cost
$79,200) (RES) 78,800
470,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 453,550
100,000 Utilicorp United, Inc. sr. notes
9.95s, 2011 106,000
215,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 248,978
80,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 81,600
80,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 87,000
290,000 Williams Cos., Inc. (The) notes
7 5/8s, 2019 282,750
380,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 417,050
200,000 Williams Holdings Of Delaware notes
6 1/2s, 2008 208,000
64,513 Williams Products bank term loan FRN
3.6s, 2007 (acquired 6/4/03, cost
$64,513) (RES) 65,118
131,272 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 13
--------------
16,756,666
--------------
Total Corporate bonds and notes
(cost $171,003,433) $176,583,227
U.S. government agency mortgage obligations (5.9%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$23,502 Federal Home Loan Mortgage
Corporation Pass-Through
Certificates 7 1/2s, May 1, 2027 $25,246
Federal National Mortgage
Association Pass-Through
Certificates
12,468 8s, July 1, 2024 13,608
99,980 7 1/2s, with due dates from January
1, 2030 to August 1, 2030 107,035
8,897,342 6 1/2s, with due dates from June 1,
2028 to May 1, 2033 9,273,387
12,990,000 5s, TBA, May 1, 2019 13,063,069
--------------
Total U.S. government agency
mortgage obligations
(cost $22,534,947) $22,482,345
U.S. treasury obligations (13.5%) (a)
Principal amount Value
-------------------------------------------------------------------------------
U.S. Treasury Bonds
$5,440,000 7 1/2s, November 15, 2016 $6,763,236
12,789,000 6 1/4s, May 15, 2030 14,372,138
5,965,000 6 1/4s, August 15, 2023 6,628,141
7,289,000 4 1/4s, August 15, 2013 7,167,135
3,000 4s, November 15, 2012 2,922
U.S. Treasury Notes
8,046,000 3 1/4s, August 15, 2008 7,996,340
6,087,000 1 1/8s, June 30, 2005 6,045,864
7,990,000 U.S. Treasury Strip zero %, November
15, 2024 2,509,707
--------------
Total U.S. treasury obligations
(cost $51,765,384) $51,485,483
Foreign government bonds and notes (11.9%) (a)
Principal amount Value
-------------------------------------------------------------------------------
AUD 1,759,000 Australia (Government of) bonds
6 1/4s, 2015 $1,295,398
EUR 2,000,000 Austria (Republic of) notes Ser. E
MTN, 3.8s, 2013 2,323,057
USD 360,000 Brazil (Federal Republic of) bonds
10 1/8s, 2027 316,440
USD 330,000 Brazil (Federal Republic of) unsub.
notes 11s, 2040 307,395
USD 646,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 742,254
CAD 1,005,000 Canada (Government of) bonds 5 1/2s,
2010 783,039
CAD 410,000 Canada (Government of) bonds
Ser. WL43, 5 3/4s, 2029 318,733
USD 500,000 Chile (Republic of) bonds 5 1/2s,
2013 503,500
USD 105,000 Colombia (Republic of) bonds
10 3/8s, 2033 105,210
USD 140,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 150,850
USD 1,150,000 Colombia (Republic of) notes
10 3/4s, 2013 1,265,000
USD 105,000 Colombia (Republic of) unsub.
9 3/4s, 2009 113,820
EUR 155,000 Colombia (Republic of) unsub. bonds
Ser. 15A, 11 3/8s, 2008 213,390
USD 875,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 7s (8s,
8/15/04), 2030 (STP) 607,250
USD 150,000 El Salvador (Republic of) 144A bonds
8 1/4s, 2032 149,625
EUR 760,000 France (Government of) bonds 5 3/4s,
2032 1,027,622
EUR 1,470,000 France (Government of) bonds 5 1/2s,
2010 1,937,417
EUR 440,000 France (Government of) deb. 4s, 2009 539,295
EUR 2,480,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 3,218,030
EUR 730,000 Hellenic Greece (Republic of) bonds
3 1/2s, 2008 883,451
USD 100,000 Indonesia (Republic of) FRN 2.005s,
2006 92,500
USD 250,000 Indonesia (Republic of) FRN 2.005s,
2005 238,750
USD 855,000 Indonesia (Republic of) 144A sr.
notes 6 3/4s, 2014 778,050
EUR 655,000 Italy (Government of) treasury bonds
4 3/4s, 2006 817,183
NZD 2,970,000 New Zealand (Government of) bonds
8s, 2006 1,952,784
NZD 3,152,000 New Zealand (Government of) bonds
Ser. 709, 7s, 2009 2,053,725
USD 550,000 Peru (Republic of) bonds 8 3/4s,
2033 486,750
USD 290,000 Philippines (Republic of) bonds
9 7/8s, 2019 297,250
USD 325,000 Philippines (Republic of) sr. notes
8 7/8s, 2015 323,375
USD 2,391,250 Russia (Federation of) 144A unsub.
stepped-coupon 5s (7 1/2s, 3/31/07),
2030 (STP) 2,191,581
USD 520,000 Russia (Ministry of Finance) deb.
Ser. V, 3s, 2008 453,700
EUR 165,000 South Africa (Republic of) bonds
5 1/4s, 2013 192,940
USD 1,030,000 South Africa (Republic of) notes
7 3/8s, 2012 1,136,090
SEK 16,800,000 Sweden (Government of) bonds 6 3/4s,
2014 2,565,497
SEK 14,640,000 Sweden (Government of) bonds Ser.
