Putnam
High Yield
Total Return
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
6-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
As prospects for the world's securities markets grew more positive during
the past few months, fixed-income investors put away some of their
concerns over risk and returned to a more venturesome frame of mind.
Higher-yielding lower-rated corporate bonds were among the beneficiaries
of this improved market environment. For the managers of Putnam High Yield
Total Return Fund, the mood swing that occurred during the second half of
fiscal 1999, therefore, presented a welcome change from the conditions
that had prevailed during the first half.
As you know from a recent communication, shareholders have approved the
proposal by the Trustees to merge your fund into Putnam High Yield Trust
II. The merger was completed on July 12, 1999. Because the funds'
objectives are similar, we believe your investment goals will continue to
be served in the same fashion following the merger. The next report you
receive will be the annual report for Putnam High Yield Trust II following
the close of the fund's fiscal year on August 31, 1999.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
August 18, 1999
Report from the Fund Managers
Jennifer E. Leichter
Jeffrey A. Kaufman
Over the past 12 months, high-yield bond investors have had a choppy ride
through waves of change caused by global financial turmoil. During the
first half of Putnam High Yield Total Return Fund's fiscal year, concerns
over Russia's financial collapse and subsequent margin calls on certain
highly leveraged portfolios caused many investors to shy away from
high-yield bonds. However, during the second half of the fund's fiscal
year, as investors became more accepting of investments with an element of
risk, they rediscovered the income potential of these bonds. This bipolar
environment was reflected in your fund's performance for the 12 months
ended June 30, 1999.
Total return for 12 months ended 6/30/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------
-7.32% -11.72% -8.05% -12.25% -7.60% -10.57%
- ----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* HIGH-YIELD BONDS STAGE RECOVERY
The flight to quality that swept the globe in the late summer and early
fall of 1998 created the most unfavorable environment for high-yield bonds
since 1990's recession-bound summer months. In the market volatility
following Russia's financial crisis, fixed-income investors suddenly
became highly risk averse and began selling off virtually all fixed-income
investments except U.S. Treasuries. Yield spreads (the difference in yield
between bonds with similar maturities) between high-yield bonds and
Treasury securities widened dramatically during the period, with most of
the widening taking place in August 1998. A second episode occurred in the
fall with the anticipated sale of the high-yield holdings of Long Term
Capital Management (a distressed hedge fund), an unexpectedly weak U.S.
jobs report, and signs of recession overseas. All quality tiers were
caught in the market rout, but lower-quality, less liquid bonds were hit
hardest.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 22.0%
Broadcasting 6.9%
Oil and gas 5.3%
Cable television 4.4%
Insurance
and finance 4.3%
Footnote reads:
*Based on net assets as of 6/30/99. Holdings will vary over time.
During the second half of your fund's fiscal year, the high-yield bond
market staged a recovery. Investors were drawn to the sector's attractive
yields, as the investment climate grew increasingly amenable to risk.
Spreads against Treasuries narrowed during the second half of your fund's
fiscal year and net cash flows into the high-yield asset class once again
became positive.
As your fund reached its fiscal year's end, the Federal Reserve Board
indicated its intention to boost interest rates and then tightened
short-term interest rates by a quarter of a percentage point. These
developments reverberated in securities markets around the world and
prompted a selloff in the credit sectors. Consequently, high-yield bonds
shed some of the gains they had posted since the beginning of 1999.
* FUND BENEFITS FROM TELECOMMUNICATIONS EMPHASIS
During the fiscal year, your fund's emphasis on the telecommunications
sector -- and the favorable climate for mergers and acquisitions that has
characterized this sector for some time -- contributed to relative
returns. WinStar Communications, Viatel Inc., and Network Plus Corporation
are examples of telecommunications holdings that served your fund well
during the period. While these holdings 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.
WinStar Communications, Inc. is a pioneer in providing business customers
with broadband communications services, including local and long-distance
phone service as well as high-speed Internet access, data, and information
services. WinStar works with commercial building owners and managers to
provide tenants with a range of state-of-the-art telecommunications
services through its national broadband network. Buildings can quickly be
connected to WinStar's fixed wireless network, giving tenants swift access
to local and long-distance phone services, Internet, video conferencing,
data applications, and other advanced telecommunications and data
services. WinStar has become one of the largest Internet companies in the
United States.
"With improvement in the emerging markets, high-yield spreads against
Treasuries narrowed and net cash flows into the high-yield asset class once
again became positive. Investors were drawn to the sector's attractive
yields, as the investment climate grew increasingly amenable to risk."
- -- Jennifer E. Leichter, manager
Putnam High Yield Total Return Fund
Headquartered in New York, Viatel, Inc., is a facilities-based
international and domestic long-distance telecommunications company with
network points of presence in European cities and operations in the United
States, Latin America, and the Pacific Rim. The company offers a broad
array of competitively priced, international and domestic long-distance
services. Its customers are primarily small and midsize businesses. Viatel
provides long-distance service to more than 230 countries and territories
worldwide through its international network. During the period, Viatel
signed an agreement for interconnection with Telecom Italia, the incumbent
telecommunications operator in Italy. The agreement provides Viatel with
the ability to originate and terminate national and international
long-distance voice and data traffic in the lucrative Italian market.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
WinStar Communications, Inc.
stepped-coupon zero %
(15.00%, 3/1/02), 2007
Telecommunications
IPC Information Systems
stepped-coupon zero %
(10.875% 11/1/01), 2008
Computer services and software
Midland Funding II Corp. Series A,
11.75%, 2005
Electric utilities
Signature Brands Ltd. 13.00%, 2002
(Canada)
Consumer durable goods
Snyder Oil Corp 8.75%, 2007
Oil and gas
Chancellor Media Corp.
company guaranty 8.00%, 2008
Broadcasting
Coinmach Corp. Series D,
11.75%, 2005
Consumer services
United Mexican States Series B,
6.25%, 2019
Brady bonds
Granite Broadcasting 144A
12.75% preferred
Broadcasting
International Cabletel, Inc.
stepped-coupon Series B, zero %
(11.50%, 2/1/01), 2006
Telecommunications
Footnote reads:
These holdings represent 7.6% of the fund's net assets as of 6/30/99.
Portfolio holdings will vary over time.
One of your fund's preferred securities, Network Plus is a network-based
communications provider offering broadband data and telecommunications
services primarily to small and midsize business customers located in
major markets in the northeastern and southeastern regions of the United
States. Its bundled product offerings include local and long-distance
services as well as enhanced high-speed data and Internet services,
primarily utilizing digital subscriber line, or DSL, technology. Network
Plus recently completed a successful initial public offering.
Another positive for your fund was Microsoft's $500 million investment in
NTL Inc., one of the portfolio's holdings. The deal spurred a substantial
rise in the value of that cable issuer's securities during the period. In
July, NTL also received a $5.5 billion investment from France Telecom,
which boosted bond prices.
On the negative side, your fund's health-care and energy sector exposures
detracted from returns. Health-care issuers believed the effects of
revised Medicare reimbursement formulas squeezed cash flows, while the
energy sector was hurt by low oil prices and a warm winter.
