Putnam
High Yield
Trust II
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
2-29-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
2000. In the following report, the fund's managers discuss performance for
the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam High
Yield Trust II that I will be signing. After more than 30 years as
Chairman of the Trustees and President of the Putnam Funds, the time has
come for me to step aside. In June, John Hill will become Chairman. John
is currently an independent Trustee and has served on the board for the
past 14 years. In addition, my son, George Putnam, III, will take on the
role of President. I am confident that the leadership of the funds will be
in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay in
close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 19, 2000
Report from the Fund Managers
Jennifer E. Leichter
and Credit Team
Rising interest rates played tug of war with more beneficial developments
in the high-yield market during the six months ended February 29, 2000.
Fortunately, Putnam High Yield Trust II was positioned to take advantage
of positive credit events, primarily in the telecommunications sector,
helping it to not only keep pace with the market but outperform it
substantially. During the six-month period, your fund's returns at net
asset value significantly outpaced the 1.52% return of the First Boston
High Yield Bond Index.
Total return for 6 months ended 2/29/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------
2.91% -1.93% 2.53% -2.35% 2.52% 1.54% 2.64% -0.67%
- ---------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* RISING INTEREST RATES SOFTEN RETURNS FOR HIGH-YIELD BONDS
Even though high-yield bonds tend to perform better than other fixed-rate
instruments during periods of rising interest rates, a series of increases
in short-term interest rates by the Federal Reserve Board during the
period reduced the capital appreciation offered by high-yield securities.
The Fed was seeking to temper growth and head off inflation and
implemented two increases in short-term rates during the six months ended
February 29, 2000.
In September 1999, as the fund began its fiscal year, other factors were
causing difficulties as well. They included an increase in defaults,
seasonal weakness, and early fears related to Y2K. However, in the fourth
quarter of 1999 and early 2000, the high-yield market rallied, largely
propelled by the stellar performance of the telecommunications sector,
both in the equity and in the high-yield markets. Defaults -- which had
been concentrated largely in the health-care and energy sectors --
stabilized, and the high-yield market experienced a boost typical at the
turn of the year.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 11.8%
Cellular
communications 6.1%
Cable television 5.0%
Broadcasting 3.4%
Oil and gas 3.4%
Footnote reads:
*Based on net assets as of 2/29/00. Holdings will vary over time.
* TELECOMMUNICATIONS SECTOR OFFERS PARTICULAR OPPORTUNITY
Many of the same rapid-growth companies in the telecommunications sector
that helped propel the stock market over the past six months also offered
investment opportunities in the high-yield market. The sector also
provided the bulk of your fund's returns. Part of the appeal of investing
in telecommunications was the increase in mergers and consolidations,
almost always a positive development for high-yield bond investors. More
importantly, many of the players in the sector have moved from building
systems and offering the promise of future returns through effective
business plans to reporting revenue and cash flow. Overall, these
companies' credit quality has improved substantially, with many of them
receiving strategic investments from established firms or acquiring equity
financing through successful initial public offerings.
"Managers are finding value in corporate and municipal junk bonds. For
individuals, the safest way to play this market is probably via bond mutual
funds, since dissecting the risks and returns of specific issues is a fine
art."
- -- Business Week, March 20, 2000
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Nextel Communications, Inc.
sr. notes 9 3/8s, 2009
Cellular communications
Midland Funding II Corp.
deb. Ser. A, 11 3/4s, 2005
Electric utilities
Airgate PCS, Inc.
sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009
Cellular communications
WinStar Communications, Inc.
sr. sub. notes stepped-coupon zero %
(15s, 3/1/02), 2007
Telecommunications
Millicom International Cellular S.A.
sr. disc. notes stepped-coupon zero %
(13 1/2s, 6/1/01), 2006 (Luxembourg)
Cellular communications
Allied Waste Industries, Inc.
company guaranty Ser. B, 10s, 2009
Environmental control
Verio Inc.
144A $3.375 cv. pfd.
Computer services and software
CSC Holdings, Inc.
Ser. M, $11.125 cum. pfd.
Cable television
United Pan-Europe N.V.
144A zero %, 2010
Cable television
Starwood Hotels & Resorts Worldwide, Inc.
bank term loan 8.558s, 2003
Lodging
Footnote reads:
These holdings represent 7.9% of the fund's net assets as of 2/29/00.
Portfolio holdings will vary over time.
Developments in the telecommunications industry have come largely from two
areas: wireless communications and fixed communications, including
competitive local exchange carriers and digital service line (DSL)
software providers. The fund benefited from a dramatic increase in the
penetration of wireless phone use and consolidation in that industry. For
example, VoiceStream Wire Corp. purchased OmniPoint. Both were in the fund
at the time of the purchase, although we have since sold off the fund's
holdings of OmniPoint.
Perhaps the best performer in the wireless arena in the second half of
1999 was fund investment Nextel Communications, a business communications
provider with strong revenues per unit and a nationwide network. Because
of its success and growth, Nextel was added to the Standard & Poor's 500
Index in 1999. While these holdings, as well as 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.
On the fixed-line communications front, the primary market leaders were
the competitive local exchange carriers (CLECs), which offer local phone
service to businesses and are in competition with regional Bell operating
companies. Among the CLECs that helped boost the fund's performance were
ICG Communications and Metromedia Fiber Network, Inc. A strategic
investment from Microsoft, Credit Suisse First Boston, and other prominent
companies also validated WinStar's promise. Some long-distance companies
also provided strong returns, including Level 3 Communications, Inc.
Telecommunications: Enabling the new economy
Business historians may well look back at this turn of the century as a time
when the infrastructure of the information superhighway was built. While
advances in computer technology can take credit for part of the Internet
phenomenon, equal credit goes to the telecommunications industry.
As businesses and consumers worldwide become connected to the Internet in
greater numbers, demand is increasing for more bandwidth through fiber-optic
lines -- the fastest conduit of digitized information. A record total of 11.8
million miles of fiber-optic lines was installed in 1999, and spending on
fiber-optics equipment is expected to increase from $12.2 billion last year
to $28 billion in 2003. Fund holdings such as Level 3 Communications and
Global Crossing are involved in the design, construction and operation of
fiber-optic networks and are also building undersea fiber-optic routes.
The wireless industry also is experiencing phenomenal growth. In 1990, the
number of mobile-phone subscribers worldwide was a little over 11 million.
That number increased to nearly 400 million by the end of 1999, and the total
is expected to reach 1 billion (more than the number of wired phones) by 2004.
Moreover, wireless devices that combine telephone, Internet, and personal
organizer features will soon be available. Nextel Communications, a fund
holding, is a provider of digital wireless networks primarily for business
use. OmniPoint, which was sold toward the end of the period, has recently
merged with VoiceStream, another fund holding. Both provide wireless service
and equipment for consumer use.
Finally, DSL providers such as NorthEast Optic Network, Inc., Covad
Communications Group, Inc., and Rhythms attracted interest due to their
ability to provide software that delivers enhanced, high-speed Internet
access over current phone lines. Covad, the fund's primary investment in
this area, was a particularly strong performer.
The recovery in Asia and Latin America, as well as rising commodity
prices, also contributed to favorable performance. Your fund's investments
in corporations within the emerging economies of China, Indonesia, and
Mexico rose substantially as economic growth accelerated. The recovery
also drove up commodity prices, particularly those of paper producers
Repap New Brunswick, Doman Industries, Ltd., and Gaylord Container Corp.
On the downside, some of the fund's food company holdings had a rough go
of it toward the latter stages of the period. Vlasic and Aurora Foods were
both hurt because they underestimated their marketing costs. The fund
still holds these investments because we believe their problems will be
short lived. Ameriserve Food, a food distributor, had to file for Chapter
11 bankruptcy protection after its suppliers lost confidence in the
company's ability to meet its obligations. Fortunately, we had sold most
of the fund's Ameriserve bonds before the company filed for bankruptcy,
and it is no longer in the portfolio.
* OUTLOOK: CHALLENGING ENVIRONMENT
The outlook for the fiscal health of issuers in the high-yield market is
fairly positive, with expectations that the default rate will decline
after last summer's modest increase. However, because the U.S. economy has
experienced such a long period of expansion, there is not a lot of room
for error. Investors will quickly lose faith in a company if it faces some
difficulties. Therefore, we overstate the value of professional fund
management in such a challenging environment. Investors will have to make
sure they know the companies they own and to have confidence that these
companies offer solid credit characteristics. For our part, we believe
that high-yield bonds are attractively valued at present and that the
marketplace offers a number of promising opportunities.
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 2/29/00, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield bonds reflect a greater possibility that adverse changes in
the economy or poor performance by the issuers of these bonds may affect
the issuer's ability to pay principal and interest.
