Putnam
High Yield
Trust
ANNUAL REPORT
August 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* According to Lipper Analytical Services, Putnam High Yield Trust's
class A share total return ranked 11 out of 43 high current yield
funds for the 10-year period ended September 30, 1996, placing the
fund in the top 25% in this category.*
* "Managers of high-yield funds have had plenty of purchase options in
1996. Favorable credit terms and fears of an overheated stock market
have led to a deluge of new issuance."
-- Morningstar, June 21, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
14 Portfolio holdings
29 Financial statements
*Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. Their rankings are based on
total return performance, vary over time, and do not reflect the effects
of sales charges. For periods ended 9/30/96, class A, class B, and class
M shares ranked 43, 61, and 44, respectively, out of 143 high current
yield funds for 1-year performance; class A shares ranked 23 out of 63
for 5-year performance; and class B shares ranked 58 out of 85 for 3-
year performance. Class B and class M shares were not ranked over longer
periods. Past performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Since its inception in 1978, Putnam High Yield Trust has been popular
with investors. While such popularity is flattering, it carries its own
burdens. One of these is size. When the fund's assets grow beyond a
certain point, the ability to manage them efficiently becomes somewhat
restricted.
Thus, for the second time in its history -- the first was in 1986 --
Putnam Management believes your fund is approaching such a limit. As was
the case then, at the recommendation of the management company, your
Trustees have voted to close the fund to new investors effective January
1, 1997. As an existing shareholder, you may continue to purchase
additional shares of the fund.
In addition, we are pleased to announce that Jennifer Leichter took over
lead management responsibilities for the fund on October 4, 1996, while
Jin Ho accepted new responsibilities elsewhere at Putnam. I am confident
these changes will prove to be positive developments.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
October 16, 1996
Report from the Fund Managers
Jin W. Ho, lead manager
Jennifer E. Leichter
Rosemary H. Thomsen
For the fiscal year ended August 31, 1996, Putnam High Yield Trust again
proved its durability. Despite unpredictable economic growth during the
period, your fund's performance at net asset value for all classes of
shares outpaced the return posted by the First Boston High Yield Index,
one of the fund's benchmark indexes, over the same period. See pages 8
and 9 for complete performance information.
The fund's solid performance was made possible by its flexible
investment strategy, which allows the shifting of portfolio allocations
in order to benefit from prosperous segments of the high-yield market.
During the period, we kept the fund defensively positioned as economic
growth remained unpredictable. In practice, 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.
* DEFENSIVE SECURITIES OUTPERFORM CYCLICALS EARLY, THEN LOSE SOME GROUND
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,
a strategy we first implemented 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 communications, cable television, health care, and electric
utilities.
Over the first six months of the period, this strategy proved beneficial
to the fund as defensive holdings generally outperformed cyclical
securities. Companies such as IntelCom Group (a supplier of
telecommunications services), Panamsat (a provider of satellite
television broadcasting services), and NEXTEL Communications (a wireless
communications provider) were among the portfolio's strongest performers
during the first half of the fiscal year. While these securities were
viewed favorably during the period, all portfolio holdings are subject
to review and adjustment in accordance with the fund's investment
strategy and may vary in the future.
In the second half of the fiscal year, investors began to expect an
upturn in economic growth. At the same time, companies in defensive
sectors began to flood the market with new issues, causing the value of
existing bonds in these sectors to decline. In response to both
developments, some investors shifted their assets into the bonds of
cyclical companies, boosting their values and enabling their securities
to outperform defensive securities over the past six months. Believing
that this trend would be short-lived, we maintained our emphasis on
defensive securities in your fund's portfolio, emphasizing
telecommunications companies. We chose securities in this industry not
only because we expected them to thrive amid sluggish economic growth,
but also because they were, and remain, poised to benefit from the more
relaxed telecommunications law passed earlier this year.
[GRAPHIC WORM CHART OMITTED:HIGH-YIELD BONDS VS. OTHER CORPORATE
SECURITIES]
vertical axis: 0, 20, 40, 60, 80, 100%
horizontal axis: 1991, 1992, 1993, 1994, 1995, 1996
insert legend to identify lines
High-yield Investment-grade
DATE bonds corporate bonds
- ------- ---------- ----------------
8/31/91 0 0
8/31/92 22.41% 15.15%
8/31/93 41.72% 30.86%
8/31/94 46.84% 27.66%
8/31/95 66.23% 44.86%
8/31/96 83.10% 50.34%
Footnote reads:
This chart demonstrates that high-yield bonds, as represented by the
First Boston High Yield Index, generally outperformed investment-grade
corporate bonds, as represented by the Lehman Brothers Corporate Bond
Index. The chart shows cumulative returns. Data are as of the last day of
August 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.
* ONGOING CONSOLIDATION BOOSTS TELECOMMUNICATIONS COMPANIES
In February of this year, Congress passed legislation to deregulate the
telecommunications and broadcasting industries. The new
telecommunications law loosens restrictions on radio stations, cable
television, and long distance telephone service. It will ultimately
allow a single company to offer services in more than one of these areas
(for example, a telephone company may provide cable television service)
or to own more than one provider of a particular service in a certain
region (a company may own several radio stations in one city).
Some of the law's provisions have already taken effect, particularly in
the radio industry. As a result, high-yield bond issuers in this
industry have begun to prosper from merger and acquisition activity.
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.
Final passage of the legislation came after months of steady growth in
these industries, brought on by mounting anticipation among investors
that the law would be passed and affected companies would eventually
realize substantial cost savings through consolidation. Recognizing this
trend early on, we had positioned the portfolio to take advantage of it
by adding to the fund's holdings in radio and television station
operators, telephone companies, competitive access providers, and cable
television securities. Among these, New City Communications, Park
Broadcasting, and Paxson Broadcasting all contributed substantially to
the fund's performance.
* TELEVISION INDUSTRY MAY BE NEXT TO BENEFIT FROM CONSOLIDATION
In the coming months, we expect the wave of consolidation in wireless
and non-wireless media companies to continue. We nevertheless expect
business prospects to improve generally as deregulation enhances
revenues and consolidation strengthens cash flows and drives down
operating costs.
[GRAPHIC CHART OMITTED: TOP 10 HOLDINGS*]
NEXTEL Communications, Inc. 0%, 2003
Wireless communications
TransTexas Gas Corp. 11.5%, 2002
Oil and gas
Del Monte Corp. 12.25%, 2002
Food processing
Adelphia Communications Corp. 12.5%, 2002
Cable television
Midland Funding Corp. 11.75%, 2005
Electric utility
Trump A.C. 11.25%, 2006
Gaming
IntelCom Group, Inc. 0%, 2005
Telecommunications networks
International Cabletel, Inc. 0%, 2006
Telecommunications satellites
Teleport Communications Group, Inc. 0%, 2007
Telecommunications
Cablevision Systems Corp. $11.125 pfd stock
Cable television
*These holdings represent 13.4% of the fund's assets as of 8/31/96.
Portfolio holdings will vary over time.
Elsewhere, we anticipate opportunities for growth among competitive
access providers and aerospace companies. Competitive access providers
deliver a wide range of telecommunications services including voice,
data, and video products. In the aerospace industry, demand for
commercial airplanes is on the rise because of a burgeoning trend toward
rebuilding existing fleets and starting new fleets, particularly in
developing countries.
On a larger scale, our outlook for the economy is one of continued
moderate expansion and low inflation -- conditions that should bode well
for fixed-income investments. Corporate earnings have been surprisingly
healthy since the beginning of 1996, and we believe they will remain
stable in the months ahead.
Footnote reads:
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 8/31/96, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit
ratings of high-yield corporate bonds reflect a greater possibility that
adverse changes in the economy or their issuers may affect their ability
to pay principal and interest on the bonds.
