Putnam Master Intermediate Income Trust SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK 3-31-01 [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Shareholder: Putnam Master Intermediate Income Trust participated in the favorable bond markets created by equity investors' flight to safety during the first half of the fund's fiscal year, though to a lesser degree than portfolios with greater exposure to U.S. Treasury and top-rated corporate bonds. This is as it should be; the fund's more aggressive positioning within the fixed-income spectrum is designed to provide higher levels of current income over time than more conservative portfolios. The tradeoff, of course, is that in market environments such as we are now experiencing, the fund's net asset value will tend to fare less well than its conservative siblings, though your fund's management team remains steadfast in its commitment to the fund's secondary objective of capital preservation. In the following report, Fund Manager David Waldman reviews performance and strategy during the semiannual period and offers his insights on prospects for the remainder of fiscal 2001. Respectfully yours, /S/ JOHN A. HILL /S/ GEORGE PUTNAM, III John A. Hill George Putnam, III Chairman of the Trustees President of the Funds May 18, 2001 REPORT FROM FUND MANAGEMENT David L. Waldman and the Core Fixed Income Team Volatility dominated the U.S. economic environment during Putnam Master Intermediate Income Trust's semiannual period, which ended March 31, 2001. In the fall of 2000, a rapidly decelerating economy combined with sharp declines in the equity markets to signal an end to the Federal Reserve Board's short-term interest rate increases. U.S. bond markets rallied as investors became more averse to risk, moving assets into the relative safety of bonds and away from stocks. As 2001 approached, equities continued to lose ground while consumer confidence quickly deteriorated over uncertainty regarding the U.S. slowdown. In response to the sagging economy, the Fed adopted an aggressive easing policy, which resulted in a series of interest-rate reductions, totaling 1.5 percentage points in the first quarter 2001. This, along with a continued flight to quality by investors from the beleaguered equity markets, provided your fund with positive returns. Total return for 6 months ended 3/31/01 NAV Market price ------------------------------------------------------------------------- 2.19% 7.32% ------------------------------------------------------------------------- Past performance is not indicative of future results. Performance based on market price will vary from performance based on the fund's net asset value. Performance information for longer periods begins on page 6. * HIGH YIELD BONDS BEGIN RECOVERY In the fourth quarter of 2000, profit warnings and economic indicators suggesting a rapidly decelerating U.S. economy sent high-yield markets plunging, consistent with the performance of U.S. equity markets. Overall, the high-yield corporate sector was one of the weakest fixed-income sectors in 2000. However, the market environment for high-yield bonds changed dramatically when the Fed reduced rates in January. [GRAPHIC OMITTED: horizontal bar chart TOP COUNTRY ALLOCATIONS (INTERNATIONAL SECTOR)] TOP COUNTRY ALLOCATIONS (INTERNATIONAL SECTOR)* Germany 4.8% Canada 2.5% Italy 2.1% United Kingdom 2.0% Brazil 2.0% Footnote reads: *Based on net assets as of 3/31/01. Holdings will vary over time. The interest-rate cuts resuscitated performance of the non-Treasury sectors of the bond market, including high-yield bonds, which experienced a sharp rebound that endured through mid-February. Deteriorating economic and corporate fundamentals forced the sector to give back some of its gains in March, although it remained the strongest-performing fixed income sector for the first quarter 2001. Although the sector was unable to recoup all of its losses sustained in fourth quarter of 2000, our increased weighting to the sector beginning in December, benefited the fund once the rally began. Investment-grade bonds advanced during the period, posting solid absolute gains in a volatile and uncertain economic environment. U.S. Treasuries were the best-performing issues in the fourth quarter of 2000 as the yield curve continued to reverse its inverted posture and the Fed adopted an easing bias. * FIXED-INCOME SECTOR SHINES As equity markets plummeted, a flight to quality boosted the performance of U.S. Treasury bonds. Bond outperformance continued into 2001, facilitated by an aggressive Fed easing policy and continued equity market volatility. In January, the yield curve steepening began to accelerate, with short- and intermediate-term yields falling more than longer-term yields. The fund's focus on short- and intermediate-maturity fixed-income securities was a significant benefit to its performance during the period. As the yield curve dramatically steepened, shorter-maturity issues outperformed longer maturities. In addition to Treasury securities, other investment-grade sectors benefited as investors found these higher-yielding securities more attractive. Corporate bonds represented the best-performing investment-grade sector in the first quarter of 2001, reversing some of their poor performance of last year. Despite increased volatility combined with higher prepayments, mortgage-backed securities generated attractive absolute returns, which contributed to the fund's overall performance. Asset-backed securities and commercial mortgage-backed securities performed relatively well during the period, and the increased weighting in these sectors was a small benefit to the fund as well. * INTERNATIONAL MARKETS: MIXED RESULTS Within the developed-market universe, global bonds advanced during the period. Escalating evidence of a global economic slowdown at year's end led to central banks' initiation of monetary easing cycles in the first quarter of 2001. Additionally, sovereign bonds benefited from growing investor risk aversion caused by steep equity-market declines. Specifically, holdings in Greece and New Zealand contributed to positive performance. In the fourth quarter of 2000, the fund's currency exposure helped as investors' outlook for the U.S. economy grew gloomier and the U.S. dollar weakened, whereas in the first quarter of 2001, the U.S. dollar strengthened and the fund's non-U.S. currency exposure detracted from performance. The semiannual period proved extremely volatile for emerging market bonds. An increase in geopolitical risks combined with slowing economic growth created uncertainty for emerging market investors. While the market rebounded in December and January along with the Fed's easing bias, liquidity issues in Argentina and Turkey lingered throughout the period. The fund's limited exposure to Argentina helped performance as the country's markets performed poorly in the wake of political and economic uncertainties. In addition, the fund's position in Russia, an outperforming country during the period, also contributed positively to performance. * OUTLOOK POSITIVE FOR REST OF 2001 As we look toward the future, we expect that the economic environment will eventually stabilize and low inflation should remain a reality. Further interest-rate cuts by the Fed and the likelihood of a federal income-tax cut should help the economy rebound in the second half of 2001. With regard to the investment-grade sectors, we believe mortgage-backed securities should remain attractive, despite the uncertainty surrounding prepayments. High-yield bonds were temporarily paralyzed by fears of negative corporate earnings developments; however, these fears will most likely dissipate as the Fed continues to cut interest rates and the economy stabilizes. In addition, investors have begun to take notice of the value offered in the current yields of this sector and are reversing their previous cash outflow patterns. [GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR] TOP THREE HOLDINGS PER SECTOR HIGH-YIELD BONDS Echostar Broadband Corp. sr. notes 10 3/8s, 2007 Voicestream Wireless Corp. sr. notes 10 3/8s, 2009 Nextel Communications, Inc. 144A sr. notes 9 1/2s. 2011 FOREIGN BONDS Italy (Government of) treasury bonds 5 1/2s, 2010 Germany (Federal Republic of) bonds Ser. 132, 4 1/8s, 2004 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 U.S. INVESTMENT-GRADE SECURITIES U.S. Treasury Notes, 5 3/4s, August 15, 2010 U.S. Treasury Strip, zero %, August 15, 2009 Federal National Mortgage Association, Pass-Through Certificates, 8s, with due dates from July 1, 2028 to March 1, 2031 Footnote reads: These holdings represent 19.5% of the fund's net assets as of 3/31/01. Portfolio holdings will vary over time. Looking ahead at international markets, we remain cautious on Japan as we perceive little additional value in the Japanese bond market with interest rates returning to zero. In addition, we see value in core Europe as slowing growth should lead to lower yields. We have become more cautious on emerging-market debt, given the risks associated with specific countries. Recent U.S. equity-market declines have increased investor risk aversion, thereby diminishing opportunities for financing. With the probability of continued currency volatility, we have reduced the fund's non-U.S. currency exposure. Although some volatility and uncertainty may be in store, we believe the fund is well diversified and positioned to perform well the rest of the fiscal year. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 3/31/01, there is no guarantee the fund will continue to hold these securities in the future. International investments are subject to certain risks, such as currency fluctuations, economic instability, and political developments. While the U.S. government backing of individual securities does not insure your principal, which will fluctuate, it does guarantee that the fund's government-backed holdings will make timely payments of interest and principal. Mortgage-backed securities in the portfolio may be subject to prepayment risk. The lower credit ratings of high-yield bonds reflect a greater possibility that adverse changes in the economy or poor performance by the issuers of these bonds will affect the issuer's ability to pay principal and interest. A NOTE ABOUT DUPLICATE MAILINGS In response to investors' requests, the SEC has modified mailing regulations for semiannual and annual reports and prospectuses. Putnam is now able to send a single copy of these materials to customers who share the same address. This change will automatically apply to all shareholders except those who notify us. If you prefer to receive your own copy, please call Putnam at 1-800-225-1581. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. Putnam Master Intermediate Income Trust is designed for investors seeking high current income and relative stability of net asset value through U.S. government, investment-grade high-yield, and international fixed-income securities with limited maturities. TOTAL RETURN FOR PERIODS ENDED 3/31/01 Market NAV price ----------------------------------------------------------------- 6 months 2.19% 7.32% ----------------------------------------------------------------- 1 year 3.78 24.94 ----------------------------------------------------------------- 5 years 28.55 39.81 Annual average 5.15 6.93 ----------------------------------------------------------------- 10 years 118.38 125.33 Annual average 8.12 8.46 ----------------------------------------------------------------- Annual average (life of fund, since 4/29/88) 7.74 6.70 ----------------------------------------------------------------- COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/01 Lehman Bros. Salomon Bros. Credit Suisse Government Non-U.S. First Boston Intermediate World Govt. High Yield Consumer Bond Index Bond Index Index price index ------------------------------------------------------------------------------------------------------- 6 months 7.09% -1.10% -0.38% 1.56% ------------------------------------------------------------------------------------------------------- 1 year 11.96 -6.32 0.76 2.92 ------------------------------------------------------------------------------------------------------- 5 years 40.00 4.94 28.05 13.23 Annual average 6.96 0.97 5.07 2.52 ------------------------------------------------------------------------------------------------------- 10 years 101.87 91.36 155.85 30.59 Annual average 7.28 6.70 9.85 2.70 ------------------------------------------------------------------------------------------------------- Annual average (life of fund, since 4/29/88) 7.78 5.80 9.00 3.22 ------------------------------------------------------------------------------------------------------- Past performance is no assurance of future results. More recent returns may be more or less than those shown. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns, net asset value and market price will fluctuate so that an investor's shares when sold may be worth more or less than their original cost. PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 3/31/01 -------------------------------------------------- Distributions from common shares -------------------------------------------------- Number 6 -------------------------------------------------- Income $0.318 -------------------------------------------------- Capital gains -- -------------------------------------------------- Total $0.318 -------------------------------------------------- Share value: NAV Market price -------------------------------------------------- 9/30/00 $7.13 $6.438 -------------------------------------------------- 3/31/01 6.94 6.580 -------------------------------------------------- Current return -------------------------------------------------- Current dividend rate 1 9.16% 9.67% -------------------------------------------------- 1 Income portion of most recent distribution, annualized and divided by NAV or market price at end of period. TERMS AND DEFINITIONS Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding common shares. Market price is the current trading price of one share of the fund. Market prices are set by transactions between buyers and sellers on the New York Stock Exchange. COMPARATIVE BENCHMARKS Lehman Brothers Government Intermediate Bond Index* is an unmanaged list of U.S. government and mortgage-backed securities composed of all bonds covered by the Lehman Brothers Government Bond Index with maturities between 1 and 9.99 years. Salomon Brothers Non-U.S. World Government Bond Index* is an unmanaged list of bonds issued by 10 countries. Credit Suisse First Boston High Yield Index* is an unmanaged list of lower-rated higher-yielding U.S. corporate bonds. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. *Securities indexes assume reinvestment of all distributions and interest payments and do not take into account brokerage fees or taxes. Securities in the fund do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report constitute the fund's financial statements. The fund's portfolio lists all the fund's investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification. Statement of assets and liabilities shows how the fund's net assets and share price 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 for the reporting period. This is determined by adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses. This statement also lists any net gain or loss the fund realized on the sales of its holdings and -- for holdings that remain in the portfolio -- any change in unrealized gains or losses over the period. Statement of changes in net assets shows how the fund's net assets were affected by distributions to shareholders and by changes in the number of the fund's shares. It lists distributions and their sources (net investment income or realized capital gains) over the current reporting period and the most recent fiscal year-end. The distributions listed here may not match the sources listed in the Statement of operations because the distributions are determined on a tax basis and may be paid in a different period from the one in which they were earned. Financial highlights provide an overview of the fund's investment results, per-share distributions, expense ratios, net investment income ratios and portfolio turnover in one summary table, reflecting the five most recent reporting periods. In a semiannual report, the highlight table also includes the current reporting period. For open-end funds, a separate table is provided for each share class. THE FUND'S PORTFOLIO March 31, 2001 (Unaudited) CORPORATE BONDS AND NOTES (49.4%) (a) PRINCIPAL AMOUNT VALUE Advertising and Marketing Services (0.3%) ------------------------------------------------------------------------------------------------------------------- $ 165,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 169,950 620,000 AOA Holdings LLC sr. notes 10 3/8s, 2006 589,000 787,920 Interact Operating Co. 144A notes 14s, 2003 15,759 460,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 480,700 600,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 615,000 110,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 112,200 ------------- 1,982,609 Aerospace and Defense (1.2%) ------------------------------------------------------------------------------------------------------------------- 200,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 179,000 1,140,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 1,020,300 1,035,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 1,063,463 810,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 781,650 1,000,000 Decrane Aircraft Holdings Co. company guaranty Ser. B, 12s, 2008 952,500 1,130,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,135,650 330,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 325,050 410,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 412,050 1,150,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 1,153,940 10,000 Sequa Corp. sr. notes 9s, 2009 10,075 1,150,000 Sequa Corp. 144A sr. notes 8 7/8s, 2008 1,158,625 ------------- 8,192,303 Agriculture (0.3%) ------------------------------------------------------------------------------------------------------------------- 2,009,455 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 1,908,982 Airlines (0.6%) ------------------------------------------------------------------------------------------------------------------- 360,000 Air Canada Corp. 144A sr. notes 10 1/4s, 2011 (Canada) 349,200 1,030,000 Calair LLC 144A company guaranty 8 1/8s, 2008 991,375 240,000 Northwest Airlines, Inc. company guaranty 8 3/8s, 2004 237,634 540,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 529,340 2,000,000 US Air, Inc. pass-thru certificates Ser. 93-A2, 9 5/8s, 2003 1,992,760 ------------- 4,100,309 Automotive (1.2%) ------------------------------------------------------------------------------------------------------------------- 844,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 793,360 250,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 235,000 540,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 445,500 640,000 Dana Corp. notes 6 1/4s, 2004 574,266 750,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 652,500 210,000 Exide Corp. sr. notes 10s, 2005 159,600 260,000 Federal Mogul Corp. notes 7 7/8s, 2010 33,800 1,220,000 Federal Mogul Corp. notes 7 3/4s, 2006 170,800 1,090,000 Hayes Lemmerz International, Inc. company guaranty Ser. B, 8 1/4s, 2008 741,200 460,000 Hayes Wheels International, Inc. company guaranty 11s, 2006 381,800 845,000 Hayes Wheels International, Inc. company guaranty Ser. B, 9 1/8s, 2007 608,400 940,000 Hayes Wheels International, Inc. 144A sr. sub. notes 9 1/8s, 2007 667,400 580,000 Lear Corp. sub. notes 9 1/2s, 2006 596,414 580,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 579,490 650,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 657,774 1,860,000 Oxford Automotive, Inc. company guaranty Ser. D, 10 1/8s, 2007 1,134,600 200,000 Safety Components International, Inc. sr. sub. notes Ser. B, 10 1/8s, 2007 (In default) (NON) 80,500 360,000 Tenneco, Inc. company guaranty 11 5/8s, 2009 (Malaysia) 127,800 ------------- 8,640,204 Banking (1.0%) ------------------------------------------------------------------------------------------------------------------- 460,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 457,700 1,060,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 1,040,644 2,180,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 2,158,200 670,000 Local Financial Corp. sr. notes 11s, 2004 670,000 2,130,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 2,257,800 ------------- 6,584,344 Beverage (0.1%) ------------------------------------------------------------------------------------------------------------------- 150,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 151,500 470,000 Constellation Brands, Inc. 144A sr. notes 8s, 2008 480,575 ------------- 632,075 Broadcasting (3.5%) ------------------------------------------------------------------------------------------------------------------- 1,140,000 Acme Television 144A sr. disc. notes 10 7/8s, 2004 1,060,200 350,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 348,250 245,900 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 271,720 10,263 Australis Media, Ltd. sr. disc. notes 15 3/4s, 2003 (Australia) (In default) (NON) (PIK) 1 840,000 Benedek Communications Corp. sr. disc. notes stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 562,800 120,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009 (United Kingdom) 120,887 210,000 British Sky Broadcasting PLC company guaranty 7.3s, 2006 (United Kingdom) 208,937 400,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009 (United Kingdom) 372,404 115,000 Central European Media Enterprises, Ltd. sr. notes 9 3/8s, 2004 (Bermuda) 40,250 1,910,000 Chancellor Media Corp. company guaranty 8s, 2008 1,979,238 256,020 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 273,941 490,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 524,300 4,030,000 Echostar Broadband Corp. sr. notes 10 3/8s, 2007 4,110,600 1,190,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 1,184,050 400,000 Emmis Escrow Corp. 144A sr. disc. notes stepped-coupon zero % (12 1/2s, 3/15/06), 2011 (STP) 221,000 770,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon zero % (10 1/4s, 11/1/02), 2007 (STP) 662,200 1,010,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,010,000 350,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 359,625 560,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 568,400 530,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 360,400 1,650,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero % (10s, 3/1/03), 2008 (STP) 1,188,000 300,000 LIN Television Corp. company guaranty 8 3/8s, 2008 270,000 600,000 News America, Inc. sr. notes 6 5/8s, 2008 580,668 610,000 Paxson Communications Corp. 144A sr. sub. notes 11 5/8s, 2002 623,725 25,000 Pegasus Communications Corp. sr. notes 12 1/2s, 2007 25,500 2,170,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 2,094,050 90,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 91,800 997,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 985,535 275,000 Radio One, Inc. company guaranty Ser. B, 12s, 2004 288,750 30,000 Sinclair Broadcast Group, Inc. sr. sub notes 10s, 2005 28,650 390,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 358,800 440,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 398,200 1,530,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 1,507,050 590,000 XM Satellite Radio Holdings, Inc. sec. notes 14s, 2010 324,500 990,000 Young Broadcasting Inc. 144A sr. sub notes 10s, 2011 955,350 ------------- 23,959,781 Building Materials (0.5%) ------------------------------------------------------------------------------------------------------------------- 1,455,000 American Standard, Inc. company guaranty 7 5/8s, 2010 1,440,450 80,000 American Standard, Inc. company guaranty 7 1/8s, 2003 80,000 230,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 189,750 320,000 Building Materials Corp. of America company guaranty 8s, 2008 169,600 1,020,000 Dayton Superior Corp. company guaranty 13s, 2009 1,025,100 410,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 395,650 360,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 347,400 ------------- 3,647,950 Cable Television (3.3%) ------------------------------------------------------------------------------------------------------------------- 1,610,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010 1,698,550 2,013,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 2,018,033 1,450,000 Charter Communications Holdings, LLC sr. notes 11 1/8s, 2011 1,555,125 170,000 Charter Communications Holdings, LLC sr. notes 10 3/4s, 2009 181,050 490,000 Charter Communications Holdings, LLC sr. notes 10s, 2009 508,375 2,020,000 Charter Communications Holdings, LLC sr. notes 8 5/8s, 2009 1,944,250 310,000 Charter Communications Holdings, LLC sr. notes 8 1/4s, 2007 296,825 230,000 Charter Communications Holdings, LLC sr. disc. notes zero %, 2011 144,900 30,000 Comcast UK Cable, Ltd. deb. 10 3/4s, 2007 (Bermuda) 27,000 1,600,000 CSC Holdings, Inc. sr. sub notes 9 7/8s, 2006 1,664,000 2,700,000 Diamond Cable Communication PLC sr. disc. notes stepped-coupon zero % (10 3/4s, 2/15/02), 2007 (United Kingdom) (STP) 1,930,500 2,742,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 685,500 1,850,000 Insight Communications Company, Inc. 144A sr. disc. notes zero %, 2011 1,012,875 1,000,000 Insight Media bank term loan FRN 8.188s, 2009 (acquired 1/9/01, cost $998,500) (RES) 1,005,000 530,000 Insight Midwest LP/Insight Capital, Inc. 144A sr. notes 10 1/2s, 2010 565,775 650,000 International Cabletel, Inc. sr. disc. notes 11 1/2s, 2006 575,250 60,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero % (11 7/8s, 10/15/02), 2007 (STP) 15,000 420,000 NTL Communications Corp. sr. notes stepped-coupon Ser. B, zero % (12 3/8s, 10/1/03), 2008 (STP) 247,800 1,740,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 1,548,600 1,090,000 NTL, Inc. sr. notes Ser. A, 12 3/4s, 2005 1,046,400 100,000 RCN Corp. sr. disc. notes stepped-coupon zero % (11 1/8s, 10/15/02), 2007 (STP) 28,000 490,000 RCN Corp. sr. notes 10 1/8s, 2010 196,000 470,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero % (9.8s, 2/15/03), 2008 (STP) 117,500 230,000 Rogers Cablesystems, Ltd. deb. 10 1/8s, 2012 (Canada) 246,100 560,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005 (Argentina) (In default) (NON) 128,800 1,200,000 TeleWest Communications PLC sr. disc. notes stepped-coupon zero % (11 3/8s, 2/1/05), 2010 (United Kingdom) (STP) 684,000 390,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008 (United Kingdom) 397,800 410,000 TeleWest Communications PLC structured note (issued by DLJ International Capital) 10 7/8s, 2005 (Cayman Islands) 389,500 40,000 TeleWest