Putnam
Master Income
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-03
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[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
During the semiannual period ended April 30, 2003, Putnam Master Income
Trust turned in solid results at net asset value (NAV) and outperformed
its primary benchmark. As you will see in the management report that
follows, this outcome was helped by the spread in yields that favored
the lower-rated issues in which your fund typically invests, as well as
the ongoing stock market volatility that is still driving equity
investors to the fixed-income markets.
The fund's returns at market price were lower than those at NAV, but
still solid. The lower return at market price reflects a decline in
demand resulting from the dividend reduction implemented during this
semiannual period. The managers also discuss the reasons for the fund's
performance relative to its benchmark and other comparative indexes in
the context of the prevailing market and economic environment. They
conclude by offering their views on prospects for the fund during the
second half of its fiscal year.
As we look back on one of the most challenging periods in recent
investment history, we would like you to know how much we appreciate
your patience and continued confidence in Putnam. We believe those who
maintain a long-term focus and a diversified approach to investing
should eventually be rewarded for their fortitude.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 18, 2003
REPORT FROM FUND MANAGEMENT
FUND HIGHLIGHTS
* During the semiannual period ended April 30, 2003, Putnam Master
Income Trust had a total return at net asset value (NAV) of 13.52%. The
fund's return at market price was 9.28% for the six-month period.
* At NAV, the fund outperformed both its primary benchmark, the Lehman
Government Credit Index, which returned 5.52%, and the Citigroup World
Ex U.S. Government Bond Index, a comparative index, which returned
11.77%. It lagged another comparative index, the JP Morgan Global High
Yield Index, which returned 19.05% for the period.
* The fund underperformed the average return for its Lipper category,
Closed-End Flexible Income Funds, which was 14.30%.
* Index and Lipper results should be compared to fund performance at
net asset value. See the Performance Summary on page 8 for complete fund
performance, comparative performance, and Lipper data.
* In March 2003, the fund's dividend was reduced to $0.04 per share.
Please see page 6 for more information.
* PERFORMANCE COMMENTARY
Global bond markets performed well during the first half of the fund's
fiscal year, benefiting from continued volatility in the U.S. equity
markets, geopolitical uncertainty surrounding the war in Iraq, and
generally slow economic growth with low inflation. In this positive
environment, Putnam Master Income Trust performed well, primarily due to
its allocation to high-yield bonds, which rallied during the period. The
fund underperformed its Lipper peer group because many of the
stronger-performing funds in the Lipper category had a larger weighting
in emerging-markets bonds, which strengthened well during the period.
Fund Profile
Putnam Master Income Trust seeks high current income, consistent with
preservation of capital, by investing in a portfolio diversified among
U.S. investment-grade, corporate high-yield, and international
fixed-income securities. The fund may be appropriate for investors
seeking high current income, asset class diversification, or both.
The fund's lower return at market price reflects the impact of March's
dividend reduction on investor demand -- a key factor in market price
performance.
* MARKET OVERVIEW
The fund was fortunate to have started its fiscal year just weeks after
a significant turning point in the bond market. This change in market
sentiment occurred after a dismal four-month period (from June through
September 2002) for both the stock market and the economy, during which
investors flocked to the relative safety of Treasuries. As investors
fled to higher quality, lower-rated bonds suffered.
In mid October, however, Treasury yields became abnormally low as
economic forecasts for 2003 brightened, and the Treasury sector sold off
sharply. As a result, the first half of the fund's fiscal year occurred
during a period of exceptional strength for many of its target sectors.
These included mortgage-backed securities (MBSs), corporate high-yield
bonds, and corporate investment-grade bonds, which outperformed
Treasuries throughout the six-month period. In addition, the bond market
generally benefited from an environment of economic uncertainty (which
followed the initial optimism in mid October) and caution caused by the
impending war with Iraq.
In Europe, slower growth, low inflation, higher interest rates, and a
strong euro helped boost returns for European government bonds. In
emerging markets, higher oil prices helped some countries, while
political and economic turmoil hurt others (see page 5 for more
details).
MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/03
Bonds
Lehman Government Credit Index (government and corporate bonds) 5.52%
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Lehman Aggregate Bond Index (taxable U.S. bonds) 4.31%
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Citigroup World Ex U.S. Government Bond Index 11.77%
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JP Morgan Global High Yield Index (global high-yield bonds) 19.05%
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Equities
S&P 500 Index (broad market) 4.48%
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Citigroup World Ex U.S. Primary Markets Growth Index
(intl. growth stocks) 2.17%
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Citigroup World Ex U.S. Primary Markets Value Index
(intl. value stocks) 2.73%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/03.
* STRATEGY OVERVIEW
The fund's multisector strategy, which focuses on investing in a diverse
array of bond sectors, was well-suited to the market and economic
conditions of this six-month period. All of the fund's major areas of
emphasis -- high-yield corporate bonds, investment-grade corporate
bonds, MBSs, international government bonds, and emerging markets --
performed well during the period. When individual sectors strengthened
relative to each other, we added to those that appeared to hold the most
value and potential for strong returns, chiefly corporate
investment-grade and high-yield bonds.
The fund's emerging-markets strategy is built on careful fundamental
analysis of country-related risks. Our currency strategy continued to
favor a weakening dollar versus other currencies, primarily the euro.
This strategy was based on our belief that the U.S. economy continued to
have structural problems, such as a high trade deficit and stagnating
growth, which did not favor a rising dollar.
[GRAPHIC OMITTED: horizontal bar chart SECTOR WEIGHTINGS COMPARED]
SECTOR WEIGHTINGS COMPARED*
as of 10/31/02 as of 4/30/03
Mortgage-backed
securities 0.7% 1.4%
U.S. investment
grade 29.4% 26.8%
Corporate
high yield 43.0% 46.8%
Non-U.S.
(ex-emerging
markets) 13.2% 13.1%
Emerging
markets 10.6% 10.0%
Footnote reads:
*This chart shows how the fund's top sector weightings have changed over
the last six months. Weightings are shown as a percentage of market value.
Holdings will vary over time.
* HOW SECTOR ALLOCATIONS AFFECTED PERFORMANCE
The fund's largest sector allocation (approximately half of the
portfolio) was invested in high-yield corporate bonds, and this position
was a significant contributor to the fund's strong returns during the
period. As results for the JP Morgan High Yield Index demonstrate, this
sector has performed exceptionally well during the past six months.
There are a number of reasons for the strong showing, and among the most
important is the decline in default rates. Although still high by
historical standards, corporate defaults have declined nearly 40% since
hitting a peak of 10.81% in January 2002 -- to a level of 6.94% by March
2003 (according to Moody's). This trend has been seen as a positive sign
that, if it continues, may help high-yield bond performance over the
next several years. Second, investors have been seeking higher yields in
the marketplace and have become more willing to take on risk in
exchange. As a result, high-yield bonds have significantly outperformed
Treasuries, causing a narrowing in the yield spread between Treasuries
and high-yield bonds (as high-yield bond prices increase, their yields
decrease, narrowing the spread, or difference in yield compared to
Treasuries). The narrowing in high-yield spreads has been another strong
driver of performance, as it is a key indicator that is closely watched
by investors. Finally, corporations are generally focusing on reducing
debt and improving their balance sheets, which has led to higher overall
credit quality and has helped attract investors.
[GRAPHIC OMITTED: TOP 3 HOLDINGS BY SECTOR]
TOP 3 HOLDINGS BY SECTOR*
High-yield bonds
JP Morgan
HYDI 144A notes, 8.75%, 2007
HMH Properties, Inc.
Company guaranty, Series B,
7.875% 2008
Qwest Services Corp.
144A notes, 13.5%, 2010
Foreign bonds
United Kingdom
Treasury bonds, 5.0%, 2004
Sweden (Government of)
Government bonds, 5.50%, 2012
Canada (Government of)
Government bonds, 6.0%, 2011
U.S. investment-grade securities
U.S. Treasury bonds
7.5%, November 15, 2016
U.S. Treasury bonds
6.25%, August 15, 2023
U.S. Treasury notes
1.625%, March 31, 2005
Footnote reads:
*These holdings represent 10.6% of the fund's net assets as of 4/30/03. The
fund's holdings will change over time.
Among the fund's high-yield holdings, DirecTV and Nextel Communications
performed well. Both companies have seen an increase in subscribers and
have solid businesses, and both have taken steps to reduce debt. Nextel,
in particular, has retired several billion dollars in corporate debt in
the past year. Within the high-yield sector, however, the fund's
aerospace holdings detracted from performance as a result of significant
declines in air travel and the resulting financial difficulties
experienced by companies in the industry. In addition, some holdings in
the health care and food distribution industries underperformed.
We increased the fund's corporate investment-grade bond holdings at the
beginning of the period and kept this sector's weighting high before
cutting it back significantly near the period's end after the fund had
benefited and the rally moderated. This helped performance, as the
sector rallied. Corporate investment-grade bond performance had been hit
hard early in 2002 from the weakening economy and a wave of corporate
malfeasance allegations. Beginning in October 2002, however, these
securities began to attract investors for many of the same reasons that
corporate high-yield bonds had -- narrowing yield spreads, fewer credit
problems, and a trend toward stronger balance sheets and lower debt.
The MBS sector was another strong area for the fund, attracting
investors who sought higher returns than Treasuries but also demanded
higher credit quality and were willing to forego the additional yield
that accompanied riskier bond sectors. In this highly complex market,
security selection is critical. Our MBS analysts played a crucial role
in helping us maintain diversity across a wide range of maturities,
coupons, and issuing agencies.
The fund's international government bonds benefited from slowing global
economies, especially in Europe, where the Swedish, French, and German
government-bond markets performed well as inflation remained low and
equity performance was weak. Our security and country selections in
emerging markets were on target, but the fund was underweighted in this
sector, which detracted from its performance relative to its Lipper peer
group. Within emerging markets, the fund favored oil-exporting countries
that were benefiting from higher oil prices and strengthening economies,
such as Russia, Mexico, Colombia, and Bulgaria. Also as a result of our
ongoing risk management, we were able to avoid being overexposed to
countries such as Venezuela, Brazil, and Turkey, which performed poorly
due to political and economic turmoil.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
* The level of income generated by the fund's holdings has declined
over the period. This reflects generally declining yields in the bond
markets as well as our increased weighting in high-yield bonds, which
have higher default rates (a bond in default does not pay interest
income). Consequently, in March 2003, the fund lowered its distribution
rate from $0.048 per share to $0.040 per share.
THE FUND'S MANAGEMENT TEAM
This fund is managed by the Putnam Core Fixed-Income Team. The members
of this team are D. William Kohli (Portfolio Leader), David Waldman
(Portfolio Member), Carl Bell, Rob Bloemker, Andrea Burke, Kevin Cronin,
Steve Horner, James Prusko, Michael Salm, and John Van Tassel.
THE OUTLOOK FOR YOUR FUND
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
In our opinion, the remainder of 2003 has the potential to be favorable
for the U.S. bond market -- especially the higher-yielding, non-Treasury
sectors in which this fund primarily invests. The conclusion of the war
with Iraq has reduced the level of geopolitical uncertainty that had
been preoccupying investors, and many are now focusing on the economy
and are seeking higher yields from their fixed-income investments. We
anticipate that economic growth in the United States will be slow to
moderate for the rest of 2003 but will not have a "double dip" back into
recession. This is a positive environment for bond sectors with higher
yields than Treasuries, such as MBSs, government agency bonds, and
high-yield corporate bonds.
Overseas, we anticipate more of the same: continued slow growth in
Europe with low inflation and a strong euro and uneven returns in
emerging markets, where we believe that some countries will continue to
outperform, while others will likely remain volatile.
In an environment of slow to moderate growth, with potential volatility
in both the stock and bond markets, it is paramount that a portfolio of
bonds be invested in a wide range of markets, sectors, and holdings. We
believe this fund is properly diversified and is well positioned to take
advantage of market trends over the coming months.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. International
investing involves certain risks, such as currency fluctuations,
economic instability, and political developments. Lower-rated bonds may
offer higher yields in return for more risk. Mutual funds that invest in
government securities are not guaranteed. Mortgage-backed securities are
subject to prepayment risk.
PERFORMANCE SUMMARY
This section provides information about your fund's performance during
its semiannual period, which ended April 30, 2003. In accordance with
regulatory requirements, we also include performance for the most
current calendar quarter-end. Performance should always be considered in
light of a fund's investment strategy. 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
does not reflect taxes on reinvested distributions. A profile of your
fund's strategy appears on the first page of this report. See page 9 for
definitions of some terms used in this section.
TOTAL RETURN FOR PERIODS ENDED 4/30/03
NAV Market price
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6 months 13.52% 9.28%
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1 year 10.81 2.09
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5 years 18.45 20.31
Annual average 3.44 3.77
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10 years 85.39 76.53
Annual average 6.37 5.85
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Life of fund
(since 12/28/87)
Annual average 8.45 7.42
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/03
Lipper
Closed-End
Lehman Citigroup JP Morgan Flexible
Government World Ex CSFB Global Income Funds
Credit U.S. Govt. High High category
Index Bond Index Yield Index Yield Index+ average*
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6 months 5.52% 11.77% 19.75% 19.05% 14.30%
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1 year 12.46 25.80 11.25 10.11 8.61
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5 years 45.35 31.32 16.28 14.06 15.55
Annual average 7.77 5.60 3.06 2.67 2.71
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10 years 102.90 79.49 96.31 -- 80.29
Annual average 7.33 6.02 6.98 -- 6.00
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Life of fund
(since 12/28/87)
Annual average 8.63 6.74 9.07 -- 8.29
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/03
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Distributions (number) 6
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Income $0.272
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Capital gains --
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Total $0.272
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Share value: NAV Market price
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10/31/02 $6.37 $6.15
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4/30/03 6.94 6.45
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Current return (end of period)
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Current
dividend
rate 1 6.92% 7.44%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 3/31/03(most recent calendar quarter)
NAV Market price
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6 months 9.23% 1.34%
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1 year 8.68 1.37
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5 years 14.98 20.00
Annual average 2.83 3.71
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10 years 80.41 77.28
Annual average 6.08 5.89
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Life of fund
(since 12/28/87)
Annual average 8.24 7.34
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TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
Market price is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
New York Stock Exchange.
COMPARATIVE INDEXES
Lehman Government Credit Index is an unmanaged index of U.S.
fixed-income securities.
Citigroup (formerly Salomon Smith Barney) World Ex U.S. Government Bond
Index is an unmanaged index of government bonds from 10 countries.
Citigroup (formerly Salomon Smith Barney) World Ex U.S. Primary Markets
Growth Index is an unmanaged index of mostly large- and some
small-capitalization stocks from developed countries excluding the U.S.
chosen for their growth orientation.
Citigroup (formerly Salomon Smith Barney) World Ex U.S. Primary Markets
Value Index is an unmanaged index of mostly large- and some
small-capitalization stocks from developed countries excluding the U.S.
chosen for their value orientation.
