PUTNAM
HIGH YIELD
TRUST
[GRAPHIC OMITTED:
art work]
ANNUAL REPORT
August 31, 1995
[LOGO:
BOSTON - LONDON - TOKYO]
<PAGE>
PERFORMANCE HIGHLIGHTS
o "Junk-bond funds seem to be getting decidedly less junky. The group has
received a lot of attention lately . . . for its improving quality and
competitive total returns so far this year."
-- Dow Jones & Company, 9/19/95
o Putnam High Yield Trust's class A shares earned 4 out of 5 stars from
Morningstar for risk-adjusted performance as of 8/31/95. Morningstar is an
independent mutual fund rating agency.*
-----------------------------------------------------------------------------
FISCAL 1995 RESULTS AT A GLANCE
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CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
-----------------------------------------------------------------------------
(change in value during
period plus reinvested
distributions)
12 months ended 8/31/95 10.76% 5.51% 9.88% 4.90%
CLASS A CLASS B CLASS M
SHARE VALUE: NAV POP NAV NAV POP
-----------------------------------------------------------------------------
8/31/94 $12.06 $12.66 $12.03 -- --
7/3/95 (inception of
class M shares) -- -- -- $11.92 $12.32
8/31/95 12.01 12.61 11.97 12.00 12.40
RETURN
DISTRIBUTIONS: NO. INCOME OF CAPITAL(1) TOTAL
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Class A 12 $1.214 0.041 $1.255
Class B 12 1.130 0.038 1.168
Class M 2 0.196 0.007 0.203
CLASS A CLASS B
CURRENT RETURN: NAV POP NAV
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End of period
Current dividend rate(2) 9.99% 9.52% 9.22%
Current 30-day SEC yield(3) 7.49 7.13 6.76
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Data above represent past results and are not indicative of future
performance. For performance over longer periods, see pages 8 and 9.
Effective 7/3/95, the fund began offering class M shares; performance for
these shares is not shown because of the brevity of the reporting period. POP
assumes 4.75% maximum sales charge for class A and 3.25% for class M shares.
CDSC assumes 5% maximum contingent deferred sales charge. (1)See page 34.
(2)Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period. (3)Based only on investment income, calculated using
SEC guidelines.
* Morningstar rates funds in relation to other funds with similar investment
objectives, based on the fund's 3-, 5-, and 10-year average annual returns
and adjusted for risk factors and sales charges. Ratings are updated monthly.
The 4 star rating for the 3-year period ending 8/31/95 puts the fund in the
top 32.5% among all 2,243 hybrid funds rated. For the 3-, 5- and 10-year
periods ending 8/31/95 there were 2,243, 1,554 and 703 funds in the hybrid
category, respectively. The fund's class A shares received 3 stars for the
3-year period and 4 stars for the 5- and 10-year periods. Class B and M
shares are not tracked by Morningstar. Past performance is not indicative of
future results.
<PAGE>
FROM THE CHAIRMAN
[GRAPHIC OMITTED:
Photo of
George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
Putnam Management's forecast for this year called for continued improvement in
the bond market. But it certainly did not anticipate the vigor of the advance
during the year's first half. Few expect the market to remain as exuberant as it
has been so far in 1995, but Edward D'alelio and Jin Ho, Putnam High Yield
Trust's managers, believe the advance and the economic recovery still have a way
to go.
Ed and Jin expect some near-term consolidation, however, as investors take
profits, watch for clearer interest rate trends and assess the effects of the
slower economy on corporate earnings growth. They believe prospects are brighter
down the road as these and other issues are resolved.
Furthermore, as the election campaign sparks tax-change proposals, anticipation
of major reforms that favor saving and investing may spur investor confidence.
Such a prospect could help sustain the current market advance even though no
meaningful legislation is likely before 1997.
In the following report, Ed and Jin review performance during the fiscal year
ended August 31, 1995, and present their outlook for fiscal 1996.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
October 18, 1995
<PAGE>
REPORT FROM THE FUND MANAGERS
EDWARD D'ALELIO
JIN W. HO
Just as a sailboat may fall off a bit to steal the competition's wind,
investment managers may occasionally settle for slower speeds in order to
move ahead over the long term. We commented on such an approach in Putnam
High Yield Trust's most recent semiannual report and the last six months have
certainly validated our philosophy. The fund lost some ground in the first
half of its 1995 fiscal year, but strategic positioning, crew-like teamwork,
and faith in the market's resiliency enabled us to complete the year -- which
ended August 31, 1995 -- with rewarding results.
High-yield bonds were the best performing fixed income securities during the
past 12 months. As the sector rallied over the spring and summer, the yield
of the First Boston High Yield Index dropped by three quarters of a
percentage point, from 11.34% at the end of February to 10.58% at the end of
August. Since bond prices rise as yields decline, this translated into a
total return of 8.96% over that period. The fund's results were close behind:
its class A shares gained 8.73% over the second six months of the fund's
fiscal year, finishing with a total return of 10.76% at net asset value for
the full 12-month period. Total return on class B shares was 9.88% at net
asset value. For longer-term performance information, see pages 8 and 9.
o PLOTTING AND IMPLEMENTING A STRATEGIC COURSE
In the past few years, bonds issued by cyclical companies -- those in
industries such as chemicals, paper, and automotives -- have benefited from
tremendous cash inflows. Since cyclical companies' fortunes rise and fall
with the economic cycle, the performance of their bonds reflects the strength
of the economy. Thus, as the Fed eral Reserve Board's interest rate increases
began to slow the pace of the economic recovery, we prepared the fund for a
strategic shift.
Our team of high-yield analysts was asked to identify defensive alternatives
in industries less susceptible to the ebb and flow of economic tides. On the
basis of their recommendations, we exe-
<PAGE>
cuted a sector rotation out of cyclical securities, moving the assets into
defensive issues in industries such as cable, media/broadcasting, utilities,
and consumer nondurables.
o CAPITALIZING ON SHIFTS IN SUPPLY AND DEMAND
By identifying the need to reallocate assets out of cyclical issues, we
created a number of positive dynamics. We began our shifts well in advance of
any widespread trend. As more investors identified the need to move out of
cyclicals, demand for the securities we bought increased and their value rose
significantly.
A second positive development was also supply-and-demand related. At the
beginning of the calendar year, demand was strong; high-yield investors saw
interest rates beginning to fall and increased their purchases accordingly.
Supply had been tight because new issuance had been relatively light for a
number of months. Consequently, even less attractive issues had their prices
bid up by eager buyers. By taking advantage of this technical rally, we were
able to jettison the fund's less desirable cyclical holdings at a profit.
As new issuance picked up in the second quarter, high-yield buyers became
more discriminating. Interest in the shakier credits declined, causing their
prices to fall. Investors who had disregarded creditworthiness in their
quests for yield saw bonds they had just purchased declining in value. Even
viable bonds lost value as
[GRAPHIC OMITTED: line chart HIGH YIELD BOND ISSUANCE HAS DECLINED*
Y-axis reads (top to bottom) $8 Million to 0 in $1 million decrements
X-axis reads (left to right) J F M A M J J A S O N D to represent months
A solid white line represents 1995, ranging from 760.00 to 3392.77 ending
in August (see plot points below: "1995")
A solid gray line represents 1994, ranging from 7618.19 to 1465.00
(see plot points below: "1994")
A solid black line represents 1993, ranging from 5910.00 to 4360.30
(see plot points below: "1993")
"1995" "1994" "1993"
------- ------- -------
760.00 7618.19 5910.00
2767.00 5891.43 3917.99
651.00 3166.64 4598.25
1780.00 2211.83 4137.50
2800.00 2790.57 4458.37
3171.00 3636.30 3695.00
1056.09 2203.66 4716.69
3392.77 1083.00 7161.69
1625.00 2129.50
931.50 6620.45
2131.50 4219.57
1465.00 4360.30
Footnote reads:
*Year-to-date as of 8/31/95.]
<PAGE>
waves of new issues hit the shores. Believing this was another temporary
overreaction, we took advantage of this new turn of events to purchase
attractive, undervalued issues.
As fund management began implementing this sector rotation, Putnam's team of
high-yield bond analysts was asked to focus on the likelihood that the
telecommunications bill would pass Congress. At the time, Wall Street
research was generally silent on this issue; consequently, investors were
steering clear of tele communication securities.