Performance summary
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 8/31/96
Class A Class B Class M
(inception date) 2/14/78 3/1/93 7/3/95
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
1 year 11.08% 5.79% 10.28% 5.28% 10.88% 7.30%
- -----------------------------------------------------------------------
5 years 81.13 72.47 -- -- -- --
Annual average 12.62 11.52 -- -- -- --
- -----------------------------------------------------------------------
10 years 168.01 155.34 -- -- -- --
Annual average 10.36 9.83 -- -- -- --
- -----------------------------------------------------------------------
Life of class -- -- 31.58 28.76 13.51 9.83
Annual average -- -- 8.16 7.49 11.44 8.34
- -----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/96
Lehman Bros. First Boston
Corporate High Yield
Bond Index Index
- -----------------------------------------------------------------------
1 year 3.79% 10.15%
- -----------------------------------------------------------------------
5 years 50.34 83.10
Annual average 8.49 12.85
- -----------------------------------------------------------------------
10 years 135.43 186.54
Annual average 8.94 11.10
- -----------------------------------------------------------------------
Life of class B 22.99 39.65
Annual average 6.08 10.00
- -----------------------------------------------------------------------
Life of class M 4.99 12.17
Annual average 4.25 10.29
- -----------------------------------------------------------------------
Footnote reads:
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 shares. CDSC for
class B shares assumes the applicable sales charge, with the maximum
being 5%.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 8/31/86
Starting value (Insert ending Total)
$9,525 Fund's class A shares at POP $25,534
$10,000 First Boston High Yield Index $28,654
$10,000 Consumer Price Index $14,339
(plot points for 10-year total return mountain chart)
Date/year Fund at POP First Boston Index CPI
- --------- ----------- ------------------ ------
8/31/86 9525 10000 10000
8/31/87 10607 10951 10428
8/31/88 11483 12044 10848
8/31/89 12456 13126 11358
8/31/90 11511 12297 11996
8/31/91 14097 15649 12452
8/31/92 17693 19156 12844
8/31/93 20258 22178 13200
8/31/94 20755 22979 13582
8/31/95 22988 26014 13938
8/31/96 25534 28654 14339
Footnote reads:
Past performance is no assurance of future results. A $10,000 investment
in the fund's class B shares at inception on 3/1/93 would have been
valued at $13,158 on 8/31/96 ($12,876 with a redemption at the end of
the period). A $10,000 investment in the fund's class M shares at
inception on 7/3/95 would have been valued at $11,351 at net asset value
on 8/31/96 ($10,983 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 8/31/96
Class A Class B Class M
- -----------------------------------------------------------------------
Distributions (number) 12 12 12
- -----------------------------------------------------------------------
Income $1.172 $1.082 $1.150
- -----------------------------------------------------------------------
Total $1.172 $1.082 $1.150
- -----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------
8/31/95 $12.01 $12.61 $11.97 $12.00 $12.40
- -----------------------------------------------------------------------
8/31/96 12.11 12.71 12.07 12.10 12.51
- -----------------------------------------------------------------------
Current return
End of period:
- -----------------------------------------------------------------------
Current dividend
rate1 9.12% 8.69% 8.35% 8.93% 8.63%
- -----------------------------------------------------------------------
Current 30-day
SEC yield2 9.06 8.63 8.29 8.51 8.23
- -----------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/96
Class A Class B Class M
(inception date) (2/14/78) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
1 year 13.65% 8.24% 12.85% 7.85% 13.53% 9.87%
- -----------------------------------------------------------------------
5 years 83.76 75.02 -- -- -- --
Annual average 12.94 11.84 -- -- -- --
- -----------------------------------------------------------------------
10 years 174.27 161.28 -- -- -- --
Annual average 10.62 10.08 -- -- -- --
- -----------------------------------------------------------------------
Life of class -- -- 35.68 32.79 17.19 13.38
Annual average -- -- 8.87 8.22 13.53 10.57
- -----------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. 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.
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.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC Emerging Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds ++
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments to help maximize your return and reduce your risk.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS [SECTION MARK]
Putnam money market funds: **
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts ++
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
++ Not available in all states.
[SECTION MARK] Relative to above.
** An investment in a money market fund is neither insured
nor guaranteed by the U.S. government. These funds are
managed to maintain a price of $1.00 per share, although
there is no assurance that this price will be maintained
in the future.
++ Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured
up to certain limits by federal/state agencies. Savings
accounts may also be insured up to certain limits. Please
call your financial advisor or Putnam at 1-800-225-1581
to obtain a prospectus for any Putnam fund. It contains
more complete information, including charges and
expenses. Please read it carefully before you invest or
send money.
Report of independent accountants
For the fiscal year ended August 31, 1996
To the Trustees and Shareholders of
Putnam High Yield Trust
We have audited the accompanying statement of assets and liabilities of
Putnam High Yield Trust, including the portfolio of investments owned,
as of August 31, 1996, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of August 31, 1996, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam High Yield Trust as of August 31, 1996, the
results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 18, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
August 31, 1996
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES (82.8%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.7%)
- ---------------------------------------------------------------------------------------------------------------------------
$9,800,000 Lamar Advertising Co. sr. secd. notes 11s, 2003 $ 10,241,000
5,843,750 Outdoor Systems Inc. notes Ser. B, 8.91s, 2002 5,865,664
4,285,417 Outdoor Systems Inc. notes Ser. C, 8.91s, 2003 4,301,487
1,558,333 Outdoor Systems Inc. notes Ser. CAD, 8.91s, 2003 1,558,333
6,950,000 Universal Outdoor, Inc. sub. deb. 11s, 2003 7,471,250
--------------
29,437,734
Aerospace and Defense (0.4%)
- ---------------------------------------------------------------------------------------------------------------------------
3,000,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 3,270,000
3,325,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 3,308,375
3,065,000 K &F Industries, Inc. 144A sr. sub. notes 10 3/8s, 2004 3,084,156
4,230,000 UNC, Inc. 144A sr. sub. notes 11s, 2006 4,399,200
3,750,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 4,012,500
--------------
18,074,231
Agriculture (1.5%)
- ---------------------------------------------------------------------------------------------------------------------------
14,985,000 Agco Corp. Sr. sub notes 8 1/2s, 2006 14,985,000
32,846,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon Ser. B, zero % (11 1/2s,
9/1/00), 2005 ++ 19,132,795
6,858,000 PSF Finance (L.P.) sr. exch. notes 12 1/4s, 2004 (acquired 3/15/95, cost
$6,858,000) (Chapter 11) +(double dagger) 3,745,840
12,272,000 PSF Finance (L.P.) sr. notes 12s, 2000 (acquired various dates from 9/11/92
to 9/15/92 cost $12,272,000) 6,894,410
(Chapter 11) +(double dagger)
35,132,000 PSF Finance (L.P.) sr. disc. notes stepped-coupon zero % (12s, 9/15/96), 2003
(acquired various dates from 3/15/95 to 5/31/95, cost $27,135,111) (Chapter
11)+(double dagger)++ 17,566,000
--------------
62,324,045
Airlines (0.3%)
- ---------------------------------------------------------------------------------------------------------------------------
12,270,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 12,515,400
Apparel (0.4%)
- ---------------------------------------------------------------------------------------------------------------------------
15,400,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 15,400,000
Automotive Parts (1.7%)
- ---------------------------------------------------------------------------------------------------------------------------
7,700,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 8,258,250
9,275,000 A.P.S. Inc. company guaranty 11 7/8s 2006 9,877,875
4,160,000 Delco Remy International, Inc. 144A sr. sub. notes 10 5/8s, 2006 4,243,200
6,950,000 Exide Corp. sr. notes 10s, 2005 6,984,750
12,700,000 Hayes Wheels International, Inc. sr. sub. notes 11s, 2006 13,049,250
10,000,000 Key Plastics Corp. sr. notes 14s, 1999 10,325,000
16,655,000 Lear Corp. sub. ntoes 9 1/2s, 2006 17,154,650
--------------
69,892,975
Banks (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------
1,865,000 Centerbank sub. notes 8 3/8s, 2002 1,939,600
5,000,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 4,875,000
1,780,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 1,668,750
--------------
8,483,350
Basic Industrial Products (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
2,600,000 Clark-Schwebel, Inc. 144A sr. notes 10 1/2s, 2006 2,652,000
Beverages (--%)
- ---------------------------------------------------------------------------------------------------------------------------
2,000,000 Stroh Brewery Co. sr. sub. notes Ser. WI, 11.10s, 2006 ## 1,980,000
Broadcasting (4.2%)
- ---------------------------------------------------------------------------------------------------------------------------
20,000,000 Allbritton Communications sr. sub. deb. Ser. B, 9 3/4s, 2007 18,600,000
8,150,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 8,068,500
8,485,000 Chancellor Broadcasting Co. sr. sub. notes 9 3/8s, 2004 8,272,875
7,680,000 Commodore Media, Inc. sr. sub. notes stepped-coupon 7 1/2s, (13 1/4s,
5/1/98), 2003 ++ 7,910,400