Communications PLC sr. notes 9 7/8s, 2010 (United Kingdom) 37,600 260,000 TeleWest Communications PLC deb. 9 5/8s, 2006 (United Kingdom) 249,600 510,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon zero % (13 3/4s, 2/1/05), 2010 (Netherlands) (STP) 173,400 250,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon zero % (12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 75,000 2,170,000 United Pan-Europe N.V. 144A sr. disc. notes stepped-coupon zero % (12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 759,500 890,000 United Pan-Europe N.V. 144A bonds 10 7/8s, 2009 (Netherlands) 596,300 50,000 United Pan-Europe N.V. sr. notes Ser. B, 10 7/8s, 2007 (Netherlands) 33,000 ------------- 22,782,908 Chemicals (1.7%) ------------------------------------------------------------------------------------------------------------------- 910,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 809,900 210,000 Georgia Gulf Corp. company guaranty 10 3/8s, 2007 218,400 160,000 Hercules, Inc. 144A company guaranty 11 1/8s, 2007 161,600 30,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 23,400 2,100,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 2,163,000 910,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 855,400 2,150,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 2,203,750 1,520,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 1,561,800 2,000,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s, 2007 (Canada) (In default) (NON) 770,000 466,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 (In default) (NON) 125,820 370,000 PMD Group, Inc. 144A sr. sub notes 11s, 2011 384,800 340,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 176,800 760,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 349,600 357,928 Polytama International notes 11 1/4s, 2007 (Netherlands) 17,896 810,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 648,000 470,000 Scotts Co. (The) company guaranty 8 5/8s, 2009 474,700 325,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 39,000 680,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 639,200 220,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 99,000 200,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 165,000 ------------- 11,887,066 Commercial and Consumer Services (0.3%) ------------------------------------------------------------------------------------------------------------------- 1,530,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 1,552,950 190,000 Travel Centers of America notes 12 3/4s, 2009 185,725 ------------- 1,738,675 Communications Equipment (--%) ------------------------------------------------------------------------------------------------------------------- 290,000 Telex Communications, Inc. 144A company guaranty 10 1/2s, 2007 130,500 Components (--%) ------------------------------------------------------------------------------------------------------------------- 330,000 Seagate Technology, Inc. 144A company guaranty 12 1/2s, 2007 (Cayman Islands) 329,175 Construction (0.2%) ------------------------------------------------------------------------------------------------------------------- 1,390,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 1,167,600 870,000 Morrison Knudsen Corp. 144A sr. notes 11s, 2010 208,800 ------------- 1,376,400 Consumer (0.5%) ------------------------------------------------------------------------------------------------------------------- 680,000 Derby Cycle Corp. (The) sr. notes 10s, 2008 188,700 600,000 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 67,774 930,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 376,650 1,140,000 Jostens, Inc. sr. sub notes 12 3/4s, 2010 1,188,450 810,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 656,100 1,000,000 Sealy Mattress Co. company guaranty stepped-coupon Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 862,500 410,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 420,250 ------------- 3,760,424 Consumer Finance (0.4%) ------------------------------------------------------------------------------------------------------------------- 640,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 364,800 700,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 651,000 1,090,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 (In default) (NON) 185,300 1,340,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (In default) (NON) 227,800 1,320,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 (In default) (NON) 224,400 1,380,000 Delta Financial Corp. company guaranty 9 1/2s, 2004 496,800 420,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 147,000 565,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 452,000 50,000 Xerox Credit Corp. sr. notes 6.1s, 2003 38,000 ------------- 2,787,100 Consumer Goods (0.9%) ------------------------------------------------------------------------------------------------------------------- 1,350,000 Albecca, Inc. company guaranty 10 3/4s, 2008 1,333,125 70,000 Chattem, Inc. company guaranty Ser. B, 8 7/8s, 2008 59,500 1,370,000 Doane Pet Care Corp. sr. sub. deb. 9 3/4s, 2007 1,096,000 550,000 Elizabeth Arden, Inc. 144A notes 11 3/4s, 2011 577,500 320,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 317,600 500,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 40,000 760,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 638,400 1,700,000 Playtex Products, Inc. sr. sub notes 9s, 2003 1,695,750 140,000 Playtex Products, Inc. 144A company guaranty Ser. B, 8 7/8s, 2004 141,750 810,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 405,000 ------------- 6,304,625 Consumer Staples (--%) ------------------------------------------------------------------------------------------------------------------- 570,000 Doskcil Manufacturing Co sr. sub. notes 10 1/8s, 2007 (In default) (NON) 142,500 Containers (0.6%) ------------------------------------------------------------------------------------------------------------------- 870,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 835,200 700,000 Consumers International 144A sr. notes 10 1/4s, 2005 (In default) (NON) 238,000 410,000 Huntsman Packaging Corp. company guaranty 13s, 2010 225,500 370,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 277,500 560,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 448,000 100,000 Radnor Holdings, Inc. sr. notes 10s, 2003 85,000 1,470,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 1,337,700 370,000 U.S. Can Corp. 144A sr. sub. notes 12 3/8s, 2010 384,800 ------------- 3,831,700 Electric Utilities (0.5%) ------------------------------------------------------------------------------------------------------------------- 273,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (Bermuda) 203,385 260,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 258,050 270,000 CMS Energy Corp. sr. notes 7 1/2s, 2009 255,204 1,410,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 1,360,650 476,634 Luannan Energy Co. sec. notes 12 1/4s, 2002 (Cayman Islands) 238,317 771,079 Northeast Utilities System notes Ser. A, 8.58s, 2006 799,470 193,600 Northeast Utilities System notes Ser. B, 8.38s, 2005 201,052 ------------- 3,316,128 Electronics (0.1%) ------------------------------------------------------------------------------------------------------------------- 905,000 Celestica International, Ltd. 144A sr. sub. notes 10 1/2s, 2006 (Canada) 941,200 Energy (0.8%) ------------------------------------------------------------------------------------------------------------------- 1,000,000 Cliffs Drilling Co. company guaranty Ser. D, 10 1/4s, 2003 1,030,000 180,000 Compagnie Generale de Geophysique SA 144A sr. notes 10 5/8s, 2007 (Canada) 191,250 400,000 Grant Prideco, Inc. 144A sr. notes 9 5/8s, 2007 414,000 150,000 Key Energy Services, Inc. 144A sr. notes 8 3/8s, 2008 154,346 1,120,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 1,148,000 800,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 840,000 1,440,000 RBF Finance Co. company guaranty 11 3/8s, 2009 1,742,400 ------------- 5,519,996 Entertainment (0.9%) ------------------------------------------------------------------------------------------------------------------- 180,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 144,000 1,600,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 1,200,000 2,775,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 2,802,750 1,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 (In default) (NON) 115 146,029 Regal Cinemas, Inc. bank term loan FRN Ser. C, 9 1/2s, 2006 (acquired 3/26/01, cost $131,426) (RES) 130,696 1,264,428 Regal Cinemas, Inc. bank term loan FRN Ser. B, 9 1/4s, 2006 (acquired 3/14/01, cost $1,112,506) (RES) 1,131,663 699,791 Regal Cinemas, Inc. bank term loan FRN Ser. A, 9s, 2006 (acquired 3/14/01, cost $627,188) (RES) 626,313 800,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 62,000 350,000 Six Flags, Inc. 144A sr. notes 9 1/2s, 2009 358,750 586,000 United Artists Theatre 144A notes 10.415s, 2007 (In default) (NON) 23,440 1,475,000 United Artists Theatre sr. sub. notes Ser. B, 9 3/4s, 2008 (In default) (NON) 59,000 ------------- 6,538,727 Financial (1.1%) ------------------------------------------------------------------------------------------------------------------- 1,270,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 1,263,383 1,060,000 Advanta Corp. med. term notes Ser. D, 6.92s, 2002 1,053,661 820,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 446,900 880,000 Finova Capital Corp. sr. notes 7 5/8s, 2009 (In default) (NON) 745,800 1,040,000 Finova Capital Corp. notes 7 1/4s, 2004 (In default) (NON) 881,400 250,000 Finova Capital Corp. notes 6 1/4s, 2002 (In default) (NON) 211,875 60,000 Finova Capital Corp. notes 6 1/8s, 2004 (In default) (NON) 50,850 440,000 Imperial Credit Capital Trust I 144A company guaranty 10 1/4s, 2002 264,000 620,000 Ocwen Federal Bank sub. deb. 12s, 2005 592,100 360,000 Ocwen Financial Corp. notes 11 7/8s, 2003 342,000 760,000 Resource America, Inc. 144A sr. notes 12s, 2004 718,200 630,000 Superior Financial 144A sr. notes 8.65s, 2003 632,248 340,000 Willis Corron Corp. 144A sr. sub notes 9s, 2009 333,200 ------------- 7,535,617 Food (0.4%) ------------------------------------------------------------------------------------------------------------------- 700,000 Archibald Candy Corp. company guaranty 10 1/4s, 2004 378,000 235,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 193,875 730,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 602,250 150,000 Chiquita Brands International, Inc. sr. notes 10 1/4s, 2006 70,500 380,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 226,100 630,000 Premier International Foods PLC sr. notes 12s, 2009 (United Kingdom) 592,200 990,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 693,000 895,000 Vlasic Foods Intl., Inc. sr. sub. notes Ser. B, 10 1/4s, 2009 179,000 ------------- 2,934,925 Gaming & Lottery (3.1%) ------------------------------------------------------------------------------------------------------------------- 530,000 Anchor Gaming company guaranty 9 7/8s, 2008 559,813 650,000 Argosy Gaming Co. 144A sr. sub notes 10 3/4s, 2009 697,125 1,067,000 Autotote Corp. bank term loan FRN Ser. B, 9.188s, 2007 (acquired 10/13/00, cost $1,064,333) (RES) 1,013,650 1,230,000 Autotote Corp. company guaranty Ser. B, 12 1/2s, 2010 (acquired 8/3/00, cost $1,217,238) (RES) 1,143,900 1,367,882 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004 (In default) (NON) 820,729 370,000 Harrah's Entertainment, Inc. 144A company guaranty 8s, 2011 377,211 250,000 Harrah's Entertainment, Inc. company guaranty 7 7/8s, 2005 250,625 270,000 Harrah's Entertainment, Inc. company guaranty 7 1/2s, 2009 268,655 920,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 977,500 510,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 504,900 720,000 International Game Technology 144A sr. notes 8 3/8s, 2009 736,200 1,710,000 International Game Technology sr. notes 7 7/8s, 2004 1,718,550 150,000 Isle of Capri Black Hawk LLC 144A 1st mtge. Ser. B, 13s, 2004 163,500 730,000 Isle of Capri Casinos company guaranty 8 3/4s, 2009 660,650 910,000 Mandalay Resort Group sr. sub notes Ser. B, 10 1/4s, 2007 937,300 1,450,000 MGM Mirage company guaranty 8 3/8s, 2011 1,455,438 800,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 817,000 330,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 334,950 80,000 Park Place Entertainment Corp. sr. sub. notes 9 3/8s, 2007 82,800 1,220,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 1,238,300 360,000 Penn National Gaming, Inc. 144A sr. sub notes 11 1/8s, 2008 360,000 290,000 Station Casinos, Inc. sr. sub notes 9 7/8s, 2010 299,425 560,000 Station Casinos, Inc. 144A sr. notes 8 3/8s, 2008 562,800 2,000,000 Trump A.C. 1st mtge. 11 1/4s, 2006 1,320,000 1,320,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 1,056,000 2,430,000 Trump Castle Funding, Inc. sub. notes 10 1/4s, 2003 2,460,375 700,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 724,500 ------------- 21,541,896 Health Care (2.0%) ------------------------------------------------------------------------------------------------------------------- 340,000 ALARIS Medical Systems, Inc. 144A company guaranty 9 3/4s, 2006 190,400 360,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 388,800 1,500,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 1,575,000 2,310,000 Conmed Corp. company guaranty 9s, 2008 2,171,400 560,000 HCA-The Healthcare Co. notes 8 3/4s, 2010 