Putnam
High Yield
Total Return
Fund
SEMIANNUAL REPORT
December 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Investors worried about stock market volatility may want to
allocate more of their portfolios to bonds."
-- "The Investment Spectrum," Business Week,
December 29, 1997 - January 5, 1998
* "Investors who grabbed bonds with the highest yields once again
finished the year [1997] with the best returns."
-- "Trading Points," Barron's, January 5, 1998
CONTENTS
4 Report from Putnam Management
10 Fund performance summary
13 Portfolio holdings
31 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
A major disruption in the world's securities markets a month before the
midpoint of Putnam High Yield Total Return Fund's fiscal year did not keep
your fund from delivering positive results for the six months ended December
31, 1997. Even the impact on the fund's foreign holdings was comparatively
minimal as a result of the difficulties in Southeast Asia that touched off the
global market tremors that are still being felt.
During this eventful period, Jennifer Leichter was named to head your fund's
management team. She has been a key member of Putnam's high-yield bond team
since her arrival in 1987, first as an analyst and then as a portfolio
manager. She has 11 years of investment experience.
Jennifer's skill and experience are already clearly in evidence. She believes
the market disruptions will prove temporary and has seen no cause to waver
from the fund's well-established investment strategy. In the following report,
your fund's managers discuss performance during the first half of fiscal 1998
and look at prospects for the second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 18, 1998
Report from the Fund Managers
Jennifer E. Leichter, lead manager
Gail S. Attridge
Charles G. Pohl
Putnam High Yield Total Return Fund began fiscal 1998 last July in the midst
of robust stock and bond market rallies and ended the semiannual period on
December 31, 1997, with the broad markets on a similarly upbeat note. What
occurred during the months in between, however, provided investors with a
persuasive reminder that short-term volatility should not cast too dark a
cloud over a long-term perspective.
In August, for example, the U.S. stock and bond markets experienced a sizable
setback in response to employment data that suggested the economy was growing
faster than expected. While the release of noninflationary data in early
September and progress on resolving the federal budget deficit issue calmed
the markets briefly, the economic woes that had been battering Pacific Rim
countries throughout the summer hit the boiling point in October.
All the major U.S. stock market indexes endured their largest one-day point
declines in history. Corporate and high-yield bond prices tumbled as
investors, both foreign and domestic, rushed to the safety of high-quality
U.S. government debt. Once the dust settled and investors began focusing on
the near-ideal conditions currently existing within the United States, equity
and fixed-income markets recovered much of their lost ground.
Your fund experienced its share of volatility during these brief pockets of
turbulence and yet ended the first half of fiscal 1998 with positive returns.
Full performance details begin on page 10 of this report.
* CURRENT ENVIRONMENT DIFFERS DRAMATICALLY FROM THAT OF LATE '80s
Although high-yield bonds took a back seat to Treasury securities in the final
quarter of calendar 1997, the performance of this asset class was indeed
stellar for the year. Given the record amount of new high-yield bonds issued
this year -- close to $115 billion -- this was no small feat. The fact that
the market was able to digest such heavy new issuance and still post robust
gains is clear evidence that a fundamental change has taken place in the way
investors view high-yield bonds. The reason behind this paradigm shift is
twofold.
First, the macroeconomic conditions that exist today are highly favorable for
the performance of high-yield bonds. Such conditions include healthy economic
growth combined with low inflation, stable to declining interest rates at home
along with relatively low nominal yields worldwide, and a Congress and White
House that have made concerted efforts to rein in the budget deficit by 2002,
an effort that has been remarkably successful so far.
Second, the technicals, or sector-specific influences, of the high-yield bond
market are extremely positive. The profitability of U.S. corporations has
consistently exceeded Wall Street's expectations for several years now. Such
profitability in combination with robust equity markets has enabled companies
to improve their balance sheets and limit the issuance of new debt. This, in
turn, has led to better credit quality among issuers and historically low
default rates. Demand from individual investors and institutions remains
strong. Finally, a steady flow of merger and acquisition activity, which often
leads to credit upgrades, has done its part to bolster high-yield bond
returns.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 17.8%
Broadcasting 7.6%
Oil and gas 6.5%
Insurance and finance 6.1%
Cable television 3.9%
Footnote reads:
*Based on net assets as of 12/31/97. Holdings will vary over time.
* EXPOSURE TO SEVERAL TOP-PERFORMING INDUSTRY SECTORS FUELED FUND RETURNS
A substantial portion of the fund's assets was invested in three rapidly
growing industries, telecommunications, broadcasting, and cable television.
The combined effects of deregulation and consolidation within these industries
helped fuel the performance of many fund holdings.
Within the telecommunications sector, favorable regulatory developments and
improved operating results boosted the market positions of many competitive
local exchange carriers (CLECs), which use fiber-optic and wireless
technologies to compete with local phone companies and specialized mobile
radio operators. In addition, as the larger, more financially stable
telecommunications players entered the local markets through the acquisition
of CLECs, many fund holdings received credit upgrades.
Our investment in Echostar Communications, which provides satellite services,
is worth highlighting. Deregulation in the broadcast industry now allows radio
station operators to own multiple stations as well as a greater number of
stations within an individual market. The relaxed rules have spurred companies
to conduct aggressive acquisition campaigns, further advancing performance
potential. While these securities and others discussed in this report were
viewed favorably during the period, all holdings are subject to review in
accordance with the fund's investment strategy and may vary in the future.
Cable television companies received an added boost this year on the heels of
Microsoft's investment in Comcast Corp. (not in the fund's portfolio), which
has caused investors to reconsider cable companies as viable Internet delivery
vehicles. We continue to favor the cable sector in the United Kingdom, where
corporations are permitted to market telephone and cable television services
jointly.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR*
HIGH YIELD
Transamerican Energy 144A Sr. disc. notes stepped-coupon, zero %, 2002
Oil and gas
Econophone Inc. Company guaranty 13 1/2s, 2007
Telecommunications
Adelphia Communications Corp., Senior notes, Ser. B, 9 7/8s, 2007
Cable television
EMERGING MARKETS
Brazil (Government of) FRB 4s, 2014
United Mexican States Bond 6 1/4s, 2019
Russia (Government of) deb. principal loans FRB 6.719s, 2020
CONVERTIBLE BONDS AND NOTES
APP Global Finance (V) Ltd. 144A Convertible notes, 2s, 2000
Insurance and finance
Corporate Express, Inc., Convertible notes, 4 1/2s, 2000
Business equipment and services
Polymax 144A Convertible notes 2s, 2006
Retail
Footnote reads:
These holdings represent 8.8% of the fund's net assets as of 12/31/97.
Portfolio holdings will vary over time.
Foreign cellular companies represent another high-technology sector bursting
with appreciation potential. Exploding worldwide demand for wireless
communication, particularly in countries where wire-line phone systems have
not achieved widespread penetration, has propelled the performance of several
foreign dollar-based corporate holdings, including Millicom International
Cellular and Celcaribe.
Finally, financial holdings also held a respectable weighting in the fund with
solid returns posted by several trust-preferred securities, or bank capital
notes, issued by regional banking companies. Because these bonds, by nature,
have longer durations than those of the typical high-yield bond, they gave the
fund slightly more interest-rate exposure than it would have had otherwise,
thereby allowing some measure of participation in the Treasury market's rally.
* EMERGING-MARKETS AND CONVERTIBLE BOND POSITIONS SCALED BACK
At the outset of fiscal 1998, the fund had respectable weighting in both
emerging-markets bonds -- Brady bonds* issued by Argentina, Brazil, and Mexico
- -- and convertible bonds, roughly 12% to 15% of the fund's assets in each
category. By the fiscal year's midpoint, however, we had trimmed back the
fund's positions in these two market sectors by more than half in the
aftermath of the volatility caused by the Asian currency crisis and its
spillover effects on Latin American nations and the U.S. stock market.