3101, 4s, 2008 2,369,529
USD 184,803 Ukraine (Government of) sr. notes
Ser. REGS, 11s, 2007 201,436
USD 400,000 Ukraine (Government of) 144A bonds
7.65s, 2013 384,000
USD 575,000 Ukraine (Government of) 144A unsub.
notes 6 7/8s, 2011 554,875
GBP 425,000 United Kingdom treasury bonds
8 3/4s, 2017 1,027,547
GBP 490,000 United Kingdom treasury bonds 5s,
2012 870,606
GBP 2,765,000 United Kingdom treasury bonds 5s,
2004 4,905,348
GBP 1,745,000 United Kingdom treasury bonds
7 1/2s, 2006 3,303,095
USD 725,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 777,563
USD 215,000 Venezuela (Republic of) bonds
9 3/8s, 2034 176,838
USD 255,000 Venezuela (Republic of) notes
10 3/4s, 2013 248,625
USD 415,000 Venezuela (Republic of) unsub. bonds
5 3/8s, 2010 322,663
--------------
Total Foreign government bonds and
notes (cost $41,451,267) $45,523,076
Collateralized mortgage obligations (5.5%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$2,575,128 Commercial Mortgage Acceptance Corp.
Ser. 97-ML1, Interest Only (IO),
0.935s, 2017 $65,988
757,000 Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2011 811,883
1,143,000 Criimi Mae Commercial Mortgage Trust
144A Ser. 98-C1, Class B, 7s, 2033 1,186,296
192,000 CS First Boston Mortgage Securities
Corp. 144A FRB Ser. 03-TF2A, Class
L, 5.1s, 2014 190,491
22,457,171 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X,
IO, 1.149s, 2023 682,030
Fannie Mae
90,542 Ser. 98-51, Class SG, IO, 24.4s,
2022 36,604
421,421 Ser. 02-36, Class SJ, 17 3/8s, 2029 464,180
584 Ser. 92-15, Class L, IO, 10.376s,
2022 8,019
306,733 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 330,416
6,601 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 7,111
721 Ser. 02-W1, Class 2A, 7 1/2s, 2042 776
2,779 Ser. 02-14, Class A2, 7 1/2s, 2042 2,994
372,329 Ser. 01-T10, Class A2, 7 1/2s, 2041 401,078
1,663 Ser. 02-T4, Class A3, 7 1/2s, 2041 1,792
4,409 Ser. 01-T8, Class A1, 7 1/2s, 2041 4,749
1,443,804 Ser. 01-T7, Class A1, 7 1/2s, 2041 1,555,285
212,750 Ser. 01-T3, Class A1, 7 1/2s, 2040 229,177
649,509 Ser. 01-T1, Class A1, 7 1/2s, 2040 699,660
259,181 Ser. 99-T2, Class A1, 7 1/2s, 2039 279,193
137,059 Ser. 00-T6, Class A1, 7 1/2s, 2030 147,642
639,479 Ser. 01-T4, Class A1, 7 1/2s, 2028 688,855
1,435 Ser. 02-W3, Class A5, 7 1/2s, 2028 1,546
873,590 Ser. 03-118, Class SF, IO, 7s, 2033 129,128
913,085 Ser. 02-36, Class QH, IO, 6.95s,
2029 59,309
90,742 Ser. 02-29, Class SL, IO, 6.95s,
2029 626
379,105 Ser. 03-7, Class SM, IO, 6.65s, 2023 4,146
2,109,105 Ser. 03-49, Class TS, IO, 6.6s, 2018 271,218
864,163 Ser. 03-14, Class KS, IO, 6 1/2s,
2017 68,458
483,902 Ser. 03-23, Class SC, IO, 6.45s,
2033 18,449
1,839,400 Ser. 03-41, Class SP, IO, 6.1s, 2015 137,380
686,557 Ser. 03-58, Class ID, IO, 6s, 2033 162,092
826,902 Ser. 03-26, Class IG, IO, 6s, 2033 160,083
544,833 Ser. 322, Class 2, IO, 6s, 2032 126,163
5,979,867 Ser. 03-34, Class SP, IO, 6s, 2032 530,713
683,336 Ser. 318, Class 2, IO, 6s, 2032 158,502
240,398 Ser. 01-74, Class MI, IO, 6s, 2015 16,648
4,878,449 Ser. 03-34, Class ES, IO, 5.9s, 2033 444,396
1,964,361 Ser. 03-34, Class SG, IO, 5.9s, 2033 180,169
857,147 Ser. 343, Class 14, IO, 5 1/2s, 2033 208,528
895,923 Ser. 343, Class 15, IO, 5 1/2s, 2033 218,801
413,715 Ser. 343, Class 17, IO, 5 1/2s, 2033 102,847
1,285,525 Ser. 338, Class 2, 5 1/2s, 2033 353,720
1,298,232 Ser. 329, Class 2, IO, 5 1/2s, 2033 339,974
1,279,127 Ser. 03-45, Class PI, IO, 5 1/2s,
2029 176,280
1,710,334 Ser. 03-37, Class IC, IO, 5 1/2s,
2027 186,768
243,000 Ser. 03-6, Class IB, IO, 5 1/2s,
2022 19,176
681,715 Ser. 345, Class 1, IO, 5s, 2033 182,890
1,670,421 Ser. 343, Class 5, IO, 5s, 2033 415,517
1,880,953 Ser. 343, Class 9, IO, 5s, 2033 481,994
2,749,358 Ser. 03-23, Class AI, IO, 5s, 2017 329,923
1,043,600 Ser. 03-24, Class IC, IO, 5s, 2015 198,131
5,351,773 Ser. 03-W10, Class 1A, IO, 2.052s,
2043 187,312
6,387,277 Ser. 03-W10, Class 3A, IO, 2.05s,
2043 229,543
3,405,628 Ser. 03-W17, Class 12, IO, 1.164s,
2033 114,287
5,808,273 Ser. 00-T6, IO, 0.74s, 2030 104,367
9,983,388 Ser. 02-T18, IO, 0.52s, 2042 146,102
2,358 Ser. 02-97, Principal Only (PO),
zero %, 2033 2,352
110,794 Ser. 99-51, Class N, PO, zero %,
2029 93,084
69,489 Ser. 99-52, Class MO, PO, zero %,
2026 67,879
5,103 Ser. 96-5, Class PB, PO, zero %,
2024 5,017
Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
8,651 Ser. T-58, Class 4A, 7 1/2s, 2043 9,319
3,121,295 Ser. T-57, Class 1AX, IO, 0.004s,
2043 34,017
8,053,231 FFCA Secured Lending Corp. Ser.
