N-30D 1 mit.txt PUTNAM MASTER INCOME TRUST Putnam Master Income Trust SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 4-30-02 [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Fellow Shareholder: Despite a market environment unsettled by the residual anxiety of the September 11 terrorist attacks, the collapse of Enron, and the new set of uncertainties created by unrest in the Middle East, Putnam Master Income Trust was able to post a solid gain during the six months ended April 30, 2002. On the following pages, the report from your fund's management team will provide a full discussion of what has been driving the fund's performance as well as a view of prospects for the fiscal year's second half. You may notice as you read this report that we are now listing the team that manages your fund. We do this to reflect more accurately how your fund is managed as well as Putnam's firm belief in the value of team management. The names of the individuals who comprise the management team are shown at the end of Management's discussion of performance. We know that Putnam Investments values its relationship with you and its other shareholders and appreciates your loyalty during these times of restructuring of staff and products in the pursuit of superior investment performance in the future. 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 19, 2002 REPORT FROM FUND MANAGEMENT This fund is managed by the Putnam Core Fixed-Income Team Thanks to positions in high-yield and emerging-market bonds, which benefited from increased optimism about economic recovery, Putnam Master Income Trust generated a solid return at net asset value for the six months ended April 30, 2002. The fund's higher return at market value reflected investor preference for fixed-income securities during a period of equity market turmoil. Your fund outperformed its benchmark, the Lehman Government Credit Index, for the period, primarily as a result of its high-yield and emerging-market emphasis. Total return for 6 months ended 4/30/02 NAV Market price ----------------------------------------------------------------------- 4.67% 9.95% ----------------------------------------------------------------------- Past performance does not indicate future results. Performance based on market prices for the shares will vary from performance based on the portfolio's net asset value. Performance information for longer periods begins on page 6. * INVESTORS FAVORED HIGHER-YIELDING BONDS AMID SIGNS OF RECOVERY The fixed-income markets have been volatile in the past six months due to changing economic expectations, equity market volatility, and geopolitical turmoil. As the end of 2001 approached, investors overcame the initial shock of the terrorist attacks and a series of encouraging economic reports sparked a major shift in sentiment. Overcoming their risk aversion, investors sold off investment-grade bonds and reallocated funds into riskier asset classes, such as equities and high-yield bonds. Meanwhile, emerging-market bonds performed well, in spite of Argentina's default. As with bonds in the United States, international bonds in developed markets lost steam toward the end of 2001. This decline occurred in part because positive economic data suggested the fourth quarter of 2001 might represent the bottom of the economic cycle, creating the potential for rates to move upward in 2002. [GRAPHIC OMITTED: horizontal bar chart SECTOR ALLOCATIONS] SECTOR ALLOCATIONS* High yield 46.2% U.S. investment grade 31.3% International 22.5% Footnote reads: *Based on net assets as of 4/30/02. Holdings will vary over time. However, central banks remained cautious and continued to lower interest rates through the end of 2001. The Federal Reserve Board cut rates two more times during the period, leaving the federal funds rate at a 40-year low of 1.75%. The yield curve continued to steepen, as yields for short-term bonds declined in response to the cuts. Just as the overall market began to embrace the idea of an economic turnaround at the start of 2002, a new bout of investor risk aversion took hold, sparked by the aftermath of the Enron bankruptcy. Investor concerns about questionable corporate accounting practices resulted in solid performance for the higher-quality bond sectors. However, increasingly robust economic data in January and February once again turned investors' attention toward the prospect of a strong economic rebound. In response, the investment-grade sector saw a sharp sell-off during March, with expectations that the Fed, having left interest rates unchanged at its January and March meetings, was positioning itself for a possible rate increase later this year. High-yield bonds, however, were buoyed by the improvement in investor sentiment, increasing strength in the equity markets, and evidence of economic growth. In April, a trend of weaker-than-expected economic data suddenly deflated expectations for a vigorous global recovery, likely delaying any interest-rate increases from the Fed. Fixed-income securities surged in response, while equity markets faltered. The severely downgraded expectations for high-yield bond issuers helped buffer the market from a reversal in sentiment. International bond markets followed the U.S. bond market, rising and falling with shifting expectations about the strength and sustainability of the global economic recovery. However, the improved economic outlook, rising oil prices, and attractive valuations of emerging-market bonds boosted returns in this sector. These events continue to underscore the value of diversifying across the different sectors of the fixed-income universe, as your fund has always been designed to do. * HIGHER-QUALITY SECTORS LAGGED HIGH-YIELD POSITIONS The fund's emphasis on high yield, the strongest-performing sector for the semiannual period, benefited its performance overall. Within the fund's investment-grade holdings, our exposure to U.S. government bonds dampened performance somewhat, while positions in mortgage-backed securities made a positive contribution due to the decline in refinancings. With the end of the Federal Reserve's easing cycle, higher-quality bonds have become much more sensitive to a potential increase in interest rates, which is typically the case after a long easing cycle. As reports on the economy through the first quarter of 2002 indicated that stronger growth was occurring, interest rates rose and prices for higher-quality bonds were negatively affected. Fund Profile Putnam Master Income Trust seeks high current income and relative stability by investing in U.S. high-grade, high-yield, and international fixed-income securities. By diversifying across these markets and sectors, the fund seeks to provide more stable returns over time. The fund is designed for investors seeking high current income, asset class diversification, or both. Strong performance from the fund's holdings of emerging-market bonds boosted performance. In particular, positions in Russia, Mexico, and Brazil, as well a minimal exposure to Argentina, contributed to the fund's performance. Bonds in the international developed markets had a mixed impact on results. Finally, the U.S. dollar weakened against some of the major foreign currencies, which was generally a positive factor for the fund's international holdings. * A MODEST RECOVERY APPEARED UNDERWAY AT END OF PERIOD The recession appears to have been much milder than both economists and investors thought it would be. A modest recovery appears under way, due in large part to the deep tax and interest-rate cuts in 2001. Also, significant reductions in corporate inventories led to robust growth during the first quarter as companies restocked. However, we believe that growth in the second half of 2002 will be more moderate. We expect consumer spending to remain solid this year, although there is more uncertainty regarding business investment. [GRAPHIC OMITTED: horizontal bar chart TOP THREE HOLDINGS PER SECTOR] TOP THREE HOLDINGS PER SECTOR HIGH YIELD BONDS Allied Waste Industries, Inc. company guarantee Ser. B, 10s, 2009 Echostar Broadband Corp. sr. notes 10 3/8 s, 2007 HMH Properties, Inc. company guarantee Ser. B, 7 7/8 s, 2008 FOREIGN GOVERNMENT BONDS Germany (Federal Republic of) bonds Ser. 95, 7 3/8 s, 2005 Brazil (Federal Republic of) bonds 8s, 2014 Sweden (Government of) bonds, Ser. 1004, 3 1/2 s, 2006 U.S. GOVERNMENT BONDS U.S. Treasury Bonds 7 1/2 s, November 15, 2016 U.S. Treasury Notes 3 1/2 s, November 15, 2006 U.S. Treasury Bonds 6 1/4 s, August 15, 2023 Footnote reads: These holdings represent 14.0% of the fund's net assets as of 4/30/02. Portfolio holdings will vary over time. In our view, inflation should remain low, which should keep the Fed from raising interest rates until late in the year. We will continue to monitor these developments closely, and, as always, focus on securities with positive fundamentals and attractive valuations. We are modestly positive on the high-yield market, which appears poised for solid performance in a recovering economic environment. Other positive factors for high-yield bonds include strong demand and manageable supply, an emphasis by companies on reducing debt, and evidence that default rates have peaked. In the short term, the market may be susceptible to any signs of economic weakness, so we will proceed with caution. We also remain positive on the mortgage-backed sector, as it continues to offer attractive valuations relative to Treasuries. Finally, we continue to find value in the international developed bond markets, while we are neutral toward emerging-market bonds. These securities remain attractive, as continued strong demand and evidence of a global economic recovery are offsetting the negative impact of specific countries. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 4/30/02, there is no guarantee the fund will continue to hold these securities in the future. 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. Government securities guarantee principal and interest; mutual funds that invest in these securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. This fund is managed by the Putnam Core Fixed-Income Team. The members of the team are Kevin Cronin, Rob Bolemker, Andrea Burke, Joanne Driscoll, D. William Kohli, Krishna Memani, James Prusko, and David Waldman. 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. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 4/30/02 Salomon Smith Barney Lehman Non-U.S. Market Govt. World Govt. CSFB High NAV price Credit Index Bond Index Yield Index --------------------------------------------------------------------------------------------- 6 months 4.67% 9.95% -1.00% -2.20% 7.57% --------------------------------------------------------------------------------------------- 1 year 6.34 12.93 7.48 3.51 6.08 --------------------------------------------------------------------------------------------- 5 years 20.45 33.98 43.89 11.11 19.34 Annual average 3.79 6.03 7.55 2.13 3.60 --------------------------------------------------------------------------------------------- 10 years 95.09 97.34 106.58 70.19 104.53 Annual average 6.91 7.03 7.53 5.46 7.42 --------------------------------------------------------------------------------------------- Annual average (since 12/28/87) 8.29 7.80 8.37 5.52 8.92 ---------------------------------------------------------------------------------------------
Past performance does not indicate 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. Performance does not reflect taxes on reinvested distributions. LIPPER INFORMATION: The average cumulative return for the 12 funds in the Lipper Flexible Income Funds category over the 6 months ended 4/30/02 was 4.34%. Over the 1-, 5-, and 10-year periods ended 4/30/02, annualized returns for the category were 4.81%, 4.31%, and 6.82%, respectively. PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/02 ------------------------------------------------------------------------------- Distributions (common shares) ------------------------------------------------------------------------------- Number 6 ------------------------------------------------------------------------------- Income $0.288 ------------------------------------------------------------------------------- Capital gains -- ------------------------------------------------------------------------------- Total $0.288 ------------------------------------------------------------------------------- Share value (common shares): NAV Market price ------------------------------------------------------------------------------- 10/31/01 $6.80 $6.53 ------------------------------------------------------------------------------- 4/30/02 6.82 6.88 ------------------------------------------------------------------------------- Current return (common shares, end of period) ------------------------------------------------------------------------------- Current dividend rate 1 8.45% 8.37% ------------------------------------------------------------------------------- 1 Most recent distribution, excluding capital gains, annualized and divided by NAV or market price at end of period. TOTAL RETURN FOR PERIODS ENDED 3/31/02 (most recent calendar quarter) NAV Market price ------------------------------------------------------------------------------- 6 months 4.69% 9.99% ------------------------------------------------------------------------------- 1 year 3.16 11.39 ------------------------------------------------------------------------------- 5 years 18.94 31.56 Annual average 3.53 5.64 ------------------------------------------------------------------------------- 10 years 93.19 99.91 Annual average 6.81 7.17 ------------------------------------------------------------------------------- Annual average (since 12/28/87) 8.21 7.77 ------------------------------------------------------------------------------- Past performance does not indicate 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. Performance does not reflect taxes on reinvested distributions. 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 common 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 the New York Stock Exchange. COMPARATIVE BENCHMARKS Lehman Government Credit Index* is an unmanaged index of U.S fixed-income securities. Salomon Smith Barney Non-U.S. World Government Bond Index* is an unmanaged index of government bonds from 14 countries. Credit Suisse First Boston (CSFB) High Yield Index* is an unmanaged index of high-yield debt securities. Lipper Inc. is a third-party industry ranking entity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. *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. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the net assets allocated to remarketed preferred shares.) Statement of operations shows the fund's net investment gain or loss. This is done by first adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund's net gain or loss for the fiscal period. Statement of changes in net assets shows how the fund's net assets were affected by distributions to shareholders and by changes in the number of the fund's shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Financial highlights provide an overview of the fund's investment results, per-share distributions, expense ratios, net investment income ratios, and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period. For open-end funds, a separate table is provided for each share class.
