Putnam
High Yield
Total Return
Fund
ANNUAL REPORT
June 30, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The outlook for high-yield bonds is extremely favorable in our
view. We expect moderating U.S. growth with little inflation, thanks
largely to Asian economic and currency weakness."
-- Jennifer Leichter, lead manager
Putnam High Yield Total Return Fund
* "The fundamentals underpinning the U.S. bond market are as strong
as at any time in recent memory. Inflation is low and should stay that
way. Economic growth . . . appears to be slowing to a pace less likely to
reignite inflation, a fixed-income investor's worst enemy. The Federal
Reserve is unlikely to raise interest rates for the foreseeable future.
And the growing federal budget surplus is shrinking the supply of bonds.
All are conditions that bond buyers generally love."
-- The Wall Street Journal, July 6, 1998
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
35 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The global flight to quality in the aftermath of events in Asia temporarily
stalled the U.S. high-yield bond market in late 1997 as investors flocked to
the safety of U.S. Treasury issues. But by the time Putnam High Yield Total
Return Fund closed its fiscal year on June 30, 1998, the lower-rated
high-yield bonds in which your fund invests had taken on a much healthier
glow.
The Federal Reserve Board's decision to maintain its hands-off position on
interest rates helped reassure investors about economic prospects. But it was
the boom in merger and acquisition activity that was the main driver of the
high-yield bond market during the period's latter weeks.
In the report that follows, your fund's management team provides greater
detail about the market environment in which the fund delivered its positive
results. Then the managers offer their views on prospects for the fiscal year
that just began.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
August 19, 1998
Report from the Fund Managers
Jennifer E. Leichter, lead manager
Gail S. Attridge
Charles G. Pohl
Putnam High Yield Total Return Fund's fiscal 1998 proved an idyllic
environment for investors taking advantage of the opportunities offered by
high-yield bonds. At the beginning of your fund's fiscal year, both the stock
and bond markets were performing well, as investors remained convinced that
the Federal Reserve Board was unlikely to increase interest rates. As the
summer of 1997 continued, it became clear to the Fed and investors alike that
U.S. economic growth, while strong, was not accelerating and that inflation
remained tame. Since moderate growth and low inflation are the ideal
conditions for both bonds and equities, the markets responded accordingly.
During the 12-month period ended June 30, 1998, stocks reached new highs,
Treasury bonds rallied substantially, and the appeal of high-yield bonds
helped your fund's class A shares deliver a 12.61% return at net asset value
(7.32% at public offering price). Your fund's performance at net asset value
during the period outpaced the 10.98% return of the First Boston High Yield
Index. Performance of other share classes and over longer periods is detailed
beginning on page 9.
* FAVORABLE ENVIRONMENT FOR HIGH-YIELD BONDS
The performance of high-yield bonds tend to reflect the strength of the stock
market to a greater extent than those of other types of bonds. However, during
your fund's fiscal year, high-yield bonds were also buoyed by a healthy bond
market. Merger and acquisition activity -- which often leads to credit
upgrades -- as well as positive developments in key high-yield industries,
such as telecommunications and cable television, also helped bolster
high-yield bond returns and propel your fund's performance.
The high-yield market's outperformance during the period was especially
noteworthy given the record amount of new high-yield bonds -- close to $115
billion -- issued during 1997. Historically low long-term interest rates and a
flattening U.S. yield curve led to still higher issuance levels in 1998 --
$106 billion in the first six months of 1998 compared to $58 billion by
midyear 1997. The fact that the market was able to absorb the new issues and
still post robust gains speaks to the strong demand that exists for high-yield
bonds both in the United States and abroad.
*KEY INDUSTRY SECTOR SELECTION HELPS BOOST PERFORMANCE
Top-performing industries in the high-yield universe during your fund's fiscal
year included telecommunications, which performed well based on very positive
operating results and high equity valuations; cable television; broadcasting;
and finance.
The telecommunications sector, now the largest in the high-yield universe,
experienced a number of positive factors during the period. First, favorable
regulatory developments improved the market positions of competitive local
exchange carriers (CLECs) and specialized mobile radio operators including one
of your fund's top holdings, NEXTEL Communications. NEXTEL was one of the
market's best-performing issues. The company continued to add subscribers to
its digital network at an extraordinary rate. While the securities 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.
Another positive factor for the telecommunications sector was the fact that
network buildouts and commercial launches of these new technologies proceeded
smoothly throughout the year. And finally, merger and acquisition activity in
the sector continued at a healthy pace, led by empire builder WorldCom, Inc. A
global telecommunications company, WorldCom has established operations in over
50 countries encompassing the Americas, Europe, and the Asia-Pacific region.
WorldCom is a premier provider of facilities-based and fully integrated local,
long distance, international, and Internet services. Its global networks
provide end-to-end connectivity to over 31,000 buildings worldwide. In
November 1997, WorldCom announced a definitive merger agreement with MCI
Communications Corporation.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 17.3%
Broadcasting 6.0%
Insurance and finance 5.7%
Oil and gas 5.5%
Food and beverage 3.6%
Footnote reads:
* Based on net assets as of 6/30/98. Holdings will vary over time.
Teleport Communications Group is another example of a fund holding that
benefited from the merger and acquisition trend. Teleport was bought at a
premium by AT&T during the period. This successful CLEC had provided local
phone service nationwide by using wireless and fiber-optic technologies to
compete with local phone companies. In the past, long-distance companies have
had to pay access charges to local phone companies in order to connect to
homes. With the acquisition of Teleport, AT&T can eliminate those charges in
many markets.
In the cable television sector, the industry benefited from Microsoft's
billion-dollar investment in Comcast Corp. Prior to this event, investors had
perceived cable as a mature industry that would gradually lose share to
satellite television. The Microsoft investment changed this perception and
raised awareness of the industry's new role as the ideal Internet delivery
vehicle. Later in the period, AT&T announced plans to acquire TCI, a cable
company. Your fund's holdings in the cable sector performed particularly well
during the fiscal year.
The broadcasting sector was also fueled by fevered merger and acquisition
activity resulting from relaxation of the rules controlling how many stations
operators can own. The new rules allow station operators to own multiple
stations in individual markets and to own a greater absolute number of
stations. There are great economies of scale in owning multiple stations, and
this fact motivated a number of players to expand rapidly over the course of
your fund's fiscal year through aggressive acquisition campaigns.
[GRAPHIC OMITTED: TOP THREE HOLDINGS PER SECTOR]
TOP THREE HOLDINGS PER SECTOR*
HIGH YIELD
AEP Industries notes 9.875%, 2007
Packaging and containers
Transamerican Energy sr. disc. notes stepped-coupon, zero %, 2002
Oil and gas
Global Crossing Holdings 144A sr. notes 9.625%, 2008
Telecommunications
EMERGING MARKETS
Brazil (Government of) stepped-coupon 5%, 2014
Russia (Government of) deb. principal loans FRB 6.719s, 2020
Korea Development Bank bonds 7.375, 2004
CONVERTIBLE BONDS AND NOTES
Argosy Gaming convertible sub. notes 12%, 2001
Recreation
APP Global Finance (V) Ltd. 144A convertible notes sec. 2%, 2000
Insurance and finance
Hexcel Corp. convertible sub. notes 7%, 2003
Conglomerates
* These holdings represent 7.5% of the fund's net assets as of 6/30/98.
Portfolio holdings will vary over time.
*EXPOSURE TO EMERGING-MARKETS AND CONVERTIBLE BONDS REDUCED
Your fund has limited exposure to emerging-markets bonds, which were hard hit
by Asia's economic and currency woes during the fund's fiscal year. The
intensifying financial crisis in Asia created a premium on higher-quality
financial assets, benefiting bond markets in the United States and other
developed countries. Consequently, the fund's emerging-markets holdings
hindered performance somewhat as the financial crisis in Asia lingered.
Russian debt came under pressure as that country negotiated with the
International Monetary Fund for financial aid. Asia's resurgent crisis,
concerns over fiscal reforms in Russia, and the commencement of the Latin
American election cycle have raised risk premiums across the emerging markets.
The outlook for Latin America is more encouraging, with strong recoveries
under way in Mexico and Argentina. In Eastern Europe, we believe Poland can
potentially have a strong year. We will continue to monitor events in the
emerging markets closely over the next several months.
During the period, developments in Asia also had an impact on the convertible
securities sector. Select technology, capital goods, aerospace, and service
holdings suffered the impact of pervasive weakness in Southeast Asia. We
continue to emphasize sectors of the convertible market with low Asian
exposure, such as consumer cyclicals and finance.
*OUTLOOK: HIGH-YIELD MARKET FUNDAMENTALS REMAIN STRONG
The outlook for high-yield bonds is extremely favorable in our view. We
expect moderating U.S. growth with little inflation, thanks largely to
Asian economic and currency weakness. Slowing demand and increased
exports from that region should help keep U.S. prices down and the Federal
Reserve Board on hold. We believe the underlying fundamentals and credit
quality of the high-yield market remain strong, as do mutual fund cash flows
and merger activity. Higher coupons are reducing new issuance and default
rates remain low.
