Putnam
High Yield
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
8-31-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
We are pleased to report positive results for Putnam High Yield Trust for
the fiscal year ended August 31, 2003, and to note that while your fund's
results at net asset value slightly underperformed its benchmark index
during the period, they came in above its Lipper category average. You will
find the details on the facing page.
The fund's performance reflects favorable market conditions as well as the
management team's slightly more aggressive positioning than usual, and its
focus on lower-quality bonds during a period when the lower tiers of the
high-yield market excelled. Besides their discussion of performance and
strategy in the fiscal year just ended, the managers also provide their
view of prospects for the months ahead.
As the fund begins a new fiscal year on a positive note, what we told you
at the start of the fiscal year that just ended bears repeating here. We
deeply appreciate your continued confidence in Putnam and we firmly believe
that over the long haul your patience will be rewarded.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
October 15, 2003
Report from Fund Management
Fund highlights
* Putnam High Yield Trust posted a strong gain during its fiscal year ended
August 31, 2003, with class A shares returning 21.27% at net asset value
and 15.54% at public offering price.
* The fund underperformed its benchmark, the JP Morgan Global High Yield
Index, which returned 22.31% during the same period.
* The fund's results at net asset value were ahead of the 20.13% average
for its Lipper category, High Current Yield Funds.
* See the Performance Summary beginning on page 7 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
Lower-quality bonds were the strongest performers within a very strong
high-yield market in fiscal 2003. We entered the fiscal year with a
generally favorable outlook and took a more aggressive stance with the
portfolio, increasing the allocation to CCC- and non-rated securities from
12% to 15% of the fund. We believe that the fund outperformed its Lipper
category average because we held a more positive view than many of our
competitors, and were more willing to invest in the lower-quality tiers
that led the market. The fund's slight underperformance of its benchmark is
due to a unique dynamic. As the fiscal year began, an exceptionally large
number of "fallen angels" -- bonds of investment-grade companies downgraded
to junk status because the companies had encountered serious difficulties
- -- entered the high-yield universe. Many were issued by electric utilities,
which faced issues of industry overcapacity and debt-heavy balance sheets.
However, most of the companies worked to improve their credit profiles and,
toward the fiscal year's midpoint, many of these bonds rebounded
dramatically. While we had invested in some of these fallen angels, we were
not willing to do so on a large scale without undertaking our
characteristic in-depth analysis of the credits. As a result, the fund's
allocation was less than the benchmark's and it did not benefit as fully
from the recovery.
FUND PROFILE
Putnam High Yield Trust seeks high current income through a portfolio of
higher-yielding, lower-rated corporate bonds diversified across different
industry sectors. It has a secondary objective of capital growth when
consistent with high current income. This fund may be 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.
Market overview
After bottoming out in October 2002, junk bonds rallied for several
reasons. First, there was a significant decline in the default rate, which
peaked at more than 10% in the spring of 2002 and had fallen to about 6% by
the end of August 2003. We believe this reflects the fact that many
indebted companies made debt reduction a top priority. To that end, they
looked to improve their debt profiles by selling assets and lowering
capital expenditures to pay off debt. They also refinanced their
outstanding obligations at generally lower interest rates to improve their
liquidity and lengthen the average maturity of their debt.
In addition, there was significant economic stimulus to help buoy
high-yield companies. The Federal Reserve Board lowered the benchmark
federal funds rate by an additional 0.75 percentage point during the period
to accommodate an economic recovery. The Bush administration also sought to
stimulate growth through tax cuts, and a weakening U.S. dollar served to
make American goods cheaper for overseas buyers. The end of major
hostilities in Iraq also helped to improve investor sentiment. Finally,
improving returns in the high-yield market attracted assets from both the
general public and institutional investors, further driving positive
returns.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 8/31/03
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Bonds
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JP Morgan Global High Yield Index 22.31%
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Lehman Aggregate Bond Index (broad bond market) 4.36%
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Lehman Government Credit Index 5.49%
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Lehman Municipal Bond Index 3.14%
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Equities
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S&P 500 Index (broad stock market) 12.07%
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Russell 2000 Value Index (small-company value stocks) 23.68%
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Russell 2500 Growth Index (small-company growth stocks) 33.62%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 8/31/03.
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Strategy overview
A key component of our strategy during the fiscal year was our optimism
about the prospects for the high-yield market and conviction that
lower-quality bonds would lead any rally. We prudently looked for
investment opportunities among lower-quality, more aggressive securities,
at the same time that we maintained a broadly diversified approach. We
gravitated toward bonds of cyclical companies -- firms that stood to
benefit from an uptick in economic growth. During the year, the fund was
overweighted in the aerospace industry relative to the index, particularly
in selected parts manufacturers. While this area of the industry suffered
from weakened demand for its products, we chose those firms that enjoyed
adequate liquidity to withstand what we felt would be a temporary downturn.
We also favored chemical companies, because the bonds in this sector
offered particularly attractive yields and the corporations appeared well
positioned to benefit from an economic recovery. Wireless
telecommunications service providers, including Nextel Communications, also
remained a key component of the fund, as we added to positions in this
sector in response to its increasing stabilization. We also were attracted
to media investments, because these companies offered solid balance sheets
and looked to benefit from increased advertising spending that usually
accompanies an economic rebound. Gaming and lodging bonds represented one
of the larger allocations within the fund, because they offered stability.
We underweighted technology bonds relative to the index because yields in
the sector were not adequately compelling amid excess capacity and
relatively weak balance sheets.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of as of
2/28/03 8/31/03
Consumer cyclicals 23.3% 17.3%
Consumer staples 15.2% 17.0%
Communications services 8.0% 10.7%
Capital goods 6.9% 7.6%
Basic materials 11.3% 9.6%
Footnote reads:
This chart shows how the fund's top weightings have changed over the last
six months. Weightings are shown as a percentage of net assets. Holdings
will vary over time.
How holdings and allocations affected performance
The solid returns of two of your fund's largest holdings helped boost
overall performance. Long-distance telecommunications services provider
Qwest Communi cations, one of the portfolio's top 10 holdings, stabilized
and improved its credit profile despite facing significant competition. The
company was able to stabilize its capital structure through a major
refinancing. The firm also sold its directory business, enabling it to add
a significant amount of cash to its balance sheet, and was invigorated by a
management change.
Paxson Communications, which owns television stations across the United
States as well as the Pax Network, was able to improve its operating
results and offer strong performance. In addition, the company targeted the
sale of certain stations in order to raise cash to sustain liquidity.
Finally, the prospect of a favorable deregulatory ruling by the Federal
Communications Commission may make Paxson's assets more attractive to other
companies for future acquisitions.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
1 Qwest Services Corp. 144A
Notes 13 1/2s, 2010
Communications services
2 CSC Holdings, Inc.
Ser. M, $11.125 cum pfd.
Communications services
3 JP Morgan HYDI notes 9s, 2008
Notes 9s, 2008
Financial
4 Qwest Corp. 144A
Notes 8 7/8s, 2012
Communications services
5 HMH Properties, Inc.
Company guaranty Ser. B, 7 7/8s, 2008
Consumer cyclicals
6 PSF Group Holdings, Inc. 144A
Class A
Consumer staples
7 Hercules, Inc.
Company guaranty 11 1/8s, 2007
Basic materials
8 Calpine Corp. 144A
Sec. notes 8 1/2s, 2010
Utilities and power
9 Xerox Corp.
Sr. notes 7 1/8s, 2010
Technology
10 Crown Holdings SA 144A
Sec. notes 9 1/2s, 2011 (France)
Capital goods
Footnote reads:
These holdings represent 6.4% of the fund's net assets as of 8/31/03. The
fund's holdings will change over time.
Among the main detractors from fund performance was Collins and Aikman, an
auto parts supplier. This company encountered difficulty assimilating an
acquisition into the rest of its operations. As a result, the company had
disappointing operating results due to inefficiencies at a number of its
plants. The fund still has a position, because we feel that the company
enjoys adequate liquidity that should enable it to fix the problems. Also
struggling during the fiscal year was Better Minerals and Aggregates,
which supplies industrial sand for glass production and operates rock
quarries for asphalt manufacturing. The company performed below our
expectations as construction markets remained generally weak. In addition,
there were a number of lawsuits filed against the company, seeking
compensation for individuals who suffer from silicosis, a respiratory
disease, which may have resulted from exposure to the firm's industrial
sand products and operations. The company sold its aggregates business in
order to raise cash. Although the bonds traded lower, we maintained the
investment because we believe the firm carried enough liquidity to
survive, and we believe its plans to restructure the balance sheet should
pay off in the long run.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
The fund's management team
The fund is managed by the Putnam Core Fixed-Income High-Yield Team. The
members of the team are Stephen Peacher (Portfolio Leader), Norm Boucher
(Portfolio Member), Paul Scanlon (Portfolio Member), Rosemary Thomsen
(Portfolio Member), Jeffrey Kaufman, Geoffrey Kelley, Neal Reiner, and
Joseph Towell.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
In our opinion, the underlying factors that helped sustain the high-yield
rally remain in place. The economy appears to be on the upswing and
defaults continue to decline due to companies' efforts to pay down debt.
Given the recent rise in stock prices, high-yield companies may now turn to
the equity markets, issuing stock to raise capital to pay off debt and
improve their credit profiles. We believe the corporate mindset of reducing
debt and improving balance sheets is now firmly in place. Because yields
remain attractive relative to other fixed-income alternatives, demand for
high-yield bonds should remain strong. However, it is important to
understand that while we believe the environment for high-yield bonds will
remain supportive for the foreseeable future, we don't believe we will
witness a continuation of the very strong absolute returns of the past
year. In our opinion, the high-yield market has moved from being
historically undervalued to being fairly valued.
Given this outlook, we do not intend to further increase the fund's
weightings in lower-quality bonds. During the next year, we expect to see
more consistency of returns across sectors; we believe it is less likely
that sectors like utilities will offer returns well above those provided by
other sectors. In response, our strategy will be to look for special
situations across sectors that we believe will enable us to outperform.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Lower-rated bonds may
offer higher yields in return for more risk.
Performance summary
This section provides information about your fund's performance during its
fiscal year, which ended August 31, 2003. In accordance with regulatory
requirements, we also include performance for the most current calendar
quarter-end. Performance should always be considered in light of a fund's
investment strategy. 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. A profile of your fund's strategy appears on the
first page of this report. See page 9 for definitions of some terms used in
this section.
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TOTAL RETURN FOR PERIODS ENDED 8/31/03
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Class A Class B Class C Class M Class R
(inception dates) (2/14/78) (3/1/93) (3/19/02) (7/3/95) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 21.27% 15.54% 20.31% 15.30% 20.08% 19.08% 20.80% 16.89% 20.98%
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5 years 14.07 8.67 10.03 8.72 9.55 9.55 12.61 8.91 12.72
Annual average 2.67 1.68 1.93 1.69 1.84 1.84 2.40 1.72 2.42
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10 years 64.71 56.87 53.07 53.07 52.25 52.25 60.78 55.54 60.74
Annual average 5.12 4.61 4.35 4.35 4.29 4.29 4.86 4.52 4.86
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Annual average
(life of fund) 9.06 8.85 8.12 8.12 8.23 8.23 8.66 8.52 8.79
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Performance assumes reinvestment of distributions and does not account for
taxes. Returns at public offering price (POP) for class 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. Class R share returns have no initial sales
charge or CDSC. Performance for class B, C, M, and R shares before their
inception is derived from the historical performance of class A shares,
adjusted for the applicable sales charge (or CDSC) and higher operating
expenses for such shares.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 8/31/03
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Lipper
JP Morgan CSFB High Current
Global High High Yield Yield Funds
Yield Index* Bond Index+ category average++
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1 year 22.31% 23.11% 20.13%
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5 years 26.21 29.09 12.49
Annual average 4.77 5.24 2.15
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10 years -- 95.32 59.94
Annual average -- 6.92 4.69
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Annual average (life of fund) -- -- 8.94
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Index and Lipper results should be compared to fund performance at net
asset value.
* This index began operations on 12/31/93. It is replacing the Credit
Suisse First Boston (CSFB) High Yield Bond Index as the fund's benchmark
because Putnam Management believes it is a more appropriate index against
which to compare the fund's performance.
+ This index began operations on 12/31/82.
++ Over the 1-, 5-, and 10-year periods ended 8/31/03, there were 389,
228, and 65 funds, respectively, in this Lipper category.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 8/31/93 to 8/31/03
Fund's class A CSFB High Yield JP Morgan Global
Date shares at POP Bond Index High Yield Index*
8/31/93 9,525 10,000 10,000
8/31/94 9,758 10,361 9,859
8/31/95 10,808 11,730 11,263
8/31/96 12,005 12,920 12,502
8/31/97 13,997 14,914 14,410
8/31/98 13,752 15,131 14,688
8/31/99 13,994 15,849 15,391
8/31/00 14,124 16,177 15,665
8/31/01 13,631 16,264 15,673
8/31/02 12,936 15,865 15,157
8/31/03 $15,687 $19,532 $18,538
Past performance does not indicate future results. At the end of the same
time period, a $10,000 investment in the fund's class B and class C shares
would have been valued at $15,307 and $15,225, respectively, and no
contingent deferred sales charges would apply. A $10,000 investment in the
fund's class M shares would have been valued at $16,078 ($15,554 at public
offering price). A $10,000 investment in the fund's class R shares would
have been valued at $16,074. See first page of performance section for
performance calculation method.
* The inception date for this index was 12/31/93. The chart assumes an
investment in the JP Morgan Global High Yield Index on 12/31/93 in an
amount equal to the value as of such date of a $10,000 investment in the
CSFB High Yield Bond Index made on 8/31/93.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 8/31/03
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Class A Class B Class C Class M Class R
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Distributions (number) 12 12 12 12 7
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Income $0.687 $0.635 $0.633 $0.670 $0.379
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Capital gains -- -- -- -- --
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Total $0.687 $0.635 $0.633 $0.670 $0.379
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Share value: NAV POP NAV NAV NAV POP NAV
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8/31/02 $6.86 $7.20 $6.84 $6.85 $6.87 $7.10 --
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1/21/03* -- -- -- -- -- -- $6.99
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8/31/03 7.55 7.93 7.52 7.52 7.55 7.80 7.55
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Current return
(end of period)
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Current dividend rate 1 8.74% 8.32% 7.98% 7.66% 8.42% 8.15% 8.58%
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Current 30-day
SEC yield 2 7.60 7.23 6.84 6.83 7.35 7.11 7.33
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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.
* Inception of class R shares.
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TOTAL RETURN FOR PERIODS ENDED 9/30/03 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception dates) (2/14/78) (3/1/93) (3/19/02) (7/3/95) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 25.66% 19.61% 24.51% 19.50% 24.43% 23.43% 25.00% 20.87% 25.52%
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5 years 18.81 13.14 14.48 13.11 14.07 14.07 17.14 13.29 17.44
Annual average 3.51 2.50 2.74 2.49 2.67 2.67 3.21 2.53 3.27
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10 years 68.10 60.06 56.13 56.13 55.36 55.36 63.82 58.46 64.11
Annual average 5.33 4.82 4.56 4.56 4.50 4.50 5.06 4.71 5.08
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Annual average
(life of fund) 9.13 8.93 8.19 8.19 8.30 8.30 8.73 8.59 8.86
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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).
Class R shares are not subject to an initial sales charges or CDSC and are
available only to certain defined contribution plans.
Comparative indexes
Credit Suisse First Boston (CSFB) High Yield Index is an unmanaged index of
high-yield debt securities.
JP Morgan Global High Yield Index is an unmanaged index used to mirror the
investable universe of the U.S. dollar global high-yield corporate debt
market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general measure
of U.S. fixed-income securities.
Lehman Government Credit Index is an unmanaged index of U.S fixed-income
securities.
Lehman Municipal Bond Index is an unmanaged index of long-term fixed-rate
investment-grade tax-exempt bonds.
Russell 2500 Growth Index is an unmanaged index of the smallest 2,500
companies in the Russell 3000 Index chosen for their growth orientation.
Russell 2000 Value Index is an unmanaged index of those companies in the
Russell 2000 Index chosen for their value orientation.
S&P 500 Index is an unmanaged index of common stock performance.
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.
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. Lipper category averages reflect
performance trends for funds within a category and are based on results at
net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain
personal information such as account holders' addresses, telephone numbers,
Social Security numbers, and the names of their financial advisors. We use
this information to assign an account number and to help us maintain
accurate records of transactions and account balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized access
to our computer systems and procedures to protect personal information from
unauthorized use.
Under certain circumstances, we share this information with outside vendors
who provide services to us, such as mailing and proxy solicitation. In
those cases, the service providers enter into confidentiality agreements
with us, and we provide only the information necessary to process
transactions and perform other services related to your account. We may
also share this information with our Putnam affiliates to service your
account or provide you with information about other Putnam products or
services. It is also our policy to share account information with your
financial advisor, if you've listed one on your Putnam account.
If you would like clarification about our confidentiality policies or have
any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays
from 9:00 a.m. to 5:00 p.m. Eastern Time.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes, preceded
by the Independent Auditors' Report, 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 year.
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.
