Putnam
High Yield
Trust
SEMIANNUAL REPORT
February 28, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "In our opinion, the typical high-yield issuer today has greater
access to capital markets and is less likely to default on payments of
principal and interest than in the junk-bond heyday of the previous
decade."
-- Jennifer E. Leichter, fund manager
Putnam High Yield Trust
* According to Lipper Analytical Services, Putnam High Yield Trust's
class A shares' total return ranked 41 out of 199 high current yield funds
for the year ended March 31, 1998, placing the fund in the top 21% in its
investment category.*
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
34 Financial statements
*Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. Their rankings vary over time
and do not reflect the effects of sales charges. For periods ended
3/31/98, class A shares ranked 31 out of 69 for 5-year and 13 out of 52
for 10-year performance. Class B shares ranked 55 out of 125 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:
As Putnam High Yield Trust closed the first half of its 1998 fiscal year, it
also marked the start of its third decade. From its very beginning on
Valentine's Day 1978, your fund has strictly adhered to a strategy of building
a portfolio of high-yield bonds through careful selection and in-depth credit
analysis. As the long-term performance figures on page 9 demonstrate, the
strategy has produced satisfying results indeed.
Successful high-yield bond investing requires special expertise, and over the
years Putnam Management has refined the process by building a staff of
experienced professionals and developing sophisticated research capabilities.
Past performance can never be taken as an indication of future results, of
course, but with Putnam's expertise behind it, we believe your fund can look
forward to many more years of satisfying results.
In the following report, fund managers Jennifer Leichter and Rosemary Thomsen
discuss first-half results and look at prospects for the fiscal year's second
half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 15, 1998
Report from the Fund Managers
Jennifer E. Leichter
Rosemary H. Thomsen
Solid economic growth and low interest rates set the stage for a booming
high-yield bond market, enabling Putnam High Yield Trust to maintain its
record of strong performance for the first half of its current fiscal year,
the six months ended February 28, 1998. Over the 12 months ended on that date,
its key holdings in sectors such as telecommunications and cable television
set the fund apart, enabling it to outpace nearly three quarters of its peers,
as tracked by Lipper Analytical Services. For details, see page 2.
For the semiannual period, the fund's class A shares provided a total return
of 7.33% at net asset value and 2.26% at public offering price. This
performance surpassed the Lehman Brothers Corporate Bond Index and First
Boston High Yield Bond Index, which returned 5.93% and 6.21%, respectively.
For more information, including returns on other classes of shares, please see
pages 9 and 10.
* RECORD NEW ISSUANCE, BRISK MERGER ACTIVITY DRIVE DEMAND
New issuance in the high-yield market has continued at a record-breaking pace,
driven primarily by favorable interest rates, business growth, and strong
investor demand. With more companies opting to buy rather than to build in an
effort to expand their businesses, many new issues were intended to finance
corporate acquisitions.
This merger and acquisition trend was evident in many sectors of your fund,
primarily telecommunications, cable, supermarket, and consumer product
sectors. For example, Signature Brands (maker of Mr. Coffee) and Coleman
Company both rose on the news that Sunbeam planned to acquire both companies.
While this holding, along with others discussed in this report, was viewed
favorably at the end of the fiscal period, all portfolio holdings are subject
to review and adjustment in accordance with the fund's investment strategy and
may vary in the future.
By all accounts, demand for high-yield bonds continues unabated. When economic
conditions are favorable and investor confidence is high, investors feel more
comfortable holding lower-rated bonds. The increased demand for these bonds
naturally pushes their prices higher and their yields lower in inverse
proportion. This appetite has led to a narrowing of the yield spread on below
investment-grade debt to within a few percentage points of comparable U.S.
Treasuries.
* OVERWEIGHTING IN TELECOMMUNICATIONS, CABLE BOOSTS RESULTS
The fund's strong performance is largely attributable to its flexible
investment strategy, which allows us to emphasize certain sectors in the
portfolio when we anticipate that they may become more prosperous. During the
period, our decision to overweight the telecommunications and cable TV sectors
and to underweight supermarkets kept your fund well ahead of the broader
market.
[GRAPHIC OMITTED: worm chart HIGH-YIELD BONDS VERSUS OTHER CORPORATE
SECURITIES]
HIGH-YIELD BONDS VERSUS OTHER CORPORATE SECURITIES
Plot Points read:
First Boston Lehman
HY Index Cp Bd Tr
2/28/94 15.70% 6.65%
2/28/95 16.37% 8.15%
2/28/96 35.16% 23.65%
2/28/97 52.21% 30.72%
2/28/98 71.21% 44.95%
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.
Telecommunications proved to be one of the best-performing sectors in the
high-yield universe, and your fund took advantage of opportunities offered by
such well-known telecommunications firms as NEXTEL Communications. The fund is
overweighted in this sector, and fund holdings such as Brooks Fiber Properties
(acquired by WorldCom) and Teleport Communications Group (acquired by AT&T, a
domestic and international long-distance provider) had a positive impact on
fund performance and have since been sold. We remain optimistic about this
sector's future, expecting that merger and acquisition activity will create
more upward pressure on prices and that global deregulations of the
telecommunications market will fuel steady investment going forward.
Cable TV companies also enjoyed strong performance, sparked by interest in the
delivery of Internet technology through conventional cable systems. Last year
Microsoft announced that it would invest $1 billion in Philadelphia cable
operator Comcast Corp. for an 11.5% stake in the company. Investors perceived
Microsoft's decision as a vote of confidence for the industry and an
indication of the strategic value of the operators' installed plant.
The market also reacted favorably to the decision by Tele-Communications (TCI)
to reduce leverage through the formation of partnerships. TCI is also
attempting to cluster cable systems, a move that reduces the capital required
to launch new services and upgrade networks. Cablevision Systems, a core fund
holding that operates in the greater New York City metropolitan area, a very
attractive market, is profiting from its efforts to upgrade infrastructure and
roll out new services.
Supermarkets underperformed the high-yield market during the period -- the
result of higher labor costs, tougher competition, and companies' inability to
raise prices in today's low-inflation environment. Furthermore, food
distributors are losing market share to drug and department stores that have
supermarket sections. The fund's minimal exposure here underscores our belief
that deciding where not to invest can be just as important as deciding where
to invest.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 10.4%
Cable Television 7.5%
Cellular communications 6.7%
Oil and gas 4.9%
Gaming 4.8%
Footnote reads:
*Based on net assets as of 2/28/98. Holdings will vary over time.
As a result of the tougher competitive environment, food stores are
consolidating to achieve profitable growth, and several high-profile mergers
were announced during the period. In one of the year's most noteworthy deals,
Ralph's Grocery Co., a fund holding, was purchased by Portland, Oregon-based
Fred Meyer, creating the fourth largest food retailer in the United States.
* OUTLOOK REMAINS FAVORABLE
In contrast to the excesses of the 1980s, today's high-yield market appears
to be driven by sound business logic. International competition, the
proliferation of new information technologies, deregulation, and consolidation
are changing the landscape as companies find new ways to increase revenues and
cut costs. In our opinion, the typical high-yield issuer today has greater
access to capital markets and is less likely to default on payments of
principal and interest than in the junk-bond heyday of the previous decade.
This thinking is supported by the fact that the default rate remains below
historical averages.
Repercussions from the financial and economic disruptions in Asia may pose
some risk to U.S. economic growth, though financial observers disagree as to
the extent. While the financial crisis could dampen earnings growth for some
large U.S. corporations, companies in the high-yield market typically have few
global operations. Asia's slower growth may actually have a positive effect on
the U.S. bond market by lowering global growth and inflation, thus
forestalling another interest-rate increase by the Federal Reserve Board.
With so many crosscurrents in the market, diligent credit research will be key
when it comes to evaluating the income and price appreciation potential of the
record number of bonds coming to market -- and we are confident that Putnam's
expertise in this area will continue to be reflected in your fund's results.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 2/28/98, there is no guarantee the fund will continue to hold
these securities in the future. The lower credit ratings of high-yield bonds
reflect a greater possibility that adverse changes in the economy or poor
performance by the issuers of these bonds may affect the issuer's ability to
pay principal and interest.
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 2/28/98
Class A Class B Class M
(inception date) (2/14/78) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 7.33% 2.26% 6.96% 1.96% 7.28% 3.82%
- ------------------------------------------------------------------------------
1 year 14.16 8.76 13.37 8.37 13.96 10.23
- ------------------------------------------------------------------------------
5 years 69.20 61.16 62.99 60.99 67.28 61.89
Annual average 11.09 10.01 10.26 9.99 10.84 10.11
- ------------------------------------------------------------------------------
10 years 190.53 176.74 168.08 168.08 182.25 173.1
Annual average 11.25 10.72 10.36 10.36 10.93 10.57
- ------------------------------------------------------------------------------
Life of fund 778.04 736.22 632.08 632.08 710.98 684.74
Average average 11.45 11.18 10.44 10.44 11.01 10.83
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/28/98
First Boston Consumer
High Yield Price
Bond Index* Index
- ------------------------------------------------------------------------------
6 months 6.21% 0.68%
- ------------------------------------------------------------------------------
1 year 12.48 1.44
- ------------------------------------------------------------------------------
5 years 71.21 13.14
Annual average 11.36 2.50
- ------------------------------------------------------------------------------
10 years 201.95 39.57
Annual average 11.69 3.39
- ------------------------------------------------------------------------------
Life of fund --* 157.39
Annual average --* 4.84
- ------------------------------------------------------------------------------
*Comparative return information for the First Boston High Yield Index is
not available.
