Putnam 811-7221
Strategic
Income
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-02
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
Given the dramatic events that aggravated an already troubled economic
environment, it is not surprising that Putnam Strategic Income Fund
closed fiscal 2002 with only a slight gain. On the following pages, your
management team's report will provide a full discussion of what has been
driving your fund's performance as well as the outlook for fiscal 2003.
This economic climate has given Putnam pause and after lengthy
discussions and working sessions between Management and the Board of
Trustees, your Trustees have agreed to merge several funds. The intent
of the mergers is to provide shareholders with more focused products
that will play a consistent role in a broader investment plan. Your
fund has been approved for merger into Putnam Diversified Income Trust,
which has a similar investment objective and strategy. For more details,
see page 5.
As you read this report, you may notice that we are now listing the team
that manages your fund. We do this to reflect more accurately how your
fund is managed as well as Putnam's firm belief in the value of team
management. The individuals who comprise the management team are shown
at the end of Management's discussion of performance.
We know that Putnam Investments values its relationship with you and its
other shareholders and appreciates your loyalty during these times of
restructuring of staff and products in the pursuit of superior
investment performance for the future.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
May 8, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Core Fixed-Income Team
During this past fiscal year, Putnam Strategic Income Fund achieved a
modest positive return, lagging its primary benchmark, the Lehman
Aggregate Bond Index. The fund's performance also lagged that of the
CSFB High Yield Index, which tracks high-yield bonds, but was ahead of
the Salomon Smith Barney Non-U.S. World Government Bond Index, which
tracks bonds in the international markets. The fund's overweighting of
high-yield bonds hurt its performance relative to the Lehman index,
which consists primarily of higher-rated U.S. fixed-income securities.
As a result of this positioning, the fund also lagged its Lipper
category average for the 12-month period. Our emphasis on high-yield
securities may have been somewhat premature, but we believe this sector
has the greatest potential to benefit in a recovering economy and that
its improved performance in the last few months of the year justifies
our focus.
Total return for 12 months ended 3/31/02
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------
0.89% -3.93% 0.14% -4.48% 0.29% -0.63% 0.65% -2.61%
- -----------------------------------------------------------------------
Past performance does not indicate future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 7.
* A VOLATILE YEAR FOR THE BOND MARKET
The fiscal year ending March 31, 2002, was a volatile period for the
bond market, encompassing the turning point in the economy from weakness
to strength. Much of the period was favorable for bonds, especially
short- and intermediate-maturity Treasuries, as the Federal Reserve
Board's aggressive easing policy during 2001 brought short-term interest
rates to a 40-year low and uncertainty kept investors focused on
quality. The sharp decline of bond yields during 2001 contributed to the
decision by the fund's Trustees to reduce the fund's dividend in the
fall of last year.
[GRAPHIC OMITTED: horizontal bar chart TOP THREE SECTORS]
TOP THREE SECTORS*
Corporate
bonds 53.9%
Foreign
government
bonds 14.1%
U.S. government
and agency
obligations 10.3%
Footnote reads:
*Based on net assets as of 3/31/02. Holdings will vary over time.
By November, 2001, Treasury yields had reached such lows that positive
news about the economy and the war in Afghanistan, as well as strong
performance in the stock market, caused a dramatic sell-off and drove
yields sharply higher. In March 2002, another period of strong selling
in the bond markets again drove yields up.
The volatility in the first quarter of 2002 was brought about in part by
a general belief among investors that the Fed had completed its easing
cycle (after having left rates unchanged in its meeting in January), and
by reports of much stronger economic growth in March. Three primary
factors have contributed to stronger-than-expected economic growth at
the end of 2001 and through the first quarter of 2002. First, oil prices
dropped dramatically in the second half of 2001. Second, companies
slashed inventories in response to reduced demand in 2001 and needed to
rebuild stocks during the first quarter. Finally, the Federal Reserve
lowered interest rates throughout 2001, leaving the Fed Funds rate at a
historically low 1.75% at the beginning of 2002. Since oil prices have
now risen back to mid-2001 levels, inventory rebuilding has been largely
completed, and the Fed has stopped reducing interest rates, it is likely
that growth will slow during the remainder of this year as these sources
of stimulus abate.
* INVESTORS HAVE TURNED TO HIGHER-YIELDING BONDS AMID SIGNS OF RECOVERY
As investors grew more optimistic about an economic recovery in the
fourth quarter of 2001, they sold off investment-grade bonds and
reallocated funds into riskier asset classes, such as equities and
high-yield bonds. Meanwhile, the emerging-markets sector was somewhat
hampered by Argentina's progression toward default, although certain
specific countries performed well. International bonds in developed
markets lost steam toward the end of 2001, as positive economic data
suggested that the fourth quarter of 2001 might represent the bottom of
the current recession cycle, causing interest rates to begin moving
upward in 2002.
Despite the lingering effects of Enron and some other company-specific
issues, particularly in the telecommunications sector, higher yielding
fixed-income sectors continued to outperform during the first quarter of
2002. Investment-grade corporate bonds, high-yield bonds, and
mortgage-backed securities all bested the return of U.S. Treasuries
during the quarter. Investor sentiment and tolerance for risk were
buoyed by increasing strength in the equity markets and evidence of
economic growth. Consequently, the fund's emphasis on high-yield bonds,
detrimental earlier in the fiscal year, benefited its performance in the
second half of the year. The allocation to the MBS sector was also a
strong positive for the fund. International developed bond markets,
pressured by signs of a global economic recovery that could lead to
higher interest rates, advanced only modestly. The improved economic
outlook continued to boost the returns of the emerging-markets sector.
These events underscored the value of diversifying across the different
sectors of the fixed-income universe, as your fund has always been
designed to do.
Fund Profile
Putnam Strategic Income Fund seeks income by investing in three
fixed-income sectors: U.S. corporate and government investment-grade
bonds, foreign bonds, and higher-yielding, lower-rated corporate bonds.
The benchmark allocation for each sector is typically one-third of total
assets, although management may adjust the weightings depending on
market or economic conditions. The fund is designed for investors
seeking high current income, asset class diversification, or both.
* A MODEST RECOVERY IS UNDERWAY
The recession appears to have been much milder than both economists and
investors thought it would be. We believe that higher productivity
growth over several years was a contributing factor. The deep tax and
interest-rate cuts of last year and effects of deep cuts in corporate
inventories led to robust growth during the first quarter. However, we
believe that growth in the second half of 2002 will be more moderate.
Consumer spending should remain solid this year, while improving
corporate profits and economic activity should help business investment
recover moderately later in the year.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR
CORPORATE BONDS
Echostar Broadband Corp.
Senior notes, 10.375%, 2007
Allied Waste Industries, Inc.
Company guaranty, Series B, 10.0%, 2009
Adelphia Communications Corp.
Senior notes, 10.25%, 2011
FOREIGN BONDS
Brazil (Federal Republic of) bonds,
8%, 2014
Sweden (Government of) bonds
Series 1044, 3.5%, 2006
Australia (Government of) bonds
Series 513, 6.5%, 2013
U.S. GOVERNMENT AGENCY
U.S. Treasury Notes
3.5%, November 15, 2006
U.S. Treasury Notes
4.875%, February 15, 2012
Federal National Mortgage Association
pass-through certificates, 6.5%, with due dates from May 1, 2031 to
February 1, 2032
Footnote reads:
These holdings represent 12.5% of the fund's net assets as of 3/31/02.
Portfolio holdings will vary over time.
We are expecting that inflation will remain low, which should keep the
Fed from raising interest rates at least until the end of the summer. We
will continue to monitor these developments closely, and, as always,
focus on securities with positive fundamentals and attractive
valuations.
We remain cautiously optimistic on the high-yield market, which we think
appears poised for solid performance in a recovering economic
environment. Other positive factors for high-yield bonds include low
supply and strong demand, an emphasis by companies on reducing debt, and
evidence that default rates are beginning to decline. In the short term,
we believe the market will remain susceptible to signs of economic
weakness.
Finally, we continue to find value in the international developed bond
markets, while we are neutral toward emerging-market bonds. These
securities remain attractive, as continued strong demand and evidence of
a global economic recovery are offsetting the negative impact of
Argentina's default.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 3/31/02, there is no guarantee the fund will
continue to hold these securities in the future. International investing
involves certain risks, such as currency fluctuations, economic
instability, and political developments. Lower-rated bonds may offer
higher yields in return for more risk. Government securities guarantee
principal and interest; mutual funds that invest in these securities are
not guaranteed. Mortgage-backed securities are subject to prepayment
risk.
This fund is managed by the Putnam Core Fixed-Income Team. The members
of this team are Kevin Cronin, Rob Bloemker, Andrea Burke, Joanne
Driscoll, D. William Kohli, Krishna Memani, James Prusko, and David
Waldman.
MERGER WITH PUTNAM DIVERSIFIED INCOME TRUST APPROVED
Effective June 24, 2002, your fund will merge into Putnam Diversified
Income Trust, a combination which has been approved by a vote of your
fund's Trustees. Since the merger does not require the approval of
shareholders, there is no action that you need to take.
Putnam Strategic Income Fund and Putnam Diversified Income Trust invest
in the same fixed-income sectors and are managed in the same style.
Because the funds have substantially similar objectives and strategies,
you should not need to reconsider any of your asset allocations and your
long-term financial plans should be unaffected. For a prospectus for
Putnam Diversified Income Trust, please call Putnam at 1-800-225-1581 or
contact your financial advisor.
PUTNAM'S POLICY ON CONFIDENTIALITY
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain
accurate records of transactions and account balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 3/31/02
Class A Class B Class C Class M
(inception dates) (2/26/96) (2/26/96) (2/1/99) (2/26/96)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 0.89% -3.93% 0.14% -4.48% 0.29% -0.63% 0.65% -2.61%
- ------------------------------------------------------------------------------
5 years 12.63 7.23 8.62 7.16 8.85 8.85 11.25 7.63
Annual average 2.41 1.41 1.67 1.39 1.71 1.71 2.15 1.48
- ------------------------------------------------------------------------------
Life of fund 19.75 14.12 14.53 14.53 14.88 14.88 17.97 14.08
Annual average 3.00 2.19 2.25 2.25 2.30 2.30 2.75 2.18
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/02
Lehman SSB Non-U.S. CSFB Consumer
Aggregate World Govt. High Yield price
Bond Index Bond Index Index index
- -------------------------------------------------------------------------------------------------------
1 year 5.35% -0.45% 3.34% 1.30%
- -------------------------------------------------------------------------------------------------------
5 years 44.02 4.73 18.51 11.62
Annual average 7.57 0.93 3.46 2.22
- -------------------------------------------------------------------------------------------------------
Life of fund 49.41 3.97 31.98 15.15
Annual average 6.81 0.64 4.67 2.35
- -------------------------------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return and principal
value will fluctuate and you may have a gain or a loss when you sell
your shares.
Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 4.75% and 3.25%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Performance for class B, C,
and M shares before their inception are derived from the historical
performance of class A shares, adjusted for the applicable sales charge
(or CDSC) and higher operating expenses for such shares. For a portion
of the period, this fund limited expenses, without which returns would
have been lower.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 2/26/96
Fund's class A Lehman Aggregate Consumer price
Date shares at POP Bond Index index
2/26/96 9,525 10,000 10,000
3/31/96 9,449 9,930 10,039
3/31/97 10,120 10,418 10,316
3/31/98 11,441 11,667 10,458
3/31/99 11,086 12,424 10,645
3/31/00 10,980 12,657 11,044
3/31/01 11,070 14,243 11,367
3/31/02 $11,412 $14,941 $11,515
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $11,453 and $11,488, respectively, and
no contingent deferred sales charges would apply; a $10,000 investment
in the fund's class M shares would have been valued at $11,797 ($11,408
at public offering price). See first page of performance section for
performance calculation method.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 3/31/02
Class A Class B Class C Class M
- ------------------------------------------------------------------------------
Distributions
(number) 12 12 12 12
- ------------------------------------------------------------------------------
Income $0.385015 $0.352455 $0.352483 $0.374203
- ------------------------------------------------------------------------------
Capital gains -- -- -- --
- ------------------------------------------------------------------------------
Return of
capital 1 $0.173974 $0.159262 $0.159274 $0.169089
- ------------------------------------------------------------------------------
Total $0.558989 $0.511717 $0.511757 $0.543292
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------
3/31/01 $6.58 $6.91 $6.59 $6.60 $6.58 $6.80
- ------------------------------------------------------------------------------
3/31/02 6.07 6.37 6.08 6.10 6.07 6.27
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current
dividend
rate 2 9.23% 8.80% 8.39% 8.36% 8.96% 8.67%
- ------------------------------------------------------------------------------
Current
30-day SEC
yield 3 8.13 7.74 7.37 7.36 7.88 7.62
- ------------------------------------------------------------------------------
1 See page 50.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
3 Based only on investment income, calculated using SEC guidelines.
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 price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on certain
redemptions of shares bought without an initial sales charge).
COMPARATIVE BENCHMARKS
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Salomon Smith Barney Non-U.S. World Government Bond Index is an
unmanaged index of government bonds from 10 countries.
