-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MQo+yitGHBMQnRxqRNYR+hhht3dVoE/RGskT9PfaAT2K5SG22JKpPVxuNHQMsTsJ FMS5Am5eNyRtotFzq4GHvA== 0000928816-99-000211.txt : 19990629 0000928816-99-000211.hdr.sgml : 19990629 ACCESSION NUMBER: 0000928816-99-000211 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990628 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM MASTER INCOME TRUST CENTRAL INDEX KEY: 0000824463 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042993219 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05375 FILM NUMBER: 99653639 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921562 N-30D 1 PUTNAM MASTER INCOME TRUST Putnam Master Income Trust SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 4-30-99 [LOGO: BOSTON * LONDON * TOKYO] From the Chairman [GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM] [copyright] Karsh, Ottawa Dear Shareholder: A significant change in investor sentiment took place shortly after fiscal 1999 began for Putnam Master Income Trust. The third successive interest-rate cut effected by the Federal Reserve Board on November 17, 1998, sufficiently calmed investors' fears about a worldwide recession and restored confidence in the higher-yielding, or spread, sectors of the global fixed-income market. These include areas such as U.S. high-yield bonds, investment-grade corporate bonds, mortgage-backed securities, and emerging-markets bonds. Consequently the historic and pronounced global flight to quality that took place last summer/early fall reversed itself quite dramatically through the six months ended April 30, 1999. As fixed-income investors reached a greater level of comfort with the so-called spread sectors, your fund's management team -- Jennifer E. Leichter, D. William Kohli, and David L. Waldman -- increased the portfolio's exposure to U.S. high-yield bonds and emerging-markets issues, taking advantage of highly attractive valuations. The shift in focus in both the market and the portfolio enabled your fund to deliver solid results at net asset value, outperforming two of the three competitive indexes used as benchmarks. See page 7 and 8 for complete performance information. Total return for 6 months ended 4/30/99 Net asset value Market price - ---------------------------------------------------------------- 5.32% -2.64% - ---------------------------------------------------------------- Past performance is no indication of future results. Performance information for longer periods begins on page 7. [GRAPHIC OMITTED: horizontal bar chart TOP FIVE COUNTRY ALLOCATIONS (INTERNATIONAL SECTOR)] TOP FIVE COUNTRY ALLOCATIONS (INTERNATIONAL SECTOR)* United Kingdom 6.7% Mexico 3.3% Brazil 2.7% Canada 2.5% Argentina 1.2% Footnote reads: *Based on net assets as of 4/30/99. Holdings will vary over time. * TREASURY RALLY OF 1998 UNWINDS IN 1999 In the fourth quarter of 1998, the pace of U.S. economic growth exceeded economists' expectations. With each new report signaling further growth ahead, speculation arose about the possibility of the Fed raising interest rates to curb any inflationary pressures. This new wave of concern combined with a more relaxed attitude toward riskier investments served to push interest rates higher and the prices of U.S. Treasury securities lower in the first four months of calendar 1999. As a result, your fund's U.S. Treasury holdings detracted somewhat from performance. Given the change in market dynamics, your fund's managers trimmed back exposure to the Treasury sector in favor of U.S. high-yield bonds and emerging-markets debt as the period progressed. The remaining allocation to Treasury securities provides the fund with a neutral duration stance, since your fund's managers saw no reason to make any definitive bets on interest-rate movements at that point in time. "High-yield bonds have regained their footing and we believe they are poised to continue their trek upward given the market's very favorable fundamentals." -- Jennifer E. Leichter, fund manager Your fund's weighting in mortgage-backed and asset-backed securities was also scaled back modestly as the flight to quality lost momentum. The positions that do remain in the portfolio are mostly residential mortgage-backed and commercial mortgage-backed issues. Strong economic activity and solid real estate fundamentals indicate a more promising environment for these securities. * HIGH-YIELD BONDS RETURN TO GLORY Until 1998's midsummer rout, the price performance of U.S. high-yield bonds had outstripped that of U.S. Treasury securities for most of the decade. As investors became more accepting of credit risk and returned to the spread sectors, the U.S. high-yield market once again took center stage, rallying significantly. Your fund's high-yield holdings provided the lion's share of performance, as in many years past. Your fund's managers favored bonds in the telecommunications, media, and finance industries -- fast-growing industries brisk with merger and acquisition activity -- creating the potential for credit upgrades and therefore price appreciation opportunities. Telecommunications and financial services were, in fact, two of the top-performing subsectors within the high-yield market in the past four months. Individual security selection within the telecom area further boosted returns, with Global Crossing and NEXTEL (listed under cellular communications) being two of the fund's most successful performers. Of the fund's financial services holdings, specialty financing companies and banks, such as Ocwen, Aames Financial, Contifinancial, and Delta Financial, produced notable results. Over the period, your fund's managers selectively added to some high-quality cyclical and energy issues. Riverwood Packaging is one holding in the paper industry that we believe shows promise. R&B Falcon and Ocean Energy Reserve are two energy issues recently purchased. While the securities discussed in this report were viewed favorably at the end of the period, all holdings are subject to review in accordance with the fund's investment strategy and may vary in the future. [GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR] TOP THREE HOLDINGS PER SECTOR HIGH YIELD SECTOR Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 Dial Call Communications, Inc. sr. disc. notes Ser. B, 10 1/4s, 2005 Millicom International Cellular S.A. sr. disc. notes stepped-coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) INTERNATIONAL SECTOR United Kingdom Treasury bonds 8s, 2000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 Canada (Government of) bonds Ser. WB60, 7 1/4s, 2007 GOVERNMENT SECTOR Government National Mortgage Association Pass-Through Certificates 6 1/2s, with due dates from December 15, 2027 to March 15, 2029 Government National Mortgage Association Pass-Through Certificates 7 1/2s, with due dates from September 15, 2022 to February 15, 2027 U. S. Treasury Bonds 6 1/8s, November 15, 2027 EMERGING MARKET SECTOR United Mexican States Ser. B, 6 1/4s, 2019 Brazil (Government of) stepped-coupon zero %, (8s, 4/30/00), 2014 Argentina (Republic of) 11 3/4s, 2009 Footnote reads: Based on net assets as of 4/30/99. Holdings will vary over time. * CORE EUROPE REMAINS INTERNATIONAL FOCUS The fund had international holdings in the core bond markets of Europe, primarily those of the Netherlands, Germany, France, and the United Kingdom. A stronger U.S. dollar and a shaky start to the euro in the early months of 1999 dampened the return potential of these holdings. As the period progressed, your fund's managers turned their attention to some of the peripheral, non-euro-bloc markets of Europe, adding to attractively valued, higher-yielding issues from Denmark and Sweden. Your fund's exposure to emerging markets was increased slightly, with bonds from Mexico, Brazil, and Bulgaria being the more heavily weighted holdings. Your fund's exposure to Japanese government bonds was minimal. * FAVORABLE BACKDROP SEEN FOR POSITIVE NEAR-TERM PERFORMANCE Your fund enters the second half of fiscal 1999 in a fixed-income market that seems to have come to terms with last year's volatility and unexpected events. High-yield bonds, which now make up the bulk of your fund's net assets, have regained their footing, and the fund's management believes they are poised to continue their trek upward, given the market's favorable fundamentals, such as solid economic growth, subdued inflation, relatively stable interest rates, and low defaults. Of course, 1998 is proof positive that market performance can turn on a dime. Therefore, the managers remain committed to conducting painstaking research in order to develop and maintain a portfolio that offers the best return-to-risk profile for your investment. Respectfully yours, /S/GEORGE PUTNAM George Putnam Chairman of the Trustees June 16, 1999 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 4/30/99, there is no guarantee the fund will continue to hold these securities in the future. Performance summary This section provides information about your fund's performance, which should always be considered in light of its investment strategy. Putnam Master Income Trust is designed for investors seeking high current income, consistent with preservation of capital, through a portfolio diversified among U.S. government, high-yield, and international fixed-income securities. TOTAL RETURN FOR PERIODS ENDED 4/30/99 Salomon Bros. First Lehman Bros. Non-U.S. Boston Market Government World Govt. High-Yield NAV price Bond Index Bond Index Index - ------------------------------------------------------------------------------ 6 months 5.32% -2.64% -0.95% -4.30% 8.91% - ------------------------------------------------------------------------------ 1 year -2.00 -2.69 6.43 9.06 0.69 - ------------------------------------------------------------------------------ 5 years 44.77 41.17 45.24 37.72 57.56 Annual average 7.68 7.14 7.75 6.61 9.52 - ------------------------------------------------------------------------------ 10 years 149.90 134.58 130.05 132.22 183.97 Annual average 9.59 8.90 8.69 8.79 11.00 - ------------------------------------------------------------------------------ Life of fund (since 12/28/87) 187.22 142.41 154.18 125.77 227.59 Annual average 9.75 8.12 8.58 7.45 11.04 - ------------------------------------------------------------------------------ Past performance is no assurance of future results. More recent returns may be more or less than those shown. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns, net asset value and market price will fluctuate so that an investor's shares when sold may be worth more or less than their original cost. TOTAL RETURN FOR PERIODS ENDED 3/31/99 Market NAV price - ---------------------------------------------------------------------------- 6 months 1.20% -2.62% - ---------------------------------------------------------------------------- 1 year -2.93 -2.01 - ---------------------------------------------------------------------------- 5 years 40.64 47.81 Annual average 7.06 8.13 - ---------------------------------------------------------------------------- 10 years 147.46 135.19 Annual average 9.48 8.93 - ---------------------------------------------------------------------------- Life of fund (since 12/28/97) 182.50 140.62 Annual average 9.66 8.11 - ---------------------------------------------------------------------------- Past performance is no assurance of future results. More recent returns may be more or less than those shown. