Putnam
High Yield
Advantage
Fund
SEMIANNUAL REPORT
May 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* High-yield bonds generally outperformed bonds of better credit quality
in recent months. Putnam High Yield Advantage Fund's return of 4.90% at
net asset value for the six months ended May 31, 1997, compares favorably
with the 0.23% return of the unmanaged Lehman Brothers Corporate Bond
Index, a proxy for investment-grade issues.*
* "In the current environment of strong economic growth, low inflation,
and earnings gains, high-yield bonds should continue to outperform most
fixed-income investments."
-- Rosemary H. Thomsen, Fund Manager
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
33 Financial statements
* Please see pages 9 and 10 for complete performance information.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
While other areas of the fixed-income market endured considerable anxiety over
the six months ended May 31, 1997, high-yield bonds found the environment more
hospitable. As a consequence, Putnam High Yield Advantage Fund provided
investors with a solid total return for the period, which constituted the
first half of the fund's fiscal year.
The strong economy enhanced corporate profitability and credit quality,
leading to healthy demand for high-yield bonds. This heightened appetite in
turn led to record levels of new issuance. Fund Manager Rosemary Thomsen took
advantage of this environment to diversify the portfolio further, improve call
protection and take profits on select issues.
Rosemary discusses these and other factors in the following report, in which
she also looks at prospects for the fiscal year's second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 16, 1997
Report from the Fund Manager
Rosemary H. Thomsen
So far, 1997 hasn't been the best year for bond investors, but high-yield bond
investors fared far better than most. Issuers of below-investment-grade debt
generally were able to weather March's increase in interest rates with little
visible effect, thanks to a vibrant U.S. economy and record growth in
productivity. Whereas U.S. Treasuries ended the six-month period through May
31, 1997, virtually where they started, your fund's class A shares provided a
total return of 4.90% at net asset value ( - 0.07% at public offering price).
Complete performance information for the fund appears on pages 9 and 10.
After months of moderate economic growth, indicators at the start of the year
pointed to a marked pickup in activity with some potentially dangerous
implications for inflation. As it turned out, the economy grew at a brisk 5.9%
annual rate in the first quarter of 1997, while unemployment dropped to its
lowest level since 1973. Investors traded bonds for equities for a brief
period, pushing down bond prices and nudging yields higher. When the Federal
Reserve Board raised short-term interest rates in late March with a quarter of
a percentage point increase in the federal funds rate, the action was
explained as a preemptive strike against inflation. Although all types of
bonds suffered price declines, high-yield bonds were affected to a lesser
extent than most investment-grade bonds.
* A HEALTHY BACKDROP FOR HIGH YIELD BONDS
Several factors contributed to positive performance in the high-yield market
during the period. On the economic front, corporate earnings and cash flow
continue to improve, enabling companies to pare down debt and pave the way for
upgrades by rating agencies.
Merger and acquisition activity in several industries is another factor that
supported high-yield bond prices over the period. A recent example can be seen
in fund holding Smith's Food & Drug, a supermarket chain whose B-rated bonds
were trading at around $112 in early May. After the company announced it would
be acquired by grocer Fred Meyer, the bonds promptly traded up five points
(roughly 4.5%). While these and other securities discussed in this report were
viewed favorably during the period, all portfolio holdings are subject to
review and adjustment in accordance with the fund's investment strategy and
may vary in the future.
Other factors driving high-yield bond returns include a low default rate among
issuers and steady demand from insurance companies, pension funds, foreign
investors, and issuers of collateralized bond obligations (CBOs). CBOs are a
relatively new phenomenon in the high-yield market. Essentially, financial
institutions such as investment banks are packaging pools of
below-investment-grade bonds and using them as collateral to issue CBOs, which
are investment grade. The purchase of high-yield bonds in such massive
quantities (Barron's has estimated that some $22 billion in CBO deals will
come to market this year) is rapidly draining issues from the market.
* BANKS, UTILITIES, AND THE EMERGING MARKETS
During the period, the fund underwent a slight shift in emphasis away from the
telecommunications sector -- its largest sector at the start of the period --
and toward other, equally promising areas. Telecommunication bonds continue to
offer excellent prospects for income and price appreciation, in our view.
However, after a year-long stretch of solid gains we concluded that the sector
had become too heavily weighted in the portfolio.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Cable television 7.4%
Telecommunications 7.2%
Electric utilities 5.5%
Broadcasting 5.1%
Oil and gas 4.3%
Footnote reads:
* Based on net assets for corporate bond holdings as of 5/31/97. Holdings
will vary over time.
