Putnam
High Yield
Trust
SEMIANNUAL REPORT
February 28, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent rating agency, continues to award Putnam High
Yield Trust's class A shares its highest overall rating of five stars (based
on the 5-year total return) as of March 31, 1997. Only 10% of fixed-income
funds received this rating.*
* "The quality of companies issuing high-yield debt has never been better.
While bonds financing mergers and acquisitions are on the rise, little of
the new debt is being issued for leveraged buyouts or by overleveraged
companies struggling to stay afloat, as in years past."
-- The Wall Street Journal, March 10, 1997
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
31 Financial statements
43 Results of February 6, 1997 shareholders meeting
*Morningstar ratings are subject to change every month and are calculated from
a fund's 3-, 5-, and 10-year average annual returns in excess of 90-day
Treasury bill returns, with appropriate sales charge adjustments and a risk
factor that reflects performance compared to 90-day Treasury bill monthly
returns. The 1-year rating is calculated using the same methodology, but it
is not a component of the overall rating. For the 3-, 5-, and 10-year periods
ended 3/31/97, there were 1,172, 630, and 258 funds in the fixed-income
category and the fund received 4, 5, and 4 stars, respectively. For the 1
year period, the fund received 3 stars and was rated among 1,696 funds. Past
performance is not indicative of future results. Performance of other share
classes will vary.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
As high-yield bond performance consistently dominated the fixed-income markets
over the past several months, it has been easy enough to pick short-term
"winners." The real test of any selection process, however, will come next
time the economy puts the squeeze on the issuers of these lower-rated
securities.
Since Putnam High Yield Trust's introduction nearly 20 years ago, its
management has assiduously held the higher-yielding lower-rated securities in
its portfolio to stringent credit criteria. Past performance can never be a
guarantee of future results, of course. Nevertheless we believe your fund's
long-term performance in both up and down markets provides a strong
endorsement of Putnam's credit research capabilities.
In the following report, Fund Manager Jennifer Leichter provides an in-depth
discussion of your fund's performance during the first half of fiscal 1997 and
a look at prospects for the second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 16, 1997
Report from the Fund Manager
Jennifer E. Leichter
A tantalizing array of market conditions made the six months ended February
28, 1997, a mouthwatering experience for corporate bond investors. Encouraged
by modest inflation, solid economic growth, relatively low interest rates, and
investors' appetites for yield, the high-yielding corporate bond market
outdistanced all other fixed-income sectors, including investment-grade
corporate bonds.
The aroma of success was not lost on Putnam High Yield Trust. Six-month
returns at net asset value for class A, class B, and class M shares were
9.63%, 9.17%, and 9.51%, respectively -- comfortably ahead of the 8.99% return
posted by one of the fund's benchmarks, the First Boston High Yield Bond
Index. Returns at maximum offering price for class A, class B and class M
shares were 4.45%, 4.17%, and 5.92%, respectively. Full performance details
can be found on pages 9 and 10.
* ECONOMIC ENVIRONMENT FRIENDLY TO HIGH-YIELDING BONDS
Over the semiannual period, the economic landscape provided ideal conditions
for high-yield bonds to flourish. The U.S. economy's annual growth rate of
2.1% in the third quarter of 1996 was followed by an eye-opening 4% in the
final quarter. This surge was largely fueled by foreign trade, a rebound in
consumer spending, and a surge in business construction.
In such an environment, companies that have the strongest potential are those
whose fortunes are tied directly to the health of the economy. When consumers
spend more money, these "cyclical" companies profit, increasing their output
to meet the rising demand for their products. At period's end, cyclical
holdings -- industry sectors such as paper, chemical, and automotive --
composed 6.5% of the fund's assets, with the balance allocated to noncyclical,
defensive stocks -- such as telecommunications, cable, and gaming.
One of the fund's most successful cyclical holdings during the period was
Kmart. By expanding into developing countries and by opening new stores in
urban centers such as Manhattan, this retailer raised significant revenues,
enabling it to pay down its corporate debt to levels well beyond market
expectations. While this holding and others were viewed favorably at the end
of the fiscal period, all holdings are subject to review and adjustment in
accordance with the fund's investment strategy and may well vary in the
future.
The favorable economic environment also affected the level of merger and
acquisition activity. Although deliberately positioning the fund to capitalize
on such activity is not part of our investment strategy, the fund does
frequently benefit from being in the right place at the right time. Several
companies represented in the portfolio -- including Repap New Brunswick (paper
and forest products) and Vons (supermarkets) -- were acquired by financially
stronger corporations, producing substantial price gains on those investments.
[GRAPHIC OMITTED: worm chart HIGH-YIELD BONDS VERSUS OTHER BONDS]
First Boston High Yield Lehman Brothers
Bond Index Corporate Bond Index
1992 22.41% 15.15%
1993 41.72% 30.86%
1994 46.84% 27.66%
1995 66.23% 44.86%
1996 83.10% 50.34%
1997 99.56% 59.76%
Footnote reads:
This chart demonstrates that high-yield bonds, as represented by the First
Boston High Yield Bond Index, generally outperformed investment-grade
corporate bonds, as represented by the Lehman Brothers Corporate Bond Index.
The chart shows cumulative returns. 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.
* STRONG SUPPLY, STRONGER DEMAND
A steady supply of high-yielding securities is being surpassed by an even
stronger demand for the higher income streams these bonds provide. However,
the yield spread between higher-yielding corporate bonds and U.S. Treasury or
other investment-grade securities with similar maturities has tightened
noticeably.
During 1996, the differential between investment-grade corporate bonds and
high-yielding bonds tightened by 152 basis points -- about 1.5 percentage
points. In the first two months of 1997, the gap closed another 40 basis
points. We consider this understandable in light of the market environment.
When interest rates are low and bond investors' confidence level is strong,
investors are often more comfortable with higher-risk investments such as
lower-rated higher-yielding bonds. In such an environment, the gap between
yields of lower-rated and higher-rated securities often narrows.
* SECTOR DIVERSIFICATION INCREASES OPPORTUNITIES WHILE SPREADING MARKET RISK
During the period, we increased the total number of holdings spreading
purchases among several industry groups. The top five industries represented
were cable television, telecommunications, gaming, paper/forest products, and
cellular communications.
Several of the fund's holdings continue to benefit from legislation passed in
1996 that deregulated the telecommunications and broadcasting industries. In
the aftermath of its passage, new enterprises that represent some of the best
opportunities in today's high-yield market were launched. As businesses such
as Omnipoint Corp. and Sprintspectrum mature and prosper, their risk profiles
are likely to improve, resulting in potential credit upgrades. A perennial
favorite, as well as the fund's largest position, NEXTEL Communications
(cellular communications) was the best-performing holding for the period.
Broadcast holdings were trimmed during the period in an effort to capture
profits, since it is unlikely that this sector will repeat the performance of
the past year in the next few months.
TOP 10 HOLDINGS
NEXTEL Communications, Inc.
Cellular communications
Midland Funding Corp.
Electric utilities
ICG Holdings, Inc.
Telecommunications
Republic of Argentina
Brady bonds
Teleport Communications Group, Inc.
Telecommunications
Time Warner, Inc.
Entertainment
International Cabletel, Inc.
Telecommunications
Del Monte Corp.
Food and beverage
Trans Texas Gas Corp.
Oil and gas
Cablevision Systems
Cable television
Footnote reads:
These holdings represent 11.3% of the fund's net assets as of 2/28/97.
Portfolio holdings will vary over time.
The financial services sector climbed to 3% of assets during the period,
mostly as a result of adding small to medium-sized regional bank holdings. The
performance of these holdings is driven, in large part, by improving real
estate markets and by ongoing consolidation within the banking industry.
Within the gaming sector, we could expect some consolidation in the future
given the proliferation of gambling licenses in recent years. Our strategy has
been to focus on successful companies in less crowded jurisdictions outside
the Las Vegas area.
The paging business proved a disappointment, and the fund's overweighting in
this area dampened performance. We had increased the exposure on the premise
that holdings such as Mobile Telecommunications were undervalued and ripe for
a rebound. While long-term fundamentals are still sound, it appears our timing
was premature. We remain committed to the sector in anticipation of eventual
strengthening.
The highly cyclical paper and forest products industry has been in somewhat of
a downturn, and we anticipate increasing our holdings once we see signs of a
recovery.
* OPPORTUNITIES LIE AHEAD
The high-yield market has been in a sustained bull market since December 1995.
While our positive outlook for high-yield bonds remains intact, bolstered by
strong corporate fundamentals and a historically low default rate, a pause in
the market's climb is never out of the question. However, we view the
potential for changing market conditions with an opportunistic eye; bonds
often become mispriced when investors overreact to transitory events. If such
events should occur, we believe our disciplined management style will enable
us to take advantage of resulting opportunities.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 2/28/97, there is no guarantee the fund will continue to hold
these securities in the future. The fund invests in lower-rated securities.
The lower rating 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.
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.