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns and principal value will fluctuate so that an investor's shares when sold may be worth more or less than their original cost. PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/99 - ---------------------------------------------------------------------------- Distributions (common shares) - ---------------------------------------------------------------------------- Number 6 - ---------------------------------------------------------------------------- Income $0.363 - ---------------------------------------------------------------------------- Capital gains1 -- - ---------------------------------------------------------------------------- Total $0.363 - ---------------------------------------------------------------------------- Share value NAV Market price - ---------------------------------------------------------------------------- 10/31/98 $8.27 $8.125 - ---------------------------------------------------------------------------- 4/30/99 8.34 7.563 - ---------------------------------------------------------------------------- Current return - ---------------------------------------------------------------------------- Current dividend rate2 8.34% 9.21% - ---------------------------------------------------------------------------- 1Capital gains, if any, are taxable for federal and, in most cases, state tax purposes. For some investors, investment income may also be subject to the federal alternative minimum tax. Investment income may be subject to state and local taxes. 2Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. Terms and definitions Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding 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 First Boston High-Yield Index* is an unmanaged list of lower-rated higher-yielding U.S. corporate bonds. Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged list of bonds issued by 10 countries. Lehman Bros. Government Bond Index* is an unmanaged list of publicly issued U.S. Treasury obligations. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. *Securities indexes assume reinvestment of all distributions and interest payments and do not take in account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. The Putnam family of funds The following is a complete list of Putnam's open-end mutual funds. Please call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. GROWTH FUNDS Asia Pacific Growth Fund Capital Appreciation Fund [DBL. DAGGER] Capital Opportunities Fund Diversified Equity Trust Europe Growth Fund Global Growth Fund Global Natural Resources Fund Growth Opportunities Fund Health Sciences Trust International Growth Fund International New Opportunities Fund Investors Fund New Opportunities Fund [DBL. DAGGER] OTC & Emerging Growth Fund Research Fund Vista Fund Voyager Fund Voyager Fund II GROWTH AND INCOME FUNDS Balanced Retirement Fund Convertible Income-Growth Trust Equity Income Fund The George Putnam Fund of Boston Global Growth and Income Fund The Putnam Fund for Growth and Income Growth and Income Fund II International Growth and Income Fund New Value Fund Utilities Growth and Income Fund INCOME FUNDS American Government Income Fund Diversified Income Trust Global Governmental Income Trust High Quality Bond Fund + [DBL. DAGGER] High Yield Advantage Fund [DBL. DAGGER] High Yield Total Return Fund High Yield Trust [DBL. DAGGER] High Yield Trust II Income Fund Intermediate U.S. Government Income Fund Money Market Fund ** Preferred Income Fund Strategic Income Fund * U.S. Government Income Trust TAX-FREE INCOME FUNDS Municipal Income Fund Tax Exempt Income Fund Tax Exempt Money Market Fund** Tax-Free High Yield Fund Tax-Free Insured Fund State tax-free income funds [SECTION MARK] Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio and Pennsylvania State tax-free money market funds [SECTION MARK] ** California, New York ASSET ALLOCATION FUNDS Putnam Asset Allocation Funds -- three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments. The three portfolios: Asset Allocation: Balanced Portfolio Asset Allocation: Conservative Portfolio Asset Allocation: Growth Portfolio * Formerly Putnam Diversified Income Trust II + Formerly Putnam Federal Income Trust [DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact Putnam for details. [SECTION MARK] Not available in all states. ** An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund. Check your account balances and current performance at www.putnaminv.com. A guide to the financial statements These sections of the report constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price is determined. All investment and non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the net assets allocated to remarketed preferred shares.) Statement of operations shows the fund's net investment gain or loss for the reporting period. This is determined by adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses. This statement also lists any net gain or loss the fund realized on the sales of its holdings and -- for holdings that remain in the portfolio -- any change in unrealized gains or losses over the period. Statement of changes in net assets shows how the fund's net assets were affected by distributions to shareholders and by changes in the number of the fund's shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the amounts listed in the Statement of Operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Financial highlights provide an overview of the fund's investment results, per-share distributions, expense ratios, net investment income ratios and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period. For open-ended funds, a separate table is provided for each share class.
The fund's portfolio April 30, 1999 (Unaudited) CORPORATE BONDS AND NOTES (44.6%) (a) PRINCIPAL AMOUNT VALUE Advertising (0.7%) - -------------------------------------------------------------------------------------------------------------------------- $ 1,000,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 1,092,478 840,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 879,900 1,000,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 1,062,500 -------------- 3,034,878 Aerospace and Defense (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 190,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 184,775 250,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 243,125 520,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 521,300 750,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 791,250 160,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 170,400 240,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 238,200 200,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 182,000 210,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 216,825 1,210,000 Raytheon Co. 144A bonds 6.4s, 2018 1,143,039 -------------- 3,690,914 Agriculture (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 1,229,703 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 1,168,218 Airlines (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 310,000 Calair LLC company guaranty 8 1/8s, 2008 295,182 340,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 136,000 530,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005 (Canada) 384,250 355,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 298,200 650,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 338,000 1,500,000 US Air Inc. pass-thru certificates Ser. 93-A2, 9 5/8s, 2003 1,559,325 -------------- 3,010,957 Apparel (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 970,000 Fruit of the Loom 144A company guaranty 8 7/8s, 2006 950,600 610,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 611,525 250,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 266,875 -------------- 1,829,000 Automotive Parts (1.2%) - -------------------------------------------------------------------------------------------------------------------------- 180,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 189,450 383,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 403,108 500,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 506,875 1,320,000 Federal Mogul Corp. 144A notes 7 3/8s, 2006 1,296,900 540,000 Hayes Lemmerz International, Inc. 144A company guaranty 8 1/4s, 2008 544,050 200,000 Hayes Wheels International, Inc. company guaranty Ser. B, 9 1/8s, 2007 209,000 250,000 Lear Corp. sub. notes 9 1/2s, 2006 273,750 535,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 552,388 900,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 929,250 290,000 Safety Components International, Inc. sr. sub. notes Ser. B, 10 1/8s, 2007 282,750 -------------- 5,187,521 Banks (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 250,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 203,750 145,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 155,542 305,000 Fuji JGB Inv. LLC 144A FLIRB Ser. A, 9.87s, 2049 (Japan) 285,175 280,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 290,788 240,000 North Fork Capital Trust I company guaranty 8.7s, 2026 251,155 140,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 109,200 290,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 282,025 290,000 Peoples Heritage Capital Trust company guaranty Ser. B, 9.06s, 2027 283,536 285,000 Provident Capital Trust company guaranty 8.6s, 2026 283,980 165,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 160,675 230,000 Sovereign Capital Trust company guaranty 9s, 2027 228,581 220,000 Webster Capital Trust I 144A bonds 9.36s, 2027 221,683 -------------- 2,756,090 Basic Industrial Products (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 150,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 153,375 220,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 132,000 205,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 196,800 -------------- 482,175 Broadcasting (2.9%) - -------------------------------------------------------------------------------------------------------------------------- 920,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 943,000 820,000 Benedek Communications Corp. sr. disc. notes stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 625,250 765,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero % (12 3/4s, 2/1/02), 2009 (STP) 644,513 340,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 363,800 997,487 Capstar Broadcasting bank term loan 4.999s, 2005 999,981 170,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 (Bermuda) 146,200 1,580,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 1,627,400 327,990 Citadel Broadcasting Inc. sr. sub. notes 10 1/4s, 2007 362,429 270,000 Citadel Broadcasting Inc. company guaranty 9 1/4s, 2008 290,250 1,390,000 Echostar DBS Corp. 144A sr. notes 9 3/8s, 2009 1,442,125 590,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 572,300 480,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 523,800 890,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 887,775 450,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 468,000 120,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 