Putnam
High Yield
Trust
[GRAPHIC OMITTED: SEASHELL]
SEMIANNUAL REPORT
February 29, 1996
BOSTON * LONDON * TOKYO
[Putnam Scales Logo]
Fund highlights
*According to Lipper Analytical Services, Putnam High
Yield Trust's class A share total return ranked 11 out of 35 high
current yield funds for the 10-year period ended March 31, 1996, placing
the fund in the top 31% of funds in this category.*
*"Among its peers, the fund has one of the highest yields, while
exhibiting only moderate risk."
-- The Value Line Mutual Fund Survey, February 6, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
25 Financial statements
*Lipper Analytical Services, an independent research organization, ranks
funds according to total-return performance. Their rankings vary over
time and do not reflect the effects of sales charges. For periods ended
3/31/96, the fund's class A shares ranked 45 out of 130, 29 out of 63,
and 11 out of 35 high current yield funds for 1-, 5-, and 10-year
performance, respectively. Class B shares ranked 64 out of 130 high
current yield funds for 1-year performance. Class M shares commenced
operations on 7/3/95 and are not included because of the brevity of the
reporting period. Past performance is not indicative of future results.
[GRAPHIC OMITTED: Photo of George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
As Putnam High Yield Trust reached the midpoint of its fiscal year on
February 29, 1996, performance at net asset value was comfortably ahead
of the results registered by the benchmark indexes. In line with its
primary objective, the fund also provided an above-average stream of
current income.
A strong bond market throughout much of the period furnished a
hospitable environment for the lower-rated high-yield corporate bonds
that constitute the main focus of your fund's portfolio. Astute
positioning and careful selection of individual holdings contributed to
the positive results.
In the report that follows, your fund's managers explain their strategy
in the prevailing markets, discuss the fund's performance during the
period, and take a look at prospects as the fund enters the second half
of fiscal 1996.
Respectfully yours,
/s/George Putnam
Chairman of the Trustees
April 17, 1996
Report from the Fund Managers
Jin W. Ho, lead manager
Rosemary H. Thomsen
Jennifer E. Leichter
Putnam High Yield Trust continues to deliver solid returns amid an
environment of unpredictable economic growth. Thanks to a flexible
investment strategy that allows the fund to shift portfolio allocations
in order to benefit from prosperous segments of the high-yield market,
your fund produced sturdy returns over the six months ended February 29,
1996. Indeed, the performance of all classes of shares at net asset
value outpaced the return posted by the First Boston High Yield Index
over the same period. Specific performance information appears on pages
8 and 9 of this report.
During the period, we maintained a somewhat defensive strategy as
economic growth continued to moderate. One component of this strategy
entailed shifting the portfolio's assets out of cyclical credits and
into issues of companies whose fortunes are less dependent on economic
growth, such as those in the telecommunications industry.
*FUND FINDS SOLID GROUND AMID ECONOMIC UNCERTAINTY
Cyclical companies, such as chemicals, paper, and automotive, are so
called because their performance typically shadows the behavior of the
economy, waxing and waning along with economic growth. During the
period, we continued to reduce the fund's allocation to cyclical issues.
We implemented this strategy toward the middle of 1995, as the U.S.
economy showed signs of slackening growth. At the same time, we added to
the fund's holdings of more defensive, noncyclical companies in sectors
such as telecommunications, cable television, health care, and electric
utilities.
Over the past six months this strategy proved beneficial to the fund as
defensive holdings generally outperformed cyclical securities. Among the
portfolio's strongest performers during the period were: IntelCom Group,
a supplier of telecommunications services; Panamsat, a provider of
satellite television broadcasting services; Echostar Communications, a
direct broadcast satellite television firm; and NEXTEL Communications, a
wireless communications provider. While these securities were viewed
favorably at the end of the period, all portfolio holdings are subject
to review and adjustment in accordance with the fund's investment
strategy and may well vary in the future.
Our emphasis on noncyclical issuers not only boosted performance but
also minimized volatility in the portfolio during the period. In
addition, as always, we continued to evaluate the credit quality of each
bond issuer carefully.
*NEW TELECOMMUNICATIONS LEGISLATION MEANS NEW OPPORTUNITIES
Toward the middle of calendar 1995, telecommunications and cable
television companies benefited as investors became more convinced that
Congress would ultimately pass legislation to deregulate the
telecommunications and broadcasting industries. We had prepared the
portfolio to take advantage of this trend in advance by building up the
fund's holdings in telephone companies, competitive access providers,
and cable television securities. Telecommunications and cable television
securities continued to prosper in the first half of the fund's current
fiscal year amid mounting anticipation that the bill would become law,
and we maintained our emphasis on these sectors. With the passage of
telecommunications deregulation legislation in early February, the
future of these industries looks even healthier than the recent past.
[WORM CHART OMITTED:
HIGH-YIELD BONDS VS. OTHER CORPORATE SECURITIES
vertical axis: 0, 20, 40, 60, 80, 100, 120%
horizontal axis: 1991, 1992, 1993, 1994, 1995, 1996
The following figures were used to create chart
1991 1992 1993 1994 1995 1996
High-yield bonds 0 37.30 57.42 82.13 83.19 112.76%
Common stocks 0 15.99 28.30 38.98 49.20 100.92%
Investment-grade corporate bonds 0 14.71 30.91 39.61 41.57 61.85%]
[Footnote reads]
This chart demonstrates that high-yield bonds, as represented by
the First Boston High Yield Index, generally outperformed common stocks
and investment-grade corporate bonds, as represented by the S&P
500(registered trademark) Index and the Lehman Brothers Corporate Bond
Index, respectively. The chart shows cumulative returns. Data as of the
last day of February for each year. The lower credit rating of high-
yield bonds reflects a greater possibility that adverse changes in an
issuer's business or financial condition or in general economic
conditions may impair the issuer's ability to pay principal and interest
on the securities. This chart does not reflect the performance of Putnam
High Yield Trust.
The new telecommunications law loosens restrictions on the cable
television industry and on local and long-distance telephone service. As
a result, high-yield bond issuers in these industries have begun to
prosper from merger and acquisition activity. Taking this developing
trend into account, we expect business prospects generally to improve as
deregulation improves revenues and further consolidation strengthens
cash flows and drives down operating costs.
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
falls somewhere between the levels of their individual credit ratings
before the merger or acquisition. Usually, the end result is that
outstanding bonds with lower ratings receive credit upgrades. Following
an upgrade, the prices of these bonds are likely to rise until their
yields drop to a level appropriate for bonds with the new, combined
credit rating. With this in mind, we plan to maintain the fund's
positions in the telecommunications and cable industries over the near
term, but we will take advantage of profit opportunities as they arise.
*OUTLOOK: A CAREFUL WATCH ON ECONOMIC GROWTH
Putnam's outlook for the economy is one of continued moderate economic
expansion and low inflation -- conditions that should bode well for
fixed-income investments. As economic growth has slowed in recent
months, corporate earnings have managed to remain healthy as a result of
cost cutting and consolidation. However, this trend may be approaching a
point where costs cannot be reduced any further, and earnings growth may
show signs of wear in the remainder of 1996. In turn, investors may read
a slowdown in earnings growth as a sign of economic moderation. This may
quell fears of inflation and help to suppress interest rates.
[GRAPHIC OMITTED: TOP 10 HOLDINGS (2/29/96)*
NEXTEL Communications, Inc. 0%, 2003
Wireless communications
Del Monte Corp. 12.25%, 2002
Food processing
PSF Finance 0%, 2003
Agriculture
TransTexas Gas Corp. 11.5%, 2002
Oil and gas
Adelphia Communications Corp. 12.5%, 2002
Cable television
Midland Funding Corp. 11.75%, 2005
Electric utility
Panamsat 0%, 2003
Telecommunications satellites
IntelCom Group, Inc. 0%, 2005
Telecommunications networks
Cablevision Systems Corp. $11.125 pfd stock
Cable television
HMH Properties, Inc. 9.5%, 2005
Real estate development
Footnote reads: *These holdings represent 14.70% of the fund's assets.