* FAVORABLE OUTLOOK FOR HIGH-YIELD BONDS
As this report was being written, we believed that the high-yield market
was fairly priced versus other market sectors and that yield spreads
between high-yield bonds and Treasury securities still offer attractive
opportunities. We are monitoring the overall high-yield default rate,
which has been quite low in recent years but is now rising. We anticipate
some spread tightening over the next few months but believe that returns
in the months ahead will come primarily from individual security selection
rather than from overall market movement.
The Federal Reserve Board's gradualist approach to interest-rate
tightening, as exemplified by its quarter-point rate increase at the end
of June, bodes well for the high-yield market, which typically does well
in periods of slowly rising interest rates. The expected impact of Y2K
concerns on year-end market liquidity, however, is causing us to monitor
the fund's portfolio selections with redoubled diligence over the
remainder of the year.
We continue to emphasize telecommunications and media based on a favorable
earnings outlook. We are also placing less emphasis on industries, such as
steel, that depend on global price increases. The recent rise in the price
of oil has prompted concerns about a resurgence in global inflation; we
think these fears are likely to prove unfounded -- at least in the near
term.
We plan to continue to emphasize diversification and securities with
attractive yields relative to their risk levels.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 6/30/99, 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 a combination of high
current income and capital appreciation.
TOTAL RETURN FOR PERIODS ENDED 6/30/99
Class A Class B Class M
(inception dates) (1/2/97) (1/2/97) (1/2/97)
NAV POP NAV CDSC NAV POP
- ---------------------------------------------------------------------------
1 year -7.32% -11.72% -8.05% -12.25% -7.60% -10.57%
- ---------------------------------------------------------------------------
Life of fund 8.86 3.73 6.82 4.24 8.09 4.52
Annual average 3.47 1.48 2.69 1.68 3.17 1.79
- ---------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 6/30/99
Lehman Bros. First Boston
Corporate Bond High Yield Bond Consumer
Index Index price index
- ----------------------------------------------------------------------------
1 year 1.90% -0.85% 1.96%
- ----------------------------------------------------------------------------
Life of fund 16.99 16.47 4.79
Annual average 6.49 6.31 1.89
- ----------------------------------------------------------------------------
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- and life-of-fund
periods reflect the applicable contingent deferred sales charge (CDSC),
which is 5% in the first year, declines to 1% in the sixth year, and is
eliminated thereafter. Performance data reflects an expense limitation
currently in effect. Without the expense limitation total returns would
have been lower. All returns assume reinvestment of distributions at NAV.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 1/2/97
First Boston
Fund's class A High Yield Consumer price
Date shares at POP Bond Index index
1/2/97 9,529 10,000 10,000
6/30/97 9,939 10,585 10,107
6/30/98 11,193 11,748 10,277
6/30/99 $10,373 $11,647 $10,479
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $10,682 ($10,424 with a redemption at the end of the
period); a $10,000 investment in the fund's class M shares would have been
valued at $10,809 ($10,452 at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 months ended 6/30/99
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.711 $0.635 $0.669
- ------------------------------------------------------------------------------
Capital gains
Short-term 0.008 0.008 0.008
- ------------------------------------------------------------------------------
Return of capital* 0.052 0.047 0.049
- ------------------------------------------------------------------------------
Total $0.771 $0.690 $0.726
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
6/30/98 $8.83 $9.27 $8.73 $8.74 $9.03
- ------------------------------------------------------------------------------
6/30/99 7.40 7.77 7.33 7.34 7.59
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 9.41% 8.96% 8.68% 9.16% 8.85%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 9.31 8.86 8.55 9.06 8.75
- ------------------------------------------------------------------------------
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.
* See page 43.
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 class B 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 Bond 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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
sources listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended June 30, 1999
To the Trustees and Shareholders of
Putnam High Yield Total Return Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam High Yield
Total Return Fund (the "fund") at June 30, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at June 30, 1999 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
As discussed in Note 5, the fund merged into Putnam High Yield Trust II on
July 12, 1999.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 12, 1999
<TABLE>
<CAPTION>
The fund's portfolio
June 30, 1999
CORPORATE BONDS AND NOTES (81.5%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
$ 145,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 155,150
50,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 51,250
280,000 Lamar Advertising Co. company guaranty
8 5/8s, 2007 284,200
415,000 Outdoor Communications Inc. sr. sub. notes
9 1/4s, 2007 436,788
--------------
927,388
Aerospace and Defense (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
415,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 383,875
120,000 Argo-Tech Corp. company guaranty Ser. D,
8 5/8s, 2007 111,000
130,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 122,200
60,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 60,900
275,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 257,125
300,000 Burke Industries, Inc. company guaranty 10s, 2007 229,500
440,000 Decrane Aircraft Holdings company guaranty
Ser. B, 12s, 2008 442,200
250,000 Derlan Industries Ltd. sr. notes 10s, 2007 (Canada) 238,750
235,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 231,475
40,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 42,200
250,000 L-3 Communications Corp. sr. notes 9 1/8s, 2008 245,938
350,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 344,750
--------------
2,709,913
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
323,376 Premium Standard Farms, Inc. sr. sec. notes
11s, 2003 (PIK) 297,506
Automotive (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 62,550
180,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 172,800
350,000 Exide Corp. sr. notes 10s, 2005 348,250
410,000 Federal Mogul Corp. 144A notes 7 1/2s, 2009 378,364
160,000 Hayes Lemmerz International, Inc. 144A
company guaranty 8 1/4s, 2008 152,000
150,000 Hayes Wheels International, Inc. company guaranty
9 1/8s, 2007 150,750
250,000 Lear Corp. sub. notes 9 1/2s, 2006 273,125
140,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 142,100
440,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 433,400
290,000 Oxford Automotive, Inc. company guaranty
Ser. D, 10 1/8s, 2007 290,363
250,000 Talon Automotive Group sr. sub. notes
Ser. B, 9 5/8s, 2008 215,000
130,000 Transportation Manufacturing Operations Inc.
144A company guaranty 11 1/4s, 2009 130,000
--------------
2,748,702
Basic Industrial Products (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 97,000
170,000 Insilco Holding Co. sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 78,200
300,000 Neenah Foundry Co. 144A sr. sub. notes
11 1/8s, 2007 295,500
300,000 Newcor, Inc. company guaranty Ser. B, 9 7/8s, 2008 264,000
50,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 29,000
120,000 Roller Bearing Co. company guaranty Ser. B,
9 5/8s, 2007 111,600
--------------
875,300
Broadcasting (5.0%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 Ackerly Group, Inc. sr. sub. notes Ser. B, 9s, 2009 255,450
510,000 Benedek Communications Corp. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 425,850
300,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 253,500
320,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 330,800
20,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 17,200
750,000 Chancellor Media Corp. company guaranty 8s, 2008 738,750
25,000 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 26,906
220,000 Citadel Broadcasting, Inc. company guaranty
9 1/4s, 2008 226,600
150,000 Comcast UK Cable, Ltd. deb. stepped-coupon
zero % (11.2s, 11/15/00), 2007 (Bermuda) (STP) 135,000
300,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 276,000
100,000 Globo Communicacoes company guaranty
10 1/2s, 2006 (Brazil) 72,000
400,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 288,000
220,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 213,400
250,000 Paramount Communications, Inc. deb. 7 1/2s, 2023 230,910
60,000 Pegasus Communications Corp. sr. notes Ser. B,
9 3/4s, 2006 58,800
200,000 Pegasus Media & Communications notes Ser. B,
12 1/2s, 2005 220,000
150,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 156,000
450,000 RBS Participacoes S.A. 144A company guaranty
11s, 2007 (Brazil) 297,000
464,000 Spanish Broadcasting Systems sr. notes 12 1/2s, 2002 515,040
30,000 Spanish Broadcasting Systems sr. notes Ser. B,
11s, 2004 32,400
270,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s,
2007 (Mexico) 206,550
200,000 Young Broadcasting Inc. company guaranty
Ser. B, 8 3/4s, 2007 194,000
--------------
5,170,156
Building and Construction (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 American Architectural Products Corp.