The underlying equity of most of the convertible issues held by your fund fell
along with most of the stocks in the small-company universe, which sold off in
sympathy with the Dow Jones Industrial Average's plunge in late October.
Fortunately we had cut back investments in early October before the worst of
the rout occurred. We will monitor events in these market sectors closely over
the next few months to ascertain whether or when it would be worthwhile to
rebuild selective positions.
Footnote reads:
*Brady bonds are public-issue, U.S. dollar-denominated bonds of developing
countries.
* CONDITIONS APPEAR RIGHT FOR ONGOING STRONG PERFORMANCE
We enter the second half of the fund's fiscal year with an upbeat outlook.
While there can never be any assurance, we believe that both the high-yield
market and your fund should be poised to perform well. The credit profiles of
many issuers are strong and corporate profitability currently remains intact.
Although some industry pundits have expressed concern over the adverse effects
that developments in Asia might have on exports -- and subsequently on the
revenues of U.S. corporations and the economy -- we see no cause for undue
concern, since most of the fund's holdings are those of domestic companies
having no overseas exposure. Furthermore, the interest-rate environment and
inflation outlook on the home front appear benign. Rest assured, we will
diligently track events as they unfold around the world and continue to
structure a well-diversified portfolio offering solid performance potential.
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 12/31/97, there is no guarantee the fund will continue to hold
these securities in the future. 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 may affect the issuer's ability to
pay principal and interest. International investing involves risks including
political developments, economic instability and currency fluctuations.
Investing in emerging markets may involve risks.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
High Yield Total Return Fund is designed for investors seeking a
combination of high current income and capital appreciation.
TOTAL RETURN FOR PERIODS ENDED 12/31/97
Class A Class B Class M
(inception date) (1/2/97) (1/2/97) (1/2/97)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 7.82% 2.76% 7.47% 2.47% 7.70% 4.23%
- ------------------------------------------------------------------------------
Life of fund 12.46 7.16 11.69 6.69 12.23 8.52
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/97
First Boston High Consumer
Yield Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 6.40% 0.62%
- ------------------------------------------------------------------------------
Life of fund 12.63 1.70
- ------------------------------------------------------------------------------
Class A and class M share performance is shown at net asset value and
public offering price and reflects the current maximum sales charge of
4.75% for class A shares and 3.25% for class M shares. Class B share
performance reflects the applicable contingent deferred sales charge, the
maximum being 5%, if shares were redeemed on 12/31/97. All returns assume
reinvestment of distributions at NAV and represent past performance; they
do not guarantee future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 12/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.419 $0.468 $0.488
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term -- -- --
- ------------------------------------------------------------------------------
Short-term 0.146 0.146 0.146
- ------------------------------------------------------------------------------
Total $0.565 $0.614 $0.634
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
6/30/97 $8.72 $9.15 $8.71 $8.72 $9.01
- ------------------------------------------------------------------------------
12/31/97 8.83 9.27 8.74 8.75 9.04
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 8.83% 8.41% 8.24% 8.64% 8.36%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 7.37 7.01 6.53 7.03 6.80
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
First Boston High Yield Bond Index is an unmanaged list of lower-rated,
high-yielding US corporate bonds.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return. The index assumes reinvestment of
all distributions and interest payments and does not take into account
brokerage fees or taxes. Securities in the fund do not match those in the
index and performance of the fund will differ. It is not possible to
invest directly in an index.
Portfolio of investments owned
December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (68.8%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.7%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 50,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $ 53,500
65,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 66,544
115,000 Outdoor Comunications Inc. sr. sub. notes 9 1/4s, 2007 117,566
--------------
237,610
Aerospace and Defense (1.1%)
- ------------------------------------------------------------------------------------------------------------
25,000 K & F Industries, Inc.144A sr. sub. notes 9 1/4s, 2007 25,625
300,000 Sabreliner Corp. sr. notes Ser. B, 12 1/2s, 2003 313,500
25,000 United Defense Industries Inc. 144A sr. sub. notes 8 3/4s, 2007 25,156
--------------
364,281
Agriculture (1.0%)
- ------------------------------------------------------------------------------------------------------------
306,518 Premium Standard Farms, Inc. sr. secd. notes zero %, 2003 [2 DBL. DAGGERS] 337,170
Apparel (0.1%)
- ------------------------------------------------------------------------------------------------------------
25,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 25,750
Automotive (1.0%)
- ------------------------------------------------------------------------------------------------------------
10,000 Cambridge Industries Inc. 144A sr. sub. notes 10 1/4s, 2007 10,400
25,000 Delco Remy International, Inc. 144A sr. notes 8 5/8s, 2007 25,344
150,000 Hayes Wheels International, Inc. 144A sr. sub notes, 9 1/8s, 2007 155,250
140,000 Oxford Automotive, Inc. company guaranty 10 1/8s, 2007 147,700
--------------
338,694
Basic Industrial Products (0.5%)
- ------------------------------------------------------------------------------------------------------------
30,000 Koppers Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 30,900
120,000 Roller Bearing Co. 144A sr. sub. notes 9 5/8s, 2007 120,900
--------------
151,800
Broadcasting (5.0%)
- ------------------------------------------------------------------------------------------------------------
140,000 Acme Television/Finance 144A sr. disc. notes stepped-
coupon zero % (10 7/8s, 9/30/00), 2004 ++ 103,075
25,000 Antenna TV S.A. 144A 9s, 2007 (Greece) 25,000
220,000 Benedek Communications Corp. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2006 ++ 165,000
50,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 ++ 35,500
50,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 50,250
20,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 19,800
25,000 Citadel Broadcasting Co. 144A sr. sub. notes10 1/4s, 2007 27,063
150,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 121,875
320,000 Fox/Liberty Networks LLC 144A sr. discount notes
stepped-coupon zero % (9 3/4s,8/15/02), 2007 ++ 204,800
100,000 Fox Kids Worldwide Inc. 144A sr. discount notes stepped-
coupon zero % (10 1/4s, 11/1/02), 2007 ++ 59,250
300,000 Fox Kids Worldwide Inc. 144A sr. notes 9 1/4s, 2007 291,000
15,000 Pegasus Communications Corp. 144A sr. notes 9 5/8s, 2005 15,300
100,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 114,000
150,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 ++ 148,500
30,000 Spanish Broadcasting sr. notes Ser. B, 11s, 2004 33,000
125,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 133,750
75,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 77,250
125,000 UIH Australia/Pacific, Inc. 144A sr. disc. notes stepped-coupon
zero % (14s, 5/15/01), 2006 (Australia) ++ 82,500
--------------
1,706,913
Building and Construction (1.9%)
- ------------------------------------------------------------------------------------------------------------
10,000 Cia Latino Americana 144A company guaranty 11 1/8s, 2004
(Argentina) 10,100
100,000 GS Superhighway Holdings 144A sr. notes 10 1/4s, 2007 97,250
75,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 76,688
25,000 Presley Cos. sr. notes 12 1/2s, 2001 24,000
308,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 348,040