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
Trust II is designed for investors seeking high current income through a
diversified portfolio of high-yielding lower-rated corporate bonds, with a
secondary objective of capital growth when consistent with high current
income.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 2/29/00
Class A Class B Class C Class M
(inception dates) (12/31/97) (12/31/97) (7/26/99) (12/31/97)
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months 2.91% -1.93% 2.53% -2.35% 2.52% 1.54% 2.64% -0.67%
- ---------------------------------------------------------------------------------------------
1 year 4.39 -0.59 3.74 -0.96 3.07 2.13 4.12 0.76
- ---------------------------------------------------------------------------------------------
Life of fund 5.76 0.78 4.31 1.73 3.52 3.52 5.22 1.75
Annual average 2.63 0.36 1.97 0.80 1.61 1.61 2.38 0.81
- ---------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/29/00
First Boston
High Yield Consumer
Bond Index price index
- ------------------------------------------------------------------------
6 months 1.52% 1.67%
- ------------------------------------------------------------------------
1 year 2.76 3.16
- ------------------------------------------------------------------------
Life of fund 4.11 5.07
Annual average 1.88 2.31
- ------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25%, respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares the
higher operating expenses applicable to such shares. For class C shares,
returns for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
CDSC currently applicable to class C shares, which is 1% for the first
year and is eliminated thereafter, and the higher operating expenses
applicable to class C shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost. Performance data reflect an expense limitation
previously in effect. Without the expense limitation, total returns would
have been lower.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 2/29/00
Class A Class B Class C Class M
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 6 6 6 6
- -------------------------------------------------------------------------------------------
Income $0.389929 $0.362379 $0.361452 $0.380532
- -------------------------------------------------------------------------------------------
Capital gains -- -- -- --
- -------------------------------------------------------------------------------------------
Total $0.389929 $0.362379 $0.361452 $0.380532
- -------------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- -------------------------------------------------------------------------------------------
8/31/99 $7.49 $7.86 $7.50 $7.50 $7.50 $7.75
- -------------------------------------------------------------------------------------------
2/29/00 7.31 7.67 7.32 7.32 7.31 7.56
- -------------------------------------------------------------------------------------------
Current return (end of period)
- -------------------------------------------------------------------------------------------
Current dividend rate1 11.19% 10.66% 10.42% 10.41% 10.90% 10.55%
- -------------------------------------------------------------------------------------------
Current 30-day SEC yield2 10.97 10.43 10.19 10.17 10.71 10.35
- -------------------------------------------------------------------------------------------
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.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (12/31/97) (12/31/97) (7/26/99) (12/31/97)
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months 2.15% -2.74% 1.77% -3.08% 1.90% 0.93% 2.16% -1.20%
- -------------------------------------------------------------------------------------------------
1 year 1.21 -3.59 0.46 -4.10 -0.13 -1.04 0.96 -2.28
- -------------------------------------------------------------------------------------------------
Life of fund 4.07 -0.84 2.58 0.06 1.80 1.80 3.65 0.24
Annual average 1.79 -0.37 1.14 0.03 0.79 0.79 1.61 0.11
- -------------------------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns may be more or less than
those shown. They do not take into account any adjustment for taxes payable on reinvested
distributions. Investment returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first page of performance
section for performance calculation method.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 or class C 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. The CDSC for class C shares is 1% for one year
after purchase.
Comparative benchmarks
CS First Boston High Yield Index is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's and
Baa by Moody's. It assumes reinvestment of all distributions and interest
payments and does not take in account brokerage fees or taxes. Securities
in the fund do not match those in the index and performance of the fund
will differ. It is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
February 29, 2000 (Unaudited)
CORPORATE BONDS AND NOTES (82.8%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,900,000 Ackerly Group, Inc. sr. sub. notes Ser. B, 9s, 2009 $ 1,786,000
3,145,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 3,262,938
480,000 AOA Holdings LLC sr. notes 10 3/8s, 2006 470,400
510,000 Interact Operating Co. notes 14s, 2003 153,000
310,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 310,775
1,483,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 1,468,170
1,045,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 1,003,200
2,125,000 TDL Infomedia Holdings Ltd. 144A sr. disc. notes
stepped-coupon zero % (15 1/2s, 10/15/04), 2010
(United Kingdom) (STP) 1,126,250
--------------
9,580,733
Aerospace and Defense (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,770,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 3,911,400
2,840,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 1,888,600
6,040,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 5,556,800
2,895,000 Burke Industries, Inc. company guaranty 10s, 2007 1,346,175
860,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 782,600
40,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 40,200
5,750,000 L-3 Communications Corp. sr. notes 9 1/8s, 2008 5,189,375
3,490,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 3,158,450
180,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 157,950
--------------
22,031,550
Agriculture (--%)
- --------------------------------------------------------------------------------------------------------------------------
396,812 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 361,099
Airlines (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,980,000 Airbus Industries 144A notes, Ser. D, 12.266s, 2020 4,067,162
3,680,000 Calair LLC 144A company guaranty 8 1/8s, 2008 3,169,400
3,815,000 Canadian Airlines Corp. secd. notes 10s, 2005 (In default)
(Canada) (NON) (RES) 3,090,150
1,900,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 1,900,000
1,715,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 1,089,025
1,410,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 560,475
--------------
13,876,212
Apparel (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 9,300
4,190,000 William Carter Holdings Co. sr. sub. notes Ser. A, 10 3/8s, 2006 3,729,100
--------------
3,738,400
Automotive (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,070,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 3,764,750
Automotive Parts (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
720,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 723,600
2,480,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 2,331,200
4,890,000 Federal Mogul Corp. notes 7 1/2s, 2009 4,241,195
1,994,284 Federal Mogul Corp. bank term loan Ser. B, FRN 7.94s, 2010 1,996,777
1,690,000 Hayes Lemmerz International, Inc. company guaranty
Ser. B, 8 1/4s, 2008 1,491,425
3,000,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 2,887,500
2,000,000 Johnstown America Industries, Inc. sr. sub. notes 11 3/4s, 2005 2,155,000
1,345,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 1,449,237
4,250,000 Lear Corp. sub. notes 9 1/2s, 2006 4,228,750
4,000,000 Newcor, Inc. company guaranty Ser. B, 9 7/8s, 2008 2,360,000
6,130,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 5,762,200
3,000,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 (In default) (NON) 660,000
565,000 San Luis Corp. S.A. de C.V. sr. notes 8 7/8s, 2008 (Mexico) 514,150
3,670,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 1,908,400
1,780,000 Transportation Manufacturing Operations, Inc. company
guaranty 11 1/4s, 2009 1,784,450
--------------
34,493,884
Banks (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 1,430,000
5,250,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 4,915,208
1,550,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 1,488,000
15,000 CSBI Capital Trust I 144A company guaranty 11.75s, 2027 16,050
4,475,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 2,908,750
5,025,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 4,493,456
4,380,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 4,412,850
3,860,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 3,860,000
10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 9,499
--------------
23,533,813
Basic Industrial Products (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,555,000 Axia, Inc. company guaranty 10 3/4s, 2008 4,721,750
1,780,000 Azurix Corp. 144A notes 10 3/8s, 2007 1,793,350
320,000 Grove Holdings LLC deb. stepped-coupon zero %
(11 5/8s, 5/1/03), 2009 (STP) 32,000
1,560,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 546,000
2,205,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 2,017,575
--------------
9,110,675
Broadcasting (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,020,000 Allbritton Communications Co. sr. sub. notes Ser. B,
8 7/8s, 2008 4,693,700
6,985,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 6,434,931
2,000,000 Benedek Communications Corp. bank term loan Ser. B,
FRN 9.17s, 11/20/07 2,002,500
890,000 Bresnan Communications, Inc. sr. notes Ser. B, 8s, 2009 894,450
1,300,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 1,144,000
139,300 Capstar Broadcasting sub. deb. 12s, 2009 (PIK) 157,409
2,085,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 2,105,850
4,056,000 CD Radio, Inc. sec. notes 14 1/2s, 2009 3,893,760
20,000 Central European Media Enterprises, Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 8,200
3,390,000 Chancellor Media Corp. company guaranty 8s, 2008 3,364,575
5,175,300 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 5,265,868
220,000 Citadel Broadcasting, Inc. company guaranty 9 1/4s, 2008 211,750
370,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 234,950
1,540,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,393,700
2,040,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 1,836,000
2,660,000 Lenfest Communications, Inc. sr. sub. notes 8 1/4s, 2008 2,687,836
40,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 41,300
1,640,000 Pegasus Communications Corp. sr. notes Ser. B,
9 3/4s, 2006 1,590,800
790,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 667,550
1,723,000 Radio One, Inc. company guaranty Ser. B, stepped-coupon, 7s,
(12s, 5/15/00), 2004 (STP) 1,843,610
3,090,000 Spanish Broadcasting Systems sr. sub notes 9 5/8s, 2009 3,043,650
2,000,000 TV Azteca S.A. de C.V. sr. notes 11s, 2002 (Mexico) 1,910,000
1,285,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 1,182,200
2,325,000 TV Azteca S.A. de C.V. sr. notes Ser. A, 10 1/8s, 2004 (Mexico) 2,179,688
--------------
48,788,277
Building and Construction (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,460,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 615,000
1,190,000 Atrium Companies, Inc. company guaranty Ser. B,
10 1/2s, 2009 1,139,425
3,200,000 Consumers International 144A sr. notes 10 1/4s, 2005 2,272,000
3,680,000 D.R. Horton, Inc. company guaranty 8s, 2009 3,247,600
5,590,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 3,857,100
410,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 291,100
470,000 Lennar Corp. sr. notes 7 5/8s, 2009 399,589
1,920,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 1,824,000
2,400,000 Toll Corp. company guaranty 8 1/8s, 2009 2,190,000
--------------
15,835,814
Building Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,150,000 Building Materials Corp. company guaranty 8s, 2008 1,870,500
3,095,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 1,640,350
