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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
You may have read recent press coverage regarding investigations
involving Putnam Investments. Last month all Putnam shareholders were
sent a letter detailing the steps being taken by Putnam to address the
issues raised by federal and state regulators. Since then, a number of
remedial actions, some of which were discussed in last month's letter,
are being instituted under the terms of an order from the Securities and
Exchange Commission (SEC). These include stringent employee trading
restrictions, enhanced compliance standards and systems, new redemption
fees for certain fund shares held less than three months, and a process
for making full monetary restitution for any losses to fund
shareholders. This process will be directed by an independent third
party approved by the SEC and by Putnam's Board of Trustees.
The Board is also continuing its own independent investigation of these
issues and when complete a report will be issued detailing the
additional steps being taken to make sure that nothing like this happens
at Putnam again. We believe that the new senior management team at
Putnam is fully committed to re-establishing the firm as a model for the
highest ethical standards in the mutual fund industry. Our Board is
committed to working with Putnam's management to ensure that everything
possible is done to restore your full confidence in the Putnam
organization.
We are pleased to report that Putnam Master Income Trust delivered
positive results for the fiscal year ended October 31, 2003, strongly
outperforming its primary benchmark at net asset value and only slightly
lagging its Lipper peer group average (at NAV), which was mainly due to
an underweighting in emerging-market securities. In the following
report, you will find the details of these results as well as a full
discussion of fund performance and strategy during the period. The
management team also offers its view of prospects for the coming fiscal
year.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 17, 2003
Report from Fund Management
Fund highlights
* During the fiscal year ended October 31, 2003, Putnam Master Income
Trust had a total return at net asset value (NAV) of 21.84%. The fund's
return at market price was 15.48%.
* Because of its inclusion of higher-yielding securities, the fund
outperformed its primary benchmark, the Lehman Government Credit Index,
which returned 6.17%, and another comparative index, the Citigroup
Non-U.S. World Government Bond Index, which returned 17.75%. The fund
lagged a third comparative index, the JP Morgan Global High Yield Index,
which returned 30.49% during the period.
* Primarily as a result of its underweighting of emerging-market
securities, the fund underperformed the average return of 22.33% for the
Lipper Flexible Income Funds (closed-end) category.
* The fund's lower performance at market price was primarily the result
of a reduction in the dividend, which occurred in March 2003. See page 5
for details.
* See the Performance Summary beginning on page 8 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
Starting in mid October 2002, higher-yielding, non-Treasury bonds began
to significantly outperform Treasuries. The fund was invested
predominantly in such bonds -- corporate investment-grade and high-yield
bonds, emerging-market bonds, and mortgage-backed securities. As bonds
from these sectors appreciated, the credit spread, or difference in
yield between Treasuries and these securities, narrowed, bolstering the
fund's returns. As a result, the fund strongly outperformed its
benchmark index, which is composed of lower-yielding, higher-quality
bonds (including Treasuries). The fund's underperformance of its Lipper
category average reflects our lower weighting in emerging-market
securities, discussed further on page 3. The significantly lower return
at market price reflects a reduction in the fund's dividend, which
caused investor demand for the fund -- a key factor in market price
performance -- to decline.
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.
Market overview
The beginning of this fund's fiscal year in November 2002 marked a
seminal change in the global credit markets. Hints of an economic
recovery, a passing of the September 11 anniversary, and an improvement
in the stock market all contributed to a sudden improvement in the
direction of credit spreads. As a result, investment-grade corporate
bonds, high-yield corporate bonds, and emerging-market bonds all
significantly outperformed U.S. Treasuries over the course of the
reporting period.
In July and August of 2003, Treasury prices declined sharply after
rallying in May and the first half of June. Having reached a historical
low of 3.11% on June 13, the benchmark 10-year Treasury yield -- which
moves in the opposite direction to its price -- then increased by over
one and a half percentage points by the beginning of September -- an
extremely large increase for a 10-week period. While this event shook
all fixed-income sectors, higher-yielding bonds with lower sensitivity
to interest-rate changes (which made up much of the fund's portfolio)
fared much better than Treasuries.
Mortgage-backed securities performed well for much of the year, but
their performance suffered somewhat during the summer because of
excessive refinancing. When homeowners refinance their mortgages at
lower rates, they "prepay" their existing mortgages, hurting investors
who have been receiving these higher levels of interest income.
Emerging markets generally fared well, with above-average returns that
we attribute to higher commodity prices, especially oil prices. The
dollar continued to move lower relative to other major currencies,
including the yen and the euro, as low interest rates and the perceived
threat of deflation in the United States caused global investors to seek
higher returns in other countries.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 10/31/03
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Bonds
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Lehman Government Credit Index (U.S. government and
corporate bonds) 6.17%
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Lehman Aggregate Bond Index (broad bond market) 4.90%
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Citigroup Non-U.S. World Government Bond Index
(international government bonds) 17.75%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 30.49%
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Equities
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S&P 500 Index (broad stock market) 20.80%
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Citigroup World Ex U.S. Primary Markets Growth Index
(international growth stocks) 24.43%
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Russell 2000 Index (stocks of small and midsize companies) 43.37%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 10/31/03.
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Strategy overview
Several of the fund's areas of emphasis -- including high-yield bonds,
mortgage-backed securities (MBSs), and international bonds -- performed
well during the period. Our significant allocation to high-yield
corporate bonds, which increased during the second half of the period,
was particularly helpful, as these bonds were among the
strongest-performing fixed-income securities over the period. As yield
spreads narrowed toward the end of the period, we reduced this
allocation, but still maintained a large high-yield weighting. We sought
to keep the fund's exposure to another higher-risk area of the portfolio
- -- emerging-market securities -- low (relative to the fund's
competitors). Because this subgroup of the fund's international holdings
delivered strong performance, our conservative approach detracted from
the fund's relative performance.
Over the second half of the fiscal year, we believe the fund was less
sensitive to interest-rate changes than other funds in its category,
reflecting our decision to keep the portfolio interest-rate sensitivity
lower. While rates continued to decline in May and June, this
positioning hurt relative performance, but when rates spiked in July and
August, the fund gained ground against funds in its peer group. The
fund's currency strategy has been on target; we emphasized the
Australian dollar and European currencies, and continued to underweight
the U.S. dollar. Toward the end of the fiscal year, we also began to
increase our emphasis on the yen. These positions were generally
beneficial for the fund's performance.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 4/30/03 as of 10/31/03
High yield 46.8% 48.7%
International 23.0% 25.7%
U.S. investment grade 30.2% 25.6%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of total
investment portfolio. Holdings will vary over time.
How fund sector allocations affected performance
Throughout the year, the fund's largest sector weighting (close to half
of its assets) was in high-yield bonds, and this position was a
significant contributor to the fund's strong returns during the period.
High-yield bonds have performed well during the past 12 months for
several reasons. Among the most important is the decline in default
rates. Although still high by historical standards, corporate defaults
have steadily declined since hitting a peak in January 2002. 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,
fixed-income investors have been seeking higher yields 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. This narrowing has
been another strong driver of high-yield bond performance. Finally,
corporations are generally focusing on reducing debt, improving their
balance sheets, and increasing profits -- all of which have generally
helped improve credit quality in the high-yield market.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
High-Yield Sector
1 HMH Properties, Inc.
Company guaranty, Series B, 7 7/8s, 2008
2 PSF Group Holdings, Inc.
144A, Class A
3 Qwest Services Corp.
144A notes, 13.5s, 2010
International Sector
1 United Kingdom Treasury bonds
Treasury bonds, 7 1/2s, 2006
2 United Kingdom Treasury bonds
Treasury bonds, 5s, 2004
3 Canada (Government of)
Bonds, 6s, 2011
U.S. Investment-Grade Sector
1 U.S. Treasury bonds
7 1/2s, November 15, 2016
2 U.S. Treasury bonds
6 1/4s, August 15, 2023
3 U.S. Treasury notes
1 5/8s, March 31, 2005
Footnote reads:
These holdings represent 10.7% of the fund's net assets as of 10/31/03.
The fund's holdings will change over time.
Bonds of several corporate high-yield issuers performed well for the
fund during the past year, including those of HMH Properties, Inc. and
Qwest Services Corp. HMH, which owns the Marriott hotel chain, has
benefited from an improvement in the hotel business since 9/11. The
company is financially strong and has dependable cash flows. Qwest, a
telecommunications company, has increased significantly in price and is
one of the fund's top-performing high-yield holdings. We felt it was
attractively valued, and the market has concurred in the past six
months. Qwest has worked through an SEC investigation of its accounting
practices, sold its directory business, and cut costs and reduced debt.
Some industrial holdings made positive contributions in the high-yield
portion of the fund, including bonds issued by Tyco, a conglomerate, and
Georgia Pacific, a large paper company. These firms benefited from the
strength of the high-yield bond market and the recovering economy, which
has translated into increased availability of funding for them.
The fund's holdings of AK Steel Corp. and Collins and Aikman Products,
an auto and truck parts maker, detracted from performance during the
period due to disappointing earnings. However, if the economy continues
to grow, as we believe it will, we expect these holdings to benefit. We
have maintained the fund's positions.
Mortgage-backed securities (MBSs), a subgroup within the fund's U.S.
investment-grade sector, were among the weakest-performing securities in
the fund on a relative basis, primarily because of the refinancing
crunch that occurred in the spring and summer of 2003. However, our
strategy of investing in different types of MBSs helped us take
advantage of the diversification this sector offers while maximizing the
available opportunities. For example, we invested in commercial
mortgage-backed securities, which are less prone to refinancing than
residential mortgages, as well as agency-wrapped FHA/VA reperforming
MBSs. These are traditional mortgage-backed securities in which the
borrowers have become delinquent on making payments for a period of time
and, as a result, the securities are less likely to be re-financed.
Because these securities are guaranteed by government-sponsored agencies
(Fannie Mae and Freddie Mac), they do not represent a major credit risk,
and the fund has benefited from the higher income that they produce.
The fund's international bonds benefited from slowing global economies,
especially in Europe, where the fund's Swedish government bonds
outperformed. These securities attracted investors in part because they
outperformed German government bonds. Canadian and New Zealand
government bonds also performed well for the fund, benefiting from the
countries' commodity-based economies. European high-yield bonds, a small
allocation in the fund, had weaker performance than their U.S.
counterparts, primarily as a result of slower economic growth in Europe,
but they still made a solid contribution during the year.
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. Another factor was the narrowing of yield spreads between
high-yield bonds, investment-grade corporate bonds, and emerging-market
bonds. Consequently, in March 2003, the fund lowered its distribution
rate from $0.048 per share to $0.040 per share. Between July 2003 and
the end of the fiscal year, however, the dividend increased from $0.040
per share to $0.042 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, 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.
We anticipate continued interest-rate volatility in the coming months,
as the direction for the major global economies becomes clearer to
investors. In the United States, we may see a continuation of the
cyclical recovery from recession, which has been stimulated by tax cuts,
low interest rates, and increased capital spending among corporations,
as well as signs of growth in Asia. These trends, if they continue,
could lead to faster growth and potentially higher inflation. Higher
inflation, in turn, could lead to higher interest rates, which would
hurt your fund's performance. Tempering this scenario are certain
structural "headwinds" that could dampen growth. These inhibitors may
include lower-than-expected corporate profits, a decline in consumer
spending, a lack of new job creation, and a dearth of much-needed
corporate capital spending. A positive effect of slower growth would be
lower inflation and lower interest rates, which would be positive for
the bond market and for your fund.
In the coming months, the conflict between stimulating and inhibiting
forces on the economy may produce higher volatility in the bond market.
However, we believe that, because of the fund's diversity, different
sectors and holdings in its portfolio have the potential to benefit from
either faster or slower growth.
We would like to caution shareholders that the strong returns of the
past year are well above the historical average for a fund of this type,
and that this strong performance is not likely to be repeated. That
being said, we believe that for those seeking income, investing in a
well-diversified fund such as this one remains a sensible approach.
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 fiscal year, which ended October 31, 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, net asset value, and market price will
fluctuate and you may have a gain or a loss when you sell your shares. 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.
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TOTAL RETURN FOR PERIODS ENDED 10/31/03
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NAV Market price
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1 year 21.84% 15.48%
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5 years 36.59 27.22
Annual average 6.43 4.93
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10 years 85.25 83.74
Annual average 6.36 6.27
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Life of fund
(since 12/28/87)
Annual average 8.66 7.55
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Performance does not reflect taxes on reinvested distributions.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/03
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Citigroup
Non-U.S. Lipper Flexible
Lehman World JP Morgan Income Funds
Government Government Global High CSFB High (closed end)
Credit Index Bond Index Yield Index* Yield Index category average+
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1 year 6.17% 17.75% 30.49% 31.46% 22.33%
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5 years 37.46 21.39 35.15 38.08 33.30
Annual average 6.57 3.95 6.21 6.67 5.61
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10 years 92.56 80.40 -- 99.93 80.58
Annual average 6.77 6.08 -- 7.17 6.02
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Life of fund
(since 12/28/87)
Annual average 8.39 6.87 -- 9.41 8.48
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Index and Lipper results should be compared to fund performance at net
asset value.
* This comparative index replaced the CSFB High Yield Index on 12/30/02
because, in Putnam Management's opinion, the securities tracked by this
index more accurately reflect the types of securities generally held by
the fund. The JP Morgan Global High Yield Index's inception date was
12/31/93.
+ Over the 1-, 5-, and 10-year periods ended 10/31/03, there were 12,
12, and 10 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/03
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Putnam Master Income Trust
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Distributions (number) 12
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Income $0.520
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Capital gains --
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Total $0.520
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Share value: NAV Market price
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10/31/02 $6.37 $6.15
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10/31/03 7.18 6.57
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Current return (end of period)
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Current dividend rate 1 7.02% 7.67%
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1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or market price at end of period.
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TOTAL RETURN FOR PERIODS ENDED 9/30/03 (MOST RECENT CALENDER QUARTER)
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NAV Market price
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1 year 20.34% 11.02%
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5 years 32.04 30.67
Annual average 5.72 5.50
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10 years 85.92 88.59
Annual average 6.40 6.55
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Life of fund
(since 12/28/87)
Annual average 8.63 7.72
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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
Citigroup (formerly Salomon Smith Barney) Non-U.S. World 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
United States chosen for their growth orientation.
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Government Credit Index is an unmanaged index of U.S fixed-income
securities.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 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.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Independent Auditors' Report, constitute the fund's
financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Independent auditors' report
The Board of Trustees and Shareholders
Putnam Master Income Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Master Income Trust, including the fund's portfolio, as of
October 31, 2003, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of
the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of October 31, 2003 by correspondence with the custodian and brokers or
by other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Master Income Trust as of October 31, 2003,
the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then
ended in conformity with accounting principles generally accepted in the
United States of America.
KPMG LLP
Boston, Massachusetts
December 9, 2003
The fund's portfolio
October 31, 2003
Corporate bonds and notes (52.7%) (a)
Principal amount Value
Advertising and Marketing Services (0.1%)
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$128,941 Adams Outdoor Advertising bank term
loan FRN Ser. B, 4.42s, 2008
(acquired 4/02/03, cost $128,619)
(RES) $129,371
100,000 Lamar Media Corp. bank term loan FRN
Ser. B, 3.438s, 2010 (acquired
2/27/03, cost $100,100) (RES) 100,813
305,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 321,013
--------------
551,197
Automotive (1.3%)
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155,000 ArvinMeritor, Inc. notes 8 3/4s,
2012 162,750
540,000 Collins & Aikman Products company
guaranty 10 3/4s, 2011 456,300
90,000 Dana Corp. notes 10 1/8s, 2010 101,700
310,000 Dana Corp. notes 9s, 2011 344,100
EUR 30,000 Dana Corp. notes 9s, 2011 37,484
$50,000 Dana Corp. notes 7s, 2029 44,375
155,000 Dana Corp. notes 6 1/2s, 2009 153,450
85,000 Delco Remy International, Inc.
company guaranty 11s, 2009 77,988
205,000 Delco Remy International, Inc.
company guaranty 10 5/8s, 2006 194,750
330,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 303,600
100,000 Dura Operating Corp. 144A sr. notes
8 5/8s, 2012 101,500
97,500 Hayes Lemmerz International, Inc.
bank term loan FRN 5.928s, 2009
(acquired 6/03/03, cost $96,525)
(RES) 98,384
345,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 397,613
650,000 Lear Corp. company guaranty Ser. B,
7.96s, 2005 698,750
EUR 110,000 Lear Corp. sr. notes 8 1/8s, 2008 143,835
$215,000 Meritor Automotive, Inc. notes 6.8s,
2009 208,550
340,000 Metaldyne Corp. 144A sr. notes 10s,
2013 331,500
56,681 SPX Corp. bank term loan FRN Ser. B,
3.438s, 2009 (acquired various
dates from 7/23/03 to 8/26/03, cost
$56,681) (RES) 57,091
EUR 200,000 Teksid Aluminum 144A company
guaranty 11 3/8s, 2011 (Luxembourg) 235,947
$260,000 Tenneco Automotive, Inc. company
guaranty Ser. B, 11 5/8s, 2009 269,750
410,000 Tenneco Automotive, Inc. sec. notes
Ser. B, 10 1/4s, 2013 453,050
100,000 TRW Automotive bank term loan FRN
Ser. C-1, 4.116s, 2011 (acquired
7/21/03, cost $100,000) (RES) 100,875
--------------
4,973,342
Basic Materials (5.3%)
- -------------------------------------------------------------------------------
270,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 302,400
75,000 Acetex Corp. 144A sr. notes 10 7/8s,
2009 (Canada) 84,000
280,000 AK Steel Corp. company guaranty
7 7/8s, 2009 196,000
380,000 AK Steel Corp. company guaranty
7 3/4s, 2012 258,400
77,072 Appleton Papers, Inc. bank term loan
FRN Ser. C, 4.376s, 2006 (acquired
6/04/02, cost $77,361) (RES) 77,361
425,000 Appleton Papers, Inc. company
guaranty Ser. B, 12 1/2s, 2008 469,625
200,000 Avecia Group PLC company guaranty
11s, 2009 (United Kingdom) 186,000
315,000 Better Minerals & Aggregates Co.
company guaranty 13s, 2009 198,450
290,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 321,900
584,169 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s, 2008
(acquired various dates from 7/27/01
to 9/03/03, cost $314,392) (RES)
(PIK) 233,668
415,000 Dow Chemical Co. (The) notes 5 3/4s,
2009 434,972
105,000 Equistar Chemical notes 6 1/2s, 2006 103,425
100,000 Equistar Chemicals LP notes 8 3/4s,
2009 99,500
910,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 955,500
210,000 Equistar Chemicals LP/Equistar
Funding Corp. 144A sr. notes
10 5/8s, 2011 219,450
230,000 Georgia-Pacific Corp. bonds 7 3/4s,
2029 217,350
110,000 Georgia-Pacific Corp. company
guaranty 8 7/8s, 2010 125,675
170,000 Georgia-Pacific Corp. debs. 9 1/2s,
2011 197,200
455,000 Georgia-Pacific Corp. debs. 7.7s,
2015 473,200
160,000 Georgia-Pacific Corp. sr. notes
7 3/8s, 2008 170,400
295,000 Gerdau Ameristeel Corp/Gusap
Partners 144A sr. notes 10 3/8s,
2011 (Canada) 308,275
75,000 Graphics Packaging bank term loan
FRN Ser. B, 3.894s, 2010 (acquired
8/06/03, cost $75,000) (RES) 75,581
99,250 Hercules, Inc. bank term loan FRN
Ser. B, 4.372s, 2007 (acquired
12/17/02, cost $99,002) (RES) 99,664
1,015,000 Hercules, Inc. company guaranty
11 1/8s, 2007 1,179,938
300,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 321,375
248,935 Huntsman Corp. bank term loan FRN
Ser. A, 5.957s, 2007 (acquired
various dates from 7/17/02 to
9/24/03, cost $225,152) (RES) 218,025
161,456 Huntsman Corp. bank term loan FRN
Ser. B, 8.938s, 2007 (acquired
various dates from 7/17/02 to
9/24/03, cost $144,050) (RES) 141,409
550,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 523,875
740,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 296,000
EUR 225,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 228,828
$150,000 IMC Global, Inc. company guaranty
Ser. B, 10 7/8s, 2008 154,875
765,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 852,975
50,000 ISP Holdings, Inc. sec. sr. notes
Ser. B, 10 5/8s, 2009 54,500
30,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 25,500
915,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (NON) 137,250
215,000 Louisiana-Pacific Corp. sr. notes
8 7/8s, 2010 252,625
400,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 400,000
70,000 Lyondell Chemical Co. company
guaranty Ser. (a), 9 1/2s, 2008 69,125
435,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 441,525
EUR 425,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 538,188
$45,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 49,950
174,561 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 200,745
EUR 120,000 Messer Griesheim Holdings AG sr.
notes 10 3/8s, 2011 (Germany) 159,003
100,000 Millennium America, Inc. 144A sr.
notes 9 1/4s, 2008 105,750
130,000 Millennium America, Inc. company
guaranty 7 5/8s, 2026 111,150
510,000 Millennium America, Inc. company
guaranty 9 1/4s, 2008 539,325
310,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 322,400
EUR 40,000 Nalco Co. 144A sr. notes 7 3/4s,
2011 47,887
$40,000 Nalco Co. 144A sr. sub. notes 9s,
2013 47,887
280,000 Nalco Co. 144A sr. sub. notes
8 7/8s, 2013 291,200
287,550 Noveon International bonds 13s, 2011 296,177
250,000 Noveon International company
guaranty Ser. B, 11s, 2011 287,500
500,000 OM Group, Inc. company guaranty
9 1/4s, 2011 505,000
485,000 Pacifica Papers, Inc. sr. notes 10s,
2009 (Canada) 514,100
233,383 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 210,045
73,902 Pioneer Cos., Inc. sec. FRN 4.64s,
2006 66,512
430,000 Potlatch Corp. company guaranty 10s,
2011 482,138
265,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 275,600
100,000 Rhodia SA 144A sr. notes 7 5/8s,
2010 (France) 94,000
190,000 Royster-Clark, Inc. 1st mtge.