Independent auditors' report
The Board of Trustees and Shareholders
Putnam High Yield Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam High Yield Trust, including the fund's portfolio, as of August 31,
2003, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the four years in the
period then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the year or period ended
August 31, 1999 were audited by other auditors whose report dated October
12, 1999, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform our audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of August 31, 2003
by correspondence with the custodian and brokers or by other appropriate
auditing procedures when replies from brokers were not received. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam High Yield Trust as of August 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for
each of the four years in the period then ended in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
October 6, 2003
The fund's portfolio
August 31, 2003
Corporate bonds and notes (83.5%) (a)
Principal amount Value
Advertising and Marketing Services (0.2%)
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$845,706 Adams Outdoor Advertising bank term
loan FRN 4.5848s, 2008 (acquired 4/2/03,
cost $843,591) (RES) $847,820
5,000,000 Lamar Media Corp. company guaranty
7 1/4s, 2013 5,187,500
--------------
6,035,320
Automotive (1.9%)
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7,959,000 Collins & Aikman Products, Inc.
company guaranty 10 3/4s, 2011 6,884,535
1,475,000 Dana Corp. notes 10 1/8s, 2010 1,589,313
8,472,000 Dana Corp. notes 9s, 2011 8,895,600
EUR 337,000 Dana Corp. notes 9s, 2011 384,757
$1,199,000 Dana Corp. notes 7s, 2029 968,193
1,598,000 Delco Remy International, Inc.
company guaranty 11s, 2009 1,358,300
3,036,000 Delco Remy International, Inc.
company guaranty 10 5/8s, 2006 2,702,040
9,000 Dura Operating Corp. company
guaranty Ser. B, 8 5/8s, 2012 9,180
1,640,000 Dura Operating Corp. company
guaranty Ser. D, 9s, 2009 1,508,800
5,460,000 Goodyear Tire & Rubber Co. (The)
notes 7.857s, 2011 4,272,450
637,500 Hayes Lemmerz International, Inc.
bank term loan FRN 4.4766s, 2009
(acquired 6/3/03, cost $631,125) (RES) 639,891
6,522,000 Lear Corp. company guaranty Ser. B,
8.11s, 2009 7,288,335
827,000 Lear Corp. company guaranty Ser. B,
7.96s, 2005 886,958
EUR 930,000 Lear Corp. sr. notes 8 1/8s, 2008 1,117,945
$4,810,000 Lear Corp. Structured Notes 8.46s,
2006 (issued by STEERS Credit Linked
Trust 2001) 5,291,000
1,009,000 Navistar International Corp. company
guaranty Ser. B, 9 3/8s, 2006 1,094,765
1,400,000 Navistar International Corp. sr.
notes Ser. B, 8s, 2008 1,421,000
1,818,333 SPX Corp. bank term loan FRN Ser. B,
3 3/8s, 2009 (acquired various dates
from 7/23/02 to 8/26/03, cost
$1,818,333) (RES) 1,824,394
2,010,000 Tenneco Automotive, Inc. company
guaranty Ser. B, 11 5/8s, 2009 1,839,150
14,200,000 Tenneco Automotive, Inc. 144A sec.
notes 10 1/4s, 2013 14,697,000
750,000 TRW Automotive bank term loan FRN
Ser. C-1, 4.116s, 2011 (acquired
7/21/03, cost $750,000) (RES) 751,562
--------------
65,425,168
Basic Materials (9.4%)
- -------------------------------------------------------------------------------
88,000 Abitibi-Consolidated Finance LP
company guaranty 7 7/8s, 2009 90,103
8,529,000 Acetex Corp. sr. notes 10 7/8s, 2009
(Canada) 9,296,610
1,380,000 Acetex Corp. 144A sr. notes 10 7/8s,
2009 (Canada) 1,504,200
9,390,000 AEP Industries, Inc. sr. sub. notes
9 7/8s, 2007 8,920,500
1,272,000 AK Steel Corp. company guaranty
7 7/8s, 2009 1,004,880
8,274,000 AK Steel Corp. company guaranty
7 3/4s, 2012 6,267,555
5,892,052 Alabama River Newsprint bank term
loan FRN 4 5/8s, 2004 (acquired
various dates from 4/14/98 to 5/15/02,
cost $5,349,744) (RES) 5,567,989
6,993,000 Appleton Papers, Inc. company
guaranty Ser. B, 12 1/2s, 2008 7,587,405
4,210,000 Armco, Inc. sr. notes 8 7/8s, 2008 3,283,800
5,099,000 Better Minerals & Aggregates Co.
company guaranty 13s, 2009 3,365,340
2,603,000 Berry Plastics Corp. company
guaranty 10 3/4s, 2012 2,856,793
5,629,000 Compass Minerals Group, Inc. company
guaranty 10s, 2011 6,191,900
10,506,831 Doe Run Resources Corp. company
guaranty Ser. A1, 11 3/4s, 2008
(PIK) 4,202,732
6,228,000 Earle M. Jorgensen Co. sec. notes
9 3/4s, 2012 6,570,540
1,715,000 Equistar Chemical notes 6 1/2s, 2006 1,620,675
3,665,000 Equistar Chemicals LP notes 8 3/4s,
2009 3,408,450
14,008,000 Equistar Chemicals LP/Equistar
Funding Corp. company guaranty
10 1/8s, 2008 14,008,000
3,595,000 Equistar Chemicals LP/Equistar
Funding Corp. 144A sr. notes
10 5/8s, 2011 3,577,025
2,506,000 Georgia-Pacific Corp. debs. 9 1/2s,
2011 2,650,095
3,589,000 Georgia-Pacific Corp. debs. 7.7s,
2015 3,310,853
8,325,000 Georgia-Pacific Corp. 144A sr. notes
8 7/8s, 2010 8,762,063
2,391,000 Georgia-Pacific Corp. 144A sr. notes
7 3/8s, 2008 2,379,045
5,110,000 Gerdau Ameristeel Corp/Gusap
Partners 144A sr. notes 10 3/8s,
2011 (Canada) 5,224,975
750,000 Graphics Packaging bank term loan
FRN 3.86s, 2010 (acquired 8/6/03,
cost $750,000) (RES) 752,461
17,958,000 Hercules, Inc. company guaranty
11 1/8s, 2007 20,831,280
4,555,000 Huntsman Advanced Materials, LLC
144A sec. notes 11s, 2010 4,805,525
3,965,837 Huntsman Corp. bank term loan FRN
Ser. A, 5.9508s, 2007 (acquired
various dates from 3/11/02 to
5/1/03, cost $3,297,511) (RES) 3,476,718
1,940,498 Huntsman Corp. bank term loan FRN
Ser. B, 8.4375s, 2007 (acquired
various dates from 3/1/02 to
7/31/03, cost $1,581,846) (RES) 1,701,170
8,428,000 Huntsman ICI Chemicals, Inc. company
guaranty 10 1/8s, 2009 7,964,460
7,978,000 Huntsman ICI Holdings sr. disc.
notes zero %, 2009 3,071,530
EUR 7,176,000 Huntsman International, LLC sr. sub.
notes Ser. EXCH, 10 1/8s, 2009 6,932,475
$2,712,000 IMC Global, Inc. company guaranty
Ser. B, 11 1/4s, 2011 2,806,920
3,042,000 IMC Global, Inc. company guaranty
Ser. B, 10 7/8s, 2008 3,148,470
11,024,000 ISP Chemco, Inc. company guaranty
Ser. B, 10 1/4s, 2011 12,181,520
2,425,000 ISP Holdings, Inc. sec. sr. notes
Ser. B, 10 5/8s, 2009 2,558,375
260,000 Kaiser Aluminum & Chemical Corp. sr.
notes Ser. B, 10 7/8s, 2006 (In
default) (NON) 202,800
9,224,000 Kaiser Aluminum & Chemical Corp. sr.
sub. notes 12 3/4s, 2003 (In
default) (NON) 784,040
2,915,000 Kappa Beheer BV company guaranty
10 5/8s, 2009 (Netherlands) 3,089,900
EUR 1,000,000 Kappa Beheer BV company guaranty
10 5/8s, 2009 (Netherlands) 1,158,179
$3,635,000 Louisiana-Pacific Corp. sr. notes
8 7/8s, 2010 4,171,163
4,372,000 Lyondell Chemical Co. bonds 11 1/8s,
2012 4,481,300
10,094,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 9,740,710
1,225,000 Lyondell Chemical Co. company
guaranty 9 1/2s, 2008 1,182,125
4,242,000 Lyondell Chemical Co. notes Ser. A,
9 5/8s, 2007 4,199,580
EUR 592,000 MDP Acquisitions PLC sr. notes
10 1/8s, 2012 (Ireland) 682,392
$6,320,000 MDP Acquisitions PLC sr. notes
9 5/8s, 2012 (Ireland) 6,825,600
2,744,851 MDP Acquisitions PLC sub. notes
15 1/2s, 2013 (Ireland) (PIK) 2,991,888
7,456,000 Millenium America, Inc. company
guaranty 9 1/4s, 2008 7,716,960
2,070,000 Millenium America, Inc. 144A sr.
notes 9 1/4s, 2008 2,142,450
4,370,000 Noveon International bonds 13s, 2011 4,501,100
3,730,000 Noveon International company
guaranty Ser. B, 11s, 2011 4,158,950
2,610,000 OM Group, Inc. company guaranty
9 1/4s, 2011 2,499,075
5,564,000 Pacifica Papers, Inc. sr. notes 10s,
2009 (Canada) 5,814,380
2,553,936 PCI Chemicals Canada sec. sr. notes
10s, 2008 (Canada) 2,183,615
3,078,797 Pioneer Cos., Inc. sec. FRN 4.6s,
2006 2,616,977
5,450,000 Potlatch Corp. company guaranty 10s,
2011 5,940,500
1,385,000 Resolution Performance Products, LLC
sr. notes 9 1/2s, 2010 1,371,150
6,150,000 Rhodia SA 144A sr. sub. notes
8 7/8s, 2011 (France) 6,180,750
3,235,000 Royster-Clark, Inc. 1st mtge.
10 1/4s, 2009 2,393,900
2,540,000 Salt Holdings Corp. 144A sr. disc.
notes stepped-coupon zero % (12s,
6/1/06), 2013 (STP) 1,460,500
7,145,000 Salt Holdings Corp. 144A sr. notes
stepped-coupon zero % (12 3/4s,
12/15/07), 2012 (STP) 4,805,013
76,000 Smurfit-Stone Container Corp.
company guaranty 8 1/4s, 2012 78,660
860,000 Solutia, Inc. company guaranty
11 1/4s, 2009 765,400
5,276,000 Solutia, Inc. debs. 7 3/8s, 2027 3,165,600
680,000 Solutia, Inc. debs. 6.72s, 2037 605,200
6,069,000 Steel Dynamics, Inc. company
guaranty 9 1/2s, 2009 6,433,140
1,250,501 Sterling Chemicals, Inc. sec. notes
10s, 2007 (PIK) 1,191,102
7,480,000 Stone Container Corp. sr. notes
9 3/4s, 2011 8,228,000
2,640,000 Stone Container Corp. sr. notes
9 1/4s, 2008 2,838,000
7,025,000 Stone Container Corp. sr. notes
8 3/8s, 2012 7,235,750
3,986,000 Stone Container Corp. 144A company
guaranty 11 1/2s, 2006 (Canada) 4,235,125
4,600,000 Tembec Industries, Inc. company
guaranty 8 1/2s, 2011 (Canada) 4,531,000
3,095,000 Tembec Industries, Inc. company
guaranty 7 3/4s, 2012 (Canada) 2,924,775
570,000 Texas Petrochemical Corp. sr. sub.
notes 11 1/8s, 2006 (In default)
(NON) 148,200
1,915,000 Texas Petrochemical Corp. sr. sub.
notes Ser. B, 11 1/8s, 2006 (In
default) (NON) 497,900
6,585,000 Ucar Finance, Inc. company guaranty
10 1/4s, 2012 6,823,706
4,491,000 WCI Steel, Inc. sr. notes Ser. B,
10s, 2004 (In default) (NON) 1,302,390
380,600 Weirton Steel Corp. sr. notes
0 1/2s, 2008 (In default) (NON) 45,672
6,375,000 Wheeling-Pittsburgh Steel Corp. sr.
notes 9 1/4s, 2007 (In default)
(NON) 701,250
3,636,000 WHX Corp. sr. notes 10 1/2s, 2005 3,126,960
--------------
330,055,259
Broadcasting (1.7%)
- -------------------------------------------------------------------------------
206,000 Acme Communications, Inc. sr. disc.
notes Ser. B, 12s, 2005 207,030
635,000 DirecTV bank term loan FRN Ser. B,
4.0039s, 2010 (acquired various
dates from 3/4/03 to 8/5/03, cost
$635,000) (RES) 637,619
23,030,000 Diva Systems Corp. sr. disc. notes
Ser. B, 12 5/8s, 2008 (In default)
(NON) 1,612,100
8,517,000 Echostar DBS Corp. sr. notes
10 3/8s, 2007 9,421,931
3,423,000 Echostar DBS Corp. sr. notes 9 1/8s,
2009 3,790,973
559,642 Emmis Communications Corp. bank term
loan FRN Ser. C, 3 3/8s, 2009 (acquired
6/20/02, cost $558,942) (RES) 561,818
1,029,000 Granite Broadcasting Corp. sr. sub.
notes 10 3/8s, 2005 1,013,565
5,947,000 Granite Broadcasting Corp. sr. sub.
notes 9 3/8s, 2005 5,842,928
6,217,000 Granite Broadcasting Corp. sr. sub.
notes 8 7/8s, 2008 5,999,405
1,783,000 Gray Television, Inc. company
guaranty 9 1/4s, 2011 1,939,013
420,000 Pegasus Communications Corp. sr.
notes 12 1/2s, 2007 344,400
3,440,000 Pegasus Satellite sr. notes 12 3/8s,
2006 2,820,800
17,069,002 Quorum Broadcast Holdings, LLC notes
stepped-coupon zero % (15s,
5/15/06), 2009 (STP) 12,474,027
2,866,000 RCN Corp. sr. disc. notes Ser. B,
zero %, 2008 1,132,070
9,533,000 Young Broadcasting, Inc. company
guaranty 10s, 2011 10,247,975
1,136,000 Young Broadcasting, Inc. company
guaranty Ser. B, 8 3/4s, 2007 1,147,360
--------------
59,193,014
Building Materials (0.7%)
- -------------------------------------------------------------------------------
1,057,000 American Standard Cos., Inc. company
guaranty 7 5/8s, 2010 1,148,166
3,771,000 Atrium Cos., Inc. company guaranty
Ser. B, 10 1/2s, 2009 4,016,115
2,869,000 Building Materials Corp. company
guaranty 8s, 2008 2,711,205
6,799,000 Dayton Superior Corp. 144A sec.
notes 10 3/4s, 2008 6,799,000
625,625 NCI Building Systems, Inc. bank term
loan FRN Ser. B, 4.35s,
2008 (acquired 9/4/02, cost
$625,625) (RES) 626,928
5,442,000 Nortek, Inc. sr. notes Ser. B,
8 7/8s, 2008 5,578,050
1,320,000 Nortek, Inc. sr. sub. notes Ser. B,
9 7/8s, 2011 1,379,400
969,000 Nortek, Inc. 144A sr. notes Ser. B,
9 1/8s, 2007 988,380
4,000 Owens Corning bonds 7 1/2s, 2018 (In
default) (NON) 1,700
5,755,000 Owens Corning notes 7 1/2s, 2005 (In
default) (NON) 2,445,875
--------------
25,694,819
Cable Television (2.8%)
- -------------------------------------------------------------------------------
230,000 Adelphia Communications Corp. notes
Ser. B, 9 7/8s, 2005 (In default) (NON) 150,650
3,211,000 Adelphia Communications Corp. sr.
notes 10 7/8s, 2010 (In default) (NON) 2,119,260
1,682,000 Adelphia Communications Corp. sr.
notes 9 3/8s, 2009 (In default) (NON) 1,135,350
2,918,000 Adelphia Communications Corp. sr.
notes 7 7/8s, 2009 (In default) (NON) 1,896,700
2,431,000 Adelphia Communications Corp. sr.
notes Ser. B, 9 7/8s, 2007 (In
default) (NON) 1,604,460
1,340,000 Adelphia Communications Corp. sr.
notes Ser. B, 7 3/4s, 2009 (In
default) (NON) 884,400
341,433 Australis Media, Ltd. sr. disc.
notes 15 3/4s, 2003 (Australia) (In
default) (NON) (DEF) 1
5,320,000 Century Cable Holdings bank term
loan FRN 6s, 2009 (acquired various
dates from 5/20/02 to 6/11/02, cost
$4,639,400) (RES) 4,419,397
2,466,275 Charter Communications Holdings, LLC
bank term loan FRN Ser. B, 3.86s,
2008 (acquired 10/22/01, cost
$2,410,784) (RES) 2,309,975
2,258,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (12 1/8s,
1/15/07), 2012 (STP) 1,061,260
4,938,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
5/15/06), 2011 (STP) 2,666,520
4,160,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (9.92s,
4/1/04), 2011 (STP) 2,787,200
5,946,000 Charter Communications Holdings,
LLC/Capital Corp. sr. disc. notes
stepped-coupon zero % (11 3/4s,
1/15/05), 2010 (STP) 3,864,900
17,015,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
11 1/8s, 2011 13,612,000
10,927,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 3/4s, 2009 8,741,600
3,770,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes
10 1/4s, 2010 2,884,050
13,360,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 10s,
2011 10,287,200
1,915,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 9 5/8s,
2009 1,464,975
2,538,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 5/8s,
2009 1,941,570
285,000 Charter Communications Holdings,
LLC/Capital Corp. sr. notes 8 1/4s,
2007 229,425
211,000 CSC Holdings, Inc. debs. 7 5/8s,
2018 200,450
6,818,000 CSC Holdings, Inc. sr. notes 7 7/8s,
2007 6,954,360
440,000 Frontier Vision bank term loan FRN
Ser. B, 6.275s, 2006 (acquired 5/20/02,
cost $407,000) (RES) 416,533
5,000,000 Insight Midwest LP/Insight Capital,
Inc. bank term loan FRN 4.0625s, 2009
(acquired various dates from 1/9/01 to
11/5/01, cost $4,992,125) (RES) 4,997,770
2,805,000 Insight Midwest LP/Insight Capital,
Inc. sr. notes 10 1/2s, 2010 2,952,263
358,725 Knology, Inc. 144A sr. notes 12s,
2009 (PIK) 312,091
5,053,836 Olympus Cable bank term loan FRN
Ser. B, 6s, 2010 (acquired
various dates from 5/20/02 to
11/21/02, cost $4,219,523) (RES) 4,376,622
425,000 Rogers Cablesystems, Ltd. sr. notes
Ser. B, 10s, 2005 (Canada) 449,969
12,876,000 TeleWest Communications PLC debs.
11s, 2007 (United Kingdom) (In
default) (NON) 5,407,920
280,000 TeleWest Communications PLC debs.