We plan to focus on diversification, on companies with little exposure to
Asia, and on securities with yields attractive relative to their risk levels.
Looking ahead, your fund's portfolio will continue to emphasize improving
credits in the telecommunications, broadcasting, finance, and health-care
industries.
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 6/30/98, 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. These
risks may be increased when investing in emerging markets.
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 6/30/98
Class A Class B Class M
(inception date) (1/2/97) (1/2/97) (1/2/97)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 12.61% 7.32% 11.78% 6.78% 12.26% 8.64%
- ------------------------------------------------------------------------
Life of fund 17.46 11.93 16.17 12.17 16.98 13.11
Annual average 11.41 7.86 10.58 8.01 11.10 8.62
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/98
First Boston High Consumer
Yield Bond Index Price Index
- -------------------------------------------------------------------------
1 year 10.98% 1.68%
- -------------------------------------------------------------------------
Life of fund 17.48 2.77
Annual average 11.38 1.85
- -------------------------------------------------------------------------
Past performance is no assurance of future results. Returns for class A
and class M shares reflect the current maximum initial sales charges of
4.75% and 3.25%, respectively. Class B share returns for the 1-year and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 5% in the first year, declines to 1% in the sixth
year, and is eliminated thereafter. Performance data reflects an expense
limitation currently in effect. Without the expense limitation total
returns would have been lower. All returns assume reinvestment of
distributions at net asset value (NAV). 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of
a $10,000 investment since
1/2/97
Fund's class A First Boston High Consumer Price
Date shares at POP Yield Bond Index Index
1/2/97 9,529 10,000 10,000
6/30/97 9,939 10,585 10,107
6/30/98 $11,193 $11,748 $10,277
Past performance is no assurance of future results. At the end of the
same time period, a $10,000 investment in the fund's class B shares
would have been valued at $11,617 ($11,217 with a redemption at the end
of the period); a $10,000 investment in the fund's class M shares would
have been valued at $11,698 ($11,311 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 6/30/98
Class A Class B Class M
- -----------------------------------------------------------------------
Distributions (number) 12 12 12
- -----------------------------------------------------------------------
Income $0.722 $0.740 $0.779
- -----------------------------------------------------------------------
Capital gains
- -----------------------------------------------------------------------
Long-term 0.011 0.011 0.011
- -----------------------------------------------------------------------
Short-term 0.222 0.222 0.222
- -----------------------------------------------------------------------
Total $0.955 $0.973 $1.012
- -----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------
6/30/97 $8.72 $9.15 $8.71 $8.72 $9.01
- -----------------------------------------------------------------------
6/30/98 8.83 9.27 8.73 8.74 9.03
- -----------------------------------------------------------------------
Current return
(end of period)
- -----------------------------------------------------------------------
Current dividend
rate1 8.83% 8.41% 8.11% 8.65% 8.37%
- -----------------------------------------------------------------------
Current 30-day SEC yield2 8.52 8.11 7.76 8.33 8.06
- -----------------------------------------------------------------------
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 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B 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 U.S. 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.
Report of independent accountants
To the Trustees and Shareholders of
Putnam High Yield Total Return Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Putnam High Yield
Total Return Fund (the "fund") at June 30, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at June 30, 1998 by correspondence with the
custodian and the application of alternative auditing procedures where
investments purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 17, 1998
Portfolio of investments owned
June 30, 1998
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (72.3%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.6%)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$ 145,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 158,775
50,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 53,500
170,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 173,825
115,000 Outdoor Comunications Inc. sr. sub. notes 9 1/4s, 2007 117,875
------------
503,975
Aerospace and Defense (2.1%)
- -------------------------------------------------------------------------------------------------------------
415,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 415,000
130,000 Aviation Sales Co. 144A sr. sub. notes 8 1/8s, 2008 126,750
275,000 BE Aerospace sr. sub. notes Ser. B, 8s, 2008 274,313
300,000 Burke Industries, Inc. company guaranty 10s, 2007 305,250
250,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 260,000
25,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 25,250
300,000 Sabreliner Corp. sr. notes Ser. B, 12 1/2s, 2003 314,250
25,000 United Defense Industries, Inc. company guaranty 8 3/4s, 2007 25,355
------------
1,746,168
Agriculture (0.5%)
- -------------------------------------------------------------------------------------------------------------
306,518 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 (PIK) 330,273
80,000 Purina Mills, Inc. 144A sr. sub. notes 9s, 2010 82,200
------------
412,473
Apparel (--%)
- -------------------------------------------------------------------------------------------------------------
25,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 26,000
Automotive (2.3%)
- -------------------------------------------------------------------------------------------------------------
10,000 Cambridge Industries, Inc. company guaranty Ser. B, 10 1/4s, 2007 10,200
150,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 156,750
250,000 Lear Corp. sub. notes 9 1/2s, 2006 274,375
420,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 422,100
300,000 Newcor, Inc. 144A sr. sub. notes 9 7/8s, 2008 303,000
150,000 Oxford Automotive, Inc. bonds 10 1/8s, 2007 154,500
140,000 Oxford Automotive, Inc. company guaranty 10 1/8s, 2007 144,200
250,000 Talon Automotive Group 144A sr. sub. notes 9 5/8s, 2008 247,500
200,000 Walbro Corp. sr. notes Ser. B, 9 7/8s, 2005 196,000
------------
1,908,625
Banks (0.1%)
- -------------------------------------------------------------------------------------------------------------
35,000 Espirto Santo Centrais sr. notes 10s, 2007 (Brazil) 29,400
100,000 Fuji JGB Inv. LLC 144A FLIRB bonds 9.87s, 2049 88,375
------------
117,775
Basic Industrial Products (0.6%)
- -------------------------------------------------------------------------------------------------------------
325,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 320,125
30,000 Koppers Industries, Inc. 144A 9 7/8s, 2007 30,675
120,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 121,500
------------
472,300
Broadcasting (4.1%)
- -------------------------------------------------------------------------------------------------------------
300,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 238,500
50,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 38,000
320,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 334,800
20,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 19,800
590,000 Chancellor Media Corp. sr.sub notes Ser. B, 8 1/8s, 2007 598,113
25,000 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 27,500
150,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 125,250
180,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 117,000
300,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 301,500
370,000 Fox/Liberty Networks LLC sr. disc. notes stepped-coupon
zero % (9 3/4s, 8/15/02), 2007 (STP) 257,150
220,000 Granite Broadcasting Corp. 144A sr. sub. notes 8 7/8s, 2008 222,475
15,000 Pegasus Communications Corp. sr. notes Ser. B, 9 5/8s, 2005 15,450
100,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 113,000
150,000 Radio One, Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 (STP) 153,000
450,000 RBS Participacoes S.A. 144A company guaranty 11s,
2007 (Brazil) 402,750
50,000 SFX Entertainment, Inc. 144A sr. sub. notes 9 1/8s, 2008 49,000
30,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 32,400
125,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 142,344
270,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 270,000
------------
3,458,032
Building and Construction (1.4%)
- -------------------------------------------------------------------------------------------------------------
240,000 Atrium Companies, Inc. 144A sr. sub. notes 10 1/2s, 2006 252,600
60,000 Beazer Homes USA company guaranty 8 7/8s, 2008 58,500
65,000 Brand Scaffold Services 144A sr. notes 10 1/4s, 2008 66,138
10,000 Cia Latino Americana 144A company guaranty 11 1/8s,
2004 (Argentina) 10,050
320,000 Grove Holdings LLC 144A deb.stepped-coupon zero %
(11 5/8s, 5/1/03), 2009 (STP) 184,000
160,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 136,000
80,000 Jackson Products, Inc. 144A company guaranty 9 1/2s, 2005 79,600
75,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 77,625
25,000 Presley Cos. sr. notes 12 1/2s, 2001 23,500
75,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 78,375
210,000 Waxman Industries, Inc. sr. notes stepped-coupon Ser. B,
zero % (12 3/4s, 6/1/99), 2004 (STP) 199,500
------------
1,165,888
Business Equipment and Services (0.4%)
- -------------------------------------------------------------------------------------------------------------
30,000 ATC Group Services, Inc. 144A sr. sub. notes 12s, 2008 27,600
90,000 Morris Material Handling, Inc. 144A sr. notes 9 1/2s, 2008 83,700
210,000 U.S. Office Products Co. 144A sr.sub notes 9 3/4s, 2008 211,575
20,000 Williams Scotsman, Inc. 144A sr. notes 9 7/8s, 2007 20,800
------------
343,675
Cable Television (1.9%)
- -------------------------------------------------------------------------------------------------------------
140,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 115,500
190,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 205,675
25,000 Charter Communications International, Inc. sr. notes Ser. B,
11 1/4s, 2006 27,563
385,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 284,900
125,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 103,750
250,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 206,250
410,000 Lenfest Communications, Inc. 144A sr. sub. notes 8 1/4s, 2008 428,450
100,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s,
2005 (Argentina) 92,500
100,000 United Artist Term Loan C 8.688s, 2007 100,250
------------
1,564,838
Cellular Communications (0.3%)
- -------------------------------------------------------------------------------------------------------------
120,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 127,200
40,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 41,500