JP Morgan Global High Yield Index is an unmanaged index of global
high-yield debt securities.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Standard & Poor's (S&P) 500 Index is an unmanaged index of common stock
performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios, and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
THE FUND'S PORTFOLIO
April 30, 2003 (Unaudited)
CORPORATE BONDS AND NOTES (52.1%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.1%)
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$129,671 Adams Outdoor Advertising bank term loan FRN Ser. B, 4.584s,
2008 (acquired 4/02/03, cost $129,347) (RES) $129,671
480,537 Interact Operating Co. notes 14s, 2003 (In default) (NON) (PIK) 48
100,000 Lamar Media Corp. bank term loan FRN Ser B., 3 5/8s,
2010 (acquired 2/27/03, cost $100,000) (RES) 99,925
305,000 Lamar Media Corp. 144A sr. sub. notes 7 1/4s, 2013 321,013
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550,657
Automotive (1.1%)
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100,000 American Axle & Manufacturing, Inc. company guaranty 9 3/4s, 2009 109,000
140,000 ArvinMeritor, Inc. notes 8 3/4s, 2012 151,200
165,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 154,275
520,000 Collins & Aikman Products, Inc. company guaranty 10 3/4s, 2011 543,400
100,000 Dana Corp. notes 10 1/8s, 2010 112,000
320,000 Dana Corp. notes 9s, 2011 347,200
50,000 Dana Corp. notes 7s, 2029 42,250
155,000 Dana Corp. notes 6 1/2s, 2009 150,350
210,000 Dana Corp. notes 6 1/4s, 2004 212,100
EUR 30,000 Dana Corp. sr. notes 9s, 2011 34,478
$60,000 Delco Remy International, Inc. company guaranty 11s, 2009 31,200
205,000 Delco Remy International, Inc. company guaranty 10 5/8s, 2006 112,750
580,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 551,000
80,000 Federal Mogul Corp. notes 7 7/8s, 2010 (In default) (NON) 11,600
250,000 Federal Mogul Corp. notes 7 3/4s, 2006 (In default) (NON) 36,250
345,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 388,125
650,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 695,500
EUR 110,000 Lear Corp. sr. notes 8 1/8s, 2008 132,557
$140,000 Tenneco Automotive, Inc. company guaranty Ser. B, 11 5/8s, 2009 123,900
100,000 TRW Automotive bank term loan FRN Ser. B, 5.313s,
2011 (acquired 2/21/03, cost $99,500) (RES) 99,453
-------------
4,038,588
Basic Materials (6.0%)
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5,000 Abitibi-Consolidated Finance LP company guaranty 7 7/8s, 2009 5,435
520,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 566,800
300,000 AK Steel Corp. company guaranty 7 7/8s, 2009 266,250
385,000 AK Steel Corp. company guaranty 7 3/4s, 2012 331,100
77,329 Appleton Papers, Inc. bank term loan FRN Ser. C, 4.56s,
2006 (acquired 6/4/02, cost $77,619) (RES) 77,458
570,000 Appleton Papers, Inc. company guaranty Ser. B, 12 1/2s, 2008 646,950
460,000 Avecia Group PLC company guaranty 11s, 2009 (United Kingdom) 418,600
315,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 217,350
290,000 Compass Minerals Group, Inc. company guaranty 10s, 2011 321,900
100,000 Crown Cork & Seal Company, Inc. bank term loan FRN Ser. B,
5.54s, 2008 (acquired 2/21/03, cost $99,000) (RES) 99,550
540,400 Doe Run Resources Corp. company guaranty Ser. A1, 11 3/4s, 2008 (PIK) 216,160
415,000 Dow Chemical Co. (The) notes 5 3/4s, 2009 439,227
105,000 Equistar Chemical notes 6 1/2s, 2006 100,800
100,000 Equistar Chemicals LP notes 8 3/4s, 2009 99,000
790,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty
10 1/8s, 2008 829,500
210,000 Equistar Chemicals LP/Equistar Funding Corp. 144A sr. notes
10 5/8s, 2011 220,500
EUR 115,000 Fort James Corp. company guaranty 4 3/4s, 2004 124,467
$240,000 Four M Corp. sr. notes Ser. B, 12s, 2006 244,800
170,000 Georgia-Pacific Corp. debs. 9 1/2s, 2011 179,775
140,000 Georgia-Pacific Corp. debs. 7.7s, 2015 126,000
380,000 Georgia-Pacific Corp. notes 8 7/8s, 2031 345,800
160,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 158,400
60,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 59,850
110,000 Georgia-Pacific Corp. 144A sr. notes 8 7/8s, 2010 118,525
100,000 Graham Packaging bank term loan FRN Ser. B, 5 5/8s, 2010
(acquired 2/18/03, cost $99,500) (RES) 99,301
50,000 Haynes International, Inc. sr. notes 11 5/8s, 2004 24,000
99,750 Hercules, Inc. bank term loan FRN Ser. B, 4.495s, 2007
(acquired 12/17/02, cost $99,501) (RES) 99,792
1,070,000 Hercules, Inc. company guaranty 11 1/8s, 2007 1,214,450
303,654 Huntsman Corp. bank term loan FRN Ser. A, 5.879s, 2007
(acquired various dates from 3/1/02 to 2/24/03, cost $245,032) (RES) 285,435
145,634 Huntsman Corp. bank term loan FRN Ser. B, 7 7/8s, 2007
(acquired various dates from 3/1/02 to 2/24/03, cost $117,517) (RES) 136,896
655,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 674,650
780,000 Huntsman ICI Holdings sr. disc. notes zero %, 2009 304,200
EUR 265,000 Huntsman International, LLC sr. sub. notes Ser. EXCH, 10 1/8s, 2009 286,816
$140,000 IMC Global, Inc. company guaranty Ser. B, 11 1/4s, 2011 158,900
240,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 273,600
100,000 IMC Global, Inc. 144A sr. notes 11 1/4s, 2011 113,000
765,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 833,850
125,000 ISP Holdings, Inc. sec. sr. notes Ser. B, 10 5/8s, 2009 128,125
30,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s,
2006 (In default) (NON) 18,900
915,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s,
2003 (In default) (NON) 36,600
30,000 Louisiana-Pacific Corp. sr. notes 8 7/8s, 2010 33,745
180,000 Louisiana-Pacific Corp. sr. sub. notes 10 7/8s, 2008 201,600
180,000 Lyondell Chemical Co. bonds 11 1/8s, 2012 193,500
180,000 Lyondell Chemical Co. notes Ser. A, 9 5/8s, 2007 185,400
245,000 Lyondell Chemical Co. sr. sub. notes 10 7/8s, 2009 246,225
340,000 Lyondell Chemical Co. 144A sec. notes 9 1/2s, 2008 346,800
EUR 425,000 MDP Acquisitions PLC sr. notes Ser. REGS, 10 1/8s, 2012 (Ireland) 512,152
$11,782 MDP Acquisitions PLC 144A sub. notes 15 1/2s, 2013 (Ireland) 13,314
EUR 120,000 Messer Griesheim Holdings AG sr. notes 10 3/8s, 2011 (Germany) 148,424
$615,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 676,500
95,000 Millenium America, Inc. company guaranty 7s, 2006 96,425
105,000 Millenium America, Inc. 144A sr. notes 9 1/4s, 2008 114,975
270,000 Noveon International bonds 13s, 2011 275,400
250,000 Noveon International company guaranty Ser. B, 11s, 2011 277,500
500,000 OM Group, Inc. company guaranty 9 1/4s, 2011 430,000
260,000 Oregon Steel Mills, Inc. company guaranty 10s, 2009 262,600
185,000 P&L Coal Holdings Corp. company guaranty Ser. B, 9 5/8s, 2008 194,250
525,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 557,813
233,383 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 193,708
100,000 Phelps Dodge Corp. sr. notes 8 3/4s, 2011 112,925
77,794 Pioneer Cos., Inc. sec. FRN 4.79s, 2006 61,457
430,000 Potlatch Corp. company guaranty 10s, 2011 466,550
175,000 Resolution Performance Products, LLC 144A sr. notes 9 1/2s, 2010 187,250
150,000 Riverwood International Corp. bank term loan FRN Ser. C, 3.861s,
2008 (acquired 4/24/02, cost $151,903) (RES) 149,297
895,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 924,088
110,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 115,225
415,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 319,550
225,000 Salt Holdings Corp. 144A sr. notes stepped-coupon zero %
(12 3/4s, 12/15/07), 2012 (STP) 149,625
125,000 Smurfit-Stone Container Corp. company guaranty 8 1/4s, 2012 135,938
400,000 Solutia, Inc. company guaranty 11 1/4s, 2009 312,000
515,000 Steel Dynamics, Inc. company guaranty 9 1/2s, 2009 558,775
76,698 Sterling Chemicals, Inc. sec. notes 10s, 2007 (PIK) 69,028
450,000 Stone Container Corp. sr. notes 9 3/4s, 2011 504,000
180,000 Stone Container Corp. sr. notes 9 1/4s, 2008 199,800
415,000 Stone Container Corp. sr. notes 8 3/8s, 2012 448,200
270,000 Stone Container Corp. 144A company guaranty 11 1/2s,
2006 (Canada) 288,900
255,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 265,200
240,000 Tembec Industries, Inc. company guaranty 8 1/2s, 2011 (Canada) 249,600
160,000 Tembec Industries, Inc. sr. notes 8 5/8s, 2009 165,600
30,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 16,800
110,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 61,600
390,000 Ucar Finance, Inc. company guaranty 10 1/4s, 2012 364,650
280,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 86,800
22,000 Weirton Steel Corp. sr. notes FRN 5s, 2008 2,200
380,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 (In default) (NON) 1,900
230,000 WHX Corp. sr. notes 10 1/2s, 2005 184,000
-------------
22,264,001
Building Materials (0.6%)
- -------------------------------------------------------------------------------------------------------------------
625,000 American Standard Cos., Inc. company guaranty 7 5/8s, 2010 681,250
170,000 Atrium Cos., Inc. company guaranty Ser. B, 10 1/2s, 2009 178,500
180,000 Building Materials Corp. company guaranty 8s, 2008 162,000
480,000 Dayton Superior Corp. company guaranty 13s, 2009 408,000
117,000 NCI Building Systems, Inc. bank term loan FRN Ser. B, 4.29s,
2008 (acquired 9/4/02, cost $117,000) (RES) 117,146
250,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 258,750
50,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 52,250
170,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 176,375
750,000 Owens Corning bonds 7 1/2s, 2018 (In default) (NON) 198,750
460,000 Owens Corning notes 7 1/2s, 2005 (In default) (NON) 121,900
-------------
2,354,921
Capital Goods (4.8%)
- -------------------------------------------------------------------------------------------------------------------
130,000 Advanced Glass Fiber Yarns bank term loan FRN Ser. A, 6 3/4s,
2004 (acquired 9/12/02, cost $91,000) (RES) 78,000
120,000 Advanced Glass Fiber Yarns sr. sub. notes 9 7/8s, 2009 (In default) (NON) 6,000
415,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 398,400
111,231 Alliant Techsystems, Inc. bank term loan FRN Ser. C, 3.68s,
2009 (acquired 5/7/02, cost $111,231) (RES) 111,342
84,500 Allied Waste Industries, Inc. bank term loan FRN Ser. LC, 4.529s,
2010 (acquired 4/25/03, cost $84,500) (RES) 84,711
1 Allied Waste Industries, Inc. bank term loan FRN 4.019s, 2006
(acquired 2/27/02, cost $1) (RES) 1
13,000 Allied Waste Industries, Inc. bank term loan FRN Ser. C, 4.529s,
2010 (acquired 4/25/03, cost $13,000) (RES) 13,007
495,000 Allied Waste North America, Inc. company guaranty Ser. B, 10s, 2009 529,031
210,000 Allied Waste North America, Inc. company guaranty Ser. B, 8 7/8s, 2008 227,325
685,000 Allied Waste North America, Inc. company guaranty Ser. B, 8 1/2s, 2008 734,663
780,000 Allied Waste North America, Inc. 144A company guaranty 9 1/4s, 2012 854,100
130,000 Applied Extrusion Technologies, Inc. company guaranty Ser. B,
10 3/4s, 2011 96,200
765,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 673,200
360,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 257,400
70,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 48,650
285,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 199,500
155,000 Berry Plastics Corp. company guaranty 10 3/4s, 2012 168,950
635,000 Blount, Inc. company guaranty 13s, 2009 454,025
470,000 Blount, Inc. company guaranty 7s, 2005 423,000
295,000 Briggs & Stratton company guaranty 8 7/8s, 2011 330,400
660,000 Browning-Ferris Industries, Inc. debs. 7.4s, 2035 574,200
290,000 Browning-Ferris Industries, Inc. sr. notes 6 3/8s, 2008 284,200
62,500 Casella Waste Systems, Inc. bank term loan FRN Ser. B, 4.563s,
2010 (acquired 1/22/03, cost $62,500) (RES) 62,734
970,000 Crown Holdings SA 144A sec. notes 9 1/2s, 2011 (France) 1,033,050
500,000 Decrane Aircraft Holdings Co. company guaranty Ser. B, 12s, 2008 225,000
330,000 Earle M. Jorgensen Co. sec. notes 9 3/4s, 2012 346,500
485,000 FIMEP SA 144A sr. notes 10 1/2s, 2013 (France) 523,800
75,867 Flowserve Corp. bank term loan FRN Ser. C, 4.096s,
2009 (acquired 4/30/02, cost $75,867) (RES) 75,735
277,000 Flowserve Corp. company guaranty 12 1/4s, 2010 315,780
EUR 50,000 Flowserve Finance BV company guaranty 12 1/4s, 2010 (Netherlands) 62,206
$50,000 Fonda Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 25,000
198,500 Grief Brothers bank term loan FRN Ser. C, 3.549s,
2009 (acquired 8/2/02, cost $198,500) (RES) 198,302
365,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 359,525
280,000 High Voltage Engineering Corp. sr. notes 10 3/4s, 2004 70,000
250,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (In default) (NON) (STP) 5,000
EUR 105,000 Invensys, PLC sr. unsub. notes 5 1/2s, 2005 (United Kingdom) 102,221
$140,000 JLG Industries, Inc. 144A sr. notes 8 1/4s, 2008 140,000
230,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 110,400
200,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 5/8s, 2010 216,000
165,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 172,631
120,000 L-3 Communications Corp. company guaranty 7 5/8s, 2012 132,300
220,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 229,900
180,000 L-3 Communications Corp. 144A Structured Notes 8 1/2s,
2006 (Issued by Credit and Repackaged Securities, Ltd.)