9 5/8s, 2006 (United Kingdom) (In
default) (NON) 116,900
1,935,000 TeleWest Communications PLC sr.
notes Ser. S, 9 7/8s, 2010 (United
Kingdom) (In default) (NON) 788,513
775,000 TeleWest Communications PLC 144A sr.
notes 11 1/4s, 2008 (United Kingdom)
(In default) (NON) 325,500
7,310,000 United Pan-Europe NV sr. disc. notes
12 1/2s, 2009 (Netherlands) (In
default) (NON) 1,736,125
19,076,000 United Pan-Europe NV sr. disc. notes
stepped-coupon zero % (13 3/4s,
2/1/05), 2010 (Netherlands) (In
default) (NON) (STP) 4,196,720
1,100,000 United Pan-Europe NV 144A bonds
10 7/8s, 2009 (Netherlands) (In
default) (NON) 371,250
--------------
97,663,879
Capital Goods (7.3%)
- -------------------------------------------------------------------------------
2,500,000 Advanced Glass Fiber Yarns bank term
loan FRN Ser. B, 8 1/4s, 2005 (acquired
7/18/02, cost $2,106,250) (RES) 1,500,000
1,990,000 Advanced Glass Fiber Yarns sr. sub.
notes 9 7/8s, 2009 (In default)
(NON) 39,800
1,050,000 AGCO Corp. company guaranty 9 1/2s,
2008 1,139,250
11,211,000 Argo-Tech Corp. company guaranty
8 5/8s, 2007 10,426,230
5,398,000 Argo-Tech Corp. company guaranty
Ser. D, 8 5/8s, 2007 5,020,140
1,738,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8 7/8s, 2011 1,503,370
6,172,000 BE Aerospace, Inc. sr. sub. notes
Ser. B, 8s, 2008 5,338,780
9,695,000 Blount, Inc. company guaranty 13s,
2009 8,337,700
14,380,000 Blount, Inc. company guaranty 7s,
2005 13,804,800
EUR 5,205,000 BSN Financing Co. SA company
guaranty Ser. EUR, 10 1/4s, 2009
(Luxembourg) 5,742,619
EUR 3,250,000 BSN Glasspack 144A sec. notes
9 1/4s, 2009 (France) 3,603,529
$5,785,000 Crown Holdings SA 144A sec. notes
10 7/8s, 2013 (France) 6,392,425
15,070,000 Crown Holdings SA 144A sec. notes
9 1/2s, 2011 (France) 16,049,550
11,600,000 Decrane Aircraft Holdings Co.
company guaranty Ser. B, 12s, 2008 5,452,000
750,000 EaglePicher bank term loan FRN
7 1/4s, 2009 (acquired 8/6/03, cost
$754,375) (RES) 752,344
7,465,000 FIMEP SA 144A sr. notes 10 1/2s,
2013 (France) 8,211,500
EUR 3,405,000 Flender Holdings 144A notes 11s,
2010 3,766,044
$743,532 Flowserve Corp. bank term loan FRN
Ser. C, 3.929s, 2009 (acquired
4/30/02, cost $743,532) (RES) 746,255
5,222,000 Flowserve Corp. company guaranty
12 1/4s, 2010 5,926,970
849,000 Fonda Group, Inc. sr. sub. notes
Ser. B, 9 1/2s, 2007 594,300
886,000 Grove Holdings, LLC debs. 11 5/8s,
2009 (In default) (NON) 89
17,290,346 Grove Investors, LLC notes 14 1/2s,
2010 (PIK) 172,903
3,755,000 Hexcel Corp. sr. sub. notes 9 3/4s,
2009 3,891,119
4,760,000 High Voltage Engineering Corp. sr.
notes 10 3/4s, 2004 952,000
9,317,000 Insilco Holding Co. sr. disc. notes
14s, 2008 (In default) (NON) 93,170
EUR 2,530,000 Invensys, PLC sr. unsub. notes
5 1/2s, 2005 (United Kingdom) 2,695,500
$3,978,000 Jordan Industries, Inc. sr. notes
Ser. D, 10 3/8s, 2007 1,790,100
5,340,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 5/8s, 2010 5,793,900
1,425,000 K&F Industries, Inc. sr. sub. notes
Ser. B, 9 1/4s, 2007 1,468,933
8,790,000 L-3 Communications Corp. company
guaranty 6 1/8s, 2013 8,306,550
1,460,000 L-3 Communications Corp. company
guaranty Ser. B, 8s, 2008 1,514,750
1,000,000 L-3 Communications Corp. Structured
Notes Ser. 01-5, 8.82s, 2009 (Issued
by COUNTS Trust) 990,000
3,110,000 L-3 Communications Corp. 144A
Structured Notes 8 1/2s, 2006
(Issued by Credit and Repackaged
Securities, Ltd.) (Cayman Islands) 3,438,603
1,235,000 Legrand SA debs. 8 1/2s, 2025
(France) 1,235,000
5,864,000 Manitowoc Co., Inc. (The) company
guaranty 10 1/2s, 2012 6,450,400
EUR 1,640,000 Manitowoc Co., Inc. (The) company
guaranty 10 3/8s, 2011 1,863,406
$9,184,000 Motors and Gears, Inc. sr. notes
Ser. D, 10 3/4s, 2006 7,990,080
11,409,000 Owens-Brockway Glass company
guaranty 8 7/8s, 2009 11,979,450
8,313,000 Owens-Brockway Glass sr. sec. notes
8 3/4s, 2012 8,728,650
6,540,000 Owens-Brockway Glass 144A sr. notes
8 1/4s, 2013 6,605,400
4,810,000 Owens-Brockway Glass 144A sr. sec.
notes 7 3/4s, 2011 4,810,000
1,500,000 Owens-Illinois, Inc. bank term loan
FRN 4.39s, 2008 (acquired 7/17/03,
cost $1,505,625) (RES) 1,502,813
880,000 Pliant Corp. company guaranty 13s,
2010 765,600
4,795,000 Pliant Corp. 144A sec. notes
11 1/8s, 2009 4,950,838
7,546,000 Roller Bearing Company of America
company guaranty Ser. B, 9 5/8s,
2007 6,791,400
3,726,000 Sequa Corp. sr. notes 9s, 2009 3,930,930
7,550,000 Sequa Corp. sr. notes Ser. B,
8 7/8s, 2008 7,814,250
1,395,000 Sequa Corp. 144A sr. notes 8 7/8s,
2008 1,450,800
6,160,000 Siebe PLC 144A notes 7 1/8s, 2007
(United Kingdom) 6,036,800
1,885,000 Siebe PLC 144A sr. unsub. 6 1/2s,
2010 (United Kingdom) 1,696,500
2,065,000 Sweetheart Cup Co. company guaranty
12s, 2004 1,910,125
13,403,000 Tekni-Plex, Inc. company guaranty
Ser. B, 12 3/4s, 2010 13,000,910
2,461,000 Terex Corp. company guaranty 8 7/8s,
2008 2,547,135
3,906,000 Terex Corp. company guaranty Ser. B,
10 3/8s, 2011 4,296,600
545,000 Terex Corp. company guaranty Ser. D,
8 7/8s, 2008 566,800
5,530,000 Titan Corp. (The) 144A sr. sub.
notes 8s, 2011 5,695,900
250,000 Transdigm, Inc. bank term loan FRN
4.116s, 2010 (acquired 7/21/03, cost
$250,000) (RES) 251,875
5,282,000 Trimas Corp. company guaranty
9 7/8s, 2012 5,176,360
2,500,000 WMX Technologies, Inc. notes 6 3/8s,
2003 2,525,905
--------------
256,029,150
Commercial and Consumer Services (2.5%)
- -------------------------------------------------------------------------------
546,428 Allied Waste Industries, Inc. bank
term loan FRN 4.3967s, 2010
(acquired 4/25/03, cost $546,428)
(RES) 549,307
91,071 Allied Waste Industries, Inc. bank
term loan FRN Ser. C, 4.529s,
2010 (acquired 4/25/03, cost
$91,071) (RES) 91,526
2,131,000 Allied Waste North America, Inc.
company guaranty Ser. B, 10s, 2009 2,306,808
12,694,000 Allied Waste North America, Inc.
company guaranty Ser. B, 9 1/4s,
2012 13,709,520
4,196,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 7/8s,
2008 4,479,230
11,367,000 Allied Waste North America, Inc.
company guaranty Ser. B, 8 1/2s,
2008 12,020,603
3,010,000 Allied Waste North America, Inc.
144A Structured Notes 8.2s,
2006 (issued by Credit and
Repackaged Securities, Ltd.) (Cayman
Islands) 3,144,547
5,480,000 Brand Services, Inc. company
guaranty 12s, 2012 6,096,500
3,637,000 Browning-Ferris Industries, Inc.
debs. 7.4s, 2035 3,200,560
2,300,000 Browning-Ferris Industries, Inc. sr.
notes 6 3/8s, 2008 2,236,750
EUR 2,500,000 CB Bus AB sr. sub. notes 11s, 2010
(Sweden) 2,113,265
$8,593,000 Coinmach Corp. sr. notes 9s, 2010 8,893,755
250,000 Corrections Corporation of America
bank term loan FRN 3.88s,
2008 (acquired 8/5/03, cost
$250,000) (RES) 250,938
631,125 Laidlaw International Inc., bank
term loan FRN 7s, 2009 (acquired
6/18/03, cost $618,503) (RES) 633,229
7,725,000 Laidlaw International, Inc. 144A sr.
notes 10 3/4s, 2011 8,111,250
5,997,000 IESI Corp. company guaranty 10 1/4s,
2012 6,416,790
5,488,000 Outsourcing Solutions, Inc. sr. sub.
notes Ser. B, 11s, 2006 (In default)
(NON) 54,880
2,639,000 United Rentals (North America), Inc.
company guaranty Ser. B, 10 3/4s,
2008 2,896,303
103,000 United Rentals, Inc. company
guaranty Ser. B, 8.8s, 2008 100,940
9,750,000 Williams Scotsman, Inc. company
guaranty 9 7/8s, 2007 9,555,000
318,750 Worldspan bank term loan FRN 4 7/8s,
2007 (acquired 6/30/03, cost
$315,563) (RES) 319,746
--------------
87,181,447
Communication Services (8.4%)
- -------------------------------------------------------------------------------
13,810,000 ACC Escrow Corp. 144A sr. notes 10s,
2011 14,707,650
3,775,000 Airgate PCS, Inc. sr. sub. notes
stepped-coupon zero % (13 1/2s,
10/1/04), 2009 (STP) 2,283,875
5,843,000 Alamosa Delaware, Inc. company
guaranty 13 5/8s, 2011 (acquired
various dates from 8/7/01 to
5/15/02, cost $5,783,465) (RES) 5,550,850
2,540,000 Alamosa Delaware, Inc. company
guaranty 12 1/2s, 2011 (acquired
various dates from 4/11/01 to
3/12/02, cost $2,258,200) (RES) 2,336,800
2,396,000 American Tower Corp. sr. notes
9 3/8s, 2009 2,425,950
8,850,000 American Tower Escrow Corp. disc.
notes zero %, 2008 5,841,000
5,690,000 American Tower, Inc. Structured
Notes 12.58s, 2005 (issued by STEERS
Credit Linked Trust 2001) 5,775,350
5,905,000 Asia Global Crossing, Ltd. sr. notes
13 3/8s, 2010 (Bermuda) (In default)
(NON) 767,650
1,745,000 Cellular Operating Co., LLC sr. sub.
notes 10 3/4s, 2008 1,666,475
13,925,000 Centennial Cellular Operating Co.
144A sr. notes 10 1/8s, 2013 14,412,375
11,625,000 Cincinnati Bell, Inc. 144A company
guaranty 7 1/4s, 2013 11,392,500
6,384,941 Colo.com, Inc. 144A sr. notes
13 7/8s, 2010 (In default) (NON) 39,906
495,000 Colt Telecommunications Group PLC
sr. disc. notes 12s, 2006 (United
Kingdom) 497,475
EUR 1,245,000 Colt Telecommunications Group PLC
sr. notes 7 5/8s, 2009 (United
Kingdom) 1,189,082
DEM 1,995,000 Colt Telecommunications Group PLC
sr. notes Ser. DBC, 8 7/8s,
2007 (United Kingdom) 1,030,203
$6,255,000 Crown Castle International Corp. sr.
disc. notes stepped-coupon zero %
(10 3/8s, 5/15/04), 2011 (STP) 6,161,175
8,951,000 Crown Castle International Corp. sr.
notes 9 3/8s, 2011 9,331,418
1,521,000 Crown Castle International Corp. sr.
notes 9s, 2011 1,543,815
7,180,000 Dobson Communications Corp. sr.
notes 10 7/8s, 2010 7,790,300
2,090,000 Dobson/Sygnet Communications, Inc.
sr. notes 12 1/4s, 2008 2,236,300
2,530,000 Eircom Funding 144A sr. sub. notes
8 1/4s, 2013 (Ireland) 2,656,500
3,610,000 Fairpoint Communications, Inc. sr.
sub. notes 12 1/2s, 2010 3,826,600
12,873,000 Firstworld Communication Corp. sr.
disc. notes zero %, 2008 (In
default) (NON) 1,287
1,702,946 Globix Corp. company guaranty 11s,
2008 (PIK) 1,319,783
1,532,000 Horizon PCS, Inc. company guaranty
13 3/4s, 2011 (In default) (NON) 237,460
281,000 Intermedia Communications, Inc. sr.
notes Ser. B, 8.6s, 2008 (In
default) (NON) 206,535
9,695,000 iPCS, Inc. sr. disc. notes
stepped-coupon zero % (14s,
7/15/05), 2010 (In default) (NON)
(STP) 581,700
4,532,000 IWO Holdings, Inc. company guaranty
14s, 2011 611,820
170,000 Level 3 Communications, Inc. sr.
notes 9 1/8s, 2008 138,550
5,445,000 Madison River Capital Corp. sr.
notes 13 1/4s, 2010 5,336,100
22,000 Metromedia Fiber Network, Inc. sr.
notes 10s, 2009 (In default) (NON) 1,430
9,495,000 Metromedia Fiber Network, Inc. sr.
notes Ser. B, 10s, 2008 (In default)
(NON) 617,175
8,630,000 Millicom International Cellular SA
144A sr. notes 11s,
2006 (Luxembourg) 8,737,875
12,691,000 Nextel Communications, Inc. bank
term loan FRN Ser. A, 2.4341s,
2007 (acquired various dates from
10/30/02 to 11/20/02, cost
$11,286,668) (RES) 12,229,365
2,481,250 Nextel Communications, Inc. bank
term loan FRN Ser. B, 4.5623s,
2008 (acquired 10/31/02, cost
$2,233,125) (RES) 2,476,377
144,000 Nextel Communications, Inc. sr.
disc. notes 9.95s, 2008 151,200
6,481,000 Nextel Communications, Inc. sr.
notes 9 1/2s, 2011 7,064,290
606,000 Nextel Communications, Inc. sr.
notes 9 3/8s, 2009 654,480
13,295,000 Nextel Communications, Inc. sr.
notes 7 3/8s, 2015 13,328,238
4,430,000 Nextel Partners, Inc. sr. notes
12 1/2s, 2009 4,983,750
5,025,000 Nextel Partners, Inc. sr. notes 11s,
2010 5,401,875
13,715,000 Nextel Partners, Inc. 144A sr. notes
8 1/8s, 2011 13,234,975
440,000 Orbital Imaging Corp. sr. notes
Ser. B, 11 5/8s, 2005 (In default)
(NON) 191,400
7,858,000 Orbital Imaging Corp. sr. notes
Ser. D, 11 5/8s, 2005 (In default)
(NON) 3,418,230
3,409,000 PanAmSat Corp. company guaranty
8 1/2s, 2012 3,519,793
699,000 PanAmSat Corp. notes 6 3/8s, 2008 719,970
1,369,000 Qwest Capital Funding, Inc. company
guaranty 7 3/4s, 2006 1,280,015
690,625 Qwest Communications International,
Inc. bank term loan FRN 6 1/2s, 2007
(acquired 6/5/03, cost $683,719)
(RES) 688,208
21,598,000 Qwest Corp. 144A notes 8 7/8s, 2012 23,109,860
26,056,000 Qwest Services Corp. 144A notes
13 1/2s, 2010 29,834,120
455,000 Rogers Cantel, Ltd. debs. 9 3/8s,
2008 (Canada) 473,200
5,135,000 Rogers Cantel, Ltd. sr. sub. notes
8.8s, 2007 (Canada) 5,250,538
1,312,000 Rogers Wireless, Inc. sec. notes
9 5/8s, 2011 (Canada) 1,466,160
1,525,000 Rural Cellular Corp. sr. sub. notes
Ser. B, 9 5/8s, 2008 1,357,250
1,205,000 SBA Communications Corp. sr. notes
10 1/4s, 2009 1,087,513
11,441,000 Telus Corp. notes 8s, 2011 (Canada) 12,687,463
3,909,000 TSI Telecommunication Services, Inc.
company guaranty Ser. B, 12 3/4s,
2009 3,879,683
78,000 U S West, Inc. notes 5 5/8s, 2008 73,710
3,832,000 UbiquiTel Operating Co. bonds
stepped-coupon zero % (14s,
4/15/05), 2010 2,337,520
13,941,000 US UnWired, Inc. company guaranty
stepped-coupon Ser. B, zero %
(13 3/8s, 11/1/04), 2009 (STP) 7,737,255
3,700,000 US West Capital Funding, Inc.
company guaranty 6 1/4s, 2005 3,496,500
10,340,000 Western Wireless Corp. 144A sr.
notes 9 1/4s, 2013 10,340,000
4,000 Williams Communications Group, Inc.
notes zero %, 2010 (In default)
(NON) 1
1,100,000 Williams Communications Group, Inc.
notes zero %, 2008 (In default)
(NON) 11
1,542,000 Williams Communications Group, Inc.
notes zero %, 2007 (In default)
(NON) 15
--------------
293,725,929
Conglomerates (0.5%)
- -------------------------------------------------------------------------------
1,358,000 Tyco International Group SA company
guaranty 6 3/4s, 2011
(Luxembourg) 1,381,765
2,526,000 Tyco International Group SA company
guaranty 6 3/8s, 2006 (Luxembourg) 2,611,253
73,000 Tyco International Group SA company
guaranty 6 3/8s, 2005 (Luxembourg) 75,646
EUR 1,000,000 Tyco International Group SA company
guaranty Ser. EMTN, 4 3/8s, 2004
(Luxembourg) 1,089,567
$14,653,000 Tyco International Group SA notes
6 3/8s, 2011 (Luxembourg) 14,671,316
--------------
19,829,547
Consumer Goods (3.3%)
- -------------------------------------------------------------------------------
6,124,000 Armkel, LLC/Armkel Finance sr. sub.
notes 9 1/2s, 2009 6,705,780
7,664,147 Derby Cycle Corp. (The) sr. notes
10s, 2008 (In default) (NON) 421,528
DEM 7,228,531 Derby Cycle Corp. (The) sr. notes
9 3/8s, 2008 (In default) (NON) 223,154
$1,308,000 Elizabeth Arden, Inc. sec. notes
Ser. B, 11 3/4s, 2011 1,451,880
1,590,000 French Fragrances, Inc. company
guaranty Ser. D, 10 3/8s, 2007 1,597,950
4,515,000 French Fragrances, Inc. sr. notes
Ser. B, 10 3/8s, 2007 4,605,300
4,566,000 Galey & Lord, Inc. company guaranty
9 1/8s, 2008 (In default) (NON) 34,245
12,169,000 Icon Health & Fitness company
guaranty 11 1/4s, 2012 12,899,140
1,000,000 Jostens, Inc. bank term loan FRN
Ser. B, 3.6s, 2010 (acquired
7/28/03, cost $1,000,000) (RES) 1,003,125
3,016,000 Jostens, Inc. sr. sub. notes
12 3/4s, 2010 3,468,400
188,000 Levi Strauss & Co. notes 7s, 2006 164,030
9,528,000 Levi Strauss & Co. sr. notes
12 1/4s, 2012 8,718,120
4,250,000 Oxford Industries, Inc. 144A sr.
notes 8 7/8s, 2011 4,420,000
14,642,000 Playtex Products, Inc. company
guaranty 9 3/8s, 2011 14,422,370
3,664,000 Polaroid Corp. sr. notes 11 1/2s,
2006 (In default) (NON) 485,480
534,000 Rayovac Corp. bank term loan FRN
Ser. B, 4.8675s, 2009 (acquired
9/26/02, cost $533,466) (RES) 534,000
7,821,000 Remington Arms Co., Inc. company
guaranty 10 1/2s, 2011 7,899,210
2,482,000 Revlon Consumer Products sr. notes
9s, 2006 1,588,480
3,065,000 Revlon Consumer Products sr. notes
8 1/8s, 2006 1,961,600
4,543,000 Russell Corp. company guaranty
9 1/4s, 2010 4,826,938
14,878,000 Samsonite Corp. sr. sub. notes
10 3/4s, 2008 15,361,535
7,404,000 Sealy Mattress Co. sr. sub. notes
Ser. B, 9 7/8s, 2007 7,255,920
11,640,296 Sealy Mattress Co. 144A sr. notes
zero %, 2008 10,767,274
5,239,000 William Carter Holdings Co. (The)
company guaranty Ser. B, 10 7/8s,
2011 5,762,900
--------------
116,578,359
Distribution (--%)
- -------------------------------------------------------------------------------
5,816,000 Fleming Cos., Inc. company guaranty
10 1/8s, 2008 (In default) (NON) 697,920
2,642,000 Fleming Cos., Inc. sr. notes 9 1/4s,
2010 (In default) (NON) 290,620
--------------
988,540
Energy (6.0%)
- -------------------------------------------------------------------------------
6,525,000 Arch Western Finance, LLC 144A sr.