TOTAL RETURN FOR PERIODS ENDED 2/28/97
Class A Class B Class M
(inception date) (2/14/78) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 9.63% 4.45% 9.17% 4.17% 9.51% 5.92%
- ------------------------------------------------------------------------------
1 year 13.44 8.07 12.47 7.47 13.12 9.46
- ------------------------------------------------------------------------------
5 years 69.68 61.62 -- -- -- --
Annual average 11.15 10.08 -- -- -- --
- ------------------------------------------------------------------------------
10 years 164.99 152.33 -- -- -- --
Annual average 10.24 9.7 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 43.64 40.69 24.31 20.27
Annual average -- -- 9.48 8.91 14.01 11.76
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/28/97
Lehman Bros. First Boston
Corporatate High Yield
Bond Index Bond Index
- ------------------------------------------------------------------------------
6 months 6.26% 8.99%
- ------------------------------------------------------------------------------
1 year 5.71 12.62
- ------------------------------------------------------------------------------
5 years 49.15 74.51
Annual average 8.32 11.78
- ------------------------------------------------------------------------------
10 years 134.51 188.54
Annual average 8.90 11.18
- ------------------------------------------------------------------------------
Life of class B 30.69 52.21
Annual average 6.92 11.07
- ------------------------------------------------------------------------------
Life of class M 11.57 22.25
Annual average 6.79 12.81
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance,
and will differ for each share class. They do not take into account any
adjustment for taxes payable on reinvested distributions, or for class A
shares, distribution fees prior to implementation of the class A distribution
plan in 1990. Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their original
cost. 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%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 2/28/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.552 $0.506 $0.538
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.552 $0.506 $0.538
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
08/31/96 $12.11 $12.71 $12.07 $12.10 $12.51
- ------------------------------------------------------------------------------
02/28/97 12.70 13.33 12.65 12.69 13.12
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 8.69% 8.28% 7.97% 8.42% 8.14%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 8.21 7.81 7.48 7.67 7.41
- ------------------------------------------------------------------------------
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 3/31/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (2/14/78) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 3.18% -1.73% 2.73% -2.20% 6.60% -0.39%
- ------------------------------------------------------------------------------
1 year 10.52 5.31 9.64 4.64 10.20 2.99
- ------------------------------------------------------------------------------
5 years 62.55 54.87 -- -- -- --
Annual average 10.20 9.14 -- -- -- --
- ------------------------------------------------------------------------------
10 years 154.54 142.39 -- -- -- --
Annual average 9.79 9.26 -- -- -- --
- ------------------------------------------------------------------------------
Life of class -- -- 39.50 37.60 20.69 16.77
Annual average -- -- 8.50 8.14 11.34 9.26
- ------------------------------------------------------------------------------
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 Bond Index* is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's and
Moody's.
The Lehman Brothers Corporate Bond Index* is an unmanaged list of publicly
issued, fixed-rate non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities.
*The average quality of bonds included in these indexes will differ from the
average quality of bonds in which the fund customarily invests, and
securities held by the fund will differ from those in the indexes. Index
performance reflects changes in market prices and reinvestment of all
interest payments It is not possible to invest directly in an index.
WELCOME TO
www.putnaminv.com
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about investing and retirement planning, and access market news and an
economic outlook from Putnam experts -- with just a few clicks of the
mouse!
VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* daily fund pricing and long-term fund performance
* how to tell if your retirement savings plan is on track
* how quickly money can accumulate in a tax-deferred investment
You can also read Dr. Robert Goodman's economic commentary and Putnam's
Capital Markets Forum outlook, search for a particular Putnam fund by
name or objective . . . and much more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape and an independent Internet service
provider.
New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
Portfolio of investments owned
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (82.9%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.8%)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 8,210,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $ 8,538,400
389,583 Outdoor Systems, Inc. sr. notes 10 3/4s, 2002 390,071
2,000,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 2,090,000
1,558,333 Outdoor Systems, Inc. notes Ser. CAD, 8.906s, 2003 1,560,281
14,156,250 Outdoor Systems, Inc. notes Ser. A, 8 1/8s, 2002 14,173,945
9,095,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 9,504,275
--------------
36,256,972
Aerospace and Defense (0.7%)
- ---------------------------------------------------------------------------------------------------------
3,000,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 3,352,500
6,125,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 6,431,250
350,000 Sequa Corp. med. term notes 10s, 2001 361,032
6,996,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 7,135,920
4,230,000 UNC, Inc. sr. sub. notes 11s, 2006 4,653,000
5,500,000 UNC, Inc. sr. notes 9 1/8s, 2003 5,637,500
3,750,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 4,031,250
--------------
31,602,452
Agriculture (0.8%)
- ---------------------------------------------------------------------------------------------------------
32,846,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon
Ser. B, zero % (11 1/2s, 9/1/00), 2005 ++ 23,320,660
13,057,231 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 14,232,382
--------------
37,553,042
Airlines (0.3%)
- ---------------------------------------------------------------------------------------------------------
13,270,000 Greenwich Air Services, Inc. sr. notes 10 1/2s, 2006 14,331,600
Apparel (0.4%)
- ---------------------------------------------------------------------------------------------------------
2,825,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 2,867,375
15,400,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 15,939,000
--------------
18,806,375
Automotive Parts (1.5%)
- ---------------------------------------------------------------------------------------------------------
9,775,000 A.P.S., Inc. company guaranty 11 7/8s, 2006 10,459,250
5,775,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 6,468,000
4,699,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 5,262,880
7,795,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 8,106,800
12,275,000 Harvard Industries, Inc. sr. notes 11 1/8s, 2005 7,610,500
10,000,000 Key Plastics Corp. sr. notes 14s, 1999 11,100,000
16,655,000 Lear Corp. sub. notes 9 1/2s, 2006 17,966,581
1,665,000 Safelite Glass Corp. 144A sr. sub. notes 9 7/8s, 2006 1,748,250
--------------
68,722,261
Banks (1.0%)
- ---------------------------------------------------------------------------------------------------------
4,550,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 4,732,000
100,000 First Nationwide Holdings sr. notes 12 1/2s, 2003 113,000
10,480,000 First Nationwide Holdings 144A sr. sub. notes 10 5/8s, 2003 11,580,400
1,780,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 1,851,200
4,560,000 North Fork Bancorp, Inc. 144A bonds 8.7s, 2026 4,497,300
5,000,000 Onbank Capital Trust I 144A company guaranty
9 1/4s, 2027 5,131,250
6,365,000 Peoples Heritage Capital Trust I 144A company
guaranty 9.06s, 2027 6,595,731
6,475,000 Provident Capital Trust 144A jr. sub. notes 8.6s, 2026 6,533,275
3,690,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 3,763,468
--------------
44,797,624
Basic Industrial Products (0.2%)
- ---------------------------------------------------------------------------------------------------------
4,015,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 4,275,975
4,250,000 Clark-Schwebel sr. notes 10 1/2s, 2006 4,547,500
--------------
8,823,475
Broadcasting (4.1%)
- ---------------------------------------------------------------------------------------------------------
3,550,000 Affinity Group sr. sub. notes 11 1/2s, 2003 3,727,500
8,150,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 8,394,500
19,495,000 Capstar Broadcasting 144A sr. disc. notes stepped-
coupon zero % (12 3/4s, 2/1/02), 2009 ++ 11,307,100
8,910,000 Chancellor Radio Broadcasting Corp. sr. sub. notes
9 3/8s, 2004 9,177,300
12,600,000 Comcast UK Cable, Ltd. deb. stepped-coupon
zero % (11.2s, 11/15/00), 2007 (Bermuda) ++ 8,977,500
7,680,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s (13 1/4s, 5/1/98), 2003 ++ 8,102,400
9,760,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 10,101,600
8,250,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 8,126,250
5,125,000 Heritage Media Servoces Corp. sr. sub. notes 8 3/4s, 2006 5,086,563
8,395,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 9,003,638
4,065,000 Jacor Communications, Inc. company guaranty 9 3/4s, 2006 4,308,900
6,301,000 New City Broadcasting Corp. sr. sub. notes 11 3/8s, 2003 7,025,615
16,125,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 17,173,125
8,330,000 Pegasus Media & Communications notes Ser. B,
12 1/2s, 2005 9,163,000
6,435,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 5,534,100
21,550,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 23,274,000
5,700,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 5,956,500
7,090,000 TCI Satellite Entertainment 144A sr. sub. notes
10 7/8s, 2007 7,125,450
12,760,000 TCI Satellite Entertainment 144A sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/02), 2007 ++ 7,081,800
5,396,000 Telemedia Broadcasting Corp. 144A deb.
