Putnam
High Yield
Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 17, 2000
REPORT FROM FUND MANAGEMENT
Rosemary H. Thomsen
and the Credit Team
During the 12 months ended August 31, 2000, interest rate increases,
continuing high levels of defaults, and an overall exodus of investor
assets from the high-yield market created a strong headwind for
high-yield investments. However, a more conservative approach and
retrenchment helped Putnam High Yield Trust weather the storm and end
the year with positive performance at net asset value. In this
challenging environment, a gradual repositioning into a more defensive
stance helped bolster the fund's performance. While our focus on bonds
with a somewhat lower credit rating than the high yield market average
dampened returns this year, we believe this emphasis will contribute
favorably to performance over the long term.
Total return for 12 months ended 8/31/00
Class A Class B Class M
NAV POP NAV CDSC NAV POP
-----------------------------------------------------------------------
0.93% -3.84% 0.27% -4.26% 0.78% -2.49%
-----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* HIGH-YIELD BONDS LOSE FAVOR IN 2000
Before the turn of the year, prospects for the high-yield market
appeared fairly rosy. Both the high-yield and equity markets had rallied
sharply in the fourth quarter of 1999, led by telecommunications stocks
and the NASDAQ. However, by mid-March 2000, all markets, including the
high-yield market, were experiencing a sharp correction.
One of the main reasons for the high-yield market's struggles was a
continuation of net outflows from high-yield mutual funds. Increases in
short-term interest rates by the Federal Reserve Board helped spark this
movement. The Fed's series of six rate increases from June 1999 through
May 2000 made short-term investments more attractive than they had been
in several years, drawing investors away from the high-yield market.
Furthermore, the U.S. Treasury's buyback of long-term Treasury
securities helped spark fervent demand for a shrinking supply of
longer-term Treasury debt, leading to sharp declines in long-term
yields. The combination of rising short-term interest rates and
declining long-term rates led to an inverted yield curve, where yields
offered by short-term investments actually became higher than the yields
of long-term bonds. The end result was that significant attention was
drawn away from high-yield debt.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 12.3%
Broadcasting 6.3%
Telephone 6.1%
Paper & forest
products 4.2%
Gaming &
lottery 3.9%
Footnote reads:
*Based on net assets as of 8/31/00. Holdings will vary over time.
Increasing default rates over the past two years also reduced demand for
high-yield bonds. The phenomenon began in 1998, when a series of
international crises dried up liquidity in the market as investors
became more risk-averse. That sentiment has not changed, and credit for
many issuers remains tight. Rising interest rates also have made it more
expensive for companies to borrow money. Furthermore, very strong
issuance in 1996, 1997, and early 1998 nearly doubled the size of the
high-yield market. That type of increased activity is usually followed
by an increase in defaults, as some good deals mix in with the bad.
* TIMELY MOVE AWAY FROM TELECOMMUNICATIONS
The telecommunications sector, after enjoying a stellar run in late
1999, hit a very rough patch in 2000. As telecom stocks declined sharply
in value, investors became concerned about companies' ability to raise
money. While your fund was somewhat exposed to this downdraft, we worked
steadily throughout the course of the fiscal year to trim back our
holdings in this sector. As we reduced our telecom stake, we brought the
fund's sector weightings to a more neutral stance relative to its
benchmark index by adding to sectors that had previously been
underweighted. By August 2000, the end of the fiscal year, the portfolio
was only modestly overweighted in telecommunications relative to the
index. We still believe the sector offers value despite its recent
volatility, and drawing on our extensive research capabilities, we have
selected securities that we believe will be fruitful long-term
investments.
"After more than two years of suffering for investors in high-yield, or
junk, bonds -- and despite warnings of rising defaults -- a growing
number of fund managers and analysts are calling the bottom of the
market, saying the next 12 months or so could deliver the strongest
returns in years, even rivaling those of stocks."
-- Wall Street Journal, July 27, 2000
One defensive strategy we used during the year was investing in
floating-rate bank loans. These are loans issued by banks and then sold
in the market. This move reduced the risk profile of the portfolio, as
these very liquid investments held their value more than high-yield
bonds overall. In addition, we reduced your fund's exposure to
zero-coupon bonds -- bonds that don't pay interest but are sold at a
deep discount to their face value -- because they tend to become
volatile in difficult market periods.
* MERGERS AND ACQUISITIONS PROVIDE A POSITIVE STORY
One of the most positive developments in the high-yield market over the
past year was the large number of mergers and acquisitions. This
consolidation activity can help support the security prices of the
companies in question. The new, larger companies can achieve greater
economies of scale, and the high-yield bonds of an acquired company
often benefit from a credit upgrade if the company is acquired by a firm
with a higher credit rating.
One fund holding that benefited from this trend over the past year was
21st Century Telecommuni cations, which was purchased by RCN
Telecommunications. More recently, Verizon Communications agreed to
acquire a majority stake in two fund holdings. One was NorthPoint
Communications Group, Inc., which provides digital subscriber lines
(DSL), network connections that can carry voice and data at the same
time. The other, OnePoint Communications Corp., provides cable and
additional communications services to large apartment buildings.
Acquisition announcements involving two other fund holdings, paper
company Repap New Brunswick and energy service firm R & B Falcon,
occurred recently, to the fund's benefit. While these holdings and
others discussed in this report were viewed favorably at the end of the
period, all holdings are subject to review in accordance with the fund's
investment strategy and may vary in the future.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Nextel Communications, Inc.
sr. notes 9 3/8s, 2009
Telecommunications
CSC Holdings, Inc.
Ser. M, $11.125 cum. pfd.
Cable television
Midland Funding II Corp.
deb. Ser. A, 11 3/4s, 2005
Power producers
Midland Funding II Corp.
deb. Ser. B, 13 1/4s, 2006
Power producers
Millicom International Cellular S.A.
sr. disc. notes stepped-coupon zero %
(13 1/2s, 6/1/01), 2006 (Luxembourg)
Telecommunications
Paxson Communications Corp.
13.25% cum. pfd.
Broadcasting
Premium Standard Farms, Inc.
sr. sec. notes 11s, 2003
Agriculture
Riverwood International Corp.
bank term loan FRN 8.61s, 2003
Paper & forest products
Charter Communications Holdings
LLC sr. notes 8 5/8s, 2009
Cable television
Capstar Broadcasting
sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009
Broadcasting
Footnote reads:
These holdings represent 7.0% of the fund's net assets as of 8/31/00.
Portfolio holdings will vary over time.
On the downside, the fund's European long-distance carrier holdings
underperformed dramatically because of price wars. Among these were
Viatel and RSL Communications, Ltd. ICG Services, Inc., a domestic
telecommunications company, also underperformed due to earnings
disappointments. However, all three securities remain in the fund
because we maintain faith in their long-term prospects.
* SEVERAL FACTORS COULD BODE WELL FOR HIGH YIELD
As we move into fiscal 2001, a number of factors could work in favor of
the high-yield market. First, it appears the Fed is nearing the end of
its rate-hike program, if it hasn't reached it already. This would be a
positive development for all fixed-income markets. Once investors feel
more comfortable about re-entering the high-yield market, they will find
that these securities currently offer very attractive yields on both an
historical and relative basis. Bonds, and high-yield issues in
particular, also could become especially appealing if equities continue
to trade within a narrow range. Of course, the markets are always
forward-looking, and the rebound might occur before these circumstances
arise. The one wild card remains the significant amount of pent-up
issuance waiting for conditions to improve before coming to market. If
high-yield bonds do rebound, it is uncertain what effect this added
supply will have on the market. Nevertheless, our outlook remains
positive.
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 8/31/00, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit
ratings of high-yield bonds reflect a greater possibility that adverse
changes in the economy or poor performance by the issuers of these bonds
may affect the issuer's ability to pay principal and interest.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
High Yield Trust is designed for investors seeking high current income
through a diversified portfolio of high-yielding lower-rated corporate
bonds, with a secondary objective of capital growth when consistent with
high current income.
TOTAL RETURN FOR PERIODS ENDED 8/31/00
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 0.93% -3.84% 0.27% -4.26% 0.78% -2.49%
------------------------------------------------------------------
5 years 30.69 24.47 26.10 24.52 29.29 25.11
Annual average 5.50 4.48 4.75 4.48 5.27 4.58
------------------------------------------------------------------
10 years 160.99 148.54 142.42 142.42 154.70 146.48
Annual average 10.07 9.53 9.26 9.26 9.80 9.44
------------------------------------------------------------------
Annual average
(life of fund) 9.82 9.58 8.85 8.85 9.40 9.24
------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/00
First Boston Consumer
High Yield Index price index
-----------------------------------------------------------------
1 year 2.08% 3.23%
-----------------------------------------------------------------
5 years 37.92 12.81
Annual average 6.64 2.44
-----------------------------------------------------------------
10 years 191.76 31.16
Annual average 11.30 2.75
-----------------------------------------------------------------
Annual average
(life of fund) --* 4.60
-----------------------------------------------------------------
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-year, 5- and
10-year, if available, and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and in the case of class B and class
M shares the higher operating expenses applicable to such shares. All
returns assume reinvestment of distributions at NAV. Investment return
and principal value will fluctuate so that an investor's shares when
redeemed may be worth more or less than their original cost.
*Inception date for this index is 12/31/82.
[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 8/31/90
First Boston
Fund's class A High Yield Consumer price
Date shares at POP Index index
8/31/90 9,525 10,000 10,000
8/31/91 11,663 12,726 10,380
8/31/92 14,637 15,578 10,707
8/31/93 16,760 18,035 11,003
8/31/94 17,171 18,686 11,322
8/31/95 19,019 21,155 11,626
8/31/96 21,125 23,301 11,953
8/31/97 24,631 26,896 12,219
8/31/98 24,200 27,289 12,424
8/31/99 24,625 28,583 12,705
8/31/00 $24,854 $29,176 $13,116
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 $24,242 and no contingent deferred sales
charges would apply; a $10,000 investment in the fund's class M shares
would have been valued at $25,470 ($24,648 at public offering price).
See first page of performance section for performance calculation
method.
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/00
Class A Class B Class M
------------------------------------------------------------------------------
Distributions
(number) 12 12 12
------------------------------------------------------------------------------
Income $1.0920 $1.0150 $1.0671
------------------------------------------------------------------------------
Capital gains -- -- --
------------------------------------------------------------------------------
Total $1.0920 $1.0150 $1.0671
------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
------------------------------------------------------------------------------
8/31/99 $10.46 $10.98 $10.42 $10.45 $10.80
------------------------------------------------------------------------------
8/31/00 9.47 9.94 9.44 9.47 9.79
------------------------------------------------------------------------------
Current return (end of period)
----------------------------------------------------------------------------
Current
dividend
rate1 11.53% 10.99% 10.81% 11.28% 10.91%
------------------------------------------------------------------------------
Current
30-day SEC
yield2 11.84 11.27 11.06 11.58 11.20
------------------------------------------------------------------------------
1 Most recent distribution, annualized and divided by NAV or POP at end
of period.