75,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 80,250
--------------
636,328
Business Equipment and Services (0.2%)
- ------------------------------------------------------------------------------------------------------------
50,000 Iron Mountain, Inc. 144A sr. sub. notes 8 3/4s, 2009 51,250
20,000 Williams Scotsman, Inc. 144A sr. notes 9 7/8s, 2007 20,600
--------------
71,850
Cable Television (2.9%)
- ------------------------------------------------------------------------------------------------------------
360,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 378,900
25,000 Charter Communications International, Inc. sr. notes Ser. B,
11 1/4s, 2006 27,500
125,000 Diamond Cable Communication Co. sr. disc. notes stepped-
coupon zero % (11 3/4s, 12/15/00), 2005 (United
Kingdom) ++ 97,188
115,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 79,638
27,775 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 29,928
25,000 FrontierVision Operating Partners L.P. sr. sub. notes 11s, 2006 27,750
150,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 117,750
140,000 Northland Cable Television 144S sr. sub. notes 10 1/4s, 2007 147,525
110,000 RCN Corp. sr. notes stepped-coupon zero% (11 1/8s,
10/15/02, ), 2007 ++ 69,025
15,000 RCN Corp. 144A sr. notes 10s, 2007 15,563
--------------
990,767
Cellular Communications (2.0%)
- ------------------------------------------------------------------------------------------------------------
100,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) ++ 68,000
145,000 Celcaribe S.A. sr. notes stepped-coupon zero % (13 1/2s,
3/15/98), 2004 ++ 282,500
230,000 CellNet Data Systems, Inc. 144A sr. disc. notes stepped-
coupon zero % (14s, 10/1/02), 2007 ++ 115,000
40,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 41,600
80,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 85,100
100,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 101,500
--------------
693,700
Chemicals (1.5%)
- ------------------------------------------------------------------------------------------------------------
25,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 26,750
250,000 PCI Chemicals & Pharmaceuticals 144A sr. notes 9 1/4s,
2007 (Canada) 248,750
30,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes 9 3/4s,
2007 (Switzerland) 30,450
25,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 25,125
130,000 Polytama International notes 11 1/4s, 2007 (Indonesia) 97,500
35,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 35,963
30,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 27,000
--------------
491,538
Computer Services and Software (0.9%)
- ------------------------------------------------------------------------------------------------------------
20,000 DecisionOne Corp. sr. sub. notes 9 3/4s, 2007 20,500
300,000 Unisys Corp. deb. 9 3/4s, 2016 300,750
--------------
321,250
Consumer Durable Goods (1.0%)
- ------------------------------------------------------------------------------------------------------------
280,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 294,000
50,000 Sealy Mattress Co. 144A sr. disc. notes stepped-coupon
zero % (10 7/8s, 12/15/02), 2007 ++ 30,250
--------------
324,250
Consumer Non Durables (0.3%)
- ------------------------------------------------------------------------------------------------------------
15,000 Amscan Holdings, Inc. 144A sr. sub. notes 9 7/8s, 2007 15,338
70,000 Carson, Inc. 144A sr. sub. notes 10 3/8s, 2007 70,000
--------------
85,338
Consumer Products (0.8%)
- ------------------------------------------------------------------------------------------------------------
10,000 Hedstrom Corp. 144A 10s, 2007 10,075
10,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 ++ 6,000
350,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 244,125
--------------
260,200
Consumer Services (1.5%)
- ------------------------------------------------------------------------------------------------------------
340,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 376,550
125,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 135,781
--------------
512,331
Electronics and Electrical Equipment (2.6%)
- ------------------------------------------------------------------------------------------------------------
20,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 20,000
75,000 Details Holdings Corp. 144A sr. disc. notes stepped-coupon
zero % (12 1/2s, 11/15/02), 2007 ++ 43,875
35,000 DII Group, Inc. 144A sr. sub. notes 8 1/2s, 2007 34,388
150,000 Dobson Communications Corp. 11 3/4s, 2007 158,625
200,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 210,000
239,326 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 246,506
30,000 Flextronics Internationsl Ltd. 144A sr. sub. notes 8 3/4s, 2007 29,925
15,000 HCC Industries, Inc. 144A sr. sub. notes 10 3/4s, 2007 15,563
40,000 Motors and Gears Inc. 144A sr. notes 10 3/4s, 2006 42,500
30,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 30,975
60,000 Wavetek Corp. 144A sr. sub. notes 10 1/8s, 2007 61,800
--------------
894,157
Energy-Related (0.4%)
- ------------------------------------------------------------------------------------------------------------
150,000 Panda Global Energy Co. 144A sr. sub. notes 12 1/2s, 2004 138,000
Entertainment (0.4%)
- ------------------------------------------------------------------------------------------------------------
20,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 20,500
50,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 51,625
50,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 53,375
--------------
125,500
Environmental Control (0.2%)
- ------------------------------------------------------------------------------------------------------------
95,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/07), 2007 ++ 66,025
Food and Beverages (1.4%)
- ------------------------------------------------------------------------------------------------------------
50,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 50,250
150,000 Doane Products Co. sr. notes 10 5/8s, 2006 162,000
50,000 Fleming Companies, Inc. 144A sr. sub. notes 10 5/8s, 2007 52,500
40,000 Jitney-Jungle Stores company guaranty 10 3/8s, 2007 41,600
15,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 ++ 9,750
150,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 156,000
--------------
472,100
Health Care (2.0%)
- ------------------------------------------------------------------------------------------------------------
250,000 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 240,598
75,000 Integrated Health Services, Inc. 144A sr. sub. notes 9 1/4s, 2008 76,500
122,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 124,440
125,000 Paragon Health Networks, Inc. 144A sr. sub. notes 9 1/2s, 2007 125,313
50,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 51,500
55,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 56,788
--------------
675,139
Insurance and Finance (3.2%)
- ------------------------------------------------------------------------------------------------------------
75,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 72,750
100,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 100,134
75,000 AEI Holding Co. Inc. 144A sr. notes 10s, 2007 77,250
25,000 Albank Capital Trust 144A company guaranty Ser. AI, 9.27s, 2027 27,649
120,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 119,100
10,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 11,312
25,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s, 2007
(Luxembourg) 23,750
35,000 Espirto Santo Centrais 144A sr. notes 10s, 2007
(Luxembourg) 33,600
150,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 156,000
10,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 11,143
150,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 149,250
25,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 27,250
25,000 Provident Capital Trust company guaranty 8.6s, 2026 26,468
50,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 53,083
75,000 Resource America Inc. 144A bonds 12s, 2004 76,500
110,000 Sovereign Capital Trust company guaranty 9s, 2027 119,514
10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 11,350
--------------
1,096,103
Medical Supplies and Devices (0.8%)
- ------------------------------------------------------------------------------------------------------------
10,000 ALARIS Medical Inc. company guaranty 9 3/4s, 2006 10,525
150,000 Imagyn Medical Technologies, Inc. 12 1/2s, 2004 142,125
