Putnam
High Yield
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "In our opinion, the performance of high-yield bonds can potentially
continue to reward investors when coupled with the in-depth credit
research and careful selection we at Putnam can provide."
-- Jennifer E. Leichter, manager
Putnam High Yield Trust
* As reported in the September 1998 issue of Mutual Funds, "Junk
[high-yield bonds] isn't necessarily, well, as junky as you might think.
Many well-known companies carry the tag. Among them: Bethlehem Steel,
Borden, CBS, Northwest Airlines, Ryder, and Sports Authority."
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
34 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
An environment of deregulation and a continuing stream of mergers,
acquisitions, and new technology provided plenty of issuance for investors
seeking higher-yielding lower-rated bonds during the 12 months ended
August 31, 1998. Worldwide equity investors fleeing to the relative safety
of fixed-income investments added their own demand impetus. Together,
these factors helped mitigate the effects of market turbulence on Putnam
High Yield Trust's performance during the fiscal year that just ended.
Because they usually behave more like stocks than high-quality bonds, your
fund's holdings tended to share in the general rise of equities throughout
much of the period. Then, when a new wave of turbulence hit the world's
stock markets, they began acting more like other fixed-income securities,
which slowed their retreat. In the end, the fund closed the year with
performance somewhat behind last year's. Its long-term record looks
considerably better, though, as you will see in the tables that follow the
report from management.
In the report, the fund's management team discusses performance and
strategies during the year and takes a look at the fund's prospects as it
proceeds into its third decade of operation.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 21, 1998
Report from the Fund Managers
Jennifer E. Leichter
Gail S. Attridge
Today's high-yield market is being driven by many factors including
deregulation, new technology, and mergers and acquisitions. Putnam High
Yield Trust's performance during its fiscal year ended August 31, 1998,
reflected the opportunities created by these factors and the continuing
growth of this market.
For the 12 months ended August 31, 1998, your fund's class A shares
provided a total return of -1.75% at net asset value and -6.40% at public
offering price. For more information, including returns for other classes
of shares, please see pages 9 through 11.
* FAVORABLE ENVIRONMENT FOR HIGH-YIELD BONDS
Because the performance of high-yield bonds tends to reflect the strength
of the stock market to a greater extent than the performance of other
types of bonds, your fund benefited from the strength of both the stock
and bond markets during most of the fiscal year. Like stocks, the prices
of high-yield bonds are more sensitive to the outlook for the economy and
corporate earnings than to day-to-day interest-rate fluctuations. So while
high-quality bonds usually provide strong returns during recessions
because their prices rise as interest rates fall, high-yield bonds, like
stocks, may provide attractive returns during strong economic times. While
the U.S. stock market has experienced increased volatility since the end
of your fund's fiscal year, Putnam believes the fundamental background for
stocks and high-yield bonds remains favorable.
Early in the period, high-yield bonds were buoyed by a healthy bond market
in addition to the robust stock market. The favorable economic environment
also contributed to a high level of merger and acquisition activity. This
increased activity helped performance of the high-yield securities in
which your fund invests because it often resulted in the acquisition of
high-yield issuers by financially stronger corporations. Credit upgrades
for the high-yield debt frequently followed, along with higher bond
prices. Developments in key high-yield industries such as
telecommunications and cable television as well as several mergers and
acquisitions also helped your fund's performance.
During the period, a steady supply of high-yielding securities was
surpassed by an even stronger demand from insurance companies, pension
funds, and individual and foreign investors seeking the higher income
streams these bonds provide. Historically low long-term interest rates and
a flattening U.S. yield curve led to increased high-yield issuance levels
for most of early 1998.
* ASTUTE SECTOR DIVERSIFICATION INCREASES OPPORTUNITIES
Top-performing industries in the high-yield universe during your fund's
fiscal year included cable television, broadcasting, finance, and
telecommunications, which performed well based on very positive operating
results and high equity valuations.
[GRAPHIC OMITTED: worm chart HIGH-YIELD BONDS VERSUS OTHER BONDS]
HIGH-YIELD BONDS VERSUS OTHER BONDS
First Boston Lehman Brothers
High Yield Corporate Bond
Date Bond Index Index
8/31/92 0.00% 0.00%
8/31/93 15.77% 13.63%
8/31/94 19.96% 10.86%
8/31/95 35.80% 25.80%
8/31/96 49.58% 30.57%
8/31/97 72.66% 45.25%
8/31/98 75.18% 59.02%
Footnote reads:
Past performance if not indicative of future results. 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.
The telecommunications sector, now the largest in the high-yield universe,
experienced a number of positive factors during the period. First,
favorable regulatory developments improved the market positions of
competitive local exchange carriers (CLECs) and specialized mobile radio
operators including one of your fund's top holdings, NEXTEL
Communications. As with all portfolio holdings, in-depth credit research
is critical to determining the companies most likely to succeed within
their market niches. NEXTEL was one of the market's darlings, performing
well for your fund. The company continued to add subscribers to its
digital network at an extraordinary rate. While the securities discussed
in this report were viewed favorably at the end of the period, all
holdings are subject to review in accordance with the fund's investment
strategy and may vary in the future.
Another positive factor for the telecommunications sector was the fact
that commercial launches of these new technologies proceeded smoothly
throughout the year. Finally, merger and acquisition activity in the
sector continued at a healthy pace, led by WorldCom, Inc. A global
telecommunications company, WorldCom has established operations in more
than 50 countries encompassing the Americas, Europe, and the Asia-Pacific
region. WorldCom is a premier provider of facilities-based and fully
integrated local, long distance, international, and Internet services. Its
global networks provide end-to-end connectivity to more than 31,000
buildings worldwide. In November 1997, WorldCom announced a definitive
merger agreement with MCI Communications Corporation.
Teleport Communications Group is another example of a fund holding that
benefited from the merger and acquisition trend. Teleport was bought at a
premium by AT&T during the period. This successful CLEC provides local
phone service nationwide by using wireless and fiber-optic technologies to
compete with local phone companies. In the past, long-distance companies
have had to pay access charges to local phone companies in order to
connect to homes. With the acquisition of Teleport, AT&T can eliminate
those charges in many markets.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 15.7%
Cellular communications 6.9%
Broadcasting 6.3%
Telephone services 5.2%
Oil and gas 4.6%
Footnote reads:
*Based on net assets as of 8/31/98. Holdings will vary over time.
Your fund's holdings in the cable sector performed particularly well
during the fiscal year as the industry benefited from Microsoft's
billion-dollar investment in Philadelphia cable operator Comcast Corp.
Prior to this event, investors had perceived cable as a mature industry
that would gradually lose market share to satellite television. The
Microsoft investment changed this perception and raised awareness of the
industry's new role as the ideal Internet delivery vehicle. Also during
the period, AT&T announced plans to acquire TCI, another cable company.
The broadcasting sector was also fueled by fevered merger and acquisition
activity resulting from relaxation of the rules controlling the number of
stations operators can own. The new rules allow station operators to own
multiple stations in individual markets and to own a greater absolute
number of stations. By spreading the cost of administration and sales
across several stations, companies can reduce the cost of business and
improve their profit margins. This fact motivated a number of players to
expand rapidly over the course of your fund's fiscal year through
aggressive acquisition campaigns.
* CHANGING MARKET CONDITIONS MAY SIGNAL OPPORTUNITIES
While equity markets have been volatile recently, Putnam Management's
positive outlook for high-yield bonds remains intact. We view the
potential for changing market conditions with an opportunistic eye; bonds
often become mispriced when investors overreact to transitory events.
Because any shifts in the economy, albeit real or perceived, affect each
high-yield issuer differently, careful monitoring and research are
critical. An ongoing analysis of corporate cash flow and asset values for
each portfolio company, together with extensive portfolio diversification,
is the key to minimizing risk. We believe that Putnam's disciplined
management style will enable us to take advantage of any resulting
opportunities.
We anticipate that U.S. growth will continue to moderate with little
inflation thanks largely to Asian economic and currency weakness. Slowing
demand and increased exports from that region should help keep U.S. prices
down. We believe the underlying fundamentals and credit quality of the
high-yield market remain strong as does merger activity. Higher coupons --
the annual rate of interest paid on a bond -- have reduced new issuance
and default rates remain low.