notes 6 3/4s, 2013 6,443,438
8,105,000 Belden & Blake Corp. company
guaranty Ser. B, 9 7/8s, 2007 7,537,650
6,150,000 BRL Universal Equipment sec. notes
8 7/8s, 2008 6,488,250
3,334,000 Chesapeake Energy Corp. company
guaranty 9s, 2012 3,625,725
2,256,000 Chesapeake Energy Corp. company
guaranty 8 1/8s, 2011 2,357,520
1,308,000 Chesapeake Energy Corp. sr. notes
Ser. B, 8 1/2s, 2012 1,373,400
7,445,000 Chesapeake Energy Corp. 144A sr.
notes 7 1/2s, 2013 7,538,063
6,815,000 Comstock Resources, Inc. company
guaranty 11 1/4s, 2007 7,223,900
555,183 Constellation Energy Group, Inc.
bank term loan FRN Ser. B, 3 7/8s,
2008 (acquired 3/20/03, cost $555,183)
(RES) 559,485
5,599,000 Dresser, Inc. company guaranty
9 3/8s, 2011 5,710,980
1,139,000 El Paso Energy Partners LP company
guaranty Ser. B, 8 1/2s, 2011 1,201,645
4,115,000 Encore Acquisition Co. company
guaranty 8 3/8s, 2012 4,238,450
5,624,000 Forest Oil Corp. company guaranty
7 3/4s, 2014 5,427,160
1,819,000 Forest Oil Corp. sr. notes 8s, 2011 1,823,548
2,507,000 Forest Oil Corp. sr. notes 8s, 2008 2,519,535
5,980,000 Gazprom OAO 144A notes 9 5/8s, 2013
(Russia) 6,308,900
3,251,000 Hornbeck Offshore Services, Inc. sr.
notes 10 5/8s, 2008 3,523,271
2,755,000 Key Energy Services, Inc. sr. notes
6 3/8s, 2013 2,631,025
1,574,000 Leviathan Gas Corp. company guaranty
Ser. B, 10 3/8s, 2009 1,731,400
6,220,000 Newfield Exploration Co. sr. notes
7 5/8s, 2011 6,593,200
3,000,000 Offshore Logistics, Inc. 144A sr.
notes 6 1/8s, 2013 2,850,000
6,740,000 Parker & Parsley Co. sr. notes
8 1/4s, 2007 7,481,400
4,805,000 Parker Drilling Co. company guaranty
Ser. B, 10 1/8s, 2009 4,564,750
317,953 Peabody Energy Corp. bank term loan
FRN Ser. B, 3.6925s, 2010 (acquired
3/20/03, cost $317,953) (RES) 320,272
1,540,000 Pemex Project Funding Master Trust
144A bonds 8 5/8s, 2022 1,632,400
3,420,000 Pemex Project Funding Master Trust
144A notes 7 3/8s, 2014 3,496,950
7,564,000 Pioneer Natural Resources Co.
company guaranty 9 5/8s, 2010 9,133,530
1,601,000 Pioneer Natural Resources Co.
company guaranty 7.2s, 2028 1,552,970
3,296,000 Plains All American Pipeline
LP/Plains All American Finance
Corp. company guaranty 7 3/4s, 2012 3,502,000
4,960,000 Plains Exploration & Production Co.
company guaranty Ser. B, 8 3/4s,
2012 5,133,600
4,500,000 Plains Exploration & Production Co.
144A sr. sub. notes 8 3/4s, 2012 4,657,500
6,009,000 Pogo Producing Co. sr. sub. notes
Ser. B, 8 1/4s, 2011 6,399,585
531,000 Pride International, Inc. sr. notes
10s, 2009 573,480
3,438,000 Pride Petroleum Services, Inc. sr.
notes 9 3/8s, 2007 3,541,140
5,165,000 Seabulk International, Inc. 144A sr.
notes 9 1/2s, 2013 5,126,263
2,848,000 Seven Seas Petroleum, Inc. sr. notes
Ser. B, 12 1/2s, 2005 (In default)
(NON) 313,280
6,705,000 Star Gas Partners LP/Star Gas
Finance Co. sr. notes 10 1/4s, 2013 7,006,725
3,807,500 Star Gas Propane 1st Mtge. 8.04s,
2009 3,750,388
3,327,000 Stone Energy Corp. company guaranty
8 3/4s, 2007 3,435,128
2,530,000 Stone Energy Corp. sr. sub. notes
8 1/4s, 2011 2,662,825
2,940,000 Swift Energy Co. sr. sub. notes
10 1/4s, 2009 3,094,350
4,570,000 Swift Energy Co. sr. sub. notes
9 3/8s, 2012 4,855,625
3,260,000 Tesoro Petroleum Corp. sec. notes
8s, 2008 3,382,250
6,433,000 Trico Marine Services, Inc. company
guaranty 8 7/8s, 2012 4,680,008
1,375,000 Universal Compression, Inc. 144A sr.
notes 7 1/4s, 2010 1,388,750
3,408,000 Vintage Petroleum, Inc. sr. notes
8 1/4s, 2012 3,561,360
6,015,000 Vintage Petroleum, Inc. sr. sub.
notes 9 3/4s, 2009 6,375,900
3,343,000 Vintage Petroleum, Inc. sr. sub.
notes 7 7/8s, 2011 3,376,430
425,000 Weg Acquisition bank term loan FRN
5.61s, 2008 (acquired 6/13/03, cost
$420,750) (RES) 428,188
7,045,000 Westport Resources Corp. company
guaranty 8 1/4s, 2011 7,538,150
2,445,000 Westport Resources Corp. 144A
company guaranty 8 1/4s, 2011 2,616,150
195,000 XCL, Ltd. 144A company guaranty
13 1/2s, 2004 (In default) (NON) 58,500
6,046,000 XTO Energy, Inc. sr. notes 7 1/2s,
2012 6,469,220
2,075,000 XTO Energy, Inc. sr. notes 6 1/4s,
2013 2,075,000
--------------
211,890,612
Entertainment (1.3%)
- -------------------------------------------------------------------------------
4,760,000 AMC Entertainment, Inc. sr. sub.
notes 9 7/8s, 2012 5,128,900
9,283,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2011 9,747,150
2,190,000 AMC Entertainment, Inc. sr. sub.
notes 9 1/2s, 2009 2,255,700
4,514,967 Carmike Cinemas, Inc. bank term loan
FRN Ser. B, 7 3/4s, 2005 (acquired
various dates from 8/7/00 to
10/4/02, cost $3,938,986) (RES) 4,537,542
6,075,000 Cinemark USA, Inc. sr. sub. notes
9s, 2013 6,469,875
235,000 Cinemark USA, Inc. sr. sub. notes
Ser. B, 8 1/2s, 2008 239,113
10,725,000 Premier Parks, Inc. sr. notes 10s,
2007 10,349,625
149,000 Regal Cinemas, Inc. company guaranty
Ser. B, 9 3/8s, 2012 165,018
1,487,000 Silver Cinemas, Inc. sr. sub. notes
10 1/2s, 2005 (In default) (NON) 149
225,000 Six Flags, Inc. bank term loan FRN
Ser. B, 3.36s, 2009 (acquired
1/15/03, cost $224,719) (RES) 224,531
8,911,000 Six Flags, Inc. sr. notes 8 7/8s,
2010 8,198,120
--------------
47,315,723
Financial (3.3%)
- -------------------------------------------------------------------------------
8,646,000 Advanta Corp. 144A company guaranty
Ser. B, 8.99s, 2026 5,533,440
4,295,000 Chevy Chase Savings Bank, Inc. sub.
debs. 9 1/4s, 2005 4,305,738
3,149,000 Conseco, Inc. 144A company guaranty
10 3/4s, 2009 (In default) (NON) 2,141,320
615,000 Conseco, Inc. 144A company guaranty
8 3/4s, 2006 (In default) (NON) 418,200
850,000 Crescent Real Estate Equities LP
notes 7 1/2s, 2007 (R) 837,250
5,000,000 Crescent Real Estate Equities LP sr.
notes 9 1/4s, 2009 (R) 5,168,750
19,775,000 Finova Group, Inc. notes 7 1/2s,
2009 9,195,375
637,500 Infinity Inc. bank term loan FRN
3.61s, 2010 (acquired 7/2/03, cost
$637,500) (RES) 640,422
26,971,111 JP Morgan HYDI notes 9s, 2008 27,308,250
9,405,000 JP Morgan HYDI notes 8s, 2008 9,499,050
4,310,000 iStar Financial, Inc. sr. notes
8 3/4s, 2008 (R) 4,600,925
5,955,000 iStar Financial, Inc. sr. notes 7s,
2008 (R) 6,059,213
2,615,000 Nationwide Credit, Inc. sr. notes
Ser. A, 10 1/4s, 2008 (In default)
(NON) 26
3,400,000 Ocwen Federal Bank sub. debs. 12s,
2005 3,445,322
338,000 Ocwen Financial Corp. notes 11 7/8s,
2003 339,690
2,720,000 Peoples Bank-Bridgeport sub. notes
9 7/8s, 2010 3,229,581
10,655,000 Resource America, Inc. 144A sr.
notes 12s, 2004 10,761,550
8,889,000 Sovereign Bancorp, Inc. sr. notes
10 1/2s, 2006 10,435,837
4,570,000 UBS AG/Jersey Branch sr. notes
Ser. EMTN, 9.14s, 2008 (Jersey) 4,518,588
2,231,000 Vesta Insurance Group, Inc. 144A
company guaranty 8.525s, 2027 1,341,389
5,204,000 Western Financial Bank sub. debs.
9 5/8s, 2012 5,620,320
--------------
115,400,236
Food (1.8%)
- -------------------------------------------------------------------------------
496,250 Agrilink Foods bank term loan FRN
Ser. B, 3.85s, 2008 (acquired 8/9/02,
cost $496,250) (RES) 497,077
3,230,441 Archibald Candy Corp. company
guaranty 10s, 2007 (PIK) 1,098,350
2,127,000 Aurora Foods, Inc. sr. sub. notes
Ser. B, 9 7/8s, 2007 (In default)
(NON) 1,042,230
90,000 Aurora Foods, Inc. sr. sub. notes
Ser. B, 8 3/4s, 2008 (In default)
(NON) 44,100
2,668,000 Aurora Foods, Inc. 144A sr. sub.
notes Ser. D, 9 7/8s, 2007 (In
default) (NON) 1,307,320
1,443,000 Constellation Brands, Inc. company
guaranty 8 1/2s, 2009 1,500,720
3,088,000 Constellation Brands, Inc. company
guaranty Ser. B, 8s, 2008 3,273,280
338,000 Constellation Brands, Inc. sr. sub.
notes Ser. B, 8 1/8s, 2012 352,365
1,530,000 Dean Foods Co. sr. notes 6 5/8s,
2009 1,552,950
1,850,000 Del Monte Corp. company guaranty
Ser. B, 9 1/4s, 2011 1,970,250
5,010,000 Del Monte Corp. 144A sr. sub. notes
8 5/8s, 2012 5,216,663
1,158,042 Del Monte Foods Co. bank term loan
FRN Ser. B, 4.8581s, 2010 (acquired
12/16/02, cost $1,152,252) (RES) 1,166,728
4,291,000 Doane Pet Care Co. sr. sub. debs.
9 3/4s, 2007 3,990,630
102,554 Dole Food Co. bank term loan FRN
Ser. B, 4.9375s, 2008 (acquired
3/28/03, cost $102,554) (RES) 103,195
2,190,000 Dole Food Co. sr. notes 8 7/8s, 2011 2,299,500
1,840,000 Dole Food Co. sr. notes 7 1/4s, 2009 1,922,800
6,530,000 Eagle Family Foods company guaranty
Ser. B, 8 3/4s, 2008 4,440,400
10,753,000 Land O'Lakes, Inc. sr. notes 8 3/4s,
2011 8,656,165
6,495,000 North Atlantic Trading Co. company
guaranty Ser. B, 11s, 2004 6,072,825
5,451,000 Premier International Foods PLC sr.
notes 12s, 2009 (United Kingdom) 5,968,845
6,225,000 Premium Standard Farms, Inc. sr.
notes 9 1/4s, 2011 6,225,000
11,858,030 R.A.B. Holdings, Inc. sr. notes
zero %, 2010 1,185,803
5,349,000 RAB Enterprises, Inc. company
guaranty 10 1/2s, 2005 2,300,070
--------------
62,187,266
Gaming & Lottery (5.2%)
- -------------------------------------------------------------------------------
5,460,000 Ameristar Casinos, Inc. company
guaranty 10 3/4s, 2009 6,087,900
8,301,000 Argosy Gaming Co. company guaranty
10 3/4s, 2009 9,048,090
360,000 Argosy Gaming Co. sr. sub. notes 9s,
2011 386,100
6,079,000 Boyd Gaming Corp. sr. sub. notes
8 3/4s, 2012 6,534,925
3,175,000 Chumash Casino & Resort Enterprise
144A sr. notes 9 1/4s, 2010 3,421,063
8,430,000 Herbst Gaming, Inc. sec. notes
Ser. B, 10 3/4s, 2008 9,230,850
6,681,000 Hollywood Park, Inc. company
guaranty Ser. B, 9 1/4s, 2007 6,747,810
8,370,000 Horseshoe Gaming Holdings company
guaranty 8 5/8s, 2009 8,809,425
4,828,000 Majestic Investor Holdings/Capital
Corp. company guaranty 11.653s,
2007 5,069,400
4,140,000 Mandalay Resort Group 144A sr. notes
6 1/2s, 2009 4,150,350
809,000 MGM Mirage, Inc. coll. sr. notes
6 7/8s, 2008 861,585
12,009,000 MGM Mirage, Inc. company guaranty
8 1/2s, 2010 13,480,103
1,247,000 MGM Mirage, Inc. company guaranty
8 3/8s, 2011 1,368,583
2,900,000 Mirage Resorts, Inc. notes 6 3/4s,
2008 3,088,500
295,000 Mohegan Tribal Gaming Authority sr.
notes 8 1/8s, 2006 314,544
2,325,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8 3/8s, 2011 2,505,188
3,149,000 Mohegan Tribal Gaming Authority sr.
sub. notes 8s, 2012 3,369,430
7,246,000 Mohegan Tribal Gaming Authority 144A
sr. sub. notes 6 3/8s, 2009 7,264,115
1,465,000 Park Place Entertainment Corp. sr.
notes 8 1/2s, 2006 1,593,188
8,459,000 Park Place Entertainment Corp. sr.
notes 7 1/2s, 2009 9,008,835
3,430,000 Park Place Entertainment Corp. sr.
notes 7s, 2013 3,541,475
2,834,000 Park Place Entertainment Corp. sr.
sub. notes 8 7/8s, 2008 3,117,400
2,505,000 Park Place Entertainment Corp. sr.
sub. notes 8 1/8s, 2011 2,705,400
4,620,000 Penn National Gaming, Inc. company
guaranty Ser. B, 11 1/8s, 2008 5,151,300
8,402,000 Penn National Gaming, Inc. sr. sub.
notes 8 7/8s, 2010 9,032,150
11,270,000 Peninsula Gaming, LLC company
guaranty 12 1/4s, 2006 11,720,800
425,000 Pinnacle Entertainment, Inc. bank
term loan FRN Ser. B, 5.735s,
2008 (acquired 4/3/03, cost
$419,688) (RES) 427,125
1,867,000 Pinnacle Entertainment, Inc. sr.
sub. notes Ser. B, 9 1/2s, 2007 1,885,670
2,408,000 Resorts International Hotel and
Casino, Inc. company guaranty
11 1/2s, 2009 2,299,640
6,345,000 Riviera Holdings Corp. company
guaranty 11s, 2010 6,186,375
1,517,375 Scientific Gaming bank term loan FRN
Ser. B, 4.6s, 2008 (acquired
12/11/02, cost $1,509,788) (RES) 1,519,272
6,975,000 Station Casinos, Inc. sr. notes
8 3/8s, 2008 7,463,250
1,604,000 Trump Atlantic City Associates
company guaranty 11 1/4s, 2006 1,275,180
14,491,000 Trump Casino Holdings, LLC company
guaranty 11 5/8s, 2010 12,824,535
8,731,000 Venetian Casino Resort, LLC company
guaranty 11s, 2010 9,931,513
--------------
181,421,069
Health Care (5.4%)
- -------------------------------------------------------------------------------
195,153 ALARIS Medical Systems, Inc. bank
term loan FRN 3.8694s, 2009
(acquired 6/30/03, cost $195,153)
(RES) 196,861
14,033,000 Alderwoods Group, Inc. company
guaranty 12 1/4s, 2009 15,015,310
101,500 Alderwoods Group, Inc. company
guaranty 11s, 2007 101,500
7,260,000 Alliance Imaging, Inc. sr. sub.
notes 10 3/8s, 2011 7,550,400
3,929,000 AmerisourceBergen Corp. company
guaranty 7 1/4s, 2012 3,968,290
4,730,000 AmerisourceBergen Corp. sr. notes
8 1/8s, 2008 4,931,025
9,095,000 Ardent Health Services 144A sr. sub.
notes 10s, 2013 9,276,900
4,394,000 Biovail Corp. sr. sub. notes 7 7/8s,
2010 (Canada) 4,394,000
595,500 Community Health Systems, Inc. bank
term loan FRN Ser. B, 3.78s,
2010 (acquired 7/11/02, cost
$595,500) (RES) 596,431
1,679,000 Dade Behring, Inc. company guaranty
11.91s, 2010 1,914,060
1,000,000 DaVita, Inc. bank term loan FRN
Ser. C, 3.616s, 2009 (acquired
7/17/03, cost $1,000,000) (RES) 1,002,500
4,310,000 Extendicare Health Services, Inc.
company guaranty 9 1/2s, 2010 4,622,475
359,469 Genesis Health Ventures, Inc. sec.
notes FRN 6.114s, 2007 355,874
4,234,000 Hanger Orthopedic Group, Inc.
company guaranty 10 3/8s, 2009 4,699,740
280,000 Hanger Orthopedic Group, Inc. sr.
sub. notes 11 1/4s, 2009 305,200
5,993,000 HCA, Inc. debs. 7.19s, 2015 5,934,676
3,080,000 HCA, Inc. med. term notes 8.85s,
2007 3,414,710
3,150,000 HCA, Inc. notes 8.36s, 2024 3,216,270
735,000 HCA, Inc. notes 7.69s, 2025 709,344
716,000 HCA, Inc. notes 7s, 2007 752,172
116,000 HCA, Inc. sr. notes 7 7/8s, 2011 123,661
9,679,000 Healthsouth Corp. notes 7 5/8s, 2012
(In default) (NON) 7,936,780
3,722,000 Healthsouth Corp. sr. notes 8 1/2s,
2008 (In default) (NON) 3,182,310
2,125,000 Healthsouth Corp. sr. notes 8 3/8s,
2011 (In default) (NON) 1,806,250
2,041,000 Healthsouth Corp. sr. notes 7s, 2008
(In default) (NON) 1,673,620
5,760,000 IASIS Healthcare Corp. company
guaranty 13s, 2009 6,436,800
5,846,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/2s, 2007 (In
default) (NON) 124,228
4,370,000 Integrated Health Services, Inc. sr.
sub. notes Ser. A, 9 1/4s, 2008 (In
default) (NON) 98,325
750,000 Kinetic Concepts, Inc. bank term
loan FRN 3.87s, 2011 (acquired
8/5/03, cost $751,719) (RES) 754,219
11,850,000 Magellan Health Svcs., Inc. sr. sub.
notes 9s, 2008 (In default) (NON) 5,806,500
2,298,000 Magellan Health Svcs., Inc. 144A sr.
notes 9 3/8s, 2007 (In default)
(NON) 2,401,410
1,225,612 Mariner Health Care, Inc. company
guaranty FRN 6.63s, 2009 1,201,100
531,250 Medex, Inc. bank term loan FRN
4.86s, 2009 (acquired various
dates from 5/16/03 to 6/16/03, cost
$530,984) (RES) 533,464
10,442,000 Mediq, Inc. debs. zero %, 2009 (In
default) (NON) 1,044
6,546,000 MedQuest, Inc. company guaranty
Ser. B, 11 7/8s, 2012 6,709,650
10,600,000 Multicare Cos., Inc. sr. sub. notes
9s, 2007 (In default) (NON) 159,000
EUR 885,000 NYCO Holdings 144A 11 1/2s, 2013 994,870
$3,530,000 Omnicare, Inc. sr. sub. notes
6 1/8s, 2013 3,362,325
11,243,000 PacifiCare Health Systems, Inc.
company guaranty 10 3/4s, 2009 12,676,483
5,150,000 Province Healthcare Co. sr. sub.
notes 7 1/2s, 2013 4,956,875
3,757,000 Service Corp. International debs.