2 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 9/30/00 (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 0.61% -4.14% -0.14% -4.65% 0.37% -2.94%
-----------------------------------------------------------------
5 years 28.11 22.00 23.59 22.05 26.71 22.62
Annual average 5.08 4.06 4.33 4.07 4.85 4.16
-----------------------------------------------------------------
10 years 171.83 159.00 152.41 152.41 165.22 156.61
Annual average 10.52 9.98 9.70 9.70 10.25 9.88
-----------------------------------------------------------------
Annual average
(life of fund) 9.72 9.49 8.76 8.76 9.31 9.15
-----------------------------------------------------------------
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 Index is a market-weighted index including
publicly traded bonds having a rating below BBB by Standard & Poor's and
Baa by Moody's. It assumes reinvestment of all distributions and
interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the index and
performance of the fund will differ. It is not possible to invest
directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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 are determined. All investment and noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders
Putnam High Yield Trust
We have audited the accompanying statement of assets and liabilities of
Putnam High Yield Trust, including the fund's portfolio, as of August
31, 2000, and the related statement of operations, statement of changes
in net assets and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audit.
The statement of changes in net assets for the year ended August 31,
1999 and the financial highlights for each of the years in the four-year
period ended August 31, 1999 were audited by other auditors whose report
dated October 12, 1999 expressed an unqualified opinion on that
financial statement and those financial highlights.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform our audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of August 31, 2000 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam High Yield Trust as of August 31, 2000, the
results of its operations, changes in its net assets and financial
highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
October 5, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
August 31, 2000
CORPORATE BONDS AND NOTES (80.7%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising and Marketing Services (0.6%)
-------------------------------------------------------------------------------------------------------------------
$ 10,950,000 AOA Holdings LLC sr. notes 10 3/8s, 2006 $ 10,512,000
3,917,000 Interact Operating Co. notes 14s, 2003 1,175,100
110,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 112,475
2,278,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 2,283,695
1,305,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 1,282,163
-------------
15,365,433
Aerospace and Defense (1.5%)
-------------------------------------------------------------------------------------------------------------------
8,510,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 6,808,000
4,970,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 3,926,300
710,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 9 7/8s, 2006 701,125
1,975,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 1,915,750
3,990,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 3,581,025
4,340,000 Decrane Aircraft Holdings company guaranty Ser. B, 12s, 2008 3,906,000
2,480,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 2,529,600
2,050,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 1,906,500
4,380,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 3,942,000
4,860,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 4,847,850
460,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 463,836
920,000 Sequa Corp. sr. notes 9s, 2009 917,700
-------------
35,445,686
Agriculture (0.6%)
-------------------------------------------------------------------------------------------------------------------
16,409,465 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 14,932,613
Airlines (0.8%)
-------------------------------------------------------------------------------------------------------------------
7,600,000 Airbus Industries 144A 12.266s, 2020 8,151,698
5,760,000 Calair LLC 144A company guaranty 8 1/8s, 2008 5,356,800
1,070,000 Continental Airlines, Inc. notes 8s, 2005 1,008,400
530,000 Northwest Airlines, Inc. company guaranty 8.52s, 2004 509,372
1,330,000 Northwest Airlines, Inc. company guaranty 7 7/8s, 2008 1,214,982
2,760,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 2,565,558
1,350,000 US Air, Inc. pass-through certificates Ser. 93A3, 10 3/8s, 2013 1,221,750
-------------
20,028,560
Automotive (2.2%)
-------------------------------------------------------------------------------------------------------------------
3,819,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 3,761,715
1,907,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 1,878,395
5,000,000 Dura Automotive Systems, Inc.
bank term loan Ser. B, FRN 9.02s, 2006 4,993,750
6,070,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 5,546,463
1,140,000 Exide Corp. sr. notes 10s, 2005 946,200
3,427,264 Federal Mogul Corp. bank term loan Ser. B, FRN 8.69s, 2010 3,187,355
2,170,000 Federal Mogul Corp. notes 7 7/8s, 2010 1,584,100
775,000 Federal Mogul Corp. notes 7 3/4s, 2006 587,063
8,660,000 Federal Mogul Corp. notes 7 1/2s, 2009 6,321,800
3,380,000 Federal Mogul Corp. notes 7 3/8s, 2006 2,560,350
870,000 Hayes Lemmerz International, Inc. company guaranty
Ser. B, 8 1/4s, 2008 761,250
1,160,000 Hayes Wheels International, Inc. 144A sr. sub. notes
9 1/8s, 2007 1,061,400
7,110,000 Lear Corp. sub. notes 9 1/2s, 2006 7,219,067
6,495,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 5,845,500
7,910,000 Safety Components International, Inc. sr. sub. notes Ser. B,
10 1/8s, 2007 (In default) (NON) 3,164,000
4,150,000 Tenneco, Inc. company guaranty Ser. B, 11 5/8s, 2009 (Malaysia) 3,610,500
-------------
53,028,908
Banking (2.0%)
-------------------------------------------------------------------------------------------------------------------
2,665,000 Bangko Sentral NG Pilipinas bonds 8.6s, 2027 (Philippines) 1,918,800
1,040,000 Bank United Corp. sub. notes 8 7/8s, 2007 1,031,597
990,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2008 900,900
3,580,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 3,311,500
3,740,000 Colonial Capital II 144A company guaranty 8.92s, 2027 3,502,757
595,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 555,909
6,450,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 5,914,973
8,800,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 8,822,000
3,780,000 Local Financial Corp. sr. notes 11s, 2004 3,780,000
830,000 North Fork Capital Trust I company guaranty 8.7s, 2026 812,321
720,000 Peoples Heritage Capital Trust company guaranty Ser. B,
9.06s, 2027 717,804
2,375,000 Provident Capital Trust company guaranty 8.6s, 2026 2,214,521
600,000 Riggs Capital Trust 144A company guaranty 8 7/8s, 2027 499,962
2,380,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 1,932,060
4,110,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 4,181,925
5,350,000 Sovereign Capital Trust company guaranty 9s, 2027 4,013,142
4,030,000 Superior Financial 144A sr. notes 8.65s, 2003 3,879,173
1,225,000 Webster Capital Trust I 144A bonds 9.36s, 2027 1,058,559
-------------
49,047,903
Beverage (0.3%)
-------------------------------------------------------------------------------------------------------------------
8,309,000 Triarc Consumer Products, Inc. company guaranty
10 1/4s, 2009 8,080,503
Broadcasting (4.5%)
-------------------------------------------------------------------------------------------------------------------
6,765,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 6,426,750
1,440,000 Allbritton Communications Co. sr. sub. deb. Ser. B, 9 3/4s, 2007 1,411,200
2,110,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 1,972,850
29,600 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 33,892
338,956 Australis Media, Ltd. sr. disc. notes stepped-coupon zero %
(15 3/4s 5/15/00), 2003 (In default) (Australia) (STP) (PIK) (NON) 31
2,555,791 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000
(In default) (Australia) (NON) 383,369
6,385,000 Benedek Communications Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2006 (STP) 5,299,550
6,000,000 Benedek Communications Corp. bank term loan
FRN 8.981s, 2007 5,940,000
13,725,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 12,901,500
6,714,100 Capstar Broadcasting sub. deb. 12s, 2009 (PIK) 7,721,215
2,820,000 CD Radio, Inc. sec. notes 14 1/2s, 2009 2,481,600
3,800,000 Central European Media Enterprises, Ltd. sr. notes
9 3/8s, 2004 (Bermuda) 1,482,000
892,528 Direct Sat 1 144A notes 8 1/4s, 2001 892,528
11,018,000 Diva Systems Corp. sr. disc. notes, stepped-coupon Ser. B,
zero % (12 5/8s, 3/1/03), 2008 (STP) 4,958,100
7,350,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 7,258,125
664,549 Echostar I 144A sr. notes 8 1/4s, 2001 664,549
520,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 375,700
4,225,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 4,045,438
5,255,000 Golden Sky Systems company guaranty Ser. B, 12 3/8s, 2006 5,833,050
860,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 748,200
2,770,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 2,146,750
5,455,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %,
(11 7/8s, 10/15/02), 2007 (STP) 2,836,600
4,510,000 OnePoint Communications Corp. company guaranty
Ser. B, 14 1/2s, 2008 4,149,200
130,000 Pegasus Communications Corp. sr. notes 12 1/2s, 2007 136,500
4,040,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 4,019,800
1,430,000 Pegasus Communications Corp. 144A sr. notes Ser. B,
9 5/8s, 2005 1,422,850
1,400,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 1,456,000
7,214,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 6,696,756
3,315,000 Radio One, Inc. company guaranty stepped-coupon Ser. B, 7s,
(12s, 5/15/00), 2004 (STP) 3,480,750
2,790,000 RCN Corp. sr. notes 10 1/8s, 2010 2,245,950
3,920,000 Spanish Broadcasting System, Inc. sr. sub notes 9 5/8s, 2009 3,890,600
6,130,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 5,808,175
220,000 XM Satellite Radio, Inc. 144A sr. notes 14s, 2010 158,400
-------------
109,277,978
Building Materials (1.0%)
-------------------------------------------------------------------------------------------------------------------
4,370,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 (In default) (NON) 1,092,500
686,000 American Standard, Inc. company guaranty 7 5/8s, 2010 636,265
6,226,000 American Standard, Inc. company guaranty 7 3/8s, 2005 5,945,830
2,540,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 2,311,400
7,060,000 Building Materials Corp. company guaranty 8s, 2008 5,189,100
5,350,000 Dayton Superior Corp. 144A sr. sub. notes 13s, 2009 5,243,000
4,410,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 4,123,350
-------------
24,541,445
Cable Television (3.1%)
-------------------------------------------------------------------------------------------------------------------
3,965,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 3,776,663
1,490,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 1,311,200
773,000 Century Communications Corp. sr. notes 8 7/8s, 2007 713,093
6,140,000 Charter Communications Holdings LLC bank term loan