stepped-coupon 3.8s (16s, 6/15/99), 2004 ++ 4,910,360
3,010,000 TV Azteca Sa De Cv 144A sr. notes 10 1/2s, 2007
(Mexico) 3,055,150
8,800,000 Young Broadcasting, Inc. company guaranty Ser. B, 9s, 2006 8,756,000
--------------
185,368,351
Building and Construction (1.9%)
- ---------------------------------------------------------------------------------------------------------
7,480,000 Atrium Companies, Inc. 144A sr. sub. notes 10 1/2s, 2006 7,685,700
3,650,000 Continental Homes Holding Corp. sr. notes 10s, 2006 3,832,500
7,650,000 NVR, Inc. sr. notes 11s, 2003 8,032,500
10,500,000 Presley Cos. sr. notes 12 1/2s, 2001 10,211,250
19,250,000 Scotsman Group, Inc. sr. secd. notes 9 1/2s, 2000 19,827,500
24,865,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 27,600,150
4,525,000 U.S. Home Corp. sr. notes 9 3/4s, 2003 4,762,563
3,615,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 3,682,781
--------------
85,634,944
Building Products (1.6%)
- ---------------------------------------------------------------------------------------------------------
2,590,000 Building Materials Corp. 144A sr. notes 8 5/8s, 2006 2,654,750
13,445,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 15,697,038
4,600,000 Congoleum Corp. sr. notes 9s, 2001 4,508,000
13,950,000 Inter-City Products sr. notes 9 3/4s, 2000 14,298,750
20,575,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 21,192,250
7,250,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 7,830,000
9,105,000 Waxman Industries Inc. sr. notes stepped-coupon
Ser. B, zero % (12 3/4s, 6/1/99), 2004 ++ 7,466,100
--------------
73,646,888
Buses (0.4%)
- ---------------------------------------------------------------------------------------------------------
2,030,000 Atlantic Express, Inc. 144A company guaranty
10 3/4s, 2004 2,101,050
21,000,000 Consorcio/MCII Holdings sec. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 17,902,500
--------------
20,003,550
Business Services (0.5%)
- ---------------------------------------------------------------------------------------------------------
1,700,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 1,734,000
6,430,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 6,743,463
1,810,000 Loomis Fargo & Co. 144A sr. sub. notes 10s, 2004 1,852,988
11,525,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 12,677,500
--------------
23,007,951
Cable Television (6.6%)
- ---------------------------------------------------------------------------------------------------------
6,665,000 Adelphia Communications Corp. sr. deb. 11 7/8s, 2004 6,998,250
43,875,000 Adelphia Communications Corp. 144A sr. notes
9 7/8s, 2007 42,449,063
14,600,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 4,234,000
285,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 6/15/99), 2004 ++ 85,500
7,500,000 Cablevision Systems Corp. sr. sub. deb. 9 7/8s, 2023 7,350,000
17,725,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 18,434,000
1,000,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero% (13 1/2s, 9/30/99),
2004 (United Kingdom) ++ 815,000
33,400,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero% (11 3/4s, 12/15/00),
2005 (United Kingdom) ++ 23,046,000
15,265,000 Diamond Cable Communication Co. 144A sr. disc.
notes stepped-coupon zero% (10 3/4s, 2/15/02),
2007 (United Kingdom) ++ 9,197,163
19,117,725 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 17,205,953
10,000,000 Grupo Televisa S.A. sr. notes Ser. A, 11 3/8s, 2003 (Mexico) 10,875,000
1,350,000 Grupo Televisa S.A. 144A sr. notes 11 7/8s, 2006 (Mexico) 1,508,625
2,500,000 Heartland Wireless Communications, Inc. 144A sr. notes
14s, 2004 2,375,000
11,870,000 Heartland Wireless Communications, Inc. sr. notes
13s, 2003 11,513,900
2,100,000 Heartland Wireless Communications, Inc. sr. notes
Ser. D, 13s, 2003 1,785,000
7,000,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 7,490,000
6,290,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 6,101,300
21,100,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 22,366,000
23,478,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 ++ 17,256,330
17,095,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 14,274,325
14,990,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 16,339,100
2,600,000 Tele-Communications, Inc. deb. 9 1/4s, 2023 2,552,316
6,500,000 Telewest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 6,581,250
25,150,000 Telewest Communications PLC deb. stepped-coupon
zero % (11s, 10/1/00), 2007 (United Kingdom) ++ 17,290,625
8,000,000 Tevecap S.A. 144A sr. notes 12 5/8s, 2004 (Brazil) 8,600,000
38,235,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 (Australia) ++ 20,646,900
5,750,000 Wireless One, Inc. sr. notes 13s, 2003 5,347,500
--------------
302,718,100
Cellular Communications (4.5%)
- ---------------------------------------------------------------------------------------------------------
3,775,000 360 Communications Co. sr. notes 7 1/2s, 2006 3,786,438
27,625,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 ++ 20,995,000
9,650,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 10,036,000
10,300,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 10,300,000
1,000,000 Dial Call Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (10 1/4s, 12/15/98), 2005 ++ 750,000
13,505,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 8,778,250
56,000,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero% (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 37,800,000
29,000,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (9 3/4s, 2/15/99), 2004 ++ 21,242,500
74,750,000 NEXTEL Communications, Inc. sr. disc. notes stepped-
coupon zero % (11 1/2s, 9/1/98), 2003 ++ 62,416,250
9,300,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 9,765,000
7,065,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/97), 2001 ++ 7,100,325
3,370,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 3,049,850
15,000,000 Shared Technologies Cellular, Inc. company guaranty
stepped-coupon zero % (12 1/4s, 3/1/99), 2006 ++ 12,600,000
--------------
208,619,613
Chemicals (1.4%)
- ---------------------------------------------------------------------------------------------------------
7,210,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 7,282,100
3,585,000 Freedom Chemicals, Inc. 144A sr. sub. notes 10 5/8s, 2006 3,809,063
3,100,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 3,317,000
15,475,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 16,287,438
8,500,000 Harris Chemical Corp. sr. secd. disc. notes 10 1/4s, 2001 8,988,750
5,000,000 ISP Holdings, Inc. 144A sr. notes 9 3/4s, 2002 5,325,000
10,525,000 Sterling Chemicals Holdings sr. disc. notes stepped-
coupon zero % (13 1/2s, 8/15/01), 2008 ++ 6,893,875
10,282,000 Union Carbide Global Enterprises sr. sub. Ser. B, 12s, 2005 11,824,300
--------------
63,727,526
Computer Equipment (0.4%)
- ---------------------------------------------------------------------------------------------------------
17,800,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 18,512,000
Computer Services (0.4%)
- ---------------------------------------------------------------------------------------------------------
16,040,000 Unisys Corp. sr. notes 11 3/4s, 2004 17,483,600
Conglomerates (0.2%)
- ---------------------------------------------------------------------------------------------------------
2,190,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 2,233,800
7,585,000 MacAndrews & Forbes Holdings, Inc. sub. deb.
notes 13s, 1999 7,594,481
--------------
9,828,281
Consumer Durable Goods (0.4%)
- ---------------------------------------------------------------------------------------------------------
11,775,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
zero % (14s, 11/15/01), 2006 ++ 6,505,688
11,870,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 11,068,775
--------------
17,574,463
Consumer Products (0.1%)
- ---------------------------------------------------------------------------------------------------------
4,000,000 Twin Laboratories, Inc. company guaranty 10 1/4s, 2006 4,180,000
Consumer Services (0.5%)
- ---------------------------------------------------------------------------------------------------------
19,890,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 21,928,725
Cosmetics (0.9%)
- ---------------------------------------------------------------------------------------------------------
45,525,000 Revlon Worldwide Corp. 144A sr. disc. notes zero %, 2001 29,875,781
13,845,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 1998 12,979,688
--------------
42,855,469
Electric Utilities (5.1%)
- ---------------------------------------------------------------------------------------------------------
4,525,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 4,796,500
5,000,000 BVPS II Funding Corp. secd. lease oblig. bonds 9s, 2017 5,021,850
10,500,000 Calpine Corp. sr. notes 10 1/2s, 2006 11,510,625
4,600,000 Cleveland Electric Illuminating Co. 1st mtge.
Ser. B, 9 1/2s, 2005 4,938,560
650,000 Cleveland Electric Illuminating Co. 1st mtge.