7 7/8s, 2013 3,578,543
670,000 Service Corp. International notes
7.2s, 2006 664,975
228,000 Service Corp. International notes
6 7/8s, 2007 220,590
1,006,000 Service Corp. International notes
6 1/2s, 2008 973,305
7,786,000 Service Corp. International notes
6s, 2005 7,786,000
2,281,000 Service Corp. International notes
Ser. (a), 7.7s, 2009 2,286,703
6,300,000 Stewart Enterprises, Inc. notes
10 3/4s, 2008 6,930,000
2,340,000 Tenet Healthcare Corp. sr. notes
6 3/8s, 2011 2,176,200
5,150,000 Tenet Healthcare Corp. sr. notes
5 3/8s, 2006 5,021,250
7,396,000 Triad Hospitals Holdings company
guaranty Ser. B, 11s, 2009 8,117,110
1,961,818 Triad Hospitals, Inc. bank term loan
FRN Ser. B, 4.1s, 2008 (acquired
various dates from 4/23/01 to
4/24/01, cost $1,970,796) (RES) 1,970,513
7,333,000 Triad Hospitals, Inc. company
guaranty Ser. B, 8 3/4s, 2009 7,809,645
6,360,000 Ventas Realty LP/Capital Corp.
company guaranty 9s, 2012 6,789,300
695,000 Ventas Realty LP/Capital Corp.
company guaranty 8 3/4s, 2009 729,750
--------------
188,950,536
Homebuilding (1.7%)
- -------------------------------------------------------------------------------
3,759,000 Beazer Homes USA, Inc. company
guaranty 8 5/8s, 2011 3,965,745
5,539,000 D.R. Horton, Inc. sr. notes 7 7/8s,
2011 5,815,950
2,930,000 D.R. Horton, Inc. sr. notes 6 7/8s,
2013 2,827,450
105,000 D.R. Horton, Inc. sr. notes 5 7/8s,
2013 94,238
3,750,000 K. Hovnanian Enterprises, Inc.
company guaranty 10 1/2s, 2007 4,293,750
227,000 K. Hovnanian Enterprises, Inc.
company guaranty 9 1/8s, 2009 240,620
3,945,000 K. Hovnanian Enterprises, Inc.
company guaranty 8 7/8s, 2012 4,102,800
1,165,000 K. Hovnanian Enterprises, Inc.
company guaranty 8s, 2012 1,199,950
1,955,000 K. Hovnanian Enterprises, Inc. 144A
sr. sub. notes 7 3/4s, 2013 1,915,900
5,872,000 KB Home sr. sub. notes 9 1/2s, 2011 6,283,040
525,000 KB Home sr. sub. notes 7 3/4s, 2010 535,500
5,419,000 Ryland Group, Inc. sr. notes 9 3/4s,
2010 6,015,090
220,000 Ryland Group, Inc. sr. sub. notes
9 1/8s, 2011 240,900
4,913,000 Schuler Homes, Inc. company guaranty
10 1/2s, 2011 5,428,865
360,000 Technical Olympic USA, Inc. company
guaranty 10 3/8s, 2012 363,600
1,255,000 Technical Olympic USA, Inc. company
guaranty 9s, 2010 1,267,550
1,590,000 Technical Olympic USA, Inc. 144A sr.
sub. notes 10 3/8s, 2012 1,605,900
2,422,000 Toll Corp. company guaranty 8 1/8s,
2009 2,549,155
2,245,000 Toll Corp. sr. sub. notes 8 1/4s,
2011 2,390,925
2,309,000 WCI Communities, Inc. company
guaranty 10 5/8s, 2011 2,447,540
5,752,000 WCI Communities, Inc. company
guaranty 9 1/8s, 2012 5,867,040
--------------
59,451,508
Lodging/Tourism (2.3%)
- -------------------------------------------------------------------------------
9,906,000 FelCor Lodging LP company guaranty
9 1/2s, 2008 (R) 10,277,475
9,669,000 Hilton Hotels Corp. notes 7 5/8s,
2012 10,224,968
22,489,000 HMH Properties, Inc. company
guaranty Ser. B, 7 7/8s, 2008 (R) 22,601,445
6,301,000 HMH Properties, Inc. sr. notes
Ser. C, 8.45s, 2008 6,434,896
1,695,000 Host Marriott LP company guaranty
Ser. G, 9 1/4s, 2007 (R) 1,813,650
1,200,000 Host Marriott LP sr. notes Ser. E,
8 3/8s, 2006 (R) 1,233,000
5,715,000 ITT Corp. notes 6 3/4s, 2005 5,957,888
11,565,000 John Q. Hammons Hotels LP/John Q.
Hammons Hotels Finance Corp. III
1st mtge. Ser. B, 8 7/8s, 2012 12,143,250
5,550,000 RFS Partnership LP company guaranty
9 3/4s, 2012 5,633,250
561,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 7/8s, 2012 586,245
3,374,000 Starwood Hotels & Resorts Worldwide,
Inc. company guaranty 7 3/8s, 2007 3,534,265
531,250 Wyndham International, Inc. bank
term loan FRN 6.029s, 2006
(acquired 5/21/03, cost $425,000)
(RES) 440,141
--------------
80,880,473
Media (3.9%)
- -------------------------------------------------------------------------------
151,406 Affinity Group Holdings bank term
loan FRN Ser. B1, 5.116s, 2009
(acquired 5/27/03, cost $151,028)
(RES) 151,596
378,515 Affinity Group Holdings bank term
loan FRN Ser. B2, 5.116s,
2009 (acquired 5/27/03, cost
$377,569) (RES) 378,988
11,892,000 Affinity Group Holdings sr. notes
11s, 2007 12,189,300
5,225,000 Capital Records Inc. 144A company
guaranty 8 3/8s, 2009 5,329,500
10,010,000 Dex Media West, LLC 144A sr. notes
8 1/2s, 2010 10,735,725
3,275,000 Dex Media West, LLC 144A sr. sub.
notes 9 7/8s, 2013 3,627,063
GBP 1,050,000 EMI Group eurobonds 9 3/4s, 2008
(United Kingdom) 1,685,590
$3,950,000 Garden State Newspapers, Inc. sr.
sub. notes 8 5/8s, 2011 4,108,000
4,000,000 Hollinger International Publishing,
Inc. sr. notes 9s, 2010 4,150,000
13,474,443 Hollinger Participation Trust 144A
sr. notes 12 1/8s, 2010 (Canada)
(PIK) 14,417,613
4,488,000 Key3media Group, Inc. company
guaranty 11 1/4s, 2011 (In default)
(NON) 44,880
425,000 Moore Wallace bank term loan FRN
Ser. B, 3.7438s, 2010 (acquired
3/13/03, cost $425,000) (RES) 426,992
9,212,000 PRIMEDIA, Inc. company guaranty
8 7/8s, 2011 9,649,570
4,517,000 PRIMEDIA, Inc. company guaranty
7 5/8s, 2008 4,517,000
5,095,000 PRIMEDIA, Inc. 144A sr. notes 8s,
2013 5,196,900
1,993,000 Quebecor Media, Inc. sr. disc. notes
stepped-coupon zero % (13 3/4s,
7/15/06), 2011 (Canada) (STP) 1,654,190
7,354,000 Quebecor Media, Inc. sr. notes
11 1/8s, 2011 (Canada) 8,162,940
8,470,000 RH Donnelley Finance Corp. I 144A
sr. notes 8 7/8s, 2010 9,274,650
5,442,000 RH Donnelley Finance Corp. I 144A
sr. sub. notes 10 7/8s, 2012 6,339,930
2,125,000 TDL Infomedia Holdings PLC sr. disc.
notes stepped-coupon zero % (15 1/2s,
10/15/04), 2010 (United Kingdom) (STP) 2,061,250
8,978,000 Vertis, Inc. company guaranty
Ser. B, 10 7/8s, 2009 9,022,890
10,370,000 Vertis, Inc. 144A sec. notes 9 3/4s,
2009 10,992,200
425,000 Vivendi Universal SA bank term loan
FRN Ser. B, 3.86s, 2008 (acquired
6/23/03, cost $425,000) (France)
(RES) 426,594
240,000 Vivendi Universal SA 144A sr. notes
9 1/4s, 2010 (France) 268,200
1,890,000 Von Hoffman Press, Inc. company
guaranty 10 1/4s, 2009 2,012,850
890,000 Von Hoffman Press, Inc. company
guaranty FRN 10 3/8s, 2007 890,000
12,068,494 Von Hoffman Press, Inc. debs. 13s,
2009 (PIK) 11,163,357
--------------
138,877,768
Retail (2.8%)
- -------------------------------------------------------------------------------
303,320 Advance Stores bank term loan FRN
Ser. C, 3 7/8s, 2007 (acquired 3/4/03,
cost $303,320) (RES) 304,457
3,430,000 Asbury Automotive Group, Inc.
company guaranty 9s, 2012 3,361,400
7,838,000 Autonation, Inc. company guaranty
9s, 2008 8,641,395
3,024,000 Gap, Inc. (The) notes 6.9s, 2007 3,186,540
3,340,000 Hollywood Entertainment Corp. sr.
sub. notes 9 5/8s, 2011 3,590,500
7,625,000 J. Crew Operating Corp. 144A sr.
sub. notes 10 3/8s, 2007 7,625,000
10,625,000 JC Penney Co., Inc. debs. 7.95s,
2017 10,545,313
1,621,000 JC Penney Co., Inc. debs. 7.65s,
2016 1,568,318
1,330,000 JC Penney Co., Inc. notes 9s, 2012 1,429,750
240,000 JC Penney Co., Inc. notes 8s, 2010 249,000
1,587,000 JC Penney Co., Inc. notes Ser. MTNA,
7.05s, 2005 1,646,513
511,886 Petco Animal Supplies, Inc. bank
term loan FRN 3.62s, 2009 (acquired
8/6/03, cost $511,886) (RES) 513,166
425,000 Rite Aid Corp. bank term loan FRN
4.11s, 2008 (acquired 5/16/03, cost
424,469) (RES) 428,294
495,000 Rite Aid Corp. notes 7 1/8s, 2007 485,100
5,030,000 Rite Aid Corp. 144A notes 9 1/2s,
2011 5,382,100
1,070,000 Rite Aid Corp. 144A notes 6s, 2005 1,037,900
6,729,000 Rite Aid Corp. 144A sr. notes
9 1/4s, 2013 6,762,645
860,000 Rite Aid Corp. 144A sr. sec. notes
8 1/8s, 2010 885,800
13,044,000 Saks, Inc. company guaranty 8 1/4s,
2008 13,663,590
1,000,000 Saks, Inc. company guaranty 7 1/2s,
2010 1,025,000
7,398,000 Sbarro, Inc. company guaranty 11s,
2009 6,288,300
1,615,000 TM Group Holdings sr. notes 11s,
2008 (United Kingdom) 1,687,675
3,759,000 United Auto Group, Inc. company
guaranty 9 5/8s, 2012 4,026,829
6,559,000 Yum! Brands, Inc. sr. notes 8 7/8s,
2011 7,395,273
2,287,000 Yum! Brands, Inc. sr. notes 8 1/2s,
2006 2,498,548
4,990,000 Yum! Brands, Inc. sr. notes 7.65s,
2008 5,376,725
--------------
99,605,131
Technology (2.3%)
- -------------------------------------------------------------------------------
8,520,000 AMI Semiconductor, Inc. company
guaranty 10 3/4s, 2013 9,542,400
529,922 Amkor Technologies, Inc. bank term
loan FRN 5.11s, 2006 (acquired
4/17/03, cost $530,618) (RES) 536,104
3,520,000 Amkor Technologies, Inc. structured
notes 12.58s, 2005 (issued by
STEERS Credit Linked Trust 2000) 3,660,800
5,160,000 DigitalNet Holdings Inc. 144A sr.
notes 9s, 2010 5,289,000
8,626,000 Iron Mountain, Inc. company guaranty
8 5/8s, 2013 9,121,995
1,798,000 Iron Mountain, Inc. company guaranty
8 1/8s, 2008 (Canada) 1,851,940
350,000 Lucent Technologies, Inc. debs.
6 1/2s, 2028 232,750
7,684,000 Lucent Technologies, Inc. debs.
6.45s, 2029 5,109,860
445,000 Lucent Technologies, Inc. notes
5 1/2s, 2008 370,463
5,331,000 ON Semiconductor Corp. company
guaranty 13s, 2008 5,597,550
9,431,000 SCG Holding & Semiconductor Corp.
company guaranty 12s, 2009 8,487,900
5,429,000 Seagate Technology Hdd Holdings
company guaranty 8s, 2009 (Cayman
Islands) 5,836,175
1,990,749 Telex Communications Group, Inc. sr.
sub. notes Ser. A, zero %, 2006 1,094,912
9,000 Xerox Cap Europe PLC company
guaranty 5 7/8s, 2004 (United
Kingdom) 9,011
3,715,000 Xerox Corp. notes Ser. MTN, 7.2s,
2016 3,436,375
16,575,000 Xerox Corp. sr. notes 7 1/8s, 2010 16,160,625
3,213,000 Xerox Corp. 144A sr. notes 9 3/4s,
2009 3,494,138
--------------
79,831,998
Transportation (1.6%)
- -------------------------------------------------------------------------------
560,000 Air Canada Corp. sr. notes 10 1/4s,
2011 (Canada) (In default) (NON) 274,400
11,355,121 Air2 US 144A sinking fund Ser. D,
12.266s, 2020 (In default) (NON) 340,654
6,032,000 Allied Holdings, Inc. company
guaranty Ser. B, 8 5/8s, 2007 5,428,800
3,410,000 American Airlines, Inc. pass-through
certificates Ser. 01-1, 6.817s,
2011 2,745,050
3,063,000 American Airlines, Inc. pass-through
certificates Ser. 99-1, 7.024s,
2009 2,848,590
70,832 Aran Shipping & Trading SA notes
8.3s, 2004 (Greece) (In default)
(NON) 35,416
7,906,000 Calair, LLC/Calair Capital Corp.
company guaranty 8 1/8s, 2008 6,403,860
2,837,000 Continental Airlines, Inc.
pass-through certificates Ser. D,
7.568s, 2006 2,113,565
3,555,000 Delta Air Lines, Inc. pass-through
certificates Ser. 00-1, 7.779s,
2005 2,722,415
2,399,712 Delta Air Lines, Inc. pass-through
certificates Ser. 02-1, 7.779s,
2012 1,991,761
8,605,000 Evergreen International Aviation,
Inc. 144A sec. notes 12s, 2010 8,303,825
8,753,000 Kansas City Southern Railway Co.
company guaranty 9 1/2s, 2008 9,540,770
1,685,000 Kansas City Southern Railway Co.
company guaranty 7 1/2s, 2009 1,720,806
40,000 MC Shipping, Inc. sr. notes Ser. B,
11 1/4s, 2008 20,000
1,950,000 Northwest Airlines, Inc. company
guaranty 8 7/8s, 2006 1,404,000
40,000 Northwest Airlines, Inc. company
guaranty 8.7s, 2007 28,800
378,000 Northwest Airlines, Inc. company
guaranty 8.52s, 2004 359,100
4,915,000 Northwest Airlines, Inc. company
guaranty 7 5/8s, 2005 4,128,600
4,380,000 Northwest Airlines, Inc. sr. notes
9 7/8s, 2007 3,263,100
691,250 Pacer International, Inc. bank term
loan FRN 4.4749s, 2010 (acquired
6/10/03, cost $694,401) (RES) 697,298
1,747,000 Travel Centers of America, Inc.
company guaranty 12 3/4s, 2009 1,991,580
4,459,738 US Air, Inc. pass-through
certificates Ser. 93-A3,
10 3/8s, 2013 (In default) (NON) 1,783,895
--------------
58,146,285
Utilities & Power (6.9%)
- -------------------------------------------------------------------------------
795,000 AES Corp. (The) sr. notes 8 7/8s,
2011 743,325
171,000 AES Corp. (The) sr. notes 8 3/4s,
2008 163,305
7,235,000 AES Corp. (The) 144A sec. notes 9s,
2015 7,452,050
7,390,000 AES Corp. (The) 144A sec. notes
8 3/4s, 2013 7,537,800
8,380,000 Allegheny Energy Supply 144A bonds
8 1/4s, 2012 6,955,400
3,020,000 Allegheny Energy, Inc. notes 7 3/4s,
2005 3,020,000
3,920,000 Avon Energy Partners Holdings 144A
notes 7.05s, 2007 (United Kingdom) 3,400,600
360,000 Avon Energy Partners Holdings 144A
notes 6.46s, 2008 (United Kingdom) 313,053
7,878,000 Calpine Canada Energy Finance
company guaranty 8 1/2s, 2008
(Canada) 6,105,450
1,250,000 Calpine Corp. bank term loan FRN
6.866s, 2007 (acquired 7/11/03,
cost $1,250,000) (RES) 1,179,101
1,317,000 Calpine Corp. sr. notes 8 3/4s, 2007 1,027,260
3,495,000 Calpine Corp. sr. notes 8 1/2s, 2011 2,603,775
6,218,000 Calpine Corp. sr. notes 7 7/8s, 2008 4,671,273
3,297,000 Calpine Corp. sr. notes 7 5/8s, 2006 2,703,540
18,322,000 Calpine Corp. 144A sec. notes
8 1/2s, 2010 17,222,680
2,490,000 CenterPoint Energy Resources Corp.
debs. 6 1/2s, 2008 2,557,753
2,100,000 CenterPoint Energy Resources Corp.
144A notes 7 7/8s, 2013 2,255,261
10,000 Cleveland Electric Illuminating Co.
