Putnam
High Yield
Trust
ANNUAL REPORT
August 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent rating agency, awarded Putnam High Yield
Trust's class A shares a five-star rating -- its highest -- as of
September 30, 1997. Only 10% of income funds rated receive five stars.*
* According to Lipper Analytical Services, Putnam High Yield Trust's
class A share's total return ranked 49 out of 171 high current yield
funds for the year ended September 30, 1997, placing the fund in the
top 29% in this category+.
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
33 Financial statements
*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 9/30/97, there were
1309, 713 and 301 funds in the fixed-income category and the fund
received 5 stars for each period. Past performance is not indicative
of future results. Performance of other share classes will vary.
+Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. Their rankings vary over
time, and do not reflect the effects of sales charges. For periods
ended 9/30/97, class A, class B, and class M shares ranked 49, 72 and 58,
respectively, out of 171 high current yield funds for 1-year performance;
class A shares ranked 30 out of 65 funds for 5-year performance; and
class B shares ranked 53 out of 104 for 3-year performance. Class B and
class M shares were not ranked over longer periods. Past performance is
not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
In the nearly two decades that Putnam High Yield Trust has been investing in
the securities from which it derives its name, your fund has amply and
consistently demonstrated that the offerings within this universe have the
potential to provide performance that belies their popular name of "junk
bonds."
Indeed, judging by the fund's class A shares' lifetime annualized total return
of 11.36% at net asset value,* one might be tempted to assert that one
investor's junk is another's jewel. More to the point, however, is the amount
of careful and intense research that goes into the selection of each fund
holding. This painstaking selection process has resulted in a remarkably low
incidence of defaults in the fund's portfolio over the years, a contributing
factor in its splendid long-term record.
Of course, past performance can never be taken as a guarantee of future
results, but you can be certain that Fund Manager Jennifer Leichter will
continue to apply this time-tested strategy as the fund approaches the
anniversary of its 20th year in early 1998.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
October 15, 1997
*From inception on 2/14/78 through 8/31/97, class A shares' annualized total
return was 11.08% at public offering price. Performance of other share classes
and over other periods is shown on page 8.
Report from the Fund Managers
Jennifer E. Leichter
Rosemary H. Thomsen
Low inflation, sustained economic growth, and a booming stock market provided
fertile ground for high-yielding corporate bond performance over the past 12
months. In addition, investor demand remained brisk throughout the period --
more than enough to meet the steady supply of new issues coming to market.
We believe astute bond selection, particularly in the telecommunications
sector, coupled with our avoidance of certain high-profile defaults, kept
Putnam High Yield Trust ahead of the broader market. For the fiscal year ended
August 31, 1997, the fund's class A shares provided a total return of 16.60%
at net asset value; class B shares, 15.71%; and class M shares, 16.33%. This
performance easily outdistanced the Lehman Brothers Corporate Bond Index and
First Boston High Yield Bond Index, which returned 11.24% and 15.43%,
respectively. For more information, including longer-term returns, please see
pages 8 and 9.
* PERFORMANCE BUILT ON SOUND FUNDAMENTALS
With the exception of a temporary setback in the weeks leading up to the
Federal Reserve Board's March increase in short-term interest rates, the
high-yield sector has been on a steady upward climb this year. On the economic
front, corporate profits and low inflation exceeded most expectations, helping
fuel a robust stock market. Merger and acquisition activity was strong in many
industries, including the broadcast and banking industries, further
buttressing bond prices. And while a few bankruptcies caused some stirring in
the market, the overall market's default rate remains quite low by historical
standards.
A steady supply of new issues coming to market -- some $10 billion a month --
was easily absorbed in light of the constant demand from insurance companies,
pension funds, and individual and foreign investors. The high-yielding
corporate bond market grew by approximately $100 billion during the fund's
fiscal year and market capitalization now totals approximately $400 billion.
When high-yield bonds are strongly in favor, the yield spread between
investment-grade corporate bonds and high-yielding bonds narrows. During the
year, this yield differential tightened substantially. We consider this
understandable in light of market conditions. When economic conditions are
favorable and bond investors' confidence is strong, investors are typically
more comfortable with higher-risk investments such as lower-rated
higher-yielding bonds.
* HIGH-YIELD BOND MARKET BECOMES LESS CYCLICAL, MORE GROWTH ORIENTED
During the past three years, the high-yield corporate bond universe has
increasingly moved from a market in which cyclical companies predominated to a
market of growth companies. In the past, the performance of lower-rated
companies typically improved during periods of economic growth, enabling them
to prosper and become eligible for credit upgrades by the rating agencies. As
their businesses became more established, these stronger companies eventually
sought financing from more traditional sources, such as banks and the stock
market.
Today the high-yield market is witnessing the rise of noncyclical companies
that require large upfront capital to build their infrastructure. This
debt-intensive build-out phase takes place before the young companies have
customers -- their future source of revenue. At this point in their growth
cycle, the companies represent greater risk. Their bonds are priced
accordingly, and their yields are higher to compensate investors for this
risk. Once the infrastructure is in place, the companies begin to focus
attention on expanding their customer base and their bottom line. As their
businesses mature, the bond prices rise and yields decline, reflecting
favorable investor sentiment.
<TABLE>
<CAPTION>
[GRAPHIC WORM CHART OMITTED: HIGH-YIELD BONDS VERSUS OTHER CORPORATE SECURITIES]
(line graph -- bottom of page 5)
vertical axis: 0, 20, 40, 60, 80, 100%
horizontal axis: 1992, 1993, 1994, 1995, 1996, 1997
HIGH-YIELD BONDS VERSUS OTHER CORPORATE SECURITIES
8/31/91 through... 8/31/92 8/31/93 8/31/94 8/31/95 8/31/96 8/31/97
<S> <C> <C> <C> <C> <C> <C>
High-yield bonds 22.41% 41.72% 46.84% 66.23% 83.10% 111.35%
Investment-grade corporate
bonds 15.15% 30.86% 27.66% 44.86% 50.34% 67.23%
Footnote reads:
This chart demonstrates that high-yield bonds, as represented by the First boston High Yield
Index, generally outperformed investment-grade corporate bonds, as represented by the Lehman
Brothers Corporate Bond Index. The chart shows cumulative returns. 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.
</TABLE>
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Cable television 6.8%
Cellular\communications 6.5%
Oil and gas 5.6%
Telecommunications 4.9%
Electric utilities 4.8%
Footnote reads:
Based on net assets as of 8/31/97. Holdings will vary over time.
* TELECOMMUNICATIONS, MEDIA, AND HEALTH CARE
Telecommunications companies, which make up one of the portfolio's largest
industry sectors, are typical of this new breed of growth-oriented high-yield
bond issuers. At the beginning of the fiscal year, many of the fund's telecom
holdings were in the midst of launching personal communications systems in the
major U.S. metropolitan markets. By the close of the period, however, the
start-up phase had been successfully completed and efforts to build a
subscriber base were well under way. Typical of these holdings, Nextel
Communications (cellular communications), one of the portfolio's largest
holdings, enjoyed an enormous rally in the price of its stock over the period
as its future became more certain. As with all portfolio holdings, in-depth
credit research is critical to determining the companies most likely to
succeed within their market niches.
Cable and media is another up-front capital-intensive industry and includes
companies in the United States and abroad. The fund has a sizable position in
several cable companies in the United Kingdom that install lines into homes to
provide telephone and/or cable service. Noncable media, which include radio
and television broadcasting, represent another strong suit for the fund. As a
result of the 1996 U.S. legislation that deregulated the telecommunications
and broadcast industries, ownership restrictions within the largest
metropolitan areas were eased. This was a turning point, making it possible
for a single operator to own multiple stations. By spreading the cost of
administration and sales across several stations, companies can reduce the
cost of business and improve their profit margins. The deregulation has
sparked a wave of merger and acquisition activity, favorably affecting the
fund's positions in Capstar Broadcasting, Chancellor Radio Broadcasting Corp.,
SFX Broadcasting, and Telemedia Broadcasting Corp., which was sold shortly
before the end of the period. While these and other holdings discussed here
were viewed favorably as of August 31, 1997, there is no guarantee that the
fund will hold these securities in the future.
Several holdings within the health-care universe also boosted performance. We
have emphasized bonds of product-oriented companies -- manufacturers of knee
and hip replacements, bandages, and stitches -- as well as those of nursing
home operators. Responding to changing demographics, Integrated Health is
constantly adding new nursing homes to meet the needs of an aging population.
* HIGH-YIELD MARKET STILL APPEARS REWARDING, BUT CAUTION IS WARRANTED
With the average high-yield bond yielding more than 8.50%,* it should come as
no surprise that the sector continues to attract investor attention --
especially in light of the favorable economic climate. However, given the
narrowed yield spread between higher-yielding corporate bonds and
investment-grade securities, the market appears to be fairly valued,
suggesting price appreciation may be less of a contributor to performance
going forward. As another fiscal year unfolds, we remain vigilant for
overlooked issues that offer the potential for income and capital appreciation
in the months ahead.
*The yield on the Merrill Lynch High Yield Bond Index on 8/29/97 was 8.61%.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 8/31/97, 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
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
High Yield Trust is designed for investors seeking high current income
through a diversified portfolio of high-yielding lower-rated corporate
bonds, with a secondary objective of capital growth when consistent with
high current income.
