Putnam 811-7513
High Yield
Trust II
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
2-28-02
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
After a semiannual period marked by negative economic and market news,
beginning with the traumatic events of September 11 and climaxing with
the Enron collapse, Putnam High Yield Trust II closed its books with a
loss. The management team will explain in the following pages the
reasons for the loss and discuss expectations for the future.
The management team's discussion will provide you with a good understanding
of what has been driving your fund's performance. As you read, you may
notice that the team is listed, rather than individual managers. This more
accurately reflects the manner in which your fund is managed, as well as
Putnam's belief that mutual funds are more effectively overseen by teams.
In addition, after lengthy discussions and working sessions between
Management and the Board of Trustees, your Trustees have agreed to
recommend the mergers of several funds in order to provide shareholders
with more focused products. Your fund has been proposed for merger into
Putnam High Yield Trust, which has a similar investment objective and
strategy. For more details, see page 6.
We know that Putnam Investments values its relationship with you and its
other shareholders, and appreciates your loyalty through the
restructuring of its staff and products to pursue superior investment
performance in the future.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
April 11, 2002
REPORT FROM FUND MANAGEMENT
This fund is managed by the
Putnam Core Fixed-Income High-Yield Team
High-yield bonds endured a volatile six months ended February 28, 2002
- -- the first half of the 2002 fiscal year for Putnam High Yield Trust II
- -- largely due to the severe downdraft caused by the terrorist attacks
of September 11, 2001. The high-yield market recovered from that point,
but not enough to finish the six-month period on the positive side of
the ledger. While your fund's returns show a modest loss for the period,
its results were ahead of the average for its Lipper category -- which
indicates to us that our strategies have been effective in limiting
losses throughout this turbulent period. See page 7 for more details.
Total return for 6 months ended 2/28/02
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------
-0.82% -5.52% -1.19% -5.86% -1.19% -2.12% -0.95% -4.23%
- -----------------------------------------------------------------------
Past performance does not indicate future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 7.
* STRATEGY SHIFT HELPED PERFORMANCE AFTER SEPTEMBER 11
The events of September 11 further challenged a high-yield market that
was already enduring a difficult stretch. Even though the Federal
Reserve Board aggressively cut short-term interest rates in order to
support growth, corporate earnings remained weak, negatively affecting
both stocks and the equity-sensitive high-yield market. Nevertheless,
high-yield bond prices steadied in October and enjoyed a significant
rally in November. Since that time, the environment has been mixed.
Signs suggest that the economy is recovering and defaults may be poised
to decline. However, corporate securities have recently felt the impact
of the Enron bankruptcy, as investors looked even more closely at
corporate accounting policies and the transparency of each firm's
operations. Any irregularities in these areas have been met by
punishing declines in stock and bond prices.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Basic materials 10.3%
Communication
services 8.4%
Broadcasting 8.2%
Capital goods 7.7%
Gaming and
lottery 6.9%
Footnote reads:
*Based on net assets as of 2/28/02. Holdings will vary over time.
Our targeting of two types of bonds helped drive the portfolio's
performance during the period. The first were bonds unduly punished by
the market after September 11. These beaten-down securities gave us the
opportunity to add solid investments at attractive price levels. Our
investment in Young Broadcasting bonds was a good example of this kind
of opportunity. This firm owns television stations across the United
States, and its bonds declined markedly after the September 11 attacks
due to concerns that a weak economy would hurt the advertising market.
We purchased some of the bonds at these low price levels and have since
seen them recover sharply, the result of both the company's sale of some
stations to bolster its balance sheet and renewed optimism about the
future direction of the economy.
We also focused attention on "fallen angels," bonds issued by companies
that were previously investment grade but had been downgraded to high
yield, as well as companies still rated investment grade whose bonds
started to trade at high-yield levels. Because of the discrepancies in
value between the investment-grade and high-yield bond markets, fallen
angels often present attractive opportunities to investors who react
quickly. We believe we are in a position to take advantage of these
situations because of the strong lines of communication between Putnam's
research professionals who cover the investment-grade, high-yield, and
equity markets. Examples of fallen angels purchased at lower prices that
have since rebounded include Millennium Chemical and Equistar Chemicals;
the holding companies of Northwest and Continental Airlines; paper and
forest products company Bowater; and conglomerate Tyco International.
While these holdings, along with others discussed in this report, were
viewed favorably at the end of the period, all portfolio holdings are
subject to review and adjustment in accordance with the fund's strategy
and may vary in the future.
Fund Profile
Putnam High Yield Trust II seeks high current income through a
portfolio of high-yielding, lower-rated corporate bonds that are
carefully researched and broadly diversified across different industry
sectors. It has a secondary objective of capital growth when consistent
with high current income. This fund is suitable for investors who can
accept a higher level of risk in exchange for a potentially higher level
of income than that available from higher-quality bonds.
During a difficult six months, the fund suffered from the poor
performance of some of its investments, including American Tower, which
owns cellular and digital communications towers. These bonds weakened
along with the stocks and bonds of wireless companies because of
investor concerns that growth in this area was slowing. We took the
opportunity to add to these securities because we believed that the
industry has strong growth prospects, especially when comparing the
under- penetration of cellular and digital service in the United States
with the market development of the industry in a number of
industrialized countries.
* FUND'S POSITIONING EXPLAINED COMPETITIVE PERFORMANCE RESULTS
While your fund's returns were ahead of other funds in its Lipper
category, its performance lagged that of its benchmark, the Credit
Suisse First Boston High Yield Index, over the period. We believe there
are two primary reasons for the fund's underperformance. Over this
period, bonds in the upper tiers of the high-yield market had posted the
best performance, reflecting investors' widespread craving for quality
in a period of economic weakness. Most mutual funds diversify their
holdings across the different levels of credit quality available in the
high-yield market in order to provide attractive yields, using their
in-house research to identify lower-quality bonds whose yield
advantages provide appropriate compensation for their added risk.
Consequently, a high-yield mutual fund will typically have a lower
overall credit quality than the CSFB High Yield Index and will lag the
index during periods when higher-quality bonds are favored. However, in
a stronger high-yield market, which we expect to develop in the coming
year, lower-quality tiers should outperform.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Allied Waste Industries, Inc.
company guaranty Ser. B, 10s, 2009
Capital goods
Echostar Broadband Corp.
sr. notes 10 3/8s, 2007
Broadcasting
Adelphia Communications Corp.
sr. notes 10 1/4s, 2011
Cable television
Charter Communications
Holdings, LLC
sr. notes 11 1/8s, 2011
Cable television
Paxson Communications Corp.
13.25% cum. pfd.
Broadcasting
HMH Properties, Inc.
company guaranty Ser. B, 7 7/8s, 2008
Lodging/tourism
ISP Chemco, Inc.
company guaranty Ser. B, 10 1/4s, 2011
Basic materials
CSC Holdings, Inc.
Ser. M, $11.125 cum. pfd.
Cable television
Young Broadcasting, Inc.
company guaranty 10s, 2011
Broadcasting
Trump Castle Funding, Inc.
sub. notes 1014s, 2003
Gaming & lottery
Footnote reads:
These holdings represent 7.7% of the fund's net assets as of 2/28/02.
Portfolio holdings will vary over time.
In addition, bonds issued by companies with a market capitalization of
$300 million or smaller outperformed larger-cap companies during the
six-month period. While your fund does invest in some of these
smaller-cap bonds, it does not do so heavily because they are not very
easily traded. The index, on the other hand, includes a higher
percentage of smaller issues.
Looking to the fund's strong performance against its peers, we would
highlight a number of factors. First, the fund carried an underweighted
position in the telecommunications sector relative to other funds and
this approach worked well as telecom bonds continued to struggle. In
addition, after September 11, we increased the fund's weightings in
cyclical industries such as chemicals, forest products, and aerospace.
These industries have since rebounded sharply.
* TEAM HOLDS POSITIVE OUTLOOK
A number of factors spark our optimism regarding the prospects for the
high-yield market. First, we appear to be reaching a peak in defaults
and signs of an improvement in the economy have appeared. High-yield
bonds should benefit as the economy recovers. Secondly, the yield curve
- -- a representation of the difference between short- and long-term
interest rates -- is currently steep, with short-term yields at very low
levels. This environment should help stimulate cash flows into the
high-yield market, because it encourages bond investors to invest in
higher-yielding securities. In addition, the overall credit quality of
new issues coming to market is better than what we witnessed in the late
1990s, when many companies of questionable credit quality were able to
issue high-yield debt. These were the firms that went out of business
and contributed to the high default rate during the past two years.
Finally, high-yield bonds remain attractively valued, especially when
compared to alternative investments. In our opinion, all these factors
should help bring about a more favorable environment for the fund in
the second half of fiscal 2002.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 2/28/02, there is no guarantee the fund will
continue to hold these securities in the future. Lower-rated bonds may
offer higher yields in return for more risk.
PUTNAM HIGH YIELD TRUST II TO MERGE INTO PUTNAM HIGH YIELD TRUST
After careful study and lengthy working sessions with Putnam Investment
Management, your fund's Trustees have agreed to recommend the merger of
Putnam High Yield Trust II into Putnam High Yield Trust, which is
reopening to new investors. Because the two funds have the same
objectives and are run by the same management team, the Trustees have
determined that the merger does not require shareholder approval.
Furthermore, combining the funds should enable shareholders to benefit
from reduced expenses and greater economies of scale.
Because of the pending merger, Putnam High Yield Trust II is closing to
new investors as of April 15, 2002. Current shareholders who wish to
make additional investments or who are reinvesting their distributions
may continue to do so. We expect the merger to take place before the end
of June. Additional information will be sent to you separately.
Putnam High Yield Trust follows the same fiscal year schedule as Putnam
High Yield Trust II, so you can expect to receive your next shareholder
report after the close of the fiscal year on August 31, 2002.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these materials
to customers who share the same address. This change will automatically
apply to all shareholders except those who notify us. If you would prefer
to receive your own copy, please call Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy.
TOTAL RETURN FOR PERIODS ENDED 2/28/02
Class A Class B Class C Class M
(inception dates) (12/31/97) (12/31/97) (7/26/99) (12/31/97)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months -0.82% -5.52% -1.19% -5.86% -1.19% -2.12% -0.95% -4.23%
- ------------------------------------------------------------------------------
1 year -1.57 -6.23 -2.46 -6.82 -2.46 -3.33 -1.83 -5.02
- ------------------------------------------------------------------------------
Life of fund -0.12 -4.82 -2.96 -4.25 -3.85 -3.85 -0.99 -4.26
Annual average -0.03 -1.18 -0.72 -1.04 -0.94 -0.94 -0.24 -1.04
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 2/28/02
Credit Suisse First
Boston High Yield Consumer
Index price index
- ------------------------------------------------------------------------------
6 months -0.81% 0.28%
- ------------------------------------------------------------------------------
1 year -0.98 1.02
- ------------------------------------------------------------------------------
Life of fund 4.39 10.01
Annual average 1.04 2.32
- ------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return and principal
value will fluctuate and you may have a gain or a loss when you sell
your shares.
Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for classes A and M
shares reflect a sales charge of 4.75% and 3.25%, respectively. Class B
share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Performance for class B, C,
and M shares before their inception are derived from the historical
performance of class A shares, adjusted for the applicable sales charge
(or CDSC) and higher operating expenses for such shares.
LIPPER INFORMATION:
The average cumulative return for the 414 funds in the Lipper High Yield
category over the 6 months ended 2/28/02 was -2.39%. Over the 1-year and
the life-of-fund periods ended 2/28/02, annualized returns for the category
were -5.40% and -1.46%, respectively. Lipper Inc. ranks funds (without
sales charges) with similar current investment styles or objectives as
determined by Lipper.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 2/28/02
Class A Class B Class C Class M
- ------------------------------------------------------------------------------
Distributions
(number) 6 6 6 6
- ------------------------------------------------------------------------------
Income $0.337822 $0.316758 $0.317309 $0.330173
- ------------------------------------------------------------------------------
Capital gains -- -- -- --
- ------------------------------------------------------------------------------
Total $0.337822 $0.316758 $0.317309 $0.330173
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ------------------------------------------------------------------------------
8/31/01 $5.83 $6.12 $5.84 $5.83 $5.84 $6.04
- ------------------------------------------------------------------------------
2/28/02 5.44 5.71 5.45 5.44 5.45 5.63
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current
dividend
rate 1 12.70% 12.10% 11.92% 11.94% 12.42% 12.03%
- ------------------------------------------------------------------------------
Current
30-day SEC
yield 2 9.53 9.07 8.75 8.73 9.27 8.97
- ------------------------------------------------------------------------------
1 Most recent distribution, excluding capital gains, 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 3/31/02 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (12/31/97) (12/31/97) (7/26/99) (12/31/97)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 7.45% 2.37% 7.03% 2.03% 7.23% 6.23% 7.30% 3.87%
- ------------------------------------------------------------------------------
1 year 2.27 -2.55 1.51 -3.03 1.53 0.62 2.00 -1.25
- ------------------------------------------------------------------------------
Life of fund 2.11 -2.70 -0.87 -2.17 -1.59 -1.59 1.19 -2.15
Annual average 0.49 -0.64 -0.20 -0.51 -0.38 -0.38 0.28 -0.51
- ------------------------------------------------------------------------------
Past performance does not indicate future results. More recent returns
may be less or more than those shown. Investment return and principal
value will fluctuate and you may have a gain or a loss when you sell
your shares.
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.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
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 or C 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. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
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 (except on certain
redemptions of shares bought without an initial sales charge).
COMPARATIVE BENCHMARKS
The Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged
index of high-yield debt securities. Indexes assume reinvestment of all
distributions and do not account for fees. Securities and performance of
a fund and an index will differ. You cannot invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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.