The banking sector is an area of current interest to us. Simply put, there
are too many banks. In order to compete more profitably, many regional banks
have sought greater economies of scale through mergers and acquisitions. An
example of a position we added during the period was First Nationwide
Holdings, whose merger with California Federal Savings and Loan has resulted
in a valuable California banking franchise. Other fund purchases include
Advanta National Bank Corporation, a mortgage lender whose bonds were
downgraded following a brief period of earnings disappointments but whose
positive long-term fundamentals remain intact.
Another area of increased emphasis -- and one that helped drive portfolio
returns during the period -- is the electric utility sector. Deregulation and
recent legislative changes at national and state levels are reshaping the
industry to promote increased competition. Initially, investors believed that
competition would reduce profitability throughout the industry and sold bonds
indiscriminately. Many bonds were downgraded as a result of these negative
perceptions.
We thought these fears were overdone and took the opportunity to load up on
the bonds of issuers we believed would prosper in this new regulatory
environment. As it turns out, competition has not been as quick -- nor as
detrimental -- as investors thought. Many issuers such as Niagara Mohawk have
benefited from favorable regulatory developments and were rewarded during the
period with higher bond prices. Others, such as Long Island Lighting and
Cleveland Electric announced forthcoming acquisitions by investment-grade
utilities and enjoyed more rapid price appreciation.
Arguably the fastest-growing segment of the high-yield market lies outside the
United States in developing countries. From 1995 to 1996, Asian high-yield
issuance climbed from $1.1 billion to $1.9 billion. In Latin America,
new-issue volume jumped from $470 million in 1995 to a dramatic $6.87 billion
last year. Interestingly, many governmental entities and private companies of
investment-grade quality are having to issue high-yield bonds because the
countries in which they reside have below-investment-grade status. Your fund's
performance during the period benefited from stellar returns in both
government and corporate debt in countries ranging from Mexico and Argentina
to Russia.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Cencall Communications Corp.
Cellular communications
Time Warner, Inc.
Entertainment
Adelphia Communications Corp.
Cable Television
Revlon Worldwide Corp.
Cosmetics
Diamond Cable Communication Co.
Cable Television
IGG Holdings, Inc.
Telecommunications
Cablevision Systems Corp.
Cable Television
International Cabletel, Inc.
Cable Television
Viacom International, Inc.
Media
Terex Corporation
Building and construction
Footnote reads:
These holdings represent 6.8% of the fund's assets as of 5/31/97. Portfolio
holdings will vary over time.
* VOLATILITY LIKELY, BUT NOT INFLATION
At the time of this writing, inflation is nowhere in sight. Powerful
deflationary trends such as corporate restructuring, the declining price and
accelerating application of labor-saving technologies, and fiscal retrenchment
throughout the industrialized world have enabled growth without rising prices.
In some areas of the economy, such as the telecommunications and chemicals
industries, prices are actually falling. It is possible that the old paradigm
of accelerating economic activity followed by a rise in inflation has changed.
In any case, bond prices will likely continue to ride the inevitable waves of
investor sentiment, both good and bad. We will keep a watchful eye on the
market's movements and continue to use in-depth credit research in an attempt
to construct a well-diversified portfolio that can offer the potential for
income and price appreciation in the months ahead.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 5/31/97, there is no guarantee the fund will continue to hold
these securities in the future. High-yielding, lower-rated securities pose a
greater risk to principal than higher-rated securities. High-yield securities
carry lower credit ratings than investment-grade securities because there is a
greater possibility that negative changes in the issuer's business conditions,
or in general economic conditions, may hinder the issuer's ability to pay
principal and interest on its securities.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam High Yield Advantage Fund is designed for investors
seeking high current income, with capital growth as a secondary objective.