(Cayman Islands) 201,240
220,000 Laidlaw, Inc. debs. 8 3/4s, 2025 (Canada) (In default) (NON) 102,575
60,000 Laidlaw, Inc. debs. 8 1/4s, 2023 (Canada) (In default) (NON) 28,725
680,000 Laidlaw, Inc. notes 7.65s, 2006 (Canada) (In default) (NON) 323,850
160,000 Manitowoc Co., Inc. (The) company guaranty 10 1/2s, 2012 174,400
EUR 100,000 Manitowoc Co., Inc. (The) company guaranty 10 3/8s, 2011 111,580
$124,000 Michigan Electric Transmission Co./Michigan Electric Transmission,
Inc. bank term loan FRN Ser. B, 3.81s, 2007
(acquired 4/22/02, cost $124,000) (RES) 124,052
555,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 477,300
370,000 Owens-Brockway sr. sec. notes 8 3/4s, 2012 394,975
635,000 Owens-Brockway Glass company guaranty 8 7/8s, 2009 682,625
300,000 Owens-Brockway Glass 144A sr. notes 8 1/4s, 2013 311,250
280,000 Owens-Brockway Glass 144A sr. sec. notes 7 3/4s, 2011 287,000
380,000 Pliant Corp. company guaranty 13s, 2010 347,700
160,000 Rexnord Corp. 144A sr. sub. notes 10 1/8s, 2012 172,000
360,000 Roller Bearing Company of America company guaranty Ser. B,
9 5/8s, 2007 306,000
670,000 Sequa Corp. sr. notes 9s, 2009 700,150
70,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 72,450
65,000 Siebe PLC 144A sr. unsub. 6 1/2s, 2010 (United Kingdom) 53,300
21,262 SPX Corp. bank term loan FRN Ser. B, 3.563s, 2009
(acquired 7/23/02, cost $21,262) (RES) 21,193
35,418 SPX Corp. bank term loan FRN Ser. C, 3.813s, 2010
(acquired 7/23/02, cost $35,418) (RES) 35,303
130,000 Sweetheart Cup Co. company guaranty 12s, 2004 112,450
640,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 614,400
75,000 Terex Corp. company guaranty 8 7/8s, 2008 78,000
385,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 423,500
140,000 Terex Corp. company guaranty Ser. D, 8 7/8s, 2008 144,900
99,279 Trimas Corp. bank term loan FRN Ser. B, 4s, 2009
(acquired 6/5/02, cost $99,279) (RES) 99,319
160,000 Trimas Corp. company guaranty 9 7/8s, 2012 164,800
150,000 Trimas Corp. 144A company guaranty 9 7/8s, 2012 154,500
138,818 United Defense Industries, Inc. bank term loan FRN Ser. B,
3.32s, 2009 (acquired various dates from 10/19/01 to
7/1/02, cost $138,818) (RES) 138,831
-------------
17,810,757
Commercial and Consumer Services (0.3%)
- -------------------------------------------------------------------------------------------------------------------
87,949 Coinmach Corp. bank term loan FRN Ser. B, 4.214s, 2009
(acquired 1/31/02, cost $87,839) (RES) 88,026
650,000 Coinmach Corp. sr. notes 9s, 2010 690,625
74,811 Corrections Corporation of America bank term loan FRN Ser. B,
4.825s, 2008 (acquired 2/24/03, cost $74,905) (RES) 74,802
273,963 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 5,479
DEM 783,990 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 8,945
$345,000 IESI Corp. company guaranty 10 1/4s, 2012 360,525
350,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 (In default) (NON) 3,500
-------------
1,231,902
Communication Services (4.1%)
- -------------------------------------------------------------------------------------------------------------------
215,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 55,900
340,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 231,200
150,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 99,000
875,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 385,000
590,000 American Cellular Corp. company guaranty 9 1/2s, 2009 153,400
250,000 American Tower Corp. sr. notes 9 3/8s, 2009 247,500
530,000 American Tower Escrow Corp. 144A disc. notes zero %, 2008 333,900
300,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda)
(In default) (NON) 37,500
121,639 Bell Actimedia bank term loan FRN Ser. C, 5.588s, 2010
(acquired 11/26/02, cost $120,422) (RES) 122,460
198,217 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 3,964
30,000 Colt Telecommunications Group PLC sr. disc. notes 12s, 2006
(United Kingdom) 26,700
GBP 115,000 Colt Telecommunications Group PLC sr. notes 10 1/8s, 2007
(United Kingdom) 152,548
EUR 60,000 Colt Telecommunications Group PLC sr. notes 7 5/8s, 2009
(United Kingdom) 49,207
$440,000 Crown Castle International Corp. sr. disc. notes stepped-coupon
zero % (10 3/8s, 5/15/04), 2011 (STP) 391,600
410,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 402,825
50,000 Crown Castle International Corp. sr. notes 9s, 2011 47,750
510,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 504,900
210,000 Firstworld Communication Corp. sr. disc. notes zero %, 2003
(In default) (NON) 21
162,294 Globix Corp. company guaranty 11s, 2008 (PIK) 115,229
80,000 Horizon PCS, Inc. company guaranty 13 3/4s, 2011 8,800
30,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 (In default) (NON) 22,650
500,000 iPCS, Inc. sr. disc. notes stepped-coupon zero % (14s, 7/15/05),
2010 (In default) (NON) (STP) 25,000
273,000 IWO Holdings, Inc. company guaranty 14s, 2011 49,140
310,000 Leap Wireless International, Inc. company guaranty 12 1/2s,
2010 (In default) (NON) 40,300
110,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 (In default) (NON) 2,200
180,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 (In default) (NON) 6,075
420,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 (In default) (NON) 14,175
480,000 Microcell Telecommunications sr. disc. notes Ser. B, 14s,
2006 (Canada) (In default) (NON) 26,400
117,000 Millicom International Cellular SA sr. disc. notes 13 1/2s,
2006 (Luxembourg) 91,845
950,000 Nextel Communications, Inc. bank term loan FRN Ser. A, 2 5/8s,
2007 (acquired 11/1/02, cost $828,875) (RES) 903,331
62,187 Nextel Communications, Inc. bank term loan FRN Ser. B, 4 3/4s,
2008 (acquired 12/19/02, cost $57,523) (RES) 60,937
62,187 Nextel Communications, Inc. bank term loan FRN Ser. C, 5s,
2008 (acquired 12/19/02, cost $57,523) (RES) 60,937
10,000 Nextel Communications, Inc. sr. disc. notes 9.95s, 2008 10,463
180,000 Nextel Communications, Inc. sr. notes 12s, 2008 193,500
210,000 Nextel Communications, Inc. sr. notes 9 1/2s, 2011 229,425
25,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 27,000
920,000 Nextel Partners, Inc. sr. disc. notes stepped-coupon zero %
(14s, 2/1/04), 2009 (STP) 933,800
100,000 Nextel Partners, Inc. sr. notes 12 1/2s, 2009 110,000
135,000 Nextel Partners, Inc. sr. notes 11s, 2010 141,750
100,000 Nextel Partners, Inc. sr. notes 11s, 2010 105,000
390,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 (In default) (NON) 105,300
270,000 PanAmSat Corp. bank term loan FRN Ser. B, 4.815s, 2009
(acquired 2/21/02, cost $269,663) (RES) 269,229
450,000 PanAmSat Corp. company guaranty 8 1/2s, 2012 487,125
5,000 Qwest Capital Funding, Inc. company guaranty 7 3/4s, 2006 4,350
960,000 Qwest Corp. 144A notes 8 7/8s, 2012 1,056,000
1,421,000 Qwest Services Corp. 144A notes 13 1/2s, 2010 1,577,310
55,550 Rhythms NetConnections, Inc. sr. notes Ser. B, 14s, 2010 (In default) (NON) 1,111
25,000 Rogers Cantel, Ltd. debs. 9 3/8s, 2008 (Canada) 26,031
425,000 Rogers Cantel, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 434,031
145,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 159,500
170,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 147,900
205,000 SBA Communications Corp. sr. disc. notes 12s, 2008 184,500
185,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 155,400
61,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 71,218
20,000 Telecorp PCS, Inc. company guaranty stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 20,500
1,135,000 Telus Corp. notes 8s, 2011 (Canada) 1,282,550
705,000 Telus Corp. notes 7 1/2s, 2007 (Canada) 782,550
99,750 Time Warner Telecom, Inc. bank term loan FRN Ser. B, 5.29s,
2009 (acquired 1/15/03, cost $87,193) (RES) 92,393
170,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 141,950
455,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 382,200
420,000 Triton PCS, Inc. company guaranty zero %, 2008 421,050
280,000 TSI Telecommunication Services, Inc. company guaranty Ser. B, 12 3/4s,
2009 268,800
220,000 U S West, Inc. notes 5 5/8s, 2008 204,600
225,000 UbiquiTel Operating Co. 144A company guaranty stepped-coupon
zero % (14s, 4/15/05), 2010 (STP) 81,000
485,000 US UnWired, Inc. company guaranty stepped-coupon Ser. B,
zero % (13 3/8s, 11/1/04), 2009 (STP) 92,150
220,000 US West Capital Funding, Inc. company guaranty 6 1/4s, 2005 197,450
-------------
15,069,530
Conglomerates (0.5%)
- -------------------------------------------------------------------------------------------------------------------
90,000 Tyco International Group SA company guaranty 6 3/4s,
2011 (Luxembourg) 90,000
1,000,000 Tyco International Group SA company guaranty 6 3/8s,
2006 (Luxembourg) 1,005,000
120,000 Tyco International Group SA company guaranty 6 3/8s,
2005 (Luxembourg) 121,200
620,000 Tyco International Group SA notes 6 3/8s, 2011
(Luxembourg) 610,700
-------------
1,826,900
Consumer (0.5%)
- -------------------------------------------------------------------------------------------------------------------
475,000 Icon Health & Fitness company guaranty 11 1/4s, 2012 494,000
114,092 Jostens, Inc. bank term loan FRN Ser. C, 4.042s, 2009
(acquired 7/30/02, cost $114,092) (RES) 113,926
285,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 340,575
900,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 850,500
-------------
1,799,001
Consumer Staples (8.3%)
- -------------------------------------------------------------------------------------------------------------------
13,000 Acme Communications, Inc. sr. disc. notes Ser. B, 12s, 2005 13,423
50,000 Adelphia Communications Corp. notes Ser. B, 9 7/8s, 2005 (In default) (NON) 24,500
250,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010 (In default) (NON) 123,750
30,000 Adelphia Communications Corp. sr. notes 9 3/8s, 2009 (In default) (NON) 15,000
110,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007
(In default) (NON) 53,900
405,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009
(In default) (NON) 198,450
145,000 Ahold Finance USA eurobonds 6 3/8s, 2005 135,904
280,000 AMC Entertainment, Inc. sr. sub. notes 9 7/8s, 2012 294,000
215,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 224,675
480,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 496,800
446,190 American Seafood Group, LLC bank term loan FRN Ser. B,
4.553s, 2009 (acquired 4/11/02, cost $445,744) (RES) 447,584
119,339 AMF Bowling Worldwide bank term loan FRN Ser. B, 5.961s,
2008 (acquired 3/1/02, cost $119,041) (RES) 119,041
176,421 Archibald Candy Corp. company guaranty 10s, 2007 (PIK) 119,966
350,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 392,000
70,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 31,500
235,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 105,750
205,000 Brand Services, Inc. 144A sr. sub. notes 12s, 2012 225,500
120,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009
(United Kingdom) 136,800
900,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 974,250
265,000 Capital Records Inc. 144A company guaranty 8 3/8s, 2009 246,450
91,855 Carmike Cinemas, Inc. bank term loan FRN Ser. B, 7 3/4s, 2005
(acquired various dates from 10/4/02 to 3/5/03, cost $89,504) (RES) 91,224
100,000 Century Cable Holdings bank term loan FRN 6 1/4s, 2009
(acquired 6/11/02, cost $80,500) (RES) 79,964
79,798 Charter Communications Holdings, LLC bank term loan FRN
Ser. B, 3.57s, 2008 (acquired 1/9/03, cost $69,325) (RES) 71,998
395,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 161,950
345,000 Charter Communications Holdings, LLC/Capital Corp. sr. disc.
notes stepped-coupon zero % (11 3/4s, 1/15/05), 2010 (STP) 177,675
810,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
11 1/8s, 2011 534,600
440,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10 3/4s, 2009 292,600
225,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10 1/4s, 2010 147,375
470,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
10s, 2011 307,850
380,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
9 5/8s, 2009 248,900
150,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
8 5/8s, 2009 98,625
50,000 Charter Communications Holdings, LLC/Capital Corp. sr. notes
8 1/4s, 2007 33,250
110,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 9 5/8s, 2008 111,513
345,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 8 1/2s, 2008 357,075
250,000 Cinemark USA, Inc. 144A sr. sub. notes 9s, 2013 268,750
100,000 Cinemark USA, Inc. 144A sr. sub. notes 9s, 2013 108,000
80,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 84,400
210,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 222,600
97,500 Constellation Energy Group, Inc. bank term loan FRN Ser. B, 4.063s,
2008 (acquired 3/20/03, cost $97,500) (RES) 97,573
300,000 Cott Beverages USA, Inc. company guaranty 8s, 2011 323,250
1,070,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 1,126,175
140,000 Cumulus Media, Inc. bank term loan FRN Ser. B, 6 1/4s, 2007
(acquired 3/20/02, cost $140,000) (RES) 140,300
90,000 Dean Foods Co. sr. notes 6 5/8s, 2009 92,700
120,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 130,200
305,000 Del Monte Corp. 144A sr. sub. notes 8 5/8s, 2012 328,256
116,094 Del Monte Foods Co. bank term loan FRN Ser. B, 5.064s, 2010
(acquired 12/16/02, cost $115,514) (RES) 117,023
65,000 Directv bank term loan FRN Ser. B, 4.765s, 2010
(acquired 3/4/03, cost $65,000) (RES) 65,144
905,000 DirecTV Holdings, LLC 144A sr. notes 8 3/8s, 2013 1,013,600
1,162,000 Diva Systems Corp. sr. disc. notes Ser. B, zero %, 2008 (In default) (NON) 34,860
430,000 Doane Pet Care Co. sr. sub. debs. 9 3/4s, 2007 408,500
48,750 Dole Food Co. bank term loan FRN Ser. B, 5 1/8s, 2008
(acquired 3/28/03, cost $48,750) (RES) 48,770
250,000 Dole Food Co. 144A sr. notes 8 7/8s, 2011 270,625
240,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 258,000
30,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 20,100
1,390,000 Echostar DBS Corp. sr. notes 10 3/8s, 2007 1,556,800
210,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 226,538
1,210,000 Echostar DBS Corp. sr. notes 9 1/8s, 2009 1,355,200
GBP 60,000 EMI Group eurobonds 8 1/4s, 2008 (United Kingdom) 90,906
$99,000 Emmis Communications Corp. bank term loan FRN Ser. C, 3 5/8s,
2009 (acquired 6/20/02, cost $98,876) (RES) 99,035
130,000 Emmis Communications Corp. company guaranty Ser. B, 8 1/8s, 2009 137,150
70,000 Emmis Communications Corp. sr. disc. notes stepped-coupon
zero % (12 1/2s, 3/15/06), 2011 (STP) 61,600
355,000 Fleming Cos., Inc. company guaranty 10 1/8s, 2008 (In default) (NON) 50,588
280,000 Fleming Cos., Inc. sr. notes 9 1/4s, 2010 (In default) (NON) 39,900
210,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 210,000