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% and 3.25%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods 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 expenses 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 2/28/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.666 $0.617 $0.649
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.666 $0.617 $0.649
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
8/31/97 $12.89 $13.53 $12.84 $12.88 $13.31
- ------------------------------------------------------------------------------
2/28/98 13.15 13.81 13.10 13.15 13.59
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 9.86% 9.38% 9.16% 9.58% 9.27%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 9.39 8.94 8.67 9.16 8.85
- ------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 3/31/98
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 5.90% 0.85% 5.53% 0.53% 5.77% 2.34%
- ------------------------------------------------------------------------------
1 year 19.51 13.83 18.70 13.70 19.21 15.34
- ------------------------------------------------------------------------------
5 years 69.16 61.18 62.96 60.96 67.07 61.61
Annual average 11.09 10.02 10.26 9.99 10.81 10.08
- ------------------------------------------------------------------------------
10 years 195.02 181.09 172.29 172.29 186.47 177.10
Annual average 11.43 10.89 10.54 10.54 11.10 10.73
- ------------------------------------------------------------------------------
Life of class 792.54 750.03 643.76 643.76 723.56 696.92
Annual average 11.49 11.22 10.49 10.49 11.05 10.87
- ------------------------------------------------------------------------------
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 first page of
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 charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
The First Boston High Yield Bond Index* is a market-weighted index
including publicly traded bonds having a rating below BBB by Standard &
Poor's and Moody's. Indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or taxes. The
average quality of bonds included in this index will differ from the
average quality of bonds in which the fund customarily invests.
The Lehman Brothers Corporate Bond Index* is an index 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.
*Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an index.
WELCOME TO
www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name
or objective, use our glossary to decode investment terms ... and much
more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape or Microsoft Internet Explorer,
using an independent Internet service provider.
New features will be added to the site regularly.
So be sure to bookmark us at
http://www.putnaminv.com
Portfolio of investments owned
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (81.0%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.8%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 8,210,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 $ 8,887,325
14,370,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 14,872,931
2,645,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 2,757,413
1,554,437 Outdoor Systems, Inc. notes Ser. C, FRN, 8.531s, 2003 1,554,437
2,000,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 2,130,000
4,095,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 4,622,231
--------------
34,824,337
Aerospace and Defense (0.9%)
- ------------------------------------------------------------------------------------------------------------
4,470,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 4,570,575
6,125,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 6,584,375
5,560,000 BE Aerospace, Inc. 144A sr. sub. notes 8s, 2008 5,532,200
6,610,000 Burke Industries, Inc. company guaranty 10s, 2007 7,039,650
5,020,000 K & F Industries, Inc.144A sr. sub. notes 9 1/4s, 2007 5,245,900
5,450,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 5,940,500
2,155,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 2,225,038
5,370,000 United Defense Industries Inc. 144A sr. sub. notes 8 3/4s, 2007 5,477,400
--------------
42,615,638
Agriculture (0.4%)
- ------------------------------------------------------------------------------------------------------------
14,743,125 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 [2 DBL. DAGGERS] 15,922,575
Airlines (0.4%)
- ------------------------------------------------------------------------------------------------------------
10,405,000 Trans World Airlines 144A sr. notes 11 1/2s, 2004 11,003,288
6,890,000 Trans World Airlines, Inc. 144A notes 11 3/8s, 2006 6,924,450
--------------
17,927,738
Apparel (1.0%)
- ------------------------------------------------------------------------------------------------------------
5,825,000 GFSI, Inc. sr. disc. notes stepped-coupon Ser. B, zero %,
(11 3/8s, 9/15/04), 2009 ++ 6,232,750
2,820,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 2,932,800
13,300,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 13,499,500
12,585,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 13,340,100
5,000,000 Sun Apparel Inc Ser. B, 9 1/8s, 2004 4,956,250
5,850,000 William Carter Co. 144A sr. sub. notes 12s, 2008 6,259,500
--------------
47,220,900
Automotive Parts (0.7%)
- ------------------------------------------------------------------------------------------------------------
4,699,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 5,227,638
5,775,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 6,424,688
4,000,000 American Axel & Manufacturing Bank Term Loan B, FRN 8s, 2005 4,005,000
3,025,000 Cambridge Industries Inc. company guaranty Ser. B, 10 1/4s, 2007 3,115,750
4,720,000 Hayes Wheels International, Inc. company guaranty Ser. B,
9 1/8s, 2007 5,009,100
7,910,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 8,265,950
--------------
32,048,126
Banks (3.4%)
- ------------------------------------------------------------------------------------------------------------
5,155,000 Albank Capital Trust 144A company guaranty 9.27s, 2027 5,625,497
4,550,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 4,754,750
13,300,000 Consumers International 144A sr. notes 10 1/4s, 2005 14,596,750
10,000,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 9,750,000
10,115,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 11,407,697
10,480,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 11,737,600
1,780,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 1,895,700
13,120,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 14,434,099
6,620,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 6,570,350
13,475,000 Korea Development Bank bonds 7 1/8s, 2001 (Korea) 12,589,693
4,560,000 North Fork Capital Trust I company guaranty 8.7s, 2026 4,981,298
3,305,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 3,668,550
6,900,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 7,659,000
5,000,000 Onbank & Trust Co. company guaranty 9 1/4s, 2027 5,778,125
6,365,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 7,021,932
6,475,000 Provident Capital Trust company guaranty 8.6s, 2026 6,860,910
3,690,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 3,922,802
2,450,000 Riggs Capital Trust 144A company guaranty 8 7/8s, 2027 2,701,468
6,980,000 Sovereign Capital Trust company guaranty 9s, 2027 7,599,754
12,870,000 Sumitomo Bank Treasury Co. 144A Ser. A, FRB 9.4s,
2049 (Japan) 13,191,750
1,225,000 Webster Capital Trust I 144A bonds 9.36s, 2027 1,347,525
--------------
158,095,250
Basic Industrial Products (0.3%)
- ------------------------------------------------------------------------------------------------------------
4,250,000 Clark-Schwebel sr. notes 10 1/2s, 2006 4,685,625
4,670,000 Koppers Industries, Inc. 144A sr. sub. notes, 9 7/8s, 2007 4,915,175
4,450,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 4,605,750
--------------
14,206,550
Beverages (0.2%)
- ------------------------------------------------------------------------------------------------------------
10,520,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 10,888,200
Broadcasting (3.4%)
- ------------------------------------------------------------------------------------------------------------
8,380,000 Acme Television/Finance 144A sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 ++ 6,683,050
5,710,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 6,509,400
10,370,000 Australias Hldngs PTY Ltd. sr. disc, notes stepped-coupon
zero % (15s, 11/01/00), 2002 (Australia) ++ 5,185,000
2,555,791 Australis Media zero %, 2000 (Australia) 1,763,496
4,500,000 Azteca Holdings S.A. sr. notes 11s, 2002 4,719,375
9,740,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 ++ 7,645,900
5,165,000 Busse Broadcasting Corp. sr. notes 11 5/8s, 2000 5,578,200
17,935,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 ++ 13,271,900
7,660,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 8,043,000
3,800,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 3,876,000
6,914,690 Citadel Broadcasting Inc. sr. sub. notes 10 1/4s, 2007 7,606,159
23,030,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 23,836,050
1,875,000 Globo Communicacoes 144A company guaranty 10 1/2s,
2006 (Brazil) 1,863,281
4,760,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 5,128,900
3,250,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 3,347,500
5,125,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 5,483,750
4,890,000 Jacor Communications, Inc. sr. sub. notes 8s, 2010 4,877,775