Portfolio holdings will vary over time.]
Going forward, we plan to keep the portfolio underweighted in cyclical
securities while economic growth remains modest. In such an environment,
we will maintain our emphasis on the issues of more defensive,
noncyclical companies. At the same time, we will carefully monitor
economic indicators for evidence of more vigorous growth on the horizon.
Should such evidence materialize, we will likely take advantage of the
fund's flexibility and once again pursue the growth potential of
securities in cyclical industries.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 2/29/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 2/29/96
Class A Class B Class M
(inception date) 2/14/78 3/1/93 7/3/95
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 7.34% 2.23% 7.05% 2.05% 7.34% 3.88%
- ------------------------------------------------------------------------
1 year 16.71 11.17 15.90 10.90 -- --
- ------------------------------------------------------------------------
5 years 105.08 95.30 -- -- -- --
Annual average 15.45 14.32 -- -- -- --
- ------------------------------------------------------------------------
10 years 170.68 157.87 -- -- -- --
Annual average 10.47 9.94 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 27.72 24.86 9.89 6.32
Annual average -- -- 8.50 7.68 -- --
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/29/96
Lehman Bros. First Boston
Corporate High Yield
Bond Index Index
- ------------------------------------------------------------------------
6 months 4.33% 6.60%
- ------------------------------------------------------------------------
1 year 14.32 16.14
- ------------------------------------------------------------------------
5 years 61.85 112.76
Annual average 10.10 16.29
- ------------------------------------------------------------------------
10 years 151.76 196.88
Annual average 9.67 11.49
- ------------------------------------------------------------------------
Life of class B 23.63 35.16
Annual average 7.33 10.56
- ------------------------------------------------------------------------
Life of class M 5.54 8.55
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions,
or, for class A shares, distributions fees prior to implementation of
the class A distribution plan in 1990. Investment returns and net asset
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost. POP assumes 4.75% maximum
sales charge for class A shares and 3.25% for class M. CDSC for class B
shares assumes the applicable sales charge, with the maximum being 5%.
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 6.11% 1.06% 5.74% 0.74% 6.10% 2.68%
- ------------------------------------------------------------------------
1 year 15.29 9.82 14.39 9.39 -- --
- ------------------------------------------------------------------------
5 years 95.24 85.90 -- -- -- --
Annual average 14.32 13.20 -- -- -- --
- ------------------------------------------------------------------------
10 years 164.38 151.82 -- -- -- --
Annual average 10.21 9.68 -- -- -- --
- ------------------------------------------------------------------------
Life of class -- -- 27.12 24.30 9.52 5.96
Annual average -- -- 8.08 7.29 -- --
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They 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. 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.
PRICE AND DISTRIBUTION INFORMATION
6 Months Ended 2/29/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions: (number) 6 6 6
- ------------------------------------------------------------------------
Income $0.600 $0.555 $0.590
- ------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------
Total $0.600 $0.555 $0.590
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
8/31/96 $12.01 $12.61 $11.97 $12.00 $12.40
- ------------------------------------------------------------------------
2/29/96 12.27 12.88 12.24 12.27 12.68
- ------------------------------------------------------------------------
Current return
End of period:
- ------------------------------------------------------------------------
Current dividend rate1 9.78% 9.32% 9.02% 9.58% 9.27%
- ------------------------------------------------------------------------
Current 30-day
SEC yield2 8.35 7.95 7.59 8.12 7.85
- ------------------------------------------------------------------------
1-Income portion of most recent distribution, annualized and divided
by NAV or POP at end of period.
2-Based on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
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.
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. It is not possible to invest directly in an index.
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the
relationship between an investment's potential rewards and its
accompanying risks. Given the cautionary nature of such
instructions, it may take most investors a while to realize that risk
has a positive side.
Every risk signals a potential reward. Selecting only those investments
that offer the greatest degree of security generally leads to only
modest rewards. Furthermore, even insured or guaranteed investments may
be subject to changes in their rates of return or, in some cases, in
their principal values. Experienced investors know that no investment is
truly risk free and are therefore willing to take on some measure of
risk in order to increase their potential gains.
The greater the risk, the greater the potential reward. Accepting an
appropriate level of investment risk can give you a better chance of
outpacing inflation over time and seeking to maximize your investment's
return. How much risk? Your financial advisor's feedback and your time
horizon can make all the difference in determining how much risk is
compatible with your investment goals and your peace of mind.
*FITTING YOUR FUND SELECTION TO YOUR RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? It's helpful to understand the types of risks that
can apply to different types of investments, and to look at your own
portfolio with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment
categories, you can select funds with differing levels of risk and
reward potential to customize your portfolio.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk consideration in each fund's
prospectus.
*A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds,
this is a measure of how sensitive a fund's holdings are to changes in
general market conditions. Remember, though, that securities that lose
value quickly in market declines may also show the strongest gains in
more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this
type of risk is a particular concern for fixed-income investors.
However, interest-rate increases can also have a substantial negative
effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk
over the long term.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the
security's issuer will not be able to meet its payment, while prepayment
risk involves the premature payoff of a loan, with a resulting loss of
interest income. Professional management and in-depth research are
invaluable in managing both these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share
prices.
<TABLE>
<CAPTION>
Portfolio of investments owned
February 29, 1996 (Unaudited)
CORPORATE BONDS AND NOTES (77.9%)*
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.9%)
- -------------------------------------------------------------------------------------------------------------------------------
$9,800,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $10,388,000
14,000,000 Outdoor Systems, Inc. sr. notes 10 3/4s, 2003 14,350,000
10,700,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 10,860,500
--------------
35,598,500
Aerospace and Defense (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
3,325,000 BE Aerospace 144A sr. sub. notes 9 7/8s, 2006 3,383,188
5,530,000 Fairchild Corp. sr. notes 12 1/4s, 1999 5,861,800
3,750,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 3,993,750
--------------
Agriculture (3.1%) 13,238,738
- -------------------------------------------------------------------------------------------------------------------------------
32,846,000 PMI Holdings Corp. sub. disc. deb. Ser. B,
stepped-coupon zero% (11 1/2s, 9/1/00), 2005 ++ 17,901,070
16,541,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004 (In default)+ 14,059,850
29,600,000 PSF Finance (L.P.) sr. notes 12s, 2000 (In default)+ 25,160,000
84,739,000 PSF Finance (L.P.) sr. disc. notes stepped-coupon zero%
(12s, 9/15/96), 2003 (In default)+++ 67,791,200
--------------
124,912,120
Apparel (0.7%)
- -------------------------------------------------------------------------------------------------------------------------------
23,437,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 22,851,075
5,000,000 PT Polysindo Eka sr. notes 13s, 2001 5,300,000
--------------
28,151,075
Automotive Parts (0.9%)
- -------------------------------------------------------------------------------------------------------------------------------
7,775,000 A.P.S., Inc. 144A sr. sub. notes 11 7/8s, 2006 8,066,563
7,700,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 8,373,750
9,950,000 Exide Corp. sr. notes 10s, 2005 10,696,250
10,000,000 Key Plastics Corp. sr. notes 14s, 1999 10,375,000
--------------
37,511,563
Banks (0.1%)
- -------------------------------------------------------------------------------------------------------------------------------
3,780,000 First Nationwide Holdings 144A sr. sub. notes 9 1/8s, 2003 3,808,350
Broadcasting (5.5%)
- -------------------------------------------------------------------------------------------------------------------------------
15,000,000 Allbritton Communications Corp. 144A sr.