25,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 26,750
90,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 90,900
--------------
270,300
Metals and Mining (0.9%)
- ------------------------------------------------------------------------------------------------------------
10,000 Acindar Industria Argentina de Aceros S.A. bonds
11 1/4s, 2004 (Argentina) 9,850
10,000 Altos Hornos de Mexico bonds Ser. B, 11 7/8s, 2004 (Mexico) 10,375
35,000 Anker Coal Group, Inc. 144A sr. notes 9 3/4s, 2007 35,350
15,000 Continental Global Group sr. notes Ser. B, 11s, 2007 15,975
60,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 58,800
150,000 Maxxam Group Holdings, Inc. sr. notes Ser. B, 12s, 2003 162,000
--------------
292,350
Oil and Gas (5.6%)
- ------------------------------------------------------------------------------------------------------------
100,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 110,250
10,000 Benton Oil & Gas Co. 144A sr. notes 9 3/8s, 2007 10,250
200,000 Cliffs Drilling Co. company guaranty Ser. D, 10 1/4s, 2003 216,000
155,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 167,400
30,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 30,000
25,000 DI Industries Inc. sr. notes 8 7/8s, 2007 25,875
50,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 54,875
50,000 KCS Energy, Inc. company guaranty Ser. B, 11s, 2003 54,875
20,000 Newpark Resources, Inc. 144A sr. sub. notes 8 5/8s, 2007 20,300
20,000 Panaco, Inc. 144A sr. notes 10 5/8s, 2004 20,100
30,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 32,175
15,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 16,125
225,000 Southwest Royalties, Inc. 144A company guaranty 10 1/2s, 2004 222,750
900,000 Transamerican Energy 144A sr. disc. notes stepped-coupon
zero % (13s 6/15/2000), 2002 ++ 726,750
130,000 Transamerican Energy 144A sr. notes 11 1/2s, 2002 130,650
10,000 Wiser Oil Co. 144A sr. sub. notes 9 1/2s, 2007 9,925
50,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 54,500
--------------
1,902,800
Packaging and Containers (0.8%)
- ------------------------------------------------------------------------------------------------------------
25,000 AEP Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 25,688
50,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-coupon
12 3/4s, (12 3/4s, 5/15/98), 2005 ++ 53,500
40,000 Huntsman Packaging Corp. 144A sr. sub. notes 9 1/8s, 2007 41,400
15,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 15,000
30,000 Radnor Holdings Corp. 144A sr. notes Ser. B, 10s, 2003 31,125
100,000 Vicap SA. 144A company guaranty 11 3/8s, 2007 (Mexico) 106,750
--------------
273,463
Paging (0.9%)
- ------------------------------------------------------------------------------------------------------------
200,000 Arch Communications Group sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/15/01), 2008 ++ 123,000
60,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 69,600
125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 113,750
--------------
306,350
Paper and Forest Products (2.4%)
- ------------------------------------------------------------------------------------------------------------
125,000 APP Finance II Mauritius Ltd. bonds 12s, 2049 (Indonesia) ++ 105,000
100,000 APP International Finance Co. notes 11 3/4s, 2005 (Netherlands) 92,500
50,000 Buckeye Cellulose Corp. sr. sub. notes 9 1/4s, 2008 52,625
100,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 106,000
150,000 Indah Kiat Financial Mauritius 144A company guaranty 10s,
2007 (Indonesia) 124,500
203,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty 10s, 2004
(Indonesia) 166,460
80,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 76,000
50,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 49,500
25,000 Stone Container Corp. sr. notes 11 7/8s, 2016 26,375
--------------
798,960
Pharmaceuticals (0.4%)
- ------------------------------------------------------------------------------------------------------------
135,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 142,425
Publishing (1.0%)
- ------------------------------------------------------------------------------------------------------------
225,000 Affinity Group Holdings sr. notes 11s, 2007 239,625
10,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 10,350
60,000 Perry-Judd 144A sr. sub. notes 10 5/8s, 2007 62,400
10,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 10,675
--------------
323,050
Recreation (3.0%)
- ------------------------------------------------------------------------------------------------------------
200,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 210,000
120,000 Fitzgeralds Gaming Corp. 144A company guaranty
12 1/4s, 2004 120,000
100,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 107,250
100,000 Isle of Capri Black Hawk LLC 144A 1st mortgage 13s, 2004 101,000
100,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 101,500
50,000 Mohegan Tribal Gaming Auth. sr. notes Ser. B, 13 1/2s, 2002 64,125
30,000 Penn National Gaming, Inc. 144A sr. notes 10 5/8s, 2004 31,200
50,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 39,000
200,000 Sun International Hotels Ltd. company guaranty 9s, 2007 206,000
25,000 Trump A.C. 1st mtge. 11 1/4s, 2006 24,688
--------------
1,004,763
Retail (1.1%)
- ------------------------------------------------------------------------------------------------------------
30,000 Color Spot Nurseries sr. sub. notes 10 1/2s, 2007 30,300
100,000 K mart Corp. med. term notes 7.55s, 2004 98,811
50,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 50,000
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 164,000
25,000 Star Markets Co. sr. sub. notes 13s, 2004 28,500
10,000 William Carter Co. 144A sr. sub. notes 12s, 2008 10,700
--------------
382,311
Satellite Services (1.6%)
- ------------------------------------------------------------------------------------------------------------
50,000 Echostar DBS Corp. company guaranty 12 1/2s, 2002 54,625
100,000 Echostar Satellite Broadcast Corp. sr. disc. notes stepped-
coupon zero % (13 1/8s, 3/15/00), 2004 ++ 83,000
25,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 17,875
60,000 Globalstar L.P. Capital 11 3/8s, 2004 60,300
50,000 Globalstar L.P. Capital sr. notes 11 1/4s, 2004 50,500
145,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 158,413
100,000 Iridium LLC company gauranty Ser. A, 13s, 2005 105,000
30,000 Pratama Datakom Asia BV 144A company guaranty
12 3/4s, 2005 16,500
--------------
546,213
Telecommunications (11.7%)
- ------------------------------------------------------------------------------------------------------------
55,000 Advanced Radio Telecom Corp. sr. notes 14s, 2007 53,350
25,000 America Communication Services, Inc. 144A sr. notes
13 3/4s, 2007 29,750
250,000 Barak ITC 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) ++ 141,250
10,000 Consorcio Ecuatoriano 144A notes 14s, 2002 (Ecuador) 10,000
375,000 Econophone Inc. company guaranty 13 1/2s, 2007 412,500
30,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 30,900
20,000 FWT, Inc. 144A sr. sub. notes 9 7/8s, 2007 20,450
200,000 GST Equipment Funding sr. notes 13 1/4s, 2007 229,000
190,000 GST Telecommunications, Inc. company guaranty stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 ++ 146,300
65,000 Hyperion Telecommunication Corp. sr. disc. notes stepped-
coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 47,613
115,000 Hyperion Telecommunications , Inc. sr. notes Ser. B, 12 1/4s, 2004 126,500
275,000 Intelcom Group (USA), Inc. company guaranty stepped-coupon
zero % (12 1/2s, 5/1/01), 2006 ++ 207,625
100,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 ++ 72,750
25,000 Intermedia Communications, Inc. 144A sr. notes 8 7/8s, 2007 25,688
70,000 Intermedia Communications, Inc. 144A sr. notes 8 1/2s, 2008 70,000
500,000 Ionica Group PLC sr. disc. notes stepped-coupon zero %
(15s, 5/1/02), 2007 (United Kingdom) ++ 195,000
80,000 ITC Deltacom, Inc. sr. notes 11s, 2007 87,400
40,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 43,200
250,000 McCaw International Ltd sr. discount notes stepped coupon
zero % (13s, 4/15/02), 2007 ++ 145,000
85,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 61,838
25,000 Metronet Communications 144A sr. disc. notes stepped-coupon
zero % (10 3/4s, 11/1/02), 2007 ++ 15,313
275,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) ++ 202,125
20,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 19,200
10,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/02), 2007 (Poland) 5,700