TOTAL RETURN FOR PERIODS ENDED 5/31/97
Class A Class B Class M
(inception date) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 4.90% -0.07% 4.54% -0.46% 4.68% 1.32%
- ------------------------------------------------------------------------------
1 year 11.06 5.74 10.18 5.18 10.72 7.12
- ------------------------------------------------------------------------------
5 years 63.78 55.96 56.30 54.40 61.63 56.33
Annual average 10.37 9.30 9.34 9.08 10.08 9.35
- ------------------------------------------------------------------------------
10 years 179.65 166.43 155.26 155.26 170.64 161.77
Annual average 10.83 10.30 9.82 9.82 10.47 10.10
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/97
Consumer Lehman Bros. First Boston
Price Corporate Bond High Yield Bond
Index Index Index
- ---------------------------------------------------------------------------
6 months 0.95% 0.23% 6.47%
- ---------------------------------------------------------------------------
1 year 2.23 8.85 13.38
- ---------------------------------------------------------------------------
5 years 14.60 47.34 72.49
Annual average 2.76 8.06 11.52
- ---------------------------------------------------------------------------
10 years 41.56 147.18 202.03
Annual average 3.54 9.47 11.69
- ---------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% and 3.25%, respectively. Class B share returns for
the 1-, 5-, and 10-year periods reflect the applicable contingent deferred
sales charge (CDSC), which is 5% in the first year, declining to 1% in the
sixth year, and eliminated thereafter. Returns shown for class B and class
M for periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating expenses
applicable to such shares. Returns shown for class A shares have not been
adjusted to reflect payments under the class A distribution plan prior to
its implementation in 1990. All returns assume reinvestment of
distributions at NAV and represent past performance; they do not guarantee
future results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.432 $0.397 $0.421
- ------------------------------------------------------------------------------
Total $0.432 $0.397 $0.421
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/96 $9.65 $10.13 $9.61 $9.64 $9.96
- ------------------------------------------------------------------------------
5/31/97 9.68 10.16 9.64 9.66 9.98
- ------------------------------------------------------------------------------
Current return (end of period) NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
Current dividend rate1 8.93% 8.50% 8.22% 8.70% 8.42%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 8.32 7.92 7.57 8.07 7.81
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 5.34% 0.37% 4.87% -0.13% 5.22% 1.75%
- ------------------------------------------------------------------------------
1 year 13.03 7.67 12.14 7.14 12.80 9.10
- ------------------------------------------------------------------------------
5 years 63.91 56.13 56.50 54.59 61.88 56.61
Annual average 10.39 9.32 9.37 9.10 10.11 9.39
- ------------------------------------------------------------------------------
10 years 180.40 167.01 156.08 156.08 171.63 162.76
Annual average 10.86 10.32 9.86 9.86 10.51 10.14
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
net asset value will fluctuate so that an investor's shares when sold may
be worth more or less than their original cost. Please see the preceding
page for the method of performance calculation.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Corporate Bond Index* is an unmanaged list of publicly
issued fixed-income non-convertible securities frequently used as a
general measure of the performance of the corporate bond market.
First Boston High Yield Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
* Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
WELCOME TO
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New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
Portfolio of investments owned
May 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (79.7%) *
PRINCIPAL AMOUNT VALUE
<S> <C> <C> <C> <C>
Advertising (0.4%)
- ------------------------------------------------------------------------------------------------------------
$ 1,050,000 Adams Outdoor Advertising, Ltd. sr. notes
10 3/4s, 2006 $ 1,123,495
3,890,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 3,992,108
1,200,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 1,202,995
5,460,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 5,610,140
800,000 Universal Outdoor, Inc. sr. sub. notes Ser. B,
9 3/4s, 2006 826,000
--------------
12,754,738
Aerospace and Defense (1.2%)
- ------------------------------------------------------------------------------------------------------------
5,090,000 BE Aerospace sr. notes 9 3/4s, 2003 5,312,688
2,800,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 2,912,000
8,345,000 Howmet Corp. sr. sub. notes 10s, 2003 9,012,600
3,650,000 L-3 Communications Corp. 144A sr. sub. notes
10 3/8s, 2007 3,841,625
6,790,000 Moog Inc. sr. sub. notes Ser. B, 10s, 2006 7,061,600
2,000,000 Sequa Corp. bonds 8 3/4s, 2001 2,040,000
100,000 Sequa Corp. med. term notes 10s, 2001 102,611
2,200,000 Sequa Corp. sr. notes 9 5/8s, 1999 2,260,500
1,875,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 1,921,875
3,600,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 3,609,000
--------------
38,074,499
Agriculture (0.6%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 1,015,000
6,367,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon
Ser. B, zero % (11 1/2s, 9/1/00), 2005 ++ 4,838,920
750,000 PMI Acquisition Corp. sr. sub. notes 10 1/4s, 2003 787,500
11,711,222 Premium Standard Farms, Inc. sr. secd. notes