124,800 1,424,000 PHI Holdings, Inc. sr. sub. notes 16%, 2001 1,123,963 405,000 Radio One Inc. company guaranty stepped-coupon Ser. B, zero %, (12s, 5/15/00), 2004 (STP) 420,188 340,000 SFX Broadcasting, Inc. 144A sr. sub. notes 9 1/8s, 2008 349,350 140,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 140,700 505,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 550,450 175,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002 (Mexico) 159,250 140,000 TV Azteca Holdings S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 121,450 -------------- 12,886,974 Building and Construction (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 195,000 American Architectural Products Corp. company guaranty 11 3/4s, 2007 161,850 1,230,000 D.R. Horton, Inc. company guaranty 8s, 2009 1,217,700 370,000 Cia Latino Americana 144A company guaranty 11 5/8s, 2004 (Argentina) 225,700 740,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 370,000 180,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 180,450 270,000 NCI Building Systems 144A sr. sub. notes 9 1/4s, 2009 270,000 350,000 Toll Corp. company guaranty 8 1/8s, 2009 350,875 -------------- 2,776,575 Building Products (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 360,000 Building Materials Corp. 144A sr. notes 8s, 2008 355,500 380,000 Morris Material Handling, Inc. company guaranty 9 1/2s, 2008 207,100 -------------- 562,600 Buses (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 1,250,000 MCII Holdings sec. notes, stepped-coupon 12s (15s,11/15/99), 2002 (STP) 1,125,000 Business Equipment and Services (1.0%) - -------------------------------------------------------------------------------------------------------------------------- 490,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 461,825 100,000 Iron Mountain, Inc. med. term notes company guaranty 10 1/8s, 2006 108,250 550,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 562,375 930,000 Iron Mountain, Inc. 144A sr. sub. notes 8 1/4s, 2011 932,325 190,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 188,100 966,664 Outsourcing Solutions Inc. 144A bank term loan 8.621s, 2004 944,914 666,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 738,428 90,000 United Stationer Supply, Inc. sr. sub. notes 8 3/8s, 2008 89,775 480,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 321,600 -------------- 4,347,592 Cable Television (2.1%) - -------------------------------------------------------------------------------------------------------------------------- 455,000 Acme Television sr. disc. notes stepped-coupon zero % (10 7/8s, 9/30/00), 2004 (STP) 393,575 835,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 914,325 510,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 520,200 160,000 Century Communications Corp. sr. notes 8 7/8s, 2007 167,200 360,000 Century Communications Corp. sr. notes 8 3/4s, 2007 374,400 1,440,000 Charter Communications Holdings LLC 144A sr. notes 8 5/8s, 2009 1,476,000 50,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 56,000 120,000 CSC Holdings, Inc. deb. Ser. B, 8 1/8s, 2009 128,374 140,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 143,168 360,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 364,705 760,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (11 3/4s, 12/15/00), 2005 (United Kingdom) (STP) 685,900 870,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero % (10 3/4s, 2/15/02), 2007 (United Kingdom) (STP) 693,825 505,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 426,725 625,000 Grupo Televisa S.A. 144A sr. notes 11 7/8s, 2006 (Mexico) 662,500 130,000 Jones Intercable, Inc. sr. notes 9 5/8s, 2002 140,725 400,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 (United Kingdom) 450,000 680,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 727,600 120,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 135,600 370,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005 (Argentina) 177,600 90,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008 (United Kingdom) 103,725 470,000 TeleWest Communications PLC 144A sr. disc. notes stepped- coupon zero % (9 1/4, 4/15/04), 2009 (United Kingdom) (STP) 318,425 40,000 21st Century Telecom Group, Inc. sr. disc. notes stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 18,400 520,000 United International Holdings sr. disc. notes stepped-coupon Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 356,200 -------------- 9,435,172 Cellular Communications (2.1%) - -------------------------------------------------------------------------------------------------------------------------- 960,000 Celcaribe S.A. sr. notes zero % (13 1/2s, 3/15/04), 2004 (Colombia) (STP) 816,000 1,658,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon zero % (14s, 10/1/02), 2007 (STP) 634,185 610,000 Cencall Communications Corp. sr. disc. notes 10 1/8s, 2004 (STP) 634,400 375,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 48,750 1,985,000 Dial Call Communications, Inc. sr. disc. notes Ser. B, 10 1/4s, 2005 2,059,438 865,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 960,150 1,265,000 McCaw International Ltd sr. disc. notes stepped-coupon zero % (13s, 4/15/02), 2007 (STP) 847,550 2,045,000 Millicom International Cellular S.A. sr. disc. notes stepped-coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) (STP) 1,574,650 790,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 928,250 350,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 273,000 420,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 442,050 -------------- 9,218,423 Chemicals (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 300,000 Geo Specialty Chemicals, Inc. 144A sr. sub. notes 10 1/8s, 2008 301,500 100,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 98,000 500,000 Huntsman Corp. 144A sr. sub. notes FRN 9.188s, 2007 455,000 145,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 123,250 480,192 Polytama International notes 11 1/4s, 2007 (Indonesia) 84,034 480,000 Royster-Clark Inc. 144A 1st mtge. 10 1/4s, 2009 487,200 440,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 455,400 340,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 156,400 435,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 217,500 -------------- 2,378,284 Computer Services and Software (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 125,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 140,625 850,000 IPC Information Systems sr. disc. notes stepped-coupon zero % (10 7/8s, 11/1/01), 2008 (STP) 641,750 500,000 PSINet, Inc. sr. notes 11 1/2s, 2008 556,250 250,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 261,875 280,000 Unisys Corp. sr. notes 7 7/8s, 2008 293,300 240,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 270,000 180,000 Verio Inc. sr. notes 10 3/8s, 2005 191,700 -------------- 2,355,500 Conglomerates (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 510,000 Axia, Inc. company guaranty 10 3/4s, 2008 516,375 670,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 167,500 200,000 Dine S.A. de C.V. company guaranty 8 3/4s, 2007 (Mexico) 177,000 -------------- 860,875 Consumer Durable Goods (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 380,000 Albecca Inc. company guaranty 10 3/4s, 2008 323,000 70,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon zero % (12s, 6/1/02), 2009 (STP) 27,300 130,000 Iron Age Corp. company guaranty 9 7/8s, 2008 94,900 175,000 Sealy Mattress Co. 144A sr. sub. notes Ser. B, 9 7/8s, 2007 176,750 -------------- 621,950 Consumer Services (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 860,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 946,000 190,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %, (13 5/8s, 6/30/00), 2005 (STP) 217,075 -------------- 1,163,075 Cosmetics (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 140,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 142,800 135,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 137,025 250,000 Revlon Consumer Products sr. notes 9s, 2006 255,000 560,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 537,600 140,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 138,600 -------------- 1,211,025 Electric Utilities (1.7%) - -------------------------------------------------------------------------------------------------------------------------- 1,200,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 804,000 190,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 194,750 840,000 Calpine Corp. sr. notes 8 3/4s, 2007 854,398 470,000 Calpine Corp. sr. notes 7 7/8s, 2008 474,700 750,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 923,513 1,600,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 1,811,776 402,478 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 426,498 250,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 257,628 240,000 Niagara Mohawk Power Corp. sr. notes Ser. E, 7 3/8s, 2003 251,002 480,663 Northeast Utilities System notes Ser. A, 8.58s, 2006 486,354 850,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 (China) 399,500 660,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 663,300 -------------- 7,547,419 Electronics (0.8%) - -------------------------------------------------------------------------------------------------------------------------- 295,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006 (Canada) 327,450 280,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 283,500 685,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 708,975 180,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 173,700 760,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 817,000 185,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 192,631 75,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 72,563 600,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 558,000 400,000 Wavetek Corp. company guaranty 10 1/8s, 2007 376,000 -------------- 3,509,819 Entertainment (1.2%) - -------------------------------------------------------------------------------------------------------------------------- 820,000 ITT Corp. notes 6 3/4s, 2005 769,898 905,000 News America Inc. deb. 7 1/8s, 2028 882,511 330,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon zero %, (10s, 4/1/03), 2008 (STP) 234,300 825,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 862,125 495,000 SFX Entertainment, Inc. 144A company guaranty Ser. B, 9 1/8s, 2008 512,325 400,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 192,000 1,475,000 Time Warner, Inc. company guaranty 6 5/8s, 2029 1,393,831 585,000 United Artists Theatre sr. sub. notes Ser. B, 9 3/4s, 2008 497,250 -------------- 5,344,240 Environmental Control (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 1,070,000 Allied Waste Industries, Inc. company guaranty Ser. B, 7 7/8s, 2009 1,045,925 Financial Services (2.7%) - -------------------------------------------------------------------------------------------------------------------------- 750,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 511,875 500,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 454,745 460,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 400,628 425,000 Cellco Finance Corp. NV 144A sr. sub. notes 15s, 2005 (Netherlands) 422,875 1,720,000 Citicorp sub. notes 6 3/8s, 2008 1,710,609 165,000 Colonial Capital II 144A company guaranty 8.92s, 2027 157,342 70,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 49,175 120,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 91,200 840,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 663,600 1,510,000 Household Finance Corp. sr. unsub. 