THE FUND'S PORTFOLIO April 30, 2002 (Unaudited) CORPORATE BONDS AND NOTES (48.9%) (a) PRINCIPAL AMOUNT VALUE Advertising and Marketing Services (0.1%) ------------------------------------------------------------------------------------------------------------------- $ 480,537 Interact Operating Co. notes 14s, 2003 $ 48 230,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 241,500 80,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 84,000 420,000 Telehub Communications Corp. company guaranty stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (In default) (NON) (STP) 1 ------------- 325,549 Automotive (1.4%) ------------------------------------------------------------------------------------------------------------------- 240,000 ArvinMeritor, Inc. notes 8 3/4s, 2012 254,570 190,053 Collins & Aikman Products, Inc. bank term loan FRN Ser. B, 7s, 2005 (acquired 12/20/01, cost $188,152) (RES) 190,686 400,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 400,000 420,000 Collins & Aikman Products, Inc. 144A sr. notes 10 3/4s, 2011 437,850 550,000 Dana Corp. notes 9s, 2011 562,375 60,000 Dana Corp. notes 7s, 2029 46,500 210,000 Dana Corp. notes 6 1/4s, 2004 202,650 220,000 Delco Remy International, Inc. company guaranty 11s, 2009 202,400 60,000 Delco Remy International, Inc. company guaranty 10 5/8s, 2006 55,500 70,000 Delco Remy International, Inc. sr. notes 8 5/8s, 2007 66,150 590,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 601,800 310,000 Dura Operating Corp. 144A sr. notes 8 5/8s, 2012 322,400 300,000 Exide Corp. sr. notes 10s, 2005 (In default) (NON) 39,000 80,000 Federal Mogul Corp. notes 7 7/8s, 2010 (In default) (NON) 16,000 370,000 Federal Mogul Corp. notes 7 3/4s, 2006 (In default) (NON) 74,000 180,000 Hayes Lemmerz International, Inc. 144A company guaranty 11 7/8s, 2006 (In default) (NON) 122,400 270,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 281,929 650,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 677,833 140,000 Tenaga Nasional Berhad company guaranty 11 5/8s, 2009 121,100 220,000 United Auto Group, Inc. 144A sr. sub. notes 9 5/8s, 2012 229,350 110,000 Venture Holdings Trust 144A sr. notes Ser. B, 9 1/2s, 2005 106,975 ------------- 5,011,468 Basic Materials (5.4%) ------------------------------------------------------------------------------------------------------------------- 460,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 476,100 400,000 AK Steel Corp. company guaranty 7 7/8s, 2009 403,000 170,000 AK Steel Corp. sr. notes 9 1/8s, 2006 176,800 495,000 American Standard Companies, Inc. company guaranty 7 5/8s, 2010 507,375 210,950 Anker Coal Group, Inc. company guaranty Ser. B, 14 1/4s, 2007 (In default) (NON) 73,833 570,000 Appleton Papers, Inc. 144A sr. sub. notes 12 1/2s, 2008 570,000 870,000 ARCO Chemical Co. debs. 9.8s, 2020 835,200 200,000 Avecia Group PLC company guaranty 11s, 2009 (United Kingdom) 209,500 450,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 470,250 270,000 Centaur Mining & Exploration company guaranty 11s, 2007 (Australia) (In default) (NON) 13,500 290,000 Compass Minerals Group, Inc. 144A sr. sub. notes 10s, 2011 307,400 500,000 Doe Run Resources Corp. company guaranty Ser. B, 11 1/4s, 2005 (In default) (NON) 110,000 70,000 Doe Run Resources Corp. company guaranty Ser. B(a), 11 1/4s, 2005 (In default) (NON) 15,400 160,000 Doe Run Resources Corp. company guaranty FRN Ser. B, 8.536s, 2003 (In default) (NON) 35,200 890,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty 10 1/8s, 2008 876,650 140,000 Ferro Corp. sr. notes 9 1/8s, 2009 147,252 440,000 Four M Corp. sr. notes Ser. B, 12s, 2006 448,800 90,000 Georgia Gulf Corp. company guaranty 10 3/8s, 2007 97,650 510,000 Georgia-Pacific Corp. notes 8 7/8s, 2031 496,082 80,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 79,542 60,000 Haynes International, Inc. sr. notes 11 5/8s, 2004 42,000 610,000 Hercules, Inc. company guaranty 11 1/8s, 2007 674,050 86,775 Huntsman Corp. bank term loan FRN Ser. B, 5.131s, 2004 (acquired various dates from 3/11/02 to 3/15/02, cost $68,031) (RES) 74,518 120,000 Huntsman Corp. bank term loan FRN Ser. C, 5.381s, 2005 (acquired various dates from 3/6/02 to 3/22/02, cost $95,000) (RES) 102,600 182,825 Huntsman Corp. bank term loan FRN Ser. L, 5.881s, 2002 (acquired various dates from 3/1/02 to 3/28/02, cost $138,467) (RES) 156,496 880,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 796,400 380,000 Huntsman International, LLC 144A sr. notes 9 7/8s, 2009 383,800 190,000 IMC Global, Inc. company guaranty Ser. B, 11 1/4s, 2011 211,795 450,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 503,357 790,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 831,475 30,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006 (In default) (NON) 23,100 915,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 (In default) (NON) 201,300 660,000 LTV Corp. company guaranty 11 3/4s, 2009 (In default) (NON) 3,300 300,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 297,000 50,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 46,750 EUR 120,000 Messer Griesheim Holdings AG sr. notes 10 3/8s, 2011 (Germany) 116,000 $ 130,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 132,600 240,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 243,600 50,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 51,000 170,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 173,825 200,000 Noveon, Inc. company guaranty Ser. B, 11s, 2011 214,000 380,000 OM Group, Inc. 144A sr. sub. notes 9 1/4s, 2011 393,300 160,000 Oregon Steel Mills 1st mtge. 11s, 2003 160,000 185,000 P&L Coal Holdings Corp. company guaranty Ser. B, 9 5/8s, 2008 196,331 490,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 520,625 233,382 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 175,037 270,000 Phelps Dodge Corp. sr. notes 8 3/4s, 2011 269,317 77,794 Pioneer Companies, Inc. sec. FRN 5.381s, 2006 57,568 230,000 Pliant Corp. company guaranty 13s, 2010 243,800 110,000 Pliant Corp. 144A sr. sub. notes 13s, 2010 116,600 130,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 (In default) (NON) 45,500 60,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 (In default) (NON) 21,000 470,000 Potlatch Corp. company guaranty 10s, 2011 507,600 535,000 Premium Standard Farms, Inc. sr. notes 9 1/4s, 2011 540,350 150,000 Riverwood International Corp. bank term loan FRN Ser. C, 4.53s, 2007 (acquired 4/24/02, cost $150,000) (RES) 150,875 880,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 915,200 290,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 306,675 480,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 360,000 240,000 Steel Dynamics, Inc. 144A sr. notes 9 1/2s, 2009 252,600 380,000 Sterling Chemicals Holdings sr. disc. notes 13 1/2s, 2008 (In default) (NON) 1,900 290,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 (In default) (NON) 258,100 427,721 Stone Container Corp. bank term loan FRN Ser. F, 5.188s, 2006 (acquired 10/19/01, cost $424,513) (RES) 428,256 450,000 Stone Container Corp. sr. notes 9 3/4s, 2011 484,875 180,000 Stone Container Corp. sr. notes 9 1/4s, 2008 191,250 170,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006 (Canada) 183,600 310,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 322,400 80,000 Tembec Industries, Inc. company guaranty 8 1/2s, 2011 (Canada) 83,200 30,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 25,800 110,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 93,775 430,000 United States Steel, LLC 144A company guaranty 10 3/4s, 2008 443,975 280,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 128,800 40,000 Weirton Steel Corp 144A sr. notes 10 3/4s, 2005 (In default) (NON) 8,200 380,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 (In default) (NON) 7,600 230,000 WHX Corp. sr. notes 10 1/2s, 2005 139,150 ------------- 19,661,759 Building Materials (0.2%) ------------------------------------------------------------------------------------------------------------------- 150,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 151,688 180,000 Building Materials Corp. company guaranty 8s, 2008 147,600 400,000 Dayton Superior Corp. company guaranty 13s, 2009 402,000 470,000 Morrison Knudsen Corp. 144A sr. notes 11s, 2010 (In default) (NON) 98,700 ------------- 799,988 Capital Goods (4.3%) ------------------------------------------------------------------------------------------------------------------- 475,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 484,500 540,000 Airbus Industries 144A notes Ser. D, 12.266s, 2020 414,581 28,157 Allied Waste Industries, Inc. bank term loan FRN 5.05s, 2007 (acquired 2/27/02, cost $27,840) (RES) 28,062 425,881 Allied Waste Industries, Inc. bank term loan FRN 4.77s, 2006 (acquired various dates from 10/18/01 to 2/27/02, cost $417,929) (RES) 424,440 2,280,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 2,342,700 10,000 Allied Waste North America, Inc. company guaranty Ser. B, 8 1/2s, 2008 10,100 150,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 151,875 210,000 Amkor Technologies, Inc. Structured Note 12.58s, 2005 (issued by STEERS Credit Linked Trust 2000) 200,550 100,000 Applied Extrusion Technologies, Inc. company guaranty Ser. B, 10 3/4s, 2011 95,000 760,000 Argo-Tech Corp. 144A company guaranty 8 5/8s, 2007 706,800 460,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 446,200 370,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 346,875 660,000 Blount, Inc. company guaranty 13s, 2009 445,500 210,000 Briggs & Stratton company guaranty 8 7/8s, 2011 221,571 710,000 Browning-Ferris Industries, Inc. debs. 7.4s, 2035 557,350 150,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 135,000 20,000 Case Corp. notes 7 1/4s, 2016 15,100 500,000 Decrane Aircraft Holdings Co. company guaranty Ser. B, 12s, 2008 460,000 250,000 Flowserve Corp. bank term loan FRN Ser. C, 5.03s, 2009 (acquired 4/30/02, cost $250,000) (RES) 252,292 377,000 Flowserve Corp. company guaranty 12 1/4s, 2010 427,895 410,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 332,100 280,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 110,600 250,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero % (14s, 8/15/03), 2008 (STP) 32,500 280,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 154,000 90,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 52,200 100,000 Joy Global, Inc. 144A company guaranty 8 3/4s, 2012 103,500 220,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 226,600 460,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 486,450 180,000 L-3 Communications Corp. 144A Structured Notes (Issued by Credit and Repackaged Securities 8 1/2s, 2006 (Cayman Islands) 194,175 150,000 Michigan Electric Transmission Co./Trans-Elec. Inc. bank term loan FRN, 4.53s, 2007 151,219 225,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 229,219 845,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 819,650 960,313 Mueller Industries, Inc. bank term loan FRN Ser. B, 5.647s, 2006 (acquired 12/14/01, cost $953,955) (RES) 960,714 960,313 Mueller Industries, Inc. bank term loan FRN Ser. C, 5.8901s, 2007 (acquired 12/14/01, cost $953,965) (RES) 959,353 540,000 Owens-Brockway Glass 144A sec. notes 8 7/8s, 2009 557,550 520,000 Owens-Illinois, Inc. debs. 7.8s, 2018 445,900 10,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 9,475 360,000 Roller Bearing Company of America company guaranty Ser. B, 9 5/8s, 2007 331,200 580,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 603,200 90,000 Terex Corp. company guaranty 8 7/8s, 2008 92,250 180,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 195,300 140,000 Terex Corp. company guaranty Ser. D, 8 7/8s, 2008 142,800 136,468 United Defense Industries, Inc. bank term loan FRN 4.6754s, 2009 (acquired 10/19/01, cost $136,468) (RES) 137,082 60,000 Waste Management, Inc. sr. notes 7 3/8s, 2010 61,213 ------------- 15,554,641 Commercial and Consumer Services (0.3%) ------------------------------------------------------------------------------------------------------------------- 299,250 Adams Outdoor Advertising bank