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged index
of high-yield debt securities.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
preceded by the Report of independent accountants, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios, and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate table
is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Putnam Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities of
Putnam Strategic Income Fund, including the fund's portfolio, as of March
31, 2002, and the related statement of operations for the year then ended,
statement of changes in net assets for each of the years in the two-year
period then ended, and financial highlights for each of the years or
periods in the two-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. Financial highlights for each of
the years in the three-year period ended March 31, 2000 were audited by
other auditors whose report dated May 10, 2000 expressed an unqualified
opinion on that financial statement and those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of March 31, 2002 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Strategic Income Fund as of March 31, 2002,
the results of its operations for the year then ended, and the changes
in its net assets and financial highlights for each of the years or
periods in the two-year period then ended in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
May 6, 2002
THE FUND'S PORTFOLIO
March 31, 2002
CORPORATE BONDS AND NOTES (53.9%) (a)
PRINCIPAL AMOUNT VALUE
Basic Materials (6.7%)
- -------------------------------------------------------------------------------------------------------------------
$ 260,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) $ 269,100
310,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 316,975
100,000 Airgas, Inc. company guaranty 9 1/8s, 2011 106,000
360,000 AK Steel Corp. company guaranty 7 7/8s, 2009 360,000
130,000 AK Steel Corp. sr. notes 9 1/8s, 2006 133,900
350,000 Appleton Papers, Inc. 144A sr. sub. notes 12 1/2s, 2008 343,000
60,000 Applied Extrusion Technologies, Inc. company guaranty Ser. B,
10 3/4s, 2011 62,550
380,000 ARCO Chemical Co. deb. 9.8s, 2020 364,800
80,000 Avecia Group PLC company guaranty 11s, 2009 (United Kingdom) 82,800
290,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 288,550
80,000 Bowater Canada Finance company guaranty 7.95s, 2011 (Canada) 81,272
180,000 Centaur Mining & Exploration company guaranty 11s, 2007 (Australia)
(In default) (NON) 9,000
180,000 Compass Minerals Group, Inc. 144A sr. sub. notes 10s, 2011 189,900
310,000 Doe Run Resources Corp. company guaranty Ser. B, 11 1/4s, 2005 65,100
40,000 Doe Run Resources Corp. company guaranty Ser. B, 11 1/4s, 2005 8,000
100,000 Doe Run Resources Corp. company guaranty FRN Ser. B, 8.536s, 2003 20,000
540,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty
10 1/8s, 2008 558,900
90,000 Ferro Corp. sr. notes 9 1/8s, 2009 93,600
70,000 Foamex-LP/Capital Corp. 144A sec. notes 10 3/4s, 2009 71,400
270,000 Four M Corp. sr. notes Ser. B, 12s, 2006 274,050
60,000 Georgia Gulf Corp. company guaranty 10 3/8s, 2007 64,500
180,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 175,631
50,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 49,016
40,000 Haynes International, Inc. sr. notes 11 5/8s, 2004 27,600
400,000 Hercules, Inc. company guaranty 11 1/8s, 2007 438,000
40,000 Huntsman Corp. bank term loan FRN Ser. B, 5.131s, 2004
(acquired 3/15/02, cost $31,350) (RES) 31,800
90,637 Huntsman Corp. bank term loan FRN Ser. C, 5.381s, 2005
(acquired various dates from 3/6/02 to 3/22/02, cost $71,750) (RES) 72,147
85,666 Huntsman Corp. bank term loan FRN Ser. L, 5.881s, 2002
(acquired various dates from 3/1/02 to 3/28/02, cost $63,698) (RES) 68,190
28,303 Huntsman Corp. bank term loan FRN Ser. L, 5.881s, 2002
(acquired various dates from 3/11/02 to 3/28/02, cost $22,568) (RES) 22,501
670,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 629,800
130,000 Huntsman International, LLC 144A sr. notes 9 7/8s, 2009 131,300
170,000 IMC Global, Inc. company guaranty Ser. B, 11 1/4s, 2011 187,663
230,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 253,869
540,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 576,450
20,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006
(In default) (NON) 14,700
565,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003
(In default) (NON) 118,650
310,000 LTV Corp. company guaranty 11 3/4s, 2009 (In default) (NON) 1,550
60,000 LTV Corp. (The) 144A company guaranty 8.2s, 2007 (In default) (NON) 75
200,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 203,500
160,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 162,800
70,000 Messer Griesheim Holdings AG sr. notes 10 3/8s, 2011 (Germany) 65,877
210,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 216,300
70,000 Norske Skog Canada, Ltd. 144A sr. notes 8 5/8s, 2011 (Canada) 71,050
120,000 Noveon, Inc. company guaranty Ser. B, 11s, 2011 128,400
230,000 OM Group, Inc. 144A sr. sub. notes 9 1/4s, 2011 239,200
70,000 Oregon Steel Mills 1st mtge. 11s, 2003 70,088
160,000 Owens-Illinois, Inc. deb. 7 1/2s, 2010 146,400
250,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 238,750
64,000 P&L Coal Holdings Corp. company guaranty Ser. B, 9 5/8s, 2008 68,160
290,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 308,850
180,939 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 135,704
60,313 Pioneer Companies, Inc. sec. FRN 5.5375s, 2006 44,632
100,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 (In default) (NON) 35,000
20,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 (In default) (NON) 7,000
210,000 Potlatch Corp. company guaranty 10s, 2011 225,750
380,000 Premium Standard Farms, Inc. sr. notes 9 1/4s, 2011 388,550
705,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 729,675
30,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 31,725
250,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 165,000
160,000 Steel Dynamics, Inc. 144A sr. notes 9 1/2s, 2009 164,800
170,000 Sterling Chemicals Holdings sr. disc. notes 13 1/2s, 2008 (In default) (NON) 850
180,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006
(In default) (NON) 152,100
218,834 Stone Container Corp. bank term loan FRN Ser. F, 5.188s, 2006
(acquired 10/19/01, cost $217,193) (RES) 218,873
190,000 Stone Container Corp. sr. notes 9 1/4s, 2008 203,300
360,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006
(Canada) 387,000
360,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 376,200
380,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 391,400
50,000 Tembec Industries, Inc. 144A sr. notes 7 3/4s, 2012 (Canada) 48,875
40,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 34,400
50,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 42,000
260,000 United States Steel, LLC 144A company guaranty 10 3/4s, 2008 258,700
170,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 64,600
20,000 Weirton Steel Corp 144A sr. notes 10 3/4s, 2005 (In default) (NON) 3,200
310,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 (In default) (NON) 6,200
-------------
12,597,248
Capital Goods (4.0%)
- -------------------------------------------------------------------------------------------------------------------
480,000 Airbus Industries 144A notes Ser. D, 12.266s, 2020 357,686
144,617 Allied Waste Industries, Inc. 4.77s, 2006 (acquired 10/18/01,
cost $66,264) (RES) 143,904
1,100,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 1,119,250
170,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 167,025
60,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2008 58,650
315,000 Argo-Tech Corp. 144A company guaranty 8 5/8s, 2007 281,925
220,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 206,800
300,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 274,500
530,000 Blount, Inc. company guaranty 13s, 2009 333,900
1,040,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 780,000
110,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 96,800
10,000 Case Corp. notes 7 1/4s, 2016 7,100
100,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 75,000
190,000 Decrane Aircraft Holdings Co. company guaranty Ser. B, 12s, 2008 175,750
63,729 Flowserve Corp. bank term loan FRN 5.382s, 2006
(acquired 10/24/01, cost $63,769) (RES) 63,839
169,000 Flowserve Corp. company guaranty 12 1/4s, 2010 191,815
180,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 67,500
150,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 19,500
169,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 84,500
50,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 29,000
60,000 Joy Global, Inc. 144A company guaranty 8 3/4s, 2012 61,800
160,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 162,400
110,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 112,750
55,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 58,163
130,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 132,925
320,000 Owens-Brockway Glass 144A sec. notes 8 7/8s, 2009 324,000
100,000 Pliant Corp. company guaranty 13s, 2010 105,500
210,000 Roller Bearing Company of America company guaranty Ser. B,
9 5/8s, 2007 189,000
610,000 Sequa Corp. sr. notes 9s, 2009 610,000
20,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 20,000
70,000 Terex Corp. company guaranty 8 7/8s, 2008 70,700
60,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 64,650
993,056 U.S. Can Corp. bank term loan FRN Ser. B, 6.302s, 2008
(acquired 10/2/00, cost $993,056) (RES) 853,562
110,000 U.S. Can Corp. company guaranty Ser. B, 12 3/8s, 2010 68,200
69,067 United Defense Industries, Inc. bank term loan FRN 4.85s, 2009
(acquired 10/19/01, cost $69,092) (RES) 69,391
-------------
7,437,485
Communication Services (4.7%)
- -------------------------------------------------------------------------------------------------------------------
340,000 360Networks, Inc. sr. notes 13s, 2008 (Canada) (In default) (NON) 3,400
260,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 174,200
210,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 179,550
60,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 49,800
110,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 52,800
300,000 American Cellular Corp. company guaranty 9 1/2s, 2009 220,500
850,000 American Tower Corp. sr. notes 9 3/8s, 2009 629,000
140,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 (In default) (NON) 700
130,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda) 20,800
120,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 14,400
160,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 39,200
100,000 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 2,000
190,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 187,150
500,000 Econophone, Inc. company guaranty 13 1/2s, 2007 (In default) (NON) 1,250
160,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007 (United Kingdom)
(In default) (NON) 800
220,000 Flag, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 42,900
40,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008
(Bermuda) (In default) (NON) 850
30,000 Global Crossing Holdings, Ltd. company guaranty 9 1/2s, 2009
(Bermuda) (In default) (NON) 638
580,000 Global Crossing Holdings, Ltd. company guaranty 9 1/8s, 2006
(Bermuda) (In default) (NON) 12,325
550,000 Horizon PCS, Inc. company guaranty stepped-coupon zero %
(14s, 10/1/05), 2010 (STP) 198,000
90,000 Horizon PCS, Inc. 144A sr. notes 13 3/4s, 2011 69,750
90,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes Ser. B,
zero %, 2003 1,913
340,000 Hyperion Telecommunications Corp., Inc. sr. sub. notes 12s, 2007 6,800
20,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 17,300
130,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 111,800
420,000 Intermedia Communications, Inc. sr. sub. notes stepped-coupon Ser. B,
zero % (12 1/4s, 3/1/04), 2009 (STP) 306,600
230,000 iPCS, Inc. sr. disc. notes stepped-coupon zero % (14s, 7/15/05), 2010 (STP) 128,800
20,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 7,600
300,000 Leap Wireless International, Inc. company guaranty 12 1/2s, 2010 195,000
179,000 Level 3 Communications, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 12/1/03), 2008 (STP) 45,645
520,000 McCaw International, Ltd. sr. disc. notes stepped-coupon zero %
(13s, 4/15/02), 2007 (STP) 31,200
30,000 McLeodUSA, Inc. sr. notes 8 3/8s, 2008 7,275
50,000 Metrocall, Inc. sr. sub. notes 11s, 2008 (In default) (NON) 500
40,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 (In default) (NON) 300
50,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 (In default) (NON) 500
170,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 (In default) (NON) 11,050
200,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 (In default) (NON) 13,000
300,000 Microcell Telecommunications sr. disc. notes Ser. B, 14s, 2006 (Canada) 213,000
200,000 Millicom International Cellular SA sr. disc. notes 13 1/2s, 2006
(Luxembourg) 112,000
200,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon zero %
(9 3/4s, 10/31/02), 2007 (STP) 129,000
210,000 Nextel Communications, Inc. sr. notes 12s, 2008 157,500
260,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 170,950
190,000 Nextel Partners, Inc. sr. notes 11s, 2010 121,600
40,000 Nextel Partners, Inc. sr. notes 11s, 2010 25,600
160,000 Nextel Partners, Inc. 144A sr. notes 12 1/2s, 2009 110,400
85,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 (In default) (NON) 17,000
140,000 PanAmSat Corp. bank term loan FRN Ser. B, 5.46s, 2009
(acquired 2/21/02, cost $139,825) (RES) 139,417
370,000 PanAmSat Corp. 144A sr. notes 8 1/2s, 2012 366,156
400,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 420,000
40,000 Qwest Capital Funding, Inc. company guaranty 7 1/4s, 2011 32,388
420,000 Qwest Capital Funding, Inc. company guaranty 7s, 2009 341,733
70,000 Qwest Capital Funding, Inc. company guaranty 6 3/8s, 2008 56,693
60,000 Rogers Cablesystems, Ltd. debs. 10 1/8s, 2012 (Canada) 63,000
30,000 Rogers Cablesystems, Ltd. notes 11s, 2015 (Canada) 32,700
60,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 64,800
160,000 Rogers Cablesystems, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 138,400
170,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 158,100
150,000 RSL Communications PLC 144A company guaranty 10 1/2s, 2008
(United Kingdom) (In default) (NON) 6,000
306,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 (Bermuda)
(In default) (NON) 12,240
50,543 Rural Cellular Corp. bank term loan FRN 5.11s, 2008
(acquired 11/5/01, cost $49,153) (RES) 45,700
140,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 113,400
350,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 238,000
260,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 4/15/04), 2009 (STP) 71,500
360,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(12 7/8s, 3/15/05), 2010 (STP) 91,800
220,000 Startec Global Communications Corp. sr. notes 12s, 2008 (In default) (NON) 4,400
80,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 13,600
360,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 410,400
91,000 Telecorp PCS, Inc. company guaranty stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 79,170
220,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 146,850
380,000 Tritel PCS, Inc. company guaranty 10 3/8s, 2011 429,400
200,000 Triton PCS, Inc. company guaranty 9 3/8s, 2011 192,500
100,000 Triton PCS, Inc. company guaranty 8 3/4s, 2011 94,000
170,000 TSI Telecommunication Services, Inc. 144A sr. sub. notes 12 3/4s, 2009 163,200
130,000 U S West, Inc. notes 5 5/8s, 2008 110,403
400,000 UbiquiTel Operating Co. company guaranty stepped-coupon zero %
(14s, 4/15/05), 2010 (STP) 148,000
300,000 US UnWired, Inc. company guaranty stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 195,000
50,000 US West Capital Funding, Inc. company guaranty 6 7/8s, 2028 35,339
160,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 43,200
60,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 16,200
454,000 Voicestream Wireless Corp. sr. notes 10 3/8s, 2009 487,510
270,000 WebLink Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (STP) 675
90,000 Williams Communications Group, Inc. sr. notes 11.7s, 2008 13,050
50,000 Williams Communications Group, Inc. sr. notes 10.7s, 2007 7,750
1,062,000 WinStar Communications, Inc. sr. disc. notes stepped-coupon zero %
(14 3/4s, 4/15/05), 2010 (STP) 106
354,000 WinStar Communications, Inc. sr. notes 12 3/4s, 2010 (In default) (NON) 35
40,000 WinStar Communications, Inc. sr. notes 12 1/2s, 2008 (In default) (NON) 4
-------------
8,825,165
Conglomerates (0.5%)
- -------------------------------------------------------------------------------------------------------------------
300,000 Autonation, Inc. company guaranty 9s, 2008 315,000
120,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 123,000
110,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 113,850
100,000 Tenneco, Inc. company guaranty 11 5/8s, 2009 78,500
340,000 Tyco International Group SA company guaranty 6 3/8s, 2006
(Luxembourg) 314,871
-------------
945,221
Consumer Cyclicals (11.3%)
- -------------------------------------------------------------------------------------------------------------------
189,525 Adams Outdoor Advertising bank term loan FRN Ser. B, 5.406s, 2008
(acquired 8/1/01, cost $189,525) (RES) 190,828
239,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 243,780