5 7/8s, 2009 1,432,960 645,000 Household Netherlands N.V. company guaranty 6.2s, 2003 (Netherlands) 646,077 470,000 Imperial Credit Capital Trust I 144A company guaranty 10 1/4s, 2002 380,700 480,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 393,600 345,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 331,200 600,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 324,000 1,060,000 RBF Finance 144A company guaranty 11s, 2006 1,107,700 17,400,000 Realkredit Danmark mortgage 7s, 2029 (Denmark) 2,530,625 395,000 Resource America Inc. 144A sr. notes 12s, 2004 359,450 -------------- 11,968,361 Food and Beverages (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 340,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 278,800 30,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 27,825 550,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 596,063 75,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 79,031 620,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 341,000 710,000 Triarc Consumer Products, Inc. 144A sr. sub. notes 10 1/4s, 2009 715,325 -------------- 2,038,044 Gaming (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 655,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 741,788 500,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 530,000 810,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 836,325 220,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 205,280 720,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004 306,000 180,000 Harrahs Entertainment, Inc. company guaranty 7 1/2s, 2009 180,720 270,000 Hollywood Park, Inc. 144A sr. sub. notes 9 1/4s, 2007 278,775 215,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B, 13s, 2004 238,650 450,000 Mohegan Tribal Gaming, Auth. 144A sr. notes 8 1/8s, 2006 459,000 330,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 323,400 500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 224,375 830,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 838,300 360,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 360,450 -------------- 5,523,063 Health Care (1.8%) - -------------------------------------------------------------------------------------------------------------------------- 130,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 123,217 150,000 Columbia/HCA Healthcare Corp. notes 7.69s, 2025 123,404 210,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 190,556 600,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 566,862 270,000 Conmed Corp. company guaranty 9s, 2008 274,050 275,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 209,000 410,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 333,125 750,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 540,000 480,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 326,400 90,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 76,950 939,788 Magellan Health Services, Inc. bank term loan 8s, 2005 874,003 1,000,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 520,000 210,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 77,700 540,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 453,600 280,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 257,600 1,080,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 842,400 810,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 599,400 430,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 94,600 520,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 130,000 120,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 121,200 150,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 151,875 420,000 Tenet Healthcare Corp. 144A sr. sub. notes 8 1/8s, 2008 411,600 150,000 Tenet Healthcare Corp. sr. notes 8s, 2005 150,375 250,000 Tenet Healthcare Corp.144A sr. notes 7 5/8s, 2008 243,750 310,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 310,000 -------------- 8,001,667 Lodging (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 310,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 288,300 1,135,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 1,095,275 350,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 361,375 600,000 Sun International Hotels Ltd. company guaranty 9s, 2007 631,500 -------------- 2,376,450 Medical Supplies and Devices (0.4%) - -------------------------------------------------------------------------------------------------------------------------- 455,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 460,688 415,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 462,725 210,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 203,700 340,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 341,700 380,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 152,000 360,000 Mediq, Inc. company guaranty 11s, 2008 313,200 -------------- 1,934,013 Metals and Mining (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 350,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 175,000 305,000 Continental Global Group sr. notes Ser. B, 11s, 2007 280,600 710,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 553,800 320,000 Neenah Foundry Co. 144A sr. sub. notes 11 1/8s, 2007 323,200 500,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 490,000 310,000 WHX Corp. sr. notes 10 1/2s, 2005 310,000 -------------- 2,132,600 Motion Picture Distribution (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 230,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 2011 224,825 440,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 433,400 355,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 (Mexico) 365,650 80,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 80,000 1,202,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 420,700 -------------- 1,524,575 Oil and Gas (1.3%) - -------------------------------------------------------------------------------------------------------------------------- 310,000 Abraxas Petroleum Corp. 144A company guaranty Ser. D, 11 1/2s, 2004 179,025 360,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 374,400 50,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 36,500 1,190,000 CMS Energy Corp. sr. notes 6 3/4s, 2004 1,167,854 310,000 Eagle Geophysical, Inc. company guaranty Ser. B, 10 3/4s, 2008 186,000 70,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon Ser. B, zero % (14 1/8s, 5/1/03), 2006 (STP) 24,500 300,000 Gothic Production Corp. company guaranty Ser. B, 11 1/8s, 2005 229,500 370,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 378,325 300,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 305,250 400,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 408,000 450,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 441,000 590,000 Petro Geo-Services notes 7 1/2s, 2007 (Norway) 612,196 250,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 133,750 240,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 132,000 35,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B, zero % (13s, 6/15/99), 2002 (In default) (NON) (STP) 5,250 1,370,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 (In default) (NON) 239,750 500,000 Transamerican Refining Corp. sr. sub. notes Ser. B, 16s, 2003 (In default) (NON) 50,000 774,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 (In default) (NON) 38,700 700,000 Vintage Petroleum 144A sr. sub. notes 9 3/4s, 2009 722,750 -------------- 5,664,750 Packaging and Containers (1.1%) - -------------------------------------------------------------------------------------------------------------------------- 175,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 182,000 310,000 Ball Corp. company guaranty 7 3/4s, 2006 320,075 250,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 259,778 460,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 452,171 740,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 728,767 640,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 659,200 550,000 Packaging Corp. bank term loan 6s, 2008 554,125 145,000 Radnor Holdings Inc. sr. notes 10s, 2003 152,975 1,070,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 1,059,300 615,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 639,600 -------------- 5,007,991 Paper and Forest Products (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 330,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 330,000 480,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 480,000 500,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s, 2007 (Indonesia) 340,000 530,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 551,200 480,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s, 2007 (Indonesia) 326,400 770,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004 (Indonesia) 523,600 590,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 604,750 -------------- 3,155,950 Pharmaceuticals (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 600,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 619,500 Photography (--%) - -------------------------------------------------------------------------------------------------------------------------- 140,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero % (9 5/8s, 2/1/02), 2006 (STP) 85,400 Publishing (0.6%) - -------------------------------------------------------------------------------------------------------------------------- 555,000 Affinity Group Holdings sr. notes 11s, 2007 555,000 300,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 324,000 280,000 American Media Operation, Inc. 144A sr. sub. notes 10 1/4s, 2009 280,000 500,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 503,750 490,000 Garden State Newspapers 144A sr. sub. notes 8 5/8s, 2011 497,350 400,000 Perry-Judd company guaranty 10 5/8s, 2007 397,000 107,729 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 112,038 150,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 156,000 -------------- 2,825,138 Railroads (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 565,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %, (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 361,600 510,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 478,125 -------------- 839,725 Restaurants (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 700,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 717,500 Retail (0.7%) - -------------------------------------------------------------------------------------------------------------------------- 350,000 Fred Meyer, Inc. company guaranty 7.45s, 2008 366,905 180,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 182,700 400,000 K mart Corp. pass-thru certificates Ser. 95K4, 9.35s, 2020 439,000 460,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 443,900 625,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 657,813 300,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 273,000 680,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 686,800 -------------- 3,050,118 Satellite Services (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 