10 1/4s, 2009 158,650
155,000 Salt Holdings Corp. 144A sr. disc.
notes stepped-coupon zero % (12s,
6/1/06), 2013 (STP) 94,550
420,000 Salt Holdings Corp. 144A sr. notes
stepped-coupon zero % (12 3/4s,
12/15/07), 2012 (STP) 298,200
105,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 110,250
70,000 Solutia, Inc. company guaranty
11 1/4s, 2009 62,300
50,000 Solutia, Inc. debs. 7 3/8s, 2027 30,750
445,000 Solutia, Inc. debs. 6.72s, 2037 373,800
475,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 522,500
76,698 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 72,096
450,000 Stone Container Corp. sr. notes
9 3/4s, 2011 490,500
180,000 Stone Container Corp. sr. notes
9 1/4s, 2008 196,200
240,000 Stone Container Corp. sr. notes
8 3/8s, 2012 253,200
200,000 Tembec Industries, Inc. company
guaranty 8 1/2s, 2011 (Canada) 193,000
30,000 Texas Petrochemical Corp. sr. sub.
notes 11 1/8s, 2006 (In default)
(NON) 8,400
110,000 Texas Petrochemical Corp. sr. sub.
notes Ser. B, 11 1/8s, 2006 (In
default) (NON) 30,800
420,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 465,150
325,000 United States Steel Corp. sr. notes
9 3/4s, 2010 342,875
280,000 WCI Steel, Inc. sr. notes Ser. B,
10s, 2004 (In default) (NON) 84,000
22,000 Weirton Steel Corp. sr. notes 10s,
2008 (In default) (NON) 4,070
380,000 Wheeling-Pittsburgh Steel Corp. sr.
notes 9 1/4s, 2007 (In default)
(NON) 1
21,772 Wheeling-Pittsburgh Steel Corp. sr.
notes 6s, 2010 8,708
43,545 Wheeling-Pittsburgh Steel Corp. sr.
notes 5s, 2011 21,773
230,000 WHX Corp. sr. notes 10 1/2s, 2005 197,800
--------------
20,269,951
Building Materials (0.4%)
- -------------------------------------------------------------------------------
65,000 Atrium Cos., Inc. company guaranty
Ser. B, 10 1/2s, 2009 69,063
180,000 Building Materials Corp. company
guaranty 8s, 2008 177,300
415,000 Dayton Superior Corp. 144A sec.
notes 10 3/4s, 2008 432,638
114,000 NCI Building Systems, Inc. bank term
loan FRN Ser. B, 4.389s, 2008
(acquired 9/04/02, cost $114,000)
(RES) 114,522
250,000 Nortek, Inc. sr. notes Ser. B,
8 7/8s, 2008 260,625
50,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 53,875
170,000 Nortek, Inc. 144A sr. notes Ser. B,
9 1/8s, 2007 175,950
115,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 49,450
460,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 197,800
--------------
1,531,223
Capital Goods (5.1%)
- -------------------------------------------------------------------------------
130,000 Advanced Glass Fiber Yarns bank term
loan FRN Ser. A, 6 1/2s, 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) 1,200
445,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 440,550
520,612 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 15,618
104,277 Alliant Techsystems, Inc. bank term
loan FRN Ser. C, 3.493s, 2009
(acquired 5/07/02, cost $104,277)
(RES) 104,951
82,526 Allied Waste Industries, Inc. bank
term loan FRN 4.393s, 2010
(acquired 4/25/03, cost $82,526)
(RES) 83,610
13,929 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 4.56s, 2010
(acquired 4/25/03, cost $13,929)
(RES) 14,086
780,000 Allied Waste North America, Inc.
company guaranty Ser. B, 9 1/4s,
2012 877,500
250,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 7/8s,
2008 276,250
645,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 706,275
99,750 Amsted Industries bank term loan FRN
5.129s, 2010 (acquired 8/12/03,
cost $99,251) (RES) 100,124
765,000 Argo-Tech Corp. company guaranty
8 5/8s, 2007 757,350
335,000 BE Aerospace, Inc. sr. sub. notes
9 1/2s, 2008 317,413
110,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 99,000
245,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 222,950
120,000 BE Aerospace, Inc. 144A sr. notes
8 1/2s, 2010 123,600
155,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 174,763
465,000 Blount, Inc. company guaranty 13s,
2009 444,075
425,000 Blount, Inc. company guaranty 7s,
2005 418,625
295,000 Briggs & Stratton company guaranty
8 7/8s, 2011 337,775
825,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 775,500
290,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 284,200
EUR 290,000 BSN Financing Co. SA company
guaranty Ser. EUR, 10 1/4s, 2009
(Luxembourg) 356,448
EUR 185,000 BSN Glasspack 144A sec. notes
9 1/4s, 2009 (France) 225,777
$100,000 Crown Cork & Seal Company, Inc. bank
term loan FRN Ser. B, 4.14s, 2008
(acquired 2/21/03, cost $99,000)
(RES) 100,800
290,000 Crown Holdings SA notes 10 7/8s,
2013 (France) 330,600
845,000 Crown Holdings SA notes 9 1/2s, 2011
(France) 937,950
500,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 235,000
74,813 EaglePicher bank term loan FRN
Ser. B, 4.64s, 2009 (acquired
8/06/03, cost $75,250) (RES) 75,529
380,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 413,250
450,000 FIMEP SA sr. notes 10 1/2s, 2013
(France) 524,250
EUR 195,000 Flender Holdings 144A sr. notes 11s,
2010 (Denmark) 246,480
$65,956 Flowserve Corp. bank term loan FRN
Ser. C, 3.927s, 2009 (acquired
4/30/02, cost $65,956) (RES) 66,357
297,000 Flowserve Corp. company guaranty
12 1/4s, 2010 341,550
EUR 50,000 Flowserve Finance BV company
guaranty 12 1/4s, 2010
(Netherlands) 65,670
$50,000 Fonda Group, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 42,500
99,825 Graham Packaging bank term loan FRN
Ser. B, 5.105s, 2010 (acquired
2/18/03, cost $99,325) (RES) 100,249
365,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 380,513
250,000 Insilco Holding Co. sr. disc. notes
zero %, 2008 (In default) (NON) 1,250
EUR 145,000 Invensys, PLC sr. unsub. notes
5 1/2s, 2005 (United Kingdom) 167,185
$230,000 Jordan Industries, Inc. sr. notes
Ser. D, 10 3/8s, 2007 103,500
275,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 308,000
129,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 132,870
120,000 L-3 Communications Corp. company
guaranty 7 5/8s, 2012 130,800
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) 202,140
95,550 Laidlaw International, Inc. bank
term loan FRN 7s, 2009 (acquired
6/18/03, cost $93,639) (RES) 96,297
560,000 Laidlaw International, Inc. 144A sr.
notes 10 3/4s, 2011 604,800
105,000 Legrand SA debs. 8 1/2s, 2025
(France) 110,250
160,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 181,600
EUR 100,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 124,773
$123,376 Michigan Electric Transmission
Co./Michigan Electric Transmission,
Inc. bank term loan FRN Ser. B,
3.62s, 2007 (acquired 4/22/02, cost
$123,376) (RES) 123,787
290,000 Motors and Gears, Inc. sr. notes
Ser. D, 10 3/4s, 2006 243,600
355,000 Owens-Brockway Glass company
guaranty 8 7/8s, 2009 384,288
300,000 Owens-Brockway Glass company
guaranty 8 1/4s, 2013 316,500
280,000 Owens-Brockway Glass company
guaranty 7 3/4s, 2011 295,400
370,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 405,150
55,000 Pliant Corp. company guaranty 13s,
2010 51,975
275,000 Pliant Corp. sec. notes 11 1/8s,
2009 294,250
320,000 Roller Bearing Company of America
company guaranty Ser. B, 9 5/8s,
2007 297,600
630,000 Sequa Corp. sr. notes 9s, 2009 689,850
110,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 118,800
110,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 106,150
195,000 Silgan Holdings, Inc. 144A sr. sub.
notes 6 3/4s, 2013 195,000
295,000 Sweetheart Cup Co. company guaranty
12s, 2004 294,263
275,000 TD Funding Corp. 144A sr. sub. notes
8 3/8s, 2011 292,188
675,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 693,563
100,000 Terex Corp. company guaranty 9 1/4s,
2011 110,250
380,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 425,600
148,128 Titan Corp. (The) bank term loan FRN
Ser. B, 4.435s, 2009 (acquired
various dates from 5/14/02 to
6/03/02, cost $148,753) (RES) 148,128
25,000 Transdigm, Inc. bank term loan FRN
4.13s, 2010 (acquired 7/21/03, cost
$25,000) (RES) 25,234
350,000 Trimas Corp. company guaranty
9 7/8s, 2012 351,750
200,000 Vought Aircraft Industries Inc. 144A
sr. notes 8s, 2011 201,000
--------------
19,554,029
Commercial and Consumer Services (0.3%)
- -------------------------------------------------------------------------------
87,949 Coinmach Corp. bank term loan FRN
Ser. B, 3.966s, 2009 (acquired
1/31/02, cost $87,839) (RES) 88,260
650,000 Coinmach Corp. sr. notes 9s, 2010 711,750
24,938 Corrections Corporation of America
bank term loan FRN Ser. C, 3.88s,
2008 (acquired 8/05/03, cost
$24,938) (RES) 25,187
240,472 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 13,226
DEM 688,142 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 22,492
$50,000 IESI Corp. bank term loan FRN 4.16s,
2010 (acquired various dates from
10/20/03 to 10/21/03, cost $50,281)
(RES) 50,344
345,000 IESI Corp. company guaranty 10 1/4s,
2012 374,325
--------------
1,285,584
Communication Services (4.6%)
- -------------------------------------------------------------------------------
770,000 ACC Escrow Corp. 144A sr. notes 10s,
2011 839,300
340,000 Alamosa Delaware, Inc. company
guaranty 13 5/8s, 2011 326,400
150,000 Alamosa Delaware, Inc. company
guaranty 12 1/2s, 2011 144,000
105,000 American Cellular Corp. company
guaranty 9 1/2s, 2009 (In default)
(NON) 99,750
155,000 American Tower Corp. sr. notes
9 3/8s, 2009 162,750
300,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 43,500
1,005,000 Centennial Cellular Operating Co.
144A sr. notes 10 1/8s, 2013 1,045,200
150,000 Cincinnati Bell, Inc. notes 7 1/4s,
2023 139,500
545,000 Cincinnati Bell, Inc. 144A company
guaranty 7 1/4s, 2013 555,900
235,000 Cincinnati Bell, Inc. 144A sr. sub.
notes 8 3/8s, 2014 242,344
193,432 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 725
30,000 Colt Telecommunications Group PLC
sr. disc. notes 12s, 2006 (United
Kingdom) 30,038
GBP 115,000 Colt Telecommunications Group PLC
sr. notes 10 1/8s, 2007 (United
Kingdom) 195,144
EUR 60,000 Colt Telecommunications Group PLC
sr. notes 7 5/8s, 2009 (United
Kingdom) 65,205
$50,000 Crown Castle International Corp.
bank term loan FRN 4.66s,
2010 (acquired 10/03/03, cost
$50,000) (RES) 50,438
310,000 Crown Castle International Corp. sr.
disc. notes stepped-coupon zero %
(10 3/8s, 5/15/04), 2011 (STP) 317,750
410,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 448,950
50,000 Crown Castle International Corp. sr.
notes 9s, 2011 52,875
50,000 Dobson Communications Corp. bank
term loan FRN 4.41s, 2010 (acquired
10/20/03, cost $50,000) (RES) 50,552
590,000 Dobson Communications Corp. 144A sr.
notes 8 7/8s, 2013 595,900
140,000 Eircom Funding 144A sr. sub. notes
8 1/4s, 2013 (Ireland) 152,250
210,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 225,750
210,000 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 21
180,443 Globix Corp. company guaranty 11s,
2008 (PIK) 153,377
80,000 Horizon PCS, Inc. company guaranty
13 3/4s, 2011 (In default) (NON) 18,400
30,000 Intermedia Communications, Inc. sr.
notes Ser. B, 8.6s, 2008 (In
default) (NON) 28,200
500,000 iPCS, Inc. sr. disc. notes
stepped-coupon zero % (14s,
7/15/05), 2010 (In default) (NON)
(STP) 50,000
273,000 IWO Holdings, Inc. company guaranty
14s, 2011 46,410
40,000 Level 3 Communications, Inc. sr.
notes 9 1/8s, 2008 36,300
835,000 Level 3 Financing Inc. 144A sr.
notes 10 3/4s, 2011 868,400
390,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 417,300
180,000 Metromedia Fiber Network, Inc. sr.
notes 10s, 2009 (In default) (NON) 11,250
420,000 Metromedia Fiber Network, Inc. sr.
notes Ser. B, 10s, 2008 (In default)
(NON) 26,250
418,000 Millicom International Cellular SA
144A sr. notes 11s,
2006 (Luxembourg) 427,405
61,874 Nextel Communications, Inc. bank
term loan FRN Ser. B, 4.563s, 2008
(acquired 12/19/02, cost $57,234)
(RES) 62,046
61,874 Nextel Communications, Inc. bank
term loan FRN Ser. C, 4.813s, 2008
(acquired 12/19/02, cost $57,234)
(RES) 62,046
5,000 Nextel Communications, Inc. sr.
disc. notes 9.95s, 2008 5,263
220,000 Nextel Communications, Inc. sr.
notes 9 1/2s, 2011 247,500
15,000 Nextel Communications, Inc. sr.
notes 9 3/8s, 2009 16,350
795,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 826,800
30,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 34,725
290,000 Nextel Partners, Inc. sr. notes 11s,
2010 321,175
705,000 Nextel Partners, Inc. 144A sr. notes
8 1/8s, 2011 724,388
390,000 Orbital Imaging Corp. sr. notes
Ser. B, 11 5/8s, 2005 (In default)
(NON) 226,200
175,500 PanAmSat Corp. bank term loan FRN
3.66s, 2010 (acquired 10/29/03,
cost $175,500) (RES) 176,816
175,500 PanAmSat Corp. bank term loan FRN
Ser. B, 4.62s, 2009 (acquired
2/21/02, cost $175,281) (RES) 176,221
450,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 484,875
105,625 Qwest Communications International,
Inc. bank term loan FRN Ser. A,
6 1/2s, 2007 (acquired 6/05/03, cost
$104,569) (RES) 108,332
1,105,000 Qwest Corp. 144A notes 8 7/8s, 2012 1,248,650
1,456,000 Qwest Services Corp. 144A notes
13 1/2s, 2010 1,699,880
25,000 Rogers Cantel, Ltd. debs. 9 3/8s,
2008 (Canada) 26,156
145,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 168,200
170,000 Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 152,150
830,000 Telus Corp. notes 8s, 2011 (Canada) 954,225
190,000 Telus Corp. notes 7 1/2s, 2007
(Canada) 211,009
99,250 Time Warner Telecom, Inc. bank term
loan FRN Ser. B, 5.14s,
2009 (acquired 1/15/03, cost
$86,756) (RES) 99,746
300,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 303,000
220,000 U S West, Inc. notes 5 5/8s, 2008 215,600
225,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 (STP) 155,250
505,000 US UnWired, Inc. company guaranty
stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 328,250
580,000 Western Wireless Corp. sr. notes
9 1/4s, 2013 606,100
130,000 Williams Communications Group, Inc.
notes zero %, 2008 (In default)
(NON) 1
110,000 Williams Communications Group, Inc.
notes zero %, 2007 (In default)
(NON) 1
--------------
17,508,489
Conglomerates (0.4%)
- -------------------------------------------------------------------------------
175,000 Tyco International Group SA company
guaranty 7s, 2028 (Luxembourg) 177,625
90,000 Tyco International Group SA company
guaranty 6 3/4s, 2011 (Luxembourg) 95,738
120,000 Tyco International Group SA company
guaranty 6 3/8s, 2005 (Luxembourg) 125,850
915,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 951,600
--------------
1,350,813
Consumer (0.5%)
- -------------------------------------------------------------------------------
570,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 618,450
100,000 Jostens, Inc. bank term loan FRN
Ser. B, 3.64s, 2010 (acquired
7/28/03, cost $100,000) (RES) 100,708
285,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 330,600
900,000 Samsonite Corp. sr. sub. notes
10 3/4s, 2008 945,000
--------------
1,994,758
Consumer Staples (8.0%)
- -------------------------------------------------------------------------------
50,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default)
(NON) 40,500
250,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default)
(NON) 203,750
30,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default)
(NON) 25,200
110,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 89,100
405,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 330,075
EUR 145,000 Ahold Finance USA eurobonds 6 3/8s,
2005 170,977
$350,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 384,125
250,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2011 262,813
375,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2009 387,188
443,940 American Seafood Group, LLC bank
term loan FRN Ser. B, 4.37s, 2009
(acquired 4/11/02, cost $443,496)
(RES) 445,235
106,930 AMF Bowling Worldwide bank term loan
FRN Ser. B, 5.446s, 2008 (acquired
3/1/02, cost $106,663) (RES) 107,242
185,242 Archibald Candy Corp. company
guaranty 10s, 2007 (PIK) 79,654
350,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 386,750
70,000 Aurora Foods, Inc. sr. sub. notes
Ser. B, 9 7/8s, 2007 (In default)
(NON) 48,300
235,000 Aurora Foods, Inc. 144A sr. sub.