35,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 33,250
80,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 84,800
------------
286,750
Chemicals (1.0%)
- -------------------------------------------------------------------------------------------------------------
300,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 307,500
250,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s,
2007 (India) 247,500
30,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes 9 3/4s,
2007 (Switzerland) 34,050
80,000 Polytama International notes 11 1/4s, 2007 (Indonesia) 28,000
35,000 Sovereign Specialty Chemical 144A company guaranty Ser. A,
9 1/2s, 2007 35,875
250,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 145,000
30,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 24,300
------------
822,225
Communications (0.1%)
- -------------------------------------------------------------------------------------------------------------
50,000 American Cell Corp. 144A sr. notes 10 1/2s, 2008 50,000
Computer Services and Software (0.2%)
- -------------------------------------------------------------------------------------------------------------
20,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 21,300
120,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 122,400
------------
143,700
Computers (0.6%)
- -------------------------------------------------------------------------------------------------------------
390,000 IPC Information Systems sr. disc. notes stepped-coupon zero %
(10 7/8s, 11/1/01), 2008 (STP) 284,700
250,000 Paramount Communications, Inc. deb. 7 1/2s, 2023 250,728
------------
535,428
Consumer Durable Goods (1.1%)
- -------------------------------------------------------------------------------------------------------------
360,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 383,400
470,000 Sealy Mattress Co. 144A sr. sub. notes 9 7/8s, 2007 498,200
50,000 Sealy Mattress Co. 144A sr. disc. notes stepped-coupon zero %
(10 7/8s, 12/15/02), 2007 (STP) 33,000
------------
914,600
Consumer Non Durables (1.2%)
- -------------------------------------------------------------------------------------------------------------
15,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 15,150
50,000 Chattem, Inc. 144A sr. sub. notes 8 7/8s, 2008 49,375
410,000 Packaged Ice, Inc. 144A sr. notes 9 3/4s, 2005 414,100
500,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 501,250
------------
979,875
Consumer Products (0.9%)
- -------------------------------------------------------------------------------------------------------------
10,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 6,300
1,260,000 Iron Age Holdings Corp. 144A sr. disc. notes stepped-coupon
zero % (12 1/8s,5/1/03), 2009 (STP) 705,600
------------
711,900
Consumer Services (0.4%)
- -------------------------------------------------------------------------------------------------------------
210,000 Amazon.com, Inc. 144A sr. disc. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 129,150
125,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 136,875
100,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 105,500
------------
371,525
Electronics and Electrical Equipment (2.7%)
- -------------------------------------------------------------------------------------------------------------
260,000 Calpine Corp. 144A sr. notes 7 7/8s, 2008 260,650
75,000 Details, Inc. sr. discount notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (STP) 46,125
35,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 34,300
150,000 Dobson Communications Corp. 11 3/4s, 2007 162,750
220,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 251,900
200,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 206,000
450,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 453,375
200,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 201,250
115,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 121,900
100,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 107,000
40,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 42,800
90,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 82,800
30,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 31,200
110,000 Viasystems, Inc. 144A sr. notes 9 3/4s, 2007 107,800
60,000 Wavetek Corp. company guaranty 10 1/8s, 2007 60,600
110,000 Zilog, Inc. 144A sr. notes 9 1/2s, 2005 78,100
------------
2,248,550
Energy-Related (1.2%)
- -------------------------------------------------------------------------------------------------------------
400,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 409,804
100,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 100,424
150,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 136,500
340,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 345,100
------------
991,828
Entertainment (1.6%)
- -------------------------------------------------------------------------------------------------------------
20,000 AMC Entertainment Inc. notes 9 1/2s, 2009 20,200
10,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 10,300
300,000 Penn National Gaming, Inc. 144A sr. notes 10 5/8s, 2004 315,000
50,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 53,625
100,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 103,500
90,000 Silver Cinemas Intl.144A sr. sub. notes 10 1/2s, 2005 90,675
190,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 191,900
350,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 349,125
160,000 Viacom International, Inc. sub. deb. 8s, 2006 165,200
------------
1,299,525
Environmental Control (0.1%)
- -------------------------------------------------------------------------------------------------------------
95,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/02), 2007 (STP) 69,825
Food and Beverages (3.3%)
- -------------------------------------------------------------------------------------------------------------
50,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 50,250
80,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 84,800
150,000 Doane Products Co. sr. notes 10 5/8s, 2006 163,500
75,000 Eagle Family Foods 144A sr. sub. notes 8 3/4s, 2008 73,500
500,000 Fleming Companies, Inc. company guaranty Ser. B, 10 5/8s, 2007 527,500
15,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 (STP) 10,200
100,000 RAB Food Holdings, Inc. 144A sr. notes 13s, 2008 100,500
295,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 296,475
500,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 560,000
325,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 338,813
500,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 522,500
------------
2,728,038
Health Care (2.9%)
- -------------------------------------------------------------------------------------------------------------
250,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 242,383
250,000 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 242,818
50,000 Conmed Corp. company guaranty 9s, 2008 49,500
310,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 313,100
90,000 Fresenius Medical Capital Trust II company guaranty 7 7/8s,
2008 (Germany) 88,425
90,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 90,900
90,000 Global Health Sciences 144A sr. notes 11s, 2008 88,875
90,000 Hudson Respiratory Care, Inc. 144A sr. sub. notes 9 1/8s, 2008 87,750
75,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 77,906
100,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 99,000
122,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 120,780
50,000 Paragon Corp. Holdings 144A sr. notes 9 5/8s, 2008 45,000
305,000 Paragon Corp. Holdings, Inc. 144A sr. sub. notes Ser. B,
9 1/2s, 2007 309,575
70,000 Paragon Health Networks, Inc. sr. sub notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 46,200
250,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 258,750
140,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 140,700
50,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 1/2s, 2007 50,625
55,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 56,375
------------
2,408,662
Hospital Management and Medical Services (0.1%)
- -------------------------------------------------------------------------------------------------------------
100,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 89,630
Insurance and Finance (4.1%)
- -------------------------------------------------------------------------------------------------------------
375,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 375,000
100,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 80,269
25,000 Albank Capital Trust 144A company guaranty Ser. B, 9.27s, 2027 29,177
15,000 CSBI Capital Trust I 144A company guaranty Ser. A, 113/4s, 2027 16,050
100,000 Colonial Capital II 144A company guaranty 8.92s, 2027 110,891
120,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 118,800
10,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 11,713
25,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s, 2007 (Mexico) 23,000
150,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 159,375
10,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 11,388
150,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 151,500
400,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 398,000
500,000 Korea Development Bank bonds 7 3/8s, 2004 (Korea) 412,660
70,000 Market Hub Partners 144A sr. notes 8 1/4s, 2008 70,700
410,000 Nationwide Credit Inc. 144A sr. notes 10 1/4s, 2008 412,050
25,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 27,250
25,000 Provident Capital Trust company guaranty 8.6s, 2026 26,953
500,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 522,125
320,000 Resource America, Inc. 144A sr. notes 12s, 2004 342,400
110,000 Sovereign Capital Trust company guaranty 9s, 2027 121,545
10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 11,300
------------
3,432,146
Lodging (0.2%)
- -------------------------------------------------------------------------------------------------------------
140,000 Epic Resorts LLP 144A sr. notes 13s, 2005 140,000
Medical Supplies and Devices (0.6%)
- -------------------------------------------------------------------------------------------------------------
10,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 10,325
50,000 Imagyn Medical Technologies company guaranty 12 1/2s, 2004 17,500
185,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 196,563
180,000 Mediq, Inc. 144A sr. sub. notes 11s, 2008 184,500
90,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 89,100
------------
497,988
Metals and Mining (0.5%)
- -------------------------------------------------------------------------------------------------------------
10,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 10,025
190,000 Lodestar Holding, Inc. 144A sr. notes 11 1/2s, 2005 189,050
150,000 Maxxam Group Holdings, Inc. sr. notes Ser. B, 12s, 2003 167,250
70,000 WHX Corp. sr. notes 10 1/2s, 2005 70,175
------------
436,500
Office Equipment (0.1%)
- -------------------------------------------------------------------------------------------------------------
100,000 United Stationer 144A sr. sub. notes 8 3/8s, 2008 100,000
Oil and Gas (5.1%)
- -------------------------------------------------------------------------------------------------------------
100,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 106,500
30,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 29,250