FRN 9.24s, 2008 6,109,300
14,170,000 Charter Communications Holdings LLC sr. notes 8 5/8s, 2009 12,965,550
3,510,000 Classic Cable, Inc. company guaranty 10 1/2s, 2010 2,913,300
965,000 Classic Cable, Inc. company guaranty Ser. B, 9 3/8s, 2009 752,700
9,020,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 9,245,500
6,705,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 5,171,231
7,405,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 7,516,075
1,030,000 Rogers Cablesystems, Ltd. notes 11s, 2015 (Canada) 1,130,425
450,000 Rogers Cablesystems, Ltd. company guaranty 10s, 2007
(Canada) 470,250
7,850,000 Supercanal Holdings S.A. 144A sr. notes 11 1/2s, 2005
(In default) (Argentina) (NON) 3,297,000
10,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero %, (11 3/8s, 2/1/05), 2010
(United Kingdom) (STP) 5,300
3,610,000 TeleWest Communications PLC deb. stepped-coupon
zero %, (11s, 10/1/00), 2007 (United Kingdom) (STP) 3,461,088
2,410,000 Telewest Communication PLC structured note
(issued by DLJ International Capital) 10 7/8s, 2005
(United Kingdom) 2,440,607
1,860,000 TeleWest Communications PLC 144A 9 7/8s, 2010 1,767,000
5,740,000 TeleWest Communications PLC sr. disc. notes
zero %, 2009 (United Kingdom) (STP) 3,185,700
11,660,000 United Pan-Europe N.V. sr. disc. notes stepped-coupon
zero % (13 3/4s, 2/01/05), 2010 (Netherlands) 5,261,575
3,740,000 United Pan-Europe N.V. sr. notes 10 7/8s, 2009
(Netherlands) 3,179,000
-------------
74,672,557
Chemicals (3.5%)
-------------------------------------------------------------------------------------------------------------------
6,380,000 Geo Specialty Chemicals, Inc. sr. sub. notes 10 1/8s, 2008 5,742,000
5,810,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 5,258,050
1,390,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 1,264,900
11,550,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 11,723,250
400,000 Huntsman ICI Holdings sr. disc. notes zero %, 2009 138,000
1,600,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 1,552,000
730,000 ISP Holdings, Inc. sr. notes Ser. B, 9s, 2003 700,800
9,115,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 9,274,513
7,295,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 7,395,306
10,250,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 5,432,500
5,905,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 3,543,000
1,430,505 Pioneer Americas Acquisition bank term loan FRN 8.54s ,2006 958,438
2,417,169 Pioneer Canada bank term loan FRN 9.75s, 2006 1,619,503
2,330,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 1,875,650
1,690,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 1,330,875
12,261,499 Polytama International notes 11 1/4s, 2007 (Indonesia) 613,075
5,850,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 4,563,000
7,140,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 3,034,500
4,110,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006 4,233,300
6,230,000 Sterling Chemicals, Inc. sr. sub. notes 11 3/4s, 2006 4,859,400
3,245,000 Sterling Chemicals, Inc. sr. sub. notes Ser. A, 11 1/4s, 2007 2,433,750
1,255,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 1,079,300
7,355,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 5,902,388
-------------
84,527,498
Coal (0.1%)
-------------------------------------------------------------------------------------------------------------------
9,315,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 1,397,250
Commercial and Consumer Services (0.6%)
-------------------------------------------------------------------------------------------------------------------
7,010,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 7,045,050
11,460,000 GS Superhighway Holdings sr. notes 10 1/4s, 2007 (China) 8,170,522
-------------
15,215,572
Communications Equipment (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,625,000 USA Mobile Communication, Inc. sr. notes 14s, 2004 1,316,250
1,115,000 USA Mobile Communication, Inc. sr. notes 9 1/2s, 2004 813,950
-------------
2,130,200
Computers (0.5%)
-------------------------------------------------------------------------------------------------------------------
10,185,000 Unisys Corp. sr. notes 11 3/4s, 2004 10,719,713
2,000,000 Unisys Corp. sr. notes 7 7/8s, 2008 1,845,000
-------------
12,564,713
Conglomerates (0.2%)
-------------------------------------------------------------------------------------------------------------------
7,540,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 4,147,000
Construction (0.8%)
-------------------------------------------------------------------------------------------------------------------
13,180,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 12,850,500
5,570,000 Morrison Knudsen Corp. 144A sr. notes 11s, 2010 5,653,550
-------------
18,504,050
Consumer (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,590,000 Derby Cycle Corp. (The) sr. notes 10s, 2008 477,000
6,115,000 Home Interiors & Gifts, Inc. company guaranty 10 1/8s, 2008 1,834,500
13,600,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 11,118,000
-------------
13,429,500
Consumer Finance (0.3%)
-------------------------------------------------------------------------------------------------------------------
12,490,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 (In default) (NON) 1,561,250
4,225,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 (In default) (NON) 528,125
3,920,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 (In default) (NON) 431,200
1,475,000 Finova Capital Corp. sr. notes 7 5/8s, 2009 929,250
1,420,000 Finova Capital Corp. sr. notes 6 3/4s, 2009 873,300
610,000 Finova Capital Corp. notes 6 1/8s, 2004 408,700
3,655,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 3,106,750
-------------
7,838,575
Consumer Goods (0.9%)
-------------------------------------------------------------------------------------------------------------------
1,135,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 1,100,950
3,275,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 3,144,000
7,120,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 4,841,600
8,635,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 7,382,925
3,140,000 Revlon Consumer Products sr. notes 9s, 2006 2,260,800
2,930,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 2,080,300
-------------
20,810,575
Consumer Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
4,740,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 4,882,200
Consumer Staples (--%)
-------------------------------------------------------------------------------------------------------------------
3,340,000 Doskcil Manufacturing Co 144A sr. sub. notes 10 1/8s, 2007 1,068,800
Containers (1.4%)
-------------------------------------------------------------------------------------------------------------------
7,320,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 6,222,000
8,575,000 Consumers International 144A sr. notes 10 1/4s, 2005 3,430,000
1,533,335 Jefferson Smurfit Corp. bank term loan Ser. B,
FRN 9.938s, 2006 1,533,335
1,880,000 Owens-Illinois, Inc. deb. 7.8s, 2018 1,602,775
8,020,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 7,281,839
620,000 Radnor Holdings, Inc. sr. notes 10s, 2003 551,800
3,577,778 Stone Container Corp. bank term loan Ser. G,
FRN 10.188s, 2006 3,577,778
6,650,000 Tekni-Plex, Inc. 144A sr. sub. notes 12 3/4s, 2010 6,716,500
3,000,000 Tekni-Plex, Inc.bank term loan FRN 10.265s, 2008 3,015,000
-------------
33,931,027
Distribution (0.4%)
-------------------------------------------------------------------------------------------------------------------
6,600,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 4,686,000
8,910,000 RAB Holdings, Inc. sr. notes 13s, 2008 4,633,200
-------------
9,319,200
Electric Utilities (1.5%)
-------------------------------------------------------------------------------------------------------------------
5,880,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 4,351,200
300,000 CMS Energy Corp. sr. notes 7 1/2s, 2009 270,750
7,350,000 CMS Energy Corp. pass-through certificates 7s, 2005 6,744,507
3,500,000 CMS Energy Corp. sr. notes Ser. B, 6 3/4s, 2004 3,255,000
1,376,000 North Atlantic Energy Corp. 1st mtge. Ser. A, 9.05s, 2002 1,382,453
3,633,743 Northeast Utilities System notes Ser. A, 8.58s, 2006 3,679,855
4,165,179 Northeast Utilities System notes Ser. B, 8.38s, 2005 4,169,928
18,680,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 8,406,000
3,591,000 TNP Enterprises Inc. bank term loan FRN 9.369s, 2005 3,595,489
-------------
35,855,182
Energy (0.9%)
-------------------------------------------------------------------------------------------------------------------
3,430,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 3,601,500
3,590,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 3,500,250
9,740,000 RBF Finance Co. company guaranty 11 3/8s, 2009 11,249,700
2,830,000 RBF Finance Co. company guaranty 11s, 2006 3,254,500
-------------
21,605,950
Entertainment (1.6%)
-------------------------------------------------------------------------------------------------------------------
6,835,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 2,460,600
5,230,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 1,882,800
6,540,000 Autotote Corp. 144A company guaranty 12 1/2s, 2010 6,540,000
8,040,000 Carmike Cinemas, Inc. company guaranty Ser. B, 9 3/8s, 2009
(In default) (NON) 1,768,800
2,200,000 Carmike Cinemas, Inc. bank term loan FRN 6.69s, 2005 1,584,000
1,460,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 (Mexico) 569,400
3,730,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 1,268,200
8,190,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 7,800,975
11,665,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 1,049,850
5,000,000 Regal Cinemas, Inc. bank term loan FRN 9.22s, 2006 3,450,000
5,150,000 Regal Cinemas, Inc. sr. sub. notes 8 7/8s, 2010 463,500
5,990,000 SFX Entertainment, Inc. company guaranty 9 1/8s, 2008 6,267,038
3,580,000 SFX Entertainment, Inc. 144A company guaranty Ser. B,
9 1/8s, 2008 3,687,400
116,000 United Artists Theatre 144A notes FRN 10.415s, 2007
(In default) (NON) 2,320
13,349,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 (In default) (NON) 266,980
-------------
39,061,863
Financial (2.5%)
-------------------------------------------------------------------------------------------------------------------
8,690,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 3,867,050
8,950,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 5,582,563
12,625,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 11,963,576
182,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 70,980
6,758,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 2,635,620
2,290,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 824,400
4,058,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 2,800,020
1,915,000 CSBI Capital Trust I 144A company guaranty 11 3/4s, 2027 2,049,050
8,890,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 4,000,500
6,860,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 5,419,400
3,330,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 2,364,300
2,840,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 1,988,000
2,535,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 1,292,850
3,350,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 3,107,125
2,670,000 Ocwen Financial Corp. notes 11 7/8s, 2003 2,423,025