THE FUND'S PORTFOLIO
February 28, 2002 (Unaudited)
CORPORATE BONDS AND NOTES (84.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising and Marketing Services (0.4%)
- -------------------------------------------------------------------------------------------------------------------
$ 2,060,000 Adams Outdoor Advertising bank term loan Ser. B, 7.24s, 2008
bank term loan FRN (acquired 8/1/01, cost $2,060,000) (RES) $ 2,072,875
3,375,850 Interact Operating Co. notes 14s, 2003 (PIK) 338
1,000,000 Lamar Advertising Co. Structured Notes 9.84s, 2006 (Issued by
COUNTS Trust, Series 2001-6) 1,020,000
2,000,000 Lamar Advertising Co. Structured Notes 5 1/4s, 2006 (Issued by
COUNTS Trust, Series 2001-1) 2,020,000
840,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 884,100
425,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 446,250
-------------
6,443,563
Automotive (2.5%)
- -------------------------------------------------------------------------------------------------------------------
3,220,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 3,284,400
25,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 25,563
1,790,000 ArvinMeritor, Inc. notes 8 3/4s, 2012 1,839,225
3,037,000 Collins & Aikman Products, Inc. company guaranty 11 1/2s, 2006 2,672,560
2,550,000 Collins & Aikman Products, Inc. 144A sr. notes 10 3/4s, 2011 2,397,000
5,580,000 Dana Corp. notes 9s, 2011 5,105,700
390,000 Dana Corp. notes 7s, 2029 282,750
1,000,000 Dana Corp. notes 6 1/4s, 2004 910,000
2,080,000 Delco Remy International, Inc. company guaranty 11s, 2009 1,976,000
320,000 Delco Remy International, Inc. company guaranty 10 5/8s, 2006 297,600
510,000 Delco Remy International, Inc. sr. notes 8 5/8s, 2007 481,950
6,730,000 Dura Operating Corp. company guaranty Ser. D, 9s, 2009 6,376,675
1,992,735 Exide Corp. bank term loan FRN 9.389s, 2005 (acquired 11/6/01,
cost $1,365,023) (RES) 1,457,187
480,000 Federal Mogul Corp. notes 7 7/8s, 2010 (In default) (NON) 67,200
1,490,000 Federal Mogul Corp. notes 7 3/4s, 2006 (In default) (NON) 208,600
2,255,000 Federal Mogul Corp. notes 7 3/8s, 2006 (In default) (NON) 315,700
920,000 Hayes Lemmerz International, Inc. company guaranty Ser. B, 9 1/8s,
2007 (In default) (NON) 46,000
1,070,000 Hayes Lemmerz International, Inc. 144A company guaranty 11 7/8s,
2006 (In default) (NON) 513,600
2,450,000 Lear Corp. company guaranty Ser. B, 8.11s, 2009 2,529,478
1,910,000 Lear Corp. company guaranty Ser. B, 7.96s, 2005 1,972,954
2,880,000 Lear Corp. Structured Notes 8.46s, 2006 (acquired 5/17/01,
cost $2,880,000) (RES) 2,901,600
3,670,000 Talon Automotive Group sr. sub. notes Ser. B, 9 5/8s, 2008 (In default) (NON) 73,400
1,490,000 Tenneco, Inc. company guaranty 11 5/8s, 2009 856,750
610,000 Venture Holdings Trust 144A sr. notes Ser. B, 9 1/2s, 2005 512,400
-------------
37,104,292
Basic Materials (9.8%)
- -------------------------------------------------------------------------------------------------------------------
4,290,000 Acetex Corp. sr. notes 10 7/8s, 2009 (Canada) 4,375,800
2,870,000 Airgas, Inc. company guaranty 9 1/8s, 2011 3,027,850
4,130,000 AK Steel Corp. company guaranty 7 7/8s, 2009 4,099,025
1,320,000 AK Steel Corp. sr. notes 9 1/8s, 2006 1,366,200
1,425,344 Alabama River Newsprint bank term loan FRN 4.07s, 2002
(acquired 4/14/98, cost $484,882) (RES) 1,339,824
21,995 Anker Coal Group, Inc. company guaranty Ser. B, 14 1/4s, 2007 (PIK) 9,458
4,330,000 Appleton Papers, Inc. 144A sr. sub. notes 12 1/2s, 2008 4,113,500
1,070,000 Armco, Inc. sr. notes 8 7/8s, 2008 1,037,900
1,500,000 Avecia Group PLC company guaranty 11s, 2009 (United Kingdom) 1,537,500
3,880,000 Better Minerals & Aggregates Co. company guaranty 13s, 2009 3,608,400
1,250,000 Bowater Canada Finance company guaranty 7.95s, 2011 (Canada) 1,286,388
2,250,000 Centaur Mining & Exploration company guaranty 11s, 2007 (Australia)
(In default) (NON) 112,500
2,190,000 Compass Minerals Group, Inc. 144A sr. sub. notes 10s, 2011 2,299,500
6,815,000 Doe Run Resources Corp. company guaranty Ser. B, 11 1/4s, 2005 1,431,150
190,000 Doe Run Resources Corp. company guaranty Ser. B(a), 11 1/4s, 2005 53,200
420,000 Doe Run Resources Corp. company guaranty FRN Ser. B, 9.38s, 2003 71,400
3,111,000 Doman Industries, Ltd. sr. notes 8 3/4s, 2004 (Canada) 715,530
6,620,000 Equistar Chemicals LP/Equistar Funding Corp. company guaranty
10 1/8s, 2008 6,620,000
1,040,000 Ferro Corp. sr. notes 9 1/8s, 2009 1,071,200
3,295,000 Four M Corp. sr. notes Ser. B, 12s, 2006 3,229,100
665,000 Gaylord Container Corp. sr. notes Ser. B, 9 3/8s, 2007 565,250
598,000 Georgia Gulf Corp. company guaranty 10 3/8s, 2007 634,628
640,000 Georgia-Pacific Corp. notes 8 7/8s, 2031 569,094
2,475,000 Georgia-Pacific Corp. notes 8 1/8s, 2011 2,338,479
610,000 Georgia-Pacific Corp. notes 7 1/2s, 2006 576,761
4,903,000 Hercules, Inc. company guaranty 11 1/8s, 2007 5,344,270
2,750,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 (In default) (NON) 577,500
1,620,000 Huntsman Corp. 144A sr. sub. notes FRN 5.231s, 2007 (In default) (NON) 324,000
8,830,000 Huntsman ICI Chemicals, Inc. company guaranty 10 1/8s, 2009 7,593,800
1,240,000 IMC Global, Inc. company guaranty Ser. B, 11 1/4s, 2011 1,348,760
2,660,000 IMC Global, Inc. company guaranty Ser. B, 10 7/8s, 2008 2,878,306
8,900,000 ISP Chemco, Inc. company guaranty Ser. B, 10 1/4s, 2011 9,345,000
790,000 ISP Chemco, Inc. 144A sr. sub. notes 10 1/4s, 2011 829,500
110,000 Kaiser Aluminum & Chemical Corp. sr. notes Ser. B, 10 7/8s, 2006 83,050
4,470,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003
(In default) (NON) 1,028,100
3,810,000 LTV Corp. (The) company guaranty 11 3/4s, 2009 (In default) (NON) 19,050
3,370,000 LTV Corp. (The) 144A company guaranty 8.2s, 2007 (In default) (NON) 12,638
1,220,000 Lyondell Petrochemical Co. 144A sec. notes 9 1/2s, 2008 1,207,800
310,000 Lyondell Petrochemical Co. notes Ser. A, 9 5/8s, 2007 311,550
7,950,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 7,950,000
4,980,000 Millenium America, Inc. company guaranty 9 1/4s, 2008 5,104,500
1,560,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 546,000
200,000 Norampac, Inc. sr. notes 9 1/2s, 2008 (Canada) 211,000
1,310,000 Noveon, Inc. company guaranty Ser. B, 11s, 2011 1,375,500
2,800,000 OM Group, Inc. 144A sr. sub. notes 9 1/4s, 2011 2,884,000
1,001,000 Oregon Steel Mills 1st mtge. 11s, 2003 995,995
282,000 P&L Coal Holdings Corp. company guaranty Ser. B, 9 5/8s, 2008 302,445
4,260,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 4,590,150
3,347,286 PCI Chemicals Canada sec. sr. notes 10s, 2008 (Canada) 2,510,465
1,115,761 Pioneer Companies, Inc. sec. FRN 5.381s, 2006 825,663
890,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 (In default) (NON) 249,200
500,000 Polymer Group, Inc. company guaranty Ser. B, 8 3/4s, 2008 140,000
2,970,000 Potlatch Corp. company guaranty 10s, 2011 3,118,500
6,270,000 Premium Standard Farms, Inc. sr. notes 9 1/4s, 2011 6,442,425
3,735,000 Riverwood International Corp. company guaranty 10 7/8s, 2008 3,875,063
4,170,000 Riverwood International Corp. company guaranty 10 5/8s, 2007 4,441,050
4,160,000 Royster-Clark, Inc. 1st mtge. 10 1/4s, 2009 2,662,400
5,720,000 Sterling Chemicals Holdings sr. disc. notes 13 1/2s, 2008 (In default) (NON) 28,600
2,513,000 Sterling Chemicals, Inc. company guaranty Ser. B, 12 3/8s, 2006
(In default) (NON) 1,884,750
2,230,098 Stone Container Corp. bank term loan FRN Ser. G, 10.23s, 2006
(acquired 7/17/00, cost $2,230,098) (RES) 2,224,059
194,000 Stone Container Corp. sr. notes 12.58s, 2016 204,185
1,490,000 Stone Container Corp. sr. notes 9 3/4s, 2011 1,612,925
2,560,000 Stone Container Corp. sr. notes 9 1/4s, 2008 2,732,800
2,263,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006 (Canada) 2,432,725
440,000 Tembec Industries, Inc. company guaranty 8 5/8s, 2009 (Canada) 457,600
2,950,000 Tembec Industries, Inc. company guaranty 8 1/2s, 2011 (Canada) 3,068,000
500,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 402,500
630,000 Texas Petrochemical Corp. sr. sub. notes Ser. B, 11 1/8s, 2006 510,300
2,920,000 United States Steel, LLC 144A company guaranty 10 3/4s, 2008 2,803,200
2,084,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 1,021,160
250,000 Weirton Steel Corp 144A sr. notes 10 3/4s, 2005 (In default) (NON) 27,500
3,145,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 (In default) (NON) 62,900
1,425,000 WHX Corp. sr. notes 10 1/2s, 2005 755,250
-------------
145,445,771
Beverage (0.5%)
- -------------------------------------------------------------------------------------------------------------------
440,000 Constellation Brands, Inc. company guaranty 8 1/2s, 2009 455,400
2,590,000 Constellation Brands, Inc. company guaranty Ser. B, 8s, 2008 2,680,650
3,600,000 Constellation Brands, Inc. sr. sub. notes Ser. B, 8 1/8s, 2012 3,726,000
-------------
6,862,050
Broadcasting (6.7%)
- -------------------------------------------------------------------------------------------------------------------
4,560,000 Acme Television company guaranty 10 7/8s, 2004 4,571,400
1,080,000 Allbritton Communications Co. sr. sub. notes Ser. B, 8 7/8s, 2008 1,123,200
2,020,000 Belo Corp. sr. unsub. notes 8s, 2008 2,144,053
2,991,000 Benedek Communications Corp. sr. disc. notes 13 1/4s, 2006
(In default) (NON) 2,206,247
1,240,000 British Sky Broadcasting PLC company guaranty 8.2s, 2009
(United Kingdom) 1,272,984
4,470,000 British Sky Broadcasting PLC company guaranty 6 7/8s, 2009
(United Kingdom) 4,269,476
1,181,000 CD Radio, Inc. sec. notes 14 1/2s, 2009 584,595
5,830,000 Chancellor Media Corp. company guaranty 8s, 2008 6,121,500
16,915,000 Diva Systems Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(12 5/8s, 3/1/03), 2008 (STP) 2,664,113
14,960,000 Echostar Broadband Corp. sr. notes 10 3/8s, 2007 15,708,000
1,170,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 1,210,950
3,520,000 Echostar DBS Corp. 144A sr. notes 9 1/8s, 2009 3,555,200
559,775 Emmis Communications Corp. bank term loan FRN Ser. B, 9.246s, 2009
(acquired 10/23/01, cost $552,791) (RES) 562,192
70,000 Emmis Communications Corp. company guaranty Ser. B, 8 1/8s, 2009 71,400
2,410,000 Emmis Communications Corp. sr. disc. notes stepped-coupon zero %
(12 1/2s, 3/15/06), 2011 (STP) 1,735,200
7,012,743 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon zero %
(10 1/4s, 11/1/02), 2007 (STP) 7,643,889
1,810,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 1,936,700
3,170,000 Fox/Liberty Networks, LLC sr. disc. notes stepped-coupon zero %
(9 3/4s, 8/15/02), 2007 (STP) 3,233,400
1,110,000 Fox/Liberty Networks, LLC sr. notes 8 7/8s, 2007 1,165,500
498,000 Granite Broadcasting Corp. sr. sub. notes 9 3/8s, 2005 453,180
2,690,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 2,259,600
224,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 (STP) 88,480
560,000 LIN Holdings Corp. sr. disc. notes stepped-coupon zero %
(10s, 3/1/03), 2008 (STP) 498,400
440,000 LIN Holdings Corp. sr. disc. notes stepped-coupon Ser. (a), zero %
(10s, 3/1/03), 2008 (STP) 382,800
4,810,000 LIN Television Corp. company guaranty 8 3/8s, 2008 4,834,050
670,000 News America, Inc. sr. notes 6 5/8s, 2008 680,305
4,750,000 PanAmSat Corp. 144A sr. notes 8 1/2s, 2012 4,738,125
520,000 Pegasus Communications Corp. sr. notes 12 1/2s, 2007 410,800
190,000 Pegasus Communications Corp. sr. notes Ser. B, 9 3/4s, 2006 152,000
2,770,000 Pegasus Satellite sr. notes 12 3/8s, 2006 2,160,600
6,966,287 Quorum Broadcast Holdings, LLC notes stepped-coupon zero %
(15s, 5/15/06), 2009 (acquired 5/15/01, cost $2,768,169) (RES) (STP) 2,768,402
1,477,000 RCN Corp. sr. disc. notes stepped-coupon Ser. B, zero %
(9.8s, 2/15/03), 2008 (STP) 324,940
1,795,000 Sinclair Broadcast Group, Inc. company guaranty 9s, 2007 1,839,875
2,325,000 Sinclair Broadcast Group, Inc. sr. sub. notes 8 3/4s, 2007 2,406,375
1,510,000 Sinclair Broadcast Group, Inc. 144A sr. sub. notes 8 3/4s, 2011 1,585,500
4,480,000 XM Satellite Radio Holdings, Inc. sec. notes 14s, 2010 3,270,400
8,560,000 Young Broadcasting, Inc. company guaranty 10s, 2011 8,581,400
685,000 Young Broadcasting, Inc. company guaranty Ser. B, 8 3/4s, 2007 671,300
-------------
99,886,531
Building Materials (1.0%)
- -------------------------------------------------------------------------------------------------------------------
880,000 American Standard Companies, Inc. company guaranty 7 5/8s, 2010 906,400
3,440,000 American Standard Companies, Inc. company guaranty 7 3/8s, 2005 3,560,400
920,000 Atrium Companies, Inc. company guaranty Ser. B, 10 1/2s, 2009 883,200
1,110,000 Building Materials Corp. company guaranty 8s, 2008 826,950
2,650,000 Dayton Superior Corp. company guaranty 13s, 2009 2,716,250
3,170,000 Morrison Knudsen Corp. 144A sr. notes 11s, 2010 (In default) (NON) 665,700
1,490,000 NCI Building Systems, Inc. sr. sub. notes Ser. B, 9 1/4s, 2009 1,452,750
2,540,000 Nortek, Inc. sr. notes Ser. B, 8 7/8s, 2008 2,590,800
230,000 Nortek, Inc. sr. sub. notes Ser. B, 9 7/8s, 2011 236,325
670,000 Nortek, Inc. 144A sr. notes Ser. B, 9 1/8s, 2007 680,888
-------------
14,519,663
Cable Television (5.1%)
- -------------------------------------------------------------------------------------------------------------------
2,370,000 Adelphia Communications Corp. Structured Notes 10.9s, 2006
(issued by UBS AG) 2,310,750
1,908,000 Adelphia Communications Corp. sr. notes 10 7/8s, 2010 2,003,400
10,220,000 Adelphia Communications Corp. sr. notes 10 1/4s, 2011 10,449,950