Ser. E, 9s, 2023 654,745
5,000,000 CTC Mansfield Funding deb. 11 1/8s, 2016 5,295,500
9,500,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 9,844,755
7,000,000 El Paso Electric Co. 1st mtge. Ser. E, 9.4s, 2011 7,533,820
1,610,000 Empresa Distribuidora Norte 144A notes 9 3/4s, 2001
(Argentina) 1,686,475
14,603,000 First PV Funding Corp. deb. Ser. 86A, 10.3s, 2014 15,588,703
3,059,000 First PV Funding Corp. deb. 10.15s, 2016 3,242,540
2,930,000 Hidro Pierda Aguila 144A bonds 10 5/8s, 2001
(Argentina) 3,061,850
7,100,000 Long Island Lighting Co. deb. 9s, 2022 7,494,902
9,900,000 Long Island Lighting Co. deb. 8.9s, 2019 10,232,838
55,075,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 62,008,943
15,100,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 18,197,161
10,000,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/4s, 2006 9,506,100
3,000,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/8s, 2003 2,861,190
8,435,000 Niagara Mohawk Power Corp. 1st mtge. 6 7/8s, 2001 8,061,245
7,250,000 Niagara Mohawk Power Corp. 1st mtge. 5 7/8s, 2002 6,510,138
1,000,000 Niagara Mohawk Power Corp. med. term notes 9.99s, 2004 1,000,000
1,500,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 1,498,125
3,111,000 North Atlantic Energy Corp. 1st mtge. Ser. A, 9.05s, 2002 3,082,908
4,288,812 Northeast Utilities System notes Ser. A, 8.58s, 2006 4,093,329
10,772,133 Northeast Utilities System notes Ser. B, 8.38s, 2005 10,603,441
12,000,000 Texas New-Mexico Power Utilities deb. 12 1/2s, 1999 13,028,880
--------------
231,355,123
Electronics (1.5%)
- ---------------------------------------------------------------------------------------------------------
4,830,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (India) 5,222,438
5,732,411 Cirent Semiconductor sr. sub. notes 10.22s, 2002 5,725,246
5,755,935 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 5,748,741
1,500,000 Health O Meter Products, Inc. sr. sub. notes 13s, 2002 1,635,000
49,500,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00),
2003 (Canada) ++ 28,462,500
5,450,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 5,722,500
8,190,000 Motors and Gears, Inc. 144A sr. notes Ser. A, 10 3/4s, 2006 8,517,600
5,935,000 Tracor, Inc 144A sr. sub. notes 8 1/2s, 2007 5,949,838
--------------
66,983,863
Energy-Related (--%)
- ---------------------------------------------------------------------------------------------------------
1,610,000 Calpine Corp. sr. notes 9 1/4s, 2004 1,662,325
Entertainment (1.1%)
- ---------------------------------------------------------------------------------------------------------
8,625,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 9,703,125
10,810,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 11,323,475
14,985,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 14,835,150
4,850,000 Time Warner, Inc. deb. 9.15s, 2023 5,319,626
5,257,000 Time Warner, Inc. notes 8.18s, 2007 5,426,696
5,257,000 Time Warner, Inc. notes 8.11s, 2006 5,419,652
1,000 Time Warner, Inc. FRN 6.835s, 2000 1,004
--------------
52,028,728
Environmental Control (0.2%)
- ---------------------------------------------------------------------------------------------------------
8,220,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10 1/4s,
2006 8,795,400
Food Chains (0.4%)
- ---------------------------------------------------------------------------------------------------------
2,750,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 2,279,063
16,500,000 Stater Brothers sr. notes 11s, 2001 18,026,250
--------------
20,305,313
Food and Beverages (2.0%)
- ---------------------------------------------------------------------------------------------------------
10,520,000 Canandaigua Wine Co. 144A sr. sub. notes 8 3/4s, 2003 10,625,200
4,600,000 Chiquita Brands sr. notes 9 5/8s, 2004 4,738,000
45,600,000 Del Monte Corp. notes 12 1/4s, 2002 [2 DBL. DAGGERS] 45,144,000
4,000,000 Doane Products Co. sr. notes 10 5/8s, 2006 4,280,000
10,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 10,750,000
2,100,000 MBW Foods, Inc. 144A sr. sub. notes 9 7/8s, 2007 2,136,750
11,200,000 Specialty Foods Acquisition Corp. sr. sub. notes
11 1/4s, 2003 9,520,000
3,750,000 Specialty Foods Acquisition Corp. sr. notes Ser. B,
10 1/4s, 2001 3,693,750
--------------
90,887,700
Health and Fitness (0.2%)
- ---------------------------------------------------------------------------------------------------------
10,000,000 IHF Holdings, Inc. sr. disc. notes Ser. B, stepped-coupon
zero % (15s, 11/16/99), 2004 ++ 8,400,000
Health Care (2.4%)
- ---------------------------------------------------------------------------------------------------------
3,425,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 3,613,375
3,635,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 3,707,700
11,215,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 11,635,563
8,900,000 Integrated Health Services, Inc. sr. sub. notes 10 3/4s, 2004 9,745,500
16,150,000 Integrated Health Services, Inc. sr. sub. notes 9 5/8s, 2002 16,917,125
10,000,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 11,000,000
20,410,000 Paracelsus Healthcare Corp. sr. sub. notes 10s, 2006 20,001,800
5,400,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 5,589,000
11,000,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 11,385,000
6,350,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 6,683,375
11,000,000 Tenet Healthcare Corp. sr. notes 8s, 2005 11,192,500
--------------
111,470,938
Hospital Management (--%)
- ---------------------------------------------------------------------------------------------------------
1,000,000 Magellan Health Services, Inc. sr. sub. deb.
Ser. A, 11 1/4s, 2004 1,110,000
Insurance and Finance (2.0%)
- ---------------------------------------------------------------------------------------------------------
6,500,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 6,500,000
1,990,000 AIM Management Group sr. secd. notes 9s, 2003 2,139,250
4,000,000 Colombia Holdings sr. notes 10s, 1999 4,040,000
3,645,000 Colonial Capital Trust I 144A company guaranty
8.92s, 2027 3,689,423
14,970,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 15,419,100
3,900,000 Dollar Financial Group Inc. 144A sr. notes 10 7/8s, 2006 4,104,750
3,985,000 Imperial Credit Industries, Inc. 144A sr. notes 9 7/8s, 2007 4,064,700
6,995,000 Investors Capital Trust I 144A company guaranty
9.77s, 2027 7,134,900
6,900,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 7,641,750
4,160,000 Ocwen Financial Corp. notes 11 7/8s, 2003 4,607,200
7,185,000 Olympic Financial Ltd. sr. notes 13s, 2000 8,047,200
4,285,000 Outsourcing Solutions, Inc. 144A sr. sub. notes 11s, 2006 4,595,663
15,600,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 16,458,000
3,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 3,165,000
--------------
91,606,936
Lodging (0.8%)
- ---------------------------------------------------------------------------------------------------------
14,250,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 14,998,125
20,700,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 20,725,875
--------------
35,724,000
Media (0.7%)
- ---------------------------------------------------------------------------------------------------------
30,705,000 Viacom International, Inc. sub. deb. 8s, 2006 30,321,188
Medical Supplies and Devices (0.6%)
- ---------------------------------------------------------------------------------------------------------
11,600,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 12,702,000
14,200,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 7,668,000
8,500,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 8,585,000
--------------
28,955,000
Metals and Mining (1.3%)
- ---------------------------------------------------------------------------------------------------------
2,935,000 Acindar Industria Argentina de Aceros S.A. bonds
11 1/4s, 2004 (Argentina) 3,045,063
7,400,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 8,047,500
3,000,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 2,745,000
14,480,000 Renco Metals, Inc. sr. notes 11 1/2s, 2003 15,240,200
6,215,000 Royal Oak Mines, Inc. company guaranty Ser. B, 11s,
2006 (Canada) 6,401,450
10,780,000 WCI Steel, Inc. 144A sr. notes 10s, 2004 11,319,000
11,510,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 11,970,400
--------------
58,768,613
Motion Picture Distribution (0.8%)
- ---------------------------------------------------------------------------------------------------------
4,725,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 5,173,875
12,317,100 Cinemark Mexico USA notes Ser. B, 13s, 2003
(Mexico) [2 DBL. DAGGERS] 11,947,587
902,000 Cinemark Mexico USA notes Ser. D, 13s, 2003
(Mexico) [2 DBL. DAGGERS] 874,940
13,545,000 Cinemark USA, Inc. notes 9 5/8s, 2008 13,951,350
5,250,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 5,565,000
--------------
37,512,752
Office Supplies (0.3%)
- ---------------------------------------------------------------------------------------------------------
11,000,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 12,430,000
Oil and Gas (4.6%)
- ---------------------------------------------------------------------------------------------------------
6,240,000 Abraxas Petroleum Corp. 144A sr. notes 11 1/2s, 2004 6,778,200
7,675,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 8,596,000
8,500,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 8,925,000
3,715,000 CIA Naviera Perez Companc S.A. 144A bonds 9s,
2004 (Argentina) 3,715,000
5,980,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s,
2003 6,421,025
2,300,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 2,438,000
10,315,000 Flores & Rucks, Inc. sr. notes 13 1/2s, 2004 12,326,425
9,065,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 9,767,538
4,340,000 Forcenergy, Inc. sr. sub. notes 9 1/2s, 2006 4,622,100
3,895,000 Forcenergy, Inc. 144A sr. sub. notes 8 1/2s, 2007 3,856,050
5,980,000 Gerrity Oil & Gas Corp. sr. sub. notes 11 3/4s, 2004 6,533,150
5,000,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005
(Canada) 5,437,500
2,000,000 Gulf Canada Resources, Ltd. sr. sub. deb. 9 1/4s, 2004
(Canada) 2,135,000
5,890,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 6,258,125
5,150,000 Maxus Energy Corp. med. term notes 10.83s, 2004 5,665,000
10,695,000 Maxus Energy Corp. notes 9 3/8s, 2003 11,256,488
6,950,000 Noble Drilling Corp. sr. notes 9 1/8s, 2006 7,618,938
6,625,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 7,055,625
3,415,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 3,662,588
10,900,000 Transamerican Refining Corp. variable coupon 1st mtge.
zero % (18 1/2s, 2/15/98), 2002 ++ 10,082,500
14,300,000 Transamerican Refining Corp. variable coupon 2nd mtge.
