Putnam
High Yield
Total Return
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
12-31-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "We believe that what has emerged over the past six months is a
tremendous opportunity to purchase high-yield bonds at historically low
prices."
-- Robert Paine, co-manager
Putnam High Yield Total Return Fund
* "[High-yield] bonds are an especially valuable addition to fixed-income
portfolios in this age of superslim interest rates. . . . Others see
[high-yield] bonds as an attractive alternative to stocks."
-- The Wall Street Journal, December 1, 1998
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
36 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
When the managers of Putnam High Yield Total Return Fund select securities
for the portfolio, they do so with the utmost attention to the
creditworthiness of the issuing companies. As a result, defaults among the
fund's holdings have been rare. Nevertheless, these lower-rated bonds as a
group are subject to greater risks than bonds carrying higher ratings.
Despite the care given to individual portfolio selections, in the
risk-averse environment that prevailed during the first half of fiscal
1999, the fund's performance was adversely affected. While assurances can
never be given, your fund's managers firmly believe the current market
environment should eventually turn more positive and high-yield bond
investors should be rewarded for their patience.
I am pleased to announce the election of Robert M. Paine and Jeffrey A.
Kaufman to your fund's management team. Bob, who has been with Putnam
since 1987, now shares co-lead manager responsibilities with Jennifer E.
Leichter. He has 11 years of investment experience. Jeff came to Putnam in
1998 from MFS Investment Management and Salomon Brothers and has 8 years
of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
February 17, 1999
Report from the Fund Managers
Jennifer E. Leichter
Robert M. Paine
Jeffrey A. Kaufman
Charles G. Pohl
They say lightning never strikes twice in the same place, but don't tell
that to high-yield bond investors. Over the past six months, the
high-yield market sustained two major blows. First, there was this
summer's flight to quality, which led income investors to shun securities
with any level of risk. Then, when the equity market rebounded this fall,
the high-yield market -- which typically mirrors stock market trends --
failed to join in the recovery. Obviously both events have affected the
performance of Putnam High Yield Total Return Fund. For the six months
ended December 31, 1998, the fund's class A shares had a total return of
- -10.17% at net asset value (-14.43% at public offering price). For more
information on the fund's performance, including returns for other share
classes, please see pages 9, 10, and 11.
We consider those two events aberrations that have needlessly hurt a
worthy asset class. However, we also believe the storm clouds have a
silver lining. Because these developments were so out of synch with the
fundamentals of high-yield issuing companies, they have presented us with
an unusually strong buying opportunity. Over the semiannual period, we've
been able to buy bonds at historically low prices and to position the fund
in sectors and industries we believe will show strong growth prospects in
the future.
* MARKET'S GLOBAL MARGIN CALL CAUSES HIGH-YIELD RETREAT
Seven years of price gains in the high-yield market were effectively
eradicated this past summer for reasons that had more to do with global
investor sentiment than with the business and economic fundamentals in the
United States. A sky-is-falling atmosphere was created by the combination
of signs of recession overseas, Russia's financial collapse, an
unexpectedly weak U.S. jobs report, lower-than-expected corporate earnings
forecasts, and broad-based selling of high-yield debt by distressed,
highly leveraged hedge funds. In response, investors came stampeding out
of just about any fixed-income security that involved credit risk. This
drove down prices on all types of corporate bonds, including the
high-yield bonds in which your fund invests.
Many have been tempted to compare today's environment to the difficult
period high-yield investors experienced in 1989 and 1990, when the yield
spreads between high-yield bonds and Treasury securities (the difference
in yield between bonds with similar maturities) had widened drastically.
However, investors should be reminded that the 1989-1990 period featured
10% default rates on high-yield bonds, high long-term interest rates, and
an economy that was sliding into recession.
In contrast, today's environment features economic growth, low inflation,
and unusually low default rates. Today's high-yield companies are also
different. They are the more growth-oriented cable, media, and technology
companies with solid balance sheets. Many larger, well-known companies
also issue high-yield debt, companies with such names as Bethlehem Steel,
Borden, and Northwest Airlines (which are not currently held by the fund).
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 18.7%
Broadcasting 6.6%
Cable television 4.8%
Oil and gas 4.5%
Health care 3.7%
Footnote reads:
*Based on net assets as of 12/31/98. Holdings will vary over time.
* DECOUPLING WITH EQUITY MARKET FRUSTRATES HIGH-YIELD INVESTORS; VALUE
OPPORTUNITY REMAINS
Historically the high-yield market tends to move up and down along with
trends in the equity market. This is because unlike other types of bonds,
high-yield bonds react more to prospects for economic growth and corporate
earnings growth rates than they do to interest-rate movements. In the
fourth quarter of 1998, following interest-rate cuts by the Federal
Reserve Board and other central banks around the world, equities rebounded
strongly from their lows, while high-yield bonds showed little or no
gains.
We believe this decoupling of high-yield bonds and equities is based
mainly on unexplained negative market sentiment rather than on any
fundamental weakness in the high-yield market. For example, with
Allegiance Telecom, Inc., an issuer of high-yield securities, some of
which are held by the fund, equity investors evaluated the company's
fundamentals and promptly bid up the stock price. High-yield investors,
evaluating the same information, sold the bonds.
* FOCUS ON TELECOMMUNICATIONS, CABLE, AND BROADCASTING
During the period, your fund's strategic underweighting in steel and other
commodities, along with a focus on key high-yield industries such as
telecommunications, proved beneficial. High equity valuations, favorable
regulatory developments, and new technologies have allowed the
telecommunications sector to evolve rapidly into one of today's most
dynamic growth industries. Global Crossing is a good example of a
telecommunications holding that served your fund well during the period.
The company is developing undersea fiber-optic cable systems to help
satisfy the growing demand for reliable global telecommunications. Global
Crossing's Atlantic crossing cable is expected to link the United States,
the United Kingdom, the Netherlands, and Germany in 1999. While this
holding and others discussed in this report were viewed favorably at the
end of the period, all holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may well vary in the
future.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Brazil (Republic of) disc. Bonds FRB 6.625s, 2024
Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008
United Mexican States Series B, 6 1/4s, 2019
Midland Funding Corp. deb. Series A, 11 3/4s, 2005
Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada)
CBS Corp. sr. notes 7.15s, 2005
Bulgaria (Government of) Series A, FRB 6.688s, 2024
Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007
International Cabletel, Inc. sr. notes stepped-coupon Series B, zero %
(11 1/2s, 2/01/01), 2006
Niagara Mohawk Power Corp. sr. notes Series G, 7 3/4s, 2008
Footnote reads:
These holdings represent 8.2% of the fund's assets as of 12/31/98.
Portfolio holdings will vary over time.
Favorable regulatory developments improved the market positions of
specialized cellular operators and competitive local exchange carriers
(CLECs), including fund holding Intermedia Communications, Inc. Intermedia
has experienced continuous revenue growth since its inception in 1986.
Building from its original base in Florida, the company now provides
integrated telecommunications services nationally with a focus on
customers who have a substantial presence in the eastern United States.
Through a combination of internally generated growth and targeted
acquisitions, the company has expanded its service territory and
dramatically increased its customer base.
Merger and acquisition activity continued to benefit many high-yield
companies during the period. Corporate bond issuers in the cable
television and broadcasting industries continued to take advantage of
relaxed regulations that have increased competition for lucrative
business. In both industries, aggressive companies are seizing
opportunities through acquisition to secure market share and to spread
their fixed costs over a greater number of households. Fund holding
Chancellor Media Corp., one of the largest radio broadcasting companies in
the United States, is one example of this trend. While there can be no
assurances, we anticipate that Chancellor should continue to show record
cash flow growth due to the integration of several acquisitions, including
Capstar, a major radio company, LIN Television, and the Whiteco outdoor
advertising business.
* HIGH-YIELD MARKET OFFERS FUNDAMENTAL VALUE
Although we don't expect a recession, we do believe the economy will slow
somewhat in the second half of 1999. Therefore, we will continue to avoid
price-sensitive commodity-related companies. Conversely we plan to
maintain our focus on industries that we believe will continue to offer
strong growth rates regardless of economic conditions.