notes Ser. D, 9 7/8s, 2007 (In
default) (NON) 162,150
300,000 Brand Services, Inc. company
guaranty 12s, 2012 345,000
900,000 British Sky Broadcasting PLC company
guaranty 6 7/8s, 2009 (United
Kingdom) 992,541
355,000 Capital Records, Inc. 144A company
guaranty 8 3/8s, 2009 362,100
85,962 Carmike Cinemas, Inc. bank term loan
FRN Ser. B, 7 3/4s, 2005 (acquired
10/04/02, cost $83,779) (RES) 86,427
100,000 Century Cable Holdings bank term
loan FRN 6s, 2009 (acquired
6/11/02, cost $80,500) (RES) 91,900
79,395 Charter Communications Holdings, LLC
bank term loan FRN Ser. B, 3.92s,
2008 (acquired 1/09/03, cost
$68,975) (RES) 76,785
225,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 122,063
285,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 167,438
240,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
1/15/05), 2010 (STP) 177,000
810,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 688,500
440,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 371,800
225,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 186,750
955,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 766,388
495,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 398,475
50,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 40,125
350,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 383,250
345,000 Cinemark USA, Inc. sr. sub. notes
Ser. B, 8 1/2s, 2008 358,369
80,000 Constellation Brands, Inc. company
guaranty 8 1/2s, 2009 84,200
210,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 229,950
84,910 Constellation Energy Group, Inc.
bank term loan FRN Ser. B, 3 5/8s,
2008 (acquired various dates from
1/17/02 to 12/17/02, cost $84,910)
(RES) 85,696
300,000 Cott Beverages USA, Inc. company
guaranty 8s, 2011 322,500
1,070,000 CSC Holdings, Inc. sr. notes 7 7/8s,
2007 1,094,075
90,000 Dean Foods Co. sr. notes 6 5/8s,
2009 94,500
120,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 132,600
305,000 Del Monte Corp. 144A sr. sub. notes
8 5/8s, 2012 337,025
115,513 Del Monte Foods Co. bank term loan
FRN Ser. B, 4.914s, 2010 (acquired
12/16/02, cost $114,936) (RES) 116,837
100,000 DirecTV bank term loan FRN Ser. B,
4.004s, 2010 (acquired various
dates from 3/04/03 to 8/05/03, cost
$100,000) (RES) 100,413
695,000 DirecTV Holdings, LLC sr. notes
8 3/8s, 2013 781,875
1,162,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 92,960
430,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 387,000
14,184 Dole Food Co. bank term loan FRN
Ser. B, 5.19s, 2008 (acquired
3/28/03, cost $14,184) (RES) 14,296
145,000 Dole Food Co. sr. notes 8 7/8s, 2011 156,600
105,000 Dole Food Co. sr. notes 7 1/4s, 2009 113,400
365,000 Domino's, Inc. 144A sr. sub. notes
8 1/4s, 2011 385,531
30,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 21,000
786,000 Echostar DBS Corp. sr. notes 9 1/8s,
2009 886,215
890,000 Echostar DBS Corp. 144A sr. notes
6 3/8s, 2011 886,663
62,500 Echostar DBS Corp. 144A sr. notes
FRN 4.41s, 2008 64,219
36,000 Elizabeth Arden, Inc. sec. notes
Ser. B, 11 3/4s, 2011 41,220
99,000 Emmis Communications Corp. bank term
loan FRN Ser. B, 3.38s, 2009
(acquired 6/20/02, cost $98,876)
(RES) 99,894
130,000 Emmis Communications Corp. company
guaranty Ser. B, 8 1/8s, 2009 136,013
35,000 Emmis Communications Corp. sr. disc.
notes stepped-coupon zero %
(12 1/2s, 3/15/06), 2011 (STP) 32,113
355,000 Fleming Cos., Inc. company guaranty
10 1/8s, 2008 (In default) (NON) 55,025
280,000 Fleming Cos., Inc. sr. notes 9 1/4s,
2010 (In default) (NON) 46,200
90,000 French Fragrances, Inc. company
guaranty Ser. D, 10 3/8s, 2007 93,600
75,000 French Fragrances, Inc. sr. notes
Ser. B, 10 3/8s, 2007 78,000
20,000 Granite Broadcasting Corp. sr. sub.
notes 10 3/8s, 2005 19,600
380,000 Granite Broadcasting Corp. sr. sub.
notes 9 3/8s, 2005 370,500
385,000 Granite Broadcasting Corp. sr. sub.
notes 8 7/8s, 2008 369,600
220,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 243,100
35,000 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 3.938s,
2009 (acquired 11/5/01, cost
$34,934) (RES) 35,137
18,258 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 18,258
305,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 260,775
205,000 Mediacom LLC/Mediacom Capital Corp.
sr. notes 9 1/2s, 2013 194,750
490,000 News America Holdings, Inc. company
guaranty 9 1/4s, 2013 631,003
30,743 Nexstar Broadcasting bank term loan
FRN Ser. B, 4.12s, 2011 (acquired
2/05/03, cost $30,743) (RES) 30,852
13,007 Nexstar Mission Broadcasting bank
term loan FRN 4.12s, 2011 (acquired
2/05/03, cost $13,007) (RES) 13,053
610,000 North Atlantic Trading Co. company
guaranty Ser. B, 11s, 2004 582,550
270,000 Olympus Cable bank term loan FRN
Ser. B, 6s, 2010 (acquired 3/10/03,
cost $270,000) (RES) 253,125
125,000 ONO Finance PLC sr. notes 14s, 2011
(United Kingdom) 113,906
55,000 ONO Finance PLC sr. notes 13s, 2009
(United Kingdom) 49,569
EUR 80,000 ONO Finance PLC sr. notes Ser. REGS,
14s, 2011 (United Kingdom) 84,615
$60,000 Pegasus Communications Corp. sr.
notes Ser. B, 9 3/4s, 2006 48,600
210,000 Pegasus Satellite sr. notes 12 3/8s,
2006 176,400
98,500 Playtex Products, Inc. bank term
loan FRN Ser. C, 4.658s,
2009 (acquired 6/03/02, cost
$98,500) (RES) 98,213
855,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 844,313
250,000 Polaroid Corp. sr. notes 11 1/2s,
2006 (In default) (NON) 55,000
350,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 385,875
220,000 Premier Parks, Inc. sr. notes 10s,
2007 223,300
265,000 Premium Standard Farms, Inc. sr.
notes 9 1/4s, 2011 268,975
1,030,516 Quorum Broadcast Holdings, LLC notes
stepped-coupon zero % (15s,
5/15/06), 2009 (STP) 772,165
89,000 Rayovac Corp. bank term loan FRN
Ser. B, 4.877s, 2009 (acquired
9/26/02, cost $88,911) (RES) 89,185
210,000 RCN Corp. sr. disc. notes Ser. B,
zero %, 2008 92,400
215,000 Regal Cinemas, Inc. company guaranty
Ser. B, 9 3/8s, 2012 242,950
385,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 402,806
245,000 Revlon Consumer Products sr. notes
9s, 2006 164,150
195,000 Revlon Consumer Products sr. notes
8 1/8s, 2006 128,700
GBP 50,000 RHM Finance, Ltd. bonds
stepped-coupon Ser. B1, 11 1/2s
(17 1/4s, 2/28/11), 2011 (Cayman
Islands) (STP) 75,512
$65,000 Rite Aid Corp. bank term loan FRN
Ser. B, 4.12s, 2008 (acquired
5/16/03, cost $64,919) (RES) 65,853
305,000 Rite Aid Corp. company guaranty
9 1/2s, 2011 343,125
20,000 Rite Aid Corp. debs. 6 7/8s, 2013 19,000
40,000 Rite Aid Corp. notes 7 1/8s, 2007 40,400
205,000 Rite Aid Corp. sec. notes 8 1/8s,
2010 219,350
340,000 Rite Aid Corp. sr. notes 9 1/4s,
2013 365,500
20,000 Rite Aid Corp. 144A notes 6s, 2005 19,950
300,000 Rogers Cablesystems, Ltd. sr. notes
Ser. B, 10s, 2005 (Canada) 322,500
385,000 Sbarro, Inc. company guaranty 11s,
2009 333,506
50,000 Scotts Co. (The) bank term loan FRN
3 1/8s, 2010 (acquired 10/16/03,
cost $50,000) (RES) 50,607
140,000 Scotts Co. (The) 144A 6 5/8s, 2013 141,750
170,000 Sinclair Broadcast Group, Inc.
company guaranty 8 3/4s, 2011 186,150
205,000 Sinclair Broadcast Group, Inc.
company guaranty 8s, 2012 216,275
46,875 Six Flags, Inc. bank term loan FRN
Ser. B, 3.37s, 2009 (acquired
1/15/03, cost $46,816) (RES) 46,758
1,265,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 1,201,750
590,000 TeleWest Communications PLC debs.
11s, 2007 (United Kingdom) (In
default) (NON) 320,075
190,000 TeleWest Communications PLC debs.
9 5/8s, 2006 (United Kingdom) (In
default) (NON) 100,700
130,000 TeleWest Communications PLC sr.
notes Ser. S, 9 7/8s, 2010 (United
Kingdom) (In default) (NON) 68,250
50,000 TeleWest Communications PLC 144A sr.
notes 11 1/4s, 2008 (United Kingdom)
(In default) (NON) 27,000
30,000 TM Group Holdings sr. notes 11s,
2008 (United Kingdom) 31,650
160,000 United Rentals (North America), Inc.
company guaranty Ser. B, 10 3/4s,
2008 179,200
65,000 Vivendi Universal SA bank term loan
FRN Ser. B, 3.912s, 2008 (acquired
6/23/03, cost $65,000) (France)
(RES) 65,358
540,000 Vivendi Universal SA 144A notes
6 1/4s, 2008 (France) 564,300
355,000 Vivendi Universal SA 144A sr. notes
9 1/4s, 2010 (France) 412,688
390,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 395,850
754,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 803,010
48,000 Young Broadcasting, Inc. company
guaranty Ser. B, 8 3/4s, 2007 48,360
20,000 Yum! Brands, Inc. sr. notes 8 7/8s,
2011 23,800
140,000 Yum! Brands, Inc. sr. notes 8 1/2s,
2006 155,750
255,000 Yum! Brands, Inc. sr. notes 7.7s,
2012 287,513
325,000 Yum! Brands, Inc. sr. notes 7.65s,
2008 364,000
--------------
30,466,505
Energy (5.1%)
- -------------------------------------------------------------------------------
430,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 445,050
375,000 Belden & Blake Corp. company
guaranty Ser. B, 9 7/8s, 2007 354,375
350,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 380,625
180,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 205,200
40,000 Chesapeake Energy Corp. company
guaranty 8 3/8s, 2008 43,800
140,000 Chesapeake Energy Corp. company
guaranty 8 1/8s, 2011 153,650
685,000 Chesapeake Energy Corp. 144A sr.
notes 7 1/2s, 2013 736,375
470,000 Comstock Resources, Inc. company
guaranty 11 1/4s, 2007 509,950
380,000 Dresser, Inc. company guaranty
9 3/8s, 2011 390,450
115,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 125,350
295,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 317,125
330,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 343,613
560,000 Forest Oil Corp. sr. notes 8s, 2011 600,600
115,000 Forest Oil Corp. sr. notes 8s, 2008 123,050
200,000 Gazprom OAO notes Ser. REGS, 9 5/8s,
2013 (Russia) 217,000
560,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Russia) 607,600
235,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 259,675
160,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 160,800
40,000 Leviathan Gas Corp. company guaranty
Ser. B, 10 3/8s, 2009 43,400
380,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 416,100
255,000 Offshore Logistics, Inc. company
guaranty 6 1/8s, 2013 244,800
50,000 Parker Drilling Co. bank term loan
FRN 5.41s, 2007 (acquired 10/22/03,
cost $49,500) (RES) 50,156
290,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 301,600
48,506 Peabody Energy Corp. bank term loan
FRN Ser. B, 3.638s, 2010 (acquired
3/20/03, cost $48,506) (RES) 48,931
595,000 Pemex Project Funding Master Trust
company guaranty 8 5/8s, 2022 638,138
720,000 Pemex Project Funding Master Trust
company guaranty 7 3/8s, 2014 752,400
630,000 Petroleos Mexicanos company guaranty
9 1/2s, 2027 (Mexico) 719,775
470,000 Petroleos Mexicanos company guaranty
9 1/4s, 2018 (Mexico) 540,500
550,000 Petronas Capital, Ltd. company
guaranty 7 7/8s, 2022 (Malaysia) 623,590
125,000 Petronas Capital, Ltd. company
guaranty 7s, 2012 (Malaysia) 139,225
895,000 Petronas Capital, Ltd. 144A company
guaranty 7 7/8s, 2022 (Malaysia) 1,014,751
440,000 Petronas Capital, Ltd. 144A company
guaranty 7s, 2012 (Malaysia) 490,072
1,230,000 Pioneer Natural Resources Co.
company guaranty 9 5/8s, 2010 1,496,924
60,000 Pioneer Natural Resources Co.
company guaranty 7.2s, 2028 62,298
205,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 226,525
310,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 337,900
260,000 Plains Exploration & Production Co.
sr. sub. notes 8 3/4s, 2012 283,400
350,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 386,750
209,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 215,793
320,000 Seabulk International, Inc. 144A sr.
notes 9 1/2s, 2013 329,600
170,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default)
(NON) 2,243
400,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 430,000
198,462 Star Gas Propane 1st Mtge. 8.04s,
2009 198,084
380,000 Stone Energy Corp. sr. sub. notes
8 1/4s, 2011 406,600
180,000 Swift Energy Co. sr. sub. notes
10 1/4s, 2009 192,600
250,000 Swift Energy Co. sr. sub. notes
9 3/8s, 2012 266,250
190,000 Tesoro Petroleum Corp. sec. notes
8s, 2008 201,400
120,000 Tom Brown Inc. unit 7 1/4s, 2013 125,400
500,000 Trico Marine Services, Inc. company
guaranty 8 7/8s, 2012 340,000
80,000 Universal Compression, Inc. sr.
notes 7 1/4s, 2010 83,200
170,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 186,150
320,000 Vintage Petroleum, Inc. sr. sub.
notes 9 3/4s, 2009 340,000
80,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 84,600
65,000 Weg Acquistion bank term loan FRN
5.61s, 2008 (acquired 6/13/03, cost
$64,350) (RES) 65,488
500,000 Westport Resources Corp. company
guaranty 8 1/4s, 2011 551,250
150,000 Westport Resources Corp. 144A
company guaranty 8 1/4s, 2011 165,375
205,000 XTO Energy, Inc. sr. notes 7 1/2s,
2012 223,450
165,000 XTO Energy, Inc. sr. notes 6 1/4s,
2013 172,219
--------------
19,371,225
Financial (1.8%)
- -------------------------------------------------------------------------------
580,000 Advanta Corp. 144A company guaranty
Ser. B, 8.99s, 2026 371,200
520,000 Chevy Chase Savings Bank, Inc. sub.
debs. 9 1/4s, 2005 522,600
200,000 Conseco, Inc. 144A notes zero %,
2009 (In default) (NON) 1
165,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 169,125
420,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 453,600
1,182,000 Finova Group, Inc. notes 7 1/2s,
2009 591,000
109,806 Hilb, Rogal & Hamilton Co. bank term
loan FRN Ser. B, 3.938s, 2007
(acquired 6/20/02, cost $109,806)
(RES) 110,767
96,403 Infinity Inc. bank term loan FRN
3.64s, 2010 (acquired 7/02/03, cost
$96,403) (RES) 96,965
445,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 502,850
70,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 74,900
129,000 Nationwide Credit, Inc. sr. notes
Ser. A, 10 1/4s, 2008 (In default)
(NON) 1
DKK 12,500,000 Realkredit Danmark A/S mtge. Ser.
23D, 5s, 2035 (Denmark) 1,855,654
$415,000 Resource America, Inc. 144A sr.
notes 12s, 2004 419,150
1,125,000 Sovereign Bancorp, Inc. sr. notes
10 1/2s, 2006 1,335,164
290,000 Western Financial Bank sub. debs.
9 5/8s, 2012 319,725
--------------
6,822,702
Gaming & Lottery (2.8%)
- -------------------------------------------------------------------------------
265,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 305,413
235,000 Argosy Gaming Co. company guaranty
10 3/4s, 2009 257,031
90,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 99,225
70,000 Borgata Resorts bank term loan FRN
Ser. B, 5.137s, 2007 (acquired
6/05/02, cost $69,825) (RES) 70,613
400,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 434,000
190,000 Chumash Casino & Resort Enterprise
144A sr. notes 9 1/4s, 2010 209,475
480,000 Herbst Gaming, Inc. sec. notes
Ser. B, 10 3/4s, 2008 536,400
335,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 342,119
490,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 521,850
295,000 Inn of the Mountain Gods 144A sr.
notes 12s, 2010 308,275
235,000 Mandalay Resort Group 144A sr. notes
6 1/2s, 2009 242,344
1,050,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 1,190,438
260,000 Mirage Resorts, Inc. notes 6 3/4s,
2008 273,975
30,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 32,588
100,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 109,250
685,000 Mohegan Tribal Gaming Authority 144A
sr. sub. notes 6 3/8s, 2009 701,269
550,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 597,438
205,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 213,713
200,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 222,250
60,000 Park Place Entertainment Corp. sr.
sub. notes 8 1/8s, 2011 65,550
99,500 Penn National Gaming, Inc. bank term
loan FRN Ser. B, 4.642s, 2010
(acquired 2/19/03, cost $99,376)
(RES) 100,072
255,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 287,513
500,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 544,375
64,838 Pinnacle Entertainment, Inc. bank
term loan FRN Ser. B, 5.745s, 2008
(acquired 9/19/03, cost $196,738)
(RES) 65,162
200,000 Pinnacle Entertainment, Inc. sr.
sub. notes 8 3/4s, 2013 200,000
305,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 315,675
305,000 Riviera Holdings Corp. company
guaranty 11s, 2010 311,100
124,063 Scientific Gaming bank term loan FRN
Ser. B, 4.62s, 2008 (acquired
12/11/02, cost $123,442) (RES) 124,295
405,000 Station Casinos, Inc. sr. notes
8 3/8s, 2008 439,425
380,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 286,900
830,000 Trump Casino Holdings, LLC company
guaranty 11 5/8s, 2010 731,438
515,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 594,181
--------------
10,733,352
Health Care (3.6%)
- -------------------------------------------------------------------------------
27,113 ALARIS Medical Systems, Inc. bank
term loan FRN Ser. B, 3.87s, 2009
(acquired 6/30/03, cost $27,113)
(RES) 27,384
275,000 ALARIS Medical Systems, Inc. sr.
sub. notes 7 1/4s, 2011 280,500
47,880 Alderwoods Group, Inc. bank term
loan FRN 4.372s, 2008 (acquired
9/09/03, cost $47,880) (RES) 48,448
745,400 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 831,121
374,000 Alliance Imaging, Inc. sr. sub.
notes 10 3/8s, 2011 395,505
315,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 324,450
310,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 335,575
535,000 Ardent Health Services 144A sr. sub.