75,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 76,875
20,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 19,900
380,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 372,875
385,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 361,900
220,000 Gray Television, Inc. company guaranty 9 1/4s, 2011 241,450
35,000 Insight Midwest LP/Insight Capital, Inc. bank term loan FRN 4.063s,
2009 (acquired 11/5/01, cost $34,934) (RES) 34,626
165,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 10 1/2s, 2010 182,738
50,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 9 3/4s, 2009 53,625
17,000 Knology, Inc. 144A sr. notes 12s, 2009 (PIK) 13,345
305,000 Land O'Lakes, Inc. sr. notes 8 3/4s, 2011 201,300
210,000 LIN Television Corp. company guaranty 8 3/8s, 2008 219,975
140,000 LIN Television Corp. company guaranty 8s, 2008 150,150
150,000 MGM Studios bank term loan FRN Ser. B, 4.28s, 2008
(acquired 6/10/02, cost $150,000) (RES) 149,484
490,000 News America Holdings, Inc. company guaranty 9 1/4s, 2013 625,836
30,743 Nexstar Broadcasting bank term loan FRN Ser. B, 4.34s, 2011
(acquired 2/5/03, cost $30,743) (RES) 30,775
13,007 Nexstar Mission Broadcasting bank term loan FRN 4.34s, 2011
(acquired 2/5/03, cost $13,007) (RES) 13,021
610,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 610,000
270,000 Olympus Cable bank term loan FRN Ser. B, 6 1/4s, 2010
(acquired 6/20/02, cost $23,305) (RES) 227,340
60,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 55,200
210,000 Pegasus Satellite sr. notes 12 3/8s, 2006 203,175
99,500 Playtex Products, Inc. bank term loan FRN Ser. C, 3.627s, 2009
(acquired 6/3/02, cost $99,500) (RES) 99,054
340,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 368,900
250,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 15,000
350,000 Premier International Foods PLC sr. notes 12s, 2009 (United Kingdom) 385,000
220,000 Premier Parks, Inc. sr. notes 10s, 2007 228,250
535,000 Premium Standard Farms, Inc. sr. notes 9 1/4s, 2011 481,500
1,030,516 Quorum Broadcast Holdings, LLC notes stepped-coupon zero %
(15s, 5/15/06), 2009 (STP) 722,185
540,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 216,000
89,000 Rayovac Corp. bank term loan FRN Ser. B, 5.071s, 2009
(acquired 9/26/02, cost $88,911) (RES) 88,963
210,000 RCN Corp. sr. disc. notes Ser. B, zero %, 2008 67,200
215,000 Regal Cinemas, Inc. company guaranty Ser. B, 9 3/8s, 2012 236,500
160,000 Remington Arms Co., Inc. 144A company guaranty 10 1/2s, 2011 172,800
245,000 Revlon Consumer Products sr. notes 9s, 2006 153,125
195,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 121,875
360,000 Rite Aid Corp. notes 7 1/8s, 2007 347,400
305,000 Rite Aid Corp. 144A notes 9 1/2s, 2011 324,825
205,000 Rite Aid Corp. 144A sr. sec. notes 8 1/8s, 2010 209,100
300,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 321,750
290,000 Sbarro, Inc. company guaranty 11s, 2009 282,750
260,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 275,600
153,322 Shoppers Drug Mart bank term loan FRN Ser. F, 3.273s, 2009
(acquired various dates from 5/22/02 to 5/29/02, cost $153,880) (RES) 153,386
440,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 44
170,000 Sinclair Broadcast Group, Inc. company guaranty 8 3/4s, 2011 184,450
205,000 Sinclair Broadcast Group, Inc. 144A company guaranty 8s, 2012 216,275
93,750 Six Flags, Inc. bank term loan FRN Ser. B, 3.55s, 2009
(acquired 1/15/03, cost $93,633) (RES) 92,520
80,000 Six Flags, Inc. sr. notes 9 1/2s, 2009 81,600
1,210,000 Six Flags, Inc. sr. notes 8 7/8s, 2010 1,225,125
140,000 Six Flags, Inc. 144A sr. notes 9 3/4s, 2013 145,250
40,000 Southland Corp. debs. Ser. A, 4 1/2s, 2004 39,600
70,000 Southland Corp. sr. sub. debs. 5s, 2003 70,000
89,854 Suiza Foods Corp. bank term loan FRN Ser. B, 3.54s, 2008
(acquired 12/10/01, cost $90,453) (RES) 89,762
590,000 TeleWest Communications PLC debs. 11s, 2007 (United Kingdom)
(In default) (NON) 135,700
190,000 TeleWest Communications PLC debs. 9 5/8s, 2006 (United Kingdom)
(In default) (NON) 43,700
130,000 TeleWest Communications PLC sr. notes Ser. S, 9 7/8s, 2010
(United Kingdom) (In default) (NON) 27,625
50,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008
(United Kingdom) (In default) (NON) 11,500
715,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009 (Netherlands)
(In default) (NON) 71,500
1,200,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero %
(13 3/4s, 2/1/05), 2010 (Netherlands) (In default) (NON) (STP) 114,000
70,000 United Pan-Europe NV 144A bonds 10 7/8s, 2009 (Netherlands)
(In default) (NON) 9,275
160,000 United Rentals (North America), Inc. company guaranty Ser. B,
10 3/4s, 2008 172,400
775,000 Vivendi Universal SA 144A sr. notes 9 1/4s, 2010 (France) 868,000
475,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B, 10 1/4s, 2009
(In default) (NON) 95,000
360,000 Williams Scotsman, Inc. company guaranty 9 7/8s, 2007 358,200
634,000 Young Broadcasting, Inc. company guaranty 10s, 2011 684,720
48,000 Young Broadcasting, Inc. company guaranty Ser. B, 8 3/4s, 2007 48,840
20,000 Yum! Brands, Inc. sr. notes 8 7/8s, 2011 23,250
140,000 Yum! Brands, Inc. sr. notes 8 1/2s, 2006 155,400
580,000 Yum! Brands, Inc. sr. notes 7.65s, 2008 638,000
-------------
30,796,874
Energy (4.5%)
- -------------------------------------------------------------------------------------------------------------------
380,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 397,100
105,000 Belden & Blake Corp. company guaranty Ser. B, 9 7/8s, 2007 97,650
190,000 Bluewater Finance, Ltd. 144A sr. notes 10 1/4s, 2012 195,700
350,000 BRL Universal Equipment sec. notes 8 7/8s, 2008 375,375
180,000 Chesapeake Energy Corp. company guaranty 9s, 2012 200,700
40,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 42,800
80,000 Chesapeake Energy Corp. sr. notes Ser. B, 8 1/2s, 2012 84,800
685,000 Chesapeake Energy Corp. 144A sr. notes 7 1/2s, 2013 727,813
20,000 Compton Petro Corp. sr. notes 9.9s, 2009 (Canada) 21,800
470,000 Comstock Resources, Inc. company guaranty 11 1/4s, 2007 502,900
380,000 Dresser, Inc. company guaranty 9 3/8s, 2011 391,400
115,000 El Paso Energy Partners LP company guaranty Ser. B, 8 1/2s, 2011 124,200
220,000 Encore Acquisition Co. company guaranty 8 3/8s, 2012 233,200
330,000 Forest Oil Corp. company guaranty 7 3/4s, 2014 335,775
160,000 Forest Oil Corp. sr. notes 8s, 2011 168,000
175,000 Forest Oil Corp. sr. notes 8s, 2008 185,500
1,330,000 Gazprom OAO 144A notes 9 5/8s, 2013 (Russia) 1,406,475
215,000 Hornbeck Offshore Services, Inc. sr. notes 10 5/8s, 2008 232,200
40,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 43,200
80,000 Magnum Hunter Resources, Inc. company guaranty 9.6s, 2012 86,400
260,000 Mission Resources Corp. company guaranty Ser. C, 10 7/8s, 2007 124,800
380,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 410,400
200,000 OAO Gazprom notes 9 5/8s, 2013 (Russia) 211,500
290,000 Parker Drilling Co. company guaranty Ser. B, 10 1/8s, 2009 303,050
48,750 Peabody Energy Corp. bank term loan FRN Ser. B, 3.811s, 2010
(acquired 3/20/03, cost $48,750) (RES) 48,982
595,000 Pemex Project Funding Master Trust 144A bonds 8 5/8s, 2022 667,888
550,000 Petronas Capital, Ltd. company guaranty 7 7/8s, 2022 (Malaysia) 602,250
125,000 Petronas Capital, Ltd. company guaranty 7s, 2012 (Malaysia) 137,188
1,105,000 Petronas Capital, Ltd. 144A company guaranty 7 7/8s, 2022 (Malaysia) 1,209,975
440,000 Petronas Capital, Ltd. 144A company guaranty 7s, 2012 (Malaysia) 482,900
1,230,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 1,512,741
60,000 Pioneer Natural Resources Co. company guaranty 7.2s, 2028 61,800
205,000 Plains All American Pipeline LP/Plains All American Finance Corp.
company guaranty 7 3/4s, 2012 223,450
310,000 Plans Exploration & Production Co. company guaranty Ser. B,
8 3/4s, 2012 323,950
350,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 379,750
400,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 416,000
170,000 Seven Seas Petroleum, Inc. sr. notes Ser. B, 12 1/2s, 2005 (In default) (NON) 18,700
400,000 Star Gas Partners LP/Star Gas Finance Co. 144A sr. notes 10 1/4s, 2013 407,000
80,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 82,700
380,000 Stone Energy Corp. sr. sub. notes 8 1/4s, 2011 396,150
180,000 Swift Energy Co. sr. sub. notes 10 1/4s, 2009 191,700
250,000 Swift Energy Co. sr. sub. notes 9 3/8s, 2012 261,250
190,000 Tesoro Petroleum Corp. 144A sr. disc. notes 8s, 2008 196,650
400,000 Trico Marine Services, Inc. company guaranty 8 7/8s, 2012 356,000
170,000 Vintage Petroleum, Inc. sr. notes 8 1/4s, 2012 181,050
400,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 428,000
80,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 81,200
380,000 Westport Resources Corp. company guaranty 8 1/4s, 2011 414,200
205,000 Westport Resources Corp. 144A company guaranty 8 1/4s, 2011 223,450
100,000 XTO Energy, Inc. sr. notes 7 1/2s, 2012 110,000
230,000 XTO Energy, Inc. 144A sr. notes 6 1/4s, 2013 238,625
60,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s, 2009 62,700
-------------
16,618,987
Financial (2.1%)
- -------------------------------------------------------------------------------------------------------------------
580,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 284,200
520,000 Chevy Chase Savings Bank, Inc. sub. debs. 9 1/4s, 2005 522,600
200,000 Conseco, Inc. 144A company guaranty 10 3/4s, 2009 (In default) (NON) 52,500
60,000 Crescent Real Estate Equities LP notes 7 1/2s, 2007 (R) 60,225
420,000 Crescent Real Estate Equities LP sr. notes 9 1/4s, 2009 (R) 445,725
1,182,000 Finova Group, Inc. notes 7 1/2s, 2009 472,800
110,362 Hilb, Rogal & Hamilton Co. bank term loan FRN Ser. B, 4.063s,
2007 (acquired 6/20/02, cost $110,362) (RES) 110,500
136,000 Imperial Credit Industries, Inc. sec. notes 12s, 2005 (In default) (NON) 340
440,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 (R) 475,200
240,000 iStar Financial, Inc. sr. notes 7s, 2008 248,400
2,396,100 JP Morgan HYDI 144A notes 8 3/4s, 2007 2,587,788
129,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 (In default) (NON) 645
24,000 Ocwen Financial Corp. notes 11 7/8s, 2003 24,360
415,000 Resource America, Inc. 144A sr. notes 12s, 2004 415,000
1,125,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 1,361,250
177,771 Veridian Corp. bank term loan FRN Ser. B, 4.57s, 2008
(acquired 9/20/02, cost $177,771) (RES) 178,327
290,000 Western Financial Bank sub. debs. 9 5/8s, 2012 301,600
55,000 Yell Finance BV sr. notes 10 3/4s, 2011 (Netherlands) 61,325
-------------
7,602,785
Gaming & Lottery (3.2%)
- -------------------------------------------------------------------------------------------------------------------
260,000 Aladdin Gaming Holdings, LLC sr. disc. notes stepped-coupon Ser. B,
13 1/2s, 2010 (In default) (NON) 1,300
225,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 252,000
350,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 385,875
90,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 96,750
140,000 Borgata Resorts bank term loan FRN Ser. B, 5.339s, 2007
(acquired 6/5/02, cost $139,650) (RES) 138,775
400,000 Boyd Gaming Corp. sr. sub. notes 8 3/4s, 2012 431,000
160,000 Chumash Casino & Resort Enterprise 144A sr. notes 9s, 2010 171,200
360,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 395,100
120,000 Herbst Gaming, Inc. 144A sec. sr. notes 10 3/4s, 2008 131,700
340,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 333,200
490,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 520,625
390,000 International Game Technology sr. notes 8 3/8s, 2009 465,304
930,000 International Game Technology sr. notes 7 7/8s, 2004 976,011
460,000 Majestic Investor Holdings/Capital Corp. company guaranty
11.653s, 2007 455,400
40,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 44,300
40,000 Mandalay Resort Group sr. sub. notes 9 3/8s, 2010 43,350
1,050,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 1,176,000
260,000 Mirage Resorts, Inc. notes 6 3/4s, 2008 269,100
30,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 31,875
420,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 446,250
100,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 106,500
380,000 Mohegan Tribal Gaming Authority sr. sub. notes 8s, 2012 402,800
550,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 581,625
200,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 216,000
60,000 Park Place Entertainment Corp. sr. sub. notes 8 1/8s, 2011 63,450
205,000 Park Place Entertainment Corp. 144A sr. notes 7s, 2013 208,588
100,000 Penn National Gaming, Inc. bank term loan FRN Ser. B, 5.31s,
2010 (acquired 2/19/03, cost $99,875) (RES) 99,675
185,000 Penn National Gaming, Inc. company guaranty Ser. B, 11 1/8s, 2008 203,500
570,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 597,075
65,000 Pinnacle Entertainment, Inc. bank term loan FRN Ser. B, 5.904s,
2008 (acquired 4/3/03, cost $65,000) (RES) 64,959
115,000 Pinnacle Entertainment, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 112,700
140,000 Resorts International Hotel and Casino, Inc. company guaranty
11 1/2s, 2009 130,200
240,000 Riviera Holdings Corp. company guaranty 11s, 2010 225,600
124,688 Scientific Gaming bank term loan FRN Ser. B, 4.88s, 2008
(acquired 12/11/02, cost $124,064) (RES) 124,727
405,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 434,363
220,000 Trump Atlantic City Associates company guaranty 11 1/4s, 2006 174,900
830,000 Trump Casino Holdings, LLC 144A mtge. 11 5/8s, 2010 794,725
525,000 Venetian Casino Resort, LLC company guaranty 11s, 2010 576,188
50,000 Wheeling Island Gaming, Inc. company guaranty 10 1/8s, 2009 49,875
-------------
11,932,565
Health Care (3.6%)
- -------------------------------------------------------------------------------------------------------------------
74,813 Advanced Medical Optics, Inc. bank term loan FRN Ser. B 4.56s,
2008 (acquired 6/17/02, cost $74,719) (RES) 74,887
175,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 181,125
405,000 ALARIS Medical Systems, Inc. sec. notes Ser. B, 11 5/8s, 2006 473,850
150,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 8/1/03), 2008 (STP) 156,000
930,400 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 958,312
7,200 Alderwoods Group, Inc. company guaranty 11s, 2007 7,200
374,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 351,560
310,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 339,450
235,000 AmerisourceBergen Corp. 144A sr. notes 7 1/4s, 2012 249,100
200,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 221,000
470,000 Biovail Corp. sr. sub. notes 7 7/8s, 2010 (Canada) 495,850