We believe that what has emerged over the past six months is a tremendous
opportunity to purchase high-yield bonds at historically low prices.
Because default rates on these bonds are currently at low levels and
because we believe there are no clear signs of a recession in 1999, we do
not expect high-yield bonds to remain at these levels for very long. If
this market should stage a recovery in the near future as we anticipate,
investors who increase their positions are gaining not just an
attractively priced income investment but an opportunity for substantial
appreciation.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 12/31/98, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield corporate bonds reflect a greater possibility that adverse
changes in the economy or their issuers may affect their ability to pay
principal and interest on the bonds.
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 high
current income, with capital growth as a secondary objective.
TOTAL RETURN FOR PERIODS ENDED 12/31/98
Class A Class B Class M
(inception date) (1/2/97) (1/2/97) (1/2/97)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months -10.17% -14.43% -10.45% -14.73% -10.34% -13.22%
- ------------------------------------------------------------------------------
1 year -6.17 -10.63 -6.86 -11.13 -6.55 -9.55
- ------------------------------------------------------------------------------
Life of fund 5.51 0.55 4.03 0.52 4.88 1.42
Annual average 2.72 0.27 2.00 0.26 2.41 0.71
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 12/31/98
Lehman Bros. First Boston
Corporate Bond High Yield Bond Consumer
Index Index Price Index
- ------------------------------------------------------------------------------
6 months 4.26% -3.57% 0.74%
- ------------------------------------------------------------------------------
1 year 8.59 0.58 1.80
- ------------------------------------------------------------------------------
Life of fund 19.70 13.28 3.53
Annual average 9.41 6.44 1.75
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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-, 5-, and 10-year
(where available) 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. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 12/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.416 $0.362 $0.381
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.416 $0.362 $0.381
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
6/30/98 $8.83 $9.27 $8.73 $8.74 $9.03
- ------------------------------------------------------------------------------
12/31/98 7.52 7.90 7.46 7.46 7.71
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 10.37% 9.87% 9.65% 10.13% 9.81%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 9.50 9.05 8.73 9.15 8.85
- ------------------------------------------------------------------------------
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
Lehman Brothers Corporate Bond Index* is an unmanaged list of publicly
issued fixed-income non-convertible securities frequently used as a
general measure of the performance of the corporate bond market.
First Boston High Yield Index is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Proposed Merger of Fund
The Trustees of the fund have approved in principle the merger of the fund
into Putnam High Yield Trust II ("High Yield II"). The purpose of the merger
is to consolidate the fund, which is relatively small, into a larger Putnam
high yield fund to reduce overall expenses. High Yield II is similar in
investment policies to the fund except that it places a heavier emphasis on
current income as opposed to total return.
Under the proposal, shareholders would become shareholders of High Yield II
and receive shares of High Yield II with equal total net asset value to the
value of the shares of the fund held at the time of the merger. The proposed
merger is still subject to definitive approval by the Trustees of the fund
and approval by shareholders at a meeting expected to be held in July. No
assurance can be given that the merger will occur.
If the Trustees approve definitive arrangements concerning the merger, a full
description of High Yield II and the terms of the proposed merger will be
contained in proxy materials to be mailed to shareholders of the fund later
this year.
<TABLE>
<CAPTION>
Portfolio of investments owned
December 31, 1998 (Unaudited)
CORPORATE BONDS AND NOTES (74.3%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
$ 145,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 155,875
50,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 54,000
280,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 296,800
415,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 439,900
500,000 Outdoor Systems, Inc. company guaranty 8 7/8s, 2007 533,750
--------------
1,480,325
Aerospace and Defense (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
415,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 392,175
120,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 113,400
130,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 128,700
60,000 BE Aerospace, Inc. 144A sr. sub. notes 9 1/2s, 2008 63,300
275,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 269,500
300,000 Burke Industries, Inc. company guaranty 10s, 2007 291,000
250,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 202,500
25,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 25,250
--------------
1,485,825
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
306,518 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 306,518
80,000 Purina Mills, Inc. 144A sr. sub. notes 9s, 2010 79,600
--------------
386,118
Apparel (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 245,000
Automotive (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 63,000
10,000 Cambridge Industries, Inc. company guaranty Ser. B,
10 1/4s, 2007 8,000
350,000 Exide Corp. sr. notes 10s, 2005 353,500
100,000 Hayes Lemmerz International, Inc. 144A company guaranty
8 1/4s, 2008 99,500
75,000 Hayes Wheels International, Inc. sr. sub. notes 11s, 2006 83,250
150,000 Hayes Wheels International, Inc. 144A sr. sub. notes 9 1/8s, 2007 156,750
250,000 Lear Corp. sub. notes 9 1/2s, 2006 275,625
440,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 447,700
290,000 Oxford Automotive, Inc. company guaranty Ser. B, 10 1/8s, 2007 290,000
250,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 240,000
180,000 Walbro Corp. sr. notes Ser. B, 9 7/8s, 2005 178,200
--------------
2,195,525
Banks (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
390,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2008 390,000
150,000 Fuji JGB Inv. LLC 144A FLIRB 9.87s, 2049 (Japan) 107,291
--------------
497,291
Basic Industrial Products (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
325,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 325,000
300,000 Newcor, Inc. company guaranty Ser. B, 9 7/8s, 2008 279,000
120,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 115,200
--------------
719,200
Broadcasting (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 214,125
300,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 246,000
320,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 332,800
790,000 CBS Corp. sr. notes 7.15s, 2005 825,700
20,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004
(Bermuda) 16,700
90,000 Chancellor Media Corp. sr. sub notes Ser. B, 8 1/8s, 2007 90,000
590,000 Chancellor Media Corp. 144A sr. notes 8s, 2008 603,275
25,000 Citadel Broadcasting Co. sr. sub. notes 10 1/4s, 2007 27,250
220,000 Citadel Broadcasting Co. 144A sr. sub. notes 9 1/4s, 2008 229,900
150,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 126,000
80,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 50,400
300,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 297,000
220,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 209,000
60,000 Pegasus Communications Corp. 144A sr. notes 9 3/4s, 2006 60,150
200,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 218,000
150,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 (STP) 150,000
450,000 RBS Participacoes S.A. 144A company guaranty 11s, 2007
(Brazil) 270,000
50,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 50,250
170,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 170,000
464,000 Spanish Broadcasting Systems sr. notes 12 1/2s, 2002 510,400
30,000 Spanish Broadcasting Systems sr. notes Ser. B, 11s, 2004 31,800
270,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 220,050
200,000 Young Broadcasting Inc. company guaranty Ser. B, 8 3/4s, 2007 201,000
--------------
5,149,800
Building and Construction (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
175,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 172,375
110,000 Building Materials Corp. 144A sr. notes 8s, 2008 110,413
10,000 Cia Latino Americana 144A company guaranty 11 5/8s, 2004
(Argentina) 6,500
320,000 Grove Holdings LLC deb. stepped-coupon zero %
(11 5/8s, 5/1/03), 2009 (STP) 134,400
160,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 86,400
80,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 80,000
90,000 Morris Material Handling, Inc. company guaranty 9 1/2s, 2008 66,600
25,000 Presley Cos. sr. notes 12 1/2s, 2001 21,125
210,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B, zero %
(12 3/4s, 6/1/99), 2004 (STP) 105,000
--------------
782,813
Business Equipment and Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 Cendant Corp. notes 7 1/2s, 2000 171,054
400,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 360,000
30,000 United Stationer Supply, Inc. 144A 8 3/8s, 2008 29,934
210,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 132,300
--------------
693,288
Cable Television (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