company guaranty 11 3/4s, 2007 120,000
70,000 Atrium Companies Inc. 144A sr. sub. notes
10 1/2s, 2009 68,250
170,000 Building Materials Corp. company guaranty 8s, 2008 158,525
10,000 Cia Latino Americana 144A company guaranty
11 5/8s, 2004 (Argentina) 5,200
200,000 Consumers International 144A sr. notes
10 1/4s, 2005 204,000
340,000 D.R. Horton, Inc. company guaranty 8s, 2009 321,300
320,000 Grove Holdings LLC deb. stepped-coupon zero %
(11 5/8s, 5/1/03), 2009 (STP) 96,000
160,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 80,000
80,000 Jackson Products, Inc. company guaranty Ser. B,
9 1/2s, 2005 79,000
130,000 NCI Building Systems 144A sr. sub. notes
9 1/4s, 2009 125,125
180,000 Toll Corp. company guaranty 8 1/8s, 2009 170,550
--------------
1,427,950
Business Equipment and Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 Cex Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 216,200
275,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 271,563
160,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 177,600
30,000 United Stationer Supply, Inc. sr. sub. notes
8 3/8s, 2008 28,575
210,000 U.S. Office Products Co. company guaranty
9 3/4s, 2008 139,650
--------------
833,588
Cable Television (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
650,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 539,500
130,000 Adelphia Communications Corp. sr. notes Ser. B,
9 7/8s, 2007 135,850
150,000 Adelphia Communications Corp. sr. notes Ser. B,
8 3/8s, 2008 144,000
70,000 Century Communications Corp. sr. notes 8 7/8s, 2007 70,000
160,000 Century Communications Corp. sr. notes 8 3/4s, 2007 158,400
550,000 Charter Communications Holdings LLC 144A
sr. disc. notes stepped-coupon zero %
(9.92s, 4/1/04), 2011 (STP) 341,000
440,000 Charter Communications Holdings LLC 144A
sr. notes 8 5/8s, 2009 421,300
350,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 402,500
190,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 205,200
60,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 57,112
335,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 298,988
385,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 298,856
410,000 Lenfest Communications, Inc. sr. sub. notes
8 1/4s, 2008 416,150
210,000 NTL Communications Corp. sr. notes Ser. B,
11 1/2s, 2008 229,950
230,000 NTL Inc. sr. notes, stepped-coupon Ser. B, zero %
(9 3/4s, 4/1/03), 2008 (STP) 154,100
100,000 Supercanal Holdings S.A. 144A sr. notes
11 1/2s, 2005 (Argentina) (NON) 51,000
250,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero % (9 1/4, 4/15/04) 2009
(United Kingdom) (STP) 167,500
--------------
4,091,406
Chemicals (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
255,000 Geo Specialty Chemicals, Inc. sr. sub. notes
10 1/8s, 2008 246,075
490,000 Huntsman ICI Chemicals Inc. 144A sr. sub. notes
10 1/8s, 2009 494,900
130,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 122,850
220,000 Lyondell Petrochemical Co. 144A sr. sub. notes
10 7/8s, 2009 227,700
640,000 Lyondell Petrochemical Co. 144A sec. notes
9 7/8s, 2007 652,000
250,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 212,500
73,857 Polytama International notes 11 1/4s, 2007 (Indonesia) 13,294
180,000 Royster-Clark Inc. 144A 1st mtge. 10 1/4s, 2009 178,200
140,000 Scotts Co 144A sr. sub. notes 8 5/8s, 2009 137,900
400,000 Sterling Chemicals Holdings sr. disc. notes stepped-
coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 120,000
160,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 91,200
--------------
2,496,619
Computer Services and Software (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 20,900
1,230,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 916,350
220,000 PSINet, Inc. sr. notes 11 1/2s, 2008 231,000
120,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 119,400
500,000 Unisys Corp. sr. notes 11 3/4s, 2004 555,000
120,000 Verio Inc. sr. notes 11 1/4s, 2008 125,400
90,000 Verio Inc. sr. notes 10 3/8s, 2005 90,900
--------------
2,058,950
Conglomerates (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Axia, Inc. company guaranty 10 3/4s, 2008 216,700
Consumer Durable Goods (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
175,000 Albecca Inc. company guaranty 10 3/4s, 2008 145,250
10,000 Hedstrom Holdings, Inc. 144A sr. disc. notes stepped-
coupon zero % (12s, 6/1/02), 2009 (STP) 4,400
170,000 Iron Age Corp. company guaranty 9 7/8s, 2008 127,500
1,260,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon
zero % (12 1/8s, 5/1/03), 2009 (STP) 365,400
530,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 426,650
50,000 Sealy Mattress Co. company guaranty stepped-coupon
Ser. B, zero % (10 7/8s, 12/15/02), 2007 (STP) 32,750
470,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 462,363
750,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 825,000
--------------
2,389,313
Consumer Non Durables (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
360,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 367,200
210,000 Fruit of the Loom 144A company guaranty
8 7/8s, 2006 181,650
290,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 291,450
110,000 Revlon Consumer Products sr. notes 9s, 2006 108,625
500,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 472,500
--------------
1,421,425
Consumer Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
670,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 721,925
125,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 120,625
70,000 Protection One, Inc. sr. disc. notes 13 5/8s, 2005 78,400
--------------
920,950
Electric Utilities (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
275,000 AES China Generating Co. sr. notes
10 1/8s, 2006 (China) 170,500
260,000 AES Corp. sr. notes 9 1/2s, 2009 266,500
175,000 Calpine Corp. sr. notes 10 1/2s, 2006 185,500
260,000 Calpine Corp. sr. notes 7 7/8s, 2008 245,700
750,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 859,740
113,333 Northeast Utilities System notes Ser. B, 8.38s, 2005 112,830
150,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 81,000
400,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 400,000
--------------
2,321,770
Electronics and Electrical Equipment (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Amkor Technologies, Inc. 144A sr. notes 9 1/4s, 2006 486,250
35,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 34,475
200,000 Flextronics International Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 199,000
45,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 40,950
400,000 Metromedia Fiber Network, Inc. sr. notes
Ser. B, 10s, 2008 411,000
100,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 104,000
70,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 61,250
190,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 166,250
60,000 Wavetek Corp. company guaranty 10 1/8s, 2007 52,800
--------------
1,555,975
Entertainment (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 240,000
250,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 270,000
430,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 124,700
420,000 ITT Corp. notes 6 3/4s, 2005 384,451
170,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 171,700
100,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 99,000
170,000 SFX Entertainment, Inc. company guaranty
9 1/8s, 2008 164,900
50,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 48,750
90,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 40,500
360,000 Six Flags Corp. sr. notes 8 7/8s, 2006 358,200
400,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 308,000
99,500 United Artists Theatre bank term loan Ser. C,
8.688s, 2007 95,271
--------------
2,305,472
Environmental Control (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
540,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 500,850