15,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 15,300
160,000 Aladdin Gaming Holdings, LLC sr. disc. notes stepped-coupon Ser. B,
zero % (13 1/2s, 3/1/03), 2010 (STP) 4,800
160,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 137,600
380,000 American Standard Companies, Inc. company guaranty 7 5/8s, 2010 383,800
90,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 98,325
180,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 199,800
30,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 31,650
150,000 ArvinMeritor, Inc. notes 8 3/4s, 2012 156,056
80,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 79,200
230,000 Autotote Corp. company guaranty Ser. B, 12 1/2s, 2010 257,600
170,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 176,800
190,000 Belo Corp. sr. notes 7 1/8s, 2007 187,893
120,000 Belo Corp. sr. unsub. notes 8s, 2008 122,640
170,000 Boyd Gaming Corp. 144A sr. sub. notes 8 3/4s, 2012 171,700
100,000 Building Materials Corp. company guaranty 8s, 2008 81,000
70,000 Coinmach Corp. bank term loan FRN Ser. B, 4.9s, 2009
(acquired 1/31/02, cost $69,913) (RES) 70,496
460,000 Coinmach Corp. 144A sr. notes 9s, 2010 469,200
97,890 Collins & Aikman Products, Inc. bank term loan FRN Ser. B, 7s, 2005
(acquired 12/20/01, cost $96,911) (RES) 98,134
250,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 229,375
270,000 Collins & Aikman Products, Inc. 144A sr. notes 10 3/4s, 2011 273,375
570,000 Cybernet Internet Services International, Inc. 144A sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (Denmark) (STP) 5,700
240,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 238,800
370,000 Dana Corp. notes 9s, 2011 367,225
40,000 Dana Corp. notes 7s, 2029 30,800
110,000 Dana Corp. notes 6 1/4s, 2004 104,500
250,000 Dayton Superior Corp. company guaranty 13s, 2009 251,250
100,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 105,250
160,000 Delco Remy International, Inc. company guaranty 11s, 2009 156,800
50,000 Delco Remy International, Inc. company guaranty 10 5/8s, 2006 46,250
30,000 Delco Remy International, Inc. sr. notes 8 5/8s, 2007 27,450
118,028 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 2,361
563,223 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 5,023
470,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 467,650
40,000 Dura Operating Corp. sr. sub. notes Ser. B, 9s, 2009 34,365
160,000 Exide Corp. sr. notes 10s, 2005 17,600
40,000 Federal Mogul Corp. notes 7 7/8s, 2010 (In default) (NON) 6,800
230,000 Federal Mogul Corp. notes 7 3/4s, 2006 (In default) (NON) 39,100
187,000 Felcor Lodging LP company guaranty 8 1/2s, 2011 190,273
200,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 211,000
190,000 Felcor Lodging LP 144A company guaranty 9 1/2s, 2008 200,450
77,828 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004
(In default) (NON) 27,240
170,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 22,100
250,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 247,500
60,000 Harrah's Operating Company, Inc. company guaranty 8s, 2011 61,645
100,000 Harrah's Operating Company, Inc. company guaranty 7 1/2s, 2009 100,451
160,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
9 1/8s, 2007 (In default) (NON) 9,600
90,000 Hayes Lemmerz International, Inc. 144A company guaranty
11 7/8s, 2006 (In default) (NON) 47,700
220,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 233,200
760,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 744,800
583,068 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010 (Canada) (PIK) 571,407
330,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 367,125
30,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 28,650
300,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 313,500
230,000 Host Marriott L.P. company guaranty Ser. G, 9 1/4s, 2007 239,200
208,217 Interact Operating Co. notes 14s, 2003 (PIK) 21
290,000 International Game Technology sr. notes 8 3/8s, 2009 305,225
10,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon zero %
(12 1/8s, 5/1/03), 2009 (STP) 700
70,000 Isle of Capri Casinos, Inc. 144A sr. sub. notes 9s, 2012 70,175
330,000 ITT Corp. notes 6 3/4s, 2005 323,040
90,000 JC Penney Company, Inc. debs. 7.4s, 2037 86,400
60,000 JC Penney Company, Inc. notes 7.6s, 2007 58,200
110,000 JC Penney Company, Inc. notes Ser. MTNA, 7.05s, 2005 105,050
50,000 John Q. Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 49,625
340,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 379,950
200,000 K mart Corp. debs. 7 3/4s, 2012 (In default) (NON) 99,500
150,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 163,500
105,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 (In default) (NON) 21,000
260,000 KB Home sr. sub. notes 9 1/2s, 2011 270,400
70,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 73,675
180,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 183,857
410,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 419,762
100,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 110,500
100,000 Lennar Corp. sr. notes 7 5/8s, 2009 100,250
330,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 344,025
20,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 20,400
490,000 Majestic Investor Holdings/Majestic Investor Capital Corp. 144A
company guaranty 11.653s, 2007 467,950
30,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 32,475
360,000 Mandalay Resort Group sr. sub. notes Ser. B, 10 1/4s, 2007 390,600
80,000 Mandalay Resort Group 144A sr. sub. notes 9 3/8s, 2010 84,600
160,000 Meristar Hospitality Corp. company guaranty 9 1/8s, 2011 163,200
60,000 Meristar Hospitality Corp. company guaranty 9s, 2008 60,975
90,000 MeriStar Hospitality Operating Partnership/MeriStar Hospitality
Finance Corp. 144A sr. notes 10 1/2s, 2009 (R) 95,850
120,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 125,794
180,000 MGM Mirage, Inc. company guaranty 8 3/8s, 2011 183,375
130,000 Mikohn Gaming Corp. company guaranty Ser. B, 11 7/8s, 2008 128,050
220,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 223,850
140,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 141,750
60,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 60,150
230,000 Mohegan Tribal Gaming Authority 144A sr. sub. notes 8s, 2012 232,300
20,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 18,800
80,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 76,518
420,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 437,325
50,000 Penn National Gaming, Inc. company guaranty Ser. B, 11 1/8s, 2008 54,500
120,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 118,800
70,000 Perry-Judd company guaranty 10 5/8s, 2007 66,500
595,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 541,450
50,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 42,500
200,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 182,000
130,000 Resorts International Hotel and Casino, Inc. 144A 1st mtge.
11 1/2s, 2009 122,850
220,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 239,800
40,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 40,400
620,000 Saks, Inc. company guaranty 8 1/4s, 2008 604,499
500,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 366,250
120,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 124,200
50,000 Sealy Mattress Co. company guaranty stepped-coupon Ser. B, zero %
(10 7/8s, 12/15/02), 2007 (STP) 47,500
300,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 307,500
110,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 114,400
100,000 Starwood Hotels & Resorts Worldwide, Inc. bank term loan FRN
4.62s, 2003 (acquired 11/14/01, cost $98,688) (RES) 100,104
280,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 288,400
70,000 Station Casinos, Inc. 144A sr. sub. notes 9 3/4s, 2007 72,100
130,000 Telehub Communications Corp. company guaranty stepped-coupon
zero % (13 7/8s, 7/31/02), 2005 (STP) 1
200,000 The William Carter Holdings Co. company guaranty Ser. B, 10 7/8s, 2011 213,500
180,000 Toll Corp. company guaranty 8 1/8s, 2009 182,025
70,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 69,213
10,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 7,000
140,000 Trump Atlantic City Associates company guaranty 11 1/4s, 2006 99,050
180,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 142,200
520,000 Trump Castle Funding, Inc. sub. notes 10 1/4s, 2003 526,500
140,000 United Auto Group, Inc. 144A sr. sub. notes 9 5/8s, 2012 143,150
170,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 178,500
70,000 Venture Holdings Trust 144A sr. notes Ser. B, 9 1/2s, 2005 65,100
290,000 Von Hoffman Press, Inc. 144A company guaranty 10 1/4s, 2009 294,350
49,517 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 47,041
45,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 41,850
430,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 212,850
110,000 Wheeling Island Gaming, Inc. 144A sr. notes 10 1/8s, 2009 113,850
-------------
21,080,867
Consumer Staples (10.8%)
- -------------------------------------------------------------------------------------------------------------------
355,000 Acme Television company guaranty 10 7/8s, 2004 360,325
1,130,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2011 1,039,600
120,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2006 111,600
120,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 103,200
620,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 582,800
30,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 26,250
60,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009 52,200
110,000 Albecca, Inc. company guaranty 10 3/4s, 2008 123,750
90,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 94,050
140,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 139,300
120,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 119,400
370,000 Archibald Candy Corp. company guaranty 10 1/4s, 2004 (In default) (NON) 188,700
140,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 149,100
110,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 110,000
260,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 260,000
2,861 Australis Media, Ltd. sr. disc. notes 15 3/4s, 2003 (Australia)
(In default) (NON) (PIK) 1
210,000 Benedek Communications Corp. sr. disc. notes 13 1/4s, 2006
(In default) (NON) 144,900
100,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009
(United Kingdom) 100,737
480,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 450,307
100,000 Century Communications Corp. sr. notes 8 3/8s, 2007 91,000
230,000 Chancellor Media Corp. company guaranty 8s, 2008 241,500
230,000 Charter Communications Holdings, LLC/Capital Corp. bank term loan
FRN Ser. B, 4.52s, 2008 (acquired 10/22/01, cost $224,825) (RES) 222,544
640,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s, 5/15/06), 2011 (STP) 371,200
520,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (13 1/2s, 1/15/06), 2011 (STP) 334,750
190,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
11 1/8s, 2011 191,425
80,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10 3/4s, 2009 80,400
120,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10s, 2009 115,200
230,000 Charter Communications Holdings, LLC/Capital Corp. 144A sr. disc.
notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 125,350
50,000 Charter Communications Holdings, LLC/Capital Corp. 144A sr. notes
10s, 2011 47,750
110,000 Charter Communications Holdings, LLC/Capital Corp. 144A sr. notes
9 5/8s, 2009 105,050
310,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 310,000
40,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 41,600
160,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 163,200
350,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 357,000
110,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 120,725
500,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 527,499
80,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 84,000
10,000 Diamond Cable Communications PLC sr. disc. notes 13 7/8s, 2005
(United Kingdom) 3,200
463,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(12 5/8s, 3/1/03), 2008 (STP) 64,820
410,000 Doane Pet Care Co. sr. sub. deb. 9 3/4s, 2007 340,300
50,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 54,250
90,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 72,000
1,415,000 Echostar Broadband Corp. sr. notes 10 3/8s, 2007 1,517,588
100,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 104,000
280,000 Echostar DBS Corp. 144A sr. notes 9 1/8s, 2009 287,000
210,000 Emmis Communications Corp. bank term loan FRN Ser. A, 4.938s, 2009
(acquired 1/31/02, cost $209,216) (RES) 209,580
50,000 Emmis Communications Corp. company guaranty Ser. B, 8 1/8s, 2009 51,000
130,000 Emmis Communications Corp. sr. disc. notes stepped-coupon zero %
(12 1/2s, 3/15/06), 2011 (STP) 94,900
230,000 Fleming Companies, Inc. company guaranty 10 1/8s, 2008 239,200
135,731 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon zero %
(10 1/4s, 11/1/02), 2007 (STP) 146,589
560,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 588,638
270,000 Fox/Liberty Networks, LLC sr. disc. notes zero %
(9 3/4s, 8/15/02), 2007 (STP) 275,400
150,000 Fox/Liberty Networks, LLC sr. notes 8 7/8s, 2007 156,375
110,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 94,600
50,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 44,125
250,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 222,500
20,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 16,600
190,000 Great Atlantic & Pacific Tea Co. notes 7 3/4s, 2007 188,575
180,000 Icon Health & Fitness 144A sr. sub. notes 11 1/4s, 2012 177,460
180,000 Insight Communications Company, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 2/15/06), 2011 (STP) 117,450
40,000 Insight Midwest LP/Insight Capital, Inc. bank term loan FRN 5.063s, 2009
(acquired 11/5/01, cost $39,925) (RES) 40,158
210,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 10 1/2s, 2010 227,850
330,000 International Cabletel, Inc. sr. disc. notes 11 1/2s, 2006 113,850
180,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011 163,800
210,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 (In default) (NON) 29,400
270,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 243,000
60,000 LIN Holdings Corp. 144A sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 52,200
210,000 LIN Television Corp. company guaranty 8 3/8s, 2008 210,000
125,000 NBTY, Inc. sr. sub. notes Ser. B, 8 5/8s, 2007 121,875
355,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 330,150
1,240,000 NTL Communications Corp. sr. notes Ser. B, 11 7/8s, 2010 427,800
80,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 27,600
60,000 NTL Communications Corp. sr. notes stepped-coupon Ser. B, zero %
(12 3/8s, 10/1/03), 2008 (STP) 20,700
310,000 NTL, Inc. sr. notes Ser. A, 12 3/4s, 2005 100,750
100,000 NTL, Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 34,500
220,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 185,900
70,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 52,500
130,000 Pegasus Satellite sr. notes 12 3/8s, 2006 104,000
170,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 181,050
160,000 Premier International Foods PLC sr. notes 12s, 2009 (United Kingdom) 175,200
190,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero %
(13 3/4s, 7/15/06), 2011 (Canada) (STP) 127,300
120,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 131,100
597,699 Quorum Broadcast Holdings, LLC notes stepped-coupon zero %
(15s, 5/15/06), 2009 (acquired 5/15/01, cost $237,506) (RES) (STP) 237,526
240,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 84,000
127,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 22,860
128,375 Regal Cinemas, Inc. bank term loan FRN Ser. B, 5 3/8s, 2008
(acquired 1/31/02, cost $128,054) (RES) 129,498
180,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B, 10 1/4s, 2009
(In default) (NON) 189,900
110,000 Revlon Consumer Products sr. notes 9s, 2006 76,450
90,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 61,200
110,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 50,050
220,000 Sbarro, Inc. company guaranty 11s, 2009 225,775
240,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 24
56,000 Sinclair Broadcast Group, Inc. bank term loan FRN 5.9s, 2009
(acquired 10/23/01, cost $54,985) (RES) 56,364
180,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 184,050
150,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 153,000
130,000 Sinclair Broadcast Group, Inc. 144A sr. sub. notes 8 3/4s, 2011 134,550
110,000 Six Flags, Inc. sr. notes 9 1/2s, 2009 114,400
310,000 Six Flags, Inc. 144A sr. notes 8 7/8s, 2010 315,038
50,000 Smithfield Foods, Inc. sr. notes Ser. B, 8s, 2009 51,000
150,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 139,148
197,753 Suiza Foods Corp. bank term loan FRN Ser. B, 5.05s, 2008
(acquired 12/10/01, cost $199,071) (RES) 199,024
210,000 TeleWest Communications PLC deb. 11s, 2007 (United Kingdom) 107,100
140,000 Tricon Global Restaurants, Inc. sr. notes 8 7/8s, 2011 150,500
200,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 203,000
210,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 213,150
1,230,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero %
(13 3/4s, 2/1/05), 2010 (Netherlands) (STP) 123,000
70,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero %
(12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 7,700
60,000 United Rentals (North America), Inc. company guaranty Ser. B,
10 3/4s, 2008 65,550