8,500,000 Granite Broadcasting Corp. sr. sub. deb. 12 3/4s, 2002 9,243,750
9,760,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 9,760,000
5,500,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 5,211,250
5,125,000 Heritage Media Corp. sr. sub. notes 8 3/4s, 2006 4,766,250
3,270,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 3,335,400
6,301,000 New City Communications Corp. sr. sub. notes 11 3/8s, 2003 6,978,358
15,500,000 Park Broadcasting, Inc. 144A sr. notes 11 3/4s, 2006 17,631,250
16,175,000 Paxson Communications Corp. sr. sub. notes 11 5/8s, 2002 16,822,000
7,330,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 7,843,100
6,435,000 Petracom Holdings, Inc. notes stepped-coupon zero % (17 1/2s,
8/1/98), 2003 ++ 5,477,794
27,605,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 28,088,088
5,700,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 5,571,750
5,396,000 Telemedia Broadcasting Corp. 144A deb. stepped-coupon 6.4s, (16s,
6/15/99), 2004 ++ 4,876,635
8,800,000 Young Broadcasting Corp. company guaranty Ser. B, 9s, 2006 8,096,000
--------------
176,553,400
Building and Construction (1.0%)
- ---------------------------------------------------------------------------------------------------------------------------
7,650,000 NVR, Inc. sr. notes 11s, 2003 7,879,500
7,135,000 Presley Cos. sr. notes 12 1/2s, 2001 6,831,763
19,250,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 19,442,500
9,500,000 U.S. Home Corp. sr. notes 9 3/4s, 2003 9,500,000
--------------
43,653,763
Building Products (1.6%)
- ---------------------------------------------------------------------------------------------------------------------------
23,000,000 American Standard, Inc. sr. sub. notes stepped-coupon zero % (10
1/2s, 6/1/98), 2005 ++ 20,642,500
13,445,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 14,352,538
3,600,000 Congoleum Corp. sr. notes 9s, 2001 3,492,000
5,140,000 Inter-City Products sr. notes 9 3/4s, 2000 4,947,250
20,575,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 19,906,313
2,250,000 Southdown Inc. sr. sub. notes Ser. B, 10s, 006 2,266,875
6,100,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B, zero % (12
3/4s, 6/1/99), 2004 ++ 4,087,000
--------------
69,694,476
Buses (0.6%)
- ---------------------------------------------------------------------------------------------------------------------------
7,150,000 Blue Bird Body Co. sub. deb. Ser. B, 11 3/4s, 2002 7,436,000
21,000,000 MCII Holding (USA), Inc. bonds zero %, 2002 16,275,000
--------------
23,711,000
Business Services (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------
1,700,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 1,691,500
6,200,000 Pierce Leahy Corp. 144A sr. sub. notes 10s, 2006 6,432,500
--------------
8,124,000
Cable Television (9.5%)
- ---------------------------------------------------------------------------------------------------------------------------
59,765,000 Adelphia Communications Corp. sr. notes 12 1/2s, 2002 61,557,950
6,665,000 Adelphia Communications Corp. sr. deb. 11 7/8s, 2004 6,706,656
16,250,000 American Telecasting, Inc. sr. disc. notes stepped-coupon zero % (14 1/2s,
8/15/00), 2005 ++ 9,628,125
285,000 American Telecasting, Inc. sr. disc. notes stepped-coupon zero % (14 1/2s,
6/15/99), 2004 ++ 200,925
13,850,000 Bell Cablemedia PLC sr. disc. notes stepped-coupon zero % (11 7/8s,
9/15/00), 2005 (United Kingdom) ++ 9,210,250
7,800,000 Benedek Communications 144A sr. disc. notes stepped-cupon zero % (13 1/4s,
5/15/01), 2006 ++ 4,290,000
1,225,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 1,326,063
7,500,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 6,900,000
11,200,000 Century Communications Corp. sr. sub. deb. 11 7/8s, 2003 11,900,000
16,370,000 Charter Communications Holdings 144A sr. disc. notes stepped-coupon zero %
(14s, 3/15/01), 2007 ++ 9,167,200
8,500,000 Charter Communications International, Inc. 144A sr. notes 11 1/4s, 2006 8,415,000
5,000,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 4,975,000
29,000,000 Diamond Cable Communication Co. sr. disc. notes stepped-coupon zero %
(11 3/4s, 12/15/00), 2005 ++ (United Kingdom) 18,270,000
18,121,067 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 (2 double daggers) 16,943,198
1,350,000 Grupo Televisa S.A. 144A sr. notes Ser. B, 11 7/8s, 2006 (Mexico) 1,404,000
10,000,000 Grupo Televisa S.A. 144A sr. notes Ser. A, 11 3/8s, 2003 (Mexico) 10,400,000
2,100,000 Heartland Wireless Communication Inc.144A sr. notes 13s, 2003 2,194,500
11,870,000 Heartland Wireless Communicaton Inc. sr. notes 13s, 2003 12,908,625
9,300,000 Insight Communications Co. sr. sub. notes 11/4s, 2000 9,393,000
79,035,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B, zero %
(11 1/2s, 2/1/01), 2006 ++ 46,630,650
17,833,000 Jones Intercable, Inc. sub. deb. 11 1/2s, 2004 19,460,261
3,500,000 Lenfest Communications 144A sr. sub. notes 10 1/2s, 2006 3,500,000
6,290,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 5,818,250
21,100,000 Marcus Cable Co. sr. deb. 11 7/8s, 2005 21,944,000
23,478,000 Marcus Cable Co. sr. disc. notes stepped-coupon zero % (14 1/4s,
6/15/00), 2005 ++ 14,791,140
17,095,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon zero %
(13 1/2s, 8/1/99), 2004 ++ 12,564,825
14,990,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 15,139,900
19,900,000 Telewest Communications PLC deb. stepped-coupon zero % (11s, 10/1/00),
2007 (United Kingdom) ++ 12,288,250
2,600,000 Tele-Communications, Inc. deb. 9 1/4s, 2023 2,465,086
6,500,000 Telewest Communications PLC deb. 9 5/8s, 2006 (United Kingdom) 6,435,000
38,235,000 UIH Australia/Pacific 144A sr. disc. notes stepped-coupon zero % (14s,
5/15/01), 2006 (Australia) ++ 18,926,325
13,000,000 Videotron Holdings. sr. disc. notes stepped-coupon zero % (11s, 8/15/00),
2005 (United Kingdom) ++ 8,612,500
5,750,000 Wireless One, Inc. sr. notes 13s, 2003 5,778,750
--------------
400,145,429
Cellular Communications (4.8%)
- ---------------------------------------------------------------------------------------------------------------------------
3,775,000 360 Communications Co. sr. notes 7 1/2s, 2006 3,582,777
28,875,000 Cencall Communications Corp. sr. disc. notes stepped-coupon zero %
(10 1/8s, 1/15/99), 2004 ++ 18,335,625
9,650,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 9,360,500
20,300,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 18,879,000
13,505,000 Intercel, Inc. sr. disc. notes stepped-coupon zero % (12s, 5/1/01), 2006 ++ 7,157,650
56,000,000 Milicom International Cellular 144A sr. disc. notes stepped-coupon zero %
(13 1/2s, 6/01/00), 2006 (Luxembourg) ++ 30,100,000
19,000,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (9 3/4s,
2/15/99), 2004 ++ 11,210,000
113,750,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon zero % (11 1/2s,
9/1/98), 2003 ++ 77,350,000
10,385,000 Orbcomm Global Capital Corp. 144A sr. notes 14s, 2004 10,410,963
3,370,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon zero % (12 1/4s,
10/1/98), 2003 ++ 2,662,300
14,365,000 Pricellular Wireless sr. disc. notes stepped-coupon Ser. B, zero % (14s,
11/15/97), 2001 ++ 13,215,800
--------------
202,264,615
Chemicals (2.9%)
- ---------------------------------------------------------------------------------------------------------------------------
210,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 201,075
26,870,000 Arcadian Partner sr. notes 10 3/4s, 2005 29,221,125
1,500,000 Carlisle Plastic sr. notes 10 1/4s, 1997 1,503,750
5,000,000 G-I Holdings Inc. sr. notes Ser. B, 10s, 2006 4,862,500
30,603,000 G-I Holdings, Inc. sr. disc. notes Ser. B, zero %, 1998 25,400,490
3,100,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 3,177,500
15,475,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 15,320,250
13,500,000 Harris Chemical Corp. sr. secd. disc. notes 10 1/4s, 2001 13,500,000
7,625,000 IMC Fertilizer Group, Inc. notes Ser. B, 10 1/8s, 2001 8,330,313
5,000,000 IMC Fertilizer Group, Inc. deb. 9.45s, 2011 5,400,000
3,415,000 Texas Petrochemical 144A sr. sub. notes 11 1/8s, 2006 3,555,869
9,282,000 Union Carbide Global Enterprises sr. sub. Ser. B, 12s, 2005 10,581,480
--------------
121,054,352
Computer Equipment (0.6%)
- ---------------------------------------------------------------------------------------------------------------------------
23,800,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 24,633,000
Conglomerates (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
2,190,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 2,211,900
12,450,000 Jordan Industries, Inc. sr. notes 10 3/8s, 2003 11,952,000
9,100,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 9,100,000
--------------
23,263,900
Consumer Durable Goods (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------
10,300,000 Remington Products Co. LLC 144A sr. sub. notes 11s, 2006 10,351,500
Consumer Services (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
19,890,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 20,934,225
Containers (1.0%)
- ---------------------------------------------------------------------------------------------------------------------------
8,450,000 Four M Corp. 144A sr. notes 12s, 2006 8,724,625
25,968,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 27,526,080
2,490,000 Printpack, Inc. 144A sr. notes 10 5/8s, 2006 2,514,900
4,980,000 Printpack, Inc. 144A sr. notes 9 7/8s, 2004 5,029,800
--------------
43,795,405
Electric Utilities (4.7%)
- ---------------------------------------------------------------------------------------------------------------------------
6,865,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. B, 9 1/2s, 2005 6,641,750
5,000,000 CTC Mansfield Funding deb. 11 1/8s, 2016 5,026,800
7,000,000 El Paso Electric Co. 1st mtge. Ser. E, 9.4s, 2011 7,105,000
5,000,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 5,050,000
20,000,000 First PV Funding deb. Ser. 86A, 10.3s, 2014 21,150,000
6,300,000 First PV Funding deb. 10.15s, 2016 6,630,750
10,000,000 Long Island Lighting Co. refunding mtge. notes 9 3/4s, 2021 9,823,200
5,000,000 Long Island Lighting Co. refunding mtge. notes 9 5/8s, 2024 4,920,000
5,000,000 Long Island Lighting Co. refunding mtge. notes 8 5/8s, 2004 4,950,000
15,100,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 16,836,500
55,075,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 58,448,344
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 1,357,500