Food and Beverages (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
580,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 601,750
500,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 505,000
295,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 185,850
100,000 RAB Holdings, Inc. sr. notes 13s, 2008 44,000
200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 170,000
500,000 Star Markets Co. sr. sub. notes 13s, 2004 542,500
220,000 Triarc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 213,400
170,000 Vlassic Foods Intl. Inc. 144A sr. sub. notes 10 1/4s, 2009 167,663
--------------
2,430,163
Gaming (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
220,000 Argosy Gaming Co. 144A sr. sub. notes 10 3/4s, 2009 224,400
200,000 Autotote Corp. company guaranty Ser. B,
10 7/8s, 2004 208,000
210,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 207,900
50,000 Circus Circus Enterprises, Inc. deb. 7s, 2036 45,558
100,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 91,096
120,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 66,600
110,000 Harrahs Entertainment, Inc. company guaranty
7 1/2s, 2009 106,605
330,000 Hollywood Casino Corp. 144A sec. notes
11 1/4s, 2007 330,000
140,000 Hollywood Park, Inc. company guaranty Ser. B,
9 1/4s, 2007 137,550
100,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 111,000
230,000 Mohegan Tribal Gaming, Auth. sr. sub. notes
8 3/4s, 2009 226,550
170,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 161,500
120,000 Riviera Black Hawk 144A 1st mtge. 13s, 2005 122,400
25,000 Trump A.C. 1st mtge. 11 1/4s, 2006 22,375
190,000 Trump Castle Funding 144A sub. notes
10 1/4s, 2003 192,390
--------------
2,253,924
Health Care (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 56,446
250,000 Columbia/HCA Healthcare Corp. notes
7 1/4s, 2008 226,568
260,000 Columbia/HCA Healthcare Corp. med term notes
6.63s, 2045 243,386
310,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 230,950
90,000 Hudson Respiratory Care, Inc. sr. sub. notes
9 1/8s, 2008 80,550
270,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 195,750
165,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 118,388
90,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-
coupon Ser. B, zero % (10 1/2s, 11/1/02), 2007 (STP) 10,800
305,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 51,850
150,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 140,250
550,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 374,000
250,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 242,500
1,035,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 155,250
140,000 Sun Healthcare Group, Inc. 144A sr. sub. notes
9 3/8s, 2008 (In default) (NON) 21,000
55,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 53,625
500,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 470,000
80,000 Tenet Healthcare Corp. sr. notes 8s, 2005 77,600
155,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 157,325
--------------
2,906,238
Insurance and Finance (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 262,500
100,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 67,000
420,000 Advanta Corp. med-term notes Ser. D, 6.92s, 2002 373,199
100,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 77,000
140,000 Capital One Financial Corp. notes 7 1/8s, 2008 133,949
100,000 Colonial Capital II 144A company guaranty
8.92s, 2027 93,525
320,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 275,200
140,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 120,400
160,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 120,000
15,000 CSBI Capital Trust I 144A company guaranty
11 3/4s, 2027 16,050
320,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 275,200
10,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 10,402
110,000 Greenpoint Capital Trust I company guaranty
9.1s, 2027 110,660
310,000 Green Tree Acceptance Corp. sr. sub. notes
10 1/4s, 2002 325,733
150,000 Imperial Credit Capital Trust I 144A company
guaranty 10 1/4s, 2002 121,500
400,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 316,000
410,000 Nationwide Credit Inc. sr. notes Ser. A, 10 1/4s, 2008 278,800
25,000 Ocwen Capital Trust I company guaranty
10 7/8s, 2027 19,500
420,000 Ocwen Financial Corp. notes 11 7/8s, 2003 396,900
25,000 Provident Capital Trust company guaranty 8.6s, 2026 24,152
50,000 PRT Funding Corp. sr. notes 11 5/8s,
2004 (In default) (NON) 22,500
320,000 RBF Finance 144A company guaranty 11 3/8s, 2009 331,200
40,000 RBF Finance 144A company guaranty 11s, 2006 41,200
320,000 Resource America Inc. 144A sr. notes 12s, 2004 292,800
110,000 Sovereign Capital Trust company guaranty 9s, 2027 106,216
10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 9,790
--------------
4,221,376
Lodging (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 128,800
575,000 HMH Properties, Inc. company guaranty
Ser. B, 7 7/8s, 2008 527,563
--------------
656,363
Medical Supplies and Devices (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
260,000 ALARIS Medical Systems, Inc. company guaranty
9 3/4s, 2006 257,400
185,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 177,600
150,000 Mediq, Inc. deb. stepped-coupon zero %
(13s, 6/1/03), 2009 (STP) 57,000
170,000 Mediq, Inc. company guaranty 11s, 2008 132,600
--------------
624,600
Metals and Mining (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 AK Steel Corp. 144A sr. notes 7 7/8s, 2009 38,400
420,000 Ameristeel Corp. company guaranty Ser. B,
8 3/4s, 2008 421,050
90,000 Armco, Inc. sr. notes 8 7/8s, 2008 91,350
190,000 Lodestar Holdings, Inc. company guaranty
11 1/2s, 2005 144,400
320,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 326,400
450,000 Oregon Steel Mills 1st mtge. 11s, 2003 461,250
250,000 UCAR Global Enterprises sr. sub. notes
Ser. B, 12s, 2005 265,000
230,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 234,025
250,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 245,000
265,000 Wheeling-Pittsburgh Steel Corp. sr. notes
9 1/4s, 2007 254,400
120,000 WHX Corp. sr. notes 10 1/2s, 2005 115,800
--------------
2,597,075
Oil and Gas (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Belco Oil & Gas Corp. company guaranty
Ser. B, 10 1/2s, 2006 104,250
300,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B,
8 7/8s, 2007 294,750
100,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 73,000
20,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 13,000
200,000 Cliffs Drilling Co. company guaranty Ser. D,
10 1/4s, 2003 190,000
500,000 CMS Energy Corp. pass-through certificates 7s, 2005 477,800
210,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 201,762
95,000 Eagle Geophysical, Inc. company guaranty Ser. B,
10 3/4s, 2008 52,250
80,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 82,300
30,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (14 1/8s, 5/1/03), 2006 (STP) 10,500
270,000 Gothic Production Corp. company guaranty
Ser. B, 11 1/8s, 2005 229,500
310,000 Gulf Canada Resources, Ltd. sr. notes
8 3/8s, 2005 (Canada) 305,750
140,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 138,600
90,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 92,700
590,000 Ocean Energy, Inc. company guaranty Ser. B,
8 7/8s, 2007 581,150
180,000 Ocean Energy, Inc. company guaranty Ser. B,
8 3/8s, 2008 173,700
210,000 R & B Falcon Corp. 144A sr. notes 12 1/4s, 2006 217,350
340,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 181,050
300,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 153,000
795,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 787,050
210,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 212,625
210,000 Triton Energy Ltd. sr. notes 9 1/4s, 2005 205,040
210,000 Triton Energy Ltd. sr. notes 8 3/4s, 2002 208,005