470,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 528,750 270,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004 (Mexico) 230,850 -------------- 759,600 Semiconductors (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 192,054 Cirent Semiconductor sr. sub. notes 10.22s, 2002 196,855 209,533 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 214,771 408,792 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 (PIK) 384,264 800,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 808,000 450,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 409,500 -------------- 2,013,390 Shipping (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 140,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 134,400 510,000 Johnstown America Industries, Inc. company guaranty Ser. C, 11 3/4s, 2005 553,350 220,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 147,400 -------------- 835,150 Specialty Consumer Products (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 420,000 Decora Industries, Inc. sec. Ser. B, 11s, 2005 407,400 Steel (0.5%) - -------------------------------------------------------------------------------------------------------------------------- 1,040,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 1,037,400 540,000 California Steel Industries 144A sr. notes 8 1/2s, 2009 552,150 330,000 National Steel Corp. 144A 1st mtge. 9 7/8s, 2009 347,325 245,000 National Steel Corp. 144A 1st mtge. Ser. B, 9 7/8s, 2009 257,863 -------------- 2,194,738 Telecommunications (7.0%) - -------------------------------------------------------------------------------------------------------------------------- 440,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero % (12 1/2s, 11/15/02), 2007 (Israel) (STP) 255,200 330,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero % (12 3/4s, 5/15/03), 2005 (Mexico) (STP) 224,400 310,000 Birch Telecom, Inc. sr. notes 14s, 2008 291,400 310,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 327,825 1,235,000 Colt Telecommunications Group PLC sr. disc. notes stepped-coupon zero %, (12s, 12/15/01), 2006 (United Kingdom) (STP) 1,055,925 425,000 Covad Communications Group sr. disc. notes stepped-coupon Ser. B, zero % (13 1/2s, 3/15/03), 2008 (STP) 250,750 910,000 Covad Communications Group Inc. 144A sr. notes 12 1/2s, 2009 923,650 1,920,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B, zero % (12 1/2s, 3/01/03), 2008 (STP) 748,800 900,000 Econophone Inc. company guaranty 13 1/2s, 2007 976,500 720,000 Econophone, Inc. 144A notes stepped-coupon zero % (11s, 2/15/03), 2008 (STP) 405,000 230,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007 (United Kingdom) 247,825 1,370,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon zero % (13, 4/15/03), 2008 (STP) 712,400 890,000 Focal Communications Corp. sr. disc. notes, stepped-coupon Ser. B, zero % (12 1/8s, 2/15/03), 2008 (STP) 525,100 1,960,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 2,180,500 620,000 GST Equipment Funding sr. notes 13 1/4s, 2007 669,600 747,000 GST Telecommunications, Inc. company guaranty stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 620,010 1,190,000 GST Telecommunications, Inc. 144A sr. disc. notes stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 737,800 100,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007 (Netherlands) 109,500 265,000 Hyperion Telecommunications, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 221,938 310,000 Hyperion Telecommunications Inc. 144A sr. sub. notes 12s, 2007 327,050 550,000 Hyperion Telecommunications, Inc. sr. notes Ser. B, 12 1/4s, 2004 596,750 575,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero % (13 1/2s, 9/15/00), 2005 (Canada) (STP) 524,688 770,000 ICG Communications, Inc. sr. disc. notes stepped-coupon zero % (10s, 2/15/03), 2008 (STP) 488,950 1,420,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero % (9 7/8s, 5/1/03), 2008 (STP) 880,400 760,000 Interact Systems, Inc. 144A stepped-coupon zero % (14s, 8/1/99), 2003 (STP) 136,800 700,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 528,500 1,120,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 1,114,400 550,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 544,500 1,070,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 933,575 510,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 512,550 1,695,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 957,675 1,015,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %, (11 7/8s, 10/15/02), 2007 (STP) 629,300 425,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 468,563 220,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 223,850 420,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 411,600 210,000 MetroNet Communications Corp. sr. disc. notes stepped-coupon zero % (10 3/4s, 11/1/02), 2007 (Canada) (STP) 171,675 840,000 MetroNet Communications Corp. 144A sr. notes 10 5/8s, 2008 (Canada) 984,900 530,000 MetroNet Communications Corp. sr. disc. stepped-coupon notes zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 410,750 850,000 Microcell Telecommunications sr. disc. notes stepped-coupon Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 714,000 90,000 Netia Holdings B.V. 144A company guaranty stepped-coupon zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 62,100 150,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007 (Poland) 142,500 650,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 685,750 620,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 347,200 595,000 Qwest Communications International, Inc. sr. disc. notes stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 485,092 290,000 Qwest Communications International, Inc. sr. disc. notes stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 224,060 470,000 Qwest Communications International, Inc. 144A sr. notes 7 1/4s, 2008 484,894 800,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 452,000 650,000 Startec Global Communications Corp. sr. notes 12s, 2008 588,250 700,000 Telecommunications Techniques, Inc. company guaranty 9 3/4s, 2008 707,000 480,000 Telehub Communications Corp. company guaranty stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 331,200 790,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (11 1/2s, 3/1/03), 2008 (STP) 458,200 580,000 Teligent, Inc. sr. notes 11 1/2s, 2007 580,000 890,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 961,200 150,000 Versatel Telecom B. V. sr. notes 13 1/4s, 2008 (Netherlands) 162,000 340,000 Versatel Telecom B. V. sr. notes 13 1/4s, 2008 (Netherlands) 367,200 545,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon zero % (15s, 3/1/02), 2007 (STP) 572,250 200,000 WinStar Communications, Inc. sr. sub. notes 10s, 2008 173,000 -------------- 30,828,495 Telephone Services (2.9%) - -------------------------------------------------------------------------------------------------------------------------- 160,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 180,800 710,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 468,600 1,080,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 1,007,100 600,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 423,000 900,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 585,000 360,000 Call-Net Enterprises Inc. sr. notes 8s, 2008 (Canada) 347,400 425,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon zero % (12 3/4s, 4/1/01), 2006 (STP) 284,750 250,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 195,000 500,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 496,250 150,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 118,500 420,000 Globo Communicacoes 144A company guaranty 10 1/2s, 2006 (Brazil) 336,000 380,000 ITC Deltacom, Inc. sr. notes 11s, 2007 420,850 280,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 286,300 180,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 126,000 790,000 McLeodUSA, Inc. 144A sr. notes 8 1/8s, 2009 782,100 185,000 OnePoint Communications Corp. 144A sr. notes 14 1/2s, 2008 94,350 760,000 Primus Telecommunications Group, Inc. sr. notes Ser. B, 9 7/8s, 2008 748,600 130,000 RCN Corp. sr. disc. notes stepped-coupon zero %, (11 1/8s, 10/15/02), 2007 (STP) 90,025 705,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 782,550 300,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 310,500 130,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 126,750 2,415,000 Sprint Capital Corp. company guaranty 5.7s, 2003 2,372,544 500,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon zero % (12 1/2s, 8/15/01), 2006 (STP) 445,000 190,000 Sprint Spectrum L.P. sr. notes 11s, 2006 217,981 175,000 Transtel S.A. 144A pass-through certificates 12 1/2s, 2007 (Colombia) 78,750 260,000 US Xchange LLC sr. notes 15s, 2008 282,100 580,000 Viatel, Inc. sr. disc. notes stepped-coupon zero % (12 1/2s, 4/15/03), 2008 (STP) 377,000 890,000 Viatel, Inc. sr. notes 11 1/4s, 2008 925,600 -------------- 12,909,400 Textiles (0.2%) - -------------------------------------------------------------------------------------------------------------------------- 540,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 415,800 290,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 295,800 190,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 191,900 -------------- 903,500 Transportation (0.1%) - -------------------------------------------------------------------------------------------------------------------------- 230,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 232,875 Wireless Communications (0.3%) - -------------------------------------------------------------------------------------------------------------------------- 410,000 American Mobile Satellite Corp. company guaranty 12 1/4s, 2008 303,400 220,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon zero % (14 3/4s, 12/15/00), 2005 (STP) 203,500 390,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 374,400 125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 58,750 500,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon zero %, (11 5/8s, 4/15/04), 2009 (STP) 281,250 200,000 Telesystem International Wireless Inc. sr. disc. notes stepped-coupon Ser. C, zero %, (10 1/2s, 11/1/02), 2007 (Canada) (STP) 107,000 -------------- 1,328,300 -------------- Total Corporate Bonds and Notes (cost $209,905,941) $ 197,427,894 U.S. GOVERNMENT AND AGENCY OBLIGATIONS (20.1%) (a) PRINCIPAL AMOUNT VALUE U.S. Government Agency Mortgage Obligations (11.7%) - -------------------------------------------------------------------------------------------------------------------------- $ 2,199,547 Federal Home Loan Mortgage Corp. 7 1/2s, May 1, 2027 $ 2,260,717 Federal National Mortgage Association Pass-Through Certificates 1,077,145 7s, Dwarf, May 1, 2011 1,100,368 1,214,044 6 1/2s, with due dates from January 1, 2027 to November 1, 2028 1,206,369 828,828 6 1/2s, Dwarf, with due dates from July 1, 2013 to August 1, 2013 835,558 3,606,456 6s, Dwarf, July 1, 2013 3,572,627 Government National Mortgage Association 1,300,000 8s, TBA, May 15, 2029 1,355,250 2,780,000 6 1/2s, TBA, May 15, 2029 2,761,735 Government National Mortgage Association Pass-Through Certificates 6,276,976 8s, with due dates from February 15, 2024 to March 15, 2028 6,546,116 11,314,653 7 1/2s, with due dates from September 15, 2022 to February 15, 2027 11,671,654 