sub. notes 9 3/4s, 2007 14,475,000
8,150,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 8,068,500
500,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 535,000
8,485,000 Chancellor Broadcasting Co. sr. sub. notes 9 3/8s, 2004 8,294,088
6,900,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 6,831,000
17,040,000 Echostar Communications sr. disc. notes
stepped-coupon zero% (12 7/8s, 6/1/99), 2004 ++ 12,354,000
8,500,000 Granite Broadcasting Corp. sr. sub. deb. 12 3/4s, 2002 9,350,000
9,760,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 10,101,600
5,500,000 Granite Broadcasting Corp. 144A sr. sub. notes 9 3/8s, 2005 5,293,750
14,875,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 14,875,000
59,500,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero%
(11 3/8s, 8/1/98), 2003 ++ 51,318,750
23,250,000 Paxson Communications Corp. sr. sub. notes 11 5/8s, 2002 24,412,500
19,063,000 Petracom Hldgs. notes stepped-coupon zero%
(17 1/2s, 8/1/98), 2003 ++ 13,915,990
7,850,000 SFX Broadcasting, Inc. sr. sub. notes 11 3/8s, 2000 8,556,500
5,700,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 5,785,500
22,271,000 Telemedia Broadcasting Corp. 144A deb.
stepped-coupon 6.4s, (16s, 6/15/99), 2004 ++ 20,043,900
8,800,000 Young Broadcasting, Inc. 144A sr. sub. notes 9s, 2006 8,536,000
--------------
222,747,078
Building and Construction (1.4%)
- -------------------------------------------------------------------------------------------------------------------------------
5,900,000 NVR, Inc. sr. notes 11s, 2003 6,077,000
21,900,000 Presley Cos. sr. notes 12 1/2s, 2001 20,148,000
19,250,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 19,827,500
9,500,000 U.S. Home Corp. sr. notes 9 3/4s, 2003 9,832,500
--------------
55,885,000
Building Products (1.1%)
- -------------------------------------------------------------------------------------------------------------------------------
23,000,000 American Standard Inc. sr. sub. notes stepped-coupon
zero% (10 1/2s, 6/1/98), 2005 ++ 20,010,000
3,640,000 Inter-City Products sr. notes 9 3/4s, 2000 2,912,000
20,575,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 19,752,000
--------------
42,674,000
Cable Television (9.0%)
- -------------------------------------------------------------------------------------------------------------------------------
59,765,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 62,603,838
6,665,000 Adelphia Communications Corp. sr. deb. 11 7/8s, 2004 6,931,600
16,250,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero% (14 1/2s, 8/15/00), 2005 ++ 10,562,500
33,850,000 Bell Cablemedia PLC sr. disc. notes zero %
(11.95s, 7/15/99), 2004 (United Kingdom) ++ 21,833,250
5,000,000 Bell Cablemedia PLC sr. notes zero % (11 7/8s, 9/15/00),
2005 (United Kingdom) ++ 3,656,250
7,500,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 8,025,000
10,500,000 Century Communications Corp. sr. sub. deb., 11 7/8s, 2003 11,366,250
5,000,000 Comcast Corp. sr. sub notes 9 3/8s, 2005 5,150,000
13,000,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero% (11 3/4s, 12/15/00), 2005 ++ 7,930,000
17,176,367 Falcon Holdings Group, Inc. sr. sub notes 11s, 2003 ++++ 16,403,430
11,870,000 Heartland Wireless Communication 144A sr. notes 14s, 2003 13,116,350
9,300,000 Insight Communications Co. sr. sub. notes stepped-coupon
8 1/4s, (11 1/4s, 3/1/96), 2000 ++ 9,672,000
17,833,000 Jones Intercable, Inc. sub. deb. 11 1/2s, 2004 19,883,795
6,290,000 Lenefest Communications, Inc. sr. notes 8 3/8s, 2005 6,250,688
21,100,000 Marcus Cable Co. (L.P.) sr. deb 11 7/8s, 2005 22,366,000
23,478,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero% (14 1/4s, 6/15/00), 2005 ++ 15,965,040
17,095,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero% (13 1/2s, 8/1/99), 2004 ++ 12,821,250
14,990,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 16,563,950
4,000,000 Rogers Cablesystems Ltd. deb. 10 1/8s, 2012 (Canada) 4,260,000
16,000,000 Rogers Cablesystems Ltd. notes 10s, 2007 (Canada) 17,120,000
2,000,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 2,150,000
10,000,000 Rogers Cablesystems Ltd. notes 9 5/8s, 2023 (Canada) 10,500,000
7,500,000 Tele-Communications, Inc. deb. 9 1/4s, 2023 7,928,175
25,000,000 Telewest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 25,625,000
3,400,000 Telewest Communications PLC deb. stepped-coupon
zero% (11s, 10/1/00), 2007 (United Kingdom)++ 2,091,000
15,500,000 Videotron Holdings. sr. disc. notes stepped coupon
zero% (11 1/8s, 7/1/99), 2004 (United Kingdom)++ 11,392,500
18,000,000 Videotron Holdings. sr. disc. notes stepped-coupon
zero% (11s, 8/15/05), 2005 (United Kingdom)++ 11,700,000
--------------
363,867,866
Cellular Communications (4.7%)
- -------------------------------------------------------------------------------------------------------------------------------
24,000,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero%
(11 3/4s, 9/1/98), 2003 ++ 19,800,000
19,875,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero% (10 1/8s, 1/15/99), 2004 ++ 12,074,063
9,650,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 10,084,250
25,300,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 24,920,500
8,525,000 Commnet Cellular Inc. bonds 11 1/4s, 2005 9,207,000
8,000,000 Horizon Cellular Telephone Co. sr. sub. disc. notes
stepped-coupon Ser. B, zero% (11 3/8s, 10/1/97), 2000 ++ 7,200,000
115,750,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero% (11 1/2s, 9/1/98), 2003 ++ 78,131,250
21,000,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero% (9 3/4s, 2/15/99), 2004 ++ 12,390,000
14,365,000 Pricellular Wireless sr. disc. notes stepped-coupon
Ser. B, zero% (14s, 11/15/97), 2001 ++ 12,928,500
3,370,000 Pricellular Wireless Corp. sr. disc. notes
stepped-coupon, zero% (12 1/4s, 10/1/98), 2003 ++ 2,696,000
1,500,000 Rogers Cantel Mobile Inc. deb. 10 3/4s, 2001 1,575,000
--------------
191,006,563
Chemicals (2.0%)
- -------------------------------------------------------------------------------------------------------------------------------
210,000 Acetex Corp. 144A sr. notes 9 3/4s, 2003 219,450
8,825,000 Arcadian Partner sr. notes 10 3/4s, 2005 9,707,500
30,603,000 G-I Holdings, Inc. sr. disc. notes Ser. B, zero%, 1998 24,635,415
3,100,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 3,224,000
13,500,000 Harris Chemical Corp. sr. secd. disc. notes 10 1/4s, 2001 13,500,000
22,475,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 22,250,250
7,625,000 IMC Fertilizer notes Ser. B, 10 1/8s, 2001 8,444,688
--------------
81,981,303
Computer Equipment (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
23,800,000 Computervision Corp. sr. sub notes 11 3/8s, 1999 25,109,000
Conglomerates (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
2,190,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 2,146,200
3,600,000 Congoleum Corp. sr. notes 9s, 2001 3,528,000
12,450,000 Jordan Industries, Inc. sr. notes 10 3/8s, 2003 11,267,250
9,100,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 9,100,000
--------------
26,041,450
Consumer Services (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
19,636,000 Coinmach Corp. 144A sr. notes 11 3/4s, 2005 20,028,720
Containers (1.3%)
- -------------------------------------------------------------------------------------------------------------------------------
35,000,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 37,187,500
13,770,000 United States Can Co. sr. sub. notes 13 1/2s, 2002 14,733,900
--------------
51,921,400
Electric Utilities (5.1%)
- -------------------------------------------------------------------------------------------------------------------------------
5,000,000 CTC Mansfield deb. 11 1/8s, 2016 5,321,550
33,965,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. B, 9 1/2s, 2005 35,323,600
12,000,000 EL Paso Electric Co. 1st. mtge. Ser. E, 9.4s, 2011 12,480,000
20,000,000 First PV Funding deb. Ser. 86A, 10.3s, 2014 21,000,000
6,300,000 First PV Funding deb. 10.15s, 2016 6,520,500
10,000,000 Long Island Lighting Co. refunding mtge. notes 9 3/4s, 2021 10,286,100
5,000,000 Long Island Lighting Co. refunding mtge. notes 9 5/8s, 2024 5,169,950
5,000,000 Long Island Lighting Co. refunding mtge. notes 8 5/8s, 2004 5,137,500
15,100,000 Midland Funding Corp. II deb. Ser. B, 13 1/4s, 2006 16,987,500
55,075,000 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 59,205,625
1,000,000 Niagara Mohawk Power Corp. med. term notes 9.99s, 2004 927,500
1,500,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 1,464,375
3,000,000 Niagara Mohawk Power Corp. 1st. mtge 7 3/8s, 2003 2,752,500
22,000,000 Texas New Mexico Pwr. deb. 12 1/2s, 1999 24,420,000
--------------
206,996,700
Electronics (1.7%)
- -------------------------------------------------------------------------------------------------------------------------------
34,450,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 38,928,500
49,250,000 International Semi-Tech. Corp. sr. secd. disc.