595,000 1,370,000 HCA-The Healthcare Co. notes 7s, 2007 1,332,325 350,000 HCA-The Healthcare Co. notes 6.91s, 2005 343,000 495,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 470,250 680,000 Lifepoint Hospital Holdings company guaranty Ser. B, 10 3/4s, 2009 751,400 910,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 851,988 560,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (In default) (NON) (STP) 56 760,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 7,600 780,000 Omnicare, Inc. 144A sr. sub notes 8 1/8s, 2011 795,600 815,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 (In default) (NON) 260,800 220,000 Tenet Healthcare Corp. sr. notes Ser. B, 9 1/4s, 2010 243,100 320,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 330,000 60,000 Tenet Healthcare Corp. sr. notes 8s, 2005 61,500 1,500,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 1,511,250 1,710,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 1,881,000 ------------- 13,760,469 Homebuilding (1.2%) ------------------------------------------------------------------------------------------------------------------- 740,000 D.R. Horton, Inc. company guaranty 8s, 2009 723,350 270,000 Del Webb Corp. sr. sub. deb. 10 1/4s, 2010 265,275 260,000 Del Webb Corp. sr. sub. deb. 9 3/4s, 2008 253,500 360,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 342,000 60,000 Del Webb Corp. sr. sub. Deb. 9s, 2006 57,600 670,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 686,750 920,000 KB Home sr. sub notes 9 1/2s, 2011 910,800 1,280,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 1,372,800 510,000 Lennar Corp. sr. notes 7 5/8s, 2009 502,350 80,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 79,500 640,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 659,200 140,000 Ryland Group, Inc. sr. sub. notes 8 1/4s, 2008 130,200 630,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 636,300 830,000 Toll Corp. sr. sub notes 8 1/4s, 2011 820,472 360,000 Toll Corp. company guaranty 8 1/8s, 2009 356,400 230,000 WCI Communications, Inc. 144A sr. sub notes 10 5/8s, 2011 236,900 ------------- 8,033,397 Industrial (0.1%) ------------------------------------------------------------------------------------------------------------------- 550,000 BRL Universal Equipment 144A sec. notes 8 7/8s, 2008 566,500 Lodging/Tourism (0.9%) ------------------------------------------------------------------------------------------------------------------- 720,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 187,200 510,000 Felcor Lodging company guaranty 9 1/2s, 2008 525,779 680,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 668,100 3,335,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 3,176,588 110,000 Host Marriott L.P. 144A sr. notes 9 1/4s, 2007 113,300 660,000 ITT Corp. notes 6 3/4s, 2005 651,057 900,000 Meristar Hospitality Corp. 144A sr. notes 9 1/8s, 2011 918,000 ------------- 6,240,024 Machinery (0.1%) ------------------------------------------------------------------------------------------------------------------- 330,000 Terex Corp. 144A sr. sub notes 10 3/8s, 2011 331,650 Manufacturing (0.7%) ------------------------------------------------------------------------------------------------------------------- 2,470,000 Blount, Inc. 144A company guaranty 13s, 2009 1,482,000 1,673 Blount, Inc. bank term loan FRN Ser. B 9.245s, 2006 (acquired 1/28/00, cost $1,689) (RES) 1,531 210,000 Continental Global Group sr. notes Ser. B, 11s, 2007 88,200 1,320,000 Flowserve Corp. company guaranty 12 1/4s, 2010 1,392,600 460,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero % (14s, 8/15/03), 2008 (STP) 269,100 1,550,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 1,503,500 60,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 54,600 ------------- 4,791,531 Medical Services (0.2%) ------------------------------------------------------------------------------------------------------------------- 430,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 456,875 1,000,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 (In default) (NON) 10,000 380,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 (In default) (NON) 3,800 310,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (In default) (NON) (STP) 2,942 1,480,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 (In default) (NON) 14,045 1,590,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 63,600 80,000 Service Corp. International notes 7.7s, 2009 53,600 960,000 Service Corp. International notes 6s, 2005 669,600 1,005,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 (In default) (NON) 10,050 500,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 (In default) (NON) 10,000 ------------- 1,294,512 Medical Technology (--%) ------------------------------------------------------------------------------------------------------------------- 480,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 201,600 Metals (0.9%) ------------------------------------------------------------------------------------------------------------------- 1,800,000 AK Steel Corp. company guaranty 7 7/8s, 2009 1,665,000 171,400 Anker Coal Group, Inc. company guaranty Ser. B, 14 1/4s, 2007 (PIK) 75,416 1,000,000 Armco, Inc. sr. notes 9s, 2007 960,000 1,375,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 1,182,500 60,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006 55,800 30,000 Kaiser Aluminum & Chemical Corp. sr. notes 9 7/8s, 2002 29,250 1,200,000 LTV Corp. company guaranty 11 3/4s, 2009 (In default) (NON) 126,000 20,000 LTV Corp. (The) 144A company guaranty 8.2s, 2007 (In default) (NON) 1,600 150,000 Murrin Murrin Holdings Property, Ltd sr. notes 9 3/8s, 2007 (Australia) 118,500 540,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 199,800 348,000 Oregon Steel Mills 1st mortgage 11s, 2003 306,240 430,000 P & L Coal Holdings Corp. company guaranty Ser. B, 9 5/8s, 2008 452,575 940,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 817,800 70,000 Weirton Steel Co. 144A sr. notes 10 3/4s, 2005 27,300 780,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 (In default) (NON) 21,450 490,000 WHX Corp. sr. notes 10 1/2s, 2005 313,600 ------------- 6,352,831 Oil & Gas (2.0%) ------------------------------------------------------------------------------------------------------------------- 410,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 403,850 300,000 Chesapeake Energy Corp. company guaranty Ser. B, 9 5/8s, 2005 324,000 1,460,000 Chesapeake Energy Corp. 144A sr. notes 8 1/8s, 2011 1,435,662 1,350,000 Coda Energy, Inc. company guaranty Ser. B, 10 1/2s, 2006 1,380,375 60,000 Giant Industries Corp. company guaranty 9s, 2007 54,900 110,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 113,850 840,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 861,000 580,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 616,250 350,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 356,125 1,540,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 1,524,600 210,000 Nuevo Energy Co. sr. sub notes Ser. B, 9 3/8s, 2010 206,850 450,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 478,759 800,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 846,168 1,820,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 1,988,350 90,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 88,875 270,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 108,000 580,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 617,880 230,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 232,875 50,000 Triton Energy, Ltd. sr. notes 9 1/4s, 2005 52,000 740,000 Triton Energy, Ltd. sr. notes 8 7/8s, 2007 (Cayman Islands) 765,900 960,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 1,046,400 500,000 Vintage Petroleum sr. sub. notes 9s, 2005 520,000 500,000 XCL, Ltd. 144A company guaranty 13 1/2s, 2004 (In default) (NON) 150,000 ------------- 14,172,669 Paper & Forest Products (1.8%) ------------------------------------------------------------------------------------------------------------------- 1,330,000 Abitibi-Consolidated, Inc. bonds 8.55s, 2010 (Canada) 1,416,463 1,150,000 App China Group, Ltd. 144A sr. disc. notes 14s, 2010 (Bermuda) (In default) (NON) 143,750 1,025,000 Doman Industries, Ltd. 144A sr. notes 8 3/4s, 2004 (Canada) 584,250 1,310,000 Four M Corp. sr. notes Ser. B, 12s, 2006 1,283,800 890,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 275,900 140,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/4s, 2007 91,000 160,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 100,800 1,275,000 Indah Kiat Financial Mauritius, Ltd. company guaranty 10s, 2007 (Indonesia) (In default) (NON) 229,500 920,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 993,600 1,575,000 Pindo Deli Finance Mauritius, Ltd. company guaranty 10 3/4s, 2007 (Mauritius) (In default) (NON) 252,000 1,925,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004 (Mauritius) (In default) (NON) 308,000 2,190,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 2,124,300 310,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006 (Canada) 320,850 1,900,000 Stone Container Corp. 144A sr. notes 9 3/4s, 2011 1,933,250 700,000 Stone Container Corp. 144A sr. notes 9 1/4s, 2008 707,000 515,552 Stone Container Corp. bank term loan FRN Ser. H, 8.813s, 2006 (acquired 7/17/00, cost $515,551) (RES) 514,263 1,180,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 1,206,550 ------------- 12,485,276 Pharmaceuticals (0.4%) ------------------------------------------------------------------------------------------------------------------- 890,000 ICN Pharmaceuticals, Inc. sr. notes Ser. B, 9 1/4s, 2005 903,350 890,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 907,800 80,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 81,600 650,000 PharMerica, Inc. company guaranty 8 3/8s, 2008 633,750 ------------- 2,526,500 Power Producers (1.1%) ------------------------------------------------------------------------------------------------------------------- 2,270,000 AES Corp. sr. notes 9 3/8s, 2010 2,386,111 630,000 AES Corp. sr. notes 8 7/8s, 2011 640,275 390,000 Calpine Corp. sr. notes 10 1/2s, 2006 401,700 170,000 Calpine Corp. sr. notes 9 1/4s, 2004 170,187 460,000 Calpine Corp. sr. notes 8 3/4s, 2007 472,747 700,000 Calpine Corp. sr. notes 7 7/8s, 2008 697,819 30,000 Calpine Corp. sr. notes 7 3/4s, 2009 29,639 1,650,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 1,838,909 1,118,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 1,201,850 ------------- 7,839,237 Publishing (0.5%) ------------------------------------------------------------------------------------------------------------------- 1,565,000 Affinity Group Holdings 144A sub. notes 11s, 2007 1,252,000 395,799 Big Flower Holdings bank term loan FRN 9.25s, 2010 (acquired 3/9/00, cost $393,805) (RES) 389,862 80,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 77,600 670,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 646,550 550,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 555,500 370,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 352,425 ------------- 3,273,937 Railroads (0.2%) ------------------------------------------------------------------------------------------------------------------- 740,000 Kansas City Southern Railway 144A sr. notes 9 1/2s, 2008 758,500 790,000 Railamerica Transportation Corp. company guaranty 12 7/8s, 2010 762,350 910,000 Transportation Manufacturing Operations, Inc. company guaranty 11 1/4s, 2009 136,500 ------------- 1,657,350 Regional Bells (0.1%) ------------------------------------------------------------------------------------------------------------------- 450,000 Alaska Communications Systems Corp. company guaranty 9 3/8s, 2009 382,500 Restaurants (0.4%) ------------------------------------------------------------------------------------------------------------------- 350,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 355,250 810,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 202,500 600,000 Sbarro, Inc. company guaranty 11s, 2009 636,000 1,060,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 1,016,688 560,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 553,101 ------------- 2,763,539 Retail (1.1%) ------------------------------------------------------------------------------------------------------------------- 1,620,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero % (10s, 5/1/03), 2008 (STP) 955,800 330,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 333,300 730,000 Fleming Companies, Inc. 144A sr. notes 10 1/8s, 2008 746,425 260,000 Great Atlantic & Pacific Tea Co. notes 7 3/4s, 2007 189,800 260,000 Great Atlantic & Pacific Tea Co. sr. notes 7.7s, 2004 213,200 30,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon zero % (12 1/8s, 5/1/03), 2009 (STP) 3,000 1,330,000 K mart Corp. notes 8 3/8s, 2004 1,336,477 510,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 465,375 2,650,000 Saks, Inc. company guaranty 8 1/4s, 2008 2,332,000 200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 168,000 1,437,000 Southland Corp. deb. Ser. B, 4s, 2004 1,207,080 ------------- 7,950,457 Semiconductor (0.2%) ------------------------------------------------------------------------------------------------------------------- 550,000 ChipPac Intl., Ltd. company guaranty Ser. B, 12 3/4s, 2009 495,000 90,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 10 1/2s, 2009 85,725 1,180,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 