00-1, Class X, IO, 1.626s, 2020 531,005
230,000 First Chicago Lennar Trust 144A Ser.
97-CHL1, Class E, 7.929s, 2039 211,025
Freddie Mac
304,679 Ser. 2763, Class SC, 24.2s, 2032 372,506
723,300 Ser. 2412, Class GS, FRN, 18.07s,
2032 788,397
182,995 Ser. 2478, Class SY, IO, 7.05s, 2021 8,692
20,657 Ser. 2448, Class SE, IO, 7s, 2029 45
1,428,718 Ser. 2448, Class SM, IO, 6.9s, 2032 137,514
1,429,765 Ser. 2579, Class GS, IO, 6.55s, 2017 127,419
2,233,300 Ser. 216, IO, 6s, 2032 506,854
786,800 Ser. 2515, Class IG, IO, 5 1/2s,
2032 261,720
404,800 Ser. 2590, Class IH, IO, 5 1/2s,
2028 106,867
1,048,000 Ser. 2596, Class IQ, IO, 5 1/2s,
2026 127,527
260,818 Ser. 215, Class PO, PO, zero %, 2031 229,662
232,761 Ser. 2235, PO, zero %, 2030 184,184
2 Ser. 2078, Class KC, PO, zero %, 2023 2
Government National Mortgage
Association
14,858 Ser. 02-36, Class SD, IO, 7.05s,
2029 60
240,778 Ser. 02-51, Class SA, IO, 7s, 2032 5,167
100,925 Ser. 02-29, Class SX, IO, 6.95s,
2029 303
615,173 Ser. 01-43, Class SJ, IO, 6 1/2s,
2029 18,578
1,333,099 Ser. 01-19, Class S, IO, 6.4s, 2031 124,978
2,570,741 Ser. 03-83, Class SI, IO, 5.4s, 2032 202,044
1,107,038 Ser. 02-47, Class SM, IO, 4.87s,
2032 56,736
117,142 Ser. 98-2, Class EA, PO, zero %,
2028 99,717
117,000 GS Mortgage Securities Corp. II 144A
FRB Ser. 03-FL6A, Class L, 4.35s,
2015 117,146
718,260 Hermione (European Loan Conduit No.
14) 144A FRB Class A, 4.489s, 2011
(Ireland) 1,280,114
4,051,721 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, Class JS,
IO, 2.544s, 2028 276,026
3,338,239 Mortgage Capital Funding, Inc. Ser.
97-MC2, Class X, IO, 1.523s, 2012 106,259
Starwood Asset Receivables Trust
144A
95,279 FRB Ser. 03-1A, Class F, 2.2s, 2022 95,460
122,502 FRB Ser. 03-1A, Class E, 2.15s, 2022 122,734
STRIPS 144A
87,000 Ser. 03-1A, Class M, 5s, 2018 71,201
104,000 Ser. 03-1A, Class N, 5s, 2018 76,336
100,000 Ser. 04-1A, Class M, 5s, 2018 81,890
90,000 Ser. 04-1A, Class N, 5s, 2018 66,267
100,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3, 6.943s,
2013 105,985
--------------
Total Collateralized mortgage
obligations (cost $21,920,900) $20,971,493
Asset-backed securities (6.3%) (a)
Principal amount Value
-------------------------------------------------------------------------------
ABSC NIMS Trust 144A
$210,525 Ser. 03-HE5, Class A, 7s, 2033 $211,578
139,304 Ser. 03-HE7, Class A, 7s, 2033 140,001
147,000 Ser. 04-HE2, Class A1, 6 3/4s, 2034 147,735
Aegis Asset Backed Securities Trust
144A
93,499 Ser. 04-1N, Class NOTE, 5s, 2034 93,499
191,530 Ser. 04-2N, Class N1, 4 1/2s, 2034 191,530
3,503,636 Amortizing Residential Collateral
Trust Ser. 02-BC1, Class A, IO, 6s,
2005 118,356
50,810 AQ Finance NIM Trust Ser. 03-N1,
Class NOTE, 9.37s, 2033 50,699
AQ Finance NIM Trust 144A
180,744 Ser. 03-N2, Class NOTE, 9.3s, 2033 182,100
66,890 Ser. 03-N9A, Class NOTE, 7.385s,
2033 67,308
Arc Net Interest Margin Trust 144A
13,770 Ser. 02-1A, Class A, 7 3/4s, 2032 13,768
39,191 Ser. 02-8A, Class A1, 7 3/4s, 2032 38,868
Arcap REIT, Inc. 144A
208,000 Ser. 03-1A, Class E, 7.11s, 2038 210,178
116,000 Ser. 04-1A, Class E, 6.42s, 2039 114,822
Argent NIM Trust 144A
141,551 Ser. 03-N6, Class A, 6.4s, 2034 141,551
62,000 Ser. 04-WN2, Class A, 4.55s, 2034 62,000
84,000 Asset Backed Funding Corp. NIM Trust
144A Ser. 04-0PT1, Class N2, 6.9s,
2033 84,000
177,522 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 1.8s,
2033 177,966
Bayview Financial Acquisition Trust
269,996 Ser. 02-CA, Class A, IO, 5.1s, 2004 6,412
13,734,984 Ser. 03-X, Class A, IO, 1.36s, 2006 197,440
CARSSX Finance, Ltd. 144A
100,000 FRN Ser. 04-A, Class B3, 4.7s, 2011 100,000
100,000 FRN Ser. 04-A, Class B4, 6.7s, 2011 100,000
Chase Funding Net Interest Margin
144A
5,876 Ser. 02-4A, Class NOTE, 8 1/2s, 2035 5,876
8,835 Ser. 03-1A, Class NOTE, 8 3/4s, 2004 8,835
61,996 Ser. 03-2A, Class NOTE, 8 3/4s, 2035 62,306
198,205 Ser. 03-4A, Class NOTE, 6 3/4s, 2036 199,196
Conseco Finance Securitizations Corp.