TOTAL RETURN FOR PERIODS ENDED 8/31/97
Class A Class B Class M
(inception date) (2/14/78) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 16.60% 11.09% 15.71% 10.71% 16.33% 12.52%
- ------------------------------------------------------------------------------
5 years 68.27 60.24 62.01 60.01 66.20 60.82
Annual average 10.97 9.89 10.13 9.86 10.69 9.97
- ------------------------------------------------------------------------------
10 years 180.66 167.38 158.61 158.61 172.00 163.11
Annual average 10.87 10.33 9.97 9.97 10.52 10.16
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/97
First Boston Consumer
High Yield Index Price Index
- ---------------------------------------------------------------------------
1 year 15.43% 2.23%
- ---------------------------------------------------------------------------
5 years 72.66 14.12
Annual average 11.54 2.68
- ---------------------------------------------------------------------------
10 years 202.03 40.56
Annual average 11.69 3.46
- ---------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% for class A shares and 3.25% for class M shares.
One-, five-, and ten-year (when available) and life-of-fund returns for
class B shares reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declines to 1% in the sixth year,
and is eliminated thereafter. Returns shown for class B and class M shares
for periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original cost.
<TABLE>
<CAPTION>
[GRAPHIC MOUNTAIN CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 2/14/78
Starting value (Insert ending total)
<S> <C> <C>
$9,525 Fund's class A shares at POP $26,738
$10,000 First Boston High yield Index $30,203
$10,000 Consumer Price Index $14,056
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $25,861 and no contingent deferred sales charges would apply;
a $10,000 investment in the fund's class M shares would have been valued at
$27,200 ($26,311 at public offering price). See first page of performance
section for performance calculation method.
</TABLE>
<TABLE>
<CAPTION>
(plot points for 10-year total return mountain chart)
First Boston High
Date/year Fund at POP Yield Index CPI
<S> <C> <C> <C>
8/31/87 9,525 10,000 10,000
8/31/88 10,312 10,999 10,402
8/31/89 11,186 11,987 10,892
8/31/90 10,338 11,229 11,504
8/31/91 12,660 14,290 11,941
8/31/92 15,889 17,493 12,317
8/31/93 18,193 20,251 12,659
8/31/94 18,640 20,982 13,026
8/31/95 20,645 23,754 13,367
8/31/96 22,931 26,165 13,752
8/31/97 26,738 30,203 14,056
</TABLE>
PRICE AND DISTRIBUTION INFORMATION
12 months ended 8/31/97
Class A Class B Class M
- -----------------------------------------------------------------------------
Distributions (number) 12 12 12
- -----------------------------------------------------------------------------
Income $1.142 $1.050 $1.112
- -----------------------------------------------------------------------------
Capital gains -- -- --
- -----------------------------------------------------------------------------
Total $1.142 $1.050 $1.112
- -----------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------------
8/31/96 $12.11 $12.71 $12.07 $12.10 $12.51
- -----------------------------------------------------------------------------
8/31/97 12.89 13.53 12.84 12.88 13.31
- -----------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate 10.05% 9.58% 9.35% 9.78% 9.47%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 8.41 8.01 7.68 8.17 7.90
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------
1 year 16.44% 10.90% 15.55% 10.55% 16.07% 12.27%
- -------------------------------------------------------------------------
5 years 72.16 64.04 65.77 63.77 69.99 64.47
Annual average 11.48 10.41 10.64 10.37 11.19 10.46
- -------------------------------------------------------------------------
10 years 194.11 180.17 170.96 170.96 185.10 175.89
Annual average 11.39 10.85 10.48 10.48 11.05 10.68
- -------------------------------------------------------------------------
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. See the first page of the
performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
The First Boston High Yield Index* is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's and
Moody's.
The Lehman Brothers Corporate Bond Index* is an unmanaged list of publicly
issued, fixed-rate non-convertible investment-grade domestic corporate
debt securities frequently used as a general measure of the performance of
fixed-income securities.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*The average quality of bonds included in these indexes will differ from
the average quality of bonds in which the fund customarily invests, and
securities held by the fund will differ from those in the indexes. Index
performance reflects changes in market prices and reinvestment of all
interest payments and do not take into account brokerage fees or taxes. It
is not possible to invest directly in an index.
Report of independent accountants
For the fiscal year ended August 31, 1997
To the Trustees and Shareholders of
Putnam High Yield Trust
We have audited the accompanying statement of assets and liabilities of Putnam
High Yield Trust, including the portfolio of investments owned, as of August
31, 1997, and the related statement of operations for the year then ended and
the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 1997, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam High Yield Trust as of August 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 16, 1997
Portfolio of investments owned
August 31, 1997
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (83.8%) *
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.4%)
- ------------------------------------------------------------------------------------------------------------
$ 8,210,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $ 8,641,025
2,645,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 2,618,550
1,554,437 Outdoor Systems, Inc. notes Ser. C, FRN 8.906s, 2003 1,554,437
2,000,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 2,085,000
4,095,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 4,381,650
--------------
19,280,662
Aerospace and Defense (1.0%)
- ------------------------------------------------------------------------------------------------------------
3,000,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 3,300,000
6,125,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 6,507,813
6,610,000 Burke Industries, Inc. 144A sr. notes 10s, 2007 6,659,575
1,000,000 Howmet Corp. sr. sub. notes 10s, 2003 1,080,000
5,150,000 L-3 Communications Corp. 144A sr. sub. notes 10 3/8s, 2007 5,497,625
5,450,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 5,722,500
350,000 Sequa Corp. med. term notes 10s, 2001 361,988
7,376,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 7,652,600
5,935,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 6,053,700
3,750,000 Wyman-Gordon Co. sr. notes 10 3/4s, 2003 4,003,125
--------------
46,838,926
Agriculture (0.9%)
- ------------------------------------------------------------------------------------------------------------
32,846,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon
Ser. B, zero % (11 1/2s, 9/1/00), 2005 ++ 25,291,420
14,743,125 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 16,364,869
--------------
41,656,289
Airlines (0.1%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 5,262,500
Apparel (0.9%)
- ------------------------------------------------------------------------------------------------------------
2,820,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 2,855,250
15,400,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 15,862,000
12,585,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 13,340,100
5,850,000 William Carter Co. 144A sr. sub. notes 12s, 2008 6,259,500
--------------
38,316,850
Automotive Parts (1.3%)
- ------------------------------------------------------------------------------------------------------------
4,699,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 5,215,890
5,775,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 6,410,250
7,905,000 A.P.S. Inc. company guaranty 11 7/8s, 2006 6,956,400
3,025,000 Cambridge Industries Inc. 144A sr. sub. notes
10 1/4s, 2007 3,146,000
10,700,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005
(In default) + 4,494,000
4,720,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 4,790,800
16,655,000 Lear Corp. sub. notes 9 1/2s, 2006 18,153,950
6,910,000 Safety Component International, Inc. 144A sr. sub. notes
10 1/8s, 2007 7,013,650
--------------
56,180,940
Banks (2.4%)
- ------------------------------------------------------------------------------------------------------------
5,155,000 Albank Capital Trust 144A company guaranty
9.27s, 2027 5,283,360
4,550,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 4,527,250
13,300,000 Consumers International 144A sr. notes 10 1/4s, 2005 14,330,750
6,020,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 5,959,800
7,425,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 7,855,947
600,000 First Nationwide Holdings sr. notes 12 1/2s, 2003 679,500
10,480,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 11,528,000
1,780,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 1,833,400
9,120,000 Greenpoint Capital Trust I 144A company guaranty
9.1s, 2027 9,439,200
6,620,000 Imperial Credit Capital Trust I 144A company
guaranty 10 1/4s, 2002 6,636,550
4,560,000 North Fork Capital Trust I company guaranty 8.7s, 2026 4,669,258
5,000,000 Onbank & Trust Co. company guaranty 9 1/4s, 2027 5,203,125
6,900,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 7,641,750
6,365,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 6,591,753
6,475,000 Provident Capital Trust company guaranty 8.6s, 2026 6,497,015
3,690,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 3,708,819
5,400,000 Sovereign Capital Trust 144A company guaranty 9s, 2027 5,502,600
1,225,000 Webster Capital Trust I 144A bonds 9.36s, 2027 1,289,215
--------------
109,177,292
