Putnam
High Yield
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
It is satisfying to note that after weathering a somewhat turbulent market
environment during the fiscal year's first half, Putnam High Yield Trust
ended the year on a generally favorable note. As the market became
somewhat more settled during the second half, your fund's managers believe
that its recent performance has created a positive backdrop for fiscal
2000.
The economy's continuing strength and the Federal Reserve Board's
restrained policy on interest rates have contributed to the development of
a climate that tends to favor high-yield bonds. In fact, there is growing
evidence that this emerging trend has already begun to reignite
risk-sensitive investors' interest in the high-yield bond market.
The following report from your fund's management provides a detailed
discussion of fund performance and prospects for fiscal 2000. I believe
you will find it compelling reading.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
October 20, 1999
Report from the Fund Managers
Rosemary H. Thomsen
Jeffrey A. Kaufman
Over the past 12 months, high-yield bond investors faced more twists and
turns than did travelers on San Francisco's legendary Lombard Street. The
first sharp curve came as the fiscal year began with a global flight to
quality as investors shunned high-yield bonds in their search for safer
havens. The next bend in the road came last fall when the investment
climate grew more accepting to risk and investors were drawn to the
high-yield sector's attractive yields. The last little turn in the road
came this past summer when some investors, concerned about higher interest
rates and equity market weakness shied away from high-yield bonds. Putnam
High Yield Trust's performance for the 12 months ended August 31, 1999,
reflects this convoluted path.
Total return for 12 months ended 8/31/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------
1.76% -3.06% 0.99% -3.57% 1.42% -1.92%
- -----------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* HIGH-YIELD BONDS EXPERIENCE HIGHS AND LOWS
The flight to quality that swept the globe last summer made for one of the
most challenging environments for high-yield bonds since 1990's
recessionary summer. Worried by Russia's financial collapse, investors
became highly risk averse in the summer months of 1998. At the peak of the
rush to safety, yield spreads against Treasuries widened substantially.
A second bout of turbulence hit the market with the anticipated sale of
the high-yield holdings of Long Term Capital Management. This distressed
hedge fund was hit with massive margin calls that forced it to liquidate
holdings and triggered a $3.6 billion bailout. In the aftermath, other,
smaller hedge funds rushed to liquidate their higher-risk holdings,
prompting a worldwide stampede to the safer haven of U.S. Treasuries. The
yield differential between Treasuries and all other sectors of the
fixed-income market increased dramatically as a result. Concurrently --
since yield moves in the opposite direction of price -- the value of
non-Treasury investments fell precipitously and the high-yield market was
hit especially hard.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 13.9%
Broadcasting 6.6%
Cable television 6.1%
Telephone services 4.4%
Gaming 3.8%
Footnote reads:
*Based on net assets as of 8/31/99. Holdings will vary over time.
Early in 1999, things changed for the better as the high-yield market
staged a sharp recovery. Investors began taking profits on higher-quality
investments and accepting risk back into their portfolios. High-yield
spreads against Treasuries narrowed and net cash flows into the high-yield
asset class once again became positive as investors were drawn to the
sector's attractive yields.
However, high-yield bonds experienced a minor setback as your fund
approached the end of its fiscal year. This past summer, most bond sectors
came under pressure once again, this time amid fears of rising interest
rates and equity market weakness. The accelerating pace of global economic
growth drove high-yield bond yields higher in markets worldwide.
* FED MAKES SEVERAL RATE ADJUSTMENTS TO REASSURE INVESTORS
Over the course of your fund's fiscal year, the Federal Reserve Board cut
short-term interest rates three times and increased them twice. The three
successive rate cuts enacted last fall served to inject liquidity into the
global marketplace and to ease fears about a worldwide financial crisis.
Faced with indications of an accelerating U.S. economy, investors
subsequently expressed concern that the Fed would implement a series of
interest rate increases. The Fed initiated a modest quarter of a
percentage point increase in June -- the first in two years -- followed by
another quarter of a percentage point increase in August.
[GRAPHIC OMITTED: worm chart HIGH-YIELD BONDS VERSUS OTHER CORPORATE
SECURITIES]
HIGH-YIELD BONDS VERSUS OTHER CORPORATE SECURITIES
First Boston Lehman Brothers
High Yield Corporate
Date Bond Index Bond 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%
8/31/99 83.48% 60.15%
Footnote reads:
Past performance is not indicative of future results. This chart
demonstrates that high-yield bonds, as represented by the First Boston
High Yield Bond Index, generally outperformed investment-grade corporate
bonds, as represented by the Lehman Brothers Corporate Bond Index, during
the period shown. 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.
Combined with the global flight to quality last fall, the rate cuts helped
push the yield on the benchmark 30-year Treasury bond down -- and its
price up -- to levels last seen in the 1960s. Conversely, the anticipation
of the Fed's interest-rate increase this past spring, combined with a more
relaxed attitude among investors toward riskier investments, added fuel to
already rising yields and propelled the long-term bond's yield past the
psychologically important 6% mark.
"In our opinion, the remarkably sustained combination of strength and low
inflation exhibited by the U.S. economy bodes well for the high-yield market."
- -- Rosemary H. Thomsen, fund manager
In our opinion, the Fed's gradualist approach to interest-rate tightening
bodes well for the high-yield market, which typically does well in periods
of slowly rising rates. The backdrop of a strong economy and low inflation
also aided the performance of high-yield bonds.
* TELECOMMUNICATIONS AND MEDIA CONTINUE TO SERVE THE FUND WELL
As investment conditions improved for high-yield bonds, telecommunications
and media were among the top-performing sectors within the high-yield
market and continued to be a key focus for your fund. Within these
industries, deregulation has created a favorable environment, allowing for
a lot of cost cutting and opportunities for growth. Many of the issuers
represented in your portfolio -- Covad Communications Group, PSINet Inc,
and Charter Communications Holdings -- either have issued or will soon
issue stock, prompting credit improvements and therefore higher prices for
their bonds. While these holdings and others discussed in this report were
viewed favorably at the end of the fiscal period, all holdings are subject
to review and adjustment in accordance with the fund's investment strategy
and may well vary in the future.
"Adding a high-yield bond mutual fund to your existing investment portfolio
may actually reduce the investment risk ... The high-yield sector does not
move in lockstep with either the equity or bond markets. As a result,
increases and decreases in the net asset value of a high-yield bond mutual
fund can smooth out some of the volatility in the value of your stocks and
better-quality-debt securities."
- -- Bloomberg Personal Finance, September 1999
Covad Communications is an example of a portfolio holding that
successfully completed an initial public offering during the period. Covad
provides high-speed digital communications services using digital
subscriber line technology to Internet service providers and customers.
During the period, Covad launched a nationwide remote access program,
integrating for the first time the company's digital subscriber line
service with the networks of investors AT&T and Qwest Communications
International. With the program, Covad is targeting its new TeleSpeed
Remote service to small to midsize businesses that want to connect remote
offices in other cities. The new service is dramatically faster than long
distance dial-up service.
Stricter Medicare reimbursement formulas negatively affected the
performance of several long-term nursing care bonds such as Sun Healthcare
and Mariner Post-Acute Network, Inc. Your fund's position in United
Artists Theatre, along with other movie exhibition companies, reported
disappointing earnings toward the end of the period. The onslaught of new
multiplexes has resulted in over capacity in the marketplace, hurting the
performance of movie exhibition companies.
* MODERATELY POSITIVE OUTLOOK FOR HIGH-YIELD BONDS
Given the solid fundamentals of the U.S. economy and corporate America, we
believe that high-yield bonds continue to present attractive investment
opportunities. In our opinion, at the end of fiscal 1999 the high-yield
market was fairly valued versus other market sectors. We believe that
yield spreads may widen slightly in the next few months, but that yield
premiums will be sufficient to allow the high-yield market to outperform
other fixed-income sectors. As the calendar year-end nears, we expect to
see a rise in year 2000 (Y2K) concerns, which may negatively affect
liquidity across all markets.
Returns for the remainder of 1999 will probably come from individual
security selection rather than from overall market movement. We expect the
Fed to maintain its preemptive attitude on interest rates, to keep a tight
rein on inflation, and to slow economic growth. In the short term, these
events may likely cause some market turbulence; however, your fund will
seek to minimize potential volatility while maximizing any resulting
opportunities.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 8/31/99, 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, primarily 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 8/31/99
Class A Class B Class M
(inception dates) (2/14/78) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------
1 year 1.76% -3.06% 0.99% -3.57% 1.42% -1.92%
- -------------------------------------------------------------------------
5 years 43.42 36.62 38.19 36.46 41.58 36.93
Annual average 7.48 6.44 6.68 6.41 7.20 6.49
- -------------------------------------------------------------------------
10 years 138.97 127.62 121.41 121.41 132.69 125.20
Annual average 9.10 8.57 8.27 8.27 8.81 8.46
- -------------------------------------------------------------------------
Annual average
(life of fund) 10.25 10.00 9.27 9.27 9.82 9.65
- -------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/99
First Boston
High Yield Consumer
Bond Index price index
- -------------------------------------------------------------------------
1 year 4.74% 2.33%
- -------------------------------------------------------------------------
5 years 52.96 12.21
Annual average 8.87 2.33
- -------------------------------------------------------------------------
10 years 167.77 34.19
Annual average 10.35 2.98
- -------------------------------------------------------------------------
Annual average
(life of fund) --* 4.65
- -------------------------------------------------------------------------
*Comparative return information for the First Boston High Yield Bond
Index is not available for this period.