3,720,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 3,422,400
1,920,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 1,920,000
2,208,000 Adelphia Communications Corp. sr. notes Ser. B, 8 3/8s, 2008 2,075,520
1,130,000 Adelphia Communications Corp. sr. notes Ser. B, 7 3/4s, 2009 1,039,600
580,000 Century Communications Corp. sr. notes 8 7/8s, 2007 562,600
1,090,000 Century Communications Corp. sr. notes 8 3/8s, 2007 1,024,600
10,120,000 Charter Communications Holdings, LLC sr. notes 11 1/8s, 2011 10,271,800
1,840,000 Charter Communications Holdings, LLC sr. notes 10 3/4s, 2009 1,812,400
4,670,000 Charter Communications Holdings, LLC sr. disc. notes stepped-coupon
zero % (11 3/4s, 5/15/06), 2011 (STP) 2,708,600
900,000 Charter Communications Holdings, LLC sr. notes 10s, 2009 868,500
2,730,000 Charter Communications Holdings, LLC 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 1/15/07), 2012 (STP) 1,487,850
660,000 Charter Communications Holdings, LLC 144A sr. notes 10s, 2011 646,800
1,210,000 Charter Communications Holdings, LLC 144A sr. notes 9 5/8s, 2009 1,161,600
2,190,000 CSC Holdings, Inc. deb. 7 5/8s, 2018 1,966,138
1,220,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 1,329,800
2,450,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 2,548,000
1,950,000 Diamond Cable Communications PLC sr. disc. notes 11 3/4s, 2005
(United Kingdom) 643,500
7,270,000 Insight Communications Company, Inc. sr. disc. notes stepped-coupon
zero % (12 1/4s, 2/15/06), 2011 (STP) 4,362,000
5,000,000 Insight Midwest LP/Insight Capital, Inc. bank term loan 8 1/2s, 2009
(acquired various dates from 1/9/01 to 11/5/01, cost $4,992,125) (RES) 5,006,250
200,000 Insight Midwest LP/Insight Capital, Inc. sr. notes 10 1/2s, 2010 212,000
6,735,000 International Cabletel, Inc. sr. disc. notes 11 1/2s, 2006 2,567,719
7,300,000 NTL Communications Corp. sr. notes Ser. B, 11 7/8s, 2010 2,609,750
7,550,000 NTL Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 2,727,438
846,000 NTL Communications Corp. sr. notes stepped-coupon Ser. B, zero %
(12 3/8s, 10/1/03), 2008 (STP) 274,950
1,690,000 NTL, Inc. sr. notes Ser. B, 10s, 2007 608,400
1,950,000 ONO Finance PLC sr. notes 13s, 2009 (United Kingdom) 1,033,500
335,000 Rogers Cablesystems, Ltd. debs. 10 1/8s, 2012 (Canada) 351,750
400,000 Rogers Cablesystems, Ltd. notes 11s, 2015 (Canada) 448,000
400,000 Rogers Cablesystems, Ltd. sr. notes Ser. B, 10s, 2005 (Canada) 432,000
2,110,000 Rogers Cablesystems, Ltd. sr. sub. notes 8.8s, 2007 (Canada) 2,004,500
1,390,000 Supercanal Holdings SA 144A sr. notes 11 1/2s, 2005 (Argentina)
(In default) (NON) 27,800
174,000 TeleWest Communications PLC deb. 11s, 2007 (United Kingdom) 92,655
50,000 TeleWest Communications PLC deb. 9 5/8s, 2006 (United Kingdom) 27,250
930,000 TeleWest Communications PLC Structured Notes 10 7/8s, 2005
(issued by DLJ International Capital) (United Kingdom) 528,147
2,802,000 United Pan-Europe NV sr. disc. notes 12 1/2s, 2009 (Netherlands) 308,220
10,607,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero %
(13 3/4s, 2/1/05), 2010 (Netherlands) (STP) 1,166,770
1,220,000 United Pan-Europe NV sr. disc. notes stepped-coupon zero %
(12 1/2s, 8/1/04), 2009 (Netherlands) (STP) 134,200
-------------
75,177,107
Capital Goods (7.2%)
- -------------------------------------------------------------------------------------------------------------------
3,190,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 3,221,900
1,050,000 Agco Corp. company guaranty 9 1/2s, 2008 1,131,375
23,445,000 Allied Waste Industries, Inc. company guaranty Ser. B, 10s, 2009 23,855,288
164,000 Allied Waste Industries, Inc. company guaranty Ser. B, 7 5/8s, 2006 161,130
3,010,000 Allied Waste North America, Inc. 144A Structured Notes 8.2s, 2006
(Issued by Credit and Repackaged Securities, Ltd.) 2,919,700
740,000 Applied Extrusion Technologies, Inc. company guaranty Ser. B, 10 3/4s, 2011 775,150
150,000 Argo-Tech Corp. company guaranty Ser. D, 8 5/8s, 2007 132,000
5,820,000 Argo-Tech Corp. 144A company guaranty 8 5/8s, 2007 5,121,600
3,400,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 3,009,000
1,410,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8 7/8s, 2011 1,184,400
1,755,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 1,491,750
6,170,000 Blount, Inc. company guaranty 13s, 2009 2,915,325
2,210,000 Briggs & Stratton company guaranty 8 7/8s, 2011 2,330,136
1,590,000 Browning-Ferris deb. 7.4s, 2035 1,192,500
220,000 Case Corp. notes 7 1/4s, 2016 162,800
315,000 Day International Group, Inc. company guaranty 9 1/2s, 2008 211,050
890,000 Day International Group, Inc. sr. sub. notes 11 1/8s, 2005 827,700
4,140,000 Decrane Aircraft Holdings Co. company guaranty Ser. B, 12s, 2008 3,808,800
2,798,000 Flowserve Corp. company guaranty 12 1/4s, 2010 3,133,760
320,000 Grove Holdings, LLC deb. stepped-coupon zero % (11 5/8s, 5/1/03),
2009 (In default) (NON) (STP) 1,600
2,408,350 Grove Investors, LLC notes 14 1/2s, 2010 (PIK) 12,042
3,300,000 Hexcel Corp. sr. sub. notes 9 3/4s, 2009 2,013,000
1,670,000 Insilco Holding Co. sr. disc. notes stepped-coupon zero %
(14s, 8/15/03), 2008 (STP) 233,800
2,090,000 Jackson Products, Inc. company guaranty Ser. B, 9 1/2s, 2005 1,045,000
1,660,000 Jordan Industries, Inc. sr. notes Ser. D, 10 3/8s, 2007 962,800
230,000 L-3 Communications Corp. company guaranty Ser. B, 8s, 2008 238,050
3,710,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 3,858,400
850,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 909,500
1,190,000 L-3 Communications Corp. 144A Structured Notes 8 1/2s, 2006
(Issued by Credit and Repackaged Securities, Ltd.) (Cayman Islands) 1,253,963
1,540,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 1,570,800
4,180,000 Motors and Gears, Inc. sr. notes Ser. D, 10 3/4s, 2006 3,971,000
3,870,000 Owens-Brockway Glass 144A sec. notes 8 7/8s, 2009 3,928,050
990,000 Owens-Illinois, Inc. deb. 7 1/2s, 2010 856,350
190,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 167,200
760,000 Owens-Illinois, Inc. sr. notes 7.15s, 2005 710,600
2,340,000 Pliant Corp. company guaranty 13s, 2010 2,457,000
3,975,000 Roller Bearing Company of America company guaranty Ser. B,
9 5/8s, 2007 3,498,000
3,160,000 Sequa Corp. sr. notes 9s, 2009 3,096,800
4,060,000 Sequa Corp. sr. notes Ser. B, 8 7/8s, 2008 3,917,900
4,160,000 Tekni-Plex, Inc. company guaranty Ser. B, 12 3/4s, 2010 4,264,000
670,000 Terex Corp. company guaranty 8 7/8s, 2008 670,000
700,000 Terex Corp. company guaranty Ser. B, 10 3/8s, 2011 745,500
1,090,000 Terex Corp. company guaranty Ser. D, 8 7/8s, 2008 1,090,000
1,183,540 Transportation Tech. bank term loan FRN 9.859s, 2007
(acquired 2/29/00, cost $1,183,540) (RES) 1,006,009
1,630,000 U.S. Can Corp. company guaranty Ser. B, 12 3/8s, 2010 945,400
3,395,000 Waste Management, Inc. sr. notes 6 1/2s, 2008 3,326,980
2,500,000 WMX Technologies, Inc. notes 6 3/8s, 2003 2,556,575
-------------
106,891,683
Commercial and Consumer Services (0.4%)
- -------------------------------------------------------------------------------------------------------------------
5,620,000 Coinmach Corp. 144A sr. notes 9s, 2010 5,732,400
Communication Services (7.4%)
- -------------------------------------------------------------------------------------------------------------------
3,940,000 360Networks, Inc. sr. notes 13s, 2008 (Canada) (In default) (NON) 39,400
3,235,000 Airgate PCS, Inc. sr. sub. notes stepped-coupon zero % (13 1/2s,
10/1/04), 2009 (STP) 1,746,900
2,670,000 Alamosa Delaware, Inc. company guaranty 13 5/8s, 2011 2,002,500
420,000 Alamosa Delaware, Inc. company guaranty 12 1/2s, 2011 327,600
1,270,000 Alamosa PCS Holdings, Inc. company guaranty stepped-coupon zero %
(12 7/8s, 2/15/05), 2010 (STP) 546,100
4,195,000 American Cellular Corp. company guaranty 9 1/2s, 2009 3,272,100
7,873,000 American Tower Corp. sr. notes 9 3/8s, 2009 5,196,180
2,260,000 American Tower, Inc. Structured Notes 12.58s, 2005 (issued by STEERS
Credit Linked Trust 2000) 1,672,400
380,000 Arch Communications, Inc. sr. notes 13 3/4s, 2008 (In default) (NON) 2,565
210,000 Arch Communications, Inc. sr. notes 13s, 2007 (In default) (NON) 1,050
1,760,000 Asia Global Crossing, Ltd. sr. notes 13 3/8s, 2010 (Bermuda) 440,000
620,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 74,400
1,770,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 442,500
4,980,000 Celcaribe SA sr. notes 13 1/2s, 2004 (Colombia) 2,988,000
2,890,000 Colo.com, Inc. 144A sr. notes 13 7/8s, 2010 (In default) (NON) 57,800
500,000 Colt Telecommunications Group PLC sr. disc. notes 12s, 2006
(United Kingdom) 285,000
3,210,000 Crown Castle International Corp. sr. disc. notes stepped-coupon zero %
(10 3/8s, 5/15/04), 2011 (STP) 1,444,500
1,620,000 Crown Castle International Corp. sr. notes 10 3/4s, 2011 1,257,525
3,835,000 Crown Castle International Corp. sr. notes 9 3/8s, 2011 2,799,550
1,435,000 Dobson/Sygnet Communications, Inc. sr. notes 12 1/4s, 2008 1,305,850
1,360,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007 (United Kingdom)
(In default) (NON) 6,800
1,080,000 FLAG Telecom Holdings, Ltd. sr. notes 11 5/8s, 2010 (Bermuda) 151,200
1,560,000 Flag, Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 312,000
380,000 Global Crossing Holdings, Ltd. company guaranty 9 5/8s, 2008
(Bermuda) (In default) (NON) 5,700
1,860,000 Global Crossing Holdings, Ltd. company guaranty 9 1/2s, 2009
(Bermuda) (In default) (NON) 41,850
6,413,000 Global Crossing Holdings, Ltd. company guaranty 9 1/8s, 2006
(Bermuda) (In default) (NON) 96,195
7,210,000 Horizon PCS, Inc. company guaranty stepped-coupon zero %
(14s, 10/1/05), 2010 (STP) 2,163,000
890,000 Horizon PCS, Inc. 144A sr. notes 13 3/4s, 2011 640,800
510,000 Hyperion Telecommunications Corp., Inc. sr. disc. notes Ser. B,
zero %, 2003 10,200
5,210,000 Hyperion Telecommunications Corp., Inc. sr. sub. notes 12s, 2007 104,200
650,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 7/8s, 2007 604,500
270,000 Intermedia Communications, Inc. sr. notes Ser. B, 8.6s, 2008 245,700
750,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 675,000
1,730,000 Intermedia Communications, Inc. sr. sub. notes stepped-coupon Ser. B,
zero % (12 1/4s, 3/1/04), 2009 (STP) 1,401,300
4,070,000 iPCS, Inc. sr. disc. notes stepped-coupon zero % (14s, 7/15/05), 2010 (STP) 1,750,100
3,020,000 IWO Holdings, Inc. company guaranty 14s, 2011 2,265,000
6,535,000 KMC Telecommunications Holdings, Inc. sr. disc. notes stepped-coupon
zero % (12 1/2s, 2/15/03), 2008 (STP) 326,750
4,150,000 Leap Wireless International, Inc. company guaranty 12 1/2s, 2010 2,199,500
2,176,000 Level 3 Communications, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 12/1/03), 2008 (STP) 489,600
2,310,000 Madison River Capital Corp. sr. notes 13 1/4s, 2010 1,801,800
7,895,000 McCaw International, Ltd. sr. disc. notes stepped-coupon zero %
(13s, 4/15/02), 2007 (STP) 592,125
304,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero % (10 1/2s,
3/1/02), 2007 (STP) 68,400
360,000 McLeodUSA, Inc. sr. notes 8 3/8s, 2008 84,600
680,000 Metrocall, Inc. sr. sub. notes 11s, 2008 (In default) (NON) 6,800
420,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 (In default) (NON) 3,150
800,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 (In default) (NON) 8,000
4,290,000 Metromedia Fiber Network, Inc. sr. notes Ser. B, 10s, 2008 1,072,500
3,685,000 Microcell Telecommunications sr. disc. notes Ser. B, 14s, 2006 (Canada) 2,487,375
2,318,000 Millicom International Cellular SA sr. disc. notes 13 1/2s, 2006
(Luxembourg) 1,298,080
7,140,000 Nextel Communications, Inc. sr. notes 12s, 2008 4,855,200
7,193,000 Nextel Communications, Inc. sr. notes 9 1/2s, 2011 4,459,660
4,700,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 2,996,250
1,500,000 Nextel Partners, Inc. sr. notes 11s, 2010 885,000
1,010,000 Nextel Partners, Inc. sr. notes 11s, 2010 595,900
2,090,000 Nextel Partners, Inc. 144A sr. notes 12 1/2s, 2009 1,389,850
2,330,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 396,100
440,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 (In default) (NON) 88,000
1,910,000 Orbital Imaging Corp. sr. notes Ser. D, 11 5/8s, 2005 (In default) (NON) 382,000
4,140,000 Price Communications Wireless, Inc. 144A sr. notes 9 1/8s, 2006 4,347,000
880,000 Qwest Capital Funding, Inc. company guaranty 7s, 2009 789,527
3,070,000 Qwest Capital Funding, Inc. company guaranty 6 3/8s, 2008 2,690,088
670,000 Rhythms Netconnections, Inc. sr. notes Ser. B, 14s, 2010 (In default) (NON) 40,200
870,000 Rogers Wireless, Inc. sec. notes 9 5/8s, 2011 (Canada) 835,200
2,000,000 RSL Communications PLC company guaranty 9 7/8s, 2009
(United Kingdom) (In default) (NON) 67,500
5,500,000 RSL Communications PLC company guaranty stepped-coupon zero %
(10 1/8s, 3/1/03), 2008 (United Kingdom) (In default) (NON) (STP) 185,625
1,828,091 Rural Cellular Corp. bank term loan FRN Ser. C, 9.229s, 2009
(acquired various dates from 4/23/01 to 11/5/01, cost $1,779,481) (RES) 1,649,852
1,175,000 Rural Cellular Corp. sr. sub. notes Ser. B, 9 5/8s, 2008 940,000
4,285,000 SBA Communications Corp. sr. notes 10 1/4s, 2009 2,228,200
4,380,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 4/15/04), 2009 (STP) 919,800
3,610,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (12 7/8s, 3/15/05), 2010 (STP) 722,000
4,620,000 Startec Global Communications Corp. sr. notes 12s, 2008 (In default) (NON) 92,400
1,220,000 Tele1 Europe B.V. sr. notes 13s, 2009 (Netherlands) 219,600
4,957,000 Telecorp PCS, Inc. company guaranty 10 5/8s, 2010 5,601,410