We plan to continue to focus on diversification, on companies with little
exposure to Asia, and on securities with yields attractive relative to
their risk levels. We will continue to emphasize improving credits in the
telecommunications, broadcasting, finance, and health-care industries.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 8/31/98, 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 8/31/98
Class A Class B Class M
(inception date) (2/14/78) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year -1.75% -6.40% -2.42% -6.87% -1.94% -5.10%
- ------------------------------------------------------------------------------
5 years 44.40 37.52 39.11 37.35 42.76 38.12
Annual average 7.63 6.58 6.82 6.55 7.38 6.67
- ------------------------------------------------------------------------------
10 years 154.73 142.58 135.50 135.50 147.64 139.62
Annual average 9.80 9.27 8.94 8.94 9.49 9.13
- ------------------------------------------------------------------------------
Life of fund 703.72 665.43 567.90 567.90 641.31 617.32
Annual average 10.68 10.42 9.69 9.69 10.24 10.07
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/98
First Boston Consumer
High Yield Price
Bond Index* Index
- ------------------------------------------------------------------------------
1 year 1.46% 1.62%
- ------------------------------------------------------------------------------
5 years 51.31 12.85
Annual average 8.64 2.45
- ------------------------------------------------------------------------------
10 years 178.62 37.31
Annual average 10.79 3.22
- ------------------------------------------------------------------------------
Life of fund --* 159.78
Annual average --* 4.77
- ------------------------------------------------------------------------------
*Comparative return information for the First Boston High Yield Index is
not available.
Past performance is no assurance of future results. 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. 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of
a $10,000 investment since
8/31/88
First Boston
Fund's class A Consumer Price High Yield
Date shares at POP Index Index
8/31/88 9,525 10,000 10,000
8/31/89 10,330 10,465 10,898
8/31/90 9,547 11,104 10,209
8/31/91 11,691 11,444 12,992
8/31/92 14,673 11,776 15,904
8/31/93 16,801 12,100 18,412
8/31/94 17,213 12,423 19,077
8/31/95 19,065 12,739 21,597
8/31/96 21,176 13,161 23,789
8/31/97 24,691 13,385 27,459
8/31/98 $24,258 $13,731 $27,862
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $23,550 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares would have been
valued at $24,764 ($23,962 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 8/31/98
Class A Class B Class M
- ----------------------------------------------------------------------------
Distributions (number) 12 12 12
- ----------------------------------------------------------------------------
Income $1.291 $1.193 $1.256
- ----------------------------------------------------------------------------
Capital gains -- -- --
- ----------------------------------------------------------------------------
Total $1.291 $1.193 $1.256
- ----------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ----------------------------------------------------------------------------
8/31/97 $12.89 $13.53 $12.84 $12.88 $13.31
- ----------------------------------------------------------------------------
8/31/98 11.47 12.04 11.43 11.47 11.86
- ----------------------------------------------------------------------------
Current return (end of period)
- ----------------------------------------------------------------------------
Current dividend rate1 10.78% 10.26% 9.97% 10.46% 10.12%
- ----------------------------------------------------------------------------
Current 30-day SEC yield2 10.33 9.83 9.55 10.03 9.69
- ----------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (2/14/78) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year -6.19% -10.67% -6.85% -11.10% -6.37% -9.41%
- ------------------------------------------------------------------------------
5 years 41.49 34.72 36.38 34.66 39.85 35.27
Annual average 7.19 6.14 6.40 6.13 6.94 6.23
- ------------------------------------------------------------------------------
10 years 148.27 136.42 129.45 129.45 141.45 133.62
Annual average 9.52 8.99 8.66 8.66 9.22 8.86
- ------------------------------------------------------------------------------
Life of fund 690.62 652.96 556.51 556.51 629.03 605.44
Annual average 10.55 10.29 9.56 9.56 10.11 9.94
- ------------------------------------------------------------------------------
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.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
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 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
The First Boston High Yield Bond Index* is a market-weighted index
including publicly traded bonds having a rating below BBB by Standard &
Poor's and Moody's.
The Lehman Brothers Corporate Bond Index* is an 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.
*The average quality of bonds included in these indexes will differ from
the average quality of bonds in which the fund customarily invests, and
securities held by the fund will differ from those in the indexes. Index
performance reflects changes in market prices and reinvestment of all
interest payments and does not take into account brokerage fees or taxes.
It is not possible to invest directly in an index.
Report of independent accountants
For the fiscal year ended August 31, 1998
To the Trustees and Shareholders of
Putnam High Yield Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, and the related statements
of operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Putnam
High Yield Trust (the "fund") at August 31, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at August 31, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 16, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
August 31, 1998
CORPORATE BONDS AND NOTES (79.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,805,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 $ 4,805,000
8,210,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 8,538,400
2,645,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 2,697,900
2,000,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 2,060,000
--------------
18,101,300
Aerospace and Defense (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,470,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 4,134,750
5,575,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 5,853,750
5,560,000 BE Aerospace sr. sub. notes Ser. B, 8s, 2008 5,393,200
6,610,000 Burke Industries, Inc. company guaranty 10s, 2007 6,543,900
5,020,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 4,944,700
5,370,000 United Defense Industries Inc. company guaranty 8 3/4s, 2007 5,262,600
--------------
32,132,900
Agriculture (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
14,743,125 Premium Standard Farms, Inc. sr. secd. notes 11s, 2003 (PIK) 15,553,997
9,330,000 Purina Mills, Inc. 144A sr. sub. notes 9s, 2010 9,330,000
--------------
24,883,997
Airlines (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
6,580,000 Calair LLC 144A company guaranty 8 1/8s, 2008 6,086,500
6,690,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 6,221,700
11,240,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005 (Canada) 10,621,800
14,360,000 Cathay International Ltd. 144A sr. notes 13s, 2008 7,180,000
10,405,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 10,613,100
7,340,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 6,789,500
--------------
47,512,600
Apparel (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,825,000 GFSI, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 3/8s, 9/15/04), 2009 (STP) 5,592,000
2,820,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 2,679,000
13,300,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 12,768,000
12,585,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 13,403,025
5,850,000 William Carter Holdings Co. sr. sub. Notes Ser. A, 12s, 2008 5,967,000
--------------
40,409,025
Automotive (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Amer Axel & Manuftrng bank loan Ser. B, 8.063s, 2005 3,960,000
1,700,000 Walbro Corp. company guaranty Ser. B, 10 1/8s, 2007 1,615,000
--------------
5,575,000
Automotive Parts (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,699,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 4,886,960
5,775,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 6,006,000
7,910,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 7,554,050
--------------
18,447,010
Banks (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,155,000 Albank Capital Trust 144A company guaranty Ser. B, 9.27s, 2027 6,095,169
4,550,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 4,504,500
10,000,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 8,000,000
10,115,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 11,151,079
8,480,000 Espirto Santo Centrais sr. notes 10s, 2007 (Brazil) 4,833,600
5,860,000 Fuji JGB Inv. LLC 144A FLIRB 9.87s, 2049 4,512,200
13,120,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 14,755,277
9,115,000 Korea Developmental Bank bonds 7 1/8s, 2001 (Korea) 7,400,833
4,560,000 North Fork Capital Trust I company guaranty 8.7s, 2026 5,291,424