Basic Industrial Products (0.3%)
- ------------------------------------------------------------------------------------------------------------
4,015,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 4,225,788
4,250,000 Clark-Schwebel sr. notes 10 1/2s, 2006 4,611,250
4,450,000 Roller Bearing Co. 144A sr. sub. notes 9 5/8s, 2007 4,539,000
--------------
13,376,038
Beverages (0.2%)
- ------------------------------------------------------------------------------------------------------------
10,520,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 10,625,200
Broadcasting (4.1%)
- ------------------------------------------------------------------------------------------------------------
8,150,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 8,537,125
4,500,000 Azteca Holdings 144A sr. notes 11s, 2002 4,702,500
9,815,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 ++ 6,281,600
5,165,000 Busse Broadcasting Corp. sr. notes 11 5/8s, 2000 5,513,638
17,935,000 Capstar Broadcasting 144A sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 ++ 11,837,100
7,660,000 Capstar Broadcasting 144A sr. sub. notes 9 1/4s, 2007 7,621,700
3,800,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 3,809,500
8,910,000 Chancellor Radio Broadcasting Corp. sr. sub. notes
9 3/8s, 2004 9,221,850
6,914,690 Citadel Broadcasting Co. 144A sr. sub. notes 10 1/4s, 2007 7,381,432
925,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 966,625
9,760,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 10,028,400
3,250,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 3,217,500
3,650,000 Grupo Iusacell S.A. 144A sr. notes 10s, 2004 (Mexico) 3,723,000
5,125,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 5,432,500
7,950,000 Jacor Communications, Co. 144A company guaranty
8 3/4s, 2007 7,989,750
4,065,000 Jacor Communications, Inc. company guaranty
9 3/4s, 2006 4,268,250
8,395,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 8,940,675
16,125,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 17,656,875
8,330,000 Pegasus Media & Communications notes
Ser. B, 12 1/2s, 2005 9,246,300
6,435,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 6,177,600
9,700,000 Radio One Inc. 144A sr. sub. notes stepped-coupon 7s,
(12s, 5/1/00), 2004 ++ 9,312,000
21,550,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B, 10 3/4s, 2006 23,274,000
4,650,000 Sinclair Broadcast Group, Inc. 144A sr. sub. notes 9s, 2007 4,591,875
3,010,000 TV Azteca Sa De Cv sr. notes Ser. B, 10 1/2s, 2007
(Mexico) 3,160,500
--------------
182,892,295
Building Products (0.9%)
- ------------------------------------------------------------------------------------------------------------
7,480,000 Atrium Companies Inc. 144A sub. notes 10 1/2s, 2006 7,741,800
2,590,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 2,687,125
4,600,000 Congoleum Corp. sr. notes 9s, 2001 4,743,750
10,675,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 10,781,750
7,250,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 7,902,500
9,105,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B,
zero % (12 3/4s, 6/1/99), 2004 ++ 7,784,775
--------------
41,641,700
Building and Construction (1.3%)
- ------------------------------------------------------------------------------------------------------------
3,650,000 Continental Homes Holding Corp. sr. notes 10s, 2006 3,832,500
15,300,000 GS Superhighway Holdings 144A sr. notes 10 1/4s, 2007 15,338,250
7,650,000 NVR, Inc. sr. notes 11s, 2003 8,338,500
10,500,000 Presley Cos. sr. notes 12 1/2s, 2001 9,765,000
16,577,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 18,856,338
1,725,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 1,759,500
--------------
57,890,088
Buses (0.5%)
- ------------------------------------------------------------------------------------------------------------
23,500,000 Consorcio/MCII Holdings sec. notes stepped-coupon
zero % (12s, 11/15/98), 2002 ++ 21,326,250
Business Equipment and Services (0.7%)
- ------------------------------------------------------------------------------------------------------------
1,700,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 1,700,000
4,285,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 4,702,788
7,515,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 8,454,375
11,000,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 12,485,000
2,000,000 Williams Scotsman Inc. 144A sr.notes 9 7/8s, 2007 2,015,000
--------------
29,357,163
Cable Television (6.8%)
- ------------------------------------------------------------------------------------------------------------
6,665,000 Adelphia Communications Corp. sr. deb. 11 7/8s, 2004 7,164,875
5,653,357 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 5,469,623
34,985,000 Adelphia Communications Corp. 144A sr. notes
9 7/8s, 2007 34,897,538
5,820,000 Antenna TV S.A. 144A sr. notes 9s, 2007 (Greece) 5,645,400
14,600,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 4,818,000
285,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 6/15/99), 2004 ++ 83,363
16,370,000 Charter Communications International, Inc. disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 ++ 11,704,550
5,000,000 Charter Communications bank loan notes FRN
2007 ## 5,025,000
14,100,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 10,786,500
20,265,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 12,488,306
33,400,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 23,839,250
1,000,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 845,000
20,769,199 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 21,807,659
4,815,000 Frontiervision Operating Partners L.P. sr. sub.
notes 11s, 2006 5,120,753
700,000 Galaxy Telecom, L.P. sr. sub. notes 12 3/8s, 2005 752,500
10,000,000 Grupo Televisa S.A. sr. notes Ser. A, 11 3/8s, 2003 (Mexico) 11,087,500
1,350,000 Grupo Televisa S.A. 144A sr. notes 11 7/8s, 2006 (Mexico) 1,539,000
1,305,000 Heartland Wireless Communications, Inc. sr. notes
Ser. B, 14s, 2004 574,200
11,870,000 Heartland Wireless Communications, Inc. sr.
notes 13s, 2003 4,510,600
2,100,000 Heartland Wireless Communications, Inc. 144A sr.
notes Ser. D, 13s, 2003 777,000
65,155,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 ++ 47,237,375
20,800,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 22,464,000
23,478,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 ++ 19,075,875
6,725,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-coupon
zero % (13 1/2s, 8/1/99), 2004 ++ 5,968,438
8,510,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 8,892,950
6,500,000 Telewest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 6,792,500
38,235,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 (Australia) ++ 25,235,100
665,000 Wireless One, Inc. sr. notes 13s, 2003 352,450
--------------
304,955,305
Cellular Communications (6.5%)
- ------------------------------------------------------------------------------------------------------------
5,640,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) ++ 3,609,600
6,450,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 6,385,500
32,345,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/00), 2005 ++ 22,884,088
27,625,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero % (10 1/8s, 1/15/99), 2004 ++ 23,274,063
9,650,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 10,180,750
10,300,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 10,300,000
3,680,000 Consorcio Ecuatoriano 144A notes 14s, 2002 (Ecuador) 3,960,600
1,000,000 Dial Call Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (10 1/4s, 12/15/98), 2005 ++ 850,000
9,150,000 Dobson Communications Corp. 144A 11 3/4s, 2007 8,967,000
8,200,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 ++ 5,166,000
31,325,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 ++ 22,162,438
9,175,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 5,872,000
6,910,000 Intercel, Inc. 144A sr. notes 11 1/8s, 2007 7,065,475
7,470,000 International Wireless Communications, Inc. sr. disc.
notes zero %, 2001 4,369,950
41,270,000 McCaw International Ltd. 144A sr. disc. notes
stepped-coupon zero % (13s, 4/15/02), 2007 ++ 22,079,450
51,650,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 38,802,063
45,030,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 2/15/99), 2004 ++ 37,262,325
10,000,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 9,500,000
13,920,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 13,572,000
8,540,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 8,326,500
10,000,000 Price Communications bank loan notes FRN 8 5/8s, 2006 9,925,000
3,370,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 3,285,750
7,065,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/97), 2001 ++ 7,656,694
6,000,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 6,345,000
--------------
291,802,246
Chemicals (2.3%)
- ------------------------------------------------------------------------------------------------------------
7,210,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 7,372,225
3,100,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 3,255,000
20,535,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 21,151,050
11,990,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 12,529,550
5,500,000 Huntsman Specialty Bank Loan notes FRN Ser. BK, 9.3125, 2027 5,651,250
5,000,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 5,375,000
7,400,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 8,121,500
3,480,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 3,471,300
4,000,000 Pioneer Americans Acquisition 144A bank loan
notes FRN 8.28s, 2006 4,030,000
3,700,000 Polytama International notes 11 1/4s, 2007 3,515,000
7,365,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 5,008,200
3,910,000 Sterling Chemicals Inc. sr. sub. notes 11 3/4s, 2006 4,301,000
7,230,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 7,284,225
10,282,000 Union Carbide Global Enterprises sr. sub. notes
Ser. B, 12s, 2005 11,708,628