--------------
3,510,850
Business Equipment and Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,275,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 2,036,125
2,260,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 2,011,400
4,383,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 4,514,490
4,097,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 1,597,830
2,202,574 U.S. Office Products Co. bank term loan Ser. B,
FRN 8.38s, 2006 1,762,059
--------------
11,921,904
Cable Television (5.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,592,000 21st Century Telecom Group sub. deb. 13 3/4s, 2010 (PIK) 1,432,800
8,490,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 5,879,325
5,100,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 4,692,000
2,570,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 2,319,425
2,000,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 1,730,000
580,000 Century Communications Corp. sr. notes 8 7/8s, 2007 540,850
10,985,000 Charter Communications Holdings LLC sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 6,316,375
2,100,000 Charter Communications Holdings LLC sr. notes 8 5/8s, 2009 1,911,000
2,200,000 Classic Cable, Inc. 144A sr. sub. notes 10 1/2s, 2010 2,202,750
150,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 144,375
520,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 572,000
4,800,000 CSC Holdings, Inc. sr. notes 7 1/4s, 2008 4,467,984
12,815,000 Diva Systems Corp. sr. disc. notes Ser. B, stepped-coupon
zero % (12 5/8s, 3/1/03), 2008 (STP) 6,791,950
680,000 Globo Communicacoes company guaranty
10 1/2s, 2006 (Brazil) 591,600
1,070,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 930,900
1,860,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 1,957,650
5,150,000 NTL, Inc. sr. notes Ser. B, stepped-coupon zero %
(9 3/4s, 4/1/03), 2008 (United Kingdom) (STP) 3,437,625
1,719,000 RBS Participacoes S.A. 144A company guaranty 11s, 2007
(Brazil) 1,478,340
60,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 39,900
1,390,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(In default) (Argentina) (NON) 820,100
5,240,000 TeleWest Communications Plc 144A sr. disc. notes
stepped-coupon zero %, (11 3/8s, 2/1/05), 2010
(United Kingdom) (STP) 3,091,600
1,260,000 TeleWest Communications Plc, structured notes
(issued by DLJ International Capital) 10.8758s, 2005
(Cayman Islands) 1,250,298
1,640,000 TeleWest Communications Plc 144A sr. notes 9 7/8s, 2010
(United Kingdom) 1,640,000
2,210,000 TeleWest Communications Plc 144A sr. disc. notes
stepped-coupon zero %, (9 1/4, 4/15/04) 2009
(United Kingdom) (STP) 1,303,900
3,150,000 United Pan-Europe N.V. 144A senior notes 10 7/8s, 2009
(Netherlands) 3,071,250
16,370,000 United Pan-Europe N.V. 144A senior notes zero %, 2010
(Netherlands) 8,676,100
8,640,000 United Pan-Europe N.V. 144A senior notes stepped-coupon
zero % (12 1/2s, 8/1/00), 2009 (Netherlands) (STP) 4,816,800
--------------
72,106,897
Cellular Communications (6.1%)
- --------------------------------------------------------------------------------------------------------------------------
20,480,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 12,032,000
2,000,000 American Cellular bank term loan FRN 9.609s, 2008 2,000,000
5,845,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 5,114,375
1,470,000 Cellco Finance Corp. NV sr. sub. notes 15s, 2005 (Netherlands) 1,613,325
3,080,000 Cellco Finance Corp. NV 144A sr. notes 12 3/4s, 2005
(Netherlands) 3,264,800
12,620,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) (RES) 1,514,400
3,500,000 Charter Communications bank term loan Ser. B,
FRN 8.64s, 2008 3,500,000
5,650,000 McCaw International, Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 4,082,125
12,360,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 10,660,120
1,400,000 Nextel Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 882,000
5,870,000 Nextel Communications, Inc. sr. notes 12s, 2008 6,412,975
3,070,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 (STP) 2,202,725
23,250,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 22,494,367
2,330,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 2,330,000
2,790,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 2,790,000
3,360,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 3,334,800
1,160,000 Triton PCS, Inc. company guaranty 11s, 2008 829,400
5,855,000 US Unwired, Inc. sr. disc. notes stepped-coupon zero %,
(13 3/8s, 11/1/04), 2009 (STP) 3,381,263
--------------
88,438,675
Chemicals (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
625,000 ARCO Chemical Co. deb. 9.9s, 2000 631,250
4,085,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 3,472,250
1,515,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 1,431,675
1,620,000 Huntsman Corp. 144A sr. sub. notes FRN 9.38s, 2007 1,506,600
7,270,000 Huntsman ICI Chemicals, Inc. 144A sr. sub. notes 10 1/8s, 2009 7,233,650
2,980,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 2,816,100
8,640,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 8,294,400
1,000,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 960,000
5,160,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 4,231,200
4,555,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 3,917,300
72,667 Polytama International notes 11 1/4s, 2007 (Indonesia) 8,720
2,360,000 Royster-Clark, Inc. 144A 1st mtge 10 1/4s, 2009 2,100,400
5,720,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 1,887,600
910,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 941,850
1,650,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 1,390,125
3,485,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 2,753,150
--------------
43,576,270
Computer Services and Software (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 21,550
4,531,000 Cybernet Internet Services Intl., Inc. 144A sr. notes 14s, 2009 3,760,730
4,570,000 Exodus Communications, Inc. sr. notes 11 1/4s, 2008 4,661,400
2,550,000 Globix Corp. 144A sr. notes 12 1/2s, 2010 2,530,875
2,500,000 PSINet, Inc. sr. notes 11 1/2s, 2008 2,525,000
2,400,000 PSINet, Inc. sr. notes 11s, 2009 2,448,000
1,860,000 Unisys Corp. sr. notes Ser. B, 12s, 2003 1,976,250
4,500,000 Unisys Corp. sr. notes 11 3/4s, 2004 4,860,000
5,270,000 Verio, Inc. sr. notes 11 1/4s, 2008 5,349,050
--------------
28,132,855
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,850,000 Cathay International, Ltd. 144A sr. notes 13s, 2008 (China) 1,425,000
Consumer Durable Goods (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,505,000 Albecca, Inc. company guaranty 10 3/4s, 2008 3,592,738
1,850,000 Doskcil Manufacturing Co. 144A sr. sub. notes 10 1/8s, 2007 703,000
7,140,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon
zero % (12 1/8s, 5/1/03), 2009 (STP) 1,142,400
8,740,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 7,341,600
50,000 Sealy Mattress Co. company guaranty Ser. B, stepped-coupon
zero % (10 7/8s, 12/15/02), 2007 (STP) 35,500
4,470,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 4,380,600
--------------
17,195,838
Consumer Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,950,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 4,009,250
Cosmetics (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,580,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 1,501,000
2,150,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 2,064,000
2,260,000 Revlon Consumer Products sr. notes 9s, 2006 1,615,900
5,500,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 2,200,000
--------------
7,380,900
Electric Utilities (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,895,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 2,026,500
1,270,000 Applied Power, Inc. sr. sub. notes 8 3/4s, 2009 1,301,750
2,675,000 Calpine Corp. sr. notes 10 1/2s, 2006 2,822,125
1,300,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,309,139
3,260,000 Calpine Corp. sr. notes 7 7/8s, 2008 3,126,680
1,120,000 Cleveland Electric Illuminating Co. 1st mtge 6.86s, 2008 1,027,858
5,500,000 CMS Energy Corp. pass-through certificates 7s, 2005 5,099,050
590,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 550,175
7,000,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 8,135,540
12,570,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 13,455,179
113,333 Northeast Utilities System notes Ser. B, 8.38s, 2005 112,790
650,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004
(China) 325,000
6,070,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 6,252,100
--------------
45,543,886
Electronic Components (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
1,035,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 1,014,300
1,510,000 Flextronics International, Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 1,442,050
730,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 416,100
2,800,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 2,758,000
3,670,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 3,614,950
140,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 137,900
--------------
9,383,300
Electronics (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,620,000 Celestica International, Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 1,652,400
2,900,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 2,943,500
500,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 390,000
4,380,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 3,416,400
--------------
8,402,300
Entertainment (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
390,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon zero %,
(10s, 4/1/03), 2008 (STP) 249,600
170,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 161,500
2,250,000 Premier Parks, Inc. bank term loan Ser. B, FRN 9.38s, 2005 2,266,875
1,090,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 1,024,600
2,810,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 1,826,500
5,000,000 SFX Entertainment, Inc. bank term loan Ser. B, FRN
9.563s, 2006 5,000,000
100,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 94,000
4,800,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 4,920,000
1,475,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 479,375
3,800,000 Six Flags Corp. sr. notes 8 7/8s, 2006 3,591,000
796,000 United Artists Theatre 144A notes FRN 10.415s, 2007 79,600
6,826,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 546,080
97,348 United Artists Theatre bank term loan Ser. C, FRN
10.375s, 2007 64,250
1,362,870 United Artists Theatre bank term loan Ser. B, FRN
10.313s, 2006 899,494
--------------
21,202,874
Environmental Control (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
11,410,000 Allied Waste Industries, Inc. company guaranty Ser. B,
10s, 2009 9,299,150
2,635,000 Allied Waste Industries, Inc. bank term loan Ser. B,
FRN 8.875s, 2006 2,573,104
3,215,000 Allied Waste Industries, Inc. bank term loan Ser. C,
FRN 9.125s, 2007 3,159,220
2,750,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 7/8s, 2009 2,316,875
70,000 Browning-Ferris Industries, Inc. deb. 7.4s, 2035 49,700
2,000,000 USA Waste Services, Inc. sr. notes 6 1/2s, 2002 1,874,180
1,150,000 Waste Management, Inc. sr. notes 7 1/8s, 2007 1,023,535
3,050,000 Waste Management, Inc. company guaranty 6 7/8s, 2009 2,587,620
2,500,000 WMX Technologies, Inc. notes 6 3/8s, 2003 2,289,350
--------------
25,172,734
Financial Services (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,765,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 2,859,000
3,000,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 2,160,000
2,950,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 2,065,000
105,000 Colonial Capital II 144A company guaranty 8.92s, 2027 95,364
310,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 318,925
2,950,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 (RES) 265,500
3,370,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (RES) 303,300
3,460,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 (RES) 302,750
930,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 720,750
2,030,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 1,542,800
1,300,000 Local Financial Corp. sr. notes 11s, 2004 1,300,000
3,485,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 2,544,050
210,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 136,500
20,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 18,800
981,000 Ocwen Financial Corp. notes 11 7/8s, 2003 902,520