notes stepped-coupon zero% (11 1/2s, 8/15/00), 2003 (Canada)++ 29,550,000
--------------
68,478,500
Entertainment (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
$12,250,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ $10,351,250
5,257,000 Time Warner, Inc. notes 8.18s, 2007 5,416,182
5,257,000 Time Warner, Inc. notes 8.11s, 2006 5,457,239
2,628,000 Time Warner, Inc. notes 7.975s, 2004 2,717,352
1,000 Time Warner, Inc. FRN 6.21s, 2000 1,004
--------------
23,943,027
Environmental Control (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
14,523,000 Allied Waste Industries sr. sub. notes 12s, 2004 15,793,763
Financial Services (0.1%)
- -------------------------------------------------------------------------------------------------------------------------------
990,000 AIM Management Group sr. secd. notes 9s, 2003 1,039,500
2,250,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 2,188,125
--------------
3,227,625
Food (3.2%)
- -------------------------------------------------------------------------------------------------------------------------------
80,766,000 Del Monte Corp. sub. notes 12 1/4s, 2002 ++++ 73,497,060
4,015,000 Doane Products Co. sr. notes 10 5/8s, 2006 4,085,263
17,905,000 Fresh Del Monte Produce Corp. NV sr. notes Ser. B,
10s, 2003 (Netherlands) 17,188,800
10,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 10,500,000
3,135,000 Specialty Foods Acquisition Corp. sr. secd. disc. deb.
stepped-coupon zero% (13s, 8/15/99), 2005 ++ 1,504,800
25,200,000 Specialty Foods Acquisition Corp. sr. sub. notes 11 1/4s, 2003 21,042,000
--------------
127,817,923
Food Chains (0.5%)
- -------------------------------------------------------------------------------------------------------------------------------
18,500,000 Stater Brothers sr. notes 11s, 2001 19,147,500
Health Care (2.3%)
- -------------------------------------------------------------------------------------------------------------------------------
7,970,000 Abbey Healthcare Group Inc. sr. sub. deb. 9 1/2s, 2002 8,567,750
2,285,456 Amerisource Health deb. 11 1/4s, 2005 2,559,711
5,000,000 Dynacare, Inc. sr. notes 10 3/4s, 2006 (Canada) 5,150,000
5,750,000 Genesis Health Ventures Inc. sr. sub. notes 9 3/4s, 2005 6,152,500
8,900,000 Integrated Health Services sr. sub. notes 10 3/4s, 2004 9,434,000
7,150,000 Integrated Health Services sr. sub. notes 9 5/8s, 2002 7,328,750
13,270,000 Ivac Corp. sr. notes 9 1/4s, 2002 13,933,500
1,000,000 Magellan Health Services, Inc. sr. sub. deb. Ser. A, 11 1/4s, 2004 1,120,000
10,000,000 Merit Behavioral Care 144A sr. sub. notes 11 1/2s, 2005 10,800,000
5,810,000 Quorum Health Group, Inc. sr. sub. notes 11 7/8s, 2002 6,536,250
5,400,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 5,616,000
6,350,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 6,635,750
8,242,000 Total Renal Care Holdings, Inc. sr. disc. notes
stepped-coupon zero %, (12s, 8/15/97), 2004 ++ 8,242,000
--------------
92,076,211
Home Furnishings (0.3%)
- -------------------------------------------------------------------------------------------------------------------------------
10,733,886 Simmons Mattress Corp. deb. 9s, 2003 ++++ 10,841,225
Insurance (2.1%)
- -------------------------------------------------------------------------------------------------------------------------------
$15,500,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 $16,585,000
6,150,000 CCP Insurance, Inc. sr. notes 10 1/2s, 2004 7,180,125
28,800,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 29,880,000
16,500,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 17,077,500
12,500,000 Terra Nova Insurance Holdings. sr. notes 10 3/4s, 2005
(United Kingdom) 14,312,500
--------------
85,035,125
Lodging (2.4%)
- -------------------------------------------------------------------------------------------------------------------------------
40,250,000 HMH Properties, Inc. sr. notes Ser. B, 9 1/2s, 2005 41,055,000
20,700,000 John Q. Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 20,700,000
2,450,000 Prime Hospitality Corp. 1st. mtge. 9 1/4s, 2006 2,446,938
30,500,000 Red Roof Inns sr. notes 9 5/8s, 2003 30,500,000
--------------
94,701,938
Media (1.3%)
- -------------------------------------------------------------------------------------------------------------------------------
5,125,000 Heritage Media Corp. sr. sub. notes 8 3/4s, 2006 5,022,500
4,330,000 Pegasus Media Communications notes Ser. B, 12 1/2s, 2005 4,438,250
44,375,000 Viacom International, Inc. sub. deb. 8s, 2006 43,598,438
--------------
53,059,188
Medical Supplies (1.0%)
- -------------------------------------------------------------------------------------------------------------------------------
6,000,000 Mediq, Inc. notes 12 1/8s, 1999 6,240,000
6,500,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 6,727,500
--------------
12,967,500
Metals and Mining (1.0%)
- -------------------------------------------------------------------------------------------------------------------------------
36,350,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 39,439,750
Motion Picture Distribution (0.6%)
- -------------------------------------------------------------------------------------------------------------------------------
875,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 951,563
10,850,000 Cinemark Mexico notes 12s, 2003 (Mexico) 10,090,500
8,900,000 Cinemark USA sr. notes 12s, 2002 9,767,750
2,575,000 Cobb Theatres Finance Corp. 144A sr. notes 10 5/8s, 2003 2,626,500
--------------
23,436,313
Office Equipment (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
1,700,000 Corporate Express, Inc. sr. sub notes Ser. B, 9 1/8s, 2004 1,772,250
11,000,000 United Stationers Inc. sr. sub. notes 12 3/4s, 2005 12,430,000
--------------
14,202,250
Oil and Gas (4.2%)
- -------------------------------------------------------------------------------------------------------------------------------
12,500,000 Chesapeake Energy Corp. sr. notes 12s, 2001 13,593,750
9,300,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 9,765,000
11,000,000 Clark USA Inc. 144A sr. notes 10 7/8s, 2005 11,577,500
10,315,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 11,913,825
5,980,000 Gerrity Oil & Gas Corp. sr. sub. notes 11 3/4s, 2004 6,099,600
5,000,000 Gulf Canada Resources Ltd. sr. sub. notes
9 5/8s, 2005 (Canada) 5,325,000
10,695,000 Maxus Energy Corp. notes 9 3/8s, 2003 10,801,950
9,000,000 Oryx Energy Co. notes 8 1/8s, 2005 8,929,530
11,000,000 Transamerican Refining Corp. 1st. mtge. 16 1/2s, 2002 9,680,000
63,025,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 63,970,375
15,850,000 Triton Energy sr. sub. disc. notes stepped-coupon zero%
(9 3/4s, 12/15/96), 2000 ++ 15,295,250
--------------
166,951,780
Paging (1.5%)
- -------------------------------------------------------------------------------------------------------------------------------
6,000,000 A+ Network Inc. sr. sub notes 11 7/8s, 2005 6,270,000