--------------
102,773,928
Computer Equipment (0.5%)
- ------------------------------------------------------------------------------------------------------------
24,070,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 21,121,425
Computer Services (0.9%)
- ------------------------------------------------------------------------------------------------------------
18,260,000 Bell & Howell Co. deb. stepped-coupon Ser. B, zero %
(11 1/2s, 3/1/00), 2005 ++ 15,247,100
4,000,000 DecisionOne Corp. sr. sub. notes 9 3/4s, 2007 4,100,000
17,685,000 Unisys Corp. sr. notes 11 3/4s, 2004 19,541,925
1,300,000 Unisys Corp. sr. notes 10 5/8s, 1999 1,332,500
--------------
40,221,525
Conglomerates (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,151,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 1,197,040
7,281,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 7,308,304
--------------
8,505,344
Consumer Durable Goods (1.0%)
- ------------------------------------------------------------------------------------------------------------
21,920,000 Coleman Escrow Corp. 144A sr. disc. notes zero %, 2001 14,357,600
3,540,000 Coleman Escrow Corp. 144A sr. disc. notes zero %, 2001 2,097,450
3,765,000 Foamex (L.P.) 144A sr. sub. notes 9 7/8s, 2007 3,821,475
11,775,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/01), 2006 ++ 6,358,500
10,000,000 IHF Holdings, Inc. sr. sub. disc. notes Ser. B, zero %
(15s, 11/15/99), 2004 ++ 8,200,000
9,975,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 8,229,375
1,500,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 1,687,500
--------------
44,751,900
Consumer Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Twin Laboratories, Inc. company guaranty 10 1/4s, 2006 4,400,000
Consumer Services (0.6%)
- ------------------------------------------------------------------------------------------------------------
19,890,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 22,028,175
14,200,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 6,390,000
--------------
28,418,175
Containers (0.6%)
- ------------------------------------------------------------------------------------------------------------
9,245,000 Innova S De R.L. 144A sr. notes 12 7/8s, 2007 (Mexico) 9,771,965
3,735,000 Radnor Holdings Inc. sr.notes 10s, 2003 3,856,388
6,025,000 Vicap SA. 144A company guaranty 11 3/8s, 2007 (Mexico) 6,537,125
6,095,000 Vicap SA. 144A company guaranty 10 1/4s, 2002 (Mexico) 6,414,988
--------------
26,580,466
Cosmetics (0.6%)
- ------------------------------------------------------------------------------------------------------------
3,275,000 French Fragrances, Inc. sr. notes Ser. B., 10 3/8s, 2007 3,381,438
32,895,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 23,232,094
--------------
26,613,532
Electric Utilities (4.8%)
- ------------------------------------------------------------------------------------------------------------
8,650,000 AES Corp. 144A sr. sub. notes 8 3/8s, 2007 8,585,125
10,500,000 Calpine Corp. sr. notes 10 1/2s, 2006 11,418,750
1,610,000 Calpine Corp. sr. notes 9 1/4s, 2004 1,646,225
9,500,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 10,140,110
8,480,000 Espirto Santo Centrais 144A sr. notes 10s, 2007
(Luxembourg) 8,692,000
3,001,000 First PV Funding deb. 10.15s, 2016 3,206,208
14,161,000 First PV Funding Corp. deb. Ser. 86A, 10.3s, 2014 14,966,761
27,900,000 Long Island Lighting Co. deb. 8.9s, 2019 29,187,027
55,075,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 64,682,283
15,100,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 18,869,262
8,435,000 Niagara Mohawk Power Corp. 1st mtge. 6 7/8s, 2001 8,340,444
1,000,000 Niagara Mohawk Power Corp. med. term notes
9.99s, 2004 1,019,170
1,500,000 Niagara Mohawk Power Corp. med. term notes
9.95s, 2000 1,501,530
2,914,000 North Atlantic Energy Corp. 1st mtge. Ser. A, 9.05s, 2002 2,958,584
4,288,812 Northeast Utilities System notes Ser. A, 8.58s, 2006 4,247,469
9,529,194 Northeast Utilities System notes Ser. B, 8.38s, 2005 9,436,857
18,350,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 2004 17,799,500
--------------
216,697,305
Electronic Components (0.2%)
- ------------------------------------------------------------------------------------------------------------
4,250,000 HCC Industries, Inc. 144A sr. sub. notes 10 3/4s, 2007 4,526,250
3,870,000 Therma-Wave Inc. 144A sr. notes 10 5/8s, 2004 4,150,575
--------------
8,676,825
Electronics (1.1%)
- ------------------------------------------------------------------------------------------------------------
4,830,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (India) 5,192,250
5,423,630 Cirent Semiconductor sr. sub. notes 10.22s, 2002 5,525,324
5,755,935 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 5,871,054
3,500,000 Figgie International, Inc. sr. notes 9 7/8s, 1999 3,640,000
44,550,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003
(Canada) ++ 28,066,500
2,435,000 Wavetek Corp. 144A sr. sub. notes 10 1/8s, 2007 2,508,050
--------------
50,803,178
Entertainment (1.7%)
- ------------------------------------------------------------------------------------------------------------
23,070,000 Fox/Liberty Networks LLC 144A sr. notes 8 7/8s, 2007 22,781,625
10,810,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 11,188,350
8,625,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 9,616,875
6,175,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 6,375,688
4,850,000 Time Warner Entertainment Inc. deb. 7 1/4s, 2008 4,846,072
5,257,000 Time Warner, Inc. notes 8.18s, 2007 5,568,109
5,257,000 Time Warner, Inc. notes 8.11s, 2006 5,529,050
10,705,000 Viacom International, Inc. sub. deb. 8s, 2006 10,517,663
--------------
76,423,432
Environmental Control (0.4%)
- ------------------------------------------------------------------------------------------------------------
8,220,000 Allied Waste Industries, Inc. company guaranty
10 1/4s, 2006 8,959,800
14,790,000 Allied Waste Industries, Inc. 144A sr. disc. notes
stepped-coupon zero % (11.3s, 6/1/02), 2007 ++ 9,983,250
--------------
18,943,050
Financial Services (1.0%)
- ------------------------------------------------------------------------------------------------------------
14,200,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 13,985,864
2,000,000 Advanta Corp. med. term notes Ser. D, 6.65s, 2000 1,967,020
3,300,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 3,241,161
3,620,000 Colonial Capital I 144A company guaranty 8.92s, 2027 3,625,656
3,900,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 4,173,000
3,985,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 3,965,075
6,430,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 6,655,050
3,305,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 3,445,463
3,815,000 Resource America Inc. 144A bonds 12s, 2004 3,891,300
--------------
44,949,589
Food Chains (0.1%)
- ------------------------------------------------------------------------------------------------------------
3,550,000 Shoppers Food Warehouse 144A sr. notes 9 3/4s, 2004 3,647,625
2,750,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 2,406,250
--------------
6,053,875
Food and Beverages (1.2%)
- ------------------------------------------------------------------------------------------------------------
11,400,000 Aurora Foods Inc. 144A sr. sub notes Ser. C, 9 7/8s, 2007 11,571,000
4,600,000 Chiquita Brands cv. sr. notes 9 5/8s, 2004 4,784,000
2,620,000 Del Monte Corp. sr. sub. notes Ser. B, 12 1/4s, 2007 2,790,300
7,500,000 Doane Products Co. sr. notes 10 5/8s, 2006 7,950,000
6,590,000 Fleming Companies, Inc. 144A sr. sub. notes 10 5/8s, 2007 6,721,800
4,915,000 Fleming Companies, Inc. 144A sr. sub. notes 10 1/2s, 2004 4,964,150
10,000,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 10,650,000
4,525,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 4,553,281
1,770,000 Windy Hill Pet Food Co. 144A sr.sub.notes 9 3/4s, 2007 1,805,400
--------------
55,789,931
Gaming (3.4%)
- ------------------------------------------------------------------------------------------------------------
13,035,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 13,035,000
1,350,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 1,545,750
6,620,000 Casino America, Inc. sr. notes 12 1/2s, 2003 6,951,000
17,480,000 Coast Hotels & Casinos, Inc. company guaranty
Ser. B, 13s, 2002 19,490,200
5,290,000 Colorado Gaming & Entertainment Co.
sr. notes 12s, 2003 [2 DBL. DAGGERS] 5,713,200
3,950,000 Empress River Casino sr. notes 10 3/4s, 2002 4,216,625
7,275,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 7,747,875
600,000 Grate Bay Property Funding Corp. 1st mtge. 10 7/8s, 2004 538,500
4,660,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 5,044,450
18,050,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 19,403,750
14,505,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 14,505,000
269,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 271,690
12,250,000 Players International, Inc. sr. notes 10 7/8s, 2005 12,831,875
11,075,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 8,943,063
5,280,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 6,045,600
13,065,000 Trump A.C. 1st mtge. 11 1/4s, 2006 12,738,375
14,931,000 Trump Castle Funding Corp. notes 11 1/2s, 2000 14,931,000
--------------
153,952,953
Gas Utilities (0.2%)
- ------------------------------------------------------------------------------------------------------------
8,330,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 8,470,610
Health Care (2.3%)
- ------------------------------------------------------------------------------------------------------------
10,525,000 Genesis Eldercare 144A sr. sub. notes 9s, 2007 10,577,625
6,425,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 6,714,125
775,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 794,375
3,965,000 Integrated Health Services, Inc. 144A sr. sub.
notes 9 1/2s, 2007 4,083,950
1,000,000 Magellan Health Services, Inc. sr. sub. deb.