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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 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 8/31/89
First Boston
Fund's class A High Yield Consumer price
Date shares at POP Bond Index index
8/31/89 9,525 10,000 10,000
8/31/90 8,802 9,368 10,562
8/31/91 10,780 11,922 10,963
8/31/92 13,530 14,594 11,308
8/31/93 15,491 16,896 11,621
8/31/94 15,872 17,506 11,958
8/31/95 17,579 19,819 12,271
8/31/96 19,526 21,830 12,624
8/31/97 22,767 25,198 12,905
8/31/98 22,369 25,565 13,114
8/31/99 $22,762 $26,777 $13,419
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 $22,141 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares would have been
valued at $23,269 ($22,520 at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/99
Class A Class B Class M
- ---------------------------------------------------------------------------
Distributions (number) 12 12 12
- ---------------------------------------------------------------------------
Income $1.129 $1.050 $1.104
- ---------------------------------------------------------------------------
Capital gains -- -- --
- ---------------------------------------------------------------------------
Return of capital* 0.058 0.054 0.057
- ---------------------------------------------------------------------------
Total $1.187 $1.104 $1.161
- ---------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ---------------------------------------------------------------------------
8/31/98 $11.47 $12.04 $11.43 $11.47 $11.86
- ---------------------------------------------------------------------------
8/31/99 10.46 10.98 10.42 10.45 10.80
- ---------------------------------------------------------------------------
Current return (end of period)
- ---------------------------------------------------------------------------
Current dividend rate1 10.44% 9.95% 9.67% 10.22% 9.89%
- ---------------------------------------------------------------------------
Current 30-day SEC yield2 10.67 10.16 9.91 10.42 10.08
- ---------------------------------------------------------------------------
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.
*See page 46.
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (2/14/78) (3/1/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
1 year 2.56% -2.33% 1.89% -2.71% 2.32% -1.04%
- ----------------------------------------------------------------------------
5 years 41.99 35.23 37.08 35.36 40.42 35.88
Annual average 7.26 6.22 6.51 6.24 7.03 6.32
- ----------------------------------------------------------------------------
10 years 140.31 128.92 122.98 122.98 134.42 126.80
Annual average 9.16 8.63 8.35 8.35 8.89 8.53
- ----------------------------------------------------------------------------
Annual average
(life of fund) 10.16 9.92 9.19 9.19 9.74 9.57
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 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 class B 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.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended August 31, 1999
To the Trustees and Shareholders of
Putnam High Yield Trust
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, 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, 1999, 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, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 12, 1999
<TABLE>
<CAPTION>
The fund's portfolio
August 31, 1999
CORPORATE BONDS AND NOTES (82.9%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C>
Advertising (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
$ 3,145,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 3,286,525
10,950,000 Aoa Holdings LLC 144A sr. notes 10 3/8s, 2006 10,955,699
4,805,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 4,732,925
6,210,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 6,256,575
2,645,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 2,645,000
2,000,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 2,100,000
--------------
29,976,724
Aerospace and Defense (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,270,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 3,757,600
4,410,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 3,880,800
3,425,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 3,484,938
2,970,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 3,014,550
5,440,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 5,072,800
6,610,000 Burke Industries, Inc. company guaranty 10s, 2007 4,759,200
30,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 30,300
4,610,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 4,529,325
5,150,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 5,343,125
2,050,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,973,125
4,380,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 4,084,350
--------------
39,930,113
Agriculture (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
15,553,997 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 14,387,447
Airlines (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
6,580,000 Calair LLC 144A company guaranty 8 1/8s, 2008 6,004,250
6,110,000 Canadian Airlines Corp. sr. notes 12 1/4s, 2006 (Canada) 4,032,600
11,840,000 Canadian Airlines Corp. secd. notes 10s, 2005 (Canada) 10,064,000
4,460,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 4,493,450
10,355,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 8,853,525
7,340,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 4,697,600
--------------
38,145,425
Apparel (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
6,900,000 Fruit of the Loom company guaranty 8 7/8s, 2006 4,485,000
3,310,000 GFSI, Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(11 3/8s, 9/15/04), 2009 (STP) 2,317,000
11,650,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 11,650,000
5,850,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 5,879,250
--------------
24,331,250
Automotive (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,070,000 Dura Operating Corp. 144A sr. sub. notes 9s, 2009 5,766,500
12,920,000 Federal Mogul Corp. notes 7 1/2s, 2009 11,761,334
4,350,000 Transportation Manufacturing Operations Inc. 144A company
guaranty 11 1/4s, 2009 4,306,500
--------------
21,834,334
Automotive Parts (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,599,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 4,690,980
5,775,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 5,890,500
5,870,000 Hayes Lemmerz International, Inc. company guaranty Ser. B,
8 1/4s, 2008 5,429,750
7,950,000 Lear Corp. sub. notes 9 1/2s, 2006 8,208,375
10,820,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 10,657,700
7,910,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 5,932,500
1,800,000 SanLuis Corp. S.A. sr. notes 8 7/8s, 2008 (Mexico) 1,458,000
--------------
42,267,805
Banks (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,550,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 4,572,750
11,000,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 9,350,000
6,400,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 6,373,760
9,120,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 9,007,094
3,830,000 North Fork Capital Trust I company guaranty 8.7s, 2026 3,710,351
6,365,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 5,932,053
6,475,000 Provident Capital Trust company guaranty 8.6s, 2026 6,131,307
1,450,000 Riggs Capital Trust 144A company guaranty 8 7/8s, 2027 1,378,298
3,690,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 3,417,457
5,300,000 Sovereign Capital Trust company guaranty 9s, 2027 5,062,772
1,225,000 Webster Capital Trust I 144A bonds 9.36s, 2027 1,176,355
--------------
56,112,197
Basic Industrial Products (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,180,000 American Standard Companies, Inc. sr. notes 7 3/8s, 2008 1,983,800
3,060,000 Applied Power Inc. sr. sub. notes 8 3/4s, 2009 2,891,700
11,192,960 Grove Investors LLC 144A 14 1/2s, 2010 (PIK) 3,805,606
920,000 Koppers Industries, Inc. 144A company guaranty 9 7/8s, 2007 855,600
4,710,000 Paragon Corp. Holdings, Inc. company guaranty Ser. B,
9 5/8s, 2008 2,119,500
4,300,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 3,956,000
--------------
15,612,206
Broadcasting (4.9%)
- --------------------------------------------------------------------------------------------------------------------------
5,850,000 Ackerly Group, Inc. sr. sub. notes Ser. B, 9s, 2009 5,586,750
9,260,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 7,639,500
4,000,000 Allbritton Communications Co. sr. sub. deb. Ser. B, 9 3/4s, 2007 3,980,000
2,110,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 2,025,600
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) 34
2,555,791 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000
(In default) (Australia) (NON) 393,592
6,000,000 Benedek Broadcasting bank term loan B 8.981s, 2007 5,985,000
15,150,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 12,839,625
17,685,000 Capstar Broadcasting sr. disc. notes stepped-coupon zero %