17,525,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 18,927,000
10,000,000 Mobilemedia Corp. sr. sub. notes 9 3/8s, 2007 10,325,000
1,500,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero% (15s, 2/1/00), 2005 ++ 1,027,500
15,700,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero%
(12 1/4s, 11/1/98), 2003 ++ 12,403,000
9,250,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 10,036,250
--------------
58,988,750
Paper (3.4%)
- -------------------------------------------------------------------------------------------------------------------------------
23,500,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 23,500,000
1,500,000 Doman Industries Ltd. sr. notes 8 3/4s, 2004 1,417,500
3,675,000 Domtar, Inc. notes 12s, 2001 (Canada) 4,299,750
1,375,000 Domtar, Inc. deb. 11 1/4s, 2017 1,462,656
14,150,000 Gaylord Container Corp. sr. sub. disc. deb. stepped-coupon
zero% (12 3/4s, 5/15/96), 2005 ++ 14,539,125
19,000,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 18,430,000
17,750,000 Repap New Brunswick sr. notes 9 1/2s, 2000 17,217,500
21,500,000 Riverwood International Corp. sr. sub. notes 11 1/4s, 2002 23,757,500
2,550,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 2,728,500
27,300,000 Stone Container Corp. sr. notes 11 1/2s, 2004 27,163,500
1,250,000 Stone Container Corp. deb. sr. sub. notes 11 1/2s, 1999 1,246,875
--------------
135,762,906
Publishing (1.2%)
- -------------------------------------------------------------------------------------------------------------------------------
2,500,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 2,593,750
10,295,000 Hollinger International Publishing, Inc. sr. sub. notes 9 1/4s, 2006 10,346,475
48,000,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero%, 1998 35,520,000
--------------
48,460,225
Real Estate (-%)
- -------------------------------------------------------------------------------------------------------------------------------
1,000,000 Chelsea Piers 1st mtge. disc. notes stepped-coupon
Ser. B, zero% (12 1/2s, 6/15/96), 2004 ++ 953,750
55,000 Chelsea Piers 144A stepped-coupon Ser. B, zero%
(11s, 6/15/99), 2009 ++ 52,800
--------------
1,006,550
Recreation (4.4%)
- -------------------------------------------------------------------------------------------------------------------------------
$9,470,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 $6,155,500
7,000,000 Bally Park Place 1st mtge. 9 1/4s, 2004 7,175,000
4,125,000 Boyd Gaming Corp. sr. sub. notes 10 3/4s, 2003 4,362,188
2,120,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000
(In default)+ 1,484,000
6,500,000 Casino America, Inc. 1st mtge. 11 1/2s, 2001 6,337,500
20,000,000 Coast Hotels & Casinos, Inc. 1st. mtge. 13s, 2002 20,200,000
3,950,000 Empress River Casino sr. notes 10 3/4s, 2002 4,088,250
25,000,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 26,937,500
10,000,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 9,500,000
17,005,000 Lady Luck Gaming Corp. 1st mtge. Ser. B, 10 1/2s, 2001 15,134,450
7,000,000 Mohegan Tribal Gaming 144A sr. notes 13 1/2s, 2002 8,400,000
6,500,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 5,265,000
4,590,000 Pioneer Finance Corp. 1st. mtge. 13 1/2s, 1998 3,580,200
10,000,000 Players International Inc. sr. notes 10 7/8s, 2005 9,675,000
7,900,000 Stratosphere Corp. 1st mtge. 14 1/4s, 2002 9,440,500
14,931,000 Trump Castle Funding Corp. sr. sub. notes 11 1/2s, 2000 14,931,000
8,500,000 Trump Plaza Funding, Inc. 1st mtge. notes 10 7/8s, 2001 9,520,000
15,750,000 Trump Taj Mahal Funding, Inc. deb. Ser. A, 11.35s, 1999 ++++ 16,261,875
--------------
178,447,963
Restaurants (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
16,000,000 Flagstar Corp. sr. notes 10 7/8s, 2002 14,400,000
Retail (1.7%)
- -------------------------------------------------------------------------------------------------------------------------------
5,000,000 Apparel Retailers, Inc. deb. Ser. B, stepped-coupon
zero %, (12 3/4s, 8/15/98), 2005 ++ 3,300,000
11,495,000 Brylane (L.P.) sr. sub. notes 10s, 2003 10,345,500
14,250,000 County Seat Stores Inc. sr. sub notes 12s, 2002 10,117,500
14,400,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon
zero% (12s, 5/1/98), 2005 ++ 9,612,000
1,250,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 1,206,250
10,250,000 Loehmanns' Holdings, Inc. sr. sub. notes 13 3/4s, 1999 9,737,500
5,375,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 5,670,625
9,387,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 9,128,858
7,590,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 7,248,450
1,775,000 Specialty Retailers, Inc. notes 10s, 2000 1,739,500
--------------
68,106,183
School Buses (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
7,150,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 7,328,750
Specialty Consumer Products (0.4%)
- -------------------------------------------------------------------------------------------------------------------------------
13,750,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 14,575,000
Steel (0.2%)
- -------------------------------------------------------------------------------------------------------------------------------
10,000,000 Ispat Mexicana, SA 144A deb. 10 3/8s, 2001 (Mexico) 9,250,000
Telephone Services (4.4%)
- -------------------------------------------------------------------------------------------------------------------------------
$18,595,000 Call-Net Enterprises stepped-coupon, zero%
(13 1/4s, 12/1/99), 2004 ++ $13,946,250
7,780,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 8,558,000
15,000,000 In-Flight Phone Corp. sr. disc. notes Ser. B, stepped-coupon
zero %, (14s, 5/15/98), 2002 ++ 4,650,000
76,180,000 IntelCom Group, Inc. sr. disc. notes stepped-coupon,
zero% (13 1/2s, 9/15/00), 2005 ++ 49,897,900
20,000,000 Intermedia Communications of Florida sr. notes, Ser. B,
13 1/2s, 2005 23,500,000
60,035,000 International Cabletel, Inc. sr. notes stepped-coupon,
zero% (11 1/2s, 2/1/01), 2006 ++ 35,420,650
7,400,000 MFS Cmmunications sr. disc. notes stepped-coupon
zero % (11 1/2s, 2/1/01), 2006 ++ 4,800,750
46,700,000 MFS Communications sr. disc. notes stepped-coupon,
zero% (9 3/8s, 1/15/99), 2004 ++ 36,659,500
--------------
177,433,050
Textiles (0.9%)
- -------------------------------------------------------------------------------------------------------------------------------
3,000,000 Decorative Home Accents sr. notes 13s, 2002 2,970,000
27,135,000 Foamex (L.P.) Capital Corp. sr. disc. notes stepped-coupon,
Ser. B, zero% (14s, 7/1/99), 2004 ++ 15,873,975
12,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb., 11 7/8s, 2004 10,920,000
5,500,000 Foamex (L.P.) Capital Corp. sr. notes, 11 1/4s, 2002 5,115,000
2,640,000 Reeves Industries Inc. bonds, 11s, 2002 2,442,000
--------------
37,320,975
--------------
Total Corporate Bonds and Notes (cost $3,062,223,060) $3,133,679,396
COMMON STOCKS (4.3%)*
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