15,461 7 1/2s, Midget, February 15, 2024 15,964 7,570,489 7s, with due dates from January 15, 2023 to April 15, 2028 7,693,026 12,839,544 6 1/2s, with due dates from December 15, 2027 to March 15, 2029 12,755,189 -------------- 51,774,573 U.S. Treasury Obligations (8.4%) - -------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Bonds 2,985,000 6 1/2s, November 15, 2026 3,230,337 10,765,000 6 1/8s, November 15, 2027 11,143,497 1,875,000 5 1/2s, August 15, 2028 1,786,819 5,385,000 5 1/4s, February 15, 2029 5,055,169 3,360,000 5 1/4s, November 15, 2028 3,109,042 U.S. Treasury Notes 4,500,000 5s, February 28, 2001 4,493,655 3,165,000 4 3/4s, November 15, 2008 3,023,050 355,000 4 3/4s, February 15, 2004 348,010 3,475,000 4 1/4s, November 15, 2003 3,337,633 6,215,000 U.S. Treasury Strip, zero %, November 15, 2019 1,802,536 -------------- 37,329,748 -------------- Total U.S. Government and Agency Obligations (cost $89,474,622) $ 89,104,321 FOREIGN GOVERNMENT BONDS AND NOTES (9.6%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- CAD 3,970,000 Canada (Government of) bonds Ser. WB60, 7 1/4s, 2007 $ 3,092,859 USD 800,000 Colombia (Republic of) 9 3/4s, 2009 779,680 USD 310,000 Colombia (Republic of) 8 5/8s, 2008 281,325 EUR 2,467,926 France (Government of) bonds 5 1/2s, 2007 2,920,477 EUR 1,326,916 France (Government of) deb. 6s, 2025 1,629,199 EUR 1,227,101 Germany (Federal Republic of) bonds Ser. 97, 6 1/2s, 2027 1,611,156 EUR 821,165 Italy (Government of) bonds 7 1/4s, 2026 1,149,847 EUR 1,363,609 Netherlands (Government of) bonds 5 1/2s, 2028 1,572,541 EUR 1,026,649 Spain (Government of) bonds 6s, 2029 1,248,581 SEK 9,900,000 Sweden (Government of) bonds Ser. 1035, 6 3/4s, 2014 1,447,845 SEK 8,700,000 Sweden (Government of) deb. Ser. 1041, 6s, 2005 1,158,580 RUB 16,500,000 U.S. Dollar GKO Pass Through Structured Note (Issued by Deutsche Bank. The principal USD is linked to the bid price for the Russian Treasury Bill at maturity, and the change in the spot rate of the Russian Ruble from issue date), zero %, 1999 (In default) (NON) 20,205 GBP 3,535,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 6,492,641 GBP 11,345,000 United Kingdom Treasury bonds 8s, 2000 19,066,413 -------------- Total Foreign Government Bonds and Notes (cost $47,033,862) $ 42,471,349 COLLATERALIZED MORTGAGE OBLIGATIONS (9.0%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- Commercial Mortgage Acceptance Corp. $ 1,395,000 Ser. 97-ML1, Class D, 7.11s, 2030 $ 1,376,037 1,525,000 Ser. 98-C2, Class D, 6.757s, 2009 1,470,910 16,318,840 Ser. 97-ML1, IO (Interest Only), 0.962s, 2017 856,739 1,060,000 Countrywide Home Loans Ser. 1998-3, Class A5, 6 3/4s, 2028 1,045,591 1,625,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C, Class A8, 6 1/2s, 2024 1,580,865 Criimi Mae Commercial Mortgage Trust 4,665,000 Ser. 98-C1, Class A2, 7s, 2011 4,259,728 1,860,000 Ser. 98-C1, Class B, 7s, 2011 1,513,575 10,928,323 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, Class X, IO, 1.254s, 2031 645,881 2,338,947 Fannie Mae Ser. 1993-251, Class Z, 6 1/2s, 2023 2,268,778 Fannie Mae Strip 5,578,846 Ser. 281, Class 2, IO, 9s, 2026 1,258,727 4,320,834 Ser. 299, Class 2, IO, 6 1/2s, 2028 1,228,737 Freddie Mac 770,000 Ser. 2040, Class PE, 7.5s, 2028 808,616 435,000 Ser. 1439, Class I, 7.5s, 2022 449,358 610,284 Ser. 1717, Class L, 6 1/2s, 2024 605,802 Freddie Mac Strip 2,263,646 Ser. 188, IO, 7 1/2s, 2027 487,745 1,524,922 Ser. 176, PO (Principle Only), 7s, 2026 1,180,147 2,037,497 Ser. 177, PO, 7s, 2026 1,576,832 6,010,000 Ser. 2089, IO, 7s, 2023 1,134,388 3,305,010 Ser. 192, IO, 6 1/2s, 2028 910,943 First Union-Lehman Brothers Commercial Mortgage Co. 1,615,000 Ser. 97-C2, Class D, 7.12s, 2012 1,545,353 450,000 Ser. 98-C2, Class D, 6.778s, 2013 417,234 9,249,744 Ser. 97-C2, IO, 1.092s, 2027 725,888 620,000 GE Capital Mortgage Services, Inc. Ser. 1998-11, Class 2A4, 6 3/4s, 2028 616,547 GMAC Commercial Mortgage Securities Inc. 1,710,000 Ser. 98-C2, Class D, 6 1/2s, 2031 1,598,650 9,229,050 Ser. 98-C2, Class X, IO, 0.823s, 2031 389,351 700,000 Government National Mortgage Association Ser. 97-8, Class PE, 7.5s, 2027 733,906 800,000 GS Mortgage Securities Corp. II Ser. 98-GLII, Class D, 7.191s, 2031 765,250 Merrill Lynch Mortgage Investors, Inc. 640,000 Ser. 1995-C3, Class D, 7.782s, 2025 655,200 248,000 Ser. 98-C2, Class D, 7.116s, 2030 240,948 18,851,489 Ser. 1996-C2, IO, 1.652s, 2028 1,408,707 2,814,778 Ser. 98-C2, IO, 1.587s, 2030 214,486 Morgan Stanley Capital I 455,000 Ser. 98-WF1, Class D, 7.12s, 2008 446,753 445,000 Ser. 98-XL1, Class E, 6.989s, 2030 434,709 12,372,479 Ser. 1998-HF1, Class X, IO, 1.238s, 2018 703,685 Mortgage Capital Funding, Inc. 585,000 Ser. 98-MC1, Class A2, 6.663s, 2008 593,775 5,060,330 Ser. 97-MC2, Class X, IO, 1.583s, 2012 375,374 27,693,295 Ser. 98-MC1, Class X, IO, 0.722s, 2009 1,125,040 1,033,603 PNC Mortgage Securities Corp. Ser. 97-6, Class A2, 6.6s, 2027 1,040,063 352,777 Prudential Home Mortgage Securities Ser. 93-57, Class A4, 5.9s, 2023 353,148 792,450 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 791,309 -------------- Total Collateralized Mortgage Obligations (cost $40,982,601) $ 39,834,775 BRADY BONDS (8.3%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 4,840,000 Argentina (Republic of) 11 3/4s, 2009 $ 5,009,400 1,565,000 Brazil (Government of) 11 5/8s, 2004 1,518,050 1,460,000 Brazil (Government of) disc. bonds FRB 6.125s, 2024 956,300 12,759,614 Brazil (Government of) disc. bonds FRB 6.625s, 2024 8,804,134 2,210,000 Bulgaria (Government of) Ser. A, FRB 5.875s, 2024 1,513,850 4,910,000 Bulgaria (Government of) Ser. A, FRB, 2 1/2s, 2012 2,970,550 FRF 3,420,000 Ivory Coast -- 144A FLIRB collateralized FRB 2s, 2018 132,388 FRF 3,334,500 Ivory Coast -- 144A PDI bonds FRB 1.9s, 2018 150,591 $ 3,130,000 United Mexican States 10 3/8s, 2009 3,349,100 1,610,000 United Mexican States 9 3/4s, 2005 1,674,400 11,860,000 United Mexican States Ser. B, 6 1/4s, 2019 9,384,818 1,745,000 Venezuela (Government of) deb. Ser. W-A, 6 3/4s, 2020 1,273,850 -------------- Total Brady Bonds (cost $37,122,643) $ 36,737,431 PREFERRED STOCKS (3.7%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 10,649 AmeriKing, Inc. $3.25 pfd. (PIK) $ 271,550 15,000 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 390,000 5,023 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 617,829 3,460 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 429,040 11,925 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 640,969 5,019 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 604,790 263 Concentric Network Corp. Ser. B, 13.5% pfd. (PIK) 284,040 9,189 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 1,079,708 27,930 Diva Systems Corp. Ser. C, $6.00 pfd. 167,580 930,000 Dobson Communications 144A 13.00% pfd. (PIK) 930,000 4 E. Spire Communications, Inc. 12.75% pfd. (PIK) 2,140 100 Fresenius Medical Capital Trust I Ser. D, 9.00% pfd. (Germany) 104,250 560 Fresenius Medical Capital Trust II 7.875% company guaranty, pfd. (Germany) 554,400 9,730 Global Crossing Holdings 144A $10.50 pfd. 1,123,815 932 Granite Broadcasting 144A 12.75% pfd. (PIK) 959,960 4 Hyperion Telecommunications Ser. B, 12.875% pfd. (PIK) 3,760 943 ICG Holdings, Inc. 14.25% pfd. (Canada) 961,860 392 ICG Holdings, Inc., 144A 14.00% pfd. (Canada) (PIK) 403,760 969 Intermedia Communication Ser. B, 13.5% pfd. (PIK) 1,046,520 598 IXC Communications, Inc. 12.5% pfd. (PIK) 598,000 9,189 Lady Luck Gaming Corp. $11.25 pfd. 358,371 438 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 503,700 162 NEXTEL Communications, Inc. Ser. E, 11.125% pfd. (PIK) 178,200 19,851 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 1,091,805 79 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 667,550 380 R & B Falcon Corp. $1.3875 cv. pfd. 398,050 5,000 Sinclair Capital $11.625 cum. pfd. 550,000 683 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 730,810 60,051 TCR Holding Corp. Class. E, zero % pfd. 3,783 126 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) 63,000 414 Viatel, Inc. Ser. A, $10.00 cv. pfd. (PIK) 93,150 580 WinStar Communications, Inc. 144A $14.25 pfd. (PIK) 464,000 -------------- Total Preferred Stocks (cost $15,419,496) $ 16,276,390 ASSET-BACKED SECURITIES (1.0%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 505,000 Contimortgage Home Equity Loan Trust Ser. 97-1, Class M2, 7.67s, 2028 $ 496,163 1,386,872 First Plus Ser. 98-A Class A, 8 1/2s, 2023 1,374,954 2,723,837 Provident Bank Home Equity Loan Trust Ser. 99-1, Class A2, 5.08s, 2019 2,723,837 -------------- Total Asset-Backed Securities (cost $4,609,634) $ 4,594,954 WARRANTS (0.7%) (a) (NON) EXPIRATION NUMBER OF WARRANTS DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- 410 American Mobile Satellite Corp. 4/1/08 $ 12,300 330 Bestel SA (Mexico) 5/15/05 330 310 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 1,550 2,498 Cellnet Data Systems, Inc. 10/1/07 49,960 325 Club Regina, Inc. 144A 12/1/04 325 1,235 Colt Telecommunications Group PLC 12/31/06 586,625 5,062 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 506 425 Covad Communications Group 144A 3/15/08 549,100 690 Diva Systems Corp. 5/15/06 166,980 3,606 Diva Systems Corp. 3/1/08 46,878 9,600 DTI Holdings Inc. 3/1/08 96 10 E. Spire Communications, Inc. 11/1/05 150 1,050 Econophone, Inc. 144A 7/1/07 63,000 310 Epic Resorts 6/15/05 3 370 Esat Holdings, Inc. (Ireland) 2/1/07 27,380 1,370 Firstworld Communication 4/15/08 68,500 380 Globalstar Telecommunications 2/15/04 19,000 940 Hyperion Telecommunications 144A 4/15/01 65,800 8,514 ICG Communications 10/15/05 174,537 760 Interact Systems, Inc. 8/1/03 8 1,325 Intermedia Communications 6/1/00 141,775 450 International Wireless Communications Holdings 144A 8/15/01 9 875 KMC Telecom Holdings, Inc. 4/15/08 2,625 875 Knology Holdings, Inc. 144A 10/15/07 1,750 180 Long Distance International, Inc. 144A 4/13/08 360 1,530 McCaw International Ltd. 4/15/07 6,503 380 Mediq Inc. 144A 6/1/09 4 3,130 Mexico-United Mexican States 2/18/00 161,195 140 MGC Communications, Inc. 144A 10/1/04 21,280 185 Onepoint Communications, Inc. 6/1/08 185 390 Orbital Imaging Corp. 144A 3/1/05 15,600 525 Orion Network Systems 1/15/07 6,300 5,290 Pagemart, Inc. 144A 12/31/03 43,643 620 Pathnet, Inc. 144A 4/15/08 6,200 640 Paxson Communications Corp. 144A 6/30/03 6 4,238 President Riverboat Casinos, Inc. 9/30/99 127 3,640 Rhythms Netcon 144A 5/15/08 817,362 390 Spanish Broadcasting Systems 144A 6/30/99 79,950 650 Startec Global Communications Corp. 5/15/08 650 275 Sterling Chemicals Holdings 8/15/08 5,500 480 Telehub Communications Corp. 7/31/05 2,400 500 Transamerican Refining Corp. 6/30/03 1 2,285 UIH Australia/Pacific, Inc. 144A 5/15/06 2,285 490 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 34,300 36 Wright Medical Technology, Inc. 144A 6/30/03 -- -------------- Total Warrants (cost $841,591) $ 3,183,038 CONVERTIBLE PREFERRED STOCKS (0.5%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 2,900 Adelphia Communications Corp. Ser. D, $5.50 cv. pfd. $ 590,150 2,600 Chancellor Media Corp. $3.00 cv. cum. pfd. 286,650 2,290 Chesapeake Energy Corp. $3.50 cum. cv. pfd. 52,098 16,450 Global Telesystems, Inc. 144A $3.625 cv. pfd. 908,863 20 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 192,000 932 XCL Ltd $8.075 cv. pfd. 37,280 -------------- Total Convertible Preferred Stocks (cost $2,055,656) $ 2,067,041 COMMON STOCKS (0.4%) (a) NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------------------------------------------------- 1,254 Allegiance Telecom, Inc. (NON) $ 57,684 200 AmeriKing, Inc. (NON) 7,800 2,625 Axia Holding Inc. 144A (PIK) (NON) 36,094 156,096 Celcaribe S.A. 144A (Colombia) (NON) 390,240 14,280 CellNet Data Systems, Inc. (NON) 110,670 4,246 Hedstrom Holdings, Inc. 144A (NON) 4,246 4,148 IFINT Diversified Holdings 144A (NON) 8,296 182 Mothers Work, Inc. (NON) 1,968 125 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 1 480 Premium Holdings (L.P.) 144A (NON) 1,679 100,386 PSF Holdings LLC Class A (NON) 1,254,825 15,000 Specialty Foods Acquisition Corp. (NON) 375 -------------- Total Common Stocks (cost $3,834,719) $ 1,873,878 UNITS (0.3%) (a) NUMBER OF UNITS VALUE - -------------------------------------------------------------------------------------------------------------------------- 500 Network Plus Corp. units pfd. 13 1/4s, 2009 $ 512,500 560 Pegasus Shipping 144A company guaranty stepped-coupon zero % (14 1/2s, 6/20/03), 2008 (Bermuda) (STP) 218,400 380 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 292,600 4,732 XCL Ltd. 144A units cum. cv. pfd. 9 1/2s, 2006 (PIK) 189,280 -------------- Total Units (cost $1,601,530) $ 1,212,780 CONVERTIBLE BONDS AND NOTES (0.3%) (a) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 446,250 234,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon zero %, (13 7/8s, 12/15/00), 2005 (STP) 292,500 320,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 268,000 280,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 201,950 -------------- Total Convertible Bonds and Notes (cost $1,113,085) $ 1,208,700 SHORT-TERM INVESTMENTS (1.3%) (a) (cost $5,603,000) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 5,603,000 Interest in $292,698,000 joint repurchase agreement dated April 30, 1999 with S.B.C. Warburg Inc. due May 3, 1999 with respect to various U.S. Treasury obligations -- maturity value of $5,605,274 for an effective yield of 4.87% $ 5,603,000 - -------------------------------------------------------------------------------------------------------------------------- Total Investments (cost $459,598,380) (b) $ 441,595,551 - -------------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $442,637,488. (b) The aggregate identified cost on a tax basis is $459,792,961, resulting in gross unrealized appreciation and depreciation of $13,273,360 and $31,470,770, respectively, or net unrealized depreciation of $18,197,410. (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 receiving interest or dividend income at this rate. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures contracts at April 30, 1999. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. TBA after the name of a security represents to be announced securities (Note 1). FLIRB represents Front Loaded Interest Reduction Bond. The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at April 30, 1999, which are subject to change based on the terms of the security. Distribution of investments by country of issue at April 30, 1999 (as percentage of market value) United States 75.1% Germany 0.5 United Kingdom 6.8 China 0.4 United Mexican States 3.3 Luxembourg 0.4 Brazil 2.7 Indonesia 0.3 Canada 2.5 Venezuela 0.3 Argentina 1.2 Spain 0.3 France 1.0 Italy 0.3 Bulgaria 1.0 Bermuda 0.2 Mexico 0.7 Israel 0.2 Netherlands 0.7 Norway 0.1 Sweden 0.6 Japan 0.1 Denmark 0.6 Ivory Coast 0.1 Colombia 0.5 Other 0.1 --- Total 100% === - ------------------------------------------------------------------------------- Forward Currency Contracts to Buy at April 30, 1999 (Unaudited) (aggregate face value $67,964,057) Unrealized Aggregate Face Delivery Appreciation/ Market Value Value Date (Depreciation) - ------------------------------------------------------------------------------- Australian Dollars $ 2,423,666 $ 2,319,642 6/16/99 $ 104,024 Euro Dollars 40,265,946 41,542,825 6/16/99 (1,276,879) Japanese Yen 20,562,585 20,012,135 6/16/99 550,450 Swedish Krona 3,985,199 4,089,455 6/16/99 (104,256) - ------------------------------------------------------------------------------- $ (726,661) - ------------------------------------------------------------------------------- Forward Currency Contracts to Sell at April 30, 1999 (Unaudited) (aggregate face value $99,422,188) Unrealized Market Aggregate Face Delivery Appreciation/ Value Value Date (Depreciation) - ------------------------------------------------------------------------------- British Pounds $26,090,216 $26,133,821 6/16/99 $ 43,605 Canadian Dollar 3,195,067 3,058,015 6/16/99 (137,052) Danish Krone 31,934 32,226 6/16/99 292 Euro Dollars 50,764,118 52,462,613 6/16/99 1,698,495 Japanese Yen 18,239,804 17,735,513 6/16/99 (504,291) - ------------------------------------------------------------------------------- $1,101,049 - ------------------------------------------------------------------------------- Futures Contracts Outstanding at April 30, 1999 (Unaudited) Aggregate Face Expiration Unrealized Total Value Value Date Depreciation - ------------------------------------------------------------------------------- U.S. Treasury Bond 20 yr (Long) $23,556,750 $24,035,721 June-99 $(478,971) - ------------------------------------------------------------------------------- TBA Sales Commitments at April 30, 1999 (Unaudited) (proceeds receivable $4,118,813) Settlement Market Agency Principal Amount Date Value - ------------------------------------------------------------------------------- GNMA, 6 1/2s, May 15, 2029 $3,994,000 5/24/99 $4,292,522 - ------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities April 30, 1999 (Unaudited) Assets - ----------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $459,598,380) (Note 1) $441,595,551 - ----------------------------------------------------------------------------------------------- Cash 1,738,852 - ----------------------------------------------------------------------------------------------- Dividends, interest and other receivables 8,168,381 - ----------------------------------------------------------------------------------------------- Receivable for securities sold 9,065,694 - ----------------------------------------------------------------------------------------------- Receivable for open forwards 2,396,868 - ----------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts 29,569 - ----------------------------------------------------------------------------------------------- Total assets 462,994,915 Liabilities - ----------------------------------------------------------------------------------------------- Distributions payable to shareholders 2,971,149 - ----------------------------------------------------------------------------------------------- Payable for variation margin 322,906 - ----------------------------------------------------------------------------------------------- Payable for securities purchased 9,640,979 - ----------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 827,696 - ----------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 67,019 - ----------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 14,351 - ----------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 1,667 - ----------------------------------------------------------------------------------------------- Payable for open forward currency contracts 2,022,480 - ----------------------------------------------------------------------------------------------- Payable for closed forward currency contracts 146,123 - ----------------------------------------------------------------------------------------------- TBA sales commitment, at value (proceeds receivable $4,118,813) 4,292,522 - ----------------------------------------------------------------------------------------------- Other accrued expenses 50,535 - ----------------------------------------------------------------------------------------------- Total liabilities 20,357,427 - ----------------------------------------------------------------------------------------------- Net assets $442,637,488 Represented by - ----------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $478,647,593 - ----------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (4,363,238) - ----------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (Note 1) (13,889,046) - ----------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (17,757,821) - ----------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $442,637,488 Computation of net asset value - ----------------------------------------------------------------------------------------------- Net asset value per share ($442,637,488 divided by 53,095,749 shares) $8.34 - ----------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of operations Six months ended April 30, 1999 (Unaudited) Investment income: - ----------------------------------------------------------------------------------------------- Interest income: (net of foreign tax of $10,062) $18,209,936 - ----------------------------------------------------------------------------------------------- Dividends 816,665 - ----------------------------------------------------------------------------------------------- Total investment income 19,026,601 Expenses: - ----------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 1,638,979 - ----------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 307,264 - ----------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 7,553 - ----------------------------------------------------------------------------------------------- Administrative services (Note 2) 2,751 - ----------------------------------------------------------------------------------------------- Reports to shareholders 18,769 - ----------------------------------------------------------------------------------------------- Auditing 31,438 - ----------------------------------------------------------------------------------------------- Legal 10,229 - ----------------------------------------------------------------------------------------------- Postage 10,185 - ----------------------------------------------------------------------------------------------- Other 9,418 - ----------------------------------------------------------------------------------------------- Total expenses 2,036,586 - ----------------------------------------------------------------------------------------------- Expense reduction (Note 2) (21,301) - ----------------------------------------------------------------------------------------------- Net expenses 2,015,285 - ----------------------------------------------------------------------------------------------- Net investment income 17,011,316 - ----------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (9,703,078) - ----------------------------------------------------------------------------------------------- Net realized loss on futures contracts (Note 1) (491,406) - ----------------------------------------------------------------------------------------------- Net realized gain on foreign currency transactions (Note 1) 974,017 - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 1,022,179 - ----------------------------------------------------------------------------------------------- Net