135,000 Ser. 00-2, Class A4, 8.48s, 2021 139,500
1,673,000 Ser. 00-4, Class A6, 8.31s, 2032 1,422,874
600,000 Ser. 00-6, Class M2, 8.2s, 2032 90,000
12,000 Ser. 01-04, Class A4, 7.36s, 2019 11,708
782,000 Ser. 01-1, Class A5, 6.99s, 2032 709,816
9,000 Ser. 01-3, Class A3, 5.79s, 2024 8,907
1,290,000 Ser. 01-3, Class A4, 6.91s, 2033 1,184,713
200,000 Ser. 01-3, Class M2, 7.44s, 2033 40,000
561,000 Ser. 01-4, Class B1, 9.4s, 2010 56,100
1,380,580 Ser. 02-1, Class A, 6.681s, 2032 1,421,526
394,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class
A, 3.11s, 2007 399,509
193,000 Countrywide Asset Backed
Certificates 144A Ser. 04-BC1N,
Class NOTE, 5 1/2s, 2035 192,337
235,000 Crest, Ltd. 144A Ser. 03-2A, Class
E2, 8s, 2038 212,730
186,200 First Franklin NIM Trust 144A Ser.
03-FF3A, Class A, 6 3/4s, 2033 185,477
Fremont NIM Trust 144A
76,686 Ser. 03-B, Class NOTE, 5.65s, 2033 76,495
343,330 Ser. 04-A, Class NOTE, 4 3/4s, 2034 342,987
Granite Mortgages PLC
GBP 585,000 Ser. 03-2, Class 3C, 5.578s, 2043
(United Kingdom) 1,066,160
EUR 780,000 FRB Ser. 03-2, Class 2C1, 5.2s, 2043
(United Kingdom) 956,023
$190,000 FRB Ser. 02-1, Class 1C, 2.45s, 2042
(United Kingdom) 193,236
Green Tree Financial Corp.
107,320 Ser. 95-F, Class B2, 7.1s, 2021 95,113
70,330 Ser. 99-3, Class A5, 6.16s, 2031 71,166
678,000 Ser. 99-5, Class A5, 7.86s, 2030 592,593
1,057,553 Greenpoint Manufactured Housing Ser.
00-3, Class IA, 8.45s, 2031 906,280
635,000 GS Auto Loan Trust 144A Ser. 04-1,
Class D, 5s, 2011 625,376
243 GSAMP Trust Ser. 02-HE2N, Class
NOTE, 8 1/4s, 2032 243
GSAMP Trust 144A
90,699 Ser. 03-HE1N, Class NOTE, 7 1/4s,
2033 90,608
200,947 Ser. 04-FM1N, Class NOTE, 5 1/4s,
2033 200,947
Holmes Financing PLC FRB
190,000 Ser. 5, Class 2C, 2.59s, 2005
(United Kingdom) 191,366
110,000 Ser. 4, Class 3C, 2.44s, 2040
(United Kingdom) 111,575
127,000 Ser. 8, Class 2C, 1.834s, 2040
(United Kingdom) 127,000
4,502 Home Equity Asset Trust Ser. 02-1N,
Class A, 8s, 2032 4,502
Home Equity Asset Trust 144A
211,351 Ser. 02-5N, Class A, 8s, 2033 211,351
91,259 Ser. 03-4N, Class A, 8s, 2033 105,085
155,000 Ser. 03-7N, Class A, 5 1/4s, 2034 154,613
685,000 LNR CDO, Ltd. FRB Ser. 02-1A, Class
FFL, 3.85s, 2037 (Cayman Islands) 667,738
415,000 LNR CDO, Ltd. 144A FRB Ser. 03-1A,
Class EFL, 4.1s, 2036 (Cayman
Islands) 438,821
155,130 Long Beach Asset Holdings Corp. 144A
Ser. 2003-2, Class N1, 7.627s, 2033 155,348
90,387 Long Beach Asset Holdings Corp. NIM
Trust 144A Ser. 03-4, Class
N1, 6.535s, 2033 90,387
568,528 Madison Avenue Manufactured Housing
Contract FRB Ser. 02-A, Class
B1, 4.35s, 2032 312,690
105,173 Merrill Lynch Mortgage Investors,
Inc. Ser. 03-WM3N, Class N1, 8s,
2005 106,368
102,954 Mid-State Trust Ser. 11, Class B,
8.221s, 2038 102,064
50,296 Morgan Stanley ABS Capital I 144A
Ser. 03-NC9N, Class NOTE, 7.6s,
2033 50,727
Morgan Stanley Dean Witter Capital I
210,000 FRN Ser. 01-NC3, Class B1, 3.55s,
2031 209,303
195,000 FRN Ser. 01-NC4, Class B1, 3.6s,
2032 194,370
100,565 New Century Mortgage Corp. NIM Trust
144A Ser. 03-B, Class NOTE, 6 1/2s,
2033 101,068
Oakwood Mortgage Investors, Inc.