term loan FRN Ser. B, 5.475s, 2008 (acquired 8/1/01, cost $299,250) (RES) 301,120 130,000 Coinmach Corp. bank term loan FRN Ser. B, 4.925s, 2009 (acquired 1/31/02, cost $129,838) (RES) 131,029 750,000 Coinmach Corp. 144A sr. notes 9s, 2010 763,125 ------------- 1,195,274 Communication Services (5.0%) ------------------------------------------------------------------------------------------------------------------- 580,000 360Networks, Inc. sr. notes 13s, 2008 (Canada) (In default) (NON) 5,800 250,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero % (13 1/2s, 10/1/04), 2009 (STP) 167,500 340,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 300,900 150,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 127,500 50,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon zero % (12 7/8s, 2/15/05), 2010 (STP) 24,000 398,992 American Cellular Corp. bank term loan FRN 5.02s, 2008 (acquired 2/8/02, cost $395,003) (RES) 339,144 590,000 American Cellular Corp. company guaranty 9 1/2s, 2009 377,600 1,280,000 American Tower Corp. sr. notes 9 3/8s, 2009 889,600 210,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 (In default) (NON) 1,050 160,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda) (In default) (NON) 33,600 310,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 (In default) (NON) 6,200 64,000 Call-Net Enterprises, Inc. company guaranty 10 5/8s, 2008 (Canada) 49,280 198,217 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 3,964 530,000 Crown Castle International Corp. sr. disc. notes stepped-coupon zero % (10 3/8s, 5/15/04), 2011 (STP) 323,300 250,000 Crown Castle International Corp. sr. notes 10 3/4s, 2011 231,250 500,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 425,000 510,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 479,400 900,000 Econophone, Inc. company guaranty 13 1/2s, 2007 (In default) (NON) 450 460,000 Equinix, Inc. sr. notes 13s, 2007 92,000 230,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007 (United Kingdom) (In default) (NON) 1,150 320,000 FLAG, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) (In default) (NON) 51,200 60,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 (Bermuda) (In default) (NON) 1,350 80,000 Global Crossing Holdings, Ltd. company guaranty 9 1/2s, 2009 (Bermuda) (In default) (NON) 1,800 1,190,000 Global Crossing Holdings, Ltd. company guaranty 9 1/8s, 2006 (Bermuda) (In default) (NON) 26,775 825,000 Globix Corp. sr. notes 12 1/2s, 2010 (In default) (NON) 138,188 1,020,000 Horizon PCS, Inc. company guaranty stepped-coupon zero % (14s, 10/1/05), 2010 (STP) 367,200 80,000 Horizon PCS, Inc. 144A sr. notes 13 3/4s, 2011 60,000 90,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes Ser. B, 13s, 2003 (In default) (NON) 1,913 660,000 Hyperion Telecommunications Corp., Inc. sr. sub. notes 12s, 2007 (In default) (NON) 14,025 30,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 21,900 230,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 167,900 500,000 iPCS, Inc. sr. disc. notes stepped-coupon zero % (14s, 7/15/05), 2010 (STP) 280,000 410,000 IWO Holdings, Inc. company guaranty 14s, 2011 352,600 550,000 Leap Wireless International, Inc. company guaranty 12 1/2s, 2010 308,000 284,000 Level 3 Communications, Inc. sr. disc. notes stepped-coupon zero % (10 1/2s, 12/1/03), 2008 (STP) 79,520 130,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 101,400 510,000 McCaw International, Ltd. sr. disc. notes 13s, 2007 30,600 350,000 MCI WorldCom, Inc. notes 7 3/4s, 2007 175,000 620,000 MCI WorldCom, Inc. sr. notes 6.4s, 2005 313,100 120,000 Metrocall, Inc. sr. sub. notes 11s, 2008 (In default) (NON) 1,200 90,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 (In default) (NON) 675 110,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 (In default) (NON) 1,100 180,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 (In default) (NON) 14,400 420,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 (In default) (NON) 33,600 480,000 Microcell Telecommunications sr. disc. notes Ser. B, 14s, 2006 (Canada) 259,200 317,000 Millicom International Cellular SA sr. disc. notes 13 1/2s, 2006 (Luxembourg) 171,180 300,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 202,500 600,000 Nextel Communications, Inc. sr. notes 12s, 2008 462,000 940,000 Nextel Communications, Inc. sr. notes 9 1/2s, 2011 639,200 910,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 634,725 620,000 Nextel Partners, Inc. sr. notes 11s, 2010 384,400 110,000 Nextel Partners, Inc. sr. notes 11s, 2010 68,200 140,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 (In default) (NON) 20,300 390,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 (In default) (NON) 31,200 270,000 PanAmSat Corp. bank term loan FRN Ser. B, 5.46s, 2009 (acquired 2/21/02, cost $269,663) (RES) 269,887 630,000 PanAmSat Corp. 144A sr. notes 8 1/2s, 2012 631,140 650,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 677,625 10,000 Qwest Capital Funding, Inc. company guaranty 7 1/4s, 2011 7,300 660,000 Qwest Capital Funding, Inc. company guaranty 7s, 2009 478,500 110,000 Qwest Capital Funding, Inc. company guaranty 6 3/8s, 2008 73,700 240,000 Qwest Communications International, Inc. sr. notes Ser. B, 7 1/2s, 2008 177,600 260,000 Qwest Communications International, Inc. sr. notes Ser. B, 7 1/4s, 2008 192,400 300,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 322,500 360,000 Rogers Cablesystems, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 329,400 170,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 163,200 80,000 RSL Communications PLC 144A company guaranty 10 1/2s, 2008 (United Kingdom) (In default) (NON) 4,200 405,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 (Bermuda) (In default) (NON) 21,263 141,441 Rural Cellular Corp. bank term loan FRN Ser. C, 5.36s, 2009 (acquired 4/23/01, cost $137,763) (RES) 130,047 170,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 141,100 560,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 400,400 530,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero % (11 1/8s, 4/15/04), 2009 (STP) 177,550 700,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (12 7/8s, 3/15/05), 2010 (STP) 210,000 530,000 Startec Global Communications Corp. sr. notes 12s, 2008 (In default) (NON) 10,600 150,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 22,500 461,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 525,540 20,000 Telecorp PCS, Inc. company guaranty stepped-coupon zero % (11 5/8s, 4/15/04), 2009 (STP) 17,800 320,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 161,600 338,000 Tritel PCS, Inc. company guaranty 10 3/8s, 2011 381,940 60,000 Triton PCS, Inc. company guaranty 9 3/8s, 2011 57,900 420,000 Triton PCS, Inc. company guaranty 8 3/4s, 2011 392,700 30,000 Triton PCS, Inc. company guaranty zero %, 2008 26,100 280,000 TSI Telecommunication Services, Inc. 144A sr. sub. notes 12 3/4s, 2009 270,200 220,000 U S West, Inc. notes 5 5/8s, 2008 185,240 900,000 UbiquiTel Operating Co. company guaranty stepped-coupon zero % (14s, 4/15/05), 2010 (STP) 342,000 485,000 US UnWired, Inc. company guaranty stepped-coupon Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 320,100 80,000 US West Capital Funding, Inc. company guaranty 6 7/8s, 2028 52,800 20,000 USA Mobile Communications, Inc. sr. notes 9 1/2s, 2004 (In default) (NON) 1,400 260,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 81,900 120,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 37,800 759,000 Voicestream Wireless Corp. sr. notes 10 3/8s, 2009 830,467 500,000 WebLink Wireless, Inc. sr. disc. notes stepped-coupon zero % (11 1/4s, 2/1/03), 2008 (STP) 1,250 750,000 Western Wireless Corp. bank term loan FRN 4.81s, 2008 (acquired 4/24/00, cost $749,063) (RES) 657,857 130,000 Williams Communications Group, Inc. sr. notes 11.7s, 2008 (In default) (NON) 16,250 110,000 Williams Communications Group, Inc. sr. notes 10.7s, 2007 (In default) (NON) 15,950 1,850,000 WinStar Communications, Inc. sr. disc. notes stepped-coupon zero % (14 3/4s, 4/15/05), 2010 (In default) (NON) (STP) 185 550,000 WinStar Communications, Inc. sr. notes 12 3/4s, 2010 (In default) (NON) 55 100,000 WinStar Communications, Inc. sr. notes 12 1/2s, 2008 (In default) (NON) 10 130,000 WorldCom, Inc.-WorldCom Group notes 7 1/2s, 2011 61,750 ------------- 18,174,745 Conglomerates (0.2%) ------------------------------------------------------------------------------------------------------------------- 890,000 Tyco International Group SA company guaranty 6 3/8s, 2006 (Luxembourg) 749,825 Consumer (0.5%) ------------------------------------------------------------------------------------------------------------------- 273,963 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 5,479 EUR 865,765 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 7,976 $ 290,000 Icon Health & Fitness 144A sr. sub. notes 11 1/4s, 2012 287,100 620,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 697,500 990,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 787,050 ------------- 1,785,105 Consumer Staples (9.4%) ------------------------------------------------------------------------------------------------------------------- 555,000 Acme Television company guaranty 10 7/8s, 2004 563,325 420,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010 363,300 870,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2011 730,800 210,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2006 180,600 1,010,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 839,563 270,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 218,700 530,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009 416,050 855,000 Affinity Group Holdings sr. notes 11s, 2007 837,900 180,000 Albecca, Inc. company guaranty 10 3/4s, 2008 201,600 160,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 167,200 230,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 231,150 190,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 190,950 280,000 AMF Bowling Worldwide bank term loan FRN Ser. B, 8 1/4s, 2008 (acquired 3/1/02, cost $279,300) (RES) 280,000 590,000 Archibald Candy Corp. company guaranty 10 1/4s, 2004 (In default) (NON) 289,100 230,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 245,238 498,721 Aurora Foods, Inc. bank term loan FRN Ser. B2, 6.624s, 2010 (acquired 1/11/02, cost $494,399) (RES) 493,111 150,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 150,000 410,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 410,000 360,000 Benedek Communications Corp. sr. disc. notes 13 1/4s, 2006 (In default) (NON) 358,200 120,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009 (United Kingdom) 121,644 900,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009 (United Kingdom) 850,068 160,000 Century Communications Corp. sr. notes 8 7/8s, 2007 140,800 790,000 Chancellor Media Corp. company guaranty 8s, 2008 817,650 380,000 Charter Communications Holdings, LLC bank term loan FRN Ser. B, 4.69s, 2008 (acquired 10/22/01, cost $371,450) (RES) 363,058 820,000 Charter Communications Holdings, LLC sr. notes 11 1/8s, 2011 803,600 210,000 Charter Communications Holdings, LLC sr. notes 10 3/4s, 2009 205,275 810,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 473,850 50,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes stepped-coupon zero % (13 1/2s, 1/15/06), 2011 (STP) 32,000 270,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes 10s, 2009 255,825 300,000 Charter Communications Holdings, LLC/Capital Corp. 144A sr. disc. notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 162,000 80,000 Charter Communications Holdings, LLC/Capital Corp. 144A sr. notes 10s, 2011 74,700 160,000 Charter Communications Holdings, LLC/Capital Corp. 144A sr. notes 9 5/8s, 2009 148,800 110,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 9 5/8s, 2008 110,000 345,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 324,300 80,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 82,600 460,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 469,200 90,000 CSC Holdings, Inc. sr. sub. debs. 10 1/2s, 2016 92,250 990,000 CSC Holdings, Inc. sr. sub. debs. 9 7/8s, 2013 1,007,325 140,000 Cumulus Media, Inc. bank term loan FRN Ser. B, 4 7/8s, 2007 (acquired 3/20/02, cost $140,000) (RES) 141,283 120,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 126,000 990,000 Diamond Cable Communications PLC sr. disc. notes 10 3/4s, 2007 (United Kingdom) (In default) (NON) 356,400 90,000 Diamond Cable Communications PLC sr. disc. notes 13 7/8s, 2005 (United Kingdom) (In default) (NON) 32,400 1,162,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 156,870 390,000 Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 282,750 200,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 216,000 30,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 23,325 1,690,000 Echostar Broadband Corp. sr. notes 10 3/8s, 2007 1,791,400 780,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 811,200 450,000 Echostar DBS Corp. 144A sr. notes 9 1/8s, 2009 463,500 144,484 Emmis Communications Corp. bank term loan FRN Ser. A, 4.938s, 2009 (acquired 1/31/02, cost $143,942) (RES) 144,340 231,631 Emmis Communications Corp. bank term loan FRN Ser. B, 5.437s, 2009 (acquired 10/23/01, cost $224,682) (RES) 232,552 80,000 Emmis Communications Corp. company guaranty Ser. B, 8 1/8s, 2009 81,800 220,000 Emmis Communications Corp. sr. disc. notes stepped-coupon zero % (12 1/2s, 3/15/06), 2011 (STP) 165,000 340,000 Fleming Companies, Inc. company guaranty 10 1/8s, 2008 357,000 100,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 102,375 10,000 Fleming Companies, Inc. company guaranty Ser. D, 10 5/8s, 2007 10,350 310,000 Fleming Companies, Inc. 144A sr. sub. notes 9 7/8s, 2012 308,450 398,143 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon zero % (10 1/4s, 11/1/02), 2007 (STP) 418,050 700,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 728,000 110,000 Fox/Liberty Networks, LLC sr. disc. notes zero % (9 3/4s, 8/15/02), 2007 (STP) 112,200 540,000 Fox/Liberty Networks, LLC sr. notes 8 7/8s, 2007 556,200 210,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 193,200 20,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 17,900 110,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 101,200 320,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 288,000 140,000 Great Atlantic & Pacific Tea Co. notes 7 3/4s, 2007 138,600 120,000 Insight Communications Company, Inc. sr. disc. notes stepped-coupon zero % (12 1/4s, 2/15/06), 2011 (STP) 78,000 80,000 Insight Midwest LP/Insight Capital, Inc. bank term loan FRN 5.063s, 2009 (acquired 11/5/01, cost $79,850) (RES) 80,183 390,000 International Cabletel, Inc. sr. disc. notes 11 1/2s, 2006 156,000 290,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011 246,500 30,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero % (11 7/8s, 10/15/02), 2007 (STP) 11,250 310,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 (In default) (NON) 48,050 330,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero % (10s, 3/1/03), 2008 (STP) 305,250 70,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero % (10s, 3/1/03), 2008 (STP) 63,350 390,000 LIN Television Corp. company guaranty 8 3/8s, 2008 391,950 210,000 NBTY, Inc. sr. sub. notes Ser. B, 8 5/8s, 2007 208,950 610,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 603,900 400,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 (In default) (NON) 160,000 440,000 NTL Communications Corp. sr. notes stepped-coupon Ser. B, zero % (12 3/8s, 10/1/03), 2008 (In default) (NON) (STP) 145,200 600,000 NTL, Inc. sr. notes Ser. A, 12 3/4s, 2005 (In default) (NON) 234,000 120,000 NTL, Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) (In default) (NON) 48,000 220,000 ONO Finance PLC sr. notes 14s, 2011 (United Kingdom) 96,800 100,000 ONO Finance PLC sr. notes 13s, 2009 (United Kingdom) 44,000 350,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 303,625 60,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 36,000 210,000 Pegasus Satellite sr. notes 12 3/8s, 2006 130,200 300,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 319,875 350,000 Premier International Foods PLC sr. notes 12s, 2009 (United Kingdom) 382,375 220,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 232,100 1,030,516 Quorum Broadcast Holdings, LLC notes stepped-coupon zero % (15s, 5/15/06), 2009 (acquired 5/15/01, cost $409,492) (RES) (STP) 571,112 620,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 310,000 210,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero % (9.8s, 2/15/03), 2008 (STP) 40,950 380,000 Regal Cinemas, Inc. 144A sr. sub. notes 9 3/8s, 2012 395,200 140,000 Revlon Consumer Products sr. notes 9s, 2006 95,200 140,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 95,200 210,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 94,500 110,000 Rite Aid Corp. notes 7 1/8s, 2007 81,400 350,000 Sbarro, Inc. company guaranty 11s, 2009 358,750 260,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 267,800 440,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 44 560,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 582,400 10,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 10,425 170,000 Sinclair Broadcast Group, Inc. 144A sr. sub. notes 8 3/4s, 2011 178,075 160,000 Six Flags, Inc. sr. notes 9 1/2s, 2009 168,000 530,000 Six Flags, Inc. 144A sr. notes 8 7/8s, 2010 540,600 40,000 Southland Corp. debs. Ser. A, 4 1/2s, 2004 37,559 70,000 Southland Corp. sr. sub. debs. 5s, 2003 67,480 380,524 Suiza Foods Corp. bank term loan FRN Ser. B, 5.05s, 2008 (acquired 12/10/01, cost $383,061) (RES) 381,654 590,000 TeleWest Communications PLC debs. 11s, 2007 (United Kingdom) 333,350 190,000 TeleWest Communications PLC debs. 9 5/8s, 2006 (United Kingdom) 107,350 180,000 TeleWest Communications PLC Structured Notes 10 7/8s, 2005 (issued by DLJ International Capital) (United Kingdom) 103,950 20,000 Tricon Global Restaurants, Inc. sr. notes 8 7/8s, 2011 21,500 580,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 588,700 320,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 324,800 715,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009 (Netherlands) 64,350 1,120,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero % (13 3/4s, 2/1/05), 2010 (Netherlands) (STP) 100,800 140,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero % (12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 12,600 160,000 United Rentals (North America), Inc. company guaranty Ser. B, 10 3/4s, 2008 176,000 475,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B, 10 1/4s, 2009 (In default) (NON) 102,125 810,000 XM Satellite Radio Holdings, Inc. sec. notes 14s, 2010 597,375 750,000 Young Broadcasting, Inc. company guaranty 10s, 2011 787,500 70,000 Young Broadcasting, Inc. company guaranty Ser. B, 8 3/4s, 2007 70,000 ------------- 34,050,384 Energy (2.6%) ------------------------------------------------------------------------------------------------------------------- 380,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 391,400 350,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 360,500 210,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 214,725 620,000 Chesapeake Energy Corp. company guaranty 8 1/8s, 2011 626,200 90,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 93,600 190,000 Comstock Resources, Inc. 144A sr. notes 11 1/4s, 2007 198,550 260,000 Dresser, Inc. company guaranty 9 3/8s, 2011 270,400 220,000 El Paso Energy Partners L.P. company guaranty Ser. B, 8 1/2s, 2011 226,600 160,000 Forest Oil Corp. sr. notes 8s, 2011 163,200 280,000 Forest Oil Corp. sr. notes 8s, 2008 287,000 220,000 Forest Oil Corp. 144A sr. notes 7 3/4s, 2014 216,150 60,000 Grant Prideco, Inc. company guaranty Ser. B, 9 5/8s, 2007 62,400 200,000 Key Energy Services, Inc. company guaranty Ser. B, 8 3/8s, 2008 204,000 320,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 341,600 140,000 Magnum Hunter Resources, Inc. 144A sr. notes 9.6s, 2012 147,000 380,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 370,500 440,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 463,417 350,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 359,625 1,230,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 1,371,450 160,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 166,400 400,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 417,000 170,000 Seven Seas Petroleum, Inc. sr. notes Ser. B, 12 1/2s, 2005 98,600 215,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 224,656 120,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 123,300 210,000 Stone Energy Corp. sr. sub. notes 8 1/4s, 2011 214,725 220,000 Swift Energy Co. sr. sub. notes 9 3/8s, 2012 223,850 770,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 783,475 190,000 Vintage Petroleum, Inc. 144A sr. notes 8 1/4s, 2012 190,475 200,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 206,000 220,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 222,200 170,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s, 2009 179,138 ------------- 9,418,136 Financial (2.4%) ------------------------------------------------------------------------------------------------------------------- 750,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 442,500 500,000 American Seafood Group, LLC bank term loan FRN Ser. B, 5.11s, 2009 (acquired 4/11/02, cost $499,500) (RES) 503,334 350,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 (In default) (NON) 91,875 520,000 Chevy Chase Savings Bank, Inc. sub. debs. 9 1/4s, 2005 522,600 210,000 CIT Group, Inc. sr. notes 7 3/4s, 2012 207,146 335,000 Colonial Capital II 144A company guaranty 8.92s, 2027 301,228 150,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 46,500 200,000 Conseco, Inc. 144A company guaranty 10 3/4s, 2009 113,000 590,000 Crescent Real Estate Equities LP 144A sr. notes 9 1/4s, 2009 590,272 45,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 48,378 1,162,000 Finova Group, Inc. notes 7 1/2s, 2009 409,605 100,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 100,785 590,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 589,339 136,000 Imperial Credit Industries, Inc. sec. notes 12s, 2005 3,400 380,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 383,800 210,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 (In default) (NON) 59,850 220,000 Newcourt Credit Group, Inc.company guaranty 6 7/8s, 2005 219,450 70,000 North Fork Capital Trust I company guaranty 8.7s, 2026 66,957 90,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 70,650 220,000 Ocwen Federal Bank sub. debs. 12s, 2005 220,000 50,000 Ocwen Financial Corp. notes 11 7/8s, 2003 49,750 40,000 Peoples Heritage Capital Trust company guaranty Ser. B, 9.06s, 2027 40,848 10,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 10,900 285,000 Provident Capital Trust company guaranty 8.6s, 2026 252,313 415,000 Resource America, Inc. 144A sr. notes 12s, 2004 425,375 220,000 RFS Partnership LP 144A sr. notes 9 3/4s, 2012 227,700 1,160,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 1,270,200 340,000 Superior Financial Corp. 144A sr. notes 8.65s, 2003 347,576 370,000 Ventas Realty LP/Capital Corp. 144A sr. notes 9s, 2012 375,550 190,000 Webster Capital Trust I 144A bonds 9.36s, 2027 189,310 290,000 Western Financial Bank sub. debs. 9 5/8s, 2012 292,900 180,000 Willis Corroon Corp. 144A company guaranty 9s, 2009 187,200 ------------- 8,660,291 Gaming & Lottery (3.8%) ------------------------------------------------------------------------------------------------------------------- 260,000 Aladdin Gaming Holdings, LLC sr. disc. notes stepped-coupon Ser. B, zero % (13 1/2s, 3/1/03), 2010 (In default) (NON) (STP) 9,750 150,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 165,750 350,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 388,500 50,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 52,750 985,000 Autotote Corp. bank term loan FRN 6.187s, 2007 (acquired various dates from 10/13/00 to 1/8/01, cost $982,541) (RES) 987,052 380,000 Autotote Corp. company guaranty Ser. B, 12 1/2s, 2010 425,600 270,000 Boyd Gaming Corp. 144A sr. sub. notes 8 3/4s, 2012 279,450 161,801 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004 (In default) (NON) 56,630 360,000 Harrah's Operating Company, Inc. company guaranty 7 1/2s, 2009 371,437 350,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 371,875 530,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 588,300 50,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 49,000 490,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 507,150 390,000 International Game Technology sr. notes 8 3/8s, 2009 411,450 930,000 International Game Technology sr. notes 7 7/8s, 2004 967,200 200,000 Isle of Capri Casinos, Inc. bank term loan FRN Ser. B, 4.366s, 2008 (acquired 4/22/02, cost $200,000) (RES) 200,000 790,000 Majestic Investor Holdings/Majestic Investor Capital Corp. 144A company guaranty 11.653s, 2007 754,450 40,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 43,850 550,000 Mandalay Resort Group sr. sub. notes Ser. B, 10 1/4s, 2007 603,625 140,000 Mandalay Resort Group 144A sr. sub. notes 9 3/8s, 2010 152,250 1,010,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 1,075,327 90,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 91,125 420,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 434,700 140,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 143,150 380,000 Mohegan Tribal Gaming Authority 144A sr. sub. notes 8s, 2012 380,000 410,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 403,188 570,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 602,775 80,000 Penn National Gaming, Inc. company guaranty Ser. B, 11 1/8s, 2008 86,600 190,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 189,525 400,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 414,000 10,000 Station Casinos, Inc. sr. sub. notes 9 7/8s, 2010 10,825 110,000 Station Casinos, Inc. 144A sr. sub. notes 9 3/4s, 2007 113,850 30,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 23,700 220,000 Trump Atlantic City Associates company guaranty 11 1/4s, 2006 174,900 300,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 279,000 1,250,000 Trump Castle Funding, Inc. sub. notes 10 1/4s, 2003 1,265,625 430,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 454,725 180,000 Wheeling Island Gaming, Inc. 144A sr. notes 10 1/8s, 2009 186,750 ------------- 13,715,834 Health Care (3.6%) ------------------------------------------------------------------------------------------------------------------- 280,000 Accredo Health, Inc. bank term loan FRN Ser. B, 4.556s, 2009 (acquired 3/20/02, cost $279,720) (RES) 281,400 440,000 ALARIS Medical Systems, Inc. sec. notes Ser. B, 11 5/8s, 2006 490,600 135,000 ALARIS Medical Systems, Inc. 144A company guaranty 9 3/4s, 2006 133,313 150,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero % (11 1/8s, 8/1/03), 2008 (STP) 111,375 640,400 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 642,001 7,800 Alderwoods Group, Inc. company guaranty 11s, 2007 7,839 240,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 255,900 310,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 328,600 200,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 223,000 390,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 392,587 253,387 Concentra Operating Corp. bank term loan FRN Ser. B, 5.897s, 2006 (acquired 1/15/02, cost $254,178) (RES) 253,756 126,693 Concentra Operating Corp. bank term loan FRN Ser. C, 6.147s, 2007 (acquired 1/15/02, cost $127,089) (RES) 126,883 270,000 Conmed Corp. company guaranty 9s, 2008 278,775 250,000 DaVita, Inc. bank term loan FRN Ser. B, 5.28s, 2009 (acquired 4/26/02, cost $250,000) (RES) 252,063 19,900 Genesis Health Ventures, Inc. sec. notes FRN 7.59s, 2007 19,701 420,000 Hanger Orthopedic Group, Inc. 144A sr. notes 10 3/8s, 2009 446,250 170,000 HCA, Inc. debs. 7.19s, 2015 172,893 150,000 HCA, Inc. med. term notes 7.69s, 2025 151,538 600,000 HCA, Inc. med. term notes 6.63s, 2045 601,914 200,000 HCA, Inc. notes 8 3/4s, 2010 222,990 640,000 HCA, Inc. notes 8.36s, 2024 691,936 510,000 HCA, Inc. notes 7s, 2007 526,218 220,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 244,750 250,000 Insight Health Services Corp. 144A sr. sub. notes 9 7/8s, 2011 257,500 490,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 (In default) (NON) 49 250,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 (In default) (NON) 25 149,221 Kinetic Concepts, Inc. bank term loan FRN Ser. C, 5.05s, 2005 (acquired 11/5/01, cost $149,407) (RES) 148,599 400,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 414,000 993,795 Magellan Health Services, Inc. bank term loan FRN 5.688s, 2005 (acquired 12/6/01, cost $994,416) (RES) 992,801 800,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 678,000 70,000 Magellan Health Services, Inc. 144A sr. notes 9 3/8s, 2007 70,000 1,000,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 (In default) (NON) 10,000 210,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (In default) (NON) (STP) 1,050 440,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 4,400 380,000 Mediq, Inc. debs. stepped-coupon zero % (13s, 6/1/03), 2009 (In default) (NON) (STP) 38 1,080,000 Multicare Companies, Inc. sr. sub. notes 9s, 2007 (In default) (NON) 108 310,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 328,600 200,000 Rotech Healthcare, Inc. bank term loan FRN Ser. B, 6 3/4s, 2008 (acquired various dates from 4/3/02 to 4/23/02, cost $201,625) (RES) 202,125 290,000 Rotech Healthcare, Inc. 144A sr. sub. notes 9 1/2s, 2012 304,500 70,000 Service Corp. International debs. 7 7/8s, 2013 60,375 50,000 Service Corp. International notes 7.7s, 2009 44,625 970,000 Service Corp. International notes 6s, 2005 873,000 390,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 429,000 520,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 (In default) (NON) 52 430,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 (In default) (NON) 43 930,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 1,041,600 60,000 Triad Hospitals, Inc. company guaranty Ser. B, 8 3/4s, 2009 63,900 300,000 Vanguard Health Systems, Inc. company guaranty 9 3/4s, 2011 316,500 ------------- 13,097,172 Homebuilding (0.9%) ------------------------------------------------------------------------------------------------------------------- 300,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 307,500 50,000 D.R. Horton, Inc. company guaranty 8s, 2009 49,250 350,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 341,250 110,000 D.R. Horton, Inc. 144A sr. notes 8 1/2s, 2012 110,000 200,000 Del Webb Corp. sr. sub. debs. 9 3/8s, 2009 210,750 250,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 272,500 500,000 KB Home sr. sub. notes 9 1/2s, 2011 522,500 130,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 144,950 280,000 Lennar Corp. sr. notes 7 5/8s, 2009 280,700 50,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 50,750 360,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 392,400 70,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 70,000 180,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 188,100 260,000 Toll Corp. company guaranty 8 1/8s, 2009 262,600 70,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 70,350 200,000 WCI Communities, Inc. 144A sr. sub. notes 9 1/8s, 2012 202,000 ------------- 3,475,600 Household Furniture and Appliances (0.4%) ------------------------------------------------------------------------------------------------------------------- 127,818 Sealy Mattress Co. bank term loan FRN Ser. B, 4.063s, 2004 (acquired 12/17/01, cost $128,218) (RES) 127,712 127,841 Sealy Mattress Co. bank term loan FRN Ser. C, 4.313s, 2005 (acquired 12/17/01, cost $128,240) (RES) 127,734 243,198 Sealy Mattress Co. bank term loan FRN Ser. D, 4.563s, 2005 (acquired 12/17/01, cost $243,958) (RES) 242,996 650,000 Sealy Mattress Co. company guaranty stepped-coupon Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 650,000 175,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 182,000 ------------- 1,330,442 Lodging/Tourism (1.2%) ------------------------------------------------------------------------------------------------------------------- 550,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 (R) 581,625 206,000 Felcor Lodging LP company guaranty 8 1/2s, 2011 (R) 211,150 190,000 Felcor Lodging LP 144A company guaranty 9 1/2s, 2008 (R) 200,925 1,625,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,594,531 360,000 ITT Corp. notes 6 3/4s, 2005 356,580 80,000 John Q. Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 79,600 100,000 Lodgian Financing Corp. company guaranty 12 1/4s, 2009 (In default) (NON) 50,000 250,000 Meristar Hospitality Corp. company guaranty 9 1/8s, 2011 255,625 100,000 Meristar Hospitality Corp. company guaranty 9s, 2008 102,000 160,000 MeriStar Hospitality Operating Partnership/MeriStar Hospitality Finance Corp. 144A sr. notes 10 1/2s, 2009 (R) 170,800 210,000 Mikohn Gaming Corp. company guaranty Ser. B, 11 7/8s, 2008 206,850 200,000 Resorts International Hotel and Casino, Inc. 144A 1st mtge. 11 1/2s, 2009 192,000 260,000 Starwood Hotels & Resorts Worldwide, Inc. 144A notes 7 7/8s, 2012 260,613 ------------- 4,262,299 Publishing (1.0%) ------------------------------------------------------------------------------------------------------------------- 160,000 Belo Corp. sr. notes 7 1/8s, 2007 159,746 290,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 284,200 120,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 120,000 200,000 Hollinger International Publishing, Inc. company guaranty 9 1/4s, 2007 205,000 937,016 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010 (Canada) (PIK) 890,165 400,000 Perry-Judd company guaranty 10 5/8s, 2007 380,000 730,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 627,800 180,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 145,800 420,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 369,600 240,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero % (13 3/4s, 7/15/06), 2011 (Canada) (STP) 160,800 250,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 270,000 ------------- 3,613,111 Retail (0.8%) ------------------------------------------------------------------------------------------------------------------- 260,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero % (10s, 5/1/03), 2008 (STP) 221,000 480,000 Autonation, Inc. company guaranty 9s, 2008 508,800 1,210,000 Cybernet Internet Services International, Inc. 144A sr. disc. notes stepped-coupon zero % (13s, 8/15/04), 2009 (Denmark) (STP) 12,100 20,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon zero % (12 1/8s, 5/1/03), 2009 (STP) 1,400 80,000 JC Penney Company, Inc. debs. 7.95s, 2017 69,600 250,000 JC Penney Company, Inc. debs. 7.4s, 2037 245,000 170,000 JC Penney Company, Inc. notes Ser. MTNA, 7.05s, 2005 165,750 400,000 K mart Corp. pass-through certificates Ser. 95K4, 9.35s, 2020 (In default) (NON) 207,000 370,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 392,200 35,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 32,900 970,000 Saks, Inc. company guaranty 8 1/4s, 2008 960,300 120,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 118,200 ------------- 2,934,250 Specialty Printing (0.2%) ------------------------------------------------------------------------------------------------------------------- 270,000 Von Hoffman Press, Inc. 144A company guaranty 10 1/4s, 2009 282,150 159,359 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 143,423 170,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 165,750 ------------- 591,323 Technology (1.6%) ------------------------------------------------------------------------------------------------------------------- 60,000 Comdisco, Inc. notes 7 1/4s, 2001 (In default) (NON) (DEF) 50,100 40,000 Comdisco, Inc. notes 6 3/8s, 2001 (In default) (NON) (DEF) 32,300 130,000 Comdisco, Inc. notes 5.95s, 2002 (In default) (NON) (DEF) 106,600 189,000 CSG Systems International, Inc. bank term loan FRN Ser. B, 5.129s, 2008 (acquired 3/4/02, cost $189,473) (RES) 188,882 400,000 Fairchild Semiconductor International, Inc. sr. sub. notes 10 1/8s, 2007 418,000 840,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon zero % (13s, 4/15/03), 2008 (STP) 84,000 450,000 Intira Corp. bonds stepped-coupon zero % (13s, 2/1/05), 2010 (acquired 1/31/00, cost $239,810) (RES) (STP) 45 130,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 135,200 150,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 151,500 720,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 734,400 40,000 Lucent Technologies, Inc. debs. 6 1/2s, 2028 25,200 1,070,000 Lucent Technologies, Inc. debs. 6.45s, 2029 674,100 1,000,000 Micron Technology, Inc. cv. 6 1/2s, 2005 950,000 250,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 5,000 90,000 PSINet, Inc. sr. notes 11 1/2s, 2008 (In default) (NON) 9,113 630,000 PSINet, Inc. sr. notes 11s, 2009 (In default) (NON) 63,788 70,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 (In default) (NON) 7,088 60,000 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010 (In default) (NON) 1,200 200,000 SCG Holding & Semiconductor Corp. company guaranty 12s, 2009 168,000 80,000 Seagate Technology, Inc. 144A company guaranty 12 1/2s, 2007 (Cayman Islands) 96,000 800,000 Sequa Corp. sr. notes 9s, 2009 812,000 200,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 201,000 300,000 Telecommunications Techniques, Inc. company guaranty 9 3/4s, 2008 75,000 84,588 Telex Communications Group, Inc. sr. sub. notes zero %, 2006 (In default) (NON) 46,523 490,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 (In default) (NON) 17,150 30,000 Xerox Corp. notes 5 1/2s, 2003 27,975 710,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 678,050 20,000 Xerox Credit Corp. sr. notes 6.1s, 2003 18,400 ------------- 5,776,614 Textiles (0.3%) ------------------------------------------------------------------------------------------------------------------- 300,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 (In default) (NON) 43,500 410,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 (In default) (NON) 82,000 230,000 Russell Corp. 144A sr. notes 9 1/4s, 2010 236,325 320,000 The William Carter Holdings Co. company guaranty Ser. B, 10 7/8s, 2011 342,400 710,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 468,600 ------------- 1,172,825 Transportation (1.1%) ------------------------------------------------------------------------------------------------------------------- 40,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 30,800 230,000 American Airlines, Inc. bonds Ser. 01-2, Class B, 8.608s, 2011 241,824 110,000 American Airlines, Inc. 144A pass-through certificates Ser. 01-2, Class A-2, 7.858s, 2011 116,455 530,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 450,500 170,000 Continental Airlines, Inc. pass-through certificates Ser. D, 7.568s, 2006 147,900 210,000 Delta Air Lines, Inc. pass-through certificates Ser. 00-1, Class C, 7.779s, 2005 211,995 150,000 Delta Air Lines, Inc. pass-through certificates Ser. C, 7.779s, 2012 151,500 34,000 International Shipholding Corp. sr. notes 9s, 2003 34,000 400,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 432,000 130,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 13,000 260,000 Navistar International Corp. company guaranty Ser. B, 9 3/8s, 2006 274,950 340,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 336,600 130,000 Northwest Airlines, Inc. company guaranty 8 3/8s, 2004 125,450 310,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 291,400 310,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 302,250 144,554 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 144,554 430,000 RailAmerica Transportation company guaranty 12 7/8s, 2010 473,516 80,000 Transportation Manufacturing Operations, Inc. company guaranty 11 1/4s, 2009 61,600 100,000 Travel Centers of America, Inc. company guaranty 12 3/4s, 2009 110,000 190,000 US Air, Inc. pass-through certificates Ser. 93A2, 9 5/8s, 2003 155,800 120,000 US Air, Inc. pass-through certificates Ser. 93A3, 10 3/8s, 2013 79,200 ------------- 4,185,294 Utilities (2.2%) ------------------------------------------------------------------------------------------------------------------- 260,000 AES Corp. (The) notes 8 3/4s, 2008 215,800 720,000 AES Corp. (The) sr. notes 9 3/8s, 2010 597,600 140,000 Azurix Corp. sr. notes Ser. B, 10 3/4s, 2010 126,000 130,000 Azurix Corp. sr. notes Ser. B, 10 3/8s, 2007 117,000 600,000 Calpine Canada Energy Finance company guaranty 8 1/2s, 2008 (Canada) 510,000 210,000 Calpine Corp. sr. notes 10 1/2s, 2006 184,800 420,000 Calpine Corp. sr. notes 8 5/8s, 2010 359,100 700,000 Calpine Corp. sr. notes 8 1/2s, 2011 598,500 410,000 Calpine Corp. sr. notes 7 7/8s, 2008 351,575 10,000 Calpine Corp. sr. notes 7 3/4s, 2009 8,350 500,000 CMS Energy Corp. sr. notes 8.9s, 2008 530,000 170,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 179,826 140,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 141,403 200,000 Edison Mission Energy sr. notes 10s, 2008 208,000 40,000 Midland Funding II debs. Ser. B, 13 1/4s, 2006 46,392 720,000 Midland Funding II debs Ser. A, 11 3/4s, 2005 790,726 70,556 Midland Funding II Corp. debs. Ser. C-94, 