5,000,000 Onbank & Trust Co. company guaranty 9 1/4s, 2027 5,750,000
6,365,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 7,369,779
6,475,000 Provident Capital Trust company guaranty 8.6s, 2026 7,077,434
2,450,000 Riggs Capital Trust 144A company guaranty 8 7/8s, 2027 2,800,742
3,690,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 4,110,697
6,980,000 Sovereign Capital Trust company guaranty 9s, 2027 7,836,725
1,225,000 Webster Capital Trust I 144A bonds 9.36s, 2027 1,338,068
--------------
102,827,527
Basic Industrial Products (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
4,250,000 Clark-Schwebel sr. notes 10 1/2s, 2006 4,908,750
9,700,000 Grove Investors Llc sr. deb. 14 1/2s, 2010 (PIK) 8,536,000
7,540,000 Insilco Holding Co. 144A sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 3,543,800
920,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 864,800
4,450,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 4,316,500
--------------
22,169,850
Broadcasting (4.2%)
- --------------------------------------------------------------------------------------------------------------------------
12,880,000 Affinity Group Holdings sr. notes 11s, 2007 12,493,600
10,370,000 Australias Holdings PTY Ltd. sr. disc. notes stepped-coupon
zero % (15s, 11/01/00), 2002 (In Default) (Australia) (STP) (NON) 1,425,875
338,956 Australis Media, Ltd. sr. disc. notes stepped-coupon 1 3/4s,
(15 3/4s 5/15/00), 2003 (In Default) (Australia)(STP) (PIK) (NON) 5,932
2,555,791 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000 (In Default)
(Australia) (NON) 1,904,831
15,360,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 11,520,000
17,935,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 12,733,850
7,660,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 7,583,400
3,800,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004
(Bermuda) 3,420,000
6,914,690 Citadel Broadcasting Inc. sr. sub. notes 10 1/4s, 2007 7,606,159
25,080,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 (STP) 21,318,000
20,960,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 11,528,000
17,970,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 15,993,300
12,770,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 11,812,250
3,250,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 3,201,250
6,460,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 6,169,300
5,125,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 5,381,250
8,330,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 9,163,000
7,214,000 PHI Holdings, Inc. 16s, 2001 5,435,749
9,700,000 Radio One Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 (STP) 9,215,000
2,000,000 TV Azteca Holdings S.A. de C.V. sr. notes 11s, 2002 (Mexico) 1,660,000
3,010,000 TV Azteca Holdings S.A. de C.V. sr. notes 10 1/2s, 2007
(Mexico) 2,317,700
--------------
161,888,446
Building and Construction (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,530,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 4,258,200
7,480,000 Atrium Companies, Inc. 144A sr. sub. notes 10 1/2s, 2006 7,068,600
14,275,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 9,421,500
1,700,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 1,122,000
3,470,000 Jackson Products, Inc. 144A company guaranty 9 1/2s, 2005 3,409,275
6,180,000 Presley Cos. sr. notes 12 1/2s, 2001 5,531,100
4,987,500 Terex term loan B, 8.18s, 2005 4,987,500
--------------
35,798,175
Building Products (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
7,890,000 Albecca Inc. 144A sr. sub. notes 10 3/4s, 2008 7,495,500
11,300,000 Consumers International 144A 10 1/4s, 2005 11,582,500
9,105,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B,
zero % (12 3/4s, 6/1/99), 2004 (STP) 8,513,175
--------------
27,591,175
Buses (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
23,500,000 MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 (STP) 19,975,000
Business Equipment and Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,950,000 Corporate Express Holdings, Inc. 144A sr. sub. notes
9 5/8s, 2008 4,455,000
4,285,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 4,113,600
5,487,776 Outsourcing Solutions, Inc. 144A 8.621s, 2004 5,467,197
14,110,000 U.S. Office Products Co. 144A sr. sub notes 9 3/4s, 2008 11,852,400
7,321,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 8,217,823
--------------
34,106,020
Cable Television (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
8,380,000 Acme Television sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 (STP) 6,452,600
13,805,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 14,598,788
33,400,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 25,050,000
20,190,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 14,738,700
800,000 Lenfest Communications, Inc. 144A sr. sub. notes 8 1/4s, 2008 786,000
15,978,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon zero %
(14 1/4s, 6/15/00), 2005 (STP) 14,699,760
21,750,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 12,180,000
15,420,000 RCN Corp. sr. discount notes, stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 8,249,700
7,850,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) 5,416,500
10,210,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 4,492,400
--------------
106,664,448
Cellular Communications (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
29,770,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 13,396,500
32,271,000 CellNet Data Systems, Inc. sr. disc. notes stepped-
coupon zero % (14s, 10/1/02), 2007 (STP) 15,490,080
17,750,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 (STP) 17,750,000
1,000,000 Dial Call Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (10 1/4s, 12/15/98), 2005 (STP) 1,005,000
14,200,000 Interact Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 8/1/99), 2003 (STP) 1,704,000
5,985,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 5/1/01), 2006 (STP) 4,428,900
31,875,000 McCaw International Ltd sr. discount notes
stepped-coupon zero % (13s, 4/15/02), 2007 (STP) 17,212,500
22,330,000 MetroNet Communications Corp. 144A sr. disc. notes
stepped-coupon zero % (9.95s, 6/15/03), 2008 (STP) 11,611,600
41,840,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 29,288,000
470,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 282,000
66,530,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 (STP) 39,585,350
28,170,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9.95s, 2/15/03), 2008 (STP) 15,916,050
1,845,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 1,051,650
5,000,000 Powertel, Inc. 8 7/8s, 2001 4,968,750
10,240,000 Price Communications Wireless Inc. 144A sr. notes
9 1/8s, 2006 9,216,000
--------------
182,906,380
Chemicals (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
10,710,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 10,174,500
5,755,000 Geo Specialty Chemicals 144A sr. sub. notes 10 1/8s, 2008 5,179,500
2,860,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 2,860,000
2,425,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 2,194,625
6,355,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 5,274,650
3,990,000 Pioneer Americas Acquisition 144A bank loan notes FRN
8.428s, 2006 3,990,000
2,484,940 Pioneer Americas Acquisition bank loan notes FRN 8.38s, 2006 2,484,940
7,920,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 3,880,800
8,770,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 5,086,600
10,282,000 UCAR Global Enterprises sr. sub. notes Ser. B, 12s, 2005 10,796,100
--------------
51,921,715
Computer Services and Software (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,975,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 2,826,250
840,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 793,800
17,685,000 Unisys Corp. sr. notes 11 3/4s, 2004 19,895,625
--------------
23,515,675
Computers (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
18,140,000 IPC Information Systems sr. disc. notes stepped-coupon zero %
(10 7/8s, 11/1/01), 2008 (STP) 12,153,800
Consumer Durable Goods (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Doskcil Manufacturing Co 144A sr. sub. notes 10 1/8s, 2007 4,650,000
11,775,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon Ser. B,
zero % (14s, 11/15/01), 2006 (STP) 588,750
3,420,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 2,838,600
6,000,000 Sealy Mattress Co. 144A sr. notes 12s, 2008 5,520,000
--------------
13,597,350
Consumer Non Durables (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,440,000 Samsonite Corp. 144A sr. sub. notes 10 3/4s, 2008 1,036,800
Consumer Services (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
22,890,000 Coinmach Corp. sr. notes 11 3/4s, 2005 24,950,100
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,090,000 Chattem, Inc. company guaranty Ser. B, 8 7/8s, 2008 3,012,750
3,275,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 3,438,750
2,380,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 2,332,400
3,750,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 3,553,125
--------------
12,337,025
Electric Utilities (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Calpine Corp. sr. notes 10 1/2s, 2006 4,280,000
8,500,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 6,970,000
15,100,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 19,625,319