(The) 144A sr. notes Ser. D, 7.88s,
2017 11,242
24,468 CMS Energy Corp. bank term loan FRN
Ser. C, 9s, 2004 (acquired 4/21/03,
cost $24,162) (RES) 24,468
9,434,000 CMS Energy Corp. pass-through
certificates 7s, 2005 9,339,660
175,000 CMS Energy Corp. sr. notes 9 7/8s,
2007 181,125
2,199,000 CMS Energy Corp. sr. notes 8.9s,
2008 2,207,246
1,254,000 CMS Energy Corp. sr. notes 8 1/2s,
2011 1,227,353
1,730,000 CMS Energy Corp. 144A sr. notes
7 3/4s, 2010 1,669,450
1,996,000 Dynegy Holdings, Inc. sr. notes
6 7/8s, 2011 1,536,920
8,890,000 Dynegy Holdings, Inc. 144A sec.
notes 10 1/8s, 2013 9,201,150
3,354,000 Edison Mission Energy sr. notes 10s,
2008 2,783,820
3,910,000 Edison Mission Energy sr. notes
9 7/8s, 2011 3,206,200
2,030,000 Edison Mission Energy sr. notes
7.73s, 2009 1,573,250
1,360,000 El Paso CGP Co. debs. 6 1/2s, 2008 1,142,400
1,740,000 El Paso CGP Co. notes 6 3/8s, 2009 1,448,550
6,115,000 El Paso Corp. sr. notes 7 3/8s, 2012 5,197,750
2,540,000 El Paso Corp. sr. notes Ser. MTN,
7 3/4s, 2032 1,930,400
3,475,000 El Paso Natural Gas Co. 144A sr.
notes 7 5/8s, 2010 3,370,750
8,590,000 El Paso Production Holding Co. 144A
sr. notes 7 3/4s, 2013 8,332,300
940,000 Gemstone Investor, Ltd. 144A company
guaranty 7.71s, 2004 928,250
5,890,000 Midwest Generation LLC pass-through
certificates Ser. A, 8.3s, 2009 5,301,000
11,610,000 Mirant Americas Generation, Inc. sr.
notes 7 5/8s, 2006 (In default)
(NON) 8,533,350
2,530,000 Mirant Americas Generation, Inc. sr.
notes 7.2s, 2008 (In default) (NON) 1,859,550
2,683,000 Mission Energy Holding Co. sec.
notes 13 1/2s, 2008 1,502,480
3,295,000 Nevada Power Co. 144A 2nd mtge. 9s,
2013 3,435,038
119 Northeast Utilities notes Ser. A,
8.58s, 2006 134
2,930,000 Northwest Pipeline Corp. company
guaranty 8 1/8s, 2010 3,047,200
7,667,000 Northwestern Corp. notes 8 3/4s,
2012 5,673,580
3,150,000 Pacific Gas & Electric Co. 144A sr.
notes 7 3/8s, 2005 (In default)
(NON) 3,213,000
5,795,000 PG&E Corp. 144A sec. notes 6 7/8s,
2008 5,881,925
1,430,000 PG&E Gas Transmission Northwest sr.
notes 7.1s, 2005 1,426,425
5,540,000 PSEG Energy Holdings, Inc. notes
7 3/4s, 2007 5,401,500
4,505,000 SEMCO Energy, Inc. 144A sr. notes
7 3/4s, 2013 4,550,050
1,695,000 Sierra Pacific Power Co.
collateralized Ser. MTNC, 6.82s,
2006 1,671,694
6,535,000 Sierra Pacific Resources notes
8 3/4s, 2005 6,338,950
340,000 Southern California Edison Co. notes
6 3/8s, 2006 340,850
7,420,000 Southern California Edison Co. 144A
1st mtge. 8s, 2007 8,124,900
2,840,000 Teco Energy, Inc. notes 10 1/2s,
2007 3,141,750
1,430,000 Teco Energy, Inc. notes 7.2s, 2011 1,353,138
3,725,000 Teco Energy, Inc. notes 7s, 2012 3,468,906
3,405,000 Teco Energy, Inc. sr. notes 7 1/2s,
2010 3,341,156
5,274,000 Western Resources, Inc. sr. notes
9 3/4s, 2007 5,840,955
5,388,000 Williams Cos., Inc. (The) FRN
Ser. A, 6 3/4s, 2006 5,280,240
1,530,000 Williams Cos., Inc. (The) notes
9 1/4s, 2004 1,556,775
6,520,000 Williams Cos., Inc. (The) notes
6 1/2s, 2006 6,373,300
6,500,000 Williams Cos., Inc. (The) sr. notes
8 5/8s, 2010 6,825,000
3,365,000 Williams Holdings Of Delaware notes
6 1/2s, 2008 3,196,750
425,000 Williams Products bank term loan FRN
4.9s, 2007 (acquired 6/4/03, cost
$425,000) (RES) 427,656
14,136,881 York Power Funding 144A notes 12s,
2007 (Cayman Islands) (In default)
(NON) 9,895,815
--------------
242,226,977
--------------
Total Corporate bonds and notes
(cost $3,065,097,108) $2,924,586,013
Preferred stocks (2.6%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
134 Adelphia Communications Corp.
Ser. B, $13.00 cum. pfd. (In
default) (NON) $17
239,508 Avecia Group PLC $4.00 pfd. (United
Kingdom) (PIK) 4,071,636
72,947 Chevy Chase Preferred Capital Corp.
Ser. A, $5.188 pfd. 4,077,737
23,895 Chevy Chase Savings Bank, Inc. $3.25
pfd. 651,139
276,995 CSC Holdings, Inc. Ser. M, $11.125
cum. pfd. 28,807,480
27,635 Decrane Aircraft Holdings Co. $16.00
pfd. (PIK) 276,346
396,509 Diva Systems Corp. Ser. C, 6.00%
cum. pfd. 3,965
876,252 Diva Systems Corp. 144A Ser. D,
zero % pfd. 8,763
206,805 Doane Pet Care Co. $7.125 pfd. 8,479,005
11 Dobson Communications Corp. 13.00%
pfd. (PIK) 11,165
10,971 Dobson Communications Corp. 12.25%
pfd. (PIK) 10,971,420
6,670 First Republic Capital Corp. 144A
10.50% pfd. 6,836,750
936 Leiner Health Products Ser. C,
zero % pfd. 1
149,466 Lodgian, Inc. Ser. A, $7.06 cum.
pfd. (PIK) 3,064,052
1,652 Metrocall Holdings, Inc. Ser. A,
15.00% cum. pfd. 18,172
32,161 Microcell Telecommunications, Inc.
zero % pfd. (Canada) 314,167
161,412 North Atlantic Trading Co. 12.00%
pfd. (PIK) 2,744,004
210 NTL Europe, Inc. Ser. A, zero % cum.
pfd. 662
1,201 Paxson Communications Corp. 13.25%
cum. pfd. (PIK) 11,049,200
4 Pegasus Satellite Ser. B, 12.75%
cum. pfd. (PIK) 2,000
36,436 PRIMEDIA, Inc. Ser. F, $9.20 cum.
pfd. 3,242,804
11,945 Rural Cellular Corp. 12.25% pfd.
(PIK) 6,211,400
--------------
Total Preferred stocks
(cost $116,589,039) $90,841,885
Common stocks (2.2%) (a)
Number of shares Value
Automotive (0.2%)
- -------------------------------------------------------------------------------
598,177 Safety Components International,
Inc. (NON) (AFF) $5,234,049
327,451 VS Holdings, Inc. (NON) 245,588
--------------
5,479,637
Basic Materials (0.1%)
- -------------------------------------------------------------------------------
638,122 Pioneer Cos., Inc. (NON) (AFF) 2,361,051
42,762 Polymer Group, Inc. Class A (NON) 369,464
4,358 Sterling Chemicals, Inc. (NON) 56,654
--------------
2,787,169
Broadcasting (0.7%)
- -------------------------------------------------------------------------------
1,690,908 Capstar Broadcasting 144A (acquired
4/14/97, cost $1,859,999) (NON)
(RES) 2,925,271
1,502 Quorum Broadcast Holdings, Inc.
Class E (acquired various dates
from 5/15/01 to 5/15/02, cost
$1,497,332) (NON) (RES) 802,985
2,118 RCN Corp. (NON) 5,147
828,335 Regal Entertainment Group 144A
(acquired various dates from 5/9/02
to 5/15/02, cost $6,203,886) (RES) 14,350,904
2,876,186 Sirius Satellite Radio, Inc. (NON) 4,774,469
--------------
22,858,776
Commercial and Consumer Services (0.1%)
- -------------------------------------------------------------------------------
336,847 Laidlaw International Inc (NON) 3,520,051
7,647,000 Morrison Knudsen Corp. (NON) 745,583
18,773 Washington Group International, Inc.
(NON) 471,765
--------------
4,737,399
Communication Services (0.3%)
- -------------------------------------------------------------------------------
33,239 Birch Telecom, Inc. (NON) 115,007
148,962 Covad Communications Group, Inc.
(NON) 566,056
948,402 Dobson Communications Corp.
(acquired various dates from
11/6/01 to 3/27/03, cost $7,342,787)
(NON) (RES) 8,725,298
178,578 Globix Corp. (NON) 535,734
1,916 Metrocall Holdings, Inc. (NON) 279,736
268 Microcell Telecommunications, Inc.
Class A (Canada) (NON) 2,560
31,969 Microcell Telecommunications, Inc.
Class B (Canada) (NON) 314,597
1,544 WilTel Communications, Inc. (NON) 24,905
6 WorldCom, Inc. -- WorldCom Group (NON) 1
--------------
10,563,894
Energy (--%)
- -------------------------------------------------------------------------------
116,877 Jasper Energy 144A (NON) (AFF) 7,305
Financial (0.1%)
- -------------------------------------------------------------------------------
8,780,000 AMRESCO Creditor Trust (NON) (R) 245,840
31,440,192 Contifinancial Corp. Liquidating
Trust Units 314,402
33,000 Wayland Investment Fund II 3,861,000
--------------
4,421,242
Food (0.6%)
- -------------------------------------------------------------------------------
16,714 Archibald Candy Corp. (acquired
various dates from 9/26/00
to 12/16/02, cost $2,639,709) (NON)
(RES) (AFF) 47,635
234,223 Aurora Foods, Inc. (NON) 36,305
8,407 Premium Holdings (LP) 144A (NON) 176,548
11,906 PSF Group Holdings, Inc. 144A Class
A (NON) (AFF) 20,835,641
--------------
21,096,129
Health Care (--%)
- -------------------------------------------------------------------------------
18,922 Alderwoods Group, Inc. (NON) 151,376
12,052 Genesis Health Ventures, Inc. (NON) 289,248
985,000 Loewen Group International, Inc.
(NON) 99
178,784 Mariner Health Care, Inc. (NON) 1,483,907
21,000 Mediq, Inc. (NON) (AFF) 2,100
9,048 Sun Healthcare Group, Inc. (NON) 40,264
--------------
1,966,994
Lodging/Tourism (0.1%)
- -------------------------------------------------------------------------------
96,272 Fitzgeralds Gaming Corp. (NON) 963
177,090 Lodgian, Inc. (NON) 920,868
12,695,811 VFB LLC (NON) (AFF) 2,412,204
--------------
3,334,035
Technology (--%)
- -------------------------------------------------------------------------------
4,224 Comdisco Holding Co., Inc. 485,760
Utilities (--%)
- -------------------------------------------------------------------------------
23,911 York Research Corp. 144A (NON) (AFF) 1,494
--------------
Total Common stocks
(cost $207,392,244) $77,739,834
Convertible bonds and notes (1.0%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$1,080,000 AES Corp. (The) cv. sub. notes
4 1/2s, 2005 $984,150
8,430,000 American Tower Corp. cv. notes 5s,
2010 7,407,863
3,840,000 Amkor Technologies, Inc. cv. notes
5 3/4s, 2006 3,657,600
2,190,000 CenterPoint Energy, Inc. 144A cv.
sr. notes 3 3/4s, 2023 2,107,875
19,813,000 Cybernet Internet Services
International, Inc. 144A cv. sr.
disc. notes stepped-coupon zero %
(13s, 8/15/04) 2009 (Denmark) (In
default) (NON) (STP) 19,813
3,370,000 DaVita, Inc. cv. sub. notes 7s, 2009 3,538,500
EUR 3,435,000 Koninklijke Ahold NV cv. sub. notes
3s, 2003 (Netherlands) 1,691,929
$2,530,000 Kulicke & Soffa Industries, Inc. cv.
sub. notes 4 3/4s, 2006 2,254,863
203,000 Millicom International Cellular SA
144A cv. bonds zero %,
2006 (Luxembourg) (PIK) 406,000
10,725,000 Nextel Communications, Inc. cv. sr.
notes 6s, 2011 11,448,938
650,000 Rogers Communications cv. debs. 2s,
2005 (Canada) 574,438
--------------
Total Convertible bonds and notes
(cost $47,565,443) $34,091,969
Asset-backed securities (0.5%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$4,315,000 CDO Repackaging Trust Series 144A
FRB Ser. 03-3, Class A,
9.49s, 2008 $4,315,000
1,845,000 Denali Capital CLO III Ltd. FRN
Ser. B-2L, 9.116s, 2015 (Cayman
Islands) 1,779,560
2,520,000 Dryden Leveraged Loan CDO 144A FRN
Ser. 03-4A, Class D, 9.89s, 2015 2,520,000
4,295,000 Goldentree Loan Opportunities II,
Ltd. 144A FRN Ser. 2A, Class
5A, 9.87s, 2015 (Cayman Islands) 4,295,000
3,010,000 Verdi Synthetic Clo 144A Ser. 1A,
Class E2, 11.15s, 2010 3,010,000
--------------
Total Asset-backed securities
(cost $15,919,819) $15,919,560
Foreign government bonds and notes (0.5%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$5,129,000 Bulgaria (Republic of) 144A bonds
8 1/4s, 2015 $5,680,368
2,115,000 Colombia (Republic of) bonds
10 3/8s, 2033 2,231,325
1,550,000 Colombia (Republic of) bonds
Ser. NOV, 9 3/4s, 2009 1,715,075
1,700,000 Colombia (Republic of) notes
10 3/4s, 2013 1,910,800
6,040,000 Ecuador (Republic of) bonds
stepped-coupon Ser. REGS, 10s (7s,
8/15/03), 2030 (STP) 3,548,500
1,440,000 United Mexican States bonds
Ser. MTN, 8.3s, 2031 1,526,400
--------------
Total Foreign government bonds and
notes (cost $14,664,550) $16,612,468
Convertible preferred stocks (0.5%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
627,835 Digitalglobe Inc. 144A Ser. C,
8 1/2s cv. pfd. $627,835
14,735 Dobson Communications Corp. $6.00
cv. pfd. 3,005,940
18,946 Knology, Inc. 144A Ser. D, zero %
cv. pfd. 189
73,305 LTV Corp. 144A $4.125 cv. pfd. (In
default) (NON) 733
49,600 Omnicare, Inc. zero % cv. pfd. 2,579,200
778 Paxson Communications Corp. 144A
9.75% cv. pfd. (PIK) 5,912,800
79,363 Peninsula Gaming Partners 144A $7.14
cv. pfd. 476,180
94,204 Telex Communications, Inc. zero %
cv. pfd. (In default) (NON) 94,204
63,090 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 3,588,244
14,913 XCL, Ltd. 144A Ser. A, 9.50% cum.
cv. pfd. (In default) (NON) (PIK) 7,457
--------------
Total Convertible preferred stocks
(cost $21,711,059) $16,292,782
Units (0.2%) (a)
Number of units Value
- -------------------------------------------------------------------------------
21,810 Australis Media, Ltd. units 15 3/4s,
2003 (Australia) (In default) (NON)
(DEF) $2,181
11,005 HMP Equity Holdings Corp. units
zero %, 2008 5,337,425
2,996 XCL Equity Units zero % 420,531
2,959 XCL, Ltd. 144A units 13 1/2s, 2004
(In default) (NON) 887,700
79,941 XCL, Ltd. 144A units cum. cv. pfd.
zero % (In default) (NON) (PIK) 39,971
--------------
Total Units (cost $38,251,510) $6,687,808
Brady bonds (0.2%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$2,654,400 Peru (Republic of) bonds Ser. PDI,
5s, 2017 $2,329,236
1,410,000 Peru (Republic of) coll. FLIRB
4 1/2s, 2017 1,170,300
2,920,000 Peru (Republic of) coll. FLIRB Ser.
20YR, 4 1/2s, 2017 2,423,600
--------------
Total Brady bonds (cost $5,187,715) $5,923,136
Warrants (--%) (a) (NON) Expiration
Number of warrants date Value
- -------------------------------------------------------------------------------
8,850 American Tower Corp. Class A 8/1/2008 $1,177,050
8,414 Dayton Superior Corp. 144A 6/15/2009 2,104
1 Decrane Aircraft Holdings Co.
Class B 6/30/2010 1
1 Decrane Aircraft Holdings Co.
Class B 6/30/2010 1
8,728 Diva Systems Corp. 144A 5/15/2006 87
31 Doe Run Resources Corp. 144A 12/31/2012 1
9,315 Insilco Holding Co. 8/15/2008 1
2,450 MDP Acquisitions PLC 144A (Ireland) 10/1/2013 6,125
19,791 Microcell Telecommunications
(Canada) 5/1/2008 16,693
11,875 Microcell Telecommunications
(Canada) 5/1/2005 6,763
3,334 Mikohn Gaming Corp. 144A 8/15/2008 33
186 ONO Finance PLC 144A (United
Kingdom) 2/15/2011 1
3,668 Pliant Corp. 144A 6/1/2010 1,834
2,378 R.A.B. Holdings, Inc. 4/30/2010 24
4,262 Solutia, Inc. 144A 7/15/2009 2,131
22,620 Sun Healthcare Group, Inc. 2/28/2005 1
5,247 Travel Centers of America, Inc. 144A 5/1/2009 52,470
15,004 Ubiquitel, Inc. 144A 4/15/2010 150
1,855,000 United Mexican States Ser. B
(Mexico) (Rights) 6/30/2004 23,188
1,855,000 United Mexican States Ser. C
(Mexico) (Rights) 6/30/2005 4,638
1,855,000 United Mexican States Ser. D
(Mexico) (Rights) 6/30/2006 1,855
1,855,000 United Mexican States Ser. E
(Mexico) (Rights) 6/30/2007 928
280 Versatel Telecom NV (Netherlands) 5/15/2008 1
11,588 Washington Group International, Inc.
Ser. A 1/25/2006 36,502
13,242 Washington Group International, Inc.
Ser. B 1/25/2006 30,457
7,158 Washington Group International, Inc.
Ser. C 1/25/2006 15,748
9,684 XM Satellite Radio Holdings, Inc.
144A 3/15/2010 97
175,000 ZSC Specialty Chemicals PLC 144A
(United Kingdom) 6/30/2011 284,368
175,000 ZSC Specialty Chemicals PLC
144A (Preferred) (United Kingdom) 6/30/2011 10,500
--------------
Total Warrants (cost $5,780,276) $1,673,752
Short-term investments (7.0%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$238,862,90 Short-term investments held in
Putnam commingled cash
account with yields ranging from
0.94% to 1.22% and due dates
ranging from September 2, 2003 to
October 22, 2003 (d) $238,862,901
5,321,623 Short-term investments held as
collateral for loaned
securities with yields ranging from
0.94% to 1.22% and due dates ranging
from September 2, 2003 to October
22, 2003 (d) 5,318,269
75,000 U.S. Treasury Note zero %, November
6, 2003 (SEG) 74,849
--------------
Total Short-term investments
(cost $244,256,019) $244,256,019
- -------------------------------------------------------------------------------
Total Investments
(cost $3,782,414,782) $3,434,625,226
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,504,276,079.