6,570 Axia Holding Corp. 144A + $197,100
192,900 Cablevision Systems Corp. Class A + 11,212,313
142,548 Chesapeake Energy Corp. + 5,897,924
877,900 Comcast Corp. Class A 17,228,788
1,419,719 Computervision Corp. + 15,084,514
267,125 Cox Communications, Inc. Class A + 5,876,750
3,000 Decorative Home Accents 144A 30,000
66,667 Duane Reade Corp. + 133,333
7,407 Duane Reade Corp. Class P 111,111
775,000 Exide Corp. 23,637,500
8,866 Finlay Enterprises, Inc. 108,609
105,129 Grand Casinos, Inc. + 3,350,987
1,688,770 Grand Union Co. 10,238,168
1,750,000 NEXTEL Communications, Inc. Class A + 26,468,750
13 Pegasus Media & Communications 3,413
11,048 PMI Holdings Corp. 144A + 2,209,600
8,407 Premium Holdings (L.P.) 144A + 210,176
8,936 Southland Corp. + 33,510
236,025 Specialty Foods Corp. + 177,019
81,372 Taj Mahal Holding Corp. Class A + 2,034,300
744,800 Tele-Communications, Inc. Class A + 15,640,800
512,000 Total Renal Care Holdings 11,571,200
76,080 Total Renal Care Holdings, Inc.+ 2,244,360
100,000 UCC Investors Holding, Inc. (acquired 3/28/94,
cost $1,400,000)++ $950,000
468,600 Viacom, Inc. Class A + 18,216,825
50,000 Viacom, Inc. Class B + 1,962,500
--------------
Total Common Stocks (cost $228,174,468) $174,829,550
BRADY BONDS (4.3%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
$41,603,000 Argentina (Republic of) bonds 4s, 2023 $26,417,905
44,069,000 Argentina (Republic of) bonds 4s, 2023 23,136,225
27,957,000 Brazil (Federative Republic of) bonds 4 1/4s, 2024 14,223,124
16,222,000 Brazil (Republic of) FRN 6.813s, 2024 10,219,860
9,447,870 Brazil (Republic of) FRN 6 5/8s, 2001 8,231,457
12,645,000 Brazil (Republic of) FRN 6.813s, 2006 9,072,788
4,818,955 Brazil (Republic of) bond 4s, 2014 2,915,468
8,435,000 Bulgaria (Government of) FRB 6.25s, 2011 3,922,275
8,160,000 Ecuador (Government of) FRN 6.063s, 2025 4,314,600
11,772,000 Philippines (Central Bank of) bonds 5 3/4s, 2017 9,447,030
4,225,000 Poland (Government of) bonds stepped-coupon
Ser. RSTA, 2 3/4s, (3 1/4s, 10/97), 2024 ++ 2,239,250
13,831,000 Poland (Government of) FRN 6 5/8s, 2024 11,894,660
6,353,000 United Mexican States FRB Ser. A, 6.766s, 2019 4,542,395
21,689,000 United Mexican States FRB Ser. B, 6.766s, 2019 15,507,635
2,385,000 United Mexican States deb. Ser. A, 6 1/4s, 2019 1,445,906
31,564,000 United Mexican States deb. Ser. B, 6 1/4s, 2019 19,135,675
8,000,000 Venezuela (Government of) FRN 6.563s, 2007 4,440,000
--------------
Total Brady Bonds (cost $169,611,407) $171,106,253
PREFERRED STOCKS (2.5%)*
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
428,900 Cablevision Systems Corp. 144A Ser. L, $11.125 pfd. $44,283,925
162,000 California Federal Bank Ser. B, $10.625 exch. pfd. 17,820,000
70,000 El Paso Electric Co. $11.40 pfd. 7,350,000
220,000 First Nationwide Bank $11.50 pfd. 24,860,000
72,275 K-III Communications $11.625 pfd 7,480,463
--------------
Total Preferred Stocks (cost $96,167,341) $101,794,388
<CAPTION>
WARRANTS (0.3%)*+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
265,000 Becker Gaming Corp. 11/15/00 $66,250
136,500 Capital Gaming International, Inc. 2/1/99 17,063
42,125 Casino America, Inc. 11/15/96 4,210
53,280 Casino Magic Finance Corp. 10/14/96 2,664
230,151 Cinemark Mexico USA, Inc. 8/1/03 2,132,349
6,900 Commodore Media 144A 5/1/00 759,000
17,000 County Seat Holdings, Inc. 10/15/98 170,000
27,135 Foamex (L.P.) Capital Corp. 144A 7/1/99 407,025
223,958 Gaylord Container Corp. 144A 7/31/96 2,183,591
71,220 Heartland Wireless Communications 144A 4/15/00 391,710
23,000 In-Flight Phone Corp. 144A 8/31/02 23
251,394 IntelCom Group 10/15/05 2,262,546
20,000 Intermedia Communications 144A 6/1/00 400,000
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
220,000 Southdown, Inc. 144A 10/31/96 1,540,000
506 Telemedia Broadcasting 144A 4/1/04 379,148
403 Wright Medical Technology, Inc. 144A 6/30/03 66,455
--------------
Total Warrants (cost $9,612,895) $11,938,555
<CAPTION>
UNITS (4.2%)*
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
26,000 Australis Media units stepped-coupon zero %
(14s, 5/15/00), 2003 (Australia)++ $18,460,000
55,845 Cellnet Data Systems Inc. units stepped-coupon zero %
(13s, 6/15/00), 2005 ++ 33,227,775
22,325 Fitzgerald Gaming Co. units 13s, 2002 20,875,661
5,955 GST Telecommunications, Inc. 144A units stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 (Canada)++ 34,553,888
22,000 ICF Kaiser International, Inc. units 12s, 2003 20,900,000
2,400 Intercel, Inc. unit stepped-coupon zero % (12s, 2/1/01), 2006 ++ 14,280,000
6,650,000 Premium Standard Farms 144A exch pfd. units, 12 1/2s, 2000 3,325,000
6,500 Terex Corp. 144A units 13 3/4s, 2002 6,240,000
7,384 Winstar Communications, Inc. 144A units stepped-coupon
zero % (14s, 10/15/00), 2005 ++ 12,478,960
2,750 Wireless One, Inc. units 13s, 2003 2,970,000
--------------
Total Units (cost $160,091,854) $167,311,284
CONVERTIBLE BONDS AND NOTES (1.0%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
$23,000,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 $15,122,500
2,791,000 Kelley Oil & Gas Corp. cv. deb. 8 1/2s, 2000 2,379,328
27,771,000 Pricellular Wireless 144A cv. sub. notes stepped-coupon
zero% (10 3/4s, 8/15/00), 2004 ++ 22,806,924
--------------
Total Convertible Bonds and Notes (cost $35,671,620) $40,308,752
FOREIGN GOVERNMENT BONDS AND NOTES (0.8%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
$15,039,000 Morocco (Government of) bonds, 4 1/2s, 1999 $10,000,935
6,459,000 Panama (Republic of) FRN, 6.75s, 2002 5,554,740
40,612,000 Russia (Government of) non performing zero %, 1999 + 13,706,550
1,630,000 Turkey (Republic of) notes, 8 3/4s, 1998 1,627,964
--------------
Total Foreign Government Bonds and Notes
(cost $31,559,569) $30,890,189
SHORT-TERM INVESTMENTS (1.5%)*
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------------------
$7,000,000 Bank Nefara Indonesia Certificate of Deposit zero %,
18-Jul-96 $ 2,810,008
U.S. Dollar Certificate of Deposit, (Issued by J.P. Morgan
Securities, Inc. The principal at redemption is linked to the
bid price for the PolishTreasury Bill, at maturity, and the
change in the spot rate of the Polish Zloty from issue
date to maturity date)
559,321 zero %, April 17, 1996 522,014
2,499,517 zero %, May 2, 1996 2,405,035
2,460,294 zero %, August 1, 1996 2,249,447
4,252,770 zero %, September 19, 1996 3,788,793
2,151,949 zero %, December 18, 1996 1,813,663
1,844,000 zero %, January 30, 1997 1,538,449
43,934,000 Interest in $1,108,321,000 joint repurchase agreement
dated February 29, 1996 with Morgan (J.P.) & Co., Inc. due
March 1, 1996 with respect to various U.S. Treasury
obligations-maturity value of $43940615 for an effective
yield of 5.42% 43,940,615
--------------
Total Short-Term Investments (cost $59,270,229) $59,068,024
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,852,382,443)*** $3,890,926,391
- -------------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,020,966,881
+ Non-income producing security.