notes 10s, 2013 572,450
62,500 Beverly Enterprises, Inc. bank term
loan FRN 4.41s, 2008 (acquired
10/20/03, cost $62,500) (RES) 63,125
470,000 Biovail Corp. sr. sub. notes 7 7/8s,
2010 (Canada) 458,250
148,500 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.64s, 2010
(acquired 7/11/02, cost $148,500)
(RES) 149,614
99,750 Concentra bank term loan FRN 4.92s,
2009 (acquired 8/12/03, cost
$99,750) (RES) 100,623
100,000 Dade Behring, Inc. company guaranty
11.91s, 2010 113,250
99,731 DaVita, Inc. bank term loan FRN
Ser. C, 3.616s, 2009 (acquired
7/17/03, cost $99,731) (RES) 100,437
270,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 297,000
67,627 Fisher Scientific International,
Inc. bank term loan FRN
Ser. B, 3.638s, 2010 (acquired
2/13/03, cost $67,627) (RES) 68,050
50,000 Hanger Orthopedic Group, Inc. bank
term loan FRN 3.87s, 2009 (acquired
9/29/03, cost $50,000) (RES) 50,375
325,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 367,250
115,000 HCA, Inc. debs. 7.19s, 2015 118,832
640,000 HCA, Inc. notes 8.36s, 2024 685,558
150,000 HCA, Inc. notes 7.69s, 2025 152,202
445,000 HCA, Inc. notes 7s, 2007 478,989
600,000 Healthsouth Corp. notes 7 5/8s, 2012 522,000
255,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 225,675
130,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 115,050
110,000 Healthsouth Corp. sr. notes 7s, 2008 95,700
215,000 IASIS Healthcare Corp. company
guaranty 13s, 2009 241,338
45,000 IASIS Healthcare Corp. company
guaranty 8 1/2s, 2009 47,025
490,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/2s, 2007 (In
default) (NON) 1
250,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/4s, 2008 (In
default) (NON) 1
74,813 Kinetic Concepts, Inc. bank term
loan FRN Ser. B, 3.89s,
2011 (acquired 8/05/03, cost
$74,984) (RES) 75,325
775,000 Magellan Health Services, Inc. sr.
sub. notes 9s, 2008 (In default)
(NON) 441,750
140,000 Magellan Health Services, Inc. 144A
sr. notes 9 3/8s, 2007 (In default)
(NON) 152,600
81,047 Medex, Inc. bank term loan FRN
Ser. B, 4s, 2009 (acquired
various dates from 5/16/03 to
6/16/03, cost $81,007) (RES) 81,385
380,000 Mediq, Inc. debs. zero %, 2009 (In
default) (NON) 38
495,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 534,600
1,080,000 Multicare Companies, Inc. sr. sub.
notes 9s, 2007 (In default) (NON) 16,200
195,000 NeighborCare, Inc. 144A sr. sub.
notes 6 7/8s, 2013 198,169
405,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 399,938
610,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 703,025
360,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 360,000
70,000 Service Corp. International debs.
7 7/8s, 2013 68,425
40,000 Service Corp. International notes
7.2s, 2006 40,700
15,000 Service Corp. International notes
6 7/8s, 2007 15,225
60,000 Service Corp. International notes
6 1/2s, 2008 60,150
790,000 Service Corp. International notes
6s, 2005 795,925
145,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 150,438
390,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 440,700
40,000 Tenet Healthcare Corp. notes 7 3/8s,
2013 38,800
10,000 Tenet Healthcare Corp. sr. notes
6 1/2s, 2012 9,275
320,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 296,800
45,000 Tenet Healthcare Corp. sr. notes
5 3/8s, 2006 43,200
1,085,000 Triad Hospitals Holdings company
guaranty Ser. B, 11s, 2009 1,193,500
285,000 Universal Hospital Services, Inc.
144A sr. notes 10 1/8s, 2011 297,825
165,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 183,150
--------------
13,862,921
Homebuilding (1.0%)
- -------------------------------------------------------------------------------
240,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 262,200
80,000 Beazer Homes USA, Inc. company
guaranty 8 3/8s, 2012 87,600
350,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 388,500
100,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 105,250
325,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 318,500
250,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 295,938
310,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 337,900
100,000 K. Hovnanian Enterprises, Inc.
company guaranty 8s, 2012 108,500
160,000 K. Hovnanian Enterprises, Inc. sr.
notes 6 1/2s, 2014 159,200
140,000 KB Home sr. sub. notes 9 1/2s, 2011 155,400
160,000 Meritage Corp. 144A sr. notes
9 3/4s, 2011 177,600
335,000 Ryland Group, Inc. sr. notes 9 3/4s,
2010 385,250
210,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 239,663
100,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 109,500
205,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 218,581
290,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 317,550
--------------
3,667,132
Household Furniture and Appliances (0.2%)
- -------------------------------------------------------------------------------
430,000 Sealy Mattress Co. company guaranty
Ser. B, 10 7/8s 2007 449,350
430,000 Sealy Mattress Co. sr. sub. notes
Ser. B, 9 7/8s, 2007 442,900
--------------
892,250
Lodging/Tourism (1.6%)
- -------------------------------------------------------------------------------
390,000 FelCor Lodging LP company guaranty
9 1/2s, 2008 (R) 423,150
275,000 Gaylord Entertainment Co. 144A sr.
notes 8s, 2013 281,875
455,000 Hilton Hotels Corp. notes 7 5/8s,
2012 502,775
2,290,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 2,364,425
151,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 160,438
390,000 Host Marriott LP 144A sr. notes
7 1/8s, 2013 390,000
320,000 ITT Corp. notes 6 3/4s, 2005 337,600
870,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 950,475
165,000 Meristar Hospitality Corp. company
guaranty 9 1/8s, 2011 (R) 174,488
360,000 RFS Partnership LP company guaranty
9 3/4s, 2012 385,200
50,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 55,250
210,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 226,275
--------------
6,251,951
Publishing (2.2%)
- -------------------------------------------------------------------------------
23,098 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.188s, 2009
(acquired 5/27/03, cost $23,040)
(RES) 23,112
57,746 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.152s, 2009
(acquired 5/27/03, cost $57,601)
(RES) 57,782
658,000 Affinity Group Holdings sr. notes
11s, 2007 674,450
96,667 Dex Media West, LLC bank term loan
FRN 3.891s, 2010 (acquired 9/09/03,
cost $96,667) (RES) 97,553
600,000 Dex Media West, LLC 144A sr. notes
8 1/2s, 2010 654,000
290,000 Garden State Newspapers, Inc. sr.
sub. notes 8 5/8s, 2011 305,225
70,000 Garden State Newspapers, Inc. sr.
sub. notes Ser. B, 8 3/4s, 2009 72,188
245,000 Hollinger International Publishing,
Inc. sr. notes 9s, 2010 259,700
820,595 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 943,684
290,000 Key3media Group, Inc. company
guaranty 11 1/4s, 2011 (In default)
(NON) 2,900
64,838 Moore Wallace bank term loan FRN
Ser. B, 3.638s, 2010 (acquired
3/13/03, cost $64,838) (RES) 65,141
94,239 PRIMEDIA, Inc. bank term loan FRN
Ser. B, 3.924s, 2009 (acquired
2/10/03, cost $90,234) (RES) 92,678
590,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 609,175
180,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 179,100
435,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 443,700
10,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 8,650
620,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 714,550
124,060 RH Donnelley Finance Corp. I bank
term loan FRN Ser. B, 5.147s, 2010
(acquired 12/04/02, cost $124,060)
(RES) 126,093
70,000 RH Donnelley Finance Corp. I company
guaranty 8 7/8s, 2010 78,488
500,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 560,625
250,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 298,125
83,800 Sum Media bank term loan FRN Ser. B,
3.61s, 2009 (acquired 2/04/03, cost
$83,800) (RES) 84,036
470,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 482,925
390,000 Vertis, Inc. sub. notes 13 1/2s,
2009 358,800
245,000 Vertis, Inc. 144A sec. notes 9 3/4s,
2009 260,313
155,000 Videotron Ltee 144A notes 6 7/8s,
2014 (Canada) 160,038
270,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 290,250
170,000 Von Hoffman Press, Inc. company
guaranty FRN 10 3/8s, 2007 174,250
193,854 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 180,284
100,000 Von Hoffman Press, Inc. 144A company
guaranty 10 1/4s, 2009 107,750
36,000 Yell Finance BV sr. notes 10 3/4s,
2011 (Netherlands) 41,670
--------------
8,407,235
Retail (1.0%)
- -------------------------------------------------------------------------------
43,527 Advance Stores bank term loan FRN
Ser. C, 3.99s, 2007 (acquired
3/04/03, cost $43,527) (RES) 43,826
240,000 Asbury Automotive Group, Inc.
company guaranty 9s, 2012 249,600
475,000 Autonation, Inc. company guaranty
9s, 2008 541,500
180,000 Gap, Inc. (The) notes 6.9s, 2007 195,750
200,000 Hollywood Entertainment Corp. sr.
sub. notes 9 5/8s, 2011 217,000
445,000 J. Crew Operating Corp. 144A sr.
sub. notes 10 3/8s, 2007 458,350
620,000 JC Penney Co., Inc. debs. 7.95s,
2017 664,950
95,000 JC Penney Co., Inc. debs. 7.65s,
2016 100,225
15,000 JC Penney Co., Inc. notes 8s, 2010 16,688
170,000 JC Penney Co., Inc. notes Ser. MTNA,
7.05s, 2005 179,350
109,414 PETCO Animal Supplies, Inc. bank
term loan FRN Ser. D, 3.64s, 2009
(acquired 8/06/03, cost $109,414)
(RES) 110,508
750,000 Saks, Inc. company guaranty 8 1/4s,
2008 847,500
270,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 298,350
--------------
3,923,597
Technology (1.7%)
- -------------------------------------------------------------------------------
242,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 280,115
80,844 Amkor Technologies, Inc. bank term
loan FRN 5.12s, 2006 (acquired
4/17/03, cost $81,088) (RES) 81,804
210,000 Amkor Technologies, Inc. structured
notes 12.58s, 2005 (issued by
STEERS Credit Linked Trust 2000) 220,500
105,000 Avaya, Inc. sec. sr. notes 11 1/8s,
2009 123,375
269,000 DigitalNet Holdings Inc. 144A sr.
notes 9s, 2010 293,210
EUR 460,000 Getronics NV sub. notes 13s, 2008
(Netherlands) 264,656
$130,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 141,375
94,000 Iron Mountain, Inc. company guaranty
8 1/8s, 2008 (Canada) 97,995
720,000 Iron Mountain, Inc. sr. sub. notes
8 1/4s, 2011 750,600
40,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 31,000
555,000 Lucent Technologies, Inc. debs.
6.45s, 2029 428,738
30,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 27,900
570,000 Nortel Networks Corp. notes 6 1/8s,
2006 (Canada) 583,538
425,000 ON Semiconductor Corp. company
guaranty 13s, 2008 493,000
305,000 SCG Holding & Semiconductor Corp.
company guaranty 12s, 2009 324,825
335,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 364,313
84,588 Telex Communications Group, Inc. sr.
sub. notes Ser. A, zero %, 2006 46,523
100,000 Xerox Capital Europe PLC company
guaranty 5 7/8s, 2004 (United
Kingdom) 101,000
420,000 Xerox Capital Trust I company
guaranty 8s, 2027 380,100
110,000 Xerox Corp. company guaranty 9 3/4s,
2009 124,575
215,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 209,625
EUR 100,000 Xerox Corp. sr. notes 9 3/4s, 2009 128,434
$575,000 Xerox Corp. sr. notes 7 5/8s, 2013 586,500
430,000 Xerox Corp. sr. notes 7 1/8s, 2010 439,675
--------------
6,523,376
Textiles (0.4%)
- -------------------------------------------------------------------------------
300,000 Galey & Lord, Inc. company guaranty
9 1/8s, 2008 (In default) (NON) 2,250
160,000 Levi Strauss & Co. bank term loan
FRN Ser. B, 10s, 2009 (acquired
9/23/03, cost $160,000) RES) 165,467
505,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 419,150
245,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 263,681
360,000 Russell Corp. company guaranty
9 1/4s, 2010 377,100
330,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 372,900
--------------
1,600,548
Tire & Rubber (0.1%)
- -------------------------------------------------------------------------------
120,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 102,600
Transportation (1.2%)
- -------------------------------------------------------------------------------
240,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 225,600
295,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 259,600
40,000 American Airlines, Inc. pass-through
certificates Ser. 99-1, 7.024s,
2009 40,600
530,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 466,400
170,000 Continental Airlines, Inc.
pass-through certificates Ser. D,
7.568s, 2006 136,000
510,000 CSX Corp. notes 6 1/4s, 2008 559,805
210,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s,
2005 191,846
138,285 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s,
2012 118,234
500,000 Evergreen International Aviation,
Inc. 144A sec. notes 12s, 2010 440,000
EUR 200,000 Fixed-Link Finance BV sec. notes
Ser. B2-X, 7.85s, 2009
(Netherlands) 153,424
$500,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 555,000
100,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 103,750
380,000 Navistar International Corp. company
guaranty Ser. B, 9 3/8s, 2006 418,000
85,000 Navistar International Corp. sr.
notes Ser. B, 8s, 2008 86,275
115,000 Northwest Airlines, Inc. company
guaranty 8 3/8s, 2004 115,000
310,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 294,500
134,585 NWA Trust sr. notes Ser. A, 9 1/4s,
2012 138,117
101,260 Pacer International, Inc. bank term
loan FRN 4.477s, 2010 (acquired
6/10/03, cost $101,742) (RES) 102,019
100,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 115,000
179,561 US Air, Inc. pass-through
certificates Ser. 93-A2,
9 5/8s, 2004 (In default) (NON) 62,846
113,407 US Air, Inc. pass-through
certificates Ser. 93-A3,
10 3/8s, 2013 (In default) (NON) 39,693
--------------
4,621,709
Utilities & Power (4.0%)
- -------------------------------------------------------------------------------
30,000 AES Corp. (The) sr. notes 8 7/8s,
2011 30,825
17,000 AES Corp. (The) sr. notes 8 3/4s,
2008 17,553
420,000 AES Corp. (The) 144A sec. notes 9s,
2015 449,925
595,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 635,163
505,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 470,913
180,000 Allegheny Energy, Inc. notes 7 3/4s,
2005 182,700
230,000 Avon Energy Partners Holdings 144A
notes 7.05s, 2007 (United Kingdom) 194,350
20,000 Avon Energy Partners Holdings 144A
notes 6.46s, 2008 (United Kingdom) 17,885
235,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 172,138
124,688 Calpine Corp. bank term loan FRN
6.9s, 2007 (acquired 7/11/03, cost
$124,688) (RES) 116,411
210,000 Calpine Corp. sr. notes 8 1/2s, 2011 150,150
685,000 Calpine Corp. sr. notes 7 7/8s, 2008 482,925
225,000 Calpine Corp. sr. notes 7 5/8s, 2006 182,250
1,050,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 960,750
150,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 160,909
120,000 CenterPoint Energy Resources Corp.
144A notes 7 7/8s, 2013 136,354
80,000 CMS Energy Corp. pass-through
certificates 7s, 2005 80,800
500,000 CMS Energy Corp. sr. notes 8.9s,
2008 527,500
120,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 125,400
100,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 102,250
160,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 139,200
980,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 1,063,300
20,000 Dynegy-Roseton Danskamme company
guaranty Ser. A, 7.27s, 2010 19,400
65,000 Dynegy-Roseton Danskamme company
guaranty Ser. B, 7.67s, 2016 57,850
145,000 Edison Mission Energy sr. notes 10s,
2008 134,850
200,000 Edison Mission Energy sr. notes
9 7/8s, 2011 184,000
170,000 Edison Mission Energy sr. notes
7.73s, 2009 145,350
80,000 El Paso CGP Co. notes 6 3/8s, 2009 65,000
360,000 El Paso Corp. sr. notes 7 3/8s, 2012 297,000
225,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 170,438
105,000 El Paso Natural Gas Co. debs.
8 5/8s, 2022 100,275
90,000 El Paso Natural Gas Co. sr. notes
Ser. A, 7 5/8s, 2010 88,650
500,000 El Paso Production Holding Co. 144A
sr. notes 7 3/4s, 2013 480,000
50,000 Gemstone Investor, Ltd. 144A company
guaranty 7.71s, 2004 50,063
115,000 Kansas Gas & Electric debs. 8.29s,
2016 120,319
91,644 Midland Funding II Corp. debs.
Ser. A, 11 3/4s, 2005 101,725
210,000 Midwest Generation LLC pass-through
certificates Ser. A, 8.3s, 2009 205,800
150,000 Mirant Americas Generation, Inc. sr.
notes 8.3s, 2011 (In default) (NON) 124,500
115,000 Mirant Americas Generation, Inc. sr.
notes 7 5/8s, 2006 (In default)
(NON) 95,450
150,000 Mirant Americas Generation, Inc. sr.
notes 7.2s, 2008 (In default) (NON) 124,500
150,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 99,750
360,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 382,500
206 Northeast Utilities notes Ser. A,
8.58s, 2006 225
185,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 203,963
185,000 Northwestern Corp. notes 7 7/8s,
2007 (In default) (NON) 165,575
205,000 Orion Power Holdings, Inc. sr. notes
12s, 2010 235,750
200,000 Pacific Gas & Electric Co. 144A sr.
notes 7 3/8s, 2005 (In default)
(NON) 204,000
460,000 PG&E Corp. 144A sec. notes 6 7/8s,
2008 487,600
85,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 86,386
330,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 333,300
260,000 SEMCO Energy, Inc. 144A sr. notes
7 3/4s, 2013 267,800
490,000 Southern California Edison Co. 1st
mtge. 8s, 2007 550,025
50,000 Southern California Edison Co. notes
6 3/8s, 2006 52,375
170,000 Teco Energy, Inc. notes 10 1/2s,
2007 191,675
100,000 Teco Energy, Inc. notes 7.2s, 2011 100,750
255,000 Teco Energy, Inc. notes 7s, 2012 251,813
205,000 Teco Energy, Inc. sr. notes 7 1/2s,
2010 210,638
40,000 Tennessee Gas Pipeline Co. debs. 7s,
2028 35,700
355,000 Utilicorp Canada Finance Corp.
company guaranty 7 3/4s, 2011
(Canada) 330,150
320,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 365,600
80,000 Williams Cos., Inc. (The) notes
8 3/4s, 2032 83,600
80,000 Williams Cos., Inc. (The) notes
8 1/8s, 2012 86,400
290,000 Williams Cos., Inc. (The) notes
6 1/2s, 2006 298,700
400,000 Williams Cos., Inc. (The) notes
Ser. A, 6 3/4s, 2006 412,000
380,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 416,100
200,000 Williams Holdings Of Delaware notes
6 1/2s, 2008 202,000
64,838 Williams Products bank term loan FRN
4.9s, 2007 (acquired 6/04/03, cost
$64,838) (RES) 65,364
537,243 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 376,070
--------------
15,460,630
--------------
Total Corporate bonds and notes
(cost $197,520,823) $201,727,119
Foreign government bonds and notes (17.3%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
EUR 2,000,000 Austria (Republic of) notes Ser. E
MTN, 3.8s, 2013 $2,219,761
$1,025,000 Brazil (Federal Republic of) bonds
10 1/8s, 2027 962,475
585,000 Brazil (Federal Republic of) bonds
2.188s, 2012 493,623
410,000 Brazil (Federal Republic of) notes
9 1/4s, 2010 412,050
820,000 Brazil (Federal Republic of) unsub.