11,600,000 Resource America, Inc. 144A sr. notes 12s, 2004 10,382,000
-------------
60,770,459
Food (0.6%)
-------------------------------------------------------------------------------------------------------------------
1,392,982 Aurora Foods, Inc. bank term loan Ser. B, FRN 10.37s, 2010 1,253,684
2,725,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 2,139,125
5,980,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 4,694,300
5,785,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 3,094,975
8,065,000 Vlasic Foods Intl., Inc. sr. sub notes Ser. B, 10 1/4s, 2009 4,032,500
-------------
15,214,584
Gaming & Lottery (3.9%)
-------------------------------------------------------------------------------------------------------------------
3,648,292 Ameristar Casinos, Inc. company guaranty Ser. B, 8s, 2004 3,283,463
1,760,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 1,689,600
15,195,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 8,357,250
7,710,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 7,999,125
1,000,000 Hollywood Park, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 1,025,000
6,570,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 6,734,250
5,570,000 Isle of Capri Black Hawk LLC 144A 1st mortgage
Ser. B, 13s, 2004 6,071,300
2,740,000 Isle of Capri Black Hawk LLC company guaranty 8 3/4s, 2009 2,561,900
940,000 MGM Grand, Inc. company guaranty 9 3/4s, 2007 984,650
4,545,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 4,465,463
1,370,000 Mohegan Tribal Gaming, Auth. sr. notes 8 1/8s, 2006 1,335,750
590,000 Park Place Entertainment, Inc. sr. sub. notes 9 3/8s, 2007 606,225
480,000 Park Place Entertainment, Inc. sr. sub. notes 7 7/8s, 2005 465,600
7,520,000 Penninsula Gaming LLC company guaranty Ser. B, 12 1/4s, 2006 7,388,400
5,000,000 Penn National Gaming, Inc. bank term loan Ser. B,
FRN 10.63s, 2006 5,000,000
3,870,000 Riviera Black Hawk, Inc. 1st mtge. 13s, 2005 3,870,000
14,325,000 Trump A.C. 1st mtge. 11 1/4s, 2006 9,669,375
4,750,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 3,277,500
2,500,000 Trump Castle Funding 144A sr. sub. notes 10 1/4s, 2003 2,506,250
12,665,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 12,696,663
5,480,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 5,575,900
-------------
95,563,664
Health Care (2.4%)
-------------------------------------------------------------------------------------------------------------------
10,965,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 7,565,850
1,895,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 1,987,381
2,370,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 2,180,400
735,000 Columbia/HCA Healthcare Corp. med. term notes notes
7.69s, 2025 628,425
3,305,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 3,011,681
4,130,000 Columbia/HCA Healthcare Corp. notes 6.91s, 2005 3,840,900
3,680,000 Columbia/HCA Healthcare Corp. med. term notes 6.63s, 2045 3,514,253
45,000 Conmed Corp. company guaranty 9s, 2008 37,800
2,910,000 HCA -The Healthcare Co. notes 8 3/4s, 2010 2,913,638
2,040,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 1,570,800
2,560,000 Lifepoint Hospital Holdings company guaranty Ser. B,
10 3/4s, 2009 2,688,000
8,830,000 Magellan Health sr. sub. notes 9s, 2008 5,033,100
7,440,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009
(in default) (NON) (STP) 744
7,090,000 Mediq, Inc. company guaranty 11s, 2008 (in default) (NON) 212,700
7,832,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 (In default) (NON) 2,427,920
2,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 1,955
6,551,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 6,231,639
2,450,000 Tenet Healthcare Corp. sr. notes Ser. B, 7 5/8s, 2008 2,306,063
6,350,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 6,635,750
4,975,005 Vanguard Health bank term loan FRN Ser. B, 11.00s, 2001 4,975,005
-------------
57,764,004
Homebuilding (0.6%)
-------------------------------------------------------------------------------------------------------------------
2,860,000 D.R. Horton, Inc. company guaranty 8s, 2009 2,631,200
3,430,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 2,915,500
3,680,000 Lennar Corp. sr. notes 7 5/8s, 2009 3,367,200
3,310,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 3,343,100
2,905,000 Toll Corp. company guaranty 8 1/8s, 2009 2,741,594
-------------
14,998,594
Household Furniture & Appliances (0.5%)
-------------------------------------------------------------------------------------------------------------------
7,790,000 Albecca, Inc. company guaranty 10 3/4s, 2008 6,933,100
7,645,978 Sealy Mattress Co. 144A sr. notes 12s, 2008 5,810,943
-------------
12,744,043
Lodging/Tourism (1.5%)
-------------------------------------------------------------------------------------------------------------------
4,680,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 2,059,200
8,395,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 8,101,175
7,980,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 7,481,250
7,465,000 ITT Corp. notes 6 3/4s, 2005 6,919,831
3,466,250 Strategic Hotel bank term loan FRN 10.37s, 2004 3,492,247
8,000,000 Starwood Hotels and Resorts bank term loan FRN
9.369s, 2003 8,020,000
1,120,000 Starwood Hotels & Resorts notes 6 3/4s, 2003 1,070,362
-------------
37,144,065
Machinery (--%)
-------------------------------------------------------------------------------------------------------------------
953,749 Terex bank term loan FRN 9.37s, 2005 948,980
Manufacturing (1.9%)
-------------------------------------------------------------------------------------------------------------------
10,520,000 Blount, Inc. company guaranty 13s, 2009 10,835,600
6,255,984 Blount, Inc. bank term loan Ser. B, FRN 10.66s, 2006 6,279,444
1,585,000 Celestica International, Ltd. 144A sr. sub. notes
10 1/2s, 2006 (Canada) 1,648,400
5,980,000 Flextronics International Ltd. 144A sr. sub. notes
9 7/8s, 2010 6,204,250
4,260,000 Flextronics International, Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 4,185,450
5,460,000 Flowserve Corp. 144A company guaranty 12 1/4s, 2010 5,525,520
1,000,000 Flowserve Corp. bank term loan FRN 9.464s, 2006 1,003,750
13,374,194 Grove Investors LLC notes 14 1/2s, 2010 (PIK) 468,097
7,230,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 7,085,400
4,300,000 Roller Bearing Co. company guaranty Ser. B, 9 5/8s, 2007 3,956,000
-------------
47,191,911
Medical Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
6,830,000 Extendicare Health Services, Inc. company guaranty 9.35s, 2007 3,756,500
5,770,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/2s, 2007
(In default) (NON) 115,400
4,370,000 Integrated Health Services, Inc. sr. sub. notes Ser. A, 9 1/4s, 2008
(In default) (NON) 87,400
4,000,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon
Ser. B, zero % (10 1/2s, 11/1/02), 2007 (In default) (STP) (NON) 25,000
17,240,000 Mariner Post-Acute Network, Inc. sr. sub. notes Ser. B, 9 1/2s,
2007 (In default) (NON) 107,750
3,100,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 (In default) (NON) 166,625
11,605,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 232,100
1,750,000 Sun Healthcare Group, Inc. 144A sr. sub. notes 9 3/8s, 2008
(In default) (NON) 35,000
-------------
4,525,775
Medical Technology (0.1%)
-------------------------------------------------------------------------------------------------------------------
2,900,000 Hanger Orthopedic Group, Inc. sr. sub. notes 11 1/4s, 2009 2,537,500
Metals (1.6%)
-------------------------------------------------------------------------------------------------------------------
3,080,000 AK Steel Corp. company guaranty 7 7/8s, 2009 2,872,100
3,140,000 Armco, Inc. sr. notes 8 7/8s, 2008 3,014,400
2,740,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 2,520,800
150,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B,
10 7/8s, 2006 147,750
3,380,000 Kaiser Aluminum & Chemical Corp. sr. notes 9 7/8s, 2002 3,329,300
8,120,000 LTV Corp. company guaranty 11 3/4s, 2009 6,171,200
8,430,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 7,397,325
1,917,000 Oregon Steel Mills 1st mortgage 11s, 2003 1,456,920
7,980,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 7,660,800
430,000 Weirton Steel Corp. 144A sr. notes 10 3/4s, 2005 399,900
2,885,000 Wheeling -Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 1,875,250
3,530,000 WHX Corp. sr. notes 10 1/2s, 2005 2,709,275
-------------
39,555,020
Office Equipment & Supplies (--%)
-------------------------------------------------------------------------------------------------------------------
3,425,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 650,750
Oil & Gas (1.8%)
-------------------------------------------------------------------------------------------------------------------
4,160,000 Belco Oil & Gas Corp. company guaranty Ser. B, 10 1/2s, 2006 4,170,400
3,900,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 3,627,000
2,450,000 Giant Industries Corp. company guaranty 9s, 2007 2,278,500
660,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 676,500
1,270,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 1,282,700
3,180,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 3,168,075
3,500,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 3,517,500
1,440,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 1,468,800
5,393,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 5,379,518
1,880,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 1,974,000
530,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 530,000
3,210,000 Seagull Energy sr. sub notes 8 5/8s, 2005 3,145,800
4,755,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 1,093,650
3,460,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 3,477,300
1,310,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 1,244,500
6,000,000 Vintage Petroleum sr. sub. notes 9 3/4s, 2009 6,150,000
1,070,000 Vintage Petroleum sr. sub. notes 9s, 2005 1,075,350
-------------
44,259,593
Paper & Forest Products (4.2%)
-------------------------------------------------------------------------------------------------------------------
7,754,640 Alabama River Newsprint bank term loan FRN 8.688s, 2002 6,591,444
11,375,000 APP Finance II Mauritius, Ltd. bonds stepped-coupon 12s,
(16s, 2/15/04), 2049 (Indonesia) (STP) 5,118,750
3,000,000 Boise Cascade Co. notes 7.35s, 2004 2,901,570
5,610,000 Doman Industries, Ltd. company guaranty 12s, 2004 (Canada) 5,778,300
12,054,000 Doman Industries, Ltd. 144A sr. notes 8 3/4s, 2004 (Canada) 9,884,280
1,710,000 Four M Corp. sr. notes Ser. B, 12s, 2006 1,633,050
3,350,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 1,675,000
40,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/4s, 2007 32,000
2,525,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 1,994,750
9,500,000 Indah Kiat Financial Mauritius, Ltd. company guaranty 10s, 2007
(Indonesia) 5,320,000
2,930,000 Kappa Beheer BV company guaranty 10 5/8s, 2009
(Netherlands) 3,010,575
7,710,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 7,787,100
2,160,000 Packaging Corp. company guaranty 9 5/8s, 2009 2,214,000
11,680,000 Pindo Deli Finance Mauritius, Ltd. company guaranty 10 3/4s,
2007 (Indonesia) 6,540,800
3,390,000 Repap New Brunswick sec. notes 11 1/2s, 2004 (Canada) 3,779,850
6,610,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 6,808,300
4,260,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 4,025,700
3,920,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 3,880,800