930,000 Time Warner Telecom, Inc. sr. notes 10 1/8s, 2011 590,550
1,940,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 1,231,900
5,540,000 Tritel PCS, Inc. company guaranty 10 3/8s, 2011 6,260,200
10,000 Triton PCS, Inc. company guaranty 9 3/8s, 2011 9,400
3,240,000 Triton PCS, Inc. company guaranty 8 3/4s, 2011 2,948,400
570,000 Triton PCS, Inc. company guaranty zero %, 2008 490,200
2,110,000 TSI Telecommunication Services, Inc. 144A sr. sub. notes 12 3/4s, 2009 2,067,800
5,475,000 UbiquiTel Operating Co. company guaranty stepped-coupon zero %
(14s, 4/15/05), 2010 (STP) 2,682,750
3,655,000 US UnWired, Inc. company guaranty stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 2,046,800
900,000 USA Mobile Communications, Inc. sr. notes 14s, 2004 (In default) (NON) 198,000
620,000 USA Mobile Communications, Inc. sr. notes 9 1/2s, 2004 (In default) (NON) 24,800
990,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 287,100
760,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 220,400
1,000,000 Versatel Telecom NV Structured Notes 15.065s, 2005 (issued by
CRAVE Trust 2000) (Netherlands) 220,000
15,225,000 Viatel, Inc. sr. disc. notes stepped-coupon zero % (12 1/2s, 4/15/03),
2008 (STP) 38,063
2,361,000 Viatel, Inc. sr. notes 11 1/2s, 2009 (In default) (NON) 5,903
5,219,295 Voicestream Wireless Corp. sr. notes 10 3/8s, 2009 5,966,855
2,020,000 WebLink Wireless, Inc. sr. disc. notes stepped-coupon zero %
(11 1/4s, 2/1/03), 2008 (STP) 5,050
640,000 Williams Communications Group, Inc. sr. notes 10.7s, 2007 80,000
9,128,000 WinStar Communications, Inc. sr. disc. notes stepped-coupon zero %
(14 3/4s, 4/15/05), 2010 (STP) 913
5,390,000 WinStar Communications, Inc. sr. notes 12 3/4s, 2010 (In default) (NON) 539
660,000 WinStar Communications, Inc. sr. notes 12 1/2s, 2008 (In default) (NON) 66
2,935,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 (In default) (NON) 29,350
-------------
109,595,546
Conglomerates (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,600,000 Tyco International Group SA company guaranty 6 3/8s, 2006
(Luxembourg) 1,457,712
Consumer (0.7%)
- -------------------------------------------------------------------------------------------------------------------
3,382,537 Derby Cycle Corp. (The) sr. notes 10s, 2008 (In default) (NON) 642,682
EUR 5,199,000 Derby Cycle Corp. (The) sr. notes 9 3/8s, 2008 (In default) (NON) 459,763
$ 3,610,000 Jostens, Inc. sr. sub. notes 12 3/4s, 2010 4,025,150
8,070,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 5,467,425
-------------
10,595,020
Consumer Goods (0.7%)
- -------------------------------------------------------------------------------------------------------------------
1,585,000 Albecca, Inc. company guaranty 10 3/4s, 2008 1,751,425
2,080,000 Armkel, LLC/Armkel Finance sr. sub. notes 9 1/2s, 2009 2,194,400
433,000 Elizabeth Arden, Inc. sec. notes Ser. B, 11 3/4s, 2011 392,948
80,000 French Fragrances, Inc. company guaranty Ser. D, 10 3/8s, 2007 64,400
650,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 526,500
4,000,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 (In default) (NON) 550,000
1,400,000 NBTY, Inc. sr. sub. notes Ser. B, 8 5/8s, 2007 1,365,000
2,000,000 Playtex Products, Inc. company guaranty 9 3/8s, 2011 2,120,000
1,600,000 Polaroid Corp. sr. notes 11 1/2s, 2006 (In default) (NON) 112,000
420,000 Revlon Consumer Products sr. notes 9s, 2006 262,500
1,310,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 812,200
1,810,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 751,150
-------------
10,902,523
Consumer Services (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,090,000 United Rentals (North America), Inc. company guaranty Ser. B,
10 3/4s, 2008 1,185,375
Energy (4.5%)
- -------------------------------------------------------------------------------------------------------------------
2,960,000 Belco Oil & Gas Corp. sr. sub. notes Ser. B, 8 7/8s, 2007 3,019,200
3,000,000 BRL Universal Equipment 144A sec. notes 8 7/8s, 2008 3,030,000
1,450,000 Chesapeake Energy Corp. company guaranty 8 3/8s, 2008 1,439,125
5,360,000 Chesapeake Energy Corp. company guaranty 8 1/8s, 2011 5,105,400
1,420,000 Comstock Resources, Inc. 144A sr. notes 11 1/4s, 2007 1,420,000
1,930,000 Dresser, Inc. company guaranty 9 3/8s, 2011 1,968,600
1,170,000 El Paso Energy Partners LP company guaranty Ser. B, 8 1/2s, 2011 1,196,325
1,060,000 Forest Oil Corp. company guaranty 10 1/2s, 2006 1,128,900
2,960,000 Forest Oil Corp. sr. notes 8s, 2008 3,004,400
330,000 Forest Oil Corp. 144A sr. notes 8s, 2011 333,300
440,000 Grant Prideco, Inc. company guaranty Ser. B, 9 5/8s, 2007 438,900
1,340,000 Key Energy Services, Inc. company guaranty Ser. B, 8 3/8s, 2008 1,370,029
2,430,000 Leviathan Gas Corp. company guaranty Ser. B, 10 3/8s, 2009 2,584,913
2,760,000 Newfield Exploration Co. sr. notes 7 5/8s, 2011 2,704,800
790,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 1/2s, 2008 742,600
1,010,000 Nuevo Energy Co. sr. sub. notes Ser. B, 9 3/8s, 2010 944,350
800,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 846,440
2,970,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 3,163,139
4,000,000 Parker & Parsley Co. sr. notes 8 1/4s, 2007 4,100,000
2,270,000 Parker Drilling Corp. company guaranty Ser. D, 9 3/4s, 2006 2,264,325
550,000 PDVSA Finance, Ltd. bonds 7.4s, 2016 (Cayman Islands) 412,500
990,000 Pemex Master Trust 144A bonds 8 5/8s, 2022 1,024,650
3,530,000 Pioneer Natural Resources Co. company guaranty 9 5/8s, 2010 3,847,700
628,000 Pioneer Natural Resources Co. company guaranty 6 1/2s, 2008 590,320
3,280,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 1/4s, 2011 3,394,800
200,000 Pride International, Inc. sr. notes 10s, 2009 216,000
2,590,000 Pride Petroleum Services, Inc. sr. notes 9 3/8s, 2007 2,680,650
1,180,000 Seven Seas Petroleum, Inc. sr. notes Ser. B, 12 1/2s, 2005 696,200
1,645,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 1,719,140
2,525,000 Stone Energy Corp. company guaranty 8 3/4s, 2007 2,537,625
4,750,000 Vintage Petroleum, Inc. sr. sub. notes 9 3/4s, 2009 4,773,750
1,070,000 Vintage Petroleum, Inc. sr. sub. notes 9s, 2005 1,053,950
670,000 Vintage Petroleum, Inc. sr. sub. notes 7 7/8s, 2011 579,550
1,390,000 Westport Resources Corp. 144A sr. sub. notes 8 1/4s, 2011 1,393,475
50,000 XCL, Ltd. 144A company guaranty 13 1/2s, 2004 (In default) (NON) 15,000
1,230,000 XTO Energy, Inc. 144A sr. sub. notes Ser. B, 8 3/4s, 2009 1,285,350
-------------
67,025,406
Entertainment (1.5%)
- -------------------------------------------------------------------------------------------------------------------
3,590,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 3,392,550
320,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 303,200
2,562,431 Carmike Cinemas, Inc. bank term loan FRN Ser. B, 6.69s, 2005
(acquired various dates from 8/7/00 to 11/9/01, cost $2,562,431) (RES) 2,449,685
2,920,000 Cinemark USA, Inc. sr. sub. notes Ser. B, 9 5/8s, 2008 2,795,900
1,000,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 1,032,500
2,150,000 Regal Cinemas, Inc. 144A sr. sub. notes 9 3/8s, 2012 2,193,000
1,470,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 (In default) (NON) 147
1,260,000 Six Flags, Inc. sr. notes 9 1/2s, 2009 1,285,200
7,900,000 Six Flags, Inc. 144A sr. notes 8 7/8s, 2010 7,900,000
1,010,693 United Artists Theatre Co. bank term loan FRN 8.126s, 2005
(acquired 5/10/01, cost $1,391,689) (RES) 1,005,097
-------------
22,357,279
Financial (3.5%)
- -------------------------------------------------------------------------------------------------------------------
4,770,000 Advanta Corp. 144A company guaranty Ser. B, 8.99s, 2026 2,671,200
2,320,000 AMRESCO, Inc. sr. sub. notes Ser. 97-A, 10s, 2004 (In default) (NON) 580,000
957,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 (In default) (NON) 239,250
2,135,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2005 2,167,025
2,715,000 Colonial Capital II 144A company guaranty 8.92s, 2027 2,489,945
360,000 Comdisco, Inc. notes 7 1/4s, 2001 (In default) (NON) 290,700
950,000 Comdisco, Inc. notes 6 3/8s, 2049 (In default) (NON) 771,875
450,000 Comdisco, Inc. notes 5.95s, 2002 (In default) (NON) 358,875
170,000 Comdisco, Inc. notes Ser. MTN, 6.62s, 2002 (In default) (NON) 137,275
450,000 Conseco Finance Trust III, Inc. bonds 8.796s, 2027 139,500
1,740,000 Conseco Financial Corp. sr. sub. notes 10 1/4s, 2002 1,740,000
1,430,000 Conseco Financing Trust II company guaranty 8.7s, 2026 443,300
610,000 Conseco, Inc. notes 8 3/4s, 2004 373,625
1,280,000 Conseco, Inc. sr. notes 10 3/4s, 2008 736,000
20,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 21,896
10,313,000 Finova Group, Inc. notes 7 1/2s, 2009 3,609,550
760,000 Ford Motor Credit Corp. notes 7 3/8s, 2009 769,173
590,000 Green Tree Financial notes Ser. A, 6 1/2s, 2002 557,550
4,295,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 4,313,340
830,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (South Korea) 954,500
1,400,000 iStar Financial, Inc. sr. notes 8 3/4s, 2008 1,414,000
1,335,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 373,800
1,650,000 Newcourt Credit Group Inc. company guaranty 6 7/8s, 2005 (Canada) 1,583,109
1,185,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 912,450
1,905,000 Ocwen Federal Bank sub. deb. 12s, 2005 1,847,850
281,000 Ocwen Financial Corp. notes 11 7/8s, 2003 275,380
2,285,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,930,825
2,610,000 Peoples Bank- Bridgeport sub. notes 9 7/8s, 2010 2,796,824
410,000 Port Arthur Finance Corp. company guaranty 12 1/2s, 2009 434,600
3,950,000 Resource America, Inc. 144A sr. notes 12s, 2004 3,969,750
1,520,000 RFS Partnership LP 144A sr. notes 9 3/4s, 2012 1,554,200
1,310,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 922,384
850,000 Riggs Capital Trust 144A company guaranty 8 7/8s, 2027 602,489
4,300,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 4,730,000
2,220,000 Superior Financial Corp. 144A sr. notes 8.65s, 2003 2,278,040
2,200,000 Vesta Insurance Group, Inc. 144A company guaranty 8.525s, 2027 1,320,000
10,000 Webster Capital Trust I 144A bonds 9.36s, 2027 9,191
1,200,000 Willis Corroon Corp. 144A company guaranty 9s, 2009 1,248,000
-------------
51,567,471
Food (1.4%)
- -------------------------------------------------------------------------------------------------------------------
4,505,000 Archibald Candy Corp. company guaranty 10 1/4s, 2004 (In default) (NON) 2,297,550
1,955,000 Aurora Foods, Inc. bank term loan FRN Ser. B2, 8.489s, 2010
(acquired 3/13/00, cost $1,764,387) (RES) 1,933,495
1,450,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 1,428,250
3,560,000 Aurora Foods, Inc. 144A sr. sub. notes Ser. D, 9 7/8s, 2007 3,506,600
800,000 Del Monte Corp. company guaranty Ser. B, 9 1/4s, 2011 840,000
2,850,000 Doane Pet Care Co. sr. sub. deb. 9 3/4s, 2007 2,394,000
2,265,000 Eagle Family Foods company guaranty Ser. B, 8 3/4s, 2008 1,789,350
2,290,000 Premier International Foods PLC sr. notes 12s, 2009 (United Kingdom) 2,496,100
3,440,000 RAB Enterprises, Inc. company guaranty 10 1/2s, 2005 1,204,000
1,900,000 RAB Holdings, Inc. sr. notes 13s, 2008 380,000
2,000,000 Smithfield Foods, Inc. sr. notes Ser. B, 8s, 2009 2,050,000
4,810,000 Vlasic Foods International, Inc. sr. sub. notes Ser. B, 10 1/4s, 2009
(In default) (NON) 1,034,150
-------------
21,353,495
Gaming & Lottery (6.9%)
- -------------------------------------------------------------------------------------------------------------------
1,640,000 Aladdin Gaming Holdings, LLC sr. disc. notes stepped-coupon Ser. B,
zero % (13 1/2s, 3/1/03), 2010 (STP) 86,100
1,635,000 Ameristar Casinos, Inc. company guaranty 10 3/4s, 2009 1,810,763
4,200,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 4,662,000
370,000 Argosy Gaming Co. sr. sub. notes 9s, 2011 393,125
4,030,424 Autotote Corp. bank term loan FRN Ser. B, 7.195s, 2007
(acquired 10/13/00, cost $4,020,348) (RES) 4,035,462
2,870,000 Autotote Corp. company guaranty Ser. B, 12 1/2s, 2010 3,128,300
1,808,479 Fitzgeralds Gaming Corp. company guaranty Ser. B, 12 1/4s, 2004
(In default) (NON) 632,968
2,020,000 Harrah's Operating Company, Inc. company guaranty 8s, 2011 2,134,597
1,635,000 Harrah's Operating Company, Inc. company guaranty 7 1/8s, 2007 1,659,525
2,320,000 Herbst Gaming, Inc. sec. notes Ser. B, 10 3/4s, 2008 2,424,400
4,520,000 Hollywood Casino Corp. company guaranty 11 1/4s, 2007 4,994,600
352,000 Hollywood Park, Inc. company guaranty Ser. B, 9 1/4s, 2007 312,400
3,540,000 Horseshoe Gaming Holdings company guaranty 8 5/8s, 2009 3,672,750
2,240,000 International Game Technology sr. notes 8 3/8s, 2009 2,430,400
2,000,000 International Game Technology sr. notes 7 7/8s, 2004 2,092,500
640,000 Isle of Capri Casinos, Inc. company guaranty 8 3/4s, 2009 639,200
5,710,000 Majestic Investor Holdings/Majestic Investor Capital Corp. 144A
company guaranty 11.653s, 2007 5,453,050
290,000 Mandalay Resort Group sr. notes 9 1/2s, 2008 311,750
4,290,000 Mandalay Resort Group sr. sub. notes Ser. B, 10 1/4s, 2007 4,606,388
1,270,000 Mandalay Resort Group 144A sr. sub. notes 9 3/8s, 2010 1,333,500
440,000 MGM Mirage, Inc. coll. sr. notes 6 7/8s, 2008 422,880
3,920,000 MGM Mirage, Inc. company guaranty 8 1/2s, 2010 4,122,037
2,215,000 MGM Mirage, Inc. company guaranty 8 3/8s, 2011 2,289,756
1,410,000 Mikohn Gaming Corp. company guaranty Ser. B, 11 7/8s, 2008 1,410,000
1,140,000 Mohegan Tribal Gaming Authority sr. notes 8 1/8s, 2006 1,174,200