2,250,000 Pegasus Communications Corp. sr. notes Ser. B, 9 5/8s, 2005 2,373,750
8,330,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 9,537,850
6,435,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 6,338,475
9,700,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 ++ 9,797,000
6,880,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 6,905,800
4,650,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 4,812,750
3,010,000 TV Azteca Sa De Cv sr. notes Ser. B, 10 1/2s, 2007 (Mexico) 3,220,700
--------------
158,405,061
Building Products (0.5%)
- ------------------------------------------------------------------------------------------------------------
7,480,000 Atrium Companies, Inc. 144A sub. notes 10 1/2s, 2006 7,928,800
6,475,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 6,750,188
9,105,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B, zero %
(12 3/4s, 6/1/99), 2004 ++ 8,331,075
--------------
23,010,063
Building and Construction (1.0%)
- ------------------------------------------------------------------------------------------------------------
4,530,000 American Architectural Products Corp. 144A sr. notes 11 3/4s, 2007 4,711,200
14,275,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 12,133,750
6,180,000 Presley Co. sr. notes 12 1/2s, 2001 5,948,250
16,577,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 19,229,320
5,000,000 Terex term loan B 8.18s, 2005 5,000,000
--------------
47,022,520
Buses (0.5%)
- ------------------------------------------------------------------------------------------------------------
23,500,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 ++ 21,502,500
Business Equipment and Services (0.9%)
- ------------------------------------------------------------------------------------------------------------
4,010,000 ATC Group Services Inc. 144A sr. sub. notes 12s, 2008 4,060,125
9,270,000 Axiohm Transactions Solutions 144A sr. sub. notes 9 3/4s, 2007 9,455,400
1,700,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 1,742,500
9,470,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 9,789,613
4,285,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 4,595,663
5,500,000 Outsourcing Solutions, Inc. 144A 8.621s, 2004 5,513,750
7,321,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 8,455,755
--------------
43,612,806
Cable Television (6.7%)
- ------------------------------------------------------------------------------------------------------------
6,665,000 Adelphia Communications Corp. sr. deb. 11 7/8s, 2004 7,231,525
24,955,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 27,138,563
5,653,357 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 5,879,491
14,600,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 3,504,000
161,747 Australis Media, Ltd. sr. disc. notes stepped-coupon 1 3/4s,
(15 3/4s 5/15/00), 2003 (Australia) ++ [2 DBL. DAGGERS] 40,437
10,350,000 Century Communications Corp. 144A sr. disc. notes zero %, 2008 4,398,750
16,370,000 Charter Communications International, Inc. disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 ++ 13,177,850
14,100,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 11,632,500
5,000,000 Cox Communications term loan B 8.255s, 2007 5,000,000
20,190,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 13,426,350
33,400,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 25,551,000
21,911,504 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 23,226,194
20,960,000 Fox Kids Worldwide Inc. 144A sr. discount notes
stepped-coupon zero % (10 1/4s, 11/1/02), 2007 ++ 12,785,600
26,950,000 Fox Kids Worldwide Inc. 144A sr. notes 9 1/4s, 2007 26,613,125
11,075,000 FrontierVision Holdings LP sr. disc. notes stepped-coupon
zero % (11 7/8s, 9/15/01), 2007 ++ 8,527,750
4,815,000 FrontierVision Operating Partners L.P. sr. sub. notes 11s, 2006 5,344,650
1,305,000 Heartland Wireless Communications, Inc. sr. notes Ser. B, 14s, 2004 492,638
11,870,000 Heartland Wireless Communications, Inc. sr. notes 13s, 2003 3,323,600
2,100,000 Heartland Wireless Communications, Inc. sr. notes Ser. D, 13s, 2003 420,000
65,155,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 ++ 52,124,000
23,478,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon zero %
(14 1/4s, 6/15/00), 2005 ++ 20,954,115
2,450,000 Northland Cable Television 144A sr. sub. notes 10 1/4s, 2007 2,621,500
8,510,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 9,105,700
4,800,000 RBS Participacoes S.A. 144A company guaranty 11s, 2007
(Brazil) 4,752,000
15,420,000 RCN Corp. 144A sr. disc. notes stepped-coupon zero %
(9.8s, 2/15/03), 2008 ++ 9,367,650
6,500,000 Telewest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 6,922,500
9,135,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 (Australia) ++ 6,211,800
--------------
309,773,288
Cellular Communications (6.0%)
- ------------------------------------------------------------------------------------------------------------
5,640,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) ++ 3,948,000
6,950,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 7,175,875
45,271,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 ++ 23,201,388
1,000,000 Dial Call Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (10 1/4s, 12/15/98), 2005 ++ 970,000
9,150,000 Dobson Communications Corp. 144A sr. notes, 11 3/4s, 2007 9,927,750
28,325,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 ++ 21,951,875
14,200,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 5,396,000
9,175,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 ++ 6,995,938
15,380,000 International Wireless Communications, Inc. sr. disc.
notes zero %, 2001 4,921,600
31,875,000 McCaw International Ltd sr. discount notes stepped-coupon
zero % (13s, 4/15/02), 2007 ++ 21,037,500
51,650,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 39,835,063
28,170,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (9.95s, 2/15/03), 2008 ++ 17,465,400
1,845,000 NEXTEL Communications sr. disc. notes stepped-coupon
zero % (9 3/4s, 10/31/02), 2007 ++ 1,153,125
82,390,000 NEXTEL Communications sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 ++ 53,141,550
60,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (9 3/4s, 2/15/99), 2004 ++ 57,300
8,000,000 Omnipoint Corp, 144A sr. notes FRN 8.875s, 2006 7,992,000
3,540,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 3,867,450
12,920,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 14,147,400
6,910,000 Powertel, Inc. sr. notes 11 1/8s, 2007 7,531,900
10,000,000 Powertel, Inc. 8 7/8s, 2001 9,987,500
3,370,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 3,496,375
6,000,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 6,630,000
4,785,000 Telesystem International Wireless Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 11/1/02), 2007
(Canada) ++ 2,918,850
--------------
273,749,839
Chemicals (1.9%)
- ------------------------------------------------------------------------------------------------------------
7,210,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 7,390,250
3,100,000 Great Lakes Carbon Corp. sr. notes 10s, 2006 3,363,500
11,990,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 12,439,625
5,500,000 Huntsman specialty bank loan notes Ser. BK, zero %, 2007 5,527,500
7,400,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 8,232,500
2,425,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s,
2007 (India) 2,437,125
4,790,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes 9 3/4s,
2007 (Switzerland) 4,969,625
6,565,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 6,663,475
2,492,469 Pioneer Americas Acquisition bank loan FRN 8.38s, 2006 2,523,626
4,000,000 Pioneer Americas Acquisition 144A bank loan notes FRN
8.428s, 2006 4,060,000
13,000,000 Polytama International notes 11 1/4s, 2007 5,850,000
12,000,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 ++ 7,500,000
7,230,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 6,434,700
10,282,000 Union Carbide Global Enterprises sr. sub. notes Ser. B, 12s, 2005 11,490,135
--------------
88,882,061
Computer Services (0.5%)
- ------------------------------------------------------------------------------------------------------------
17,685,000 Unisys Corp. sr. notes 11 3/4s, 2004 20,514,600
650,000 Unisys Corp. sr. notes 10 5/8s, 1999 659,750
--------------
21,174,350
Conglomerates (0.1%)
- ------------------------------------------------------------------------------------------------------------
3,641,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 3,654,654
Consumer Durable Goods (0.9%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 Doskcil Manufacturing Co 144A sr. sub. notes 10 1/8s, 2007 5,300,000
3,765,000 Foamex, L.P. company guaranty 9 7/8s, 2007 3,882,656
1,745,000 Hedstrom Holdings, Inc. stepped-coupon zero % (12s, 6/01/02),
2009 ++ 1,081,900
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 %
(15.0s, 11/15/99), 2004 ++ 8,600,000
3,420,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 3,112,200
6,000,000 Sealy Mattress Co. 144A 12s, 2008 5,640,000
4,470,000 Sealy Mattress Co. 144A sr. sub. notes 9 7/8s, 2007 4,749,375
1,500,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 1,620,000
--------------
40,344,631
Consumer Non Durables (0.1%)
- ------------------------------------------------------------------------------------------------------------
2,320,000 Amscan Holdings, Inc. 144A sr. sub. notes 9 7/8s, 2007 2,412,800
1,150,000 Packaged Ice, Inc. 144A sr. notes 9 3/4s, 2005 1,175,875