11s, 2003 [2 DBL. DAGGERS] 12,472,452
--------------
19,113,872
Airlines (0.3%)
- ------------------------------------------------------------------------------------------------------------
8,585,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 8,842,550
Apparel (0.6%)
- ------------------------------------------------------------------------------------------------------------
1,625,000 GFSI, Inc. 144A sr. sub. notes 9 5/8s, 2007 1,645,313
14,050,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 14,260,750
3,645,000 William Carter Co. 144A sr. sub. notes 12s, 2008 3,809,025
--------------
19,715,088
Automotive (--%)
- ------------------------------------------------------------------------------------------------------------
1,425,000 Hawk Corp. sr. notes 10 1/4s, 2003 1,460,625
Automotive Parts (1.2%)
- ------------------------------------------------------------------------------------------------------------
11,720,000 A.P.S Inc. company guaranty 11 7/8s, 2006 12,247,400
8,397,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 9,320,670
1,500,000 Aftermarket Technology Corp. sr. sub. notes Ser. D,
12s, 2004 1,665,000
3,750,000 CSK Auto, Inc. 144A sr. sub. notes 11s, 2006 3,928,125
600,000 Exide Corp. sr. notes 10s, 2005 625,500
6,405,000 Harvard Industries Inc. sr. notes 11 1/8s, 2005 2,241,750
7,120,000 Lear Corp. sub. notes 9 1/2s, 2006 7,547,200
1,275,000 Titan Wheel International Inc. sr. sub. notes
8 3/4s, 2007 1,294,125
--------------
38,869,770
Banks (3.2%)
- ------------------------------------------------------------------------------------------------------------
8,700,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 8,334,426
4,000,000 Advanta Corp. med. term notes Ser. C, 7.02s, 1999 3,931,880
3,000,000 Advanta Corp. med. term notes Ser. D, 6.65s, 2000 2,902,770
1,700,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 1,642,489
1,215,000 Advanta Corp. med. term notes Ser. D, 6.54s, 2000 1,171,940
2,475,000 Advanta National Bank dep. notes Ser. CD, 6.26s, 1997 2,471,288
10,000,000 Advanta National Bank notes 5.594s, 1998 9,904,000
3,000,000 Advanta National Bank sr. notes FRN, 5.947s, 1999 2,923,800
550,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 550,000
2,385,000 Dime Capital Trust I bank guarantyd Ser. A, 9.33s, 2027 2,480,400
2,530,000 First Nationwide Holdings sr. notes 12 1/2s, 2003 2,849,413
14,260,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 15,543,400
6,750,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 6,952,500
2,415,000 Greenpoint Capital Trust I 144A company guaranty
9.1s, 2027 2,434,803
2,850,000 North Fork Bancorp, Inc. 144A bonds 8.7s, 2026 2,768,804
2,750,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 2,966,563
6,310,000 Ocwen Financial Corp. notes 11 7/8s, 2003 6,767,475
3,675,000 Onbank Capital Trust I 144A company guaranty
9 1/4s, 2027 3,645,715
3,555,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 3,571,109
4,900,000 Provident Capital Trust company guaranty 8.6s, 2026 4,739,770
6,470,000 Riggs Capital Trust 144A bonds 8 5/8s 6,267,424
3,365,000 Sovereign Capital Trust 144A company guaranty
9s, 2027 3,321,255
2,715,000 Webster Capital Trust I 144A bonds 9.36s, 2027 2,775,952
--------------
100,917,176
Basic Industrial Products (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,645,000 Astor Corp. 144A sr. sub. notes 10 1/2s, 2006 1,719,025
1,625,000 Clark-Schwebel sr. notes 10 1/2s, 2006 1,730,625
3,815,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 3,806,798
--------------
7,256,448
Broadcasting (5.1%)
- ------------------------------------------------------------------------------------------------------------
2,950,000 Allbritton Communications sr. sub. deb. Ser. B,
9 3/4s, 2007 2,891,000
2,000,000 American Radio Systems sr. sub. notes 9 3/4s, 2005 2,070,000
5,755,000 American Radio Systems company guaranty 9s, 2006 5,870,100
3,790,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 3,913,175
3,675,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01),
2006 ++ 2,103,938
4,965,000 Busse Broadcasting Corp. sr. notes 11 5/8s, 2000 5,238,075
11,220,000 Capstar Broadcasting 144A sr. disc. notes
stepped-coupon zero % (12 3/4s, 2/1/02), 2009 ++ 6,844,200
1,480,000 Chancellor Radio Broadcasting Corp. sr. sub. notes
9 3/8s, 2004 1,502,200
3,705,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 3,982,875
510,000 Granite Broadcasting Corp. sr. sub. deb. 12 3/4s, 2002 553,350
9,000,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 9,180,000
8,310,000 Heartland Wireless Communications, Inc. sr. notes
13s, 2003 2,908,500
385,000 Heartland Wireless Communications, Inc. sr. notes
Ser. B, 14s, 2004 152,075
5,745,000 Innova S De R.L. 144A sr. notes 12 7/8s, 2007
(Mexico) 5,831,175
2,010,000 Jacor Communications, Inc. company guaranty
9 3/4s, 2006 2,090,400
13,555,000 Jacor Communications, Inc. sr. sub. notes 10 1/8s, 2006 14,368,300
10,250,000 Lenfest Communications, Inc. sr. sub. notes
10 1/2s, 2006 10,993,125
9,450,000 Paxson Communications Corp. 144A sr. sub. notes
11 5/8s, 2002 10,182,375
6,000,000 Pegasus Media & Communications notes Ser. B,
12 1/2s, 2005 6,570,000
8,462,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 8,123,520
4,215,000 Radio One Inc. 144A sr. sub. notes stepped-coupon
7s, (12s, 5/1/00), 2004 ++ 3,719,738
11,950,000 SFX Broadcasting, Inc. sr. sub. notes Ser. B,
10 3/4s, 2006 12,906,000
11,525,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 12,014,813
4,450,000 Spanish Broadcasting Systems 144A sr. notes
11s, 2004 4,650,250
4,125,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 4,228,125
4,080,000 TCI Satellite Entertainment 144A sr. sub. notes
10 7/8s, 2007 4,120,800
13,920,000 Telemedia Broadcasting Corp. 144A deb.