650,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 518,375
190,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 210,188
290,000 Adelphia Communications Corp. 144A sr. notes 8 3/8s, 2008 300,150
80,000 Century Communications Corp. sr. notes 8 3/4s, 2007 88,000
320,000 Charter Communications International, Inc. disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 (STP) 286,400
25,000 Charter Communications International, Inc. sr. notes Ser. B,
11 1/4s, 2006 28,000
350,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 411,250
60,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 61,082
665,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 546,963
385,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 273,350
790,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 663,600
410,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 422,300
300,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon zero %
(14 1/4s, 6/15/00), 2005 (STP) 286,500
100,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) 55,000
70,000 TeleWest Communications PLC 144A sr. notes 11 1/4s, 2008
(United Kingdom) 78,750
100,000 United Artist bank term loan Series C, 8.688s, 2007 98,500
125,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 66,250
--------------
4,394,658
Cellular Communications (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 (Colombia) 114,000
35,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 14,000
290,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 308,125
--------------
436,125
Chemicals (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 297,000
255,000 Geo Specialty Chemicals, Inc. 144A sr. sub. notes 10 1/8s, 2008 247,350
150,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 149,250
250,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 195,000
68,796 Polytama International company guaranty 11 1/4s, 2007
(Indonesia) 13,759
240,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 96,000
160,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 72,000
250,000 Union Carbide Global Enterprises sr. sub. notes Ser. B, 12s, 2005 262,500
--------------
1,332,859
Computer Services and Software (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 20,400
220,000 PSINet, Inc. 144A sr. notes 11 1/2s, 2008 229,900
120,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 117,600
500,000 Unisys Corp. sr. notes 11 3/4s, 2004 580,000
120,000 Verio Inc. 144A sr. notes 11 1/4s, 2008 121,200
--------------
1,069,100
Computers (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
390,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 245,700
250,000 Paramount Communications, Inc. deb. 7 1/2s, 2023 253,028
--------------
498,728
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Axia, Inc. company guaranty 10 3/4s, 2008 222,750
Consumer Durable Goods (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
360,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 355,500
50,000 Sealy Mattress Co. company guaranty stepped-coupon
Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 30,000
470,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 446,500
--------------
832,000
Consumer Non Durables (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
15,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 13,800
50,000 Chattem, Inc. company guaranty Ser. B, 8 7/8s, 2008 51,500
500,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 455,000
110,000 Revlon, Inc. 144A sr. notes 9s, 2006 108,900
530,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 455,800
--------------
1,085,000
Consumer Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-coupon
zero % (12s, 6/1/02), 2009 (STP) 4,500
1,260,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon
zero % (12 1/8s, 5/1/03), 2009 (STP) 567,000
--------------
571,500
Consumer Services (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
240,000 Amazon.com Inc. sr. disc. notes stepped-coupon zero %
(10s, 05/01/03), 2008 (STP) 154,800
250,000 Coinmach Corp. sr. notes 11 3/4s, 2005 273,750
125,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 121,875
70,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %
(13 5/8s, 6/30/00), 2005 (STP) 79,450
430,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 441,288
--------------
1,071,163
Electronics and Electrical Equipment (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
75,000 Details, Inc. sr. discount notes stepped-coupon Ser. B, zero %,
(12 1/2s, 11/15/02), 2007 (STP) 41,250
35,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 34,300
450,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 447,750
261,497 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 219,657
350,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 350,000
200,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 205,500
115,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 110,400
440,000 Metromedia Fiber Network, Inc. 144A sr. notes 10s, 2008 451,000
100,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 102,500
140,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 142,800
30,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 28,500
70,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 69,650
190,000 Viasystems, Inc. 144A sr. notes 9 3/4s, 2007 176,700
60,000 Wavetek Corp. company guaranty 10 1/8s, 2007 57,000
160,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 128,000
--------------
2,565,007
Energy-Related (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 Niagara Mohawk Power Corp. sr. notes Ser. G, 7 3/4s, 2008 655,674
100,000 Niagara Mohawk Power Corp. sr. notes Ser. F, 7 5/8s, 2005 105,339
150,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004
(China) 63,000
340,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 224,400
200,000 York Power Funding 144A company guaranty 12s, 2007
(Cayman Islands) 204,000
--------------
1,252,413
Entertainment (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 20,400
250,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 277,500
10,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 10,475
320,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 321,600
100,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 104,250
90,000 Silver Cinemas Inc. sr. sub. notes 10 1/2s, 2005 61,200
360,000 Six Flags Corp. sr. notes 8 7/8s, 2006 373,050
350,000 United Artists Theatre 144A 9 3/4s, 2008 336,000
--------------
1,504,475
Environmental Control (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
540,000 Allied Waste Industries, Inc. 144A sr. notes 7 7/8s, 2009 546,750
30,000 ATC Group Services, Inc. company guaranty 12s, 2008 3,000
--------------
549,750
Food and Beverages (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 47,000
580,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 632,200
250,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 257,500
500,000 Doane Products Co. 144A sr. sub. notes 9 3/4s, 2007 511,250
75,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 71,250
500,000 Fleming Companies, Inc. company guaranty Ser. B, 10 5/8s, 2007 470,000
15,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon zero %
(12 3/8s, 7/15/02), 2007 (STP) 7,200
80,000 Pathmark Stores sr. sub. notes 9 5/8s, 2003 77,600
295,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 221,250
100,000 RAB Food Holdings, Inc. 144A sr. notes 13s, 2008 70,000
750,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 840,000
500,000 Star Markets Co. sr. sub. notes 13s, 2004 557,500
--------------
3,762,750
Health Care (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 240,150
450,000 Conmed Corp. company guaranty 9s, 2008 450,000
310,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 297,213
62,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 60,140
270,000 Global Health Sciences company guaranty 11s, 2008 180,900
90,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 70,200
140,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 133,000
205,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 192,700
250,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 230,000
90,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 43,650
305,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 248,575
400,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 368,000
122,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 111,325
50,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 42,000
250,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 250,000
50,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 40,500
140,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008 112,000
55,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 57,475
500,000 Tenet Healthcare Corp. 144A sr. sub. notes 8 1/8s, 2008 512,500
80,000 Tenet Healthcare Corp. sr. notes 8s, 2005 81,200
--------------
3,721,528
Hospital Management and Medical Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
270,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 212,965
150,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 129,086
--------------
342,051
Insurance and Finance (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 225,000
100,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 30,000
100,000 Colonial Capital II 144A company guaranty 8.92s, 2027 102,450
320,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 268,800
10,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 10,801
25,000 Dine S.A. de C.V. company guaranty 8 3/4s, 2007 (Mexico) 20,500
1,010,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon Ser. B, zero %
(12 1/2s, 03/01/03), 2008 (STP) 257,550
110,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 116,153
150,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 114,000