Our research indicated a high probability that the bill would pass. Since the
telecommunications sector is less cyclical in nature -- making it well suited
to the fund's defensive goals -- and since the bonds were generally
undervalued, we were able to amass a sizable position at attractive prices.
At the time of this writing, the bill had passed both the House and Senate
and was in a reconciliation committee; thus, enactment was still not final.
As a result, these securities have appreciated significantly. Our willingness
to do our own research and make investments contrary to market consensus was
instrumental in helping the fund stay ahead of the pack.
o IMPROVING CREDIT OUTLOOK BUOYS BOND PRICES
Recent market trends -- such as initial public offerings of stock, mergers
and acquisitions -- are providing opportunities for improving credit
situations in the high-yield sector. When a company issues stock, it has the
effect of boosting the position of its outstanding bonds because stockholders
rank below bondholders in the company's capital hierarchy. A stock offering
can further enhance creditworthiness because it raises cash, improving the
company's balance sheet. As the company becomes financially healthier, its
bonds will be able to attract investors at lower yields. Since bonds' prices
are inversely related to their yields, the price of an upgraded bond is
likely to rise.
The surge of mergers and acquisitions has also been positive for the
high-yield market. When a high-yield issuer is acquired by -- or merges with
-- a company with a stronger balance sheet, the credit standing of the
combined company is the sum of the two and will fall somewhere between what
their individual credit ratings were before the merger/acquisition. Usually,
the end result is that the
<PAGE>
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS* showing:
Cable television 5.6%
Food 4.8%
Electric utilities 4.7%
Cellular communications 4.6%
Broadcasting 4.4%
Footnote reads:
*Corporate bonds and notes only. Based on net assets on 8/31/95.
Holdings will vary over time.]
lower-rated outstanding bonds are upgraded. Again, the price of the bonds is
then likely to rise until the yield drops to a level appropriate for bonds
with the credit rating of the newly combined company.
We expect the merger and acquisition activity to provide cash flow growth as
well as upgrade opportunities for portfolio holdings well into next year.
o LOWER INFLATION, HEALTHY MARKET ON THE HORIZON
Putnam's interest rate outlook remains fairly positive, based on our
projection of less robust economic growth and low inflation. Much of the
economy's recent strength was a result of the weak dollar driving export
growth. We expect this source of strength to abate as the dollar gains upward
momentum. In addition, we expect business activity to soften, translating
into lower corporate earnings. This inert environment, combined with the
trend that corporations are unable to pass raw material price increases along
to the consumer, should result in low inflation and a favorably oriented bond
market.
Since many high-yield bonds track the economic course, we will focus on
defensive securities to preserve the strides made from the sector rotation
executed in recent months while continuing to diversify the fund among
sectors we believe have the best potential for solid, consistent performance.
The views expressed about the companies mentioned in this report are
exclusively those of Putnam Management, and are not meant as investment
advice. Although the described holdings were viewed favorably as of 8/31/95,
there is no guarantee the fund will continue to hold these securities in the
future.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
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 back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods.
Performance should always be considered in light of a fund's investment
strategy. Putnam High Yield Trust 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.
TOTAL RETURN FOR PERIODS ENDED 8/31/95
LEHMAN BROS. FIRST BOSTON
CLASS A CLASS B CORPORATE HIGH YIELD
NAV POP NAV CDSC BOND INDEX BOND INDEX
- --------------------------------------------------------------------------------
1 year 10.76% 5.51% 9.88% 4.90% 13.47% 13.21%
- --------------------------------------------------------------------------------
5 years 99.71 90.18 -- -- 66.86 111.55
Annual average 14.84 13.72 -- -- 10.78 16.17
- --------------------------------------------------------------------------------
10 years 179.33 166.04 -- -- 176.64 --
Annual average 10.82 10.28 -- -- 10.71 --
- --------------------------------------------------------------------------------
Life of class B -- -- 19.31 16.51 18.50 26.79
Annual average -- -- 7.32 6.30 7.02 9.95
- --------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/95
(Most recent calendar quarter)
CLASS A CLASS B
NAV POP NAV CDSC
- --------------------------------------------------------------------------------
1 year 11.54% 6.22% 10.76% 5.76%
- --------------------------------------------------------------------------------
5 years 112.20 102.19 -- --
Annual average 16.24 15.12 -- --
- --------------------------------------------------------------------------------
10 years 178.47 165.20 -- --
Annual average 10.78 10.24 -- --
- --------------------------------------------------------------------------------
Life of class B -- -- 20.23 17.43
Annual average -- -- 7.40 6.43
- --------------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class A shares, distribution fees prior to
implementation of the class A distribution plan in 1990. Effective 3/1/93, the
fund began offering class B shares and as of 7/3/95, class M shares. Performance
for class M shares is not shown due to the brevity of the reporting period.
Performance data differ for each share class and represent past results.
Investment returns and net asset value will fluctuate so an investor's shares,
when sold, may be worth more or less than their original cost.
<PAGE>
[GRAPHIC OMITTED: line chart GROWTH OF A $10,000 INVESTMENT
Y-axis reads (top to bottom) $30,000 to 10,000 in $5,000 decrements
X-axis reads (left to right) 12/85*, then 8/86 through 8/95 in
one year increments
A solid white line represents Fund's Class A Shares at POP, ranging from
$9,525 to $24,867 (see plot points below: "Class A Shares")
A solid gray line represents First Boston High Yield Index, ranging from
$10,000 to $29,309 (see plot points below: "First Boston Index")
A solid black line represents Lehman Corporate Bond Index, ranging from
$10,000 to $25,473 (see plot points below: "Lehman Corporate Index")
Class A Shares First Boston Index Lehman Corporate Index
-------------- ------------------ ----------------------
$ 9,525 $10,000 $10,000
10,306 11,267 11,230
11,474 12,338 11,577
12,421 13,571 12,646
13,474 14,790 14,376
12,452 13,855 15,266
15,250 17,632 17,858
19,139 21,583 20,250
21,914 24,987 23,011
22,452 25,889 22,450
24,867 29,309 25,473
Caption reads:
Past performance is no assurance of future results. A $10,000 investment in
the fund's class B shares at inception on 3/1/93 would have been valued at
$11,931 by 8/31/95 ($11,651 with a redemption at the end of the period).
Footnote reads:
*Inception date of the First Boston High Yield Index.]
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1
fee than class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 4.75% sales charge for class A shares and 3.25% for class M
shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
<PAGE>
COMPARATIVE BENCHMARKS
THE FIRST BOSTON HIGH YIELD INDEX is a market-weighted index including publicly
traded bonds having a rating below BBB by Standard & Poor's and Moody's.
THE LEHMAN BROTHERS CORPORATE BOND INDEX is an unmanaged list of publicly
issued, fixed-rate non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.
The average quality of bonds included in these indexes will differ from the
average quality of bonds in which the fund customarily invests, and securities
held by the fund will differ from those in the indexes. Index performance
reflects changes in market prices and reinvestment of all interest payments.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the year ended August 31, 1995
To the Trustees and Shareholders of
Putnam High Yield Trust
We have audited the accompanying statement of assets and liabilities of Putnam
High Yield Trust, including the portfolio of investments owned, as of August 31,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each for the two years in the period then
ended, and the "Financial Highlights" for each of the periods indicated therein.