250,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B, 10 1/4s, 2009
(In default) (NON) 53,750
500,000 XM Satellite Radio Holdings, Inc. sec. notes 14s, 2010 355,000
540,000 Young Broadcasting, Inc. company guaranty 10s, 2011 561,600
-------------
20,117,453
Energy (2.8%)
- -------------------------------------------------------------------------------------------------------------------
250,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 255,000
210,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 216,300
130,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 131,950
390,000 Chesapeake Energy Corp. company guaranty 8 1/8s, 2011 390,975
60,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 62,400
120,000 Comstock Resources, Inc. 144A sr. notes 11 1/4s, 2007 124,800
160,000 Dresser, Inc. company guaranty 9 3/8s, 2011 163,200
170,000 El Paso Energy Partners L.P. company guaranty Ser. B, 8 1/2s, 2011 175,100
90,000 Forest Oil Corp. company guaranty 10 1/2s, 2006 95,963
180,000 Forest Oil Corp. sr. notes 8s, 2008 183,600
100,000 Forest Oil Corp. 144A sr. notes 8s, 2011 102,500
40,000 Grant Prideco, Inc. company guaranty Ser. B, 9 5/8s, 2007 41,600
130,000 Key Energy Services, Inc. company guaranty Ser. B, 8 3/8s, 2008 133,250
150,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 162,750
120,000 Magnum Hunter Resources, Inc. 144A sr. notes 9.6s, 2012 124,200
120,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 115,200
390,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 412,331
210,000 Parker & Parsley Co. sr. notes 8 1/4s, 2007 212,100
170,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 173,400
235,000 PDVSA Finance, Ltd. bonds 7.4s, 2016 (Cayman Islands) 167,099
200,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 220,000
90,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 93,375
20,000 Pride International, Inc. sr. notes 10s, 2009 21,550
180,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 187,200
100,000 Seven Seas Petroleum, Inc. sr. notes Ser. B, 12 1/2s, 2005 58,000
135,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 139,957
70,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 71,838
140,000 Stone Energy Corp. sr. sub. notes 8 1/4s, 2011 142,100
480,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 489,600
50,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 46,750
120,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 123,600
110,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s, 2009 114,950
-------------
5,152,638
Financial (3.9%)
- -------------------------------------------------------------------------------------------------------------------
465,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 269,700
490,000 Affinity Group Holdings sr. notes 11s, 2007 481,425
258,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 (In default) (NON) 67,080
130,000 CIT Group, Inc. sr. notes 7 3/4s, 2012 130,446
150,000 Colonial Capital II 144A company guaranty 8.92s, 2027 132,529
120,000 Comdisco, Inc. notes 5.95s, 2002 (In default) (NON) 96,900
30,000 Comdisco, Inc. notes Ser. MTN, 6.62s, 2002 (In default) (NON) 24,525
110,000 Conseco Financing Trust II company guaranty 8.7s, 2026 25,300
200,000 Conseco, Inc. sr. notes 10 3/4s, 2008 103,000
733,000 Finova Group, Inc. notes 7 1/2s, 2009 254,718
1,000,000 Ford Motor Credit Corp. notes 8s, 2002 1,003,580
60,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 58,855
20,000 Green Tree Financial notes Ser. A, 6 1/2s, 2002 19,900
320,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 315,069
415,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (South Korea) 474,138
130,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 132,600
1,000,000 Liberty Mutual Insurance 144A notes 7.697s, 2097 768,530
200,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 156,000
85,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 24,225
140,000 Newcourt Credit Group, Inc. company guaranty 6 7/8s, 2005 136,042
110,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 82,500
135,000 Ocwen Federal Bank sub. deb. 12s, 2005 132,300
45,000 Ocwen Financial Corp. notes 11 7/8s, 2003 44,100
170,000 ONO Finance PLC sr. notes 13s, 2009 (United Kingdom) 73,100
10,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 11,000
260,000 Resource America, Inc. 144A sr. notes 12s, 2004 261,300
140,000 RFS Partnership LP 144A sr. notes 9 3/4s, 2012 144,200
450,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 491,625
1,010,000 Sun Life Canada Capital Trust 144A company guaranty 8.526s, 2049 1,032,553
160,000 Superior Financial Corp. 144A sr. notes 8.65s, 2003 163,318
110,000 Willis Corroon Corp. 144A company guaranty 9s, 2009 114,950
-------------
7,225,508
Health Care (3.7%)
- -------------------------------------------------------------------------------------------------------------------
220,000 ALARIS Medical Systems, Inc. sec. notes Ser. B, 11 5/8s, 2006 239,800
330,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 8/1/03), 2008 (STP) 231,000
406,900 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 429,280
1,000 Alderwoods Group, Inc. company guaranty 12 1/4s, 2004 1,000
5,200 Alderwoods Group, Inc. company guaranty 11s, 2007 5,265
150,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 160,500
190,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 199,025
130,000 Beverly Enterprises, Inc. sr. notes 9 5/8s, 2009 132,600
80,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 89,200
250,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 248,750
131,258 Concentra Operating Corp. bank term loan FRN Ser. B, 5.894s, 2006
(acquired 1/15/02, cost $131,552) (RES) 131,422
65,629 Concentra Operating Corp. bank term loan FRN Ser. C, 6.143s, 2007
(acquired 1/15/02, cost $65,772) (RES) 65,711
270,000 Conmed Corp. company guaranty 9s, 2008 275,400
70,000 Conventry Health Care, Inc. 144A sr. notes 8 1/8s, 2012 70,525
13,900 Genesis Health Ventures, Inc. sec. notes FRN 6.88s, 2007 13,761
260,000 Hanger Orthopedic Group, Inc. 144A sr. notes 10 3/8s, 2009 272,350
70,000 HCA, Inc. med. term notes 7.69s, 2025 70,000
330,000 HCA, Inc. med. term notes 6.63s, 2045 331,465
270,000 HCA, Inc. notes 8 3/4s, 2010 295,215
70,000 HCA, Inc. notes 8.36s, 2024 72,100
240,000 HCA, Inc. notes 7s, 2007 246,600
180,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 198,000
140,000 Insight Health Services Corp. 144A sr. sub. notes 9 7/8s, 2011 143,850
250,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 25
79,584 Kinetic Concepts, Inc. bank term loan FRN Ser. C, 5.05s, 2005
(acquired 11/5/01, cost $79,684) (RES) 79,319
140,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 144,200
514,480 Magellan Health Services, Inc. bank term loan FRN 5.625s, 2005
(acquired 1/10/02, cost $516,731) (RES) 514,094
470,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 357,200
70,000 Magellan Health Services, Inc. 144A sr. notes 9 3/8s, 2007 68,600
480,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 4,800
80,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 400
220,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 2,200
145,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 15
630,000 Multicare Companies, Inc. sr. sub. notes 9s, 2007 (In default) (NON) 63
180,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 189,450
190,000 Rotech Healthcare, Inc. 144A sr. sub. notes 9 1/2s, 2012 196,175
40,000 Service Corp. International debs. 7 7/8s, 2013 36,100
20,000 Service Corp. International notes 7.7s, 2009 18,750
210,000 Service Corp. International notes 6s, 2005 192,938
120,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 132,000
1,125,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 113
30,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 3
100,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 108,970
230,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 255,300
460,000 Triad Hospitals, Inc. company guaranty Ser. B, 8 3/4s, 2009 489,325
180,000 Vanguard Health Systems, Inc. company guaranty 9 3/4s, 2011 189,000
-------------
6,901,859
Technology (1.7%)
- -------------------------------------------------------------------------------------------------------------------
210,000 Crown Castle International Corp. sr. disc. notes stepped-coupon
zero % (10 3/8s, 5/15/04), 2011 (STP) 122,850
200,000 Crown Castle International Corp. sr. notes 10 3/4s, 2011 179,000
340,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 286,450
200,000 Equinix, Inc. sr. notes 13s, 2007 62,000
10,000 Exodus Communications, Inc. sr. notes 11 5/8s, 2010 (In default) (NON) 2,025
170,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 (In default) (NON) 35,913
40,000 Fairchild Semiconductor International, Inc. company guaranty
10 3/8s, 2007 42,500
110,000 Fairchild Semiconductor International, Inc. sr. sub. notes 10 1/8s, 2007 114,950
440,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon zero %
(13s, 4/15/03), 2008 (STP) 44,000
290,000 Globix Corp. sr. notes 12 1/2s, 2010 (In default) (NON) 44,225
230,000 Intira Corp. bonds stepped-coupon zero % (13s, 2/1/05), 2010
(acquired 1/31/00, cost $122,569) (RES) (STP) 23
500,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 520,625
170,000 IWO Holdings, Inc. company guaranty 14s, 2011 144,500
20,000 Lucent Technologies, Inc. deb. 6 1/2s, 2028 13,000
440,000 Lucent Technologies, Inc. deb. 6.45s, 2029 286,000
230,000 Lucent Technologies, Inc. notes 7 1/4s, 2006 190,900
410,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 397,700
140,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 (In default) (NON) 11,200
60,000 Orbital Imaging Corp. sr. notes Ser. D, 11 5/8s, 2005 (In default) (NON) 4,800
150,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 9,000
40,000 PSINet, Inc. sr. notes 11 1/2s, 2008 (In default) (NON) 4,000
290,000 PSINet, Inc. sr. notes 11s, 2009 (In default) (NON) 29,000
30,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 (In default) (NON) 3,000
40,000 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010 (In default) (NON) 2,600
100,000 SCG Holding & Semiconductor Corp. company guaranty 12s, 2009 65,000
50,000 Seagate Technology, Inc. 144A company guaranty 12 1/2s, 2007
(Cayman Islands) 56,750
190,000 Telecommunications Techniques, Inc. company guaranty 9 3/4s, 2008 51,300
44,781 Telex Communications Group, Inc. sr. sub. notes zero %, 2006 24,630
60,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 16,500
220,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 (In default) (NON) 6,600
30,000 Xerox Corp. notes 5 1/2s, 2003 28,050
440,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 416,900
10,000 Xerox Credit Corp. sr. notes 6.1s, 2003 9,350
-------------
3,225,341
Transportation (1.2%)
- -------------------------------------------------------------------------------------------------------------------
20,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 15,000
150,000 American Airlines, Inc. bonds Ser. 01-2, Class B, 8.608s, 2011 153,261
70,000 American Airlines, Inc. 144A pass-through certificates Ser. 01-2,
Class A-2, 7.858s, 2011 71,868
250,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 222,500
110,000 Continental Airlines, Inc. pass-through certificates Ser. D, 7.568s, 2006 99,000
130,000 Delta Air Lines, Inc. pass-through certificates Ser. 00-1, Class C,
7.779s, 2005 129,221
180,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 194,400
70,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 7,000
300,000 Navistar International Corp. company guaranty Ser. B, 9 3/8s, 2006 317,250
60,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 59,400
70,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 67,900
140,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 129,500
360,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 355,500
220,000 RailAmerica Transportation company guaranty 12 7/8s, 2010 242,000
50,000 Transportation Manufacturing Operations, Inc. company guaranty
11 1/4s, 2009 39,000
160,000 US Air, Inc. pass-through certificates Ser. 93A3, 10 3/8s, 2013 99,200
-------------
2,202,000
Utilities and Power (2.6%)
- -------------------------------------------------------------------------------------------------------------------
180,000 AES Corp. (The) notes 8 3/4s, 2008 140,400
420,000 AES Corp. (The) sr. notes 9 3/8s, 2010 329,700
80,000 AES Corp. (The) sr. notes 8 7/8s, 2011 60,000
90,000 Azurix Corp. sr. notes Ser. B, 10 3/4s, 2010 78,750
80,000 Azurix Corp. sr. notes Ser. B, 10 3/8s, 2007 69,600
320,000 Calpine Canada Energy Finance company guaranty 8 1/2s,
2008 (Canada) 254,400
85,000 Calpine Corp. sr. notes 10 1/2s, 2006 71,400
380,000 Calpine Corp. sr. notes 8 5/8s, 2010 300,200
560,000 Calpine Corp. sr. notes 8 1/2s, 2011 438,200
190,000 Calpine Corp. sr. notes 7 7/8s, 2008 152,000
10,000 Calpine Corp. sr. notes 7 3/4s, 2009 7,900
110,000 CMS Energy Corp. sr. notes 8.9s, 2008 114,675
110,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 113,038
300,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 298,710
150,000 Edison Mission Energy sr. notes 10s, 2008 150,000
70,000 Midland Funding Corp. II debs. Ser. A, 11 3/4s, 2005 76,046
430,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 491,972
330,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 358,875
181,023 Northeast Utilities notes Ser. A, 8.58s, 2006 190,045
32,000 Northeast Utilities notes Ser. B, 8.38s, 2005 33,470
110,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005 (In default) (NON) 124,300
350,000 Southern California Edison Co. notes 8.95s, 2003 356,125
30,000 Southern California Edison Co. notes 6 3/8s, 2006 27,975
230,000 Tiverton/Rumford Power Associates, LP 144A pass-through certificates
9s, 2018 193,200
369,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands)
(In default) (NON) 329,072
-------------
4,760,053
-------------
Total Corporate Bonds and Notes (cost $115,651,438) $100,470,838
FOREIGN GOVERNMENT BONDS AND NOTES (11.4%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
USD 520,458 Argentina (Republic of) bonds Ser. 2018, 2.89s, 2018 (In default) (NON) $ 111,899
AUD 2,940,000 Australia (Government of) bonds Ser. 513, 6 1/2s, 2013 1,575,844
USD 550,000 Brazil (Federal Republic of) notes 11s, 2012 511,500
USD 1,340,000 Brazil (Federal Republic of) unsub. notes 11s, 2040 1,104,160
CAD 515,000 Canada (Government of) bonds 5 1/2s, 2010 317,710
CAD 165,000 Canada (Government of) bonds Ser. WL43, 5 3/4s, 2029 100,281
USD 355,000 Colombia (Republic of) bonds 11 3/4s, 2020 354,113
USD 240,000 Ecuador (Republic of) bonds Ser. REGS, 12s, 2012 192,600
USD 75,000 Ecuador (Republic of) bonds stepped-coupon Ser. REGS, 5s
(6s, 8/15/02), 2030 (STP) 40,688
EUR 230,000 France (Government of) deb. 4s, 2009 185,761
EUR 390,000 Germany (Federal Republic of) bonds Ser. 94, 6 1/4s, 2024 366,180
EUR 1,470,000 Germany (Federal Republic of) bonds Ser. 99, 4s, 2009 1,193,026
EUR 940,000 Italy (Government of) treasury bonds 5 1/4s, 2011 810,849
EUR 190,000 Italy (Government of) treasury bonds 4 3/4s, 2006 165,155
USD 105,000 Malaysia (Government of) bonds 7 1/2s, 2011 107,940
NZD 1,020,000 New Zealand (Government of) bonds Ser. 709, 7s, 2009 452,390
USD 104,000 Peru (Republic of) 144A notes 9 1/8s, 2012 102,596
USD 140,000 Philippines (Republic of) notes 10 5/8s, 2025 147,700
USD 300,000 Philippines (Republic of) notes 8 3/8s, 2009 298,200
USD 535,000 Russia (Federation of) bonds 12 3/4s, 2028 627,288
USD 1,175,000 Russia (Federation of) unsub. 8 1/4s, 2010 1,116,250
USD 1,535,000 Russia (Federation of) unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 1,013,100
USD 2,287,500 Russia (Federation of) 144A unsub. stepped-coupon 5s
(7 1/2s, 3/31/07), 2030 (STP) 1,509,750
EUR 150,000 Spain (Government of) bonds 6s, 2029 136,390
EUR 460,000 Spain (Government of) bonds 4.8s, 2006 399,005
SEK 22,900,000 Sweden (Government of) bonds Ser. 1044, 3 1/2s, 2006 2,061,732
USD 220,000 Turkey (Republic of) bonds 11 3/4s, 2010 226,380
USD 150,000 Turkey (Republic of) notes 11 1/2s, 2012 152,813
GBP 770,000 United Kingdom Treasury bonds Ser. 85, 9 3/4s, 2002 1,120,993
GBP 605,000 United Kingdom Treasury bonds 8 1/2s, 2005 951,415
GBP 250,000 United Kingdom Treasury bonds 5s, 2012 348,119
USD 670,000 United Mexican States bonds 11 3/8s, 2016 838,505
USD 610,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 607,865
USD 230,000 United Mexican States notes 8 1/8s, 2019 227,125
USD 430,000 United Mexican States notes 7 1/2s, 2012 428,495
USD 1,125,000 United Mexican States notes Ser. A, 9 7/8s, 2010 1,270,125
USD 215,000 Venezuela (Republic of) bonds 9 1/4s, 2027 147,598
-------------
Total Foreign Government Bonds and Notes (cost $20,953,562) $ 21,321,540
COLLATERALIZED MORTGAGE OBLIGATIONS (10.6%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
Amortizing Residential Collateral Trust
$ 10,000,000 Ser. 02-BC1, Class A, Interest Only (IO), 6s, 2005 $ 872,656
640,000 Ser. 02-BC1, Class M2, FRN, 3s, 2032 632,254
1,100,000 Amresco Commercial Mortgage Funding, 7.64s, 2029 1,129,219
1,050,235 Banc of America Commercial Mortgage, Inc. Ser. 01-PB1, Class XC,
IO, 0.94s, 2035 46,153
1,028,236 Bank of America Mortgage Securities Ser. 01-10, Class 1A11, IO,
6.65s, 2031 80,010
159,818 Blackstone Hotel Acquisition Co. jr. mtge. loan FRN 9.794s, 2003 216,171
707,976 Blackstone Hotel Acquisition Co. sr. mtge. loan 6.919s, 2003
(acquired 8/17/98, cost $708,933) (RES) 1,006,441
Chase Commercial Mortgage Securities Corp.