45,025,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 54,757,150
1,500,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000
(Philippines) 1,532,220
14,330,000 Niagara Mohawk Power Corp. sr. disc. notes stepped-coupon
Ser. H, zero % (8 1/2s, 7/1/03), 2010 (STP) (Philippines) 9,887,700
2,717,000 North Atlantic Energy Corp. 1st mtge. Ser. A, 9.05s, 2002 2,828,750
4,017,369 Northeast Utilities System notes Ser. A, 8.58s, 2006 4,251,823
8,286,256 Northeast Utilities System notes Ser. B, 8.38s, 2005 8,514,540
2,762,588 Subic Power Corp. 144A sec. 9 1/2s, 2008 2,127,193
8,750,000 York Power Funding 144A notes 12s, 2007 8,662,500
--------------
123,437,195
Electrical Equipment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
9,150,000 Dobson Communications Corp. 11 3/4s, 2007 9,333,000
4,360,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 3,357,200
--------------
12,690,200
Electronic Components (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Details, Inc. sr. discount notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (STP) 2,750,000
2,900,000 Details, Inc. sr. sub. notes Ser. B, 10s, 2005 2,668,000
6,485,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 5,771,650
7,030,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 6,467,600
4,250,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 4,250,000
13,920,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 13,989,600
--------------
35,896,850
Electronics (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,685,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 1,786,100
4,983,386 Cirent Semiconductor sr. sub. notes 10.22s, 2002 4,933,552
5,287,574 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 5,234,698
5,450,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 5,668,000
4,805,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 4,564,750
390,000 Viasystems, Inc. 144A sr. notes 9 3/4s, 2007 335,400
--------------
22,522,500
Energy-Related (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,600,000 CE Casecnan Water & Energy sr. notes Ser. A, 11.45s, 2005
(Philippines) 3,795,000
5,910,000 Gothic Production Corp. company guaranty Ser. B, 11 1/8s, 2005 4,728,000
18,680,000 Panda Global Energy Co. company guaranty 12 1/2s,
2004 (China) 13,076,000
5,495,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 5,055,400
--------------
26,654,400
Entertainment (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
8,855,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon
zero % (10s, 4/1/03), 2008 (STP) 5,047,350
6,880,000 SFX Entertainment, Inc. 144A company guaranty
Ser. B, 9 1/8s, 2008 6,467,200
7,290,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 6,779,700
--------------
18,294,250
Environmental Control (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
14,790,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/02), 2007 (STP) 10,722,750
8,220,000 Allied Waste Industries, Inc. company guaranty 10 1/4s, 2006 8,846,775
4,010,000 ATC Group Services Inc. company guaranty 12s, 2008 3,248,100
--------------
22,817,625
Financial Services (3.5%)
- --------------------------------------------------------------------------------------------------------------------------
13,640,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 12,821,600
8,950,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 5,817,500
14,200,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 13,525,784
3,300,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 3,198,789
4,000,000 Colombia Holdings sr. notes 10s, 1999 4,060,000
6,610,000 Colonial Capital II 144A company guaranty 8.92s, 2027 7,197,670
13,055,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 13,149,127
1,215,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s, 2007
(Mexico) 874,800
3,900,000 Dollar Financial Group, Inc. sr. notes Ser. A, 10 7/8s, 2006 4,017,000
37,350,000 DTI Holdings Inc. 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 3/1/03), 2008 (STP) 15,313,500
6,620,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 6,355,200
7,185,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 8,029,238
6,700,000 Local Financial Corp. 144A sr. notes 11s, 2004 6,834,000
3,305,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 3,404,150
6,900,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 7,452,000
4,160,000 Ocwen Financial Corp. notes 11 7/8s, 2003 4,492,800
12,990,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 5,845,500
10,250,000 Resource America Inc. 144A sr. notes 12s, 2004 9,020,000
3,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 3,030,000
--------------
134,438,658
Food and Beverages (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
6,320,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 5,561,600
6,400,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 5,632,000
17,150,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 17,664,500
10,520,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 10,520,000
8,600,000 Doane Products Co. sr. notes 10 5/8s, 2006 9,718,000
2,525,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 2,398,750
6,590,000 Fleming Companies, Inc. company guaranty Ser. B, 10 5/8s, 2007 6,721,800
1,915,000 Fleming Companies, Inc. company guaranty Ser. B, 10 1/2s, 2004 1,915,000
6,300,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 (STP) 3,339,000
8,910,000 RAB Food Holdings, Inc. 144A sr. notes 13s, 2008 8,286,300
6,600,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 6,138,000
1,500,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 (Canada) 1,642,500
4,525,000 Southern Foods Group sr. sub. notes 9 7/8s, 2007 4,592,875
--------------
84,130,325
Gaming (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
13,740,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 13,740,000
4,885,000 Casino America, Inc. sr. notes 12 1/2s, 2003 5,178,100
17,530,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B, 13s, 2002 19,633,600
5,290,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 5,620,625
15,195,000 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004 11,244,300
18,050,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 19,313,500
5,570,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B, 13s, 2004 5,570,000
1,469,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 1,469,000
13,350,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 9,578,625
5,280,000 Showboat Marina Casino 1st mtge. Ser. B, 13 1/2s, 2003 6,019,200
11,435,000 Trump A.C. 1st mtge. company guaranty 11 1/4s, 2006 9,834,100
4,750,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 4,013,750
2,500,000 Trump Castle Hotel 144A sr. sub. notes 10 1/4s, 2003 2,525,000
15,985,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 16,144,850
--------------
129,884,650
Health Care (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,500,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 1,440,540
13,340,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 12,673,000
11,930,000 Fresenius Medical Capital Trust II company guaranty 7 7/8s, 2008
(Germany) 10,737,000
6,425,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 6,103,750
9,935,000 Global Health Sciences 144A sr. notes 11s, 2008 8,643,450
7,850,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 7,339,750
11,890,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 10,938,800
4,235,000 Magellan Health Services, Inc. 144A sr. sub. notes 9s, 2008 3,430,350
4,000,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 2,360,000
20,820,000 Mariner Post-Acute Network, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 19,779,000
15,450,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 12,161,468
370,000 MedPartners, Inc. sr. sub.notes 6 7/8s, 2000 346,646
3,100,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 2,852,000
17,560,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 16,682,000
4,710,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 3,438,300
2,500,000 PharMerica, Inc. company guaranty 8 3/8s, 2008 2,200,000
5,400,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 5,454,000
12,860,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 12,217,000
--------------
138,797,054
Insurance and Finance (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,105,000 CSBI Capital Trust I 144A company guaranty
Ser. A, 11 3/4s, 2027 4,392,350
13,000,000 Polytama International notes 11 1/4s, 2007 (Indonesia) 4,160,000
3,525,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 3,712,847
5,860,000 Superior FInancial 144A sr. notes 8.65s, 2003 5,801,400
--------------
18,066,597
Lodging (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
6,110,000 Epic Resorts LLP 144A sr. notes 13s, 2005 5,743,400
14,555,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 13,754,475
11,495,000 Raintree Resorts International, Inc. sr. notes Ser. B, 13s, 2004 10,115,600
--------------
29,613,475
Media (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
8,450,000 RBS Participacoes S.A. 144A company guaranty 11s, 2007
(Brazil) 5,492,500
Medical Supplies and Devices (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
11,215,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 10,654,250
3,155,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 3,328,525
8,570,000 Imagyn Medical Technologies company guaranty 12 1/2s, 2004 2,399,600
10,130,000 Mediq, Inc. 144A sr. sub. notes 11s, 2008 9,623,500