150,000 Chesapeake Energy Corp. 144A sr. notes 9 5/8s, 2005 150,375
200,000 Cliffs Drilling Co. company guaranty Ser. D, 10 1/4s, 2003 210,750
30,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 28,275
50,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 54,375
80,000 Gothic Production 144A sr. notes 11 1/8s, 2005 76,800
500,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 497,500
250,000 Michael Ptroleum Corp. 144A sr. notes 11 1/2s, 2005 250,000
90,000 Northern Offshore 144A co. guaranty 10s, 2007 88,200
20,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 19,900
15,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 15,975
300,000 Seven Seas Petroleum 144A sub. notes 12 1/2s, 2005 300,000
465,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 467,325
225,000 Southwest Royalties, Inc. company guaranty 10 1/2s, 2004 189,000
60,000 Tokai Corp. 144A FRB Ser. A, 9.98s, 2049 55,500
500,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 460,000
1,400,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B,
zero % (13s, 6/15/99), 2002 (STP) 1,148,000
80,000 Trico Marine Services, Inc. company guaranty Ser. D, 8 1/2s, 2005 77,600
50,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 52,500
------------
4,277,825
Packaging and Containers (3.3%)
- -------------------------------------------------------------------------------------------------------------
1,500,000 AEP Industries notes 9 7/8s, 2007 1,545,370
15,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 15,225
80,000 Radnor Holdings Corp. sr. notes 10s, 2003 83,200
30,000 Radnor Holdings Corp. company guaranty Ser. B, 10s, 2003 31,200
400,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 407,500
500,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 520,000
100,000 Riverwood International Corp. company guaranty 10 1/4s, 2008 102,000
100,000 Vicap SA. 144A company guaranty 11 3/8s, 2007 (Mexico) 102,500
------------
2,806,995
Paging (0.2%)
- -------------------------------------------------------------------------------------------------------------
60,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 68,700
125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 110,000
------------
178,700
Paper and Forest Products (1.6%)
- -------------------------------------------------------------------------------------------------------------
125,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04) 2049 (Indonesia) (STP) 87,500
10,000 APP International Finance Co. notes 11 3/4s,
2005 (Netherlands) 8,900
60,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 67,200
40,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 40,600
90,000 Impac Group, Inc. 144A sr. sub. notes 10 1/8s, 2008 89,775
650,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s,
2007 (Indonesia) 461,500
175,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s,
2004 (Indonesia) 122,500
320,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 323,200
70,000 Repap New Brunswick 144A sr. notes 9s, 2004 (Canada) 70,350
25,000 Stone Container Corp. sr. notes 12.58s, 2016 28,188
------------
1,299,713
Pharmaceuticals (0.3%)
- -------------------------------------------------------------------------------------------------------------
135,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 143,775
70,000 PharMerica, Inc. 144A sr. sub. notes 8 3/8s, 2008 70,175
------------
213,950
Photography (--%)
- -------------------------------------------------------------------------------------------------------------
30,000 Panavision, Inc. 144A sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 21,600
Publishing (0.7%)
- -------------------------------------------------------------------------------------------------------------
225,000 Affinity Group Holdings sr. notes 11s, 2007 240,750
60,000 Perry-Judd 144A sr. sub. notes 10 5/8s, 2007 62,700
280,000 Tri State Media, Inc. 144A sr. sub. notes 11s, 2008 284,550
10,000 Von Hoffman Press, Inc. 144A sr. sub. notes 10 3/8s, 2007 10,550
------------
598,550
Real Estate (--%)
- -------------------------------------------------------------------------------------------------------------
30,000 Bluegreen Corp. 144A sr. notes 10 1/2s, 2008 29,550
Recreation (1.1%)
- -------------------------------------------------------------------------------------------------------------
200,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 216,000
120,000 Fitzgeralds Gaming Corp. 144A company guaranty 12 1/4s, 2004 116,400
100,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 109,500
100,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 103,750
50,000 Mohegan Tribal Gaming Auth. sr. notes Ser. B, 13 1/2s, 2002 63,625
50,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In Default)(NON) 36,000
200,000 Sun International Hotels Ltd. company guaranty 9s, 2007 209,500
25,000 Trump A.C. 1st mtge. 11 1/4s, 2006 24,313
------------
879,088
Retail (2.4%)
- -------------------------------------------------------------------------------------------------------------
400,000 Cex Holdings, Inc. 144A sr. sub. notes 9 5/8s, 2008 412,000
530,000 Color Spot Nurseries sr. sub. notes 10 1/2s, 2007 498,200
330,000 Eye Care Centers of America 144A sr. sub. notes 9 1/8s, 2008 325,050
80,000 Home Interiors & Gifts, Inc. 144A sr. sub. notes 10 1/8s, 2008 81,800
100,000 K mart Corp. med. term notes 7.55s, 2004 99,390
50,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 50,750
80,000 North Atlantic Trading Co. co. guaranty Ser. B, 11s, 2004 80,000
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 162,000
290,000 William Carter Co. sr. sub. notes Ser. A, 10 3/8s, 2006 307,400
10,000 William Carter Holdings Co. 144A sr. sub. notes 12s, 2008 10,700
------------
2,027,290
Satellite Services (1.7%)
- -------------------------------------------------------------------------------------------------------------
175,000 Echostar Satellite Broadcast Corp. sr. disc. notes stepped-coupon
zero % (13 1/8s, 3/15/00), 2004 (STP) 160,781
25,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 (Ireland) (STP) 18,375
255,000 Esat Telecom Group PLC sr. notes stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 (Ireland) (STP) 188,063
280,000 ICG Services, Inc. 144A sr. discount notes stepped-coupon
zero % (9 7/8s, 5/1/03), 2008 (STP) 173,250
700,000 ICG Services, Inc. 144A sr. disc. notes stepped-coupon zero %
(10s, 2/15/03), 2008 (STP) 416,500
145,000 Iridium LLC company guaranty Ser. B, 14s, 2005 160,950
100,000 Iridium LLC company guaranty Ser. A, 13s, 2005 106,500
110,000 TCI Satellite Entertainment sr. sub. notes 10 7/8s, 2007 110,000
110,000 TCI Satellite Entertainment, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 2/1/02), 2007 (STP) 74,250
------------
1,408,669
Shipping (0.1%)
- -------------------------------------------------------------------------------------------------------------
100,000 Pegasus Shipping 144A 11 7/8s, 2004 101,000
Specialty Consumer Products (0.1%)
- -------------------------------------------------------------------------------------------------------------
105,000 Decora Industries, Inc. 144A sr. sec. notes 11s, 2005 102,638
Telecommunications (14.1%)
- -------------------------------------------------------------------------------------------------------------
890,000 21st Century Telecom Group 144A sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 502,850
230,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 248,400
400,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 213,000
250,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (STP) 150,000
150,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 150,750
230,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 132,250
200,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero % (12s, 12/15/01),
2006 (United Kingdom) (STP) 158,000
10,000 Consorcio Ecuatoiano notes 14s, 2002 (Ecuador) 9,500
60,000 CTI Holdings S.A. 144A sr. notes stepped-coupon zero %
(11 1/2s, 4/15/03), 2008 (STP) 33,300
370,000 Dobson Wireline Co. 144A sr. notes 12 1/4s, 2008 373,700
25,000 E. Spire Communications, Inc. sr. notes 13 3/4s, 2007 28,500
150,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 87,000
100,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 106,000
600,000 Focal Communications Corp. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 2/15/03), 2008 (STP) 360,000
100,000 Globo Communicacoes company guaranty 10 1/2s,
2006 (Brazil) 92,500
400,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 366,000
690,000 Global Crossing Holdings 144A sr. notes 9 5/8s, 2008 719,325
200,000 GST Equipment Funding sr. notes 13 1/4s, 2007 228,500
190,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 15/15/00), 2005 (STP) 153,900
110,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 66,000
330,000 Hermes Europe Railtel sr. notes 11 1/2s, 2007 372,900
115,000 Hyperion Telecommunications, Inc. sr. notes Ser. B, 12 1/4s, 2004 124,200
275,000 Intelcom Group (USA), Inc. company guaranty stepped-coupon
zero % (12 1/2s, 5/1/01), 2006 (STP) 218,625
25,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 7/8s, 2007 25,563
150,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 150,375
450,000 Intermedia Communications, Inc. 144A sr. notes 8.6s, 2008 453,375
100,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 73,000
450,000 Ionica Group PLC sr. notes 13 1/2s, 2006 (United Kingdom) 288,000
600,000 Ionica Group PLC sr. disc. notes stepped-coupon zero %
(15s, 5/1/02), 2007 (United Kingdom) (STP) 126,000
120,000 IXC Communications, Inc. 144A sr. sub. notes 9s, 2008 120,600
300,000 Knology Holdings Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 177,000
40,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 44,200
350,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 351,313
30,000 Level 3 Communication, Inc. 144A sr. notes 9 1/8s, 2008 29,175
250,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 165,625
30,000 Metronet Communications 12s, 2007 34,500
25,000 MetroNet Communications Corp. sr. disc. notes stepped-coupon
zero % (10 3/4s, 11/1/02), 2007 (Canada) (STP) 16,625
325,000 MetroNet Communications Corp. 144A sr. disc. notes
stepped-coupon zero % (9.95s, 6/15/03), 2008 (STP) 201,094
200,000 MGC communications, Inc. sr. notes Ser. B, 13s, 2004 202,000
40,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 29,900
275,000 Millicom International Cellular S.A. sr. disc. notes stepped-coupon
zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) (STP) 214,500
40,000 MJD Communications, Inc. 144A sr. sub. notes 9 1/2s, 2008 40,900
40,000 MJD Communications, Inc. 144A FRN 6.232s, 2008 40,400
300,000 Netia Holdings B.V. 144A bonds 10 1/4s, 2007 (Poland) 287,250
50,000 Netia Holdings B.V. 144A co. guaranty stepped-coupon zero %
(11 1/4s,11/1/02), 2007 (Poland) (STP) 33,875
70,000 NEXTEL Communicaitons, Inc. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 43,400
190,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 128,250
520,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (9.95s, 2/15/03), 2008 (STP) 331,500
550,000 NTL, Inc. 144A sr. notes stepped-coupon zero %
(9 3/4s, 4/01/03), 2008 (STP) 357,500
70,000 Orbital Imaging Corp. 144A sr. notes 11 5/8s, 2005 72,100
500,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 (STP) 455,000
230,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 230,000
80,000 Primus Telecom Group 144A sr. notes 9 7/8s, 2008 78,400
70,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 52,500