229,475 Ser. 01-C, Class A2, 5.92s, 2017 156,423
1,140,443 Ser. 02-C, Class A1, 5.41s, 2032 1,015,884
61,254 Option One Mortgage Securities Corp.
144A Ser. 03-5, Class NOTE, 6.9s,
2033 61,560
53,497 Option One Mortgage Securities Corp.
NIM Trust 144A Ser. 2003-2B, Class
N1, 7.63s, 2033 (Cayman Islands) 53,447
302,884 Pass-Through Amortizing Credit Card
Trust Ser. 02-1A, Class A4FL, 6.6s,
2012 303,891
Permanent Financing PLC FRB
150,000 Ser. 1, Class 3C, 2.31s, 2042
(United Kingdom) 151,664
190,000 Ser. 3, Class 3C, 2.26s, 2042
(United Kingdom) 193,266
1,764,959 Residential Asset Mortgage Products,
Inc. Ser. 03-RZ1, Class A,
IO, 5 3/4s, 2005 86,042
187,684 Rural Housing Trust Ser. 87-1, Class
D, 6.33s, 2026 195,187
52,068 SAIL Net Interest Margin Notes Ser.
03-4, Class A, 7 1/2s, 2033 (Cayman
Islands) 52,010
SAIL Net Interest Margin Notes 144A
297,971 Ser. 03-10A, Class A, 7 1/2s, 2033 297,955
120,344 Ser. 03-12A, Class A, 7.35s, 2033 120,308
76,067 Ser. 03-6A, Class A, 7s, 2033 75,501
154,068 Ser. 03-7A, Class A, 7s, 2033 152,925
47,280 Ser. 03-8A, Class A, 7s, 2033 47,042
219,735 Ser. 03-BC2A, Class A, 7 3/4s, 2033 219,097
281,096 Ser. 04-2A, Class A, 5 1/2s, 2034 281,096
32,423 Sasco Arc Net Interest Margin Notes
Ser. 02-BC10, Class A, 7 3/4s, 2033 32,128
Sasco Arc Net Interest Margin Notes
144A
135,776 Ser. 03-3, Class A, 7 3/4s, 2033 135,095
269,098 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 269,020
220,896 Ser. 03-AM1, Class A, 7 3/4s, 2033 240,825
148,926 Sasco Arc Net Interest Margin Trust
144A Ser. 03-BC1, Class B, zero %,
2033 106,645
121,375 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 121,280
171,915 SHARP SP I, LLC Net Interest Margin
Trust Ser. 03-NC1N, Class N, 7 1/4s,
2033 172,881
SHARP SP I, LLC Net Interest Margin
Trust 144A
108,587 Ser. 03-0P1N, Class NA, 4.45s, 2033 108,576
86,698 Ser. 03-HS1N, Class N, 7.48s, 2033 86,915
42,447 Ser. 03-TC1N, 7.45s, 2033 42,447
62,411 Ser. 04-FM1N, Class N, 6.16s, 2034 62,723
44,082 Ser. 04-HS1N, Class NOTE, 5.92s,
2034 44,082
Structured Asset Investment Loan
Trust
216,695 Ser. 03-BC1A, Class A, 7 3/4s, 2033 215,642
3,863,371 Ser. 03-BC2, Class A, IO, 6s, 2005 157,563
1,310,001 Ser. 03-BC8, Class A, IO, 6s, 2005 71,039
7,873,000 Ser. 04-1, Class A, IO, 6s, 2005 428,551
212,000 TIAA Commercial Real Estate
Securitization Ser. 02-1A, Class
IV, 6.84s, 2037 163,563
254,000 TIAA Commercial Real Estate
Securitization 144A Ser. 03-1A,
Class E, 8s, 2038 226,774
1,597,000 Washington Mutual Ser. 03-S1, Class
A11, IO, 5 1/2s, 2033 144,728
492,000 Whole Auto Loan Trust 144A Ser.
03-1, Class D, 6s, 2010 488,464
--------------
Total Asset-backed securities
(cost $26,128,377) $24,135,063
Common stocks (0.7%) (a)
Number of shares Value
-------------------------------------------------------------------------------
1,083 AboveNet, Inc. (NON) $43,320
1,153 Alderwoods Group, Inc. (NON) 14,159
350,000 AMRESCO Creditor Trust (acquired
6/17/99, cost $62,787) (RES) (NON)
(R) 350
6 Arch Wireless, Inc. Class A (NON) 205
958 Archibald Candy Corp. (NON) 48
605 Birch Telecom, Inc. (acquired
9/30/02, cost $--) (RES) (NON) 6
244 Comdisco Holding Co., Inc. (NON) 8,406
1,883,299 Contifinancial Corp. Liquidating
Trust Units 32,958
8,378 Covad Communications Group, Inc.
(NON) 16,756
663 Crown Castle International Corp.
(NON) 9,249
614 Genesis HealthCare Corp. (NON) 14,361
25,179 Globix Corp. (NON) 81,832
99 Knology, Inc. (NON) 788
58 Leucadia National Corp. 2,858
3,473 Lodgian, Inc. (NON) 57,305
60,000 Loewen Group International, Inc.
(NON) 6
603 Mariner Health Care, Inc. (NON) 10,890
810 Mediq, Inc. (NON) 3,256
16 Microcell Telecommunications, Inc.
Class A (Canada) (NON) 285
4,563 Microcell Telecommunications, Inc.