400,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 308,000
410,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 328,000
25,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 20,000
25,000 Provident Capital Trust company guaranty 8.6s, 2026 28,381
500,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 520,775
320,000 Resource America Inc. 144A sr. notes 12s, 2004 259,200
110,000 Sovereign Capital Trust company guaranty 9s, 2027 104,798
10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 10,428
--------------
2,724,836
Lodging (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 135,800
575,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 559,188
200,000 Raintree Resorts International, Inc. sr. notes Ser. B, 13s, 2004 110,000
--------------
804,988
Manufacturing (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 76,500
Medical Supplies and Devices (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 265,200
185,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 192,400
150,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 67,500
170,000 Mediq, Inc. company guaranty 11s, 2008 163,200
--------------
688,300
Metals and Mining (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 176,400
190,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 152,000
450,000 Oregon Steel Mills 1st mortgage 11s, 2003 465,750
230,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 227,700
250,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 222,500
265,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 249,100
320,000 WHX Corp. sr. notes 10 1/2s, 2005 292,800
--------------
1,786,250
Oil and Gas (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
300,000 American Eco Corp. company guaranty Ser. B, 9 5/8s, 2008 150,000
100,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 58,000
20,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 9,000
150,000 Chesapeake Energy Corp. company guaranty Ser. B, 9 5/8s, 2005 115,500
200,000 Cliffs Drilling Co. company guaranty Ser. D, 10 1/4s, 2003 205,000
30,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 24,000
95,000 Eagle Geophysical, Inc. company guaranty Ser. B, 10 3/4s, 2008 79,800
40,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 41,200
30,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (14 1/8s, 5/1/03), 2006 (STP) 9,900
270,000 Gothic Production Corp. company guaranty Ser. B, 11 1/8s, 2005 207,900
310,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 306,900
140,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 133,000
500,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 367,500
250,000 Michael Petroleum Corp. sr. notes Ser. B, 11 1/2s, 2005 196,250
90,000 Northern Offshore 144A company guaranty 10s, 2005 46,800
120,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 116,400
180,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 168,300
20,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 15,000
300,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 150,000
795,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 763,200
175,000 Southwest Royalties, Inc. company guaranty 10 1/2s, 2004 70,000
210,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 205,800
1,400,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B,
zero % (13s, 6/15/99), 2002 (STP) 392,000
500,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 145,000
210,000 Triton Energy Ltd. sr. notes 9 1/4s, 2005 194,687
210,000 Triton Energy Ltd. sr. notes 8 3/4s, 2002 204,653
50,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 50,000
--------------
4,425,790
Packaging and Containers (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 252,500
40,000 Owens-Illinois, Inc. deb. 7.8s, 2018 39,906
80,000 Radnor Holdings Inc. sr. notes 10s, 2003 81,600
400,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 364,000
450,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 447,750
100,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 98,000
--------------
1,283,756
Paper and Forest Products (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 75,000
20,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 19,759
200,000 Consumers International 144A sr. notes 10 1/4s, 2005 209,000
40,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 39,600
90,000 Impac Group Inc. company guaranty Ser. B, 10 1/8s, 2008 90,450
650,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s, 2007
(Indonesia) 344,500
175,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s, 2004
(Indonesia) 92,750
220,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 147,400
70,000 Repap New Brunswick sr. notes 9s, 2004 (Canada) 63,000
80,000 Republic Group Inc. sr. sub. notes 9 1/2s, 2008 78,200
--------------
1,159,659
Pharmaceuticals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Biovail Corp. International 144A sr. notes 10 7/8s, 2005 90,450
135,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 138,375
--------------
228,825
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 16,500
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
225,000 Affinity Group Holdings sr. notes 11s, 2007 229,500
350,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 367,500
60,000 Perry-Judd company guaranty 10 5/8s, 2007 62,700
42,605 Von Hoffman Press, Inc.144A sr. sub. notes 13 1/2s, 2009 42,605
10,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 10,300
--------------
712,605
Recreation (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
550,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 616,688
200,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 207,500
90,000 Circus Circus Enterprises, Inc. sr. sub. notes 9 1/4s, 2005 91,800
50,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 44,934
500,000 Coast Hotels & Casinos, Inc. 1st mtge. company guaranty Ser. B,
13s, 2002 562,500
120,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004 64,800
220,000 Harrahs Entertainment, Inc. company guaranty 7 7/8s, 2005 218,900
100,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 106,000
100,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 110,000
350,000 Mohegan Tribal Gaming Auth. sr. notes Ser. B, 13 1/2s, 2002 421,750
50,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) 27,625
200,000 Sun International Hotels Ltd. company guaranty 9s, 2007 208,000
25,000 Trump A.C. 1st mtge. 11 1/4s, 2006 22,000
190,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 191,900
--------------
2,894,397
Retail (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Eye Care Centers of America 144A sr. sub. notes 9 1/8s, 2008 105,600
330,000 Home Interiors & Gifts, Inc. 144A sr. sub. notes 10 1/8s, 2008 326,700
100,000 K mart Corp. med. term notes 7.55s, 2004 100,022
130,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 126,750
220,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 222,200
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 170,000
180,000 Specialty Retailers, Inc. company guaranty Ser. B, 8 1/2s, 2005 156,600
290,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 311,750
10,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 10,750
--------------
1,530,372
Satellite Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
425,000 Echostar Satellite Broadcast Corp. sr. disc. notes stepped-coupon
zero % (13 1/8s, 3/15/00), 2004 (STP) 423,938
210,000 Golden Sky Systems 144A sr. sub. notes 12 3/8s, 2006 215,250
700,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 357,000
340,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 170,000
53,000 TCI Satellite Entertainment, Inc. sr. sub. notes 10 7/8s, 2007 16,960
--------------
1,183,148
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
105,000 Decora Industries, Inc. sec. Ser. B, 11s, 2005 100,275
Telecommunications (15.6%)
- --------------------------------------------------------------------------------------------------------------------------
890,000 21st Century Telecom Group, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 2/15/03), 2008 (STP) 373,800
260,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 261,950
690,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 324,300
250,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 127,500
90,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 49,500
450,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 339,750
55,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 31,625
140,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 134,400
230,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon zero %
(14s, 10/1/02), 2007 (STP) 50,600
200,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 167,000
780,000 Covad Communications Group sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 429,000
60,000 CTI Holdings S.A. sr. notes stepped-coupon zero %
(11 1/2s, 4/15/03), 2008 (Argentina) (STP) 26,400
225,000 Dobson Wireline Co. sr. notes 12 1/4s, 2008 209,250
525,000 E. Spire Communications, Inc. sr. notes 13 3/4s, 2007 493,500
420,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 210,000
100,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 102,000
550,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 165,000
450,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 441,000
600,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 318,000
1,000,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 1,045,000
100,000 Globo Communicacoes company guaranty 10 1/2s, 2006 (Brazil) 65,000
400,000 Globo Communicacoes 144A company guaranty 10 1/2s, 2006
(Brazil) 260,000
250,000 GST Equipment Funding sr. notes 13 1/4s, 2007 246,250
765,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 546,975
110,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 48,400