--------------
3,588,675
Consumer Products (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Twin Laboratories, Inc. company guaranty 10 1/4s, 2006 4,420,000
Consumer Services (0.6%)
- ------------------------------------------------------------------------------------------------------------
22,890,000 Coinmach Corp. sr. notes 11 3/4s, 2005 25,465,125
Cosmetics (0.2%)
- ------------------------------------------------------------------------------------------------------------
3,275,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 3,504,250
9,070,000 Renaissance Cosmetics company guaranty 11 3/4s, 2004 4,535,000
--------------
8,039,250
Electric Utilities (2.9%)
- ------------------------------------------------------------------------------------------------------------
8,215,000 AES Corp. sr. sub. notes 8 3/8s, 2007 8,399,838
8,000,000 Calpine Corp. sr. notes 10 1/2s, 2006 8,720,000
8,480,000 Espirito Santo Centrais 144A sr. notes 10s, 2007 (Brazil) 8,140,800
13,695,000 First PV Funding Corp. deb. Ser. 86A, 10.3s, 2014 14,497,253
2,379,000 First PV Funding Corp. deb. 10.15s, 2016 2,518,314
45,025,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 54,240,267
15,100,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 19,476,433
1,000,000 Niagara Mohawk Power Corp. med. term notes 9.99s, 2004 1,019,670
1,500,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 1,503,960
2,914,000 North Atlantic Energy Corp. 1st mtge. Ser. A, 9.05s, 2002 2,998,098
4,017,369 Northeast Utilities System notes Ser. A, 8.58s, 2006 4,026,971
9,529,194 Northeast Utilities System notes Ser. B, 8.38s, 2005 9,730,451
--------------
135,272,055
Electronic Components (0.9%)
- ------------------------------------------------------------------------------------------------------------
6,485,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 6,549,850
4,250,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 4,398,750
13,920,000 Motors and Gears Inc. sr. notes Ser. D, 10 3/4s, 2006 15,033,600
13,340,000 Zilog Inc. 144A sr. notes 9 1/2s, 2005 13,256,625
--------------
39,238,825
Electronics (1.0%)
- ------------------------------------------------------------------------------------------------------------
4,830,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 5,174,138
4,935,561 Cirent Semiconductor sr. sub. notes 10.22s, 2002 5,145,323
5,662,305 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 5,902,953
5,000,000 Details Holdings Corp. 144A sr. disc. notes stepped-coupon
zero % (12 1/2s, 11/15/02), 2007 ++ 3,175,000
2,900,000 Details, Inc. 144A sr. sub. notes 10s, 2005 3,059,500
1,400,000 Figgie International, Inc. sr. notes 9 7/8s, 1999 1,428,000
7,030,000 Flextronics International Ltd. 144A sr. sub. notes 8 3/4s, 2007 7,117,875
35,140,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/00), 2003
(Canada) ++ 12,650,400
--------------
43,653,189
Energy-Related (0.8%)
- ------------------------------------------------------------------------------------------------------------
4,600,000 CE Casecnan Water & Energy 144A sr. notes 11.45s, 2005
(Philippines) 4,784,000
7,950,000 CMS Energy Corp. pass through certificates 7s, 2005 7,606,004
18,680,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 17,185,600
5,295,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 5,268,525
1,247,932 Subic Power Corp. 144A sec. 9 1/2s, 2008 1,198,015
--------------
36,042,144
Entertainment (0.2%)
- ------------------------------------------------------------------------------------------------------------
8,345,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 8,845,700
Environmental Control (0.4%)
- ------------------------------------------------------------------------------------------------------------
8,220,000 Allied Waste Industries, Inc. company guaranty 10 1/4s, 2006 9,165,300
14,790,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/07), 2007 ++ 10,796,700
--------------
19,962,000
Financial Services (1.1%)
- ------------------------------------------------------------------------------------------------------------
14,200,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 13,401,676
3,300,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 3,194,202
6,610,000 Colonial Capital I 144A company guaranty 8.92s, 2027 7,112,980
4,865,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s, 2007
(Luxembourg) 4,694,725
3,900,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 4,251,000
6,430,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 6,751,500
3,550,000 Nationwide Credit Inc. 144A sr. notes 10 1/4s, 2008 3,656,500
8,830,000 Resource America Inc. 144A bonds 12s, 2004 9,227,350
--------------
52,289,933
Food and Beverages (1.4%)
- ------------------------------------------------------------------------------------------------------------
6,320,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 6,841,400
9,400,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 9,729,000
11,400,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 12,198,000
8,600,000 Doane Products Co. sr. notes 10 5/8s, 2006 9,460,000
2,525,000 Eagle Family Foods 144A sr. sub. notes 8 3/4s, 2008 2,537,625
6,590,000 Fleming Companies, Inc. company guaranty Ser. B, 10 5/8s,
2007 6,985,400
4,915,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s,
2004 5,283,625
6,300,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 ++ 4,315,500
4,525,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 4,819,125
--------------
62,169,675
Gaming (3.9%)
- ------------------------------------------------------------------------------------------------------------
13,740,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 14,907,900
1,350,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 1,552,500
6,620,000 Casino America, Inc. sr. notes 12 1/2s, 2003 7,331,650
17,480,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B, 13s,
2002 20,276,800
5,290,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 [2 DBL. DAGGERS] 5,739,650
1,950,000 Empress River Casino sr. notes 10 3/4s, 2002 2,125,500
17,645,000 Fitzgeralds Gaming Corp. 144A company guaranty 12 1/4s,
2004 17,821,450
18,050,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 19,855,000
5,570,000 Isle of Capri Black Hawk LLC 1st mtge. Ser. B, 13s, 2004 5,667,475
14,505,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 14,903,888
1,469,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 1,483,690
3,000,000 Penn National Gaming, Inc. 144A sr. notes 10 5/8s, 2004 3,142,500
11,250,000 Players International, Inc. sr. notes 10 7/8s, 2005 12,234,375
13,350,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 10,012,500
5,280,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 6,256,800
11,435,000 Trump A.C. 1st mtge. 11 1/4s, 2006 11,763,756
4,750,000 Trump A.C. 144A 1st mtge. 11 1/4s, 2006 4,892,500
14,931,000 Trump Castle Funding Corp. notes 11 1/2s, 2000 15,080,310
4,411,765 Venetian Casino term loan 8 7/8s, 2003 4,389,706
--------------
179,437,950
Health Care (3.5%)
- ------------------------------------------------------------------------------------------------------------
7,000,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 7,162,750
2,000,000 Columbia/HCA Healthcare Corp. notes 7s, 2007 1,837,100
2,350,000 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 2,212,737
13,340,000 Extendicare Inc. 144A sr. sub. notes 9.35s, 2007 (Canada) 13,873,600
6,425,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 6,826,563
3,965,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 4,163,250
16,630,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 17,336,775
14,180,000 Magellan Health Services, Inc. 144A sr. sub. notes 9s, 2008 14,286,350
7,160,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 6,819,900
21,310,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 22,482,050
24,820,000 Paragon Health Networks, Inc. 144A sr. sub. notes 9 1/2s, 2007 25,564,600
8,750,000 Paragon Health Networks Inc. term loan B 8 1/4s, 2004 8,771,875
5,400,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 5,751,000
12,860,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 13,438,700
11,000,000 Tenet Healthcare Corp. sr. notes 8s, 2005 11,330,000
--------------
161,857,250
Insurance and Finance (1.5%)
- ------------------------------------------------------------------------------------------------------------
8,500,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 8,500,000
4,000,000 Colombia Holdings sr. notes 10s, 1999 4,060,000
13,055,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 13,381,375
7,185,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 7,907,991
6,700,000 Local Financial Corp. 144A sr. notes 11s, 2004 7,152,250
4,160,000 Ocwen Financial Corp. notes 11 7/8s, 2003 4,721,600
15,600,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 16,342,560
4,050,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 4,248,936
2,110,000 Sampoerna International Finance Co. 144A company guaranty
8 3/8s, 2006 (Indonesia) 1,329,300
--------------
67,644,012
Lodging (0.4%)
- ------------------------------------------------------------------------------------------------------------
18,400,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 18,768,000
Media (0.1%)
- ------------------------------------------------------------------------------------------------------------
3,000,000 Katz Media Corp. company guaranty Ser. B, 10 1/2s, 2007 3,375,000
Medical Supplies and Devices (1.1%)