2,850,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/4s, 2009 2,935,500
1,630,000 Mohegan Tribal Gaming Authority sr. sub. notes 8 3/8s, 2011 1,674,825
2,880,000 Mohegan Tribal Gaming Authority 144A sr. sub. notes 8s, 2012 2,880,000
2,350,000 Park Place Entertainment Corp. sr. notes 7 1/2s, 2009 2,303,142
3,410,000 Park Place Entertainment Corp. sr. sub. notes 8 7/8s, 2008 3,559,188
1,390,000 Park Place Entertainment Corp. sr. sub. notes 8 1/8s, 2011 1,405,638
1,080,000 Penn National Gaming, Inc. company guaranty Ser. B, 11 1/8s, 2008 1,182,600
1,470,000 Penn National Gaming, Inc. sr. sub. notes 8 7/8s, 2010 1,451,625
3,750,000 Pennisula Gaming LLC company guaranty 12 1/4s, 2006 3,750,000
1,410,000 Riviera Black Hawk, Inc. 1st mtge. 13s, 2005 1,410,000
3,480,000 Station Casinos, Inc. sr. notes 8 3/8s, 2008 3,593,100
1,740,000 Station Casinos, Inc. sr. sub. notes 9 7/8s, 2010 1,846,575
760,000 Station Casinos, Inc. 144A sr. sub. notes 9 3/4s, 2007 791,350
250,000 Trump A.C. company guaranty Ser. B, 11 1/4s, 2006 169,688
1,599,000 Trump Atlantic City Associates company guaranty 11 1/4s, 2006 1,095,315
2,240,000 Trump Castle Funding, Inc. sr. sub. notes 11 3/4s, 2003 1,691,200
8,260,000 Trump Castle Funding, Inc. sub. notes 10 1/4s, 2003 8,363,250
4,060,000 Venetian Casino, Inc. company guaranty 12 1/4s, 2004 4,191,950
1,280,000 Wheeling Island Gaming, Inc. 144A sr. notes 10 1/8s, 2009 1,318,400
-------------
101,845,997
Health Care (5.7%)
- -------------------------------------------------------------------------------------------------------------------
2,760,000 ALARIS Medical Systems, Inc. sec. notes Ser. B, 11 5/8s, 2006 3,022,200
710,000 ALARIS Medical Systems, Inc. 144A company guaranty 9 3/4s, 2006 683,375
1,770,000 ALARIS Medical, Inc. sr. disc. notes stepped-coupon zero %
(11 1/8s, 8/1/03), 2008 (STP) 1,168,200
3,830,800 Alderwoods Group, Inc. company guaranty 12 1/4s, 2009 3,907,416
10,600 Alderwoods Group, Inc. company guaranty 12 1/4s, 2004 11,342
53,600 Alderwoods Group, Inc. company guaranty 11s, 2007 54,136
1,345,000 Alliance Imaging, Inc. sr. sub. notes 10 3/8s, 2011 1,418,975
2,000,000 AmerisourceBergen Corp. sr. notes 8 1/8s, 2008 2,100,000
1,890,000 Beverly Enterprises, Inc. sr. notes 9 5/8s, 2009 1,890,000
1,380,000 Bio-Rad Labs Corp. sr. sub. notes 11 5/8s, 2007 1,518,000
3,848,000 Clarent Hospital Corp. sr. notes 11 1/2s, 2005 3,848,000
1,680,000 Conmed Corp. company guaranty 9s, 2008 1,726,200
870,000 Conventry Health Care, Inc. 144A sr. notes 8 1/8s, 2012 891,750
186,500 Genesis Health Ventures, Inc. sec. notes FRN 7.59s, 2007 184,635
3,210,000 Hanger Orthopedic Group, Inc. 144A sr. notes 10 3/8s, 2009 3,306,300
2,470,000 HCA, Inc. deb. 7.19s, 2015 2,451,475
3,080,000 HCA, Inc. med. term notes 8.85s, 2007 3,399,550
500,000 HCA, Inc. med. term notes 6.63s, 2045 503,105
2,180,000 HCA, Inc. notes 8 3/4s, 2010 2,452,500
780,000 HCA, Inc. notes 8.36s, 2024 811,200
500,000 HCA, Inc. notes 7s, 2007 518,750
2,790,000 HCA, Inc. sr. notes 7 7/8s, 2011 2,957,400
3,160,000 Healthsouth Corp. sr. sub. notes 10 3/4s, 2008 3,428,600
1,550,000 Insight Health Services Corp. 144A sr. sub. notes 9 7/8s, 2011 1,596,500
3,050,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 3,126,250
5,670,000 Magellan Health Services, Inc. sr. sub. notes 9s, 2008 4,706,100
1,560,000 Magellan Health Services, Inc. 144A sr. notes 9 3/8s, 2007 1,544,400
4,999,430 Mariner Post-Acute Network, Inc. bank term loan FRN Ser. A, 4.879,
2004 (acquired 6/21/01, cost $1,699,806) (In default) (NON) (RES) 2,787,182
9,100,000 Mariner Post-Acute Network, Inc. sr. sub. notes stepped-coupon Ser. B,
zero % (10 1/2s, 11/1/02), 2007 (STP) 45,500
4,180,000 Mediq, Inc. company guaranty 11s, 2008 (In default) (NON) 41,800
2,800,000 Mediq, Inc. deb. stepped-coupon zero % (13s, 6/1/03), 2009 (STP) 280
7,500,000 Multicare Companies, Inc. sr. sub. notes 9s, 2007 (In default) (NON) 750
1,840,000 Omnicare, Inc. company guaranty Ser. B, 8 1/8s, 2011 1,936,600
690,000 Service Corp. International deb. 7 7/8s, 2013 610,650
430,000 Service Corp. International notes 7.7s, 2009 395,600
5,250,000 Service Corp. International notes 6s, 2005 4,685,625
2,640,000 Stewart Enterprises, Inc. notes 10 3/4s, 2008 2,884,200
5,000,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 (In default) (NON) 500
5,840,000 Tenet Healthcare Corp. sr. notes Ser. B, 8 1/8s, 2008 6,238,697
4,175,000 Triad Hospitals Holdings company guaranty Ser. B, 11s, 2009 4,696,875
997,273 Triad Hospitals, Inc. bank term loan FRN Ser. B, 7.36s, 2008
(acquired 4/24/01, cost $996,275) (RES) 1,007,107
3,510,000 Triad Hospitals, Inc. company guaranty Ser. B, 8 3/4s, 2009 3,742,538
1,970,000 Vanguard Health Systems, Inc. company guaranty 9 3/4s, 2011 2,068,500
-------------
84,368,763
Homebuilding (1.6%)
- -------------------------------------------------------------------------------------------------------------------
2,000,000 Beazer Homes USA, Inc. company guaranty 8 5/8s, 2011 2,060,000
310,000 D.R. Horton, Inc. company guaranty 8s, 2009 312,325
4,360,000 D.R. Horton, Inc. sr. notes 7 7/8s, 2011 4,316,400
1,920,000 Del Webb Corp. sr. sub. deb. 9 3/8s, 2009 2,025,600
1,510,000 K. Hovnanian Enterprises, Inc. company guaranty 10 1/2s, 2007 1,593,050
200,000 K. Hovnanian Enterprises, Inc. company guaranty 9 1/8s, 2009 204,000
3,130,000 KB Home sr. sub. notes 9 1/2s, 2011 3,239,550
1,250,000 Lennar Corp. company guaranty Ser. B, 9.95s, 2010 1,371,875
1,270,000 Lennar Corp. sr. notes 7 5/8s, 2009 1,270,000
270,000 M.D.C. Holdings, Inc. sr. notes 8 3/8s, 2008 274,725
2,940,000 Ryland Group, Inc. sr. notes 9 3/4s, 2010 3,116,400
1,270,000 Standard Pacific Corp. sr. notes 9 1/2s, 2010 1,292,225
1,640,000 Toll Corp. company guaranty 8 1/8s, 2009 1,656,400
770,000 Toll Corp. sr. sub. notes 8 1/4s, 2011 777,700
-------------
23,510,250
Household Furniture and Appliances (0.4%)
- -------------------------------------------------------------------------------------------------------------------
1,000,000 Sealy Mattress Co. company guaranty Ser. C, 9 7/8s, 2007 1,007,500
1,050,000 Sealy Mattress Co. company guaranty stepped-coupon Ser. B, zero %
(10 7/8s, 12/15/02), 2007 (STP) 945,000
3,970,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 3,999,775
-------------
5,952,275
Lodging/Tourism (1.8%)
- -------------------------------------------------------------------------------------------------------------------
2,177,000 Felcor Lodging LP company guaranty 8 1/2s, 2011 (R) 2,177,000
4,980,000 Felcor Lodging LP company guaranty 9 1/2s, 2008 (R) 5,204,100
9,841,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 9,496,565
550,000 HMH Properties, Inc. sr. notes Ser. C, 8.45s, 2008 548,625
670,000 Host Marriott LP company guaranty Ser. G, 9 1/4s, 2007 688,425
1,200,000 Host Marriott LP sr. notes Ser. E, 8 3/8s, 2006 1,188,000
2,785,000 ITT Corp. notes 6 3/4s, 2005 2,781,853
540,000 John Q. Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 534,600
1,980,000 Meristar Hospitality Corp. company guaranty 9 1/8s, 2011 1,965,150
480,000 Meristar Hospitality Corp. company guaranty 9s, 2008 477,000
1,250,000 MeriStar Hospitality Operating Partnership/MeriStar Hospitality
Finance Corp. 144A sr. notes 10 1/2s, 2009 (R) 1,306,250
-------------
26,367,568
Media (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,125,000 TDL Infomedia Holdings PLC sr. disc. notes stepped-coupon zero %
(15 1/2s, 10/15/04), 2010 (United Kingdom) (STP) 1,710,625
Publishing (2.1%)
- -------------------------------------------------------------------------------------------------------------------
5,765,000 Affinity Group Holdings sr. notes 11s, 2007 5,476,750
1,820,000 Garden State Newspapers, Inc. sr. sub. notes 8 5/8s, 2011 1,801,800
1,485,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B, 8 3/4s, 2009 1,477,575
1,385,000 Hollinger International Publishing, Inc. company guaranty 9 1/4s, 2007 1,419,625
6,830,000 Hollinger Participation Trust 144A sr. notes 12 1/8s, 2010 (Canada) (PIK) 6,147,000
1,890,000 Key3media Group, Inc. company guaranty 11 1/4s, 2011 1,701,000
2,610,000 Perry-Judd company guaranty 10 5/8s, 2007 2,335,950
4,430,000 PRIMEDIA, Inc. company guaranty 8 7/8s, 2011 3,809,800
2,145,000 PRIMEDIA, Inc. company guaranty 7 5/8s, 2008 1,758,900
2,270,000 PRIMEDIA, Inc. company guaranty Ser. B, 8 1/2s, 2006 2,020,300
1,970,000 Quebecor Media, Inc. sr. disc. notes stepped-coupon zero %
(13 3/4s, 7/15/06), 2011 (Canada) (STP) 1,280,500
1,500,000 Quebecor Media, Inc. sr. notes 11 1/8s, 2011 (Canada) 1,605,000
-------------
30,834,200
Restaurants (0.7%)
- -------------------------------------------------------------------------------------------------------------------
1,600,000 Domino's, Inc. company guaranty Ser. B, 10 3/8s, 2009 1,712,000
2,535,000 Sbarro, Inc. company guaranty 11s, 2009 2,560,350
1,680,000 Tricon Global Restaurants, Inc. sr. notes 8 7/8s, 2011 1,822,800
3,375,000 Tricon Global Restaurants, Inc. sr. notes 7.65s, 2008 3,425,625
860,000 Tricon Global Restaurants, Inc. sr. notes 7.45s, 2005 881,500
-------------
10,402,275
Retail (2.3%)
- -------------------------------------------------------------------------------------------------------------------
1,840,000 Amazon.com, Inc. sr. sub. notes stepped-coupon zero % (10s, 5/1/03),
2008 (STP) 1,453,600
3,680,000 Autonation, Inc. company guaranty 9s, 2008 3,854,800
6,300,000 Fleming Companies, Inc. company guaranty 10 1/8s, 2008 6,378,750
100,000 Fleming Companies, Inc. 144A sr. sub. notes 10 5/8s, 2007 96,500
910,000 Great Atlantic & Pacific Tea Co. notes 7 3/4s, 2007 910,000
5,130,000 Iron Age Holdings Corp. sr. disc. notes stepped-coupon zero %
(12 1/8s, 5/1/03), 2009 (STP) 461,700
1,090,000 JC Penney Company, Inc. deb. 7.4s, 2037 1,002,800
730,000 JC Penney Company, Inc. notes 7.6s, 2007 689,850
1,330,000 JC Penney Company, Inc. notes Ser. MTNA, 7.05s, 2005 1,250,200
100,000 Kmart Corp. med. term notes Ser. D, 7.55s, 2004 41,000
1,000,000 Kmart Corp. pass-through certificates Ser. 95K4, 9.35s, 2020 520,000
215,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 202,100
4,570,000 Petco Animal Supplies, Inc. 144A sr. sub. notes 10 3/4s, 2011 4,809,925
110,000 Rite Aid Corp. notes 7 1/8s, 2007 61,600
7,590,000 Saks, Inc. company guaranty 8 1/4s, 2008 7,134,600
1,000,000 Saks, Inc. company guaranty 7 1/2s, 2010 800,000
2,300,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 2,158,688
1,165,000 Southland Corp. deb. Ser. B, 4s, 2004 1,071,800
121,000 Southland Corp. sr. sub. deb. 5s, 2003 116,443
800,000 Tommy Hilfiger USA, Inc. company guaranty 6 1/2s, 2003 790,000
-------------
33,804,356
Specialty Printing (0.1%)
- -------------------------------------------------------------------------------------------------------------------
2,799,797 Von Hoffman Press, Inc. 144A sr. sub. notes 13 1/2s, 2009 2,239,838
Technology (2.3%)
- -------------------------------------------------------------------------------------------------------------------
1,220,000 Amkor Technologies, Inc. Structured Note 12.58s, 2005 (issued by
STEERS Credit Linked Trust 2000) 1,104,100
3,470,000 Cybernet Internet Services International, Inc. 144A sr. disc. notes
stepped-coupon zero % (13s, 8/15/04), 2009 (Denmark) (STP) 34,700
5,100,000 Equinix, Inc. sr. notes 13s, 2007 1,593,750
1,445,000 Exodus Communications, Inc. sr. notes 11 5/8s, 2010 (In default) (NON) 310,675
194,000 Exodus Communications, Inc. sr. notes 10 3/4s, 2009 (In default) (NON) 42,195
390,000 Exodus Communications, Inc. 144A sr. notes 11 1/4s, 2008 (In default) (NON) 83,850
1,126,000 Fairchild Semiconductor International, Inc. company guaranty
10 3/8s, 2007 1,192,153
8,020,000 Firstworld Communication Corp. sr. disc. notes stepped-coupon
zero % (13s, 4/15/03), 2008 (STP) 561,400
3,450,000 Globix Corp. sr. notes 12 1/2s, 2010 (In default) (NON) 517,500
3,740,000 Intira Corp. bonds stepped-coupon zero % (13s, 2/1/05), 2010
(acquired 1/31/00, cost $1,993,083) (RES) (STP) 374
1,255,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 1,305,200
1,700,000 Iron Mountain, Inc. company guaranty 8 5/8s, 2013 1,797,750
2,040,000 Iron Mountain, Inc. company guaranty 8 1/8s, 2008 (Canada) 2,065,500
7,090,000 Lucent Technologies, Inc. deb. 6.45s, 2029 4,431,250
1,000,000 Lucent Technologies, Inc. notes 7 1/4s, 2006 810,000
4,000,000 Micron Technology, Inc. notes 6 1/2s, 2005 3,640,000
30,000 PSINet, Inc. sr. notes 11 1/2s, 2008 (In default) (NON) 2,775
5,320,000 PSINet, Inc. sr. notes 11s, 2009 (In default) (NON) 478,800
2,450,000 PSINet, Inc. sr. notes Ser. B, 10s, 2005 (In default) (NON) 226,625
1,400,000 SCG Holding & Semiconductor Corp. company guaranty 12s, 2009 742,000
1,060,000 Seagate Technology, Inc. 144A company guaranty 12 1/2s, 2007
(Cayman Islands) 1,193,825
1,940,000 Telecommunications Techniques, Inc. company guaranty 9 3/4s, 2008 388,000
1,630,000 Telehub Communications Corp. company guaranty 13 7/8s, 2005
(In default) (NON) 16
741,389 Telex Communications Group, Inc. sr. sub. notes zero %, 2006 (FWC/WIS) 407,764
1,424,408 United Defense Industries, Inc. bank term loan FRN 6.82s, 2009
(acquired various dates from 8/13/01 to 8/29/01, cost $1,429,408) (RES) 1,427,969
988,000 Viasystems, Inc. sr. notes Ser. B, 9 3/4s, 2007 187,720
1,239,000 Viasystems, Inc. sr. sub. notes 9 3/4s, 2007 235,410
700,000 Xerox Corp. notes 5 1/2s, 2003 617,750
9,350,000 Xerox Corp. 144A sr. notes 9 3/4s, 2009 8,274,750
160,000 Xerox Credit Corp. sr. notes 6.1s, 2003 139,200
-------------
33,813,001
Textiles (0.5%)