50,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 36,000
110,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 70,675
150,000 RCN Corp. sr. discount notes, stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 90,000
199,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 224,870
50,000 RSL Communications, Ltd. 144A sr. notes 9 1/8s, 2008 48,688
70,000 RSL Communications, Ltd. 144A sr. disc. notes stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 (STP) 41,300
60,000 Sprint Spectrum L.P. sr. notes 11s, 2006 69,450
65,000 Sygnet Wireless, Inc. sr. notes 11 1/2s, 2006 71,825
30,000 Telefonica de Argentina S.A. ADR 9 1/8s, 2008 (Argentina) 28,725
70,000 Telecom Tech, Inc. 144A sr. sub. notes 9 3/4s, 2008 71,225
150,000 Telegroup, Inc. sr.disc. notes, stepped-coupon zero %
(10 1/2s, 11/1/01), 2004 (STP) 118,500
25,000 Telesystem International Wireless, Inc. sr. disc. notes
stepped-coupon Ser. C, zero % (10 1/2s, 11/1/02), 2007 (STP) 14,813
200,000 Teligent, Inc. sr. notes 11 1/2s, 2007 202,500
160,000 Teligent, Inc. 144A sr. disc. notes stepped-coupon zero %
(11 1/2s, 3/1/03), 2008 (STP) 88,400
150,000 Transtel S.A. 144A pass through certificates 12 1/2s, 2007
(Colombia) 136,500
300,000 USN Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14 5/8s, 8/15/00), 2004 (STP) 222,000
55,000 WinStar Communications, Inc. sr. sub. notes 15s, 2007 72,325
410,000 WinStar Communications, Inc. 144A sr. sub. notes 11s, 2008 406,925
15,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 17,100
------------
11,780,941
Telephone Services (0.1%)
- -------------------------------------------------------------------------------------------------------------
35,000 Facilicom International 144A sr. notes 10 1/2s, 2008 34,300
60,000 Vialog Corp. company guaranty 12 3/4s, 2001 61,800
------------
96,100
Television (0.1%)
- -------------------------------------------------------------------------------------------------------------
125,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 77,188
Textiles (1.1%)
- -------------------------------------------------------------------------------------------------------------
90,000 Day International Group, Inc. 144A sr. sub. notes 9 1/2s, 2008 90,450
290,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 279,850
145,000 Glenoit Corp. company guaranty 11s, 2007 154,425
30,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 30,300
70,000 Polymer Group, Inc. 144A sr. sub.notes 8 3/4s, 2008 69,825
250,000 Polysindo International Eka company guaranty 13s,
2001 (Indonesia) 95,000
50,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 17,000
210,000 Westpoint Stevens, Inc. 144A sr. notes 7 7/8s, 2008 210,788
------------
947,638
Transportation (2.1%)
- -------------------------------------------------------------------------------------------------------------
110,000 Calair LLC 144A company guaranty 8 1/8s, 2008 109,450
230,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005 (Canada) 232,300
150,000 Cathay International Ltd. 144A sr. notes 13s, 2008 132,750
300,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 (STP) 286,500
310,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 329,375
125,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 129,063
35,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 38,763
80,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 84,200
40,000 MC Shipping, Inc. 144A sr. notes 11 1/4s, 2008 40,000
90,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 60,075
100,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 105,500
230,000 Trans World Airlines, Inc. 144A notes 11 3/8s, 2006 230,575
------------
1,778,551
Utilities (1.0%)
- -------------------------------------------------------------------------------------------------------------
275,000 AES China Generating Co. Ltd. notes 10 1/8s, 2006 257,125
175,000 Calpine Corp. sr. notes 10 1/2s, 2006 193,375
398,276 Subic Power Corp. 144A sec. 9 1/2s, 2008 376,371
------------
826,871
------------
Total Corporate Bonds and Notes
(cost $61,204,399) $ 60,431,301
PREFERRED STOCKS (6.6%) (a)
NUMBER OF SHARES VALUE
Apparel (--%)
- -------------------------------------------------------------------------------------------------------------
6 Anvil Holdings Ser. B, $3.25 pfd. (PIK) $ 147
Broadcasting (1.6%)
- -------------------------------------------------------------------------------------------------------------
1,171 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 132,909
1,177 Citadel Broadcasting, Inc. 144A $13.25 cum. pfd. (PIK) 138,886
257 Granite Broadcasting 144A 12.75% pfd. (PIK) 300,690
33 Paxson Communications Corp. 144A 13.25% pfd. (PIK) 330,000
1,000 Sinclair Capital $11.625 cum. pfd. 109,250
207 Spanish Broadcasting Systems 14.25% cum. pfd. 219,420
53 Spanish Broadcasting Systems 144A 14.25% pfd. (PIK) 56,180
------------
1,287,335
Building and Construction (0.3%)
- -------------------------------------------------------------------------------------------------------------
1,540 Brand Scaaffold Services, Inc. 144A $3.625 cum. pfd. 56,210
1,838 CSC Holdings, Inc. Ser. M, $11.125 cum. (PIK) 211,370
------------
267,580
Cable Television (0.7%)
- -------------------------------------------------------------------------------------------------------------
5,000 Adelphia Communications Corp. Ser. B, $13.00 cum. pfd. 597,500
Computer Services and Software (0.1%)
- -------------------------------------------------------------------------------------------------------------
100 Concentric Network Corp. 144A 13.50% pfd. (PIK) 99,500
Electric Utilities (--%)
- -------------------------------------------------------------------------------------------------------------
480 Public Service Co. of New Hampshire $2.65 1st mtge. cum. pfd. 12,720
Entertainment (0.1%)
- -------------------------------------------------------------------------------------------------------------
2,358 Lady Luck Gaming Corp. 11.25% pfd. 102,573
Food and Beverages (0.3%)
- -------------------------------------------------------------------------------------------------------------
660 Jitney-jungle Stores 144A $11.25 pfd. 107,580
1,110 Nebco Evans Holding Co. 144A $11.25 pfd. 113,220
------------
220,800
Health Care (0.2%)
- -------------------------------------------------------------------------------------------------------------
135,000 Fresenius Medical Care AG Ser. D, $9.00 pfd. (Germany) 140,063
Insurance and Finance (0.2%)
- -------------------------------------------------------------------------------------------------------------
3,351 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 93,828
1,500 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 83,250
------------
177,078
Publishing (0.1%)
- -------------------------------------------------------------------------------------------------------------
1,400 Von Hoffman Corp. 144A $13.56 pfd. 46,200
Semiconductors (--%)
- -------------------------------------------------------------------------------------------------------------
487 Trikon Technologies, Inc. Ser. H, 8.25% pfd. (PIK) 1,948
5 Trikon Technologies, Inc. Ser. I, 8.25% pfd. 2,800
------------
4,748
Telecommunications (3.0%)
- -------------------------------------------------------------------------------------------------------------
380 21st Century Telecom Group 144A 13.75% pfd. (PIK) 383,800
100 E. Spire Communications, Inc.144A 14.75% pfd. (PIK) 120,000
106 E. Spire Communications, Inc. pfd. 12.75% (PIK) 115,275
206 Hyperion Telecommunications Ser. B, 12.875% pfd. (PIK) 204,970
40 ICG Holdings, Inc. 14.25% pfd. (Canada) 48,600
27 ICG Holdings, Inc. 14.00% pfd. (Canada) (PIK) 32,670
164 Intermedia Communication Ser. B, $13.50 pfd. 193,520
273 IXC Communications, Inc. $12.50 pfd. (PIK) 316,680
308 NEXTEL Communications, Inc. Ser. D, $13.00 pfd. (PIK) 350,350
41 NEXTEL Communications, Inc. 144A Ser. E, 11.125% pfd. (PIK) 42,435
7,294 Nextlink Communications, Inc. 144A $7.00 pfd. 432,170
270 WinStar Communications, Inc. Ser. C, 14.25% pfd. 321,300
------------
2,561,770
------------
Total Preferred Stocks (cost $5,120,490) $ 5,518,014
CONVERTIBLE BONDS AND NOTES (4.5%) (a)
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (--%)
- -------------------------------------------------------------------------------------------------------------
$ 30,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 $ 32,550
Automotive (0.1%)
- -------------------------------------------------------------------------------------------------------------
43,000 Magna International cv. sub. deb. 5s, 2002 53,750
Biotechnology (0.1%)
- -------------------------------------------------------------------------------------------------------------
44,000 Centocor, Inc. 144A cv. sub. notes 4 3/4s, 2005 43,725
Broadcasting (0.1%)
- -------------------------------------------------------------------------------------------------------------
70,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 58,188
25,000 Scandinavian Broadcasting System S.A. 144A cv. sub. notes 7s,
2004 (Luxembourg) 30,094
10,000 Scandinavian Broadcasting System S.A. cv. sub. notes 7s,
2004 (Luxembourg) 12,000
------------
100,282
Business Equipment and Services (0.1%)
- -------------------------------------------------------------------------------------------------------------
75,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 69,000
Computer Services and Software (0.3%)
- -------------------------------------------------------------------------------------------------------------
30,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 60,975
60,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 50,100
100,000 Network Associates, Inc. 144A cv. sub. deb. zero %, 2018 47,500
50,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 41,000
------------
199,575
Computers (0.2%)
- -------------------------------------------------------------------------------------------------------------
50,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 57,563
41,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 55,811
38,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 36,338
20,000 Synoptics Communications, Inc. 144A cv. sub. deb. 5 1/4s, 2003 20,225
------------
169,937
Conglomerates (0.2%)
- -------------------------------------------------------------------------------------------------------------
10,000 Dart & Kraft Finance N.V. cv. company guaranty Ser. WW,
7 3/4s, 1998 33,863
55,000 Hexcel Corp. cv. sub. notes 7s, 2003 88,756
50,000 Thermo Electron Corp. 144A cv. subordinated 4 1/4s, 2003 52,531
------------
175,150
Consumer Durable Goods (--%)
- -------------------------------------------------------------------------------------------------------------
130,000 Sunbeam Corp. 144A cv. sr. sub. notes zero %, 2018 29,250
Consumer Non Durables (--%)
- -------------------------------------------------------------------------------------------------------------
39,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 (NON) 32,516
Consumer Services (0.2%)
- -------------------------------------------------------------------------------------------------------------
5,000 America Online, Inc. 144A cv. sub. notes 4s, 2002 10,606
62,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 11,005
50,000 CKE Restaurants, Inc. 144A cv. sub. notes 4 1/4s, 2004 52,250
30,000 Fine Host Corp. 144A cv. sub. notes 5s, 2004 22,425
42,000 Pharmaceutical Marketing Services, Inc. 144A cv. deb.