16 1/2s, (16s, 8/15/98), 2002 ++ 15,444,000
27,880,000 TransTexas Gas Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/16/01), 2003 ++ 17,564,400
39,550,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 43,851,063
--------------
210,009,715
Packaging and Containers (2.2%)
- ---------------------------------------------------------------------------------------------------------
3,470,000 Amtrol, Inc. sr. sub. notes 10 5/8s, 2006 3,643,500
6,750,000 Four M Corp. sr. notes Ser. B, 12s, 2006 7,222,500
25,968,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 28,305,120
4,980,000 Printpack, Inc. sr. notes Ser. B, 9 7/8s, 2004 5,229,000
3,735,000 Radnor Holdings Corp. 144A sr. notes 10s, 2003 3,865,725
35,100,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 30,098,250
1,900,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 1,824,000
19,311,074 Riverwood International Corp. bank loan 7.88s, 2003 18,538,632
3,980,000 US Can Corp. 144A sr. sub. notes 10 1/8s, 2006 4,258,600
--------------
102,985,327
Paging (1.5%)
- ---------------------------------------------------------------------------------------------------------
17,000,000 Arch Communications Group sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/15/01), 2008 ++ 8,500,000
20,825,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 20,460,563
10,000,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-
coupon zero % (15s, 2/1/00), 2005 ++ 7,000,000
15,700,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 11/1/98), 2003 ++ 12,854,375
10,000,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 9,900,000
2,410,000 Paging Network, Inc. sr. sub. notes 10s, 2008 2,410,000
7,329,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 7,035,840
--------------
68,160,778
Paper and Forest Products (3.5%)
- ---------------------------------------------------------------------------------------------------------
23,500,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 25,908,750
5,650,000 Buckeye Cellulose Corp. sr. sub. notes 9 1/4s, 2008 5,932,500
3,000,000 Container Corp. of America sr. notes Ser. A, 11 1/4s,
2004 3,300,000
11,870,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 13,057,000
3,840,000 Domtar, Inc. notes deb. 8 3/4s, 2006 (Canada) 4,070,400
12,130,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 13,100,400
29,660,000 Gaylord Container Corp. sr. sub. disc. deb. 12 3/4s,
2005 32,848,450
6,125,000 Rainy River Forest Products sr. notes 10 3/4s, 2001
(Canada) 6,737,500
28,100,000 Repap New Brunswick sr. notes 10 5/8s, 2005
(Canada) 28,240,500
6,650,000 Stone Container Corp. sr. notes 11 7/8s, 2016 6,965,875
17,300,000 Stone Container Corp. sr. notes 11 1/2s, 2004 18,078,500
2,550,000 Stone Container Corp. sr. notes 10 1/4s, 2000 2,734,875
--------------
160,974,750
Publishing (0.3%)
- ---------------------------------------------------------------------------------------------------------
10,300,000 American Media Operation, Inc. sr. sub. notes
11 5/8s, 2004 11,330,000
3,090,000 Sun Media Corp. 144A sr. sub. notes 9 1/2s, 2007
(Canada) 3,182,700
--------------
14,512,700
Real Estate Investment Trusts (REITs) (0.1%)
- ---------------------------------------------------------------------------------------------------------
6,000,000 Tanger Properties L.P. gtd. notes 8 3/4s, 2001 6,139,200
Recreation (5.2%)
- ---------------------------------------------------------------------------------------------------------
4,030,000 Alliance Gaming Corp. sr. notes 12 7/8s, 2003 4,433,000
23,425,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 20,555,438
9,470,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 6,629,000
1,350,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 1,532,250
2,120,000 Capitol Queen Corp. 1st mtge. notes Ser. B, 12s, 2000
(In default) + 1,590,000
23,175,000 Casino America, Inc. sr. notes 12 1/2s, 2003 23,754,375
7,300,000 Casino Magic Corp. 144A 1st mtge. 13s, 2003 7,300,000
16,700,000 Coast Hotels & Casinos, Inc. company guaranty
Ser. B, 13s, 2002 18,871,000
5,290,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 5,078,400
3,950,000 Empress River Casino sr. notes 10 3/4s, 2002 4,236,375
20,350,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 20,960,500
600,000 Grate Bay Property Funding Corp. 1st mtge. 10 7/8s, 2004 486,000
4,660,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 5,056,100
18,050,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 18,230,500
14,505,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 13,924,800
194,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 195,940
7,350,000 Mohegan Tribal Gaming sr. notes, Ser. B, 13 1/2s, 2002 9,757,125
12,400,000 Players International, Inc. sr. notes 10 7/8s, 2005 13,020,000
9,300,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 6,603,000
5,280,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 6,045,600
29,930,000 Trump A.C. 1st mtge. 11 1/4s, 2006 28,882,450
14,931,000 Trump Castle Funding Corp. notes 11 1/2s, 2000 15,080,310
4,100,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 4,694,500
--------------
236,916,663
Restaurants (0.3%)
- ---------------------------------------------------------------------------------------------------------
2,990,000 AmeriKing, Inc. sr. notes 10 3/4s, 2006 3,139,500
8,000,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 8,480,000
--------------
11,619,500
Retail (2.7%)
- ---------------------------------------------------------------------------------------------------------
12,035,000 Brylane (L.P.) sr. sub. notes 10s, 2003 12,606,663
3,000,000 Ethan Allen Interiors, Inc. sr. notes 8 3/4s, 2001 3,120,000
10,400,000 Finlay Enterprises, Inc. sr. disc. deb. stepped-coupon
zero % (12s, 5/1/98), 2005 ++ 9,620,000
4,180,000 Finlay Enterprises, Inc. sr. notes 10 5/8s, 2003 4,409,900
4,495,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 4,922,025
1,125,000 Kmart Corp. deb. 8 3/8s, 2022 978,750
16,600,000 Kmart Corp. deb. 7 3/4s, 2012 14,608,000
2,000,000 Kmart Corp. med. term notes 9s, 2020 1,853,240
700,000 Kmart Corp. med. term notes 8.85s, 2011 661,682
5,000,000 Kmart Corp. med. term notes 8.13s, 2003 4,734,100
1,000,000 Kmart Corp. med. term notes 8s, 2001 959,800
500,000 Kmart Corp. med. term notes 7.96s, 1999 491,540
3,000,000 Kmart Corp. med. term notes 7.82s, 2002 2,856,630
2,000,000 Kmart Corp. med. term notes 7.77s, 2002 1,910,000
400,000 Kmart Corp. med. term notes 7.74s, 2002 382,000
1,425,000 Kmart Corp. med. term notes 7.72s, 2002 1,382,250
2,000,000 Kmart Corp. med. term notes 7.47s, 2002 1,862,520
1,000,000 Kmart Corp. med. term notes 7 3/8s, 2000 959,870
2,000,000 Kmart Corp. med. term notes 7.17s, 2000 1,906,040
1,200,000 Kmart Corp. med. term notes 7.01s, 2000 1,137,696
1,000,000 Kmart Corp. med. term notes 6.88s, 1999 963,330
1,000,000 Kmart Corp. med. term notes 6.78s, 1999 960,750
5,000,000 Kmart Corp. notes 8 1/8s, 2006 4,850,000
10,000,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 10,950,000
8,945,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 9,481,700
9,270,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 9,895,725
6,125,000 Shopko Stores, Inc. sr. notes 8 1/2s, 2002 5,968,139
7,840,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 8,153,600
--------------
122,585,950
Shipping (0.2%)
- ---------------------------------------------------------------------------------------------------------
3,810,000 Newport News Shipbuilding 144A sr. notes 8 5/8s, 2006 3,924,300
3,725,000 Transport Maritima Mexicana S.A. de CV sr. notes 10s,
2006 (Mexico) 3,743,625
--------------
7,667,925
Specialty Consumer Products (0.4%)
- ---------------------------------------------------------------------------------------------------------
5,985,000 Genesco, Inc. sr. notes 10 3/8s, 2003 6,164,550
1,500,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 1,627,500
12,665,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 1999 12,665,000
--------------
20,457,050
Steel (0.4%)
- ---------------------------------------------------------------------------------------------------------
7,340,000 AK Steel Corp. 144A sr. notes 9 1/8s, 2006 7,615,250
5,000,000 Ispat Mexicana, S.A. deb. 10 3/8s, 2001 (Mexico) 5,075,000
5,000,000 Ispat Mexicana, S.A. 144A deb. 10 3/8s, 2001 (Mexico) 5,075,000
--------------
17,765,250
Supermarkets (0.7%)
- ---------------------------------------------------------------------------------------------------------
4,000,000 Eagle Food Centers, Inc. sr. notes 8 5/8s, 2000 3,890,000
3,000,000 Ralphs Grocery Co. company guaranty 10.45s, 2004 3,213,750
10,000,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 10,650,000
8,000,000 Ralphs Grocery Co. sr. sub. notes 11s, 2005 8,520,000
4,370,000 Supermercados Norte 144A bonds 10 7/8s, 2004
(Argentina) 4,419,163
--------------
30,692,913
Telecommunications (8.7%)
- ---------------------------------------------------------------------------------------------------------
22,000,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 13,530,000
11,675,000 Brooks Fiber Properties, Inc. sr. disc. notes stepped-
coupon zero % (11 7/8s, 11/01/01), 2006 ++ 7,559,563
17,685,000 Brooks Fiber Properties, Inc. sr. disc. notes stepped-
coupon zero % (10 7/8s, 3/1/01), 2006 ++ 11,981,588
32,345,000 CellNet Data Systems, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13s, 6/15/00), 2005 ++ 22,964,950
16,370,000 Charter Communications International, Inc. disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 ++ 10,640,500
8,500,000 Charter Communications International, Inc. sr. notes
Ser. B, 11 1/4s, 2006 9,222,500
9,150,000 Dobson Communications Corp. 144A sr. notes 11 3/4s,
2007 9,310,125
4,815,000 Frontiervision Operating Partners L.P. sr. sub. notes 11s,
2006 5,007,600
31,200,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 ++ 20,124,000
15,955,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 9,373,563
77,480,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 57,528,900
45,000,000 Intelcom Group (USA), Inc. company guaranty stepped-
coupon zero % (12 1/2s, 5/1/01), 2006 ++ 30,150,000
16,500,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 5/15/01), 2006 ++ 11,385,000
15,924,000 Intermedia Communications, Inc. sr. notes Ser. B,
13 1/2s, 2005 18,312,600
68,155,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 ++ 45,663,850
8,510,000 International Cabletel, Inc. 144A sr. notes 10s, 2007 8,552,550
17,000,000 MFS Communications sr. disc. notes stepped-coupon
zero % (8 7/8s, 1/1/01), 2006 ++ 12,962,500
15,125,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 13,574,688
5,945,000 Net Sat Servicos Ltd. 144A sr. sub. notes 12 3/4s,
2004 (Brazil) 6,494,913
12,860,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s,
2004 13,824,500
76,220,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 53,735,100
6,368,000 Winstar Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 4,139,200