13,517,971 Riverwood International Corp. bank term loan FRN 8.61s, 2003 13,501,074
5,000,000 Stone Container Corp. sr. notes 12.58s, 2016 5,187,500
4,370,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 4,326,300
-------------
101,991,143
Pharmaceuticals (0.6%)
-------------------------------------------------------------------------------------------------------------------
8,210,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 8,127,900
4,980,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 4,930,200
430,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 425,700
-------------
13,483,800
Photography/Imaging (0.1%)
-------------------------------------------------------------------------------------------------------------------
5,910,000 Orbital Imaging Corp. sr. notes Ser. D, 11 5/8s, 2005 2,364,000
Power Producers (2.3%)
-------------------------------------------------------------------------------------------------------------------
2,210,000 Calpine Corp. sr. notes 10 1/2s, 2006 2,276,300
1,000,000 Calpine Corp. sr. notes 9 1/4s, 2004 995,000
2,820,000 Calpine Corp. sr. notes 8 3/4s, 2007 2,886,749
1,535,000 Calpine Corp. sr. notes 7 7/8s, 2008 1,465,331
155,000 Calpine Corp. sr. notes 7 3/4s, 2009 146,475
15,100,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 17,890,027
17,395,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 19,057,266
11,025,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands) 11,135,250
-------------
55,852,398
Publishing (0.5%)
-------------------------------------------------------------------------------------------------------------------
9,610,000 Affinity Group Holdings sr. notes 11s, 2007 8,024,350
3,135,515 Big Flower Holdings bank term loan FRN 9.625s, 2010 3,127,676
-------------
11,152,026
Railroads (0.3%)
-------------------------------------------------------------------------------------------------------------------
10,260,000 TFM S.A. de C.V. company guaranty stepped-coupon zero %
(11 3/4s, 6/15/02), 2009 (Mexico) (STP) 8,002,800
Restaurants (0.3%)
-------------------------------------------------------------------------------------------------------------------
5,010,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 2,354,700
3,400,000 Sbarro, Inc. company guaranty 11s, 2009 3,502,000
2,540,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 2,378,050
-------------
8,234,750
Retail (1.4%)
-------------------------------------------------------------------------------------------------------------------
7,270,000 Amazon.com, Inc. sr. disc. notes stepped-coupon zero %
(10s,05/01/03), 2008 (STP) 3,635,000
7,910,000 Grupo Elektra SA 144A notes 12s, 2008 (Mexico) 7,751,800
5,130,000 Iron Age Corp. company guaranty 9 7/8s, 2008 3,591,000
190,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon zero %
(12 1/8s, 5/1/03), 2009 (STP) 28,500
1,600,000 K mart Corp. med. term notes 9s, 2020 1,439,888
2,000,000 K mart Corp. med. term notes 8.96s, 2019 1,794,980
5,575,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 5,184,750
12,635,000 Saks, Inc. company guaranty 8 1/4s, 2008 9,719,221
320,000 Southland Corp. sr. sub. deb. 5s, 2003 287,379
-------------
33,432,518
Semiconductor (0.7%)
-------------------------------------------------------------------------------------------------------------------
2,300,000 Amkor Technologies, Inc., structured note (issued by Steers,
Credit Linked Trust 2000) 12.58s, 2005 2,305,750
2,100,000 Amkor Technologies, Inc. sr. notes 9 1/4s, 2006 2,092,125
1,530,000 Chippac Intl., Ltd. company guaranty Ser. B, 12 3/4s, 2009 1,637,100
12,000,000 Micron Technology, Inc. 6 1/2s, 2005 10,080,000
-------------
16,114,975
Shipping (0.2%)
-------------------------------------------------------------------------------------------------------------------
2,420,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 1,427,800
3,700,000 Pegasus Shipping 144A 11 7/8s, 2004 (In default) (NON) 1,318,125
240,000 Transportacion Maritima Mexicana S.A. de C.V. sr. notes
10s, 2006 (Mexico) 187,200
1,940,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 (Mexico) 1,590,800
-------------
4,523,925
Software (--%)
-------------------------------------------------------------------------------------------------------------------
4,960,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 892,800
Specialty Printing (0.3%)
-------------------------------------------------------------------------------------------------------------------
2,450,000 Perry-Judd company guaranty 10 5/8s, 2007 2,180,500
5,283,811 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 4,755,430
-------------
6,935,930
Technology (1.1%)
-------------------------------------------------------------------------------------------------------------------
2,800,000 Fairchild Semiconductor Corp. company guaranty 10 3/8s, 2007 2,863,000
4,055,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 4,105,688
6,740,000 Kookinlet Voicestream bank term loan Ser. B, FRN 10.63s, 2008 6,714,725
3,950,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 3,713,000
4,820,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 4,362,100
4,745,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 4,294,225
-------------
26,052,738
Technology Services (1.3%)
-------------------------------------------------------------------------------------------------------------------
9,945,000 Covad Communications Group, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13 1/2s, 03/15/03), 2008 (STP) 4,873,050
1,055,000 Covad Communications Group, Inc. sr. notes 12 1/2s, 2009 833,450
3,230,000 Covad Communications Group, Inc. sr. notes Ser. B, 12s, 2010 2,487,100
10,030,000 Equinix, Inc. sr. notes 13s, 2007 8,024,000
7,790,000 Exodus Communications, Inc. 144A sr. notes 11 5/8s, 2010 7,906,850
3,300,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 3,250,500
1,090,000 Globix Corp. sr. notes 12 1/2s, 2010 790,250
950,000 PSINet, Inc. sr. notes 11 1/2s, 2008 831,250
1,780,000 PSINet, Inc. sr. notes 11s, 2009 1,530,800
2,710,000 Rhythms Netconnections sr. notes Ser. B, 14s, 2010 1,761,500
-------------
32,288,750
Telecommunications (11.1%)
-------------------------------------------------------------------------------------------------------------------
6,200,000 360Networks, Inc. 144A sr. notes 13s, 2008 (Canada) 5,859,000
5,000,000 American Towers, Inc. bank term loan FRN 3 3/4s, 2000 5,037,500
20,000 American Mobile Satellite Corp. company guaranty
12 1/4s, 2008 14,850
660,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 528,000
350,000 Arch Communications, Inc. sr. notes 13s, 2007 (STP) 245,000
9,590,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B, zero %
(12 1/2s, 11/15/02), 2007 (Israel) (STP) 4,986,800
6,820,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 4,467,100
4,610,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 2,489,400
7,085,000 Carrier1 Intl. SA sr. notes Ser. B, 13 1/4s, 2009 (Luxembourg) 6,783,888
12,890,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 10,312,000
28,286,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (In default) (NON) (STP) 1,980,020
470,000 Clearnet Communications, Inc. sr. disc. notes stepped-coupon
zero % (14 3/4s, 12/15/00), 2005 (STP) 493,500
4,210,000 Crown Castle Intl., Corp. sr. notes 10 3/4s, 2011 4,399,450
2,780,000 Crown Castle Intl., Corp. bank term loan Ser. B,
FRN 9.37s, 2008 2,780,000
3,940,000 Dobson Communications Corp. sr. notes 10 7/8s, 2010 3,979,400
1,550,000 Dobson/Sygnet Communications, Inc. sr. notes
12 1/4s, 2008 (Bermuda) 1,588,750
6,510,000 Earthwatch, Inc. sr. disc. notes stepped-coupon zero %
(13s, 7/15/02), 2007 (STP) 4,036,200
3,465,000 Econophone, Inc. company guaranty 13 1/2s, 2007 2,702,700
5,335,000 Esprit Teleom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 3,040,950
4,955,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 4,409,950
300,000 Global Crossing Holdings, Ltd. company guaranty
9 5/8s, 2008 (Bermuda) 303,000
2,745,000 Global Crossing Holdings, Ltd. company guaranty
9 1/2s, 2009 (Bermuda) 2,758,725
9,265,000 Global Crossing Holdings, Ltd. company guaranty
9 1/8s, 2006 (Bermuda) 9,195,513
1,500,000 Global Crossing, Inc. structured note (issued by Steers,
Credit Linked Trust 2000) 9.843s, 2005 1,503,750
4,905,000 Grupo Iusacell sr. notes 14 1/4s, 2006 5,309,663
15,860,000 ICG Holdings, Inc. company guaranty stepped-coupon
zero % (12 1/2s, 5/1/01), 2006 (STP) 7,771,400
1,460,000 ICG Services, Inc. sr. disc. notes stepped-coupon
zero % (10s, 02/15/03), 2008 (STP) 496,400
14,460,000 ICG Services, Inc. sr. disc. notes stepped-coupon
zero % (9 7/8s, 5/1/03), 2008 (STP) 4,916,400
6,620,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 6,421,400
8,440,000 Intira Corp. bonds zero %, 2010 (STP) 5,064,000
9,110,000 Level 3 Communications, Inc. sr. notes 11s, 2008 9,018,900
970,000 Level 3 Communication, Inc. sr. notes 9 1/8s, 2008 868,150
1,280,000 Loral Space & Communication, Ltd. sr. notes 9 1/2s, 2006 977,600
1,260,000 Metrocall, Inc. sr. sub. notes 11s, 2008 945,000
1,380,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 1,021,200
5,430,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 5,362,125
6,150,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 6,057,750
19,963,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 17,667,255
360,000 Nextel Communications, Inc. sr. disc. notes stepped-coupon
zero % (12 1/8s, 4/15/03), 2008 (STP) 234,000
10,170,000 Nextel Communications, Inc. sr. notes 12s, 2008 10,780,200
23,650,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 23,177,000
5,780,000 Nextel International, Inc. 144A sr. notes 12 3/4s, 2010 5,649,950
4,350,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 4,350,000
2,960,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 2,960,000
3,680,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 3,201,600
5,280,000 NorthPoint Communications Group, Inc. sr. notes
12 7/8s, 2010 5,121,600
3,660,000 Pagemart Wireless, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 2/1/03), 2008 (STP) 1,445,700
7,380,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 479,700
5,040,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 2,167,200
14,530,000 Pinnacle Holdings, Inc. sr. disc. notes stepped-coupon
zero % (10s, 3/15/03), 2008 (STP) 10,461,600
120,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 122,400
6,520,000 Primus Telecommunications Group, Inc. sr. notes Ser. B,
9 7/8s, 2008 4,042,400
5,160,000 Rogers Cantel, Inc. sr. sub. notes 8.8s, 2007 (Canada) 5,185,800
6,010,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 2,163,600
2,055,000 RSL Communications, Ltd. company guaranty 12s, 2008 575,400
1,435,000 RSL Communications, Ltd. 144A company guaranty
10 1/2s, 2008 434,088
2,690,000 RSL Communications, Ltd. company guaranty 9 1/8s, 2008 699,400
2,500,000 Rural Cellular Corp. bank term loan FRN 8.979s, 2008 2,493,750
4,385,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes 10 1/8s,
2004 (Mexico) 2,894,100
2,200,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 7/8s, 9/15/00), 2010 (STP) 1,243,000
1,860,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
zero % (11 1/4s, 4/15/04), 2009 (STP) 1,106,700
9,290,000 Startec Global Communications Corp. sr. notes 12s, 2008 7,432,000
23,725,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 8,303,750
94,000 Viatel, Inc. sr. notes 11 1/2s, 2009 53,580
3,490,000 Williams Communications Group, Inc. sr. notes 10 7/8s, 2009 3,367,850
5,100,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 4,284,000