stepped-coupon 3.8s, (16s, 6/15/99), 2004 ++ 12,667,200
1,730,000 TV Azteca S.A. De Cv 144A sr. notes 10 1/2s, 2007
(Mexico) 1,775,413
300,000 Young Broadcasting Inc. company guaranty Ser. B,
9s, 2006 298,500
--------------
161,749,222
Building and Construction (2.3%)
- ------------------------------------------------------------------------------------------------------------
3,800,000 Atrium Companies Inc. sub. notes 10 1/2s, 2006 3,928,250
7,500,000 Cemex S.A. 144A bonds 12 3/4s, 2006 (Mexico) 8,634,375
1,960,000 Cia Latino Americana 144A company guaranty
11 1/8s, 2004 (Argentina) 2,038,400
19,265,000 Consorcio/MCII Holdings secd. notes stepped-coupon
zero % (12s, 11/15/98), 2002 (Mexico) ++ 16,712,388
2,040,000 Continental Homes Holding Corp. sr. notes 10s, 2006 2,121,600
12,105,000 Inter-City Products sr. notes 9 3/4s, 2000 12,347,100
5,165,000 Presley Cos. sr. notes 12 1/2s, 2001 5,113,350
17,710,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 19,923,750
1,910,000 Webb (Del E.) Corp. sr. sub. notes 9 3/4s, 2008 1,857,475
--------------
72,676,688
Building Products (1.2%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 American Standard, Inc. sr. sub. notes stepped-coupon
zero % (10 1/2s, 6/1/98), 2005 ++ 1,957,500
1,225,000 Building Materials Corp. sr. notes Ser. B, 8 5/8s, 2006 1,225,000
1,350,000 Congoleum Corp. sr. notes 9s, 2001 1,377,000
8,750,000 Consumers International 144A sr. notes 10 1/4s, 2005 9,296,875
11,375,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 11,488,750
6,325,000 Southdown Inc. sr. sub. notes Ser. B, 10s, 2006 6,783,563
4,225,000 Triangle Pacific Corp. sr. notes 10 1/2s, 2003 4,499,625
3,350,000 Waxman Industries Inc. sr. notes stepped-coupon
Ser. B, zero % (12 3/4s, 6/1/99), 2004 ++ 2,788,875
--------------
39,417,188
Buses (0.1%)
- ------------------------------------------------------------------------------------------------------------
1,140,000 Atlantic Express, Inc. 144A company guaranty
10 3/4s, 2004 1,185,600
2,025,000 Blue Bird Body Co. sr. sub. notes Ser. B, 10 3/4s, 2006 2,161,688
--------------
3,347,288
Business Services (0.8%)
- ------------------------------------------------------------------------------------------------------------
15,545,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/00), 2005 ++ 9,832,213
1,145,000 Iron Mountain, Inc. med. term notes company guaranty
10 1/8s, 2006 1,190,800
835,000 Loomis Fargo & Co. 144A sr. sub. notes 10s, 2004 862,138
1,060,000 Muzak, Inc. sr. notes 10s, 2003 1,097,100
1,870,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B,
11s, 2006 1,991,550
5,842,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 6,396,990
3,000,000 Williams Scoutman Inc. 144A sr.notes 9 7/8s, 2007 3,030,000
--------------
24,400,791
Cable Television (7.4%)
- ------------------------------------------------------------------------------------------------------------
3,250,000 Adelphia Communications Corp. notes Ser. B,
9 7/8s, 2005 3,136,250
2,885,000 Adelphia Communications Corp. sr. notes
9 1/2s, 2004 [2 DBL. DAGGERS] 2,625,350
27,150,000 Adelphia Communications Corp. 144A sr. notes
9 7/8s, 2007 25,928,250
16,800,000 American Telecasting, Inc. sr. disc. notes stepped-coupon
zero % (14 1/2s, 8/15/00), 2005 ++ 4,788,000
3,350,000 Bell Cablemedia PLC sr. disc. notes zero %
(11.95s, 7/15/99), 2004 (United Kingdom) 2,989,875
9,175,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 10,184,250
8,750,000 Cablevision Systems Corp. sr. sub. deb. 10 1/2s, 2016 9,143,750
210,000 Cablevision Systems Corp. sr. sub. notes 9 1/4s, 2005 211,050
9,275,000 Century Communications Corp. sr. notes 8 7/8s, 2007 8,950,375
15,595,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 11,579,288
6,000,000 CF Cable TV, Inc. sr. notes 11 5/8s, 2005 (Canada) 6,840,000