115,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 116,150
275,000 Intelcom Group (USA), Inc. company guaranty stepped-coupon
zero % (12 1/2s, 5/1/01), 2006 (STP) 198,000
100,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 68,000
360,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 343,800
150,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 142,500
120,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 120,900
550,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 269,500
360,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %,
(11 7/8s, 10/15/02), 2007 (STP) 177,300
40,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 43,900
350,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 360,500
250,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 247,813
250,000 McCaw International Ltd sr. disc. notes stepped coupon zero %
(13s, 4/15/02), 2007 (STP) 136,250
270,000 Metrocall, Inc. 144A sr. sub. notes 11s, 2008 270,000
30,000 MetroNet Communications Corp. sr. notes 12s, 2007 33,300
25,000 MetroNet Communications Corp. sr. disc. notes stepped-coupon
zero % (10 3/4s, 11/1/02), 2007 (Canada) (STP) 16,500
390,000 MetroNet Communications Corp. 144A sr. notes 10 5/8s, 2008 413,400
225,000 MetroNet Communications Corp. sr. disc. stepped-coupon
notes zero % (9.95s, 6/15/03), 2008 (Canada) (STP) 135,000
310,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 234,050
925,000 Millicom International Cellular S.A. sr. disc. notes stepped-coupon
zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) (STP) 647,500
40,000 MJD Communications, Inc. notes Ser. B, FRN, 9.16s, 2008 38,400
60,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 67,200
50,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 28,500
300,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 255,000
70,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 33,600
420,000 NEXTEL Communications, Inc. 144A sr. notes 12s, 2008 466,200
650,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 417,625
370,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9.95s, 2/15/03), 2008 (STP) 222,000
230,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 230,000
210,000 NTL Inc. 144A sr. notes 11 1/2s, 2008 228,900
390,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (STP) 237,900
70,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 72,800
125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 61,250
290,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 203,000
30,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 30,150
80,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 76,200
310,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 241,025
110,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 63,800
250,000 Rhythms Netconnections, Inc. sr. disc. notes Ser. B, zero %
(13 1/2s, 5/15/03), 2008 (STP) 122,500
70,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 70,525
199,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 208,950
70,000 RSL Communications, Ltd. company guaranty, stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 (STP) 39,900
50,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 45,500
150,000 RSL Communications PLC. 144A sr. notes 10 1/2s, 2008
(United Kingdom) 148,500
303,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon zero %
(12 1/2s, 8/15/01), 2006 (STP) 272,700
60,000 Sprint Spectrum L.P. sr. notes 11s, 2006 69,000
100,000 Startec Global Communications Corp. sr. notes 12s, 2008 87,000
70,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 67,900
25,000 Telesystem International Wireless Inc. sr. disc. notes
stepped-coupon Ser. C, zero %, (10 1/2s, 11/1/02), 2007 (STP) 9,125
160,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 1/2s, 3/1/03), 2008 (STP) 79,200
200,000 Teligent, Inc. sr. notes 11 1/2s, 2007 187,000
400,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 418,000
150,000 Transtel S.A. 144A pass through certificates 12 1/2s, 2007
(Colombia) 57,000
110,000 US Xchange LLC sr. notes 15s, 2008 112,750
300,000 USN Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14 5/8s, 8/15/00), 2004 (STP) 30,000
95,000 Versatel Teleco sr. notes 13 1/4s, 2008 93,575
610,000 Viatel, Inc. sr. notes 11 1/4s, 2008 603,900
50,000 WAM!NET, Inc. company guaranty stepped-coupon Ser. B,
zero % (13 1/4s, 3/1/02), 2005 (STP) 27,500
55,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 51,150
410,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 295,200
250,000 Winstar Communications. Inc. company guaranty zero %, 2005 277,500
75,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 75,375
--------------
16,863,863
Telephone Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Facilicom International sr. notes Ser. B., 10 1/2s, 2008 27,650
200,000 Long Distance International, Inc. 144A sr. notes 12 1/4s, 2008 160,000
50,000 OnePoint Communications, Corp. 144A sr. notes 14 1/2s, 2008 26,500
30,000 Vialog Corp. company guaranty 12 3/4s, 2001 18,000
--------------
232,150
Textiles (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 88,425
290,000 Galey & Lord Inc. company guaranty 9 1/8s, 2008 252,300
145,000 Glenoit Corp. company guaranty 11s, 2007 139,200
30,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 29,700
70,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 68,775
--------------
578,400
Transportation (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Calair LLC company guaranty 8 1/8s, 2008 102,025
150,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 105,000
230,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005 (Canada) 200,100
150,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 55,500
310,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 325,500
125,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003 (Greece) 120,000
50,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 52,500
35,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 36,925
80,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 77,200
40,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 24,800
300,000 MCII Holdings sec. notes stepped-coupon 12s,
(15s, 11/15/99), 2002 (STP) 255,000
100,000 Pegasus Shipping 144A company guaranty 11 7/8s, 2004 87,000
90,000 TFM S.A. de C.V. company guaranty stepped-coupon 11 3/4s,
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 49,050
100,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 84,500
230,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 154,100
--------------
1,729,200
Utilities (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
275,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 187,000
175,000 Calpine Corp. sr. notes 10 1/2s, 2006 187,688
260,000 Calpine Corp. sr. notes 7 7/8s, 2008 253,500
500,000 CMS Energy Corp. pass-through certificates 7s, 2005 495,725
750,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 869,925
250,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 260,718
398,276 Subic Power Corp. 144A sec. 9 1/2s, 2008 278,793
--------------
2,533,349
--------------
Total Corporate Bonds and Notes (cost $88,695,413) $ 80,400,205
BRADY BONDS (6.8%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 280,000 Argentina (Republic of) unsub. Ser. BGL5, 11 3/8s, 2017 $ 278,600
490,000 Argentina (Republic of) unsub. Ser. BGL4, 11s, 2006 480,200
267,900 Argentina (Republic of) deb. FRB 6.1875s, 2005 227,715
945,000 Brazil (Government of) bonds 9 3/8s, 2008 647,325
2,270,000 Brazil (Government of) disc. bonds FRB 6.625s, 2024 1,316,600
805,440 Brazil (Government of) deb., FRB Ser. EI-L, 6.125s, 2006 516,529
1,155,000 Bulgaria (Government of) Ser. A, FRB 6.688s, 2024 808,500
340,000 Bulgaria (Government of) deb. Ser. PDI, FRB 6.688s, 2011 227,800
110,000 Bulgaria (Government of) Ser. A, FLIRB, 2 1/2s, 2012 62,700
500,000 Central Bank of Nigeria Ser. WW, 6 1/4s, 2020 315,000
FRF 30,000 Ivory Coast -- FLIRB collateralized FRB 2s, 2018 1,288
FRF 150,000 Ivory Coast -- FLIRB collateralized FRB 2s, 2018 38,250
FRF 24,688 Ivory Coast -- PDI bonds FRB 1.9s, 2018 1,193
$ 331,000 Peru (Government of) 144A Ser. PDI, 4s, 2017 207,703
1,325,000 United Mexican States Ser. B, 6 1/4s, 2019 1,035,223
795,000 United Mexican States Ser. D FRB 6.0975s, 2019 645,938
857,141 Venezuela (Government of) deb. Ser. DL, FRB 6.625s, 2007 544,285
--------------
Total Brady Bonds (cost $7,103,521) $ 7,354,849
PREFERRED STOCKS (5.7%) (a)
NUMBER OF SHARES VALUE
Broadcasting (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,241 Capstar Broadcasting Inc. 144A $12.00 pfd. (PIK) $ 141,474
1,254 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 142,956
657 Granite Broadcasting 144A 12.75% pfd. (PIK) 591,300
33 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 288,750
1,000 Sinclair Capital $11.625 cum. pfd. 105,750
220 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 224,400
56 Spanish Broadcasting Systems 144A 14.25% pfd. (PIK) 57,120
--------------
1,551,750
Building and Construction (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,540 Brand Scaffold Services, Inc. 144A $14.50 pfd. 46,200
Cable Television (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Adelphia Communications Corp. Ser. B, $13.00 cum. pfd. 577,500
1,941 CSC Holdings, Inc. Ser. M, $11.125 cum. (PIK) 214,481
--------------
791,981
Computer Services and Software (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
106 Concentric Network Corp. Ser. B, $13.50 pfd. (PIK) 90,630
Food and Beverages (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,173 Nebco Evans Holding Co. 144A $11.25 pfd. (PIK) 58,650
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. 75,000
15,000 CSBI Capital Trust I 144A $11.75 pfd. 15,750
--------------
184,578
Medical Supplies and Devices (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