8,500,000 Wright Medical Technology, Inc. 144A notes Ser. C, 11 3/4s, 2000 7,926,250
--------------
33,932,125
Metals and Mining (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,380,000 Lodestar Holding, Inc. 144A sr. notes 11 1/2s, 2005 5,231,600
6,490,000 WHX Corp. sr.notes 10 1/2s, 2005 5,776,100
--------------
11,007,700
Motion Picture Distribution (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,225,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 7,261,125
Oil and Gas (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
8,180,000 Abraxas Petroleum Corp. 144A 11 1/2s, 2004 7,198,400
1,220,000 American Eco. Corp. 144A company guaranty 9 5/8s, 2008 1,073,600
7,675,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 6,830,750
6,340,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 5,706,000
5,550,000 Dailey Petroleum Services Corp. company guaranty 9 1/2s, 2008 4,356,750
1,300,000 Gothic Energy Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (14 1/8s, 5/1/03), 2006 (STP) 624,000
5,950,000 Michael Petroleum Corp. 144A sr. notes 11 1/2s, 2005 5,236,000
6,840,000 Northern Offshore 144A company guaranty 10s, 2005 5,848,200
1,440,000 Pacalta Resources Ltd. sr. notes Ser. B, 10 3/4s, 2004 (Canada) 1,324,800
4,270,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 3,373,300
3,475,000 Petsec Energy, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 3,197,000
4,755,000 Seven Seas Petroleum 144A sub. notes 12 1/2s, 2005 3,994,200
3,050,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 2,836,500
5,190,000 Southwest Royalties, Inc. company guaranty 10 1/2s, 2004 3,451,350
105,050,000 Transamerican Energy sr. disc. notes stepped-coupon Ser. B,
zero % (13s, 6/15/99), 2002 (STP) 52,525,000
31,870,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 19,440,700
17,087,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 17,087,000
--------------
144,103,550
Packaging and Containers (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
11,010,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 10,349,400
3,735,000 Radnor Holdings Inc. sr. notes 10s, 2003 3,697,650
20,725,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 18,238,000
8,450,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 7,731,750
1,900,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 1,710,000
13,517,971 Riverwood International Corp. bank loan notes FRN 8.016s, 2003 13,467,279
--------------
55,194,079
Paper and Forest Products (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
9,283,993 Alabama River Newsprint bank loan notes FRNs, 2002 8,262,754
14,230,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 7,115,000
780,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 413,400
1,255,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 1,349,125
7,775,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 7,386,250
11,555,000 Indah Kiat Financial Mauritius Ltd. company guaranty 10s, 2007
(Indonesia) 5,373,075
16,800,000 PT Pabrik Kertas Tjiwi Kimia company guaranty 10s,
2004 (Indonesia) 7,560,000
12,945,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 11,262,150
3,190,000 Repap New Brunswick 144A sr. notes 9s, 2004 (Canada) 2,902,900
9,250,000 Stone Container Corp. sr. notes 12.58s, 2016 10,175,000
--------------
61,799,654
Pharmaceuticals (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
9,570,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 9,761,400
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
2,760,000 Panavision Inc. 144A sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 1,518,000
Publishing (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
10,300,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 10,712,000
2,450,000 Perry-Judd company guaranty 10 5/8s, 2007 2,352,000
3,540,000 Von Hoffman Press Inc. 144A sr. sub. notes 10 3/8s, 2007 3,398,400
--------------
16,462,400
Railroads (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
13,545,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 8,127,000
1,960,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,822,800
--------------
9,949,800
Real Estate (--%)
- --------------------------------------------------------------------------------------------------------------------------
1,590,000 Bluegreen Corp. company guaranty Ser. B, 10 1/2s, 2008 1,494,600
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 8,480,000
Retail (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
8,650,000 Amazon.com Inc. 144A sr. disc. notes stepped-coupon zero %
(10s, 5/1/08), 2008 (STP) 4,584,500
2,000,000 Color Spot Nurseries sr. sub. notes 10 1/2s, 2007 900,000
2,997,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 2,997,000
3,530,000 Home Interiors & Gifts, Inc. 144A sr. sub. notes 10 1/8s, 2008 3,459,400
2,250,000 K mart Corp. deb. 13 1/2s, 2009 2,370,690
2,000,000 K mart Corp. med. term notes 9s, 2020 2,154,320
2,000,000 K mart Corp. med. term notes 8.96s, 2019 2,143,820
700,000 K mart Corp. med. term notes 8.85s, 2011 774,347
1,925,000 K mart Corp. deb. 7.95s, 2023 1,876,875
600,000 K mart Corp. med. term notes 7.76s, 2002 617,508
1,900,000 K mart Corp. deb. 7 3/4s, 2012 1,862,000
400,000 K mart Corp. med. term notes 7.74s, 2002 411,380
8,945,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 9,436,975
5,205,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 4,983,788
1,930,000 Service Merchandise Co., Inc. sr. sub. deb. 9s, 2004 1,158,000
--------------
39,730,603
Satellite Services (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,034,784 Direct Sat 1 144A notes 8 1/4s, 2001 2,034,784
2,054,366 Echostar I 144A sr. notes 8 1/4s, 2001 2,054,366
8,200,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) (STP) 5,576,000
9,210,000 Golden Sky Systems 144A sr. sub. notes 12 3/8s, 2006 9,002,775
36,850,000 ICG Services, Inc. 144A sr. discount notes stepped-coupon
zero % (9 7/8s, 5/1/03), 2008 (STP) 19,530,500
10,230,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 8,900,100
9,675,000 Primestar Bank Loan 8 5/8s, 4/15/04 9,384,750
5,015,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004
(Mexico) 3,811,400
10,984,000 Satelites Mexicanos S.A. de C.V. 144A company guaranty
FRB 9 3/8s, 2004 (Mexico) 10,874,160
6,640,000 TCI Satellite Entertainment, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 2/102), 2007 (STP) 3,984,000
8,360,000 TCI Satellite Entertainment Inc. sr. sub. notes 10 7/8s, 2007 7,858,400
--------------
83,011,235
Semiconductors (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
19,345,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 22,150,025
9,105,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 7,830,300
16,340,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 8,170,000
--------------
38,150,325
Shipping (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
8,040,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 8,341,500
3,700,000 Pegasus Shipping 144A 11 7/8s, 2004 3,663,000
--------------
12,004,500
Specialty Consumer Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,960,000 Decora Industries, Inc. 144A sr. sec. notes 11s, 2005 8,422,400
Supermarkets (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
13,000,000 Jitney-Jungle Stores company guaranty 12s, 2006 14,430,000
Telecommunication Equipment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
10,160,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 9,753,600
Telecommunications (11.4%)
- --------------------------------------------------------------------------------------------------------------------------
12,000,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (STP) 6,480,000
6,050,000 Caprock Communications Corp. 144A sr. notes 12s, 2008 5,747,500
16,370,000 Charter Communications International, Inc. disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 (STP) 13,587,100
8,965,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 5,379,000
3,680,000 Consorcio Ecuatoiano notes 14s, 2002 (Ecuador) 2,208,000
32,570,000 Covad Communications Group 144A sr. disc. notes
stepped-coupon zero % (13 1/2s, 3/15/03), 2008 (STP) 14,330,800
5,000,000 Cox Communications, Inc. term loan B, FRN 8.255s, 2007 4,975,000
7,575,000 Econophone Inc. company guaranty 13 1/2s, 2007 8,218,875
20,120,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 10,965,400
7,640,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 7,410,800
16,130,000 Focal Communications Corp. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 2/15/03), 2008 (STP) 8,065,000
33,750,000 Global Crossing Holdings 144A sr. notes 9 5/8s, 2008 32,062,500
4,825,000 GST Equipment Funding sr. notes 13 1/4s, 2007 5,307,500
36,675,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 26,406,000
3,000,000 GST Telecommunications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 1,380,000
390,000 Hermes Europe Railtel sr. notes 11 1/2s, 2007 (Netherlands) 401,700
5,815,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 3,896,050
12,130,000 Hyperion Telecommunications Corp., Inc. sr. notes
Ser. B, 12 1/4s, 2004 11,523,500
650,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 351,000
12,105,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (STP) 9,320,850
27,785,000 Intelcom Group, Inc. company guaranty stepped-coupon
zero % (12 1/2s, 5/1/01), 2006 (STP) 20,283,050
10,530,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 (STP) 7,897,500