- ------------------------------------------------------------------------------------------------------------
11,215,000 ALARIS Medical Inc. company guaranty 9 3/4s, 2006 11,943,975
13,035,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 14,599,200
11,930,000 Fresenius Medical Care AG 144A company guaranty
7 7/8s, 2008 (Germany) 11,870,350
8,570,000 Imagyn Medical Technologies, Inc. company guaranty 12 1/2s,
2004 5,142,000
8,500,000 Wright Medical Technology, Inc. 144A notes Ser. C, 11 3/4s,
2000 8,457,500
--------------
52,013,025
Metals and Mining (0.5%)
- ------------------------------------------------------------------------------------------------------------
2,935,000 Acindar Industria Argentina de Aceros S.A. bonds 11 1/4s,
2004 (Argentina) 3,056,069
7,155,000 Continental Global Group sr. notes Ser. B, 11s, 2007 7,655,850
10,000,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 10,800,000
--------------
21,511,919
Motion Picture Distribution (0.4%)
- ------------------------------------------------------------------------------------------------------------
9,225,000 Cinemark USA, Inc. sr. sub. notes Ser. D 9 5/8s, 2008 9,709,313
4,320,000 Cinemark USA, Inc. sr. sub. notes Ser. B 9 5/8s, 2008 4,579,200
4,010,000 Panavision Inc. 144A sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 ++ 2,807,000
--------------
17,095,513
Oil and Gas (4.9%)
- ------------------------------------------------------------------------------------------------------------
6,240,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 6,583,200
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 8,712,500
3,500,000 Clark term loan 8 5/8s, 2004 3,517,500
6,340,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 6,340,000
6,810,000 Dailey International Inc. 144A sr. notes 9 1/2s, 2008 6,912,150
5,150,000 DI Industries Inc. sr. notes 8 7/8s, 2007 5,278,750
5,980,000 Gerrity Oil & Gas Corp. sr. sub. notes 11 3/4s, 2004 6,533,150
6,500,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 6,873,750
4,270,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 4,270,000
3,475,000 Petsec Energy, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 3,509,750
2,920,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 3,022,200
5,230,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 5,622,250
3,050,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 3,080,500
4,910,000 Southwest Royalties, Inc. 144A company guaranty 10 1/2s, 2004 4,419,000
105,050,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B,
zero % (13s, 6/15/99), 2002 ++ 88,242,000
31,870,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 32,308,213
17,087,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 19,137,440
3,540,000 Wiser Oil Co. company guaranty 9 1/2s, 2007 3,522,300
--------------
226,250,403
Packaging and Containers (1.6%)
- ------------------------------------------------------------------------------------------------------------
4,130,000 AEP Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 4,377,800
7,775,000 Huntsman Packaging Corp. 144A sr. sub. notes 9 1/8s, 2007 7,930,500
9,245,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 9,869,038
5,650,000 Radnor Holdings Corp. 144A sr. notes Ser. B, 10s, 2003 5,932,500
3,735,000 Radnor Holdings Inc. sr. notes 10s, 2003 3,959,100
14,215,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 14,232,769
6,000,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 6,360,000
1,900,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 1,976,000
13,517,971 Riverwood International Corp. bank loan notes FRN 8.016s, 2003 13,517,971
6,025,000 Vicap SA. 144A company guaranty 11 3/8s, 2007 (Mexico) 6,657,625
--------------
74,813,303
Paging (1.1%)
- ------------------------------------------------------------------------------------------------------------
17,990,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 18,439,750
13,875,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 16,164,375
3,630,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon
zero % (15s, 2/1/00), 2005 ++ 3,230,700
9,605,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 9,556,975
2,214,000 Pronet, Inc. sr. sub. notes 11 7/8s, 2005 2,385,585
--------------
49,777,385
Paper and Forest Products (2.3%)
- ------------------------------------------------------------------------------------------------------------
14,230,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s
(16s, 2/15/07), 2049 (Indonesia) ++ 10,743,650
6,000,000 Florida Coast Paper LLC notes 13 1/4s, 2007 5,820,000
13,150,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 14,070,500
9,385,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s, 2007
(Indonesia) 7,508,000
12,990,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
10 3/4s, 2007 (India) 10,327,050
16,800,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty 10s,
2004 (Indonesia) 12,936,000
24,345,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 23,979,825
9,250,000 Stone Container Corp. sr. notes 11 7/8s, 2016 9,990,000
8,550,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006 8,977,500
--------------
104,352,525
Pharmaceuticals (0.4%)
- ------------------------------------------------------------------------------------------------------------
14,850,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 15,722,438
3,965,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 4,074,038
--------------
19,796,476
Publishing (0.8%)
- ------------------------------------------------------------------------------------------------------------
2,550,000 Affinity Group Holdings sr. sub. notes 11 1/2s, 2003 2,709,375
12,880,000 Affinity Group Holdings sr. notes 11s, 2007 13,910,400
10,300,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 11,227,000
4,085,000 Hollinger International Publishing, Inc. company guaranty 9 1/4s, 2007 4,370,950
2,450,000 Perry-Judd 144A sr. sub. notes 10 5/8s, 2007 2,566,375
3,540,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 3,805,500
--------------
38,589,600
Railroads (0.3%)
- ------------------------------------------------------------------------------------------------------------
3,460,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 3,901,150
1,960,000 TFM S.A. de C.V. 144A company guaranty 10 1/4s, 2007
(Mexico) 2,038,400
13,545,000 TFM S.A. de C.V. 144A company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) ++ 8,939,700
--------------
14,879,250
REIT's (Real Estate Investment Trust) (0.3%)
- ------------------------------------------------------------------------------------------------------------
13,430,000 HMH Properties, Inc. company guaranty Ser. B, 8 7/8s, 2007
(Canada) 14,202,225
Recreation (0.2%)
- ------------------------------------------------------------------------------------------------------------
13,290,000 CLN Holdings, Inc. sr. disc. notes zero %, 2001 8,971,000
Restaurants (0.2%)
- ------------------------------------------------------------------------------------------------------------
8,000,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 8,700,000
Retail (1.2%)
- ------------------------------------------------------------------------------------------------------------
2,997,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 3,326,670
2,250,000 K mart Corp. deb. 13 1/2s, 2009 2,426,108
1,925,000 K mart Corp. deb. 7.95s, 2023 1,905,750
1,900,000 K mart Corp. deb. 7 3/4s, 2012 1,852,500
2,000,000 K mart Corp. med. term notes 9s, 2020 2,052,180
2,000,000 K mart Corp. med. term notes 8.96s, 2019 2,043,660
700,000 K mart Corp. med. term notes 8.85s, 2011 742,623
5,000,000 K mart Corp. med. term notes 8.13s, 2003 5,125,550
1,000,000 K mart Corp. med. term notes 8s, 2001 1,017,360
2,100,000 K mart Corp. med. term notes 7.84s, 2002 2,125,725
3,000,000 K mart Corp. med. term notes 7.82s, 2002 3,034,770
3,000,000 K mart Corp. med. term notes 7.77s, 2002 3,029,400
600,000 K mart Corp. med. term notes 7.76s, 2002 605,658
400,000 K mart Corp. med. term notes 7.74s, 2002 403,480
1,425,000 K mart Corp. med. term notes 7.72s, 2002 1,436,372
2,000,000 K mart Corp. med. term notes 7.47s, 2002 1,997,440
25,114,290 K mart Corp. zero %, 1999 8,695,823
8,945,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 9,571,150
3,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 3,180,000
--------------
54,572,219
Satellite Services (3.1%)
- ------------------------------------------------------------------------------------------------------------
2,198,577 Direct Sat 1 144A notes 8 1/4s, 2001 2,176,592
2,396,897 Echostar I 144A notes 8 1/4s, 2001 2,372,929
30,880,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 ++ 27,328,800
8,200,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 6,068,000
1,545,000 Esat Telecom Group PLC sr. notes stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 (Ireland) ++ 1,143,300
6,135,000 Globalstar L.P. Capital sr. notes 11 3/8s, 2004 6,319,050
40,555,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 33,660,650
250,000 ICG Services Inc. 144A sr. disc. notes stepped-coupon zero %
(10s, 2/15/03), 2008 ++ 155,000
14,310,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 16,277,625
7,270,000 Iridium LLC/Capital Corp. company guaranty Ser. A, 13s, 2005 7,915,213
1,760,000 Iridium LLC/Capital Corp. 144A sr. notes 11 1/4s, 2005 1,804,000
14,060,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 15,887,800
6,610,000 Pratama Datakom Asia BV 144A company guaranty 12 3/4s, 2005 3,569,400
7,330,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004