5,360,000 Resource America, Inc. 144A sr. notes 12s, 2004 4,234,400
560,000 Superior Financial 144A sr. notes 8.65s, 2003 532,231
--------------
20,301,890
Food and Beverages (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 1,925,000
1,270,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 698,500
4,100,000 Doane Pet Care Co. sr. sub. notes 9 3/4s, 2007 3,997,500
4,005,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 3,183,975
2,325,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 1,395,000
1,940,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 1,338,600
1,900,000 RAB Holdings, Inc. sr. notes 13s, 2008 950,000
3,000,000 Sbarro, Inc. 144A sr. notes 11s, 2009 3,045,000
4,700,000 Triarc Consumer Products, Inc. company guaranty
10 1/4s, 2009 4,500,250
3,030,000 Vlasic Foods Intl., Inc. sr. sub notes Ser. B, 10 1/4s, 2009 1,727,100
--------------
22,760,925
Gaming (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
295,406 Ameristar Casinos, Inc. bonds 8s, 2004 265,865
1,755,077 Ameristar Casinos, Inc. company guaranty Ser. B, 8s, 2004 1,579,569
2,890,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 2,976,700
1,110,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 1,110,000
2,660,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 2,500,400
2,000,000 Circus Circus Enterprises, Inc. sr. sub. deb. 7 5/8s, 2013 1,705,000
350,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s,
2004 (In default) (NON) (RES) 178,500
470,000 Hard Rock Hotel, Inc. sr. sub. notes Ser. B, 9 1/4s, 2005 380,700
5,420,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 5,596,150
1,820,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 1,751,750
1,750,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 1,610,000
750,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 817,500
1,080,000 Isle Of Capri Black Hawk bank term loan Ser. B, FRN
9.369s, 2006 1,084,050
3,230,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 3,092,725
110,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 104,500
3,160,000 Park Place Entertainment sr. notes 8 1/2s, 2006 3,045,197
1,620,000 Riviera Black Hawk, Inc. 1st mtge. 13s, 2005 1,733,400
9,208,000 Trump A.C. 1st mtge. 11 1/4s, 2006 6,307,480
7,760,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 7,837,600
950,000 Venetian Casino company guaranty 12 1/4s, 2004 864,500
--------------
44,541,586
Health Care (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
800,000 Bio-Rad Labs Corp. 144A sr. sub. notes 11 5/8s, 2007 809,000
3,080,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 2,964,500
780,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 696,150
2,220,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 1,948,050
500,000 Columbia/HCA Healthcare Corp. med term notes 6.63s, 2045 471,065
1,435,000 Conmed Corp. company guaranty 9s, 2008 1,320,200
746,250 Dade Behring bank term loan Ser. B, FRN 9.00s, 2007 746,250
746,250 Dade Behring bank term loan Ser. C, FRN 9.25s, 2006 746,250
3,810,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 2,400,300
2,500,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 375,000
575,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 460,000
4,390,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 87,800
645,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 12,900
868,101 Magellan Health bank term loan Ser. C, FRN 8.625s, 2005 833,377
9,100,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007
(In default) (NON) (STP) 45,500
1,355,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 (In default) (NON) 6,775
2,150,000 MedPartners, Inc. sr. sub. notes 6 7/8s, 2000 2,042,500
7,500,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 1,125,000
3,365,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 1,379,650
250,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 237,500
11,055,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 221,100
3,640,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 72,800
55,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 52,525
7,000,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 6,440,000
2,420,000 Tenet Healthcare Corp. sr. notes 8s, 2005 2,299,000
3,275,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 3,348,688
2,000,000 Vanguard Health bank term loan Ser. B, FRN 10.25s, 2001 2,010,000
--------------
33,151,880
Insurance (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Vesta Insurance Group, Inc. 144A company guaranty
8.558s, 2027 1,299,700
Lodging (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,290,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 941,700
5,595,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 4,853,663
1,200,000 Host Marriott L.P. sr. notes Ser. E, 8 3/8s, 2006 1,107,000
4,820,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 5,024,850
5,000,000 ITT Corp. notes 6 3/4s, 2005 4,400,900
8,500,000 Starwood Hotels & Resorts Worldwide, Inc. bank term loan
FRN 8.558s, 2003 8,542,500
2,244,375 Strategic Hotel bank term loan FRN 9.63s, 2004 2,249,986
2,230,000 Sun International Hotels, Ltd. sr. sub. notes 8 5/8s, 2007 2,029,300
--------------
29,149,899
Manufacturing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,590,000 Blount Inc. company guaranty 13s, 2009 4,842,450
4,640,000 Blount Inc. bank term loan FRN 9.825s, 2006 4,674,800
1,945,059 Grove Investors LLC notes 14 1/2s, 2010 (PIK) 116,704
1,670,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 801,600
--------------
10,435,554
Medical Supplies and Devices (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,760,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 2,290,800
2,900,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 2,146,000
4,000,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 2,990,000
2,800,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 140,000
4,180,000 Mediq, Inc. company guaranty 11s, 2008 418,000
--------------
7,984,800
Metals and Mining (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
28,000 Anker Coal Group, Inc. 144A sec. notes 14 1/4s, 2007 (PIK) 20,440
5,940,000 Better Minerals & Aggregates Co. 144A sr. sub. notes 13s, 2009 5,940,000
1,920,000 Kaiser Aluminum & Chemical Corp. sr. notes 9 7/8s, 2002 1,848,000
3,430,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 1,029,000
1,600,000 Neenah Corp. sr. sub. notes Ser. B, 11 1/8s, 2007 1,456,000
2,300,000 Neenah Corp. company guaranty Ser. F, 11 1/8s, 2007 2,093,000
--------------
12,386,440
Motion Picture Distribution (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,540,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 1,930,400
1,685,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 1,297,450
1,880,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 1,598,000
--------------
4,825,850
Oil and Gas (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,200,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 2,255,000
2,550,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 2,397,000
100,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 65,000
2,195,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 1,311,513
200,000 Cliffs Drilling Co. company guaranty Ser. D, 10 1/4s, 2003 201,000
2,565,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 2,500,875
1,740,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 1,670,400
2,190,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 2,233,800
2,990,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 2,915,250
4,990,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 4,752,975
1,000,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 962,500
2,700,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 2,531,250
4,000,000 Port Arthur Finance Corp. 144A sec. notes 12 1/2s, 2009 3,720,000
2,580,000 R&B Falcon Corp. sr. notes 12 1/4s, 2006 2,773,500
650,000 R&B Falcon Corp. company guaranty 9 1/2s, 2008 632,125
2,390,000 RBF Finance Co. company guaranty 11 3/8s, 2009 2,533,400
4,355,000 RBF Finance Co. company guaranty 11s, 2006 4,529,200
3,340,000 RAM Energy, Inc. sr. notes 11 1/2s, 2008 1,603,200
2,840,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 852,000
825,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 816,750
2,525,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 2,360,875
4,800,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 4,848,000
50,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 (In default) (NON) 10,000
--------------
48,475,613
Packaging and Containers (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,240,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 3,731,200
2,000,000 Ball Corp. company guaranty 7 3/4s, 2006 1,895,000
1,675,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 1,373,500
170,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/4s, 2007 158,525
1,435,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 1,309,438
4,940,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 4,569,500
447,222 Jefferson Smurfit bank term loan Ser. B, FRN 9.375s, 2006 447,222
1,280,000 Kappa Beheer BV company guaranty 10 5/8s, 2009
(Netherlands) 1,292,800
40,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 38,803
480,000 Owens-Illinois, Inc. deb. 7.8s, 2018 419,698
3,870,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 3,501,615
1,658,842 Packaging Corp. bank term loan Ser. C, FRN 9.438s, 2008 1,569,629
1,210,000 Radnor Holdings, Inc. sr. notes 10s, 2003 1,119,250
5,860,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 5,610,950
2,700,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 2,740,500
1,500 Stone Container Corp. sr. sub. debs. 12 1/4s, 2002 1,492,500
--------------
31,270,130
Paper and Forest Products (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,731,827 Alabama River Newsprint bank term loan FRN 8.125s, 2002 1,385,462
4,350,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 2,740,500
3,000,000 APP Global Finance III sec. notes 10.345s, 2002
(Cayman Islands) 2,190,000
190,000 Boise Cascade Co. med. term notes Ser. A, 7.43s, 2005 179,001
2,000,000 Boise Cascade Co. notes 7.35s, 2004 1,902,480
2,640,000 Doman Industries, Ltd. company guaranty 12s, 2004 (Canada) 2,772,000
750,000 Doman Industries, Ltd. 144A sr. notes 8 3/4s, 2004 (Canada) 656,250
1,930,000 Impac Group, Inc. company guaranty Ser. B, 10 1/8s, 2008 1,640,500
6,260,000 Indah Kiat Financial Mauritius, Ltd. company guaranty 10s, 2007
(Indonesia) 4,256,800
3,480,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 3,462,600
6,585,000 Pindo Deli Finance Mauritius, Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 4,477,800
2,050,000 Repap New Brunswick sec. notes 11 1/2s, 2004 (Canada) 2,091,000
4,420,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 4,088,500
2,310,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 2,079,000
1,640,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009
(Canada) 1,578,500
--------------
35,500,393
Pharmaceuticals (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
940,000 Biovail Corp. International sr. notes 10 7/8s, 2005 1,062,200
575,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 547,688
6,720,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 6,216,000
--------------
7,825,888
Publishing (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,225,000 Affinity Group Holdings sr. notes 11s, 2007 4,807,000
50,000 American Media Operation, Inc. sr. sub. notes 10 1/4s, 2009 49,625
3,075,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 2,813,625
2,000,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 1,790,000
2,610,000 Perry-Judd company guaranty 10 5/8s, 2007 2,185,875
2,156,032 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 1,961,989
--------------
13,608,114
Railroads (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
870,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 748,200
90,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %,
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 63,675
--------------
811,875
REITs (Real Estate Investment Trust) (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,335,000 Tanger Properties, Ltd. partnership gtd. notes 8 3/4s, 2001 2,311,673
Retail (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Amazon.com, Inc. sr. disc. notes stepped-coupon zero %
(10s, 5/1/03), 2008 (STP) 300,000
1,000,000 Community Distributors 144A company guaranty Ser. B,
10 1/4s, 2004 815,000
3,420,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 2,838,600
2,030,000 Iron Age Corp. company guaranty 9 7/8s, 2008 1,461,600
100,000 K mart Corp. med. term notes 7.55s, 2004 93,229