20,000,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 13,800,000
10,410,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 7/8s, 2007 9,993,600
12,020,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 11,358,900
39,605,000 International Cabletel, Inc. sr. notes stepped-coupon Ser. B,
zero % (11 1/2s, 2/01/01), 2006 (STP) 32,080,050
17,335,000 Ionica Group PLC sr. disc. notes stepped-coupon zero %
(15s, 5/1/02), 2007 (United Kingdom) (STP) 1,300,125
1,800,000 Ionica Group PLC sr. notes 13 1/2s, 2006 (United Kingdom) 720,000
1,270,000 Iridium LLC company guaranty Ser. A, 13s, 2005 1,117,600
10,730,000 IXC Communications, Inc. sr. sub. notes 9s, 2008 9,764,300
30,770,000 KMC Telecom Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 17,231,200
25,920,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 13,867,200
5,150,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 5,562,000
4,100,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 4,007,750
3,900,000 Metronet Communications Corp. 12s, 2007 (Canada) 4,134,000
4,920,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02), 2007
(Canada) (STP) 2,779,800
5,945,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 3,983,150
2,040,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/02), 2007 (Poland) (STP) 1,122,000
4,450,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 3,738,000
15,000,000 NTL Inc. 144A sr. notes stepped-coupon zero %
(9 3/4s, 4/01/03), 2008 (STP) 8,100,000
6,420,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 4,686,600
2,330,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (8.29s, 2/1/03), 2008 (STP) 1,654,300
5,100,000 Telecom Tech, Inc. 144A sr. sub. notes 9 3/4s, 2008 4,641,000
12,470,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 11,940,025
23,175,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 11,819,250
9,962,000 USN Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14 5/8s, 8/15/00), 2004 (STP) 5,479,100
3,320,000 Vialog Corp. company guaranty 12 3/4s, 2001 2,988,000
13,960,000 Winstar Communications, Inc. sr. sub. notes 15s, 2007 15,356,000
9,753,000 Winstar Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 6,241,920
20,790,000 Winstar Communications. Inc. 144A sr. sub. notes 11s, 2008 15,592,500
8,905,000 Winstar Equipment Corp. company guaranty 12 1/2s, 2004 8,637,850
--------------
439,893,345
Telephone Services (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
15,770,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 14,666,100
3,030,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 1,727,100
6,950,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 7,019,500
8,595,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon 12s, (12s, 12/15/01), 2006
(United Kingdom) (STP) 6,918,975
9,165,000 E. Spire Communications, Inc. sr. notes 13 3/4s, 2007 9,806,550
4,500,000 E. Spire Communications, Inc. sr. disc. notes
stepped-coupon zero % (13s, 11/1/00), 2005 (STP) 3,240,000
905,000 E. Spire Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 (STP) 606,350
5,810,000 Facilicom International sr. notes Ser. B., 10 1/2s, 2008 5,229,000
12,395,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 11,527,350
4,390,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 2,677,900
2,400,000 Globo Communicacoes company guaranty 10 1/2s, 2006
(Brazil) 1,440,000
1,875,000 Globo Communicacoes 144A company guaranty 10 1/2s, 2006
(Brazil) 1,143,750
10,470,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 9,737,100
3,607,000 ITC Deltacom, Inc. sr. notes 11s, 2007 3,967,700
3,130,000 MJD Communications, Inc. 144A sr. sub. notes 9 1/2s, 2008 3,098,700
3,400,000 MJD Communications Inc. 144A FRN 6.232s, 2008 3,340,500
6,520,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 6,259,200
10,780,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 11,858,000
8,200,000 RSL Communications Ltd. company guaranty, stepped-coupon
zero % (10 1/8s, 3/1/03), 2008 4,428,000
5,470,000 RSL Communications Ltd. company guaranty 9 1/8s, 2008 4,594,800
5,640,000 Transtel S.A. 144A pass through certificates 12 1/2s, 2007
(Colombia) 3,271,200
4,980,000 Us Xchange Llc 144A sr. notes 15s, 2008 5,054,700
7,130,000 Versatel Teleco 13 1/4s, 2008 6,987,400
--------------
128,599,875
Textiles (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,575,000 Glenoit Corp. company guaranty 11s, 2007 3,396,250
3,830,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 3,523,600
3,210,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 2,921,100
--------------
9,840,950
Transportation (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
9,930,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 9,930,000
Utilities (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
7,450,000 CMS Energy Corp. pass through certificates 7s, 2005 7,419,977
Wireless Communications (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
10,040,000 American Mobile Satelitte Corp. company guaranty
12 1/4s, 2008 6,726,800
5,660,000 CTI Holdings S.A. 144A sr. notes stepped-coupon zero %
(11 1/2s, 4/15/03), 2008 (STP) 2,264,000
13,250,000 Dobson Wireline Co. 144A sr. notes 12 1/4s, 2008 12,720,000
1,890,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 1,738,800
7,380,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 3,321,000
4,785,000 Telesystem International Wireless, Inc. sr. disc. notes
stepped-coupon Ser. C, zero % (10 1/2s, 11/1/02), 2007 (STP) 2,296,800
17,340,000 Teligent, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 1/2s, 3/1/03), 2008 (STP) 8,496,600
15,970,000 Teligent, Inc. sr. notes 11 1/2s, 2007 14,692,400
5,580,000 WAM!NET, Inc. company guaranty stepped-coupon Ser. B,
zero % (13 1/4s, 3/1/02), 2005 (STP) 3,041,100
--------------
55,297,500
--------------
Total Corporate Bonds and Notes (cost $3,331,144,789) $3,040,686,340
PREFERRED STOCKS (8.5%) (a)
NUMBER OF SHARES VALUE
Banks (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
296,110 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. $ 14,657,445
19,825 Chevy Chase Savings Bank $3.25 pfd. 604,663
--------------
15,262,108
Broadcasting (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
59,756 Capstar Broadcasting Inc. 144A $12.00 pfd. (PIK) 6,632,916
115,484 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 12,183,562
5,148 Granite Broadcasting 144A 12.75% pfd. (PIK) 5,559,840
1,460 Paxson Communications Corp. 144A 13.25% pfd. (PIK) 13,870,000
249 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. (PIK) 29,133
19,778 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 21,162,460
--------------
59,437,911
Building and Construction (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
129,800 Brand Scaffold Services, Inc. 144A $3.625 cum. pfd. 3,894,000
246,082 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 27,315,102
--------------
31,209,102
Cable Television (--%)
- --------------------------------------------------------------------------------------------------------------------------
3,600 Adelphia Communications Corp. Ser. B, $13.00 cum. pfd. 396,000
Cellular Communications (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,374 Dobson Communications 144A $12.25 pfd. (PIK) 8,541,480
25,917 NEXTEL Communications, Inc. 144A Ser. E, $11.125 pfd. (PIK) 25,398,660
26,593 NEXTEL Communications, Inc. Ser. D, $13.00 cum. pfd. (PIK) 28,188,580
--------------
62,128,720
Computer Services and Software (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,670 Concentric Network Corp. 144A $13.50 pfd. (PIK) 4,203,000
Cosmetics (--%)
- --------------------------------------------------------------------------------------------------------------------------
5,636 Renaissance Cosmetics Inc. 14.00% pfd. (PIK) 56,360
Electric Utilities (--%)
- --------------------------------------------------------------------------------------------------------------------------
74,923 Public Service Co. of New Hampshire $2.65 1st mtge. pfd. 1,910,537
Food and Beverages (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
240,000 Doane Products Co. $14.25 pfd. 10,560,000
70,728 Nebco Evans Holding Co. 144A 11.25% pfd. 4,950,960
--------------
15,510,960
Health Care (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
11,120 Fresenius Medical Care AG Ser. D, 9.00%, pfd. (Germany) 11,398,000
Insurance and Finance (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 3,640,000
Motion Picture Distribution (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
196,000 Diva Systems Corp. Ser. C, $6.00 pfd. 2,156,000
438,126 Diva Systems Corp. Ser. D, $6.00 pfd. 4,819,386
--------------
6,975,386
Publishing (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
142,780 Von Hoffman Corp. 144A $13.50 pfd. 4,426,180
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
145,281 AmeriKing, Inc. $3.25 pfd. (PIK) 3,632,025
Satellite Services (--%)
- --------------------------------------------------------------------------------------------------------------------------
200 Echostar Communications, Inc. 12.125% pfd. 200,000
Supermarkets (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
42,970 Jitney-Jungle Stores 144A $11.25 pfd. 6,445,500
Telecommunications (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,975 E. Spire Communications, Inc. 12.75% pfd. (PIK) 5,377,500
5,620 Hyperion Telecommunications Ser. B, $12.875 pfd. (PIK) 5,058,000
7,602 ICG Holdings, Inc. $14.00 pfd. (Canada) (PIK) 8,210,160