9,000,000 Charter Communications International disc. notes
stepped-coupon Ser. B, zero % (14s, 3/15/01),
2007 ++ 5,850,000
4,250,000 Charter Communications International sr. notes
Ser. B, 11 1/4s, 2006 4,526,250
5,000,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 5,187,500
7,480,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 7,741,800
36,775,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 24,915,063
1,600,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 1,312,000
325,000 Diamond Cable Communications Co. 144A sr. disc.
notes stepped-coupon zero % (10 3/4s, 2/15/02),
2007 (United Kingdom) ++ 190,531
8,695,667 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 7,847,839
2,890,000 Frontiervision Operating Partners L.P. sr. sub. notes
11s, 2006 2,991,150
1,950,000 Heartland Wireless Communications, Inc. sr. notes
Ser. D, 13s, 2003 682,500
31,750,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006
(United Kingdom) ++ 21,590,000
8,600,000 International Cabletel, Inc. 144A sr. notes 10s, 2007
(United Kingdom) 8,643,000
25,000 Marcus Cable Co. (L.P.) sr. deb. 11 7/8s, 2005 26,813
10,400,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/2000), 2005 ++ 7,904,000
18,700,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes
stepped-coupon zero % (13 1/2s, 8/1/99), 2004 ++ 16,082,000
10,400,000 TCI Communications, Inc. sr. notes 6 7/8s, 2006 9,645,272
580,000 Tele-Communications, Inc. sr. notes 7 3/8s, 2000 582,529
3,500,000 Telewest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 3,570,000
5,700,000 TV Filme, Inc. 144A sr. notes 12 7/8s, 2004 (Brazil) 5,942,250
18,745,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 (Australia) ++ 10,637,788
3,885,000 Wireless One, Inc. sr. notes 13s, 2003 2,476,688
--------------
234,721,411
Cellular Communications (4.0%)
- ------------------------------------------------------------------------------------------------------------
5,550,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon
zero % (11 3/4s, 9/1/98), 2003 ++ 5,397,375
55,970,000 Cencall Communications Corp. sr. disc. notes
stepped-coupon zero % (10 1/8s, 1/15/99),
2004 ++ 43,096,900
6,000,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 6,180,000
12,500,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 12,406,250
14,000,000 Clearnet Communications, Inc. sr. disc. notes
stepped-coupon zero % (14 3/4s, 12/15/00),
2005 ++ 9,275,000
9,555,000 Comcast Cellular 144A sr. notes 9 1/2s, 2007 9,566,944
2,750,000 Commnet Cellular, Inc. bonds 11 1/4s, 2005 3,162,500
5,000,000 Dial Call Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 4/15/99),
2004 ++ 4,050,000
19,175,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) ++ 14,045,688
6,975,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 2/15/99), 2004 ++ 5,301,000
5,530,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (11 1/2s, 9/1/98), 2003 ++ 4,755,800
9,000,000 Pricellular Wireless Corp. sr. notes 10 3/4s, 2004 9,450,000
--------------
126,687,457
Chemicals (1.7%)
- ------------------------------------------------------------------------------------------------------------
5,000,000 Acetex Corp. sr. notes 9 3/4s, 2003 (Canada) 5,050,000
1,650,000 Buckeye Cellulose Corp. sr. sub. notes 9 1/4s, 2008 1,691,250
2,775,000 Buckeye Cellulose Corp. sr. sub. notes 8 1/2s, 2005 2,747,250
2,275,000 Freedom Chemicals, Inc. sr. sub. notes 10 5/8s, 2006 2,377,375
8,750,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 9,045,313
5,500,000 Huntsman Specialty Bank Loan notes Ser. BK,
zero %, 2027 5,658,125
3,250,000 ISP Holdings, Inc. sr. notes Ser. B, 9 3/4s, 2002 3,412,500
2,790,000 NL Industries, Inc. sr. notes stepped-coupon zero %
(13s, 10/15/98), 2005 ++ 2,643,525
1,220,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 1,293,200
115,000 Sterling Chemicals Holdings sr. disc. notes