(12 3/4s, 2/1/02), 2009 (STP) 14,855,400
7,560,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 7,635,600
3,800,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004
(Bermuda) 2,090,000
17,710,000 Chancellor Media Corp. company guaranty 8s, 2008 16,957,325
6,914,690 Citadel Broadcasting, Inc. sr. sub. notes 10 1/4s, 2007 7,191,278
4,010,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 3,949,850
5,490,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 5,146,875
860,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 849,250
8,775,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 8,489,813
5,125,000 Heritage Media Services Corp. sr. sub. notes 8 3/4s, 2006 5,265,938
14,200,000 Interact Systems, Inc. sr. disc. notes 14s, 2003 2,556,000
8,057,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 8,314,985
2,150,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 2,128,500
8,330,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 9,163,000
7,214,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 6,009,983
9,700,000 Radio One Inc. company guaranty Ser. B, stepped-coupon 7s,
(12s, 5/15/00), 2004 (STP) 9,991,000
2,000,000 TV Azteca S.A. de C.V. sr. notes 11s, 2002 (Mexico) 1,560,000
3,550,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 2,680,250
2,580,000 TV Azteca S.A. de C.V. sr. notes Ser. A, 10 1/8s, 2004 (Mexico) 2,025,300
--------------
155,310,448
Building and Construction (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
13,040,000 D.R. Horton, Inc. company guaranty 8s, 2009 11,996,800
14,275,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 7,137,500
1,700,000 GS Superhighway Holdings sr. notes 9 7/8s, 2004 (China) 850,000
3,320,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 3,170,600
4,410,000 NCI Building Systems Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 4,288,725
967,719 Terex Corp. bank term loan B 8.18s, 2005 965,300
3,310,000 Toll Corp. company guaranty 8 1/8s, 2009 3,136,225
--------------
31,545,150
Building Products (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,370,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 2,403,500
686,000 American Standard, Inc. company guaranty 7 5/8s, 2010 631,120
9,726,000 American Standard, Inc. company guaranty 7 3/8s, 2005 9,191,070
2,540,000 Atrium Companies Inc. 144A sr. sub. notes 10 1/2s, 2009 2,470,150
7,220,000 Building Materials Corp. company guaranty 8s, 2008 6,606,300
--------------
21,302,140
Business Equipment and Services (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,950,000 Cex Holdings, Inc. company guaranty Ser. B, 9 5/8s, 2008 4,993,313
4,285,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 4,156,450
4,983,278 Outsourcing Solutions, Inc. 144A bank term loan 8.621s, 2004 4,871,154
4,740,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 5,154,750
5,140,000 Unisys Corp. sr. notes Ser. B, 12s, 2003 5,551,200
7,321,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 7,934,134
13,710,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 8,020,350
4,992,593 U.S. Office Products Co. bank term loan Ser. B, FRN 7.80s, 2006 4,293,630
--------------
44,974,981
Cable Television (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
23,175,000 21st Century Telecom Group, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 10,370,813
11,605,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 11,779,075
8,460,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 7,910,100
2,775,000 Century Communications Corp. sr. notes 8 7/8s, 2007 2,670,938
2,850,000 Century Communications Corp. sr. notes 8 3/4s, 2007 2,736,000
3,150,000 Century Communications Corp. sr. notes 8 3/8s, 2007 2,945,250
19,630,000 Charter Communications Holdings LLC 144A sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 11,876,150
13,950,000 Charter Communications Holdings LLC 144A sr. notes
8 5/8s, 2009 13,496,625
2,320,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2023 2,482,400
9,020,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 9,335,700
2,275,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 2,076,506
2,770,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 2,678,008
2,700,000 CSC Holdings, Inc. deb. 7 5/8s, 2018 2,400,678
8,500,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 7,650,000
20,190,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 15,849,150
2,390,000 Globo Communicacoes 144A sr. notes 10 5/8s, 2008 (Brazil) 1,696,900
2,400,000 Globo Communicacoes company guaranty 10 1/2s, 2006
(Brazil) 1,752,000
1,875,000 Globo Communicacoes 144A company guaranty 10 1/2s, 2006
(Brazil) 1,368,750
19,120,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 11,137,400
7,360,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 7,820,000
5,170,000 NTL Inc. sr. notes Ser. B, stepped-coupon zero % (9 3/4s,
4/1/03), 2008 (United Kingdom) (STP) 3,412,200
2,370,000 RCN Corp. sr. disc. notes stepped-coupon zero % (11 1/8s,
10/15/02), 2007 (STP) 1,564,200
1,030,000 Rogers Cablesystems Ltd. notes 11s, 2015 (Canada) 1,158,750
450,000 Rogers Cablesystems Ltd. company guaranty 10s, 2007
(Canada) 475,875
115,000 Rogers Cablesystems Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 121,325
2,117,000 Rogers Cablesystems Ltd. notes 9 5/8s, 2002 (Canada) 2,169,925
7,850,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(Argentina) (In default) (NON) 3,925,000
1,430,000 TeleWest Communications Plc 144A 11 1/4s, 2008
(United Kingdom) 1,587,300
8,000,000 TeleWest Communications Plc 144A sr. disc. notes
stepped-coupon zero % (9 1/4, 4/15/04), 2009
(United Kingdom) (STP) 4,890,000
9,180,000 United Pan-Europe N.V. 144A sr. disc. notes stepped-coupon
zero % (12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 5,140,800
9,180,000 United Pan-Europe N.V. 144A sr. notes 10 7/8s, 2009
(Netherlands) 9,202,950
--------------
163,680,768
Cellular Communications (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,950,000 Celcaribe S.A. sr. notes 13 1/2s, 2004 (Colombia) 5,560,000
4,916,000 Cellco Finance Corp. NV 144A sr. sub. notes 15s, 2005
(Netherlands) 5,112,640
31,996,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 13,438,320
8,965,000 Conecel Holdings 144A notes Ser. A, 14s, 2000
(United Kingdom) (In default) (NON) 1,165,450
8,170,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 8,619,350
30,125,000 McCaw International Ltd sr. disc. notes stepped coupon
zero % (13s, 4/15/02), 2007 (STP) 17,321,875
41,190,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 30,583,575
360,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 180,000
14,380,000 NEXTEL Communications, Inc. sr. notes 12s, 2008 15,997,750
9,320,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9.95s, 2/15/03), 2008 (STP) 6,430,800
495,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 346,500
375,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 378,750
--------------
105,135,010
Chemicals (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,380,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 5,933,400
4,590,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 4,314,600
14,950,000 Huntsman ICI Chemicals Inc. 144A sr. sub. notes 10 1/8s, 2009 14,688,375
7,065,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 7,135,650
20,115,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 20,115,000
2,416,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 2,416,000
9,425,000 PCI Chemicals & Pharmaceuticals company guaranty 9 1/4s,
2007 (India) 6,597,500
6,355,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 4,702,700
2,447,289 Pioneer Americas Acquisition bank term loan FRN 7.875s, 2006 1,957,831
1,445,253 Pioneer Americas Acquisition bank term loan FRN 7.54s, 2006 1,098,392
11,647,969 Polytama International notes 11 1/4s, 2007 (Indonesia) (PIK) 2,096,634
5,850,000 Royster-Clark Inc. 144A 1st mtge 10 1/4s, 2009 5,557,500
7,140,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 1,785,000
4,730,000 Sterling Chemicals Inc. 144A sec. notes 12 3/8s, 2006 4,730,000
6,965,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 3,900,400
--------------
87,028,982
Computer Services and Software (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,975,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 3,019,625
8,920,000 PSINet, Inc. sr. notes 11 1/2s, 2008 9,053,800
11,450,000 PSINet, Inc. 144A sr. notes 11s, 2009 11,306,875
640,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 614,400
13,185,000 Unisys Corp. sr. notes 11 3/4s, 2004 14,536,463
2,000,000 Unisys Corp. sr. notes 7 7/8s, 2008 1,950,000
4,070,000 Verio Inc. sr. notes 11 1/4s, 2008 4,131,050
2,530,000 Verio Inc. sr. notes 10 3/8s, 2005 2,517,350
--------------
47,129,563
Consumer Durable Goods (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
7,980,000 Albecca Inc. company guaranty 10 3/4s, 2008 6,124,650
5,000,000 Doskcil Manufacturing Co 144A sr. sub. notes 10 1/8s, 2007 2,900,000
2,090,000 Iron Age Corp. company guaranty 9 7/8s, 2008 1,630,200
13,500,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 11,677,500
6,586,958 Sealy Mattress Co. 144A sr. notes 12s, 2008 (PIK) 6,349,169