14,752 Intermedia Communications Ser. B, 13.50% pfd. (PIK) 17,038,560
21,421 IXC Communications, Inc. $12.50 pfd. (PIK) 22,599,155
407,132 Nextlink Communications, Inc. 144A $7.00 pfd. 20,763,732
2,828 Pegasus Communications Corp. Ser. A, $12.75 cum. pfd. 3,110,800
5,515 21st Century Telecom Group 144A $13.75 cum. pfd. (PIK) 4,687,750
13,340 WinStar Communications, Inc. 144A $14.25 cum. pfd. 13,873,600
--------------
100,719,257
--------------
Total Preferred Stocks (cost $332,053,978) $ 327,551,046
UNITS (3.7%) (a)
NUMBER OF UNITS VALUE
- --------------------------------------------------------------------------------------------------------------------------
21,510 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (In Default) (Australia) (STP) (NON) $ 376,425
6,820 Bestel S.A. de CV units, stepped-coupon zero %
(12 3/4s,5/15/03), 2005 (STP) 4,364,800
6,120 Birch Telecom, Inc. 144A units 14s, 2008 5,385,600
25,608 Diva Systems Corp. 144A units stepped-coupon zero %
(12 5/8s, 3/1/03), 2008 (STP) 8,450,640
29,710 Firstworld Communication units stepped-coupon zero %
(13s,4/15/03), 2008 (STP) 10,101,400
7,585 ICO Global Communications (Holdings) Ltd. units 15s, 2005 6,750,650
18,430 Long Distance International, Inc. 144A units 12 1/4s, 2008 17,692,800
7,440 Mediq 144A units, stepped-coupon zero % (13s, 6/1/09),
2009 (STP) 3,720,000
3,920 Onepoint Communications, Inc. units 14 1/2s, 2008 3,136,000
13,190 Pathnet, Inc. 144A units 12 1/4s, 2008 11,871,000
18,500 Rhythms Netcon 144A units stepped-coupon zero %
(13 1/2s, 5/15/03), 2008 (STP) 7,585,000
2,000 Signature Brands USA, Inc. units 13s, 2002 2,280,000
7,140 Startec Global Communications Corp. units 12s, 2008 6,426,000
4,960 Telehub Communications Corp. units stepped-coupon zero %
(13 7/8s, 7/31/02), 2005 (STP) 2,827,200
12,530 Transam Refinance, Inc. 144A units 16s, 2003 10,650,500
31,545 Viatel, Inc. units, stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 17,665,200
3,635 Viatel, Inc. units 11 1/4s, 2008 3,598,650
13,345 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 14,412,600
60,536 XCL Ltd. 144A units cum. cv. pfd. 9 1/2s, 2006 (PIK) 6,083,868
--------------
Total Units (cost $191,357,423) $ 143,378,333
CONVERTIBLE BONDS AND NOTES (2.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$25,636,000 APP Global Finance Ltd. cv. bond zero %, 2012
(United Kingdom) $ 2,884,050
800,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 464,000
15,930,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 9,239,400
10,910,000 APP Global Finance Ltd. 144A cv. company guaranty 3 1/2s, 2003 5,018,600
5,300,000 Argosy Gaming cv. sub. notes 12s, 2001 4,399,000
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 16,081,500
3,900,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-coupon
zero % (13 7/8s, 12/15/00), 2005 (STP) 5,070,000
11,350,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 8,654,375
10,430,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 8,409,188
5,000,000 Lam Research Corp. cv. sub. notes 5s, 2002 3,825,000
4,000,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 3,060,000
2,450,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 2,257,063
8,000,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 7,400,000
6,107,000 Plolymax 144A cv. notes 2s, 2006 2,839,755
12,299,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 15,988,700
--------------
Total Convertible Bonds and Notes (cost $119,255,941) $ 100,499,381
COMMON STOCKS (2.1%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
283,680 American Mobile Satellite Corp. (NON) $ 1,560,240
3,000 AmeriKing, Inc. (NON) 150,000
6,570 Axia Holding Inc. 144A 98,550
100,000 BE Aerospace, Inc. (NON) 2,081,250
1,663,637 Capstar Broadcasting Partners (NON) 1,996,364
400,000 Casino America, Inc. (NON) 937,500
258,760 CellNet Data Systems, Inc. (NON) 1,423,180
100,000 Clearnet Communications, Inc. Class A, (Canada) (NON) 600,000
83,000 Colorado Gaming & Entertainment Co. (NON) 415,000
229,500 Exide Corp. 2,280,656
8,866 Finlay Enterprises, Inc. 89,768
110,000 French Fragrances Inc. (NON) 687,500
637,950 Frontier Corp. 19,377,731
57,000 Global Crossing Ltd. 961,875
105,841 Hedstrom Holdings, Inc. 144A 132,301
195,000 Intermedia Communications, Inc. (NON) 4,850,625
41,666 Lady Luck Gaming Corp. (NON) 260,413
2,604 Mothers Work, Inc. (NON) 19,205
565,400 NBTY, Inc. 5,159,275
500,000 NEXTEL Communications, Inc. Class A (NON) 9,031,250
4,555 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) 46
293 Pegasus Communications Corp. (NON) 5,823
8,407 Premium Holdings (L.P.) 144A (NON) 33,628
1,185,708 PSF Holdings LLC (acquired various dates between 9/15/92
and 5/31/95, cost $39,028,423) (RES) (AFF) 20,773,604
225,000 PsiNet, Inc. (NON) 2,362,500
61,213 RSL Communications, Ltd. Class A (NON) 1,400,247
236,025 Specialty Foods Acquisition Corp. (NON) 11,801
667,550 TCI Satellite Entertainment, Inc. Class A (NON) 2,670,200
--------------
Total Common Stocks (cost $120,651,209) $ 79,370,532
WARRANTS (0.7%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
30,610 Allegiance Telecom, Inc. 2/3/08 $ 489,760
10,040 American Mobile Satellite Corp. 4/1/08 70,280
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 1,810,840
130,000 CGA Group Ltd. 144A 6/15/03 2,600
11,495 Club Regina, Inc. 144A 4/15/06 229,900
8,595 Colt Telecommunications Group PLC 12/31/06 2,578,500
2,975 Concentric Network Corp. 12/15/07 208,250
121,027 Consorcio Ecuatoriano 144A (Equador) 10/1/00 45,385
17,000 County Seat Holdings, Inc. 10/15/98 340
32,570 Covad Communications Group 144A 3/15/08 1,302,800
4,650 Diva Systems Corp. 5/15/06 1,302,000
186,750 DTI Holdings Inc. 3/1/08 373,500
130 E. Spire Communications, Inc. 11/1/05 14,300
8,400 Econophone, Inc. 144A 9/9/99 462,000
6,110 Epic Resorts 6/15/05 61
8,200 Esat Holdings, Inc. (Ireland) 9/9/99 289,050
96,271 Fitzgeralds Gaming Co. 12/19/98 963
6,135 Globalstar Telecom 144A 2/15/04 245,400
19,455 Hyperion Telecommunications 144A 4/15/01 1,750,950
7,540 Insilco Holding Co. 8/15/08 1
251,394 Intelcom Group 144A 10/15/05 6,787,638
14,200 Interact Systems, Inc. 8/1/03 142
15,924 Intermedia Communications, Inc. 6/1/00 2,229,360
5,125 International Wireless Communications
Holdings 144A 8/15/01 513
16,520 Iridium World Com 144A 7/15/05 1,817,200
30,770 KMC Telecom Holdings, Inc. 4/15/08 492,320
25,920 Knology Holdings, Inc. 144A 10/15/07 38,880
41,270 McCaw International Ltd. 4/15/07 165,080
3,900 Metronet Communications 144A 8/15/07 117,000
3,310 MGC Communications, Inc. 144A 10/1/04 182,050
12,550 Orion Network Systems 1/15/07 144,325
72,220 Pagemart, Inc. 144A 12/31/03 577,760
12,480 Paxson Communications Corp. 144A 6/30/03 125
76,800 Powertel, Inc. 1/31/02 537,600
44,150 President Riverboat Casinos, Inc. 9/30/99 4,415
9,115 Spanish Broadcasting Systems 144A 6/30/99 1,868,575
6,375 Sterling Chemicals Holdings 8/15/08 153,000
2,340 21st Century Telecom Group 144A 2/14/06 128,700
38,235 UIH Australia/Pacific, Inc. 144A 5/15/06 191,175
99,620 USN Communications Inc. 8/15/04 292,883
7,130 Versatel 144A 5/15/08 71,300
3,320 Vialog Corp. 11/15/01 116,200
16,440 WAM!NET, Inc. 3/1/05 197,280
23,250 Wireless One, Inc. 10/19/00 233
403 Wright Medical Technology, Inc. 144A 6/30/03 26,179
--------------
Total Warrants (cost $16,832,540) $ 27,324,923
FOREIGN GOVERNMENT BONDS AND NOTES (0.4%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
USD 16,890,000 Korea (Republic of) unsub. 8 7/8s, 2008 $ 11,844,113
USD 10,180,000 Russia (Government of) 144A bonds 12 3/4s, 2028 2,341,400
--------------
Total Foreign Government Bonds and Notes
(cost $22,667,865) $ 14,185,513
CONVERTIBLE PREFERRED STOCKS (0.3%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
121,000 Cendant Corp. $3.75 cv. pfd. $ 3,062,813
50,000 Chancellor Media Corp. $3.00 cum. pfd. 3,750,000
48,340 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 1,063,480
390 Paxson Communications Corp. 144A $9.75 cv. pfd. (9.75%) (PIK) 3,900,000
5,551 XCL Ltd $8.075 cv. pfd. 557,876
--------------
Total Convertible Preferred Stocks (cost $17,276,627) $ 12,334,169
BRADY BONDS (--%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
FRF 31,700,000 Ivory Coast -- FLIRB collateralized FRB 2s, 2018 $ 751,885
FRF 31,700,000 Ivory Coast -- PDI bonds FRB 1.9s, 2018 1,127,827
--------------
Total Brady Bonds (cost $4,388,648) $ 1,879,712
COMMERCIAL PAPER (0.4%) (a) (cost $14,120,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$14,120,000 Bayerische Vereinsbank AG effective yield
of 5.85%, September 1, 1998 $ 14,120,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,169,749,020) (b) $3,761,329,949
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,847,797,512.
(b) The aggregate identified cost on a tax basis is $4,169,987,491, resulting in gross unrealized appreciation and
depreciation of $112,056,037 and $520,713,579, respectively, or net unrealized depreciation of $408,657,542.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate to
be paid and the date the fund will begin receiving interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at August 31, 1998 was $20,773,604 or 0.5% of net assets.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(AFF) Affilated Companies (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.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates
shown at August 31, 1998, which are subject to change based on the terms of the security.