Class B (Canada) (NON) 82,294
4,203 Pioneer Cos., Inc. (NON) 19,964
1,004 PSF Group Holdings, Inc. 144A Class
A (NON) 1,505,790
28,727 Regal Entertainment Group (acquired
5/9/02, cost $228,945) (RES) (NON) 625,961
129 Sterling Chemicals, Inc. (NON) 3,290
467 Sun Healthcare Group, Inc. (NON) 4,675
503,131 VFB LLC (acquired various dates from
10/27/00 to 12/8/03, cost $355,888)
(RES) (NON) 95,595
1,568 Washington Group International, Inc.
(NON) 56,636
--------------
Total Common stocks
(cost $8,823,452) $2,691,243
Brady bonds (0.7%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$1,745,000 Argentina (Government of) FRB
Ser. L-GL, 2.063s, 2023 $907,400
367,059 Brazil (Federal Republic of) FRB
2.063s, 2012 306,494
588,238 Brazil (Federal Republic of) govt.
guaranty FRB Ser. RG, 2.125s, 2012 491,178
505,000 Bulgaria (Republic of) coll. FRB
Ser. A, 2s, 2024 503,738
336,700 Peru (Republic of) FRB Ser. PDI, 5s,
2017 295,050
--------------
Total Brady bonds (cost $2,241,024) $2,503,860
Preferred stocks (0.6%) (a)
Number of shares Value
-------------------------------------------------------------------------------
14,956 Avecia Group PLC $4.00 pfd. (United
Kingdom) (PIK) $269,208
5,858 Doane Pet Care Co. $7.125 pfd. 281,184
210 First Republic Capital Corp. 144A
10.50% pfd. 217,350
6,895 iStar Financial, Inc. $1.95 cum.
pfd. 174,099
9,872 Lodgian, Inc. Ser. A, $7.06 cum.
pfd. (PIK) 264,076
8 Metrocall Holdings, Inc. Ser. A, 15.00%
cum. pfd. 92
47 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) 441,800
106 Rural Cellular Corp. Ser. B, 11.375%
cum. pfd. 94,870
717 Rural Cellular Corp. 12.25% pfd.
(PIK) 516,240
--------------
Total Preferred stocks
(cost $2,202,864) $2,258,919
Convertible preferred stocks (0.3%) (a)
Number of shares Value
-------------------------------------------------------------------------------
4,915 Crown Castle International Corp.
$3.125 cv. pfd. $227,933
2,910 Omnicare, Inc. zero % cv. pfd. 180,420
34 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 266,900
3,294 Pegasus Communications Corp. Ser. C,
6.50% cum. cv. pfd. 89,762
3,690 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 245,846
--------------
Total Convertible preferred stocks
(cost $977,019) $1,010,861
Convertible bonds and notes (0.2%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$60,000 AES Corp. (The) cv. sub. notes
4 1/2s, 2005 $58,800
280,000 Amkor Technologies, Inc. cv. notes
5 3/4s, 2006 278,250
1,210,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In
default) (NON) (STP) 12
420,000 Nextel Communications, Inc. cv. sr.
notes 6s, 2011 449,400
20,000 Tower Automotive, Inc. cv. sub.
notes 5s, 2004 19,800
90,000 WCI Communities, Inc. cv. sr. sub.
notes 4s, 2023 106,538
--------------
Total Convertible bonds and notes
(cost $1,885,602) $912,800
Units (0.1%) (a)
Number of units Value
-------------------------------------------------------------------------------
470,000 Morrison Knudsen Corp. zero %, 2032 $68,150
376 XCL Equity Units zero % 167,075
--------------
Total Units (cost $1,197,327) $235,225
Warrants (0.1%) (a) (NON) Expiration
Number of warrants date Value
-------------------------------------------------------------------------------
460 AboveNet, Inc. 9/8/10 $8,165
391 AboveNet, Inc. 9/8/08 7,585
560 Dayton Superior Corp. 144A 6/15/09 6
2 Doe Run Resourses Corp. 144A 12/31/12 1
641 Huntsman Co., LLC 144A 5/15/11 115,380
266 MDP Acquisitions PLC 144A (Ireland) 10/1/13 13,034
1,173 Microcell Telecommunications
(Canada) 5/1/08 6,227
704 Microcell Telecommunications
(Canada) 5/1/05 2,821
210 Mikohn Gaming Corp. 144A 8/15/08 84
220 ONO Finance PLC 144A (United
Kingdom) 2/15/11 2
230 Pliant Corp. 144A 6/1/10 2
261 Solutia, Inc. 144A 7/15/09 3
570 Travel Centers of America, Inc. 144A 5/1/09 2,850
900 Ubiquitel, Inc. 144A 4/15/10 1
967 Washington Group International, Inc.
Ser. A 1/25/06 11,121
1,105 Washington Group International, Inc.
Ser. B 1/25/06 10,608
597 Washington Group International, Inc.
Ser. C 1/25/06 5,373
320 XM Satellite Radio Holdings, Inc.
144A 3/15/10 18,560
--------------
Total Warrants (cost $412,768) $201,823
Short-term investments (9.5%) (a)
Principal amount Value
-------------------------------------------------------------------------------
$19,153,000 Short-term investments held in
Putnam commingled cash account with
yields ranging from 1.025% to 1.05%
and due dates ranging from May 3,
2004 to May 21, 2004 (d) $19,153,000
6,000,000 Morgan Stanley Dean Witter, 1.03%,
May 12, 2004 5,998,112
5,000,000 Household Finance Corp., 1.03%, May
17, 2004 4,997,711
4,000,000 GE Capital International Funding,
1.04%, May 18, 2004 3,998,054
1,975,000 U.S. Treasury Bill zero %, May 6,
2004 (SEG) 1,974,751
--------------
Total Short-term investments
(cost $36,121,628) $36,121,628
-------------------------------------------------------------------------------
Total Investments
(cost $388,665,992) $387,117,046
-------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $382,023,697.
(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
April 30, 2004 was $10,039,127 or 2.6% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at
April 30, 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 April 30, 2004.