10,000,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/4s, 2006 8,867,200
3,000,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/8s, 2003 2,684,190
8,435,000 Niagara Mohawk Power Corp. 1st mtge. 6 7/8s, 2001 7,703,095
7,250,000 Niagara Mohawk Power Corp. 1st mtge. 5 7/8s, 2002 6,105,878
22,000,000 Texas New Mexico Power. deb. 12 1/2s, 1999 23,631,740
--------------
197,859,447
Electronics (1.7%)
- ---------------------------------------------------------------------------------------------------------------------------
34,450,000 Amphenol Corp. sr. sub. notes 12 3/4s, 2002 38,067,250
49,250,000 International Semi-Tech. Corp. sr. secd. disc. notes stepped-coupon zero %
(11 1/2s, 8/15/00), 2003 (Canada) ++ 27,826,250
5,450,000 Moog, Inc. 144A sr. sub. notes 10s, 2006 5,538,563
1,500,000 Mosler Inc. sr. notes 11s, 2003 1,245,000
--------------
72,677,063
Energy-Related (0.2%)
- ---------------------------------------------------------------------------------------------------------------------------
10,500,000 Calpine Corp. 144A sr. notes 10 1/2s, 2006 10,552,500
Entertainment (1.0%)
- ---------------------------------------------------------------------------------------------------------------------------
4,495,000 Guitar Center Management 144A sr. notes 11s, 2006 4,551,188
8,625,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 9,142,500
17,250,000 Six Flags Corp. sr. sub. notes stepped-coupon zero % (12 1/4s,
6/15/98), 2005 ++ 14,662,500
4,850,000 Time Warner, Inc. deb. 9.15s, 2023 4,936,670
5,257,000 Time Warner, Inc. notes 8.18s, 2007 5,147,286
5,257,000 Time Warner, Inc. notes 8.11s, 2006 5,146,445
1,000 Time Warner, Inc. FRN 6.835s, 2000 1,009
--------------
43,587,598
Financial Services (0.8%)
- ---------------------------------------------------------------------------------------------------------------------------
1,990,000 AIM Management Group sr. secd. notes 9s, 2003 2,034,775
9,110,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 9,064,450
14,500,000 Keystone Group, Inc. sr. secd. notes 9 3/4s, 2003 14,645,000
7,400,000 Van Kampen Merritt sr. notes 9 3/4s, 2003 7,918,000
--------------
33,662,225
Food (2.4%)
- ---------------------------------------------------------------------------------------------------------------------------
4,600,000 Chiquita Brands sr. notes 9 5/8s, 2004 4,611,500
63,713,000 Del Monte Corp. sub. notes 12 1/4s, 2002 (2 double daggers) 61,801,610
4,000,000 Doane Products Co. sr. notes 10 5/8s, 2006 4,080,000
10,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 10,550,000
25,200,000 Specialty Foods Acquisition Corp. sr. sub. notes 11 1/4s, 2003 20,916,000
--------------
101,959,110
Food Chains (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
3,160,000 Aramark Corp. sub. notes 8 1/2s, 2003 3,167,900
16,500,000 Stater Brothers sr. notes 11s, 2001 17,407,500
--------------
20,575,400
Gaming (6.0%)
- ---------------------------------------------------------------------------------------------------------------------------
4,200,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 4,158,000
15,965,000 Argosy Gaming Co. 144A 1st. mtge. 13 1/4s, 2004 15,366,313
9,470,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 6,108,150
7,000,000 Bally Park Place Funding 1st mtge. 9 1/4s, 2004 7,420,000
1,625,000 Boyd Gaming Corp. sr. sub. notes 10 3/4s, 2003 1,685,938
2,120,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000 (In default)+ 1,462,800
7,050,000 Casino America, Inc. sr. notes 12 1/2s, 2003 7,085,250
7,300,000 Casino Magic corp. 144A 1st mtge. 13s, 2003 7,263,500
14,700,000 Coast Hotels & Casino company guaranty Ser. B 13s, 2002 15,692,250
3,295,000 Cobblestone Golf Group 144A sr. notes 11 1/2s, 2003 3,327,950
5,000,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 (2 double daggers) 4,800,000
3,405,000 Eldorado Resorts LLC 144A sr. sub. notes 10 1/2s, 2006 3,439,050
3,950,000 Empress River Casino sr. notes 10 3/4s, 2002 4,236,375
25,000,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 24,375,000
600,000 Grate Bay Property Funding Corp. 1st mtge. 10 7/8s, 2004 522,000
4,660,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 4,788,150
19,150,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 18,192,500
14,505,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 14,287,425
194,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 160,050
7,000,000 Mohegan Tribal Gaming sr. notes Ser. B, 13 1/2s, 2002 8,715,000
4,590,000 Pioneer Finance Corp. 1st mtge. 13 1/2s, 1998 4,131,000
10,000,000 Players International Inc. sr. notes 10 7/8s, 2005 9,800,000
9,300,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 7,905,000
5,280,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 5,676,000
14,931,000 Trump Castle Funding notes 11 1/2s, 2000 14,931,000
60,000,000 Trump A.C. 1st. mtge. 11 1/4s, 2006 57,300,000
--------------
252,828,701
Health Care (1.9%)
- ---------------------------------------------------------------------------------------------------------------------------
7,970,000 Abbey Healthcare Group Inc. sr. sub. deb. 9 1/2s, 2002 8,209,100
3,425,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 3,484,938
8,900,000 Integrated Health Services sr. sub. notes 10 3/4s, 2004 9,300,500
7,150,000 Integrated Health Services sr. sub. notes 9 5/8s, 2002 7,185,750
12,970,000 Ivac Corp. sr. notes 9 1/4s, 2002 13,099,700
1,000,000 Magellan Health Services, Inc. sr. sub. deb. Ser. A, 11 1/4s, 2004 1,070,000
10,000,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 10,500,000
11,835,000 Paracelsus Helathcare sr. sub. notes 10s, 2006 11,953,350
5,000,000 Quorum Health Group, Inc. sr. sub. notes 11 7/8s, 2002 5,525,000
5,400,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 5,319,000
6,350,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 6,604,000
--------------
82,251,338
Insurance (0.4%)
- ---------------------------------------------------------------------------------------------------------------------------
15,500,000 American Life Holding Co. sr. sub. notes 11 1/4s, 2004 17,476,250
Lodging (0.9%)
- ---------------------------------------------------------------------------------------------------------------------------
11,750,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 11,456,250
20,700,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 19,561,500
7,500,000 Red Roof Inns sr. notes 9 5/8s, 2003 7,200,000
--------------
38,217,750
Media (0.4%)
- ---------------------------------------------------------------------------------------------------------------------------
19,425,000 Viacom International, Inc. sub. deb. 8s, 2006 17,773,875
Medical Supplies and Devices (0.6%)
- ---------------------------------------------------------------------------------------------------------------------------
11,600,000 Dade International, Inc. 144A sr. sub. notes 11 1/8s, 2006 12,238,000
6,000,000 Mediq, Inc. notes 12 1/8s, 1999 6,480,000
6,500,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B, 10 3/4s, 2000 6,402,500
--------------
25,120,500
Metals and Mining (1.0%)
- ---------------------------------------------------------------------------------------------------------------------------
18,350,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 19,726,250
5,730,000 Renco Metals, Inc. sr. notes 11 1/2s 2003 6,030,825
7,895,000 Royal Oak Mines, Inc. 144A sr. sub. notes 11s, 2006 (Canada) 7,895,000
10,000,000 Weirton Steel Co. 144A sr. notes 11 3/8s, 2004 9,700,000
--------------
43,352,075
Motion Picture Distribution (0.7%)
- ---------------------------------------------------------------------------------------------------------------------------
3,525,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 3,851,063
10,850,000 Cinemark Mexico notes 12s, 2003 (Mexico) 10,036,250
13,545,000 Cinemark USA, Inc. 144A sr. sub. notes 9 5/8s, 2008 13,138,650
3,300,000 Cobb Theatres Corp. 144A sr. notes 10 5/8s, 2003 3,415,500
--------------
30,441,463
Office Supplies (0.3%)
- ---------------------------------------------------------------------------------------------------------------------------
11,000,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 11,907,500
Oil and Gas (4.3%)
- ---------------------------------------------------------------------------------------------------------------------------
7,100,000 Benton Oil & Gas Corp. sr. notes 11 5/8s, 2003 7,597,000
7,774,000 Chesapeake Energy Corp. sr. notes 12s, 2001 8,386,203
8,500,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 8,457,500
5,980,000 Cliffs Drilling Co. 144A sr. notes 10 1/4s, 2003 6,039,800
10,315,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 12,016,975
5,980,000 Gerrity Oil & Gas Corp. sr. sub. notes 11 3/4s, 2004 6,338,800
400,000 Global Marine deb. notes 12 3/4s, 1999 430,000
5,000,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 5,162,500
10,695,000 Maxus Energy Corp. notes 9 3/8s, 2003 10,427,625
6,950,000 Noble Drilling Corp. sr. notes 9 1/8s, 2006 7,002,125
7,000,000 Plains Resources, Inc. sr. sub. notes Ser. B, 10 1/4s, 2006 7,122,500
14,300,000 Transamerican Refining 1st. mtge. Ser. 2, 16 1/2s, 2002 13,299,000
10,900,000 Transamerican Refining 1st mtge. stepped-coupon Ser 1, zero % (18 1/2s,
2/15/98), 2002 ++ 7,739,000
63,525,000 Transtexas Gas Corp. sr. secd. notes 11 1/2s, 2002 66,224,813
15,850,000 Triton Energy sr. sub. disc. notes stepped-coupon zero % (9 3/4s,
12/15/96), 2000 ++ 15,750,938
1,300,000 Triton Energy sr. sub. notes zero %, 1997 1,183,000
--------------
183,177,779
Paging (1.7%)
- ---------------------------------------------------------------------------------------------------------------------------
6,000,000 A+ Network Inc. sr. sub. notes 11 7/8s, 2005 5,580,000
17,000,000 Arch Communications Group sr. disc. notes stepped-coupon zero % (10
7/8s, 3/15/01), 2008 ++ 8,925,000
17,525,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 18,226,000
10,000,000 Mobilemedia Corp. sr. sub. notes 9 3/8s, 2007 8,700,000
2,500,000 Mobilemedia Communication Corp. sr. sub. notes stepped-coupon zero % (10 1/2s,
12/01/98), 2003 ++ 1,800,000
1,500,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon zero % (15s, 2/1/00),
2005 ++ 997,500
15,700,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero % (12 1/4s,
11/1/98), 2003 ++ 11,814,250
11,750,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 11,867,500
5,579,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 5,076,890
--------------