These financial statements and "Financial Highlights" are the responsibility of
the fund's management. Our responsibility is to express an opinion on these
financial statements and "Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and "Financial
Highlights" are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and "Financial Highlights" referred to
above present fairly, in all material respects, the financial position of Putnam
High Yield Trust as of August 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the "Financial Highlights" for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 17, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
August 31, 1995
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (80.7%) <F1>
PRINCIPAL AMOUNT VALUE
ADVERTISING (0.8%)
- ----------------------------------------------------------------------------------------------
<C> <S> <C>
$ 9,150,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $ 9,241,500
12,000,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 11,580,000
10,700,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 10,486,000
--------------
31,307,500
AEROSPACE (0.1%)
- ----------------------------------------------------------------------------------------------
5,530,000 Fairchild Corp. sr. notes 12 1/4s, 1999 5,626,775
AGRICULTURE (3.7%)
- ----------------------------------------------------------------------------------------------
32,846,000 PMI Holdings Corp. Ser. B, sub. disc.
deb. stepped-coupon zero % (11 1/2s, 9/1/00),
2005 <F3> 17,736,840
16,541,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004 17,066,177
29,600,000 PSF Finance (L.P.) sr. notes 12s, 2000 30,858,000
84,739,000 PSF Finance (L.P.) sr. disc. notes stepped-coupon
zero % (12s, 9/15/96), 2003 <F3> 73,722,930
--------------
139,383,947
ALUMINUM (1.4%)
- ----------------------------------------------------------------------------------------------
48,850,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 53,246,500
APPAREL (0.8%)
- ----------------------------------------------------------------------------------------------
31,250,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 31,093,750
AUTOMOTIVE (0.3%)
- ----------------------------------------------------------------------------------------------
10,000,000 Key Plastics Corp. sr. notes 14s, 1999 10,500,000
AUTOMOTIVE PARTS (0.5%)
- ----------------------------------------------------------------------------------------------
7,700,000 Aftermarket Tech. 144A sr. sub. notes 12s, 2004 8,162,000
9,950,000 Exide Corp. 144A sr. notes 10s, 2005 10,372,875
--------------
18,534,875
BROADCASTING (4.4%)
- ----------------------------------------------------------------------------------------------
9,000,000 Act III Broadcasting, Inc. sr. sub. notes
9 5/8s, 2003 9,135,000
6,900,000 Commodore Media, Inc. sr. sub. notes
stepped-coupon 7 1/2s (13 1/4s, 5/1/98), 2003 <F3> 6,175,500
42,440,000 Echostar Communications sr. disc. notes stepped-coupon
zero % (12 7/8s, 6/1/99), 2004 <F3> 20,371,200
8,500,000 Granite Broadcasting Corp. sr. sub. deb.
12 3/4s, 2002 9,392,500
5,750,000 Granite Broadcasting Corp. 144A sr. sub. notes 10 3/8s, 2005 5,865,000
14,875,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 14,503,125
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
BROADCASTING (continued)
- ----------------------------------------------------------------------------------------------
$ 7,375,000 Outlet Broadcasting, Inc. sr. sub. notes 10 7/8s, 2003 $ 7,965,000
59,500,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero %
(11 3/8s, 8/1/98), 2003 <F3> 46,410,000
19,063,000 Petracom Holdings 144A stepped-coupon zero %
(17 1/2s, 2003), 2003 <F3> 11,461,629
7,150,000 SFX Broadcasting, Inc. sr. sub. notes 11 3/8s, 2000 7,453,875
5,700,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 5,742,750
22,271,270 Telemedia Broadcasting Corp. 144A deb.
stepped-coupon 6.4s (16s, 6/15/99), 2004 <F3> 20,044,143
--------------
164,519,722
BUILDING AND CONSTRUCTION (1.2%)
- ----------------------------------------------------------------------------------------------
21,900,000 Presley Co. sr. notes 12 1/2s, 2001 18,177,000
16,750,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 16,456,875
9,500,000 U.S. Home Corp. sr. notes 9 3/4s, 2003 9,357,500
--------------
43,991,375
BUILDING PRODUCTS (2.4%)
- ----------------------------------------------------------------------------------------------
23,000,000 American Standard Inc. sr. sub. notes stepped-coupon
zero % (10 1/2s, 6/1/98), 2005 <F3> 17,767,500
1,600,000 Inter-City Products sr. notes 9 3/4s, 2000 1,368,000
20,575,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 18,929,000
25,000,000 Southdown, Inc. sr. sub. deb. Ser. B, 14s, 2001 27,750,000
25,000,000 Walter Industries Inc. sr. notes
Ser. B, 12.19s, 2000 25,375,000
--------------
91,189,500
CABLE TELEVISION (5.6%)
- ----------------------------------------------------------------------------------------------
41,220,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 41,838,300
6,665,000 Adelphia Communications Corp. sr. deb. 11 7/8s, 2004 <F5> 6,731,650
7,500,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 8,062,500
8,500,000 Century Communications Corp. sr. sub. deb. 11 7/8s, 2003 9,010,000
5,000,000 Comcast Corp. sr. sub. notes 9 3/8s, 2002 5,037,500
23,200,348 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 <F5> 21,576,318
11,300,000 Insight Communications Co. sr. sub. notes stepped-coupon
8 1/4s (11 1/4s, 3/1/96), 2000 <F3> 11,526,000
17,833,000 Jones Intercable, Inc. sub. deb. 11 1/2s, 2004 19,348,805
21,100,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 21,100,000
23,478,000 Marcus Cable Co. (L.P.) 144A sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 <F3> 12,971,595
17,095,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 <F3> 11,154,488
12,000,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 12,330,000
17,500,000 Summit Communications Group, Inc. sr. sub. deb.
10 1/2s, 2005 19,250,000
7,500,000 Tele-Communications, Inc. deb 9 1/4s, 2023 7,706,250
5,500,000 Videotron Holdings sr. disc. notes stepped-coupon zero %
(11 1/8s, 7/1/99), 2004 <F3> 3,478,750
--------------
211,122,156
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CELLULAR COMMUNICATIONS (4.6%)
- ----------------------------------------------------------------------------------------------
$24,000,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11 3/4s, 9/1/98), 2003 <F3> $ 18,000,000
19,875,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 <F3> 9,937,500
4,650,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 4,603,500
40,300,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 37,882,000
8,525,000 Commnet Cellular Inc. bonds 11 1/4s, 2005 8,759,438
8,000,000 Horizon Cellular Telephone Co. sr. sub. disc. notes Ser. B,
stepped-coupon zero % (11 3/8s, 10/1/97), 2000 <F3> 6,680,000
41,000,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 <F3> 19,885,000
95,750,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (11 1/2s, 9/1/98), 2003 <F3> 54,098,750
14,365,000 Pricellular Wire sr. disc. notes stepped-coupon zero %
(14s, 11/15/97), 2001 <F3> 11,851,125
1,500,000 Rogers Cantel Mobile Inc. deb. 10 3/4s, 2001 1,548,750
--------------
173,246,063
CHEMICALS (2.7%)
- ----------------------------------------------------------------------------------------------
58,103,000 G-I Holdings, Inc. sr. disc. notes Ser. B, zero %, 1998 41,543,645
41,225,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 34,629,000
13,500,000 Harris Chemical Corp. sr. secd. disc. notes stepped-coupon
zero % (10 1/4s, 1/15/96), 2001 <F3> 12,015,000
19,500,000 OSI Specialties Corp. sr. secd. disc. deb. stepped-coupon
zero % (11 1/2s, 4/15/99), 2004 <F3> 14,430,000
--------------
102,617,645
COMPUTER EQUIPMENT (0.8%)
- ----------------------------------------------------------------------------------------------
23,800,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 23,859,500
5,560,000 Computervision Corp. sr. notes 10 7/8s, 1997 5,699,000
--------------
29,558,500
CONGLOMERATES (1.3%)
- ----------------------------------------------------------------------------------------------
2,190,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 2,146,200
13,750,000 Haynes International, Inc. sr. sub. notes 13 1/2s,1999 9,625,000
17,450,000 Jordan Industries, Inc. sr. notes 10 3/8s, 2003 16,184,875
9,100,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes
13s, 1999 9,100,000
13,000,000 Valcor, Inc. sr. notes 9 5/8s, 2003 12,090,000
--------------
49,146,075
CONSUMER SERVICES (1.5%)
- ----------------------------------------------------------------------------------------------
38,000,000 Flagstar Corp. sr. notes 10 7/8s, 2002 34,770,000
15,600,000 Solon Automated Services, Inc. sr. sub. deb. 13 3/4s, 2002 15,561,000
6,700,000 Solon Automated Services, Inc. notes 12 3/4s, 2001 6,666,500
--------------
56,997,500
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