149,250 Community Health Systems, Inc. bank term loan FRN Ser. B, 3.84s,
2010 (acquired 7/11/02, cost $149,250) (RES) 148,504
238,000 Conmed Corp. company guaranty 9s, 2008 247,520
100,000 Dade Behring, Inc. company guaranty 11.91s, 2010 112,500
197,645 DaVita, Inc. bank term loan FRN Ser. B, 4.365s, 2009
(acquired 4/26/02, cost $197,645) (RES) 197,732
270,000 Extendicare Health Services, Inc. company guaranty 9 1/2s, 2010 267,300
100,000 Fisher Scientific International, Inc. bank term loan FRN Ser. B 3.813s,
2010 (acquired 2/13/03, cost $100,000) (RES) 100,325
100,000 Fresenius Medical Care AG bank term loan FRN 3.835s, 2010
(acquired 2/18/03, cost $100,000) (RES) 100,104
19,701 Genesis Health Ventures, Inc. sec. notes FRN 6.29s, 2007 19,504
325,000 Hanger Orthopedic Group, Inc. company guaranty 10 3/8s, 2009 354,250
80,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 87,200
115,000 HCA, Inc. debs. 7.19s, 2015 122,438
150,000 HCA, Inc. med. term notes 7.69s, 2025 157,541
200,000 HCA, Inc. notes 8 3/4s, 2010 234,757
640,000 HCA, Inc. notes 8.36s, 2024 712,737
445,000 HCA, Inc. notes 7s, 2007 480,232
600,000 Healthsouth Corp. notes 7 5/8s, 2012 (In default) (NON) 387,000
310,000 Healthsouth Corp. sr. notes 8 1/2s, 2008 (In default) (NON) 197,625
130,000 Healthsouth Corp. sr. notes 8 3/8s, 2011 (In default) (NON) 83,850
155,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 (In default) (NON) 41,075
215,000 IASIS Healthcare Corp. company guaranty 13s, 2009 239,725
490,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 10,413
250,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 5,625
99,192 Kinetic Concepts, Inc. bank term loan FRN Ser. C, 4.04s, 2005
(acquired 11/5/01, cost $99,316) (RES) 99,026
400,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 418,000
775,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 (In default) (NON) 205,375
140,000 Magellan Health Services, Inc. 144A sr. notes 9 3/8s, 2007 (In default) (NON) 120,050
380,000 Mediq, Inc. debs. stepped-coupon zero % (13s, 6/1/03), 2009
(In default) (NON) (STP) 38
495,000 MedQuest, Inc. company guaranty Ser. B, 11 7/8s, 2012 457,875
1,080,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 21,600
205,000 NYCO Holdings 144A 11 1/2s, 2013 232,170
310,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 341,000
610,000 PacifiCare Health Systems, Inc. company guaranty 10 3/4s, 2009 672,525
70,000 Service Corp. International debs. 7 7/8s, 2013 70,000
45,000 Service Corp. International notes 7.7s, 2009 45,900
40,000 Service Corp. International notes 7.2s, 2006 40,000
15,000 Service Corp. International notes 6 7/8s, 2007 14,850
60,000 Service Corp. International notes 6 1/2s, 2008 58,500
790,000 Service Corp. International notes 6s, 2005 793,950
145,000 Service Corp. International notes Ser. (a), 7.7s, 2009 146,450
390,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 434,850
1,085,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 1,215,200
165,000 Ventas Realty LP/Capital Corp. company guaranty 9s, 2012 176,963
-------------
13,380,613
Homebuilding (1.0%)
- -------------------------------------------------------------------------------------------------------------------
240,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 259,200
140,000 D.R. Horton, Inc. company guaranty 8 1/2s, 2012 152,600
5,000 D.R. Horton, Inc. company guaranty 8s, 2009 5,425
350,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 378,000
100,000 D.R. Horton, Inc. sr. notes 6 7/8s, 2013 100,000
250,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 281,250
180,000 K. Hovnanian Enterprises, Inc. company guaranty 8 7/8s, 2012 189,900
60,000 K. Hovnanian Enterprises, Inc. company guaranty 8s, 2012 63,300
430,000 KB Home sr. sub. notes 9 1/2s, 2011 474,075
30,000 KB Home sr. sub. notes 7 3/4s, 2010 31,500
440,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 496,100
70,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 72,800
295,000 Schuler Homes, Inc. company guaranty 10 1/2s, 2011 328,925
20,000 Schuler Homes, Inc. company guaranty 9s, 2008 20,900
75,000 Technical Olympic USA, INC. company guaranty 9s, 2010 77,625
220,000 Toll Corp. company guaranty 8 1/8s, 2009 231,550
70,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 75,075
85,000 WCI Communities, Inc. company guaranty 10 5/8s, 2011 89,888
290,000 WCI Communities, Inc. company guaranty 9 1/8s, 2012 294,350
-------------
3,622,463
Household Furniture and Appliances (0.2%)
- -------------------------------------------------------------------------------------------------------------------
430,000 Sealy Mattress Co. company guaranty Ser. B, zero %, 2002 449,350
430,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 445,050
-------------
894,400
Lodging/Tourism (1.4%)
- -------------------------------------------------------------------------------------------------------------------
510,000 FelCor Lodging LP company guaranty 9 1/2s, 2008 (R) 510,000
455,000 Hilton Hotels Corp. notes 7 5/8s, 2012 477,750
2,290,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 2,312,900
135,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 138,375
320,000 ITT Corp. notes 6 3/4s, 2005 331,200
810,000 John Q. Hammons Hotels LP/John Q. Hammons Hotels Finance
Corp. III 1st mtge. Ser. B, 8 7/8s, 2012 837,338
280,000 RFS Partnership LP company guaranty 9 3/4s, 2012 292,600
50,000 Starwood Hotels & Resorts Worldwide, Inc. company guaranty
7 7/8s, 2012 52,313
210,000 Starwood Hotels & Resorts Worldwide, Inc. company guaranty
7 3/8s, 2007 219,450
-------------
5,171,926
Publishing (2.1%)
- -------------------------------------------------------------------------------------------------------------------
855,000 Affinity Group Holdings sr. notes 11s, 2007 865,688
145,000 CanWest Media, Inc. 144A notes 7 5/8s, 2013 (Canada) 152,250
290,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 299,425
120,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 123,600
245,000 Hollinger International Publishing, Inc. 144A sr. notes 9s, 2010 262,150
1,054,070 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010 (Canada) (PIK) 1,112,044
290,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011 (In default) (NON) 1,450
260,000 Mail-Well I Corp. company guaranty 9 5/8s, 2012 267,800
65,000 Moore Wallace bank term loan FRN Ser. B, 4.269s, 2010
(acquired 3/13/03, cost $65,000) (RES) 65,183
100,000 PRIMEDIA, Inc. bank term loan FRN Ser. B, 4.093s, 2009
(acquired 2/10/03, cost $95,750) (RES) 96,563
780,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 834,600
180,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 182,700
420,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 421,050
110,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero %
(13 3/4s, 7/15/06), 2011 (Canada) (STP) 88,550
540,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 610,200
124,688 RH Donnelley Finance Corp. I bank term loan FRN Ser. B, 5.316s,
2010 (acquired 12/4/02, cost $124,688) (RES) 125,519
380,000 RH Donnelley Finance Corp. I 144A sr. notes 8 7/8s, 2010 425,600
440,000 RH Donnelley Finance Corp. I 144A sr. sub. notes 10 7/8s, 2012 509,300
84,238 Sum Media bank term loan FRN Ser. B, 3.799s, 2009
(acquired 2/4/03, cost $84,238) (RES) 84,211
370,000 Vertis, Inc. company guaranty Ser. B, 10 7/8s, 2009 386,650
100,000 Vertis, Inc. 144A sr. notes 10 7/8s, 2009 104,500
270,000 Von Hoffman Press, Inc. company guaranty 10 1/4s, 2009 278,100
170,000 Von Hoffman Press, Inc. company guaranty FRN 10 3/8s, 2007 166,600
181,597 Von Hoffman Press, Inc. debs. 13s, 2009 (PIK) 163,437
-------------
7,627,170
Retail (1.1%)
- -------------------------------------------------------------------------------------------------------------------
65,000 Advance Stores bank term loan FRN Ser. C, 4.063s, 2007
(acquired 3/4/03, cost $65,000) (RES) 65,016
260,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 273,650
300,000 Asbury Automotive Group, Inc. company guaranty 9s, 2012 282,000
475,000 Autonation, Inc. company guaranty 9s, 2008 517,750
180,000 Gap, Inc. (The) notes 6.9s, 2007 190,800
200,000 Hollywood Entertainment Corp. sr. sub. notes 9 5/8s, 2011 215,000
275,000 J. Crew Operating Corp. 144A sr. sub. notes 10 3/8s, 2007 247,500
620,000 JC Penney Co., Inc. debs. 7.95s, 2017 623,100
40,000 JC Penney Co., Inc. debs. 7.65s, 2016 39,400
15,000 JC Penney Co., Inc. notes 8s, 2010 15,938
170,000 JC Penney Co., Inc. notes Ser. A MTN, 7.05s, 2005 175,950
210,000 NBTY, Inc. sr. sub. notes Ser. B, 8 5/8s, 2007 215,775
148,837 Petco Animal Supplies, Inc. bank term loan FRN Ser. C, 4.78s, 2008
(acquired 8/7/02, cost $148,614) (RES) 149,147
850,000 Saks, Inc. company guaranty 8 1/4s, 2008 918,000
270,000 United Auto Group, Inc. company guaranty 9 5/8s, 2012 284,850
-------------
4,213,876
Technology (1.7%)
- -------------------------------------------------------------------------------------------------------------------
340,000 AMI Semiconductor, Inc. 144A sr. sub. notes 10 3/4s, 2013 374,000
110,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 114,950
210,000 Amkor Technologies, Inc. structured notes 12.58s, 2005
(issued by STEERS Credit Linked Trust 2000) 197,400
81,250 Amkor Technology, Inc. bank term loan FRN 7 1/4s, 2006
(acquired 4/17/03, cost $81,494) (RES) 81,402
105,000 Avaya, Inc. sec. sr. notes 11 1/8s, 2009 114,975
50,000 Fairchild Semiconductor International, Inc. company guaranty
10 3/8s, 2007 52,750
130,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 142,025
150,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 156,750
720,000 Iron Mountain, Inc. sr. sub. notes 8 1/4s, 2011 765,000
40,000 Lucent Technologies, Inc. debs. 6 1/2s, 2028 29,200
1,300,000 Lucent Technologies, Inc. debs. 6.45s, 2029 955,500
435,000 Lucent Technologies, Inc. notes 7 1/4s, 2006 413,250
30,000 Lucent Technologies, Inc. notes 5 1/2s, 2008 25,425
570,000 Nortel Networks Corp. notes 6 1/8s, 2006 (Canada) 552,188
305,000 ON Semiconductor Corp. company guaranty 13s, 2008 289,750
425,000 SCG Holding & Semiconductor Corp. company guaranty 12s, 2009 310,250
335,000 Seagate Technology Hdd Holdings company guaranty 8s, 2009
(Cayman Islands) 361,800
84,588 Telex Communications Group, Inc. sr. sub. notes Ser. A, zero %, 2006 46,523
148,502 Titan Corp. (The) bank term loan FRN Ser. B, 4.142s, 2009
(acquired various dates from 5/14/02 to 6/3/02, cost $149,127) (RES) 148,471
170,000 Unisys Corp. sr. notes 7 7/8s, 2008 177,225
100,000 Xerox Cap Europe PLC company guaranty 5 7/8s, 2004
(United Kingdom) 100,750
285,000 Xerox Corp. notes 5 1/2s, 2003 287,850
310,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 351,850
EUR 100,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 118,610
$100,000 Xerox Credit Corp. sr. notes 6.1s, 2003 100,250
-------------
6,268,144
Textiles (0.4%)
- -------------------------------------------------------------------------------------------------------------------
300,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 (In default) (NON) 5,250
570,000 Levi Strauss & Co. 144A sr. notes 12 1/4s, 2012 478,800
60,000 Phillips-Van Heusen Corp. 144A sr. notes 8 1/8s, 2013 60,000
270,000 Russell Corp. company guaranty 9 1/4s, 2010 295,650
120,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 120,600
330,000 William Carter Holdings Co. (The) company guaranty Ser. B,
10 7/8s, 2011 366,300
-------------
1,326,600
Tire & Rubber (0.1%)
- -------------------------------------------------------------------------------------------------------------------
320,000 Goodyear Tire & Rubber Co. (The) notes 7.857s, 2011 240,000
Transportation (1.1%)
- -------------------------------------------------------------------------------------------------------------------
40,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 9,600
520,612 Air2 US 144A sinking fund Ser. D, 12.266s, 2020 (In default) (NON) 46,855
240,000 Allied Holdings, Inc. company guaranty Ser. B, 8 5/8s, 2007 180,000
205,000 American Airlines, Inc. pass-through certificates Ser. 01-1, 6.817s, 2011 145,550
130,000 American Airlines, Inc. pass-through certificates Ser. 99-1, 7.024s, 2009 107,250
112,519 American Airlines, Inc. pass-through certificates Ser. 99-1, 6.855s, 2009 92,266
530,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 328,600
170,000 Continental Airlines, Inc. pass-through certificates Ser. D, 7.568s, 2006 85,000
510,000 CSX Corp. notes 6 1/4s, 2008 569,852
210,000 Delta Air Lines, Inc. pass-through certificates Ser. 00-1, Class C,
7.779s, 2005 133,873
138,285 Delta Air Lines, Inc. pass-through certificates Ser. C, 7.779s, 2012 91,268
EUR 200,000 Fixed-Link Finance BV sec. notes FRN Ser. B2-X, 7.85s, 2009
(Netherlands) 201,179
$500,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 552,500
100,000 Kansas City Southern Railway Co. company guaranty 7 1/2s, 2009 103,500
560,000 Navistar International Corp. company guaranty Ser. B, 9 3/8s, 2006 599,200
85,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 82,450
115,000 Northwest Airlines, Inc. company guaranty 8 3/8s, 2004 94,300
310,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 212,350
325,000 Northwest Airlines, Inc. sr. notes 9 7/8s, 2007 195,000
137,908 NWA Trust sr. notes Ser. A, 9 1/4s, 2012 133,770
60,000 Transportation Manufacturing Operations, Inc. company guaranty
11 1/4s, 2009 30,000
100,000 Travel Centers of America, Inc. company guaranty 12 3/4s, 2009 109,000
190,000 US Air, Inc. pass-through certificates Ser. 93-A2, 9 5/8s, 2003
(In default) (NON) 76,000
120,000 US Air, Inc. pass-through certificates Ser. 93-A3, 10 3/8s, 2013
(In default) (NON) 48,000
-------------
4,227,363
Utilities & Power (3.3%)
- -------------------------------------------------------------------------------------------------------------------
145,000 AES Corp. (The) sr. notes 8 7/8s, 2011 137,750
90,000 AES Corp. (The) sr. notes 8 3/4s, 2008 86,400
440,000 AES Corp. (The) 144A sec. notes 10s, 2005 462,000
505,000 Allegheny Energy Supply 144A bonds 8 1/4s, 2012 454,500
180,000 Allegheny Energy, Inc. notes 7 3/4s, 2005 179,550
230,000 Avon Energy Partners Holdings 144A notes 7.05s, 2007
(United Kingdom) 202,400
20,000 Avon Energy Partners Holdings 144A notes 6.46s, 2008
(United Kingdom) 17,500
135,000 Calpine Canada Energy Finance company guaranty 8 1/2s,
2008 (Canada) 99,900
210,000 Calpine Corp. sr. notes 10 1/2s, 2006 176,400
685,000 Calpine Corp. sr. notes 8 5/8s, 2010 489,775
565,000 Calpine Corp. sr. notes 8 1/2s, 2011 412,450
410,000 Calpine Corp. sr. notes 7 7/8s, 2008 295,200
150,000 CenterPoint Energy Resources Corp. debs. 6 1/2s, 2008 160,500
120,000 CenterPoint Energy Resources Corp. 144A general ref. mtge.