250,000 Ser. 00-1, Class E, 8.42s, 2010 263,848
155,000 Ser. 00-3, Class G, 6.887s, 2019 125,114
1,491,467 Citicorp Mortgage Securities, Inc. Ser. 01-15, Class A3A, IO, 5.5s, 2031 88,323
485,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1, Class D,
7.05s, 2030 464,236
7,886,196 Commercial Mortgage Asset Trust Ser. 99-C1, Class X, IO, 0.92s, 2020 454,072
480,000 Countrywide Home Loan Ser. 98-3, Class A5, 6 3/4s, 2028 474,600
420,000 Countrywide Mortgage Backed Securities, Inc. Ser. 93-C, Class A8,
6 1/2s, 2024 411,999
619,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1, Class A2, 7s, 2011 613,294
242,000 Criimi Mae Commercial Mortgage Trust 144A Ser. 98-C1, Class B,
7s, 2011 220,220
CS First Boston Mortgage Securities Corp.
135,000 Ser. 01-CF2, Class E, 7.29s, 2011 137,447
155,000 Ser. 01-CF2, Class G, 6.93s, 2011 149,381
12,977,122 Deutsche Mortgage and Asset Receiving Corp. Ser. 98-C1, Class X,
IO, 0.84s, 2031 515,030
Euro Loan Conduit 144A
150,000 FRN Ser. 7A, Class E, 8.493s, 2006 (United Kingdom) 205,027
150,000 FRN Ser. 7A, Class D, 6.743s, 2006 (United Kingdom) 213,537
Fannie Mae
11,914 Ser. 93-245, Class SD, 18.662s, 2023 12,082
51,485 Ser. 98-63, Class S, 14.64s, 2026 51,485
235,200 Ser. 98-1, Class SA, IO, 11.1s, 2024 88,500
1,491 Ser. 92-15, Class L, IO, 8.55s, 2022 44,928
303,936 Ser. 01-T4, Class A1, 7 1/2s, 2028 320,272
326,961 Ser. 319, Class 2, IO, 6 1/2s, 2032 99,365
303,266 Ser. 01-55, Class CZ, 6 1/2s, 2031 295,400
149,700 Ser. 01-58, Class HI, IO, 6 1/2s, 2026 37,612
570,200 Ser. 01-62, Class PI, IO, 6 1/2s, 2025 95,687
1,329,090 Ser. 318, Class 2, IO, 6s, 2032 424,063
286,820 Ser. 01-62, Class BI, IO, 6s, 2026 53,958
375,500 Ser. 01-72, Class NI, IO, 6s, 2021 52,879
538,900 Ser. 01-70, Class PI, IO, 6s, 2021 78,821
376,800 Ser. 01-74, Class QI, IO, 6s, 2018 44,613
222,200 Ser. 01-74, Class MI, IO, 6s, 2015 40,569
83,959 Federal Home Loan Mortgage Corp. - Government National Mortgage
Association Ser. 57, Class A, Principal Only (PO), zero %, 2023 63,717
4,938,938 FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, 1.71s, 2027 417,495
550,000 First Union National Bank Commercial Mortgage Ser. 00-C1, Class E,
8.499s, 2010 577,500
Freddie Mac
79,544 Ser. 2154, Class SA, 24.83s, 2029 77,928
35,564 Ser. 2149, Class ST, 22.43s, 2029 35,147
138,249 Ser. 2319, Class S, 21.797s, 2031 124,208
214,565 Ser. 2360, Class SC, 16.257s, 2031 192,237
1,948,864 Ser. 212, IO, 6s, 2031 568,825
37,807 Ser. 2286, Class LR, 15.533s, 2024 38,244
459,915 Ser. 2032, Class SK, IO, 11s, 2024 128,813
1,318,721 Ser. 216, IO, 6s, 2032 423,639
271,224 Ser. 2389, Class EI, IO, 6s, 2021 38,649
60,113 Ser. 2337, PO, zero %, 2031 41,253
29,998 Ser. 2331, PO, zero %, 2031 27,101
8,556 Ser. 2312, PO, zero %, 2031 7,730
33,173 Ser. 2317, PO, zero %, 2031 25,792
11,191 Ser. 2302, Class LO, PO, zero %, 2031 11,079
5,235 Ser. 2291, Class QO, PO, zero %, 2031 4,729
479,039 Ser. 215, PO, zero %, 2031 405,387
41,584 Ser. 2078, Class KC, PO, zero %, 2023 37,218
211,230 Ser. 1208, Class F, zero %, 2022 175,824
20,888 Ser. 2190, PO, zero %, 2014 20,679
160,000 GE Capital Commercial Mortgage Corp. Ser. 01-1, Class G, 7.04s, 2011 152,775
285,000 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4, 6 3/4s, 2028 283,053
695,000 GMAC Commercial Mortgage Securities, Inc. Ser. 98-C2, Class D,
6 1/2s, 2010 685,444
240,771 Government National Mortgage Association Ser. 99-42, PO,
zero %, 2027 221,434
305,000 Granite Mortgages PLC FRN Ser. 01-1, Class 1C, 3.17s, 2041
(United Kingdom) 304,807
1,345,000 Holmes Financing PLC FRB Ser. 1, Class 2C, 2.98s, 2040 1,338,275
550,000 LB Commercial Conduit Mortgage Trust Ser. 99-C1, Class D, 7.02s, 2009 546,811
Merrill Lynch Mortgage Investors, Inc.
210,000 Ser. 1995-C3, Class D, 7.782s, 2025 219,548
315,000 Ser. 96-C2, Class E, 6.96s, 2028 296,789
4,398,601 Ser. 96-C2, IO, 1.78s, 2028 262,542
1,815,257 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO, 0.92s, 2027 94,734
8,964 Prudential Home Mortgage Securities Ser. 93-57, Class A4, 5.9s, 2023 9,078
3,088,800 Residential Funding Mortgage Securities, Inc. Ser. 01-S26, Class A9, IO,
5.5s, 2031 186,293
400,000 Residential Mortgage Securities 144A FRB Ser. 8, Class M, 5.17s, 2038 566,672
46,430 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 47,238
700,000 Starwood Asset Receivables Trust FRB Ser. 00-1, Class E, 7.8s, 2005 707,000
1,584,161 Structured Asset Securities Corp. Ser. 98-RF3, IO, 6.1s, 2028 295,248
-------------
Total Collateralized Mortgage Obligations (cost $19,914,145) $ 19,720,201
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (8.0%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Obligations (1.5%)
- -------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association Pass-Through Certificates
$ 13,641 8s, April 1, 2027 $ 14,360
1,365,710 6 1/2s, with due dates from May 1, 2031 to February 1, 2032 1,360,890
901,886 Financing Corp. zero %, with due dates from July 25, 2023 to
September 25, 2031 680,599
121,934 Freddie Mac zero %, August 15, 2031 84,287
Government National Mortgage Association Pass-Through Certificates
135,106 8s, December 15, 2022 144,206
421,403 7s, December 15, 2022 433,506
-------------
2,717,848
U.S. Treasury Obligations (6.5%)
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
1,795,000 4 7/8s, February 15, 2012 1,722,069
10,996,000 3 1/2s, November 15, 2006 10,399,797
-------------
12,121,866
-------------
Total U.S. Government and Agency Obligations (cost $15,012,046) $ 14,839,714
BRADY BONDS (2.7%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 2,973,855 Brazil (Federal Republic of) bonds 8s, 2014 $ 2,423,692
585,000 Brazil (Federal Republic of) government guaranty Ser. 30YR,
6.938s, 2024 444,600
230,000 Brazil (Federal Republic of) govt. guaranty FRB 3 1/4s, 2012 175,099
380,000 Bulgaria (Government of) coll., FLIRB Ser. A, 2.813s, 2012 340,594
617,400 Bulgaria (Government of) debs. FRB Ser. PDI, 2.813s, 2011 540,225
142,100 Bulgaria (Government of) debs. FRB Ser. RPDI, 2.813s, 2011 124,338
380,000 Bulgaria (Government of) FRB Ser. A, 2.813s, 2024 340,100
857,130 Venezuela (Republic of) debs. FRB Ser. DL, 2.875s, 2007 699,675
-------------
Total Brady Bonds (cost $4,786,698) $ 5,088,323
ASSET-BACKED SECURITIES (2.5%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 240,000 Aames Mortgage Trust Ser. 02-1, Class A3, FRN, 6.896s, 2032 $ 239,325
186,720 Asset Backed Funding Corporation NIM Trust Ser. 02-WF1, 9.32s, 2032 184,853
Conseco Finance Securitizations Corp. Ser. 01-4, Class B1, 9.4s, 2010
293,000 Ser. 01-4, Class B1, 9.4s, 2010 275,065
865,000 Ser. 00-4, Class A6, 8.31s, 2032 897,978
300,000 Ser. 00-6, Class M2, 8.2s, 2032 297,461
335,000 Consumer Credit Reference Index Securities Ser. 02-2A, Class BFL,
FRN, 3.881s, 2007 335,733
298,450 First Plus 144A Ser. 98-A, Class A, 8 1/2s, 2023 196,977
75,000 Green Tree Financial Corp. Ser. 95-F, Class B2, 7.1s, 2021 64,453
765,745 Greenpoint Manufactured Housing Ser. 00-3, Class IA, 8.45s, 2031 796,944
295,882 Madison Avenue Manufactured Housing Contract Ser. 02-A, Class B1,
FRN, 5.15s, 2034 221,912
175,971 Mid-State Trust Ser. 10, Class B, 7.54s, 2026 164,038
Morgan Stanley Dean Witter Capital I
474,000 Ser. 01-NC4, Class B1, FRN, 4.4s, 2032 467,631
120,000 Ser. 01-NC3, Class B1, FRN, 4.35s, 2031 118,406
322,315 Option One Mortgage Securities Corp. 144A Ser. 02-1, Class CTFS,
6 3/4s, 2032 317,339
-------------
Total Asset-Backed Securities (cost $4,667,484) $ 4,578,115
PREFERRED STOCKS (2.3%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
3,898 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 39
9,980 Brand Scaffold Services, Inc. 144A $3.625 pfd. 419,160
16,000 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 398,560
11,219 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 626,020
1,200 Chevy Chase Savings Bank, Inc. $3.25 pfd. 32,400
60,000 CSBI Capital Trust I 144A company guaranty Ser. A, 11.75% pfd. 66,600
6,955 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 721,581
1,265 Decrane Aircraft Holdings Co. $16.00 pfd. (PIK) 126,532
320 Delta Financial Corp. Ser. A, $10.00 cum. pfd. 3,680
3,500 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 35
18,000 Diva Systems Corp. Ser. D, zero % pfd. 180
353 Dobson Communications Corp. 13.00% pfd. 303,580
9 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 7,740
110 First Republic Capital Corp. 144A 10.50% pfd. 109,450
384 Granite Broadcasting Corp. 12.75% cum. pfd. (PIK) 188,160
290 Intermedia Communications, Inc. Ser. B, 13.50% pfd. (PIK) 269,700
119 Nextel Communications, Inc. 144A Ser. E, 11.125% pfd. (PIK) 44,030
90 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 832,500
342 Rural Cellular Corp. 12.25% pfd. (PIK) 170,765
-------------
Total Preferred Stocks (cost $4,704,533) $ 4,320,712
CONVERTIBLE BONDS AND NOTES (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 160,000 American Tower Corp. cv. notes 5s, 2010 $ 88,000
310,000 DaVita, Inc. sub. notes 7s, 2009 308,853
460,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 2,300
150,000 Healthsouth Corp. cv. sub. deb. 3 1/4s, 2003 144,563
31,000 Hexcel Corp. cv. sub. notes 7s, 2003 20,189
1,740,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 870,000
100,000 Spectrasite Holdings, Inc. cv. sr. notes 6 3/4s, 2010 33,773
330,000 Telewest Finance 144A cv. company guaranty 6s, 2005
(United Kingdom) 151,800
100,000 Telewest Finance Corp. cv. sub. notes 6s, 2005 (United Kingdom) 46,000
-------------
Total Convertible Bonds and Notes (cost $2,303,089) $ 1,665,478
COMMON STOCKS (0.5%) (a) (NON)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
769 Alderwoods Group, Inc. $ 6,844
50 AmeriKing, Inc. 1