--------------
28,681,519
Consumer Services (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
19,294,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 20,692,815
2,470,000 Protection One, Inc. sr. disc. notes stepped-coupon zero %
(13 5/8s, 6/30/00), 2005 (STP) 2,223,000
--------------
22,915,815
Containers (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
8,575,000 Consumers International 144A sr. notes 10 1/4s, 2005
(Canada) 8,532,125
2,930,000 Kappa Beheer BV. 144A company guaranty 10 5/8s, 2009
(New Zealand) 3,006,913
1,890,000 Vicap SA. company guaranty 11 3/8s, 2007 (Mexico) 1,568,700
--------------
13,107,738
Cosmetics (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,275,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 3,246,344
2,205,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 2,138,850
4,390,000 Revlon Consumer Products sr. notes 9s, 2006 4,093,675
3,665,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 3,041,950
--------------
12,520,819
Electric Utilities (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Calpine Corp. sr. notes 10 1/2s, 2006 4,220,000
2,185,000 Calpine Corp. sr. notes 7 7/8s, 2008 2,075,750
2,025,000 Calpine Corp. sr. notes 7 3/4s, 2009 1,871,505
7,350,000 CMS Energy Corp. pass-through certificates 7s, 2005 6,967,433
7,860,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 7,306,656
15,100,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 18,154,428
44,875,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 50,819,143
2,025,000 North Atlantic Energy Corp. 1st mtge. Ser. A, 9.05s, 2002 2,070,684
3,718,781 Northeast Utilities System notes Ser. A, 8.58s, 2006 3,755,783
6,929,984 Northeast Utilities System notes Ser. B, 8.38s, 2005 6,866,228
11,130,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 11,018,700
--------------
115,126,310
Electronic Components (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,485,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 6,160,750
4,030,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 3,949,400
1,405,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 1,138,050
--------------
11,248,200
Electronics (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,585,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s, 2006
(Canada) 1,672,175
5,450,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 5,572,625
5,745,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 4,983,788
4,820,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 4,181,350
--------------
16,409,938
Energy-Related (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,670,000 AES Corp. sr. notes 9 1/2s, 2009 8,713,350
18,680,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004
(China) 10,087,200
10 Subic Power Corp. 144A sec. 9 1/2s, 2008 9
--------------
18,800,559
Entertainment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
8,190,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 8,108,100
5,990,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 5,750,400
6,880,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 6,518,800
5,000,000 SFX Entertainment, Inc. bank term loan Ser. B, 8.985s, 2006 5,000,000
--------------
25,377,300
Environmental Control (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
16,170,000 Allied Waste Industries, Inc. 144A sr. sub. notes 10s, 2009 15,523,200
4,500,000 Allied Waste Industries, Inc. bank term loan C FRN 8.25s, 2007 4,567,905
3,750,000 Allied Waste Industries, Inc. bank term loan B FRN 8.063s, 2006 3,762,000
5,900,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 5/8s, 2006 5,383,750
2,530,000 Waste Management, Inc. sr. notes 7 1/8s, 2007 2,258,025
320,000 Waste Management, Inc. 144A sr. notes 6 7/8s, 2009 276,400
--------------
31,771,280
Financial Services (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
13,440,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 10,180,800
8,950,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 5,985,313
14,125,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 13,096,841
3,300,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 3,281,355
3,395,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 2,919,700
5,240,000 Capital One Financial Corp. notes 7 1/8s, 2008 4,815,455
6,610,000 Colonial Capital II 144A company guaranty 8.92s, 2027 6,053,312
12,490,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 4,309,050
4,225,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 1,436,500
3,920,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 1,411,200
4,105,000 CSBI Capital Trust I 144A company guaranty 11 3/4s, 2027 4,392,350
7,678,000 Green Tree Acceptance Corp. sr. sub. notes 10 1/4s, 2002 8,010,688
6,620,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 5,296,000
6,700,000 Local Financial Corp. sr. notes 11s, 2004 6,901,000
3,755,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 2,440,750
6,900,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 6,770,625
4,140,000 Ocwen Financial Corp. notes 11 7/8s, 2003 3,684,600
11,600,000 Resource America Inc. 144A sr. notes 12s, 2004 10,092,000
3,000,000 SRI Receivables Purchase 144A notes 12 1/2s, 2000 2,850,000
5,860,000 Superior Financial 144A sr. notes 8.65s, 2003 5,471,775
--------------
109,399,314
Food and Beverages (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
6,320,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 4,882,200
8,650,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 8,628,375
1,875,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 1,415,625
6,600,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 4,488,000
8,910,000 RAB Holdings, Inc. sr. notes 13s, 2008 4,009,500
6,909,000 Trairc Consumer Products, Inc. 144A sr. sub. notes
10 1/4s, 2009 6,701,730
5,670,000 Vlassic Foods Intl. Inc. 144A sr. sub. notes 10 1/4s, 2009 5,159,700
--------------
35,285,130
Gaming (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,404,414 Ameristar Casinos Inc. company guaranty Ser. B, 8s, 2004 3,875,884
7,270,000 Argosy Gaming Co. 144A sr. sub. notes 10 3/4s, 2009 7,451,750
7,860,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 7,742,100
1,750,000 Circus Circus Enterprises, Inc. deb. 7s, 2036 1,535,310
3,680,000 Circus Circus Enterprises, Inc. sr. notes 6.45s, 2006 3,243,515
5,290,000 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 (PIK) 5,025,500
15,195,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 8,167,313
10,050,000 Hollywood Casino Corp. 144A sec. notes 11 1/4s, 2007 10,100,250
1,000,000 Hollywood Park Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 977,500
4,570,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 4,421,475
8,140,000 Horseshoe Gaming Holdings 144A sr. sub. notes 8 5/8s, 2009 7,814,400
5,570,000 Isle of Capri Black Hawk LLC 144A 1st mortgage Ser. B,
13s, 2004 6,127,000
7,540,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 7,389,200
5,770,000 Park Place Entertainment sr. sub. notes 7 7/8s, 2005 5,423,800
13,350,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 (In default) (NON) 5,974,125
3,870,000 Riviera Black Hawk 144A 1st mtge. 13s, 2005 4,063,500
11,435,000 Trump A.C. 1st mtge. 11 1/4s, 2006 9,719,750
4,750,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 3,990,000
15,985,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 16,186,091
2,500,000 Trump Castle Hotel 144A sr. sub. notes 10 1/4s, 2003 2,531,250
--------------
121,759,713
Health Care (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,370,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 2,121,150
735,000 Columbia/HCA Healthcare Corp. med. term notes notes
7.69s, 2025 574,880
3,845,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 3,342,305
3,680,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 3,490,370
1,045,000 Conmed Corp. company guaranty 9s, 2008 982,300
13,340,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 8,637,650
5,770,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007 1,731,000
4,370,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008 1,311,000
4,000,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
stepped-coupon zero % (10 1/2s, 11/1/02), 2007 (STP) 200,000
17,240,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 1,034,400
3,100,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 1,550,000
10,072,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 8,045,010
5,400,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 5,130,000
11,605,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s,
2007 (In default) (NON) 1,392,600
1,750,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 210,000
1,389,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 1,319,550
9,201,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 8,464,920
7,610,000 Tenet Healthcare Corp. sr. notes 8s, 2005 7,305,600
2,450,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 2,241,750
--------------
59,084,485
Hospital Management and Medical Services (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,830,000 Lifepoint Hospital Holdings 144A sr. sub. notes 10 3/4s, 2009 2,830,000