1,100,350 ------------- 1,681,075 Shipping (0.2%) ------------------------------------------------------------------------------------------------------------------- 65,000 International Shipholding Corp. sr. notes 9s, 2003 65,650 250,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 77,500 1,270,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 1,165,225 130,000 Newport News Shipbuilding, Inc. sr. notes 8 5/8s, 2006 133,900 ------------- 1,442,275 Software (--%) ------------------------------------------------------------------------------------------------------------------- 410,000 Telehub Communications Corp. company guaranty stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (In default) (NON) (STP) 24,600 Specialty Printing (0.2%) ------------------------------------------------------------------------------------------------------------------- 1,390,000 Perry-Judd company guaranty 10 5/8s, 2007 1,264,900 94,414 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 75,531 100,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 92,000 ------------- 1,432,431 Technology (0.8%) ------------------------------------------------------------------------------------------------------------------- 390,000 Amkor Technologies, Inc. structured notes (issued by STEERS Credit Linked Trust 2000) 12.58s, 2005 390,000 280,000 Amkor Technologies, Inc. sr. sub. notes 10 1/2s, 2009 270,200 690,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2008 658,950 410,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 390,525 1,520,000 Flextronics International, Ltd. sr. sub. notes 9 7/8s, 2010 (Singapore) 1,474,400 215,000 Flextronics International, Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 (Singapore) 197,800 450,000 SCG Holding & Semiconductor Corp. company guaranty 12s, 2009 346,500 705,000 Telecommunications Techniques, Inc. company guaranty 9 3/4s, 2008 578,100 1,400,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 882,000 270,000 Viasystems, Inc. sr. sub. notes 9 3/4s, 2007 170,100 350,000 Xerox Cap Europe PLC company guaranty 5 7/8s, 2004 (United Kingdom) 217,000 150,000 Xerox Corp. notes 5 1/2s, 2003 106,500 ------------- 5,682,075 Technology Services (0.9%) ------------------------------------------------------------------------------------------------------------------- 2,430,000 Cybernet Internet Services Intl., Inc. 144A sr. disc. notes stepped-coupon zero % (13s, 8/15/04), 2009 (STP) 121,500 850,000 Equinix, Inc. sr. notes 13s, 2007 595,000 1,760,000 Exodus Communications, Inc. sr. notes 11 5/8s, 2010 1,416,800 220,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 174,900 940,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 723,800 1,250,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon zero % (13s, 4/15/03), 2008 (STP) 231,250 1,500,000 Globix Corp. sr. notes 12 1/2s, 2010 450,000 710,000 Intira Corp. stepped-coupon zero % (13s, 2/1/05), 2010 (acquired 1/31/00, cost $378,366) (RES) (STP) 248,500 1,150,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,173,000 270,000 Pierce Leahy Command Co. company guaranty 8 1/8s, 2008 (Canada) 268,650 700,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 735,000 530,000 PSINet, Inc. sr. notes 11 1/2s, 2008 47,700 840,000 PSINet, Inc. sr. notes 11s, 2009 75,600 130,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 11,700 ------------- 6,273,400 Telecommunications (4.6%) ------------------------------------------------------------------------------------------------------------------- 1,070,000 360Networks, Inc. sr. notes 13s, 2008 (Canada) 406,600 820,000 American Cellular Corp. 144A sr. sub notes 9 1/2s, 2009 795,400 613,027 American Cellular Corp. bank term loan FRN Ser. C, 8.53s, 2008 (acquired 2/29/00, cost $613,027) (RES) 613,027 1,480,000 American Tower Corp. 144A sr. notes 9 3/8s, 2009 1,413,400 400,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 141,000 230,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda) 227,700 1,210,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 181,500 400,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 132,000 180,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009 (Luxembourg) 122,400 1,780,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 1,299,400 900,000 Colo.com, Inc. sr. notes 13 7/8s, 2010 180,000 145,000 Covad Communications Group, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (13 1/2s, 3/15/03), 2008 (STP) 8,700 600,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 96,000 30,000 Covad Communications Group, Inc. sr. notes Ser. B, 12s, 2010 4,500 350,000 Crown Castle International Corp. sr. disc. notes stepped-coupon zero % (11 1/4s, 8/1/04), 2011 (STP) 248,500 1,330,000 Crown Castle International Corp. sr. notes 10 3/4s, 2011 1,369,900 200,000 Dobson Communications Corp. sr. notes 10 7/8s, 2010 204,000 940,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 965,850 1,500,000 Econophone, Inc. company guaranty 13 1/2s, 2007 (In default) (NON) 150,000 535,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007 (United Kingdom) (In default) (NON) 16,050 110,000 FLAG Telecom Holdings, Ltd. sr. notes 11 5/8s, 2010 (Bermuda) 85,800 810,000 FLAG, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 729,000 830,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 782,275 730,000 Global Crossing Holdings, Ltd. company guaranty 9 1/2s, 2009 (Bermuda) 682,550 800,000 Global Crossing Holdings, Ltd. 144A sr. notes 8.7s, 2007 (Bermuda) 738,000 50,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007 (Netherlands) 12,500 120,000 Hermes Europe Railtel sr. notes 10 3/8s, 2009 30,000 1,280,000 Level 3 Communication, Inc. sr. notes 11s, 2008 1,008,000 500,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 355,000 1,040,000 Maxcom Telecomunicaciones SA de CV company guaranty Ser. B, 13 3/4s, 2007 (Mexico) 447,200 940,000 McCaw International, Ltd. sr. disc. notes stepped-coupon zero % (13s, 4/15/02), 2007 (STP) 601,600 220,000 Metrocall, Inc. sr. sub. notes 11s, 2008 (In default) (NON) 17,600 180,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 (In default) (NON) 32,400 190,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 34,200 1,481,000 Millicom International Cellular S.A. sr. disc. notes stepped-coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) (STP) 1,318,090 1,180,000 Nextel Communications, Inc. sr. notes 12s, 2008 1,123,950 4,420,000 Nextel Communications, Inc. 144A sr. notes 9 1/2s, 2011 3,729,375 1,350,000 Nextel International, Inc. sr. notes 12 3/4s, 2010 1,012,500 480,000 Nextel Partners, Inc. sr. notes 11s, 2010 420,000 370,000 Nextel Partners, Inc. sr. notes 11s, 2010 320,050 610,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 274,500 620,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 (In default) (NON) 86,800 410,000 Orion Network systems, Inc. sr. notes 11 1/4s, 2007 151,700 950,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon zero % (11 1/4s, 2/1/03), 2008 (STP) 114,000 1,680,000 Pinnacle Holdings, Inc. sr. disc. notes stepped-coupon zero % (10s, 3/15/03), 2008 (STP) 1,008,000 645,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 664,350 970,000 Primus Telecommunications Group, Inc. sr. notes Ser. B, 9 7/8s, 2008 291,000 110,000 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010 8,800 650,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 663,000 710,000 RSL Communications PLC company guaranty 12 7/8s, 2010 (United Kingdom) (In default) (NON) 12,425 450,000 RSL Communications PLC 144A company guaranty 10 1/2s, 2008 (United Kingdom) (In default) (NON) 7,875 500,000 RSL Communications PLC company guaranty stepped-coupon zero % (10 1/8s, 3/1/03), 2008 (In default) (NON) (STP) 8,750 70,000 RSL Communications PLC company guaranty 9 1/8s, 2008 (In default) (NON) 1,225 770,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 (Bermuda) (In default) (NON) 13,475 750,000 SBA Communications Corp. 144A sr. notes 10 1/4s, 2009 712,500 800,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (12 7/8s, 3/15/05), 2010 (STP) 352,000 720,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero % (11 1/8s, 4/15/04), 2009 (STP) 324,000 30,000 USA Mobile Communication, Inc. sr. notes 9 1/2s, 2004 10,500 270,000 Viatel, Inc. sr. disc. notes stepped-coupon zero % (12 1/2s, 4/15/03), 2008 (In default) (NON) (STP) 43,200 1,760,000 Viatel, Inc. sr. notes 11 1/4s, 2008 (In default) (NON) 264,000 1,500,000 Western Wireless Corp. notes 8.65s, 2008 1,500,000 1,420,000 Williams Communications Group, Inc. sr. notes 11.7s, 2010 1,093,400 650,000 Williams Communications Group, Inc. sr. notes 11.7s, 2008 513,500 1,540,000 Williams Communications Group, Inc. sr. notes 10 7/8s, 2009 1,131,900 200,000 Williams Communications Group, Inc. sr. notes 10.7s, 2007 153,000 900,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 270,000 ------------- 31,729,917 Telephone (3.0%) ------------------------------------------------------------------------------------------------------------------- 200,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero % (13 1/2s, 10/1/04), 2009 (STP) 117,000 350,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 343,000 420,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 289,800 460,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 253,000 480,000 CFW Communications Co. sr. notes 13s, 2010 336,000 710,000 Focal Communications Corp. sr. sub. notes stepped-coupon Ser. B, zero % (12 1/8s, 2/15/03), 2008 (STP) 340,800 110,000 Focal Communications Corp. sr. notes 11 7/8s, 2010 77,000 1,050,000 Horizon PCS, Inc. 144A company guaranty stepped-coupon 14s (14s, 10/1/05), 2010 (STP) 451,500 530,000 Hyperion Telecommunications Corp., Inc. sr. sub. notes 12s, 2007 318,000 2,420,000 ICG Holdings, Inc. sr. sub. notes 13 1/2s, 2005 (In default) (NON) 169,400 10,000 ICG Holdings, Inc. company guaranty stepped-coupon zero % (12 1/2s, 5/1/01), 2006 (In default) (NON) (STP) 700 550,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon Ser. B, zero % (12 1/4s, 3/1/04), 2009 (STP) 396,000 60,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 58,800 430,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 421,400 910,000 IPCS, Inc. sr. disc. notes stepped-coupon zero % (14s, 7/15/05), 2010 (STP) 391,300 2,445,000 KMC Telecommunications Holdings, Inc. sr. disc. notes stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 244,500 720,000 Leap Wireless International, Inc. company guaranty 12 1/2s, 2010 468,000 1,330,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 957,600 1,580,000 McLeodUSA, Inc. sr. notes 9 1/2s, 2008 1,406,200 950,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 779,000 700,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 574,000 840,000 Microcell Telecommunications sr. disc. notes stepped-coupon Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 840,000 540,000 Nextlink Communications, Inc. sr. disc. notes stepped-coupon zero % (12 1/4s, 6/1/04), 2009 (STP) 178,200 130,000 Nextlink Communications, Inc. sr. notes 10 3/4s, 2009 78,000 140,000 Nextlink Communications, Inc. sr. notes 10 1/2s, 2009 81,900 1,000,000 Startec Global Communications Corp. sr. notes 12s, 2008 490,000 320,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 288,000 1,110,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 1,071,150 990,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 990,000 510,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 499,800 370,000 Transtel S.A. pass thru certificates 12 1/2s, 2007 (In default) (NON) 59,200 890,000 Tritel PCS, Inc. 144A sr. sub notes 10 3/8s, 2011 854,400 720,000 Triton PCS, Inc. 144A sr. sub notes 9 3/8s, 2011 691,200 1,670,000 UbiquiTel Operating Co. company guaranty stepped-coupon zero % (14s, 4/15/05), 2010 (STP) 743,150 1,250,000 US Unwired, Inc. company guaranty stepped-coupon Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 646,875 510,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008 (Netherlands) 311,100 180,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008 (Netherlands) 109,800 3,520,000 Voicestream Wireless Corp. sr. notes 10 3/8s, 2009 3,872,000 3,976,000 WinStar Communications, Inc. sr. disc. notes stepped-coupon zero % (14 3/4s, 4/15/05), 2010 (In default) (NON) (STP) 516,880 240,000 WinStar Communications, Inc. sr. notes 12 3/4s, 2010 (In default) (NON) 88,800 10,000 WinStar Communications, Inc. sr. notes 12 1/2s, 2008 (In default) (NON) 3,300 310,000 XO Communications, Inc. sr. disc. notes stepped-coupon zero % (9.45s, 4/15/03), 2008 (STP) 120,900 ------------- 20,927,655 Textiles (1.0%) ------------------------------------------------------------------------------------------------------------------- 560,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 375,200 905,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 805,450 315,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 (In default) (NON) 94,500 2,200,000 Levi Strauss & Co. 144A sr. notes 11 5/8s, 2008 2,255,000 220,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 209,000 320,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 252,800 2,060,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 1,689,200 405,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 376,650 1,000,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 1,000,000 ------------- 7,057,800 Tobacco (0.1%) ------------------------------------------------------------------------------------------------------------------- 1,255,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 