10,551 Arch Wireless, Inc. 95
3,719 Aurora Foods, Inc. 15,583
49,785 Celcaribe SA (Colombia) 1,494
5,194 Covad Communications Group, Inc. 144A 11,842
320 Delta Funding Residual Exchange Company, LLC 69,920
320 Delta Funding Residual Management, Inc. 3
5,040 Doskocil Manufacturing Company, Inc. 15,120
1,024 Fitzgerald Gaming Corp. 10
878 Focal Communications Corp. 3,750
2,357 Genesis Health Ventures, Inc. 42,896
3,715 Intira Corp. 1
240,000 Paracelsus Healthcare Corp. 24
11,701 Pioneer Company, Inc. 21,939
53 Quorum Broadcast Holdings, Inc. Class E (acquired 5/15/01,
cost $52,488) (RES) 52,600
4,444 Regal Cinemas, Inc. 688,820
283 RSL Communications, Ltd. Class A 1
501 Vast Solutions, Inc. Class B1 1,503
501 Vast Solutions, Inc. Class B2 1,503
501 Vast Solutions, Inc. Class B3 1,503
-------------
Total Common Stocks (cost $1,172,531) $ 935,452
UNITS (0.1%) (a)
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------------
350,000 Australis Media, Ltd. units 15 3/4s, 2003 (Australia) (In default) (NON) $ 35
721,160 Contifinacial Corp. Liquidating Trust units 8 1/8s, 2031 (NON) 36,058
204 Hercules Trust II units cum. cv. pfd. 6 1/2s 118,320
220,000 Pegasus Shipping 144A units stepped-coupon zero % (14 1/2s,
6/20/03), 2008 (acquired 6/23/98, cost $109,428) (Bermuda) (RES) (STP) 2,200
225,000 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 67,500
2,000 XCL, Ltd. 144A units cv. cum. pfd. zero % (In default) (NON) (PIK) 1,000
-------------
Total Units (cost $1,624,885) $ 225,113
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
19 Genesis Health Ventures, Inc. $6.00 cv. pfd. (PIK) $ 2,090
110 Interact Systems, Inc. 144A 14.00% cv. pfd. (In default) (NON) 1
1,400 LTV Corp. (The) 144A $4.125 cv. pfd. (In default) (NON) 175
13 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 117,000
2,124 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 2,124
43 World Access, Inc. 144A Ser. D, zero % cv. pfd. 11
330 XCL, Ltd. 144A Ser. A, 9.50% cum. cv. pfd. (In default) (NON) (PIK) 165
-------------
Total Convertible Preferred Stocks (cost $272,986) $ 121,566
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
120 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 $ 12
11,800 CGA Group, Ltd. 144A 2/11/07 118
720 Club Regina, Inc. 144A 12/1/04 7
100 Colo.com, Inc. 144A 3/15/10 1
250 Dayton Superior Corp. 6/15/09 2,500
420 Decrane Aircraft Holdings Co. 9/30/08 1
1 Decrane Aircraft Holdings Co. Class B 6/30/10 1
3,392 Delta Financial Corp. 12/21/10 1
60 Diva Systems Corp. 5/15/06 1
939 Diva Systems Corp. 144A 3/1/08 9
2,740 Genesis Health Ventures, Inc. 10/1/02 5,809
120 Globalstar Telecommunications 2/15/04 1
270 Horizon PCS, Inc. 10/1/10 5,400
110 Interact Systems, Inc. 8/1/03 1
110 Interact Systems, Inc. 144A 12/15/09 1
22,383 Intira Corp. Class B 9/29/10 2
230 iPCS, Inc. 144A 7/15/10 1,150
500 Iridium World Com 144A 7/15/05 1
170 IWO Holdings, Inc. 1/15/11 5,100
340 Jostens, Inc. 5/1/10 3,400
280 KMC Telecommunications Holdings, Inc. 144A 4/15/08 3
290 Knology Holdings, Inc. 10/22/07 7
166 Leap Wireless International, Inc. 144A 4/15/10 4,980
962 Loral Space & Communications, Ltd. 12/27/06 10
160 McCaw International, Ltd. 4/15/07 2
145 Mediq, Inc. 144A 6/1/09 1
130 Mikohn Gaming Corp. 144A 8/15/08 650
140 Orbital Imaging Corp. 144A 3/1/05 1
160 Orion Network Systems 1/15/07 4
320 Paxson Communications Corp. 144A 6/30/03 1,440
100 Pliant Corp. 144A 6/1/10 200
140 Startec Global Communications Corp. 5/15/08 1
45 Sterling Chemicals Holdings 8/15/08 27
130 Telehub Communications Corp. 144A 7/31/05 1
84 Telex Communications Group, Inc. 3/30/07 1
400 Ubiquitel, Inc. 144A 4/15/10 14,200
395 UIH Australia/Pacific, Inc. 144A 5/15/06 4
4,238 United Artists Theatre 3/2/08 38,135
230 Veraldo Holdings, Inc. 144A 4/15/08 2
150 XM Satellite Radio Holdings, Inc. 144A 3/15/10 150
-------------
Total Warrants (cost $862,718) $ 83,335
SHORT-TERM INVESTMENTS (11.1%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 10,880 Short-term investments held as collateral for loaned securities with
yields ranging from 1.80% to 2.19% and due dates ranging from
April 1, 2002 to May 13, 2002 (d) $ 10,870
1,000,000 Daimler Chrysler for an effective yield of 2.29%, April 11, 2002 999,364
1,000,000 General Motors for an effective yield of 2.29%, April 15, 2002 999,109
1,036,000 Quincy Capital Corp. for an effective yield of 1.88%, April 11, 2002 1,035,235
1,000,000 Sears Roebuck for an effective yield of 2.3%, April 9, 2002 999,489
1,006,000 Thunder Bay Funding for an effective yield of 1.82%, April 1, 2002 1,006,000
10,804,000 Interest in $715,000,000 joint tri-party repurchase agreement dated
March 28, 2002 with Goldman Sachs & Co. with respect to various
U.S. Government obligations -- maturity value of $10,806,305 for an
effective yield of 1.92% 10,804,000
4,501,000 Interest in $750,000,000 joint repurchase agreement dated
March 28, 2002 with Morgan Stanley Dean Witter with respect
to various U.S. Government obligations -- maturity value of
$4,501,945 for an effective yield of 1.89% 4,501,000
410,000 U.S. Treasury Bill for an effective yield of 1.65%, June 13, 2002 (SEG) 408,636
-------------
Total Short-Term Investments (cost $20,763,650) $ 20,763,703
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $212,689,765) (b) $ 194,134,090
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $186,341,803.
(b) The aggregate identified cost on a tax basis is $213,449,559,
resulting in gross unrealized appreciation and depreciation of
$6,399,058 and $25,714,527, respectively, or net unrealized depreciation
of $19,315,469.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at March 31, 2002 was
$5,135,390 or 2.8% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at March 31, 2002.
(R) Real Estate Investment Trust.
(d) See footnote 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at March 31, 2002,
which are subject to change based on the terms of the security.
- ------------------------------------------------------------------------------
Forward Currency Contracts to Buy at March 31, 2002
(aggregate face value $13,276,968)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
Australian Dollars $2,578,750 $2,527,233 6/19/02 $51,517
British Pounds 2,834 2,810 6/19/02 24
Canadian Dollars 885,403 888,438 6/19/02 (3,035)
Danish Krone 191,382 190,935 6/19/02 447
Euro 5,529,338 5,562,287 6/19/02 (32,949)
Japanese Yen 3,980,652 4,003,966 6/19/02 (23,314)
Swiss Francs 101,207 101,299 6/19/02 (92)
- ------------------------------------------------------------------------------
$(7,402)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Forward Currency Contracts to Sell at March 31, 2002
(aggregate face value $6,091,078)
Unrealized
Aggregate Face Delivery Appreciation/
Market Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
Australian Dollars $1,107,999 $1,090,040 6/19/02 $(17,959)
British Pounds 2,095,490 2,090,924 6/19/02 (4,566)
Canadian Dollars 466,035 468,612 6/19/02 2,577
Euro 118,245 117,953 6/19/02 (292)
New Zealand
Dollars 391,194 381,342 6/19/02 (9,852)
Swedish Kronas 1,938,203 1,942,207 6/19/02 4,004
- ------------------------------------------------------------------------------
$(26,088)
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 2002
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- ------------------------------------------------------------------------------
Euro-Bobl 5 year
(long) $4,806,642 $4,826,516 Jun-02 $ (19,874)
Euro Bund 10 year
(long) 3,107,230 3,126,392 Jun-02 (19,162)
Euro 90 day (long) 487,350 488,759 Jun-02 (1,409)
Euro 90 day (long) 483,675 486,559 Sep-02 (2,884)
Euro 90 day (long) 475,025 475,609 Jun-02 (584)
Japan Government
Bond 10 year
(long) 1,354,154 1,361,380 Jun-02 (7,226)
Japan Government
Bond 10 year
(long) 1,041,884 1,047,208 Jun-02 (5,324)
Swap Future 10
year (long) 196,938 198,680 Jun-02 (1,742)
U.S. Long Bond
(long) 7,949,552 8,363,539 Jun-02 (413,987)
U.S. Treasury Note
10 year (long) 4,200,578 4,232,806 Jun-02 (32,228)
U.S. Treasury Note
5 year (long) 2,282,156 2,335,187 Jun-02 (53,031)
- ------------------------------------------------------------------------------
$(557,451)
- ------------------------------------------------------------------------------
Written Put Options on Foreign Currency Outstanding at March 31, 2002
(premium received $2,233)
Expiration Date/ Market
Contract Amount Strike Price Value
- ------------------------------------------------------------------------------
2 Eurodollar 3 month -- CME (call) Jun 02/USD 97.75 $163
2 Eurodollar 3 month -- CME (call) Sep 02/USD 97.25 500
- ------------------------------------------------------------------------------
$663
- ------------------------------------------------------------------------------
TBA Sales Commitments at March 31, 2002
(premium received $1,362,014)
Principal Settlement Market
Agency Amount Date Value
- ------------------------------------------------------------------------------
FNMA, 6 1/2s,
April 2032 $1,365,000 3/13/02 $1,357,752
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Swap Contracts outstanding at March 31, 2002
Unrealized
Notional Termination Appreciation/
Amount Date (Depreciation)
- ------------------------------------------------------------------------------
Agreement with
Fleet National
Bank dated
October 3, 2001
to pay (receive)
monthly the
notional amount
multiplied by the
return of the
Lehman Brothers
High Yield Index
and pay monthly
the notional
amount multiplied
by one month
LIBOR adjusted by
a specified
spread. $10,472,065 4/1/02 $ 212,838
Agreement with
Lehman Brothers
Special
Financing, Inc.
dated October 3,
2001 to pay
(receive) monthly
the notional
amount multiplied
by the return of
the Lehman U.S.