6 1/4s, 2003 39,480
------------
135,766
Electronics and Electrical Equipment (0.5%)
- -------------------------------------------------------------------------------------------------------------
30,000 Advanced Micro Devices cv. sub. notes 6s, 2005 24,375
89,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 73,425
20,000 Integrated Process Equipment Corp. 144A cv. sub. notes
6 1/4s, 2004 16,700
80,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 66,600
55,000 Lam Research Corp. 5s, 2002 44,275
15,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 12,075
49,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 45,509
33,000 Motorola, Inc. cv. sub. deb. Liquid Yield Option Note
(LYON) zero %, 2013 24,420
10,000 Photronics, Inc. cv. sub. notes 6s, 2004 10,925
31,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 50,918
30,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 29,925
23,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 25,818
17,000 Thermo Quest Corp. 144A cv. company guaranty 5s, 2000 18,658
9,000 Thermo Quest Corp. 5s, 2000 9,934
------------
453,557
Environmental Control (0.1%)
- -------------------------------------------------------------------------------------------------------------
52,000 USA Waste Services, Inc. cv. sub. notes 4s, 2002 63,960
Health Care (0.2%)
- -------------------------------------------------------------------------------------------------------------
83,000 Alza Corp. cv. sub. LYON zero %, 2014 48,866
50,000 HEALTHSOUTH Corp. 144A cv. sub. notes 3 1/4s, 2003 49,500
50,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 47,625
35,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 27,344
22,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 16,280
------------
189,615
Insurance and Finance (0.8%)
- -------------------------------------------------------------------------------------------------------------
500,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 437,500
40,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 72,800
110,000 Mutal Risk Mianagement 144A cv. sub. deb. zero %, 2015 86,075
9,000 Pioneer Financial Services, Inc. cv. sub. notes 6 1/2s, 2003 15,289
15,000 USF&G Corp. cv. sub. notes zero %, 2009 10,913
------------
622,577
Medical Supplies and Devices (--%)
- -------------------------------------------------------------------------------------------------------------
5,000 Uromed Corp. cv. sub. notes 6s, 2003 2,063
25,000 Uromed Corp. 144A cv. sub. notes 6s, 2003 10,313
------------
12,376
Metals and Mining (--%)
- -------------------------------------------------------------------------------------------------------------
23,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 24,466
Oil and Gas (0.3%)
- -------------------------------------------------------------------------------------------------------------
24,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 20,970
30,000 Lomak Petroleum, Inc. 144A 6s, 2007 26,700
25,000 Offshore Logistics, Inc. cv. sub. notes 6s, 2003 25,750
55,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 47,025
55,000 Pennzoil Co. cv. deb. 4 3/4s, 2003 77,069
13,000 Pride International, Inc. cv. sub. deb. 6 1/4s, 2006 19,386
------------
216,900
Paper and Forest Products (--%)
- -------------------------------------------------------------------------------------------------------------
24,000 Stone Container Corp. cv. sr. sub. notes 8 7/8s, 2000 34,140
Pharmaceuticals and Biotechnology (0.1%)
- -------------------------------------------------------------------------------------------------------------
28,000 Nabi, Inc. cv. sub. notes 6 1/2s, 2003 18,445
85,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %,
2010 (Switzerland) 48,238
------------
66,683
Publishing (--%)
- -------------------------------------------------------------------------------------------------------------
54,000 Hollinger, Inc. cv. LYON zero %, 2013 22,950
Recreation (0.6%)
- -------------------------------------------------------------------------------------------------------------
500,000 Argosy Gaming cv. sub. notes 12s, 2001 496,250
Retail (0.5%)
- -------------------------------------------------------------------------------------------------------------
40,000 Federated Department Stores, Inc. cv. notes 5s, 2003 63,950
45,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 83,813
90,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 82,800
31,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 32,976
45,000 Office Depot, Inc. cv. LYON zero %, 2007 41,963
160,000 Polymax 144A cv. notes 2s, 2006 85,600
20,000 Rite Aid Corp. 5 1/4s, 2002 24,550
------------
415,652
Telecommunications (--%)
- -------------------------------------------------------------------------------------------------------------
10,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s,
2003 (In default) (NON) 1,500
Transportation (0.1%)
- -------------------------------------------------------------------------------------------------------------
20,000 Aker Maritime cv. notes 5 1/4s, 2002 20,800
25,000 Continental Airlines, Inc. cv. sub. deb. 6 3/4s, 2006 51,531
------------
72,331
------------
Total Convertible Bonds and Notes
(cost $3,849,114) $ 3,734,458
UNITS (4.3%) (a)
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------
50 Bell Tech Ltd. 144A units 13s, 2005 50,500
90 Bestel S.A. de C.V. units, 12 3/4s, 2005 (Mexico) 60,750
140 Birch Telecom, Inc. 144A units 14s, 2008 140,175
200 Club Regina, Inc. 144A units 13s, 2004 213,000
260 Covad Communications Group units 13.5s, 2008 132,600
200 Diva Systems Corp. 144A units stepped-coupon zero %
(12 5/8s, 3/1/03), 2008 (STP) 94,000
660 DTI Holdings, Inc. units stepped-coupon zero %
(12 1/2s, 3/1/03), 2008 (STP) 356,400
390 Firstworld Communication 144A units 13s, 2008 173,550
300 KMC Telecom Holdings, Inc. units stepped-coupon zero %
(12 1/2s, 2/15/03), 2008 (STP) 179,250
200 Long Distance International, Inc. 144A units 12 1/4s, 2008 203,500
220 Mediq 144A units 13s, 2009 121,000
50 Onepoint Communications, Inc. units 14 1/2s, 2008 47,000
140 Pathnet, Inc. 144A units 12 1/4s, 2008 148,400
240 Pegasus Shipping 144A units 14 1/2s, 2008 120,000
250 Rhythms Netcon 144A units stepped-coupon zero %
(13 1/2s, 5/15/03), 2008 (STP) 122,500
100 Startec Global Communications Corp. units 12s, 2008 97,250
600 Transam Refinance, Inc. 144A units 16s, 2003 618,000
95 Versatel Teleco units 13 1/4s, 2008 99,750
350 Viatel, Inc., 144A units 11 1/4s, 2008 367,500
50 WAM!NET, Inc. 144A units stepped-coupon zero %
(13 1/4s, 3/1/02), 2005 (STP) 31,500
55 XCL Ltd units sr. sec. notes 13 1/2s, 2004 62,150
1,800 XCL Ltd. 144A units cum. cv. pfd. 9 1/2s, 2006 (PIK) 194,400
------------
Total Units (cost $3,847,928) $ 3,633,175
BRADY BONDS (3.9%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$ 451,250 Argentina (Republic of) deb. FRB 6.625s, 2005 $ 398,228
488,000 Argentina (Republic of) stepped-coupon Ser. L-GP, 5 3/4s,
(6s, 3/31/99), 2023 (STP) 362,974
1,088,278 Brazil (Government of) stepped-coupon 5s, (8s, 4/30/00),
2014 (POR) 802,605
580,000 Brazil (Republic of) bonds 5 1/2s, 2024 407,450
250,000 Central Bank of Nigeria Ser. WW, 6 1/4s, 2020 179,375
110,000 Bulgaria (Government of) Ser. A, FRB 2 1/4s, 2012 67,650
30,000 Ecuador (Republic of) (FRB) 6.625s, 2025 20,850
328,238 Ecuador (Republic of) deb. Ser. PDI, FRB, 6.625s, 2015 188,737
30,000 Ivory Coast -- 144A FLIRB collateralized FRB 2s, 2018 1,467
25,000 Ivory Coast -- PDI bonds FRB 1.9s, 2018 1,423
131,000 Peru (Government of) 144A Ser. PDI, 4s, 2017 80,735
15,315 Russia (Government of) deb. FRB 6.625s, 2015 8,481
326,000 United Mexican States bonds 11 3/8s, 2016 363,099
250,000 United Mexican States sec. Ser. B, 6 1/4s, 2019 206,875
214,285 Venezuela (Government of) FLIRB deb. Ser. A,
FRB 6.625s, 2007 177,321
------------
Total Brady Bonds (cost $3,460,581) $ 3,267,270
CONVERTIBLE PREFERRED STOCKS (2.6%) (a)
NUMBER OF SHARES VALUE
Automotive (0.1%)
- -------------------------------------------------------------------------------------------------------------
750 Frederal-Mogul Corp. 144A $3.50 cv. cum. pfd. $ 55,594
Basic Industrial Products (0.1%)
- -------------------------------------------------------------------------------------------------------------
290 Case Corp. $4.50 cv. cum. pfd. 32,553