10s, 2011 840,500
505,000 Bulgaria (Republic of) bonds 1.938s,
2024 498,688
1,436,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 1,629,860
CAD 4,650,000 Canada (Government of) bonds 6s,
2011 3,828,249
CAD 1,005,000 Canada (Government of) bonds 5 1/2s,
2010 806,044
CAD 410,000 Canada (Government of) bonds
Ser. WL43, 5 3/4s, 2029 327,403
$500,000 Chile (Republic of) bonds 5 1/2s,
2013 511,250
191,151 Colombia (Republic of) bank guaranty
9 3/4s, 2011 211,700
945,000 Colombia (Republic of) bonds
10 3/8s, 2033 949,725
245,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 263,743
1,725,000 Colombia (Republic of) notes
10 3/4s, 2013 1,897,500
EUR 335,000 Colombia (Republic of) unsub. bonds
Ser. 15A, 11 3/8s, 2008 431,423
$2,055,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 7s (8s,
8/15/04), 2030 (STP) 1,371,713
290,000 El Salvador (Republic of) 144A bonds
8 1/4s, 2032 276,225
830,000 El Salvador (Republic of) 144A bonds
7 3/4s, 2023 856,145
EUR 760,000 France (Government of) bonds 5 3/4s,
2032 984,050
EUR 1,470,000 France (Government of) bonds 5 1/2s,
2010 1,862,353
EUR 440,000 France (Government of) deb. 4s, 2009 515,759
EUR 2,480,000 Germany (Federal Republic of) bonds
Ser. 97, 6s, 2007 3,123,139
EUR 730,000 Hellenic Greece (Republic of) bonds
3 1/2s, 2008 844,576
$100,000 Indonesia (Republic of) FRN 2.005s,
2006 89,000
250,000 Indonesia (Republic of) FRN 2.005s,
2005 232,500
EUR 655,000 Italy (Government of) treasury bonds
4 3/4s, 2006 793,586
NZD 2,970,000 New Zealand (Government of) bonds
8s, 2006 1,929,348
NZD 1,925,000 New Zealand (Government of) bonds
6 1/2s, 2013 1,206,771
NZD 3,152,000 New Zealand (Government of) bonds
Ser. 709, 7s, 2009 2,019,515
$680,000 Philippines (Republic of) bonds
9 7/8s, 2019 704,820
825,000 Philippines (Republic of) notes
8 1/4s, 2014 806,438
1,720,000 Russia (Federation of) unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 1,602,180
3,481,250 Russia (Federation of) 144A unsub.
stepped-coupon 5s (7 1/2s,
3/31/07), 2030 (STP) 3,242,784
520,000 Russia (Ministry of Finance) deb.
Ser. V, 3s, 2008 456,300
EUR 165,000 South Africa (Republic of) bonds
5 1/4s, 2013 183,149
$1,550,000 South Africa (Republic of) notes
7 3/8s, 2012 1,738,325
SEK 16,800,000 Sweden (Government of) bonds 6 3/4s,
2014 2,465,215
SEK 14,640,000 Sweden (Government of) bonds Ser.
3101, 4s, 2008 2,285,681
$775,000 Turkey (Republic of) notes 9 7/8s,
2008 866,063
215,602 Ukraine (Government of) sr. notes
Ser. REGS, 11s, 2007 237,701
EUR 127,401 Ukraine (Government of) sr. notes
Ser. REGS, 10s, 2007 159,258
$400,000 Ukraine (Government of) 144A bonds
7.65s, 2013 398,600
GBP 425,000 United Kingdom treasury bonds
8 3/4s, 2017 985,856
GBP 490,000 United Kingdom treasury bonds 5s,
2012 830,234
GBP 2,765,000 United Kingdom treasury bonds 5s,
2004 4,720,080
GBP 3,745,000 United Kingdom treasury bonds
7 1/2s, 2006 6,847,395
$725,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 805,838
925,000 United Mexican States notes 8 1/8s,
2019 1,022,125
540,000 United Mexican States notes 7 1/2s,
2012 602,100
350,000 United Mexican States notes 5 7/8s,
2014 343,000
345,000 United Mexican States notes 4 5/8s,
2008 345,863
990,000 Venezuela (Republic of) bonds
9 1/4s, 2027 796,950
1,178,540 Venezuela (Republic of) FRB 1 7/8s,
2007 1,090,150
255,000 Venezuela (Republic of) 144A notes
10 3/4s, 2013 241,613
--------------
Total Foreign government bonds and
notes (cost $59,888,918) $66,166,392
U.S. government and agency obligations (10.1%) (a)
Principal amount Value
U.S. Government and Agency Mortgage Obligations (3.3%)
- -------------------------------------------------------------------------------
$31,854 Federal Home Loan Mortgage
Corporation 7 1/2s, May 1, 2027 $34,018
Federal National Mortgage
Association Pass-Through
Certificates
16,640 8s, July 1, 2024 18,097
137,372 7 1/2s, with due dates from January
1, 2030 to August 1, 2030 146,423
340,440 6 1/2s, August 1, 2032 353,732
4,684,000 6 1/2s, TBA, November 1, 2032 4,865,505
1,929,100 5s, TBA, November 1, 2033 1,902,575
Government National Mortgage
Association Pass-Through
Certificates
5,279,511 5s, with due dates from December 15,
2032 to October 15, 2033 5,223,478
--------------
12,543,828
U.S. Treasury Obligations (6.8%)
- -------------------------------------------------------------------------------
U.S. Treasury Bonds
5,440,000 7 1/2s, November 15, 2016 6,880,115
3,423,000 6 1/4s, May 15, 2030 3,913,851
5,965,000 6 1/4s, August 15, 2023 6,732,063
3,000 4s, November 15, 2012 2,955
6,060,000 U.S. Treasury Notes 1 5/8s, March
31, 2005 6,071,363
7,990,000 U.S. Treasury Strip zero %, November
15, 2024 2,475,110
--------------
26,075,457
--------------
Total U.S. government and agency
obligations (cost $37,532,405) $38,619,285
Asset-backed securities (7.8%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$132,000 Aames Mortgage Trust FRN Ser. 03-1,
Class M6, 4.12s, 2033 $110,649
227,561 ABSC Nims Trust 144A Ser. 03-HE5,
Class A, 7s, 2033 222,441
Ameriquest Mortgage Securities, Inc.
50,000 FRB Ser. 03-8, Class MV6, 4.87s,
2033 42,119
40,000 FRN Ser. 02-4, Class M4, 4.87s, 2033 34,420
228,000 FRN Ser. 03-1, Class M4, 4.2s, 2033 191,355
56,000 FRN Ser. 03-10, Class MV6, 4.87s,
2033 46,480
90,000 FRN Ser. 03-AR3, Class M5, 4.87s,
2033 85,391
Amortizing Residential Collateral
Trust
10,510,909 Ser. 02-BC1, Class A, Interest Only
(IO), 6s, 2005 352,160
211,000 FRN Ser. 02-BC5, Class B, 3.37s,
2032 180,174
240,661 AQ Finance NIM Trust Ser. 03-N1,
Class Note, 9.37s, 2033 240,655
AQ Finance NIM Trust 144A
485,827 Ser. 03-N2, Class Note, 9.3s, 2033 485,827
109,487 Ser. 03-N9A, Class NOTE, 7.385s,
2033 109,487
43,173 Arc Net Interest Margin Trust Ser.
02-5A, Class A, 7 3/4s, 2032 42,896
Arc Net Interest Margin Trust 144A
73,713 Ser. 02-1A, Class A, 7 3/4s, 2032 73,701
147,034 Ser. 02-8A, Class A1, 7 3/4s, 2032 145,823
208,000 Arcap REIT, Inc. 144A Ser. 03-1A,
Class E, 6.33s, 2038 209,950
100,000 Argent Securities, Inc. FRB Ser.
03-W1, Class MV6, 4.87s, 2033 79,413
Asset Backed Funding Certificates
208,000 FRB Ser. 03-OPT1, Class M6, 4.62s,
2031 184,242
236,000 FRB Ser. 03-WF1, Class M3, 4.17s,
2032 236,000
72,000 FRB Ser. 03-WF1, Class M4, 4.37s,
2032 66,113
22,106 Asset Backed Funding Corp. NIM Trust
Ser. 02-WF1, 9.32s, 2032 22,106
Asset Backed Securities Corp. Home
Equity Loan Trust
136,000 FRB Ser. 02-HE3, Class M4, 4.12s,
2032 118,077
86,000 FRB Ser. 03-HE5, Class M5, 5.37s,
2033 74,390
202,000 FRN Ser. 03-HE1, Class M4, 5.62s,
2033 177,094
213,000 FRN Ser. 03-HE3, Class M5, 5.12s,
2033 182,378
197,000 FRN Ser. 03-HE6, Class M6, 5.12s,
2033 172,178
439,000 FRN Ser. 2003-HE2, Class M4, 4.97s,
2033 423,023
183,334 Aviation Capital Group Trust 144A
FRB Ser. 03-2A, Class G1, 1.82s,
2033 183,334
1,004,000 Bank One Issuance Trust FRN Ser.
02-C1, Class C1, 2.08s, 2009 998,000
Bayview Financial Acquisition Trust
540,000 Ser. 02-CA, Class A, IO, 5.7s, 2004 23,288
17,168,580 Ser. 03-X, Class A, IO, 1.36s, 2006 284,355
373,867 FRN Ser. 01-DA, Class M3, 2.52s,
2031 370,129
CDC Mortgage Capital Trust
140,000 FRB Ser. 03-HE3, 4.87s, 2033 116,608
169,998 FRN Ser. 03-HE2, Class B3, 4.87s,
2033 145,139
8,927 Chase Funding Net Interest Margin
Ser. 02-2, 8 1/2s, 2035 8,905
Chase Funding Net Interest Margin
144A
44,087 Ser. 02-4A, Class Note, 8 1/2s, 2035 44,144
73,433 Ser. 03-1A, 8 3/4s, 2004 73,341
351,074 Ser. 03-4A, Class NOTE, 6 3/4s, 2036 350,744
190,332 Ser. 2003-2A, Class NOTE, 8 3/4s,
2035 190,332
Conseco Finance Securitizations Corp.
135,000 Ser. 00-2, Class A4, 8.48s, 2021 139,871
2,365,000 Ser. 00-4, Class A6, 8.31s, 2032 2,057,376
600,000 Ser. 00-6, Class M2, 8.2s, 2032 300,000
12,000 Ser. 01-04, Class A4, 7.36s, 2019 11,192
9,000 Ser. 01-3, Class A3, 5.79s, 2024 8,816
269,000 Ser. 01-3, Class A4, 6.91s, 2033 243,227
561,000 Ser. 01-4, Class B1, 9.4s, 2010 196,350
1,584,103 Ser. 02-1, Class A, 6.681s, 2032 1,609,255
200,000 Ser. 01-3, Class M2, 7.44s, 2033 66,000
394,000 Consumer Credit Reference IDX
Securities FRB Ser. 02-1A, Class A,
3.14s, 2007 392,881
First Franklin Mortgage Loan Asset
Backed Certificates
92,000 Ser. 03-FF3, 4.12s, 2033 86,183
101,000 FRB Ser. 03-FF4, Class M6, 4.92s,
2033 91,878
252,859 First Franklin NIM Trust Ser.
03-FF3A, Class A, 6 3/4s, 2033 251,877
272,047 First Plus 144A Ser. 98-A, Class A,
8 1/2s, 2023 195,874
Granite Mortgages PLC
EUR 780,000 Ser. 03-2, Class 2C1, 5.2s, 2010
(United Kingdom) 892,995
GBP 585,000 FRN Ser. 03-2, Class 3C, 5.323s,
2043 (United Kingdom) 992,687
Green Tree Financial Corp.
$135,529 Ser. 95-F, Class B2, 7.1s, 2021 123,332
87,126 Ser. 99-3, 6.16s, 2031 88,379
678,000 Ser. 99-5, Class A5, 7.86s, 2030 596,248
1,130,486 Greenpoint Manufactured Housing Ser.
00-3, Class IA, 8.45s, 2031 976,966
GSAMP Trust
55,488 Ser. 02-HE2N, Class Note, 8 1/4s,
2032 55,594
117,000 FRB Ser. 03-FM1, Class B3, 5.62s,
2033 104,423
159,847 GSAMP Trust 144A Ser. 03-HE1N, Class
NOTE, 7 1/4s, 2033 159,748
Home Equity Asset Trust
50,941 Ser. 02-1N, Class A, 8s, 2032 50,304
208,000 FRB Ser. 03-5, Class B3, 5.62s, 2033 185,167
Home Equity Asset Trust 144A
347,023 Ser. 02-5N, Class A, 8s, 2033 340,083
138,478 Ser. 03-4N, Class A, 8s, 2033 137,564
685,000 LNR CDO, Ltd. Ser. 02-1A, Class FFL,
3.87s, 2037 (Cayman Islands) 633,694
415,000 LNR CDO, Ltd. 144A FRB Ser. 03-1A,
Class EFL, 4.119s, 2036 (Cayman
Islands) 415,000
299,828 Long Beach Asset Holdings Corp. 144A
Ser. 2003-2, Class N1, 7.627s, 2033 299,641
165,303 Long Beach Asset Holdings Corp. NIM
Trust 144A Ser. 03-4, Class N1,
6.535s, 2033 165,251
229,000 Long Beach Mortgage Loan Trust FRN
Ser. 03-3, Class M4, 4.62s, 2033 187,780
568,528 Madison Avenue Manufactured Housing
Contract FRN Ser. 02-A, Class B1,
4.37s, 2032 369,543
Master Asset Backed Securities Trust
FRB
74,000 Ser. 03-NC1, Class M6, 5.12s, 2033 61,507
112,000 Ser. 03-OPT1, Class MV5, 4.62s, 2032 99,833
287,000 Ser. 03-OPT2, Class M5, 4.87s, 2033 254,590
Merrill Lynch Mortgage Investors, Inc.
180,646 Ser. 03-WM3N, Class N1, 8s, 2005 178,949
373,000 FRB Ser. 03-WMC1, Class B2, 4.12s,
2033 347,240
163,000 FRB Ser. 03-WMC3, Class B3, 4.12s,
2034 137,553
Mid-State Trust
296,888 Ser. 10, Class B, 7.54s, 2036 262,931
239,401 Ser. 11, Class B, 8.221s, 2038 225,804
216,000 Morgan Stanley ABS Capital I FRN
Ser. 03-NC10, Class B3, 4.87s, 2033 180,984
114,779 Morgan Stanley ABS Capital I 144A
Ser. 03-NC9N, Class NOTE, 7.6s,
2033 114,779
Morgan Stanley Capital I
193,000 FRB Ser. 02-NC6, Class B2, 4.87s,
2032 168,341
256,000 FRB Ser. 03-NC8, Class B3, 4.87s,
2033 215,160
218,000 FRN Ser. 03-NC6, Class B3, 4.87s,
2033 183,782
Morgan Stanley Dean Witter Capital I
210,000 FRN Ser. 01-NC3, Class B1, 3.57s,
2031 193,288
195,000 FRN Ser. 01-NC4, Class B1, 3.62s,
2032 177,384
350,000 FRN Ser. 02-AM2, Class B1, 3.37s,
2032 313,241
193,000 FRN Ser. 02-HE1, Class B1, 2.92s,
2032 181,684
26,740 Morgan Stanley Dean Witter Capital I
144A Ser. 01-NC4N, Class Note,
8 1/2s, 2032 26,762
218,000 New Century Home Equity Loan Trust
FRN Ser. 03-2, Class M4, 4.72s,
2033 185,845
33,547 NovaStar Caps Trust Ser. 02-C1,
Class A, 7.15s, 2031 33,547
Option One Mortgage Loan Trust
203,000 FRB Ser. 03-6, Class M6, 4.62s, 2033 174,174
Option One Mortgage Loan Trust
50,000 FRN Ser. 02-6, Class M4, 4.12s, 2032 46,324
205,000 FRN Ser. 03-3, Class M6, 4.62s, 2033 182,386
66,240 Option One Mortgage Securities Corp.
Ser. 02-2A, Class CFTS, 8.83s, 2032 66,240
Option One Mortgage Securities Corp.
144A
69,017 Ser. 02-1, Class CTFS, 6 3/4s, 2032 68,726
96,915 Ser. 03-5, 6.9s, 2033 96,915
115,429 Option One Mortgage Securities Corp.
NIM Trust 144A Ser. 2003-2B, Class
N1, 7.63s, 2033 (Cayman Islands) 115,357
490,310 Pass-Through Amortizing Credit Card
Trust Ser. 02-1A, Class A4FL,
6.62s, 2012 489,061
2,246,311 Residential Asset Mortgage Products,
Inc. Ser. 03-RZ1, Class A, IO,
5 3/4s, 2005 142,500
228,640 Rural Housing Trust Ser. 87-1, Class
D, 6.33s, 2026 239,357
SAIL Net Interest Margin Notes 144A
229,478 Ser. 03-7A, Class A, 7s, 2033 227,775
71,229 Ser. 03-8A, Class A, 7s, 2033 70,870
81,401 Ser. 03-4, Class A, 7 1/2s, 2033
(Cayman Islands) 81,316
380,783 Ser. 03-BC2A, Class A, 7 3/4s, 2033 379,677
69,200 Sasco Arc Net Interest Margin Notes
Ser. 02-BC10, Class A, 7 3/4s, 2033 68,571
Sasco Arc Net Interest Margin Notes
144A
219,141 Ser. 03-3, Class A, 7 3/4s, 2033 218,040
416,229 Ser. 03-5, Class A, 7.35s, 2033
(Cayman Islands) 416,107
359,668 Ser. 03-AM1, Class A, 7 3/4s, 2033 357,914
150,307 Sasco Arc Net Interest Margin Trust
144A Ser. 03-BC1, Class B, zero %,
2033 107,634
144,000 Saxon Asset Securities Trust FRB
Ser. 03-3, Class M6, 5.12s, 2033 124,133
186,036 Saxon Net Interest Margin Trust 144A
Ser. 03-A, Class A, 6.656s, 2033 186,036
80,643 SHARP 144A Ser. 03-TC1N, 7 3/4s,
2033 80,643
Structured Asset Investment Loan
Trust
519,000 Ser. 03-BC1, Class M3, 4.12s, 2033 514,378
407,280 Ser. 03-BC1A, Class A, 7 3/4s, 2033 405,300
4,967,191 Ser. 03-BC2, Class A, IO, 6s, 2005 295,336
100,000 Ser. 03-BC2, Class B, 7s, 2033 94,260
1,572,000 Ser. 03-BC8, Class A, IO, 6s, 2005 113,464
200,000 FRN Ser. 2003-BC3, Class B, 4.62s,
2033 178,813
215,000 Structured Asset Securities Corp.
FRN Ser. 02-HF2, Class M3, 3.12s,
2032 182,868
212,000 TIAA Commercial Real Estate
Securitization Ser. 02-1A, Class
IV, 6.84s, 2037 175,181
254,000 TIAA Commercial Real Estate
Securitization 144A Ser. 03-1A,
Class E, 8s, 2038 228,472
1,597,000 Washington Mutual Ser. 03-S1, Class
A11, IO, 5 1/2s, 2033 188,702
492,000 Whole Auto Loan Trust 144A Ser.
03-1, Class D, 6s, 2010 489,771
--------------
Total Asset-backed securities
(cost $33,720,665) $29,871,545
Collateralized mortgage obligations (5.7%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$2,594,152 Commercial Mortgage Acceptance Corp.