- -------------------------------------------------------------------------------------------------------------------
1,980,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 (In default) (NON) 198,000
1,500,000 Kasper A.S.L., Ltd. sr. notes 12 3/4s, 2004 (In default) (NON) 300,000
3,330,000 Levi Strauss & Co. sr. notes 11 5/8s, 2008 3,313,350
2,440,000 William Carter Holdings Co. (The) company guaranty Ser. B,
10 7/8s, 2011 2,562,000
2,120,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2008 678,400
2,710,000 Westpoint Stevens, Inc. sr. notes 7 7/8s, 2005 894,300
-------------
7,946,050
Tobacco (0.2%)
- -------------------------------------------------------------------------------------------------------------------
2,440,000 North Atlantic Trading Co. company guaranty Ser. B, 11s, 2004 2,269,200
Transportation (2.1%)
- -------------------------------------------------------------------------------------------------------------------
300,000 Air Canada Corp. sr. notes 10 1/4s, 2011 (Canada) 195,000
3,980,000 Airbus Industries 144A notes Ser. D, 12.266s, 2020 2,735,600
2,847,000 American Airlines, Inc. bonds Ser. 01-2, Class B, 8.608s, 2011 2,999,855
740,000 American Airlines, Inc. 144A pass-through certificates Ser. 01-2,
Class A-2, 7.858s, 2011 785,355
100,000 AMR Corp. deb. 9s, 2012 92,000
1,864 Aran Shipping & Trading SA notes 8.3s, 2004 (Greece) 932
3,260,000 Calair, LLC/Calair Capital Corp. company guaranty 8 1/8s, 2008 2,901,400
1,260,000 Continental Airlines, Inc. pass thru certificates Ser. D, 7.568s, 2006 1,058,400
1,630,000 Delta Air Lines, Inc. pass-through certificates Ser. 00-1, Class C,
7.779s, 2005 1,644,246
2,920,000 Kansas City Southern Railway Co. company guaranty 9 1/2s, 2008 3,139,000
830,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 (In default) (NON) 83,000
40,000 MC Shipping, Inc. sr. notes Ser. B, 11 1/4s, 2008 20,000
2,124,208 Motor Coach Industries bank term loan FRN Ser. B, 8.89s, 2006
(acquired various dates from 6/13/01 to 9/6/01, cost $1,730,768) (RES) 1,752,472
3,900,000 Navistar International Corp. company guaranty Ser. B, 9 3/8s, 2006 4,036,500
510,000 Navistar International Corp. sr. notes Ser. B, 8s, 2008 487,050
1,900,000 Northwest Airlines, Inc. company guaranty 8 7/8s, 2006 1,748,000
730,000 Northwest Airlines, Inc. company guaranty 8 3/8s, 2004 689,850
1,690,000 Northwest Airlines, Inc. company guaranty 7 5/8s, 2005 1,521,000
3,220,000 RailAmerica Transportation company guaranty 12 7/8s, 2010 3,542,000
650,000 Transportation Manufacturing Operations, Inc. company guaranty
11 1/4s, 2009 435,500
710,000 Travel Centers of America, Inc. company guaranty 12 3/4s, 2009 763,250
1,910,000 US Air, Inc. pass-through certificates Ser. 93A3, 10 3/8s, 2013 1,184,200
--------------
31,814,610
Utilities (3.7%)
- -------------------------------------------------------------------------------------------------------------------
1,050,000 AES Corp. (The) notes 8 3/4s, 2008 693,000
6,120,000 AES Corp. (The) sr. notes 9 3/8s, 2010 4,039,200
966,000 AES Corp. (The) sr. notes 8 7/8s, 2011 627,900
1,090,000 Azurix Corp. sr. notes Ser. B, 10 3/4s, 2010 817,500
850,000 Azurix Corp. sr. notes Ser. B, 10 3/8s, 2007 637,500
5,200,000 Calpine Canada Energy Finance company guaranty 8 1/2s, 2008 (Canada) 3,692,000
1,235,000 Calpine Corp. sr. notes 10 1/2s, 2006 975,650
540,000 Calpine Corp. sr. notes 8 3/4s, 2007 379,350
3,665,000 Calpine Corp. sr. notes 8 5/8s, 2010 2,556,338
7,615,000 Calpine Corp. sr. notes 8 1/2s, 2011 5,330,500
890,000 Calpine Corp. sr. notes 7 7/8s, 2008 631,900
80,000 Calpine Corp. sr. notes 7 3/4s, 2009 54,800
10,000 Cleveland Electric Illuminating Co. (The) 144A sr. notes Ser. D, 7.88s, 2017 10,674
5,500,000 CMS Energy Corp. pass-through certificates 7s, 2005 5,309,370
1,340,000 CMS Energy Corp. sr. notes 8.9s, 2008 1,353,400
240,000 CMS Energy Corp. sr. notes 8 1/2s, 2011 239,054
1,470,000 Edison Mission Energy sr. notes 10s, 2008 1,455,300
1,470,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 1,558,597
4,320,000 Midland Funding II Corp. deb. Ser. B, 13 1/4s, 2006 4,880,218
5,130,000 Mission Energy Holding Co. sec. notes 13 1/2s, 2008 5,309,550
1,091,143 Northeast Utilities notes Ser. A, 8.58s, 2006 1,165,362
1,625,067 Northeast Utilities notes Ser. B, 8.38s, 2005 1,723,871
1,310,000 Pacific Gas & Electric Co. 144A sr. notes 7 3/8s, 2005 1,427,900
2,640,000 Southern California Edison Co. notes 8.95s, 2003 2,706,000
340,000 Southern California Edison Co. notes 6 3/8s, 2006 313,650
2,540,000 Tiverton/Rumford Power Associates, LP 144A pass-through certificates
9s, 2018 1,803,400
5,911,000 York Power Funding 144A notes 12s, 2007 (Cayman Islands)
(In default) (NON) 5,438,120
--------------
55,130,104
--------------
Total Corporate Bonds and Notes (cost $1,470,819,647) $1,246,111,999
PREFERRED STOCKS (4.1%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
1 Adelphia Business Solutions, Inc. Ser. B, 12.875% pfd. $ 1
183,665 Avecia Group PLC $4.00 pfd. (United Kingdom) (PIK) 4,591,625
121,395 Brand Scaffold Services, Inc. 144A $3.625 pfd. 5,098,590
169,500 California Federal Bancorp, Inc. Ser. A, $2.281 pfd. 4,323,945
87,420 Chevy Chase Capital Corp. Ser. A, $5.188 pfd. (PIK) 4,982,940
8,330 Chevy Chase Savings Bank, Inc. $3.25 pfd. 220,745
795,000 CSBI Capital Trust I 144A company guaranty Ser. A, 11.75% pfd. 886,425
87,636 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 9,026,508
11,388 Decrane Aircraft Holdings Co. $16.00 pfd. (PIK) 1,138,788
6,385 Delta Financial Corp. Ser. A, $10.00 cum. pfd. 73,428
68,200 Doane Pet Care Co. $7.125 pfd. 2,046,000
256 Dobson Communications Corp. 13.00% pfd. 222,720
3,427 Dobson Communications Corp. 12.25% pfd. (PIK) 2,981,847
2,750 First Republic Capital Corp. 144A 10.50% pfd. 2,750,000
6,075 Granite Broadcasting Corp. 12.75% cum. pfd. (PIK) 3,067,875
1 ICG Holdings, Inc. 14.00% pfd. (Canada) (PIK) 1
5,705 Intermedia Communications, Inc. Ser. B, 13.50% pfd. (PIK) 5,419,750
580 Nextel Communications, Inc. Ser. D, 13.00% cum. pfd. (PIK) 203,000
4,011 Nextel Communications, Inc. Ser. E, 11.125% pfd. (PIK) 1,002,750
65,900 North Atlantic Trading Co. $3.00 pfd. (PIK) 1,054,400
1,132 Paxson Communications Corp. 13.25% cum. pfd. (PIK) 9,735,200
2,400 PRIMEDIA, Inc. Ser. F, $9.20 cum. pfd. 112,800
3,456 Rural Cellular Corp. 12.25% pfd. (PIK) 1,728,170
--------------
Total Preferred Stocks (cost $61,535,442) $ 60,667,508
FOREIGN GOVERNMENT BONDS AND NOTES (1.9%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 656,914 Argentina (Republic of) bonds Ser. 2018, 12 1/4s, 2018 (In default) (NON) $ 158,316
1,250,000 Brazil (Federal Republic of) notes 11s, 2012 1,146,875
3,515,000 Brazil (Federal Republic of) unsub. notes 11s, 2040 2,878,785
1,135,000 Colombia (Republic of) bonds 11 3/4s, 2020 1,095,275
765,000 Ecuador (Republic of) bonds stepped-coupon Ser. REGS, 5s
(6s, 8/15/02), 2030 (STP) 393,210
817,000 Peru (Republic of) 144A notes 9 1/8s, 2012 808,830
1,760,000 Philippines (Republic of) notes 10 5/8s, 2025 1,841,840
1,645,000 Russia (Federation of) bonds 12 3/4s, 2028 1,949,325
2,735,000 Russia (Federation of) unsub. 8 1/4s, 2010 2,616,028
9,770,000 Russia (Federation of) unsub. stepped-coupon 5s (7 1/2s, 3/31/07),
2030 (STP) 6,462,855
375,000 Turkey (Republic of) bonds 11 3/4s, 2010 380,250
360,000 Turkey (Republic of) notes 11 1/2s, 2012 360,900
1,520,000 United Mexican States bonds 11 3/8s, 2016 1,963,080
1,595,000 United Mexican States bonds Ser. MTN, 8.3s, 2031 1,638,863
990,000 United Mexican States notes 7 1/2s, 2012 1,007,325
2,815,000 United Mexican States notes Ser. A, 9 7/8s, 2010 3,248,510
455,000 Venezuela (Republic of) bonds 9 1/4s, 2027 301,438
--------------
Total Foreign Government Bonds and Notes (cost $24,586,689) $ 28,251,705
COMMON STOCKS (1.0%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
7,876 Alderwoods Group, Inc. (NON) $ 103,569
255,713 Arch Wireless, Inc. (NON) 2,046
76,687 Aurora Foods, Inc. (NON) 322,085
27,272 Capstar Broadcasting 144A (NON) 62,726
64,112 Celcaribe SA (Colombia) (NON) 1,923
69,120 Covad Communications Group, Inc. 144A (NON) 108,864
6,385 Delta Funding Residual Exchange Co., LLC (NON) 1,395,123
6,385 Delta Funding Residual Management, Inc. (NON) 64
111,240 Doskocil Manufacturing Company, Inc. (NON) 333,720
441,823 Focal Communications Corp. (NON) 97,201
39,109 Genesis Health Ventures, Inc. (NON) 609,318
60,553 Intira Corp. 6
6,876 MPower Holdings Corp. 144A (NON) 309
10,495,000 Paracelsus Healthcare Corp. (NON) 1,050
216,458 Pioneer Companies, Inc. (NON) 405,859
613 Quorum Broadcast Holdings, Inc. Class E (acquired 5/15/01,
cost $611,768) (RES) 613,070
588 RCN Corp. (NON) 770
65,654 Regal Cinemas, Inc. (NON) 7,221,940
2,996 RSL Communications, Ltd. Class A (NON) 21
160,552 Safety Components International, Inc. (acquired 11/6/98, cost $649,365) (RES) 1,404,830
33,599 United Artists Theatre Co. (NON) 268,792
12,145 Vast Solutions, Inc. Class B1 (NON) 36,435
12,145 Vast Solutions, Inc. Class B2 (NON) 36,435
12,145 Vast Solutions, Inc. Class B3 (NON) 36,435
13,000 Wayland Investment Fund II (acquired 2/2/01, cost $1,300,000) (RES) 1,300,000
6 WorldCom, Inc.-WorldCom Group (NON) 45
--------------
Total Common Stocks (cost $22,126,200) $ 14,362,636
CONVERTIBLE BONDS AND NOTES (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 500,000 Adelphia Communications Corp. cv. sub. notes 6s, 2006 $ 415,000
2,205,000 American Tower Corp. cv. notes 5s, 2010 1,104,264
2,470,000 DaVita, Inc. cv. sub. notes 7s, 2009 2,444,559
1,440,000 Echostar Communications Corp. 144A cv. sub. notes 5 3/4s, 2008 1,251,000
140,000 Healthsouth Corp. cv. sub. deb. 3 1/4s, 2003 134,750
310,000 Hexcel Corp. cv. sub. notes 7s, 2003 199,950
3,150,000 Nextel Communications, Inc. cv. sr. notes 5 1/4s, 2010 1,582,875
650,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 515,938
570,000 Telewest Finance 144A cv. company guaranty 6s, 2005 (United Kingdom) 273,600
5,825,000 Telewest Finance Corp. cv. sub. notes 6s, 2005 (United Kingdom) 2,796,000
3,000,000 Total Renal Care Holdings, Inc. 144A cv. notes 7s, 2009 2,969,100
--------------
Total Convertible Bonds and Notes (cost $15,355,472) $ 13,687,036
BRADY BONDS (0.8%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 8,256,604 Brazil (Federal Republic of) bonds 8s, 2014 (POR) $ 6,708,491
1,315,000 Brazil (Federal Republic of) govt. guaranty Ser. 18YR, FRB 3 1/4s, 2012 965,736
2,552,900 Bulgaria (Government of) deb. FRB Ser. PDI, 2.813s, 2011 2,242,212
2,142,825 Venezuela (Republic of) deb. FRB Ser. DL, 4 3/4s, 2007 1,658,118
--------------
Total Brady Bonds (cost $11,315,193) $ 11,574,557
UNITS (0.1%) (a)
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------------
12,035,565 Contifinancial Corp. Liquidating Trust units 8 1/8s, 2031 (NON) $ 631,867
2,483 Hercules Trust II units cum. cv. pfd. 6 1/2s 1,291,160
2,680,000 Pegasus Shipping 144A units stepped-coupon zero % (14 1/2s,
6/20/03), 2008 (Bermuda) (STP) 93,800
55,000 XCL, Ltd. 144A units 13 1/2s, 2004 (In default) (NON) 16,500
19,405 XCL, Ltd. 144A units 9.50% cv. cum. pfd. (In default) (NON) (PIK) 9,703
--------------
Total Units (cost $11,209,617) $ 2,043,030
WARRANTS (0.1%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
1 Anker Coal Group, Inc. 144A 10/28/09 $ 1
1,640 Bestel SA de CV (Mexico) 5/15/05 131,200
5,160 Birch Telecommunications, Inc. 144A (PIK) 6/15/08 516
3,200 CGA Group, Ltd. 144A 2/11/07 32
2,890 Colo.com, Inc. 144A 3/15/10 29
130 Cybernet Internet Services International, Inc. 144A 7/1/09 1
2,930 Dayton Superior Corp. 6/15/09 29,300
7,940 Decrane Aircraft Holdings Co. 9/30/08 8
1 Decrane Aircraft Holdings Co. Class B 6/30/10 1
67,681 Delta Financial Corp. 12/21/10 7
375 Destia Communications 144A 7/15/07 4
42,305 Diva Systems Corp. 144A 3/1/08 423
32,621 Genesis Health Ventures, Inc. 10/1/02 52,194
60 Globalstar Telecommunications 2/15/04 1
3,600 Horizon PCS, Inc. 10/1/10 36,000
53,776 ICG Communications, Inc. 10/15/05 538
375 Insilco Corp. 144A 8/15/07 1
1,670 Insilco Holding Co. 8/15/08 66,800
20 Interact Systems, Inc. 8/1/03 1
1,020 Interact Systems, Inc. 144A 12/15/09 10
363,973 Intira Corp. Class B 9/29/10 36
3,070 iPCS, Inc. 144A 7/15/10 30,700
470 Iridium World Com 144A 7/15/05 1
2,010 IWO Holdings, Inc. 1/15/11 20,100
3,610 Jostens, Inc. 5/1/10 36,100
3,980 KMC Telecommunications Holdings, Inc. 144A 4/15/08 40
3,815 Knology Holdings, Inc. 10/22/07 95
2,000 Leap Wireless International, Inc. 144A 4/15/10 60,000
10,508 Loral Space & Communications, Ltd. 12/27/06 105
320 McCaw International, Ltd. 4/15/07 3
2,800 Mediq, Inc. 144A 6/1/09 28
30 Metronet Communications 144A 8/15/07 15
1,410 Mikohn Gaming Corp. 144A 8/15/08 7,050
440 Orbital Imaging Corp. 144A 3/1/05 1
50 Orion Network Systems 1/15/07 1
2,560 Paxson Communications Corp. 144A 6/30/03 11,520
1,340 Pliant Corp. 144A 6/1/10 2,680
300 Raintree Resort 144A 12/1/04 3
2,480 Startec Global Communications Corp. 5/15/08 25
1,580 Telehub Communications Corp. 144A 7/31/05 2
1,387 Telex Communications Group, Inc. 3/30/07 14
2,130 Travel Centers of America, Inc. 144A 5/1/09 21
5,200 Ubiquitel, Inc. 144A 4/15/10 145,600
125 UIH Australia/Pacific, Inc. 144A 5/15/06 1
131,268 United Artists Theatre 3/2/08 1,050,138
4,030 Veraldo Holdings, Inc. 144A 4/15/08 40
110 Versatel Telecom NV (Netherlands) 5/15/08 55
990 WAM!NET, Inc. 3/1/05 10
3,250 XM Satellite Radio Holdings, Inc. 144A 3/15/10 3,250
125,000 ZSC Specialty Chemicals PLC 144A (United Kingdom) 6/30/11 203,125
125,000 ZSC Specialty Chemicals PLC 144A pfd.