5,210,000 Triad Hospitals Holdings 144A sr. sub. notes 11s, 2009 5,196,975
--------------
8,026,975
Lodging (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,060,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 5,272,200
10,285,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 9,500,769
7,980,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 7,142,100
1,960,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 2,018,800
14,305,000 ITT Corp. notes 6 3/4s, 2005 12,982,360
8,000,000 Starwood Hotels Resorts bank term loan 7.861s, 2003 7,990,000
--------------
44,906,229
Manufacturing (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
10,050,000 Blount Inc. 144A sr. sub. notes 13s, 2009 10,376,625
5,000,000 Blount Inc. bank term loan B 9.315s, 2006 5,000,000
7,540,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 3,619,200
--------------
18,995,825
Media (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,250,000 RBS Participacoes S.A. 144A company guaranty 11s, 2007
(Brazil) 5,857,500
Medical Supplies and Devices (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
11,215,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 10,401,913
1,500,000 Dade Behring bank term loan Ser. C, 8.965s, 2006 1,500,000
1,500,000 Dade Behring bank term loan Ser. B, 8.715s, 2006 1,500,000
3,155,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 3,273,313
7,440,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 2,827,200
6,030,000 Mediq, Inc. company guaranty 11s, 2008 4,703,400
--------------
24,205,826
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
9,315,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 7,638,300
1,030,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 1,019,700
3,530,000 WHX Corp. sr. notes 10 1/2s, 2005 3,406,450
--------------
12,064,450
Motion Picture Distribution (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
8,180,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 6,830,300
7,125,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 6,198,750
25,608,000 Diva Systems Corp. sr. disc. Notes Ser. B, stepped-coupon
zero % (12 5/8s, 3/1/03), 2008 (STP) 5,313,660
13,095,000 United Artists Theatre Ser. B, sr. sub. notes 9 3/4s, 2008 3,928,500
--------------
22,271,210
Networking (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,740,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 1,766,100
Oil and Gas (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,530,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 2,605,900
3,900,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 3,744,000
7,675,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 5,583,563
2,900,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 2,972,500
6,000,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s, 2005 (Canada) 5,863,560
2,350,000 Gulf Canada Resources, Ltd. sr. notes 8.35s, 2006 (Canada) 2,333,903
2,000,000 Gulf Canada Resources, Ltd. sr. notes 8 1/4s, 2017 (Canada) 1,808,640
3,450,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 3,381,000
2,990,000 Leviathan Gas Corp.144A sr. sub. notes 10 3/8s, 2009 3,034,850
7,690,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 7,728,450
12,223,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 11,917,425
2,320,000 Petro Geo-Services ADR notes 7 1/2s, 2007 (Norway) 2,272,440
9,045,000 Petroleos Mexicanos P/p 144A company guaranty 9 3/8s, 2008
(Mexico) 9,225,900
5,495,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 2,733,763
10,040,000 RBF Finance Co. company guaranty 11 3/8s, 2009 10,642,400
2,230,000 RBF Finance Co. company guaranty 11s, 2006 2,302,475
2,120,000 Seagull Energy sr. sub notes 8 5/8s, 2005 2,077,600
4,755,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 1,902,000
3,050,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 3,011,875
2,950,000 Triton Energy Ltd. sr. notes 9 1/4s, 2005 2,854,361
12,280,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 12,525,600
1,070,000 Vintage Petroleum sr. sub. notes 9s, 2005 1,064,650
--------------
101,586,855
Packaging and Containers (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
10,810,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 10,404,625
7,515,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 7,158,038
11,940,000 Jefferson Smurfit bank term loan Ser. B, FRN 8.625s, 2006 11,940,000
1,880,000 Owens-Illinois, Inc. deb. 7.8s, 2018 1,737,609
8,020,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 7,640,734
2,160,000 Packaging Corp. 144A sr. sub. notes 9 5/8s, 2009 2,187,000
1,035,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 1,003,950
6,510,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 6,558,825
2,845,000 Riverwood International Corp. company guaranty 10 1/4s, 2006 2,845,000
13,517,971 Riverwood International Corp. bank term loan 8.016s, 2003 13,692,353
--------------
65,168,134
Paper and Forest Products (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
8,472,578 Alabama River Newsprint bank term loan FRN 7.125s, 2002 6,947,514
11,375,000 APP Finance II Mauritius Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 6,881,875
3,000,000 Boise Cascade Co. notes 7.35s, 2004 2,923,380
5,610,000 Doman Industries 144A sec. notes 12s, 2004 (Canada) 5,610,000
8,080,000 Pacifica Papers, Inc. 144A sr. notes 10s, 2009 (Canada) 8,201,200
11,295,000 Pindo Deli Finance Mauritius Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 6,777,000
5,340,000 Repap New Brunswick 144A sec. notes 11 1/2s, 2004
(Canada) 5,366,700
4,715,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 4,054,900
5,000,000 Stone Container Corp. sr. notes 12.58s, 2016 5,487,500
4,270,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009
(Canada) 4,163,250
--------------
56,413,319
Pharmaceuticals (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
9,705,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 9,535,163
3,000,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 2,782,500
--------------
12,317,663
Photography (--%)
- --------------------------------------------------------------------------------------------------------------------------
2,760,000 PX Escrow Corp. sr. disc. notes stepped-coupon zero %
(9 5/8s, 2/1/02), 2006 (STP) 1,490,400
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
12,780,000 Affinity Group Holdings sr. notes 11s, 2007 12,013,200
2,600,000 American Media Operation, Inc. 144A sr. sub. notes
10 1/4s, 2009 2,515,500
2,450,000 Perry-Judd company guaranty 10 5/8s, 2007 2,278,500
4,636,727 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 4,312,156
--------------
21,119,356
Railroads (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,205,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 783,250
1,960,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,685,600
13,545,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 7,043,400
--------------
9,512,250
Restaurants (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 7,120,000
Retail (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
7,115,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 6,759,250
2,000,000 K mart Corp. med. term notes 9s, 2020 1,843,140
2,000,000 K mart Corp. med. term notes 8.96s, 2019 1,838,460
842,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 791,480
8,635,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 8,894,050
5,265,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 4,356,788
3,900,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 3,744,000
--------------
28,227,168
Satellite Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,373,529 Direct Sat 1 144A notes 8 1/4s, 2001 1,373,529
1,320,983 Echostar I 144A sr. notes 8 1/4s, 2001 1,320,983
9,210,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 9,900,750
3,500,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 2,590,000
5,015,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s, 2004
(Mexico) 3,936,775
9,763,000 Satelites Mexicanos S.A. de C.V. 144A company guaranty
FRB 9.06s, 2004 (Mexico) 9,177,220
--------------
28,299,257
Semiconductors (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,092,620 Cirent Semiconductor sr. sub. notes 10.22s, 2002 3,990,304
4,695,813 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 4,578,418
4,055,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 3,943,488
3,290,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 2,993,900
--------------
15,506,110
Shipping (--%)
- --------------------------------------------------------------------------------------------------------------------------
3,700,000 Pegasus Shipping company guaranty Ser. A, 11 7/8s, 2004
(Bermuda) 1,295,000
Specialty Consumer Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,650,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 8,044,500
Steel (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
8,140,000 AK Steel Corp. sr. notes 9 1/8s, 2006 8,241,750
3,140,000 Armco, Inc. sr. notes 8 7/8s, 2008 3,140,000
5,750,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 5,721,250