Ser. 97-ML1, IO, 0.875104s, 2017 $70,529
757,000 Criimi Mae Commercial Mortgage Trust
Ser. 98-C1, Class A2, 7s, 2011 852,808
1,143,000 Criimi Mae Commercial Mortgage Trust
144A Ser. 98-C1, Class B, 7s, 2011 1,171,379
24,138,182 Deutsche Mortgage & Asset Receiving
Corp. Ser. 98-C1, Class X, IO,
1.062253s, 2023 791,204
Fannie Mae
818 Ser. 92-15, Class L, IO, 1037.606s,
2022 11,919
114,617 Ser. 98-51, Class SG, IO, 24.44s,
2022 44,986
667,677 Ser. 02-36, Class SJ, 17.325s, 2029 741,017
374,116 Ser. 03-W3, Class 1A3, 7 1/2s, 2042 407,553
6,557 Ser. 03-W2, Class 1A3, 7 1/2s, 2042 7,143
2,805 Ser. 02-14, Class A2, 7 1/2s, 2042 3,056
457,614 Ser. 01-T10, Class A2, 7 1/2s, 2041 498,514
7,717 Ser. 01-T8, Class A1, 7 1/2s, 2041 8,407
1,769,750 Ser. 01-T7, Class A1, 7 1/2s, 2041 1,927,923
258,210 Ser. 01-T3, Class A1, 7 1/2s, 2040 281,288
782,534 Ser. 01-T1, Class A1, 7 1/2s, 2040 852,474
312,107 Ser. 99-T2, Class A1, 7 1/2s, 2039 340,002
168,516 Ser. 00-T6, Class A1, 7 1/2s, 2030 183,577
772,616 Ser. 01-T4, Class A1, 7 1/2s, 2028 841,669
1,751 Ser. 02-W3, Class A5, 7 1/2s, 2028 1,907
1,934,247 Ser. 02-9, Class MS, IO, 6.98s, 2032 165,620
1,446,644 Ser. 02-36, Class QH, IO, 6.93s,
2029 85,442
294,907 Ser. 02-29, Class SL, IO, 6.93s,
2029 5,806
885,934 Ser. 02-63, Class SN, IO, 6.88s,
2032 75,304
822,594 Ser. 02-52, Class SL, IO, 6.88s,
2032 64,394
1,515,122 Ser. 02-92, Class SA, IO, 6.83s,
2033 202,648
699,007 Ser. 02-28, Class SA, IO, 6.68s,
2032 57,122
807,311 Ser. 03-7, Class SM, IO, 6.63s, 2023 34,058
2,263,371 Ser. 03-49, Class TS, IO, 6.58s,
2018 296,714
983,123 Ser. 03-14, Class KS, IO, 6.48s,
2017 86,945
500,810 Ser. 03-23, Class SC, IO, 6.43s,
2033 39,809
1,839,400 Ser. 03-41, Class SP, IO, 6.08s,
2015 158,361
841,336 Ser. 03-58, IO, 6s, 2033 167,216
1,081,767 Ser. 03-26, Class IG, IO, 6s, 2033 198,099
692,747 Ser. 322, Class 2, IO, 6s, 2032 127,509
877,750 Ser. 318, Class 2, IO, 6s, 2032 157,446
339,276 Ser. 01-74, Class MI, IO, 6s, 2015 25,577
581 Ser. 02-27, Class IA, IO, 6s, 2013 1
6,262,611 Ser. 03-34, IO, 5.98s, 2032 643,875
5,343,175 Ser. 03-34, Class ES, IO, 5.88s,
2033 549,345
2,137,290 Ser. 03-34, Class SG, IO, 5.88s,
2033 223,080
945,565 Ser. 343, Class 14, IO, 5 1/2s, 2033 211,718
986,603 Ser. 343, Class 15, IO, 5 1/2s, 2033 221,986
449,277 Ser. 343, Class 17, IO, 5 1/2s, 2033 103,123
1,465,569 Ser. 329, Class 2, IO, 5 1/2s, 2033 345,783
1,366,069 Ser. 03-45, Class PI, IO, 5 1/2s,
2029 174,976
1,847,221 Ser. 03-37, Class IC, IO, 5 1/2s,
2027 205,503
2,881,111 Ser. 03-63, Class SE, IO, 5.48s,
2031 323,225
Fannie Mae
3,061,442 Ser. 03-23, Class AI, IO, 5s, 2017 362,965
1,043,600 Ser. 03-24, Class IC, IO, 5s, 2015 174,128
7,415,773 Ser. 03-W10, Class 3A, IO, 2.22s,
2043 314,012
6,213,307 Ser. 03-W10, Class 1A, IO, 2.204s,
2043 266,007
7,147,991 Ser. 00-T6, IO, 0.745s, 2030 155,245
104,810 Ser. 02-97, Principal Only (PO),
zero %, 2033 91,022
146,475 Ser. 99-51, Class N, PO, zero %,
2029 126,884
107,069 Ser. 99-52, Class MO, PO, zero %,
2026 104,875
38,903 Ser. 96-5, Class PB, PO, zero %,
2024 37,880
8,344 Federal Home Loan Mortgage Corp.
Structured Pass-Through Securities
Ser. T-58, Class 4A, 7 1/2s, 2043 9,076
8,289,173 FFCA Secured Lending Corp. Ser.
00-1, Class X, IO, 1.654s, 2020 574,978
Freddie Mac
723,300 Ser. 2412, Class GS, FRN, 18.018s,
2032 867,056
274,451 Ser. 2478, Class SY, IO, 7.03s, 2021 14,937
329,056 Ser. 2448, Class SE, IO, 6.98s, 2029 8,638
1,487,200 Ser. 2448, Class SM, IO, 6.88s, 2032 204,490
1,604,832 Ser. 2579, Class GS, IO, 6.53s, 2017 143,751
2,996,015 Ser. 216, IO, 6s, 2032 529,920
786,800 Ser. 2515, Class IG, IO, 5 1/2s,
2032 257,648
404,800 Ser. 2590, Class IH, IO, 5 1/2s,
2028 110,308
361,180 Ser. 215, Class PO, PO, zero %, 2031 324,836
302,052 Ser. 2235, PO, zero %, 2030 259,623
2 Ser. 2078, C2
Government National Mortgage
Association
210,884 Ser. 02-36, Class SD, IO, 7.03s,
2029 4,150
564,048 Ser. 02-51, Class SA, IO, 6.98s,
2032 20,813
653,161 Ser. 02-29, Class SX, IO, 6.93s,
2029 18,778
79,487 Ser. 02-40, Class IB, IO, 6 1/2s,
2028 1,528
1,012,540 Ser. 01-43, Class SJ, IO, 6.48s,
2029 52,051
312,897 Ser. 01-43, Class SD, IO, 6.44s,
2028 4,318
1,768,410 Ser. 01-19, Class S, IO, 6.38s, 2031 165,788
2,729,722 Ser. 03-83, Class SI, IO, 5.38s,
2032 239,277
1,740,298 Ser. 02-47, Class SM, IO, 4.85s,
2032 104,418
155,563 Ser. 98-2, Class EA, PO, zero %,
2028 134,903
726,388 Hermione (European Loan Conduit No.
14) 144A FRB Class A, 4.102s, 2011
(Ireland) 1,230,512
4,451,841 Merrill Lynch Mortgage Investors,
Inc. Ser. 96-C2, IO, 2.513s, 2028 307,532
1,728,504 Merrill Lynch Mortgage Trust 144A
Ser. 02-MW1, Class XP, IO, 1.616s,
2034 120,455
3,606,024 Mortgage Capital Funding, Inc. Ser.
97-MC2, Class X, IO, 1.33s, 2012 136,055
Starwood Asset Receivables Trust
144A
105,000 FRB Ser. 03-1A, Class F, 2.22s, 2022 105,063
135,000 FRB Ser. 03-1A, Class E, 2.17s, 2022 135,081
140,000 FRB Ser. 03-1A, Class A2, 1.47s,
2022 140,084
100,000 Trizechahn Office Properties Trust
144A Ser. 01-TZHA, Class D3,
6.943s, 2013 106,941
--------------
Total Collateralized mortgage
obligations (cost $21,300,021) $21,954,068
Preferred stocks (1.0%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
3,756 Chevy Chase Preferred Capital Corp.
Ser. A, $5.188 pfd. $215,031
10,460 CSC Holdings, Inc. Ser. M, $11.125
cum. pfd. 1,090,454
27,930 Diva Systems Corp. Ser. C, 6.00%
cum. pfd. 279
7,700 Doane Pet Care Co. $7.125 pfd. 308,000
538 Dobson Communications Corp. 13.00%
pfd. (PIK) 564,900
329 Dobson Communications Corp. 12.25%
pfd. (PIK) 345,471
210 First Republic Capital Corp. 144A
10.50% pfd. 220,500
6,895 iStar Financial, Inc. $1.95 cum.
pfd. 179,270
26 Leiner Health Products Ser. C, zero % pfd. 1
8,795 Lodgian, Inc. Ser. A, $7.06 cum.
pfd. (PIK) 195,689
58 Metrocall Holdings, Inc. Ser. A,
15.00% cum. pfd. 638
1,906 Microcell Telecommunications, Inc.
zero % pfd. (Canada) 24,528
718 North Atlantic Trading Co. 12.00%
pfd. (PIK) 12,206
11 NTL Europe, Inc. Ser. A, zero % cum.
pfd. 53
44 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) 413,600
676 Rural Cellular Corp. 12.25% pfd.
(PIK) 419,120
--------------
Total Preferred stocks
(cost $4,583,538) $3,989,740
Common stocks (0.9%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
1,153 Alderwoods Group, Inc. (NON) $8,590
350,000 AMRESCO Creditor Trust (NON) (R) 9,800
958 Archibald Candy Corp. (NON) 2,730
7,792 Aurora Foods, Inc. (NON) 218
1,941 Birch Telecom, Inc. (NON) 6,716
244 Comdisco Holding Co., Inc. (NON) 16,348
9,324 Conseco, Inc. (NON) 190,210
1,883,299 Contifinancial Corp. Liquidating
Trust Units 28,249
8,378 Covad Communications Group, Inc.
(NON) 36,696
5,442 Dobson Communications Corp. (NON) 47,182
1,228 Genesis Health Ventures, Inc. (NON) 33,033
18,922 Globix Corp. (NON) 77,580
4,442 Jasper Energy 144A (NON) 278
10,420 Lodgian, Inc. (NON) 79,609
60,000 Loewen Group International, Inc.
(NON) 6
947 Mariner Health Care, Inc. (NON) 11,733
810 Mediq, Inc. (NON) 81
480 Metrocall Holdings, Inc. (NON) 15,600
16 Microcell Telecommunications, Inc.
Class A (Canada) (NON) 201
1,894 Microcell Telecommunications, Inc.
Class B (Canada) (NON) 24,503
7,221 Millennium Chemicals, Inc. 72,354
470,000 Morrison Knudsen Corp. (NON) 59,925
15,092 Pioneer Cos., Inc. (NON) 75,913
2,642 Polymer Group, Inc. Class A (NON) 13,871
480 Premium Holdings (LP) 144A (NON) 10,315
1,004 PSF Group Holdings, Inc. 144A Class
A (NON) 1,756,755
91 Quorum Broadcast Holdings, Inc.
Class E (acquired 5/15/01, cost
$90,498) (RES) (NON) 48,471
45,630 Regal Entertainment Group (NON) 841,873
129 Sterling Chemicals, Inc. (NON) 2,193
467 Sun Healthcare Group, Inc. (NON) 3,124
503,130 VFB LLC (NON) 95,595
1,154 Washington Group International, Inc.
(NON) 31,989
139 WilTel Communications, Inc. (NON) 2,464
1 WorldCom, Inc. -- WorldCom Group (NON) 1
909 York Research Corp. 144A (NON) 57
--------------
Total Common stocks
(cost $10,092,780) $3,604,263
Brady bonds (0.9%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$1,010,000 Argentina (Government of) FRB
Ser. L-GL, 2.063s, 2023 $489,850
795,000 Argentina (Republic of) govt.
guaranty Ser. L-GP, 6s, 2023 (In
default) (NON) 385,575
258,596 Brazil (Federal Republic of) bonds
8s, 2014 242,124
625,000 Brazil (Federal Republic of) govt.
guaranty FRB Ser. RG, 2.063s, 2012 527,375
911,800 Peru (Republic of) bonds Ser. PDI,
5s, 2017 851,439
225,000 Peru (Republic of) coll. FLIRB
4 1/2s, 2017 (acquired various
dates from 5/14/03 to 8/23/03, cost
$156,000) (RES) 199,688
880,000 Peru (Republic of) coll. FLIRB Ser.
20YR, 4 1/2s, 2017 781,000
--------------
Total Brady bonds (cost $2,972,928) $3,477,051
Convertible bonds and notes (0.5%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$60,000 AES Corp. (The) cv. sub. notes
4 1/2s, 2005 $56,700
505,000 American Tower Corp. cv. notes 5s,
2010 475,963
280,000 Amkor Technologies, Inc. cv. notes
5 3/4s, 2006 280,700
125,000 CenterPoint Energy, Inc. 144A cv.
sr. notes 3 3/4s, 2023 134,063
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
145,000 Kulicke & Soffa Industries, Inc. cv.
sub. notes 4 3/4s, 2006 139,563
9,000 Millicom International Cellular SA
144A cv. bonds zero %,
2006 (Luxembourg) (PIK) 27,000
750,000 Nextel Communications, Inc. cv. sr.
notes 6s, 2011 862,500
50,000 Rogers Communications cv. debs. 2s,
2005 (Canada) 45,813
20,000 Tower Automotive, Inc. cv. sub.
notes 5s, 2004 19,300
--------------
Total Convertible bonds and notes
(cost $2,722,600) $2,042,812
Convertible preferred stocks (0.2%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
4,915 Crown Castle International Corp.
$3.125 cv. pfd. $208,273
996 Knology, Inc. 144A Ser. D, zero %
cv. pfd. 996
2,600 LTV Corp. 144A $4.125 cv. pfd. (In
default) (NON) 26
2,910 Omnicare, Inc. zero % cv. pfd. 170,963
32 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 249,600
4,014 Telex Communications, Inc. zero %
cv. pfd. (In default) (NON) 4,013
3,690 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 241,695
--------------
Total Convertible preferred stocks
(cost $886,338) $875,566
Units (0.1%) (a)
Number of units Value
- -------------------------------------------------------------------------------
641,000 HMP Equity Holdings Corp. units zero %, 2008 $320,500
376 XCL Equity Units zero % 167,075
--------------
Total Units (cost $1,239,290) $487,575
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
- -------------------------------------------------------------------------------
560 Dayton Superior Corp. 144A 6/15/09 $1
1,174 Diva Systems Corp. 144A 5/15/06 12
2 Doe Run Resources Corp. 144A 12/31/12 1
150 MDP Acquisitions PLC 144A (Ireland) 10/1/13 375
1,173 Microcell Telecommunications
(Canada) 5/1/08 1,914
704 Microcell Telecommunications
(Canada) 5/1/05 748
210 Mikohn Gaming Corp. 144A 8/15/08 525
220 ONO Finance PLC 144A (United
Kingdom) 2/15/11 1
230 Pliant Corp. 144A 6/1/10 115
261 Solutia, Inc. 144A 7/15/09 6,003
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 9
645,000 United Mexican States Ser. B
(Mexico) (Rights) 6/30/04 5,805
645,000 United Mexican States Ser. C
(Mexico) (Rights) 6/30/05 1,613
645,000 United Mexican States Ser. D
(Mexico) (Rights) 6/30/06 645
645,000 United Mexican States Ser. E
(Mexico) (Rights) 6/30/07 323
20 Versatel Telecom NV (Netherlands) 5/15/08 1
711 Washington Group International, Inc.
Ser. A 1/25/06 4,302
813 Washington Group International, Inc.
Ser. B 1/25/06 3,699
439 Washington Group International, Inc.
Ser. C 1/25/06 1,752
320 XM Satellite Radio Holdings, Inc.
144A 3/15/10 8,320
--------------
Total Warrants (cost $330,689) $41,865
Short-term investments (2.6%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$941,000 U.S. Treasury Bill zero %, November
6, 2003 (SEG) $940,860
9,000,000 Interest in $300,000,000 joint
repurchase agreement dated October
31, 2003 with Bank of America due
November 3, 2003 with respect to
various U.S. Government obligations
-- maturity value of $9,000,788 for
an effective yield of 1.05% 9,000,000
--------------
Total Short-term investments (cost $9,940,860) $9,940,860
- -------------------------------------------------------------------------------
Total Investments
(cost $382,731,855) $382,798,141
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $382,818,330.
(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 October 31, 2003 was
$8,564,648 or 2.2% 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 October 31, 2003.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
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 October 31, 2003.