Ser. A, 11 1/4s, 2004 1,116,250
10,000,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 11,050,000
21,490,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 21,866,075
5,400,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 5,602,500
12,860,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 13,181,500
6,350,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 6,667,500
11,000,000 Tenet Healthcare Corp. sr. notes 8s, 2005 11,165,000
11,000,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 11,330,000
--------------
104,148,900
Industrial Products (0.4%)
- ------------------------------------------------------------------------------------------------------------
8,040,000 Johnstown America Industries, Inc. 144A sr. sub. notes
11 3/4s, 2005 8,482,200
8,190,000 Motors and Gears, Inc. sr. notes Ser. A, 10 3/4s, 2006 8,517,600
--------------
16,999,800
Insurance and Finance (1.3%)
- ------------------------------------------------------------------------------------------------------------
8,500,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 8,585,000
4,000,000 Colombia Holdings sr. notes 10s, 1999 4,090,000
13,055,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 13,446,650
7,185,000 Investors Capital Trust I 144A company guaranty
9.77s, 2027 7,415,279
4,160,000 Ocwen Financial Corp. notes 11 7/8s, 2003 4,638,400
15,600,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 16,336,944
4,050,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 4,216,293
--------------
58,728,566
Lodging (0.9%)
- ------------------------------------------------------------------------------------------------------------
14,250,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 14,944,688
20,700,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 20,958,750
3,725,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 3,948,500
--------------
39,851,938
Medical Supplies and Devices (1.1%)
- ------------------------------------------------------------------------------------------------------------
13,550,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 15,260,688
11,215,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 11,579,488
14,500,000 Urohealth Systems, Inc. 144A sr. sub. notes 12 1/2s, 2004 13,992,500
8,500,000 Wright Medical Technology, Inc. 144A 11 3/4s, 2000 8,627,500
--------------
49,460,176
Metals and Mining (0.7%)
- ------------------------------------------------------------------------------------------------------------
2,935,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 3,111,100
7,155,000 Continental Global Group 144A sr. notes Ser. A, 11s, 2007 7,512,750
50,000 Maxxam Group Holdings Inc. sr. notes Ser. B, 12s, 2003 53,500
6,055,000 Murrin Holdings 144A sr. notes 9 3/8s, 2007 (Australia) 6,115,550
5,015,000 Royal Oak Mines, Inc. company guaranty
Ser. B, 11s, 2006 (Canada) 4,513,500
11,510,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 12,430,800
--------------
33,737,200
Motion Picture Distribution (0.9%)
- ------------------------------------------------------------------------------------------------------------
4,725,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 5,055,750
3,915,000 AMC Entertainment, Inc. 144A sr. sub. notes 9 1/2s, 2009 3,934,575
13,117,700 Cinemark Mexico USA notes Ser. B, 13s, 2003 (Mexico) [2 DBL. DAGGERS] 13,117,700
960,600 Cinemark Mexico USA notes Ser. D, 13s, 2003 (Mexico) [2 DBL. DAGGERS] 960,600
13,545,000 Cinemark USA, Inc. notes 9 5/8s, 2008 13,680,450
5,250,000 Cobb Theatres, L.L.C. company guaranty 10 5/8s, 2003 5,906,250
--------------
42,655,325
Oil and Gas (5.6%)
- ------------------------------------------------------------------------------------------------------------
6,240,000 Abraxas Petroleum Corp. 144A sr. notes
Ser. B, 11 1/2s, 2004 6,910,800
7,675,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 8,365,750
8,500,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 8,542,500
5,980,000 Cliffs Drilling Co. company guaranty Ser. B, 10 1/4s, 2003 6,398,600
2,300,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 2,403,500
2,795,000 Dailey Petroleum Services Corp. 144A company
guaranty 9 3/4s, 2007 2,843,913
5,150,000 DI Industries Inc. sr. notes 8 7/8s, 2007 5,098,500
9,065,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 9,586,238
5,980,000 Gerrity Oil & Gas Corp. sr. sub. notes 11 3/4s, 2004 6,563,050
3,390,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B, 10 3/8s, 2006 3,517,125
5,150,000 Maxus Energy Corp. med. term notes 10.83s, 2004 5,825,423
10,695,000 Maxus Energy Corp. notes 9 3/8s, 2003 11,470,388
5,435,000 Mesa Operating Co. company guaranty stepped-coupon
zero % (11 5/8s, 7/10/01), 2006 ++ 4,266,475
6,950,000 Noble Drilling Corp. sr. notes 9 1/8s, 2006 7,608,652
6,500,000 Ocean Energy, Inc. 144A sr. sub. notes 8 7/8s, 2007 6,581,250
3,550,000 Pacalta Resources Ltd. 144A sr. notes 10 3/4s,
2004 (Canada) 3,621,000
6,625,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 7,022,500
3,475,000 Petsec Energy, Inc. 144A sr. sub. notes 9 1/2s, 2007 3,527,125
1,770,000 Pogo Producing Co. 144A notes 8 3/4s, 2007 1,792,125
5,230,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 5,491,500
3,050,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 3,065,250
97,350,000 Transamerican Energy 144A sr. disc. notes
stepped-coupon zero % (13s, 6/15/00), 2002 ++ 73,742,625
37,785,000 Transamerican Energy 144A sr. notes 11 1/2s, 2002 36,651,450
17,087,000 TransTexas Gas Corp. sr. sub. notes 13 3/4s, 2001 19,393,745
3,540,000 Wiser Oil Co. 144A sr. sub. notes 9 1/2s, 2007 3,424,950
--------------
253,714,434
Packaging and Containers (0.8%)
- ------------------------------------------------------------------------------------------------------------
4,980,000 Printpack, Inc. sr. notes Ser. B, 9 7/8s, 2004 5,229,000
1,900,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 1,895,250
10,490,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 9,991,725
6,000,000 Riverwood International Corp. 144A sr. notes
10 5/8s, 2007 6,060,000
13,517,971 Riverwood International Corp. bank loan notes FRN
8.016s, 2003 13,517,971
--------------
36,693,946
Paging (1.9%)
- ------------------------------------------------------------------------------------------------------------
17,000,000 Arch Communications Group sr. disc. notes
stepped-coupon zero % (10 7/8s, 3/15/01), 2008 ++ 9,350,000
21,360,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 21,146,400
20,825,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 22,751,313
15,000,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 11,662,500
10,700,000 Pagemart, Inc. sr. disc. notes stepped-coupon zero %
(12 1/4s, 11/1/98), 2003 ++ 9,603,250
10,000,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 10,200,000
2,214,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 2,324,700
--------------
87,038,163
Paper and Forest Products (3.1%)
- ------------------------------------------------------------------------------------------------------------
9,800,000 APP Finance II Mauritius Ltd. bonds 12s, 2049
(Indonesia) ++ 9,628,500
5,650,000 Buckeye Cellulose Corp. sr. sub. notes 9 1/4s, 2008 5,918,375
4,105,000 Domtar, Inc. deb. 9 1/2s, 2016 (Canada) 4,433,400
3,840,000 Domtar, Inc. notes 8 3/4s, 2006 (Canada) 4,012,800
19,255,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 20,795,400
9,410,000 Idah Kiat Financial Mauritius 144A 10s, 2007 8,986,550
15,250,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty
10s, 2004 (Indonesia) 14,716,250
23,580,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 22,342,050
9,250,000 Stone Container Corp. sr. notes 11 7/8s, 2016 10,082,500
17,300,000 Stone Container Corp. sr. notes 11 1/2s, 2004 18,338,000
6,000,000 Stone Container Corp. 144A company guaranty
11 1/2s, 2006 6,240,000
13,000,000 Stone Container Corp. bank loan notes FRN 9 3/8s, 2003 13,097,500
--------------
138,591,325
Pharmaceuticals and Biotechnology (0.2%)
- ------------------------------------------------------------------------------------------------------------
9,805,000 ICN Pharmaceuticals, Inc. 144a sr. notes 9 1/4s, 2005 10,025,613
Publishing (0.9%)
- ------------------------------------------------------------------------------------------------------------
3,550,000 Affinity Group sr. sub. notes 11 1/2s, 2003 3,807,375
12,880,000 Affinity Group Holdings 144A sr. notes 11s, 2007 13,749,400
10,300,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 11,278,500
4,085,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 4,217,763
4,085,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 4,166,700
3,540,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 3,717,000
--------------
40,936,738
Railroads (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,685,000 TFM SA DE CV 144A company guaranty 10 1/4s, 2007 2,792,400
13,545,000 TFM SA DE CV 144A company guaranty zero %
(11 3/4s, 6/15/02), 2009 ++ 8,364,038
--------------
11,156,438
REIT's (Real Estate Investment Trusts) (0.4%)
- ------------------------------------------------------------------------------------------------------------
13,430,000 HMH Properties, Inc. 144A sr. notes 8 7/8s, 2007
(Canada) (R) 13,698,600
6,000,000 Tanger Properties L.P. gtd. notes 8 3/4s, 2001 (R) 6,171,600
--------------
19,870,200
Recreation (0.3%)
- ------------------------------------------------------------------------------------------------------------
2,100,000 Casino Magic Finance Corp. 1st mtge. 11 1/2s, 2001 1,911,000
5,070,000 Isle of Capri Black Hawk LLC 144A 1st mortgage 13s, 2004 5,120,700
8,050,000 101 Main L.L.C. 144A 13s, 2000 8,050,000
--------------
15,081,700
Restaurants (0.2%)
- ------------------------------------------------------------------------------------------------------------
8,000,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 8,560,000
Retail (1.7%)
- ------------------------------------------------------------------------------------------------------------
8,035,000 Brylane (L.P.) sr. sub. notes 10s, 2003 8,557,275
2,997,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 3,296,700
2,250,000 K mart Corp. deb. 13 1/2s, 2009 2,520,000
2,000,000 K mart Corp. deb. 7.95s, 2023 1,805,000
1,900,000 K mart Corp. deb. 7 3/4s, 2012 1,738,500
2,000,000 K mart Corp. med. term notes 9s, 2020 1,931,180
2,000,000 K mart Corp. med. term notes 8.96s, 2019 1,924,600
700,000 K mart Corp. med. term notes 8.85s, 2011 728,000
5,000,000 K mart Corp. med. term notes 8.13s, 2003 4,863,300
1,000,000 K mart Corp. med. term notes 8s, 2001 980,710
2,100,000 K mart Corp. med. term notes 7.84s, 2002 2,046,744
3,000,000 K mart Corp. med. term notes 7.82s, 2002 2,921,790
3,000,000 K mart Corp. med. term notes 7.77s, 2002 2,962,500
600,000 K mart Corp. med. term notes 7.76s, 2002 580,164
400,000 K mart Corp. med. term notes 7.74s, 2002 383,000
1,425,000 K mart Corp. med. term notes 7.72s, 2002 1,407,188
2,000,000 K mart Corp. med. term notes 7.47s, 2002 1,909,560
1,000,000 K mart Corp. med. term notes 7 3/8s, 2000 975,520
650,000 K mart Corp. med. term notes 7.2s, 2000 630,812
2,000,000 K mart Corp. med. term notes 7.17s, 2000 1,939,240
1,200,000 K mart Corp. med. term notes 7.01s, 2000 1,158,384
1,000,000 K mart Corp. med. term notes 6.78s, 1999 975,590
5,000,000 K mart Corp. notes 8 1/8s, 2006 4,987,500
8,945,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 9,302,800
7,500,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 7,800,000
5,175,000 Specialty Retailers 144A company guaranty 8 1/2s, 2005 5,278,500
3,000,000 SRI Receivables Purchase 144A 12 1/2s, 2000 3,150,000
--------------
76,754,557
Satellite Services (3.4%)
- ------------------------------------------------------------------------------------------------------------
2,476,469 Direct Sat 1 144A 8 1/4s, 2001 2,388,830
8,695,000 Echostar Communications Corp. sr. disc. notes
stepped-coupon zero % (12 7/8s, 6/1/99), 2004 ++ 7,564,650
12,250,000 Echostar DBS Corp. 144A company guaranty 12 1/2s, 2002 12,495,000
2,668,326 Echostar I 144A 8 1/4, 2001 2,614,960
6,135,000 Globalstar L.P. Capital 144A sr. notes 11 3/8s, 2004 6,150,338
52,205,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 40,067,338
27,300,000 Iridium L.L.C. Capital Corp. 144A sr. notes 14s, 2005 29,074,500
14,060,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 14,516,950
9,830,000 Pratama Datakom Asia BV 144A company guaranty
12 3/4s, 2005 9,535,100
7,090,000 TCI Satellite Entertainment 144A sr. sub. notes
10 7/8s, 2007 7,302,700
17,568,000 Winstar Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 10,980,000
8,905,000 Winstar Equipment Corp. 144A company guaranty
12 1/2s, 2004 9,083,100
--------------
151,773,466
Semiconductors (0.8%)
- ------------------------------------------------------------------------------------------------------------
13,000,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 13,877,500
11,380,000 Fairchild Semiconductor Corp. 144A sr. sub.