(Mexico) 7,476,600
11,000,000 Satelites Mexicanos S.A. de C.V. 144A company guaranty
FRB 9.43s, 2004 (Mexico) 10,986,250
--------------
143,141,209
Semiconductors (0.9%)
- ------------------------------------------------------------------------------------------------------------
9,105,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 9,537,488
20,086,635 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 22,296,165
8,705,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 9,140,250
390,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 409,500
--------------
41,383,403
Shipping (0.3%)
- ------------------------------------------------------------------------------------------------------------
8,040,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 8,964,600
3,700,000 Pegasus Shipping 144A company guaranty 11 7/8s, 2004 3,737,000
--------------
12,701,600
Steel (0.3%)
- ------------------------------------------------------------------------------------------------------------
14,620,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 14,766,200
Supermarkets (0.9%)
- ------------------------------------------------------------------------------------------------------------
3,805,000 Food 4 Less Supermarkets, Inc. deb. stepped-coupon zero %
(13 5/8s, 6/15/00), 2005 ++ 3,538,650
13,000,000 Jitney-Jungle Stores company guaranty 12s, 2006 14,787,500
3,000,000 Ralphs Grocery Co. company guaranty 10.45s, 2004 3,412,500
12,850,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 14,649,000
3,975,000 Star Markets Co. sr. sub. notes 13s, 2004 4,511,625
--------------
40,899,275
Telecommunications (7.4%)
- ------------------------------------------------------------------------------------------------------------
905,000 American Communication Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 717,213
4,500,000 American Communications Services, Inc. sr. disc. notes
stepped-coupon zero % (13s, 11/1/00), 2005 ++ 3,802,500
12,000,000 Barak ITC 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) ++ 7,050,000
3,680,000 Consorcio Ecuatoriano notes 14s, 2002 (Ecuador) 3,827,200
7,575,000 Econophone Inc. company guaranty 13 1/2s, 2007 8,711,250
7,640,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 8,308,500
5,810,000 Facilicom International 144A sr. notes 10 1/2s, 2008 5,824,525
5,475,000 Focal Communications Corp. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 2/15/03), 2008 ++ 3,011,250
8,180,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 9,161,600
4,825,000 GST Equipment Funding sr. notes 13 1/4s, 2007 5,717,625
36,675,000 GST Telecommunications,Inc. company guaranty
stepped-coupon zero % (13 7/8s, 1/15/00), 2005 ++ 29,523,375
6,665,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 4,932,100
17,230,000 Hyperion Telecommunications , Inc. sr. notes Ser. B, 12 1/4s, 2004 19,469,900
9,255,000 ITC Deltacom, Inc. sr. notes 11s, 2007 10,319,325
20,790,000 Intercel, Inc. sr. disc. notes stepped-coupon zero % (12s, 2/1/01),
2006 ++ 16,216,200
22,000,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 1/4s, 7/15/02), 2007 ++ 16,170,000
10,410,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 7/8s, 2007 11,008,575
10,950,000 Intermedia Communications, Inc. 144A sr. notes 8 1/2s, 2008 11,374,313
1,800,000 Ionica PLC sr. notes 13 1/2s, 2006 (United Kingdom) 1,440,000
5,150,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 5,677,875
3,900,000 MetroNet Communications Corp. sr. notes 12s, 2007 (Canada) 4,514,250
4,920,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) ++ 3,198,000
5,945,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) ++ 4,161,500
4,450,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 4,494,500
2,040,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/02), 2007 (Poland) ++ 1,356,600
2,800,000 Nextlink Communications sr. notes 12 1/2s, 2006 3,220,000
6,420,000 Qwest Communications International Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 ++ 4,445,850
15,400,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 17,556,000
8,200,000 RSL Communications, Ltd. 144A sr. disc. notes stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 ++ 4,991,750
5,470,000 RSL Communications, Ltd. 144A sr. notes 9 1/8s, 2008 5,442,650
25,410,000 Teligent, Inc. 144A sr. disc. notes stepped-coupon zero %
(11 1/2s, 3/1/03), 2008 ++ 13,911,975
18,570,000 Teligent, Inc. sr. notes 11 1/2s, 2007 19,080,675
15,575,000 21st Century Telecom Group 144A sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 ++ 8,566,250
4,540,000 Vialog Corp. 144A company guaranty 12 3/4s, 2001 4,630,800
12,968,000 WinStar Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 10,633,760
13,960,000 WinStar Communications. Inc. 144A sr. sub. notes 15s, 2007 18,706,400
8,905,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 10,240,750
18,500,000 United Intl Hldgs Inc. stepped-coupon zero %
(10 3/4s, 2/15/03), 2008 ++ 11,215,625
9,962,000 USN Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14 5/8s, 8/15/00), 2004 ++ 7,919,790
665,000 Wireless One, Inc. sr. notes 13s, 2003 186,200
--------------
340,736,651
Telephone Services (2.1%)
- ------------------------------------------------------------------------------------------------------------
9,165,000 America Communication Services, Inc. sr. notes 13 3/4s, 2007 11,089,650
11,470,000 BTI Telecom Corp. 144A sr. notes 10 1/2s, 2007 12,158,200
19,490,000 Econophone Inc. 144A sr. disc. notes stepped-coupon zero %
(11s, 2/15/03), 2008 ++ 11,499,100
15,395,000 Flag Limited 144A sr. notes 8 1/4s, 2008 (Bermuda) 15,664,413
220,000 FWT, Inc. 144A sr. sub. notes 9 7/8s, 2007 202,400
2,400,000 Globo Communicacoes 144A company guaranty 10 1/2s, 2006
(Brazil) 2,385,000
17,335,000 Ionica Group PLC sr. disc. notes stepped-coupon zero %
(15s, 5/1/02), 2007 (United Kingdom) ++ 6,934,000
10,100,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 7,650,750
3,310,000 MGC Communications, Inc. 144A sr. notes 13s, 2004 3,326,550
21,750,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 ++ 14,137,500
5,640,000 Transtel S.A. 144A pass through certificates 12 1/2s, 2007
(Colombia) 5,322,750
7,410,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(15s, 1/15/00), 2005 ++ 6,391,125
--------------
96,761,438
Textiles (0.8%)
- ------------------------------------------------------------------------------------------------------------
3,575,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 3,896,750
8,540,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 8,710,800
3,210,000 Polymer Group, Inc. company guaranty 144A, 8 3/4s, 2008 3,210,000
5,926,000 Polysindo International Eka company guaranty 13s, 2001
(Indonesia) 3,733,380
4,270,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 2,604,700
5,200,000 Polysindo International Finance company guaranty 9 3/8s,
2007 (Indonesia) 2,912,000
5,000,000 PT Polysindo Eka Perkasa notes zero %, 1998 (Indonesia) 4,306,250
3,000,000 PT Polysindo Eka Perkasa notes zero %, 1998 (Indonesia) 2,703,750
5,730,000 Worldtex, Inc. 144A sr. notes 9 5/8s, 2007 5,944,875
--------------
38,022,505
Transportation (0.3%)
- ------------------------------------------------------------------------------------------------------------
12,430,000 Kitty Hawk, Inc. 144A sr. notes 9.95s, 2004 12,989,350
--------------
Total Corporate Bonds and Notes (cost $3,630,663,136) $3,721,876,344
PREFERRED STOCKS (8.6%) *
NUMBER OF SHARES VALUE
Apparel (--%)
- ------------------------------------------------------------------------------------------------------------
2,462 Anvil Holdings Ser. B, $3.25 $ 59,088
Banks (1.1%)
- ------------------------------------------------------------------------------------------------------------
425,500 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 11,754,438
170,000 California FederaL Bankcorp, Inc. Ser. B, $11.50 pfd. 19,125,000
296,110 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 15,027,583
21,325 Chevy Chase Savings Bank $3.25 pfd. 634,419
4,105 CSBI Capital Trust I 144A 11.75% pfd. 4,351,300
--------------
50,892,740
Broadcasting (1.4%)
- ------------------------------------------------------------------------------------------------------------
56,374 Capstar Broadcasting Inc. $12.00 pfd. 6,539,384
108,309 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. [2 DBL. DAGGERS] 13,105,389
4,840 Granite Broadcasting 144A 12.75% pfd. [2 DBL. DAGGERS] 5,674,900
160,713 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 18,964,134
18,463 Spanish Broadcasting Systems 14.25% cum. pfd. [2 DBL. DAGGERS] 19,847,725
--------------
64,131,532
Building and Construction (0.1%)
- ------------------------------------------------------------------------------------------------------------
89,800 Brand Scaaffold Services, Inc. 144A $3.625 cum. pfd. 3,018,447
Cable Television (0.8%)
- ------------------------------------------------------------------------------------------------------------
240,134 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. cum. pfd. [2 DBL. DAGGERS] 27,675,444
8,693 NTL Inc. 144A Ser. B, 13.0% pfd. [2 DBL. DAGGERS] 10,170,810
--------------
37,846,254
Cellular Communications (0.7%)
- ------------------------------------------------------------------------------------------------------------
7,900 Dobson Communications 144A $12.25 pfd. [2 DBL. DAGGERS] 8,176,500
24,505 NEXTEL Communications, Inc. 144A Ser. E, $11.125 pfd. [2 DBL. DAGGERS] 25,301,413
--------------
33,477,913
Cosmetics (--%)