7 7/8s, 2013 137,700
150,000 CMS Energy Corp. bank term loan FRN Ser. A, 7.5s, 2004
(acquired 4/21/03, cost $150,000) (RES) 149,625
45,000 CMS Energy Corp. bank term loan FRN Ser. B, 7.5s, 2004
(acquired 4/21/03, cost $45,000) (RES) 45,113
70,000 CMS Energy Corp. bank term loan FRN Ser. C, 9s, 2004
(acquired 4/21/03, cost $70,000) (RES) 70,525
500,000 CMS Energy Corp. sr. notes 8.9s, 2008 502,500
170,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 169,150
10,000 CMS Panhandle Holding Corp. sr. notes 6 1/2s, 2009 10,225
415,000 Dynegy Holdings Inc. company guaranty 6 3/4s, 2005 394,250
180,000 Dynegy Holdings, Inc. sr. notes 6 7/8s, 2011 153,000
200,000 Edison Mission Energy sr. notes 10s, 2008 184,000
210,000 Edison Mission Energy sr. notes 9 7/8s, 2011 185,850
85,000 El Paso CGP Co. debs. 6 1/2s, 2008 73,100
110,000 El Paso CGP Co. notes 6 3/8s, 2009 92,400
65,000 El Paso Corp. sr. notes 7 3/8s, 2012 54,925
345,000 Gemstone Investor, Ltd. 144A company guaranty 7.71s, 2004 332,063
100,000 ITC Holdings Corp. bank term loan FRN 5.084s, 2009
(acquired 2/27/03, cost $100,000) (RES) 100,500
100,000 ITC OPCO bank term loan FRN 3.829s, 2009 (acquired 2/27/03,
cost $100,000) (RES) 100,250
100,000 Midland Funding II Corp. debs. Ser. A, 11 3/4s, 2005 106,750
150,000 Mirant Americas Generation, Inc. sr. notes 8.3s, 2011 111,000
300,000 Mirant Americas Generation, Inc. sr. notes 7 5/8s, 2006 258,000
150,000 Mirant Americas Generation, Inc. sr. notes 7.2s, 2008 108,000
140,000 Mirant Corp. 144A sr. notes 7.9s, 2009 88,900
130,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 87,100
206 Northeast Utilities notes Ser. A, 8.58s, 2006 232
160,000 Northwest PIpeline Corp. 144A sr. notes 8 1/8s, 2010 174,400
435,000 Northwestern Corp. notes 8 3/4s, 2012 352,350
200,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005 (In default) (NON) 205,000
85,000 PG&E Gas Transmission Northwest sr. notes 7.1s, 2005 79,050
330,000 PSEG Energy Holdings, Inc. 144A notes 7 3/4s, 2007 341,550
10,000 Sierra Pacific Power Co. general ref. mtge. Ser. A, 8s, 2008 10,000
100,000 Sierra Pacific Power Co. med. term notes Ser. C, 6.82s, 2006 95,250
185,000 Sierra Pacific Resources notes 8 3/4s, 2005 179,450
50,000 Southern California Edison Co. notes 6 3/8s, 2006 49,875
490,000 Southern California Edison Co. 144A 1st mtge. 8s, 2007 534,100
170,000 Teco Energy, Inc. notes 10 1/2s, 2007 192,950
90,000 Teco Energy, Inc. notes 7.2s, 2011 88,875
155,000 Teco Energy, Inc. notes 7s, 2012 150,350
500,000 Tiverton/Rumford Power Associates, LP 144A pass-through
certificates 9s, 2018 397,500
430,000 Western Resources, Inc. 1st mtge. 7 7/8s, 2007 478,375
320,000 Western Resources, Inc. sr. notes 9 3/4s, 2007 342,400
300,000 Williams Cos., Inc. (The) FRN Ser. A, 6 3/4s, 2006 289,500
410,000 Williams Cos., Inc. (The) notes 9 1/4s, 2004 413,075
390,000 Williams Cos., Inc. (The) notes 6 1/2s, 2006 374,400
200,000 Williams Holdings Of Delaware notes 6 1/2s, 2008 186,000
550,889 York Power Funding 144A notes 12s, 2007 (Cayman Islands)
(In default) (NON) 385,592
-------------
12,009,525
-------------
Total Corporate Bonds and Notes (cost $196,946,956) $192,879,548
FOREIGN GOVERNMENT BONDS AND NOTES (15.8%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$1,025,000 Brazil (Federal Republic of) bonds 10 1/8s, 2027 $826,663
415,000 Brazil (Federal Republic of) FRB 2 1/8s, 2024 298,800
600,000 Brazil (Federal Republic of) notes 10s, 2007 600,000
505,000 Bulgaria (Republic of) bonds 2.163s, 2024 485,457
EUR 250,000 Bulgaria (Republic of) bonds 7 1/2s, 2013 300,848
$1,436,000 Bulgaria (Republic of) 144A bonds 8 1/4s, 2015 1,617,654
CAD 4,650,000 Canada (Government of) bonds 6s, 2011 3,492,768
CAD 1,005,000 Canada (Government of) bonds 5 1/2s, 2010 733,731
CAD 410,000 Canada (Government of) bonds Ser. WL43, 5 3/4s, 2029 298,561
$500,000 Chile (Republic of) bonds 5 1/2s, 2013 510,750
199,678 Colombia (Republic of) bank guaranty 9 3/4s, 2011 223,140
730,000 Colombia (Republic of) bonds 11 3/4s, 2020 879,650
495,000 Colombia (Republic of) bonds 10 3/8s, 2033 542,025
1,725,000 Colombia (Republic of) notes 10 3/4s, 2013 1,988,063
160,000 Colombia (Republic of) unsub. 9 3/4s, 2009 175,200
EUR 550,000 Colombia (Republic of) unsub. bonds Ser. 15A, 11 3/8s, 2008 673,218
$260,000 Costa Rica (Republic of) 144A notes 8.05s, 2013 267,800
1,430,000 Ecuador (Republic of) bonds stepped-coupon, 5s (6s, 8/15/03), 2030 (STP) 890,175
EUR 1,470,000 France (Government of) bonds 5 1/2s, 2010 1,819,831
EUR 440,000 France (Government of) deb. 4s, 2009 502,244
EUR 2,800,000 Germany (Federal Republic of) bonds 5s, 2012 3,355,434
EUR 31,100 Germany (Federal Republic of) bonds Ser. 00, 5 1/2s, 2031 38,102
EUR 370,000 Germany (Federal Republic of) bonds Ser. 94, 6 1/4s, 2024 491,906
EUR 2,480,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 3,053,588
EUR 655,000 Italy (Government of) treasury bonds 4 3/4s, 2006 770,388
EUR 405,000 Netherlands (Government of) bonds 5s, 2012 484,888
NZD 5,045,000 New Zealand (Government of) bonds 6 1/2s, 2013 2,949,527
NZD 3,152,000 New Zealand (Government of) bonds Ser. 709, 7s, 2009 1,882,455
$125,000 Peru (Republic of) notes 9 7/8s, 2015 139,563
610,000 Philippines (Republic of) bonds 9s, 2013 611,525
1,070,000 Philippines (Republic of) notes 10 5/8s, 2025 1,128,850
EUR 470,000 Philippines (Republic of) 144A bonds 9 1/8s, 2010 528,359
$200,000 Russia (Federation of) unsub. 8 1/4s, 2010 225,500
1,830,000 Russia (Federation of) unsub. stepped-coupon 5s (7 1/2s, 3/31/07),
2030 (STP) 1,647,000
3,481,250 Russia (Federation of) 144A unsub. stepped-coupon
5s (7 1/2s, 3/31/07), 2030 (STP) 3,133,125
1,550,000 South Africa (Republic of) notes 7 3/8s, 2012 1,742,200
EUR 280,000 Spain (Kingdom of) bonds 5 3/4s, 2032 353,039
SEK 34,315,000 Sweden (Government of) bonds 5 1/2s, 2012 4,447,953
$610,000 Turkey (Republic of) sr. unsub. 11 7/8s, 2030 616,100
246,401 Ukraine (Government of) sr. notes Ser. REGS, 11s, 2007 276,216
GBP 820,000 United Kingdom treasury bonds 10s, 2003 1,340,666
GBP 425,000 United Kingdom treasury bonds 8 3/4s, 2017 978,438
GBP 490,000 United Kingdom treasury bonds 5s, 2012 820,316
GBP 2,765,000 United Kingdom treasury bonds 5s, 2004 4,498,565
$725,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 818,525
925,000 United Mexican States notes 8 1/8s, 2019 1,036,000
540,000 United Mexican States notes 7 1/2s, 2012 609,660
835,000 United Mexican States notes 4 5/8s, 2008 845,438
100,000 Uruguay (Republic of) notes 7 7/8s, 2009 63,000
140,000 Uruguay (Republic of) notes 7 5/8s, 2012 81,200
550,000 Venezuela (Republic of) bonds 9 1/4s, 2027 356,950
2,738,095 Venezuela (Republic of) FRB 2.313s, 2007 2,012,500
-------------
Total Foreign Government Bonds and Notes (cost $52,081,762) $58,463,554
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (8.9%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government and Agency Mortgage Obligations (1.6%)
- -------------------------------------------------------------------------------------------------------------------
$54,713 Federal Home Loan Mortgage Corporation 7 1/2s, May 1, 2027 $58,371
Federal National Mortgage Association Pass-Through Certificates
16,897 8s, July 1, 2024 18,460
234,404 7 1/2s, with due dates from January 1, 2030 to August 1, 2030 249,932
3,202,070 7s, with due dates from July 1, 2029 to July 1, 2032 3,384,051
876,000 7s, TBA, June 1, 2033 925,275
43,999 6 1/2s, with due dates from July 1, 2013 to June 1, 2014 46,665
1,306,452 6 1/2s, TBA, May 1, 2032 1,364,835
-------------
6,047,589
U.S. Treasury Obligations (7.3%)
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
5,440,000 7 1/2s, November 15, 2016 7,163,800
3,423,000 6 1/4s, May 15, 2030 4,124,582
5,965,000 6 1/4s, August 15, 2023 7,064,797
3,000 4s, November 15, 2012 3,038
6,060,000 U.S. Treasury Notes 1 5/8s, March 31, 2005 6,077,992
7,990,000 U.S. Treasury Strip zero %, November 15, 2024 2,600,465
-------------
27,034,674
-------------
Total U.S. Government and Agency Obligations (cost $31,093,249) $33,082,263
COLLATERALIZED MORTGAGE OBLIGATIONS (8.9%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$129,545 Arc Net Interest Margin Trust Ser. 02-5A, Class A, 7 3/4s, 2032 $128,711
170,386 Arc Net Interest Margin Trust 144A Ser. 02-1A, Class A, 7 3/4s, 2032 170,357
2,615,668 Commercial Mortgage Acceptance Corp. Ser. 97-ML1,
Interest Only (IO), 0.93s, 2017 80,105
15,497,937 Commercial Mortgage Asset Trust Ser. 99-C1, Class X, IO, 1.16s, 2020 868,659
757,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1, Class A2, 7s, 2011 828,290
1,143,000 Criimi Mae Commercial Mortgage Trust 144A Ser. 98-C1, Class B,
7s, 2011 1,188,993
24,682,381 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, Class X, IO,
1.19s, 2023 907,838
9,882,243 DLJ Commercial Mortgage Corp. 144A Ser. 00-CKP1, Class S, IO,
1.33s, 2010 584,436
Fannie Mae
194,162 Ser. 98-51, Class SG, 25.96s, 2022 80,372
1,363,902 Ser. 02-36, Class SJ, 16.744s, 2029 1,538,581
8,615,796 Ser. 00-T6, IO, 7.5s, 2030 187,124
1,366 Ser. 92-15, Class L, IO, 10.38s, 2022 17,492
3,649,434 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 4,021,049
384,626 Ser. 02-14, Class A2, 7 1/2s, 2042 423,792
563,709 Ser. 01-T10, Class A2, 7 1/2s, 2041 621,110
2,162,307 Ser. 01-T7, Class A1, 7 1/2s, 2041 2,382,490
322,909 Ser. 01-T3, Class A1, 7 1/2s, 2040 355,791
949,563 Ser. 01-T1, Class A1, 7 1/2s, 2040 1,046,255
381,801 Ser. 99-T2, Class A1, 7 1/2s, 2039 420,679
204,386 Ser. 00-T6, Class A1, 7 1/2s, 2030 225,198
961,256 Ser. 01-T4, Class A1, 7 1/2s, 2028 1,059,139
8,109 Ser. 2002-T1, Class A2, 7s, 2031 8,812
79,234 Pass-through certificates Ser. 2001-T10, Class A1, 7s, 2041 86,104
3,750,687 Ser. 02-9, Class MS, IO, 6.78s, 2032 290,678
Fannie Mae
947,339 Ser. 02-29, Class SL, IO, 6.73s, 2029 32,565
46,587 Ser. 98-1, Class SA, IO, 13.1s, 2024 1,048
400,253 Ser. 93-251, Class Z, 6 1/2s, 2023 400,378
511,215 Ser. 2003-23, Class SC, IO, 6.23s, 2033 50,003
6,454,400 Ser. 2003-34, IO, 5.791s, 2033 732,171
5,481,900 Ser. 2003-34, Class ES, IO, 5.69s, 2033 627,849
2,192,800 Ser. 2003-34, Class SG, IO, 5.69s, 2033 253,885
3,668,932 Ser. 2003-23, Class AI, IO, 5s, 2017 472,999
1,595,641 Ser. 318, Class 2, IO, 6s, 2032 215,412
408,257 Ser. 01-58, Class HI, IO, 6.5s, 2026 4,328
666,272 Ser. 01-74, Class MI, IO, 6s, 2015 53,268
2,955,144 Ser. 02-36, Class QH, IO, 6.73s, 2029 194,062
4,292,281 Ser. 329, Class 2, IO, 5.5s, 2032 891,990
1,152,938 Ser. 332, Class 2, IO, 6s, 2033 208,250
1,562,389 Ser. 02-52, Class SL, IO, 6.68s, 2032 148,583
1,663,562 Ser. 02-63, Class SN, IO, 6.68s, 2032 149,617
2,790,883 Ser. 03-26, IO, 7s, 2033 410,783
1,232,487 Ser. 322, Class 2, IO, 6s, 2032 174,859
1,280,291 Ser. 03-26, Class IG, IO, 6s, 2033 187,243
1,869,996 Ser. 03-7, Class SM, IO, 6.43s, 2023 116,290
905,575 Ser. 02-21, Class PS, Principal Only (PO), 0.168s, 2025 19,026
221,213 Ser. 02-27, Class IA, IO, 6s, 2013 3,733
803,657 Ser. 03-26, Class JO, PO, zero %, 2033 793,611
126,481 Ser. 03-18, PO, zero %, 2032 125,058
215,753 Ser. 99-51, Class N, PO, zero %, 2029 194,986
181,698 Ser. 99-52, Class MO, PO, zero %, 2026 178,404
20,001 Ser. 97-92, PO, zero %, 2025 19,895
161,209 Ser. 96-5, Class PB, PO, zero %, 2024 156,859
196,834 Ser. 93-146, Class H, PO, zero %, 2023 196,465
9,200,261 FFCA Secured Lending Corp. Ser. 00-1, Class X, IO, 1.69s, 2020 747,878
Freddie Mac
723,300 Ser. 2412, Class GS, FRN, 17.5s, 2032 867,960
582,328 Ser. 2478, Class SY, IO, 6.84s, 2021 36,017
1,358,258 Ser. 2448, Class SE, IO, 6.79s, 2029 47,539
1,487,200 Ser. 2448, Class SM, IO, 6.69s, 2032 237,952
515,751 Ser. 1717, Class L, 6 1/2s, 2024 519,060
1,983,352 Ser. 2579, Class GS, IO, 6.34s, 2017 202,607
786,800 Ser. 2515, Class IG, IO, 5 1/2s, 2032 246,903
5,913,565 Ser. 216, IO, 6s, 2032 790,939
492,708 Ser. 2382, Class IM, IO, 6s, 2021 4,157
595,817 Ser. 215, Class PO, PO, zero %, 2031 555,227
582,898 Ser. 2235, PO, zero %, 2030 537,177
2 Ser. 2078, Class KC, PO, zero %, 2023 2
529,983 GE Capital Mortgage Services, Inc. Ser. 98-11, Class 2A4, 6 3/4s, 2028 536,250
16,638,732 GMAC Commercial Mortgage Securities, Inc. Ser. 1999-C1, Class X,
IO, 0.85s, 2033 538,159
Government National Mortgage Association
876,520 Ser. 02-36, Class SD, IO, 6.83s, 2029 24,911
1,346,090 Ser. 02-51, Class SA, IO, 6.78s, 2032 62,646
2,139,900 Ser. 2003-41, Class DS, IO, 6.38s, 2033 296,577
1,951,942 Ser. 01-43, Class SJ, IO, 6.28s, 2029 104,612
1,905,856 Ser. 01-43, Class SD, IO, 6.24s, 2028 44,374
3,078,759 Ser. 02-47, Class SM, IO, 4.65s, 2032 169,332
666,156 Ser. 02-40, Class IB, IO, 6.5s, 2028 13,948
245,906 Ser. 98-2, Class EA, PO, zero %, 2028 226,197
5,091,333 Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2, IO, 3s, 2028 365,312
3,656,349 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO, 3s, 2012 168,903
5,674 Prudential Home Mortgage Securities Ser. 93-57, Class A4, 5.9s, 2023 5,688
277,303 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 292,468
111,458 Sasco Arc Net Interest Margin Notes Ser. 02-BC10, Class A,
7 3/4s, 2033 110,445
155,639 Sasco Net Interest Margin Trust 144A Ser. 03-BC1, Class B, zero %, 2033 111,452
215,000 Structured Asset Securities Corp. FRN Ser. 2002-HF2, Class M3,
3.32s, 2032 182,858
1,597,000 Washington Mutual Ser. 03-S1, Class A11, IO, 5.5s, 2033 255,520
-------------
Total Collateralized Mortgage Obligations (cost $33,762,724) $32,838,745
ASSET-BACKED SECURITIES (6.2%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$81,000 Ameriquest Mortgage Securities, Inc. FRN Ser. 2002-4, Class M4,
5.07s, 2033 $68,655
Amortizing Residential Collateral Trust
12,262,727 Ser. 02-BC1, Class A, IO, 6s, 2005 683,056
211,000 FRN Ser. 2002-BC5, Class B, 3.57s, 2032 179,803
440,152 AQ Finance NIM Trust Ser. 03-N1, Class Note, 9.37s, 2033 440,142
800,815 AQ Finance NIM Trust 144A Ser. 03-N2, Class Note, 9.3s, 2033 800,815
292,265 Arc Net Interest Margin Trust 144A Ser. 02-8A, Class A1, 7 3/4s, 2032 289,857
Asset Backed Funding Certificates
236,000 FRB Ser. 03-WF1, Class M3, 4.37s, 2032 236,000
72,000 FRB Ser. 03-WF1, Class M4, 4.57s, 2032 65,405
111,763 Asset Backed Funding Corp. NIM Trust Ser. 02-WF1, 9.32s, 2032 111,204
Asset Backed Securities Corp. Home Equity Loan Trust
136,000 FRB Ser. 02-HE3, Class M4, 4.31s, 2032 115,872
202,000 FRN Ser. 2003-HE1, Class M4, 5.81s, 2033 180,150
439,000 FRN Ser. 2003-HE2, Class M4, 5.15s, 2033 441,941
1,004,000 Bank One Issuance Trust FRN Ser. 02-C1, Class C1, 2.27s, 2009 998,627
Bayview Financial Acquisition Trust
457,605 Ser. 01-DA, Class M3, FRN, 2.72s, 2031 451,760
540,000 Ser. 02-CA, Class A, IO, 7.15s, 2004 35,775
21,451,000 Ser. 2003-X, IO, 1.52s, 2006 365,337
Chase Funding Net Interest Margin
82,779 Ser. 02-1, Class Note, 8 1/2s, 2035 82,398
231,049 Ser. 02-2, 8 1/2s, 2035 230,171
43,356 Ser. 02-C1, Class Note, 8 1/2s, 2035 43,144
Chase Funding Net Interest Margin 144A
106,957 Ser. 02-4A, Class Note, 8 1/2s, 2035 106,679
145,380 Ser. 03-1A, Class Note, 8 3/4s, 2004 145,322
321,000 Ser. 2003-2A, Class NOTE, 8 3/4s, 2035 319,796
Conseco Finance Securitizations Corp.