1,500,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 975,000
2,435,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 2,361,950
5,000,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 4,500,000
2,440,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 2,330,200
--------------
15,675,579
Satellite Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,210,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 2,442,050
1,910,000 Orbital Imaging Corp. sr. notes Ser. D, 11 5/8s, 2005 1,337,000
1,275,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004
(Mexico) 994,500
--------------
4,773,550
Semiconductors (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Amkor Technologies, Inc. sr. sub. notes 10 1/2s, 2009 980,000
5,250,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 5,092,500
820,000 ChipPac Intl. Ltd. 144A company guaranty 12 3/4s, 2009 861,000
5,500,000 Fairchild Semiconductor Corp. company guaranty 10 3/8s, 2007 5,390,000
3,160,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 2,875,600
--------------
15,199,100
Shipping (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 Eletson Holdings, Inc. 1st pfd. mtge. notes 9 1/4s, 2003
(Greece) 115,000
40,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 28,800
100,000 Pegasus Shipping 144A 11 7/8s, 2004 (In default) (NON) 38,000
2,555,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 (Mexico) 2,235,625
--------------
2,417,425
Steel (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
5,900,000 AK Steel Corp. company guaranty 7 7/8s, 2009 5,339,500
1,070,000 Armco, Inc. sr. notes 8 7/8s, 2008 1,037,900
4,640,000 LTV Corp. sr. notes 11 3/4s, 2009 4,732,800
2,210,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 2,187,900
1,820,000 UCAR Global Enterprises sr. sub. notes Ser. B, 12s, 2005 1,883,700
5,075,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 5,024,250
2,145,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 2,193,263
3,145,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 2,948,438
1,765,000 WHX Corp. sr. notes 10 1/2s, 2005 1,663,513
--------------
27,011,264
Supermarkets (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,200,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 1,793,000
630,000 Southland Corp. deb. 4s, 2004 485,100
--------------
2,278,100
Telecommunications (11.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,170,000 Alaska Communications Systems Corp. company guaranty
9 3/8s, 2009 2,023,525
1,870,000 Allegiance Telecom, Inc. sr. disc. notes Ser. B, stepped-coupon
zero % (11 3/4s, 2/15/03), 2008 (STP) 1,365,100
3,350,000 Barak I.T.C. sr. disc. notes Ser. B, stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 1,909,500
1,220,000 Bestel S.A.de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 939,400
620,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 620,000
6,505,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 5,724,400
14,755,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 7,137,731
1,680,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 1,293,600
1,540,000 Caprock Communications Corp. sr. notes 11 1/2s, 2009 1,570,800
3,600,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009 (Luxembourg) 3,780,000
35,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 (In default)
(United Kingdom) (NON) 8,750
7,870,000 Covad Communications Group, Inc. sr. disc. notes Ser.B,
stepped-coupon zero % (13 1/2s, 03/15/03), 2008 (STP) 5,036,800
3,509,000 Covad Communications Group 144A sr. notes 12s, 2010 3,482,683
3,500,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 3,421,250
1,360,000 Esprit Telecom Group Plc sr. notes 11 1/2s, 2007
(United Kingdom) 1,305,600
8,410,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 4,289,100
3,550,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 3,195,000
8,275,000 Focal Communications Corp. sr. disc. notes Ser. B,
stepped-coupon zero % (12 1/8s, 02/15/03), 2008 (STP) 5,544,250
2,800,000 Focal Communications Corp. 144A sr. notes 11 7/8s, 2010 2,898,000
5,650,000 Global Crossing Holdings, Ltd. 144A sr. notes 9 1/2s, 2009 5,452,250
3,000,000 Global Crossing Holdings, Ltd. 144A sr. notes 9 1/8s, 2006 2,895,000
985,000 Globe Telecom, Inc. 144A sr. notes 13s, 2009 (Philippines) 1,090,888
9,545,000 GST Telecommunications, Inc. sr. disc. notes stepped-coupon
zero % (10 1/2s, 5/1/03), 2008 (STP) 4,724,775
590,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 590,000
115,000 Hyperion Telecommunications Corp., Inc. sr. notes Ser. B,
12 1/4s, 2004 122,762
5,700,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 3,320,250
900,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 852,750
7,710,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 4,413,975
3,895,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 (STP) 3,242,588
350,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 (STP) 327,250
650,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 593,125
250,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 228,125
3,740,000 Intira Corp. bonds 13s, 2010 1,993,083
8,360,000 IPC Information Systems, Inc. sr. disc. notes zero %
(10 7/8s,), 2008 (STP) 7,273,200
840,000 KMC Telecommunications Holdings, Inc. sr. notes 13 1/2s, 2009 856,800
13,095,000 KMC Telecommunications Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 7,595,100
2,360,000 Level 3 Communication, Inc. 144A sr. notes 11 1/4s, 2010 2,348,200
830,000 Level 3 Communication, Inc. 144A sr. notes 11s, 2008 832,075
4,400,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 3,190,000
4,580,000 Madison River Capital 144A sr. notes 13 1/4s, 2010 4,511,300
4,735,000 Microcell Telecommunications sr. disc. notes Ser. B,
stepped-coupon zero % (14s, 12/1/01), 2006 (Canada) (STP) 4,261,500
1,600,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 1,124,000
800,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 706,000
2,080,000 NEXTLINK Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 6/1/04), 2009 (STP) 1,232,400
300,000 NEXTLINK Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 12/1/04), 2009 (STP) 167,250
3,905,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 4,100,250
3,090,000 NorthPoint Communications Group, Inc. 144A notes
12 7/8s, 2010 3,074,550
3,785,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 2,498,100
1,000,000 Primus Telecommunications Group, Inc. sr. notes 12 3/4s, 2009 1,030,000
1,680,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 1,516,200
2,200,000 Rhythms Netconnections, Inc. 144A sr. notes 14s, 2010 2,167,000
840,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
11 1/4s, (11 1/4s, 4/15/04), 2009 (STP) 487,200
3,480,000 Startec Global Communications Corp. sr. notes 12s, 2008 2,905,800
2,390,000 Tele1 Europe BV 144A sr. notes 13s, 2009 2,509,500
5,070,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 4,626,375
1,630,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 81,500
2,520,000 Teligent, Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(11 1/2s, 3/1/03), 2008 (STP) 1,467,900
3,030,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 3,302,700
1,230,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 1,340,700
7,825,000 WinStar Communications, Inc. sr. sub. notes stepped-coupon
zero % (15s, 3/1/02), 2007 (STP) 11,581,000
2,510,000 WinStar Communications. Inc, sr. sub. notes 11s, 2008 2,597,850
1,880,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 2,068,000
3,855,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 3,503,231
--------------
170,347,991
Telephone Services (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 3,180,000
6,620,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %,
(11 7/8s, 10/15/02), 2007 (STP) 4,303,000
5,245,000 Onepoint Communications, Inc. company guaranty Ser. B,
14 1/2s, 2008 3,409,250
1,400,000 RSL Communications, Ltd. 144A company guaranty
10 1/2s, 2008 1,225,000
7,500,000 RSL Communications, Ltd. company guaranty, stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 (STP) 4,125,000
295,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 236,000
2,880,000 Transtel S.A. pass-through certificates 12 1/2s, 2007 1,670,400
2,370,000 US Xchange LLC sr. notes 15s, 2008 1,422,000
8,905,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 5,209,425
5,851,000 Viatel, Inc. sr. notes 11 1/2s, 2009 5,499,940
455,000 Viatel, Inc. sr. notes 11 1/4s, 2008 425,425
--------------
30,705,440
Textiles (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 73,800
3,420,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 1,043,100
405,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 380,700
2,560,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 2,374,400
3,500,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 2,922,500
--------------
6,794,500
Transportation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,260,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 1,200,150
2,000,000 Transportation Tech. bank term loan FRN 9.859s, 2007 2,000,000
--------------
3,200,150
Utilities (--%)
- --------------------------------------------------------------------------------------------------------------------------
670,000 Public Service Co. of New Mexico sr. notes Ser. B, 7 1/2s, 2018 632,634
Wireless Communications (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,985,000 Neuvo Grupo Iusacell S.A. 144A sr. notes 14 1/4s, 2006
(Mexico) 3,279,769
440,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 308,000
125,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 13,750
3,650,000 Telecorp PCS, Inc. company guaranty stepped-coupon zero %
(11 5/8s, 4/15/04), 2009 (STP) 2,372,500
2,350,000 Tritel PCS, Inc. company guaranty stepped-coupon zero %
(12 3/4s, 5/15/04), 2009 (STP) 1,527,500
2,680,000 Voicestream Wire Corp. sr. disc. notes stepped-coupon zero %
(11 7/8s, 11/15/04), 2009 (STP) 1,675,000
7,100,000 Voicestream Wire Corp. 144A sr. notes 10 3/8s, 2009 7,348,500
--------------
16,525,019
--------------
Total Corporate Bonds and Notes (cost $1,315,906,412) $1,194,721,702
PREFERRED STOCKS (5.9%) (a)
NUMBER OF SHARES VALUE
Banks (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,500 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. $ 151,125
19,500 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 1,033,500
2,750 First Republic Capital Corp. 144A 10.50% pfd. 2,585,000
--------------
3,769,625
Broadcasting (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
400 Benedek Communications $11.50 pfd. (PIK) 334,800
988 Citadel Broadcasting, Inc. 144A $13.25 cum. pfd. (PIK) 110,409
5,401 Granite Broadcasting 144A $12.75 pfd. (PIK) 5,536,025
735 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 7,533,750
2,614 Paxson Communications Corp. $12.50 pfd. (PIK) 2,744,700
--------------
16,259,684
Building and Construction (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
227,225 Brand Scaffold Services, Inc. 144A $3.625 pfd. 6,248,688
Cable Television (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,597 Adelphia Business Solutions, Inc. Ser. B, 12.875% pfd. 1,589,015
41,257 Adelphia Communications Corp. Ser. B, $13.00 cum. pfd. 4,497,013
80,835 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 8,750,388
--------------
14,836,416
Cellular Communications (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,681 Dobson Communications 13.00% pfd. (PIK) 6,163,885
1,130 Dobson Communications Corp. 12.25% pfd. (PIK) 1,130,000
2,800 Rural Cellular Corp. 12.25% pfd. (PIK) 2,807,000
--------------
10,100,885
Chemicals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 Avecia Group Plc $4.00 pfd. (PIK) 3,187,500
Computer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,066 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 1,085,321
Electric Utilities (--%)
- --------------------------------------------------------------------------------------------------------------------------
320 Public Service Co. of New Hampshire $2.651 1st mtge. pfd. 8,000
Gaming (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
34,245 Lady Luck Gaming Corp. $11.25 pfd. 1,780,740
Insurance (--%)
- --------------------------------------------------------------------------------------------------------------------------
3,351 CGA Group, Ltd. 144A Ser. A, $13.75 pfd. (PIK) 90,477
Medical Supplies and Devices (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,635 Fresenius Medical Capital Trust I company guaranty, Ser. D,
9.00% pfd. (Germany) 1,581,863
1,590 Fresenius Medical Capital Trust II company guaranty, $7.875 pfd.