9,932,000 UCAR Global Enterprises sr. sub. notes Ser. B, 12s, 2005 10,478,260
8,500,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 8,542,500
--------------
36,123,760
Telecommunications (12.0%)
- --------------------------------------------------------------------------------------------------------------------------
14,170,000 Barak I.T.C. sr. disc. notes Ser. B, stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 7,935,200
6,820,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 4,364,800
6,510,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 6,510,000
4,960,000 CapRock Communications Corp. sr. notes Ser. B, 12s, 2008 4,935,200
2,790,000 CapRock Communications Corp. 144A sr. notes 11 1/2s, 2009 2,762,100
16,435,000 Covad Communications Group, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13 1/2s, 03/15/03), 2008 (STP) 8,792,725
11,630,000 Covad Communications Group Inc. sr. notes 12 1/2s, 2009 11,281,100
38,440,000 DTI Holdings Inc. sr. disc. notes Ser. B, stepped-coupon zero %
(12 1/2s, 03/01/03), 2008 (STP) 13,165,700
3,465,000 Econophone, Inc. company guaranty 13 1/2s, 2007 3,672,900
18,650,000 Econophone, Inc. 144A notes stepped-coupon zero %
(11s, 2/15/03), 2008 (STP) 10,630,500
7,640,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 7,945,600
18,680,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 9,900,400
16,130,000 Focal Communications Corp. sr. disc. notes Ser. B,
stepped-coupon zero % (12 1/8s, 02/15/03), 2008 (STP) 9,032,800
1,225,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008 1,225,000
3,230,000 Globe Telecom 144A sr. notes 13s, 2009 (Philippines) 3,326,900
32,245,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 15/15/00), 2005 (STP) 27,488,863
5,815,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13s, 4/15/01), 2003 (STP) 4,855,525
4,350,000 Hyperion Telecommunications Corp. sr. sub. notes 12s, 2007 4,350,000
650,000 ICG Communications, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 370,500
75,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 (Canada) (STP) 66,563
30,210,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 16,917,600
17,610,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 (STP) 14,132,025
12,540,000 Intermedia Communications, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (11 1/4s, 7/15/02), 2007 (STP) 8,778,000
5,380,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 4,774,750
5,740,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 5,065,550
39,605,000 International Cabletel, Inc. sr. notes Ser. B, stepped-coupon
zero % (11 1/2s, 2/01/01), 2006 (STP) 35,545,488
17,150,000 IPC Information Systems Inc. sr. disc. notes zero %
(10 7/8s,11/1/99), 2008 (STP) 13,034,000
5,060,000 KMC Telecom Holdings, Inc. 144A sr. notes 13 1/2s, 2009 4,996,750
27,060,000 KMC Telecom Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 13,665,300
8,150,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 8,027,750
10,770,000 Microcell Telecommunications sr. disc. notes Ser. B,
stepped-coupon zero % (14s, 12/1/01), 2006 (Canada) (STP) 8,858,325
2,040,000 Netia Holdings B.V. 144A company guaranty
stepped-coupon zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 1,295,400
4,450,000 Netia Holdings B.V. 144A company guaranty 10 1/4s, 2007
(Poland) 3,827,000
4,080,000 Nextel Partners Inc. 144A sr. disc. notes stepped-coupon
zero % (14s, 2/1/04), 2009 (STP) 2,386,800
11,710,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 12,061,300
9,690,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 5,232,600
6,520,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 5,868,000
8,440,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 6,599,574
16,100,000 Rhythms Netconnections, Inc. sr. disc. notes Ser. B,
stepped-coupon zero % (13 1/2s, 5/15/03), 2008 (STP) 8,130,500
2,850,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 2,892,750
7,140,000 Startec Global Communications Corp. sr. notes 12s, 2008 6,069,000
3,950,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 3,752,500
4,960,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 2,976,000
12,670,000 Time Warner Telecom Inc. sr. notes 9 3/4s, 2008 12,860,050
12,510,000 WinStar Communications, Inc. sr. sub. notes 15s, 2007 14,949,450
19,580,000 WinStar Communications. Inc. sr. sub. notes 11s, 2008 17,622,000
100,000 WinStar Communications, Inc. sr. sub. notes 10s, 2008 87,000
--------------
383,017,838
Telephone Services (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
12,660,000 Allegiance Telecom, Inc. sr. disc. notes Ser. B, stepped-coupon
zero % (11 3/4s, 2/15/03), 2008 (STP) 8,039,100
21,510,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 18,713,700
26,185,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(10.8s, 5/15/04), 2009 (Canada) (STP) 14,139,900
10,905,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(9.27s, 8/15/02), 2007 (Canada) (STP) 6,979,200
2,340,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon zero %
(8.94s, 8/15/03), 2008 (Canada) (STP) 1,310,400
5,640,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 4,906,800
8,420,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) (STP) 6,904,400
5,660,000 Facilicom International sr. notes Ser. B, 10 1/2s, 2008 4,924,200
11,505,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 10,239,450
7,265,000 Logix Communications Enterprises sr. notes 12 1/4s, 2008 6,247,900
1,130,000 Long Distance International, Inc. sr. notes 12 1/4s, 2008 565,000
3,920,000 OnePoint Communications Corp. 144A sr. notes 14 1/2s, 2008 2,548,000
10,520,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 10,730,400
4,680,000 RSL Communications, Ltd. 144A notes 10 1/2s, 2008
(United Kingdom) 4,258,800
2,780,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 2,390,800
5,640,000 Transtel S.A. pass-through certificates 12 1/2s, 2007 2,763,600
4,980,000 US Xchange LLC sr. notes 15s, 2008 4,905,300
9,720,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 9,720,000
31,975,000 Viatel, Inc. sr. disc. notes stepped-coupon zero % (12 1/2s,
4/15/03), 2008 (STP) 19,504,750
1,905,000 Viatel, Inc. sr. notes 11 1/4s, 2008 1,866,900
--------------
141,658,600
Transportation (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
14,360,000 Cathay International Ltd. 144A sr. notes 13 1/2s, 2008 (China) 5,313,200
8,585,000 Johnstown America Industries, Inc. company guaranty Ser. C,
11 3/4s, 2005 8,756,700
3,650,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 3,540,500
--------------
17,610,400
Wireless Communications (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,200,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 2,464,000
320,000 Clearnet Communications, Inc. sr. disc. notes
stepped-coupon zero % (14 3/4s, 12/15/00), 2005 (STP) 294,400
5,910,000 Orbital Imaging Corp. sr. notes Ser. D, 11 5/8s, 2005 4,432,500
7,380,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 2,878,200
750,000 Paging Network, Inc. sr. sub. notes 10s, 2008 420,000
8,360,000 Telecorp PCS Inc. 144A sr. disc. notes stepped-coupon
11 5/8s, (11 5/8s, 4/15/04), 2009 (STP) 4,869,700
--------------
15,358,800
--------------
Total Corporate Bonds and Notes (cost $3,005,002,066) $2,648,156,188
PREFERRED STOCKS (7.4%) (a)
NUMBER OF SHARES VALUE
Banks (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
296,110 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) $ 16,137,995
19,825 Chevy Chase Savings Bank $3.25 pfd. 589,794
3,520 First Republic 144A 10.50% pfd. 3,502,400
--------------
20,230,189
Broadcasting (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,970 Benedek Communications $11.50 pfd. (PIK) 1,516,900
67,141 Capstar Broadcasting, Inc. 144A $12.00 pfd. (PIK) 7,721,215
296 Capstar Communications, Inc. Ser. E, $12.625 cum. pfd. (PIK) 34,336
85,339 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 9,685,977
5,825 Granite Broadcasting 144A $12.75 pfd. (PIK) 5,825,000
1,645 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 15,792,000
3,199 Pegasus Communications Corp. Ser. A, $12.75 cum. pfd. 3,199,000
11,759 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 12,934,900
--------------
56,709,328
Building and Construction (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
129,800 Brand Scaffold Services, Inc. 144A $3.625 pfd. 3,634,400
Cable Television (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
6,527 21st Century Telecom Group 144A 13.75% cum. pfd. (PIK) 3,263,500
3,600 Adelphia Communications Corp. Ser. B, $13.00 cum. pfd. 393,300
274,621 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 29,109,826
--------------
32,766,626
Cellular Communications (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,047 NEXTEL Communications, Inc. Ser. E, 11.125% pfd. (PIK) 3,001,295
Chemicals (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 ZSC Specialty Chemicals PLC $16.00 pfd. (PIK) 1,500,000
Computer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,317 Concentric Network Corp. Ser. B, 13.50% pfd. (PIK) 4,891,640
Electric Utilities (--%)
- --------------------------------------------------------------------------------------------------------------------------