135,000 Ser. 00-2, Class A4, 8.48s, 2030 142,887
2,365,000 Ser. 00-4, Class A6, 8.31s, 2032 2,198,206
600,000 Ser. 00-6, Class M2, 8.2s, 2032 300,000
12,000 Ser. 01-04, Class A4, 7.36s, 2019 11,366
9,000 Ser. 01-3, Class A3, 5.79s, 2024 8,771
18,000 Ser. 01-3, Class A4, 6.91s, 2033 16,551
561,000 Ser. 01-4, Class B1, 9.4s, 2010 196,350
1,781,784 Ser. 02-1, Class A, 6.681s, 2032 1,772,862
200,000 Ser. 2001-3, Class M2, 7.44s, 2033 66,000
394,000 Consumer Credit Reference IDX Securities Ser. 02-1A, Class A,
FRB, 3.29s, 2007 386,366
431,267 First Plus 144A Ser. 98-A, Class A, 8 1/2s, 2023 284,637
Green Tree Financial Corp.
150,000 Ser. 95-F, Class B2, 7.1s, 2021 140,766
678,000 Ser. 99-5, Class A5, 7.86s, 2031 611,953
1,231,209 Greenpoint Manufactured Housing Ser. 00-3, Class IA, 8.45s, 2031 1,232,748
GSAMP Trust
134,071 Ser. 02-HE2N, Class Note, 8 1/4s, 2032 133,484
117,000 FRB Ser. 03-FM1, Class B3, 5.83s, 2033 109,161
129,280 Home Equity Asset Trust Ser. 02-1N, Class A, 8s, 2032 126,048
543,000 Home Equity Asset Trust 144A Ser. 02-5N, Class A, 8s, 2033 533,498
685,000 LNR CDO, Ltd. Ser. 02-1A, Class FFL, 4.589s, 2037 622,543
443,000 Long Beach Asset Holdings Corp. 144A Ser. 2003-2, Class N1,
7.627s, 2033 443,000
568,528 Madison Avenue Manufactured Housing Contract Ser. 02-A, Class B1,
FRN, 4.57s, 2032 369,543
112,000 Master Asset Backed Securities Trust FRB Ser. 03-OPT1, Class MV5,
4.82s, 2032 95,725
373,000 Merrill Lynch Mortgage Investors, Inc. FRB Ser. 03-WMC1, Class B2,
4.32s, 2033 317,458
313,634 Mid-State Trust Ser. 10, Class B, 7.54s, 2036 287,163
193,000 Morgan Stanley Capital I FRB Ser. 02-NC6, Class B2, 5.07s, 2032 174,235
Morgan Stanley Dean Witter Capital I
210,000 Ser. 01-NC3, Class B1, FRN, 3.77s, 2031 193,565
900,000 Ser. 01-NC4, Class B1, FRN, 3.82s, 2032 802,625
350,000 Ser. 02-AM2, Class B1, FRN, 3.57s, 2032 301,916
Morgan Stanley Dean Witter Capital I 144A
49,886 Ser. 01-AM1N, Class Note, 12 3/4s, 2032 49,886
177,365 Ser. 01-NC4N, Class Note, 8 1/2s, 2032 177,365
91,801 NovaStar Caps Trust Ser. 02-C1, Class A, 7.15s, 2031 91,801
205,000 Option One Mortgage Loan Trust FRN Ser. 2003-3, Class M6,
4.829s, 2033 178,227
266,775 Option One Mortgage Securities Corp. Ser. 02-2A, Class CFTS,
8.83s, 2032 266,108
222,494 Option One Mortgage Securities Corp. 144A Ser. 02-1, Class CTFS,
6 3/4s, 2032 221,555
179,122 Option One Mortgage Securities Corp. NIM Trust 144A Ser. 2003-2B,
Class N1, 7.63s, 2033 (Cayman Islands) 179,122
719,737 Pass-Through Amortizing Credit Card Trust Ser. 02-1A, Class A4FL,
6.78s, 2012 717,038
2,733,607 Residential Asset Mortgage Products, Inc. Ser. 03-RZ1, Class A, IO,
5.75s, 2005 211,000
559,983 Sasco Arc Net Interest Margin Notes 144A Ser. 2003-BC2A, Class A,
7 3/4s, 2033 558,356
Structured Asset Investment Loan Trust
519,000 Ser. 03-BC1, Class M3, 4.305s, 2033 509,004
611,758 Ser. 03-BC1A, Class A, 7 3/4s, 2033 608,785
6,071,000 Ser. 03-BC2, Class A, IO, 6s, 2005 459,762
100,000 Ser. 03-BC2, Class B, 7s, 2033 95,406
200,000 FRN Ser. 2003-BC3, Class B, 4.815s, 2033 183,063
212,000 TIAA Commercial Real Estate Securitization Ser. 02-1A, Class IV,
6.84s, 2037 176,052
-------------
Total Asset-Backed Securities (cost $24,738,048) $22,953,866
BRADY BONDS (1.5%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$1,835,000 Argentina (Republic of) govt. guaranty Ser. L-GP, 6s, 2023
(In default) (NON) $862,450
554,135 Brazil (Federal Republic of) bonds 8s, 2014 488,359
625,000 Brazil (Federal Republic of) govt. guaranty FRB Ser. RG, 2.188s, 2012 463,313
1,411,200 Peru (Republic of) bonds Ser. PDI, 4s, 2017 1,231,272
395,000 Peru (Republic of) coll. FLIRB 4 1/2s, 2017 (acquired various dates
from 5/14/02 to 8/23/02, cost $263,100) (RES) 328,838
1,810,000 Peru (Republic of) coll. FLIRB Ser. 20YR, 4 1/2s, 2017 1,506,825
645,000 United Mexican States bonds Ser. B, 6 1/4s, 2019 645,000
-------------
Total Brady Bonds (cost $4,842,669) $5,526,057
PREFERRED STOCKS (1.3%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
7,246 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. $405,776
10,460 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. 1,093,070
27,930 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 279
7,700 Doane Pet Care Co. $7.125 pfd. 308,000
397 Dobson Communications Corp. 13.00% pfd. (PIK) 345,390
329 Dobson Communications Corp. 12.25% pfd. (PIK) 286,247
210 First Republic Capital Corp. 144A 10.50% pfd. 220,500
61 Granite Broadcasting Corp. 12.75% cum. pfd. 43,920
26 Leiner Health Products Ser. C, zero % pfd. 1
8,795 Lodgian, Inc. Ser. A, $7.06 cum. pfd. (PIK) 160,508
83 Metrocall Holdings, Inc. Ser. A, 15.00% cum. pfd. 291
460 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 487,600
676 North Atlantic Trading Co. 12.00% pfd. (PIK) 13,520
11 NTL Europe, Inc. Ser. A, zero % cum. pfd. 34
109 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 1,002,800
687 Rural Cellular Corp. 12.25% pfd. (PIK) 260,927
-------------
Total Preferred Stocks (cost $5,178,911) $4,628,863
COMMON STOCKS (1.0%) (a)
NUMBER OF SHARES VALUE
Basic Materials (--%)
- -------------------------------------------------------------------------------------------------------------------
15,092 Pioneer Cos., Inc. (NON) $56,595
2,642 Polymer Group, Inc. Class A (NON) 22,827
129 Sterling Chemicals, Inc. (NON) 2,402
-------------
81,824
Broadcasting (0.4%)
- -------------------------------------------------------------------------------------------------------------------
91 Quorum Broadcast Holdings, Inc. Class E (acquired 5/15/01,
cost $90,498) (RES) (NON) 17,866
83,727 Regal Entertainment Group 144A (NON) 1,476,944
-------------
1,494,810
Communication Services (--%)
- -------------------------------------------------------------------------------------------------------------------
239 Arch Wireless, Inc. (NON) 789
18,271 Arch Wireless, Inc. (NON) 2
1,940 Birch Telecom, Inc. (NON) 6,712
8,378 Covad Communications Group, Inc. (NON) 6,032
934 FLAG Telecom Group, Ltd. (Bermuda) (NON) 29,421
18,922 Globix Corp. (NON) 36,898
96 Metrocall Holdings, Inc. (NON) 312
867 Vast Solutions, Inc. Class B1 (NON) 434
867 Vast Solutions, Inc. Class B2 (NON) 434
867 Vast Solutions, Inc. Class B3 (NON) 434
2,462 WilTel Communications, Inc. (NON) 27,081
1 WorldCom, Inc .- WorldCom Group (NON) 1
-------------
108,550
Consumer Cyclicals (0.1%)
- -------------------------------------------------------------------------------------------------------------------
10,420 Lodgian, Inc. (NON) 26,675
470,000 Morrison Knudsen Corp. (NON) 25,850
15,520 Safety Components International, Inc. (NON) 89,240
1,019 Washington Group International, Inc. (NON) 19,361
-------------
161,126
Consumer Staples (0.5%)
- -------------------------------------------------------------------------------------------------------------------
958 Archibald Candy Corp. (NON) 2,730
7,792 Aurora Foods, Inc. (NON) 4,208
480 Premium Holdings (LP) 144A (NON) 10,076
1,004 PSF Group Holdings, Inc. 144A Class A (NON) 1,756,755
-------------
1,773,769
Financial (--%)
- -------------------------------------------------------------------------------------------------------------------
350,000 AMRESCO Creditor Trust (NON) (R) 25,900
1,883,299 Contifinancial Corp. Liquidating Trust Units 37,666
-------------
63,566
Health Care (--%)
- -------------------------------------------------------------------------------------------------------------------
1,153 Alderwoods Group, Inc. (NON) 5,615
1,228 Genesis Health Ventures, Inc. (NON) 18,371
60,000 Loewen Group International, Inc. (NON) 6
947 Mariner Health Care, Inc. (NON) 7,103
810 Mediq, Inc. (NON) 81
467 Sun Healthcare Group, Inc. (NON) 135
-------------
31,311
Technology (--%)
- -------------------------------------------------------------------------------------------------------------------
242 Comdisco Holding Co., Inc. (NON) 33,892
Utilities (--%)
- -------------------------------------------------------------------------------------------------------------------
4,442 Jasper Energy 144A (NON) 278
909 York Research Corp. 144A (NON) 57
-------------
335
-------------
Total Common Stocks (cost $10,495,544) $3,749,183
CONVERTIBLE BONDS AND NOTES (0.6%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$400,000 American Tower Corp. cv. notes 5s, 2010 $338,000
110,000 Amkor Technology, Inc. cv. notes 5 3/4s, 2006 97,213
1,210,000 Cybernet Internet Services International, Inc. 144A cv. sr. disc.
notes stepped-coupon zero % (13s, 8/15/04) 2009 (Denmark)
(In default) (NON) (STP) 1,210
270,000 DaVita, Inc. cv. sub. notes 7s, 2009 275,738
750,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 680,625
445,000 Province Healthcare Co. cv. sub. notes 4 1/2s, 2005 424,975
50,000 Rogers Communications cv. debs. 2s, 2005 (Canada) 41,125
255,000 Sierra Pacific Resources 144A cv. notes 7 1/4s, 2010 298,031
-------------
Total Convertible Bonds and Notes (cost $2,765,059) $2,156,917
UNITS (0.2%) (a)
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------------
655,000 HMP Equity Holdings Corp. units zero %, 2008 $310,699
150,000 MDP Acquisitions PLC 144A units 15 1/2s, 2013 (Ireland) (PIK) 169,500
380,000 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 114,000
4,732 XCL, Ltd. 144A units cum. cv. pfd. 9 1/2s (In default) (NON) (PIK) 2,366
-------------
Total Units (cost $1,247,692) $596,565
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
30 Genesis Health Ventures, Inc. $6.00 cv. pfd. (PIK) $2,400
760 Interact Electronic Marketing, Inc. 14.00% cum. cv. pfd. (In default) (NON) 8
996 Knology, Inc. 144A Ser. D, zero % cv. pfd. 498
2,600 LTV Corp. 144A $4.125 cv. pfd. (In default) (NON) 26
31 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 186,000
4,014 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 4,014
4,600 Titan Capital Trust $2.875 cum. cv. pfd. 231,150
360 Weirton Steel Corp. Ser. C, zero % cv. pfd. 90
932 XCL, Ltd. 144A Ser. A, 9.50% cum. cv. pfd. (In default) (NON) (PIK) 466
-------------
Total Convertible Preferred Stocks (cost $645,653) $424,652
WARRANTS (--%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
530 American Tower Corp. Class A 8/1/08 $39,750
310 Birch Telecommunications, Inc. 144A 6/15/08 1
560 Dayton Superior Corp. 144A 6/15/09 140
2,868 Diva Systems Corp. 144A 3/1/08 29
1,174 Diva Systems Corp. 144A 5/15/06 12
2 Doe Run Resources Corp. 144A 12/31/12 1
570 Horizon PCS, Inc. 10/1/10 1
760 Interact Systems, Inc. 8/1/03 1
760 Interact Systems, Inc. 144A 12/15/09 8
500 iPCS, Inc. 144A 7/15/10 125
220 IWO Holdings, Inc. 1/15/11 55
302 Leap Wireless International, Inc. 144A 4/15/10 3
210 Mikohn Gaming Corp. 144A 8/15/08 2
220 ONO Finance PLC 144A (United Kingdom) 2/15/11 1
525 Orion Network Systems 1/15/07 5
640 Paxson Communications Corp. 144A 6/30/03 1
230 Pliant Corp. 144A 6/1/10 115
261 Solutia, Inc. 144A 7/15/09 326
1,169 Sun Healthcare Group, Inc. 2/28/05 1
570 Travel Centers of America, Inc. 144A 5/1/09 5,700
900 Ubiquitel, Inc. 144A 4/15/10 1
645,000 United Mexican States Ser. B (Mexico) (Rights) 6/30/04 3,869
645,000 United Mexican States Ser. C (Mexico) (Rights) 6/30/05 967
645,000 United Mexican States Ser. D (Mexico) (Rights) 6/30/06 644
645,000 United Mexican States Ser. E (Mexico) (Rights) 6/30/07 322
450 Verado Holdings, Inc. 144A 4/15/08 5
20 Versatel Telecom NV (Netherlands) 5/15/08 1
628 Washington Group International, Inc. Ser. A 1/25/06 470
718 Washington Group International, Inc. Ser. B 1/25/06 358
388 Washington Group International, Inc. Ser. C 1/25/06 193
320 XM Satellite Radio Holdings, Inc. 144A 3/15/10 1
-------------
Total Warrants (cost $436,660) $53,108
SHORT-TERM INVESTMENTS (2.6%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$715,000 U.S. Treasury Note zero %, May 8, 2003 (SEG) $714,842
9,000,000 Interest in $450,000,000 joint repurchase agreement
dated April 30, 2003 with Bank of America due
May 1, 2003 with respect to various U.S. Government
obligations -- maturity value of $9,000,333 for an
effective yield of 1.33% 9,000,000
-------------
Total Short-Term Investments (cost $9,714,842) $9,714,842
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $373,949,769) $367,068,163
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $370,094,329.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin accruing interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at April 30, 2003 was
$9,693,834 or 2.6% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(SEG) This security was pledged and segregated with the custodian to
cover margin requirements for futures contracts at April 30, 2003.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
TBA after the name of a security represents to be announced
securities (Note 1).