(United Kingdom) 6/30/11 78,125
--------------
Total Warrants (cost $8,261,242) $ 1,965,951
CONVERTIBLE PREFERRED STOCKS (0.1%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
8 Anker Coal Group, Inc. 14.25% cv. pfd. $ 40
172,927 Earthwatch, Inc. 144A Ser. C, 8.50% cv. pfd. (PIK) 1,729
237 Genesis Health Ventures, Inc. $6.00 cv. pfd. (PIK) 26,070
6,500 Global Crossing, Ltd. 144A 7.00% cum. cv. pfd. (Bermuda) (In default) (NON) 8,938
1,020 Interact Systems, Inc. 144A 14.00% cv. pfd. (In default) (NON) 10
20,900 LTV Corp. (The) 144A $4.125 cv. pfd. (In default) (NON) 57,475
112 Paxson Communications Corp. 144A 9.75% cv. pfd. (PIK) 952,000
26,408 Penisula Gaming Partners 144A $7.14 cv. pfd. 158,445
35,179 Telex Communications, Inc. zero % cv. pfd. (In default) (NON) 35,179
2,937 XCL, Ltd. 144A Ser. A, 9.50% cum. cv. pfd. (In default) (NON) (PIK) 1,469
--------------
Total Convertible Preferred Stocks (cost $4,194,430) $ 1,241,355
SHORT-TERM INVESTMENTS (4.4%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$ 140,000 US Treasury Bills zero %, June 13, 2002 (SEG) $ 139,337
15,000,000 CXC Inc. for an effective yield of 1.76% 14,991,200
20,000,000 Federal Home Loan Mortgage Corp. for an effective yield of 1.7% 19,975,083
564,645 Short-term investments held as collateral for loaned securities with
yields ranging from 1.74% to 1.95% and due dates ranging from
March 1, 2002 to March 28, 2002 (d) 564,245
29,882,000 Interest in $750,000,000 joint tri-party repurchase agreement dated
February 28, 2002 with Goldman Sachs & Co. due March 1, 2002
with respect to various U.S. Government obligations -- maturity
value of $29,883,569 for an effective yield of 1.89% 29,882,000
--------------
Total Short-Term Investments (cost $65,551,865) $ 65,551,865
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,694,955,697) (b) $1,445,457,642
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,483,608,969.
(b) The aggregate identified cost on a tax basis is $1,704,383,702,
resulting in gross unrealized appreciation and depreciation of
$50,046,191 and $308,972,251, respectively, or net unrealized
depreciation of $258,926,060.
(NON) Non-income-producing security.
(STP) The dividend rate and date shown parenthetically represent the new
dividend rate to be paid and the date the fund will begin accruing
dividend income at this rate.
(POR) A portion of the income will be received in additional securities.
(RES) Restricted, excluding 144A securities, as to public resale. The total
market value of restricted securities held at February 28, 2002 was
$40,704,993 or 2.7% of net assets.
(PIK) Income may be received in cash or additional securities at the discretion
of the issuer.
(SEG) This security was pledged and segregated with the custodian to cover
margin requirements for futures contracts at February 28, 2002.
(WIS) When-issued securities (Note 1).
(R) Real Estate Investment Trust.
(d) See footnote 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates shown at February 28, 2002,
which are subject to change based on the terms of the security.
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at February 28, 2002 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- ------------------------------------------------------------------------------
US Treasury Bond
Future (Long) $6,071,465 $6,091,938 Jun-02 $(20,473)
- ------------------------------------------------------------------------------
Written Put Options on Foreign Currency Outstanding at February 28, 2002
(premium received $1,474,737)
Expiration Date/ Market
Contract Amount Strike Price Value
- ------------------------------------------------------------------------------
$8,415,000 HYDI OTC Option (Morgan Guaranty Trust) Nov 06/100 $1,701,513
- ------------------------------------------------------------------------------
Swap Contracts Outstanding at February 28, 2002 (Unaudited)
Notional Termination Unrealized
Amount Date Appreciation
- ------------------------------------------------------------------------------
Agreement with
Merrill Lynch
Capital Services
dated October 27,
2000 to receive
semi-annually the
notional amount
multiplied by
6.74% and pay
quarterly the
notional amount
multiplied by
three month USD
LIBOR. $25,500,000 10/31/05 $2,069,930
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2002 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $519,146 of securities on
loan (identified cost $1,694,955,697) (Note 1) $1,445,457,642
- -------------------------------------------------------------------------------------------
Dividends, interest and other receivables 35,646,140
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 7,007,165
- -------------------------------------------------------------------------------------------
Receivable for securities sold 18,920,113
- -------------------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 2,069,930
- -------------------------------------------------------------------------------------------
Total assets 1,509,100,990
Liabilities
- -------------------------------------------------------------------------------------------
Payable for variation margin (Note 1) 23,969
- -------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 303,824
- -------------------------------------------------------------------------------------------
Distributions payable to shareholders 5,369,199
- -------------------------------------------------------------------------------------------
Payable for securities purchased 12,733,578
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,266,154
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,234,317
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 282,308
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 50,121
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,189
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 809,231
- -------------------------------------------------------------------------------------------
Written options outstanding, at value (premiums receivable $1,474,737) 1,701,513
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 564,245
- -------------------------------------------------------------------------------------------
Other accrued expenses 149,373
- -------------------------------------------------------------------------------------------
Total liabilities 25,492,021
- -------------------------------------------------------------------------------------------
Net assets $1,483,608,969
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,102,174,553
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (19,809,912)
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (Note 1) (351,080,298)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (247,675,374)
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $1,483,608,969
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share ($607,407,642
divided by 111,628,718 shares) $5.44
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $5.44)* $5.71
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share ($667,242,495
divided by 122,371,224 shares)** $5.45
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share ($43,065,759
divided by 7,909,943 shares) $5.44
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share ($33,663,207
divided by 6,175,484) $5.45
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $5.45)* $5.63
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($132,229,866 divided by by 24,381,321) $5.42
- -------------------------------------------------------------------------------------------
* 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.
STATEMENT OF OPERATIONS
Six months ended February 28, 2002 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------------------
Interest $ 81,766,361
- -------------------------------------------------------------------------------------------
Dividends 3,818,121
- -------------------------------------------------------------------------------------------
Securities lending 2,129
- -------------------------------------------------------------------------------------------
Total investment income 85,586,611
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,375,961
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 772,317
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 25,775
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 12,844
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 728,722
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,367,236
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 183,643
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 80,535
- -------------------------------------------------------------------------------------------
Other 457,332
- -------------------------------------------------------------------------------------------
Total expenses 10,004,365
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (49,228)
- -------------------------------------------------------------------------------------------
Net expenses 9,955,137
- -------------------------------------------------------------------------------------------
Net investment income 75,631,474
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (76,737,700)
- -------------------------------------------------------------------------------------------
Net realized loss on written options (Notes 1 and 3) (133,922)
- -------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 31,955
- -------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (17,513)
- -------------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures contracts, swap
contracts and written options during the period (13,271,926)
- -------------------------------------------------------------------------------------------
Net loss on investments (90,129,106)
- -------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(14,497,632)
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
February 28 August 31
2002* 2001
- --------------------------------------------------------------------------------------------------
Increase in net assets
- --------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------
Net investment income $ 75,631,474 $ 153,187,141
- --------------------------------------------------------------------------------------------------
Net realized loss on investments and
foreign currency transactions (76,857,180) (141,821,925)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (13,271,926) (57,368,885)
- --------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (14,497,632) (46,003,669)
- --------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------
From net investment income
Class A (35,754,057) (66,940,987)
- --------------------------------------------------------------------------------------------------
Class B (38,734,636) (79,908,952)
- --------------------------------------------------------------------------------------------------
Class C (2,104,471) (2,941,386)
- --------------------------------------------------------------------------------------------------
Class M (1,930,390) (3,764,066)
- --------------------------------------------------------------------------------------------------
Class Y (5,375,763) (3,582,331)
- --------------------------------------------------------------------------------------------------
From return of capital
Class A -- (117,704)
- --------------------------------------------------------------------------------------------------
Class B -- (140,506)
- --------------------------------------------------------------------------------------------------
Class C -- (5,172)
- --------------------------------------------------------------------------------------------------
Class M -- (6,618)
- --------------------------------------------------------------------------------------------------
Class Y -- (6,299)
- --------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 138,558,631 276,730,841
- --------------------------------------------------------------------------------------------------
Total increase in net assets 40,161,682 73,313,151
Net assets
- --------------------------------------------------------------------------------------------------
Beginning of period 1,443,447,287 1,370,134,136
- --------------------------------------------------------------------------------------------------
End of period (Including distributions in excess of net investment income
of $19,809,912 and $11,542,069, respectively) $1,483,608,969 $1,443,447,287
- --------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- -----------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 Dec. 31, 1997+
operating performance (Unaudited) Year ended August 31 to August 31
- -----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.83 $6.78 $7.49 $8.02 $8.50
- -----------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------
Net investment income (a) .31 .72 .77 .78 .41(f)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.36) (.93) (.70) (.48) (.47)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations (.05) (.21) .07 .30 (.06)
- -----------------------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------------------
From net
investment income (.34) (.74) (.77) (.78) (.32)
- -----------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.01) (.02) (.05)
- -----------------------------------------------------------------------------------------------------
From return of capital -- --(d) -- (.03) (.05)
- -----------------------------------------------------------------------------------------------------
Total distributions (.34) (.74) (.78) (.83) (.42)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.44 $5.83 $6.78 $7.49 $8.02
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (0.82)* (2.94) .97 3.85 (1.08)*
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $607,408 $590,355 $561,606 $594,559 $278,847
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .52* 1.05 1.01 1.06 .84(f)*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.49* 11.69 10.71 9.99 4.57(f)*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.82* 90.24 87.91 51.30(e) 44.05*
- -----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Total Return Fund.
(f) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of less than
0.01% based on average net assets per class A share for the period ended
August 31, 1998.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS B
- -----------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 Dec. 31, 1997+
operating performance (Unaudited) Year ended August 31 to August 31
- -----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.84 $6.79 $7.50 $8.01 $8.50
- -----------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------
Net investment income (a) .29 .67 .71 .72 .36(f)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.36) (.93) (.69) (.46) (.46)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations (.07) (.26) .02 .26 (.10)
- -----------------------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------------------
From net
investment income (.32) (.69) (.72) (.72) (.29)
- -----------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.01) (.02) (.05)
- -----------------------------------------------------------------------------------------------------
From return of capital -- --(d) -- (.03) (.05)
- -----------------------------------------------------------------------------------------------------
Total distributions (.32) (.69) (.73) (.77) (.39)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.45 $5.84 $6.79 $7.50 $8.01
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (1.19)* (3.67) .21 3.33 (1.58)*
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $667,242 $717,535 $758,381 $855,729 $444,096
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .90* 1.80 1.76 1.81 1.34(f)*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.13* 10.98 9.96 9.24 4.07(f)*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.82* 90.24 87.91 51.30(e) 44.05*
- -----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Total Return Fund.
(f) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of less than
0.01% based on average net assets per class B share for the period ended
August 31, 1998.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS C
- ----------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 July 26, 1999+
operating performance (Unaudited) Year ended August 31 to August 31
- ----------------------------------------------------------------------------------------
2002 2001 2000 1999
- ----------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.83 $6.79 $7.50 $7.69
- ----------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------
Net investment income (a) .28 .67 .71 .08
- ----------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.35) (.94) (.69) (.20)
- ----------------------------------------------------------------------------------------
Total from
investment operations (.07) (.27) .02 (.12)
- ----------------------------------------------------------------------------------------
Less distributions
- ----------------------------------------------------------------------------------------
From net
investment income (.32) (.69) (.72) (.07)
- ----------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.01) --(d)
- ----------------------------------------------------------------------------------------
From return of capital -- --(d) -- --(d)
- ----------------------------------------------------------------------------------------
Total distributions (.32) (.69) (.73) (.07)
- ----------------------------------------------------------------------------------------
Net asset value,
end of period $5.44 $5.83 $6.79 $7.50
- ----------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (1.19)* (3.82) .20 (1.52)*
- ----------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $43,066 $35,239 $17,220 $1,528
- ----------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .90* 1.80 1.76 .18*
- ----------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.10* 10.82 9.97 1.18*
- ----------------------------------------------------------------------------------------
Portfolio turnover (%) 33.82* 90.24 87.91 51.30(e)
- ----------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Total Return Fund.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS M
- -----------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share February 28 Dec. 31, 1997+
operating performance (Unaudited) Year ended August 31 to August 31
- -----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $5.84 $6.78 $7.50 $8.01 $8.50
- -----------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------
Net investment income (a) .30 .70 .75 .77 .40(f)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
loss on investments (.36) (.92) (.71) (.47) (.48)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations (.06) (.22) .04 .30 (.08)
- -----------------------------------------------------------------------------------------------------
Less distributions
- -----------------------------------------------------------------------------------------------------
From net
investment income (.33) (.72) (.75) (.76) (.31)
- -----------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (.01) (.02) (.05)
- -----------------------------------------------------------------------------------------------------
From return of capital -- --(d) -- (.03) (.05)
- -----------------------------------------------------------------------------------------------------
Total distributions (.33) (.72) (.76) (.81) (.41)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.45 $5.84 $6.78 $7.50 $8.01
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (0.95)* (3.04) .57 3.86 (1.33)*
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $33,663 $32,769 $32,928 $39,443 $19,094
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .65* 1.30 1.26 1.31 1.01(f)*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.37* 11.47 10.46 9.71 4.49(f)*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.82* 90.24 87.91 51.30(e) 44.05*
- -----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
(e) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Total Return Fund.