- ------------------------------------------------------------------------------------------------------------
5,252 Renaissance Cosmetics Inc. 14.0% pfd. [2 DBL. DAGGERS] 525,200
Electric Utilities (0.3%)
- ------------------------------------------------------------------------------------------------------------
114,967 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 12,646,370
99,759 Public Service Co. of New Hampshire $2.65 1st mtge. pfd. 2,593,734
--------------
15,240,104
Entertainment (--%)
- ------------------------------------------------------------------------------------------------------------
131 Time Warner Inc. Ser. M, 10.25% pfd. 148,849
Food and Beverages (0.3%)
- ------------------------------------------------------------------------------------------------------------
240,000 Doane Products Co. $14.25 pfd. 9,360,000
68,900 Nebco Evans Holding $11.25 pfd. [2 DBL. DAGGERS] 6,890,000
--------------
16,250,000
Health Care (0.3%)
- ------------------------------------------------------------------------------------------------------------
11,120 Fresenius Medical Care AG Ser. D, $9.00 pfd., (Germany) 11,898,400
Insurance and Finance (0.1%)
- ------------------------------------------------------------------------------------------------------------
130,000 CGA Group Ltd., 144A Ser. A, 13.75% pfd. [2 DBL. DAGGERS] 3,510,000
Motion Picture Distribution (0.2%)
- ------------------------------------------------------------------------------------------------------------
196,000 Diva Systems Corp. Ser. C, $6.00 pfd. 2,548,000
438,126 Diva Systems Corp., $6.00 pfd. 5,695,638
--------------
8,243,638
Publishing (0.1%)
- ------------------------------------------------------------------------------------------------------------
142,780 Von Hoffman Corp. 144A $13.50 pfd. 4,818,825
Restaurants (0.1%)
- ------------------------------------------------------------------------------------------------------------
136,279 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 3,679,533
Satellite Services (--%)
- ------------------------------------------------------------------------------------------------------------
190 Echostar Communications, Inc. $12.125 pfd. 211,375
Supermarkets (0.1%)
- ------------------------------------------------------------------------------------------------------------
24,000 Jitney-Jungle Stores 144A Ser. A, $4.95 sr. exchange pfd. 3,744,000
Telecommunications (3.0%)
- ------------------------------------------------------------------------------------------------------------
5,613 American Communications Services $12.75 pfd. [2 DBL. DAGGERS] 6,623,340
5,276 Hyperion Telecommunications Ser. B, $12.875 pfd. [2 DBL. DAGGERS] 5,975,070
7,337 ICG Holdings, Inc., 144A 14.0% pfd. [2 DBL. DAGGERS] 9,024,510
13,806 Intermedia Communication Ser. B, 13.50% pfd. 16,912,350
19,532 IXC Communications, Inc. 12.50% pfd. [2 DBL. DAGGERS] 23,438,400
24,946 NEXTEL Communications, Inc. Ser. D, $13.00 cum. pfd. [2 DBL. DAGGERS] 28,937,360
423,715 Nextlink Communications, Inc. 144A $7.00 cum. pfd. 26,058,473
2,659 Pegasus Communications Corp. Ser. A, $12.75 cum. pfd. 2,951,490
13,340 WinStar Communications. Inc. 144A $14.25 cum. pfd. [2 DBL. DAGGERS] 16,141,400
--------------
136,062,393
--------------
Total Preferred Stocks (cost $349,159,378) $ 393,758,291
UNITS (3.2%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
17,760 Allegiance Telephone, Inc 144A units stepped-coupon zero %
(11 3/4s, 2/15/03), 2008 ++ $ 10,034,400
21,510 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/03), 2003 (Australia) ++ 5,377,500
11,495 Club Regina, Inc. 144A units 13s, 2004 11,782,375
8,595 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 6,704,100
2,975 Concentric Network Corp. units 12 3/4s, 2007 3,421,250
8,965 Conecel Holdings 144A units 14s, 2000 9,592,550
25,608 Diva Systems Corp. 144A units stepped-coupon zero %
(13s, 5/15/01), 2006 ++ 14,020,380
17,430 DTI Holdings Inc. units stepped-coupon zero %
(12 1/2s, 3/1/03), 2008 ++ 9,455,775
21,670 KMC Telecommunications 144A units stepped-coupon zero %
(12 1/2s, 2/15/03), 2008 ++ 12,351,900
21,170 Knology Holdings Inc. units stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 ++ 11,855,200
3,675 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 1,966,125
2,000 Signature Brands USA Inc. units 13s, 2002 2,160,000
11,530 Transam Refinance, Inc. 144A units 16s, 2003 12,106,500
2,340 21st Century Telecom Group 144A units cum. pfd. zero % ,
2008 [2 DBL. DAGGERS] 2,457,000
6,330 WAM!NET, Inc. 144A units stepped-coupon zero %
(13 1/4s, 3/1/02), 2005 ++ 3,861,300
18,585 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 2,787,750
13,345 XCL Ltd units sr. sec. notes 13 1/2s, 2004 17,348,500
63,091 XCL Ltd. units cum. pfd. 9.50% 8,201,830
--------------
Total Units (cost $148,283,697) $ 145,484,435
CONVERTIBLE BONDS AND NOTES (3.0%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
24,636,000 APP Global Finance Ltd. cv. bond zero %, 2012 $ 5,512,305
15,930,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 14,655,600
5,300,000 Argosy Gaming cv. sub. notes 12s, 2001 4,889,250
5,500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 4,908,750
28,400,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 19,028,000
3,900,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 ++ 5,343,000
11,350,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 10,285,938
9,000,000 Lam Research Corp. 144a cv. sub. notes 5s, 2002 7,582,500
4,220,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 4,156,700
11,000,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 10,587,500
7,840,000 Plolymax 144A cv. notes 2s, 2006 5,135,200
27,771,000 Pricellular Wireless Corp. 144A cv. sub. notes stepped-coupon
zero % (10 3/4s, 8/15/00), 2004 ++ 28,326,420
12,299,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 16,849,630
--------------
Total Convertible Bonds and Notes (cost $114,727,685) $ 137,260,793
COMMON STOCKS (2.1%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
3,000 AmeriKing, Inc. + $ 150,000
6,570 Axia Holding Inc. 144A + 525,600
100,000 BE Aerospace, Inc. + 2,943,750
1,663,637 Capstar Broadcasting Partners + 1,996,364
400,000 Casino America, Inc. + 1,150,000
258,760 CellNet Data Systems, Inc. + 2,264,150
100,000 Clearnet Communications, Inc. Class A, (Canada) + 1,481,250
83,000 Colorado Gaming & Entertainment Co. + 415,000
95,770 Crompton & Knowles Corp. 2,885,071
229,500 Exide Corp. 5,092,031
8,866 Finlay Enterprises, Inc. 209,459
110,000 French Fragrances Inc. + 1,375,000
1,383,770 Grand Union Co. (acquired 8/18/95, cost $71,749,527)+ [DBL. DAGGERS]
[SECTION MARK] 1,427,013
105,834 Hedstrom Holdings, Inc. 144A 145,522
250,000 Lady Luck Gaming Corp. (acquired 7/24/97, cost $375,000)+[DBL. DAGGERS] 234,375
250,000 NBTY, Inc. 11,640,625
646,957 NEXTEL Communications, Inc. Class A + 19,125,666
6,105 Paging Do Brazil Holdings Co., LLC Class B 61
293 Pegasus Communications Corp. + 6,171
11,048 PMI Holdings Corp. 144A + 5,524,000
8,407 Premium Holdings (L.P.) 144A + 33,628
1,185,708 PSF Holdings LLC Class A +[SECTION MARK] 35,571,240
236,025 Specialty Foods Acquisition Corp. + 59,006
97,660 Terex Corp. Rights (expiration date 5/1/00) + 1,953,200
--------------
Total Common Stocks (cost $150,714,996) $ 96,208,182
FOREIGN GOVERNMENT BONDS AND NOTES (0.1%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
FRF 31,700,000 Ivory Coast -- FLIRB collaterized FRB 2s, 2049 ## $ 1,705,561
FRF 31,700,000 Ivory Coast -- PDI bonds FRB 1.9s, 2049 ## 1,965,952
--------------
Total Foreign Government Bonds and Notes
(cost $4,355,922) $ 3,671,513
WARRANTS (0.5%) *+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
265,000 Becker Gaming Corp. 144A 11/15/00 $ 2,650
136,500 Capital Gaming International, Inc. 2/1/99 5,460
45,271 Cellnet Data Systems, Inc. 9/15/07 905,420
130,000 CGA Group Ltd. 144A 1/1/04 1,300
17,000 County Seat Holdings, Inc. 10/15/98 340
4,650 Diva Systems Corp. 5/15/06 1,220,625
8,400 Econophone Inc. 144A 7/15/07 420,000
8,200 Esat Holdings, Inc. (Ireland) 2/1/07 287,000
96,271 Fitzgeralds Gaming Co. 12/19/98 963
6,135 Globalstar Telecom 144A 2/15/04 797,550
71,220 Heartland Wireless Communications Inc. 144A 4/15/00 712
19,455 Hyperion Telecommunications 144A 4/15/01 1,167,300
251,394 Intelcom Group 144A 10/15/05 5,027,880
14,200 Interact Systems Inc. 8/1/03 3,550
15,924 Intermedia Communications 6/1/00 2,372,676
7,470 International Wireless Communications
Holdings 144A 8/15/01 209,160
16,520 Iridium World Com 144A 7/15/05 2,973,600
41,270 McCaw International Ltd. 4/15/07 12,381
3,900 Metronet Communications 144A 8/15/07 15,600
3,310 MGC communications, Inc. 144A 10/1/04 115,850
12,550 Orion Network Systems 1/15/07 125,500
72,220 Pagemart, Inc. 144A 12/31/03 541,650
46,097 Petracom Holdings, Inc. 9/30/99 334,203
76,800 Powertel, Inc. 2/1/06 576,000
44,150 President Riverboat Casinos, Inc. 9/30/99 22,075
15,400 RSL Communications Ltd. 11/15/06 1,493,800
9,115 Spanish Broadcasting Systems 144A 6/30/99 1,823,000
6,375 Sterling Chemicals Holdings 8/15/08 181,688
38,235 UIH Australia/Pacific, Inc. 144A 5/15/06 458,820
6,460 Urohealth Systems Inc. 4/10/04 65
99,620 USN Communications Inc. 10/15/04 2,191,640
4,540 Vialog Corp. 11/15/01 272,400
23,250 Wireless One, Inc. 10/19/00 233
403 Wright Medical Technology, Inc. 144A 6/30/03 40,275
--------------
Total Warrants (cost $13,547,975) $ 23,601,366
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,411,452,789) *** 4,521,860,924
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,593,184,758.