stepped-coupon zero % (13 1/2s, 8/15/01),
2008 ++ 75,181
5,305,000 Sterling Chemicals Inc. sr. sub. notes 11 3/4s, 2006 5,729,400
4,470,000 Sterling Chemicals Inc. 144A sr.sub. notes
11 1/4s, 2007 4,760,550
7,000,000 Union Carbide Global Enterprises sr. sub. Ser. B,
12s, 2005 7,918,750
--------------
52,402,419
Computer Equipment (0.5%)
- ------------------------------------------------------------------------------------------------------------
17,640,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 17,287,200
Computer Services (0.6%)
- ------------------------------------------------------------------------------------------------------------
12,620,000 Bell & Howell Co. deb. stepped-coupon Ser. B, zero %
(11 1/2s, 3/1/00), 2005 ++ 10,096,000
6,490,000 Interact Systems, Inc. 144A units stepped-coupon
zero % (14s, 8/1/99), 2003 ++ 2,920,500
5,125,000 Unisys Corp. sr. notes 11 3/4s, 2004 5,515,781
--------------
18,532,281
Conglomerates (0.2%)
- ------------------------------------------------------------------------------------------------------------
3,700,000 ADT Ltd. sr. sub. notes 9 1/4s, 2003 3,903,500
1,980,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes
13s, 1999 1,984,950
--------------
5,888,450
Consumer Durable Goods (1.3%)
- ------------------------------------------------------------------------------------------------------------
16,650,000 Coleman Escrow Corp. 144A sr. disc. notes
zero %, 2001 10,739,250
2,400,000 Coleman Escrow Corp. 144A sr. disc. notes
zero %, 2001 1,452,000
5,585,000 Icon Fitness Corp. sr. disc. notes stepped-coupon
Ser. B, 14s, (14s, 11/1/01), 2006 ++ 2,987,975
6,150,000 IHF Holdings, Inc. sr. disc. notes Ser. B, zero %
(15s, 11/15/99), 2004 ++ 5,043,000
25,560,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero %, 2003 (Canada) ++ 15,591,600
7,140,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 5,961,900
--------------
41,775,725
Consumer Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
9,695,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 10,712,975
Containers (1.3%)
- ------------------------------------------------------------------------------------------------------------
9,255,000 Ivex Packaging Corp. sr. sub. notes 12 1/2s, 2002 10,041,675
300,000 Owens Illinois, Inc. sr. sub. notes 9 3/4s, 2004 318,000
300,000 Owens Illinois, Inc. sr. sub. notes 10 1/2s, 2002 315,750
1,850,000 Printpack, Inc. sr. notes Ser. B, 9 7/8s, 2004 1,914,750
1,830,000 Radnor Holdings Inc. sr.notes 10s, 2003 1,866,600
2,869,566 Riverwood International Corp. 8.016s, 2004 2,869,566
7,130,434 Riverwood International Corp. 8.016s, 2003 7,130,433
6,665,000 US Can Corp. company guaranty Ser. B, 10 1/8s, 2006 7,039,906
8,500,000 Vicap SA. 144A company guaranty 10 1/4s, 2002 8,627,500
--------------
40,124,180
Cosmetics (1.0%)
- ------------------------------------------------------------------------------------------------------------
450,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 477,000
2,220,000 French Fragrances, Inc. 144A sr. notes 10 3/8s, 2007 2,275,500
1,500,000 Revlon Consumer Products sr. sub. notes Ser. B,
10 1/2s, 2003 1,586,250
123,000 Revlon Worldwide Corp. sr. disc. notes Ser. B,
zero %, 1998 117,158
37,890,000 Revlon Worldwide Corp. 144A sr. disc. notes
zero %, 2001 25,528,388
--------------
29,984,296
Electric Utilities (5.5%)
- ------------------------------------------------------------------------------------------------------------
8,195,000 AES China Generating Co. sr. notes 10 1/8s, 2006
(China) 8,809,625
5,625,000 BVPS II Funding Corp. secd. lease oblig. bonds 9s, 2017 5,715,619
2,500,000 Calpine Corp. sr. notes 10 1/2s, 2006 2,687,500
9,255,000 Calpine Corp. sr. notes 9 1/4s, 2004 9,440,100
4,925,000 Cleveland Electric Illuminating Co. 1st mtge.