90 Fresenius Medical Capital Trust II 7.875% company guaranty,
pfd. (Germany) 89,325
135 Fresenius Medical Care AG Ser. D, 9.00% pfd. (Germany) 141,244
--------------
230,569
Oil and Gas (--%)
- --------------------------------------------------------------------------------------------------------------------------
20,397 TCR Holding Corp. 1,142
Recreation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,358 Lady Luck Gaming Corp. $11.25 pfd. 80,172
Semiconductors (--%)
- --------------------------------------------------------------------------------------------------------------------------
487 Trikon Technologies, Inc. Ser. H, $8.125 pfd. (PIK) 609
5 Trikon Technologies, Inc. Ser. I, $8.125 pfd. 200
--------------
809
Satellite Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
25 ICG Holdings, Inc. $14.25 pfd. (Canada) 24,750
50 ICG Holdings, Inc., 144A $14.00 pfd. (Canada) (PIK) 48,500
--------------
73,250
Telecommunications (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
406 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) 263,900
250 Centaur Funding Corp 144A 9.08% pfd. 256,785
109 E. Spire Communications, Inc. 12.75% pfd. (PIK) 53,410
100 E. Spire Communications, Inc.144A 14.75% pfd. (PIK) 58,000
4,860 Global Crossing Holdings Ltd. 144A $10.50 pfd. (PIK) 470,205
212 Hyperion Telecommunications Ser. B, 12.875% pfd. (PIK) 168,540
164 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 165,230
444 IXC Communications, Inc. 12.50% pfd. (PIK) 448,440
546 NEXTEL Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 543,270
43 NEXTEL Communications, Inc. Ser. E, 11.125% pfd. (PIK) 38,270
7,549 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 384,999
177 Viatel, Inc. Ser. A, $10.00 cv. pfd. (PIK) 10,620
270 WinStar Communications, Inc. 144A 14.25% pfd. (PIK) 216,000
--------------
3,077,669
Utilities (--%)
- --------------------------------------------------------------------------------------------------------------------------
480 Public Service Co. of New Hampshire $2.651 1st mtge. pfd. 12,480
--------------
Total Preferred Stocks (cost $6,909,665) $ 6,199,880
CONVERTIBLE BONDS AND NOTES (4.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (--%)
- --------------------------------------------------------------------------------------------------------------------------
$ 25,000 Omnicom Group Inc. cv. sub. deb. 2 1/4s, 2013 $ 33,375
Aerospace and Defense (--%)
- --------------------------------------------------------------------------------------------------------------------------
29,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 26,861
Automotive (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
31,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 18,058
73,000 Magna International cv. sub. deb. 5s, 2002 83,950
50,000 Tower Automotive, Inc. cv. sub. notes 5s, 2004 55,688
--------------
157,696
Broadcasting (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 151,725
10,000 Scandinavian Broadcasting System SA cv. sub. notes 7s, 2004
(Luxembourg) 10,538
25,000 Scandinavian Broadcasting System S.A. 144A cv. sub. notes 7s,
2004 (Luxembourg) 26,344
--------------
188,607
Business Equipment and Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
105,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 90,300
24,000 National Data Corp. cv. sub. notes 5s, 2003 26,160
20,000 Personnel Group of America, Inc. cv. sub. notes 5 3/4s, 2004 23,075
--------------
139,535
Computer Services and Software (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
48,000 Aspen Technology, Inc. 144A cv. sub. deb. 5 1/4s, 2005 31,601
60,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 36,300
30,000 Network Associates, Inc. cv. sub. deb. zero %, 2018 18,225
74,000 Network Associates, Inc. 144A cv. sub. deb. zero %, 2018 44,955
15,000 Platinum Technology, Inc. cv. sub. notes 6 1/4s, 2002 13,463
100,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 71,500
17,000 Vantive Corp. (The) cv. sub. notes 4 3/4s, 2002 11,751
245,000 Western Digital Corp. 144A cv. sub. deb. zero %, 2018 73,194
--------------
300,989
Computers (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 101,063
66,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 66,990
38,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 37,573
20,000 Synoptics Communications Inc. 144A cv. sub. deb. 5 1/4s, 2003 20,425
--------------
226,051
Conglomerates (--%)
- --------------------------------------------------------------------------------------------------------------------------
34,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 30,324
Consumer Durable Goods (--%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Sunbeam Corp. 144A cv. sr. sub. notes zero %, 2018 14,625
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------------------------------------
34,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 (NON) 24,820
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
62,000 Boston Chicken, Inc. cv. sub. deb. 7 3/4s, 2004 (In default) 2,790
90,000 CKE Restaurants, Inc. cv. sub. notes 4 1/4s, 2004 76,050
30,000 Fine Host Corp. 144A cv. sub. notes 5s, 2004 22,800
15,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 15,281
--------------
116,921
Electronics and Electrical Equipment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
31,000 Advanced Micro Devices, Inc. cv. sub. notes 6s, 2005 32,008
80,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 53,900
55,000 Dovatron International cv. sub. notes 6s, 2002 68,544
89,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 61,076
20,000 Integrated Process Equipment Corp. 144A cv. sub. notes
6 1/4s, 2004 14,575
180,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 138,825
55,000 Lam Research Corp. cv. sub. notes 5s, 2002 43,175
15,000 LAM Research Corp. 144A cv. sub. notes 5s, 2002 11,775
77,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 82,198
90,000 Motorola, Inc. cv. sub. deb. LYON (Liquid Yield Option Note)
zero %, 2013 66,600
100,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 90,250
10,000 Photronics, Inc. cv. sub. notes 6s, 2004 10,438
39,000 SCI Systems, Inc. cv. sub. notes 5s, 2006 91,991
20,000 Solectron Corp. 144A cv. sub. notes 6s, 2006 54,775
30,000 Thermo Instrument Systems, Inc. 144A cv. deb. 4 1/2s, 2003 26,738
23,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 21,908
9,000 Thermo Quest Corp. cv. co. guaranty 5s, 2000 8,910
17,000 Thermo Quest Corp. cv. co. guaranty 5s, 2000 16,936
--------------
894,622
Health Care (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
102,000 Alza Corp. cv. sub. LYON zero %, 2014 69,870
227,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 193,234
50,000 HEALTHSOUTH Corp. 144A cv. sub. notes 3 1/4s, 2003 42,563
35,000 PhyMatrix, Inc. cv. sub. deb. 6 3/4s, 2003 16,319
22,000 U.S. Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 12,403
--------------
334,389
Information Systems (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
16,000 Automatic Data Processing cv. deb. zero %, 2012 16,500
48,000 Quantum Corp. cv. sub. 7s, 2004 45,600
--------------
62,100
Insurance and Finance (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
62,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 94,395
110,000 Mutual Risk Management 144A cv. sub. deb. zero %, 2015 91,988
--------------
186,383
Medical Supplies and Devices (--%)
- --------------------------------------------------------------------------------------------------------------------------
48,000 Centocor, Inc. cv. sub. deb. 4 3/4s, 2005 50,820
Metals and Mining (--%)
- --------------------------------------------------------------------------------------------------------------------------
23,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 22,195
Oil and Gas (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 26,688
24,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 12,810
25,000 Offshore Logistics, Inc. cv. sub. notes 6s, 2003 21,625
55,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 35,200
127,000 Pennzoil Co. cv. deb. 4.95s, 2008 124,143
41,000 Pride International, Inc. cv. sub. deb. 6 1/4s, 2006 32,851
50,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 35,375
--------------
288,692
Pharmaceuticals and Biotechnology (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
55,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %, 2010
(Switzerland) 35,441
30,000 Sepracor, Inc. 144A cv. notes 7s, 2005 30,000
--------------
65,441
Publishing (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 World Color Press, Inc. cv. sub. notes 6s, 2007 29,850
Recreation (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Argosy Gaming cv. sub. notes 12s, 2001 491,875
Retail (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
75,000 Home Depot, Inc. cv. sub. notes 3 1/4s, 2001 199,875
110,000 Loews Corp. cv. sub. notes 3 1/8s, 2007 87,450
29,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 25,701
84,000 Office Depot, Inc. cv. LYON zero %, 2007 89,775
36,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 44,505
80,000 Polymax 144A cv. notes 2s, 2006 34,000
13,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 18,899
--------------
500,205
Telecommunications (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
76,000 Inacom Corp. cv. sub. deb. 4 1/2s, 2004 65,930
10,000 MIDCOM Communications, Inc. 144A cv. sub. deb. 8 1/4s, 2003
(In default) (NON) 1,650
--------------
67,580
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
45,000 Continental Airlines, Inc. cv. sub. deb. 6 3/4s, 2006 54,563
--------------
Total Convertible Bonds and Notes (cost $4,512,515) $ 4,308,519
CONVERTIBLE PREFERRED STOCKS (2.7%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,342 Coltec Capital Trust $2.625 cv. pfd. $ 58,042