CONTAINERS (1.4%)
- ----------------------------------------------------------------------------------------------
$35,800,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 $ 38,485,000
13,770,000 United States Can Co. sr. sub. notes 13 1/2s, 2002 15,112,575
--------------
53,597,575
COSMETICS (0.2%)
- ----------------------------------------------------------------------------------------------
8,000,000 Renaissance Cosmetics Corp. Ser. B, sr. notes
13 3/4s, 2001 7,960,000
ELECTRIC UTILITIES (4.7%)
- ----------------------------------------------------------------------------------------------
33,965,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. B,
9 1/2s, 2005 34,012,551
20,000,000 First PV Funding Corp. deb. Ser. 86A, 10.3s, 2014 20,595,000
6,300,000 First PV Funding Corp. deb. 10.15s, 2016 6,392,925
19,000,000 Long Island Lighting Co. deb. 9s, 2022 18,786,820
14,000,000 Long Island Lighting Co. deb. 8.9s, 2019 13,738,480
15,100,000 Midland Funding Corp. II deb. Ser. B, 13 1/4s, 2006 15,892,750
41,500,000 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 43,471,250
22,000,000 Texas New Mexico Power Corp. deb. 12 1/2s, 1999 24,750,000
--------------
177,639,776
ELECTRONICS (2.2%)
- ----------------------------------------------------------------------------------------------
34,450,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 39,100,750
82,250,000 International Semi-Tech. Corp. sr. disc. notes stepped-
coupon zero % (11 1/2s, 8/15/00), 2003 <F3> 42,358,750
--------------
81,459,500
ENTERTAINMENT (2.8%)
- ----------------------------------------------------------------------------------------------
5,257,000 Time Warner, Inc. notes 8.18s, 2007 5,356,147
5,257,000 Time Warner, Inc. notes 8.11s, 2006 5,362,823
2,628,000 Time Warner, Inc. notes 7.975s, 2004 2,651,705
94,375,000 Viacom International, Inc. sub. deb. 8s, 2006 91,543,750
--------------
104,914,425
ENVIRONMENTAL CONTROL (0.1%)
- ----------------------------------------------------------------------------------------------
5,000,000 Allied Waste Industries sr. sub. notes 12s, 2004 5,375,000
FINANCE (3.4%)
- ----------------------------------------------------------------------------------------------
25,000,000 IBM Credit Corp. med. term notes 17s, 1996 26,347,750
35,000,000 Paccar Financial Corp. med. term notes 17s, 1996 36,895,950
20,000,000 Toyota Credit Corp. med. term notes 17s, 1996 21,600,000
40,000,000 Xerox Credit Corp. med. term notes 17s, 1996 42,720,000
--------------
127,563,700
FINANCIAL SERVICES (0.5%)
- ----------------------------------------------------------------------------------------------
15,000,000 Comdata Network, Inc. sr. notes 12 1/2s, 1999 16,837,500
2,250,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 2,238,750
--------------
19,076,250
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
FOOD (4.8%)
- ----------------------------------------------------------------------------------------------
$ 5,000,000 Chiquita Brands International Inc. sub. deb. 11 1/2s, 2001 $ 5,150,000
76,105,000 Del Monte Corp. sub. deb. notes 12 1/4s, 2002 <F5> 64,689,250
41,100,000 Fresh Del Monte Produce Corp. 144A sr. notes Ser. B,
10s, 2003 34,729,500
10,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 10,150,000
37,500,000 Pepisco Inc. med. term notes 17s, 1996 39,099,000
3,135,000 Specialty Foods Acquisition Corp. sr. secd. disc. deb.
stepped-coupon zero % (13s, 8/15/99), 2005 <F3> 1,724,250
25,200,000 Specialty Foods Corp. sr. sub. notes 11 1/4s, 2003 24,696,000
--------------
180,238,000
FOOD CHAINS (0.5%)
- ----------------------------------------------------------------------------------------------
18,500,000 Stater Brothers sr. notes 11s, 2001 18,638,750
HEALTH CARE (3.4%)
- ----------------------------------------------------------------------------------------------
12,950,000 Abbey Healthcare Group Inc. sr. sub. deb. 9 1/2s, 2002 13,500,375
1,000,000 Charter Medical Corp. sr. sub. notes 11 1/4s, 2004 1,072,500
12,000,000 Community Health Systems Inc. sr. sub. deb. 10 1/4s, 2003 12,660,000
20,000,000 Continental Medical Systems Inc. sr. sub. notes 10 7/8s,
2002 21,800,000
18,425,000 Continental Medical Systems Inc. sr. sub. notes Ser. B,
10 3/8s, 2003 20,129,313
5,750,000 Genesis Health Ventures Inc. sr. sub. notes 9 3/4s, 2005 5,936,875
8,900,000 Integrated Health Services sr. sub. notes 10 3/4s, 2004 9,478,500
7,150,000 Integrated Health Services 144A sr. sub. notes 9 5/8s, 2002 7,239,375
7,500,000 Multicare Cos., Inc. sr. sub. notes 12 1/2s, 2002 8,540,625
20,150,000 Ornda Healthcorp sr. sub. notes 12 1/4s, 2002 22,215,375
5,810,000 Quorum Health Group, Inc. sr. sub. notes 11 7/8s, 2002 6,449,100
--------------
129,022,038
HOME FURNISHINGS (0.3%)
- ----------------------------------------------------------------------------------------------
10,733,887 Simmons Mattress Corp. 144A deb. 8s, 2003 <F5> 10,733,887
INSURANCE (1.7%)
- ----------------------------------------------------------------------------------------------
15,500,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 16,275,000
24,800,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 24,056,000
11,500,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 11,212,500
10,000,000 Terra Nova Insurance Holdings sr. notes 10 3/4s, 2005 10,450,000
--------------
61,993,500
LODGING (2.0%)
- ----------------------------------------------------------------------------------------------
27,000,000 HMH Properties Inc. 144A sr. notes 9 1/2s, 2005 25,953,750
20,700,000 John Q. Hammons Hotels 1st mtge. notes 8 7/8s, 2004 19,458,000
30,500,000 Red Roof Inns sr. notes 9 5/8s, 2003 29,432,500
--------------
74,844,250
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
MEDICAL SUPPLIES (0.2%)
- ----------------------------------------------------------------------------------------------
$ 6,500,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 $ 6,532,500
MOTION PICTURE DISTRIBUTION (2.0%)
- ----------------------------------------------------------------------------------------------
21,000,000 AMC Entertainment, Inc. sr. sub. deb. 12 5/8s, 2002 23,257,500
7,500,000 AMC Entertainment, Inc. sr. sub. deb. 11 7/8s, 2000 8,137,500
875,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 949,375
10,850,000 Cinemark Mexico notes 12s, 2003 10,090,500
8,900,000 Cinemark USA sr. notes 12s, 2002 9,701,000
22,310,000 Plitt Theatres, Inc. sr. sub. notes 10 7/8s, 2004 21,863,800
--------------
73,999,675
OFFICE EQUIPMENT (0.3%)
- ----------------------------------------------------------------------------------------------
11,000,000 United Stationer Supply Corp. 144A sr. sub. notes
12 3/4s, 2005 11,550,000
OIL AND GAS (2.9%)
- ----------------------------------------------------------------------------------------------
12,500,000 Chesapeake Energy Corp. sr. exch. notes 12s, 2001 13,062,500
9,300,000 Chesapeake Energy Corp. 144A sr. notes 10 1/2s, 2002 9,230,250
10,315,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 11,475,438
9,990,000 Maxus Energy Corp. notes 9 3/8s, 2003 9,390,600
47,750,000 Trans Texas Gas Corp. sr. secd. notes 11 1/2s, 2002 50,018,125
15,850,000 Triton Energy sr. sub. disc. notes stepped-coupon zero %
(9 3/4s, 12/15/96), 2000 <F3> 14,423,500
--------------
107,600,413
PAGING (1.0%)
- ----------------------------------------------------------------------------------------------
16,500,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 18,108,750
15,700,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 11/1/98), 2003 <F3> 10,440,500
7,000,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 7,070,000
--------------
35,619,250
PAPER (4.0%)
- ----------------------------------------------------------------------------------------------
11,750,000 Container Corp. of America sr. notes Ser. A, 11 1/4s, 2004 12,455,000
37,650,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-coupon
zero % (12 3/4s, 5/15/96), 2005 <F3> 37,461,750
14,000,000 Repap New Brunswick sr. notes 10 5/8s, 2005 14,070,000
17,750,000 Repap New Brunswick sr. notes 9 1/2s, 2000 17,705,625
21,500,000 Riverwood International Corp. sr. sub. notes 11 1/4s, 2002 23,327,500
27,300,000 Stone Container Corp. sr. notes 11 1/2s, 2004 29,006,250
1,250,000 Stone Container Corp. deb. sr. sub. notes 11 1/2s, 1999 1,281,250
3,575,000 Stone Container Corp. sr. sub notes 11s, 1999 3,682,250
12,000,000 Stone Container Corp. 1st mtge. 10 3/4s, 2002 12,510,000
--------------
151,499,625
PHARMACEUTICALS (0.4%)
- ----------------------------------------------------------------------------------------------
15,000,000 Smithkline Beecham Corp. med. term notes 17 3/4s, 1996 15,896,550
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
PUBLISHING (1.1%)
- ----------------------------------------------------------------------------------------------
$ 8,140,000 General Media Corp. sr. secd. notes 10 5/8s, 2000 $ 6,430,600
52,000,000 Marvel Parent Holdings, Inc. sr. secd. disc.