notes 11.74s, 2008 11,892,100
8,705,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 8,966,150
--------------
34,735,750
Shipping (0.1%)
- ------------------------------------------------------------------------------------------------------------
3,810,000 Newport News Shipbuilding sr. notes 8 5/8s, 2006 3,962,400
Steel (0.6%)
- ------------------------------------------------------------------------------------------------------------
7,340,000 AK Steel Corp. sr. notes 9 1/8s, 2006 7,725,350
7,655,000 Altos Hornos de Mexico 144A bonds 11 3/8s,
2002 (Mexico) 8,229,125
5,000,000 Ispat Mexicana, S.A. deb. 10 3/8s, 2001 (Mexico) 5,350,000
4,715,000 Northwestern Steel & Wire sr. notes 9 1/2s, 2001 4,479,250
--------------
25,783,725
Supermarkets (1.3%)
- ------------------------------------------------------------------------------------------------------------
8,840,000 Ameriserve Food Co. 144A sr. sub. notes 10 1/8s, 2007 9,105,200
3,805,000 Food 4 Less Supermarkets, Inc. deb. stepped-coupon
zero % (13 5/8s, 6/15/00), 2005 ++ 3,120,100
3,010,000 Marsh Supermarkets, Inc. 144A sr. sub. notes 8 7/8s, 2007 2,979,900
2,680,000 Nebco Evans Holding Co. 144A sr. disc. notes
stepped-coupon zero % (12 3/8s, 7/15/02), 2007 ++ 1,608,000
3,000,000 Ralphs Grocery Co. company guaranty 10.45s, 2004 3,262,500
10,000,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 10,900,000
8,000,000 Ralphs Grocery Co. sr. sub. notes 11s, 2005 8,780,000
3,975,000 Star Markets Co. sr. sub. notes 13s, 2004 4,531,500
13,600,000 Stater Brothers sr. notes 11s, 2001 14,926,000
310,000 Stater Brothers Holdings 144A sr. sub. notes 9s, 2004 316,200
--------------
59,529,400
Telecommunications (4.9%)
- ------------------------------------------------------------------------------------------------------------
10,395,000 Advanced Radio Telecom Corp. sr. notes 14s, 2007 8,835,750
6,715,000 America Communication Services, Inc. 144A sr. notes
13 3/4s, 2007 7,134,688
4,500,000 American Communications Services, Inc. sr. disc. notes
stepped-coupon zero % (13s, 11/1/00), 2005 ++ 2,835,000
12,540,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 7,429,950
6,210,000 Brooks Fiber Properties, Inc. sr. disc. notes
stepped-coupon zero % (11 7/8s, 11/01/01), 2006 ++ 4,315,950
4,315,000 Brooks Fiber Properties, Inc. sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/1/01), 2006 ++ 3,139,163
11,685,000 Brooks Fiber Properties, Inc. 144A sr. notes 10s, 2007 12,327,675
8,180,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 9,079,800
4,825,000 GST Equipment Funding 144A sr. notes 13 1/4s, 2007 5,307,500
32,800,000 GST Telecommunications,Inc. company guaranty
stepped-coupon zero % (13 7/8s, 1/15/00), 2005 ++ 22,140,000
2,460,000 Hermes Europe Railtel 144a sr. notes 11 1/2s, 2007
(Netherlands) 2,589,150
23,975,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 15,164,188
17,230,000 Hyperion Telecommunications, Inc. 144A sr. notes
12 1/4s, 2004 17,660,750
20,790,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 ++ 14,007,263
4,250,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 5/15/01), 2006 ++ 3,102,500
22,000,000 Intermedia Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (11 1/4s, 7/15/02), 2007 ++ 13,860,000
9,255,000 ITC Deltacom, Inc. 144A sr. notes 11s, 2007 9,764,025
10,100,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon
zero % (10 1/2s, 3/1/02), 2007 ++ 6,640,750
14,100,000 Nextlink Communications sr. notes 12 1/2s, 2006 15,545,250
15,400,000 RSL Communications, Ltd. company guaranty
12 1/4s, 2006 16,170,000
12,470,000 Sprint Spectrum L.P. sr. notes 11s, 2006 13,841,700
15,860,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 11,815,700
--------------
222,706,752
Textiles (0.4%)
- ------------------------------------------------------------------------------------------------------------
3,575,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 3,798,409
8,540,000 Polymer Group, Inc. 144A sr. sub. notes 9s, 2007 8,540,000
4,270,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 4,675,650
--------------
17,014,059
Transportation (0.2%)
- ------------------------------------------------------------------------------------------------------------
7,500,000 Delco Remy International, Inc. 144A 11 1/2s, 2004 7,462,500
--------------
Total Corporate Bonds and Notes (cost $3,660,923,527) $3,781,699,858
PREFERRED STOCKS (7.1%) *
NUMBER OF SHARES VALUE
Banks (1.0%)
- ------------------------------------------------------------------------------------------------------------
170,000 California Federal Bank Inc. Ser. B, $11.50 pfd. $ 19,125,000
324,000 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 8,383,500
296,110 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 15,841,885
21,325 Chevy Chase Savings Bank $3.25 pfd. 639,750
4,105 CSBI Capital Trust I 144A 11.75% pfd. 4,105,000
--------------
48,095,135
Broadcasting (1.5%)
- ------------------------------------------------------------------------------------------------------------
52,950 Capstar Broadcasting Inc. 144A $12.00 pfd. 5,559,750
111,665 Chancellor Radio Broadcasting 144A $12.00 pfd. 12,506,480
101,650 Citadel Broadcasting Co. 144A $13.25 pfd. [2 DBL. DAGGERS] 10,952,788
4,550 Granite Broadcasting 144A 12.75% pfd. [2 DBL. DAGGERS] 4,914,000
3,100 Paxson Communications Corp. 12.50% pfd. [2 DBL. DAGGERS] 3,410,000
153,270 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 17,089,605
11,120 Spanish Broadcasting Systems 144A 14.25% cum. pfd. [2 DBL. DAGGERS] 12,176,400
--------------
66,609,023
Cable Television (1.3%)
- ------------------------------------------------------------------------------------------------------------
448,944 Cablevision Systems Corp. Ser. M, $11.125 dep.