190,000 NEXTEL Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (10.65s, 9/15/02), 2007 ++ 120,175
170,000 NEXTEL Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (9 3/4s, 10/31/02), 2007 ++ 104,338
50,000 Powertel, Inc. sr. notes 11 1/8s, 2007 54,500
70,000 Qwest Communications International, Inc. 144A sr. disc. ntoes
stepped-coupon zero % (9.47s, 10/15/02), 2007 ++ 47,775
285,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 313,500
65,000 Sygnet Wireless, Inc. sr. notes 11 1/2s, 2006 68,900
150,000 Telegroup, Inc. 144A sr. disc. notes stepped-coupon zero %
(10 1/2s, 5/1/00), 2004 ++ 117,000
25,000 Telesystem International Wireless Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 11/1/02), 2007 (Canada) ++ 13,875
140,000 Teligent, Inc. sr. notes 11 1/2s, 2007 140,350
150,000 Transtel S.A. 144A pass through Certificates 12 1/2s, 2007
(Colombia) 141,750
250,000 Viatel, Inc. sr. disc. notes stepped-coupon zero % (15s, 1/15/00),
2005 ++ 205,000
200,000 WinStar Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (14s, 10/15/00), 2005 ++ 159,000
55,000 WinStar Communications. Inc. 144A sr. sub. notes zero %, 2007 67,375
15,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 16,725
--------------
3,968,715
Textiles (0.5%)
- ------------------------------------------------------------------------------------------------------------
60,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 64,500
30,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 30,000
50,000 Polysindo International Finance company guaranty 11 3/8s, 2006
(Indonesia) 40,500
40,000 Worldtex, Inc. 144A sr. notes 9 5/8s, 2007 41,000
--------------
176,000
Transportation (3.7%)
- ------------------------------------------------------------------------------------------------------------
50,000 Atlantic Express, Transportation Corp.144A company guaranty
10 3/4s, 2004 53,125
250,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 262,500
125,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 126,563
330,000 Hermes Europe Railtel 144a sr. notes 11 1/2s, 2007
(Netherlands) 366,300
35,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 38,325
80,000 Kitty Hawk, Inc. 144A sr. notes 9.95s, 2004 81,800
100,000 Pegasus Shipping 144A company guaranty 11 7/8s, 2004 98,500
70,000 TFM S.A. de C.V. 144A company guaranty 10 1/4s, 2007
|(Mexico) 73,500
90,000 TFM S.A. de C.V. 144A company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) ++ 59,850
40,000 Trans World Airlines 144A sr. notes 11 1/2s, 2004 40,200
50,000 Trico Marine Services, Inc. 144A company guaranty Ser. C,
8 1/2s, 2005 50,250
--------------
1,250,913
Utilities (1.8%)
- ------------------------------------------------------------------------------------------------------------
275,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 279,125
150,000 BTI Telecom Corp. 144A sr. notes 10 1/2s, 2007 153,000
175,000 Calpine Corp. sr. notes 10 1/2s, 2006 191,625
--------------
623,750
--------------
Total Corporate Bonds and Notes (cost $22,284,232) $ 23,279,157
PREFERRED STOCKS (9.8%) *
NUMBER OF SHARES VALUE
Apparel (--%)
- ------------------------------------------------------------------------------------------------------------
6 Anvil Holdings Ser. B, $3.25 pfd. [2 DBL. DAGGERS] $ 144
Broadcasting (2.3%)
- ------------------------------------------------------------------------------------------------------------
1,100 Capstar Broadcasting $12.00 pfd. 123,750
1,105 Citadel Broadcasting Inc. 144A $13.25 pfd. [2 DBL. DAGGERS] 127,075
241 Granite Broadcasting 144A $12.75 pfd. [2 DBL. DAGGERS] 267,510
1,000 Sinclair Capital $11.625 cum. pfd. 109,000
128 Spanish Broadcasting Systems $14.25 cum. pfd. [2 DBL. DAGGERS] 136,320
--------------
763,655
Cable Television (1.0%)
- ------------------------------------------------------------------------------------------------------------
2,442 Cablevision Systems Corp. Ser. M, $11.125 cum. pfd. [2 DBL. DAGGERS] 280,830
30 Echostar Communications Corp. 144A 12.125% pfd. [2 DBL. DAGGERS] 30,900
20 NTL Inc. 144A Ser. B, 13.00% pfd. [2 DBL. DAGGERS] 23,200
--------------
334,930
Electric Utilities (--%)
- ------------------------------------------------------------------------------------------------------------
640 Public Service Co. of New Hampshire $2.65 1st mtge. cum. pfd. 16,640
Insurance and Finance (0.6%)
- ------------------------------------------------------------------------------------------------------------
400 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 10,400
3,351 CGA Group Ltd. 144A Ser. A, 13.75% pfd. [2 DBL. DAGGERS] 90,477
1,500 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 77,625
15 CSBI Capital Trust I 144A 11.75% pfd. 15,900
--------------
194,402
Publishing (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,400 Von Hoffman Corp. 144A $13.56 pfd. 43,750
Telecommunications (5.8%)
- ------------------------------------------------------------------------------------------------------------
100 America Communication Services, Inc. 144A 14.75% pfd. 114,375
100 America Communication Services, Inc. 144A 12.75% pfd. [2 DBL. DAGGERS] 100,750
25 ICG Holdings, Inc. 14.25% pfd. [2 DBL. DAGGERS] (Canada) 28,875
27 ICG Holdings, Inc. 14.00% pfd. [2 DBL. DAGGERS] (Canada) 32,400
153 Intermedia Communication Ser. B, 13.50% pfd. 187,425
257 IXC Communications, Inc. 144A 12.50% pfd. [2 DBL. DAGGERS] 300,690
290 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. [2 DBL. DAGGERS] 331,325
9,368 Nextlink Communications, Inc. 144A $7.00 pfd. 585,500
270 WinStar Communications. Inc. 144A 14.25% cum. pfd. [2 DBL. DAGGERS] 280,800
--------------
1,962,140
--------------
Total Preferred Stocks (cost $3,042,885) $ 3,315,661
CONVERTIBLE BONDS AND NOTES (7.1%) *
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.1%)
- ------------------------------------------------------------------------------------------------------------
$ 9,000 DRS Technologies, Inc. cv. sr. sub. deb 9s, 2003 $ 15,120
30,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 30,300
--------------
45,420
Automotive (0.1%)
- ------------------------------------------------------------------------------------------------------------
23,000 Magna International cv. sub. deb. 5s, 2002 27,600
Broadcasting (0.1%)
- ------------------------------------------------------------------------------------------------------------
28,000 International Cabletel Inc. 144A cv. deb. 7 1/4s, 2005 31,920
15,000 Scandinavian Broadcasting System S.A. 144A cv. sub. 7s, 2004
(Luxembourg) 15,000
--------------
46,920
Business Equipment and Services (0.5%)
- ------------------------------------------------------------------------------------------------------------
130,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 114,888
30,000 National Data Corp. cv. sub. notes 5s, 2003 28,538
38,000 U.S. Office Products Co. 144A cv. sub. notes 5 1/2s, 2003 34,153
--------------
177,579
Computer Services and Software (0.3%)
- ------------------------------------------------------------------------------------------------------------
35,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 47,206
60,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 47,100
20,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 17,500
--------------
111,806
Computers (0.4%)
- ------------------------------------------------------------------------------------------------------------
20,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 16,125
41,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 45,971
58,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 51,185
20,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 1/4s, 2003 19,125
--------------
132,406
Conglomerates (0.5%)
- ------------------------------------------------------------------------------------------------------------
15,000 Dart & Kraft Finance N.V. cv. company guaranty Ser. WW,
7 3/4s, 1998 51,675
25,000 Hexcel Corp. cv. sub. notes 7s, 2003 40,875
50,000 Thermo Electron Corp. 144A cv. subordinated 4 1/4s, 2003 62,750
--------------
155,300
Consumer Non Durables (0.1%)
- ------------------------------------------------------------------------------------------------------------
29,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 + 26,245
Consumer Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
32,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 20,440
30,000 Fine Host Corp. 144A cv. sub. notes 5s, 2004 18,000
22,000 Pharmaceutical Marketing Services Inc. 144A cv. deb.