360,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 369,000
50,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 31,000
--------------
5,385,132
Packaging and Containers (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
250,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 250,000
40,000 Owens-Illinois, Inc. deb. 7.8s, 2018 37,619
300,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 283,116
220,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 222,200
234,504 Packaging Corp. Term Loan C, 6s, 2008 233,754
80,000 Radnor Holdings Inc. sr. notes 10s, 2003 84,000
400,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 388,000
450,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 459,000
100,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 101,000
--------------
2,058,689
Paper and Forest Products (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 APP Finance II Mauritius Ltd. bonds stepped-coupon
12s, (16s, 2/15/04), 2049 (Indonesia) (STP) 82,500
20,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 18,836
300,000 Huntsman Packaging Corp. company guaranty
9 1/8s, 2007 294,000
90,000 Impac Group Inc. company guaranty Ser. B,
10 1/8s, 2008 85,500
240,000 Pacifica Papers, Inc. 144A sr. notes 10s,
2009 (Canada) 247,200
80,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 78,400
130,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 128,700
--------------
935,136
Pharmaceuticals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Biovail Corp. International sr. notes 10 7/8s, 2005 93,600
135,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 136,181
--------------
229,781
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 18,300
Publishing (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
225,000 Affinity Group Holdings sr. notes 11s, 2007 218,250
130,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 131,300
500,000 Garden State Newspapers 144A sr. sub. notes
8 5/8s, 2011 467,500
350,000 Hollinger International Publishing, Inc. company
guaranty 9 1/4s, 2007 357,875
60,000 Perry-Judd company guaranty 10 5/8s, 2007 60,000
45,464 Von Hoffman Press, Inc. 144A sr. sub. notes
13 1/2s, 2009 43,418
10,000 Von Hoffman Press, Inc. 144A sr. sub. notes
10 3/8s, 2007 10,000
--------------
1,288,343
Retail (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
330,000 Home Interiors & Gifts, Inc. company guaranty
10 1/8s, 2008 326,700
100,000 K mart Corp. med. term notes 7.55s, 2004 95,081
310,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 320,850
130,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 112,125
220,000 North Atlantic Trading Co. company guaranty
Ser. B, 11s, 2004 223,300
--------------
1,078,056
Satellite Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
210,000 Golden Sky Systems company guaranty Ser. B,
12 3/8s, 2006 233,100
Semiconductors (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
276,720 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 (PIK) 269,802
350,000 Fairchild Semiconductor Corp. sr. sub. notes
10 1/8s, 2007 339,500
--------------
609,302
Specialty Consumer Products (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
415,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 398,400
10,000 William Carter Holdings Co. sr. sub. notes
Ser. A, 12s, 2008 10,300
290,000 William Carter Holdings Co. sr. sub. notes Ser. A,
10 3/8s, 2006 295,800
--------------
704,500
Telecommunications (18.4%)
- --------------------------------------------------------------------------------------------------------------------------
890,000 21st Century Telecom Group, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 391,600
510,000 Allbritton Communications Co. sr. sub. notes
Ser. B, 8 7/8s, 2008 490,875
390,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 240,825
250,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 142,500
90,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 57,600
400,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 382,000
450,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 387,000
700,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (10.8s, 5/15/04), 2009 (Canada) (STP) 385,000
110,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 69,850
455,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 253,663
200,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 178,000
140,000 CapRock Communications Corp. sr. notes
Ser. B, 12s, 2008 144,200
220,000 CapRock Communications Corp. 144A sr. notes
11 1/2s, 2009 222,200
120,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 104,400
230,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 87,400
200,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 165,000
35,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 (In default) (NON) 4,550
780,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03),
2008 (STP) 427,050
150,000 Covad Communications Group Inc. sr. notes
12 1/2s, 2009 144,375
450,000 Dobson Communications Corp. sr. notes
11 3/4s, 2007 472,500
1,010,000 DTI Holdings Inc. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/2s, 03/01/03), 2008 (STP) 368,650
420,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 218,400
100,000 Esprit TeleCom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 105,000
50,000 Exodus Communications, Inc. 144A sr. notes
11 1/4s, 2008 52,125
35,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 27,300
550,000 Firstworld Communication Corp. sr. disc. notes stepped-
coupon zero % (13, 4/15/03), 2008 (STP) 286,000
1,000,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 550,000
360,000 Global Crossing Holdings, Ltd. company guaranty
9 5/8s, 2008 388,800
250,000 GST Equipment Funding sr. notes 13 1/4s, 2007 270,000
765,000 GST Telecommunications, Inc. company guaranty stepped-
coupon zero % (13 7/8s, 15/15/00), 2005 (STP) 623,475
110,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 62,150
115,000 Hyperion Telecommunications Corp., Inc. sr. notes
Ser. B, 12 1/4s, 2004 120,750
440,000 Hyperion Telecommunications Corp., Inc. 144A
sr. sub. notes 12s, 2007 444,400
700,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 378,000
550,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 291,500
235,000 Intelcom Group (USA), Inc. company guaranty stepped-
coupon zero % (12 1/2s, 5/1/01), 2006 (STP) 188,000
630,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 447,300
20,000 Intermedia Communications, Inc. sr. notes Ser. B,
8 1/2s, 2008 18,350
790,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 687,300
800,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 420,000
160,000 KMC Telecommunications 144A sr. notes 13 1/2s, 2009 159,200
360,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero %, (11 7/8s, 10/15/02), 2007 (STP) 208,800
225,000 Logix Communications Enterprises sr. notes
12 1/4s, 2008 202,500
100,000 Long Distance International, Inc. sr. notes
12 1/4s, 2008 67,750
250,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 147,500
60,000 McLeodUSA, Inc. 144A sr. notes 8 1/8s, 2009 55,800
30,000 MetroNet Communications Corp. sr. notes
12s, 2007 (Canada) 34,200
25,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 19,500
390,000 MetroNet Communications Corp. 144A sr. notes
10 5/8s, 2008 (Canada) 443,625
690,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (9.95s, 6/15/03),
2008 (Canada) (STP) 510,600
310,000 Microcell Telecommunications sr. disc. notes stepped-
coupon Ser. B, zero % (14s, 12/1/01), 2006
(Canada) (STP) 251,100
50,000 Netia Holdings B.V. 144A company guaranty
stepped-coupon zero % (11 1/4s, 11/1/01),
2007 (Poland) (STP) 31,000
300,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 261,000
70,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 36,400
420,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 472,500