notes zero %, 1998 36,400,000
--------------
42,830,600
REAL ESTATE (--%)
- ----------------------------------------------------------------------------------------------
55,000 Chelsea Piers 144A Ser. B, stepped-coupon zero %
(11s, 6/15/99), 2009 <F3> 51,425
1,000,000 Chelsea Piers Ser. B, 1st mtge. disc. notes stepped-coupon
zero % (12 1/2s, 6/15/99), 2004 <F3> 927,500
--------------
978,925
RECREATION (2.7%)
- ----------------------------------------------------------------------------------------------
9,470,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 7,670,700
2,120,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000 1,865,600
11,440,000 Grand Casino Resorts, Inc. notes 12 1/2s, 2000 12,355,200
6,500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 5,590,000
4,590,000 Pioneer Finance Corp. 1st. mtge. 13 1/2s, 1998 3,901,500
6,000,000 Players International 144A sr. notes 10 7/8s, 2005 5,940,000
22,600,000 Showboat, Inc. 1st mtge. deb. 9 1/4s, 2008 20,905,000
3,500,000 Stratosphere Corp. 1st mtge. 14 1/4s, 2002 3,622,500
30,537,000 Trump Castle Funding Corp. mtge. 11 3/4s, 2003 23,208,120
14,931,000 Trump Castle Funding Corp. sr. sub. notes 11 1/2s, 2000 14,931,000
--------------
99,989,620
RETAIL (1.5%)
- ----------------------------------------------------------------------------------------------
8,320,000 Brylane L.P. sr. sub. notes 10s, 2003 7,571,200
16,500,000 County Seat Stores Inc. sr. sub. notes 12s, 2002 15,922,500
1,000,000 Duane Reade Corp. sr. notes 12s, 2002 880,000
46,610,000 Duane Reade Holding sub. notes stepped-coupon zero %
(15s, 9/15/99), 2004 <F3> 13,983,000
10,150,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon zero %
(12s, 5/1/98), 2005 <F3> 7,003,500
10,250,000 Loehmanns' Holdings, Inc. sr. sub. notes 13 3/4s, 1999 10,096,250
--------------
55,456,450
SCHOOL BUSES (0.3%)
- ----------------------------------------------------------------------------------------------
12,050,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 12,381,375
SPECIALTY CONSUMER PRODUCTS (1.1%)
- ----------------------------------------------------------------------------------------------
31,740,000 Playtex Family Products Corp. sr. sub. notes 9s, 2003 29,676,900
12,000,000 Selmer Co., Inc. 144A sr. sub. notes 11s, 2005 11,520,000
--------------
41,196,900
STEEL (0.9%)
- ----------------------------------------------------------------------------------------------
25,000,000 Ispat Mexicana, SA 144A notes 10 3/8s, 2001 (Mexico) 22,000,000
11,000,000 WCI Steel Inc. sr. secd. notes 10 1/2s, 2002 10,780,000
--------------
32,780,000
<PAGE>
CORPORATE BONDS AND NOTES
PRINCIPAL AMOUNT VALUE
SUPERMARKETS (0.1%)
- ----------------------------------------------------------------------------------------------
$ 5,500,000 Ralphs Grocery Co. sr. sub. notes 11s, 2005 $ 5,170,000
TELEPHONE SERVICES (1.2%)
- ----------------------------------------------------------------------------------------------
18,595,000 Call-Net Enterprises stepped-coupon zero %
(13 1/4s, 12/1/99), 2004 <F3> 11,621,875
46,700,000 MFS Communications sr. disc. notes stepped-coupon
zero % (9 3/8s, 1/15/99), 2004 <F3> 34,791,500
--------------
46,413,375
TEXTILES (0.9%)
- ----------------------------------------------------------------------------------------------
12,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 11,640,000
5,500,000 Foamex (L.P.) Capital Corp. sr. notes 11 1/4s, 2002 5,527,500
27,135,000 Foamex (L.P.) Capital Corp. Ser. B, sr. disc. notes
stepped-coupon zero % (14s, 7/1/99), 2004 <F3> 14,924,250
--------------
32,091,750
- ----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(cost $3,037,316,610) $3,037,125,542
COMMON STOCKS (6.4%)<F1>
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------
6,570 Axia Holding Corp. 144A <F2> $ 183,960
92,400 Cablevision Systems Corp. Class A <F2> 6,052,200
276,750 Chesapeake Energy Corp. <F2> 7,057,125
1,728,900 Comcast Corp. Special Class A 36,955,238
1,411,219 Computervision Corp. <F2> 16,405,421
1,207,100 Cox Communications, Inc. Class A <F2> 23,840,225
66,667 Duane Reade Corp. <F2> 133,333
8,866 Finlay Enterprises, Inc. 159,588
738,740 Gaylord Container Corp. A <F2> 8,680,195
70,086 Grand Casinos, Inc. <F2> 2,566,900
1,688,770 Grand Union Co. (acquired various dates from
12/1/94 to 7/15/95, cost $8,926,430) <F4> <F2> 23,009,491
61,710 Lear Seating Corp.<F2> 1,766,449
1,750,000 NEXTEL Communications, Inc. Class A <F2> 31,281,250
11,048 PMI Holdings Corp. 144A <F2> 2,209,600
8,407 Premium Holdings L.P. 144A <F2> 840,706
14,193 Pyramid Communications, Inc. New Class B 144A <F2> 340,643
100,000 Solon Automated Services, Inc. <F2> 71,000
236,025 Specialty Foods Corp. <F2> 413,044
81,372 Taj Mahal Holding Corp. Class A <F2> 813,720
456,875 Tele-Comm Liberty Media Group, Inc. Class A <F2> 12,135,742
1,827,500 Tele-Communications Inc. Class A <F2> 33,808,750
768,000 Total Renal Care, Inc. 144A <F2> 5,568,000
100,000 UCC Investors Holding, Inc. (acquired 3/28/94,
cost $1,400,000) <F4> 1,100,000
468,600 Viacom, Inc. Class A <F2> 22,785,675
161,070 Wang Laboratories, Inc. <F2> 2,818,725
--------------
TOTAL COMMON STOCKS (cost $253,374,499) $ 240,996,980
<PAGE>
UNITS (4.3%)<F1>
NUMBER OF UNITS VALUE
- ----------------------------------------------------------------------------------------------
21,000 Australis Media units stepped-coupon zero %
(14s, 5/15/2000), 2003 <F3> $ 12,075,000
45,420 Cellnet Data Systems Inc. units stepped-coupon
zero % (13s, 6/15/00), 2005 <F3> 25,435,200
6,500 Decorative Home Accents 144A units 13s, 2002 6,500,000
11,870 Heartland Wireless Communication 144A units 13s, 2003 12,463,500
22,000 ICF Kaiser International, Inc. sr. sub. units 12s, 2003 20,845,000
23,000 In-Flight Phone Corp. units stepped-coupon zero %
(14s, 5/15/98), 2002 <F3> 8,280,000
6,818 Intelcom Group (USA) Inc., 144A units stepped-coupon
zero % (13 1/2s, 9/15/99), 2005 <F3> 37,499,000
20,000 Intermedia Communications of Florida 144A units
13 1/2s, 2005 20,950,000
6,650,000 Premium Standard Farms 144A exch. pfd. units
12 1/2s, 2000 7,315,000
12,680 Total Renal Care, Inc. units stepped-coupon zero %
(12s, 8/15/99), 2004 <F3> 11,665,600
--------------
TOTAL UNITS (cost $161,780,218) $ 163,028,300
BRADY BONDS (2.3%)<F1>
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
$ 240,000 Argentina (Government of) Floating Rate Notes
(FRN) 7.3125s, 2005 $ 146,400
24,830,000 Argentina (Government of) FRN 4.313s, 2023 14,091,025
33,310,000 Argentina (Government of) bonds 4s, 2023 15,655,700
9,775,500 Brazil (Government of) FRN 7.8125s, 2001 8,064,789
14,300,000 Brazil (Republic of) FRN 7.25s, 2024 6,470,750
7,910,000 Brazil (Republic of) FRN 5.1875s, 2006 4,884,426
8,500,000 Bulgaria (Government of) disc. notes 6.563s, 2024 4,250,000
3,003,000 Bulgaria (Government of) Floating Rate Bonds (FRB)
6.0623s, 2011 1,313,813
13,250,000 Ecuador (Government of) FRN 7 1/4s, 2025 6,525,625
31,100,000 Mexico (Government of) bonds 6 1/4s, 2019 18,815,500
7,773,000 Poland (Government of) 144A FRN 8.125s, 2024 5,902,583
2,000,000 United Mexican States (Government Guaranty) FRN
8.125s, 2008 1,795,000
--------------
TOTAL BRADY BONDS (cost $96,033,219) $ 87,915,611
PREFERRED STOCKS (1.4%)<F1>
NUMBER OF SHARES VALUE
- ----------------------------------------------------------------------------------------------