6 1/4s, 2003 18,920
31,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 36,619
--------------
93,979
Electronics and Electrical Equipment (1.1%)
- ------------------------------------------------------------------------------------------------------------
19,000 HMT Technology Corp. 144A cv. sub. notes 5 3/4s, 2004 16,530
49,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 41,283
20,000 Integrated Process Equipment Corp. 144A cv. sub. notes
6 1/4s, 2004 16,525
40,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 33,300
30,000 Lam Research Corp. 144a cv. sub. notes 5s, 2002 25,050
40,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 37,100
58,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 44,008
10,000 Photronics, Inc. cv. sub. notes 6s, 2004 11,438
14,000 Plasma & Materials Technologies, Inc. 144A cv. notes
7 1/8s, 2001 5,600
16,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 29,780
25,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 28,688
23,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 25,760
26,000 Thermo Quest Corp. cv. co. guaranty 5s, 2000 28,470
20,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 19,375
--------------
362,907
Environmental Control (0.1%)
- ------------------------------------------------------------------------------------------------------------
12,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 13,080
44,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 37,510
--------------
50,590
Health Care (0.5%)
- ------------------------------------------------------------------------------------------------------------
73,000 Alza Corp. cv. sub. LYON zero %, 2014 32,485
22,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 23,953
40,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 37,850
35,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 32,113
20,000 Renal Treatment Centers, Inc. cv. sub. notes 5 5/8s, 2006 23,950
22,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 16,060
--------------
166,411
Insurance and Finance (1.0%)
- ------------------------------------------------------------------------------------------------------------
300,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 252,000
30,000 Mutal Risk Mianagement 144A cv. sub. deb. zero %, 2015 19,313
19,000 Pioneer Financial Services, Inc. cv. sub. notes 6 1/2s, 2003 31,920
40,000 USF&G Corp. cv. sub. notes zero %, 2009 28,150
--------------
331,383
Medical Supplies and Devices (--%)
- ------------------------------------------------------------------------------------------------------------
5,000 Uromed Corp. cv. sub. 6s, 2003 2,706
25,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 13,531
--------------
16,237
Metals and Mining (--%)
- ------------------------------------------------------------------------------------------------------------
23,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 23,920
Oil and Gas (0.6%)
- ------------------------------------------------------------------------------------------------------------
18,000 Apache Corp. 144A cv. sub. deb. 6s, 2002 20,430
34,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 37,485
25,000 Offshore Logistics, Inc. cv. sub. notes 6s, 2003 28,375
15,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 16,050
15,000 Pennzoil Co. cv. deb. 4 3/4s, 2003 20,100
13,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 1/4s, 2006 27,950
40,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 39,500
--------------
189,890
Paper and Forest Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
29,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 31,973
Pharmaceuticals and Biotechnology (0.2%)
- ------------------------------------------------------------------------------------------------------------
28,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 20,895
70,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010
(Switzerland) 38,500
--------------
59,395
Publishing (0.1%)
- ------------------------------------------------------------------------------------------------------------
75,000 Hollinger, Inc. cv. LYON (Liquid Yield Option Notes)
zero %, 2013 28,969
Retail (0.8%)
- ------------------------------------------------------------------------------------------------------------
20,000 Einstein/Noah Bagel Corp. 144A cv. sub. deb. 7 1/4s, 2004 13,175
35,000 Federated Department Stores, Inc. cv. notes 5s, 2003 47,425
20,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 19,350
31,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 30,380
60,000 Office Depot, Inc. cv. LYON zero %, 2007 42,375
160,000 Polymax 144A cv. notes 2s, 2006 109,600
--------------
262,305
Telecommunications (--%)
- ------------------------------------------------------------------------------------------------------------
10,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003 3,000
Transportation (0.2%)
- ------------------------------------------------------------------------------------------------------------
20,000 Aker Maritime cv. notes 5 1/4s, 2002 21,800
25,000 Continental Airlines, Inc. cv. sub. deb. 6 3/4s, 2006 40,875
--------------
62,675
--------------
Total Convertible Bonds and Notes (cost $2,519,421) $ 2,406,910
CONVERTIBLE PREFERRED STOCKS (3.9%) *
NUMBER OF SHARES VALUE
Automotive (0.1%)
- ------------------------------------------------------------------------------------------------------------
600 Federal-Mogul Corp. 144A $3.50 cv. cum. pfd. $ 30,150
Banks (0.1%)
- ------------------------------------------------------------------------------------------------------------
320 Sovereign Bancorp Inc. $3.125 cv. cum. pfd. 40,000
Basic Industrial Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
190 Case Corp. $4.50 cv. cum. pfd. 26,838
Broadcasting (0.2%)
- ------------------------------------------------------------------------------------------------------------
167 Chancellor Media Corp. $3.50 cv. pfd. 17,953
750 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 42,375
--------------
60,328
Computer Services and Software (0.2%)
- ------------------------------------------------------------------------------------------------------------
600 Vanstar Financial Trust Corp. $3.375 cv. cum. pfd. 22,200
240 Vanstar Financial Trust Corp. 144A $3.375 cv. cum. pfd. 8,850
757 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 38,512
--------------
69,562
Consumer Non Durables (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,250 DIMON, Inc. $2.01 cv. pfd. 32,188
Consumer Services (--%)
- ------------------------------------------------------------------------------------------------------------
300 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 13,575
Energy-Related (0.1%)
- ------------------------------------------------------------------------------------------------------------
300 CalEnergy Capital Trust 144A $3.25 cv. cum. pfd. 17,400
Food and Beverages (0.1%)
- ------------------------------------------------------------------------------------------------------------
626 Chiquita Brands International, Inc. Ser. B, $3.75 cv. cum. pfd. 38,499
Hospital Management and Medical Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,775 MedPartners, Inc. $1.44 cv. pfd. 39,050
Insurance and Finance (1.3%)
- ------------------------------------------------------------------------------------------------------------
500 Aetna Inc. $4.758 cv. pfd. 35,750
285 Ahmanson (H.F.) & Co. $3.00 cv. cum. pfd. 39,188
526 American Bankers Insurance Group, Inc. Ser. B, $3.125 cv.
cum. pfd. 48,918
675 American General Delaware Corp. Ser A., $3.00 cv. cum. pfd. 47,925
400 CalEnergy Capital Trust $3.125 cv. cum. pfd. 23,200
410 Devon Financing Trust $3.25 cv. pfd. 29,725
527 Finova Finance Trust $2.75 cv. cum. pfd. 36,890
1,000 Matewan Bancshares, Inc. Ser. A, $1.875 cv. cum. pfd. 27,500
435 Penncorp Financial Group, Inc. 144A $3.50 cv. cum. pfd. 24,904
600 Protective Life Corp. $3.25 cv. cum. pfd. 33,000
390 St. Paul Capital LLC $3.00 cv. cum. pfd. 28,080
450 Timet Capital Trust I 144A $3.313 cv. pfd. 22,388
475 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 40,613
--------------
438,081
Metals and Mining (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,510 Freeport-McMoRan Copper Co., Inc. $1.75 cv. cum. pfd. 32,748
550 Hvide Capital Trust 144A $3.25 cv. pfd. 31,350
139 Titanium Metals Corp. $3.313 cv. pfd. 6,915
--------------
71,013
Oil and Gas (0.3%)
- ------------------------------------------------------------------------------------------------------------
410 Neuvo Energy Ser. A, $2.875 cv. pfd. 20,090
680 Tosco Financing Trust 144A $2.875 cv. pfd. 43,945
750 Unocal Capital Trust $3.125 cv. cum. pfd. 41,719
38 XCL Ltd $8.075 cv. cum. pfd. 6,840
--------------
112,594
Paper and Forest Products (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,075 International Paper Co. $2.625 cv. cum. pfd. 51,331
Real Estate (0.3%)
- ------------------------------------------------------------------------------------------------------------
1,550 Equity Residential Property Ser. E, $1.75 cv. cum. pfd. (R) 44,563
630 Insignia Financial Group, Inc. 144A $3.25 cv. pfd. 33,154
460 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 30,360
--------------
108,077
Retail (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,000 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 45,500
565 K mart Financing $3.875 cv. cum. pfd. 29,168
--------------
74,668
Telecommunications (0.3%)
- ------------------------------------------------------------------------------------------------------------
550 AirTouch Communications, Inc. Ser. C, $2.125 cv. cum. pfd. 34,272
550 Evergreen Media Corp. 144A $3.00 cv. pfd. 43,244
300 Intermedia Communications, Inc. Ser. D, $1.75 cv. pfd. 12,150
300 Tele-Communications (TCI Group) Ser. A, $2.125 cv. cum. pfd. 19,200
--------------
108,866
--------------
Total Convertible Preferred Stocks (cost $1,254,102) $ 1,332,220
FOREIGN GOVERNMENT BONDS AND NOTES (2.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
ARP 60,000 Argentina (Republic of) bonds Ser. PRE 1, FRB
3.39s, 2001 $ 58,812
USD 456,000 United Mexican States bonds 6 1/4s, 2019 380,213
USD 58,000 Peru (Government of) 144A Ser. US, 4s, 2017 37,990
USD 45,000 Poland (Government of) deb. 3 1/4s, 2014 38,871
USD 78,487 Russia (Government of) FRN, Ser. US., 6.719s, 2015 55,628
USD 306,000 Russia (Government of) deb. principal loans
FRB 6.719s, 2020 189,720
ZAR 178,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 34,839
USD 30,000 United Mexican States bonds 11 1/2s, 2026 35,550
--------------
Total Foreign Government Bonds and Notes (cost $908,821) $ 831,623
BRADY BONDS (2.4%) *[DIAMOND]
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 187,200 Argentina (Republic of) deb. FRB 4.188s, 2005 $ 167,319
514,256 Brazil (Government of) FRB 4s, 2014 403,691
179,765 Brazil (Republic of) FRN 8 3/4s, 2001 171,226
95,000 Philippines (Government of) FRB Ser. B, 5 3/4s, 2017 79,325
--------------
Total Brady Bonds (cost $1,546,863) $ 821,561
UNITS (2.2%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
40 Club Regina, Inc. 144A units 13s, 2004 $ 40,900
200 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 156,000
20 Concentric Network Corp. units 12 3/4s, 2007 20,550
35,000 Conecel Holdings 144A units 14s, 2000 35,350