-------------
270,223,057
Telephone (5.7%)
-------------------------------------------------------------------------------------------------------------------
4,600,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero %
(13 1/2s, 10/1/04), 2009 (STP) 2,909,500
8,060,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon
zero % (12 7/8s, 2/15/05), 2010 (STP) 4,594,200
3,380,000 Alaska Communications Systems Corp. company guaranty
9 3/8s, 2009 3,109,600
440,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/4s, 2/15/03), 2008 (STP) 312,400
6,070,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 3,642,000
6,325,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 4,111,250
17,660,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13, 4/15/03), 2008 (STP) 5,474,600
4,160,000 Focal Communications Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 1/8s, 02/15/03), 2008 (STP) 2,579,200
3,580,000 Focal Communications Corp. sr. notes 11 7/8s, 2010 3,239,900
3,150,000 Intermedia Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, 12 1/4s, (121/4s, 3/1/04), 2009 (STP) 1,559,250
23,160,000 KMC Telecommunications Holdings, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 9,264,000
8,140,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 6,756,200
10,170,000 MGC Communications, Inc. sr. notes 13s, 2010 8,441,100
7,180,000 Microcell Telecommunications sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 12/1/01), 2006 (Canada) (STP) 6,892,800
2,040,000 Netia Holdings B.V. 144A company guaranty stepped-coupon
zero % (11 1/4s, 11/1/01), 2007 (Poland) (STP) 1,438,200
3,815,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 3,214,138
10,180,000 NEXTLINK Communications, Inc. sr. notes 10 1/2s, 2009 9,772,800
5,180,000 Tele1 Europe BV 144A notes 13s, 2009 5,154,100
11,480,000 Telecorp PCS, Inc. 144A sr. sub. notes 10 5/8s, 2010 11,939,200
2,720,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 2,597,600
5,805,000 Transtel S.A. pass-through certificates 12 1/2s, 2007 2,380,050
9,550,000 UbiquiTel Operating Co. company guaranty stepped-coupon
zero % (14s, 4/15/05), 2010 (STP) 4,966,000
10,270,000 US Unwired, Inc. company guaranty, stepped-coupon
Ser. B, zero % (13 3/8s, 11/1/04), 2009 (STP) 5,802,550
1,850,000 Versatel Telecom N.V. structured notes
(issued by CRAVE Trust 2000) 15.065s, 2005 (Netherlands) 1,831,500
3,590,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008 (Netherlands) 3,428,450
2,380,000 Versatel Telecom N.V. sr. notes 13 1/4s, 2008 (Netherlands) 2,272,900
9,020,000 VoiceStream Wire, Inc. sr. notes 10 3/8s, 2009 9,741,600
19,233,000 WinStar Communications, Inc. 144A sr. disc. notes
zero % (14 3/4s,), 2010 (STP) 7,597,035
3,511,000 WinStar Communications, Inc. 144A sr. notes 12 3/4s, 2010 3,054,570
-------------
138,076,693
Textiles (1.1%)
-------------------------------------------------------------------------------------------------------------------
3,740,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 2,057,000
3,310,000 GFSI, Inc. sr. disc. notes stepped-coupon Ser. B, zero %
(11 3/8s, 9/15/04), 2009 (STP) 496,500
8,910,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 8,843,175
842,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 479,940
5,620,000 Levi Strauss & Co. notes 6.8s, 2003 4,608,400
1,610,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 1,392,650
5,140,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 4,600,300
5,850,000 William Carter Holdings Co. sr. sub. notes Ser. A, 12s, 2008 5,382,000
-------------
27,859,965
Tobacco (0.1%)
-------------------------------------------------------------------------------------------------------------------
3,900,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 3,354,000
Trucks & Parts (0.2%)
-------------------------------------------------------------------------------------------------------------------
5,150,000 Transportation Manufacturing Operations, Inc. company
guaranty 11 1/4s, 2009 4,120,000
Utilities (0.3%)
-------------------------------------------------------------------------------------------------------------------
12,360,000 Cathay International, Ltd. 144A sr. notes 13s, 2008 (China) 6,427,200
Waste Management (1.0%)
-------------------------------------------------------------------------------------------------------------------
12,130,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 10,841,174
3,200,000 Allied Waste Industries, Inc. bank term loan Ser. C.,
FRN 9.813s, 2007 3,124,448
2,670,000 Allied Waste Industries, Inc. bank term loan Ser. B.,
FRN 9.563s, 2006 2,596,762
5,900,000 Allied Waste Industries, Inc. company guaranty Ser. B,
7 5/8s, 2006 5,428,000
2,530,000 USA Waste Services, Inc. sr. notes 7 1/8s, 2007 2,368,181
320,000 Waste Management, Inc. company guaranty 6 7/8s, 2009 291,386
-------------
24,649,951
Water Utilities (0.1%)
-------------------------------------------------------------------------------------------------------------------
2,720,000 Azurix Corp. 144A notes 10 3/8s, 2007 2,108,000
--------------
Total Corporate Bonds and Notes (cost $2,384,412,346) $1,962,721,102
<CAPTION>
PREFERRED STOCKS (6.5%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Banking (0.4%)
-------------------------------------------------------------------------------------------------------------------
166,110 Chevy Chase Capital Corp. Ser. A, 5.188 pfd. (PIK) $ 7,807,170
22,125 Chevy Chase Savings Bank, Inc. 3.25 pfd. 553,125
--------------
8,360,295
Broadcasting (1.8%)
-------------------------------------------------------------------------------------------------------------------
3,596 Benedek Communications Corp. 11.50 pfd. (PIK) 2,301,440
85,081 Citadel Broadcasting Co. Ser. B, 13.25 cum. pfd. (PIK) 9,188,748
392,000 Diva Systems Corp. Ser. C, 6.00 pfd. 2,352,000
876,252 Diva Systems Corp. Ser. D, 6.00 pfd. 5,257,512
9,853 Granite Broadcasting 144A 12.75 pfd. (PIK) 7,389,750
1,798 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 17,620,400
-------------
44,109,850
Cable Television (0.8%)
-------------------------------------------------------------------------------------------------------------------
190,476 CSC Holdings, Inc. Ser. M, 11.125 cum. pfd. (PIK) 20,190,456
Chemicals (0.1%)
-------------------------------------------------------------------------------------------------------------------
58,320 Avecia Group PLC 4.00 cum. pfd. (United Kingdom) 1,574,640
Electric Utilities (--%)
-------------------------------------------------------------------------------------------------------------------
25,331 Public Service Co. of New Hampshire 2.65 1st mtge. pfd. 633,275
Food (0.2%)
-------------------------------------------------------------------------------------------------------------------
134,700 Doane Products Co. 7.125 pfd. 5,388,000
Insurance and Finance (0.6%)
-------------------------------------------------------------------------------------------------------------------
130,000 CGA Group, Ltd. 144A Ser. A, 13.75 pfd. (PIK) 3,510,000
3,620 First Republic Capital Corp. Ser. 144A, 10.50 pfd. 3,113,200
328,000 Golden State Bancorp Ser. A, 2.281 pfd. 7,626,000
-------------
14,249,200
Health Care Services (0.3%)
-------------------------------------------------------------------------------------------------------------------
7,910 Fresenius Medical Capital Trust I Ser. D, 9.00% company
guaranty, pfd. (Germany) 7,830,900
Manufacturing (0.2%)
-------------------------------------------------------------------------------------------------------------------
129,800 Brand Scaffold Services, Inc. 144A 3.625 pfd. 3,894,000
Oil and Gas (0.4%)
-------------------------------------------------------------------------------------------------------------------
7,236 R&B Falcon Corp. 13.875% pfd. 8,935,991
Restaurants (0.1%)
-------------------------------------------------------------------------------------------------------------------
151,163 AmeriKing, Inc. 3.25 pfd. (PIK) 906,978
Telecommunications (1.2%)
-------------------------------------------------------------------------------------------------------------------
10,692 Dobson Communications Corp. 144A 12.25% pfd. (PIK) 10,210,631
19,667 ICG Holdings, Inc. 144A 14.00% pfd. (Canada) (PIK) 5,900,100
3,307 Nextel Communications, Inc. Ser. E, 11.125 pfd. (PIK) 3,191,255
4,812 Pegasus Communications Corp. Ser. A, 12.75 cum. pfd. 5,052,600
5,769 Rural Cellular Corp. 12.25% pfd. (PIK) 5,019,387
-------------
29,373,973
Telephone (0.6%)
-------------------------------------------------------------------------------------------------------------------
17,461 Intermedia Communication Ser. B, 13.50% pfd. (PIK) 11,349,696
11,890 NEXTLINK Communications, Inc. 7.00 cum. pfd. 546,940
1,772 NEXTLINK Communications, Inc. Ser. B, 13.50% pfd. (PIK) 1,532,780
--------------
13,429,416
--------------
Total Preferred Stocks (cost $183,951,214) $ 158,876,974
<CAPTION>
UNITS (2.0%) (a)
NUMBER OF UNITS VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
8,655 App China Group Ltd. units 14s, 2010 $ 5,019,900
21,510 Australis Media, Ltd. 15 3/4s, 2003 (In default)
(Australia) (NON) 1,936
8,865 CFW Communications Co. 144A units 13s, 2010 8,687,700
3,940 Colo.com units 13 7/8s, 2010 4,018,800
2,310 Huntsman Packaging Corp. units 13s, 2010 2,079,000
10,180 Investcorp units 12 3/4s, 2010 10,485,400
5,490 iPCS Inc. units stepped-coupon zero % (14s 7/15/05), 2010 (STP) 3,129,300
7,810 Maxcom Telecomunicacione units 13 3/4s, 2007 4,803,150
5,610 Railamerica Transportation Corp. units sr. sub. notes
12 7/8s, 2010 5,301,450
2,845 XCL Ltd. units 13 1/2s, 2004 (In default) (NON) 512,100
10,500,000 XCL Ltd. units sr. sec. notes zero %, 2004 (In default) (NON) 105,000
60,536 XCL, Ltd. 144A units cum. pfd. zero %, 2006 (PIK) 30,268
6,050 XM Satellite Radio Inc. units 14s, 2010 5,566,000
--------------
Total Units (cost $84,421,016) $ 49,740,004
<CAPTION>
COLLATERALIZED MORTGAGE OBLIGATIONS (1.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 1,385,000 Amresco Commercial Mortgage Funding I Ser. 97-C1,
Class G, 7s, 2029 $ 1,130,073
38,776,749 Commercial Mortgage Asset Trust Ser. 99-C1, Class X,
Interest Only (IO), 1.17s, 2020 2,449,297
4,300,000 Criimi Mae Commercial Mortgage Trust Ser. 98-C1,
Class C, 7s, 2012 3,263,969
2,445,000 CS First Boston Mortgage Securities Corp. Ser. 99-C1,
Class E, 8.183s, 2009 2,449,775
Fannie Mae
2,496 Ser. 92-184, Class J, IO, 11.46s, 2022 93,355
1,425 Ser. 92-181, Class PJ, IO, 10.075s, 2022 46,038
1,914,967 Ser. 150, Class 2, IO, 8 1/2s, 2022 515,246
759,563 Ser. 158, Class 2, IO, 8.5s, 2022 202,946
1,060,406 Ser. 181, Class 2, IO, 8.5s, 2022 285,316
202,060 Ser. 241, Class 2, IO, 8.5s, 2023 53,988
581,714 Ser. 203, IO, Class 2, 8s, 2023 165,971
1,417,236 Ser. G93-9, IO, 8s, 2023 374,462
4,033,046 Ser. 218, Class 2, IO, 7.9s, 2023 1,164,542
7,074,397 Ser. 221, Class 2, IO, 7.5s, 2023 2,038,310
936,615 Ser. 215, Class 2, IO, 7s, 2023 266,350
393,000 Ser. 00-4, Class SX, 6.998s, 2023 383,666
831,439 Ser. 97-23, Class SJ, IO, 6.188s, 2023 186,034
1,900,400 Ser. 92-207, Class S, IO, 5.906s, 2022 392,254
2,170,400 Freddie Mac Ser. 2183, Class SG, 4.155s, 2014 1,725,807
4,700,000 General Growth Properties-Ala Moana Ser. 99-C1, Class F,
9.385s, 2004 4,701,102
Government National Mortgage Association
2,358,996 Ser. 00-10, Class SB, 9.05s, 2030 2,211,928
982,782 Ser. 00-16, Class SA, 9.05s, 2026 884,197
3,200,000 GS Mortgage Securities Corp. Ser. 99-FL2A, Class G,
8.195s, 2013 3,076,000
Merrill Lynch Mortgage Investors, Inc.