(f) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses reflect a reduction of less than
0.01% based on average net assets per class M share for the period ended
August 31, 1998.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS Y
- --------------------------------------------------------------
Six months
ended For the period
Per-share Feb. 28 Oct. 2, 2000+
operating performance (Unaudited) to August 31
- --------------------------------------------------------------
2002 2001
- --------------------------------------------------------------
Net asset value,
beginning of period $5.81 $6.62
- --------------------------------------------------------------
Investment operations
- --------------------------------------------------------------
Net investment income (a) .30 .65
- --------------------------------------------------------------
Net realized and unrealized
loss on investments (.34) (.77)
- --------------------------------------------------------------
Total from
investment operations (.04) (.12)
- --------------------------------------------------------------
Less distributions
- --------------------------------------------------------------
From net
investment income (.35) (.69)
- --------------------------------------------------------------
From return of capital -- --(d)
- --------------------------------------------------------------
Total distributions (.35) (.69)
- --------------------------------------------------------------
Net asset value,
end of period $5.42 $5.81
- --------------------------------------------------------------
Total return at
net asset value (%)(b) (0.70)* (1.63)*
- --------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------
Net assets, end of period
(in thousands) $132,230 $67,550
- --------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .40* .73*
- --------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.57* 10.61*
- --------------------------------------------------------------
Portfolio turnover (%) 33.82* 90.24
- --------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Amount represents less than $0.01 per share.
NOTES TO FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Trust II ("the fund") is a series of Putnam Funds Trust
(the "Trust") which is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management investment company. The
fund seeks high current income by investing primarily in high-yielding,
lower-rated fixed-income securities constituting a portfolio that Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC believes does not involve
undue risk to income or principal. Capital growth is a secondary goal when
consistent with achieving high current income.
The fund offers class A, class B, class C, 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 C shares are subject to the same fees and expenses as class
B shares, except that class C shares have a one-year 1.00% contingent
deferred sales charge and do not convert to class A shares. 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
and class C shares. Class Y shares, which are sold at net asset value, are
generally subject to the same expenses as class A, class B, class C 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 Management.
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 accounting
principles generally accepted in the United States of America and requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities in 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. 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 an independent 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, generally recognized by institutional traders, between
securities.
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.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
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. Non-cash dividends, if
any, are recorded at the fair market value of the securities received.
All premiums/discounts are amortized /accreted on a yield-to-maturity
basis. The premium in excess of the call price, if any, is amortized to the
call date; thereafter, the remaining excess premium is amortized to
maturity.
Securities purchased or sold on a when-issued basis may be settled a month
or more after the trade date; interest income is accrued based on the terms
of the security. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under the
contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
When the contract is closed, the fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Realized gains and losses
on purchased options are included in realized gains and losses on
investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation
in the value of the futures contract. Such receipts or payments are known
as "variation margin". Exchange traded options are valued at the last sale
price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
G) Interest rate swap contracts The fund may engage in interest rate swap
agreements, which are arrangements between two parties to exchange cash
flows based on a notional principal amount. The fund may enter into
interest rate swap agreements, to manage the fund's 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. Payments made or received are included as part of interest income.
Payments received or made upon early termination are recorded as realized
gain or loss. 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.
H) Security lending The fund may lend securities, through its agent
Citibank N.A., to qualified borrowers in order to earn additional income.
The loans are collateralized by cash and/or securities in an amount at
least equal to the market value of the securities loaned. The market value
of securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk of
borrower default will be borne by Citibank N.A., the fund will bear the
risk of loss with respect to the investment of the cash collateral. Income
from securities lending is included in investment income on the Statement
of operations. At February 28, 2002, the value of securities loaned
amounted to $519,146. The fund received cash collateral of $564,245 which
is pooled with collateral of other Putnam funds into 31 issuers of
high-grade short-term investments.
I) 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 maintains an asset coverage ratio of at least 300% and borrowings must
not exceed prospectus limitations. For the six months ended February 28,
2002, the fund had no borrowings against the line of credit.
J) 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, 2001, the fund had a capital loss carryover of approximately
$143,178,000 available to the extent allowed by tax law to offset future
capital gains, if any. The amount of the carryover and the expiration dates
are:
Loss Carryover Expiration
- ---------------- --------------------
$ 3,691,000 August 31, 2005
4,909,000 August 31, 2006
14,567,000 August 31, 2007
24,799,000 August 31, 2008
95,212,000 August 31, 2009
K) Distributions to shareholders The fund declares a distribution each day
based upon the projected net investment income, for a specified period,
calculated as if earned pro rata throughout the period on a daily basis.
Such distributions are recorded daily and paid monthly. Distributions from
capital gains, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles. Reclassifications
are made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations.
L) Expenses of the trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of the
next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion and
0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and their
staff who provide administrative services to the fund. The aggregate amount
of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
Under the subcustodian contract between the subcustodian bank and PFTC, the
subcustodian bank has a lien on the securities of the fund to the extent
permitted by the fund's investment restrictions to cover any advances made
by the subcustodian bank for the settlement of securities purchased by the
fund. At February 28, 2002, the payable to the subcustodian bank represents
the amount due for cash advance for the settlement of a security purchased.
The fund has entered into an arrangement with PFTC whereby credits realized
as a result of uninvested cash balances are used to reduce a portion of the
fund's expenses. For the six months ended February 28, 2002, the fund's
expenses were reduced by $49,228 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,777 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, class C 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, a wholly-owned subsidiary of Putnam,
LLC and Putnam Retail Management GP, 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 at an annual
rate up to 0.35%, 1.00%, 1.00% and 1.00% of the average net assets
attributable to class A, class B, class C and class M shares, respectively.
The Trustees have approved payment by the fund at an annual rate of 0.25%,
1.00%, 1.00% and 0.50% of the average net assets attributable to class A,
class B, class C and class M shares, respectively.
For the six months ended February 28, 2002, Putnam Retail Management,
acting as underwriter received net commissions of $149,108 and $4,120 from
the sale of class A and class M shares, respectively, and received $759,839
and $10,935 in contingent deferred sales charges from redemptions of class
B and class C shares, respectively. A deferred sales charge of up to 1.00%
and 0.40% is assessed on certain redemptions of class A and class M shares,
respectively. For the six months ended February 28, 2002, Putnam Retail
Management, acting as underwriter received $824 and no monies on class A
and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended February 28, 2002, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $546,314,254 and $447,828,839, respectively. There
were no purchases and sales of U.S. government obligations.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ----------------------------------------------------------
Written options outstanding
at beginning of year $ -- $ --
- ----------------------------------------------------------
Options opened 11,500,000 2,028,865
- ----------------------------------------------------------
Options expired -- --
- ----------------------------------------------------------
Options closed (3,085,000) (554,128)
- ----------------------------------------------------------
Written options outstanding
at end of year $ 8,415,000 $1,474,737
- ----------------------------------------------------------
Note 4
Capital shares
At February 28, 2002, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months February 28, 2002
- ----------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------
Shares sold 33,632,895 $ 186,637,377
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 4,419,674 24,358,409
- ----------------------------------------------------------
38,052,569 210,995,786
Shares repurchased (27,707,801) (153,904,181)
- ----------------------------------------------------------
Net increase 10,344,768 $ 57,091,605
- ----------------------------------------------------------
Year ended August 31, 2001
- ----------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------
Shares sold 62,282,987 $ 381,280,454
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 7,512,371 45,478,995
- ----------------------------------------------------------
69,795,358 426,759,449
Shares repurchased (51,396,089) (315,420,241)
- ----------------------------------------------------------
Net increase 18,399,269 $ 111,339,208
- ----------------------------------------------------------
Six months February 28, 2002
- ----------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------
Shares sold 16,476,309 $ 91,609,519
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 3,705,359 20,455,221
- ----------------------------------------------------------
20,181,668 112,064,740
Shares repurchased (20,699,539) (114,880,177)
- ----------------------------------------------------------
Net decrease (517,871)$ (2,815,437)
- ----------------------------------------------------------
Year ended August 31, 2001
- ----------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------
Shares sold 46,403,607 $ 284,506,937
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 6,903,440 41,922,154
- ----------------------------------------------------------
53,307,047 326,429,091
Shares repurchased (42,121,770) (257,266,536)
- ----------------------------------------------------------
Net increase 11,185,277 $ 69,162,555
- ----------------------------------------------------------
Six months February 28, 2002
- ----------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------
Shares sold 3,626,319 $ 20,168,898
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 210,838 1,162,756
- ----------------------------------------------------------
3,837,157 21,331,654
Shares repurchased (1,969,117) (10,945,149)
- ----------------------------------------------------------
Net increase 1,868,040 $ 10,386,505
- ----------------------------------------------------------
Year ended August 31, 2001
- ----------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------
Shares sold 7,127,821 $ 43,425,338
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 305,173 1,844,284
- ----------------------------------------------------------
7,432,994 45,269,622
Shares repurchased (3,928,597) (23,814,315)
- ----------------------------------------------------------
Net increase 3,504,397 $ 21,455,307
- ----------------------------------------------------------
Six months February 28, 2002
- ----------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------
Shares sold 1,319,101 $ 7,323,551
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 250,319 1,381,832
- ----------------------------------------------------------
1,569,420 8,705,383
Shares repurchased (1,007,586) (5,586,736)
- ----------------------------------------------------------
Net increase 561,834 $ 3,118,647
- ----------------------------------------------------------
Year ended August 31, 2001
- ----------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------
Shares sold 2,595,150 $ 15,900,004
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 428,912 2,602,256
- ----------------------------------------------------------
3,024,062 18,502,260
Shares repurchased (2,263,678) (13,786,876)
- ----------------------------------------------------------
Net increase 760,384 $ 4,715,384
- ----------------------------------------------------------
Six months ended February 28, 2002
- ----------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------
Shares sold 15,554,294 $ 86,087,812
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 976,710 5,375,763
- ----------------------------------------------------------
16,531,004 91,463,575
Shares repurchased (3,766,296) (20,686,264)
- ----------------------------------------------------------
Net increase 12,764,708 $ 70,777,311
- ----------------------------------------------------------
For the period October 2, 2000
(commencement of operations)
to August 31, 2001
- ----------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------
Shares sold 14,298,350 $ 86,127,188
- ----------------------------------------------------------
Shares issued in connection
with the reinvestment
of distributions 605,395 3,588,630
- ----------------------------------------------------------
14,903,745 89,715,818
Shares repurchased (3,287,132) (19,657,431)
- ----------------------------------------------------------
Net increase 11,616,613 $ 70,058,387
- ----------------------------------------------------------
Note 5
New accounting pronouncement
As required, effective January 1, 2001, the fund has adopted the provisions
of the AICPA Audit and Accounting Guide, Audits of Investment Companies.
This Guide requires that the fund amortize premium and accrete discount on
all fixed-income securities, and classify as interest income gains and
losses realized on paydowns on mortgage-backed securities. Prior to January
1, 2001, the fund did not amortize premium and accrete discounts for
certain fixed income securities and characterized as realized gains and
losses paydowns on mortgage backed securities. Adopting these accounting
principles will not affect the fund's net asset value, but will change the
classification of certain amounts between interest income and realized and
unrealized gain/loss in the Statement of operations. The adoption of this
principle is not material to the financial statements.
Note 6
Actions by trustees
On March 15, 2002, the Trustees approved, in principle, the merger of
Putnam High Yield Trust II into Putnam High Yield Trust. The transaction is
scheduled to occur in later 2002. It is subject to a number of conditions
and there is no guarantee it will occur.
PUTNAM IS A LEADER IN GLOBAL MONEY MANAGEMENT
Putnam Investments traces its heritage to the early 19th century when
ship captains hired trustees to manage their money while they were away
at sea. In a landmark 1830 decision that involved one such trustee,
Massachusetts Supreme Judicial Court Justice Samuel Putnam established
The Prudent Man Rule, a legal foundation for responsible money
management. In 1937, his great-great grandson founded Putnam with The
George Putnam Fund of Boston, the first fund to offer a balanced
portfolio of stocks and bonds. Today, Putnam Investments is one of the
largest investment management firms in the world, and this balanced
approach remains the foundation of everything we do.
With more than 60 years of experience, Putnam now has over $339 billion
in assets under management, over 100 mutual funds, over 14 million
shareholder accounts, and nearly 3,000 institutional and 401(k) clients.
We're one of the largest mutual fund companies in the United States.
Putnam has won the DALBAR award for service ten times in the past eleven
years. Putnam offers products in every investment category, including
growth, value, and blend as well as international and fixed-income.
Teamwork is a cornerstone of Putnam's investment philosophy. Our funds
are managed by teams in a collaborative environment that promotes an
active exchange of information.
Putnam's disciplined investment philosophy is based on style
consistency. We aim for less volatility over the short term and strong,
consistent performance over time. Our truth in labeling approach ensures
that we adhere to every fund's stated objective, style, and risk
positioning.
We are committed to the role of the financial advisor, who continually
provides sound, sensible guidance, information, and expertise to help
investors reach their financial goals.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and
practice since 1830. Founded 65 years ago, Putnam Investments was built
around the concept that a balance between risk and reward is the hallmark
of a well-rounded financial program. We presently manage over 100 mutual
funds in growth, value, blend, fixed income, and international.
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
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 and Treasurer
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Kevin Cronin
Vice President
Stephen Peacher
Vice President
Richard G. Leibovitch
Vice President
Richard A. Monaghan
Vice President
Michael T. Healy
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam High Yield
Trust II. 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. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
Visit www.putnaminvestments.com or call a representative at 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA064-79267 2HB/2HD/2HE 4/02
PUTNAM INVESTMENTS
[SCALE LOGO OMITTED]
- -----------------------------------------------------------------------------
Putnam High Yield Trust II
Supplement to Semiannual Report dated 2/28/02
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 clients that meet the eligibility requirements
specified in the fund's prospectus for such shares. 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, C, and M shares, which are discussed more extensively in the annual
report.
SEMIANNUAL RESULTS AT A GLANCE
- -----------------------------------------------------------------------------
Total return for periods ended 2/28/02
NAV
6 months -0.74%
1 year -1.53
Life of fund (since class A inception, 12/31/97) -0.14
Annual average -0.03
Share value: NAV
8/31/01 $5.81
2/28/02 $5.42
- -----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
6 $0.342895 -- $0.342895
- -----------------------------------------------------------------------------
Please note that past performance is not indicative of future results. More
recent returns may be more or less than those shown. Returns shown for
class Y shares for periods prior to their inception are derived from the
historical performance of class A shares, and are not 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, typically are lower than the operating expenses
applicable to class A shares. All returns assume reinvestment of
distributions at net asset value. 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.