High Yield Index,
adjusted by a
specific spread,
and receive
monthly the
notional amount
multiplied by one
month USD LIBOR
adjusted by a
specified spread. 10,472,065 4/1/02 (209,682)
Agreement with
Morgan Stanley
Capital Services,
Inc. dated
September 28,
2000 to pay
semi-annually the
notional
multiplied by
6.94% and receive
quarterly the
notional amount
multiplied by
three month USD
LIBOR. 2,000,000 10/2/10 (134,045)
Agreement with
Merrill Lynch
Capital Services
dated October 27,
2000 to receive
semi-annually the
notional amount
multiplied by
6.74% and pay
quarterly the
notional amount
multiplied by
three month USD
LIBOR. 1,600,000 10/31/05 92,440
- ------------------------------------------------------------------------------
$ (38,449)
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2002
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $9,532 of securities on loan
(identified cost $212,689,765) (Note 1) $194,134,090
- -------------------------------------------------------------------------------------------
Cash 138,762
- -------------------------------------------------------------------------------------------
Foreign currency (cost $104,670) 99,071
- -------------------------------------------------------------------------------------------
Dividends, interest and other receivables 4,017,078
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 113,388
- -------------------------------------------------------------------------------------------
Receivable for securities sold 2,038,101
- -------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 59,723
- -------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 14,121
- -------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 305,278
- -------------------------------------------------------------------------------------------
Total assets 200,919,612
Liabilities
- -------------------------------------------------------------------------------------------
Payable for variation margin (Note 1) 76,974
- -------------------------------------------------------------------------------------------
Distributions payable to shareholders 511,133
- -------------------------------------------------------------------------------------------
Payable for securities purchased 10,857,921
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 530,815
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 322,750
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 38,241
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 17,898
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,220
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 138,625
- -------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 93,213
- -------------------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 10,045
- -------------------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 343,727
- -------------------------------------------------------------------------------------------
Payable for closed swap contracts (Note 1) 191,237
- -------------------------------------------------------------------------------------------
Written options outstanding, at value (premiums receivable
$2,233) (Notes 1 and 3) 663
- -------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $1,362,014)
(Note 1) 1,357,752
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 10,870
- -------------------------------------------------------------------------------------------
Other accrued expenses 73,725
- -------------------------------------------------------------------------------------------
Total liabilities 14,577,809
- -------------------------------------------------------------------------------------------
Net assets $186,341,803
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $240,872,455
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (1,649,827)
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (33,549,922)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (19,330,903)
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $186,341,803
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($74,530,813 divided by 12,269,783 shares) $6.07
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $6.07)* $6.37
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($100,117,061 divided by 16,464,086 shares)** $6.08
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share ($6,275,231
divided by 1,029,486 shares)** $6.10
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($5,418,698 divided by 892,854 shares) $6.07
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $6.07)* $6.27
- -------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Year ended March 31, 2002
Investment income:
- -------------------------------------------------------------------------------------------
Interest income $ 17,566,604
- -------------------------------------------------------------------------------------------
Dividends 502,512
- -------------------------------------------------------------------------------------------
Securities lending 90
- -------------------------------------------------------------------------------------------
Total investment income 18,069,206
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,328,108
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 380,942
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 13,607
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,648
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 184,952
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,036,558
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 63,782
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 28,538
- -------------------------------------------------------------------------------------------
Other 173,628
- -------------------------------------------------------------------------------------------
Total expenses 3,219,763
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (25,586)
- -------------------------------------------------------------------------------------------
Net expenses 3,194,177
- -------------------------------------------------------------------------------------------
Net investment income 14,875,029
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (12,646,216)
- -------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (615,039)
- -------------------------------------------------------------------------------------------
Net realized loss on swap contracts (Note 1) (2,642,926)
- -------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 133,788
- -------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 5,508
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (127,300)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts,
TBA sale commitments, written options and swap contracts during
the year 1,594,814
- -------------------------------------------------------------------------------------------
Net loss on investments (14,297,371)
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 577,658
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Year ended March 31
--------------------------------------
2002 2001
- -------------------------------------------------------------------------------------------------------
Decrease in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 14,875,029 $ 15,852,334
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (15,764,885) (7,244,621)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and
asset and liabilities in foreign currencies 1,467,514 (7,628,209)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 577,658 979,504
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (4,541,064) (4,867,774)
- -------------------------------------------------------------------------------------------------------
Class B (5,822,673) (6,681,013)
- -------------------------------------------------------------------------------------------------------
Class C (357,567) (356,237)
- -------------------------------------------------------------------------------------------------------
Class M (341,351) (438,564)
- -------------------------------------------------------------------------------------------------------
From return of capital
Class A (2,051,942) (1,752,922)
- -------------------------------------------------------------------------------------------------------
Class B (2,631,054) (2,405,883)
- -------------------------------------------------------------------------------------------------------
Class C (161,571) (128,284)
- -------------------------------------------------------------------------------------------------------
Class M (154,244) (157,930)
- -------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 2,347,352 8,734,683
- -------------------------------------------------------------------------------------------------------
Total decrease in net assets (13,136,456) (7,074,420)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of year 199,478,259 206,552,679
- -------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net investment
income of $1,649,827 and $1,890,509, respectively) $186,341,803 $199,478,259
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- -----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended March 31
- -----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.58 $7.12 $7.64 $8.70 $8.34
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income .52(c) .58(c) .61 .60(c) .65(d)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.47) (.51) (.47) (.97) .40
- -----------------------------------------------------------------------------------------------------
Total from
investment operations .05 .07 .14 (.37) 1.05
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income (.39) (.45) (.64) (.59) (.60)
- -----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.02) (.09)
- -----------------------------------------------------------------------------------------------------
From return of capital (.17) (.16) (.02) (.08) --
- -----------------------------------------------------------------------------------------------------
Total distributions (.56) (.61) (.66) (.69) (.69)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.07 $6.58 $7.12 $7.64 $8.70
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .89 1.14 2.07 (4.33) 13.05
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $74,531 $76,301 $76,608 $78,484 $57,016
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.25 1.32 1.22 1.31 1.26(d)
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.27 8.50 8.37 7.43 7.82(d)
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 144.21(e) 176.71 187.27 204.50 211.24
- -----------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of 0.12% based
on average net assets per class A share for the period ended March 31,
1998.
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
- -----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended March 31
- -----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.59 $7.13 $7.65 $8.70 $8.34
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income .47(c) .53(c) .56 .53(c) .59(d)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.47) (.51) (.47) (.95) .40
- -----------------------------------------------------------------------------------------------------
Total from
investment operations -- .02 .09 (.42) .99
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income (.35) (.41) (.59) (.54) (.54)
- -----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.02) (.09)
- -----------------------------------------------------------------------------------------------------
From return of capital (.16) (.15) (.02) (.07) --
- -----------------------------------------------------------------------------------------------------
Total distributions (.51) (.56) (.61) (.63) (.63)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.08 $6.59 $7.13 $7.65 $8.70
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .14 .38 1.30 (4.93) 12.20
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $100,117 $110,708 $117,090 $124,434 $85,379
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.00 2.07 1.97 2.06 2.01(d)
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.54 7.75 7.62 6.67 7.07(d)
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 144.21(e) 176.71 187.27 204.50 211.24
- -----------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of 0.13% based
on average net assets per class B share for the period ended March 31,
1998.
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
- ----------------------------------------------------------------------------------------
For the period
Per-share Feb. 1, 1999+
operating performance Year ended March 31 to March 31
- ----------------------------------------------------------------------------------------
2002 2001 2000 1999
- ----------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.60 $7.14 $7.66 $7.77
- ----------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------
Net investment income .47(c) .53(c) .56 .04(c)
- ----------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.46) (.51) (.47) (.05)
- ----------------------------------------------------------------------------------------
Total from
investment operations .01 .02 .09 (.01)
- ----------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------
From net
investment income (.35) (.41) (.59) (.07)
- ----------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.02)
- ----------------------------------------------------------------------------------------
From return of capital (.16) (.15) (.02) (.01)
- ----------------------------------------------------------------------------------------
Total distributions (.51) (.56) (.61) (.10)
- ----------------------------------------------------------------------------------------
Net asset value,
end of period $6.10 $6.60 $7.14 $7.66
- ----------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .29 .37 1.29 (.12)*
- ----------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $6,275 $6,407 $5,448 $1,957
- ----------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 2.00 2.07 1.97 .33*
- ----------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.53 7.74 7.68 .73*
- ----------------------------------------------------------------------------------------
Portfolio turnover (%) 144.21(d) 176.71 187.27 204.50
- ----------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
- -----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended March 31
- -----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.58 $7.12 $7.64 $8.70 $8.34
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income .50(c) .56(c) .59 .58(c) .64(d)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.47) (.50) (.47) (.97) .39
- -----------------------------------------------------------------------------------------------------
Total from
investment operations .03 .06 .12 (.39) 1.03
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income (.37) (.44) (.62) (.57) (.58)
- -----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.02) (.09)
- -----------------------------------------------------------------------------------------------------
Return of capital (.17) (.16) (.02) (.08) --
- -----------------------------------------------------------------------------------------------------
Total distributions (.54) (.60) (.64) (.67) (.67)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.07 $6.58 $7.12 $7.64 $8.70
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .65 .89 1.82 (4.57) 12.76
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,419 $6,063 $7,407 $9,001 $8,771
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.50 1.57 1.47 1.56 1.51(d)
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.04 8.24 8.11 7.21 7.57(d)
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 144.21(e) 176.71 187.27 204.50 211.24
- -----------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(c) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of 0.12% based
on average net assets per class M share for the period ended March 31,
1998.
(e) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
March 31, 2002
Note 1
Significant accounting policies
Putnam Strategic Income Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks high current income
consistent with the preservation of capital by investing its assets in
debt securities of domestic or foreign issuers, including government and
corporate obligations. The fund may also invest in preferred stocks,
common stocks, and other equity securities, as well as in cash or money
market instruments.
The fund offers class A, class B, class C and class M. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
C shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front end sales charge of 3.25% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with accounting
principles generally accepted in the United States of America and requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and the
reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Securities quoted in
foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates market
value. Other investments, including restricted securities, are stated at
fair value following procedures approved by the Trustees. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by an independent pricing service or dealers,
approved by the Trustees, which determine valuations for normal
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and variable
relationships, generally recognized by institutional traders, between
securities.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in one or more repurchase agreements and/or short-term money
market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Gains or losses on securities sold are determined
on the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date. Non-cash dividends, if any, are recorded at the fair market value of
the securities received. All premiums/discounts are amortized/accreted on a
yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies and the difference between the amount
of investment income and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net unrealized appreciation and depreciation of assets and
liabilities in foreign currencies arise from changes in the value of
open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange
rate. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted (or
an increase in the value of a currency in which securities a fund intends
to buy are denominated, when a fund holds cash reserves and short-term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is "marked to market"
daily and the change in market value is recorded as an unrealized gain or
loss. When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The fund could be
exposed to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or
payments are known as "variation margin." Exchange traded options are
valued at the last sale price, or if no sales are reported, the last bid
price for purchased options and the last ask price for written options.
Options traded over-the-counter are valued using prices supplied by
dealers.
H) Equity swap contracts The fund may engage in equity swap agreements,
which are arrangements to exchange the return generated by one instrument
for the return generated by another instrument. To manage its exposure to
equity markets the fund may enter into equity swap agreements, which
involve a commitment by one party to pay interest in exchange for a
market-linked return based on a notional principal amount. To the extent
that the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest rate obligation, the fund
will receive a payment from or make a payment to the counterparty,
respectively. Equity swaps are marked to market daily based upon quotations
from market makers and the change, if any, is recorded as unrealized gain
or loss. Payments received or made at the end of the measurement period are
recorded as realized gains or losses. The fund could be exposed to credit
or market risk due to unfavorable changes in the fluctuation of interest
rates or in the price of the underlying security or index, the possibility
that there is no liquid market for these agreements or that the
counterparty may default on its obligation to perform.
I) Interest rate swap contracts The fund may engage in interest rate swap
agreements, which are arrangements between two parties to exchange cash
flows based on a notional principal amount. The fund may enter into
interest rate swap agreements, to manage the funds exposure to interest
rates. Interest rate swaps are marked to market daily based upon quotations
from market makers and the change, if any, is recorded as unrealized gain
or loss. Payments made or received are included as part of interest income.
Payments received or made upon early termination are recorded as realized
gain or loss. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or that the
counterparty may default on its obligation to perform.
J) 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.
K) Security lending The fund may lend securities, through its agent
Citibank N.A., to qualified borrowers in order to earn additional
income. The loans are collateralized by cash and/or securities in an
amount at least equal to the market value of the securities loaned. The
market value of securities loaned is determined daily and any additional
required collateral is allocated to the fund on the next business day.
The risk of borrower default will be borne by Citibank N.A., the fund
will bear the risk of loss with respect to the investment of the
cash collateral. Income from securities lending is included in
investment income on the Statement of operations. At March 31, 2002,
the value of securities loaned amounted to $9,532. The fund received
cash collateral of $10,870, which is pooled with collateral of other
Putnam funds into 35 issuers of high-grade short-term investments.
L) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintains an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended
March 31, 2002, the fund had no borrowings against the line of credit.
M) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, 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 March 31, 2002, the fund had a capital
loss carryover of approximately $26,165,000 available to the extent
allowed by tax law to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ------------------
$3,976,000 March 31, 2007
8,233,000 March 31, 2008
5,424,000 March 31, 2009
8,532,000 March 31, 2010
N) Distributions to shareholders The fund declares a distribution each
day based upon the projected net investment income, for a specified
period, calculated as if earned pro-rata throughout the period on a
daily basis. Such distributions are recorded daily and paid monthly.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, post-October loss deferrals, dividends payable, defaulted
bond interest, both realized and unrealized gains and losses on certain
futures contracts, paydown gains and losses on mortgage-backed
securities, market discount, interest on payment-in-kind securities and
swap adjustments. 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. For the
year ended March 31, 2002, the fund reclassified $3,571,692 to increase
distributions in excess of net investment income and $92,328 to decrease
paid-in-capital, with a decrease to accumulated net realized losses of
$3,664,020. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
As of March 31, 2002, there was no undistributed ordinary income on a tax
basis.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.70% of the
first $500 million of average net assets, 0.60% of the next $500
million, 0.55% of the next $500 million, 0.50% of the next $5 billion,
0.475% of the next $5 billion, 0.455% of the next $5 billion, 0.44% of
the next $5 billion and 0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and their
staff who provide administrative services to the fund. The aggregate amount
of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the year ended March 31, 2002, the
fund's expenses were reduced by $25,586 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $666 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B, class C and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam,
LLC and Putnam Retail Management GP, Inc., for services provided and
expenses incurred by it in distributing shares of the fund. The Plans
provide for payments by the fund to Putnam Retail Management at an annual
rate up to 0.35%, 1.00%, 1.00% and 1.00% of the average net assets
attributable to class A, class B, class C and class M shares, respectively.
The Trustees have approved payment by the fund at an annual rate of 0.25%,
1.00%, 1.00% and 0.50% of the average net assets attributable to class A,
class B, class C and class M shares, respectively.