Forward currency contracts to buy at April 30, 2004 (Unaudited)
(aggregate face value $29,829,208)
Unrealized
Aggregate Delivery appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Australian Dollar $6,964,923 $7,270,207 6/16/04 $(305,284)
British Pound 1,330,726 1,346,356 6/16/04 (15,630)
Danish Krone 625,657 647,651 6/16/04 (21,994)
Euro 2,034,235 2,095,568 6/16/04 (61,333)
Japanese Yen 16,005,947 16,343,521 6/16/04 (337,574)
Norwegian Krone 182,173 179,154 6/16/04 3,019
Polish Zloty 219,354 223,008 6/16/04 (3,654)
Swiss Franc 247,092 250,534 6/16/04 (3,442)
Taiwan Dollar 1,472,097 1,473,209 6/16/04 (1,112)
------------------------------------------------------------------------------------------------------
$(747,004)
------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at April 30, 2004 (Unaudited)
(aggregate face value $35,564,277)
Aggregate Delivery Unrealized
Value face value date appreciation
------------------------------------------------------------------------------------------------------
Australian Dollar $1,068,900 $1,079,384 6/16/04 $10,484
British Pound 6,460,706 6,594,889 6/16/04 134,183
Canadian Dollar 432,502 445,113 6/16/04 12,611
Euro 17,538,253 18,110,213 6/16/04 571,960
Japanese Yen 473,462 481,412 6/16/04 7,950
New Zealand Dollar 3,852,872 4,197,627 6/16/04 344,755
Swedish Krona 4,557,089 4,655,639 6/16/04 98,550
------------------------------------------------------------------------------------------------------
$1,180,493
------------------------------------------------------------------------------------------------------
Futures contracts outstanding at April 30, 2004 (Unaudited)
Unrealized
Aggregate Expiration appreciation/
Value face value date (depreciation)
------------------------------------------------------------------------------------------------------
Euro-Bobl 5 yr (Long) $7,749,908 $7,740,445 Jun-04 $9,463
Euro-Bund 10 yr (Long) 8,889,380 8,978,014 Jun-04 (88,634)
Interest Rate Swap 10 yr (Long) 859,250 914,034 Jun-04 (54,784)
Japanese Government
Bond-TSE 10 yr (Long) 2,489,352 2,498,082 Jun-04 (8,730)
Japanese Government
Bond-mini 10 yr (Long) 4,105,936 4,127,004 Jun-04 (21,068)
U.K. Gilt 10 yr (Long) 8,911,592 9,025,986 Jun-04 (114,394)
U.S. Treasury Bond 10 yr (Long) 7,389,469 7,739,908 Jun-04 (350,439)
U.S. Treasury Note 10 yr (Long) 46,299,500 47,508,620 Jun-04 (1,209,120)
U.S. Treasury Note 10 yr (Short) 884,000 906,778 Jun-04 22,778
U.S. Treasury Note 5 yr (Short) 61,565,000 62,765,746 Jun-04 1,200,746
------------------------------------------------------------------------------------------------------
$(614,182)
------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at April 30, 2004 (Unaudited)
Unrealized
Notional Termination appreciation/
amount date (depreciation)
------------------------------------------------------------------------------------------------------
Agreement with Bank of America, N.A.
dated December 2, 2003 to pay semi-
annually the notional amount multiplied by
2.444% and receive quarterly the notional
amount multiplied by the three month
USD-LIBOR. $3,496,000 12/5/05 $(34,734)
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. 4,500,000 1/26/06 13,608
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. 9,000,000 3/30/09 371,467
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. 1,400,000 1/27/14 49,621
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. 4,500,000 1/26/06 15,766
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. 5,068,000 12/15/13 (32,051)
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. 1,400,000 1/26/14 51,123
Agreement with Merrill Lynch Capital
Services, Inc. dated November 17, 2000 to
pay semi-annually the notional amount
multiplied by the three month USD-LIBOR-
BBA and receive the notional amount
multiplied by 6.68%. 3,500,000 11/21/05 328,463
Agreement with Merrill Lynch Capital
Services, Inc. dated September 27, 2002 to
semiannually the notional amount multiplied
by the six month JPY-LIBOR-BBA and pay
semiannually the notional amount multiplied
by 0.399%. JPY 1,334,000,000 10/1/07 25,565
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 26,100,000 2/16/06 34,258
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 10,900,000 3/8/06 31,583
Agreement with UBS, AG dated April 23,
2004 to receive annually the notional amount
multiplied by 3.49% and pay quarterly the
notional amount multiplied by the three
month SEK-STIBOR-SIDE. SEK 212,000,000 4/27/06 $(18,319)
------------------------------------------------------------------------------------------------------
$836,350
------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
April 30, 2004 (Unaudited)
Assets
-------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$388,665,992) (Note 1) $387,117,046
-------------------------------------------------------------------------------
Cash 176,714
-------------------------------------------------------------------------------
Foreign currency (cost $823,713) (Note 1) 798,576
-------------------------------------------------------------------------------
Dividends, interest and other receivables 6,552,700
-------------------------------------------------------------------------------
Receivable for securities sold 5,135,265
-------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 91,762
-------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 921,454
-------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 1,212,430
-------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 309,071
-------------------------------------------------------------------------------
Total assets 402,315,018
Liabilities
-------------------------------------------------------------------------------
Distributions payable to shareholders 1,971,829
-------------------------------------------------------------------------------
Payable for securities purchased 16,336,532
-------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 724,702
-------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 64,349
-------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 33,874
-------------------------------------------------------------------------------
Payable for administrative services (Note 2) 806
-------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 85,104
-------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 778,941
-------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 260,557
-------------------------------------------------------------------------------
Other accrued expenses 34,627
-------------------------------------------------------------------------------
Total liabilities 20,291,321
-------------------------------------------------------------------------------
Net assets $382,023,697
Represented by
-------------------------------------------------------------------------------
Paid-in capital (Note 1) $467,264,687
-------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (2,840,749)
-------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (81,508,374)
-------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (891,867)
-------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $382,023,697
Computation of net asset value
-------------------------------------------------------------------------------
Net asset value per share ($382,023,697 divided by
53,329,917 shares) $7.16
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Six months ended April 30, 2004 (Unaudited)
Investment income:
-------------------------------------------------------------------------------
Interest $13,295,750
-------------------------------------------------------------------------------
Dividends 272,639
-------------------------------------------------------------------------------
Total investment income 13,568,389
Expenses:
-------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,428,902
-------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 261,923
-------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 8,008
-------------------------------------------------------------------------------