2,920 Ingersoll-Rand Co. $0.195 cv. pfd. 58,765
------------
91,318
Broadcasting (0.2%)
- -------------------------------------------------------------------------------------------------------------
10 Paxson Communications Corp. 144A 9.70% cv. pfd. (PIK) 100,000
500 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 35,375
------------
135,375
Communications (0.2%)
- -------------------------------------------------------------------------------------------------------------
900 Lernout & Hauspie Speech Products N.V. 144A $2.375 cv. pfd 54,000
890 Mediaone Group, Inc. Ser. D, $2.25 cv. pfd. 80,044
------------
134,044
Computer Services and Software (0.1%)
- -------------------------------------------------------------------------------------------------------------
600 Vanstar Financial Trust Corp. $3.375 cv. pfd. 24,300
240 Vanstar Financial Trust Corp. 144A $3.375 cv. cum. pfd. 9,780
757 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 41,824
------------
75,904
Consumer Non Durables (--%)
- -------------------------------------------------------------------------------------------------------------
450 DIMON, Inc. $3.25 cv. pfd. 6,188
Consumer Services (0.2%)
- -------------------------------------------------------------------------------------------------------------
720 Cendant Corp. $0.65 cv. pfd. 20,835
700 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 36,050
1,220 Wendy's Financing Ser. A, $2.50 cv. pfd. 67,100
------------
123,985
Electronics and Electrical Equipment (--%)
- -------------------------------------------------------------------------------------------------------------
600 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 26,475
Energy-Related (--%)
- -------------------------------------------------------------------------------------------------------------
300 CalEnergy Capital Trust 144A $3.75 cv. cum. pfd. 17,325
400 CalEnergy Capital Trust $3.125 cv. cum. pfd. 23,100
------------
40,425
Hospital Management and Medical Services (--%)
- -------------------------------------------------------------------------------------------------------------
1,877 MedPartners, Inc. $6.50 cv. pfd. 19,826
Insurance and Finance (0.6%)
- -------------------------------------------------------------------------------------------------------------
485 Ahmanson (H.F.) & Co. $3.00 cv. cum. pfd. 70,749
839 American General Delaware Corp. $3.00 cv. cum. pfd. 75,720
1,010 Devon Financing Trust $3.25 cv. pfd. 61,863
527 Finova Finance Trust $2.75 cv. cum. pfd. 41,370
1,150 Mandatory Common Exchange Trust (The) $3.625 cv. pfd. 45,425
1,000 Matewan Bancshares, Inc. Ser. A, $3.75 cv. cum. pfd. 29,750
235 Penncorp Financial Group, Inc. 144A $3.50 cv. cum. pfd. 9,782
6,200 Philadelphia Consolidated Holding Corp. $0.534 cv. pfd. 54,250
600 Protective Life Corp. $3.25 cv. cum. pfd. 37,200
390 St. Paul Capital LLC $3.00 cv. cum. pfd. 28,080
500 Suiza Capital Trust 144A $2.75 cv. pfd. 24,469
300 Timet Capital Trust I 144A $3.312 cv. pfd. 13,013
475 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 34,497
------------
526,168
Medical Supplies and Devices (0.1%)
- -------------------------------------------------------------------------------------------------------------
540 Mckesson Corp. $2.50 cv. pfd. 60,615
800 Owens & Minor, Inc. 144A $5.375 cv. pfd. 30,900
------------
91,515
Metals and Mining (0.1%)
- -------------------------------------------------------------------------------------------------------------
1,010 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 19,695
750 Hvide Capital Trust 144A $3.25 cv. pfd. 31,500
739 Titanium Metals Corp. $3.313 cv. pfd. 32,054
------------
83,249
Oil and Gas (0.1%)
- -------------------------------------------------------------------------------------------------------------
550 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 23,238
380 Tosco Financing Trust 144A $2.875 cv. pfd. 20,330
400 Unocal Capital Trust $3.125 cv. cum. pfd. 21,450
38 XCL Ltd. $8.075 cv. pfd. 4,104
------------
69,122
Packaging and Containers (0.1%)
- -------------------------------------------------------------------------------------------------------------
1,400 Owens-Illinois, Inc. $2.375 cv.pfd. 72,975
Paper and Forest Products (0.1%)
- -------------------------------------------------------------------------------------------------------------
1,375 International Paper Co. $2.625 cv. pfd. 66,172
Real Estate (0.1%)
- -------------------------------------------------------------------------------------------------------------
2,550 Equity Residential Property Ser. E, $1.75 cv. cum. pfd. (R) 65,981
460 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 26,393
------------
92,374
Retail (0.2%)
- -------------------------------------------------------------------------------------------------------------
1,250 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 74,531
1,565 K mart Financing I $3.875 cum. cv. pfd. 109,550
------------
184,081
Telecommunications (0.2%)
- -------------------------------------------------------------------------------------------------------------
800 Airtouch Communications, Inc. Ser. C, $2.125 cv. cum. pfd. 66,000
1,350 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 109,013
------------
175,013
Transportation (--%)
- -------------------------------------------------------------------------------------------------------------
880 Union Pacific 144A $3.125 cv. cum. pfd. 41,140
Utilities (0.1%)
- -------------------------------------------------------------------------------------------------------------
1,050 El Paso Energy Capital Trust $2.375 cv. pfd. 55,650
------------
Total Convertible Preferred Stocks (cost $2,113,931) $ 2,166,593
FOREIGN GOVERNMENT BONDS AND NOTES (1.2%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
USD 406,000 Korea (Republic of) unsub. deb. 8 7/8s, 2008 $ 372,505
USD 1,243,000 Russia (Government of) deb. principal loans FRB
6.719s, 2020 (POR) 587,318
USD 64,000 Venezuela (Government of) bonds 9 1/4s, 2027 49,523
------------
Total Foreign Government Bonds and Notes
(cost $1,210,142) $ 1,009,346
WARRANTS (1.2%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------
380 21st Century Telecom Group 144A 2/15/10 $ 34,200
400 Allegiance Telecom, Inc. 2/3/08 1,000
230 Cellnet Data Systems, Inc. 9/15/07 12,880
3,200 CGA Group Ltd. 144A 4/15/01 64
200 Colt Telecommunications Group PLC 12/31/06 50,000
20 Concentric Network Corp. 12/15/07 2,700
472 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 236
180 E. Spire Communications, Inc. 11/1/05 27,180
375 Econophone, Inc. 144A 1/10/07 22,500
140 Epic Resorts 6/15/05 1
25 Esat Holdings, Inc. (Ireland) 2/15/04 875
60 Globalstar Telecom 144A 2/15/04 6,600
225 Hyperion Telecommunications 144A 4/15/01 21,825
10,000 Intelcom Group 144A 10/15/05 320,000
2,200 Iridium World Com 144A 7/15/05 473,000
300 Knology Holdings, Inc. 144A 10/15/07 450
320 McCaw International Ltd. 4/15/07 800
30 Metronet Communications 144A 8/15/07 1,200
200 MGC Communications, Inc. 144A 10/1/04 12,000
70 Orbital Imaging Corp. 3/1/05 3,150
50 Orion Network Systems 1/15/07 600
320 Paxson Communications Corp. 144A 6/30/03 3
20 Spanish Broadcasting Systems 144A 5/30/99 4,100
125 UIH Australia/Pacific, Inc. 144A 5/15/06 1,875
50 Urohealth Systems, Inc. 4/10/04 1
60 Vialog Corp. 11/15/01 2,400
------------
Total Warrants (cost $625,400) $ 999,640
COMMON STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
27,272 Capstar Broadcasting Partners (NON) $ 41,453
25,000 Celcaribe S.A. 144A 170,000
606 Hedstrom Holdings, Inc. 144A 758
1,307 Integrated Health Services, Inc. 49,013
425 NEXTEL Communications, Inc. Class A (NON) 10,572
2,658 Sovereign Bancorp, Inc. 43,442
3,864 Trikon Technologies, Inc. (NON) 2,294
------------
Total Common Stocks (cost $127,344) $ 317,532
SHORT-TERM INVESTMENTS (cost $917,148) (1.1%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$917,000 Interest in $750,000,000 joint repurchase agreement dated
June 30, 1998 with Goldman, Sachs & Co. due July 1, 1998
with respect to various U.S. Treasury obligations -- maturity
value of $917,148 for an effective yield of 5.8% $ 917,148
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $82,476,477) (b) $ 81,994,477
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $83,591,684.