For the year ended March 31, 2002, Putnam Retail Management, acting as
underwriter received net commissions of $34,667 and $497 from the sale
of class A and class M shares, respectively, and received $217,742 and
$852 in contingent deferred sales charges from redemptions of class B
and class C shares, respectively. A deferred sales charge of up to 1.00%
and 0.40% is assessed on certain redemptions of class A and class M
shares, respectively. For the year ended March 31, 2002, Putnam Retail
Management, acting as underwriter received $3,186 and no monies on class
A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended March 31, 2002, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $184,281,325 and
$175,713,706, respectively. Purchases and sales of U.S. government
obligations aggregated $142,718,133 and $131,133,257, respectively.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ---------------------------------------------------------------------------
Written options
outstanding at
beginning of year JPY 200,000,000 $4,548
- ---------------------------------------------------------------------------
Options opened 1,460,004 8,966
- ---------------------------------------------------------------------------
Options expired (1,236,000) (2,253)
- ---------------------------------------------------------------------------
Options closed (224,000) (4,480)
JPY (200,000,000) (4,548)
- ---------------------------------------------------------------------------
Written options
outstanding at
end of year 4 $2,233
- ---------------------------------------------------------------------------
Note 4
Capital shares
At March 31, 2002, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares
were as follows:
Year ended March 31, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 3,870,656 $ 24,172,119
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 710,816 4,424,441
- ---------------------------------------------------------------------------
4,581,472 28,596,560
Shares repurchased (3,908,468) (24,433,406)
- ---------------------------------------------------------------------------
Net increase 673,004 $ 4,163,154
- ---------------------------------------------------------------------------
Year ended March 31, 2001
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 3,922,828 $ 26,444,566
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 683,404 4,625,524
- ---------------------------------------------------------------------------
4,606,232 31,070,090
Shares repurchased (3,768,322) (25,502,446)
- ---------------------------------------------------------------------------
Net increase 837,910 $ 5,567,644
- ---------------------------------------------------------------------------
Year ended March 31, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 4,481,122 $ 28,135,709
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 786,131 4,897,456
- ---------------------------------------------------------------------------
5,267,253 33,033,165
Shares repurchased (5,609,549) (35,046,970)
- ---------------------------------------------------------------------------
Net decrease (342,296) $ (2,013,805)
- ---------------------------------------------------------------------------
Year ended March 31, 2001
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 4,386,516 $ 29,701,236
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 783,212 5,309,800
- ---------------------------------------------------------------------------
5,169,728 35,011,036
Shares repurchased (4,787,522) (32,490,303)
- ---------------------------------------------------------------------------
Net increase 382,206 $ 2,520,733
- ---------------------------------------------------------------------------
Year ended March 31, 2002
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 708,216 $ 4,480,589
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 53,842 336,461
- ---------------------------------------------------------------------------
762,058 4,817,050
Shares repurchased (703,272) (4,438,100)
- ---------------------------------------------------------------------------
Net increase 58,786 $ 378,950
- ---------------------------------------------------------------------------
Year ended March 31, 2001
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 415,995 $ 2,831,499
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 52,769 356,237
- ---------------------------------------------------------------------------
468,764 3,187,736
Shares repurchased (260,995) (1,755,464)
- ---------------------------------------------------------------------------
Net increase 207,769 $ 1,432,272
- ---------------------------------------------------------------------------
Year ended March 31, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 131,874 $ 823,505
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 54,715 340,309
- ---------------------------------------------------------------------------
186,589 1,163,814
Shares repurchased (215,673) (1,344,761)
- ---------------------------------------------------------------------------
Net decrease (29,084) $ (180,947)
- ---------------------------------------------------------------------------
Year ended March 31, 2001
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 208,717 $ 1,414,904
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 58,969 399,565
- ---------------------------------------------------------------------------
267,686 1,814,469
Shares repurchased (385,997) (2,600,435)
- ---------------------------------------------------------------------------
Net decrease (118,311) $ (785,966)
- ---------------------------------------------------------------------------
Note 5
New accounting pronouncement
As required, effective January 1, 2001, the fund has adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies. This Guide requires that the fund amortize premium and
accrete discount on all fixed-income securities, and classify as
interest income gains and losses realized on paydowns on mortgage-backed
securities. Prior to January 1, 2001, the fund did not amortize premium
and accrete discounts for certain fixed income securities and
characterized as realized gains and losses paydowns on mortgage backed
securities. Adopting these accounting principles will not affect the
fund's net asset value, but will change the classification of certain
amounts between interest income and realized and unrealized gain/loss in
the Statement of operations. The adoption of this principle is not
material to the financial statements.
Note 6
Actions by Trustees
In April 2002, the trustees approved the merger of Putnam Strategic
Income Fund into Putnam Diversified Income Trust. The transaction is
currently scheduled to occur in June 2002. It is subject to a number of
conditions and there is no guarantee it will occur.
FEDERAL TAX INFORMATION
(Unaudited)
For the year ended March 31, 2002, a portion of the Fund's distribution
represents a return of capital and is therefore not taxable to
shareholders. The return of capital is partly due to foreign currency
losses.
The fund has designated 1.84% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2003 will show the tax status of
all distributions paid to your account in calendar 2002.
TRUSTEES
Name, Address,1 Date of Birth,
Position(s) Held with Fund
and Length of Service Principal Occupation(s)
as a Putnam Fund Trustee2 During Past 5 Years Other Directorships Held by Trustee
- -------------------------------------------------------------------------------------------------------
Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc.,
Trustee since 1994 Associates, Inc. Banta Corporation (a printing and
(a management digital imaging firm), Intermatic
consulting and private Corporation (manufacturer of energy
investments firm) control products), Ryerson Tull, Inc.
(a steel service corporation),
Advocate Health Care, and the
National Center for Nonprofit
Boards. Chairman Emeritus
of the Board of Trustees, Mount
Holyoke College.
Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign
Trustee since 2001 Operating Officer, Relations, the Electric Power
Nuclear Threat Research Institute Advisory Council,
Initiative (a private the Board of Directors of the Gas
foundation dedicated Technology Institute, the University
to reducing the threat of Chicago Board of Governors for
of weapons of mass Argonne National Laboratory, the
destruction) Board of Directors of the
Environment and Natural Resources
Program Steering Committee, John
F. Kennedy School of Government,
Harvard University. Until 2001,
Mr. Curtis was a Member of the
Department of Defense's Policy
Board and Director of EG&G
Technical Services, Inc. (fossil energy
research and development support)
and prior to May 1997, Mr. Curtis
was Deputy Secretary of Energy.
John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy
Trustee since 1985 and Managing Director, Corporation (formerly known as
Chairman since 2000 First Reserve Snyder Oil Corporation),
Corporation TransMontaigne Oil Company,
(a registered investment Continuum Health Partners of
advisor investing in New York, Sarah Lawrence College,
companies in the and various private companies owned
world-wide energy by First Reserve Corporation.
industry on behalf of Trustee of TH Lee, Putnam
institutional investors) Investment Trust (a closed-end
investment company).
Ronald J. Jackson Private investor Former Chairman, President, and
(12/17/43), Chief Executive Officer of Fisher-
Trustee since 1996 Price, Inc. (a toy manufacturer).
Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group (a
Trustee since 1997 Killian Professor of UK-based holding company with
Economics and interests in electric power and
Management and telecommunications networks), State
Director of the Center Farm Indemnity Company (an
for Energy and automobile insurance company), and
Environmental Policy the Whitehead Institute for
Research, Massachusetts Biomedical Research (a non-profit
Institute of Technology research institution). President of the
Yale University Council. Prior to
March 2000 and September 1998,
Dr. Joskow was a Director of New
England Electric System (a public
utility holding company) and a
consultant to National Economic
Research Associates, respectively.
Elizabeth T. Kennan President Emeritus of Chairman, Cambus-Kenneth
(2/25/38), Mount Holyoke College Bloodstock (a limited liability
Trustee since 1992 company involved in thoroughbred
horse breeding and farming),
Director, Northeast Utilities, and
Talbots (a distributor of women's
apparel). Trustee of Centre College,
Trustee of Notre Dame University,
and Member of the Oversight
Committee of Folger Shakespeare
Library. Prior to September 2000,
June 2000, and November 1999,
Dr. Kennan was a Director of
Chastain Real Estate, Bell Atlantic,
and Kentucky Home Life
Insurance, respectively.
John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc.,
(6/15/41), of Ridgeway Farm The Liberty Corporation (a company
Trustee since 1997 (a limited liability engaged in the broadcasting
company engaged in industry), and Progress Energy, Inc.
timber and farming) (a utility company, formerly known
as Carolina Power & Light). Prior to
October 1997, January 1998, and
May 2001, Mr. Mullin was a Director
of Dillon, Read and Co. Inc.,
The Ryland Group, Inc., and
Graphic Packaging International
Corp., respectively.
Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes
(3/15/45), Properties, LLP and Center, Trustee of SEA Education
Trustee since 1984 Chairman of Cabot Association, and Director of
Properties, Inc. Brandywine Trust Company (a trust
company). Prior to February 1998,
Mr. Patterson was Executive Vice
President and Director of
Acquisitions of Cabot Partners
Limited Partnership. Prior to
December 2001, Mr. Patterson was
President and Trustee of Cabot
Industrial Trust (publicly traded real
estate investment trust).
W. Thomas Stephens Corporate Director Director of Qwest Communications
(9/2/42), (communications company), Xcel
Trustee since 1997 Energy Incorporated (public utility
company), TransCanada Pipelines,
and Norske Canada, Inc. (paper
manufacturer). Prior to July 2001
and October 1999, Mr. Stephens was
Chairman of Mail-Well (printing
and envelope company) and
MacMillan-Bloedel (forest products
company), respectively.
W. Nicholas Thorndike Director of various Trustee of Northeastern University and
(3/28/33), corporations and Honorary Trustee of Massachusetts
Trustee since 1992 charitable General Hospital. Prior to
organizations, September 2000, April 2000, and
including Courier December 2001, Mr. Thorndike was
Corporation (a book a Director of Bradley Real Estate,
manufacturer) and Inc., a Trustee of Eastern Utilities
Providence Journal Co. Associates, and a Trustee of Cabot
(a newspaper publisher) Industrial Trust, respectively.
Lawrence J. Lasser* President and Chief Director of Marsh & McLennan
(11/1/42), Executive Officer Companies, Inc. and the United Way
Trustee since 1992 of Putnam of Massachusetts Bay. Member of the
Investments, LLC, Board of Governors of the Investment
and Putnam Investment Company Institute, Trustee of the
Management, LLC Museum of Fine Arts, Boston, a
Trustee and Member of the Finance
and Executive Committees of Beth
Israel Deaconess Medical Center,
Boston, and a Member of the
CareGroup Board of Managers
Investment Committee, the Council
on Foreign Relations, and the
Commercial Club of Boston.
George Putnam, III* President, New Director of The Boston Family
(8/10/51), Generation Research, Office, L.L.C. (registered investment
Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA
President since 2000 financial advisory and Education Association, Trustee of
other research services St. Mark's School, and Trustee of
relating to bankrupt and Shore Country Day School.
distressed companies)
and New Generation
Advisers, Inc.
(a registered
investment adviser)
A.J.C. Smith (4/13/34),* Director of Marsh & Director of Trident Corp. (a limited
Trustee since 1986 McLennan partnership with over 30 institutional
Companies, Inc. investors). Trustee of the Carnegie
Hall Society, the Educational
Broadcasting Corporation and the
National Museums of Scotland.
Chairman of the Central Park
Conservancy. Member of the Board
of Overseers of the Joan and
Sanford I. Weill Graduate School
of Medical Sciences of Cornell
University. Prior to May 2000 and
November 1999, Mr. Smith was
Chairman and CEO, respectively, of
Marsh & McLennan Companies, Inc.
- --------------------------------------------------------------------------------------------------------
1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of January 31, 2002, there
were 123 Putnam Funds.
2 Each Trustee serves for an indefinite term, until his or her resignation, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act
of 1940) of the fund, Putnam Management or Putnam Retail Management. Messrs. Putnam, III, Lasser, and
Smith are deemed "interested persons" by virtue of their positions as officers or shareholders of the
fund, or officers of Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc.,
the parent company of Putnam Management and Putnam Retail Management. George Putnam, III, is the
President of your Fund and each of the other Putnam Funds. Lawrence J. Lasser has been the President,
Chief Executive Officer, and a Director of Putnam Investments, LLC, and Putnam Management since 1985,
having begun his career there in 1969. Mr. Lasser currently also serves as a Director of Marsh &
McClennan Companies, Inc., the parent company of Putnam Management. A.J.C. Smith is a Director of
Marsh & McClennan Companies, Inc.
OFFICERS
Name, Address,1 Date of Birth,
Position(s) Held with Fund Length of Service Principal Occupation(s) During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------
Charles E. Porter (7/26/38), Since 1996 Managing Director, Putnam Investments,
Executive Vice President, LLC and Putnam Management
Treasurer & Principal
Financial Officer
Patricia C. Flaherty Since 1996 Senior Vice President, Putnam
(12/1/46), Investments, LLC and Putnam Management
Senior Vice President
Michael T. Healy (1/24/58), Since 2000 Managing Director, Putnam
Senior Vice President, Investments, LLC
Assistant Treasurer and
Principal Accounting
Officer
Gordon H. Silver (7/3/47), Since 1990 Senior Managing Director, Putnam
Vice President Investments, LLC and Putnam Management
Ian Ferguson (7/3/57), Since 1997 Senior Managing Director, Putnam
Vice President Investments, LLC and Putnam Management
Brett C. Browchuk Since 1996 Managing Director of Putnam
(2/27/63), Vice President Investments, LLC and Putnam Management
Richard G. Leibovitch Since 1999 Managing Director of Putnam Investments,
(10/31/63), Vice President LLC and Putnam Management. Prior to
February 1999, Managing Director at
J.P. Morgan.
Richard A. Monaghan Since 1998 Managing Director, Putnam Investments,
(8/25/54), LLC, Putnam Management and Putnam
Vice President Retail Management
John R. Verani Since 1996 Senior Vice President, Putnam
(6/11/39), Investments, LLC and Putnam Management
Vice President
Stephen M. Oristaglio Since 1998 Senior Managing Director of Putnam
(8/21/55), Investments LLC and Putnam
Vice President Management. Prior to July 1998, Managing
Director at Swiss Bank Corp.
Kevin M. Cronin (6/13/61), Since 1997 Managing Director of Putnam
Vice President Management.
- ---------------------------------------------------------------------------------------------------------------
1 The address of each Officer is One Post Office Square, Boston, MA 02109.
PUTNAM IS A LEADER IN GLOBAL MONEY MANAGEMENT
Putnam Investments traces its heritage to the early 19th century when
ship captains hired trustees to manage their money while they were away
at sea. In a landmark 1830 decision that involved one such trustee,
Massachusetts Supreme Judicial Court Justice Samuel Putnam established
The Prudent Man Rule, a legal foundation for responsible money
management. In 1937, his great-great grandson founded Putnam with The
George Putnam Fund of Boston, the first fund to offer a balanced
portfolio of stocks and bonds. Today, Putnam Investments is one of the
largest investment management firms in the world, and this balanced
approach remains the foundation of everything we do.
With 65 years of experience, Putnam now has over $305 billion in assets
under management, over 100 mutual funds, more than 14 million
shareholder accounts, and nearly 3,000 institutional and 401(k) clients.
We're one of the largest mutual fund companies in the United States.
Putnam has won the DALBAR award for service ten times in the past eleven
years. Putnam offers products in every investment category, including
growth, value, and blend as well as international and fixed-income.
Teamwork is a cornerstone of Putnam's investment philosophy. Our funds
are managed by teams in a collaborative environment that promotes an
active exchange of information.
Putnam's disciplined investment philosophy is based on style
consistency. We aim for less volatility over the short term and strong,
consistent performance over time. Our truth in labeling approach ensures
that we adhere to every fund's stated objective, style, and risk
positioning.
We are committed to helping financial advisors provide sound, sensible
guidance, information, and expertise to help investors reach their
financial goals.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We presently manage over 100 mutual
funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Kevin Cronin
Vice President
Richard G. Leibovitch
Vice President
Richard A. Monaghan
Vice President
Michael T. Healy
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Strategic
Income Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
Visit www.putnaminvestments.com or call a representative at 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PUTNAM
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN029-79287 896/2BQ/2BR 5/02