960,075 Transportation (0.2%) ------------------------------------------------------------------------------------------------------------------- 1,841,085 Transportation Tech. Bank term loan FRN Ser. B, 8.91s, 2007 (acquired 2/29/00, cost $1,836,482) (RES) 1,583,333 Utilities (0.1%) ------------------------------------------------------------------------------------------------------------------- 1,470,000 Cathay International, Ltd. 144A sr. notes 13s, 2008 (China) 367,500 Waste Management (0.8%) ------------------------------------------------------------------------------------------------------------------- 2,590,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 2,638,563 2,170,000 Allied Waste Industries, Inc. 144A company guaranty 8 7/8s, 2008 2,224,250 370,000 Allied Waste Industries, Inc. company guaranty Ser. B, 7 5/8s, 2006 360,288 410,000 Waste Management, Inc. sr. notes 7 3/8s, 2010 412,763 ------------- 5,635,864 Water Utilities (0.1%) ------------------------------------------------------------------------------------------------------------------- 370,000 Azurix Corp. sr. notes Ser. B, 10 3/4s, 2010 375,550 310,000 Azurix Corp. sr. notes Ser. B, 10 3/8s, 2007 313,100 ------------- 688,650 ------------- Total Corporate Bonds and Notes (cost $400,435,155) $ 343,158,748 U.S. GOVERNMENT AND AGENCY OBLIGATIONS (16.9%) (a) PRINCIPAL AMOUNT VALUE U.S. Government Agency Mortgage Obligations (9.1%) ------------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Association $ 41,833 6 1/2s, September 1, 2002 $ 41,779 4,315,406 6s, June 1, 2029 4,216,195 Federal National Mortgage Association Pass-Through Certificates 788 8 1/2s, March 1, 2006 814 19,083,011 8s, with due dates from July 1, 2028 to March 1, 2031 19,679,424 3,145,558 7 1/2s, with due dates from January 1, 2030 to July 1, 2030 3,215,388 230,000 6 5/8s, September 15, 2009 244,518 9,978 6 1/2s, August 1, 2010 10,136 1,369,000 6s, April 1, 2031 1,334,775 Government National Mortgage Association Pass-Through Certificates 26,951 8s, July 15, 2023 28,020 3,044,374 7 1/2s, with due dates from July 15, 2029 to January 15, 2030 3,122,126 4,482,136 7s, with due dates from January 15, 2025 to December 15, 2028 4,559,653 301,566 6 1/2s, January 15, 2029 301,744 40,000,000 U.S. Treasury Strip zero %, August 15, 2009 26,453,200 ------------- 63,207,772 U.S. Treasury Obligations (7.8%) ------------------------------------------------------------------------------------------------------------------- U.S. Treasury Notes 8,510,000 6 1/2s, February 15, 2010 (SEG) 9,400,912 2,815,000 6 1/8s, August 15, 2007 3,016,441 36,855,000 5 3/4s, August 15, 2010 38,870,232 2,605,000 5s, February 15, 2011 2,618,442 ------------- 53,906,027 ------------- Total U.S. Government and Agency Obligations (cost $111,942,393) $ 117,113,799 FOREIGN GOVERNMENT BONDS AND NOTES (15.6%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- USD 5,290,000 Argentina (Republic of) unsub. 11 3/4s, 2009 $ 4,503,377 USD 7,795,000 Brazil (Federal Republic of) notes 14 1/2s, 2009 8,379,625 CAD 2,465,000 Canada (Government of) bonds 6s, 2011 1,634,219 CAD 9,250,000 Canada (Government of) bonds Ser. WH31, 6s, 2008 6,108,491 CAD 1,630,000 Canada (Government of) bonds 5 1/2s, 2010 1,042,036 USD 450,000 Colombia (Republic of) unsub. 9 3/4s, 2009 414,000 EUR 9,750,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 9,335,517 EUR 10,650,000 Germany (Federal Republic of) bonds Ser. 97, 6s, 2007 10,187,846 EUR 15,310,000 Germany (Federal Republic of) bonds Ser. 132, 4 1/8s, 2004 13,488,859 GRD 6,838,811 Hellenic Greece (Republic of) bonds 6s, 2010 6,368,595 EUR 16,250,000 Italy (Government of) treasury bonds 5 1/2s, 2010 14,819,649 USD 915,556 Morocco (Government of) bonds Ser. A, 6.844s, 2009 807,978 NZD 7,365,000 New Zealand (Government of) bonds Ser. 709, 7s, 2009 3,181,554 USD 11,290,000 Russia (Federation of) unsub. 10s, 2007 8,806,200 USD 5,395,000 Russia (Federation of) unsub. 8 1/4s, 2010 3,628,138 GBP 4,030,000 United Kingdom Treasury bonds 7 1/4s, 2007 6,483,914 USD 8,370,000 United Mexican States bonds Ser. XW, 10 3/8s, 2009 9,165,150 ------------- Total Foreign Government Bonds and Notes (cost $109,622,444) $ 108,355,148 COLLATERALIZED MORTGAGE OBLIGATIONS (6.2%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 4,100,000 Amresco Commercial Mortgage Funding I Ser. 97-C-1, Class F, 7.64s, 2029 $ 4,139,719 1,660,000 Commercial Mortgage Acceptance Corp. Ser. 97-ML1, Class D, 6.821s, 2010 1,641,408 54,377,279 Commercial Mortgage Asset Trust Ser. 99-C1, Class X, Interest Only (IO), 7.649s, 2020 3,379,463 31,143,589 Deutsche Mortgage & Asset Receiving Corp. Ser. 98-C1, Class X, IO, 1.22s, 2031 1,508,518 Fannie Mae Strip 1,054,234 Ser. 203, Class 2, IO, 8s, 2023 221,389 829,348 Ser. 251, Class 2, IO, 8s, 2023 174,163 7,628,597 Ser. 221, Class 2, IO, 7 1/2s, 2023 1,558,141 3,628,479 Ser. 97-91, Class SL, IO, 7 1/2s, 2023 428,000 1,149,140 Ser. 222, Class 2, IO, 7s, 2023 246,383 4,982,937 Federal National Mortgage Association Ser. 98-66, Class SB, IO, 3.1s, 2028 311,328 8,917,408 FFCA Secured Lending Corp. Ser. 00-1, Class IO, 1.723s, 2027 847,154 Freddie Mac 5,523,047 Ser. 183, Class IO, 7s, 2027 1,135,677 410,456 Ser. 1717, Class, L, 6 1/2s, 2024 417,591 1,434,000 Ser. 2044, Class SG, IO, 6 1/2s, 2023 156,960 226,193 Ser. 180, Class Principal Only (PO), zero %, 2026 188,871 1,990,000 General Growth Properties Ala Moa Ser. 99-C1, Class E, 7.48s, 2009 1,990,000 410,000 General Growth Properties-Homart 144A Ser. 99-C1, Class G, 8.072s, 2003 410,000 General Growth Properties-Ivanhoe 510,000 Ser. 99-C1, Class G, 8.48s, 2004 510,000 862,000 Ser. 99-C1, Class F, 7.73s, 2004 862,000 Government National Mortgage Association 7,782,602 Ser. 99-43, Class SJ, IO, 8 1/2s, 2029 488,747 1,732,933 Ser. 00-17, Class SB, 7 1/2s, 2026 1,986,652 1,309,733 Ser. 98-2, Class EA, PO, zero %, 2028 1,075,618 1,031,182 Ser. 99-42, PO, zero %, 2027 928,868 1,075,000 Granite Mortgages PLC FRN Ser. 01-1, Class 1C, 6.192s, 2041 (United Kingdom) 1,075,000 5,065,000 Holmes Financing PLC Ser. 1, Class 2C, 5.91s, 2040 5,034,610 Merrill Lynch Mortgage Investors, Inc. 19,934,731 Ser. 96-C2, IO, 9.045s, 2028 1,354,939 17,340,627 Ser. 98-C2, IO, 7.86s, 2030 1,147,950 1,070,000 Ser. 96-C2, Class E, 6.96s, 2028 1,010,401 4,330,000 Ser. 98-C2, Class D, 6.633s, 2030 4,327,835 1,150,000 Ser. 98-C2, Class F, 6 1/4s, 2030 801,320 6,034,433 Mortgage Capital Funding, Inc. Ser. 97-MC2, Class X, IO, 0.935s, 2012 374,323 159,276 Prudential Home Mortgage Securities Ser. 93-57, Class A4, 5.9s, 2023 159,906 345,620 Rural Housing Trust Ser. 87-1, Class D, 6.33s, 2026 349,342 2,500,000 Starwood Asset Receivables Trust Ser. 00-1, Class E, 7.8s, 2005 2,514,000 ------------- Total Collateralized Mortgage Obligations (cost $41,254,734) $ 42,756,276 BRADY BONDS (2.2%) (a) PRINCIPAL AMOUNT ------------------------------------------------------------------------------------------------------------------- $ 4,995,200 Argentina (Republic of) debs. FRB 7 5/8s, 2005 $ 4,202,462 7,595,000 Brazil (Federal Republic of) govt guaranty Ser. 18YR, FRN 7 11/16s, 2012 5,364,349 3,500,000 Bulgaria (Government of) deb. Ser. PDI, 6.688s, 2011 2,629,550 3,499,965 Venezuela (Republic of) deb. Ser. DL, 7s, 2007 2,922,471 ------------- Total Brady Bonds (cost $15,822,581) $ 15,118,832 PREFERRED STOCKS (1.6%) (a) NUMBER OF SHARES VALUE ------------------------------------------------------------------------------------------------------------------- 10,309 AmeriKing, Inc. $3.25 cum. pfd. (PIK) $ 10,309 56,000 California Federal Bancorp, Inc. Ser. A, $2.28 pfd. 1,400,000 30,000 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. (PIK) 1,605,000 3,150 Chevy Chase Savings Bank, Inc. $3.25 pfd. 81,900 18,412 CSC Holdings, Inc. Ser. M, $11.13 cum. pfd. (PIK) 2,006,908 19,200 Diva Systems Corp. Ser. C, 6.00% cum. pfd. 153,600 1,722 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 1,549,800 320 First Republic 144A 10.50% pfd. 283,200 11,765 Fitzgeralds Gaming Corp. $3.75 cum. pfd. 118 1,049 Granite Broadcasting Corp. 144A 12.75% pfd. (PIK) 325,190 2,019 ICG Holdings, Inc. 144A 14.00% pfd. (Canada) (In default) (NON) (PIK) 40,380 1,184 Intermedia Communications, Inc. Ser. B, 13.50% pfd. (PIK) 1,184,000 213 Paxson Communications Corp. 144A 13.25% cum. pfd. (PIK) 2,012,850 1,036 Rural Cellular Corp. 12.25% pfd. (PIK) 797,720 17 XO Communications, Inc. Ser. B, 13.50% pfd. 4,930 ------------- Total Preferred Stocks (cost $14,789,646) $ 11,455,905 ASSET-BACKED SECURITIES (1.4%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 7,205,000 Conseco Finance Securitization Ser. 00-4, Class A6, 8.31s, 2032 $ 7,684,583 1,100,000 Conseco Finance Securitization Ser. 00-6, Class M2, 8.2s, 2032 1,112,114 978,169 Resolution Trust Corp. Ser. 94-1, Class M1, 7.14s, 2029 963,497 ------------- Total Asset-Backed Securities (cost $9,152,088) $ 9,760,194 CONVERTIBLE BONDS AND NOTES (0.6%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 370,000 Amkor Technologies, Inc. cv. sub. notes 5s, 2007 $ 269,175 360,000 Davita, Inc. cv. sub. notes 7s, 2009 309,132 1,840,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 800,400 490,000 Healthsouth Corp. cv. sub. deb. 3 1/4s, 2003 444,063 280,000 Hexcel Corp. cv. sub. notes 7s, 2003 254,100 970,000 Level 3 Communication, Inc. cv. sub. deb. 6s, 2010 384,362 500,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 323,125 310,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 232,888 160,000 Spectrasite Holdings, Inc. cv. sr. notes 6 3/4s, 2010 95,200 970,000 Telewest Finance Corp. cv. sub. notes 6s, 2005 (United Kingdom) 754,175 ------------- Total Convertible Bonds and Notes (cost $4,052,212) $ 3,866,620 COMMON STOCKS (0.2%) (a) NUMBER OF SHARES VALUE ------------------------------------------------------------------------------------------------------------------- 150 AmeriKing, Inc. (NON) $ 150 28,107 Arch Wireless, Inc. (NON) 17,567 17,092 Aurora Foods, Inc. (NON) 117,935 2,955 Axia Holding, Inc. 144A (NON) (PIK) 35,460 149,352 Celcaribe S.A. (NON) 18,669 23,404 Fitzgeralds Gaming Corp. (NON) 234 6,795 MGC Communications, Inc. (NON) 17,200 327 Premium Holdings (L.P.) 144A (NON) 5,314 715 PSF Holdings LLC Class A (NON) 1,162,411 11 Safety Components International, Inc. (NON) 44 10,050 Specialty Foods Acquisition Corp. (NON) 101 1,335 Vast Solutions, Inc. Class B1 (NON) 4,005 1,335 Vast Solutions, Inc. Class B2 (NON) 4,005 1,335 Vast Solutions, Inc. Class B3 (NON) 4,005 ------------- Total Common Stocks (cost $2,793,628) $ 1,387,100 CONVERTIBLE PREFERRED STOCKS (0.2%) (a) NUMBER OF SHARES VALUE ------------------------------------------------------------------------------------------------------------------- 6,500 Global Crossing Ltd. 7.00% cv. pfd. $ 826,313 520 Interact Systems, Inc. 144A 14.00% cv. pfd. 5 3,800 LTV Corp. (The) 144A $4.13 cv. pfd. 3,800 35 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 320,250 115 World Access, Inc. 144A Ser. D, zero % cv. pfd. 23,004 ------------- Total Convertible Preferred Stocks (cost $1,494,391) $ 1,173,372 UNITS (0.2%) (a) NUMBER OF UNITS VALUE ------------------------------------------------------------------------------------------------------------------- 600 Australis Media, Ltd. units 15 3/4s, 2003 (Australia) (In default) (NON) $ 60 590 IWO Holdings, Inc. 144A units 14s, 2011 601,800 400 ONO Finance PLC 144A units 14s, 2011 (United Kingdom) 344,000 840 Pegasus Shipping 144A company guaranty stepped-coupon zero % (14 1/2s, 6/20/03), 2008 (Bermuda) (acquired 6/23/98, cost $417,816) (STP) (RES) 37,800 500 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 150,000 ------------- Total Units (cost $2,726,607) $ 1,133,660 WARRANTS (0.1%) (a) (NON) EXPIRATION NUMBER OF WARRANTS DATE VALUE ------------------------------------------------------------------------------------------------------------------- 4 Anker Coal Group, Inc. 144A 10/28/09 $ 1 1,150 Asia Pulp & Paper Co., Ltd. 144A (In default) (NON) 3/15/05 12 480 Bestel S.A. de C.V. 5/15/05 57,600 460 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 460 2,428 CellNet Data Systems, Inc. 10/1/07 2 900 Colo.com, Inc. 144A 3/15/10 9 1,500 Comunicacion Cellular 144A (Colombia) 11/15/03 3,000 1,020 Dayton Superior Corp. 6/15/09 12,240 90 Decrane Aircraft Holdings Co. 9/30/08 1 14,628 Delta Financial Corp. 12/21/10 1 475 Diva Systems Corp. 5/15/06 213,744 8,173 Diva Systems Corp. 144A 3/1/08 49,038 830 Epic Resorts 144A 6/15/05 8 680 Firstworld Communication Corp. 4/15/08 3,400 1,050 Horizon PCS, Inc. 10/1/01 31,500 9,768 ICG Communications 10/15/05 9,768 520 Interact Systems, Inc. 8/1/03 5 520 Interact Systems, Inc. 144A 12/15/09 5 245 International Wireless Communications Holdings 144A 8/15/01 1 11,713 Intira Corp. Class A (acquired 1/31/00, cost $117) (RES) 2/1/10 1 69,097 Intira Corp. Class B 9/29/10 7 910 IPCS, Inc. 144A 7/15/10 18,200 400 Iridium World Com 144A 7/15/05 1 1,140 Jostens, Inc. 5/1/10 22,800 2,085 KMC Telecommunications Holdings, Inc. 144A 4/15/08 21 1,180 Knology Holdings 10/22/07 1,180 720 Leap Wireless International, Inc. 144A 4/15/10 180 1,040 Maxcom Telecomunicaciones SA de CV 144A (Mexico) 4/1/07 10 930 McCaw International, Ltd. 4/15/07 18,600 560 Mediq, Inc. 144A 6/1/09 6 760 Ntelos, Inc. 8/15/10 760 620 Orbital Imaging Corp. 144A 3/1/05 1 1,840 Pagemart, Inc. 144A 12/31/03 1,840 960 Paxson Communications Corp. 144A 6/30/03 3,360 410 Pliant Corp. 144A 6/1/10 3,280 790 Railamerica, Inc. 8/15/10 15,800 1,220 Raintree Resort 144A 12/1/04 