- ------------------------------------------------------------------------------------------------------
Forward currency contracts to buy at October 31, 2003
(aggregate face value $30,340,466)
- ------------------------------------------------------------------------------------------------------
Market Aggregate Delivery Unrealized
value face value date appreciation
- ------------------------------------------------------------------------------------------------------
Australian Dollars $10,504,809 $9,672,114 12/17/03 $832,695
British Pounds 2,442,920 2,324,291 12/17/03 118,629
Canadian Dollar 1,828,743 1,817,375 12/17/03 11,368
Japanese Yen 17,083,714 16,136,742 12/17/03 946,972
Swedish Krona 168,934 162,889 12/17/03 6,045
Swiss Franc 239,973 227,055 12/17/03 12,918
- ------------------------------------------------------------------------------------------------------
$1,928,627
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Forward currency contracts to sell at October 31, 2003
(aggregate face value $38,655,752)
- ------------------------------------------------------------------------------------------------------
Market Aggregate Delivery Unrealized
value face value date depreciation
- ------------------------------------------------------------------------------------------------------
British Pounds $7,527,775 $7,155,369 12/17/03 $(372,406)
Canadian Dollar 4,053,563 3,847,140 12/17/03 (206,423)
Danish Krone 1,305,769 1,259,985 12/17/03 (45,784)
Euro 16,736,922 15,871,811 12/17/03 (865,111)
Japanese Yen 1,497,100 1,452,325 12/17/03 (44,775)
New Zealand Dollars 5,202,894 4,806,574 12/17/03 (396,320)
Swedish Krona 4,628,787 4,262,548 12/17/03 (366,239)
- ------------------------------------------------------------------------------------------------------
$(2,297,058)
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Futures contracts outstanding at October 31, 2003
- ------------------------------------------------------------------------------------------------------
Unrealized
Market Aggregate Expiration appreciation/
value face value date (depreciation)
- ------------------------------------------------------------------------------------------------------
3 Month Eurodollar (Long) $17,661,950 $17,650,620 Sep-06 $11,330
3 Month Eurodollar (Long) 16,983,200 17,020,064 Jun-06 (36,864)
3 Month Eurodollar (Short) 18,119,825 18,140,991 Sep-04 21,166
3 Month Eurodollar (Short) 17,457,125 17,474,933 Jun-04 17,808
Euro-Bobl 5 yr (Long) 8,198,214 8,133,090 Dec-03 65,124
Euro-Bund 10 yr (Long) 11,794,440 11,709,125 Dec-03 85,315
Interest Rate Swap 10 yr (Long 876,750 866,069 Dec-03 10,681
Japanese Government Bond
10 yr (Long) 6,852,639 6,775,183 Dec-03 77,456
U.K. Gilt (Long) 13,024,588 13,160,831 Dec-03 (136,243)
U.S. Treasury Bond 20 yr (Long 19,025,781 18,355,056 Dec-03 670,725
U.S. Treasury Note 10 yr (Long 11,117,391 10,798,007 Dec-03 319,384
U.S. Treasury Note 10 yr (Shor 28,748,000 28,760,933 Dec-03 12,933
U.S. Treasury Note 5 yr (Short 21,020,750 20,709,456 Dec-03 (311,294)
- ------------------------------------------------------------------------------------------------------
$807,521
- ------------------------------------------------------------------------------------------------------
Interest rate swap contracts outstanding at October 31, 2003
Notional Termination Unrealized
amount date appreciation
- ------------------------------------------------------------------------------------------------------
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 $313,889
Agreement with Merrill Lynch Capital
Services, Inc. dated September 27, 2002 to
receive semi-annually the notional amount
multiplied by the six month JPY-LIBOR-BBA
and pay monthly the notional amount
multiplied by 0.399%. JPY 1,334,000,000 10/1/07 102,041
Agreement with Credit Suisse First Boston
dated October 30, 2003 to receive semi-
annually the notional amount multiplied by the
three month USD LIBOR and pay quarterly the
notional amount multiplied by 2.225%, and pay
quarterly the notional amount multiplied by the
three month USD LIBOR. $167,000 11/3/05 132
Agreement with Credit Suisse First Boston dated
October 30, 2003 to receive semi-annually the
notional amount multiplied by the three month
USD LIBOR and pay quarterly the notional
amount multiplied by 4.764% and pay quarterly
the notional amount multiplied by the three
month USD LIBOR. 1,939,000 11/3/13 8,281
- ------------------------------------------------------------------------------------------------------
$424,343
- ------------------------------------------------------------------------------------------------------
Credit default contracts outstanding at October 31, 2003
(premiums received $141,064)
Notional Market
amount value
- ------------------------------------------------------------------------------------------------------
Agreement with Deutsche Bank effective July 17, 2003, maturing
on September 20, 2008 to receive a premium equal to 9.795%
times the notional amount. Upon a credit default event of
Petroleos Mexicanos, 6.125% due 8/15/08 the fund makes a
payment of the proportional notional amount times the
difference between the par value and the then-market value
of Petroleos Mexicanos 6.125%, 2008. $225,000 $18,639
Agreement with Lehman Brothers Special Financing, Inc. effective
July 17, 2003, maturing on September 20, 2008 to receive a
premium equal to 10.02% times the notional amount. Upon a
credit default event of Petroleos Mexicanos, 9.50% due 9/15/27
the fund makes a payment of the proportional notional amount
times the difference between the par value and the then-market
value of Petroleos Mexicanos 9.50%, 2027. 225,000 19,211
Agreement with Deutsche Bank effective September 8, 2003,
maturing on September 20, 2013 to receive a premium equal to
21.44% times the notional amount. Upon a credit default event of
Petroleos Mexicanos, 7.375% due 12/12/14 the fund makes a
payment of the proportional notional amount times the difference
between the par value and the then-market value of Petroleos
Mexicanos 7.375%, 2014. 450,000 87,246
- ------------------------------------------------------------------------------------------------------
$125,096
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
October 31, 2003
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$382,731,855) (Note 1) $382,798,141
- -------------------------------------------------------------------------------
Cash 635,462
- -------------------------------------------------------------------------------
Foreign currency (cost $1,615,789) (Note 1) 1,651,710
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 6,920,168
- -------------------------------------------------------------------------------
Receivable for securities sold 6,068,823
- -------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 27,511
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 424,343
- -------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 1,958,201
- -------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 540,378
- -------------------------------------------------------------------------------
Total assets 401,024,737
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to shareholders 2,238,284
- -------------------------------------------------------------------------------
Payable for securities purchased 12,340,370
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 728,796
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 88,008
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 32,747
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 566
- -------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 2,326,632
- -------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 223,110
- -------------------------------------------------------------------------------
Credit default contracts outstanding, at value (premiums
received $141,064) (Note 1) 125,096
- -------------------------------------------------------------------------------
Other accrued expenses 102,798
- -------------------------------------------------------------------------------
Total liabilities 18,206,407
- -------------------------------------------------------------------------------
Net assets $382,818,330
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Note 1) $467,264,687
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 5,069,939
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (90,539,844)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 1,023,548
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $382,818,330
Computation of net asset value
- -------------------------------------------------------------------------------
Net asset value per share ($382,818,330 divided by
53,329,917 shares) $7.18
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended October 31, 2003
Investment income:
- -------------------------------------------------------------------------------
Interest $29,279,555
- -------------------------------------------------------------------------------
Dividends 1,069,391
- -------------------------------------------------------------------------------
Total investment income 30,348,946
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,744,965
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 502,719
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 17,798
- -------------------------------------------------------------------------------
Administrative services (Note 2) 8,512
- -------------------------------------------------------------------------------
Other 161,783
- -------------------------------------------------------------------------------
Total expenses 3,435,777
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (17,634)
- -------------------------------------------------------------------------------
Net expenses 3,418,143
- -------------------------------------------------------------------------------
Net investment income 26,930,803
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 6,536,520
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (2,199,537)
- -------------------------------------------------------------------------------
Net realized gain on credit default contracts (Note 1) 84,756
- -------------------------------------------------------------------------------
Net realized gain on swap contracts (Note 1) 285,398
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 2,242,469
- -------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 5,465
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts, swap contracts and credit default contracts
during the year 37,065,703
- -------------------------------------------------------------------------------
Net gain on investments 44,020,774
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $70,951,577
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended October 31
Increase (decrease) in net assets 2003 2002
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $26,930,803 $29,156,604
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 6,949,606 (29,544,414)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign
currencies 37,071,168 7,731,062
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 70,951,577 7,343,252
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income (27,721,585) (30,618,134)
- -------------------------------------------------------------------------------
Increase from issuance of common shares in
connection with reinvestment of dividends 360,652 1,205,083
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets 43,590,644 (22,069,799)
Net assets
- -------------------------------------------------------------------------------
Beginning of year 339,227,686 361,297,485
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income and distributions in
excess of net investment income of
$5,069,939 and $2,253,654, respectively) $382,818,330 $339,227,686
- -------------------------------------------------------------------------------
Number of fund shares
- -------------------------------------------------------------------------------
Shares outstanding at beginning of year 53,275,878 53,095,749
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 54,039 180,129
- -------------------------------------------------------------------------------
Shares outstanding at end of year 53,329,917 53,275,878
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
Per-share Year ended October 31
operating performance 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.37 $6.80 $7.13 $7.72 $8.27
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (a) .50 .55 .61 .66 .64
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .83 (.40) (.31) (.58) (.48)
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.33 .15 .30 .08 .16
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.52) (.58) (.58) (.56) (.65)
- -------------------------------------------------------------------------------------------------------------
Return of capital -- -- (.05) (.11) (.06)
- -------------------------------------------------------------------------------------------------------------
Total distributions (.52) (.58) (.63) (.67) (.71)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.18 $6.37 $6.80 $7.13 $7.72
- -------------------------------------------------------------------------------------------------------------
Market value,
end of period $6.570 $6.150 $6.530 $6.438 $6.625
- -------------------------------------------------------------------------------------------------------------
Total return at
market value (%)(b) 15.48 2.71 11.27 7.70 (10.50)
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $382,818 $339,228 $361,297 $378,800 $410,012
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .94 .98 .94 .94 .94
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 7.36 8.22 8.63 8.66 7.93
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 118.17 (d) 205.33 (d) 131.14 (d) 147.33 124.21
- -------------------------------------------------------------------------------------------------------------
(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
October 31, 2003
Note 1
Significant accounting policies
Putnam Master Income Trust (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The investment objective of the fund is
to seek high current income consistent with the preservation of capital.
The fund intends to diversify its investments among the following three
sectors of the fixed-income securities market: a U.S. investment-grade
sector, consisting of debt obligations of the U.S. government and
investment-grade U.S. corporate bonds, a high-yield sector, consisting
of high yielding, lower-rated U.S. corporate fixed income securities and
an international sector, consisting of obligations of foreign
governments, their agencies and instrumentalities and other fixed-income
securities denominated in foreign currencies.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at fair value on the basis
of valuations furnished by an independent pricing service or dealers,
approved by the Trustees. Such services or dealers determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
various relationships, generally recognized by institutional traders,
between securities. 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. Such valuations and procedures are reviewed
periodically 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. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending 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.
Futures 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 counter party, 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, 2003, the fund had a capital loss carryover of
$88,941,607 available to the extent allowed by tax law to offset future
net capital gain, if any. The amount of the carryover and the
expiration dates are:
Loss Carryover Expiration
- ---------------------------------
$3,536,796 October 31, 2006
23,414,014 October 31, 2007
11,528,221 October 31, 2008
15,951,444 October 31, 2009
34,511,132 October 31, 2010
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. These differences include temporary and permanent
differences of losses on wash sales transactions, foreign currency gains
and losses, dividends payable, defaulted bond interest, unrealized and
realized gains and losses on certain futures contracts, market discount,
and interest on payment-in-kind securities. Reclassifications are made
to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended October 31, 2003, the fund reclassified
$8,114,375 to increase undistributed net investment income and $229,020
to decrease paid-in-capital, with an increase to accumulated net
realized losses of $7,885,355.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $24,606,752
Unrealized depreciation (26,082,733)
------------
Net unrealized depreciation (1,475,981)
Undistributed ordinary income 8,251,272
Capital loss carryforward (88,941,607)
Cost for federal income
tax purposes $384,274,122
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 0.75% of the average weekly net assets.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam, LLC. 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 year ended October 31, 2003, the
fund's expenses were reduced by $17,634 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $788 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Trustee compensation and expenses in the
Statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the Statement of assets
and liabilities.
Note 3
Purchases and sales of securities
During the year ended October 31, 2003, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $358,700,530 and
$350,148,429, respectively. Purchases and sales of U.S. government
obligations aggregated $54,805,255 and $62,815,705, respectively.
Note 4
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order
by the Securities and Exchange Commission (SEC) in partial
resolution of administrative and cease-and-desist proceedings
initiated by the SEC on October 28, 2003 in connection with alleged
excessive short-term trading by at least six Putnam Management
investment professionals. The SEC's findings reflect that four of
those employees engaged in such trading in funds over which they had
investment decision-making responsibility and had access to
non-public information regarding, among other things, current
portfolio holdings, and valuations. The six individuals no longer
have investment responsibilities with Putnam Management. Under the
order, Putnam Management will make restitution for losses
attributable to excessive short-term trading by Putnam employees,
institute new employee trading restrictions and enhanced employee
trading compliance, retain an independent compliance consultant, and
take other remedial actions. Putnam Management neither admitted nor
denied the order's findings, which included findings that Putnam
Management willfully violated provisions of the federal securities
laws. A civil monetary penalty and other monetary relief, if any,
will be determined at a later date. If a hearing is necessary to
determine the amounts of such penalty or other relief, Putnam
Management will be precluded from arguing that it did not violate
the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as
true by the hearing officer and additional evidence may be
presented. Putnam Management, and not the investors in any Putnam
fund, will bear all costs, including restitution, civil penalties
and associated legal fees. Administrative proceedings instituted by
the Commonwealth of Massachusetts on October 28, 2003 against Putnam
Management in connection with alleged market timing activities by
Putnam employees and by participants in some Putnam-administered
401(k) plans are pending. Putnam Management has committed to make
complete restitution for any losses suffered by Putnam shareholders
as a result of any improper market-timing activities by Putnam
employees or within Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also
serve as the general basis for numerous lawsuits, including
purported class action lawsuits filed against Putnam Management and
certain related parties, including certain Putnam funds. Putnam
Management has agreed to bear any costs incurred by Putnam funds in
connection with these lawsuits. Based on currently available
information, Putnam Management believes that the likelihood that the
pending private lawsuits and purported class action lawsuits will
have a material adverse financial impact on the fund is remote, and
the pending actions are not likely to materially affect its ability
to provide investment management services to its clients, including
the Putnam funds.
Review of these matters by counsel for Putnam Management and by
separate independent counsel for the Putnam funds and their
independent Trustees is continuing. In addition, Marsh & McLennan
Companies, Inc., Putnam Management's parent company, has engaged
counsel to conduct a separate review of Putnam Management's policies
and controls related to short-term trading.
Federal tax information
(Unaudited)
The fund has designated 3.03% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended 10/31/03, the fund hereby designates 2.12% or the
maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2004 will show the tax status of
all distributions paid to your account in calendar 2003.
Results of October 7, 2003 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on October 7,
2003. At the meeting, each of the nominees for Trustees was elected, as
follows:
Common shares
Votes
Votes for withheld
- ------------------------------------------------------------------
Jameson Adkins Baxter 48,771,489 1,053,460
Charles B. Curtis 48,810,479 1,014,470
John A. Hill 48,791,963 1,032,986
Ronald J. Jackson 48,777,431 1,047,518
Paul L. Joskow 48,757,996 1,066,953
Elizabeth T. Kennan 48,751,293 1,073,656
Lawrence J. Lasser* 48,755,373 1,069,576
John H. Mullin III 48,773,347 1,051,610
Robert E. Patterson 48,815,538 1,009,411
George Putnam, III 48,760,460 1,064,489
A.J.C. Smith 48,760,751 1,064,198
W. Thomas Stephens 48,768,670 1,056,279
W. Nicholas Thorndike 48,752,579 1,072,370
*Mr. Lasser resigned from the Board of Trustees of the Putnam funds
on November 3, 2003.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He served
as Chairman of the Federal Energy Regulatory Commission from 1977 to
1981 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee Putnam Investment Trust (a closed-end investment company). He
is also a Trustee of Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure). He also serves on
the board of the Whitehead Institute for Biomedical Research (a
non-profit research institution) and has been President of the Yale
University Council since 1993. Prior to February 2002, he was a Director
of State Farm Indemnity Company (an automobile insurance company) and
prior to March 2000 he was a Director of New England Electric System (a
public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a partner in and Chairman of Cambus-Kenneth Bloodstock,
LLC (cattle and thoroughbred horses). She is President Emeritus of Mount
Holyoke College.
Dr. Kennan serves as a Trustee of Northeast Utilities and is a Director
of Talbots, Inc. She has served as Director on a number of other boards,
including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire
Life Insurance, and Kentucky Home Life Insurance. She is a Trustee of
Centre College and of Midway College in Midway, Kentucky. She is also a
member of The Trustees of Reservations. Dr. Kennan has served on the
oversight committee of the Folger Shakespeare Library, as President of
Five Colleges Incorporated, as a Trustee of Notre Dame University, and
is active in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of Alex. Brown Realty, Inc., The Liberty
Corporation (a broadcasting company), Progress Energy, Inc. (a utility
company, formerly known as Carolina Power & Light), and Sonoco Products,
Inc. (a packaging company). Mr. Mullin is Trustee Emeritus of Washington
& Lee University, where he served as Chairman of the Investment
Committee. Prior to May 2001, he was a Director of Graphic Packaging
International Corp.
Mr. Mullin also served as a Director of Dillon, Read & Co., Inc. until
October 1997 and The Ryland Group, Inc. until January 1998. Mr. Mullin
is a graduate of Washington & Lee University and The Wharton Graduate
School, University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center, as a
Trustee of Sea Education Association, and as a Director of Brandywine
Trust Company. Prior to December 2001, he was President and Trustee of
Cabot Industrial Trust (a publicly traded real estate investment trust).
Prior to February 1998, Mr. Patterson was Executive Vice President and
Director of Acquisitions of Cabot Partners Limited Partnership (a
registered investment advisor involved in institutional real estate
investments). Prior to 1990, he served as Executive Vice President of
Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of
Cabot Partners) and as a Senior Vice President of the Beal Companies (a
real estate management, investment, and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, Norske Canada, Inc. (a
paper manufacturer), and Qwest Communications. Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Mr. Thorndike serves on the boards of various corporations and
charitable organizations.
Mr. Thorndike is a Director of Courier Corporation (a book publisher and
manufacturer) and The Providence Journal Co. (a newspaper publisher). He
is also a Trustee of Northeastern University and an honorary Trustee of
Massachusetts General Hospital, where he previously served as Chairman
and President. Prior to September 2000, he was a Director of Bradley
Real Estate, Inc.; prior to April 2000, he was a Trustee of Eastern
Utilities Associates; and prior to December 2001, he was a Trustee of
Cabot Industrial Trust.
Mr. Thorndike has also served as Chairman of the Board and Managing
Partner of Wellington Management Company/Thorndike, Doran, Paine & Lewis
(a registered investment advisor that manages mutual funds and
institutional assets), as a Trustee of the Wellington Group of Funds
(currently The Vanguard Group), and as Chairman and a Director of Ivest
Fund, Inc. Mr. Thorndike is a graduate of Harvard College.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of Marsh &
McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of October 31, 2003, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer and Principal Financial
Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and Putnam
Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to July 2001,
Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments, Putnam
Management and Putnam Retail Management
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
William H. Woolverton (1/17/51)
Vice President and Chief Legal Officer
Since 2003
Managing Director, Putnam Investments, Putnam Management and
Putnam Retail Management
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square, Boston, MA 02109.
Fund information
About Putnam Investments
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Auditors
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President, 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
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or
visit our Web site (www.putnaminvestments.com) any time for up-to-date
information about the fund's NAV.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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203416 072 12/03
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
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:
--------------------------------
Proxy Voting Guidelines of the Putnam Funds
- -------------------------------------------
The proxy voting guidelines below summarize the Funds' positions on
various issues of concern to investors, and give a general indication of
how Fund portfolio securities will be voted on proposals dealing with a
particular issue. The Funds' proxy voting service is instructed to vote
all proxies relating to Fund portfolio securities in accordance with
these guidelines, except as otherwise instructed by the Proxy
Coordinator.
The proxy voting guidelines are just that - guidelines. The guidelines
are not exhaustive and do not include all potential voting issues.
Because proxy issues and the circumstances of individual companies are
so varied, there may be instances when the Funds may not vote in strict
adherence to these guidelines. For example, the proxy voting service is
expected to bring to the Proxy Coordinator's attention proxy questions
that are company-specific and of a non-routine nature and, although
covered by the guidelines, may be more appropriately handled on a
case-by-case basis.
Similarly, Putnam Management's investment professionals, as part of
their ongoing review and analysis of all Fund portfolio holdings, are
responsible for monitoring significant corporate developments, including
proxy proposals submitted to shareholders, and notifying the Proxy
Coordinator of circumstances where the interests of Fund shareholders
may warrant a vote contrary to these guidelines. In such instances, the
investment professionals will submit a written recommendation to the
Proxy Coordinator and the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
referral items pursuant to the Funds' "Proxy Voting Procedures." The
Proxy Coordinator, in consultation with the Senior Vice President,
Executive Vice President and/or the Chair of the Board Policy and
Nominating Committee, as appropriate, will determine how the Funds'
proxies will be voted. When indicated, the Chair of the Board Policy
and Nominating Committee may consult with other members of the Committee
or the full board of Trustees.
The following guidelines are grouped according to the types of proposals
generally presented to shareholders. Part I deals with proposals which
have been approved and recommended by a company's board of directors.
Part II deals with proposals submitted by shareholders for inclusion in
proxy statements. Part III addresses unique considerations pertaining
to foreign issuers.