10.33s, 2002 71,034 620,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 680,450 261,863 Northeast Utilities notes Ser. A, 8.58s, 2006 282,516 59,733 Northeast Utilities notes Ser. B, 8.38s, 2005 63,492 200,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005 (In default) (NON) 228,500 490,000 Southern California Edison Co. notes 8.95s, 2003 496,738 50,000 Southern California Edison Co. notes 6 3/8s, 2006 48,125 500,000 Tiverton/Rumford Power Associates, LP 144A pass-through certificates 9s, 2018 432,500 647,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) (In default) (NON) 595,240 ------------- 7,863,667 ------------- Total Corporate Bonds and Notes (cost $202,256,867) $ 177,405,596 FOREIGN GOVERNMENT BONDS AND NOTES (16.7%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- USD 978,639 Argentina (Republic of) bonds Ser. 2018, 2.89s, 2018 (In default) (NON) $ 215,301 AUD 7,050,000 Australia (Government of) bonds Ser. 611, 5 3/4s, 2011 3,692,409 USD 1,030,000 Brazil (Federal Republic of) notes 11s, 2012 906,400 USD 2,575,000 Brazil (Federal Republic of) unsub. notes 11s, 2040 2,021,375 USD 2,426,000 Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 2,332,599 CAD 1,005,000 Canada (Government of) bonds 5 1/2s, 2010 638,498 CAD 410,000 Canada (Government of) bonds Ser. WL43, 5 3/4s, 2029 256,250 USD 840,000 Colombia (Republic of) bonds 11 3/4s, 2020 831,600 USD 255,000 Ecuador (Republic of) bonds Ser. REGS, 12s, 2012 213,308 USD 145,000 Ecuador (Republic of) bonds stepped-coupon Ser. REGS, 5s (6s, 8/15/02), 2030 (STP) 83,375 EUR 1,235,000 France (Government of) bonds 5 1/2s, 2010 1,138,202 EUR 440,000 France (Government of) debs. 4s, 2009 370,432 EUR 150,000 Germany (Federal Republic of) bonds 5s, 2012 133,784 EUR 31,100 Germany (Federal Republic of) bonds Ser. 00, 5 1/2s, 2031 27,948 EUR 780,000 Germany (Federal Republic of) bonds Ser. 94, 6 1/4s, 2024 762,080 EUR 5,825,000 Germany (Federal Republic of) bonds Ser. 95, 7 3/8s, 2005 5,636,075 EUR 2,830,000 Germany (Federal Republic of) bonds Ser. 99, 4s, 2009 2,397,830 EUR 1,940,000 Italy (Government of) sr. unsub. 4 1/4s, 2002 1,747,396 EUR 655,000 Italy (Government of) treasury bonds 4 3/4s, 2006 592,037 EUR 1,620,000 Italy (Government of) treasury bonds 3 1/4s, 2004 1,440,485 USD 200,000 Malaysia (Government of) bonds 7 1/2s, 2011 212,700 NZD 3,290,000 New Zealand (Government of) bonds 8s, 2006 1,551,084 NZD 1,052,000 New Zealand (Government of) bonds Ser. 709, 7s, 2009 478,089 USD 207,000 Peru (Republic of) 144A notes 9 1/8s, 2012 200,790 USD 415,000 Philippines (Republic of) notes 10 5/8s, 2025 449,860 USD 570,000 Philippines (Republic of) notes 8 3/8s, 2009 578,550 USD 1,035,000 Russia (Federation of) bonds 12 3/4s, 2028 1,264,253 USD 740,000 Russia (Federation of) unsub. 10s, 2007 793,650 USD 2,220,000 Russia (Federation of) unsub. 8 1/4s, 2010 2,178,930 USD 2,740,000 Russia (Federation of) unsub. stepped-coupon 5s (7 1/2s, 3/31/07), 2030 (STP) 1,901,560 USD 4,601,250 Russia (Federation of) 144A unsub. stepped-coupon 5s (7 1/2s, 3/31/07), 2030 (STP) 3,193,268 USD 750,000 South Africa (Republic of) notes 7 3/8s, 2012 744,375 EUR 300,000 Spain (Government of) bonds 6s, 2029 284,459 EUR 920,000 Spain (Government of) bonds 4.8s, 2006 830,900 SEK 46,450,000 Sweden (Government of) bonds Ser. 1044, 3 1/2s, 2006 4,234,485 USD 420,000 Turkey (Republic of) bonds 11 3/4s, 2010 441,000 USD 285,000 Turkey (Republic of) notes 11 1/2s, 2012 296,400 GBP 820,000 United Kingdom Treasury bonds 10s, 2003 1,277,950 GBP 460,000 United Kingdom Treasury bonds 5s, 2012 660,592 GBP 2,820,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 4,185,326 GBP 1,585,000 United Kingdom Treasury bonds 8 1/2s, 2005 2,562,570 USD 1,920,000 United Mexican States bonds 11 3/8s, 2016 2,467,200 USD 1,140,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 1,164,510 USD 440,000 United Mexican States notes 8 1/8s, 2019 446,160 USD 2,160,000 United Mexican States notes Ser. A, 9 7/8s, 2010 2,478,600 USD 445,000 Venezuela (Republic of) bonds 9 1/4s, 2027 313,725 ------------- Total Foreign Government Bonds and Notes (cost $57,922,017) $ 60,628,370 U.S. GOVERNMENT AND AGENCY OBLIGATIONS (9.9%) (a) PRINCIPAL AMOUNT VALUE U.S. Government Agency Mortgage Obligations (1.5%) ------------------------------------------------------------------------------------------------------------------- $ 114,762 Federal Home Loan Mortgage Corporation 7 1/2s, May 1, 2027 $ 120,339 Federal National Mortgage Association Pass-Through Certificates 21,698 8s, July 1, 2024 23,197 524,806 7 1/2s, with due dates from January 1, 2030 to August 1, 2030 548,496 4,280,000 6 1/2s, May 1, 2032 4,330,846 45,086 6 1/2s, June 1, 2014 46,751 35,963 6 1/2s, July 1, 2013 37,291 199,799 Government National Mortgage Association Pass-Through Certificates 8s, December 15, 2022 214,808 ------------- 5,321,728 U.S. Treasury Obligations (8.4%) ------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds 11,760,000 7 1/2s, November 15, 2016 13,937,482 5,965,000 6 1/4s, August 15, 2023 6,333,160 10,806,000 U.S. Treasury Notes 3 1/2s, November 15, 2006 10,404,125 ------------- 30,674,767 ------------- Total U.S. Government and Agency Obligations (cost $36,104,267) $ 35,996,495 COLLATERALIZED MORTGAGE OBLIGATIONS (11.0%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- Amortizing Residential Collateral Trust $ 19,270,000 Ser. 02-BC1, Class A, Interest Only (IO), 6s, 2005 $ 1,592,033 1,240,000 Ser. 02-BC1, Class M2, FRN, 2.98s, 2032 1,224,993 2,044,131 Banc of America Commercial Mortgage, Inc. Ser. 01-PB1, Class XC, IO, 0.715s, 2035 93,982 3,201,937 Bank of America Mortgage Securities Ser. 01-10, Class 1A11, IO, 0.211s, 2031 236,143 698,090 Blackstone Hotel Acquisition Co. jr. mtge. loan FRN 9.794s, 2003 (United Kingdom) 968,778 300,000 Chase Commercial Mortgage Securities Corp. Ser. 00-3, Class G, 6.887s, 2019 247,406 4,457,490 Citicorp Mortgage Securities, Inc. Ser. 01-15, Class A3A, IO, 0.307s, 2031 263,096 Commercial Mortgage Acceptance Corp. 905,000 Ser. 97-ML1, Class D, 6.82s, 2010 887,466 2,825,549 Ser. 97-ML1, IO, 0.47s, 2017 98,342 15,716,284 Commercial Mortgage Asset Trust Ser. 99-C1, Class X, IO, 0.56s, 2020 911,053 1,060,000 Countrywide Home Loan Ser. 98-3, Class A5, 6 3/4s, 2028 1,073,913 1,625,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C, Class A8, 6 1/2s, 2024 1,635,221 1,182,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1, Class A2, 7s, 2011 1,193,081 1,143,000 Criimi Mae Commercial Mortgage Trust 144A Ser. 98-C1, Class B, 7s, 2011 1,065,133 295,000 CS First Boston Mortgage Securities Corp. Ser. 01-CF2, Class G, 6.93s, 2011 293,947 27,102,489 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, Class X, IO, 1.00s, 2023 1,088,334 Euro Loan Conduit 144A 300,000 FRN Ser. 7A, Class E, 8.493s, 2006 (United Kingdom) 426,231 300,000 FRN Ser. 7A, Class D, 6.743s, 2006 (United Kingdom) 437,073 Fannie Mae 97,175 Ser. 98-63, Class S, 14.52s, 2026 97,175 11,660,241 Ser. 00-T6, IO, 0.315s, 2030 262,355 2,446 Ser. 92-15, Class L, IO, 1.82s, 2022 59,043 366,415 Ser. 98-51, Class SG, 7.15s, 2022 144,734 2,148,167 Ser. 319, Class 2, IO, 6 1/2s, 2032 592,760 782,749 Ser. 01-55, Class CZ, 6 1/2s, 2031 777,245 509,800 Ser. 01-58, Class HI, IO, 6 1/2s, 2026 118,051 1,920,100 Ser. 01-62, Class PI, IO, 6 1/2s, 2025 294,015 548,700 Ser. 98-1, Class SA, IO, 6 1/2s, 2024 174,898 2,841,052 Ser. 93-251, Class Z, 6 1/2s, 2023 2,799,768 1,278,500 Ser. 01-72, Class NI, IO, 6s, 2021 169,600 1,819,300 Ser. 01-70, Class PI, IO, 6s, 2021 250,692 1,282,800 Ser. 01-74, Class QI, IO, 6s, 2018 142,105 888,900 Ser. 01-74, Class MI, IO, 6s, 2015 156,009 3,561,165 Ser. 318, Class 2, IO, 2.981s, 2032 1,076,140 962,404 Ser. 01-62, Class BI, IO, 1.723s, 2026 172,330 40,069 Ser. 01-35, Class KB, 7s, 2030 36,263 33,757 Ser. 01-30, Class DO, Principal Only (PO), zero %, 2030 30,550 361,732 Ser. 99-51, Class N, PO, zero %, 2029 299,785 372,970 Ser. 99-52, Class MO, PO, zero %, 2026 338,936 178,847 Ser. 97-92, Class PO, zero %, 2025 172,839 464,840 Ser. 96-5, Class PB, PO, zero %, 2024 358,799 142,684 Ser. 99-4, Class M, PO, zero %, 2023 128,906 446,876 Ser. 93-159, Class D, PO, zero %, 2023 361,062 9,690,309 FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, 1.11s, 2020 819,134 Freddie Mac 262,850 Ser. 2154, Class SA, 24.83s, 2029 275,253 44,658 Ser. 2149, Class ST, 22.43s, 2029 44,658 332,072 Ser. 2319, Class S, 21.759s, 2031 331,657 599,601 Ser. 2360, Class SC, 16.12s, 2031 585,547 63,441 Ser. 2286, Class LR, 15.37s, 2024 65,880 558,716 Ser. 1717, Class L, 6 1/2s, 2024 570,370 601,145 Ser. 2044, Class SG, IO, 2.18s, 2023 45,086 917,351 Ser. 2389, Class EI, IO, 0.755s, 2021 123,269 166,543 Ser. 2337, PO, zero %, 2031 136,461 87,092 Ser. 2331, PO, zero %, 2031 78,818 1,397,934 Ser. 215, PO, zero %, 2031 1,241,540 21,617 Ser. 2312, PO, zero %, 2031 19,563 84,089 Ser. 2317, PO, zero %, 2031 79,123 7,382 Ser. 2291, Class QO, PO, zero %, 2031 6,680 261,055 Ser. 57, Class A, PO, zero %, 2023 222,019 106,020 Ser. 2078, Class KC, PO, zero %, 2023 98,598 356,947 Ser. 2351, PO, zero %, 2031 294,481 1,727,878 Ser. 209, IO, 7 1/2s, 2030 279,700 5,163,175 Ser. 212, IO, 1.917s, 2031 1,416,646 300,000 GE Capital Commercial Mortgage Corp. Ser. 01-1, Class G, 7.04s, 2011 295,050 620,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4, 6 3/4s, 2028 628,798 Government National Mortgage Association 448,549 Ser. 98-2, Class EA, PO, zero %, 2028 372,139 138,224 Ser. 99-42, PO, zero %, 2027 135,028 585,000 Granite Mortgages PLC FRN Ser. 01-1, Class 1C, 3.17s, 2041 (United Kingdom) 584,631 2,660,000 Holmes Financing PLC FRB Ser. 1, Class 2C, 2.977s, 2040 2,660,000 295,000 LB-UBS Commercial Mortgage Trust Ser. 01-C3, Class A2, 6.37s, 2011 303,205 Merrill Lynch Mortgage Investors, Inc. 7,207,645 Ser. 96-C2, IO, 0.86s, 2028 443,721 640,000 Ser. 1995-C3, Class D, 7.782s, 2025 679,650 585,000 Ser. 96-C2, Class E, 6.96s, 2028 566,604 3,797,635 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO, 0.72s, 2012 199,969 31,159 Prudential Home Mortgage Securities Ser. 93-57, Class A4, 5.9s, 2023 31,616 9,136,791 Residential Funding Mortgage Securities, Inc. Ser. 01-S26, Class A9, IO, 0.765s, 2031 559,628 700,000 Residential Mortgage Securities 144A FRB Ser. 8, Class M, 6.88s, 2038 1,014,940 381,194 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 391,601 1,370,000 Starwood Asset Recivables Trust FRB Ser. 00-1, Class E, 7.8s, 2005 1,382,467 ------------- Total Collateralized Mortgage Obligations (cost $39,453,124) $ 39,733,815 ASSET-BACKED SECURITIES (4.1%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 464,000 Aames Mortgage Trust Ser. 02-1, Class A3, FRN, 6.869s, 2032 $ 472,026 427,077 Arc Net Interest Margin Trust 144A Ser. 02-1A, Class A, 7 3/4s, 2032 422,873 342,268 Asset Backed Funding Corp. NIM Trust Ser. 02-WF1, 9.32s, 2032 353,595 1,004,000 Bank One Issuance Trust Ser. 02-C1, Class C1, FRN, 2.801s, 2007 1,004,000 685,000 CDC Mortgage Capital Trust Ser. 02-HE1, Class M, FRN, 3.1s, 2032 678,150 Conseco Finance Securitizations Corp. 1,665,000 Ser. 00-4, Class A6, 8.31s, 2032 1,775,518 600,000 Ser. 00-6, Class M2, 8.2s, 2032 611,179 561,000 Ser. 01-4, Class B1, 9.4s, 2010 528,114 2,190,000 Ser. 02-1, Class A, 6.681s, 2033 2,203,774 394,000 Consumer Credit Reference IDX Securities Ser. 02-1A, Class A, FRB, 3.99s, 2007 394,862 738,666 First Plus 144A Ser. 98-A, Class A, 8 1/2s, 2023 487,519 150,000 Green Tree Financial Corp. Ser. 95-F, Class B2, 7.1s, 2021 129,469 1,448,823 Greenpoint Manufactured Housing Ser. 00-3, Class IA, 8.45s, 2031 1,533,245 568,528 Madison Avenue Manufactured Housing Contract Ser. 02-A, Class B1, FRN, 5.159s, 2032 426,396 339,606 Mid-State Trust Ser.10, Class B, 7.54s, 2026 331,965 Morgan Stanley Dean Witter Capital I 210,000 Ser. 01-NC3, Class B1, FRN, 4.35s, 2031 207,211 900,000 Ser. 01-NC4, Class B1, FRN, 4.35s, 2032 893,953 350,000 Ser. 02-AM2, Class B1, FRN, 4.21s, 2032 343,602 278,674 Ser. 01-AM1N, Class Note, 12 3/4s, 2032 324,203 608,694 144A Ser. 01-NC4N, Class Note, 8 1/2s, 2032 605,650 Option One Mortgage Securities Corp. 671,668 Ser. 02-2A, Class CFTS, 8.83s, 2032 689,900 595,430 Ser. 02-1, Class CTFS, 6 3/4s, 2032 588,428 ------------- Total Asset-Backed Securities (cost $15,020,810) $ 15,005,632 BRADY BONDS (2.1%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 5,714,974 Brazil (Federal Republic of) bonds 8s, 2014 $ 4,457,680 1,485,000 Brazil (Federal Republic of) government guaranty Ser. 30YR, 3.063s, 2024 1,076,625 440,000 Brazil (Federal Republic of) govt. guaranty FRB 3 1/4s, 2012 314,072 250,000 United Mexican States bonds Ser. B, 6 1/4s, 2019 233,438 1,714,260 Venezuela (Republic of) debs. FRB Ser. DL, 4 3/4s, 2007 1,418,550 ------------- Total Brady Bonds (cost $7,430,395) $ 7,500,365 PREFERRED STOCKS (1.4%) (a) NUMBER OF SHARES VALUE ------------------------------------------------------------------------------------------------------------------- 15,624 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 156 29,000 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 735,150 9,850 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 560,465 130,000 CSBI Capital Trust I 144A company guaranty Ser. A, 11.75% pfd. 146,575 10,460 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 972,780 489 Delta Financial Corp. Ser. A, $10.00 cum. pfd. 5,624 27,930 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 279 7,700 Doane Pet Care Co. $7.125 pfd. 231,000 388 Dobson Communications Corp. 13.00% pfd. 310,400 210 First Republic Capital Corp. 144A 10.50% pfd. 208,950 274 Granite Broadcasting Corp. 12.75% cum. pfd. (PIK) 150,700 23 Intermedia Communications, Inc. Ser. B, 13.50% pfd. (PIK) 11,040 414 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 144,900 145 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 1,261,500 609 Rural Cellular Corp. 12.25% pfd. (PIK) 273,893 ------------- Total Preferred Stocks (cost $6,203,903) $ 5,013,412 COMMON STOCKS (1.1%) (a) NUMBER OF SHARES VALUE ------------------------------------------------------------------------------------------------------------------- 1,153 Alderwoods Group, Inc. (NON) $ 9,397 200 AmeriKing, Inc. (NON) 2 18,271 Arch Wireless, Inc. (NON) 110 7,792 Aurora Foods, Inc. (NON) 46,284 3,075 Call-Net Enterprises, Inc. Class B (Canada) (NON) 8,303 111,146 Celcaribe SA (Colombia) (NON) 3,334 1,883,299 Contifinancial Corp. Liquidating Trust Units 94,165 8,378 Covad Communications Group, Inc. 144A (NON) 16,840 548 Delta Funding Residual Exchange Co., LLC (NON) 119,738 340 Delta Funding Residual Management, Inc. (NON) 3 11,160 Doskocil Manufacturing Company, Inc. (NON) 33,480 1,471 Focal Communications Corp. (NON) 8,326 3,729 Genesis Health Ventures, Inc. (NON) 70,105 7,263 Intira Corp. (NON) 1 60,000 Loewen Group International, Inc. (NON) 6 530,000 Paracelsus Healthcare Corp. (NON) 53 15,092 Pioneer Cos., Inc. (NON) 30,184 480 Premium Holdings (L.P.) 144A (NON) 10,076 1,004 PSF Holdings LLC Class A (NON) 2,108,106 91 Quorum Broadcast Holdings, Inc. Class E (acquired 5/15/01, cost $90,498) (RES) (NON) 69,831 7,676 Regal Cinemas, Inc. (NON) 1,189,780 15,520 Safety Components International, Inc. (acquired 7/21/97, cost $290,000) (RES) (NON) 85,360 15,000 Specialty Foods Acquisition Corp. (NON) 150 867 Vast Solutions, Inc. Class B1 (NON) 2,601 867 Vast Solutions, Inc. Class B2 (NON) 2,601 867 Vast Solutions, Inc. Class B3 (NON) 2,601 1 WorldCom, Inc.