490,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (10.65s, 9/15/02), 2007 (STP) 355,250
220,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9.95s, 2/15/03), 2008 (STP) 151,800
355,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 365,650
50,000 OnePoint Communications Corp. 144A sr. notes
14 1/2s, 2008 27,000
70,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 63,700
110,000 Orbital Imaging Corp. 144A sr. notes 11 5/8s, 2005 100,100
125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 51,250
290,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 162,400
80,000 Primus Telecommunications Group, Inc. sr. notes
Ser. B, 9 7/8s, 2008 77,200
310,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 242,305
60,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 40,050
190,000 Rhythms Netconnections, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13 1/2s, 5/15/03), 2008 (STP) 101,175
70,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 70,000
10,000 RSL Communications, Ltd. company guaranty
9 1/8s, 2008 9,125
303,000 Sprint Spectrum L.P. sr. disc. notes stepped-coupon
zero % (12 1/2s, 8/15/01), 2006 (STP) 275,936
60,000 Sprint Spectrum L.P. sr. notes 11s, 2006 68,089
100,000 Startec Global Communications Corp. sr. notes
12s, 2008 87,000
70,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 68,950
240,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon
zero %, (11 5/8s, 4/15/04), 2009 (STP) 134,400
120,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 79,200
40,000 TeleWest Communications PLC 144A 11 1/4s, 2008 45,200
160,000 Teligent, Inc. sr. disc. notes stepped-coupon zero %
(11 1/2s, 3/1/03), 2008 (STP) 94,400
400,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 410,000
150,000 Transtel S.A. 144A pass-through certificates
12 1/2s, 2007 (Colombia) 85,500
110,000 US Xchange LLC sr. notes 15s, 2008 113,300
95,000 Versatel Telecom B.V. sr. notes 13 1/4s,
2008 (Netherlands) 98,325
60,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008
(Netherlands) 62,100
140,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 89,600
610,000 Viatel, Inc. sr. notes 11 1/4s, 2008 619,150
825,000 WinStar Communications, Inc. sr. sub. notes stepped-
coupon zero % (15s, 3/1/02), 2007 (STP) 957,000
410,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 360,800
--------------
19,065,518
Textiles (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Day International Group, Inc. company guaranty
9 1/2s, 2008 82,350
260,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 171,600
30,000 Polymer Group, Inc. company guaranty
Ser. B, 9s, 2007 28,725
--------------
282,675
Transportation (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Calair LLC 144A company guaranty 8 1/8s, 2008 102,850
150,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 60,000
230,000 Canadian Airlines Corp. secd. notes 10s,
2005 (Canada) 170,200
150,000 Cathay International Ltd. 144A sr. notes
13s, 2008 (China) 55,500
310,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 320,664
125,000 Eletson Holdings, Inc. 1st pfd. mtge. notes
9 1/4s, 2003 (Greece) 118,750
50,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 52,500
345,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 363,969
80,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 78,800
40,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 28,000
100,000 Pegasus Shipping 144A 11 7/8s, 2004 (Bermuda) 70,000
90,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero %, (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 53,100
100,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 86,125
230,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 128,800
--------------
1,689,258
--------------
Total Corporate Bonds and Notes
(cost $91,296,590) $ 84,537,462
PREFERRED STOCKS (6.3%) (a)
NUMBER OF SHARES VALUE
Broadcasting (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,393 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) $ 163,678
1,425 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 165,300
714 Granite Broadcasting 144A 12.75% pfd. (PIK) 699,720
36 Paxson Communications Corp. 144A
13.25% cum. pfd. (PIK) 324,000
1,000 Sinclair Capital $11.625 cum. pfd. 104,500
294 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 318,990
--------------
1,776,188
Building and Construction (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,540 Brand Scaffold Services, Inc. 144A $3.625 cum. pfd. 46,200
2,049 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 231,537
--------------
277,737
Cable Television (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
5,000 Adelphia Communications Corp. Ser. B,
$13.00 cum. pfd. 545,000
Computer Services and Software (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
112 Concentric Network Corp. 144A 13.50% pfd. (PIK) 106,400
Electric Utilities (--%)
- --------------------------------------------------------------------------------------------------------------------------
320 Public Service Co. of New Hampshire $2.651
1st mtge. pfd. 8,000
Entertainment (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,358 Lady Luck Gaming Corp. 11.25% pfd. 89,604
Insurance and Finance (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,351 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 92,153
1,500 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 79,500
--------------
171,653
Medical Supplies and Devices (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
135,000 Fresenius Medical Capital Trust I company guaranty
Ser. D, 9.00% pfd. (Germany) 145,125
90,000 Fresenius Medical Capital Trust II company guaranty
7.875% pfd. (Germany) 87,750
--------------
232,875
Oil and Gas (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
150 R & B Falcon Corp. $13.875 pfd. (PIK) 153,000
Packaging and Containers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,000 Packaging Corp. America 144A $12.375 pfd. (PIK) 106,000
Semiconductors (--%)
- --------------------------------------------------------------------------------------------------------------------------
487 Trikon Technologies, Inc. Ser. H, 8.125% pfd. (PIK) 609
5 Trikon Technologies, Inc. Ser. I, 8.125% pfd. 650
--------------
1,259
Telecommunications (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
447 21st Century Telecom Group 144A 13.75%
cum. pfd. (PIK) 223,500
460 Dobson Communications 144A 13.00% pfd. (PIK) 450,800
4,560 Global Crossing Holdings 144A $10.50 pfd. 478,800
26 ICG Holdings, Inc. 14.25% pfd. (Canada) 25,090
31 ICG Holdings, Inc., 144A 14.00% pfd. (Canada) (PIK) 28,830
185 Intermedia Communication Ser. B, $13.50 pfd. (PIK) 181,300
439 IXC Communications, Inc. $12.50 pfd. (PIK) 421,440
370 Network Plus Corp. 144A 13.50% pfd. 388,500
204 NEXTEL Communications, Inc. Ser. D, $13.00 pfd. (PIK) 223,380
33 NEXTEL Communications, Inc. Ser. E, 11.125% pfd. (PIK) 33,165
8,369 Nextlink Communications, Inc. 144A $7.00 pfd. 422,633
270 WinStar Communications, Inc. 14.25% pfd. (PIK) 218,700
--------------
3,096,138
--------------
Total Preferred Stocks (cost $6,939,278) $ 6,563,854
BRADY BONDS (2.0%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 376,513 Brazil (Government of) disc. bonds FRB 8s, 2014 $ 242,851
805,000 Brazil (Government of) disc. bonds FRB 5.875s, 2024 508,197
795,000 United Mexican States FRB Ser. D, 6.068s, 2019 667,800
950,000 United Mexican States sec. Ser. B, 6 1/4s, 2019 700,625
--------------
Total Brady Bonds (cost $2,077,060) $ 2,119,473
CONVERTIBLE BONDS AND NOTES (0.8%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 500,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 510,000
75,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 69,563
210,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 128,625
140,000 HEALTHSOUTH Corp. 144A cv. sub. deb.