shs. cum. pfd. [2 DBL. DAGGERS] 49,159,368
8,155 NTL Inc. 144A Ser. B, 13.0% pfd. [2 DBL. DAGGERS] 9,174,375
--------------
58,333,743
Cellular Communication (0.6%)
- ------------------------------------------------------------------------------------------------------------
23,450 Nextel Communications Inc. 144A 13.0% pfd. [2 DBL. DAGGERS] 25,619,125
Cosmetics (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,900 Renaissance Cosmetics Inc. 14.0% pfd. [2 DBL. DAGGERS] 4,018,000
Electric Utilities (0.3%)
- ------------------------------------------------------------------------------------------------------------
108,685 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 12,009,693
99,759 Public Service Co. of New Hampshire $2.65 1st mtge. pfd. 2,543,855
--------------
14,553,548
Entertainment (0.3%)
- ------------------------------------------------------------------------------------------------------------
10,353 Time Warner Inc. Ser. M, 10.25% pfd. 11,776,538
Insurance and Finance (0.1%)
- ------------------------------------------------------------------------------------------------------------
130,000 CGA Group Ltd., 144A Ser. A, 13.75% pfd. [2 DBL. DAGGERS] 3,315,000
Medical Supplies and Devices (0.3%)
- ------------------------------------------------------------------------------------------------------------
11,120 Fresenius Medical Care AG Ser. D, $9.00 pfd. (Germany) 11,537,000
Motion Picture Distribution (--%)
- ------------------------------------------------------------------------------------------------------------
196,000 Diva Systems Corp. Ser. C, $6.00 pfd. 2,229,500
Publishing (0.1%)
- ------------------------------------------------------------------------------------------------------------
142,780 Von Hoffman Corp. 144A $13.50 pfd. 4,083,508
Recreation (0.2%)
- ------------------------------------------------------------------------------------------------------------
100,943 Alliance Gaming Corp. Ser. B, $15.00 pfd. [2 DBL. DAGGERS] 10,346,658
Restaurants (0.1%)
- ------------------------------------------------------------------------------------------------------------
120,000 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 3,360,000
Retail (0.1%)
- ------------------------------------------------------------------------------------------------------------
24,000 Jitney-Jungle Stores 144A Ser. A, $4.95 sr. exchange pfd. 3,504,000
Telecommunications (1.1%)
- ------------------------------------------------------------------------------------------------------------
6,850 ICG Holdings, Inc., 144A 14.0% pfd. [2 DBL. DAGGERS] 7,980,250
11,839 Intermedia Communication Ser. B, 13.50% pfd. 13,437,265
16,330 IXC Communications, Inc. 144A 12.50% pfd. [2 DBL. DAGGERS] 17,289,388
214,994 Nextlink Communications, Inc. Ser. 144A $7.00 cum. pfd. 12,469,652
--------------
51,176,555
--------------
Total Preferred Stocks (cost $293,570,068) $ 318,557,333
UNITS (2.6%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
21,010 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (Australia) ++ $ 16,965,575
8,595 Colt Telecommunications Group PLC units
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) ++ 5,758,650
3,625 DecisionOne Corp. units stepped-coupon 11 1/2s,
(11 1/2s, 8/01/02), 2008 ++ 2,320,000
4,650 Diva Systems Corp. 144A units stepped-coupon zero %
(13s, 5/15/01), 2006 ++ 4,033,875
6,700 Econophone Inc. units 13 1/2s, 2007 7,001,500
12,225 Fitzgerald Gaming Co. units 13s, 2002 11,247,000
1,745 Hedstrom Holdings, Inc. units stepped-coupon zero %
(12s, 6/01/02), 2009 ++ 1,099,350
7,270 Iridium LLC/Capital Corp. units 13s, 2005 8,124,225
3,900 Metronet Communications units sr. notes 12s, 2007 4,173,000
12,550 Orion Network Systems units stepped-coupon zero %
(12 1/2s, 1/15/02), 2007 ++ 8,157,500
6,105 Paging Network Do Brasil 144A units 13 1/2s,
2005 (Brazil) 5,960,006
3,675 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 2,140,688
2,000 Signature Brands USA Inc. units 13s, 2002 2,150,000
6,965 Stone Container Corp. units sr. sub. 12 1/4s, 2002 7,173,950
9,962 USN Communications Inc. units stepped-coupon 14 5/8s,
(14 5/8s, 8/15/02), 2004 ++ 6,674,540
23,840 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 4,291,200
13,345 XCL Ltd . sr. sec. notes units 13 1/2s, 2004 13,611,900
60,536 XCL Ltd. units cum. pfd. 9.50 % 5,266,632
--------------
Total Units (cost $122,297,639) $ 116,149,591
CONVERTIBLE BONDS AND NOTES (2.1%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
11,900,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) $ 11,424,000
5,500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 5,032,500
28,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 18,097,500
3,900,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 1/15/00), 2005 ++ 3,510,000
11,350,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 9,959,625
4,220,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 4,568,150
11,000,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 10,436,250
27,771,000 Pricellular Wireless Corp. 144A cv. sub. notes stepped-
coupon zero % (10 3/4s, 8/15/00) 2004 ++ 23,813,633
1,800,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 2,072,250
12,299,000 Winstar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 7,932,855
--------------
Total Convertible Bonds and Notes (cost $88,011,360) $ 96,846,763
COMMON STOCKS (1.8%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
210,342 Advanced Radio Telecom Corp. + $ 1,603,858
3,000 AmeriKing, Inc. + 150,000
6,570 Axia Holding Corp. 144A + 328,500
100,000 BE Aerospace, Inc. + 3,550,000
1,663,637 Capstar Broadcasting Partners + 1,996,364
400,000 Casino America, Inc. + 1,100,000
258,760 CellNet Data Systems Inc. + 3,105,120
100,000 Clearnet Communications, Inc. Class A, (Canada) + 1,387,500
83,000 Colorado Gaming & Entertainment Co. + 415,000
869,719 Computervision Corp. + 2,174,298
95,770 Crompton & Knowles Corp. 2,418,193
182,174 Duane Reade Corp. + 182,174
229,500 Exide Corp. 4,790,813
8,866 Finlay Enterprises, Inc. 157,372
110,000 French Fragrances Inc. + 935,000
1,583,770 Grand Union Co. (acquired 8/18/95,
cost $82,120,198) + [DBL. DAGGER] [SECTION MARK] 2,969,569
250,000 Lady Luck Gaming Corp. (acquired 7/24/97,
cost $375,000)+[DBL. DAGGER] 367,188
600,000 NEXTEL Communications, Inc. Class A + 15,037,500
293 Pegasus Communications Corp. + 3,919
11,048 PMI Holdings Corp. 144A + 3,535,360
8,407 Premium Holdings (L.P.) 144A + 33,628
1,185,708 PSF Holdings LLC Class A + [SECTION MARK] 31,421,262
236,025 Specialty Foods Acquisition Corp. + 59,006
97,660 Terex Corp. Rights 144A + 1,953,200
--------------
Total Common Stocks (cost $160,982,635) $ 79,674,824
BRADY BONDS (0.9%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 2,586,990 Argentina (Republic of) deb. FRB 6 3/4s, 2005 $ 2,457,641
11,040,000 Argentina (Republic of) Ser. L-GL, FRB 6.875s, 2023 9,991,200
3,608,492 Brazil (Government of) FRB 8s, 2014 +++ 2,940,921
6,311,250 Brazil (Government of) Ser. EI-L, FRB 6.875s, 2006 5,845,795
3,870,000 Bulgaria (Government of) deb. Ser. PDI, FRB 6.688s, 2011 2,960,550
935,000 Ecuador (Government of) FRB 6.688s, 2025 726,963
3,205,000 United Mexican States Ser. D, FRB 6.813s, 2019 3,018,709
12,305,000 United Mexican States 6 1/4s, 2019 9,828,619
4,500,000 Venezuela (Government of) deb. Ser. DL, FRB 6 3/4s, 2007 4,213,125
--------------
Total Brady Bonds (cost $49,195,424) $ 41,983,523
FOREIGN GOVERNMENT BONDS AND NOTES (0.2%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
USD 8,710,000 Bank of Foreign Economic Affairs of Russia
(Vnesheconombank) principal loan FRN,
Libor plus 13/16, 2020 +##+++ $ 6,216,763
PEN 665,000 Peru (Government of) Ser. US, 4s, 2017 435,575
ZAR 2,550,000 South Africa (Republic of) bonds
Ser. 153, 13s, 2010 501,466
--------------
Total Foreign Government Bonds and Notes
(cost $7,152,503) $ 7,153,804
WARRANTS (0.2%) *+
NUMBER OF WARRANTS EXPIRATION DATE VALUE
- ------------------------------------------------------------------------------------------------------------
265,000 Becker Gaming Corp. 144A 11/15/00 2,650
136,500 Capital Gaming International, Inc. 2/1/99 5,460
130,000 CGA Group Ltd. 144A 1/1/04 1,300
17,000 County Seat Holdings, Inc. 10/15/98 340
8,200 Esat Holdings Inc. 9/9/99 164,000
6,135 Globalstar Telecom 144A 2/15/04 539,880
71,220 Heartland Wireless Communications, Inc. 144A 4/15/00 712
19,455 Hyperion Telecommunications 144A 4/15/01 583,650
251,394 Intelcom Group 144A 10/15/05 3,645,213
14,200 Interact Systems Inc. 8/1/03 3,550
15,924 Intermedia Communications 144A 6/1/00 812,124
7,470 International Wireless Communications Holdings 8/15/01 75
41,270 McCaw International Ltd. 144A 4/15/07 10,318
200,625 Nextlink Communications, Inc. 144A 2/1/09 2,006
72,220 Pagemart, Inc. 144A 12/31/03 541,650
46,097 Petracom Holdings, Inc. 8/1/05 328,441
76,800 Powertel, Inc. 2/1/06 552,960
44,150 President Riverboat Casinos, Inc. 9/30/99 22,075
15,400 RSL Communications Ltd. 144A 11/15/06 770,000
9,115 Spanish Broadcasting Systems 144A 6/30/99 1,321,675
6,375 Sterling Chemicals Holdings 8/15/08 223,125
14,800 Urohealth Systems Inc. 144A 4/10/04 74,000
23,250 Wireless One, Inc. 10/19/00 2,325
403 Wright Medical Technology, Inc. 144A 6/30/03 40,276
--------------
Total Warrants (cost $10,460,289) $ 9,647,805
CONVERTIBLE PREFERRED STOCKS (0.1%) * (cost $5,012,161)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
438,126 Diva Systems Corp. Ser. D, 13.00% cv pfd. $ 4,983,683
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,397,605,606) *** $4,456,697,184
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,510,702,143.
*** The aggregate identified cost on a tax basis is $4,405,747,495, resulting in gross
unrealized appreciation and depreciation of $333,838,013 and $282,888,324, respectively,
or net unrealized appreciation of $50,949,689.
+ Non-income-producing security.
++ The interest or dividend rate and date shown parenthetically represent the new interest or
dividend rate to be paid and the date the fund will begin receiving interest or dividend
income at this rate.
+++ 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 restricted securities held at August 31, 1997 was
$3,336,757 or 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).
(R) Real Estate Investment Trust.
[SECTION MARK] Affiliated Issues (Note 5).