++ The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin
receiving interest at this rate.
++ Restricted as to public resale. At the date of acquisition these securities were valued at cost. There were no outstanding
securities of the same class as those held. Total market value of restricted securities owned at February 29, 1996 was
$950,000 or less than 0.1% of net assets.
++++ Income may be received in cash or additional securities at the discretion of the issuer.
*** The aggregate identified cost on a tax basis is $3,862,837,815, resulting in gross unrealized appreciation and
depreciation of $300,161,693, and $272,073,117, respectively, or net unrealized appreciation of $28,088,576
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.
The rates shown on FRB and FRN are the current interest rates at February 29, 1996, which are subject to change based on the
terms of the security.
Forward Currency Contracts to Sell Outstanding
at February 29, 1996 (aggregate face value $4,460,110)
<CAPTION>
Unrealized
Market Aggregate Delivery Appreciation
Value Face Value Date (Depreciation)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutschemarks $365,236 $361,782 5/2/96 $(3,454)
Deutschemarks 787,675 779,261 4/17/96 (8,414)
Deutschemarks 343,367 340,070 7/31/96 (3,297)
Deutschemarks 1,881,170 1,862,489 9/18/96 (18,681)
Deutschemarks 841,270 864,330 12/18/96 23,060
Deutschemarks 242,454 252,178 1/29/97 9,724
- -----------------------------------------------------------------------------
$(1,062)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 29,1996 (Unaudited)
Assets
- ----------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $ 3,852,382,443) (Note 1) $3,890,926,391
- ----------------------------------------------------------------------------------
Cash 3,756,375
- ----------------------------------------------------------------------------------
Dividends, interest and other receivables 71,768,639
- ----------------------------------------------------------------------------------
Receivable for shares of the fund sold 11,732,002
- ----------------------------------------------------------------------------------
Receivable for securities sold 93,513,896
- ----------------------------------------------------------------------------------
Receivable for open forward currency contracts (Note 1) 32,784
- ----------------------------------------------------------------------------------
Total assets 4,071,730,087
Liabilities
- ----------------------------------------------------------------------------------
Distributions payable to shareholders 16,487
- ----------------------------------------------------------------------------------
Payable for securities purchased 37,624,789
- ----------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,939,942
- ----------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,383,358
- ----------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,464
- ----------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,568
- ----------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,017,865
- ----------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,388,191
- ----------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 33,846
- ----------------------------------------------------------------------------------
Other accrued expenses 345,696
- ----------------------------------------------------------------------------------
Total liabilities 50,763,206
- ----------------------------------------------------------------------------------
Net assets $4,020,966,881
Represented by
- ----------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $4,617,545,752
- ----------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (12,566,417)
- ----------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (622,555,308)
- ----------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 38,542,854
- ----------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,020,966,881
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($3,081,381,336 divided by 251,032,414 shares) $12.27
- ----------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.27)* $12.88
- ----------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($932,163,025 divided by 76,184,449 shares)** $12.24
- ----------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($7,422,520 divided by 604,904 shares) $12.27
- ----------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.27)* $12.68
- ----------------------------------------------------------------------------------
* 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 29,1996 (Unaudited)
Investment Income
- ----------------------------------------------------------------------------------
<S> <C>
Interest $195,423,203
- ----------------------------------------------------------------------------------
Dividends 2,901,506
- ----------------------------------------------------------------------------------
Total investment income 198,324,709
Expenses:
- ----------------------------------------------------------------------------------
Compensation of Manager (Note 2) 10,544,409
- ----------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,726,934
- ----------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 41,542
- ----------------------------------------------------------------------------------
Auditing 74,278
- ----------------------------------------------------------------------------------
Legal 112,452
- ----------------------------------------------------------------------------------
Postage 222,406
- ----------------------------------------------------------------------------------
Distribution fees -- class A (Note 2) 3,795,401
- ----------------------------------------------------------------------------------
Distribution fees -- class B (Note 2) 4,200,669
- ----------------------------------------------------------------------------------
Distribution fees -- class M (Note 2) 9,809
- ----------------------------------------------------------------------------------
Administrative services (Note 2) 22,414
- ----------------------------------------------------------------------------------
Other 102,421
- ----------------------------------------------------------------------------------
Total expenses 21,852,735
- ----------------------------------------------------------------------------------
Expense reduction (Note 2) (166,097)
- ----------------------------------------------------------------------------------
Net expenses 21,686,638
- ----------------------------------------------------------------------------------
Net investment income 176,638,071
- ----------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 51,105,879
- ----------------------------------------------------------------------------------
Net realized loss on forward currency contracts and
foreign currency translation (Notes 1 and 3) (1,093,097)
- ----------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 48,297,510
- ----------------------------------------------------------------------------------
Net unrealized appreciation of forward currency
contracts during the period 20,576
- ----------------------------------------------------------------------------------
Net gain on investments 98,330,868
- ----------------------------------------------------------------------------------
Net increase in net assets resulting from operations $274,968,939
- ----------------------------------------------------------------------------------
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
1996* 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------
Net investment income $176,638,071 $353,382,591
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 50,012,782 (134,335,318)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 48,318,086 140,350,852
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 274,968,939 359,398,125
- ---------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------
From net investment income
class A (150,472,967) (293,973,082)
- ---------------------------------------------------------------------------------------------------
class B (38,604,859) (59,607,996)
- ---------------------------------------------------------------------------------------------------
class M (188,493) (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) 173,886,297 346,727,853
- ---------------------------------------------------------------------------------------------------
Total increase in net assets 259,588,917 340,627,963
- ---------------------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------------------
Beginning of period 3,761,377,964 3,420,750,001
- ---------------------------------------------------------------------------------------------------
End of period (including distributions in excess of net
investment income and undistributed net investment
income of $12,566,417 and $61,831, respectively) $4,020,966,881 $3,761,377,964
- ---------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- -------------------------------------------------------------------------------------------------
For the Period
July 3, 1995
Six months (commencement Six months
ended of operations) ended Year ended
February 29 August 31 February 29 August 31
- -------------------------------------------------------------------------------------------------
1996*+ 1995+ 1996* 1995
- -------------------------------------------------------------------------------------------------
Class M Class B
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $12.00 $11.92 $11.97 $12.03
- -------------------------------------------------------------------------------------------------
Investment activities
- -------------------------------------------------------------------------------------------------
Net investment income .56 .21 .50 1.09
- -------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 .07 .33 .02
- -------------------------------------------------------------------------------------------------
Total from investment
operations .86 .28 .83 1.11
- -------------------------------------------------------------------------------------------------
Less distributions
- -------------------------------------------------------------------------------------------------
From net investment income (.59) (.19) (.56) (1.13)
- -------------------------------------------------------------------------------------------------
From return of capital -- (.01) -- (.04)
- -------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- -- --
- -------------------------------------------------------------------------------------------------
From net realized gain on
investments -- -- -- --
- -------------------------------------------------------------------------------------------------
Total distributions (.59) (.20) (.56) (1.17)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $12.27 $12.00 $12.24 $11.97
- -------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (a) 7.34(b) 2.38(b) 7.05(b) 9.88
- -------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,423 $964 $932,163 $762,947
- -------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) (c) .60(b) .20(b) .85(b) 1.70
- -------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.45(b) 1.65(b) 4.24(b) 9.52
- -------------------------------------------------------------------------------------------------
Portfolio turnover (%) 41.29(b) 81.70 41.29(b) 81.70
- -------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------------------------------
For the Period
February 1, 1995
(commencement Six months