162,000 California Federal Bank Ser. B, $10.625 exch. pfd. $ 17,374,500
7,407 Duane Reade Corp. zero % pfd. <F2> 185,185
220,000 First Nationwide Bank $11.50 pfd. 23,540,000
472,438 Pyramid Communications, Inc. Ser. C, $3.125 exch. pfd. <F2> 11,810,939
--------------
TOTAL PREFERRED STOCKS (cost $50,948,190) $ 52,910,624
CONVERTIBLE BONDS AND NOTES (0.6%)<F1>
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
$ 4,825,000 Sahara Mission 144A cv. sub. notes 12s, 1995 $ 4,825,000
27,771,000 Pricellular Wire cv. sub. notes 10 3/4s, 2004 16,480,700
--------------
TOTAL CONVERTIBLE BONDS AND NOTES
(cost $21,305,700) $ 21,305,700
<PAGE>
WARRANTS (0.5%)<F1>
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
265,000 Becker Gaming Corp. 144A 11/15/00 $ 132,500
136,500 Capital Gaming International, Inc. 2/1/99 17,063
42,125 Casino America, Inc. 11/15/96 42,125
53,280 Casino Magic Finance Corp. 10/14/96 2,664
212,412 Cinemark Mexico USA, Inc. 8/1/03 1,967,997
6,900 Commodore Media 144A 5/1/00 552,000
20,000 County Seat Holdings, Inc. 10/15/98 400,000
374,640 Echostar Communications Corp. 6/6/04 4,214,700
27,135 Foamex (L.P.) Capital Corp. 144A 7/1/99 407,025
949,947 Gaylord Container Corp. 144A 7/31/96 9,261,983
3,065 General Media Corp. 144A 12/31/00 30,650
19,500 OSI Specialties Inc. 144A 4/15/99 390,000
72,220 Pagemart, Inc. 144A 12/31/03 649,980
46,097 Petracom Holdings, Inc. 8/1/05 328,441
44,150 President Riverboat Casinos, Inc. 9/30/99 176,600
30,000 President Riverboat Casinos, Inc. 144A 9/23/96 1,500
16,000 Renaissance Cosmetics Corp. 144A 8/15/01 280,000
220,000 Southdown, Inc. 144A 10/31/96 852,500
8,936 Southland Corp. 3/5/96 22,340
506 Telemedia Broadcasting Corp. 144A 4/1/04 379,148
403 Wright Medical Technology, Inc. 144A 6/30/03 66,455
--------------
TOTAL WARRANTS (cost $12,136,712) $ 20,175,671
FOREIGN GOVERNMENT BONDS AND NOTES (0.1%)<F1>
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C>
$ 1,200,000 Philippines (Central Bank of) bonds 5 3/4s, 2017 $ 880,500
1,500,000 Philippines (Central Bank of) bonds 5s, 2008 1,162,500
--------------
TOTAL FOREIGN GOVERNMENT BONDS AND NOTES
(cost $2,029,125) $ 2,043,000
SHORT-TERM INVESTMENTS (1.0%)<F1>
PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------
<C> <C> <S> <C>
IDR 7,000,000,000 Bank Nefara Indonesia Certificate of Deposit
zero %, July 18, 1996 $ 2,686,572
$ 7,900,000 Heinz (H.J.) Co. 5.73s, September 26, 1995 7,868,565
5,659,995 Poland Zloty Certificate of Deposit zero %,
January 31, 1996 4,892,500
IDR 10,000,000,000 PLN Indonesia Certificate of Deposit zero %,
February 2, 1996 4,128,025
$ 18,072,000 Interest in $514,241,000 joint repurchase
agreement dated August 31, 1995 with
Morgan (J.P.) & Co., Inc. due September 1, 1995
with respect to various U.S. Treasury obligations-
maturity value of $18,074,887 for an effective
yield of 5.75% 18,074,887
--------------
TOTAL SHORT-TERM INVESTMENTS (cost $37,981,298) $ 37,650,549
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $3,672,905,571)<F6> $3,663,151,977
- ----------------------------------------------------------------------------------------------
<PAGE>
<FN>
<F1> Percentages indicated are based on net assets of $3,761,377,964, which correspond to
a net asset value per share for class A, class B and class M share of $12.01, $11.97
and $12.00, respectively.
<F2> Non-income-producing security.
<F3> The interest rate and date shown parenthetically represent the next interest rate to
be paid and the date the fund will begin receiving this rate.
<F4> Restricted as to public resale. At the date of acquisition these securities were
valued at cost. There were no outstanding unrestricted securities of the same class
as those held. Total market value of restricted securities owned at August 31, 1995
was $24,109,491 or 0.6% of net assets.
<F5> Income may be received in cash or additional securities at the discretion of the
issuer.
<F6> The aggregate identified cost for federal income tax purposes is $3,681,602,296,
resulting in gross unrealized appreciation and depreciation of $410,739,468, and
$429,189,787, respectively, or net unrealized depreciation of $18,450,319.
144A after the name of a security represents those securities 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.
FORWARD CURRENCY CONTRACTS TO SELL Outstanding at August 31, 1995
MARKET AGGREGATE DELIVERY UNREALIZED
VALUE FACE VALUE DATE DEPRECIATION
------------------------------------------------------------------------------------
Deutschemarks $2,471,618 $2,449,980 1/31/96 $(21,638)
------------------------------------------------------------------------------------
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
- -------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,672,905,571) (Note 1) $3,663,151,977
- -------------------------------------------------------------------------------
Cash 282
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 79,772,890
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 7,092,279
- -------------------------------------------------------------------------------
Receivable for securities sold 27,414,777
- -------------------------------------------------------------------------------
TOTAL ASSETS 3,777,432,205
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased 2,880,092
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,149,886
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,141,691
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 8,469
- -------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,262
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 614,058
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,920,299
- -------------------------------------------------------------------------------
Payable for open forward currency contracts 21,638
- -------------------------------------------------------------------------------
Other accrued expenses 315,846
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 16,054,241
- -------------------------------------------------------------------------------
NET ASSETS $3,761,377,964
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,443,659,455
- -------------------------------------------------------------------------------
Undistributed net investment income (Notes 1 and 4) 61,831
- -------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (Note 1) (672,568,090)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (9,775,232)
- -------------------------------------------------------------------------------
TOTAL--REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $3,761,377,964
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($2,997,467,123 divided by 249,634,566 shares) $12.01
- -------------------------------------------------------------------------------
Offering price per share (100/95.25 of $12.01)* $12.61
- -------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($762,946,896 divided by 63,732,152 shares)+ $11.97
- -------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($963,945 divided by 80,326 shares) $12.00
- -------------------------------------------------------------------------------
Offering price per share (100/96.75 of $12.00) $12.40
- -------------------------------------------------------------------------------
* 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.