3 1/4s, 2003 117,075
--------------
Total Convertible Bonds and Notes (cost $782,529) $ 825,263
UNITS (0.8%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
230 CD Radio Inc. 144A units 14 1/2s, 2009 $ 234,600
260 Network Plus Corp. units pfd. 13 1/4s, 2009 265,850
240 Pegasus Shipping 144A units company guaranty stepped-
coupon zero % (14 1/2s. 6/20/03), 2008
(Bermuda) (STP) 81,600
150 Tele1 Europe BV 144A units 13s, 2009 156,000
55 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 34,100
1,800 XCL Ltd. 144A units 9.5%, 2006 (PIK) 25,200
--------------
Total Units (cost $1,020,713) $ 797,350
WARRANTS (0.6%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
380 21st Century Telecom Group 144A 2/15/10 $ 7,600
90 Bestel S.A. (Mexico) 5/15/05 180
400 Birch Telecommunications, Inc. 144A 6/15/08 2,000
230 Cellnet Data Systems, Inc. 10/1/07 5,290
3,200 CGA Group Ltd. 144A 2/11/07 64
200 Club Regina, Inc. 144A 12/1/04 200
200 Colt Telecommunications Group PLC 12/31/06 80,000
472 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 47
440 Decrane Holdings 9/30/08 0
1,290 Diva Systems Corp. 3/1/08 15,480
3,300 DTI Holdings Inc. 3/1/08 33
180 E. Spire Communications, Inc. 11/1/05 2,700
375 Econophone, Inc. 144A 7/1/07 22,500
140 Epic Resorts 6/15/05 1
25 Esat Holdings, Inc. (Ireland) 2/1/07 1,775
550 Firstworld Communication 4/15/08 27,500
60 Globalstar Telecommunications 2/15/04 3,300
225 Hyperion Telecommunications 144A 4/15/01 17,241
10,000 ICG Communications 10/15/05 192,500
170 Insilco Holding Co. 8/15/08 2
470 Iridium World Com 144A 7/15/05 235
300 KMC Telecom Holdings, Inc. 4/15/08 900
300 Knology Holdings, Inc. 144A 10/15/07 675
100 Long Distance International, Inc. 144A 4/13/08 200
320 McCaw International Ltd. 4/15/07 1,280
150 Mediq Inc. 144A 6/1/09 2
30 Metronet Communications 144A 8/15/07 2,250
200 MGC Communications, Inc. 144A 10/1/04 23,200
2,868 Network Plus Corp. 12/31/00 55,486
50 Onepoint Communications, Inc. 6/1/08 50
70 Orbital Imaging Corp. 144A 3/1/05 2,100
50 Orion Network Systems 1/15/07 588
290 Pathnet, Inc. 144A 4/15/08 2,900
320 Paxson Communications Corp. 144A 6/30/03 3
1,000 Rhythms Netcon 144A 5/15/08 168,140
100 Startec Global Communications Corp. 5/15/08 100
120 Telehub Communications Corp. 7/31/05 3,600
125 UIH Australia/Pacific, Inc. 144A 5/15/06 250
155 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 7,750
150 WAM!NET, Inc. 3/1/05 3,413
--------------
Total Warrants (cost $436,690) $ 651,535
CONVERTIBLE PREFERRED STOCKS (0.6%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,100 Chancellor Media Corp. $3.00 cv. cum. pfd. $ 121,138
550 Chesapeake Energy Corp. $3.50 cv. cum. pfd. 13,406
5,480 Global Telesystems, Inc. 144A $3.625 cv. pfd. 358,940
10 Paxson Communications Corp. 144A $9.75 cv. pfd. (PIK) 100,000
309 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. 4,326
--------------
Total Convertible Preferred Stocks (cost $547,716) $ 597,810
COMMON STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
641 Allegiance Telecom, Inc. (NON) $ 35,175
27,272 Capstar Broadcasting Partners (NON) 70,907
8,630 Celcaribe (NON) 5,394
25,000 Celcaribe S.A. 144A (NON) 43,750
607 Hedstrom Holdings, Inc. 144A (NON) 607
9 Spanish Broadcasting System, Inc. (NON) 5,135
1,402 Viatel, Inc. (NON) 78,660
--------------
Total Common Stocks (cost $243,418) $ 239,628
SHORT-TERM INVESTMENTS (0.4%) (a) (cost $393,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 393,000 Interest in $402,952,000 joint repurchase agreement
dated June 30, 1999 with Merrill Lynch, Pierce,
Fenner & Smith, Inc. due July 1, 1999 with respect
to various U.S. Treasury obligations -- maturity value
of $393,051 for an effective yield of 4.70% $ 393,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $103,736,994) (b) $ 96,725,375
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $103,689,940.
(b) The aggregate identified cost on a tax basis is $103,748,115, resulting in gross unrealized appreciation and
depreciation of $2,134,750 and $9,157,490, respectively, or net unrealized depreciation of $7,022,740.
(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.
The rates shown on Floating Rate Bonds (FRB) are the current interest rates shown at June 30, 1999, which are subject
to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
June 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $103,736,994) (Note 1) $ 96,725,375
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 1,957,399
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 149,506
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 5,437,291
- -----------------------------------------------------------------------------------------------
Total assets 104,269,571
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 7,014
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 119,234
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 217,719
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 28,213
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 4,056
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,704
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 79,816
- -----------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 49,841
- -----------------------------------------------------------------------------------------------
Other accrued expenses 72,034
- -----------------------------------------------------------------------------------------------
Total liabilities 579,631
- -----------------------------------------------------------------------------------------------
Net assets $103,689,940
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4, and 5) $119,453,408
- -----------------------------------------------------------------------------------------------
Distribution in excess of net investment income (Note 1) (67,270)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (8,684,579)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (7,011,619)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $103,689,940
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($47,176,922 divided by 6,377,726 shares) $7.40
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $7.40)* $7.77
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($53,371,193 divided by 7,282,503 shares)** $7.33
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,141,825 divided by 428,271 shares) $7.34
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $7.34)* $7.59
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended June 30, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest (net of foreign tax of $15,415) $10,060,888
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,174) 713,640
- -----------------------------------------------------------------------------------------------
Total investment income 10,774,528
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 816,532
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 239,137
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,360
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,125
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 115,324
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 523,913
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 18,120
- -----------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 48,058
- -----------------------------------------------------------------------------------------------
Reports to shareholders 38,134
- -----------------------------------------------------------------------------------------------
Registration fees 10,859
- -----------------------------------------------------------------------------------------------
Auditing 34,538
- -----------------------------------------------------------------------------------------------
Legal 17,945
- -----------------------------------------------------------------------------------------------
Postage 39,383
- -----------------------------------------------------------------------------------------------
Other 27,987
- -----------------------------------------------------------------------------------------------
Total expenses 1,950,415
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (17,589)
- -----------------------------------------------------------------------------------------------
Net expenses 1,932,826
- -----------------------------------------------------------------------------------------------
Net investment income 8,841,702
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (8,631,917)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,906)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 202
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 4,444
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (6,529,619)
- -----------------------------------------------------------------------------------------------
Net loss on investments (15,158,796)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(6,317,094)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended June 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 8,841,702 $ 3,289,151
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (8,633,621) 838,266
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (6,525,175) (744,515)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (6,317,094) 3,382,902
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (4,196,873) (1,506,236)
- ---------------------------------------------------------------------------------------------------------------
Class B (4,327,658) (1,826,629)
- ---------------------------------------------------------------------------------------------------------------
Class M (317,171) (184,443)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (34,846) --
- ---------------------------------------------------------------------------------------------------------------
Class B (35,932) --
- ---------------------------------------------------------------------------------------------------------------
Class M (2,633) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (53,743) (367,124)
- ---------------------------------------------------------------------------------------------------------------
Class B (61,100) (433,622)
- ---------------------------------------------------------------------------------------------------------------
Class M (3,698) (49,774)
- ---------------------------------------------------------------------------------------------------------------
From return of capital
Class A (311,274) --
- ---------------------------------------------------------------------------------------------------------------