Automotive (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
800 Federal-Mogul Financial Trust $3.50 cum. cv. pfd. 52,700
950 Federal-Mogul Corp. 144A $3.50 cv. cum. pfd. 61,869
829 Tower Automotive Capital Trust 144A $3.375 cv. pfd. 43,212
--------------
157,781
Basic Industrial Products (--%)
- --------------------------------------------------------------------------------------------------------------------------
590 Case Corp. $4.50 cv. cum. pfd. 33,778
Broadcasting (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,100 Chancellor Media Corp. $3.00 cv. cum. pfd. 102,438
10 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 98,000
500 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 24,938
--------------
225,376
Chemicals (--%)
- --------------------------------------------------------------------------------------------------------------------------
475 Monsanto Co. $2.60 cv. pfd. 23,275
Communications (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
490 Lernout & Hauspie Speech Products N.V. 144A $2.375 cv. pfd 14,026
1,101 Mediaone Group, Inc. Ser. D, $2.25 cv. pfd. 104,595
--------------
118,621
Computer Services and Software (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,206 Unisys Corp. Ser. A, $3.75 cv. pfd. 70,853
840 Vanstar Financial Trust Corp. $3.375 cv. pfd. 22,050
1,538 Wang Laboratories, Inc. Ser. B, $3.25 cv. pfd. 86,128
--------------
179,031
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------------------------------------
450 DIMON, Inc. $2.00 cv. pfd. 4,219
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,000 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 26,500
773 Tribune Co. $1.75 cv. pfd. 19,035
1,008 Wendy's Financing Ser. A, $2.50 cv. pfd. 52,416
--------------
97,951
Electronics and Electrical Equipment (--%)
- --------------------------------------------------------------------------------------------------------------------------
600 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 25,350
Energy-Related (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
300 CalEnergy Capital Trust 144A $3.75 cv. cum. pfd. 18,075
400 CalEnergy Capital Trust $3.125 cv. cum. pfd. 24,100
--------------
42,175
Food and Beverages (--%)
- --------------------------------------------------------------------------------------------------------------------------
289 Ralston Purina Co. $4.336 cv. pfd. 15,100
Hospital Management and Medical Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,877 MedPartners, Inc. $6.50 cv. pfd. 14,429
Insurance and Finance (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
621 Aetna Inc. $6.25 cv. pfd. 47,235
892 American Bankers Insurance Group, Inc. Ser. B, $3.125 cv. pfd. 89,200
1,539 American General Delaware Corp. $3.00 cv. cum. pfd. 150,053
930 American Heritage Life Investment Corp. $4.25 cv. pfd. 61,961
1,010 Devon Financing Trust $3.25 cv. pfd. 55,550
827 Finova Finance Trust $2.75 cv. cum. pfd. 61,456
1,157 Fleetwood Capital Trust $3.00 cv. cum. pfd. 53,945
2,600 Lincoln National Corp. $0.463 cv. cum. pfd. 50,700
1,150 Mandatory Common Exchange Trust (The) $3.625 cv. pfd. 8,338
1,000 Matewan Bancshares, Inc. Ser. A, $3.75 cv. cum. pfd. 32,750
235 Penncorp Financial Group, Inc. 144A $3.50 cv. cum. pfd. 911
8,200 Philadelphia Consolidated Holding Corp. $0.534 cv. pfd. 64,575
1,000 Protective Life Corp. $3.25 cv. cum. pfd. 65,250
390 St. Paul Capital LLC $3.00 cv. cum. pfd. 25,155
700 Suiza Capital Trust II 144A $2.75 cv. pfd. 30,363
300 Timet Capital Trust I 144A $3.312 cv. pfd. 7,913
475 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 25,888
--------------
831,243
Medical Supplies and Devices (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
376 Mckesson Corp. $2.50 cv. pfd. 40,185
207 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 9,768
1,000 Owens & Minor, Inc. 144A $5.375 cv. pfd. 47,500
--------------
97,453
Metals and Mining (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,010 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. 15,024
739 Titanium Metals Corp. $3.313 cv. pfd. 19,491
--------------
34,515
Oil and Gas (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
550 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 5,638
780 Tosco Financing Trust $2.875 cv. pfd. 37,538
1,585 Unocal Capital Trust $3.125 cv. cum. pfd. 77,071
214 XCL Ltd $8.075 cv. pfd. 17,120
--------------
137,367
Packaging and Containers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,059 Owens-Illinois, Inc. $2.375 cv.pfd. 45,008
744 Sealed Air Corp. Ser. A, $2.00 cv.pfd. 38,595
--------------
83,603
Paper and Forest Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,371 International Paper Co. $2.625 cv. pfd. 65,979
Real Estate (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,050 Equity Residential Property Ser. E, $1.75 cv. pfd. 71,484
460 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 22,310
--------------
93,794
Retail (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
70 Ann Taylor Finance Trust $4.25 cv. cum. pfd. 6,956
1,058 Dollar General Strypes Trust $3.352 cv. pfd. 37,691
1,970 K mart Financing I $3.875 cum. cv. pfd. 114,137
--------------
158,784
Telecommunications (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
669 AirTouch Communications, Inc. Ser. C, $2.125 cv. cum. pfd. 68,907
6 Intermedia Communications, Inc. Ser. D, $1.75 cv. pfd. 149
1,850 Tele-Communications (TCI Group) Ser. A, $2.125 cv. pfd. 194,944
--------------
264,000
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
250 Hvide Capital Trust 144A $3.25 cv. pfd. 3,750
1,080 Union Pacific Capital Trust 144A $3.125 cv. cum. pfd. 49,950
530 Union Pacific Capital Trust 144A $3.125 cv. cum. pfd. 24,248
--------------
77,948
Utilities (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,850 El Paso Energy Capital Trust $2.375 cv. pfd. 88,569
173 Houston Industries, Inc. $3.22 cv. pfd 18,403
500 KN Energy Inc. $3.55 cv. pfd. 18,781
100 Texas Utilities Co. $0.205 cv. pfd. 4,825
--------------
130,578
--------------
Total Convertible Preferred Stocks (cost $3,147,001) $ 2,970,392
UNITS (1.8%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
400 Birch Telecom, Inc. 144A units 14s, 2008 $ 368,000
440 Decrane Aircraft Holdings, Inc. 144A units 12s, 2008 440,000
430 Diva Systems Corp. 144A units stepped-coupon zero %
(12 5/8s, 3/1/03), 2008 (STP) 176,300
150 Mediq Inc. Units 144A units zero % 2
370 Network Plus Corp. 144A units pfd. 13 1/2s, 2009 370,000
240 Pegasus Shipping 144A company guaranty zero %, 2008 116,400
110 Telehub Communications Corp. units stepped-coupon zero %,
(13 7/8s, 7/31/02), 2005 (STP) 61,600
600 Transam Refinance, Inc. 144A units 16s, 2003 189,000
60 Versatel Teleco 13 1/4s, 2008 59,700
55 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 56,100
1,800 XCL Ltd. 144A units cum. pfd. 9 1/2s, 2006 (PIK) 144,000
--------------
Total Units (cost $2,558,089) $ 1,981,102
FOREIGN GOVERNMENT BONDS AND NOTES (1.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 251,000 Korea (Republic of) unsub. 8 7/8s, 2008 $ 257,903
455,000 People's Republic of China unsub. 7.3s, 2008 457,958
822,000 Russia (Government of) 144A bonds 12 3/4s, 2028 246,600
551,000 United Mexican States bonds 11 3/8s, 2016 567,530
--------------
Total Foreign Government Bonds and Notes
(cost $1,499,364) $ 1,529,991
WARRANTS (0.6%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
380 21st Century Telecom Group 144A 2/15/10 $ 11,400
440 Allegiance Telecom, Inc. 2/3/08 7,040
90 Bestel SA 5/15/05 180
230 CellNet Data Systems, Inc. 10/1/07 4,600
3,200 CGA Group Ltd. 144A 2/11/07 64
200 Club Regina, Inc. 144A 4/15/06 200
200 Colt Telecommunications Group PLC 12/31/06 48,000
20 Concentric Network Corp. 12/15/07 2,978
472 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 236
280 Covad Communications Group 144A 3/15/08 14,000
660 DTI Holdings Inc. 3/1/08 33
180 E. Spire Communications, Inc. 11/1/05 1,080
375 Econophone, Inc. 144A 7/1/07 18,750
140 Epic Resorts 6/15/05 1
25 Esat Holdings, Inc. (Ireland) 2/1/07 1,663
550 Firstworld Communication 4/15/08 5,500
60 Globalstar Telecom 144A 2/15/04 3,600
225 Hyperion Telecommunications 144A 4/15/01 16,868
170 Insilco Holding Co. 8/15/08 0
10,000 ICG Communications 10/15/05 210,000
2,200 Iridium World Com 144A 7/15/05 275,000
300 KMC Telecom Holdings, Inc. 4/15/08 750
300 Knology Holdings, Inc. 144A 10/15/07 450
200 Long Distance International, Inc. 144A 4/13/08 500
320 McCaw International Ltd. 4/15/07 1,280
30 Metronet Communications 144A 8/15/07 900
200 MGC Communications, Inc. 144A 10/1/04 6,168
50 Onepoint Communications, Inc. 6/1/08 50
70 Orbital Imaging Corp. 144A 3/1/05 2,800
50 Orion Network Systems 1/15/07 575
290 Pathnet, Inc. 144A 4/15/08 2,900
320 Paxson Communications Corp. 144A 6/30/03 3
1,000 Rhythms Netcon 144A 5/15/08 7,500
20 Spanish Broadcasting Systems 144A 6/30/99 4,100
100 Startec Global Communications Corp. 5/15/08 100
125 UIH Australia/Pacific, Inc. 144A 5/15/06 125
95 Versatel Teleco 144A 5/15/08 950
30 Vialog Corp. 10/19/00 150
150 WAM!NET, Inc. 3/1/05 1,200
--------------
Total Warrants (cost $687,929) $ 651,694
COMMON STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
27,272 Capstar Broadcasting Partners (NON) $ 34,936
25,000 Celcaribe S.A. 144A (Colombia) (NON) 100,000
607 Hedstrom Holdings, Inc. 144A (NON) 607
603 Minnesota Mining & Manufacturing Co. 42,888
--------------
Total Common Stocks (cost $217,133) $ 178,431
SHORT-TERM INVESTMENTS (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 20,000 U. S. Treasury Bonds zero %, March 4, 1999 $ 19,850
966,000 Interest in $456,109,000 joint repurchase agreement dated
December 31, 1998 with Merrill Lynch, Pierce, Fenner &
Smith due January 4, 1999 with respect to various U.S.