Administrative services (Note 2) 4,377
-------------------------------------------------------------------------------
Other 108,892
-------------------------------------------------------------------------------
Total expenses 1,812,102
-------------------------------------------------------------------------------
Expense reduction (Note 2) (10,774)
-------------------------------------------------------------------------------
Net expenses 1,801,328
-------------------------------------------------------------------------------
Net investment income 11,767,061
-------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 8,818,757
-------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,275,897
-------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 28,475
-------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 443,961
-------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,535,620)
-------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 725,481
-------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures
contracts, swap contracts and credit default contracts
during the period (2,640,896)
-------------------------------------------------------------------------------
Net gain on investments 7,116,055
-------------------------------------------------------------------------------
Net increase in net assets resulting from operations $18,883,116
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
Increase (decrease) in net assets 2004* 2003
-------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------
Net investment income $11,767,061 $26,930,803
-------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 9,031,470 6,949,606
-------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies (1,915,415) 37,071,168
-------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 18,883,116 70,951,577
-------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
-------------------------------------------------------------------------------
From net investment income (19,677,749) (27,721,585)
-------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of dividends -- 360,652
-------------------------------------------------------------------------------
Total increase (decrease) in net assets (794,633) 43,590,644
Net assets
-------------------------------------------------------------------------------
Beginning of period 382,818,330 339,227,686
-------------------------------------------------------------------------------
End of period (including distributions in
excess of net investment income of
$2,840,749 and undistributed net investment
income of $5,069,939, respectively) $382,023,697 $382,818,330
-------------------------------------------------------------------------------
Number of fund shares
-------------------------------------------------------------------------------
Shares outstanding at beginning of period 53,329,917 53,275,878
-------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions -- 54,039
-------------------------------------------------------------------------------
Shares outstanding at end of period 53,329,917 53,329,917
-------------------------------------------------------------------------------
* 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
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $7.18 $6.37 $6.80 $7.13 $7.72 $8.27
---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .22 .50 .55 .61 .66 .64
---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .13 .83 (.40) (.31) (.58) (.48)
---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .35 1.33 .15 .30 .08 .16
---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.37) (.52) (.58) (.58) (.56) (.65)
---------------------------------------------------------------------------------------------------------------------------------
Return of capital -- -- -- (.05) (.11) (.06)
---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.37) (.52) (.58) (.63) (.67) (.71)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.16 $7.18 $6.37 $6.80 $7.13 $7.72
---------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.250 $6.570 $6.150 $6.530 $6.438 $6.625
---------------------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 0.41* 15.48 2.71 11.27 7.70 (10.50)
---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $382,024 $382,818 $339,228 $361,297 $378,800 $410,012
---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .47* .94 .98 .94 .94 .94
---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.03* 7.36 8.22 8.63 8.66 7.93
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 45.20* 118.17 (d) 205.33 (d) 131.14 (d) 147.33 124.21
---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and 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
April 30, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam Master Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The investment objective of the fund is
to seek high current income consistent with the preservation of capital.
The fund intends to diversify its investments among the following three
sectors of the fixed-income securities market: a U.S. investment-grade
sector, consisting of debt obligations of the U.S. government and
investment-grade U.S. corporate bonds, a high-yield sector, consisting
of high yielding, lower-rated U.S. corporate fixed income securities and
an international sector, consisting of obligations of foreign
governments, their agencies and instrumentalities and other fixed-income
securities denominated in foreign currencies.
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 arrange ments,
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 except that certain dividends from
foreign securities are recognized as soon as the fund is informed of 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) 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 October 31, 2003, the fund had a capital loss carryover of
$88,941,607 available to the extent allowed by tax law to offset future
net capital gain, if any. The amount of the carryover and the
expiration dates are:
Loss Carryover Expiration
---------------------------------
$3,536,796 October 31, 2006
23,414,014 October 31, 2007
11,528,221 October 31, 2008
15,951,444 October 31, 2009
34,511,132 October 31, 2010
The aggregate identified cost on a tax basis is $390,208,259, resulting
in gross unrealized appreciation and depreciation of $18,589,423 and
$21,680,636, respectively, or net unrealized depreciation of $3,091,213.
L) 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
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of average weekly net assets.
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 servicing agent
functions to the fund. During the six months ended April 30, 2004, the
fund paid PFTC $261,923 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 April 30, 2004,
the fund's expenses were reduced by $10,774 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $820, 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 April 30, 2004, cost of purchases and
proceeds from sales of investment securities other than U.S. government
securities and short-term investments aggregated $129,046,034 and
$191,570,860, respectively. Purchases and sales of U.S. government
securities aggregated $32,692,197 and $6,067,575, 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,
Associate Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
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 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time 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.
214212 072 6/04
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:
---------------------------------
(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:
------------------
(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: June 28, 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
---------------------------
Charles E. Porter
Principal Executive Officer
Date: June 28, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 28, 2004