72,987,140
Paper and Forest Products (4.9%)
- ---------------------------------------------------------------------------------------------------------------------------
23,500,000 APP International Finance Co. notes 11 3/4s, 2005 (Netherlands) 23,735,000
5,650,000 Buckeye Cellulose Corp. sr. sub. notes 9 1/4s, 2008 5,650,000
3,000,000 Container Corp. of America sr. notes Ser. A, 11 1/4s, 2004 3,142,500
1,500,000 Doman Industries Ltd. sr. notes 8 3/4s, 2004 (Canada) 1,380,000
1,375,000 Domtar, Inc. deb 11 1/4s, 2017 (Canada) 1,457,500
3,840,000 Domtar, Inc. notes 8 3/4s, 2006 (Canada) 3,883,200
11,870,000 Domtar Inc. deb. 9 1/2s, 2016 (Canada) 12,166,750
12,130,000 Florida Coast Paper LLC 144A 1st. mtge. 12 3/4s, 2003 12,766,825
25,125,000 Gaylord Container Corp. sr. sub. disc. deb. 12 3/4s, 2005 26,758,125
6,125,000 Rainy River Forest Products sr. notes 10 3/4s, 2001 6,538,438
6,650,000 Riverwood International company guaranty 10 7/8s, 2008 6,450,500
1,900,000 Riverwood International company guaranty 10 1/4s, 2006 1,871,500
40,000,000 Riverwood International USA bank loan sr. notes 8.016s, 2003 39,400,000
19,000,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 18,050,000
17,750,000 Repap New Brunswick sr. notes 9 1/2s, 2000 (Canada) 17,395,000
5,650,000 Stone Container Corp. 144A sr. notes 11 7/8s, 2016 5,791,250
17,300,000 Stone Container Corp. sr. notes 11 1/2s, 2004 17,732,500
2,550,000 Stone Consolidated Corp. sr. notes 10 1/4s, 2000 2,671,125
--------------
206,840,213
Pharmaceuticals (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------
3,400,000 Twin Laboratories, Inc. 144A sr. sub. notes 10 1/4s, 2006 3,366,000
Pipelines (--%)
- ---------------------------------------------------------------------------------------------------------------------------
250,000 OPI International sr. notes 12 7/8s, 2002 276,250
Publishing (0.8%)
- ---------------------------------------------------------------------------------------------------------------------------
3,550,000 Affinity Group sr. sub. notes 11 1/2s, 2003 3,638,750
10,300,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 10,660,500
28,000,000 Marvel Parent Holdings, Inc. sr. secd. disc. notes zero %, 1998 21,280,000
--------------
35,579,250
Real Estate (0.3%)
- ---------------------------------------------------------------------------------------------------------------------------
1,000,000 Chelsea Piers 1st mtge. Ser. B, 12 1/2s, 2004 935,000
55,000 Chelsea Piers 144A 1st mtge. Ser. B, 11s, 2009 51,425
2,450,000 Prime Hospitality Corp. 1st mtge. 9 1/4s, 2006 2,401,000
7,500,000 Tanger Properities Ltd. Partnership Gtd. notes 8 3/4s, 2001(R) 7,318,500
--------------
10,705,925
Restaurants (0.4%)
- ---------------------------------------------------------------------------------------------------------------------------
6,000,000 Foodmaker, Inc. sr. sub. notes 9 3/4s, 2002 5,775,000
10,500,000 FRD Acqisition 144A sr. notes 12 1/2s, 2004 10,263,750
--------------
16,038,750
Retail (3.0%)
- ---------------------------------------------------------------------------------------------------------------------------
14,050,000 Apparel Retailers, Inc. deb. stepped-coupon Ser. B, zero % (12 3/4s,
8/15/98), 2005 ++ 11,029,250
12,495,000 Brylane (L.P.) sr. sub. notes 10s, 2003 12,276,338
14,400,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon zero % (12s,
5/1/98), 2005 ++ 11,664,000
4,180,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 4,190,450
4,000,000 Hills Stores Co. sr. notes Ser. B, 12 1/2s, 2003 3,710,000
16,600,000 K Mart Corp. deb. 7 3/4s, 2012 12,076,500
5,000,000 K Mart Corp. notes 8 1/8s, 2006 4,175,000
700,000 K Mart Corp. med. term notes 8.85s, 2001 548,912
5,000,000 K Mart Corp. med. term notes 8.13s, 2003 4,272,450
1,000,000 K Mart Corp. med. term notes 8s, 2001 882,150
500,000 K Mart Corp. med. term notes 7.96s, 1999 462,395
3,000,000 K Mart Corp. med. term notes 7.82s, 2002 2,622,360
2,000,000 K Mart Corp. med. term notes 7.77s, 2002 1,710,000
400,000 K Mart Corp. med. term notes 7.74s, 2002 342,000
1,425,000 K Mart Corp. med. term notes 7.72s, 2002 1,211,250
2,000,000 K Mart Corp. med. term notes 7.47s, 2002 1,696,780
1,000,000 K Mart Corp. med. term notes 7 3/8s, 2000 893,050
2,000,000 K Mart Corp. med. term notes 7.17s, 2000 1,770,100
1,200,000 K Mart Corp. med. term notes 7.01s, 2000 1,055,472
1,000,000 K Mart Corp. med. term notes 6.88s, 1999 905,890
1,000,000 K Mart Corp. med. term notes 6.78s, 1999 902,650
1,175,000 K Mart Funding Corp. notes 7.36s, 1998 1,098,625
10,000,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 10,425,000
5,875,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 6,242,188
10,145,000 Parisian, Inc. sr. sub. notes 9 7/8s, 2003 9,992,825
9,270,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 9,200,475
2,225,000 Specialty Retailers, Inc. notes 10s, 2000 2,202,750
7,840,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 7,840,000
3,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 3,000,000
--------------
128,398,860
Satellite Services (1.5%)
- ---------------------------------------------------------------------------------------------------------------------------
8,130,000 Echostar Communications Corp. sr. disc. notes stepped-coupon zero %
(12 7/8s, 6/1/99), 2004 ++ 6,016,200
2,675,000 Echostar Satellite Braodcast Corp. sr. disc. notes stepped-coupon
zero % (13 1/8s, 3/15/00), 2004 ++ 1,651,813
46,600,000 Panamsat (L.P.) sr. sub. notes stepped-coupon zero % (11 3/8s,
8/1/98), 2003 ++ 41,415,750
5,945,000 Net Sat Services Ltd. 144A sr. sub. notes 12 3/4s, 2004 (Brazil) 6,115,919
6,640,000 Omnipoint Corp. 144A sr. notes 11 5/8s, 2006 6,689,800
--------------
61,889,482
Specialty Consumer Products (0.3%)
- ---------------------------------------------------------------------------------------------------------------------------
1,500,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 1,545,000
8,700,000 Selmer Co., Inc. sr. sub. notes 11s, 2005 9,178,500
--------------
10,723,500
Steel (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
10,000,000 Ispat Mexicana, SA 144A deb. 10 3/8s, 2001 (Mexico) 9,750,000
5,000,000 Ispat Mexicana, S.A. deb. 10 3/8s, 2001 (Mexico) 4,875,000
5,900,000 WCI Steel Inc. sr. secd. notes 10 1/2s, 2002 6,106,500
--------------
20,731,500
Supermarkets (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
7,969,390 Food 4 Less Supermarkets, Inc. sr. sub. deb. 13 5/8s, 2007 (2 double daggers) 6,375,512
10,000,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 9,850,000
3,000,000 Ralph's Grocery Co. 144A sr. notes 10.45s, 6/15/04 2,940,000
--------------
19,165,512
Telecommunication (6.1%)
- ---------------------------------------------------------------------------------------------------------------------------
13,150,000 American Communication Services, Inc. sr. disc. notes stepped-coupon zero %
(12 3/4s, 4/1/01), 2006 ++ 6,640,750
15,210,000 Brooks Fiber Properties sr. disc. notes stepped-coupon zero % (10 7/8s,
3/1/01), 2006 ++ 8,631,675
31,200,000 GST Telecommunications,Inc. company guaranty stepped-coupon zero %
(13 7/8s, 15/15/00), 2005 ++ 16,536,000
15,955,000 Hyperion Communication 144A sr. disc. notes steped-coupon zero % (13s,
4/15/01), 2003 ++ 8,655,588
77,480,000 IntelCom Group, Inc. sr. disc. notes stepped-coupon zero % (13 1/2s,
9/15/00), 2005 ++ 48,425,000
52,000,000 IntelCom Group, Inc. company guaranty zero % (12 1/2s, 5/1/01), 2006 ++ 28,860,000
16,500,000 Intermedia Communication of Florida, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 5/15/01), 2006 ++ 9,693,750
15,924,000 Intermedia Communications of Florida, Inc. sr. notes Ser. B, 13 1/2s,
2005 18,033,930
15,400,000 MFS Communications sr. disc. notes stepped-coupon zero % (8 7/8s,
1/1/01), 2006 ++ 10,414,250
36,700,000 MFS Communications sr. disc. notes stepped-coupon zero % (9 3/8s,
1/15/99), 2004 ++ 29,635,250
22,500,000 Nextlink Communications, Inc. 144A sr. notes 12 1/2s, 2006 22,162,500
76,070,000 Teleport Communications Group Inc. sr. disc. notes stepped-coupon
zero % (11 1/8s, 7/1/01), 2007 ++ 46,402,700
5,868,000 Winstar Communications, Inc. sr. disc. notes stepped-coupon zero %
(14s, 10/15/00), 2005 ++ 3,242,070
--------------
257,333,463
Telephone Services (0.8%)
- ---------------------------------------------------------------------------------------------------------------------------
18,595,000 Call-Net Enterprises stepped-coupon zero % (13 1/4s, 12/1/99), 2004 ++ 14,132,200
8,180,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 8,793,500
15,000,000 Shared Technologies Fairchild Inc. company guaranty stepped-coupon zero
% (12 1/4s, 3/1/99), 2006 ++ 11,400,000
--------------
34,325,700
Textiles (0.7%)
- ---------------------------------------------------------------------------------------------------------------------------
12,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 12,600,000
5,000,000 Polysindo International Eka company guaranty 13s, 2001 (Indonesia) 5,437,500
13,030,000 Polysindo International Finance company guaranty 11 3/8s, 2006 (Indonesia) 13,127,725
--------------
31,165,225
Tobacco (0.5%)
- ---------------------------------------------------------------------------------------------------------------------------
2,050,000 RJR Nabisco, Inc. notes 8 3/4s, 2007 1,958,283
22,350,000 RJR Nabisco, Inc. notes 8 3/4s, 2005 21,294,410
--------------
23,252,693
--------------
Total Corporate Bonds and Notes (cost $3,543,258,406) $ 3,505,138,837
PREFERRED STOCKS (3.5%) *
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
447,094 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. $ 41,915,045
162,000 California Federal Bank Ser. B, $10.625, exch. pfd. 16,929,000
196,000 Diva Systems Corp. Ser. C, $6.00 pfd. 1,715,000
7,407 Duane Reade Corp. $15.00, pfd. + 51,852
70,000 El Paso Electric Co. $11.40, pfd (2 double daggers) 7,700,000
220,000 First Nationwide Bank $11.50, pfd. 23,760,000
25,000 Foxmeyer Health Corp. Ser. A, $4.20, pfd. (2 double daggers) 425,000
76,536 K-III Communications Ser. B, $11.625 pfd. (2 double daggers) 7,500,528
205,000 SD Warren Co. Ser. B, $3.50, pfd. 7,175,000
41,146 Time Warner, Inc. 144A Ser. K, $10.25 pfd. 41,763,190
--------------
Total Preferred Stocks (cost $150,464,338) $ 148,934,615
UNITS (3.2%) *
NUMBER OF UNITS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
18,260 Australis Media units stepped-coupon zero % (14s, 5/15/2000), 2003
(Australia) ++ $ 10,225,600