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate
Notes (FRN) are the current interest rates shown at April 30, 2003,
which are subject to change based on the terms of the security.
DIVERSIFICATION BY COUNTRY
Distribution of investments by country of issue at April 30, 2003: (as a percentage of Market Value)
Bulgaria 1.0%
Canada 3.7
Colombia 1.2
France 1.3
Germany 1.9
Malaysia 1.0
Mexico 1.0
New Zealand 1.3
Philippines 1.0
Russia 1.8
Sweden 1.2
United Kingdom 2.9
United States 79.7
Venezuela 1.0
-----
Total 100.0%
- ------------------------------------------------------------------------------
Forward Currency Contracts to Buy at April 30, 2003 (Unaudited)
(aggregate face value $36,896,740)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
Australian Dollars $10,854,239 $10,415,580 6/18/03 $438,659
British Pounds 7,990,353 7,884,543 6/18/03 105,810
Canadian Dollars 6,423,650 6,204,106 6/18/03 219,544
Danish Krone 538,653 523,143 6/18/03 15,510
Euro 3,092,292 2,966,470 6/18/03 125,822
Japanese Yen 7,289,950 7,359,612 6/18/03 (69,662)
South Korean Won 1,303,481 1,305,974 6/18/03 (2,493)
Swiss Franc 236,340 237,312 6/18/03 (972)
- ------------------------------------------------------------------------------
$832,218
- ------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 2003 (Unaudited)
(aggregate face value $30,081,515)
Unrealized
Market Aggregate Face Delivery Appreciation/
Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
Australian Dollars $723,508 $688,865 6/18/03 $(34,643)
British Pounds 5,366,302 5,283,986 6/18/03 (82,316)
Canadian Dollars 1,407,094 1,364,365 6/18/03 (42,729)
Euro 9,516,297 9,208,066 6/18/03 (308,231)
Japanese Yen 4,710,875 4,710,720 6/18/03 (155)
New Zealand
Dollars 4,735,121 4,735,494 6/18/03 373
Swedish Krona 4,221,763 4,090,019 6/18/03 (131,744)
- ------------------------------------------------------------------------------
$(599,445)
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2003 (Unaudited)
Unrealized
Market Aggregate Face Expiration Appreciation/
Value Value Date (Depreciation)
- ------------------------------------------------------------------------------
3 Month Eurodollar
(Short) $987,950 $958,783 Jun-03 $(29,167)
3 Month Eurodollar
(Long) 988,250 954,567 Jun-03 33,683
Euro-Bobl 5 yr
(Long) 7,981,630 8,036,931 Jun-03 (55,301)
Euro-Bund 10 yr
(Long) 19,085,982 19,138,787 Jun-03 (52,805)
Interest Rate Swap
10 yr (Long) 911,750 908,742 Jun-03 3,008
Japanese
Government Bond
10 yr (Long) 6,622,149 6,572,934 Jun-03 49,215
US Treasury Note
10 yr (Long) 23,750,219 23,437,112 Jun-03 313,107
US Treasury Note
10 yr (Short) 21,183,000 21,102,589 Jun-03 (80,411)
US Treasury Note 5
yr (Short) 21,157,500 21,100,556 Jun-03 (56,944)
- ------------------------------------------------------------------------------
$124,385
- ------------------------------------------------------------------------------
TBA Sales Commitments at April 30, 2003 (Unaudited)
(proceeds receivable $925,117)
Principal Settlement
Agency Amount Date Value
- ------------------------------------------------------------------------------
FNMA, 7s, May 2033 $876,000 5/14/03 $925,548
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Swap Contracts Outstanding at April 30, 2003 (Unaudited)
Unrealized
Notional Termination Appreciation/
Amount Date (Depreciation)
- ------------------------------------------------------------------------------
Agreement with
Goldman Sachs
Capital Markets,
L.P. dated
February 12, 2003
to pay quarterly
the notional
amount multiplied
by the three
month CAD-BA-CDOR
and pay
semiannually the
notional amount
multiplied by
3.5076% $32,077,500 02/14/05 $1,313,440
Agreement with
Goldman Sachs
Capital Markets,
L.P. dated
November 8, 2002
to pay at
maturity the
notional amount
multiplied by the
six month
USD-LIBOR-BBA
plus a specified
spread and
receive (pay) at
maturity the
notional amount
multiplied by the
change in net
asset value of
the shares GS
InvesTop
Corporate Bond
Fund 27,600 05/13/03 120,485
Agreement with
Goldman Sachs
Capital Markets,
L.P. dated
February 12, 2003
to receive
quarterly the
notional amount
multiplied by the
three month USD
LIBOR-BBA and pay
semiannually the
notional amount
multiplied by
1.59% 21,000,000 02/14/05 (107,100)
Agreement with
Merrill Lynch
Capital Services,
Inc. dated
September 27,
2002 to receive
semiannually the
notional amount
multiplied by the
six month
JPY-LIBOR-BBA and
pay monthly the
notional amount
multiplied by
0.399% JPY 1,334,000 10/01/07 250,166
Agreement with
Merrill Lynch
Capital Services,
Inc. dated
November 17, 2000
to pay
semi-annually the
notional amount
multiplied by the
three month
USD-LIBOR-BBA and
receive the
notional amount
multiplied by
6.68% $3,500,000 11/21/05 404,168
- ------------------------------------------------------------------------------
$1,981,159
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$373,949,769) (Note 1) $367,068,163
- -------------------------------------------------------------------------------------------
Cash 2,642,936
- -------------------------------------------------------------------------------------------
Foreign currency (cost $1,706,037) (Note 1) 1,731,691
- -------------------------------------------------------------------------------------------
Dividends, interest and other receivables 6,964,302
- -------------------------------------------------------------------------------------------
Receivable for securities sold 4,234,292
- -------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 79,051
- -------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 2,088,259
- -------------------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 928,624
- -------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 200,047
- -------------------------------------------------------------------------------------------
Total assets 385,937,365
Liabilities
- -------------------------------------------------------------------------------------------
Distributions payable to shareholders 2,131,608
- -------------------------------------------------------------------------------------------
Payable for securities purchased 9,415,604
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 651,068
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 62,413
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 25,923
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 833
- -------------------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 107,100
- -------------------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 695,851
- -------------------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 1,792,055
- -------------------------------------------------------------------------------------------
TBA sales commitments, at value (proceeds receivable $925,117)
(Note 1) 925,548
- -------------------------------------------------------------------------------------------
Other accrued expenses 35,033
- -------------------------------------------------------------------------------------------
Total liabilities 15,843,036
- -------------------------------------------------------------------------------------------
Net assets $370,094,329
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Note 1) $467,493,707
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,108,498)
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (88,044,484)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (6,246,396)
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $370,094,329
Computation of net asset value
- -------------------------------------------------------------------------------------------
Net asset value per share ($370,094,329 divided by 53,329,917
shares) $6.94
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended April 30, 2003 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------------------
Interest $14,793,837
- -------------------------------------------------------------------------------------------
Dividends 440,902
- -------------------------------------------------------------------------------------------
Total investment income 15,234,739
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,296,274
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 241,637
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,513
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,083
- -------------------------------------------------------------------------------------------
Other 50,599
- -------------------------------------------------------------------------------------------
Total expenses 1,602,106
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (8,938)
- -------------------------------------------------------------------------------------------
Net expenses 1,593,168
- -------------------------------------------------------------------------------------------
Net investment income 13,641,571
- -------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,715,859
- -------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (423,823)
- -------------------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 84,756
- -------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 174,541
- -------------------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 8,278
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in foreign
currencies during the period (1,128,705)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts,
swap contracts and TBA sale commitments during the period 30,929,929
- -------------------------------------------------------------------------------------------
Net gain on investments 31,360,835
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $45,002,406
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
April 30 October 31
2003* 2002
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $13,641,571 $29,156,604
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 1,559,611 (29,544,414)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 29,801,224 7,731,062
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 45,002,406 7,343,252
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From net investment income (14,496,415) (30,618,134)
- -------------------------------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of dividends (Note 4) 360,652 1,205,083
- -------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 30,866,643 (22,069,799)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 339,227,686 361,297,485
- -------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $3,108,498 and $2,253,654,
respectively) $370,094,329 $339,227,686
- -------------------------------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 53,275,878 53,095,749
- -------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment of
distributions 54,039 180,129
- -------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 53,329,917 53,275,878
- -------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.37 $6.80 $7.13 $7.72 $8.27 $9.26
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .26 .55 .61 .66 .64 .71
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .58 (.40) (.31) (.58) (.48) (.96)
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .84 .15 .30 .08 .16 (.25)
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.27) (.58) (.58) (.56) (.65) (.65)
- ------------------------------------------------------------------------------------------------------------------
Return of capital -- -- (.05) (.11) (.06) (.09)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.27) (.58) (.63) (.67) (.71) (.74)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $6.94 $6.37 $6.80 $7.13 $7.72 $8.27
- ------------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.450 $6.150 $6.530 $6.438 $6.625 $8.125
- ------------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 9.28* 2.71 11.27 7.70 (10.50) 4.15
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $370,094 $339,228 $361,297 $378,800 $410,012 $438,972
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .45* .98 .94 .94 .94 1.00
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.86* 8.22 8.63 8.66 7.93 7.81
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 74.93(d)* 205.33 (d) 131.14 (d) 147.33 124.21 202.83
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements. (Note 2)
(d) Portfolio turnover excludes certain treasury note transactions
executed in connection with a short-term trading strategy.
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Master Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The investment objective of the fund is
to seek high current income consistent with the preservation of capital.
The fund intends to diversify its investments among the following three
sectors of the fixed-income securities market: a U.S. investment-grade
sector, consisting of debt obligations of the U.S. government and
investment-grade U.S. corporate bonds, a high-yield sector, consisting
of high yielding, lower-rated U.S. corporate fixed income securities and
an international sector, consisting of obligations of foreign
governments, their agencies and instrumentalities and other fixed-income
securities denominated in foreign currencies.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The fund invests in higher yielding, lower rated bonds that
have a higher rate of default due to the nature of the investments. The
preparation of financial statements is in conformity with accounting
principles generally accepted in the United States of America and
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements
and the reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ from
those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at 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. Market quotations are
not considered to be readily available for certain debt obligations;
such investments are valued at market value on the basis of valuations
furnished by an independent pricing service or dealers, approved by the
Trustees. Such services or dealers determine valuations for normal
institutional-size trading units of such securities using methods based
on market transactions for comparable securities and various
relationships, generally recognized by institutional traders, between
securities. For foreign investments, if trading or events occurring in
other markets after the close of the principal exchange in which the
securities are traded are expected to materially affect the value of the
investments, then those investments are valued, taking into
consideration these events, at their fair value following procedures
approved by the Trustees. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates fair value. Other investments,
including restricted securities, are valued at fair value following
procedures approved by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be 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 recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis. Dividend income is recognized on the ex-dividend date except that
certain dividends from foreign securities are recognized as soon as the
fund is informed of the ex-dividend date. Non-cash dividends, if any,
are recorded at the fair market value of the securities received. All
premiums/discounts are amortized/accreted on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
F) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted
(or an increase in the value of a currency in which securities a fund
intends to buy are denominated, when a fund holds cash reserves and
short term investments). The U.S. dollar value of forward currency
contracts is determined using current forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is
marked to market daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position. Forward currency contracts outstanding at
period end are listed after The fund's portfolio.
G) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Future and written option contracts outstanding at period end are listed
after The fund's portfolio.
H) Total return swap contracts The fund may enter into total return swap
contracts, which are arrangements to exchange a market linked return for
an interest payment, both 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. Total return swap contracts are marked
to market daily based upon quotations from market makers and the change,
if any, is recorded as unrealized gain or loss. Payments received or
made 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. Total return swap contracts outstanding at
period end are listed after The fund's portfolio.
I) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss. Payments made or received
are recognized as part of interest income. A portion of the payments
received or made upon early termination are recognized 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 if the
counterparty defaults on its obligation to perform. Interest rate swap
contracts outstanding at period end are listed after The fund's
portfolio.
J) Credit default contracts The fund may enter into credit default
contracts where one party, the protection buyer, makes an upfront
payment to a counterparty, the protection seller, in exchange for the
right to receive a contingent payment as a result of a credit event
related to a specified security or index. The upfront payment received
by the fund, as the protection seller, is recorded as a liability on the
fund's books. The credit default contracts are marked to market daily
based upon quotations from market makers and the change, if any, is
recorded as unrealized gain or loss. Payments received or made as a
result of a credit event or termination of the contract are recognized,
net of a proportional amount of the upfront payment, as realized gains
or losses. In addition to bearing the risk that the credit event will
occur, the fund could be exposed to market risk due to unfavorable
changes in interest rates or in the price of the underlying security or
index, the possibility that the fund may be unable to close out its
position at the same time or at the same price as if it had purchased
comparable publicly traded securities or that the counterparty may
default on its obligation to perform. Credit default contracts
outstanding at period end are listed after The fund's portfolio.
K) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At October 31, 2002, the fund had a capital loss carryover of
approximately $89,361,000 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
- -------------- ------------------
$3,956,000 October 31, 2006
23,414,000 October 31, 2007
11,528,000 October 31, 2008
15,952,000 October 31, 2009
34,511,000 October 31, 2010
The aggregate identified cost on a tax basis is $375,244,105, resulting
in gross unrealized appreciation and depreciation of $25,739,179 and
$33,915,121, respectively, or net unrealized depreciation of $8,175,942.
L) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services
and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.75% of the
first $500 million of average weekly net assets, 0.65% of the next $500
million, 0.60% of the next $500 million, and 0.55% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended April 30, 2003,
the fund's expenses were reduced by $8,938 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $803 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2003, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $202,335,537 and
$191,732,976, respectively. Purchases and sales of U.S. government
obligations aggregated $54,674,442 and $62,684,838, respectively.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
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, Treasurer and
Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Brett C. Browchuk
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Kevin M. Cronin
Vice President
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
88654 072 6/03
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
There have been no significant changes in the registrant's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: June 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: June 24, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: June 24, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 24, 2003