--------------
396,038,190
Telephone Services (1.7%)
- ---------------------------------------------------------------------------------------------------------
4,500,000 American Communications Services, Inc. sr. disc. notes
stepped-coupon zero % (13s, 11/1/00), 2005 ++ 2,970,000
15,595,000 Call-Net Enterprises sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/1/99), 2004 ++ 13,294,738
6,450,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 5,756,625
8,180,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 9,161,600
13,375,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 13,709,375
14,800,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon
zero % (10 1/2s, 3/1/02), 2007 ++ 8,917,000
22,500,000 Nextlink Communications, Inc. sr. notes 12 1/2s, 2006 24,468,750
--------------
78,278,088
Textiles (0.8%)
- ---------------------------------------------------------------------------------------------------------
12,000,000 Foamex (L.P.) Capital Corp. sr. sub. deb. 11 7/8s, 2004 12,900,000
4,000,000 Foamex (L.P.) Capital Corp. sr. notes 9 1/2s, 2000 4,060,000
5,000,000 Polysindo Inernational Eka company guaranty 13s,
2001 (Indonesia) 5,637,500
13,030,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 14,235,275
--------------
36,832,775
Wireless Communications (0.6%)
- ---------------------------------------------------------------------------------------------------------
2,629,382 Direct Satellite, Inc. 144A sr. notes 8 1/4s, 2001 2,629,382
2,982,003 Echostar I 144A sr. notes 8 1/4s, 2001 2,982,003
7,470,000 International Wireless Communications, Inc. sr. disc.
notes zero %, 2001 4,444,650
6,640,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 6,573,600
12,175,000 Omnipoint Corp. 144A sr. notes Ser. A, 11 5/8s, 2006 12,205,416
--------------
28,835,051
--------------
Total Corporate Bonds and Notes (cost $3,657,749,618) $3,794,772,966
PREFERRED STOCKS (5.0%) *
NUMBER OF SHARES VALUE
Automotive Parts (--%)
- ---------------------------------------------------------------------------------------------------------
170,000 Harvard Industries, Inc. $3.56 pfd. [2 DBL. DAGGERS] $ 1,190,000
Banks (1.2%)
- ---------------------------------------------------------------------------------------------------------
170,000 California Federal Bancorp, Inc. Ser. B, $11.50 pfd. 19,422,500
112,000 California Federal Bancorp, Inc. Ser. B, $10.625 exch. pfd. 12,460,000
324,000 California Federal Bancorp, Inc. Ser. A, $2.28 pfd. 8,221,500
265,025 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. 14,112,581
--------------
54,216,581
Broadcasting (0.7%)
- ---------------------------------------------------------------------------------------------------------
26,800 American Radio Systems Corp. 144A $11.375 pfd. [2 DBL. DAGGERS] 2,773,800
91,600 Chancellor Radio Broadcasting 144A $12.00 pfd. + 9,434,800
182,500 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 18,797,500
--------------
31,006,100
Cable Television (0.9%)
- ---------------------------------------------------------------------------------------------------------
472,308 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 43,452,336
Electric Utilities (0.3%)
- ---------------------------------------------------------------------------------------------------------
102,746 El Paso Electric Co. $11.40 pfd. [2 DBL. DAGGERS] 11,456,179
70,600 Public Service Co. of New Hampshire $2.65 1st mtge. pfd. 1,765,000
--------------
13,221,179
Entertainment (1.0%)
- ---------------------------------------------------------------------------------------------------------
43,281 Time Warner, Inc. Ser. M, $10.25 pfd. [2 DBL. DAGGERS] 48,041,910
Motion Picture Distribution (-%)
- ---------------------------------------------------------------------------------------------------------
196,000 Diva Systems Corp. Ser. C, $6.00 pfd. 1,715,000
Paper Products (0.2%)
- ---------------------------------------------------------------------------------------------------------
205,000 SDW Holdings Corp. Ser. B, $3.50 pfd. + 7,790,000
Publishing (0.2%)
- ---------------------------------------------------------------------------------------------------------
81,048 K-III Communications Ser. B, $11.625 pfd. [2 DBL. DAGGERS] 8,266,896
Recreation (0.2%)
- ---------------------------------------------------------------------------------------------------------
105,856 Alliance Gaming Corp. Ser. B, $15.00 pfd. [2 DBL. DAGGERS] 10,797,312
Restaurants (0.1%)
- ---------------------------------------------------------------------------------------------------------
120,000 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 3,240,000
Retail (0.1%)
- ---------------------------------------------------------------------------------------------------------
7,407 Duane Reade Corp. $11.625 pfd. 1,852
24,000 Jitney-Jungle Stores 144A $4.95 Ser. A, sr. exchange pfd. 3,121,440
--------------
3,123,292
Telecommunication Equipment (0.1%)
- ---------------------------------------------------------------------------------------------------------
4,740 International CableTel, Inc. 144A $13.00 pfd. [2 DBL. DAGGERS] 4,740,000
--------------
Total Preferred Stocks (cost $223,665,184) $ 230,800,606
BRADY BONDS (3.6%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$61,444,040 Argentina (Republic of) FRB Ser. L, 6.625s, 2005 $ 55,530,051
37,779,193 Brazil (Republic of) FRB 4s, 2014 +++ 29,940,010
26,245,000 Brazil (Republic of) FRB Ser. L, 6.563s, 2012 21,225,644
11,118,000 Ecuador (Government of) bonds stepped-coupon 3.5s,
(4s, 2/28/99), 2025 ++ 7,671,420
52,894,000 United Mexican States deb. Ser. B, 6 1/4s, 2019 40,265,558
9,500,000 Venezuela (Government of) FRB Ser. B, 6.438s, 2007 8,621,250
--------------
Total Brady Bonds (cost $169,685,949) $ 163,253,933
UNITS (2.7%) *
NUMBER OF UNITS VALUE
- ---------------------------------------------------------------------------------------------------------
6,855 Advanced Radio Telecommunications units 14s, 2007 $ 8,226,000
18,260 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (Australia) ++ 10,408,200
8,595 Colt Telecommunications Group PLC units stepped-
coupon zero % (12s, 12/15/01), 2006
(United Kingdom) ++ 5,543,775
4,650 Diva Systems Corp. 144A units stepped-coupon
zero % (13s, 5/15/01), 2006 ++ 2,743,500
8,200 Esat Holdings Ltd. 144A units stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 ++ 4,838,000
14,425 Fitzgerald Gaming Co. units 13s, 2002 11,540,000
11,120 Fresenius Medical Care AG units zero %, 2006
(Germany) 11,453,600
10,610 Globalstar L.P. Capital units 11 3/8s, 2004 11,140,500
2,000 Health-O-Meter Product units 13s, 2002 2,190,000
2,400 Intercel, Inc. units stepped-coupon zero % (12s, 2/1/01),
2006 ++ 16,380,000
200,625 Nextlink Communications 144A pfd. units stepped-
coupon zero % (14s, 2/1/02), 2009 [2 DBL. DAGGERS]++ 10,031,250
6,165 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 3,421,575
15,400 RSL Communications, Ltd. 144A units 12 1/4s, 2006 16,016,000
23,840 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 9,536,000
--------------
Total Units (cost $121,519,720) $ 123,468,400
COMMON STOCKS (1.9%) *
NUMBER OF SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
3,000 AmeriKing, Inc. + $ 150,000
6,570 Axia Holding Corp. 144A + 331,785
100,000 BE Aerospace, Inc. + 2,425,000
400,000 Casino America, Inc. + 1,225,000
100,000 Clearnet Communications, Inc. Class A (Canada) + 1,100,000
83,000 Colorado Gaming & Entertainment Co. + 249,000
869,719 Computervision Corp. + 5,109,599
66,667 Duane Reade Corp. + 16,667
755,000 Exide Corp. 14,816,875
8,866 Finlay Enterprises, Inc. 126,341
1,688,770 Grand Union Co. + 6,227,339
1,250,000 NEXTEL Communications, Inc. Class A + 17,812,500
125,000 Owens-Illinois, Inc. + 3,015,625
293 Pegasus Communications Corp. + 3,447
11,048 PMI Holdings Corp. 144A + 2,762,000
8,407 Premium Holdings (L.P.) 144A + 42,035
1,185,708 PSF Holdings LLC Class A + 29,642,700
236,025 Specialty Foods Acquisition Corp. + 59,006
97,660 Terex Corp. Rights expiration date 5/15/02 + 292,980
5,000 Triangle Pacific Corp. + 141,250
100,000 UCC Investors Holding, Inc. (acquired 3/28/94,
cost $1,400,000)[DBL. DAGGER] 1,700,000
--------------
Total Common Stocks (cost $188,095,356) $ 87,249,149
CONVERTIBLE BONDS AND NOTES (1.7%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$ 5,000,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 3,350,000
28,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 17,028,750
3,900,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 ++ 3,256,500
11,350,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s,
2002 9,236,063
4,220,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 4,188,350
10,000,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 9,137,500
27,771,000 Pricellular Wireless Corp. 144A cv. sub. notes stepped-
coupon zero % (10 3/4s, 8/15/00), 2004 ++ 23,605,350
1,800,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 1,676,250
12,299,000 Winstar Communications. Inc. cv sr. disc. notes zero %,
2005 8,609,300
--------------
Total Convertible Bonds and Notes (cost $74,386,060) $ 80,088,063
FOREIGN GOVERNMENT BONDS AND NOTES (1.2%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
USD 3,645,000 Morocco (Government of) FRB Ser. A, 6 3/8s,
2009 $ 3,207,600
USD 68,219,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan 144A
8s, 2020 ##+++ 41,101,948
ZAR 54,970,000 South Africa (Republic of) bonds Ser. 153,
13s, 2010 10,781,562
--------------
Total Foreign Government Bonds and Notes
(cost $44,064,472) $ 55,091,110
WARRANTS (0.2%)* +
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ---------------------------------------------------------------------------------------------------------
265,000 Becker Gaming Corp. 144A 11/15/00 $ 66,250
136,500 Capital Gaming International, Inc. 2/01/99 5,460
129,380 Cellnet Data Systems 6/15/05 2,264,150
17,000 County Seat Holdings, Inc. 10/15/98 340
71,220 Heartland Wireless Communications, Inc. 144A 4/15/00 712
15,955 Hyperion Telecommunications 144A 4/15/01 354,999
251,394 Intelcom Group 9/15/05 3,519,516
14,200 Interact Systems, Inc. 8/01/03 3,550
15,924 Intermedia Communications 144A 6/01/00 318,480
7,470 International Wireless Communications
Holdings 8/15/01 75
72,220 Pagemart, Inc. 144A 12/31/03 577,760
46,097 Petracom Holdings, Inc. 8/01/05 328,441
44,150 President Riverboat Casinos, Inc. 9/30/99 22,075
6,375 Sterling Chemicals Holdings 8/15/08 223,125
222 Telemedia Broadcasting Corp. 144A 4/01/04 166,775
616,155 Transamerican Refining 2/15/02 1,232,310
23,250 Wireless One, Inc. 10/19/00 17,438
403 Wright Medical Technology, Inc. 144A 6/30/03 52,359
--------------
Total Warrants (cost $11,000,278) $ 9,153,815
SHORT-TERM INVESTMENTS (0.7%) *
PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------
$20,000,000 Merrill Lynch & Co., Inc. effective yield of 5.27%,
March 3, 1997 $19,994,144