*** The aggregate identified cost on a tax basis is $4,419,594,678, resulting in gross unrealized
appreciation and depreciation of $411,158,242 and $308,891,996, respectively, or net unrealized
appreciation of $102,266,246.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the new interest rate to be paid
and the date the fund will begin receiving interest at this rate.
# A portion of the income will be received in additional securities.
[DBL DAGGER] Restricted, excluding 144A securities, as to public resale. The total market value of
restricted securities held at February 28, 1998 was $1,661,388 or less than 0.1% of net assets.
[2 DBL DAGGERS] Income may be received in cash or additional securities at the discretion of the issuer.
## When-issued securities (Note 1).
[SECTIONMARK] 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 current interest
rates shown at February 28, 1998, which are subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
February 28, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,411,452,789) (Note 1) $4,521,860,924
- ---------------------------------------------------------------------------------------------------
Cash 27,163,098
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 72,113,189
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,072,727
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 63,012,231
- ---------------------------------------------------------------------------------------------------
Total assets 4,686,222,169
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 232,326
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 77,294,860
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,543,594
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 6,056,735
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 888,205
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 60,867
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,734
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,308,151
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 64,748
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 582,191
- ---------------------------------------------------------------------------------------------------
Total liabilities 93,037,411
- ---------------------------------------------------------------------------------------------------
Net assets $4,593,184,758
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 4,858,191,799
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (411,203)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Notes 1 and 3) (375,003,973)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 110,408,135
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,593,184,758
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,329,162,716 divided by 253,082,948 shares) $13.15
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $13.15)* $13.81
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,240,332,196 divided by 94,664,631 shares)** $13.10
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($23,689,846 divided by 1,801,996 shares) $13.15
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $13.15)* $13.59
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended February 28, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $214,736,526
- --------------------------------------------------------------------------------------------------
Dividends 19,024,182
- --------------------------------------------------------------------------------------------------
Total investment income 233,760,708
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 12,184,976
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,293,091
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 41,915
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 17,180
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 4,094,816
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,140,774
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 58,453
- --------------------------------------------------------------------------------------------------
Reports to shareholders 64,726
- --------------------------------------------------------------------------------------------------
Auditing 75,651
- --------------------------------------------------------------------------------------------------
Legal 116,995
- --------------------------------------------------------------------------------------------------
Postage 467,810
- --------------------------------------------------------------------------------------------------
Other 213,733
- --------------------------------------------------------------------------------------------------
Total expenses 26,770,120
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (947,900)
- --------------------------------------------------------------------------------------------------
Net expenses 25,822,220
- --------------------------------------------------------------------------------------------------
Net investment income 207,938,488
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1, 3 and 5)
(including realized loss of $9,979,727 on sales of
investments in affiliated issuers) 59,084,519
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (73,760)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 3,893
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 51,316,557
- --------------------------------------------------------------------------------------------------
Net gain on investments 110,331,209
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $318,269,697
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
February 28 August 31
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 207,938,488 $ 415,520,942
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 59,010,759 104,981,756
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 51,320,450 154,442,633
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 318,269,697 674,945,331
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (167,541,111) (292,861,056)
- ----------------------------------------------------------------------------------------------------------------------
Class B (58,453,760) (101,661,231)
- ----------------------------------------------------------------------------------------------------------------------
Class M (1,166,712) (2,044,553)
- ----------------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (8,625,499) (594,936)
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 82,482,615 277,783,555
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 4,510,702,143 4,232,918,588
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed net
investment income of $411,203 and
$18,811,892, respectively) $4,593,184,758 $4,510,702,143
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share February 28
operating performance (Unaudited) Year ended August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.89 $12.11 $12.01 $12.06 $13.01 $12.76
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .61 1.20 1.16(c) 1.22 1.27 1.46
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .32 .72 .11 (.01) (.93) .28
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .93 1.92 1.27 1.21 .34 1.74
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.67) (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 (.67) (1.14) (1.17) (1.26) (1.29) (1.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.15 $12.89 $12.11 $12.01 $12.06 $13.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.33* 16.60 11.08 10.76 2.46 14.50
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,329,163 $3,259,440 $3,115,546 $2,997,467 $2,885,748 $3,189,948
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .49* .96 .96 .95 .94 .92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.66* 9.54 9.57 10.27 9.82 11.27
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.11* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 March 1, 1993+
operating performance (Unaudited) Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.84 $12.07 $11.97 $12.03 $12.99 $12.84
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .56 1.10 1.07(c) 1.09 1.18 .62
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .32 .72 .11 .02 (.94) .23
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .88 1.82 1.18 1.11 .24 .85
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.62) (1.05) (1.06) (1.13) (1.20) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.02) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.62) (1.05) (1.08) (1.17) (1.20) (.70)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.10 $12.84 $12.07 $11.97 $12.03 $12.99
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 6.96* 15.71 10.28 9.88 1.66 6.80*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,240,332 $1,226,880 $1,100,757 $762,947 $535,002 $238,647
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86* 1.71 1.71 1.70 1.69 .85*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.28* 8.79 8.84 9.52 9.06 4.92*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.11* 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
- -------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 July 3, 1995+
operating performance (Unaudited) Year ended August 31 to August 31
- -------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $12.88 $12.10 $12.00 $11.92
- -------------------------------------------------------------------------------------------------------------------------
Investment activities
- -------------------------------------------------------------------------------------------------------------------------
Net investment income .60 1.16 1.14(c) .21(c)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .32 .73 .11 .07
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .92 1.89 1.25 .28
- -------------------------------------------------------------------------------------------------------------------------
Less distributions
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.65) (1.11) (1.13) (.19)
- -------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.01)
- -------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.02) --
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.65) (1.11) (1.15) (.20)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.15 $12.88 $12.10 $12.00
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.28* 16.33 10.88 2.38*
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $23,690 $24,382 $16,616 $964
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .74* 1.21 1.19 .20*
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.40* 9.29 9.45 1.65*
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.11* 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
February 28, 1998 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Trust ("the fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The fund seeks high current income by investing primarily
in high-yielding, lower-rated fixed-income securities constituting a portfolio
that Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc. believes does
not involve undue risk to income or principal.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.25% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the 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 certain debt obligations; 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
discount bonds, stepped-coupon bonds and payment in kind bonds are accreted
according to the yield-to-maturity basis. Any premium resulting from the
purchase of stepped-coupon securities is amortized on a yield-to-maturity
basis.
Securities purchased or sold on a when-issued 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 gains and losses are included with the
net realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign currencies
and the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies 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 current 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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the six months ended February 28, 1998, the
fund had no borrowings against the line of credit.
H) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, 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
I) 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. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% of the first $500 million of
average net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455%
of the next $5 billion, 0.44% of the next $5 billion and 0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended February 28, 1998, fund expenses were reduced by
$947,900 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.
Each Trustee of the fund receives an annual Trustee fee, of which $3,110 has
been allocated to the fund, 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 currently limit payment by the fund to an annual rate of 0.25%, 1.00%
and 0.75% of the average net assets attributable to class A, class B and class
M shares respectively.
For the six months ended February 28, 1998, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $188,960 and $1,350 from the sale
of class A and class M shares, respectively and $886,143 in contingent
deferred sales charges from redemptions of class B shares. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares. For
the six months ended February 28, 1998, Putnam Mutual Funds Corp., acting as
underwriter received $7,783 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended February 28, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$1,794,013,494 and $1,896,658,405 respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the identified
cost basis.
Note 4
Capital shares
At February 28, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
February 28, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 12,929,821 $169,469,567
- ------------------------------------------------------------
Shares
reinvested 6,518,103 85,076,946
- ------------------------------------------------------------
19,447,924 254,546,513
Shares
repurchased (19,161,148) (250,878,696)
- ------------------------------------------------------------
Net increase 286,776 $ 3,667,817
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Six months ended
February 28, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 5,316,254 $ 69,389,139
- ------------------------------------------------------------
Shares
reinvested 2,083,305 27,093,844
- ------------------------------------------------------------
7,399,559 96,482,983
Shares
repurchased (8,252,323) (107,591,900)
- ------------------------------------------------------------
Net decrease (852,764) $(11,108,917)
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
February 28, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 162,472 $ 2,123,379
- ------------------------------------------------------------
Shares
reinvested 55,445 723,293
- ------------------------------------------------------------
217,917 2,846,672
Shares
repurchased (308,223) (4,031,071)
- ------------------------------------------------------------
Net decrease (90,306) $(1,184,399)
- ------------------------------------------------------------
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
- ------------------------------------------------------------
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
Name of Affiliate cost cost Income Value
- ----------------------------------------------------------------------------
Grand Union Co. $-- 10,370,671 $-- $1,427,013
PSF Holdings LLC -- -- -- 35,571,240
- ----------------------------------------------------------------------------
Totals $-- 10,370,671 $-- 36,998,253
- ----------------------------------------------------------------------------
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 [DBL. DAGGERS]
OTC & Emerging Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
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
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGERS]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGERS]
High Yield Trust II
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 Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL. DAGGERS] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
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
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
- --------------------
SA034-41231 014/324/2AC 4/98