6,598,305 Ser. 96-C2, Class IO, 1.935s, 2028 422,704
1,520,000 Ser. 98-C2, Class F, 6 1/4s, 2030 991,563
-------------
Total Collateralized Mortgage Obligations
(cost 29,118,813) $ 29,474,893
<CAPTION>
COMMON STOCKS (1.1%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
310,820 360Networks, Inc. 144A (acquired 5/11/00, cost 3,481,184)
(Canada) (NON) (RES) $ 3,885,250
3,000 AmeriKing, Inc. (NON) 30,000
6,570 Axia Holding, Inc. 144A (PIK) (NON) 85,410
1,663,637 Capstar Broadcasting (NON) 6,654,546
96,272 Fitzgeralds Gaming Corp. (NON) 963
26,776 MGC Communications, Inc. (NON) 493,683
2,604 Mothers Work, Inc. (NON) 23,924
4,555 Paging Do Brazil Holdings Co., LLC 144A Class B, (Brazil) (NON) 46
8,407 Premium Holdings (L.P.) 144A (NON) 84,071
11,857 PSF Holdings LLC Class A (NON) (AFF) 11,857,000
743 RCN Corp. (NON) 7
195,050 Spanish Broadcasting System, Inc. (NON) 1,962,691
236,025 Specialty Foods Acquisition Corp. (NON) 2,360
91,233 Tele1 Europe Holding AB ADR (Sweden) (NON) 1,117,604
-------------
Total Common Stocks (cost $46,369,593) $ 26,197,555
<CAPTION>
CONVERTIBLE BONDS AND NOTES (1.0%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 16,245,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (STP) $ 6,985,350
14,380,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 6,686,700
2,915,000 Parker Drilling Corp. cv. sub. notes 5 1/2s, 2004 2,401,231
5,050,000 Total Renal Care Holdings, Inc. 144A cv. notes 7s, 2009 3,553,938
3,950,000 Waste Management, Inc. cv. sub. notes 4s, 2002 3,683,375
-------------
Total Convertible Bonds and Notes (cost $31,204,545) $ 23,310,594
<CAPTION>
CONVERTIBLE PREFERRED STOCKS (0.9%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
319,609 Earthwatch, Inc. Ser. C, 8.50 cv. pfd. $ 3,196
18,600 Global Crossing Ltd. 7.00% cv. cum.pfd. 3,538,650
15,600 Global Crossing Ltd. 144A 7.00% cv. cum. pfd. 2,979,600
12,200 Global Crossing Ltd. 6.75% cv. cum. pfd. 2,976,800
106,300 Global Telesystems Group, Inc. 3.625 cv. cum. pfd. 1,966,550
127,905 Global Telesystems Group, Inc. 144A 3.625 cv. pfd. 2,350,254
14,200 Interact Systems, Inc. 14.00% cv. cum. pfd. 14,200
47,500 LTV Corp. (The) 144A 4.125 cv. cum. pfd. 1,425,000
459 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 4,452,300
52,956 Penisula Gaming Partners 144A 7.14% cv. pfd. 317,735
69,500 PsiNet, Inc. 144A 3.50 cv. cum. pfd. 1,841,750
753 World Access, Inc. 144A Ser. D, zero %, cv. pfd. 700,290
11,976 XCL, Ltd. 144A Ser. A, 8.08 cv. cum. pfd. 5,989
-------------
Total Convertible Preferred Stocks (cost $31,589,643) $ 22,572,314
<CAPTION>
WARRANTS (0.7%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
6,820 Bestel S.A. de C.V. (Mexico) 5/15/05 $ 818,400
6,120 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 612,000
8,100 Carrier1 Intl. SA 2/19/09 2,187,000
45,271 CellNet Data Systems, Inc. 10/1/07 5
130,000 CGA Group, Ltd. 144A 2/11/07 1,300
400 Cybernet Internet Services Intl., Inc. 144A 7/1/09 400
5,350 Dayton Superior Corp. 144 A 6/15/09 107,000
2,170 Decrane Aircraft Holdings 9/30/08 22
8,400 Destia Communications 144A 7/15/07 504,000
5,200 Diva Systems Corp. 5/15/06 3,120,000
31,824 Diva Systems Corp. 3/1/08 445,536
6,110 Epic Resorts 6/15/05 61
8,820 Firstworld Communication Corp. 4/15/08 176,400
6,135 Globalstar Telecommunications 2/15/04 6,135
251,394 ICG Communications 10/15/05 251,394
7,540 Insilco Corp. 144A 8/15/07 75
14,200 Interact Systems, Inc. 8/1/03 142
14,200 Interact Systems, Inc. 144A 12/15/09 142
5,125 International Wireless Communications
Holdings 144A 8/15/01 5
139,422 Intira Corp. Class A 2/1/10 14
47,911 Intira Corp. Class B 2/1/10 5
15,030 Iridium World Com 144A 7/15/05 2
25,970 KMC Telecommunications Holdings, Inc. 4/15/08 77,910
25,920 Knology Holdings 10/22/07 155,520
41,270 McCaw International, Ltd. 4/15/07 165,080
7,440 Mediq, Inc. 144A 6/1/09 74
3,900 Metronet Communications 144A 8/15/07 390,000
710 Motient Corp. 144A 4/1/08 24,850
98,890 Network Plus Corp. 12/31/00 4,548,940
3,920 OnePoint Communications, Corp. 6/1/08 352,800
12,550 Orion Network Systems 1/15/07 138,050
72,220 Pagemart, Inc. 144A 12/31/03 794,420
4,945 Pathnet, Inc. 144A 4/15/08 49,450
12,480 Paxson Communications Corp. 144A 6/30/03 68,640
11,495 Raintree Resort 144A 12/1/04 115
2,000 Signature Brands, Ltd. 8/15/02 20
6,640 Startec Global Communications Corp. 5/15/08 6,640
6,375 Sterling Chemicals Holdings 8/15/08 57,375
4,960 Telehub Communications Corp. 7/31/05 2,480
9,550 Ubiquitel, Inc. 144A 4/15/10 668,500
38,235 UIH Australia/Pacific, Inc. 144A 5/15/06 1,147,050
99,620 USN Communications Inc. 8/15/04 996
170 Versatel Telecom N.V. 5/15/08 54,400
4,190 WAM!NET, Inc. 3/1/05 48,709
403 Wright Medical Technology, Inc. 144A 6/30/03 4
220 XM Satellite Radio Holdings, Inc. 144A 3/15/10 35,200
50,000 ZSC Specialty Chemicals PLC 144A 6/30/11 81,250
50,000 ZSC Specialty Chemicals PLC 144A 6/30/11 31,250
-------------
Total Warrants (cost $11,801,538) $ 17,129,761
<CAPTION>
FOREIGN GOVERNMENT BONDS AND NOTES (0.2%) (a) (cost 4,530,967)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 5,340,000 Philippines (Republic of) notes 10 5/8s, 2025 $ 4,746,192
<CAPTION>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (0.2%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
U.S. Government Agency Mortgage Obligations (0.1%)
-------------------------------------------------------------------------------------------------------------------
Freddie Mac
$ 4,844,000 9.489s, July 15, 2022 $ 1,602,303
957,000 8.28s, April 15, 2024 487,472
2,043,461 3.751s, November 15, 2021 649,119
-------------
2,738,894
U.S. Treasury Obligations (0.1%)
-------------------------------------------------------------------------------------------------------------------
1,410,000 U.S. Treasury Notes 6 1/2s, February 15, 2010 1,472,125
-------------
Total U.S. Government and Agency Obligations
(cost 3,863,010) 4,211,019
<CAPTION>
SHORT-TERM INVESTMENTS (2.3%) (a) (cost 54,895,000)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 54,895,000 Interest in 400,000,000 joint repurchase agreement
dated August 31, 2000 with Merrill Lynch, Pierce, Fenner &
Smith, Inc. due September 1, 2000 with respect to various
U.S. Treasury obligations -- maturity value of 54,905,000
for an effective yield of 6.64% $ 54,895,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,866,157,685) (b) $2,353,875,408
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,431,282,113.
(b) The aggregate identified cost on a tax basis is $2,873,797,919,
resulting in gross unrealized appreciation and depreciation of
$48,644,492 and $568,567,003, respectively, or net unrealized
depreciation of $519,922,511.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at August 31, 2000 was
$3,885,250 or 0.2% of net assets.
(STP) The interest rate and date shown parenthetically represent the new
interest or dividend rate to be paid and the date the fund will begin
receiving interest 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.
ADR after the name of a foreign holding stands for American
Depositary Receipts representing ownership of foreign securities on
deposit with a domestic custodian bank.
The rates shown on Floating Rate Notes (FRN) are the current
interest rates shown at August 31, 2000, which are subject to change
based on the terms of the security.