20 DecisionOne Corp. units stepped-coupon zero % (11 1/2s,
8/01/02), 2008 ++ 12,800
95 Knology Holdings Inc. units stepped-coupon zero % (11 7/8s,
10/15/02), 2007 ++ 51,300
30 Metronet Communications units sr. notes 12s, 2007 34,500
15 MGC communications, Inc. 144A units 13s, 2004 15,038
75 Transam Refinance, Inc. 144A units 16s, 2003 76,500
60 Vialog Corp. units 12 3/4s, 2001 62,700
55 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 71,500
900 XCL Ltd. units cum. pfd. 9.50% 162,000
--------------
Total Units (cost $601,250) $ 739,138
WARRANTS (0.8%) * + EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
230 Cellnet Data Systems, Inc. 9/15/07 $ 25
3,200 CGA Group Ltd. 144A 1/1/04 32
375 Econophone Inc. 144A 4/15/01 1,500
25 Esat Holdings, Inc. (Ireland) 9/9/99 875
60 Globalstar Telecom 144A 2/15/04 6,120
225 Hyperion Telecommunications 144A 4/15/01 13,500
2,200 Iridium World Com 144A 7/15/05 253,000
320 McCaw International Ltd. 4/15/07 96
50 Nextlink Communications, Inc. 144A 2/1/09 1
50 Orion Network Systems 1/15/07 450
20 Spanish Broadcasting Systems 144A 6/30/99 4,700
150 Urohealth Systems Inc. 4/10/04 375
--------------
Total Warrants (cost $335,430) $ 280,674
COMMON STOCKS (0.1%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
27,272 Capstar Broadcasting Partners + $ 32,726
606 Hedstrom Holdings, Inc. 144A 758
425 NEXTEL Communications, Inc. 144A [DBL. DAGGERS] 10,498
--------------
Total Common Stocks (cost $37,585) $ 43,982
SHORT-TERM INVESTMENTS (1.0%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
TRL 12,650,000,000 Turkey Treasury bills zero%, September 16, 1998 $ 33,219
TRL 16,720,000,000 Turkey Treasury bills zero%, July 29, 1998 48,368
TRL 12,330,000,000 Turkey Treasury bills zero%, June 4, 1998 41,102
$ 219,000 Interest in $369,996,000 joint repurchase
agreement dated December 31, 1997 with
Merrill Lynch, Pierce, Fenner, & Smith, Inc. due
January 2, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $219,079 for an
effective yield of 6.50% 219,040
--------------
Total Short-Term Investments (cost $342,948) $ 341,729
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $32,873,537) *** $ 33,392,655
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $33,854,454.
*** The aggregate identified cost on a tax basis is $32,877,059,
resulting in gross unrealized appreciation and
depreciation of $1,377,375 and $861,779 respectively, or
net unrealized appreciation of $515,596.
+ Non-income-producing security.
++ The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and
the date the fund will begin receiving interest or dividend
income at this rate.
[2 DBL. DAGGERS] Income may be received in cash or additional securities
at the discretion of the issuer.
[DIAMOND] Brady bonds are foreign bonds collateralized by the U.S.
Government. The rates are floating rates and are current
rates at December 31, 1997.
(R) Real Estate Investment Trust.
144A after the name of a security represents those exempt
from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional
buyers.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Buy at December 31, 1997 (Unaudited)
(aggregate face value $61,829)
Aggregate Face Delivery Unrealized
Market Value Value Date Depreciation
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Polish Zloty $59,461 $61,719 6/5/98 (2,258)
Venezuelan Bolivar 36 37 6/19/98 (1)
Venezuelan Bolivar 72 73 6/5/98 (1)
- ----------------------------------------------------------------------------------------
$(2,260)
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at December 31, 1997 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- ----------------------------------------------------------------------------------------
Deutschemarks $21,147 $22,565 6/5/98 $1,418
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $32,873,537) (Note 1) $33,392,655
- ---------------------------------------------------------------------------------------------------
Cash 509,984
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 537,907
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 417,614
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,418
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 80,124
- ---------------------------------------------------------------------------------------------------
Total assets 34,939,702
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 712,938
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 164,689
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 29,824
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 14,941
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 180
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,149
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 25,626
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 80,943
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 2,260
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 1,469
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 51,229
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,085,248
- ---------------------------------------------------------------------------------------------------
Net assets $33,854,454
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $33,452,705
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (192,114)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency
transactions (Note 1) 75,587
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in
foreign currencies 518,276
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $33,854,454
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($14,580,995 divided by 1,650,620 shares) $8.83
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.83)* $9.27
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($17,381,868 divided by 1,989,414 shares)** $8.74
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,891,591 divided by 216,252 shares) $8.75
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.75)* $9.04
- ---------------------------------------------------------------------------------------------------
* On single sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended December 31, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $1,193,395
- --------------------------------------------------------------------------------------------------
Dividends 151,427
- --------------------------------------------------------------------------------------------------
Total investment income 1,344,822
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 115,067
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 69,318
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 323
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 15,748
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 72,989
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,231
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 427
- --------------------------------------------------------------------------------------------------
Reports to shareholders 9,430
- --------------------------------------------------------------------------------------------------
Registration fees 3,592
- --------------------------------------------------------------------------------------------------
Auditing 23,469
- --------------------------------------------------------------------------------------------------
Legal 7,461
- --------------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (48,867)
- --------------------------------------------------------------------------------------------------
Total expenses 273,188
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (15,645)
- --------------------------------------------------------------------------------------------------
Net expenses 257,543
- --------------------------------------------------------------------------------------------------
Net investment income 1,087,279
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 542,338
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Notes 1 and 3) (2,063)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 1,463
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 258,742
- --------------------------------------------------------------------------------------------------
Net gain on investments 800,480
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,887,759
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
January 2, 1997
Six months ended (commencement
December 31 of operations)
1997* to June 30, 1997
- -----------------------------------------------------------------------------------------------------------
Increase in net assets
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------------------
Net investment income $ 1,087,279 $ 466,454
- -----------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 540,275 77,590
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 260,205 258,071
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,887,759 802,115
- -----------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -----------------------------------------------------------------------------------------------------------
From net investment income
Class A (596,739) (123,230)
- -----------------------------------------------------------------------------------------------------------
Class B (799,584) (120,506)
- -----------------------------------------------------------------------------------------------------------
Class M (95,827) (15,269)
- -----------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (231,534) --
- -----------------------------------------------------------------------------------------------------------
Class B (273,472) --
- -----------------------------------------------------------------------------------------------------------
Class M (31,391) --
- -----------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 12,175,510 21,273,622
- -----------------------------------------------------------------------------------------------------------
Total increase in net assets 12,034,722 21,816,732
Net assets
- -----------------------------------------------------------------------------------------------------------
Beginning of period 21,819,732 3,000
- -----------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net investment
income of $192,114 and $212,757, respectively) $33,854,454 $21,819,732
- -----------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
ended For the period
Per-share Dec. 31 Jan. 2, 1997+
operating performance (Unaudited) to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $8.72 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c)(d) .36 .34
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .32 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .68 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.15) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.57) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.83 $8.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 7.82 * 4.30 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $14,581 $9,407
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b)(d) .76 * .74 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (d) 4.00 * 3.85 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 128.36 * 63.06 *
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
+ Commencement of operations.