32,345 Cellnet Data Systems Inc. units stepped-coupon zero % (13s, 6/15/00), 2005 ++ 24,582,200
6,025 Cobblestone Holdings, Inc. 144A units zero %, 2004 2,304,563
4,650 Diva Systems Corp. 144A units stepped-coupon zero % (13s, 5/15/01), 2006 ++ 2,545,875
14,425 Fitzgerald Gaming Co. units 13s, 2002 10,674,500
2,000 Health-O-Meter Product units 13s, 2002 2,160,000
14,200 Interact Systems, Inc. 144A units stepped-coupon zero % (14s, 8/1/99), 2003 ++ 9,478,500
2,400 Intercel, Inc. units stepped-coupon zero % (12s, 2/1/01), 2006 ++ 14,280,000
7,470 International Wireless Communications units zero %, 2001 3,847,050
15,000 Ionica PLC units 13 1/2s, 2006 (United Kingdom) 15,075,000
26,600 Premium Standard Farms 144A exch. pfd. units 12 1/2s, 2000 1,195,670
6,375 Sterling Chemical Holdings units stepped-coupon zero % (13 1/2s,
8/15/01), 2008 ++ 3,570,000
20,545 Terex Corp. 144A units 13 3/4s, 2002 21,520,888
23,840 Wireless One Inc. units stepped-coupon zero % (13 1/2s, 8/1/01), 2006 ++ 12,218,000
--------------
Total Units (cost $134,050,455) $ 133,677,846
BRADY BONDS (2.7%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$43,109,000 Argentina (Republic of) FRN Ser. L-GL, 6.438s, 2023 $ 29,529,665
15,533,000 Brazil (Republic of) annual reset bonds 4 1/4s, 2024 11,319,674
17,725,874 Brazil (Republic of) FRB 8s, 2014 11,433,189
15,256,000 Brazil (Republic of) FRN Ser. EI-L, 6 1/2s, 2006 12,853,180
9,189,000 Ecuador (Government of) FRN 6.063s, 2025 5,306,648
9,941,000 Poland (Government of) FRN 6.438s, 2024 9,555,786
31,042,000 United Mexican States deb. Ser. B, 6 1/4s, 2019 20,526,523
16,750,000 Venezuela (Government of) FRN Ser. DL, 6.625s, 2007 12,646,250
--------------
Total Brady Bonds (cost $109,129,096) $ 113,170,915
COMMON STOCKS (2.3%) *
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
6,570 Axia Holding Corp. 144A + $ 197,100
20,000 Aztar Corp. + 220,000
100,000 BE Aerospace, Inc. + 1,650,000
400,000 Casino America, Inc. + 2,600,000
100,000 Clearnet Communications Inc. Class A, (Canada) + 1,550,000
50,000 Comcast Corp. Class A 806,250
1,219,719 Computervision Corp. + 8,538,033
211,625 Cox Communications, Inc. Class A + 4,179,594
66,667 Duane Reade Corp. + 43,333
775,000 Exide Corp. 20,634,375
8,866 Finlay Enterprises, Inc. 113,042
100,000 Freeport-McMoRan Copper & Gold Co., Inc. Class A 2,812,500
1,688,770 Grand Union Co. (acquired 8/18/95, cost $87,572,218)+(double dagger) 9,815,976
1,250,000 NEXTEL Communications, Inc. Class A + 20,468,750
625,000 Owens-Illinois, Inc. + 9,609,375
13 Pegasus Media & Communications, Inc. + 7,800
11,048 PMI Holdings Corp. 144A + 2,430,560
8,407 Premium Holdings (L.P.)144A + 210,176
236,025 Specialty Foods Corp. + 118,013
251,460 Total Renal Care Holdings 7,685,246
76,080 Total Renal Care Holdings, Inc. (acquired various date from 8/4/94 to 1/11/95,
cost $120,421)+(double dagger) 3,128,790
5,000 Triangle Pacific Corp. + 108,750
100,000 UCC Investors Holding, Inc. (acquired 3/28/94, cost $1,400,000)(double dagger) 1,500,000
--------------
Total Common Stocks (cost $169,373,866) $ 98,427,663
CONVERTIBLE BONDS AND NOTES (1.1%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$28,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 $ 16,957,500
3,900,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon zero %
(13 7/8s, 15/15/00), 2005 ++ 3,627,000
2,791,000 Kelley Oil & Gas cv. deb. 8 1/2s, 2000 2,483,990
27,771,000 Pricellular Wireless Corp. 144A cv. sub. notes stepped-coupon zero %
(10 3/4s, 8/15/00) ++ 23,605,350
434,000 Winstar Communications Inc. 144A cv. sr. disc. notes stepped-coupon
zero % (14s, 10/15/00), 2005 ++ 273,420
--------------
Total Convertible Bonds and Notes (cost $40,587,080) $ 46,947,260
FOREIGN GOVERNMENT BONDS AND NOTES (0.9%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
USD 5,372,000 Morocco (Government of) FRB Ser. A, 6.437s, 2009 $ 3,988,710
USD 9,729,000 Russia (Government of) non performing loan 2015 + ## 5,715,788
USD 26,975,000 Russia (Government of) non performing loan 2020 + ## 11,835,281
ZAR 32,339,000 South Africa (Republic of) bonds Ser. 153, 13s, 2010 6,162,212
USD 10,435,000 United Mexican States bonds 11 1/2s, 2026 10,017,600
--------------
Total Foreign Government Bonds and Notes (cost $37,162,589) $ 37,719,591
WARRANTS (0.3%) * +
NUMBER OF WARRANTS Maturity Date VALUE
- ---------------------------------------------------------------------------------------------------------------------------
265,000 Becker Gaming Corp. 144A 11/15/00 $ 53,000
136,500 Capital Gaming International, Inc. 2/1/99 5,460
42,125 Casino America, Inc. 11/15/96 4,213
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 7/5/01 897,000
17,000 County Seat Holdings, Inc. 10/15/98 170,000
71,220 Heartland Wireless Communications 144A 4/15/00 356,100
15,955 Hyperion Telecommunications 144A 4/15/01 159,550
251,394 Intelcom Group 9/15/05 3,896,607
15,924 Intermedia Communications 144A 6/1/00 636,960
72,220 Pagemart, Inc. 144A 12/31/03 622,898
46,097 Petracom Holdings, Inc. 144A 8/1/05 328,441
44,150 President Riverboat Casinos, Inc. 9/30/99 39,735
30,000 President Riverboat Casinos, Inc. 144A 9/23/96 1,500
220,000 Southdown, Inc. 144A 10/31/96 1,897,500
222 Telemedia Broadcasting Corp. 144A 4/1/04 166,775
23,250 Wireless One, Inc. 10/19/00 122,063
403 Wright Medical Technology, Inc. 144A 6/30/03 52,359
--------------
Total Warrants (cost $7,084,483) $ 11,545,174
SHORT-TERM INVESTMENTS (2.7%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
$ 25,000,000 Federal Home Loan Mortgage Corp. effective yield of 5.24%, October 10, 1996 $ 24,858,083
50,000,000 Federal Home Loan Mortgage Corp. effective yield of 5.23%, September 12, 1996 49,920,098
MXP 45,328,170 Mexican T Bill zero %, June 5, 1997 4,895,785
MXP 13,551,010 Mexican T Bill zero %, January 9, 1997 1,670,227
34,799,000 Interest in $445,006,000 joint repurchase agreement dated August 30, 1996
with Morgan (J.P.) & Co., Inc. due September 3, 1996 with respect to various
U.S. Treasury obligations -- maturity value of $34,819,222 for an effective
yield of 5.23%. 34,809,111
--------------
Total Short-Term Investments (cost $115,945,272) $ 116,153,304
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,307,055,585) *** $4,211,715,205
- ---------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,232,918,588.
*** The aggregate identified cost on a tax basis is
$4,317,664,904, resulting in gross unrealized appreciation and
depreciation of $190,553,924 and $296,503,623, respectively,
or net unrealized appreciation of $105,949,699.
+ 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.
(double dagger) Restricted, excluding 144A securities, as to public resale.
The total market value of restricted securities held at
August 31, 1996 was $42,651,016 or 1.0% of
net assets.
(2 double daggers) Income may be received in cash or additional securities at
the discretion of the issuer.
## When-issued securities. (See Note 1)
144A after the name of a security represents those exempt
from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional
buyers.
The rate shown on FRB and FRN are the current interest rates
shown at August 31, 1996, which are subject to
change based on the terms of the security.
The acompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1996
<S> <C>
Assets
- ------------------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $4,307,055,585) (Note 1) $4,211,715,205
- ------------------------------------------------------------------------------------------------------------------------
Cash 2,538,530
- ------------------------------------------------------------------------------------------------------------------------
Dividends and interest and other receivables 79,958,730
- ------------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 15,099,553
- ------------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 19,395,653
- ------------------------------------------------------------------------------------------------------------------------
Receivable for closed forward currency contracts 38,405
- ------------------------------------------------------------------------------------------------------------------------
Total assets 4,328,746,076
Liabilities
- ------------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 76,961,868
- ------------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 9,758,364
- ------------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,650,742
- ------------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 523,291
- ------------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 9,660
- ------------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,005
- ------------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,235,668
- ------------------------------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 90,542
- ------------------------------------------------------------------------------------------------------------------------
Other accrued expenses 590,348
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 95,827,488
- ------------------------------------------------------------------------------------------------------------------------
Net assets $4,232,918,588
Represented by
- ------------------------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1and 4) $4,859,942,206
- ------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (5,989,979)
- ------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (Note 1) (525,678,691)
- ------------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and liabilities in foreign currencies (95,354,948)
- ------------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $4,232,918,588
Computation of net asset value and offering price
- ------------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A shares ($3,115,545,609 divided by 257,308,311 shares) $12.11
- ------------------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.11)* $12.71
- ------------------------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B shares ($1,100,757,354 divided by 91,218,807 shares)** $12.07
- ------------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M shares ($16,615,625 divided by 1,372,902 shares) $12.10
- ------------------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.10)* $12.51
- ------------------------------------------------------------------------------------------------------------------------