(Germany) 1,434,975
--------------
3,016,838
Oil and Gas (--%)
- --------------------------------------------------------------------------------------------------------------------------
165 R&B Falcon Corp. $13.875 pfd. 169,950
Packaging and Containers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
12,802 Packaging Corp. of America $12.375 pfd. (PIK) 1,494,634
Telecommunications (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
4,987 ICG Holdings, Inc. $14.25 pfd. (Canada) 4,563,105
5,429 ICG Holdings, Inc. 144A $14.00 pfd. (Canada) (PIK) 4,831,810
7,336 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 7,299,320
223 Nextel Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 236,380
698 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 670,080
73,033 NEXTLINK Communications, Inc. 144A $7.00 cum. pfd. (PIK) 3,797,716
544 Trikon Technologies, Inc. Ser. H, $8.125 pfd. (PIK) 3,264
5 Trikon Technologies, Inc. Ser. I, $8.125 pfd. 6,986
1,345 WinStar Communications, Inc. 144A $14.25 cum. pfd. (PIK) 1,546,750
--------------
22,955,411
--------------
Total Preferred Stocks (cost $83,090,978) $ 85,004,169
COLLATERALIZED MORTGAGE OBLIGATIONS (1.7%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,000,000 Amresco Commercial Mortgage Funding Ser. 97-C1,
Class G, 7s, 2029 $ 1,567,500
33,109,072 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
Interest Only (IO), 0.916s, 2020 2,061,557
2,720,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1,
Class C, 7s, 2012 1,875,950
1,300,000 CS First Boston Mortgage Securities Corp. Ser. 99-C1,
Class F, 8.18s, 2009 1,208,188
Fannie Mae
2,005 Ser. 92-184, Class J, IO, 11.46s, 2022 81,428
343,000 Ser. 96-5, Class SW, IO, 10.36s, 2018 113,833
1,204 Ser. 92-181, Class PJ, IO, 10.08s, 2022 42,551
250,746 Ser. 241, Class 2, IO, 8.5s, 2023 73,461
8,971,247 Ser. 96-39, Class TB, IO, 8.385s, 2021 2,607,269
520,243 Ser. G93-98s, Class IO, 8s, 2023 154,928
7,178,727 Ser. 218, Class 2, IO, 7.5s, 2023 2,236,622
7,710,909 Ser. 221, Class 2, IO, 7.5s, 2023 2,407,250
2,993,326 Ser. 252, Class 2, IO, 7..5s, 2023 953,187
470,174 Ser. 215, Class 2, IO, 7s, 2023 143,476
343,000 Ser. 00-4, Class SX, 6.998s, 2023 310,201
403,000 Ser. 97-23, Class SJ, IO, 5.253s, 2023 83,119
Freddie Mac
2,087,985 Ser. 1849, Class DA, IO, 8.179s, 2022 645,970
1,010,000 Ser. 2033, Class SL, IO, 8.017s, 2021 293,531
847,000 Ser. 2032, Class SK, IO, 7.475s, 2024 356,269
262,000 Ser. 2183, Class SG, 5.43s, 2014 195,518
340,351 Ser. 2182, Class EC, Principal Only (PO), zero %, 2025 246,795
3,800,000 General Growth Properties-Ala Moana Ser. 99-C1,
Class F, 8.64s, 2004 3,809,500
4,520,439 Government National Mortgage Association Ser. 99-34,
Class SC, IO, 2.72s, 2019 248,624
2,600,000 GS Mortgage Securities Corp. Ser. 99-FL2A,
Class G, 7.855s, 2013 2,456,594
5,629,568 Merrill Lynch Mortgage Investors, Inc. Ser. 96-C2, IO,
1.602s, 2028 374,718
13,709,520 Mortgage Capital Funding, Inc. Ser. 98-MC1, Class X, IO,
0.574s, 2009 506,610
--------------
Total Collateralized Mortgage Obligations (cost $25,095,850) $ 25,054,649
CONVERTIBLE PREFERRED STOCKS (1.4%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
4,745 Chesapeake Energy Corp. $3.50 cum. cv. pfd. $ 175,565
10,065 Global Crossing 144A $1.75 cv. pfd. 2,683,581
76,760 Global Telesystems, Inc. 144A $3.625 cv. pfd. 3,367,845
1,020 Interact Electronic $7.00 cv. pfd 1,020
20,900 LTV Corp. (The) 144A $4.125 cv. pfd. 1,076,350
89 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 881,100
27,900 PSINet, Inc. 144A $3.50 cv. cum. pfd. 1,436,850
18,060 PSINet, Inc. Ser. C, $3.375 cv. cum. pfd. 1,445,929
25,400 RSL Communications, Ltd. 144A $3.75 cv. pfd. (Bermuda) 12,794
109,060 Verio, Inc. 144A $3.375 cv. pfd. 9,174,672
2,937 XCL Ltd 144A Ser. A, 9.50% cv. cum. pfd. (PIK) 2,937
--------------
Total Convertible Preferred Stocks (cost $17,680,585) $ 20,258,643
CONVERTIBLE BONDS AND NOTES (1.2%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Aames Financial Corp. cv. sub. deb. 5 1/2s, 2006 $ 1,500,000
3,470,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero %, (13s, 8/15/04), 2009 (STP) 1,804,400
4,490,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 2,447,050
140,000 HEALTHSOUTH Corp. cv. sub. deb. 3 1/4s, 2003 107,450
4,000,000 Micron Technology, Inc. cv. notes 6 1/2s, 2005 3,340,000
990,000 NTL, Inc. 144A cv. sub. notes 5 3/4s, 2009 1,007,325
1,615,000 Parker Drilling Co. cv. sub. notes 5 1/2s, 2004 1,180,968
3,000,000 Total Renal Care Holdings, Inc. 144A cv. notes 7s, 2009 1,785,000
4,010,000 Waste Management, Inc. cv. sub. notes 4s, 2002 3,553,863
--------------
Total Convertible Bonds and Notes (cost $17,920,230) $ 16,726,056
UNITS (1.1%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,870 Earthwatch 144A units stepped-coupon zero %
(13s, 7/15/02), 2007 (STP) $ 2,052,050
6,150 Equinix, Inc. 144A units 13s, 2007 6,334,500
1,970 GT Group Telecom 144A units stepped-coupon zero %
(13 1/4s, 2/1/05), 2010 (Canada) (STP) 1,152,450
2,580 Leap Wireless 144A units 12 1/2s, 2010 2,618,700
2,680 Pegasus Shipping 144A units company guaranty stepped-
coupon zero % (14 1/2s. 6/20/03), 2008 (Bermuda) (STP) 201,000
3,750 Peninsula Gaming LLC 144A units 12 1/4s, 2006 3,900,000
55 XCL Ltd. units 13 1/2s, 2004 (In default) (NON) 5,500
19,405 XCL Ltd. 144A units cv. cum. pfd. 9.50% (PIK) 19,405
--------------
Total Units (cost $19,791,518) $ 16,283,605
WARRANTS (1.0%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
1,260 21st Century Telecom Group 144A 2/15/10 $ 34,650
7 Anker Coal Group, Inc. 144A 10/28/09 0
1,220 Bestel S.A. (Mexico) 5/15/05 146,400
5,160 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 283,800
3,600 Carrier 1 International 2/19/09 2,340,000
12,168 CD Radio, Inc. 144A 5/15/09 1,581,840
3,230 Cellnet Data Systems, Inc. 10/1/07 16,150
3,200 CGA Group, Ltd. 144A 2/11/07 32
300 Club Regina, Inc. 144A 12/1/04 3
472 Conecel Holdings (United Kingdom) 10/1/00 47
4,531 Cybernet Internet 144A 7/1/09 770,270
6,150 Decrane Holdings 9/30/08 62
375 Destia Communications 144A 7/15/07 52,500
39,365 Diva Systems Corp. 3/1/08 314,920
850 E. Spire Communications, Inc. 11/1/05 13,600
1,290 Epic Resorts 6/15/05 13
25 Esat Holdings, Inc. (Ireland) 2/1/07 5,625
5,810 Firstworld Communication 4/15/08 1,162,000
60 Globalstar Telecommunications 2/15/04 5,700
53,776 ICG Communications 10/15/05 941,080
1,670 Insilco Holding Co. 8/15/08 5,845
20 Interact Systems, Inc. 8/1/03 1
1,020 Interact Systems, Inc. 144A 12/15/09 10
61,789 Intira Corp. Class A 2/1/10 618
21,233 Intira Corp. Class B 2/1/10 210
470 Iridium World Com 144A 7/15/05 1
3,830 KMC Telecom Holdings, Inc. 4/15/08 13,405
3,815 Knology Holdings 10/22/07 8,584
60 Long Distance International, Inc. 144A 4/13/08 75
50 Loral Space & Communications 1/15/07 550
320 McCaw International, Ltd. 4/15/07 1,440
2,800 Mediq Inc. 144A 6/1/09 28
30 Metronet Communications 144A 8/15/07 4,500
31,929 Network Plus Corp. 12/31/00 3,192,900
5,245 Onepoint Communications, Inc. 6/1/08 52,450
440 Orbital Imaging Corp. 144A 3/1/05 8,800
10,180 Pathnet, Inc. 144A 4/15/08 101,800
2,560 Paxson Communications Corp. 144A 6/30/03 7,680
150 R&B Falcon Corp. 144A 5/1/09 41,250
2,480 Startec Global Communications Corp. 5/15/08 44,640
2,390 Tele1 Europe BV 144A (PIK) 5/15/09 717,000
1,580 Telehub Communications Corp. 7/31/05 790
125 UIH Australia/Pacific, Inc. 144A 5/15/06 3,750
2,260 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 1,762,800
990 WAM!NET, Inc. 3/1/05 10,890
125,000 ZSC Specialty Chemicals Plc 144A
(United Kingdom) 7/1/10 203,125
125,000 ZSC Specialty Chemicals Plc 144A pfd.