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period include
amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect reductuons
of $.02 per share for class A, B and M for the six months ended
December 31, 1997 and $0.07, $0.05, and $0.05 per share for class A,
B and M respectively during the period of January 2, 1997 to
June 30, 1997 (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
ended For the period
Per-share Dec. 31 Jan. 2,1997+
operating performance (Unaudited) to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $8.71 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c)(d) .32 .30
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .33 .03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .65 .33
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.15) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.62) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.74 $8.71
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 7.47 * 3.93 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $17,382 $11,099
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b)(d) 1.13 * 1.12 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (d) 3.64 * 3.52 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 128.36 * 63.06 *
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
+ Commencement of operations.
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period include
amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis
of weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect reductuons
of $.02 per share for class A, B and M for the six months ended
December 31, 1997 and $0.07, $0.05, and $0.05 per share for class A,
B and M respectively during the period of January 2, 1997 to
June 30, 1997 (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
ended For the period
Per-share Dec. 31 Jan. 2,1997+
operating performance (Unaudited) to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $8.72 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c)(d) .35 .33
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .32 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .67 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.49) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.15) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.64) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.75 $8.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 7.70 * 4.20 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,892 $1,314
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b)(d) .88 * .87 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (d) 3.88 * 3.79 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 128.36 * 63.06 *
- ------------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
+ Commencement of operations.
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period include
amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of
weighted average number of shares outstanding during the period.
(d) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses for the fund reflect reductuons
of $.02 per share for class A, B and M for the six months ended
December 31, 1997 and $0.07, $0.05, and $0.05 per share for class A,
B and M respectively during the period of January 2, 1997 to
June 30, 1997 (Note 2).
</TABLE>
Notes to financial statements
December 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Total Return Fund (the "fund") is a series of Putnam Funds
Trust (the "trust") which is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
The fund seeks total return through high current income and capital
appreciation by investing primarily in high-yielding, lower-rated fixed-income
securities.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.25% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value, and
other investments are stated at fair value following procedures approved by
the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date.
Discounts on zero coupon bonds, original issue discount bonds, stepped-coupon
bonds and payment in kind bonds are accreted according to the effective yield
method. Any premium resulting from the purchase of value is amortized on a
yield-to-maturity basis.
Securities purchased or sold on a when-issued or delayed delivery basis may be
settled a month or more after the trade date; interest income is accrued based
on the terms of the security. Losses may arise due to changes in the market
value of the underlying securities or if the counterparty does not perform
under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, 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 exchange gains or
losses on closed forward currency contracts, disposition of foreign currencies
and the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using current forward currency
exchange rates supplied by a quotation service. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is "marked to market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The fund could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet the
terms of their contracts or if the fund is unable to enter into a closing
position.
G) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the period ended December 31, 1997, the
fund had no borrowings against the line of credit.
H) 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.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain 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.
J) Expenses of the trust Expenses directly charged or attributable to any fund
will be paid from the assets of that fund. Generally, expenses of the trust
will be allocated among and charged to the assets of each fund on a basis that
the Trustees deem fair and equitable, which may be based on the relative
assets of each fund or the nature of the services performed and relative
applicability to each fund.
K) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $80,943. These expenses are being amortized on projected net
asset levels over a five-year period. The fund will reimburse Putnam
Management for the payment of these expenses.
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: 0.80% of the first $500 million of
average net assets, 0.70% of the next $500 million, 0.65% of the next $500
million, 0.60% of the next $5 billion, 0.575% of the next $5 billion, 0.555%
of the next $5 billion, 0.54% of the next $5 billion and 0.53% thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through December 31, 1998, to the extent that
expenses of the fund (exclusive of brokerage commissions, interest, taxes,
deferred organizational and extraordinary expense, credits from Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. and
payments under the Trust's distribution plan) would exceed an annual rate of
1.25% of the fund's average net assets.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended December 31, 1997, fund expenses were reduced by
$15,645 under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these credits.
The fund could have invested a portion of the assets utilized in connection
with the expense offset arrangements in an income producing asset if it had
not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $100 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees currently limit payment by the fund to an annual rate of 0.25%, 1.00%
and 0.50% of the average net assets attributable to class A, class B and class
M shares respectively.
For the six months ended December 31, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $13,842 and $999 from the sale of
class A and class M shares, respectively and $11,539 in contingent deferred
sales charges from redemptions of class B shares.
A deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended December 31, 1997, Putnam Mutual
Funds Corp., acting as underwriter received no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended December 31, 1997, purchases and sales of
investment securities other than short-term investments aggregated $46,322,673
and $35,454,201, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At December 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
December 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 820,121 $ 7,411,868
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 77,122 686,655
- ------------------------------------------------------------
897,243 8,098,523
Shares
repurchased (324,953) (2,946,312)
- ------------------------------------------------------------
Net increase 572,290 $ 5,152,211
- ------------------------------------------------------------
For the period
January 2, 1997
(commencement of
operations) to
June 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 1,251,093 $10,640,288
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 11,821 100,715
- ------------------------------------------------------------
1,262,914 10,741,003
Shares
repurchased (184,702) (1,580,322)
- ------------------------------------------------------------
Net increase 1,078,212 $ 9,160,681
- ------------------------------------------------------------
Six months ended
December 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,087,114 $ 9,816,408
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 104,810 923,269
- ------------------------------------------------------------
1,191,924 10,739,677
Shares
repurchased (476,360) (4,308,821)
- ------------------------------------------------------------
Net increase 715,564 $ 6,430,856
- ------------------------------------------------------------
For the period
January 2, 1997
(commencement of
operations) to
June 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,413,631 $12,020,729
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 12,001 102,193
- ------------------------------------------------------------
1,425,632 12,122,922
Shares
repurchased (151,900) (1,286,397)
- ------------------------------------------------------------
Net increase 1,273,732 $10,836,525
- ------------------------------------------------------------
Six months ended
December 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 101,151 $ 914,915
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 11,612 102,435
- ------------------------------------------------------------
112,763 1,017,350
Shares
repurchased (47,159) (424,907)
- ------------------------------------------------------------
Net increase 65,604 $ 592,443
- ------------------------------------------------------------
For the period
January 2, 1997
(commencement of
operations) to
June 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 153,516 $1,302,143
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distribution 1,438 12,252
- ------------------------------------------------------------
154,954 1,314,395
Shares
repurchased (4,424) (37,979)
- ------------------------------------------------------------
Net increase 150,530 $1,276,416
- ------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The fund was established as a Massachusetts business trust on January
22, 1996. During the period January 22, 1996 to January 1, 1997 the fund had
no operations other than those related to organizational matters, including
the initial capital contribution of $1,000, $1,000, and $1,000 of initial
organizational expenses to class A, B and M respectively, and the issuance of
118 shares for each of the classes to Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Jennifer Leichter
Vice President and Fund Manager
Gail S. Attridge
Vice President and Fund Manager
Charles G. Pohl
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield Total
Return Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most recent
copy of Putnam's Quarterly Performance Summary. For more information or to
request a prospectus, call toll free: 1-800-225-1581. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution; are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency;
and involve risk, including the possible loss of the principal amount
invested.
[LOGO OMITTED] PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA033-39641-2DG/2DI/2DJ 2/98