12,864,000 Interest in $579,653,000 joint repurchase agreement
dated February 28, 1997 with UBS Securities due
March 3, 1997 with respect to various U.S. Treasury
obligations -- maturity value of $12,869,757
for an effective yield of 5.37% 12,865,919
--------------
Total Short-Term Investments (cost $32,860,063) $ 32,860,063
- ---------------------------------------------------------------------------------------------------------
Total Investments (cost $4,523,026,700) *** $4,576,738,105
- ---------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,577,422,984.
*** The aggregate identified cost on a tax basis is $4,533,636,019,
resulting in gross unrealized appreciation and depreciation of
$337,581,129 and $294,479,043, respectively, or net unrealized
appreciation of $43,102,086.
+ 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.
+++ A portion of the income will be received in additional
securities.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public
resale. The total market value of the restricted security held at
February 28, 1997 was $1,700,000 or less than 0.1% of net assets.
[2 DBL. DAGGERS] Income may be received in cash or additional
securities at the discretion of the issuer.
## When-issued securities (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 Floating Rate Bonds (FRBs) and Floating Rate
Notes (FRNs) are the current interest rates shown at February 28, 1997,
which are subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 28, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,523,026,700) (Note 1) $ 4,576,738,105
- ---------------------------------------------------------------------------------------------------
Cash 1,141,690
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 80,952,724
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,154,582
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 64,427,959
- ---------------------------------------------------------------------------------------------------
Total assets 4,728,415,060
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 130,028,428
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 10,581,299
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 6,029,732
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 935,610
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 43,377
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,514
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,308,405
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 84,320
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 974,391
- ---------------------------------------------------------------------------------------------------
Total liabilities 150,992,076
- ---------------------------------------------------------------------------------------------------
Net assets $4,577,422,984
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 4,993,555,194
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 7,307,561
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (477,151,176)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 53,711,405
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,577,422,984
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,288,144,810 divided by 258,929,879 shares) $12.70
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.70)* $13.33
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,264,250,003 divided by 99,907,804 shares)** $12.65
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($25,028,171 divided by 1,971,996 shares) $12.69
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.69)* $13.12
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended February 28, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 223,765,405
- --------------------------------------------------------------------------------------------------
Dividends 7,750,953
- --------------------------------------------------------------------------------------------------
Total investment income 231,516,358
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 11,906,826
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,718,640
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 81,358
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 19,367
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,988,731
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5,954,502
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 54,682
- --------------------------------------------------------------------------------------------------
Reports to shareholders 148,470
- --------------------------------------------------------------------------------------------------
Registration fees 41,237
- --------------------------------------------------------------------------------------------------
Auditing 73,557
- --------------------------------------------------------------------------------------------------
Legal 81,225
- --------------------------------------------------------------------------------------------------
Postage 808,069
- --------------------------------------------------------------------------------------------------
Other 107,631
- --------------------------------------------------------------------------------------------------
Total expenses 25,984,295
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (675,532)
- --------------------------------------------------------------------------------------------------
Net expenses 25,308,763
- --------------------------------------------------------------------------------------------------
Net investment income 206,207,595
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 48,740,651
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (213,136)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period (Note 1) 14,567
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 149,051,786
- --------------------------------------------------------------------------------------------------
Net gain on investments 197,593,868
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $403,801,463
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
February 28 August 31
1997* 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 206,207,595 $ 375,740,489
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 48,527,515 120,176,497
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies 149,066,353 (85,579,716)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 403,801,463 410,337,270
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A (142,962,457) (290,741,190)
- ----------------------------------------------------------------------------------------------------------------------
Class B (48,989,338) (81,061,592)
- ----------------------------------------------------------------------------------------------------------------------
Class M (958,260) (715,452)
- ----------------------------------------------------------------------------------------------------------------------
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) 133,612,988 439,711,567
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 344,504,396 471,540,624
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 4,232,918,588 3,761,377,964
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income and distributions in excess of net investment
income of $7,307,561 and $5,989,979, respectively) $4,577,422,984 $4,232,918,588
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share February 28
operating performance (Unaudited) Year ended August 31
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.11 $12.01 $12.06 $13.01 $12.76 $11.55
- ----------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income .59 1.16(c) 1.22 1.27 1.46 1.57
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .55 .11 (.01) (.93) .28 1.22
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.14 1.27 1.21 .34 1.74 2.79
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.55) (1.15) (1.22) (1.29) (1.45) (1.56)
- ----------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.04) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- (.04) --
- ----------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- (.02)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.55) (1.17) (1.26) (1.29) (1.49) (1.58)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.70 $12.11 $12.01 $12.06 $13.01 $12.76
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 9.63* 11.08 10.76 2.46 14.50 25.50
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,288,145 $3,115,546 $2,997,467 $2,885,748 $3,189,948 $2,449,282
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .48* .96 .95 .94 .92 .97
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.73* 9.57 10.27 9.82 11.27 12.63
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 70.07* 184.86 81.70 55.00 50.90 47.05
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 and thereafter
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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 March 1, 1993+
operating performance (Unaudited) Year ended August 31 to August 31
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.07 $11.97 $12.03 $12.99 $12.84
- ----------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income .54 1.07(c) 1.09 1.18 .62
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .55 .11 .02 (.94) .23
- ----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.09 1.18 1.11 .24 .85
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.51) (1.06) (1.13) (1.20) (.70)
- ----------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.04) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.51) (1.08) (1.17) (1.20) (.70)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.65 $12.07 $11.97 $12.03 $12.99
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 9.17* 10.28 9.88 1.66 6.80(d)
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,264,250 $1,100,757 $762,947 $535,002 $238,647
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86* 1.71 1.70 1.69 .85*
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.36* 8.84 9.52 9.06 4.92*
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 70.07* 184.86 81.70 55.00 50.90
- ----------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 and thereafter
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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------
Six months
ended Year For the period
Per-share February 28 ended July 3, 1995+
operating performance (Unaudited) August 31 to August 31
- ---------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $12.10 $12.00 $11.92
- ---------------------------------------------------------------------------------------------------
Investment activities
- ---------------------------------------------------------------------------------------------------
Net investment income .57 1.14(c) .21(c)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .56 .11 .07