<PAGE>
STATEMENT OF OPERATIONS
Year ended August 31, 1995
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Interest $384,620,803
- -------------------------------------------------------------------------------
Dividends 6,693,564
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 391,314,367
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 19,180,576
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 4,150,697
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 82,592
- -------------------------------------------------------------------------------
Auditing 234,718
- -------------------------------------------------------------------------------
Legal 80,802
- -------------------------------------------------------------------------------
Postage 616,938
- -------------------------------------------------------------------------------
Administrative services (Note 2) 51,865
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 7,154,498
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,228,426
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 291
- -------------------------------------------------------------------------------
Other 150,373
- -------------------------------------------------------------------------------
TOTAL EXPENSES 37,931,776
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 353,382,591
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (134,185,005)
- -------------------------------------------------------------------------------
Net realized loss on written options (Note 1) (150,313)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and written options
during the year 140,372,490
- -------------------------------------------------------------------------------
Net unrealized loss on forward currency contracts (21,638)
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 6,015,534
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $359,398,125
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31
1995 1994
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 353,382,591 $ 346,496,500
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments
and options (134,335,318) 59,173,723
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and forward currency contracts 140,350,852 (318,941,272)
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 359,398,125 86,728,951
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
- -------------------------------------------------------------------------------
From net investment income
- -------------------------------------------------------------------------------
Class A (293,973,082) (312,520,631)
- -------------------------------------------------------------------------------
Class B (59,607,996) (40,210,044)
- -------------------------------------------------------------------------------
Class M (4,823)
- -------------------------------------------------------------------------------
From return of capital
- -------------------------------------------------------------------------------
Class A (9,903,791)
- -------------------------------------------------------------------------------
Class B (2,008,161)
- -------------------------------------------------------------------------------
Class M (162)
- -------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 346,727,853 258,156,724
- -------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 340,627,963 (7,845,000)
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of year 3,420,750,001 3,428,595,001
- -------------------------------------------------------------------------------
END OF YEAR (including undistributed net
investment income and distributions in excess
of net investment income of $61,831 and
$1,422,557, respectively) $3,761,377,964 $3,420,750,001
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
JULY 3, 1995 MARCH 1, 1994
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS)
TO AUGUST 31 YEAR ENDED AUGUST 31 TO AUGUST 31
- ------------------------------------------------------------------------------------------------------------
1995 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
CLASS M CLASS B
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD 11.92+ $12.03 $12.99 $12.84
- ------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
- ------------------------------------------------------------------------------------------------------------
Net investment income .21 1.09 1.18 .62
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .07 .02 (.94) .23
- ------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .28 1.11 .24 .85
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------
From net investment income (.19) (1.13) (1.20) (.70)
- ------------------------------------------------------------------------------------------------------------
From return of capital (.01) (.04) -- --
- ------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- -- --
- ------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Paid-in capital -- -- -- --
- ------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.20) (1.17) (1.20) (.70)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.00 $11.97 $12.03 $12.99
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(a) 2.38(b) 9.88 1.66 6.80(b)
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $964 $762,947 $535,002 $238,647
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .20(b) 1.70 1.69 .85(b)
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 1.65(b) 9.52 9.06 4.92(b)
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 81.70 81.70 55.00 50.90
- ------------------------------------------------------------------------------------------------------------
<PAGE>
FINANCIAL HIGHLIGHTS [continued]
(For a share outstanding throughout the period) [continued]
<CAPTION>
YEAR ENDED AUGUST 31
- ------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.06 $13.01 $12.76 $11.55 $10.99
- ------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
- ------------------------------------------------------------------------------------------------------------
Net investment income 1.22 1.27 1.46 1.57 1.52
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.01) (.93) .28 1.22 .66
- ------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.21 .34 1.74 2.79 2.18
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------------------
From net investment income (1.22) (1.29) (1.45) (1.56) (1.52)
- ------------------------------------------------------------------------------------------------------------
From return of capital (.04) -- -- -- --
- ------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (.04) -- --
- ------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- (.02) --
- ------------------------------------------------------------------------------------------------------------
Paid-in capital -- -- -- -- (.10)
- ------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (1.26) (1.29) (1.49) (1.58) (1.62)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.01 $12.06 $13.01 $12.76 $11.55
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(A) 10.76 2.46 14.50 25.50 22.47
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $2,997,467 $2,885,748 $3,189,948 $2,449,282 $1,832,181
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .95 .94 .92 .97 1.09
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 10.27 9.82 11.27 12.63 14.18
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 81.70 55.00 50.90 47.05 72.53
- ------------------------------------------------------------------------------------------------------------
+ Per share net investment income has been determined on the basis of the weighted average number of
shares outstanding during the period.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1995
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund 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 Management believes does not
involve undue risk to income or principal.
The fund offers class A, class B and class M shares. The fund commenced its
public offering of class M shares on July 3, 1995. Class A shares are sold with
a maximum front-end sales charge of 4.75%. Class B shares do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares, and
may be subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.25% and an ongoing distribution fee that is higher
than class A shares and lower than class B shares. Expenses of the fund are
borne pro-rata by the shareholders of each class of shares, except that each
class bears expenses unique to that class (including the distribution fees
applicable to such class). Each votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required by law or
determined by the Trustees. Shares of each class would receive their pro-rata
share of the net assets of the fund, if the fund were liquidated. In addition,
the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A SECURITY VALUATION Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported--as in the case of some
securities traded over-the-counter--the last reported bid price, except that
certain U.S. government obligations are stated at the mean between the last
reported bid and asked prices. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are stated at
amortized cost, which approximates market value, and other investments,
including restricted securities, are stated at fair value following procedures
approved by the Trustees. Market quotations are not considered to be readily
available for long-term corpor ate bonds and notes; such investments are stated
at fair value on the basis of valuations furnished by a pricing service,
approved by the Trustees, which determines valuations for normal,
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships between
securities that are generally recognized by institutional traders. (See Section
E of Note 1 with respect to valuation of options and forward currency
contracts.)
<PAGE>
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 managed by Putnam Investment Management, Inc. (Putnam Management), the
fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., and
certain other accounts. 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. The fund's Manager 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 trans actions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis and dividend income is recorded
on the ex-dividend date.
Discount on zero coupon bonds, original issue discount bonds and stepped-coupon
bonds is accreted according to the effective yield method. Certain securities
held by the fund pay interest in the form of additional securities; interest on
such securities is recorded on the accrual basis by means of the effective yield
method, and is allocated to the cost of the securities received on the payment
date.
E OPTION ACCOUNTING PRINCIPLES The fund may, to the extent consistent with its
investment objective and policies, seek to increase its current returns by
writing covered call and put options on securities it owns or in which it may
invest. When the fund writes a call or put option, an amount equal to the
premium received by the fund is included in the fund's "Statements of assets and
liabilities" as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to market" to reflect the current market value
of an option written. The current market value of an option is the last sale
price or, in the absence of a sale, the last offering price. If an option
expires on its stipulated expiration date, or if the fund enters into a closing
purchase transaction, the fund realizes a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is extinguished. If a written call option
is exercised, the fund realizes a gain or loss from the sale of the underlying
security and the proceeds of the sale are increased by the premium originally
received. If a written put option is exercised, the amount of the premium
originally received reduces the cost of the security that the fund purchases
upon exercise of the option.
The risk in writing a call option is that the fund relinquishes the opportunity
to profit if the market price of the underlying security increases and the
option is exercised. In writing a put option, the fund assumes the risk of
incurring a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk the fund may not be able
to enter into a closing transaction because of an illiquid secondary market.
The fund may also, to the extent consistent with its investment objectives and
policies, buy put options to protect its portfolio holdings in an underlying
security against a decline in market value. The fund may buy call options to
hedge
<PAGE>
against an increase in the price of the securities that the fund ultimately
wants to buy. The fund may also buy and sell combinations of put and call
options on the same underlying security to earn additional income. The premium
paid by the fund for the purchase of a put or call option is included in the
fund's "Statement of assets and liabilities" as an investment and is
subsequently "marked-to-market" to reflect the current market value of the
option. If an option the fund has purchased expires on the stipulated expiration
date, the fund realizes a loss in the amount of the cost of the option. If the
fund enters into a closing sale transaction, the fund realizes a gain or loss
depending on whether proceeds from the closing sale transaction are greater or
less than the cost of the option, the cost of securi ties acquired by exercising
the call is increased by the premium paid to buy the call. If the fund exercises
a put option, it realizes a gain or loss from the sale of the underlying
security and the proceeds from such sale are decreased by the premium originally
paid. The risk associated with purchasing options is limited to the premium
originally paid.