Class B (320,974) --
- ---------------------------------------------------------------------------------------------------------------
Class M (23,524) --
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 36,104,776 62,756,878
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 20,098,256 61,771,952
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 83,591,684 21,819,732
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $67,270 and $45,053, respectively) $103,689,940 $83,591,684
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Jan. 2, 1997+
operating performance Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.83 $8.72 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .70 .72(d) .34(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.36) .34 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.66) 1.06 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.70) (.72) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income (.01) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.01) (.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.77) (.95) (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.40 $8.83 $8.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (7.32) 12.61 4.30*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $47,177 $36,678 $9,407
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.52 1.50(d) .74*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.06 8.17(d) 3.85*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 71.63 132.18 63.06*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period include amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect
reductions of $0.02 per share for class A, B and M for the year ended June 30, 1998 and $0.07, $0.05, and $0.05 per share
for class A, B and M, respectively during the period of January 2, 1997 to June 30, 1997 (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Jan. 2, 1997+
operating performance Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.73 $8.71 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .63 .64(d) .30(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.34) .35 .03
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.71) .99 .33
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.62) (.74) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income (.01) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.01) (.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.69) (.97) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.33 $8.73 $8.71
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (8.05) 11.78 3.93*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $53,371 $43,603 $11,099
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 2.27 2.25(d) 1.12*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.31 7.42(d) 3.52*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 71.63 132.18 63.06*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period include amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect
reductions of $0.02 per share for class A, B and M for the year ended June 30, 1998 and $0.07, $0.05, and $0.05 per share
for class A, B and M, respectively during the period of January 2, 1997 to June 30, 1997 (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Jan. 2, 1997+
operating performance Year ended June 30 to June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.74 $8.72 $8.50
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .68 .70(d) .33(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.35) .33 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.67) 1.03 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.66) (.78) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income (.01) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.01) (.23) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.73) (1.01) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.34 $8.74 $8.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (7.60) 12.26 4.20*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,142 $3,311 $1,314
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.77 1.75(d) .87*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.78 7.92(d) 3.79*(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 71.63 132.18 63.06*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period include amounts paid through expense offset arrangements. (Note 2)
(c) Per share net investment income has been determined on the basis of weighted average number of shares outstanding
during the period.
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect
reductions of $0.02 per share for class A, B and M for the year ended June 30, 1998 and $0.07, $0.05, and $0.05 per share
for class A, B and M, respectively during the period of January 2, 1997 to June 30, 1997 (Note 2).
</TABLE>
Notes to financial statements
June 30, 1999
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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in the value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is unable
to perform. When the contract is closed, the fund records a realized gain
or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
G) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended June
30, 1999, the fund had no borrowings against the line of credit.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains. At June 30, 1999, the fund had a capital loss carryover of
approximately $3,691,000 available to offset future net capital gain, if
any, which will expire on August 31, 2005. As a result of the merger
between the fund and Putnam High Yield Trust II, the amount of the capital
loss carryover may be limited in amount due to certain tax provisions as
provided for in the Internal Revenue Code. (See Note 5)
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, post-October loss
deferrals, organization costs, defaulted bond interest, paydown gains and
losses on mortgage-backed securities and interest on payment-in-kind
securities. Reclassifications are made to the fund's capital accounts to
reflect income and gains available for distribution (or available capital
loss carryovers) under income tax regulations. For the year ended June 30,
1999, the fund reclassified $51,194 to decrease distributions in excess of
net investment income and $11,419 to decrease paid-in-capital, with a
increase to accumulated net realized losses of $39,775. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
J) Expenses of the trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
K) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $80,943. These expenses were amortized on a
projected net asset basis. 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 June 30, 1999, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended June 30, 1999, fund expenses were reduced by $17,589
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
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 year ended June 30, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $81,779 and $3,344 from the sale
of class A and class M shares, respectively and $127,412 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended June 30, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received $1,491 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended June 30, 1999, purchases and sales of investment
securities other than short-term investments aggregated $96,575,605 and
$69,018,499, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Capital shares
At June 30, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,584,693 $35,742,445
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 443,361 3,369,533
- -----------------------------------------------------------------------------
5,028,054 39,111,978
Shares
repurchased (2,803,325) (21,455,983)
- -----------------------------------------------------------------------------
Net increase 2,224,729 $17,655,995
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,906,902 $37,831,999
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 426,244 3,212,222
- -----------------------------------------------------------------------------
5,333,146 41,044,221
Shares
repurchased (3,045,683) (23,044,818)
- -----------------------------------------------------------------------------
Net increase 2,287,463 $17,999,403
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Year ended June 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 354,480 $2,734,015
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 32,286 244,088
- -----------------------------------------------------------------------------
386,766 2,978,103
Shares
repurchased (337,162) (2,528,725)
- -----------------------------------------------------------------------------
Net increase 49,604 $ 449,378
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Note 5
Merger into Putnam High Yield
Trust II
On July 1, 1999, the shareholders of the fund approved the transfer of all
of the assets of the fund to Putnam High Yield Trust II (High Yield II
fund) in exchange for the shares of the High Yield II fund and the
assumption by the High Yield II fund of all of the liabilities of the
fund. The tax-free exchange occurred on July 12, 1999.
Federal tax information
(Unaudited)
For the year ended June 30, 1999, a portion of the Fund's distribution
represents a return of capital and is therefore not taxable to
shareholders.
The fund has designated 8.00% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Results of July 1, 1999 shareholder meeting
(Unaudited)
An annual meeting of shareholders of the fund was held on July 1, 1999. At
the meeting, a proposal of the Agreement and Plan of Reorganization
providing for the sale of all of the assets of Putnam High Yield Total
Return fund (the "Fund") to Putnam High Yield Trust II ("High Yield Trust
II") in exchange for shares of High Yield Trust II and the assumption by
High Yield Trust II of all of the liabilities of the Fund, and the
distribution of such shares to the shareholders of the Fund in liquidation
of the Fund was approved as follows: 7,653,717 votes for, and 140,614
votes against, with 306,991 abstentions.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
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
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
Edward H. D'Alelio
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
Jeffrey A. Kaufman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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.
AN033-53940 2DG/2DI/2DJ 8/99