-WorldCom Group (NON) 2 ------------- Total Common Stocks (cost $6,701,106) $ 3,911,439 CONVERTIBLE BONDS AND NOTES (0.5%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 390,000 American Tower Corp. cv. notes 5s, 2010 $ 220,350 510,000 DaVita, Inc. cv. sub. notes 7s, 2009 511,275 560,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 (In default) (NON) 2,800 320,000 Healthsouth Corp. cv. sub. debs. 3 1/4s, 2003 313,200 59,000 Hexcel Corp. cv. sub. notes 7s, 2003 46,905 1,130,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 603,138 50,000 Rogers Communications cv. debs. 2s, 2005 (Canada) 38,875 20,000 Spectrasite Holdings, Inc. cv. sr. notes 6 3/4s, 2010 8,000 ------------- Total Convertible Bonds and Notes (cost $2,201,934) $ 1,744,543 UNITS (0.1%) (a) NUMBER OF UNITS VALUE ------------------------------------------------------------------------------------------------------------------- 330 Hercules Trust II units cum. cv. pfd. 6 1/2s $ 193,050 380,000 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 114,000 4,732 XCL, Ltd. 144A units cv. cum. pfd. zero % (In default) (NON) (PIK) 2,366 ------------- Total Units (cost $927,179) $ 309,416 CONVERTIBLE PREFERRED STOCKS (0.1%) (a) NUMBER OF SHARES VALUE ------------------------------------------------------------------------------------------------------------------- 89 Anker Coal Group, Inc. 14.25% cv. pfd. $ 445 30 Genesis Health Ventures, Inc. $6.00 cv. pfd. (PIK) 3,300 760 Interact Systems, Inc. 144A 14.00% cv. pfd. (In default) (NON) 8 2,600 LTV Corp. 144A $4.125 cv. pfd. (In default) (NON) 325 27 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 240,300 4,014 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 4,014 72 World Access, Inc. 144A Ser. D, zero % cv. pfd. 18 932 XCL, Ltd. 144A Ser. A, 9.50% cum. cv. pfd. (In default) (NON) (PIK) 466 ------------- Total Convertible Preferred Stocks (cost $622,580) $ 248,876 WARRANTS (--%) (a) (NON) EXPIRATION NUMBER OF WARRANTS DATE VALUE ------------------------------------------------------------------------------------------------------------------- 7 Anker Coal Group, Inc. 144A 10/28/09 $ 1 310 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 3 325 Club Regina, Inc. 144A 12/1/04 3 230 Colo.com, Inc. 144A 3/15/10 2 560 Dayton Superior Corp. 6/15/09 5,600 40 Decrane Aircraft Holdings Co. 9/30/08 1 8,056 Delta Financial Corp. 12/21/10 1 1,050 Destia Communications 144A 7/15/07 11 1,174 Diva Systems Corp. 5/15/06 12 2,868 Diva Systems Corp. 144A 3/1/08 29 4,697 Genesis Health Ventures, Inc. 10/1/02 11,320 380 Globalstar Telecommunications 2/15/04 4 570 Horizon PCS, Inc. 10/1/10 11,400 8,514 ICG Communications, Inc. 10/15/05 85 6,514 Imperial Credit Industries, Inc. 8/1/08 7 760 Interact Systems, Inc. 8/1/03 1 760 Interact Systems, Inc. 144A 12/15/09 8 43,794 Intira Corp. Class B 9/29/10 4 500 iPCS, Inc. 144A 7/15/10 500 320 IWO Holdings, Inc. 1/15/11 17,600 620 Jostens, Inc. 5/1/10 6,200 875 KMC Telecommunications Holdings, Inc. 144A 4/15/08 9 875 Knology Holdings, Inc. 10/22/07 22 302 Leap Wireless International, Inc. 144A 4/15/10 8,456 1,628 Loral Space & Communications, Ltd. 12/27/06 16 1,530 McCaw International, Ltd. 4/15/07 15 380 Mediq, Inc. 144A 6/1/09 4 210 Mikohn Gaming Corp. 144A 8/15/08 1,050 220 ONO Finance PLC 144A (United Kingdom) 2/15/11 440 390 Orbital Imaging Corp. 144A 3/1/05 1 525 Orion Network Systems 1/15/07 13 5,290 Pagemart, Inc. 144A 12/31/03 53 640 Paxson Communications Corp. 144A 6/30/03 2,880 230 Pliant Corp. 144A 6/1/10 460 650 Startec Global Communications Corp. 5/15/08 7 275 Sterling Chemicals Holdings 8/15/08 165 420 Telehub Communications Corp. 144A 7/31/05 1 158 Telex Communications Group, Inc. 3/30/07 2 570 Travel Centers of America, Inc. 144A 5/1/09 6 900 Ubiquitel, Inc. 144A 4/15/10 33,300 2,285 UIH Australia/Pacific, Inc. 144A 5/15/06 23 8,840 United Artists Theatre 3/2/08 70,720 450 Veraldo Holdings, Inc. 144A 4/15/08 5 20 Versatel Telecom NV (Netherlands) 5/15/08 10 320 XM Satellite Radio Holdings, Inc. 144A 3/15/10 320 ------------- Total Warrants (cost $1,322,055) $ 170,770 SHORT-TERM INVESTMENTS (4.4%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 815,000 US Treasury Note zero %, June 13, 2002 (SEG) $ 813,355 15,049,000 Interest in $500,000,000 joint tri-party repurchase agreement dated April 30, 2002 with Deutsche Bank Alex Brown due May 1, 2002 with respect to various U.S. Government obligations -- maturity value of $15,049,803 for an effective yield of 1.92% 15,049,000 ------------- Total Short-Term Investments (cost $15,862,355) $ 15,862,355 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $392,028,592) (b) $ 363,531,084 ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $362,560,665. (b) The aggregate identified cost on a tax basis is $393,936,270, resulting in gross unrealized appreciation and depreciation of $12,862,341 and $43,267,527, respectively, or net unrealized depreciation of $30,405,186. (DEF) Security is in default of principal and interest. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (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, 2002 was $13,172,324 or 3.6% of net assets. (SEG) This security was pledged and segregated with the custodian to cover margin requirements for futures contracts at April 30, 2002. (R) Real Estate Investment Trust. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at April 30, 2002, which are subject to change based on the terms of the security. ------------------------------------------------------------------------------ Forward Currency Contracts to Buy at April 30, 2002 (Unaudited) (aggregate face value $28,773,065) Market Aggregate Face Delivery Unrealized Value Value Date Appreciation ------------------------------------------------------------------------------ Australian Dollar $ 5,119,045 $ 4,975,818 6/19/02 $ 143,227 British Pounds 2,434,252 2,391,424 6/19/02 42,828 Canadian Dollar 2,036,641 2,007,750 6/19/02 28,891 Danish Krone 396,946 382,988 6/19/02 13,958 Euro 10,206,306 9,938,018 6/19/02 268,288 Japanese Yen 8,835,011 8,622,979 6/19/02 212,032 New Zealand Dollar 264,604 263,408 6/19/02 1,196 Swiss Franc 197,702 190,680 6/19/02 7,022 ------------------------------------------------------------------------------ $ 717,442 ------------------------------------------------------------------------------ Forward Currency Contracts to Sell at April 30, 2002 (Unaudited) (aggregate face value $20,259,581) Market Aggregate Face Delivery Unrealized Value Value Date Depreciation ------------------------------------------------------------------------------- Australian Dollar $2,454,434 $2,429,661 6/19/02 $(24,773) British Pounds 7,631,507 7,436,550 6/19/02 (194,957) Euro 4,512,862 4,357,195 6/19/02 (155,667) Japanese Yen 1,147,714 1,135,854 6/19/02 (11,860) New Zealand Dollar 984,233 941,521 6/19/02 (42,712) Swedish Krona 3,988,242 3,958,800 6/19/02 (29,442) ------------------------------------------------------------------------------- $(459,411) ------------------------------------------------------------------------------- Futures Contracts Outstanding at April 30, 2002 (Unaudited) Unrealized Aggregate Face Expiration Appreciation/ Total Value Value Date (Depreciation) ------------------------------------------------------------------------------- CBT Interest Rate Swap 10yr (Long) $ 816,750 $ 794,718 Jun-02 $ 22,032 Euro Dollar 90 Day (Long) 3,654,375 3,646,039 Sep-02 8,336 Euro Dollar 90 day (Long) 2,633,950 2,624,884 Jun-02 9,066 Euro Dollar 90 day (Short) 2,664,200 2,655,766 Dec-02 (8,434) Euro Dollar 90 day (Short) 2,621,850 2,613,022 Sep-02 (8,828) Euro Bobl 5yr (Long) 9,935,261 9,912,974 Jun-02 22,287 Euro Bond 10yr (Long) 4,869,347 4,851,318 Jun-02 18,029 Japanese Government Bond 10yr (Long) 3,241,178 3,209,285 Jun-02 31,893 Japanese Government Bond 10yr (Long) 1,079,925 1,068,010 Jun-02 11,915 US Treasury Note 5yr (Short) 25,981,412 25,756,893 Jun-02 (224,519) US Treasury Bond (Long) 21,178,687 21,149,357 Jun-02 29,330 US Treasury Note 10yr (Short) 13,089,750 12,963,852 Jun-02 (125,898) US Treasury 10yr (Long) 5,383,688 5,236,932 Jun-02 146,756 ------------------------------------------------------------------------------ $ (68,035) ------------------------------------------------------------------------------ Written Put Options on Foreign Currency Outstanding at April 30, 2002 (Unaudited) (premiums received $2,983) Expiration Date/ Market Strike Price Value ------------------------------------------------------------------------------ 4 Eurodollar 3 Month-CME (call) Sep 02/$97 $3,225 ------------------------------------------------------------------------------ Swap Contracts outstanding at April 30, 2002 (Unaudited) National Termination Unrealized Amount Date Appreciation ------------------------------------------------------------------------------ Agreement with Merrill Lynch Capital Services dated November 17, 2000 to pay semi-annually the notional amount multiplied by the return of LIBOR-BBA and receive the notional amount multiplied by 6.68%. $3,500,000 Nov-05 $315,209 ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES April 30, 2002 (Unaudited) Assets ------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $392,028,592) (Note 1) $363,531,084 ------------------------------------------------------------------------------------------- Cash 1,146,322 ------------------------------------------------------------------------------------------- Foreign currency (cost $261,347) 266,169 ------------------------------------------------------------------------------------------- Dividends, interest and other receivables 7,930,752 ------------------------------------------------------------------------------------------- Receivable for securities sold 3,250,704 ------------------------------------------------------------------------------------------- Receivable for variation margin (Note 1) 57,648 ------------------------------------------------------------------------------------------- Receivable for open swap contracts (Note 1) 315,209 ------------------------------------------------------------------------------------------- Receivable for open forward currency contracts (Note 1) 720,414 ------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts (Note 1) 46,061 ------------------------------------------------------------------------------------------- Total assets 377,264,363 Liabilities ------------------------------------------------------------------------------------------- Distributions payable to shareholders 2,380,300 ------------------------------------------------------------------------------------------- Payable for securities purchased 10,990,702 ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 2,042 ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 653,550 ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 75,505 ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 3,798 ------------------------------------------------------------------------------------------- Payable for open forward currency contracts (Note 1) 462,383 ------------------------------------------------------------------------------------------- Payable for closed forward currency contracts (Note 1) 100,471 ------------------------------------------------------------------------------------------- Written options outstanding, at value (premiums received $2,983) (Note 3) 3,225 ------------------------------------------------------------------------------------------- Other accrued expenses 31,722 ------------------------------------------------------------------------------------------- Total liabilities 14,703,698 ------------------------------------------------------------------------------------------- Net assets $362,560,665 Represented by ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $466,212,284 ------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (4,210,264) ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (71,271,590) ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (28,169,765) ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $362,560,665 Computation of net asset value ------------------------------------------------------------------------------------------- Net asset value per share ($362,560,665 divided by 53,124,777 shares) $6.82 ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS Six months ended April 30, 2002 (Unaudited) Investment income: ------------------------------------------------------------------------------------------- Interest $ 16,104,414 ------------------------------------------------------------------------------------------- Dividend 346,255 ------------------------------------------------------------------------------------------- Securities lending 6,000 ------------------------------------------------------------------------------------------- Total investment income 16,456,669 Expenses: ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 1,353,671 ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 230,461 ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 6,936 ------------------------------------------------------------------------------------------- Administrative services (Note 2) 5,291 ------------------------------------------------------------------------------------------- Exchange listing fees 26,827 ------------------------------------------------------------------------------------------- Other 91,172 ------------------------------------------------------------------------------------------- Total expenses 1,714,358 ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (27,256) ------------------------------------------------------------------------------------------- Net expenses 1,687,102 ------------------------------------------------------------------------------------------- Net investment income 14,769,567 ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (13,082,484) ------------------------------------------------------------------------------------------- Net realized loss on futures contracts (Note 1) (425,910) ------------------------------------------------------------------------------------------- Net realized gain on written options (Note 1) 4,183 ------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (515,038) ------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 329,322 ------------------------------------------------------------------------------------------- Net unrealized appreciation of investments, futures contracts, written options and swap contracts during the period 15,279,595 ------------------------------------------------------------------------------------------- Net gain on investments 1,589,668 ------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $ 16,359,235 ------------------------------------------------------------------------------------------- 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 2002* 2001 ------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets ------------------------------------------------------------------------------------------------------- Operations: ------------------------------------------------------------------------------------------------------- Net investment income $ 14,769,567 $ 32,276,828 ------------------------------------------------------------------------------------------------------- Net realized loss on investments and foreign currency transactions (14,019,249) (19,693,175) ------------------------------------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 15,608,917 3,097,375 ------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 16,359,235 15,681,028 ------------------------------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) ------------------------------------------------------------------------------------------------------- From net investment income (15,293,664) (30,678,868) ------------------------------------------------------------------------------------------------------- Return of capital -- (2,504,749) ------------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 197,609 -- ------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 1,263,180 (17,502,589) Net assets ------------------------------------------------------------------------------------------------------- Beginning of period 361,297,485 378,800,074 ------------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $4,210,264 and $3,686,167, respectively) $362,560,665 $361,297,485 ------------------------------------------------------------------------------------------------------- Number of fund shares ------------------------------------------------------------------------------------------------------- Shares outstanding at beginning of period 53,095,749 53,095,749 ------------------------------------------------------------------------------------------------------- Shares reinvested 29,028 -- ------------------------------------------------------------------------------------------------------- Shares outstanding at end of period 53,124,777 53,095,749 ------------------------------------------------------------------------------------------------------- * 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 Per-share April 30 operating performance (Unaudited) Year ended October 31 ------------------------------------------------------------------------------------------------------------------ 2002 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $6.80 $7.13 $7.72 $8.27 $9.26 $9.33 ------------------------------------------------------------------------------------------------------------------ Investment operations: ------------------------------------------------------------------------------------------------------------------ Net investment income (a) .28 .61 .66 .64 .71 .66 ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .03 (.31) (.58) (.48) (.96) .13 ------------------------------------------------------------------------------------------------------------------ Total from investment operations .31 .30 .08 .16 (.25) .79 ------------------------------------------------------------------------------------------------------------------ Less distributions: ------------------------------------------------------------------------------------------------------------------ From net investment income (.29) (.58) (.56) (.65) (.65) (.52) ------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- -- -- -- -- (.33) ------------------------------------------------------------------------------------------------------------------ Return of capital -- (.05) (.11) (.06) (.09) (.01) ------------------------------------------------------------------------------------------------------------------ Total distributions (.29) (.63) (.67) (.71) (.74) (.86) ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $6.82 $6.80 $7.13 $7.72 $8.27 $9.26 ------------------------------------------------------------------------------------------------------------------ Market value, end of period $6.880 $6.530 $6.438 $6.625 $8.125 $8.500 ------------------------------------------------------------------------------------------------------------------ Total return at market value (%)(b) 9.95* 11.27 7.70 (10.50) 4.15 11.34 ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $362,561 $361,297 $378,800 $410,012 $438,972 $491,652 ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(c) .48* .94 .94 .94 1.00 .96 ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 4.10* 8.63 8.66 7.93 7.81 7.18 ------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (%) 79.57*(d) 131.14(d) 147.33 124.21 202.83 246.84 ------------------------------------------------------------------------------------------------------------------ * 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, 2002 (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 stated at market value, which is determined using the last reported sales price on its principal exchange, or if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value. Other investments, including restricted securities, are stated at fair value following procedures approved by the Trustees. Market quotations are not considered to be readily available for certain debt obligations; such investments are stated at fair value on the basis of valuations furnished by an independent pricing service or dealers, approved by the Trustees, which determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and variable relationships, generally recognized by institutional traders, between securities. B) Joint trading account The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned subsidiary of Putnam, LLC. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. 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 accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. 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. G) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The Fund agrees to receive from or pay to the broker 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. H) Interest rate swap contracts The fund may engage in interest rate swap agreements, which are arrangements between two parties to exchange cash flows based on a notional principal amount. The fund may enter into interest rate swap agreements, to manage the funds exposure to interest rates. Interest rate swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss. Payments made or received are included as part of interest income. Payments received or made upon early termination are recorded as realized gain or loss. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or that the counterparty may default on its obligation to perform. I) Security lending The fund may lend securities, through its agent Citibank N.A., to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by Citibank N.A., the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. J) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. At October 31, 2001, the fund had a capital loss carryover of approximately $54,849,000 available to offset future capital gains, if any. The amount of the carryover and the expiration dates are: Loss Carryover Expiration -------------- ------------------ $3,956,000 October 31, 2006 23,414,000 October 31, 2007 11,528,000 October 31, 2008 15,951,000 October 31, 2009 K) 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, 0.65% of the next $500 million, 0.60% of the next $500 million, and 0.55% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam, LLC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. 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, 2002, the fund's expenses were reduced by $27,256 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $691 has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. Note 3 Purchases and sales of securities During the six months ended April 30, 2002, cost of purchases and proceeds from sales of investment securities other than U.S. government obligations and short-term investments aggregated $161,299,047 and $160,123,635, respectively. Purchases and sales of U.S. government obligations aggregated $318,690,374 and $320,174,509,respectively. Written option transactions during the year are summarized as follows: Contract Premiums Amounts Received --------------------------------------------------------------------------- Written options outstanding at beginning of year $ -- $ -- --------------------------------------------------------------------------- Options written 4 1,483 4 2,983 1,512,000 2,342 884,000 2,025 --------------------------------------------------------------------------- Options expired (1,512,000) (2,342) (884,000) (2,025) --------------------------------------------------------------------------- Options closed (4) (1,483) --------------------------------------------------------------------------- Written options outstanding at end of year $ 4 $2,983 --------------------------------------------------------------------------- Note 4 Share repurchase program In November 1994, the Trustees authorized the fund to repurchase up to 2,650,000 of its shares in the open market. Repurchases will only be made when the fund's shares are trading at less than net asset value and at such times and amounts as is believed to be in the best interest of the fund's shareholders. Any repurchases of shares will have the effect of increasing the net asset value per share of remaining shares outstanding. For the six months ended April 30, 2002, the fund repurchased no shares. As of October 31, 2001 279,900 shares have been repurchased since the inception of the program. Note 5 New accounting pronouncement As required, the fund has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies. This Guide requires that the fund amortize premium and accrete discount on all fixed-income securities, and classify as interest income gains and losses realized on paydowns on mortgage-backed securities. Prior to November 1, 2001, the fund did not amortize premium and accrete discounts for certain fixed income securities and characterized as realized gains and losses paydowns on mortgage backed securities. Adopting these accounting principles did not affect the fund's net asset value, but did change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of operations. The adoption of this principle was not material to the financial statements. 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 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 TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam, III President Charles E. Porter Executive Vice President and Treasurer Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Kevin Cronin Vice President Richard G. Leibovitch Vice President Richard A. Monaghan Vice President Michael T. Healy Vice President John R. Verani Vice President 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 --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com 79304 072 6/02