- -------------------------------------------------------------------------------
Forward Currency Contracts to Sell at August 31, 1998
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- -------------------------------------------------------------------------------
French Francs $4,420,958 $4,422,343 9/16/98 $1,385
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,169,749,020) (Note 1) $3,761,329,949
- -----------------------------------------------------------------------------------------------
Cash 95,737
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 69,962,223
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,641,614
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 55,623,512
- -----------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 1,385
- -----------------------------------------------------------------------------------------------
Total assets 3,888,654,420
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 19,710,343
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 12,089,573
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,951,284
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 537,972
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 69,531
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,546
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,295,649
- -----------------------------------------------------------------------------------------------
Other accrued expenses 197,010
- -----------------------------------------------------------------------------------------------
Total liabilities 40,856,908
- -----------------------------------------------------------------------------------------------
Net assets $3,847,797,512
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,691,239,520
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (672,292)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Notes 1) (434,352,030)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (408,417,686)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,847,797,512
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,821,512,969 divided by 245,927,487 shares) $11.47
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $11.47)* $12.04
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,007,028,392 divided by 88,132,340 shares)** $11.43
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($19,256,151 divided by 1,678,843 shares) $11.47
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $11.47)* $11.86
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended August 31, 1998
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest (net foreign tax of $130,446) $430,353,557
- -----------------------------------------------------------------------------------------------
Dividends 35,275,517
- -----------------------------------------------------------------------------------------------
Total investment income 465,629,074
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 24,339,350
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 5,792,826
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 155,919
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 33,748
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 8,184,590
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 12,212,481
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 115,583
- -----------------------------------------------------------------------------------------------
Reports to shareholders 97,922
- -----------------------------------------------------------------------------------------------
Auditing 141,232
- -----------------------------------------------------------------------------------------------
Legal 133,874
- -----------------------------------------------------------------------------------------------
Postage 581,393
- -----------------------------------------------------------------------------------------------
Other 354,556
- -----------------------------------------------------------------------------------------------
Total expenses 52,143,474
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,535,391)
- -----------------------------------------------------------------------------------------------
Net expenses 50,608,083
- -----------------------------------------------------------------------------------------------
Net investment income 415,020,991
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 10,718,873
- -----------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (122,244)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities
in foreign currencies during the year 5,278
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (467,510,649)
- -----------------------------------------------------------------------------------------------
Net loss on investments (456,908,742)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(41,887,751)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
- ---------------------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 415,020,991 $ 415,520,942
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 10,596,629 104,981,756
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (467,505,371) 154,442,633
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (41,887,751) 674,945,331
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
- ---------------------------------------------------------------------------------------------------------------
Class A (320,732,329) (292,861,056)
- ---------------------------------------------------------------------------------------------------------------
Class B (111,084,627) (101,661,231)
- ---------------------------------------------------------------------------------------------------------------
Class M (2,202,905) (2,044,553)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
- ---------------------------------------------------------------------------------------------------------------
Class A (2,874,118) --
- ---------------------------------------------------------------------------------------------------------------
Class B (995,442) --
- ---------------------------------------------------------------------------------------------------------------
Class M (19,740) --
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (183,107,719) (594,936)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (662,904,631) 277,783,555
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 4,510,702,143 4,232,918,588
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income and undistributed net investment
income of $672,292 and $18,811,892, respectively) $3,847,797,512 $4,510,702,143
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.89 $12.11 $12.01 $12.06 $13.01
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.22(c) 1.20 1.16(c) 1.22 1.27
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.35) .72 .11 (.01) (.93)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.13) 1.92 1.27 1.21 .34
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.28) (1.14) (1.15) (1.22) (1.29)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.04) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) -- (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.29) (1.14) (1.17) (1.26) (1.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.47 $12.89 $12.11 $12.01 $12.06
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.75) 16.60 11.08 10.76 2.46
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,821,513 $3,259,440 $3,115,546 $2,997,467 $2,885,748
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .95 .96 .96 .95 .94
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.39 9.54 9.57 10.27 9.82
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.23 130.77 184.86 81.70 55.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.84 $12.07 $11.97 $12.03 $12.99
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.12(c) 1.10 1.07(c) 1.09 1.18
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.34) .72 .11 .02 (.94)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.22) 1.82 1.18 1.11 .24
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.18) (1.05) (1.06) (1.13) (1.20)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.04) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) -- (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.19) (1.05) (1.08) (1.17) (1.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.43 $12.84 $12.07 $11.97 $12.03
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (2.42) 15.71 10.28 9.88 1.66
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,007,028 $1,226,880 $1,100,757 $762,947 $535,002
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.70 1.71 1.71 1.70 1.69
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.64 8.79 8.84 9.52 9.06
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.23 130.77 184.86 81.70 55.00
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended August 31, 1996 and thereafter
includes amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 3, 1995+
operating performance Year ended August 31 to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
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 1.19(c) 1.16 1.14(c) .21(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.34) .73 .11 .07
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.15) 1.89 1.25 .28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.25) (1.11) (1.13) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01) -- (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.26) (1.11) (1.15) (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $11.47 $12.88 $12.10 $12.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.94) 16.33 10.88 2.38*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $19,256 $24,382 $16,616 $964
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.20 1.21 1.19 .20*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.10 9.29 9.45 1.65*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 69.23 130.77 184.86 81.70
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended August 31, 1996 and thereafter
includes amounts paid through expense offset arrangements. Prior period ratios exclude
these amounts. (Note 2)
(c) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
Notes to financial statements
August 31, 1998
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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. 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 bonds is
amortized on a yield-to-maturity basis.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and 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 year ended
August 31, 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, 1998, the fund had a capital loss carryover of approximately
$402,432,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
- ---------------- ----------------
$239,466,000 August 31, 1999
110,228,000 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. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, post-October loss
deferrals, defaulted bond interest, unrealized gains and losses on certain
futures contracts, and interest on payment-in-kind securities.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended August 31,
1998, the fund reclassified $3,403,986 to decrease distributions in excess
of net investment income and $7,529,941 to increase paid-in-capital, with
an increase to accumulated net realized losses of $10,933,927. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of
the next $500 million, and 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 year ended August 31, 1998, fund expenses were reduced by
$1,535,391 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 $2,930
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 have approved payment by the fund to an annual
rate of 0.25%, 1.00% and 0.50% of the average net assets attributable to
class A, class B and class M shares respectively.
For the year ended August 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $387,099 and $2,050 from the sale
of class A and class M shares, respectively and $1,736,541 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended August 31, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received $14,911 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended August 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $3,096,308,440 and
$3,451,153,353, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Capital shares
At August 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
August 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 25,577,181 $333,528,744
- -----------------------------------------------------------------------------
Shares reinvested 12,674,739 164,535,205
- -----------------------------------------------------------------------------
38,251,920 498,063,949
Shares
repurchased (45,120,605) (585,257,649)
- -----------------------------------------------------------------------------
Net decrease (6,868,685) $(87,193,700)
- -----------------------------------------------------------------------------
Year ended
August 31, 1997
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 41,083,036 $511,651,526
- -----------------------------------------------------------------------------
Shares reinvested 11,857,051 147,992,055
- -----------------------------------------------------------------------------
52,940,087 659,643,581
Shares
repurchased (57,452,226) (718,420,012)
- -----------------------------------------------------------------------------
Net decrease (4,512,139) $(58,776,431)
- -----------------------------------------------------------------------------
Year ended
August 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 10,055,130 $130,832,944
- -----------------------------------------------------------------------------
Shares reinvested 3,995,549 51,694,415
- -----------------------------------------------------------------------------
14,050,679 182,527,359
Shares
repurchased (21,435,734) (275,673,256)
- -----------------------------------------------------------------------------
Net decrease (7,385,055) $(93,145,897)
- -----------------------------------------------------------------------------
Year ended
August 31, 1997
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 36,792,022 $456,322,400
- -----------------------------------------------------------------------------
Shares reinvested 3,842,481 47,809,690
- -----------------------------------------------------------------------------
40,634,503 504,132,090
Shares
repurchased (36,335,915) (452,370,778)
- -----------------------------------------------------------------------------
Net increase 4,298,588 $ 51,761,312
- -----------------------------------------------------------------------------
Year ended
August 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 241,153 $ 3,146,665
- -----------------------------------------------------------------------------
Shares reinvested 108,525 1,408,515
- -----------------------------------------------------------------------------
349,678 4,555,180
Shares
repurchased (563,137) (7,323,302)
- -----------------------------------------------------------------------------
Net decrease (213,459) $(2,768,122)
- -----------------------------------------------------------------------------
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 owned at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- -------------------------------------------------------------------
PSF Holdings LLC -- -- -- $20,773,604
- -------------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 8.41% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
Steven M. Oristaglio
Vice President
William J. Curtin
Vice President
Jennifer E. Leichter
Vice President and Fund Manager
Gail S. Attridge
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
- ---------------
AN034 45959-014/324/2AC 8/98