(DEF) Security is in default of principal and interest.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically
represent the new interest or dividend rate to be paid and the date the
fund will begin accruing interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total
market value of restricted securities held at August 31, 2003 was
$113,590,199 or 3.2% of net assets.
(PIK) Income may be received in cash or additional securities at the
discretion of the issuer.
(AFF) Affiliated Companies (Note 5).
(SEG) This security was pledged and segregated with the custodian to cover
margin requirements for futures contracts at August 31, 2003.
(R) Real Estate Investment Trust.
(d) See Note 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.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes
(FRN) are the current interest rates shown at August 31, 2003.
Forward currency contracts to sell at August 31, 2003
(aggregate face value $34,842,377)
Market Aggregate Delivery Unrealized
value face value date depreciation
- ------------------------------------------------------------------
British Pounds $1,508,034 $1,499,703 12/17/03 $(8,331)
Euro 33,788,307 33,342,674 12/17/03 (445,633)
- ------------------------------------------------------------------
$(453,964)
- ------------------------------------------------------------------
Futures contracts outstanding at August 31, 2003
Market Aggregate Expiration Unrealized
value face value date depreciation
- --------------------------------------------------------------------
U.S. Treasury Note
5 yr (Long) $4,833,813 $4,837,387 Dec-03 $(3,574)
- --------------------------------------------------------------------
Swap contracts outstanding at August 31, 2003
Unrealized
Notional Termination appreciation/
amount date (depreciation)
- -------------------------------------------------------------------------------
Agreement with Lehman Brothers
Special Financing, Inc. dated June
16, 2003 to receive (pay) quarterly
the notional amount multiplied by
the return of the Lehman U.S. High
Yield Index and pay quarterly the
notional amount multiplied by the
three month USD LIBOR adjusted by a
specified spread. $14,999,82 6/1/2005 $(29,400)
Agreement with Lehman Brothers
Special Financing, Inc. dated June
27, 2003 to receive (pay) quarterly
the notional amount multiplied by
the return of the Lehman U.S. High
Yield Index and pay quarterly the
notional amount multiplied by the
three month USD LIBOR adjusted by a
specified spread. 8,000,118 7/1/2004 (30,069)
Agreement with Merrill Lynch
Capital Services, Inc. dated
October 27, 2000 to receive semi-
annually the notional amount
multiplied by 6.74% and pay
quarterly the notional amount
multiplied by the three month
USD-LIBOR. 59,500,000 10/31/2005 5,514,299
Agreement with Merrill Lynch
Capital Services, Inc. dated May 1,
2003 to pay at maturity the
notional amount multiplied by the
five month USD-LIBOR adjusted by a
specified spread and receive/(pay)
at maturity the notional amount
multiplied by the return of the
Merrill Lynch US High Yield Cash
Pay Index 24,999,926 10/1/2003 724,569
Agreement with Merrill Lynch
Capital Services, Inc. dated June
13, 2003 to pay quarterly the
notional amount multiplied by the
three month USD-LIBOR adjusted by a
specified spread and receive/(pay)
quarterly the notional amount
multiplied by the return of the
Merrill Lynch US High Yield Cash
Pay Index 9,999,835 1/1/2005 (58,850)
Agreement with Citigroup Global
Markets dated May 7, 2003 to
receive (pay) at maturity the
notional amount multiplied by the
total rate of return of the Lehman
Brothers High Yield Bond Index and
pay the notional amount multiplied
by the six month USD-Libor-BBA
adjusted by a specified spread. 19,999,712 12/1/2003 453,484
Agreement with Citigroup Global
Markets N.A. dated June 26, 2003 to
receive (pay) at maturity the
notional amount multiplied by the
total rate of return of the Lehman
Brothers High Yield Bond Index and
pay the notional amount multiplied
by the three month USD-Libor-BBA
adjusted by a specified spread. 10,000,307 10/1/2003 (37,586)
- -------------------------------------------------------------------------------
$6,536,447
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities
August 31, 2003
Assets
- ------------------------------------------------------------------------------
Investments in securities, at value, including $4,868,567 of
securities on loan (identified cost $3,782,414,782) (Note 1) $3,434,625,226
- ------------------------------------------------------------------------------
Cash 6,526,691
- ------------------------------------------------------------------------------
Interest and other receivables 67,343,110
- ------------------------------------------------------------------------------
Receivable for shares of the fund sold 18,197,271
- ------------------------------------------------------------------------------
Receivable for securities sold 12,918,005
- ------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 6,692,352
- ------------------------------------------------------------------------------
Receivable for closed forward currency contracts (Note 1) 2,992,691
- ------------------------------------------------------------------------------
Total assets 3,549,295,346
Liabilities
- ------------------------------------------------------------------------------
Payable for variation margin (Note 1) 8,250
- ------------------------------------------------------------------------------
Payable for securities purchased 27,261,647
- ------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,949,393
- ------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,897,069
- ------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 517,677
- ------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 255,651
- ------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,701
- ------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,796,557
- ------------------------------------------------------------------------------
Payable for open forward currency contracts (Note 1) 453,964
- ------------------------------------------------------------------------------
Payable for open swap contracts (Note 1) 155,905
- ------------------------------------------------------------------------------
Payable for closed forward currency contracts (Note 1) 161,223
- ------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 5,318,269
- ------------------------------------------------------------------------------
Other accrued expenses 240,961
- ------------------------------------------------------------------------------
Total liabilities 45,019,267
- ------------------------------------------------------------------------------
Net assets $3,504,276,079
Represented by
- ------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $5,519,372,592
- ------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (17,377,751)
- ------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (1,656,008,100)
- ------------------------------------------------------------------------------
Net unrealized depreciation of investments and assets and
liabilities in foreign currencies (341,710,662)
- ------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $3,504,276,079
Computation of net asset value and offering price
- ------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,271,755,709 divided by 300,837,045 shares) $7.55
- ------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $7.55)* $7.93
- ------------------------------------------------------------------------------
Net asset value and offering price per class B share
($879,566,262 divided by 117,030,798 shares)** $7.52
- ------------------------------------------------------------------------------
Net asset value and offering price per class C share
($87,008,402 divided by 11,564,500 shares)** $7.52
- ------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($45,017,055 divided by 5,963,398 shares) $7.55
- ------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $7.55)* $7.80
- ------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class
R share ($45,768 divided by 6,062 shares) $7.55
- ------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class
Y share ($220,882,883 divided by 29,323,624 shares) $7.53
- ------------------------------------------------------------------------------
* 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
Year ended August 31, 2003
Investment income:
- ------------------------------------------------------------------------------
Interest $300,330,762
- ------------------------------------------------------------------------------
Dividends 25,488,756
- ------------------------------------------------------------------------------
Securities lending 18,871
- ------------------------------------------------------------------------------
Total investment income 325,838,389
Expenses:
- ------------------------------------------------------------------------------
Compensation of Manager (Note 2) 17,438,880
- ------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,195,166
- ------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 80,987
- ------------------------------------------------------------------------------
Administrative services (Note 2) 38,648
- ------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 5,020,778
- ------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 8,387,860
- ------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 770,397
- ------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 202,955
- ------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 61
- ------------------------------------------------------------------------------
Other 2,087,184
- ------------------------------------------------------------------------------
Total expenses 37,222,916
- ------------------------------------------------------------------------------
Expense reduction (Note 2) (134,582)
- ------------------------------------------------------------------------------
Net expenses 37,088,334
- ------------------------------------------------------------------------------
Net investment income 288,750,055
- ------------------------------------------------------------------------------
Net realized loss on investments (including net realized gain
of $87,820 on sales of investments to affiliated issuers)
(Notes 1, 3 and 5) (170,312,506)
- ------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 643,915
- ------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (196,805)
- ------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (454,916)
- ------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts
and swap contracts during the year 485,404,843
- ------------------------------------------------------------------------------
Net gain on investments 315,084,531
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations $603,834,586
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended August 31
Increase in net assets 2003 2002
- ------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------
Net investment income $288,750,055 $197,708,526
- ------------------------------------------------------------------------------
Net realized loss on investments and foreign
currency transactions (169,865,396) (333,496,843)
- ------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies 484,949,927 (10,168,047)
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 603,834,586 (145,956,364)
- ------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- ------------------------------------------------------------------------------
From net investment income
Class A (192,148,223) (162,208,801)
- ------------------------------------------------------------------------------
Class B (74,674,852) (33,851,892)
- ------------------------------------------------------------------------------
Class C (6,641,986) (758,384)
- ------------------------------------------------------------------------------
Class M (3,772,717) (1,318,832)
- ------------------------------------------------------------------------------
Class R (1,005) --
- ------------------------------------------------------------------------------
Class Y (16,802,807) (3,734,073)
- ------------------------------------------------------------------------------
From return of capital
Class A -- (9,493,073)
- ------------------------------------------------------------------------------
Class B -- (1,981,141)
- ------------------------------------------------------------------------------
Class C -- (44,383)
- ------------------------------------------------------------------------------
Class M -- (77,183)
- ------------------------------------------------------------------------------
Class Y -- (218,532)
- ------------------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 369,906,038 1,302,116,197
- ------------------------------------------------------------------------------
Total increase in net assets 679,699,034 942,473,539
Net assets
- ------------------------------------------------------------------------------
Beginning of year 2,824,577,045 1,882,103,506
- ------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income of
$17,377,751 and $26,348,535, respectively) $3,504,276,079 $2,824,577,045
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended August 31
operating performance 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.86 $8.10 $9.47 $10.46 $11.47
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .67 .77 .97 1.05 1.11
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .71 (1.15) (1.31) (.95) (.93)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.38 (.38) (.34) .10 .18
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.69) (.81) (1.00) (1.09) (1.13)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.05) (.03) -- (.06)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.69) (.86) (1.03) (1.09) (1.19)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.55 $6.86 $8.10 $9.47 $10.46
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 21.27 (5.10) (3.49) .93 1.76
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,271,756 $1,814,979 $1,584,421 $2,022,516 $2,488,892
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .98 1.01 .99 .96 .93
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.41 10.37 11.40 10.45 10.23
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.18 74.29 (d) 77.43 60.55 50.65
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended August 31
operating performance 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.84 $8.07 $9.44 $10.42 $11.43
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .62 .71 .91 .98 1.04
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .70 (1.14) (1.31) (.94) (.95)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.32 (.43) (.40) .04 .09
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.64) (.76) (.94) (1.02) (1.05)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.04) (.03) -- (.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.64) (.80) (.97) (1.02) (1.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.52 $6.84 $8.07 $9.44 $10.42
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.31 (5.69) (4.23) .27 .99
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $879,566 $793,713 $274,501 $381,093 $669,009
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.73 1.76 1.74 1.71 1.68
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.67 9.40 10.67 9.72 9.53
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.18 74.29 (d) 77.43 60.55 50.65
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------------------------------------------------------------------------
For the
period
Year March 19,
ended 2002+ to
Per-share August 31 August 31
operating performance 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.85 $7.60
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .62 .29
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .68 (.74)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.30 (.45)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.63) (.28)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.63) (.30)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.52 $6.85
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.08 (6.03)*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $87,008 $48,587
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.73 .80*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.49 4.17*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.18 74.29 (d)
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended August 31
operating performance 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.87 $8.10 $9.47 $10.45 $11.47
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .65 .75 .95 1.03 1.09
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .70 (1.15) (1.31) (.94) (.95)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.35 (.40) (.36) .09 .14
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.67) (.79) (.98) (1.07) (1.10)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.04) (.03) -- (.06)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.67) (.83) (1.01) (1.07) (1.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.55 $6.87 $8.10 $9.47 $10.45
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 20.80 (5.23) (3.76) .78 1.42
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $45,017 $34,917 $8,601 $11,005 $15,264
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.23 1.26 1.24 1.21 1.18
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.12 9.79 11.15 10.21 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.18 74.29 (d) 77.43 60.55 50.65
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- ---------------------------------------------------------------------------------------------------------------------------------
For the
period
January 21,
2003+ to
Per-share August 31
operating performance 2003
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.99
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .40
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .54
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .94
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.38)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.55
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 13.76*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $46
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .75*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.59*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.18
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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.
(c) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- ---------------------------------------------------------------------------------------------------------------------------------
For the
period
December 31,
1998+ to
Per-share Year ended August 31 August 31
operating performance 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $6.85 $8.09 $9.47 $10.46 $10.83
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .68 .77 .99 1.08 .77
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .71 (1.13) (1.31) (.95) (.35)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.39 (.36) (.32) .13 .42
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.71) (.83) (1.03) (1.12) (.75)
- ---------------------------------------------------------------------------------------------------------------------------------
From return of capital -- (.05) (.03) -- (.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.71) (.88) (1.06) (1.12) (.79)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $7.53 $6.85 $8.09 $9.47 $10.46
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 21.45 (4.84) (3.34) 1.17 3.92*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $220,883 $132,382 $14,580 $16,668 $21,461
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .73 .76 .74 .71 .46*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.57 10.05 11.61 10.72 6.81*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 75.18 74.29 (d) 77.43 60.55 50.65
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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) Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam High Yield Trust II.
The accompanying notes are an integral part of these financial statements.
Notes to financial statements
August 31, 2003
Note 1
Significant accounting policies
Putnam High Yield Trust (the "fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The fund seeks high current income by investing
primarily in high-yielding, lower-rated fixed-income securities. These
securities may have a higher rate of default due to the nature of the
investments.
The fund offers class A, class B, class C, class M, class R and class Y
shares. The fund began offering class R shares on January 21, 2003. 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, class M and class R 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 and class R shares but lower
than class B and class C shares. Class R shares are sold without a front
end sales charge and pay an ongoing distribution fee that is higher than
class A shares, but lower than class B and class C shares. Class R shares
are offered to qualified employee-benefit plans. Class Y shares, which are
sold at net asset value, are generally subject to the same expenses as
class A, class B, class C, class M and class R shares, but do not bear a
distribution fee. Class Y shares are sold to certain eligible purchasers
including certain defined contribution plans (including corporate IRAs),
bank trust departments, trust companies and certain college savings plans.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with 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 valued at the last reported sales price on their principal
exchange, or official closing price for certain markets. If no sales are
reported -- as in the case of some securities traded over-the-counter -- a
security is valued at its last reported bid price. Market quotations are
not considered to be readily available for certain debt obligations; such
investments are valued at fair value on the basis of valuations furnished
by an independent pricing service or dealers, approved by the Trustees.
Such services or dealers determine valuations for normal institutional-size
trading units of such securities using methods based on market transactions
for comparable securities and various relationships, generally recognized
by institutional traders, between securities. For foreign investments, if
trading or events occurring in other markets after the close of the
principal exchange in which the securities are traded are expected to
materially affect the value of the investments, then those investments are
valued, taking into consideration these events, at their fair value
following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees. 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 valued at amortized cost, which approximates fair value. Other
investments, including restricted securities, are valued 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
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having maturities
of up to 397 days for collateral received under security lending
arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded 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
recognized 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.
D) 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 earned 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,
currency gains and losses realized between the trade and settlement dates
on securities transactions 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.
E) Forward currency contracts The fund may buy and sell forward currency
contracts, which are agreements between two parties to buy and sell
currencies at a set price on a future date. These contracts are used to
protect against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or quoted (or
an increase in the value of a currency in which securities a fund intends
to buy are denominated, when a fund holds cash reserves and short term
investments). The U.S. dollar value of forward currency contracts is
determined using current forward currency exchange rates supplied by a
quotation service. The market value of the contract will fluctuate with
changes in currency exchange rates. The contract is marked to market daily
and the change in market value is recorded as an unrealized gain or loss.
When the contract is closed, the fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. The fund could be exposed
to risk if the value of the currency changes unfavorably, if the
counterparties to the contracts are unable to meet the terms of their
contracts or if the fund is unable to enter into a closing position.
Forward currency contracts outstanding at period end are listed after The
fund's portfolio.
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 and the broker
agree to exchange 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. Futures and written option contracts outstanding at period end are
listed after The fund's portfolio.
G) Total return swap contracts The fund may enter into total return swap
contracts, which are arrangements to exchange a market linked return for an
interest payment, both based on a notional principal amount. To the extent
that the total return of the security or index underlying the transaction
exceeds or falls short of the offsetting interest rate obligation, the fund
will receive a payment from or make a payment to the counterparty,
respectively. Total return swap contracts are marked to market daily based
upon quotations from market makers and the change, if any, is recorded as
unrealized gain or loss. Payments received or made at the end of the
measurement period are recorded as realized gains or losses. The fund could
be exposed to credit or market risk due to unfavorable changes in the
fluctuation of interest rates or in the price of the underlying security or
index, the possibility that there is no liquid market for these agreements
or that the counterparty may default on its obligation to perform. Total
return swap contracts outstanding at period end are listed after The fund's
portfolio.
H) Interest rate swap contracts The fund may enter into interest rate swap
contracts, which are arrangements between two parties to exchange cash
flows based on a notional principal amount, to manage the fund's exposure
to interest rates. Interest rate swap contracts 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
recognized as part of interest income. A portion of the payments received
or made upon early termination are recognized 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 if the counterparty defaults on its
obligation to perform. Interest rate swap contracts outstanding at period
end are listed after The fund's portfolio.
I) Security lending The fund may lend securities, through its agents, 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 the fund's agents; 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 August 31, 2003, the value of securities loaned amounted to
$4,868,567. The fund received cash collateral of $5,318,269 which is pooled
with collateral of other Putnam funds into 32 issuers of high grade
short-term investments.
J) Line of credit During the period, the fund was entered into a committed
line of credit with certain banks. The line of credit agreement included
restrictions that the fund maintain an asset coverage ratio of at least
300% and borrowings must not exceed prospectus limitations. For the period
ended August 6, 2003, the fund had no borrowings against the line of
credit. Effective August 6, 2003, the fund no longer participated in a
committed line of credit.
K) 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, 2003, the fund had a capital loss carryover of $1,600,861,913
available to the extent allowed by tax law to offset future capital gains,
if any. This amount includes $381,214,708 of capital losses acquired in
connection with the acquisition of High Yield Trust II which are subject to
limitations imposed by the Internal Revenue Code. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
- ---------------------------------------
$3,690,829 August 31, 2004
4,909,410 August 31, 2005
14,566,882 August 31, 2006
135,892,331 August 31, 2007
339,129,540 August 31. 2008
305,968,663 August 31, 2009
298,606,980 August 31, 2010
498,097,278 August 31, 2011
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending August 31, 2004 $49,320,027 of losses recognized during the period
November 1, 2002 to August 31, 2003.
L) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
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. These differences include temporary and permanent differences
of losses on wash sale transactions, foreign currency gains and losses,
post-October loss deferrals, the expiration of a capital loss carryover,
defaulted bond interest, unrealized gains and losses on certain futures
contracts, realized gains and losses on certain futures contracts, interest
on payment-in-kind securities and partnership K-1 income. Reclassifications
are made to the fund's capital accounts to reflect income and gains
available for distribution (or available capital loss carryovers) under
income tax regulations. For the year ended August 31, 2003, the fund
reclassified $14,262,319 to decrease distributions in excess of net
investment income and $54,891,473 to decrease paid-in-capital, with a
decrease to accumulated net realized losses of $40,629,154.