49,949 Public Service Co. of New Hampshire $2.651 1st mtge. pfd. 1,248,725
Food and Beverages (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
240,000 Doane Products Co. $14.25 pfd. 10,800,000
Health Care (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
13,395,000 Fresenius Medical Capital Trust I company guaranty Ser. D,
9.00% pfd. (Germany) 13,194,075
10,730,000 Fresenius Medical Capital Trust II company guaranty 7.875%
pfd. (Germany) 9,898,425
--------------
23,092,500
Insurance and Finance (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 3,510,000
Motion Picture Distribution (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
392,000 Diva Systems Corp. Ser. C, $6.00 pfd. 1,372,000
876,252 Diva Systems Corp. Ser. D, $6.00 pfd. 3,066,882
--------------
4,438,882
Oil and Gas (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,858 R&B Falcon Corp. 13.875% pfd. 4,566,520
Packaging and Containers (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
33,960 Packaging Corp. America 144A $12.375 pfd. (PIK) 3,701,640
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
133,012 AmeriKing, Inc. $3.25 pfd. (PIK) 1,862,168
Telecommunications (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
6,479 Dobson Communications Corp. 13.00% pfd. 6,219,840
9,462 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 8,326,560
1,000 Hyperion Telecommunications Ser. B, 12.875% pfd. (PIK) 895,000
9,543 ICG Holdings, Inc., 144A $14.00 pfd. (Canada) (PIK) 9,161,280
17,592 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 16,536,480
4,385 IXC Communications, Inc. Ser. B, 12.50% pfd. (PIK) 4,516,550
78,829 Nextlink Communications, Inc. 144A $7.00 cum. pfd. (PIK) 3,941,450
13,340 WinStar Communications, Inc. 144A Ser. C, 14.25%
cum. pfd. (PIK) 11,205,600
--------------
60,802,760
--------------
Total Preferred Stocks (cost $248,502,321) $ 236,756,673
CONVERTIBLE BONDS AND NOTES (2.1%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 5,500,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 $ 5,280,000
15,940,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) 8,607,600
25,690,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 14,611,188
3,900,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 5,460,000
11,350,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 10,598,063
5,000,000 Lam Research Corp. cv. sub. notes 5s, 2002 4,887,500
4,000,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 3,910,000
12,000,000 Micron Technology, Inc cv. notes 6 1/2s, 2005 9,600,000
5,050,000 Total Renal Care Holdings, Inc. 144A cv. bonds 7s, 2009 3,314,063
--------------
Total Convertible Bonds and Notes (cost $68,810,393) $ 66,268,414
COMMON STOCKS (1.5%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
9,979 Allegiance Telecom, Inc. (NON) $ 599,987
3,000 AmeriKing, Inc. (NON) 60,000
100,000 AMFM, Inc. (NON) 4,925,000
6,570 Axia Holding Inc. 144A (NON) 85,410
100,000 BE Aerospace, Inc. (NON) 1,731,250
1,663,637 Capstar Broadcasting Partners (NON) 4,117,502
258,760 CellNet Data Systems, Inc. (NON) 1,803,234
96,272 Fitzgerald Gaming Corp. (NON) 48,136
110,000 French Fragrances Inc. (NON) 838,750
105,841 Hedstrom Holdings, Inc. 144A (NON) 105,841
400,000 Isle of Capri Casinos, Inc. (NON) 3,850,000
41,666 Lady Luck Gaming Corp. (NON) 294,266
2,604 Mothers Work, Inc. (NON) 36,456
4,555 Paging Do Brazil Holdings Co., LLC 144A, Class B (Brazil) (NON) 46
293 Pegasus Communications Corp. (NON) 12,306
8,407 Premium Holdings L.P. 144A (NON) 33,628
1,185,708 PSF Holdings LLC, Class A (AFF) (NON) 14,524,923
3,901 Spanish Broadcasting System, Inc. (NON) 2,535,650
236,025 Specialty Foods Acquisition Corp. (NON) 11,801
119,190 Viatel, Inc. (NON) 4,611,163
166,960 WinStar Communications. Inc. (NON) 8,483,655
--------------
Total Common Stocks (cost $63,432,283) $ 48,709,004
UNITS (1.6%) (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) $ 2,151
8,710 Carrier1 Intl. S.A. 144A units 13 1/4s, 2009 8,884,200
11,090 CD Radio Inc. 144A units 14 1/2s, 2009 11,367,250
5,480 Cybernet 144A units 14s, 2009 5,480,000
6,510 Earthwatch Inc. 144A units stepped-coupon zero %
(13s, 1/15/00), 2007 (STP) 4,524,450
7,520 Peninsula Gaming LLC 144A units 12 1/4s, 2006 7,407,200
2,000 Signature Brands USA, Inc. units 13s, 2002 2,200,000
5,180 Tele1 Europe BV 144A units 13s, 2009 5,490,800
13,345 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 (In default) (NON) 4,870,925
60,536 XCL Ltd. 144A units cv. pfd. 9.50% (PIK) 181,608
--------------
Total Units (cost $83,333,091) $ 50,408,584
WARRANTS (1.0%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,340 21st Century Telecom Group 144A 2/15/10 $ 46,800
3,890 American Mobile Satellite Corp. 4/1/08 136,150
6,820 Bestel S.A. (Mexico) 5/15/05 204,600
6,120 Birch Telecommunications, Inc. 144A 6/15/08 336,600
45,271 Cellnet Data Systems, Inc. 10/1/07 1,131,775
130,000 CGA Group Ltd. 144A 2/11/07 1,300
11,495 Club Regina, Inc. 144A 12/1/04 11,495
8,595 Colt Telecommunications Group PLC 144A 12/31/06 3,223,125
121,027 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 12,103
30 Decrane Holdings 9/30/08 0
4,650 Diva Systems Corp. 5/15/06 837,000
76,824 Diva Systems Corp. 3/1/08 614,592
185,845 DTI Holdings Inc. 3/1/08 1,858
130 E. Spire Communications, Inc. 11/1/05 1,300
8,400 Econophone, Inc. 144A 7/1/07 840,000
6,110 Epic Resorts 6/15/05 61
8,200 Esat Holdings, Inc. (Ireland) 2/1/07 574,000
18,330 Firstworld Communication 4/15/08 1,283,100
6,135 Globalstar Telecommunications 2/15/04 460,125
19,455 Hyperion Telecommunications 144A 4/15/01 1,546,673
251,394 ICG Communications 10/15/05 4,650,789
7,540 Insilco Holding Co. 8/15/08 8
14,200 Interact Systems, Inc. 8/1/03 142
15,924 Intermedia Communications 6/1/00 1,433,160
5,125 International Wireless Communications Holdings
144A 8/15/01 26
15,030 Iridium World Com 144A 7/15/05 1,879
25,970 KMC Telecom Holdings, Inc. 4/15/08 77,910
25,920 Knology Holdings, Inc. 144A 10/15/07 64,800
1,130 Long Distance International, Inc. 144A 4/13/08 2,260
41,270 McCaw International Ltd. 4/15/07 175,398
7,440 Mediq Inc. 144A 6/1/09 74
3,900 Metronet Communications 144A 8/15/07 319,800
3,310 MGC Communications, Inc. 144A 10/1/04 296,245
98,890 Network Plus Corp. 12/31/00 7,338,627
3,920 Onepoint Communications, Inc. 6/1/08 3,920
12,550 Orion Network Systems 1/15/07 144,325
72,220 Pagemart, Inc. 144A 12/31/03 577,760
9,690 Pathnet, Inc. 144A 4/15/08 96,900
12,480 Paxson Communications Corp. 144A 6/30/03 49,920
76,800 Powertel, Inc. 2/1/06 307,200
44,150 President Riverboat Casinos, Inc. 9/30/99 1,325
4,680 R&B Falcon Corp. 144A 5/1/09 748,800
6,640 Startec Global Communications Corp. 5/15/08 6,640
6,375 Sterling Chemicals Holdings 8/15/08 95,625
4,960 Telehub Communications Corp. 7/31/05 148,800
38,235 UIH Australia/Pacific, Inc. 144A 5/15/06 1,147,050
99,620 USN Communications Inc. 8/15/04 996
9,720 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 1,555,200
4,190 WAM!NET, Inc. 3/1/05 95,323
23,250 Wireless One, Inc. 10/19/00 116
402,760 Wright Medical Technology, Inc. 144A 6/30/03 4
--------------
Total Warrants (cost $16,323,508) $ 30,603,679
COLLATERALIZED MORTGAGE OBLIGATIONS (0.6%) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$10,000,000 Criimi Mae Commercial Mortgage Trust 98-C1,
Class C, 7s, 2012 $ 6,960,938
1,667,959 Fannie Mae G93-9, Interest Only (IO), 8s, 2023 452,434
60,982 Freddie Mac 2076, Class PI, IO, 6 1/2s, 2022 9,776
892,887 Freddie Mac Strip 147, IO, 8s, 2023 255,310
4,700,000 Ggp Ala Moana 99-C1, Class F, FRB 8.11s, 2004 4,700,000
3,200,000 GS Mortgage Securities Corp. II 99-FL2A, Class G, 7.33s, 2013 2,990,000
7,253,606 Merrill Lynch Mortgage Investors, Inc. 96-C2, IO, 1.56s, 2028 509,452
61,814,637 Mortgage Capital Funding, Inc. Ser. 98-MC1, Class X, IO,
0.86s, 2009 2,395,317
--------------
Total Collateralized Mortgage Obligations (cost $18,550,989) $ 18,273,227
CONVERTIBLE PREFERRED STOCKS (0.5%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
24,040 Chesapeake Energy Corp. $3.50 cum. cv. pfd. $ 691,150
187,905 Global Telesystems, Inc. 144A $3.625 cv. pfd. 10,499,192
429 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 4,504,500
11,976 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. 35,928
--------------
Total Convertible Preferred Stocks (cost $16,160,539) $ 15,730,770
FOREIGN GOVERNMENT BONDS AND NOTES (0.1%) (a) (cost $2,527,307)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$2,550,000 Brazil (Republic of) bonds 11 5/8s, 2004 $ 2,301,375
SHORT TERM INVESTMENTS (1.2%) (a) (cost $37,194,286)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$37,200,000 Prudential Funding Corp. effective yield of 5.53%,
September 1, 1999 $ 37,194,286
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,559,836,783) (b) $3,154,402,200
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,194,626,239.
(b) The aggregate identified cost on a tax basis is $3,560,445,575, resulting in gross unrealized appreciation and
depreciation of $82,795,405 and $488,838,780, respectively, or net unrealized depreciation of $406,043,375.