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 Notes (FRN) and Floating Rate Bonds (FRB) are
the current interest rates shown at August 31, 1997, which are subject to
change based on the terms of the security.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at August 31, 1997
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South African Rand $ 268,431 $ 264,538 12/17/97 $ (3,893)
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,397,605,606) (Note 1) $ 4,456,697,184
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 73,285,335
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,241,621
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 83,609,790
- ---------------------------------------------------------------------------------------------------
Total assets 4,615,833,930
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,050,660
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 185,503
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 89,838,006
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,404,879
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 6,122,735
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 660,059
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 56,324
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,177
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,445,134
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 3,893
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 358,417
- ---------------------------------------------------------------------------------------------------
Total liabilities 105,131,787
- ---------------------------------------------------------------------------------------------------
Net assets $4,510,702,143
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 4,866,817,298
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 18,811,892
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (434,014,732)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 59,087,685
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,510,702,143
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,259,439,825 divided by 252,796,172 shares) $12.89
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $12.89)* $13.53
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,226,880,223 divided by 95,517,395 shares)** $12.84
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($24,382,095 divided by 1,892,302 shares) $12.88
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $12.88)* $13.31
- ---------------------------------------------------------------------------------------------------
* 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
Year ended August 31, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $ 446,375,754
- --------------------------------------------------------------------------------------------------
Dividend 19,351,707
- --------------------------------------------------------------------------------------------------
Total investment income 465,727,461
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 23,999,927
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,801,371
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 123,640
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 38,086
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 8,032,502
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 12,086,554
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 114,836
- --------------------------------------------------------------------------------------------------
Reports to shareholders 226,699
- --------------------------------------------------------------------------------------------------
Registration fees 6,485
- --------------------------------------------------------------------------------------------------
Auditing 145,080
- --------------------------------------------------------------------------------------------------
Legal 161,392
- --------------------------------------------------------------------------------------------------
Postage 689,667
- --------------------------------------------------------------------------------------------------
Other 293,377
- --------------------------------------------------------------------------------------------------
Total expenses 51,719,616
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,513,097)
- --------------------------------------------------------------------------------------------------
Net expenses 50,206,519
- --------------------------------------------------------------------------------------------------
Net investment income 415,520,942
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1, 3 and 5) (including realized
loss of $5,258,095 on sales of investments in affiliated issuers) 104,929,256
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 52,500
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the year 10,675
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 154,431,958
- --------------------------------------------------------------------------------------------------
Net gain on investments 259,424,389
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 674,945,331
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 415,520,942 $ 375,740,489
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 104,981,756 120,176,497
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and assets and liabilities in foreign currencies 154,442,633 (85,579,716)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 674,945,331 410,337,270
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A (292,861,056) (290,741,190)
- ----------------------------------------------------------------------------------------------------------------------
Class B (101,661,231) (81,061,592)
- ----------------------------------------------------------------------------------------------------------------------
Class M (2,044,553) (715,452)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A -- (4,675,029)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (1,303,446)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (11,504)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (594,936) 439,711,567
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 277,783,555 471,540,624
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 4,232,918,588 3,761,377,964
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $18,811,892 and $5,989,979, respectively) $ 4,510,702,143 $ 4,232,918,588
- ----------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.11 $12.01 $12.06 $13.01 $12.76
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.20 1.16 (c) 1.22 1.27 1.46
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .72 .11 (.01) (.93) .28
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.92 1.27 1.21 .34 1.74
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.14) (1.15) (1.22) (1.29) (1.45)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.14) (1.17) (1.26) (1.29) (1.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.89 $12.11 $12.01 $12.06 $13.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.60 11.08 10.76 2.46 14.50
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,259,440 $3,115,546 $2,997,467 $2,885,748 $3,189,948
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .96 .96 .95 .94 .92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.54 9.57 10.27 9.82 11.27
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 130.77 184.86 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 arrangements. 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share March 1, 1993+
operating performance 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 1.10 1.07 (c) 1.09 1.18 .62
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .72 .11 .02 (.94) .23
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.82 1.18 1.11 .24 .85
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.05) (1.06) (1.13) (1.20) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.05) (1.08) (1.17) (1.20) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.84 $12.07 $11.97 $12.03 $12.99
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 15.71 10.28 9.88 1.66 6.80 (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,226,880 $1,100,757 $762,947 $535,002 $238,647
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.71 1.71 1.70 1.69 .85 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.79 8.84 9.52 9.06 4.92 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 130.77 184.86 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 arrangements. 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 3, 1995+
operating performance Year ended 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 1.16 1.14 (c) .21 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .73 .11 .07
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.89 1.25 .28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.11) (1.13) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.11) (1.15) (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.88 $12.10 $12.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.33 10.88 2.38 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $24,382 $16,616 $964
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.21 1.19 .20 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.29 9.45 1.65 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 130.77 184.86 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 arrangements. 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
August 31, 1997
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 Management.
These balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date. Discounts on zero coupon bonds, original
issue discounts, stepped-coupon bonds and payment in kind bonds are accreted
according to the effective yield method. Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. 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 gains and losses on foreign currency
transactions arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the period end,
resulting from changes in the exchange rate.
F) 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 is determined using forward currency exchange rates
supplied by a quotation service. The market value of the contract will
fluctuate with changes in currency exchange rates. The contract is "marked to
market" daily and the change in market value is recorded as an unrealized gain
or loss. When the contract is closed, the fund records a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The fund could be exposed to
risk if the value of the currency changes unfavorably, if the counterparties
to the contracts are unable to meet the terms of their contracts or if the
fund is unable to enter into a closing position.
G) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At August 31, 1997, the fund had a capital loss carryover of approximately
$425,873,000 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------------------------------------
262,906,000 August 31, 1999
110,229,000 August 31, 2000
52,738,000 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 at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences include treatment
of losses on wash sales transactions, currency gains and losses on foreign
bonds, interest on payment-in-kind securities and defaulted bond interest.
Reclassifications are made to the fund's capital accounts to reflect income
and gains available for distribution (or available capital loss carryovers)
under income tax regulations. For the year ended August 31, 1997, the fund
reclassified $5,847,769 to increase undistributed net investment income and
$7,470,028 to increase paid-in-capital, with an increase to accumulated net
realized loss on investments and foreign currency transactions of $13,317,797.
The calculation of net investment income per share in the financial highlights
table excludes these adjustments.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% of the first $500 million of
average net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, .50% of the next $5 billion, .47% of the next $5 billion, .455% of
the next $5 billion, and .43% thereafter. Prior to December 20, 1996, any
amount over $1.5 billion was based on .50%.
As part of the custodian contract between the subcustodian bank and Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc., the subcustodian bank has a lien on the securities of the
fund to the extent permitted by the funds investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At August 31, 1997, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
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 PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended August 31, 1997, fund expenses were reduced by $1,513,097
under expense offset arrangements with PFTC and brokerage service
arrangements. 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 has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
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 provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%
and 0.50% of the average net assets attributable to class A, class B and class
M shares, respectively.
For the year ended August 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $614,572 and $12,586 from the sale of
class A and class M shares, respectively and $2,614,780 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the year
ended August 31, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $32,022 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended August 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $5,668,229,539 and
$5,673,925,820, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At August 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
August 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 41,083,036 $ 511,651,526
- ------------------------------------------------------------
Shares
reinvested 11,857,051 147,992,055
- ------------------------------------------------------------
52,940,087 659,643,581
Shares
repurchased (57,452,226) (718,420,012)
- ------------------------------------------------------------
Net decrease (4,512,139) $ (58,776,431)
- ------------------------------------------------------------
Year ended
August 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 55,402,991 $ 671,648,164
- ------------------------------------------------------------
Shares
reinvested 12,135,654 146,443,562
- ------------------------------------------------------------
67,538,645 818,091,726
Shares
repurchased (59,864,900) (726,015,454)
- ------------------------------------------------------------
Net increase 7,673,745 $ 92,076,272
- ------------------------------------------------------------
Year ended
August 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 36,792,022 $ 456,322,400
- ------------------------------------------------------------
Shares
reinvested 3,842,481 47,809,690
- ------------------------------------------------------------
40,634,503 504,132,090
Shares
repurchased (36,335,915) (452,370,778)
- ------------------------------------------------------------
Net increase 4,298,588 $ 51,761,312
- ------------------------------------------------------------
Year ended
August 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 48,434,672 $ 585,570,532
- ------------------------------------------------------------
Shares
reinvested 3,197,705 38,477,510
- ------------------------------------------------------------
51,632,377 624,048,042
Shares
repurchased (24,145,722) (292,065,361)
- ------------------------------------------------------------
Net increase 27,486,655 $ 331,982,681
- ------------------------------------------------------------
Year ended
August 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,197,720 $ 14,859,955
- ------------------------------------------------------------
Shares
reinvested 109,633 1,368,263
- ------------------------------------------------------------
1,307,353 16,228,218
Shares
repurchased (787,953) (9,808,035)
- ------------------------------------------------------------
Net increase 519,400 $ 6,420,183
- ------------------------------------------------------------
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
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Note 5
Transactions with Affiliated Issuers
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
Affiliates cost cost Income Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Name of affiliate
- -----------------------------------------------------------------------------
Grand Union Co. $-- $ 5,444,840 $-- $ 2,969,569
PSF Holdings LLC -- -- -- 31,421,262
- -----------------------------------------------------------------------------
Totals $-- $ 5,444,840 $-- $34,390,831
</TABLE>
Federal tax information
(Unaudited)
The fund has designated 4.66% of the distributions from net investment
income as qualifying for the dividends received deduction for corporations.
The form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities 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 Total Return Fund
High Yield Trust +
Income Fund
Money Market 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 Exempt Money Market 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
State tax-free money market funds [SECTION MARK]
California, New York
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
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** 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.
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
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Edward H. D'Alelio
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
Rosemary H. Thomsen
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield Trust.
It may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. 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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
AN034 36573-014/324/2AC 10/97