Year ended of operations) ended
August 31 August 31 February 29
- --------------------------------------------------------------------------------------------------------
1994 1993 1996* 1995
- --------------------------------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $12.99 $12.84 $12.01 $12.06
- --------------------------------------------------------------------------------------------------------
Investment activities
- --------------------------------------------------------------------------------------------------------
Net investment income 1.18 .62 .56 1.22
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.94) .23 .31 (.01)
- --------------------------------------------------------------------------------------------------------
Total from investment
operations .24 .85 .87 1.21
- --------------------------------------------------------------------------------------------------------
Less distributions
- --------------------------------------------------------------------------------------------------------
From net investment income (1.20) (.70) (.60) (1.22)
- --------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.04)
- --------------------------------------------------------------------------------------------------------
In excess of net investment
income -- -- -- --
- --------------------------------------------------------------------------------------------------------
From net realized gain on
investments -- -- -- --
- --------------------------------------------------------------------------------------------------------
Total distributions (1.20) (.70) (.60) (1.26)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.03 $12.99 $12.27 $12.01
- --------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (a) 1.66 6.80(b) 7.34(b) 10.76
- --------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $535,002 $238,647 $3,081,381 $2,997,467
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) (c) 1.69 .85(b) .48(b) .95
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.06 4.92(b) 4.62(b) 10.27
- --------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 55.00 50.90 41.29(b) 81.70
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------------------------
Year ended August 31
- --------------------------------------------------------------------------------------------------
1994 1993 1992 1995
- --------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $13.01 $12.76 $11.55 $10.99
- --------------------------------------------------------------------------------------------------
Investment activities
- --------------------------------------------------------------------------------------------------
Net investment income 1.27 1.46 1.57 1.52
- --------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.93) .28 1.22 .66
- --------------------------------------------------------------------------------------------------
Total from investment
operations .34 1.74 2.79 2.18
- --------------------------------------------------------------------------------------------------
Less distributions
- --------------------------------------------------------------------------------------------------
From net investment income (1.29) (1.45) (1.56) (1.52)
- --------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.10)
- --------------------------------------------------------------------------------------------------
In excess of net investment
income -- (.04) -- --
- --------------------------------------------------------------------------------------------------
From net realized gain on
investments -- -- (.02) --
- --------------------------------------------------------------------------------------------------
Total distributions (1.29) (1.49) (1.58) (1.62)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $12.06 $13.01 $12.76 $11.55
- --------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (a) 2.46 14.50 25.50 22.47
- --------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,885,748 $3,189,948 $2,449,282 $1,832,181
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) (c) .94 .92 .97 1.09
- --------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.82 11.27 12.63 14.18
- --------------------------------------------------------------------------------------------------
Portfolio turnover (%) 55.00 50.90 47.05 72.53
- --------------------------------------------------------------------------------------------------
* Unaudited
+ 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.
(c) The ratio of expenses to average net assets for the period ended February 29, 1996 included
amounts paid through expense offset arangements. Prior period ratios exclude these amounts.
(Note 2)
</TABLE>
Notes to financial statements
February 29, 1996 (Unaudited)
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
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 and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares. Expenses of the fund are borne pro-rata by the
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 preparation of financial statements is in conformity
with generally accepted accounting principles and require management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sale price, or, if no sales are reported--as in the
case of some securities traded over-the-counter--the last reported bid
price. Securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rate. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost,
which approximates market value, and other investments, 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 corporate 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 forward currency contracts.)
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 Management, 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 102% of the resale price, including accrued
interest. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to
102% of the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis
and dividend income is recorded on the ex-dividend date.
Discount on zero coupon bonds, original issue discount bonds, stepped-
coupon bonds and payment in kind bonds are accreted according to the
effective yield method.
E) 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 U.S. dollar value of forward currency
contracts is determined using forward currency exchange rates supplied
by a quotation service. The market value of the contract will fluctuate
with changes in currency exchange rates. The contract is "marked to
market" daily and the change in market value is recorded as an
unrealized gain or loss.. When the contract is closed, the fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. The fund could be exposed to risk if the value of the currency
changes unfavorably, if the counterparties to the contracts are unable
to meet the terms of their contracts or if the fund is unable to enter
into a closing position.
F) 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. Therefore, 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 capital gains, if
any. The amount of the carryover and the expiration dates are:
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
G) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on
the ex-dividend date. Capital gain distributions, if any, are recorded
on the ex-dividend date and paid 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 captial loss carryovers) under income tax regulations.
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 Putnam Management on the
fund's portfolio transactions.
The fund reimburses Putnam Management 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 $4,800 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund 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.
For the six months ended February 29, 1996, fund expenses were reduced
by $166,097 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 the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to .35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of .25%, 1.00% and .50% of the average net
assets attributable to class A, class B and class M shares respectively.
For the six months ended February 29, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $567,990 from the sale
of class A shares and $6,105 from the sale of class M shares. There were
$792,821 in contingent deferred sales charges from redemptions of class
B shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the six months ended February 29,
1996, Putnam Mutual Funds Corp., acting as underwriter received $10,941
on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended February 29, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$1,514,526,457 and $3,910,542,344, respectively. There were no purchases
and sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At February 29, 1996 there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
February 29, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 24,669,065 $299,853,170
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,198,702 75,009,387
- ----------------------------------------------------
30,867,767 374,862,557
Shares
repurchased (29,469,919) (358,144,106)
- ----------------------------------------------------
Net increase 1,397,848 $16,718,451
- ----------------------------------------------------
Year ended
August 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 53,235,731 $626,633,403
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 12,624,583 148,394,989
- ----------------------------------------------------
65,860,314 775,028,392
Shares
repurchased (55,532,297) (655,422,219)
- ----------------------------------------------------
Net increase 10,328,017 $119,606,173
- ----------------------------------------------------
Six months ended
February 29, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 21,783,302 $264,283,835
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,508,470 18,213,402
- ----------------------------------------------------
23,291,772 282,497,237
Shares
repurchased (10,839,475) (131,697,747)
- ----------------------------------------------------
Net increase 12,452,297 $150,799,490
- ----------------------------------------------------
Year ended
August 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 31,579,432 $371,489,530
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,480,921 29,114,551
- ----------------------------------------------------
34,060,353 400,604,081
Shares
repurchased (14,818,399) (174,450,151)
- ----------------------------------------------------
Net increase 19,241,954 $226,153,930
- ----------------------------------------------------
Six months ended
February 29, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 658,105 $7,987,450
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,597 128,909
- ----------------------------------------------------
668,702 8,116,359
Shares
repurchased (144,124) (1,748,003)
- ----------------------------------------------------
Net increase 524,578 $6,368,356
- ----------------------------------------------------
For the Period
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
- ----------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
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
Gary N. Coburn
Vice President
Jin W. Ho
Vice President and Fund Manager
Rosemary H. Thomsen
Vice President and Fund Manager
Jennifer E. Leichter
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
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.
Putnam Investments
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------
24033-014/324/2AC 4/96