I. Board-Approved Proposals
- ---------------------------
The vast majority of matters presented to shareholders for a vote
involve proposals made by a company itself (sometimes referred to as
"management proposals"), which have been approved and recommended by its
board of directors. In view of the enhanced corporate governance
practices currently being implemented in public companies and the Funds'
intent to hold corporate boards accountable for their actions in
promoting shareholder interests, the Funds' proxies generally will be
voted in support of decisions reached by independent boards of
directors. Accordingly, the Funds' proxies will be voted for
board-approved proposals, except as follows:
A. Matters Relating to the Board of Directors
- ---------------------------------------------
The board of directors has the important role of overseeing management
and its performance on behalf of shareholders. The Funds' proxies will
be voted for the election of the company's nominees for directors and
for board-approved proposals on other matters relating to the board of
directors (provided that such nominees and other matters have been
approved by an independent nominating committee), except as follows:
* The Funds will withhold votes for the entire board of directors if
* The board does not have a majority of independent directors; or
* The board does not have nominating, audit and compensation committees
composed solely of independent directors.
Commentary: While these requirements will likely become mandatory for
most public companies in the near future as a result of pending NYSE and
NASDAQ rule proposals, the Funds' Trustees believe that there is no
excuse for public company boards that fail to implement these vital
governance reforms at their next annual meeting. For these purposes, an
"independent director" is a director who meets all requirements to serve
as an independent director of a company under the pending NYSE rule
proposals (i.e., no material business relationships with the company, no
present or recent employment relationship with the company (including
employment of immediate family members) and, in the case of audit
committee members, no compensation for non-board services). As
indicated below, the Funds will generally vote on a case-by-case basis
on board-approved proposals where the board fails to meet these basic
independence standards.
* The Funds will withhold votes for any nominee for director who is
considered an independent director by the company and who has received
compensation from the company other than for service as a director
(e.g., investment banking, consulting, legal or financial advisory
fees).
Commentary: The Funds' Trustees believe that receipt of compensation
for services other than service as a director raises significant
independence issues. The Funds will withhold votes for any nominee for
director who is considered an independent director by the company and
who receives such compensation.
* The Funds will withhold votes for the entire board of directors if the
board has more than 19 members or fewer than five members, absent
special circumstances.
Commentary: The Funds' Trustees believe that the size of the board of
directors can have a direct impact on the ability of the board to govern
effectively. Boards that have too many members can be unwieldy and
ultimately inhibit their ability to oversee management performance.
Boards that have too few members can stifle innovation and lead to
excessive influence by management.
* The Funds will vote on a case-by-case basis in contested elections of
directors.
* The Funds will withhold votes for any nominee for director who attends
less than 75% of board and committee meetings without valid reasons for
the absences (i.e., illness, personal emergency, etc.).
Commentary: Being a director of a company requires a significant time
commitment to adequately prepare for and attend the company's board and
committee meetings. Directors must be able to commit the time and
attention necessary to perform their fiduciary duties in proper fashion,
particularly in times of crisis.
The Funds' Trustees are concerned about over-committed directors. In
some cases, directors may serve on too many boards to make a meaningful
contribution. This may be particularly true for senior executives of
public companies (or other directors with substantially full-time
employment) who serve on more than a few outside boards. The Funds may
withhold votes from such directors on a case-by-case basis where it
appears that they may be unable to discharge their duties properly
because of excessive commitments.
* The Funds will withhold votes for any nominee for director of a public
company (Company A) who is employed as a senior executive of another
public company (Company B) if a director of Company B serves as a senior
executive of Company A (commonly referred to as an "interlocking
directorate").
Commentary: The Funds' Trustees believe that interlocking directorships
are inconsistent with the degree of independence required for outside
directors of public companies.
Board independence depends not only on its members' individual
relationships, but also the board's overall attitude toward management.
Independent boards are committed to good corporate governance practices
and, by providing objective independent judgment, enhancing shareholder
value. The Funds may withhold votes on a case-by-case basis from some or
all directors that, through their lack of independence, have failed to
observe good corporate governance practices or, through specific
corporate action, have demonstrated a disregard for the interest of
shareholders.
* The Funds will vote against proposals to classify a board, absent
special circumstances indicating that shareholder interests would be
better served by this structure.
Commentary: Under a typical classified board structure, the directors
are divided into three classes, with each class serving a three-year
term. The classified board structure results in directors serving
staggered terms, with usually only a third of the directors up for
re-election at any given annual meeting. The Funds' Trustees generally
believe that it is appropriate for directors to stand for election each
year, but recognize that, in special circumstances, shareholder
interests may be better served under a classified board structure.
B. Executive Compensation
- -------------------------
The Funds generally favor compensation programs that relate executive
compensation to a company's long-term performance. The Funds will vote
on a case-by-case basis on board-approved proposals relating to
executive compensation, except as follows:
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for stock option plans which
will result in an average annual dilution of 1.67% or less (including
all equity-based plans).
* The Funds will vote against stock option plans that permit replacing
or repricing of underwater options (and against any proposal to
authorize such replacement or repricing of underwater options).
* The Funds will vote against stock option plans that permit issuance of
options with an exercise price below the stock's current market price.
* Except where the Funds are otherwise withholding votes for the entire
board of directors, the Funds will vote for employee stock purchase
plans that have the following features: (1) the shares purchased under
the plan are acquired for no less than 85% of their market value, (2)
the offering period under the plan is 27 months or less, and (3)
dilution is 10% or less.
Commentary: Companies should have compensation programs that are
reasonable and that align shareholder and management interests over the
longer term. Further, disclosure of compensation programs should provide
absolute transparency to shareholders regarding the sources and amounts
of, and the factors influencing, executive compensation. Appropriately
designed equity-based compensation plans can be an effective way to
align the interests of long-term shareholders with the interests of
management. The Funds may vote against executive compensation proposals
on a case-by-case basis where compensation is excessive by reasonable
corporate standards, or where a company fails to provide transparent
disclosure of executive compensation. In voting on proposals relating to
executive compensation, the Funds will consider whether the proposal has
been approved by an independent compensation committee of the board.
C. Capitalization
- -----------------
Many proxy proposals involve changes in a company's capitalization,
including the authorization of additional stock, the repurchase of
outstanding stock or the approval of a stock split. The management of a
company's capital structure involves a number of important issues,
including cash flow, financing needs and market conditions that are
unique to the circumstances of each company. As a result, the Funds will
vote on a case-by-case basis on board-approved proposals involving
changes to a company's capitalization, except that where the Funds are
not otherwise withholding votes from the entire board of directors:
* The Funds will vote for proposals relating to the authorization of
additional common stock (except where such proposals relate to a
specific transaction).
* The Funds will vote for proposals to effect stock splits (excluding
reverse stock splits.)
* The Funds will vote for proposals authorizing share repurchase
programs.
Commentary: A company may decide to authorize additional shares of
common stock for reasons relating to executive compensation or for
routine business purposes. For the most part, these decisions are best
left to the board of directors and senior management. The Funds will
vote on a case-by-case basis, however, on other proposals to change a
company's capitalization, including the authorization of common stock
with special voting rights, the authorization or issuance of common
stock in connection with a specific transaction (e.g., an acquisition,
merger or reorganization) or the authorization or issuance of preferred
stock. Actions such as these involve a number of considerations that may
impact a shareholder's investment and warrant a case-by-case
determination.
D. Acquisitions, Mergers, Reincorporations, Reorganizations and
Other Transactions
- ---------------------------------------------------------------
Shareholders may be confronted with a number of different types of
transactions, including acquisitions, mergers, reorganizations involving
business combinations, liquidations and sale of all or substantially all
of a company's assets, which may require their consent. Voting on such
proposals involves considerations unique to each transaction. As a
result, the Funds will vote on a case-by-case basis on board-approved
proposals to effect these types of transactions, except as follows:
* The Funds will vote for mergers and reorganizations involving business
combinations designed solely to reincorporate a company in Delaware.
Commentary: A company may reincorporate into another state through a
merger or reorganization by setting up a "shell" company in a different
state and then merging the company into the new company. While
reincorporation into states with extensive and established corporate
laws - notably Delaware - provides companies and shareholders with a
more well-defined legal framework, generally speaking, shareholders must
carefully consider the reasons for a reincorporation into another
jurisdiction, including especially offshore jurisdictions.
E. Anti-Takeover Measures
- -------------------------
Some proxy proposals involve efforts by management to make it more
difficult for an outside party to take control of the company without
the approval of the company's board of directors. These include adoption
of a shareholder rights plan, requiring supermajority voting on
particular issues, adoption of fair price provisions, issuance of blank
check preferred stock and creating a separate class of stock with
disparate voting rights. Such proposals may adversely affect shareholder
rights, lead to management entrenchment, or create conflicts of
interest. As a result, the Funds will vote against board-approved
proposals to adopt such anti-takeover measures, except as follows:
* The Funds will vote on a case-by-case basis on proposals to ratify or
approve shareholder rights plans (commonly referred to as "poison
pills"); and
* The Funds will vote on a case-by-case basis on proposals to adopt fair
price provisions.
Commentary: The Funds' Trustees recognize that poison pills and fair
price provisions may enhance shareholder value under certain
circumstances. As a result, the Funds will consider proposals to approve
such matters on a case-by-case basis.
F. Other Business Matters
- -------------------------
Many proxies involve approval of routine business matters, such as
changing the company's name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting. For the most
part, these routine matters do not materially affect shareholder
interests and are best left to the board of directors and senior
management of the company. The Funds will vote for board-approved
proposals approving such matters, except as follows:
* The Funds will vote on a case-by-case basis on proposals to amend a
company's charter or bylaws (except for charter amendments necessary or
to effect stock splits to change a company's name or to authorize
additional shares of common stock).
* The Funds will vote against authorization to transact other
unidentified, substantive business at the meeting.
* The Funds will vote on a case-by-case basis on other business matters
where the Funds are otherwise withholding votes for the entire board of
directors.
Commentary: Charter and bylaw amendments and the transaction of other
unidentified, substantive business at a shareholder meeting may directly
affect shareholder rights and have a significant impact on shareholder
value. As a result, the Funds do not view such items as routine business
matters. Putnam Management's investment professionals and the Funds'
proxy voting service may also bring to the Proxy Coordinator's attention
company-specific items which they believe to be non-routine and
warranting special consideration. Under these circumstances, the Funds
will vote on a case-by-case basis.
II. Shareholder Proposals
- -------------------------
SEC regulations permit shareholders to submit proposals for inclusion in
a company's proxy statement. These proposals generally seek to change
some aspect of a company's corporate governance structure or to change
some aspect of its business operations. The Funds will vote in
accordance with the recommendation of the company's board of directors
on all shareholder proposals, except as follows:
* The Funds will vote for shareholder proposals to declassify a board,
absent special circumstances which would indicate that shareholder
interests are better served by a classified board structure.
* The Funds will vote for shareholder proposals to require shareholder
approval of shareholder rights plans.
* The Funds will vote for shareholder proposals that are consistent with
the Fund's proxy voting guidelines for board-approved proposals.
* The Funds will vote on a case-by-case basis on other shareholder
proposals where the Funds are otherwise withholding votes for the entire
board of directors.
Commentary: In light of the substantial reforms in corporate governance
that are currently underway, the Funds' Trustees believe that effective
corporate reforms should be promoted by holding boards of directors -
and in particular, their independent directors - accountable for their
actions, rather than imposing additional legal restrictions on board
governance through piecemeal proposals. Generally speaking, shareholder
proposals relating to business operations are often motivated primarily
by political or social concerns, rather than the interests of
shareholders as investors in an economic enterprise. As stated above,
the Funds' Trustees believe that boards of directors and management are
responsible for ensuring that their businesses are operating in
accordance with high legal and ethical standards and should be held
accountable for resulting corporate behavior. Accordingly, the Funds
will generally support the recommendations of boards that meet the basic
independence and governance standards established in these guidelines.
Where boards fail to meet these standards, the Funds will generally
evaluate shareholder proposals on a case-by-case basis.
III. Voting Shares of Foreign Issuers
- -------------------------------------
Many of the Funds invest on a global basis and, as a result, they may be
required to vote shares held in foreign issuers - i.e., issuers that are
incorporated under the laws of a foreign jurisdiction and that are not
listed a U.S. securities exchange or the NASDAQ stock market. Because
foreign issuers are incorporated under the laws of countries and
jurisdictions outside the U.S., protection for shareholders may vary
significantly from jurisdiction to jurisdiction. Laws governing foreign
issuers may, in some cases, provide substantially less protection for
shareholders. As a result, the foregoing guidelines, which are premised
on the existence of a sound corporate governance and disclosure
framework, may not be appropriate under some circumstances for foreign
issuers. The Funds will vote proxies of foreign issuers in accordance
with the foregoing guidelines where applicable, except as follows:
* The Funds will vote for shareholder proposals calling for a majority
of the directors to be independent of management.
* The Funds will vote for shareholder proposals seeking to increase the
independence of board nominating, audit and compensation committees.
* The Funds will vote for shareholder proposals that implement corporate
governance standards similar to those established under U.S. federal law
and the listing requirements of U.S. stock exchanges, and that do not
otherwise violate the laws of the jurisdiction under which the company
is incorporated.
* The Funds will vote on case-by-case basis on proposals relating to (1)
the issuance of common stock in excess of 20% of a company's outstanding
common stock where shareholders do not have preemptive rights, or (2)
the issuance of common stock in excess of 100% of a company's
outstanding common stock where shareholders have preemptive rights.
Commentary: In many non-U.S. markets, shareholders who vote proxies for
shares of a foreign issuer are not able to trade in that company's stock
within a given period of time on or around the shareholder meeting date.
This practice is known as "share blocking." In countries where share
blocking is practiced, the Funds will vote proxies only with direction
from Putnam Management's investment professionals.
As adopted March 14, 2003
Proxy Voting Procedures of the Putnam Funds
- -------------------------------------------
The Role of the Funds' Trustees
- -------------------------------
The Trustees of the Putnam Funds exercise control of the voting of
proxies through their Board Policy and Nominating Committee, which is
composed entirely of independent Trustees. The Board Policy and
Nominating Committee oversees the proxy voting process and participates,
as needed, in the resolution of issues which need to be handled on a
case-by-case basis. The Committee annually reviews and recommends for
approval by the Trustees guidelines governing the Funds' proxy votes,
including how the Funds vote on specific proposals and which matters are
to be considered on a case-by-case basis. The Trustees are assisted in
this process by their independent administrative staff ("Fund
Administration"), independent legal counsel, and an independent proxy
voting service. The Trustees also receive assistance from Putnam
Investment Management, LLC ("Putnam Management"), the Funds' investment
adviser, on matters involving investment judgments. In all cases, the
ultimate decision on voting proxies rests with the Trustees, acting as
fiduciaries on behalf of the shareholders of the Funds.
The Role of the Proxy Voting Service
- ------------------------------------
The Funds have engaged an independent proxy voting service to assist in
the voting of proxies. The proxy voting service is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the Funds' portfolio
securities are processed in a timely fashion. To the extent applicable,
the proxy voting service votes all proxies in accordance with the proxy
voting guidelines established by the Trustees. The proxy voting service
will refer proxy questions to the Proxy Coordinator (described below)
for instructions under circumstances where: (1) the application of the
proxy voting guidelines is unclear, (2) a particular proxy question is
not covered by the guidelines, or (3) the guidelines call for specific
instructions on a case-by-case basis. The proxy voting service is also
requested to call to the Proxy Coordinator's attention specific proxy
questions which, while governed by a guideline, appear to involve
unusual or controversial issues. The Funds also utilize research
services relating to proxy questions provided by the proxy voting
service and by other firms.
The Role of the Proxy Coordinator
- ---------------------------------
Each year, a member of Fund Administration is appointed Proxy
Coordinator to assist in the coordination and voting of the Funds'
proxies. The Proxy Coordinator will deal directly with the proxy voting
service and, in the case of proxy questions referred by the proxy voting
service, will solicit voting recommendations and instructions from Fund
Administration, the Chair of the Board Policy and Nominating Committee,
and Putnam Management's investment professionals, as appropriate. The
Proxy Coordinator is responsible for ensuring that these questions and
referrals are responded to in a timely fashion and for transmitting
appropriate voting instructions to the proxy voting service.
Voting Procedures for Referral Items
- -------------------------------------
As discussed above, the proxy voting service will refer proxy questions
to the Proxy Coordinator under certain circumstances. When the
application of the proxy voting guidelines is unclear or a particular
proxy question is not covered by the guidelines (and does not involve
investment considerations), the Proxy Coordinator will assist in
interpreting the guidelines and, as appropriate, consult with the Senior
Vice President of Fund Administration, the Executive Vice President of
Fund Administration and the Chair of the Board Policy and Nominating
Committee on how the Funds' shares will be voted.
For proxy questions that require a case-by-case analysis pursuant to the
guidelines or that are not covered by the guidelines but involve
investment considerations, the Proxy Coordinator will refer such
questions, through a written request, to Putnam Management's investment
professionals for a voting recommendation. Such referrals will be made
in cooperation with the person or persons designated by Putnam
Management's Legal and Compliance Department to assist in processing
such referral items. In connection with each such referral item, the
Legal and Compliance Department will conduct a conflicts of interest
review, as described below under "Conflicts of Interest," and provide a
conflicts of interest report (the "Conflicts Report") to the Proxy
Coordinator describing the results of such review. After receiving a
referral item from the Proxy Coordinator, Putnam Management's investment
professionals will provide a written recommendation to the Proxy
Coordinator and the person or persons designated by the Legal and
Compliance Department to assist in processing referral items. Such
recommendation will set forth (1) how the proxies should be voted, (2)
the basis and rationale for such recommendation, and (3) any contacts
the investment professionals have had with respect to the referral item
with non-investment personnel of Putnam Management or with outside
parties (except for routine communications from proxy solicitors). The
Proxy Coordinator will then review the investment professionals'
recommendation and the Conflicts Report with the Senior Vice President
and/or Executive Vice President in determining how to vote the Funds'
proxies. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to Putnam Management's investment
professionals, the voting recommendation and the Conflicts Report.
In some situations, the Proxy Coordinator, the Senior Vice President
and/or the Executive Vice President may determine that a particular
proxy question raises policy issues requiring consultation with the
Chair of the Board Policy and Nominating Committee who, in turn, may
decide to bring the particular proxy question to the Committee or the
full board of Trustees for consideration.
Conflicts of Interest
- ---------------------
Occasions may arise where a person or organization involved in the proxy
voting process may have a conflict of interest. A conflict of interest
may exist, for example, if Putnam Management has a business relationship
with (or is actively soliciting business from) either the company
soliciting the proxy or a third party that has a material interest in
the outcome of a proxy vote or that is actively lobbying for a
particular outcome of a proxy vote. Any individual with knowledge of a
personal conflict of interest (e.g., familial relationship with company
management) relating to a particular referral item shall disclose that
conflict to the Proxy Coordinator and the Legal and Compliance
Department and otherwise remove himself or herself from the proxy voting
process. The Legal and Compliance Department will review each item
referred to Putnam Management's investment professionals to determine if
a conflict of interest exists and will provide the Proxy Coordinator
with a Conflicts Report for each referral item that (1) describes any
conflict of interest; (2) discusses the procedures used to address such
conflict of interest; and (3) discloses any contacts from parties
outside Putnam Management (other than routine communications from proxy
solicitors) with respect to the referral item not otherwise reported in
an investment professional's recommendation. The Conflicts Report will
also include written confirmation that any recommendation from an
investment professional provided under circumstances where a conflict of
interest exists was made solely on the investment merits and without
regard to any other consideration.
As adopted March 14, 2003
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
(a) 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.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(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: December 23, 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: December 23, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: December 23, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: December 23, 2003