12 860 Startec Global Communications Corp. 5/15/08 559 185 Sterling Chemicals Holdings 8/15/08 278 410 Telehub Communications Corp. 144A 7/31/05 103 1,830 Travel Centers of America 5/1/09 18 1,670 Ubiquitel, Inc. 144A 4/15/10 50,100 1,260 UIH Australia/Pacific, Inc. 144A 5/15/06 2,520 30 Versatel Telecom N.V. (Netherlands) 5/15/08 1,350 100 Wright Medical Technology, Inc. 144A 6/30/03 1 590 XM Satellite Radio Holdings, Inc. 144A 3/15/10 17,700 ------------- Total Warrants (cost $958,816) $ 539,483 PURCHASED OPTIONS OUTSTANDING (--%) (a) EXPIRATION DATE/ CONTRACT AMOUNT STRIKE PRICE VALUE ------------------------------------------------------------------------------------------------------------------- $ 1,000,000 USD/JPY Call May 01/137 JPY $ 200,319 3,702,000 USD/GBP Call Apr-01/1.4 GBP 2,105 3,702,000 USD/GBP Call Apr-01/1.4 GBP 526 ------------- Total Purchased Options Outstanding (cost $288,953) $ 202,950 SHORT-TERM INVESTMENTS (3.3%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 2,000,000 UBS Finance LLC effective yield of 5.5%, April 2, 2026 $ 1,999,083 20,721,000 Interest in $500,000,000 joint tri-party repurchase agreement dated March 30, 2001 with Credit Suisse First Boston due April 2, 2001 with respect to various U.S. Government obligations -- maturity value of $20,730,255 for an effective yield of 5.36% 20,721,000 ------------- Total Short-Term Investments (cost $22,720,083) $ 22,720,083 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $738,053,731) (b) $ 678,742,170 ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $694,897,897. (b) The aggregate identified cost on a tax basis is $739,033,188, resulting in gross unrealized appreciation and depreciation of $19,567,944 and $79,858,962, respectively, or net unrealized depreciation of $60,291,018. (NON) Non-income-producing security. (STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin receiving interest at this rate. (RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at March 31, 2001 was $8,439,539 or 1.2% of net assets. (PIK) Income may be received in cash or additional securities at the discretion of the issuer. (SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures contracts, forward currency contracts and written options at March 31, 2001. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at March 31, 2001, which are subject to change based on the terms of the security. DIVERSIFICATION BY COUNTRY Distribution of investments by country of issue at March 31, 2001: (as percentage of Market Value) Argentina 1.3% Brazil 2.0 Canada 2.6 Germany 4.9 Greece 0.9 Italy 2.2 Mexico 1.8 Russia 1.8 United Kingdom 2.1 United States 76.7 Other 3.7 ---- Total 100.0% ------------------------------------------------------------------------------ Forward Currency Contracts to Buy at March 31, 2001 (Unaudited) (aggregate face value of $137,435,432) Unrealized Aggregate Face Delivery Appreciation/ Market Value Value Date (Depreciation) ------------------------------------------------------------------------------ Australian Dollars $ 2,512,955 $ 2,590,332 6/20/2001 $ (77,377) British Pounds 5,449,150 5,573,045 6/20/2001 (123,895) Canadian Dollar 12,094,377 12,281,881 6/20/2001 (187,504) Danish Krone 764,200 801,462 6/20/2001 (37,262) Euro 55,490,266 57,766,391 6/20/2001 (2,276,125) Japanese Yen 54,992,687 57,594,089 6/20/2001 (2,601,402) Swedish Krona 660,843 694,527 6/20/2001 (33,684) Swiss Franc 133,771 133,705 6/20/2001 66 ------------------------------------------------------------------------------ $(5,337,183) ------------------------------------------------------------------------------ Forward Currency Contracts to Sell at March 31, 2001 (Unaudited) (aggregate face value of $153,775,909) Aggregate Face Delivery Unrealized Market Value Value Date Appreciation ------------------------------------------------------------------------------ Australian Dollars $ 1,190,542 $ 1,200,492 6/12/2001 $ 9,950 British Pounds 2,725,707 2,787,768 6/20/2001 62,061 Canadian Dollar 15,104,023 15,334,871 6/20/2001 230,848 Euro 81,272,258 84,266,001 6/20/2001 2,993,743 Japanese Yen 45,028,449 47,061,917 6/20/2001 2,033,468 New Zealand Dollar 3,005,847 3,124,860 6/20/2001 119,013 ------------------------------------------------------------------------------ $5,449,083 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Futures Contracts Outstanding at March 31, 2001 (Unaudited) Unrealized Aggregate Face Expiration Appreciation/ Total Value Value Date (Depreciation) ------------------------------------------------------------------------------ 3 Month Libor (long) $12,082,717 $12,071,971 Sep-01 $ 10,746 3 Month Libor (short) 12,061,572 12,056,969 Jun-02 (4,603) Eurodollar 3 Month (short) 6,213,350 6,201,540 Jun-02 (11,810) Eurodollar 3 Month (long) 6,209,775 6,195,911 Dec-01 13,864 Eurodollar 3 Month (short) 4,066,825 4,040,762 Sep-01 (26,063) Eurodollar 3 Month (long) 4,056,838 4,030,263 Mar-02 26,575 JGB 10 Yr. (long) 7,226,776 7,195,815 Jun-01 30,961 US Treasury 10 Yr. (long) 10,301,703 10,273,319 Jun-01 28,384 ------------------------------------------------------------------------------ $ 68,054 ------------------------------------------------------------------------------ Swap Contracts Outstanding at March 31, 2001 (Unaudited) Notional Termination Unrealized Amount Date Appreciation ------------------------------------------------------------------------------ Agreement with Merrill Lynch International & Co. CV dated November 17, 2000, to pay semiannually the notional amount multiplied by the LIBOR-BBA and receive the notional amount multiplied by 6.7506%. $6,500,000 Nov-05 $343,684 ------------------------------------------------------------------------------ Written Call Options Outstanding at March 31, 2001 (Unaudited) (premium received $22,742) Expiration Date/ Market Contract Amount Strike Price Value ------------------------------------------------------------------------------ $1,000,000,000 U.S. Dollars in Exchange for Japanese Government Bond Jun-01/JGB 141.5 $23,943 ------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements. STATEMENT OF ASSETS AND LIABILITIES March 31, 2001 (Unaudited) Assets ------------------------------------------------------------------------------------------- Investments in securities, at value (identified cost $738,053,731) (Note 1) $678,742,170 ------------------------------------------------------------------------------------------- Cash 2,562,777 ------------------------------------------------------------------------------------------- Foreign currency (cost $331,065) 321,662 ------------------------------------------------------------------------------------------- Dividends, interest and other receivables 13,971,416 ------------------------------------------------------------------------------------------- Receivable for securities sold 36,039,389 ------------------------------------------------------------------------------------------- Receivable for variation margin (Note 1) 21,437 ------------------------------------------------------------------------------------------- Receivable for open swap contracts (Note 1) 343,684 ------------------------------------------------------------------------------------------- Receivable for open forward currency contracts (Note 1) 5,449,149 ------------------------------------------------------------------------------------------- Receivable for closed forward currency contracts (Note 1) 155,271 ------------------------------------------------------------------------------------------- Total assets 737,606,955 Liabilities ------------------------------------------------------------------------------------------- Distributions payable to shareholders 5,284,396 ------------------------------------------------------------------------------------------- Payable for securities purchased 30,456,353 ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 1,252,913 ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 121,723 ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 61,561 ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 2,423 ------------------------------------------------------------------------------------------- Payable for written options outstanding (premiums received $22,742) (Notes 1 and 3) 23,943 ------------------------------------------------------------------------------------------- Payable for open forward currency contracts (Note 1) 5,337,249 ------------------------------------------------------------------------------------------- Payable for closed forward currency contracts (Note 1) 86,000 ------------------------------------------------------------------------------------------- Other accrued expenses 82,497 ------------------------------------------------------------------------------------------- Total liabilities 42,709,058 ------------------------------------------------------------------------------------------- Net assets $694,897,897 Represented by ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $861,575,486 ------------------------------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (20,158,738) ------------------------------------------------------------------------------------------- Accumulated net realized loss on investment and foreign currency transactions (Note 1) (87,059,270) ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (59,459,581) ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $694,897,897 Computation of net asset value ------------------------------------------------------------------------------------------- Net asset value per share ($694,897,897 divided by 100,133,127 shares) $6.94 ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. STATEMENT OF OPERATIONS Six months ended March 31, 2001 (Unaudited) Investment income: ------------------------------------------------------------------------------------------- Interest income $ 32,540,220 ------------------------------------------------------------------------------------------- Dividends 769,874 ------------------------------------------------------------------------------------------- Total investment income 33,310,094 Expenses: ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 2,509,725 ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 354,863 ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 35,215 ------------------------------------------------------------------------------------------- Administrative services (Note 2) 4,872 ------------------------------------------------------------------------------------------- Other 240,176 ------------------------------------------------------------------------------------------- Total expenses 3,144,851 ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (23,146) ------------------------------------------------------------------------------------------- Net expenses 3,121,705 ------------------------------------------------------------------------------------------- Net investment income 30,188,389 ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (13,024,020) ------------------------------------------------------------------------------------------- Net realized gain on futures contracts (Note 1) 1,065,678 ------------------------------------------------------------------------------------------- Net realized loss on foreign currency transactions (Note 1) (3,406,980) ------------------------------------------------------------------------------------------- Net realized gain on swap contracts (Note 1) 273,838 ------------------------------------------------------------------------------------------- Net unrealized appreciation of assets and liabilities in foreign currencies during the period 504,380 ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments, futures contracts, swap contracts and written options during the period (2,756,245) ------------------------------------------------------------------------------------------- Net loss on investments (17,343,349) ------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations $ 12,845,040 ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. STATEMENT OF CHANGES IN NET ASSETS Six months ended Year ended March 31 September 30 2001* 2000 -------------------------------------------------------------------------------------------------- Decrease in net assets -------------------------------------------------------------------------------------------------- Operations: -------------------------------------------------------------------------------------------------- Net investment income $ 30,188,389 $ 63,571,481 -------------------------------------------------------------------------------------------------- Net realized loss on investments and foreign currency transactions (15,091,484) (37,850,908) -------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and assets and liabilities in foreign currencies (2,251,865) (5,069,867) -------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 12,845,040 20,650,706 -------------------------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) -------------------------------------------------------------------------------------------------- From net investment income (31,841,091) (64,290,088) -------------------------------------------------------------------------------------------------- Total decrease in net assets (18,996,051) (43,639,382) Net assets -------------------------------------------------------------------------------------------------- Beginning of period 713,893,948 