(United Kingdom) 7/1/10 78,125
--------------
Total Warrants (cost $5,408,545) $ 13,929,959
FOREIGN GOVERNMENT BONDS AND NOTES (0.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD 4,000,000 Brazil (Government of) 11 5/8s, 2004 $ 3,955,200
USD 3,730,000 United Mexican States bonds Ser. XW, IO,
10 3/8s, 2009 4,019,075
--------------
Total Foreign Government Bonds and Notes
(cost $7,932,266) $ 7,974,275
COMMON STOCKS (0.4%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
33,251 Airgate PCS, Inc. (NON) $ 3,258,598
27,272 Capstar Broadcasting Partners 109,088
64,112 Celcaribe S.A. (Colombia) (NON) 24,042
90,040 Celcaribe S.A. 144A (Colombia) (NON) 157,570
4,584 MGC Communications, Inc. 316,296
619 Mothers Work, Inc. (NON) 7,041
125 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 1
400 Spanish Broadcasting System, Inc. (NON) 6,120
17,111 Viatel, Inc. (NON) 963,563
15,717 WinStar Communications, Inc. (NON) 1,216,103
--------------
Total Common Stocks (cost $1,863,597) $ 6,058,422
BRADY BONDS (0.4%) (a) (cost $4,702,410)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 5,930,000 United Mexican States Ser. D. FRB, 6.068s, 2019 $ 5,685,388
ASSET-BACKED SECURITIES (0.1%) (a) (cost $1,655,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,000,000 Green Tree Home Improvement Loan Trust Ser. 95-F,
Class B2, 7.1s, 2021 $ 1,641,563
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (--%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Treasury Obligations (--%) (cost $568,934)
- --------------------------------------------------------------------------------------------------------------------------
$ 600,000 U.S. Treasury Bonds 6 1/8s, August 15, 2029 $ 590,064
SHORT-TERM INVESTMENTS (0.8%) (a) (cost $11,386,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 11,386,000 Interest in $700,000,000 joint repurchase agreement dated
February 29, 2000 with S.B.C. Warburg, Inc. due
March 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $11,387,825 for an
effective yield of 5.77% $ 11,386,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,513,002,325) (b) $1,405,314,495
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,442,485,946.
(b) The aggregate identified cost on a tax basis is $1,513,116,294, resulting in gross unrealized appreciation and
depreciation of $50,592,143 and $158,393,942, respectively, or net unrealized depreciation of $107,801,799.
(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.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
February 29, 2000 was $5,654,600 or 0.4% of net assets.
(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) and Floating Rate Notes (FRN) are the current interest rates shown at
February 29, 2000, 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
February 29, 2000 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,513,002,325) (Note 1) $1,405,314,495
- -----------------------------------------------------------------------------------------------
Cash 8,826,751
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 30,290,472
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 6,228,573
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 34,097,434
- -----------------------------------------------------------------------------------------------
Total assets 1,484,757,725
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 16,960
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,420,840
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 28,028,365
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,377,059
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,238,137
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 135,715
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,732
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,936
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 924,417
- -----------------------------------------------------------------------------------------------
Other accrued expenses 113,618
- -----------------------------------------------------------------------------------------------
Total liabilities 42,271,779
- -----------------------------------------------------------------------------------------------
Net assets $1,442,485,946
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,647,447,184
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (9,000,934)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (88,272,474)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
assets and liabilities in foreign currencies (107,687,830)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,442,485,946
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($575,846,539 divided by 78,825,435 shares) $7.31
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $7.31)* $7.67
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($818,595,948 divided by 111,895,050 shares)** $7.32
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($10,519,746 divided by1,438,076 shares)** $7.32
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($37,523,713 divided by 5,132,547 shares) $7.31
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $7.31)* $7.56
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended February 29, 2000 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest $77,894,157
- -----------------------------------------------------------------------------------------------
Dividend 4,275,977
- -----------------------------------------------------------------------------------------------
Total investment income 82,170,134
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,483,075
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 670,544
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 19,034
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,984
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 723,332
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,151,191
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 28,378
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 95,050
- -----------------------------------------------------------------------------------------------
Reports to shareholders 59,615
- -----------------------------------------------------------------------------------------------
Auditing 35,250
- -----------------------------------------------------------------------------------------------
Legal 48,959
- -----------------------------------------------------------------------------------------------
Postage 58,195
- -----------------------------------------------------------------------------------------------
Other expenses 86,250
- -----------------------------------------------------------------------------------------------
Total expenses 10,466,857
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (73,471)
- -----------------------------------------------------------------------------------------------
Net expenses 10,393,386
- -----------------------------------------------------------------------------------------------
Net investment income 71,776,748
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Note 1) (52,148,324)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 17,576,533
- -----------------------------------------------------------------------------------------------
Net loss on investments (34,571,791)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $37,204,957
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
February 29 August 31
2000* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 71,776,748 $ 111,689,272
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (52,148,324) (32,153,771)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 17,576,533 (40,438,269)
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 37,204,957 39,097,232
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (30,633,205) (45,606,325)
- ---------------------------------------------------------------------------------------------------------------
Class B (40,791,716) (62,136,212)
- ---------------------------------------------------------------------------------------------------------------
Class C (273,292) (7,209)
- ---------------------------------------------------------------------------------------------------------------
Class M (1,964,145) (3,191,936)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (1,343,193)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (1,830,029)
- ---------------------------------------------------------------------------------------------------------------
Class C -- (212)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (94,009)
- ---------------------------------------------------------------------------------------------------------------
From return of capital
Class A -- (1,827,387)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (2,489,718)
- ---------------------------------------------------------------------------------------------------------------
Class C -- (289)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (127,897)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions
(Notes 4 and 5) (12,316,196) 828,779,452
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (48,773,597) 749,222,268
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 1,491,259,543 742,037,275
- ---------------------------------------------------------------------------------------------------------------
End of period (Including distributions in excess
of net investment income of $9,000,934
and $7,115,324, respectively) $1,442,485,946 $1,491,259,543
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
Six months
ended Year For the period
Per-share February 29 ended Dec. 31, 1997+
operating performance (Unaudited) August 31 to August 31
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $7.49 $8.02 $8.50
- ----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .38 .78 .41(d)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.17) (.48) (.47)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .21 .30 (.06)
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.39) (.78) (.32)
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) (.05)
- ----------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (.03) (.05)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.83) (.42)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.31 $7.49 $8.02
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 2.91* 3.85 (1.08)*
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $575,847 $594,559 $278,847
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .50* 1.06 .84(d)*
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.14* 9.99 4.57(d)*
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.55* 51.30(f) 44.05*
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for the period includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation, expenses for the fund
reflect a reduction of less than $0.01 per share for class A, class B, and class M for the period ended August 31, 1998.
(e) Distributions were less than $0.01 per share.