F FORWARD CURRENCY CONTRACTS The fund may engage in forward currency contracts,
which are agreements between two parties to buy and sell currencies at a set
price on a future date, to protect against a decline in value relative to the
U.S. dollar of the currencies in which its portfolio securities are denominated
or quoted (or an increase in the value of a currency in which securities the
fund intends to buy are denominated, when the fund holds cash reserves and
short-term investments). The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is "marked to market" daily and
the change in market value is recorded as an unrealized gain or loss. When the
contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The fund could be exposed to risk if the value
of the currency changes unfavorably, if the counterparties to the contracts are
unable to meet the terms of their contracts or if the fund is unable to enter
into a closing position. The maximum potential loss from forward currency
contracts is the aggregate face value in U.S. dollars at the time the contract
was opened; however, management believes the likelihood of such a loss to be
remote.
G FEDERAL TAXES It is the policy of the fund to distribute all of its 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. There
fore, no provision has been made for federal taxes on income, capital gains or
unrealized appreciation of securities held and excise tax on income and capital
gains. At August 31, 1995, the fund had a capital loss carryover of
approximately $556,775,385 available to offset future net capital gain, if any
which will expire on:
LOSS CARRYOVER EXPIRATION
- -------------------------------------
$ 20,860,516 August 31, 1996
53,128,974 August 31, 1997
23,057,542 August 31, 1998
296,761,877 August 31, 1999
110,228,549 August 31, 2000
52,737,927 August 31, 2003
- -------------------------------------
$556,775,385
- -------------------------------------
H DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders will be recorded
by the fund on the ex-dividend date. The amount and character of income and
gains to be distributed is determined in accordance with income
<PAGE>
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 carryover) under
income tax regulations. These differences include treatment of post-October
losses, interest on payment in-kind securities, amortization of bond premium and
losses on wash sale transactions. For the year ended August 31, 1995, the fund
reclassified $1,157,416 to decrease undistributed net investment income,
$22,529,139 to increase accumulated net realized loss on invest ment
transactions and $23,686,555 to increase paid-in capital. The calculation of net
investment income per share in the financial highlights excludes these
adjustments.
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 for the
quarter. 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 any amount over $1.5 billion, subject to reduction,
under current law, in any year to the extent that expenses (exclusive of
brokerage, interest and taxes) of the fund exceed 2.5% of the first $30 million
of average net assets, 2.0% of the next $70 million and 1.5% of any amount over
$100 million, and by the amount of certain brokerage commissions and fees (less
expenses) received by affiliates of the Manager on the fund's portfolio
transactions.
The fund also reimburses the Manager 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.
Trustees of the fund receive an annual Trustee's fee of $4,920 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
During the year ended August 31, 1995, the fund adopted a Trustee Fee Deferral
Plan (the "Plan") which allows the Trustees to defer the receipt of all or a
portion of Trustees' fees payable on or after July 1, 1995. The deferred fees
remain in the fund and are invested in the fund or in other Putnam funds until
distribution in accordance with the Plan.
Custodial functions for the fund 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.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended August 31, 1995 have been reduced by credits allowed by PFTC.
The fund has adopted distribution plans with respect to its class A shares and
class B shares (the "Plans") 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
Trustees have approved payment by the fund to Putnam Mutual Funds Corp. at an
annual rate of 0.25%, 1.00% and 0.50% of the average net assets attributable to
class A, class B and class M shares, respectively.
<PAGE>
For the year ended August 31, 1995, Putnam Mutual Funds Corp., acting as
underwriter, received net commissions of $784,286 from the sale of class A
shares and $2,516 from the sale of class M shares. There were $1,667,147 in
contingent deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A shares
purchased as part of an investment of $1 million or more. For the year ended
August 31, 1995, Putnam Mutual Funds Corp., acting as underwriter received
$34,583 on class A redemptions. There were no contingent deferred sales charges
on class M redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended August 31, 1995, purchases and sales of investment
securities other than short-term investments aggregated $2,893,429,979 and
$2,540,172,145, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities sold,
the cost of securities has been determined on the identified cost basis.
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------
Options written 18,500 $ 135,859
Options closed (18,500) (135,859)
- -------------------------------------------------------------------------------
WRITTEN OPTIONS OUTSTANDING AT END OF YEAR -- $ --
- -------------------------------------------------------------------------------
NOTE 4
CAPITAL SHARES
At August 31, 1995 there was an unlimited number of shares of beneficial
interest authorized, divided into three classes, class A, class B and class M
capital shares. Transactions in capital shares were as follows:
YEAR ENDED AUGUST 31
1995 1994
- -------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 53,235,731 $626,633,403 71,549,404 $922,107,257
Shares issued in
connection with
reinvestment of
distributions 12,624,583 148,394,989 11,702,459 150,364,549
- -------------------------------------------------------------------------------
65,860,314 775,028,392 83,251,863 1,072,471,806
- -------------------------------------------------------------------------------
Shares repurchased (55,532,297) (655,422,219) (89,047,285) (1,152,902,095)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) 10,328,017 $119,606,173 (5,795,422) $(80,430,289)
- -------------------------------------------------------------------------------
<PAGE>
YEAR ENDED AUGUST 31
1995 1994
- -------------------------------------------------------------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 31,579,432 $371,489,530 38,919,687 $513,222,306
Shares issued in
connection with
reinvestment of
distributions 2,480,921 29,114,551 2,339,679 19,411,308
- -------------------------------------------------------------------------------
34,060,353 400,604,081 41,259,366 532,633,672
- -------------------------------------------------------------------------------
Shares repurchased (14,818,399) (174,450,151) (15,141,949) (194,046,659)
- -------------------------------------------------------------------------------
NET INCREASE 19,241,954 $226,153,930 26,117,417 $338,587,013
- -------------------------------------------------------------------------------
JULY 3, 1995
(COMMENCEMENT OF
OPERATIONS) TO AUGUST 31
1995
- -------------------------------------------------------------------------------
CLASS M SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 80,086 $964,865
Shares issued in connection with
reinvestment of distributions 323 3,885
- -------------------------------------------------------------------------------
80,409 968,750
- -------------------------------------------------------------------------------
Shares repurchased (83) (1,000)
- -------------------------------------------------------------------------------
NET INCREASE 80,326 $967,750
- -------------------------------------------------------------------------------
<PAGE>
FEDERAL TAX INFORMATION
For the year ended August 31, 1995, 3.26% of the fund's distribution represents
a return of capital and is therefore not taxable to shareholders. The return of
capital was primarily caused by the decline in the overall level of interest
rates during the fiscal year, which affected the fund's ability to earn its
dividend. The dividend was reduced during the fiscal year to reflect the lower
rates.
The fund has designated 1.76% of the distributions from net investment income as
qualifying for the dividends received deduction for corporations.
The Form 1099 you receive in January 1996 will show the tax status of all
distributions paid to your account in calendar 1995.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER OFFICERS
Putnam Investment George Putnam
Management, Inc. President
One Post Office Square
Boston, MA 02109 Charles E. Porter
Executive Vice President
MARKETING SERVICES
Putnam Mutual Funds Corp. Patricia C. Flaherty
One Post Office Square Senior Vice President
Boston, MA 02109
Lawrence J. Lasser
CUSTODIAN Vice President
Putnam Fiduciary Trust Company
Gordon H. Silver
LEGAL COUNSEL Vice President
Ropes & Gray
Gary N. Coburn
INDEPENDENT ACCOUNTANTS Vice President
Coopers & Lybrand L.L.P.
Edward H. D'Alelio
TRUSTEES Vice President and Fund Manager
George Putnam, Chairman
Jin W. Ho
William F. Pounds, Vice Chairman Vice President and Fund Manager
Jameson Adkins Baxter F. Mark Turner
Vice President
Hans H. Estin
William N. Shiebler
John A. Hill Vice President
Elizabeth T. Kennan John R. Verani
Vice President
Lawrence J. Lasser
Paul M. O'Neil
Robert E. Patterson Vice President
Donald S. Perkins John D. Hughes
Vice President and Treasurer
George Putnam, III
Beverly Marcus
Eli Shapiro Clerk and Assistant Treasurer
A.J.C. Smith
W. Nicholas Thorndike
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.
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 PRINCIPAL AMOUNT INVESTED.
<PAGE>
[LOGO: PUTNAM INVESTMENTS] ------------
Bulk Rate
THE PUTNAM FUNDS U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
------------
20437-014/324/2AC