- ---------------------------------------------------------------------------------------------------
Total from
investment operations 1.13 1.25 .28
- ---------------------------------------------------------------------------------------------------
Less distributions
- ---------------------------------------------------------------------------------------------------
From net
investment income (.54) (1.13) (.19)
- ---------------------------------------------------------------------------------------------------
From return of capital -- -- (.01)
- ---------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) --
- ---------------------------------------------------------------------------------------------------
Total distributions (.54) (1.15) (.20)
- ---------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.69 $12.10 $12.00
- ---------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 9.51* 10.88 2.38*
- ---------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $25,028 $16,616 $964
- ---------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .61* 1.19 .20*
- ---------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.48* 9.45 1.65*
- ---------------------------------------------------------------------------------------------------
Portfolio turnover (%) 70.07* 184.86 81.70
- ---------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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 and thereafter
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.
</TABLE>
Notes to financial statements
February 28, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Trust (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 and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date. Discounts on zero coupon bonds, original issue, 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 accrued based
on the terms of the security. 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 gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and 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 appreciation and depreciation on
assets and liabilities in foreign currencies arise from changes in the value
of assets and liabilities other than investments at the period end, resulting
from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is "marked to market" daily
and the change in market value is recorded as an unrealized gain or loss. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The fund could be exposed to risk if the
value of the currency changes unfavorably, if the counterparties to the
contracts are unable to meet the terms of their contracts or if the fund is
unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for excise tax
on income and capital gains.
At 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
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid
annually. The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% of the first $500 million of
average net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455%
of the next $5 billion, 0.44% of the next $5 billion and 0.43% of any excess
thereafter.
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 six months ended February 28, 1997, fund expenses were reduced by
$675,532 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 $4,140 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 certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services providedit 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 0.75%
of the average net assets attributable to class A, class B and class M
shares respectively.
For the six months ended February 28, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $447,000 and $11,789 from the sale
of class A and class M shares, respectively and $1,316,795 in contingent
deferred sales charges from redemptions of class B shares. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares. For
the six months ended February 28, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $11,594 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended February 28, 1997, purchases and sales of
investment securities other than short-term investments aggregated
$3,252,353,095 and $3,058,282,819, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
Note 4
Capital shares
At February 28, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
February 28, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 25,195,159 $ 312,567,228
- ------------------------------------------------------------
Shares
reinvested 5,828,256 72,277,293
- ------------------------------------------------------------
31,023,415 384,844,521
Shares
repurchased (29,401,847) (365,498,349)
- ------------------------------------------------------------
Net increase 1,621,568 $ 19,346,172
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
February 28, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 24,212,666 $ 299,376,040
- ------------------------------------------------------------
Shares
reinvested 1,877,550 23,215,624
- ------------------------------------------------------------
26,090,216 322,591,664
Shares
repurchased (17,401,219) (215,731,729)
- ------------------------------------------------------------
Net increase 8,688,997 $ 106,859,935
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
February 28, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 984,386 $12,181,535
- ------------------------------------------------------------
Shares
reinvested 53,224 660,475
- ------------------------------------------------------------
1,037,610 12,842,010
Shares
repurchased (438,516) (5,435,129)
- ------------------------------------------------------------
Net increase 599,094 $ 7,406,881
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Note 5
Transactions with Certain Companies
Transactions during the year with companies in which the fund owns at least 5%
of the voting securities were as follows:
Purchase Sales Dividend Market
cost cost Income Value
- ------------------------------------------------------------
PSF Holdings -- -- -- $29,642,700
Grand Union -- -- -- $ 6,227,339
- ------------------------------------------------------------
-- -- -- $35,870,039
Results of February 6, 1997 shareholder meeting
An annual meeting of shareholders of the fund was held on February 6, 1997. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 198,541,694 4,478,074
Hans H. Estin 198,399,636 4,620,132
John A. Hill 198,609,799 4,409,969
Ronald J. Jackson 198,594,865 4,424,903
Elizabeth T. Kennan 198,377,098 4,642,670
Lawrence J. Lasser 198,523,841 4,495,927
Robert E. Patterson 198,674,471 4,345,297
Donald S. Perkins 198,496,968 4,522,800
William F. Pounds 198,558,894 4,460,874
George Putnam 198,515,456 4,504,312
George Putnam, III 198,550,263 4,469,505
Eli Shapiro 197,787,484 5,232,284
A.J.C. Smith 198,560,408 4,459,360
W. Nicholas Thorndike 198,395,278 4,624,490
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as auditors for
the fund was approved as follows: 193,919,695 votes for, and 1,649,265 votes
against, with 7,450,807 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to diversification was approved as follows: 180,120,076 votes for, and
8,805,148 votes against, with 14,094,543 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in the securities of a single issuer was approved as follows:
172,702,725 votes for, and 13,968,456 votes against, with 16,348,586
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to making loans was approved as follows: 167,422,031 votes for, and 19,276,210
votes against, with 16,321,526 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in commodities was approved as follows: 168,930,372 votes for,
and 18,929,137 votes against, with 15,160,258 abstentions and broker
non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to investments in real estate was approved as follows: 172,640,104 votes for,
and 15,416,897 votes against, with 14,962,766 abstentions and broker
non-votes.
A proposal to amend the fund's fundamental investment restriction with respect
to concentration of its assets was approved as follows: 175,843,731 votes for,
and 10,564,163 votes against, with 16,611,873 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in issuers that have been in operation for less than
three years was approved as follows: 168,242,572 votes for, and 18,462,435
votes against, with 16,314,760 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in securities of issuers in which management of the
fund or Putnam Investment Management, Inc. owns securities was approved as
follows: 169,731,687 votes for, and 16,236,310 votes against, with 17,051,770
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to margin transactions was approved as follows: 163,834,363 votes for,
and 22,071,133 votes against, with 17,114,271 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to short sales was approved as follows: 164,981,242 votes for, and
21,063,335 votes against, with 16,975,190 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to pledging assets was approved as follows: 164,515,302 votes for, and
20,784,048 votes against, with 17,720,417 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in illiquid securities was approved as follows:
163,578,023 votes for, and 21,926,853 votes against, with 17,514,891
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investing to gain control of a company's management was approved as
follows: 173,275,201 votes for, and 14,574,921 votes against, with 15,169,645
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to investments in other investment companies was approved as follows:
168,589,835 votes for, and 17,349,769 votes against, with 17,080,163
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction with
respect to option transactions was approved as follows: 166,915,639 votes for,
and 18,129,347 votes against, with 17,974,781 abstentions and broker
non-votes.
All tabulations are rounded to nearest whole number.
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 [DBL. DAGGER]
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 [SECTION MARK]
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.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
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 [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** 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.
[2 DBL. DAGGERS] 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.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estonia
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
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
Jennifer E. Leichter
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield Trust.
It may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information, or to request a
prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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32140-014/324/2AC 4/97