------------------------------------------------------------------------------
Swap Contracts Outstanding at August 31, 2000
Notional Termination Unrealized
Amount Date Appreciation
------------------------------------------------------------------------------
Agreement with
Merrill Lynch
Capital Services,
Inc. Dated May 5,
2000 to receive
(pay) quarterly
the notional
amount multiplied
by 11.3025% and
pay the notional
amount multiplied
by three month
LIBOR adjusted by
a specified
spread. $1,500,000 Apr-05 $47,233
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,866,157,685) (Note 1) $2,353,875,408
-------------------------------------------------------------------------------------------
Cash 3,435,336
-------------------------------------------------------------------------------------------
Dividends, interest and other receivables 56,568,225
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,252,490
-------------------------------------------------------------------------------------------
Receivable for securities sold 40,532,442
-------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 47,233
-------------------------------------------------------------------------------------------
Total assets 2,457,711,134
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 16,943,678
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,001,667
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,601,370
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 221,949
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 162,188
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,901
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,206,612
-------------------------------------------------------------------------------------------
Other accrued expenses 286,656
-------------------------------------------------------------------------------------------
Total liabilities 26,429,021
-------------------------------------------------------------------------------------------
Net assets $2,431,282,113
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,500,685,520
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (13,728,622)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investment (Notes 1) (543,573,462)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets
and liabilities in foreign currencies (512,101,323)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,431,282,113
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,022,516,112 divided by 213,523,533 shares) $9.47
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.47)* $9.94
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($381,092,843 divided by 40,373,420 shares)** $9.44
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($11,004,783 divided by 1,161,873 shares) $9.47
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.47)* $9.79
-------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($16,668,375 divided by 1,759,453 shares) $9.47
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Interest $ 297,822,367
-------------------------------------------------------------------------------------------
Dividends 22,275,498
-------------------------------------------------------------------------------------------
Total investment income 320,097,865
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 15,809,057
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,848,753
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 66,739
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 29,786
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 5,695,916
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5,023,627
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 61,393
-------------------------------------------------------------------------------------------
Other 1,262,609
-------------------------------------------------------------------------------------------
Total expenses 30,797,880
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (688,425)
-------------------------------------------------------------------------------------------
Net expenses 30,109,455
-------------------------------------------------------------------------------------------
Net investment income 289,988,410
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (151,583,664)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and
liabilities in foreign currencies during the year 16,720
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments
and swap contracts during the year (106,800,461)
-------------------------------------------------------------------------------------------
Net loss on investments (258,367,405)
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 31,621,005
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended August 31
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 289,988,410 $ 354,832,644
--------------------------------------------------------------------------------------------------
Net realized loss on investments (151,583,664) (305,126,069)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments
and assets and liabilities in foreign currencies (106,783,741) 3,100,104
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 31,621,005 52,806,679
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (237,628,746) (268,432,849)
--------------------------------------------------------------------------------------------------
Class B (49,056,663) (83,105,443)
--------------------------------------------------------------------------------------------------
Class M (1,306,211) (1,769,553)
--------------------------------------------------------------------------------------------------
Class Y (1,993,337) (1,524,798)
--------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (9,143,992) (4,573,658)
--------------------------------------------------------------------------------------------------
Class B (1,887,708) (1,415,981)
--------------------------------------------------------------------------------------------------
Class M (50,263) (30,150)
--------------------------------------------------------------------------------------------------
Class Y (76,704) (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) (493,821,507) (326,571,340)
--------------------------------------------------------------------------------------------------
Total decrease in net assets (763,344,126) (653,171,273)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 3,194,626,239 3,847,797,512
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess
of net investment income of $13,728,622 and
$3,171,496, respectively) $2,431,282,113 $3,194,626,239
--------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.46 $11.47 $12.89 $12.11 $12.01
------------------------------------------------------------------------------------------------
Investment activities
------------------------------------------------------------------------------------------------
Net investment income 1.05(c) 1.11(c) 1.22(c) 1.20 1.16(c)
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.95) (.93) (1.35) .72 .11
------------------------------------------------------------------------------------------------
Total from
investment operations .10 .18 (.13) 1.92 1.27
------------------------------------------------------------------------------------------------
Less distributions
------------------------------------------------------------------------------------------------
From net
investment income (1.05) (1.11) (1.28) (1.14) (1.15)
------------------------------------------------------------------------------------------------
In excess of net
investment income (.04) (.02) (.01) -- (.02)
------------------------------------------------------------------------------------------------
From return of capital -- (.06) -- -- --
------------------------------------------------------------------------------------------------
Total distributions (1.09) (1.19) (1.29) (1.14) (1.17)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.47 $10.46 $11.47 $12.89 $12.11
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .93 1.76 (1.75) 16.60 11.08
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,022,516 $2,488,892 $2,821,513 $3,259,440 $3,115,546
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .96 .93 .95 .96 .96
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 10.45 10.23 9.39 9.54 9.57
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.55 50.65 69.23 130.77 184.86
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (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
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.42 $11.43 $12.84 $12.07 $11.97
------------------------------------------------------------------------------------------------
Investment activities
------------------------------------------------------------------------------------------------
Net investment income .98(c) 1.04(c) 1.12(c) 1.10 1.07(c)
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.94) (.95) (1.34) .72 .11
------------------------------------------------------------------------------------------------
Total from
investment operations .04 .09 (.22) 1.82 1.18
------------------------------------------------------------------------------------------------
Less distributions
------------------------------------------------------------------------------------------------
From net
investment income (.98) (1.03) (1.18) (1.05) (1.06)
------------------------------------------------------------------------------------------------
In excess of net
investment income (.04) (.02) (.01) -- (.02)
------------------------------------------------------------------------------------------------
From return of capital -- (.05) -- -- --
------------------------------------------------------------------------------------------------
Total distributions (1.02) (1.10) (1.19) (1.05) (1.08)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.44 $10.42 $11.43 $12.84 $12.07
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .27 .99 (2.42) 15.71 10.28
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $381,093 $669,009 $1,007,028 $1,226,880 $1,100,757
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.71 1.68 1.70 1.71 1.71
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.72 9.53 8.64 8.79 8.84
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.55 50.65 69.23 130.77 184.86
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (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
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended August 31
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.45 $11.47 $12.88 $12.10 $12.00
------------------------------------------------------------------------------------------------
Investment activities
------------------------------------------------------------------------------------------------
Net investment income 1.03(c) 1.09(c) 1.19(c) 1.16 1.14(c)
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.94) (.95) (1.34) .73 .11
------------------------------------------------------------------------------------------------
Total from
investment operations .09 .14 (.15) 1.89 1.25
------------------------------------------------------------------------------------------------
Less distributions
------------------------------------------------------------------------------------------------
From net
investment income (1.03) (1.08) (1.25) (1.11) (1.13)
------------------------------------------------------------------------------------------------
In excess of net
investment income (.04) (.02) (.01) -- (.02)
------------------------------------------------------------------------------------------------
From return of capital -- (.06) -- -- --
------------------------------------------------------------------------------------------------
Total distributions (1.07) (1.16) (1.26) (1.11) (1.15)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.47 $10.45 $11.47 $12.88 $12.10
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) .78 1.42 (1.94) 16.33 10.88
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $11,005 $15,264 $19,256 $24,382 $16,616
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.21 1.18 1.20 1.21 1.19
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 10.21 10.00 9.10 9.29 9.45
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 60.55 50.65 69.23 130.77 184.86
------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (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>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS Y
--------------------------------------------------------------------
For the period
Per-share Year ended Dec. 31, 1998+
operating performance August 31 to August 31
--------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------
Net asset value,
beginning of period $10.46 $10.83
--------------------------------------------------------------------
Investment activities
--------------------------------------------------------------------
Net investment income (c) 1.08 .77
--------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.95) (.35)
--------------------------------------------------------------------
Total from
investment operations .13 .42
--------------------------------------------------------------------
Less distributions
--------------------------------------------------------------------
From net
investment income (1.08) (.74)
--------------------------------------------------------------------
In excess of net
investment income (.04) (.01)
--------------------------------------------------------------------
From return of capital -- (.04)
--------------------------------------------------------------------
Total distributions (1.12) (.79)
--------------------------------------------------------------------
Net asset value,
end of period $9.47 $10.46
--------------------------------------------------------------------
Ratios and supplemental data
--------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.17 3.92*
--------------------------------------------------------------------
Net assets, end of period
(in thousands) $16,668 $21,461
--------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .71 .46*
--------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 10.72 6.81*
--------------------------------------------------------------------
Portfolio turnover (%) 60.55 50.65
--------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (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.
NOTES TO FINANCIAL STATEMENTS
August 31, 2000
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. 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
shares 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 that 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are stated at market value, which is determined using
the last reported sales price on its principal exchange, 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. 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 or dealers, approved by the
Trustees, which determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable 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 except that certain dividends from
foreign securities are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends, if any, are recorded at the fair
market value of the securities received.
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 realized
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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
F) Interest rate swap contracts The fund may engage in interest rate
swap agreements, which are agreements between two parties to exchange
cash flows based on a notional amount. The fund may enter into interest
rate swap agreements, to change the funds exposure to interest rates.
Interest rate swaps are marked to market daily based upon quotations
from market makers and the change, if any, is recorded as unrealized
gain or loss. Net payments are included as part of interest income.
Payments received or made at the end of the measurement period are
recorded as realized gains or losses. The fund could be exposed to
credit or market risk due to unfavorable changes in the fluctuation of
interest rates or that the counterparty may default on its obligation to
perform.
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, 2000, 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, 2000, the fund had a capital loss carryover of
approximately $407,748,000 available to offset future capital gains, if
any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$ 52,738,000 August 31, 2003
111,093,000 August 31, 2007
243,917,000 August 31, 2008
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, 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, book accretion/amortization
adjustment and unrealized gains and losses on certain options contracts.
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,
2000, the fund reclassified $598,088 to decrease distributions in excess
of net investment income and $110,254,698 to decrease paid-in-capital,
with an decrease to accumulated net realized losses of $109,656,610. The
calculation of net investment income per share in the financial
highlights table excludes these adjustments.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.70% of the
first $500 million of average net assets, 0.60% of the next $500
million, 0.55% of the next $500 million, and 0.50% of the next $5
billion, 0.475% of the next $5 billion, 0.455% of the next $5 billion,
0.44% of the next $5 billion and 0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the year ended August 31, 2000, fund expenses were reduced by
$688,425 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 $2,898
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $97,436 and $587 from
the sale of class A and class M shares, respectively, and $1,226,461 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, 2000, Putnam Retail
Management, Inc., acting as underwriter received $1,439 on class A
redemptions.
Note 3
Purchases and sales of securities
During the year ended August 31, 2000, cost of purchases and proceeds
from sales of investment securities other than U.S. government
obligations and short-term investments aggregated $1,634,707,558 and
$2,259,545,336, respectively. Purchases and sales of U.S. government
obligations aggregated $4,289,834 and $2,912,500, respectively.
Note 4
Capital shares
At August 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended August 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 28,959,119 $ 292,522,648
---------------------------------------------------------------------------
Shares
reinvested 13,482,041 134,644,573
---------------------------------------------------------------------------
42,441,160 427,167,221
Shares
repurchased (66,880,825) (673,689,629)
---------------------------------------------------------------------------
Net decrease (24,439,665) $(246,522,408)
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 4,197,728 $ 41,983,542
---------------------------------------------------------------------------
Shares
reinvested 2,423,572 24,228,606
---------------------------------------------------------------------------
6,621,300 66,212,148
Shares
repurchased (30,455,996) (307,465,307)
---------------------------------------------------------------------------
Net decrease (23,834,696) $(241,253,159)
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 108,654 $ 1,099,289
---------------------------------------------------------------------------
Shares
reinvested 92,316 925,533
---------------------------------------------------------------------------
200,970 2,024,822
Shares
repurchased (499,136) (5,068,421)
---------------------------------------------------------------------------
Net decrease (298,166) $(3,043,599)
---------------------------------------------------------------------------
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, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 155,805 $ 1,776,504
---------------------------------------------------------------------------
Shares
reinvested 224,920 2,070,041
---------------------------------------------------------------------------
380,725 3,846,545
Shares
repurchased (673,188) (6,848,886)
---------------------------------------------------------------------------
Net decrease (292,463) $(3,002,341)
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
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
--------------------------------------------------------------------------
PSF Holdings LLC Class A $-- $-- $-- $11,857,000
--------------------------------------------------------------------------
Note 6
Change in Independent Accountants
(Unaudited)
Based on the recommendation of the Audit Committee of the fund, the
Board of Trustees has determined not to retain PricewaterhouseCoopers
LLP as this fund's independent accountants and voted to appoint KPMG LLP
for the fund's fiscal year ended August 31, 2000. During the two
previous fiscal years, PricewaterhouseCoopers LLP audit reports
contained no adverse opinion or disclaimer of opinion; nor were its
reports qualified or modified as to uncertainty, audit scope, or
accounting principle. Further, in connection with its audits for the two
previous fiscal years and through July 24, 2000, there were no
disagreements between the fund and PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused it to make
reference to the disagreements in its report on the financial statements
for such years.
FEDERAL TAX INFORMATION
(Unaudited)
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
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
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 Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Technology Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Fund
Balanced Retirement Fund
Classic Equity 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
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 Growth and Income Fund 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.putnaminvestments.com.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, 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, III
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
Stephen C. Peacher
Vice President
Rosemary H. Thomsen
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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 and
Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN034-64662 014/324/2AC 10/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
----------------------------------------------------------------------------
Supplement to Annual Report dated 8/31/00
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 8/31/00 NAV
I year 1.17%
5 years 31.20
Annual average 5.58
10 years 162.00
Annual average 10.11
Life of fund (since Class A inception, 2/14/78)
Annual average 9.84
Share value: NAV
8/31/99 $10.46
8/31/00 9.47
----------------------------------------------------------------------------
Distributions:
No. Income Capital gains Total
12 $1.116 $-- $1.116
----------------------------------------------------------------------------
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.