757,533,330 -------------------------------------------------------------------------------------------------- End of period (including distributions in excess of net investment income of $20,158,738 and $18,506,036, respectively) $694,897,897 $713,893,948 -------------------------------------------------------------------------------------------------- Number of fund shares -------------------------------------------------------------------------------------------------- Shares outstanding at beginning and end of period 100,133,127 100,133,127 -------------------------------------------------------------------------------------------------- *Unaudited The accompanying notes are an integral part of these financial statements. FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period) ------------------------------------------------------------------------------------------------------------------ Six months ended Per-share March 31 operating performance (Unaudited) Year ended September 30 ------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $7.13 $7.57 $8.14 $8.79 $8.58 $8.38 ------------------------------------------------------------------------------------------------------------------ Investment operations ------------------------------------------------------------------------------------------------------------------ Net investment income (a) .30 .63 .58 .71 .64 .63 ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments (.17) (.43) (.47) (.67) .21 .19 ------------------------------------------------------------------------------------------------------------------ Total from investment operations .13 .20 .11 .04 .85 .82 ------------------------------------------------------------------------------------------------------------------ Less distributions: ------------------------------------------------------------------------------------------------------------------ From net investment income (.32) (.64) (.56) (.69) (.64) (.61) ------------------------------------------------------------------------------------------------------------------ From return of capital -- -- (.12) -- -- (.01) ------------------------------------------------------------------------------------------------------------------ Total distributions (.32) (.64) (.68) (.69) (.64) (.62) ------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $6.94 $7.13 $7.57 $8.14 $8.79 $8.58 ------------------------------------------------------------------------------------------------------------------ Market value, end of period $6.580 $6.438 $6.438 $7.750 $8.125 $7.500 ------------------------------------------------------------------------------------------------------------------ Total return at market value (%)(b) 7.32* 10.72 (9.09) 3.91 17.54 10.34 ------------------------------------------------------------------------------------------------------------------ Ratios and supplemental data ------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) $694,898 $713,894 $757,533 $814,342 $337,664 $332,537 ------------------------------------------------------------------------------------------------------------------ Ratio of expenses to average net assets (%)(c) .45* .87 .93 .92 1.04 .99 ------------------------------------------------------------------------------------------------------------------ Ratio of net investment income to average net assets (%) 4.31* 8.60 7.39 8.13 7.47 7.44 ------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%) 186.65* 116.71 133.72 179.84(d) 220.61 232.90 ------------------------------------------------------------------------------------------------------------------ * Not annualized. (a) Per share net investment income has been determined on the basis of weighted average number of shares outstanding during the period. (b) Total return does not reflect the effect of sales charges. (c) Includes amounts paid through expense offset arrangements (Note 2). (d) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Intermediate Government Income Trust. NOTES TO FINANCIAL STATEMENTS March 31, 2001 (Unaudited) Note 1 Significant accounting policies Putnam Master Intermediate Income Trust (the "fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company and is authorized to issue an unlimited number of shares. The fund's investment objective is to seek, with equal emphasis, high current income and relative stability of net asset value, by allocating its investments among the U.S. investment grade sector, high-yield sector and international sector. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sales price on its principal exchange, or if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value. Other investments, including restricted securities, are stated at fair value following procedures approved by the Trustees. Market quotations are not considered to be readily available for certain debt obligations; such investments are stated at fair value on the basis of valuations furnished by an independent pricing service or dealers, approved by the Trustees, which determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and variable relationships between securities that are generally recognized by institutional traders. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Investments, LLC. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. C) Repurchase agreements The fund, or any joint trading account, through its custodian, receives delivery of the underlying securities, the market value of which at the time of purchase is required to be in an amount at least equal to the resale price, including accrued interest. Collateral for certain tri-party repurchase agreements is held at the counterparty's custodian in a segregated account for the benefit of the fund and the counterparty. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Discounts on zero coupon bonds, original issue discount bonds, stepped-coupon bonds and payment in kind bonds are accreted according to the yield-to-maturity basis. Any premium resulting from the purchase of stepped-coupon securities is amortized on a yield-to-maturity basis. E) Foreign currency translation The accounting records of the fund are maintained in U.S. dollars. The market value of foreign securities, currency holdings, and other assets and liabilities are recorded in the books and records of the fund after translation to U.S. dollars based on the exchange rates on that day. The cost of each security is determined using historical exchange rates. Income and withholding taxes are translated at prevailing exchange rates when accrued or incurred. The fund does not isolate that portion of realized or unrealized gains or losses resulting from changes in the foreign exchange rate on investments from fluctuations arising from changes in the market prices of the securities. Such gains and losses are included with the net realized and unrealized gain or loss on investments. Net realized gains and losses on foreign currency transactions represent net realized exchange gains or losses on closed forward currency contracts, disposition of foreign currencies and the difference between the amount of investment income and foreign withholding taxes recorded on the fund's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized appreciation and depreciation of assets and liabilities in foreign currencies arise from changes in the value of open forward currency contracts and assets and liabilities other than investments at the period end, resulting from changes in the exchange rate. Investments in foreign securities involve certain risks, including those related to economic instability, unfavorable political developments, and currency fluctuations, not present with domestic investments. F) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. These contracts are used to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are denominated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. G) Futures and options contracts The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or in which it may invest to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. H) Interest rate swap contracts. The fund may engage in interest rate swap agreements, which are arrangements between two parties to exchange cash flows based on a notional principal amount. The fund may enter into interest rate swap agreements, to manage the funds exposure to interest rates. Interest rate swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as unrealized gain or loss. Payments made or received are included as part of interest income. Payments received or made upon early termination are recorded as realized gain or loss. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or that the counterparty may default on its obligation to perform. I) 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 September 30, 2000, the fund had a capital loss carryover of approximately $47,316,000 available to offset future capital gains, if any. The amount of the carryover and the expiration dates are: Loss Carryover Expiration -------------- ------------------ $ 253,000 September 30, 2001 7,035,000 September 30, 2003 2,793,000 September 30, 2004 1,554,000 September 30, 2005 10,040,000 September 30, 2007 25,641,000 September 30, 2008 J) Distributions to shareholders Distributions to shareholders are recorded by the fund on the ex-dividend date. At certain times, the fund may pay distributions at a level rate even though, as a result of market conditions or investment decisions, the fund may not achieve projected investment results for a given period. Capital gains distributions, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. Note 2 Management fee, administrative services and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.75% of the first $500 million of average weekly net assets, 0.65% of the next $500 million, 0.60% of the next $500 million, and 0.55% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, LLC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. For the six months ended March 31, 2001, the fund's expenses were reduced by $23,146 these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $982 has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. Note 3 Purchases and sales of securities During the six months ended March 31, 2001, cost of purchases and proceeds from sales of investment securities other than U.S. government obligations and short-term investments aggregated $336,158,753 and $296,959,936, respectively. Purchases and sales of U.S. government obligations aggregated $882,013,706 and $899,364,076, respectively. Written option transactions during the period are summarized as follows: Contract Premiums Amounts Received --------------------------------------------------------------------------- Written options outstanding at beginning of period $ -- $ -- --------------------------------------------------------------------------- Options opened 1,000,000,000 22,742 --------------------------------------------------------------------------- Options expired -- -- --------------------------------------------------------------------------- Options closed -- -- --------------------------------------------------------------------------- Written options outstanding at end of period $1,000,000,000 $22,742 --------------------------------------------------------------------------- Note 4 Share repurchase program In November 1994, the Trustees authorized the fund to repurchase up to 1,950,000 of its shares in the open market. Repurchases will only be made when the fund's shares are trading at less than net asset value and at such times and amounts as is believed to be in the best interest of the fund's shareholders. Any repurchases of shares will have the effect of increasing the net asset value per share of remaining shares outstanding. For the six months ended March 31, 2001, the fund repurchased no shares. As of March 31, 2001, 570,000 shares have been repurchased since the inception of the program. Note 5 New accounting pronouncement In November 2000, the AICPA issued a revised Audit and Accounting Guide, Audits of Investment Companies, which is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the fund to amortize premium and accrete discount on all fixed-income securities, and classify as interest income gains and losses realized on paydowns on mortgage-backed securities which are presently included in realized gain/loss. Adopting these accounting principles will not affect the fund's net asset value, but will change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of operations. The fund has not at this time quantified the impact, if any, resulting form the adoption of this principle on the financial statements. FUND INFORMATION WEB SITE www.putnaminvestments.com INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Hans H. Estin Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam, III President Charles E. Porter Executive Vice President and Treasurer Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Kevin Cronin Vice President David L. Waldman Vice President and Fund Manager Richard A. Monaghan Vice President Richard G. Leibovitch Vice President John R. Verani Vice President Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m. Eastern Time, or visit our Web site (www.putnaminvestments.com) any time for up-to-date information about the fund's NAV. [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 --------------------- PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com 71200 074 5/01