* 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 statments.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended August 31, 1996
<S> <C>
Investment Income:
- ------------------------------------------------------------------------------------------------------------------------
Interest $411,702,033
- ------------------------------------------------------------------------------------------------------------------------
Dividends 8,150,228
- ------------------------------------------------------------------------------------------------------------------------
Total investment income 419,852,261
Expenses:
- ------------------------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 21,718,605
- ------------------------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,103,558
- ------------------------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 86,690
- ------------------------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 43,396
- ------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 7,659,443
- ------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 9,264,957
- ------------------------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 39,498
- ------------------------------------------------------------------------------------------------------------------------
Reports to shareholders 132,685
- ------------------------------------------------------------------------------------------------------------------------
Registration fees 219,518
- ------------------------------------------------------------------------------------------------------------------------
Auditing 152,424
- ------------------------------------------------------------------------------------------------------------------------
Legal 205,431
- ------------------------------------------------------------------------------------------------------------------------
Postage 517,980
- ------------------------------------------------------------------------------------------------------------------------
Other 78,107
- ------------------------------------------------------------------------------------------------------------------------
Total expenses 45,222,292
- ------------------------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,110,520)
- ------------------------------------------------------------------------------------------------------------------------
Net expenses 44,111,772
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 375,740,489
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 120,113,256
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain on forward currency contracts and foreign currency translation (Note 1) 63,241
- ------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on forward currency contracts and foreign currency translation during the year 7,071
- ------------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (85,586,787)
- ------------------------------------------------------------------------------------------------------------------------
Net gain on investments 34,596,781
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $410,337,270
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
-----------------------------------
1996 1995
-----------------------------------
<S> <C> <C>
Increase in net assets
- -------------------------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income $375,740,489 $353,382,591
- -------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions 120,176,497 (134,335,318)
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments and assets and liabilities
in foreign currencies (85,579,716) 140,350,852
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 410,337,270 359,398,125
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders
- -------------------------------------------------------------------------------------------------------------------------
From net investment income:
Class A (290,741,190) (293,973,082)
- -------------------------------------------------------------------------------------------------------------------------
Class B (81,061,592) (59,607,996)
- -------------------------------------------------------------------------------------------------------------------------
Class M (715,452) (4,823)
- -------------------------------------------------------------------------------------------------------------------------
From return of capital:
Class A -- (9,903,791)
- -------------------------------------------------------------------------------------------------------------------------
Class B -- (2,008,161)
- -------------------------------------------------------------------------------------------------------------------------
Class M -- (162)
- -------------------------------------------------------------------------------------------------------------------------
In excess of net investment income:
- -------------------------------------------------------------------------------------------------------------------------
Class A (4,675,029) --
- -------------------------------------------------------------------------------------------------------------------------
Class B (1,303,446) --
- -------------------------------------------------------------------------------------------------------------------------
Class M (11,504) --
- -------------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 439,711,567 346,727,853
- -------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 471,540,624 340,627,963
- -------------------------------------------------------------------------------------------------------------------------
Net Assets
- -------------------------------------------------------------------------------------------------------------------------
Beginning of year 3,761,377,964 3,420,750,001
- -------------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net investment income of
$5,989,979 and undistributed net investment income of $61,831, respectively) $4,232,918,588 $3,761,377,964
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statments.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
July 3, 1995
Year (commencement
ended of operations) Year ended
August 31 to August 31 August 31
---------------------------------------------------
1996 1995 1996
---------------------------------------------------
Class M Class B
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.00 $11.92 $11.97
- ----------------------------------------------------------------------------------------------------------------
Investment activities
- ----------------------------------------------------------------------------------------------------------------
Net investment income 1.14(c) .21(c) 1.07(c)
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .11 .07 .11
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.25 .28 1.18
- ----------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------
From net investment income (1.13) (.19) (1.06)
- ----------------------------------------------------------------------------------------------------------------
From return of capital -- (.01) --
- ----------------------------------------------------------------------------------------------------------------
In excess of net investment income (.02) -- (.02)
- ----------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (1.15) (.20) (1.08)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.10 $12.00 $12.07
- ----------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 10.88 2.38(d) 10.28
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $16,616 $964 $1,100,757
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.19 .20(d) 1.71
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 9.45 1.65(d) 8.84
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 184.86 81.70 184.86
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
March 1, 1994
(commencement
Year ended Year ended of operations)
August 31 August 31 to August 31
---------------------------------------------------
1995 1994 1993
---------------------------------------------------
Class B Class B
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.03 $12.99 $12.84
- ----------------------------------------------------------------------------------------------------------------
Investment activities
- ----------------------------------------------------------------------------------------------------------------
Net investment income 1.09 1.18 .62
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .02 (.94) .23
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.11 .24 .85
- ----------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------
From net investment income (1.13) (1.20) (.70)
- ----------------------------------------------------------------------------------------------------------------
From return of capital (.04) -- --
- ----------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ----------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (1.17) (1.20) (.70)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.97 $12.03 $12.99
- ----------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 9.88 1.66 6.80(d)
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $762,947 $535,002 $238,647
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) 1.70 1.69 .85(d)
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 9.52 9.06 4.92(d)
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 81.70 55.00 50.90
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended August 31
---------------------------------------------------
1996 1995 1994
---------------------------------------------------
Class A
---------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.01 $12.06 $13.01
- ----------------------------------------------------------------------------------------------------------------
Investment activities
- ----------------------------------------------------------------------------------------------------------------
Net investment income 1.16(c) 1.22 1.27
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .11 (.01) (.93)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.27 1.21 .34
- ----------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------
From net investment income (1.15) (1.22) (1.29)
- ----------------------------------------------------------------------------------------------------------------
From return of capital -- (.04) --