(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.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(AFF) Affiliated 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.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates shown at
August 31, 1999, which are subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
August 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $3,559,836,783) (Note 1) $3,154,402,200
- -----------------------------------------------------------------------------------------------
Dividends, interest and other receivables 60,737,056
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 667,473
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 3,020,710
- -----------------------------------------------------------------------------------------------
Total assets 3,218,827,439
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,001,128
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 9,786,282
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 6,430,237
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,644,133
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 307,051
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 124,485
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,292
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,686,111
- -----------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 37,768
- -----------------------------------------------------------------------------------------------
Other accrued expenses 178,713
- -----------------------------------------------------------------------------------------------
Total liabilities 24,201,200
- -----------------------------------------------------------------------------------------------
Net assets $3,194,626,239
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,104,761,725
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (3,171,496)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Notes 1) (501,646,408)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets
and liabilities in foreign currencies (405,317,582)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,194,626,239
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,488,892,187 divided by 237,963,198 shares) $10.46
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $10.46)* $10.98
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($669,008,914 divided by 64,208,116 shares)** $10.42
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($15,264,303 divided by 1,460,039 shares) $10.45
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $10.45)* $10.80
- -----------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($21,460,835 divided by 2,051,916 shares) $10.46
- -----------------------------------------------------------------------------------------------
* 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, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest (net of foreign tax of $46,320) $ 364,020,971
- -----------------------------------------------------------------------------------------------
Dividends 29,511,544
- -----------------------------------------------------------------------------------------------
Total investment income 393,532,515
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 19,404,729
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,427,352
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 85,512
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 31,866
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 6,581,874
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 8,653,386
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 91,263
- -----------------------------------------------------------------------------------------------
Reports to shareholders 124,309
- -----------------------------------------------------------------------------------------------
Registration fees 33,720
- -----------------------------------------------------------------------------------------------
Auditing 84,002
- -----------------------------------------------------------------------------------------------
Legal 104,129
- -----------------------------------------------------------------------------------------------
Postage 348,464
- -----------------------------------------------------------------------------------------------
Other 463,131
- -----------------------------------------------------------------------------------------------
Total expenses 39,433,737
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (733,866)
- -----------------------------------------------------------------------------------------------
Net expenses 38,699,871
- -----------------------------------------------------------------------------------------------
Net investment income 354,832,644
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (305,447,457)
- -----------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 321,388
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and
liabilities in foreign currencies during the year 115,616
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 2,984,488
- -----------------------------------------------------------------------------------------------
Net loss on investments (302,025,965)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 52,806,679
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended August 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 354,832,644 $ 415,020,991
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (305,126,069) 10,596,629
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 3,100,104 (467,505,371)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 52,806,679 (41,887,751)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (268,432,849) (320,732,329)
- ---------------------------------------------------------------------------------------------------------------
Class B (83,105,443) (111,084,627)
- ---------------------------------------------------------------------------------------------------------------
Class M (1,769,553) (2,202,905)
- ---------------------------------------------------------------------------------------------------------------
Class Y (1,524,798) --
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (4,573,658) (2,874,118)
- ---------------------------------------------------------------------------------------------------------------
Class B (1,415,981) (995,442)
- ---------------------------------------------------------------------------------------------------------------
Class M (30,150) (19,740)
- ---------------------------------------------------------------------------------------------------------------
Class Y (25,980) --
- ---------------------------------------------------------------------------------------------------------------
From return of capital
Class A (14,016,686) --
- ---------------------------------------------------------------------------------------------------------------
Class B (4,339,494) --
- ---------------------------------------------------------------------------------------------------------------
Class M (92,400) --
- ---------------------------------------------------------------------------------------------------------------
Class Y (79,620) --
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (326,571,340) (183,107,719)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (653,171,273) (662,904,631)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 3,847,797,512 4,510,702,143
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess
of net investment income of $3,171,496
and $672,292, respectively) $3,194,626,239 $3,847,797,512
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.47 $12.89 $12.11 $12.01 $12.06
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.11(c) 1.22(c) 1.20 1.16(c) 1.22
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.93) (1.35) .72 .11 (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .18 (.13) 1.92 1.27 1.21
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.11) (1.28) (1.14) (1.15) (1.22)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) (.01) -- (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.06) -- -- -- (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.19) (1.29) (1.14) (1.17) (1.26)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.46 $11.47 $12.89 $12.11 $12.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.76 (1.75) 16.60 11.08 10.76
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,488,892 $2,821,513 $3,259,440 $3,115,546 $2,997,467
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .93 .95 .96 .96 .95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 10.23 9.39 9.54 9.57 10.27
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 50.65 69.23 130.77 184.86 81.70
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.43 $12.84 $12.07 $11.97 $12.03
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.04(c) 1.12(c) 1.10 1.07(c) 1.09
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.95) (1.34) .72 .11 .02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .09 (.22) 1.82 1.18 1.11
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.03) (1.18) (1.05) (1.06) (1.13)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) (.01) -- (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.05) -- -- -- (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.10) (1.19) (1.05) (1.08) (1.17)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.42 $11.43 $12.84 $12.07 $11.97
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .99 (2.42) 15.71 10.28 9.88
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $669,009 $1,007,028 $1,226,880 $1,100,757 $762,947
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.68 1.70 1.71 1.71 1.70
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.53 8.64 8.79 8.84 9.52
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 50.65 69.23 130.77 184.86 81.70
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.47 $12.88 $12.10 $12.00 $11.92
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.09(c) 1.19(c) 1.16 1.14(c) .21(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.95) (1.34) .73 .11 .07
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .14 (.15) 1.89 1.25 .28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.08) (1.25) (1.11) (1.13) (.19)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) (.01) -- (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.06) -- -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.16) (1.26) (1.11) (1.15) (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.45 $11.47 $12.88 $12.10 $12.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.42 (1.94) 16.33 10.88 2.38*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $15,264 $19,256 $24,382 $16,616 $964
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.18 1.20 1.21 1.19 .20*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 10.00 9.10 9.29 9.45 1.65*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 50.65 69.23 130.77 184.86 81.70
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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 Y
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 31, 1998+
operating performance to August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $10.83
- ------------------------------------------------------------------------------------------------------------------------------------
Investment activities
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (c) .77
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .42
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.74)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
From return of capital (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.79)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $10.46
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.92*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $21,461
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .46*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.81*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 50.65
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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, 1999
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.
The fund offers class A, class B, class M and class Y shares. The fund
began offering class Y shares on December 31, 1998. 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 higher than class A but lower than class B
shares. Class Y shares, which are sold at net asset value, are generally
subject to the same expenses as class A, class B, and class M shares, but
do not bear a distribution fee. Class Y shares are sold to defined
contribution plans that invest at least $150 million in a combination of
Putnam Funds and other accounts managed by affiliates of Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.
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). Gains or losses on securities sold are determined on
the identified cost basis. 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, 1999, 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, 1999, the fund had a capital loss carryover of approximately
$274,060,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ---------------
$110,229,000 August 31, 2000
52,738,000 August 31, 2003
111,093,000 August 31, 2007
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, the expiration of a capital loss carryover, defaulted bond
interest, paydown gains and losses on mortgage-backed securities, interest
on payment-in-kind securities and amortization of premium.
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,
1999, the fund reclassified $3,546,564 to decrease distributions in excess
of net investment income and $241,378,255 to decrease paid-in-capital,
with a decrease to accumulated net realized losses of $237,831,691. 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.
As part of the subcustodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At August 31, 1999, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
For the year ended August 31, 1999, fund expenses were reduced by $733,866
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 $2,957
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
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, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $245,809 and $949 from the sale of
class A and class M shares, respectively and $1,661,391 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, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received $2,150 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended August 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $1,728,049,324 and
$2,151,202,997, 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, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended August 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 44,981,104 $ 485,885,851
- -----------------------------------------------------------------------------
Shares
reinvested 13,480,631 145,351,569
- -----------------------------------------------------------------------------
58,461,735 631,237,420
Shares
repurchased (66,426,024) (719,775,716)
- -----------------------------------------------------------------------------
Net decrease (7,964,289) $ (88,538,296)
- -----------------------------------------------------------------------------
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, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 10,378,015 $ 111,878,930
- -----------------------------------------------------------------------------
Shares
reinvested 3,756,970 40,381,620
- -----------------------------------------------------------------------------
14,134,985 152,260,550
Shares
repurchased (38,059,209) (410,271,534)
- -----------------------------------------------------------------------------
Net decrease (23,924,224) $(258,010,984)
- -----------------------------------------------------------------------------
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, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 357,667 $ 3,880,064
- -----------------------------------------------------------------------------
Shares
reinvested 115,307 1,243,383
- -----------------------------------------------------------------------------
472,974 5,123,447
Shares
repurchased (691,778) (7,478,474)
- -----------------------------------------------------------------------------
Net decrease (218,804) $(2,355,027)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
For the period December 31, 1998
(commencement of operations)
to August 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,485,552 $26,987,184
- -----------------------------------------------------------------------------
Shares
reinvested 146,161 1,630,398
- -----------------------------------------------------------------------------
2,631,713 28,617,582
Shares
repurchased (579,797) (6,284,615)
- -----------------------------------------------------------------------------
Net increase 2,051,916 $22,332,967
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund owns at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PSF Holdings LLC -- -- -- $14,524,923
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Federal tax information
(Unaudited)
The fund has designated 8.14% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For the year ended September 30, 1999, a portion of the Fund's
distribution represents a return of capital and is therefore not taxable
to shareholders.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
*DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please call
your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus for
any Putnam fund. It contains more complete information, including charges and
expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
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
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Rosemary H. Thomsen
Vice President and Fund Manager
Jeffrey A. Kaufman
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN034-55018 014/324/2AC 10/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam High Yield Trust
Supplement to Annual Report dated 8/31/99
The following information has been prepared to provide class Y shareholders
with a performance overview specific to their holdings. Class Y shares are
offered exclusively to defined contribution plans investing $150 million or
more in one or more of Putnam's funds or private accounts. Performance of
class Y shares, which incur neither a front-end load, distribution fee, nor
contingent deferred sales charge, will differ from performance of class A,
B, and M shares, which are discussed more extensively in the annual report.
ANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return
for periods ended 8/31/99 NAV
1 year 1.26%
5 years 42.85
Annual average 7.39
10 years 138.03
Annual average 9.06
Life of fund (since class A inception, 2/14/78) 714.61
Annual average 10.23
Share value: NAV
8/31/98 --
12/31/98 (class Y share inception) 10.83
8/31/99 10.46
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Return of capital Total
8 0.752 -- 0.039 0.791
- ----------------------------------------------------------------------------
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. Performance data reflects an expense limitation previously in
effect. Without the expense limitation, total returns would have been lower.
Investment return and principal value will fluctuate so your shares, when
redeemed, may be worth more or less than their original cost. See full
report for information on comparative benchmarks. If you have questions,
please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