(b) The aggregate identified cost on a tax basis is $82,486,448, resulting in gross unrealized appreciation
and depreciation of $2,074,887 and $2,566,858, respectively, or net unrealized depreciation of $491,971.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate
to be paid and the date the fund will begin receiving interest or dividend income at this rate.
(POR) A portion of the income will be received in additional securities.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(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.
ADR after the name of a foreign holding stands for American Depository Receipts representing ownership
of foreign securities on deposit with a domestic custodian bank.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates
shown at June 30, 1998, which are subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $82,476,477) (Note 1) $81,994,477
- -----------------------------------------------------------------------------------------------
Cash 70,764
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,296,653
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,632,689
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 252,389
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 79,161
- -----------------------------------------------------------------------------------------------
Total assets 85,326,133
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian 40,752
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 1,091,963
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 252,248
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 138,864
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 24,618
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,122
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 55,967
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 80,943
- -----------------------------------------------------------------------------------------------
Other accrued expenses 47,972
- -----------------------------------------------------------------------------------------------
Total liabilities 1,734,449
- -----------------------------------------------------------------------------------------------
Net assets $83,591,684
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4, and 5) $84,015,823
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (45,053)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 107,358
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liablilities in foreign currencies (486,444)
- -----------------------------------------------------------------------------------------------
Total - Representing net assets applicable to
capital shares outstanding $83,591,684
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($36,677,613 divided by 4,152,997 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
($43,602,744 divided by 4,995,040 shares)** $8.73
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,311,327 divided by 378,667 shares) $8.74
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.74)* $9.03
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales
the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended June 30, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $3,653,198
- -----------------------------------------------------------------------------------------------
Dividends 411,981
- -----------------------------------------------------------------------------------------------
Total investment income 4,065,179
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 337,578
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 171,698
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 229
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,537
- -----------------------------------------------------------------------------------------------
Distribution fees - Class A (Note 2) 45,635
- -----------------------------------------------------------------------------------------------
Distribution fees - Class B (Note 2) 219,661
- -----------------------------------------------------------------------------------------------
Distribution fees - Class M (Note 2) 10,479
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,390
- -----------------------------------------------------------------------------------------------
Reports to shareholders 28,281
- -----------------------------------------------------------------------------------------------
Registration fees 18,570
- -----------------------------------------------------------------------------------------------
Auditing 58,573
- -----------------------------------------------------------------------------------------------
Other 11,511
- -----------------------------------------------------------------------------------------------
Fees waived by Manager (Note 2) (99,891)
- -----------------------------------------------------------------------------------------------
Total expenses 806,251
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (30,223)
- -----------------------------------------------------------------------------------------------
Net expenses 776,028
- -----------------------------------------------------------------------------------------------
Net investment income 3,289,151
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 857,590
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (19,324)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (2,139)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (742,376)
- -----------------------------------------------------------------------------------------------
Net gain on investments 93,751
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,382,902
- -----------------------------------------------------------------------------------------------
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
Year ended (commencement
June 30 of operations)
1998 to June 30, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------
Net investment income $ 3,289,151 $ 466,454
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 838,266 77,590
- ----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liablities in foreign currencies (744,515) 258,071
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,382,902 802,115
- ----------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------
From net investment income
Class A (1,506,236) (123,230)
- ----------------------------------------------------------------------------------------------------------------
Class B (1,826,629) (120,506)
- ----------------------------------------------------------------------------------------------------------------
Class M (184,443) (15,269)
- ----------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (367,124) --
- ----------------------------------------------------------------------------------------------------------------
Class B (433,622) --
- ----------------------------------------------------------------------------------------------------------------
Class M (49,774) --
- ----------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 62,756,878 21,273,622
- ----------------------------------------------------------------------------------------------------------------
Total increase in net assets 61,771,952 21,816,732
Net assets
- ----------------------------------------------------------------------------------------------------------------
Beginning of year (Note 5) 21,819,732 3,000
- ----------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income and undistributed net investment
income of $45,053 and $212,757, repectively) $83,591,684 $21,819,732
- ----------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Jan. 2, 1997+
operating performance June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $8.72 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c)(d) .72 .34
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .34 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.06 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.72) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.95) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.83 $8.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 12.61 4.30*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $36,678 $9,407
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b)(d) 1.50 .74*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (d) 8.17 3.85*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 132.18 63.06*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 reductions of $0.02 per share for class A, B and M for the
year ended June 30, 1998 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Jan. 2, 1997+
operating performance June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $8.71 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c)(d) .64 .30
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .35 .03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .99 .33
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.74) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.97) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.73 $8.71
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 11.78 3.93*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $43,603 $11,099
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b)(d) 2.25 1.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (d) 7.42 3.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 132.18 63.06*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 reductions of $0.02 per share for class A, B and M for the
year ended June 30, 1998 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended Jan. 2, 1997+
operating performance June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $8.72 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c)(d) .70 .33
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .33 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.03 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.78) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.01) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.74 $8.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) 12.26 4.20*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,311 $1,314
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b)(d) 1.75 .87*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (d) 7.92 3.79*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 132.18 63.06*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 reductions of $0.02 per share for class A, B and M for the
year ended June 30, 1998 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
June 30, 1998
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 within 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
yield-to-maturity basis. 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 areagreements 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 year ended June 30, 1998 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. These differences include temporary
and permanent differences of losses on wash sale transactions, foreign
currency gains and losses, post-October loss deferrals, and organization
costs. Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended June 30, 1998,
the fund reclassified $29,653 to increase distributions in excess of net
investment income and $18,250 to decrease paid-in-capital, with an increase
to accumulated net realized gain on investments of $47,903. The calculation
of net investment income per share in the financial highlights table excludes
these adjustments.
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
the 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.
As part of the subcustodian contract between the subcustodian bank and PFTC,
the subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made by
the subcustodian bank for the settlement of securities purchased by the fund.
At June 30, 1998, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
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 year ended June 30, 1998, fund expenses were reduced by $30,223 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 $510 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 year ended June 30, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $69,239 and $2,841 from the sale of
class A and class M shares, respectively and $38,399 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 year
ended June 30, 1998, Putnam Mutual Funds Corp., acting as underwriter received
no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended June 30, 1998 purchases and sales of investment
securities other than short-term investments aggregated $114,518,131 and
$55,612,571, 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 June 30, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
June 30, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 3,721,990 $33,437,589
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 169,518 1,512,208
- ------------------------------------------------------------
3,891,508 34,949,797
Shares
repurchased (816,841) (7,342,887)
- ------------------------------------------------------------
Net increase 3,074,667 $27,606,910
- ------------------------------------------------------------
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 10,714,003
Shares
repurchased (184,702) (1,580,322)
- ------------------------------------------------------------
Net increase 1,078,212 $ 9,160,681
- ------------------------------------------------------------
Year ended
June 30, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 4,541,086 $40,480,713
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 209,930 1,852,578
- ------------------------------------------------------------
4,751,016 42,333,291
Shares
repurchased (1,029,826) (9,220,179)
- ------------------------------------------------------------
Net increase 3,721,190 $33,113,112
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
June 30, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 279,721 $2,504,170
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 21,310 188,251
- ------------------------------------------------------------
301,031 2,692,421
Shares
repurchased (73,012) (655,565)
- ------------------------------------------------------------
Net increase 228,019 $2,036,856
- ------------------------------------------------------------
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
distributions 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.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $30,781 as 28% capital gain for its taxable year
ended June 30, 1998.
The fund has designated 9.38% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
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
INDEPENDENT
ACCOUNTANTS
PricewaterhouseCoopers LLP
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
Ian C. Ferguson
Vice President
William J. Curtin
Vice President
Jennifer E. 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
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AN033 -- 4464 2DG/2DI/2DJ 8/98