unrealized appreciation of investments, futures, and TBA sale commitments during the period 14,125,400 - ----------------------------------------------------------------------------------------------- Net gain on investments 5,927,112 - ----------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $22,938,428 - ----------------------------------------------------------------------------------------------- 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 1999* 1998 - --------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets - --------------------------------------------------------------------------------------------------------------- Operations: - --------------------------------------------------------------------------------------------------------------- Net investment income $ 17,011,316 $ 37,591,575 - --------------------------------------------------------------------------------------------------------------- Net realized loss on investments and foreign currency transactions (9,220,467) (7,656,881) - --------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments and assets and liabilities in foreign currencies 15,147,579 (43,111,797) - --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 22,938,428 (13,177,103) - --------------------------------------------------------------------------------------------------------------- Distributions to shareholders: - --------------------------------------------------------------------------------------------------------------- From net investment income (19,273,096) (34,469,475) - --------------------------------------------------------------------------------------------------------------- Return of capital -- (5,032,778) - --------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 3,665,332 (52,679,356) Net assets - --------------------------------------------------------------------------------------------------------------- Beginning of period 438,972,156 491,651,512 - --------------------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $4,363,238 and $2,101,458, respectively) $442,637,488 $438,972,156 - --------------------------------------------------------------------------------------------------------------- Number of fund shares - --------------------------------------------------------------------------------------------------------------- Shares outstanding at beginning and end of period 53,095,749 53,095,749 - --------------------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) - ------------------------------------------------------------------------------------------------------------------------------------ Six months ended Per-share April 30 operating performance (Unaudited) Year ended October 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of year $8.27 $9.26 $9.33 $9.04 $8.63 $9.62 - ------------------------------------------------------------------------------------------------------------------------------------ Investment operations - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income .32 .71 .66 .68 .68 .74 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments .11 (.96) .13 .30 .42 (.88) - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations .43 (.25) .79 .98 1.10 (.14) - ------------------------------------------------------------------------------------------------------------------------------------ Less distributions: - ------------------------------------------------------------------------------------------------------------------------------------ From net investment income (.36) (.65) (.52) (.69) (.64) (.52) - ------------------------------------------------------------------------------------------------------------------------------------ From net realized gain on investments -- -- (.17) -- -- (.08) - ------------------------------------------------------------------------------------------------------------------------------------ In excess of net realized gain on investments -- -- (.16) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Return of capital (.09) (.01) -- (.05) (.25) - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions (.36) (.74) (.86) (.69) (.69) (.85) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $8.34 $8.27 $9.26 $9.33 $9.04 $8.63 - ------------------------------------------------------------------------------------------------------------------------------------ Market value, end of period $7.563 $8.125 $8.500 $8.375 $8.125 $7.88 - ------------------------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return at market value (%)(a) (2.64)* 4.15 11.34 12.08 14.16 (1.92) - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $442,637 $438,972 $491,652 $495,724 $481,914 $460,760 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(b) .46* 1.00 .96 .95 1.02 .95 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 3.85* 7.81 7.18 7.43 7.98 7.33 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate (%) 80.44* 202.83 246.84 280.38 290.44 201.95 - ------------------------------------------------------------------------------------------------------------------------------------ * Not annualized. (a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) The ratio of expenses to average net assets for the periods ended October 31, 1995 and thereafter includes amounts paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2).
Notes to financial statements April 30, 1999 (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. government 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 generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments, including restricted securities, are stated at fair value following procedures approved by the Trustees. Market quotations are not considered to be readily available for long-term corporate bonds and notes; such investments are stated at fair value on the basis of valuations furnished by a pricing service, approved by the Trustees, which determines valuations for normal, institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc.. 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). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Discounts on zero coupon bonds, original issue discount bonds, stepped-coupon bonds and payment in kind bonds are accreted according to the yield-to-maturity basis. Any premium resulting from the purchase of securities is amortized on a yield-to-maturity basis. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. H) TBA purchase commitments The fund may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price has been established, the principal value has not been finalized. However, the amount of the commitments will not fluctuate more than 1.0% from the principal amount. The fund holds, and maintains until settlement date, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or the fund may enter into offsetting contracts for the forward sale of other securities it owns. Income on the securities will not be earned until settlement date. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the fund's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Security valuation" above. Although the fund will generally enter into TBA purchase commitments with the intention of acquiring securities for their portfolio or for delivery pursuant to options contracts it has entered into, the fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. I) TBA sale commitments The fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security valuation" above. The contract is "marked-to-market" daily and the change in market value is recorded by the fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the fund realizes a gain or loss. If the fund delivers securities under the commitment, the fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. J) 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, 1998, the fund had a capital loss carryover of approximately $3,956,000 available to offset future net capital gain, if any, which will expire on October 31, 2006. K) Distributions to shareholders Distributions to shareholders are recorded by the fund on the ex-dividend date. At certain times, the fund may pay distributions at a level rate even though , as a result of market conditions or investment decisions, the fund may not achieve projected investment results for a given period. 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 subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the six months ended April 30, 1999, fund expenses were reduced by $21,301 under expense offset arrangements with PFTC. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested a portion of the assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. Each Trustee of the fund receives an annual Trustee fee, of which $690 has been allocated to the fund, and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. Note 3 Purchase and sales of securities During the six months ended April 30, 1999, purchases and sales of investment securities other than U.S. government obligations and short-term investments aggregated $276,153,907 and $213,366,681, respectively. Purchases and sales of U.S. government obligations aggregated $105,299,145 and $130,301,756, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. 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 year ended October 31, 1998 and the six months ended April 30, 1999, the fund repurchased no shares. As of April 30, 1999, 279,900 shares have been repurchased since the inception of the program. Welcome to www.putnaminv.com Now you can use your PC to get up-to-date information about your funds, learn more about investing and retirement planning, and access market news and economic outlooks from Putnam. VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR: * the benefits of investing with Putnam * Putnam's money management philosophy * complete fund information, daily pricing and long-term performance * the latest on new funds and other Putnam news You can also read Putnam economist Dr. Robert Goodman's commentary and Putnam's Capital Markets outlook, search for a particular fund by name or objective, use our glossary to decode investment terms . . . and much more. The site can be accessed through any of the major online services (America Online, CompuServe, Prodigy) that offer web access. Of course, you can also access it via Netscape or Microsoft Internet Explorer, using an independent Internet service provider. New features will be added to the site regularly. So be sure to bookmark us at http://www.putnaminv.com Fund information WEB SITE www.putnaminv.com INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman John A. Hill, Vice Chairman Jameson Adkins Baxter Hans H. Estin Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Edward H. D'Alelio Vice President Jennifer E. Leichter Vice President and Fund Manager D. William Kohli Vice President and Fund Manager Richard A. Monaghan Vice President John R. Verani Vice President Beverly Marcus Clerk and Assistant Treasurer Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit our Web site (www.putnaminv.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 - --------------------- BULK RATE U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminv.com 52498 072 6/99 -----END PRIVACY-ENHANCED MESSAGE-----