The tax basis components of distributable earnings and the federal tax cost
as of period end were as follows:
Unrealized appreciation $169,332,355
Unrealized depreciation (535,264,527)
------------
Net unrealized depreciation (365,932,172)
Undistributed ordinary income 9,223,387
Capital loss carryforward 1,600,861,913
Post October loss 49,320,027
Cost for federal income
tax purposes $3,800,557,398
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of the
next $500 million, 0.50% of the next $5 billion, 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, and
0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and their
staff who provide administrative services to the fund. The aggregate amount
of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam, LLC. Investor servicing agent
functions are provided by Putnam Investor Services, a division of PFTC.
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 year ended August 31, 2003, the fund's
expenses were reduced by $134,582 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $3,563 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, class M and class R 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%, 1.00% and 1.00% of the average net assets
attributable to class A, class B, class C, class M and class R shares,
respectively. The Trustees have approved payment by the fund at an annual
rate of 0.25%, 1.00%, 1.00%, 0.50% and 0.50% of the average net assets
attributable to class A, class B, class C, class M and class R shares,
respectively.
For the year ended August 31, 2003, Putnam Retail Management, acting as
underwriter, received net commissions of $507,467 and $4,751 from the sale
of class A and class M shares, respectively, and received $1,401,836 and
$20,893 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 year ended August 31, 2003, Putnam Retail Management,
acting as underwriter, received $11,076 and no monies on class A and class
M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended August 31, 2003, cost of purchases and proceeds from
sales of investment securities other than U.S. government obligations and
short-term investments aggregated $2,504,559,132 and $2,210,467,501,
respectively. Purchases and sales of U.S. government obligations aggregated
$2,218,125 and $2,219,039, respectively.
Note 4
Capital shares
At August 31, 2003, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended August 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 145,785,467 $1,042,058,741
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 16,597,854 117,784,000
- ----------------------------------------------------------------
162,383,321 1,159,842,741
Shares repurchased (125,950,786) (902,791,022)
- ----------------------------------------------------------------
Net increase 36,432,535 $257,051,719
- ----------------------------------------------------------------
Year ended August 31, 2002
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 35,036,350 $266,178,532
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 14,419,619 98,020,975
- ----------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High
Yield Trust II 77,697,051 565,608,504
- ----------------------------------------------------------------
127,153,020 929,808,011
Shares repurchased (58,303,031) (431,763,475)
- ----------------------------------------------------------------
Net increase 68,849,989 $498,044,536
- ----------------------------------------------------------------
Year ended August 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 44,160,108 $314,502,228
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,669,255 40,058,308
- ----------------------------------------------------------------
49,829,363 354,560,536
Shares repurchased (48,893,664) (349,166,755)
- ----------------------------------------------------------------
Net increase 935,699 $5,393,781
- ----------------------------------------------------------------
Year ended August 31, 2002
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 13,584,348 $98,530,774
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,619,703 19,003,444
- ----------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High Yield
Trust II 87,401,275 633,886,665
- ----------------------------------------------------------------
103,605,326 751,420,883
Shares repurchased (21,513,832) (155,627,588)
- ----------------------------------------------------------------
Net increase 82,091,494 $595,793,295
- ----------------------------------------------------------------
Year ended August 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 18,718,402 $133,618,312
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 587,322 4,197,741
- ----------------------------------------------------------------
19,305,724 137,816,053
Shares repurchased (14,837,161) (107,524,031)
- ----------------------------------------------------------------
Net increase 4,468,563 $30,292,022
- ----------------------------------------------------------------
For the period March 19, 2002
(commencement of operations)
to August 31, 2002
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 2,553,654 $18,373,078
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 64,627 445,639
- ----------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High
Yield Trust II 5,781,664 42,015,126
- ----------------------------------------------------------------
8,399,945 60,833,843
Shares repurchased (1,304,008) (9,449,122)
- ----------------------------------------------------------------
Net increase 7,095,937 $51,384,721
- ----------------------------------------------------------------
Year ended August 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 3,402,242 $24,330,666
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 356,289 2,534,391
- ----------------------------------------------------------------
3,758,531 26,865,057
Shares repurchased (2,880,242) (20,781,685)
- ----------------------------------------------------------------
Net increase 878,289 $6,083,372
- ----------------------------------------------------------------
Year ended August 31, 2002
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 589,610 $4,292,694
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 132,689 958,357
- ----------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High Yield
Trust II 4,461,174 32,490,281
- ----------------------------------------------------------------
5,183,473 37,741,332
Shares repurchased (1,159,666) (8,256,915)
- ----------------------------------------------------------------
Net increase 4,023,807 $29,484,417
- ----------------------------------------------------------------
For the period January 21, 2003
(commencement of operations)
to August 31, 2003
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 5,886 $43,500
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 176 1,315
- ----------------------------------------------------------------
6,062 44,815
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 6,062 $44,815
- ----------------------------------------------------------------
Year ended August 31, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 14,737,927 $102,795,238
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,179,863 16,802,807
- ----------------------------------------------------------------
16,917,790 119,598,045
Shares repurchased (6,915,851) (48,557,716)
- ----------------------------------------------------------------
Net increase 10,001,939 $71,040,329
- ----------------------------------------------------------------
Year ended August 31, 2002
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 2,691,926 $19,204,537
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 558,588 3,952,605
- ----------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam High Yield
Trust II 16,649,661 120,966,912
- ----------------------------------------------------------------
19,900,175 144,124,054
Shares repurchased (2,379,602) (16,714,826)
- ----------------------------------------------------------------
Net increase 17,520,573 $127,409,228
- ----------------------------------------------------------------
At August 31, 2003, Putnam , LLC owned 149 class R shares of the
fund (2.5% of class R shares outstanding), valued at $1,125.
Note 5
Transactions with affiliated issuers
Transactions during the year with companies in which the fund owned at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates Cost Cost Income Value
- ------------------------------------------------------------------------------
Archibald Candy Corp. $2,639,709 $257 $-- $47,635
Jasper Energy 144A* -- -- -- 7,305
Mediq, Inc. 8,670,504 700 -- 2,100
Paracelsus Healthcare Corp. -- 206 -- --
Pioneer Cos., Inc. 41,874 -- -- 2,361,051
PSF Group Holdings Inc., 144A -- -- -- 20,835,640
Safety Components Internation -- -- -- 5,234,049
York Research Corp. 144A* -- -- -- 1,494
VFB LLC (United Kingdom) 9,558,415 -- -- 2,412,204
- ------------------------------------------------------------------------------
Totals $20,910,502 $1,163 $-- $30,901,478
- ------------------------------------------------------------------------------
* Securities received as a corporate action.
Market values are shown for those securities affiliated at period end.
Note 6
Acquisition of Putnam High Yield
Trust II
On June 21, 2002, the fund issued 77,697,051, 87,401,275, 5,781,664,
4,461,174 and 16,649,661 of class A, class B, class C, class M and class Y
shares to acquire Putnam High Yield Trust II net assets in a tax-free
exchange approved by the shareholders. The net assets of the fund and
Putnam High Yield Trust II on June 21, 2002, valuation date, were
$1,633,735,061 and $1,394,967,488 respectively.
On June 21, 2002, Putnam High Yield Trust II had unrealized depreciation of
$242,536,390.
The aggregate net assets of the fund immediately following the acquisition
were $3,028,702,549.
Federal tax information
(Unaudited)
The fund has designated 7.07% of the distributions from net investment
income as qualifying for the dividends received deduction for corporations.
For its tax year ended August 31, 2003, the fund hereby designates 2.81%,
or the maximum amount allowable, of its net taxable income as qualified
dividends taxed at individual net capital gain rates
The Form 1099 you receive in January 2004 will show the tax status of all
distributions paid to your account in calendar 2003.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta Corporation
(a printing and digital imaging firm), Ryerson Tull, Inc. (a steel service
corporation), Advocate Health Care, and BoardSource, formerly the National
Center for Nonprofit Boards. She is Chairman Emeritus of the Board of
Trustees, Mount Holyoke College, having served as Chairman for five years
and as a board member for thirteen years. Until 2002, Ms. Baxter was a
Director of Intermatic Corporation (a manufacturer of energy control
products).
Ms. Baxter has held various positions in investment banking and corporate
finance, including Vice President and Principal of the Regency Group, and
Vice President of and Consultant to First Boston Corporation. She is a
graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat
Initiative (a private foundation dealing with national security issues) and
serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the Trustee
Advisory Council of the Applied Physics Laboratory, Johns Hopkins
University. Until 2003, Mr. Curtis was a member of the Electric Power
Research Institute Advisory Council and the University of Chicago Board of
Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a
Member of the Board of Directors of the Gas Technology Institute and the
Board of Directors of the Environment and Natural Resources Program
Steering Committee, John F. Kennedy School of Government, Harvard
University. Until 2001, Mr. Curtis was a member of the Department of
Defense Policy Board and Director of EG&G Technical Services, Inc. (a
fossil energy research and development support company).
Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He served as
Chairman of the Federal Energy Regulatory Commission from 1977 to 1981 and
has held positions on the staff of the U.S. House of Representatives, the
U.S. Treasury Department, and the Securities and Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice President and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee of
TH Lee Putnam Investment Trust (a closed-end investment company). He is
also a Trustee of Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy Associate
Director of the Office of Management and Budget, and Deputy Director of the
Federal Energy Administration. He is active in various business
associations, including the Economic Club of New York, and lectures on
energy issues in the United States and Europe. Mr. Hill holds a B.A. degree
in Economics from Southern Methodist University and pursued graduate
studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson Foundation
(a charitable trust). He is also a member of the Board of Overseers of WGBH
(a public television and radio station) as well as a member of the Board of
Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive Officer
of Fisher-Price, Inc. (a major toy manufacturer), from which he retired in
1993. He previously served as President and Chief Executive Officer of
Stride-Rite, Inc. (a manufacturer and distributor of footwear) and of
Kenner Parker Toys, Inc. (a major toy and game manufacturer). Mr. Jackson
was President of Talbots, Inc. (a distributor of women's apparel) and has
held financial and marketing positions with General Mills, Inc. and Parker
Brothers (a toy and game company). Mr. Jackson is a graduate of the
University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental Policy
Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure). He also serves on the
board of the Whitehead Institute for Biomedical Research (a non-profit
research institution) and has been President of the Yale University Council
since 1993. Prior to February 2002, he was a Director of State Farm
Indemnity Company (an automobile insurance company) and prior to March 2000
he was a Director of New England Electric System (a public utility holding
company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and competition
policy. He is active in industry restructuring, environmental, energy,
competition, and privatization policies -- serving as an advisor to
governments and corporations worldwide. Dr. Joskow holds a Ph.D. and M.
Phil from Yale University and B.A. from Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a partner in and Chairman of Cambus-Kenneth Bloodstock, LLC
(cattle and thoroughbred horses). She is President Emeritus of Mount
Holyoke College.
Dr. Kennan serves as a Trustee of Northeast Utilities and is a Director of
Talbots, Inc. She has served as Director on a number of other boards,
including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire Life
Insurance, and Kentucky Home Life Insurance. She is a Trustee of Centre
College and of Midway College in Midway, Kentucky. She is also a member of
The Trustees of Reservations. Dr. Kennan has served on the oversight
committee of the Folger Shakespeare Library, as President of Five Colleges
Incorporated, as a Trustee of Notre Dame University, and is active in
various educational and civic associations.
As a member of the faculty of Catholic University for twelve years, until
1978, Dr. Kennan directed the post-doctoral program in Patristic and
Medieval Studies, taught history, and published numerous articles. Dr.
Kennan holds a Ph.D. from the University of Washington in Seattle, an M.S.
from St. Hilda's College at Oxford University, and an A.B. from Mount
Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of Alex. Brown Realty, Inc., The Liberty
Corporation (a broadcasting company), Progress Energy, Inc. (a utility
company, formerly known as Carolina Power & Light), and Sonoco Products,
Inc. (a packaging company). Mr. Mullin is Trustee Emeritus of Washington &
Lee University, where he served as Chairman of the Investment Committee.
Prior to May 2001, he was a Director of Graphic Packaging International
Corp.
Mr. Mullin also served as a Director of Dillon, Read & Co., Inc. until
October 1997 and The Ryland Group, Inc. until January 1998. Mr. Mullin is a
graduate of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman of
Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center, as a
Trustee of Sea Education Association, and as a Director of Brandywine Trust
Company. Prior to December 2001, he was President and Trustee of Cabot
Industrial Trust (a publicly traded real estate investment trust). Prior to
February 1998, Mr. Patterson was Executive Vice President and Director of
Acquisitions of Cabot Partners Limited Partnership (a registered investment
advisor involved in institutional real estate investments). Prior to 1990,
he served as Executive Vice President of Cabot, Cabot & Forbes Realty
Advisors, Inc. (the predecessor company of Cabot Partners) and as a Senior
Vice President of the Beal Companies (a real estate management, investment,
and development firm).
Mr. Patterson practiced law and held various positions in state government,
and was the founding Executive Director of the Massachusetts Industrial
Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard
Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, Norske Canada, Inc. (a
paper manufacturer), and Qwest Communications. Until 2003, Mr. Stephens was
a Director of Mail-Well, Inc. (a diversified printing company). He served
as Chairman of Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd.
(a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Mr. Thorndike serves on the boards of various corporations and charitable
organizations.
Mr. Thorndike is a Director of Courier Corporation (a book publisher and
manufacturer) and The Providence Journal Co. (a newspaper publisher). He is
also a Trustee of Northeastern University and an honorary Trustee of
Massachusetts General Hospital, where he previously served as Chairman and
President. Prior to September 2000, he was a Director of Bradley Real
Estate, Inc.; prior to April 2000, he was a Trustee of Eastern Utilities
Associates; and prior to December 2001, he was a Trustee of Cabot
Industrial Trust.
Mr. Thorndike has also served as Chairman of the Board and Managing Partner
of Wellington Management Company/Thorndike, Doran, Paine & Lewis (a
registered investment advisor that manages mutual funds and institutional
assets), as a Trustee of the Wellington Group of Funds (currently The
Vanguard Group), and as Chairman and a Director of Ivest Fund, Inc. Mr.
Thorndike is a graduate of Harvard College.
Lawrence J. Lasser* (11/1/42), Trustee since 1992
Mr. Lasser is the President and Chief Executive Officer of Putnam
Investments, LLC since 1985. He started his career at Putnam in 1969.
Mr. Lasser is a Director of Marsh & McLennan Companies, Inc. (the parent
company of Putnam Investments). He is also a member of the Board of
Governors of the Investment Company Institute (the national association for
the U.S. investment company industry). Mr. Lasser is a Director of the
United Way of Massachusetts Bay, a Trustee of the Museum of Fine Arts,
Boston, and a Trustee and Member of the Finance and Executive Committees of
Beth Israel Deaconess Medical Center, Boston. He is also a member of the
CareGroup Board of Managers Investment Committee, the Council on Foreign
Relations, and the Commercial Club of Boston.
Mr. Lasser is a graduate of Antioch College and Harvard Business School.
George Putnam, III* (8/10/51), Trustee since 1984 and President since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is a Director of Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership with
over thirty institutional investors). He is also a Trustee of the Carnegie
Hall Society, the Educational Broadcasting Corporation, and the National
Museums of Scotland. He is Chairman of the Central Park Conservancy and a
Member of the Board of Overseers of the Joan and Sanford I. Weill Graduate
School of Medical Sciences of Cornell University. Prior to May 2000 and
November 1999, Mr. Smith was Chairman and CEO, respectively, of Marsh &
McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of August 31, 2003, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her resignation,
retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as defined
in the Investment Company Act of 1940) of the fund, Putnam Management,
Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent
company of Putnam, LLC and its affiliated companies. Messrs. Putnam, III,
Lasser, and Smith are deemed "interested persons" by virtue of their
positions as officers or shareholders of the fund or Putnam Management,
Putnam Retail Management, or Marsh & McLennan Companies, Inc. George
Putnam, III is the President of your fund and each of the other Putnam
funds. Lawrence J. Lasser is the President and Chief Executive Officer of
Putnam Investments and Putnam Management. Mr. Lasser and Mr. Smith serve as
Directors of Marsh & McLennan Companies, Inc.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Treasurer and
Principal Financial Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and
Putnam Management
Karnig H. Durgarian (1/13/56)
Vice President and Principal Executive Officer
Since 2002
Senior Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Managing Director, Putnam Investments. Prior to
July 2001, Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Gordon H. Silver (7/3/47)
Vice President
Since 1990
Senior Managing Director, Putnam Investments,
Putnam Management and Putnam Retail Management
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
William H. Woolverton (1/17/51)
Vice President and Chief Legal Officer
Since 2003
Managing Director, Putnam Investments,
Putnam Management and Putnam Retail Management
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing with
as little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or protect
against loss in a declining market.)
Switch funds easily You can move money from one Putnam fund to another
within the same class of shares without a service charge. (This privilege
is subject to change or termination.)
Access your money easily You can have checks sent regularly or redeem
shares any business day at the then-current net asset value, which may be
more or less than the original cost of the shares. Class B and class C
shares carry a sales charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your financial
advisor or directly from Putnam. To open an account by mail, send a check
made payable to the name of the fund along with a completed fund
application. To add to an existing account, complete the investment slip
found at the top of your Confirmation of Activity statement and return it
with a check payable to your fund.
For more information
Visit www.putnaminvestments.com
A secure section of our Web site contains complete information on your
account, including balances and transactions, updated daily. You may also
conduct transactions, such as exchanges, additional investments, and
address changes. Log on today to get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam representative
or your financial advisor for details about any of these or other
services, or see your prospectus.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a
prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you invest
or send money.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund
Global Equity Fund
Global Natural Resources Fund
International Capital Opportunities Fund
International Equity Fund
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund*
Income Funds
American Government Income Fund
Diversified Income Trust
Global Income Trust
High Yield Advantage Fund*
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund+
U.S. Government Income Trust
Tax-free Income Funds
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio and Pennsylvania
Asset Allocation Funds
Putnam Asset Allocation Funds--three investment portfolios
that spread your money across a variety of stocks, bonds,
and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Closed to new investors.
+ An investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the funds seek to
preserve your investment at $1.00 per share, it is possible
to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
Fund information
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 over 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 LLP
Independent Auditors
KPMG LLP
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,
Treasurer and Principal
Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and BSA
Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield
Trust. It may also be used as sales literature when preceded or accompanied
by the current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ----------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ----------------------
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
AN034-203381 014/324/2AC 10/03
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
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Putnam High Yield Trust
Supplement to Annual Report dated 8/31/03
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 do not incur a front-end
load, a distribution fee, or a contingent deferred sales charge, will
differ from the performance of class A, B, C, M, and R shares, which are
discussed more extensively in the annual report.
RESULTS AT A GLANCE
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Total return for periods ended 8/31/03
NAV
1 year 21.45%
5 years 15.19
Annual average 2.87
10 years 66.32
Annual average 5.22
Life of fund (since class A inception, 2/14/78)
Annual average 9.10
Share value: NAV
8/31/02 $6.85
8/31/03 $7.53
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Distributions: No. Income Capital gains Total
12 $0.705 -- $0.705
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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.
Item 2. Code of Ethics:
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All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
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The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
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Not applicable
Items 5-6. [Reserved]
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Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
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Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
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Item 9. Controls and Procedures:
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(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
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(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: October 29, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: October 29, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: October 29, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: October 29, 2003