(f) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam High Yield Total Return Fund.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------------
Six months
ended Year For the period
Per-share February 29 ended Dec. 31, 1997+
operating performance (Unaudited) August 31 to August 31
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $7.50 $8.01 $8.50
- ----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .35 .72 .36(d)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.17) (.46) (.46)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .18 .26 (.10)
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.36) (.72) (.29)
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) (.05)
- ----------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (.03) (.05)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.77) (.39)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.32 $7.50 $8.01
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 2.53* 3.33 (1.58)*
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $818,596 $855,729 $444,096
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .88* 1.81 1.34(d)*
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.77* 9.24 4.07(d)*
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.55* 51.30(f) 44.05*
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for the period includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation, expenses for the fund
reflect a reduction of less than $0.01 per share for class A, class B, and class M for the period ended August 31, 1998.
(e) Distributions were less than $0.01 per share.
(f) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam High Yield Total Return Fund.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 29 July 26, 1999+
operating performance (Unaudited) to August 31
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $7.50 $7.69
- ----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .35 .08
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.17) (.20)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .18 (.12)
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.36) (.07)
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- --(e)
- ----------------------------------------------------------------------------------------------------------------------------------
Return of capital -- --(e)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.36) (.07)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.32 $7.50
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 2.52* (1.52)*
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $10,520 $1,528
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .88* .18*
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.81* 1.18*
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.55* 51.30(f)
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for the period includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation, expenses for the fund
reflect a reduction of less than $0.01 per share for class A, class B, and class M for the period ended August 31, 1998.
(e) Distributions were less than $0.01 per share.
(f) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam High Yield Total Return Fund.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ----------------------------------------------------------------------------------------------------------------------------------
Six months
ended Year For the period
Per-share February 29 ended Dec. 31, 1997+
operating performance (Unaudited) August 31 to August 31
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $7.50 $8.01 $8.50
- ----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .37 .77 .40(d)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.18) (.47) (.48)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .19 .30 (.08)
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38) (.76) (.31)
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) (.05)
- ----------------------------------------------------------------------------------------------------------------------------------
Return of capital -- (.03) (.05)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.38) (.81) (.41)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.31 $7.50 $8.01
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 2.64* 3.86 (1.33)*
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $37,524 $39,443 $19,094
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .63* 1.31 1.01 (d)*
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.01* 9.71 4.49 (d)*
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 43.55* 51.30(f) 44.05 *
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for the period includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period (Note 2). As a result of such limitation, expenses for the fund
reflect a reduction of less than $0.01 per share for class A, class B, and class M for the period ended August 31, 1998.
(e) Distributions were less than $0.01 per share.
(f) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam High Yield Total Return Fund.
</TABLE>
Notes to financial statements
February 29, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Trust II (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 high current income by investing primarily in
high-yielding, lower-rated fixed-income securities constituting a
portfolio that Putnam Investment Management, Inc. ("Putnam Management"),
the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc.,
believes does not involve undue risk to income or principal.
The fund offers class A, class B, class C 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 C
shares are subject to the same fees and expenses as class B shares, except
that class C shares have a one-year 1.00% contingent deferred sales charge
and do not convert to class A shares. Class M shares are sold with a
maximum front end sales charge of 3.25% and pay an ongoing distribution
fee that is higher than class A shares but lower than class B and class C
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 that 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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sales price on its principal exchange, or if no sales are
reported -- as in the case of some securities traded over-the-counter --
the last reported bid price. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value. Other investments,
including restricted securities, are stated at fair value following
procedures approved by the Trustees. Market quotations are not considered
to be readily available for certain debt obligations; such investments are
stated at fair value on the basis of valuations furnished by a pricing
service or dealers, approved by the Trustees, which determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
variable relationships between securities that are generally recognized by
institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date 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 stepped-coupon securities is amortized on a yield-to-maturity
basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The fund
does not isolate that portion of realized or unrealized gains or losses
resulting from changes in the foreign exchange rate on investments from
fluctuations arising from changes in the market prices of the securities.
Such gains and losses are included with the net realized and unrealized
gain or loss on investments. Net realized gains and losses on foreign
currency transactions represent net realized exchange gains or losses on
closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation
and depreciation of assets and liabilities in foreign currencies arise
from changes in the value of open forward currency contracts and assets
and liabilities other than investments at the period end, resulting from
changes in the exchange rate. Investments in foreign securities involve
certain risks, including those related to economic instability,
unfavorable political developments, and currency fluctuations, not present
with domestic investments.
F) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations.
For the six months ended February 29, 2000, the fund had no borrowings
against the line of credit.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. It is also the intention of the fund to distribute an amount
sufficient to avoid imposition of any excise tax under Section 4982 of the
Internal Revenue Code of 1986, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
During the previous fiscal year ended August 31, 1999, the fund acquired
the assets of Putnam High Yield Total Return. A portion of the loss
carryforward was acquired in the merger and is available to offset the
future capital gain of the fund to the extent of IRS regulations. At
August 31, 1999, the fund had a capital loss carryover of approximately
$23,167,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ---------------
$ 3,691,000 August 31, 2005
4,909,000 August 31, 2006
14,567,000 August 31, 2007
H) Distributions to shareholders The fund declares a distribution each day
based upon the projected net investment income, for a specified period,
calculated as if earned pro-rata throughout the period on a daily basis.
Such distributions are recorded daily and paid monthly. Capital gain
distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations,
which may differ from generally accepted accounting principles.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
I) Expenses of the trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
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: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of
the next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion and
0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
Under 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 February 29, 2000, the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
For the six months ended February 29, 2000, fund expenses were reduced by
$73,471 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 $1,751
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and meeting
fees for the three years preceding retirement. Pension expense for the
fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.50% of
the average net assets attributable to class A, class B, class C and class
M shares, respectively.
For the six months ended February 29, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $205,802 and $4,613 from
the sale of class A and class M shares, respectively, and received
$1,481,885 and $2,106 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares.
For the six months ended February 29, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received $13,037 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended February 29, 2000, cost of purchases and
proceeds from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $589,329,433 and
$617,104,315, respectively. Purchases and sales of U.S. government
obligations aggregated $1,587,413 and $1,017,434, respectively.
Note 4
Capital shares
At February 29, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended February 29, 2000
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 17,542,085 $128,797,984
- -----------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 2,511,661 18,389,425
- -----------------------------------------------------------------------------
20,053,746 147,187,409
Shares
repurchased (20,594,820) (151,449,464)
- -----------------------------------------------------------------------------
Net decrease (541,074) $ (4,262,055)
- -----------------------------------------------------------------------------
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 73,533,980 $573,657,962
- -----------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High Yield
Total Return Fund 6,137,823 47,322,612
- -----------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 3,711,267 28,848,255
- -----------------------------------------------------------------------------
83,383,070 649,828,829
Shares
repurchased (38,798,612) (302,759,530)
- -----------------------------------------------------------------------------
Net increase 44,584,458 $347,069,299
- -----------------------------------------------------------------------------
Six months ended February 29, 2000
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 19,978,302 $146,962,438
- -----------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 2,824,547 20,708,772
- -----------------------------------------------------------------------------
22,802,849 167,671,210
Shares
repurchased (24,993,779) (183,842,022)
- -----------------------------------------------------------------------------
Net decrease (2,190,930) $(16,170,812)
- -----------------------------------------------------------------------------
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 77,290,503 $603,463,176
- -----------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High Yield
Total Return Fund 6,884,889 53,151,342
- -----------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 4,473,846 34,805,857
- -----------------------------------------------------------------------------
88,649,238 691,420,375
Shares
repurchased (30,023,426) (233,784,443)
- -----------------------------------------------------------------------------
Net increase 58,625,812 $457,635,932
- -----------------------------------------------------------------------------
Six months ended February 29, 2000
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,480,932 $10,882,075
- -----------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 25,487 186,855
- -----------------------------------------------------------------------------
1,506,419 11,068,930
Shares
repurchased (272,065) (1,999,550)
- -----------------------------------------------------------------------------
Net increase 1,234,354 $ 9,069,380
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to August 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 203,605 $ 1,541,201
- -----------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 540 4,053
- -----------------------------------------------------------------------------
204,145 1,545,254
Shares
repurchased (423) (3,181)
- -----------------------------------------------------------------------------
Net increase 203,722 $ 1,542,073
- -----------------------------------------------------------------------------
Six months ended February 29, 2000
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,079,110 $ 7,944,702
- -----------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 187,495 1,374,361
- -----------------------------------------------------------------------------
1,266,605 9,319,063
Shares
repurchased (1,396,224) (10,271,772)
- -----------------------------------------------------------------------------
Net decrease (129,619) $ (952,709)
- -----------------------------------------------------------------------------
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,887,291 $38,180,718
- -----------------------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High Yield
Total Return Fund 409,132 3,158,496
- -----------------------------------------------------------------------------
Shares issued in
connection with
the reinvestment
of distributions 281,920 2,191,787
- -----------------------------------------------------------------------------
5,578,343 43,531,001
Shares
repurchased (2,701,176) (20,998,853)
- -----------------------------------------------------------------------------
Net increase 2,877,167 $22,532,148
- -----------------------------------------------------------------------------
Note 5
Acquisition of Putnam High Yield
Total Return Fund
On July 12, 1999, the fund issued 6,137,823, 6,884,889, and 409,132 of
class A, class B, and class M shares, respectively, to the shareholders of
Putnam High Yield Total Return Fund to acquire that fund's net assets in a
tax-free exchange approved by the shareholders. The net assets of the fund
and Putnam High Yield Total Return Fund on July 9, 1999, were
$1,404,712,997 and $103,632,450, respectively. On July 9, 1999, Putnam
High Yield Total Return Fund had unrealized depreciation of $6,731,909.
The aggregate net assets of the fund immediately following the acquisition
were $1,508,345,447.
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
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
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam High Yield
Trust. 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA064-59731 2HB/2HD/2HE 4/00