Treasury obligations -- maturity value of $966,515 for an
effective yield of 4.80% 966,129
--------------
Total Short-Term Investments (cost $985,979) $ 985,979
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $116,316,609) (b) $ 106,561,042
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $108,222,183.
(b) The aggregate identified cost on a tax basis is $116,326,580, resulting in gross unrealized appreciation and
depreciation of $2,544,766 and $12,310,304, respectively, or net unrealized depreciation of $9,765,538.
(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.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
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.
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 December 31, 1998, which are subject to change based on the terms of the security.
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at December 31, 1998 (Unaudited)
Unrealized
Market Aggregate Expiration Appreciation/
Value Face Value Date (Depreciation)
- -------------------------------------------------------------------------------
U.S. Treasury Bond
20yr (Short) $511,125 $508,349 Mar-99 $(2,776)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
December 31, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $116,316,609) (Note 1) $106,561,042
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 500
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 2,264,351
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 365,464
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 202,525
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 76,753
- -----------------------------------------------------------------------------------------------
Total assets 109,470,635
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 76,784
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 50,910
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 683,410
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 199,828
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 30,513
- -----------------------------------------------------------------------------------------------
Payable for compensation of trustees (Note 2) 2,748
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,124
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 79,639
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 80,551
- -----------------------------------------------------------------------------------------------
Other accrued expenses 42,945
- -----------------------------------------------------------------------------------------------
Total liabilities 1,248,452
- -----------------------------------------------------------------------------------------------
Net assets $108,222,183
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4, and 5) $122,884,522
- -----------------------------------------------------------------------------------------------
Distribution in excess of net investment income (Note 1) (591,248)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (4,325,003)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (9,746,088)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $108,222,183
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($48,705,561 divided by 6,473,670 shares) $7.52
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $7.52)* $7.90
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($55,695,036 divided by 7,470,542 shares)** $7.46
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,821,586 divided by 512,098 shares) $7.46
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $7.46)* $7.71
- -----------------------------------------------------------------------------------------------
* 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
Six months ended December 31, 1998 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $ 4,910,859
- -----------------------------------------------------------------------------------------------
Dividends 50,729
- -----------------------------------------------------------------------------------------------
Total investment income 4,961,588
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 379,029
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 121,315
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,475
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,253
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 53,242
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 242,299
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 9,285
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,408
- -----------------------------------------------------------------------------------------------
Reports to shareholders 3,638
- -----------------------------------------------------------------------------------------------
Auditing 15,971
- -----------------------------------------------------------------------------------------------
Legal 4,054
- -----------------------------------------------------------------------------------------------
Other 4,331
- -----------------------------------------------------------------------------------------------
Total expenses 845,300
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (9,045)
- -----------------------------------------------------------------------------------------------
Net expenses 836,255
- -----------------------------------------------------------------------------------------------
Net investment income 4,125,333
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (4,418,446)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 151
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (14,066)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 16,699
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (9,276,343)
- -----------------------------------------------------------------------------------------------
Net loss on investments (13,692,005)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(9,566,672)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
December 31 June 30
1998* 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 4,125,333 $ 3,289,151
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (4,432,361) 838,266
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (9,259,644) (744,515)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (9,566,672) 3,382,902
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (2,241,059) (1,506,236)
- ---------------------------------------------------------------------------------------------------------------
Class B (2,248,509) (1,826,629)
- ---------------------------------------------------------------------------------------------------------------
Class M (181,960) (184,443)
- ---------------------------------------------------------------------------------------------------------------
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) 38,868,699 62,756,878
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 24,630,499 61,771,952
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 83,591,684 21,819,732
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income of $591,248 and $45,053, respectively) $108,222,183 $83,591,684
- ---------------------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 Year ended Jan. 2, 1997+
operating performance (Unaudited) June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.83 $8.72 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c)(d) .36 .72 .34
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (1.25) .34 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.89) 1.06 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.72) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.95) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.52 $8.83 $8.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) (10.17)* 12.61 4.30*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $48,706 $36,678 $9,407
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b)(d) .70* 1.50 .74*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (d) 4.60* 8.17 3.85*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.68* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 Year ended Jan. 2, 1997+
operating performance (Unaudited) June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.73 $8.71 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c)(d) .33 .64 .30
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (1.24) .35 .03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.91) .99 .33
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.36) (.74) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.97) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.46 $8.73 $8.71
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) (10.45)* 11.78 3.93*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $55,695 $43,603 $11,099
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b)(d) 1.08* 2.25 1.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (d) 4.21* 7.42 3.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.68* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share December 31 Year ended Jan. 2, 1997+
operating performance (Unaudited) June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.74 $8.72 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c)(d) .35 .70 .33
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (1.25) .33 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.90) 1.03 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38) (.78) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.38) (1.01) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.46 $8.74 $8.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%) (a) (10.34)* 12.26 4.20*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,822 $3,311 $1,314
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b)(d) .83* 1.75 .87*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) (d) 4.48* 7.92 3.79*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 26.68* 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
December 31, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Total Return Fund (the "fund") is a series of Putnam
Funds Trust (the "trust") which is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. The fund seeks total return through high current income and
capital appreciation by investing primarily in high-yielding, lower-rated
fixed-income securities.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.25% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of
some securities traded over-the-counter -- the last reported bid price.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value, and other investments are stated at fair value
following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. These
balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). 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.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate.
F) 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 six months
ended December 31, 1998, the fund had no borrowings against the line of
credit.
G) 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.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution under income tax regulations.
I) 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.
J) 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 June 30, 1999, 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 December 31, 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 six months ended December 31, 1998, fund expenses were reduced by
$9,045 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 $560 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 have approved payment by the fund to an annual
rate of 0.25%, 1.00% and 0.50% of the average net assets attributable to
class A, class B and class M shares respectively.
For the six months ended December 31, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $65,402 and $3,033 from
the sale of class A and class M shares, respectively and $36,662 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended December 31, 1998, Putnam Mutual
Funds Corp., acting as underwriter received $42 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended December 31, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$61,522,522 and $23.623,879, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or loss
on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At December 31, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,478,382 $27,439,533
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 219,776 1,696,643
- -----------------------------------------------------------------------------
3,698,158 29,136,176
Shares
repurchased (1,377,485) (10,748,500)
- -----------------------------------------------------------------------------
Net increase 2,320,673 $18,387,676
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,608,486 $28,161,154
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 206,471 1,582,153
- -----------------------------------------------------------------------------
3,814,957 29,743,307
Shares
repurchased (1,339,455) (10,337,235)
- -----------------------------------------------------------------------------
Net increase 2,475,502 $19,406,072
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended
December 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 300,785 $2,334,805
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 16,824 129,361
- -----------------------------------------------------------------------------
317,609 2,464,166
Shares
repurchased (184,178) (1,389,215)
- -----------------------------------------------------------------------------
Net increase 133,431 $1,074,951
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
Robert M. Paine
Vice President and Fund Manager
Jeffrey A. Kaufman
Vice President and Fund Manager
Charles G. Pohl
Vice President and Fund Manager
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
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
SA033-49322 2DG/2DI/2DJ 2/99