- ----------------------------------------------------------------------------------------------------------------
In excess of net investment income (.02) -- --
- ----------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (1.17) (1.26) (1.29)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.11 $12.01 $12.06
- ----------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 11.08 10.76 2.46
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $3,115,546 $2,997,467 $2,885,748
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .96 .95 .94
- ----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 9.57 10.27 9.82
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 184.86 81.70 55.00
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
-----------------------------
1993 1992
-----------------------------
<S> <C> <C>
Net asset value, beginning of period $12.76 $11.55
- -------------------------------------------------------------------------------------------
Investment activities
- -------------------------------------------------------------------------------------------
Net investment income 1.46 1.57
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .28 1.22
- -------------------------------------------------------------------------------------------
Total from investment operations 1.74 2.79
- -------------------------------------------------------------------------------------------
Less distributions
- -------------------------------------------------------------------------------------------
From net investment income (1.45) (1.56)
- -------------------------------------------------------------------------------------------
From return of capital -- --
- -------------------------------------------------------------------------------------------
In excess of net investment income (.04) --
- -------------------------------------------------------------------------------------------
From net realized gain on investments -- (.02)
- -------------------------------------------------------------------------------------------
Total distributions (1.49) (1.58)
- -------------------------------------------------------------------------------------------
Net asset value, end of period $13.01 $12.76
- -------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 14.50 25.50
- -------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $3,189,948 $2,449,282
- -------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(b) .92 .97
- -------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 11.27 12.63
- -------------------------------------------------------------------------------------------
Portfolio turnover (%) 50.90 47.05
- -------------------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment
and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period
ended August 31, 1996 includes amounts paid through
expense offset arangements. Prior period ratios exclude
these amounts. (Note 2)
(c) Per share net investment income has been determined on the
basis of the weighted average number of shares outstanding
during the period
(d) Not annualized.
</TABLE>
Notes to financial statements
August 31, 1996
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,
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 holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Investments for which 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, or dealers which determine 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.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested
cash balances into a joint trading account along with the cash of other
registered investment companies managed by Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc., and certain other accounts.
These balances may be invested in one or more repurchase agreements
and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Putnam Management is responsible for determining that the value of these
underlying securities is at all times at least equal to the resale
price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
Dividend income is recorded on the ex-dividend date. Discounts on zero
coupon bonds, original issue, stepped-coupon bonds and payment in kind
bonds are accreted according to the effective yield method.
Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the trade date; interest income is
not accrued until settlement date. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty
does not perform under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gain or
loss on investments. Net realized gains and losses on foreign currency
transactions represent net exchange gains or losses on closed forward
currency contracts, disposition of foreign currencies and the difference
between the amount of investment income and foreign withholding taxes
recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized gains and losses on foreign
currency transactions arise from changes in the value of open forward
currency contracts and assets and liabilities other than investments at
the period end, resulting from changes in the exchange rate.
F) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At August 31, 1996, the fund had a capital loss carryover of
approximately $515,069,373 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- ----------------------------------------------
$ 32,283,479 August 31, 1997
$ 23,057,542 August 31, 1998
$296,761,877 August 31, 1999
$110,228,548 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. These
differences include treatment of defaulted bond interest, post-October
loss deferrals, losses on wash sale transactions, realized gains and
losses on forward currency contracts, amortization of bond premium, and
interest on payment-in-kind securities. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended August 31, 1996, the fund reclassified
$3,284,087 to increase distributions in excess of net investment income
and $23,428,815 to decrease paid-in-capital, with a decrease to
accumulated net realized loss on investments of $26,712,902. The
calculation of net investment income per share in the financial
highlights table excludes these adjustments.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. 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 $500 million, 0.50% of any amount over $1.5
billion, subject, under current law, to reduction in any year 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.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended August 31, 1996, fund expenses were reduced by
$1,110,520 under expense offset arrangements with PFTC. Investor
servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested a portion of the
assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $4,640 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund 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.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.25%, 1.00% and 0.50% of the average
net assets attributable to class A, class B and class M shares,
respectively.
For the year ended August 31, 1996, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $1,123,983 and $18,436 from the
sale of class A and class M shares, respectively and $1,844,011 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the year ended August 31, 1996, Putnam Mutual Funds
Corp., acting as underwriter received $15,884 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended August 31, 1996, purchases and sales of investment
securities other than short-term investments aggregated $7,441,579,265
and $7,072,863,061, 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 August 31, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
August 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 55,402,991 $671,648,164
- ----------------------------------------------------
Shares
reinvested 12,135,654 146,443,562
- ----------------------------------------------------
67,538,645 818,091,726
Shares
repurchased (59,864,900) (726,015,454)
- ----------------------------------------------------
Net increase 7,673,745 $92,076,272
- ----------------------------------------------------
Year ended
August 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 53,235,731 $626,633,403
- ----------------------------------------------------
Shares
reinvested 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
- ----------------------------------------------------
Year ended
August 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 48,434,672 $585,570,532
- ----------------------------------------------------
Shares
reinvested 3,197,705 38,477,510
- ----------------------------------------------------
51,632,377 624,048,042
Shares
repurchased (24,145,722) (292,065,361)
- ----------------------------------------------------
Net increase 27,486,655 $331,982,681
- ----------------------------------------------------
Year ended
August 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 31,579,432 $371,489,530
- ----------------------------------------------------
Shares
reinvested 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
- ----------------------------------------------------
Year ended
August 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 1,621,893 $19,640,619
- ----------------------------------------------------
Shares
reinvested 41,213 496,981
- ----------------------------------------------------
1,663,106 20,137,600
Shares
repurchased (370,530) (4,484,986)
- ----------------------------------------------------
Net increase 1,292,576 $15,652,614
- ----------------------------------------------------
For the Period
July 3, 1995
(commencement of
operations) to
August 31, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 80,086 $964,865
- ----------------------------------------------------
Shares
reinvested 323 3,885
- ----------------------------------------------------
80,409 968,750
Shares
repurchased (83) (1,000)
- ----------------------------------------------------
Net increase 80,326 $967,750
- ----------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 2.13% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
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
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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
William J. Curtin
Vice President
Edward H. D'Alelio
Vice President
Jin W. Ho
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
Rosemary H. Thomsen
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
- -----------------
27668-014/324/2AC 10/96