Ser. 17-A, 9 3/8s, 2017 5,070,435
2,500,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. B,
9 1/2s, 2005 2,678,025
4,925,000 Cleveland Electric Illuminating Co. 1st mtge. Ser. E,
9s, 2023 5,062,408
5,640,000 CMS Energy Corp. sr. notes 8 1/8s, 2002 5,660,135
7,000,000 CTC Mansfield Funding deb. 11 1/8s, 2016 7,460,390
6,500,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 6,867,185
6,925,000 El Paso Electric Co. 1st mtge. Ser. E, 9.4s, 2011 7,467,574
300,000 First PV Funding deb. 10.15s, 2016 321,945
4,168,000 First PV Funding deb. Ser. 86A, 10.3s, 2014 4,471,014
12,879,000 Long Island Lighting Co. deb. 9s, 2022 14,159,688
17,200,000 Long Island Lighting Co. deb. 8.9s, 2019 18,124,500
1,350,000 Long Island Lighting Co. refunding mtge. notes
9 5/8s, 2024 1,406,552
16,965,000 Midland Funding Corp. deb. Ser. A, 11 3/4s, 2005 19,390,486
3,500,000 Midland Funding Corp. deb. Ser. B, 13 1/4s, 2006 4,173,715
5,000,000 Niagara Mohawk Power Corp. 1st mtge. 7 3/4s, 2006 4,853,200
2,500,000 Niagara Mohawk Power Corp. 1st mtge. 6 7/8s, 2001 2,432,300
9,900,000 Niagara Mohawk Power Corp. 1st mtge. 5 7/8s, 2002 9,066,618
800,000 Niagara Mohawk Power Corp. med. term notes
9.95s, 2000 799,000
1,873,000 North Atlantic Energy Corp. 1st mtge. Ser. A,
9.05s, 2002 1,875,135
6,924,397 Northeast Utilities System notes Ser. A, 8.58s, 2006 6,590,296
1,840,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 1,767,964
9,000,000 Panda Global Energy Co. 144A sr. notes 12 1/2s, 2004 8,730,000
5,000,000 Texas New-Mexico Power Utilities deb. 12 1/2s, 1999 5,369,500
1,475,000 Toledo Edison Co. med. term notes 9.22s, 2021 1,508,645
--------------
171,959,554
Electronic Components (0.3%)
- ------------------------------------------------------------------------------------------------------------
2,875,000 HCC Industries, Inc. 144A sr. sub. notes 10 3/4s, 2007 3,000,781
4,025,000 Motors and Gears, Inc. sr. notes Ser. B, 10 3/4s, 2006 4,145,750
2,400,000 Teherma-Wave Inc. 144A sr. notes 10 5/8s, 2004 2,514,000
--------------
9,660,531
Electronics (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,110,000 Celestica International Ltd. 144A sr. sub. notes
10 1/2s, 2006 (Canada) 2,262,975
3,275,000 Figgie International, Inc. sr. notes 9 7/8s, 1999 3,422,375
--------------
5,685,350
Entertainment (0.6%)
- ------------------------------------------------------------------------------------------------------------
6,040,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 6,266,500
2,250,000 Premier Parks, Inc. sr. notes Ser. A, 12s, 2003 2,497,500
3,800,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 3,876,000
5,000,000 Time Warner Inc. notes 7.45s, 1998 5,029,450
--------------
17,669,450
Environmental Control (0.3%)
- ------------------------------------------------------------------------------------------------------------
10,010,000 Allied Waste Industries, Inc. 144A sr. disc. notes
stepped-coupon zero % (11.3s, 6/1/02), 2007 ++ 6,056,050
3,900,000 Allied Waste Industries, Inc. 144A sr. sub. notes
10 1/4s, 2006 4,163,250
--------------
10,219,300
Financial Services (1.4%)
- ------------------------------------------------------------------------------------------------------------
10,155,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 10,002,675
5,275,000 AIM Management Group sr. secd. notes 9s, 2003 5,538,750
2,000,000 Colombia Holdings sr. notes 10s, 1999 2,020,000
1,920,000 Colonial Capital I 144A company guaranty 8.92s, 2027 1,872,600
10,110,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 10,211,100
1,770,000 Dollar Financial Group Inc. sr. notes Ser. A,
10 7/8s, 2006 1,840,800
2,100,000 First Federal Financial Corp. notes 11 3/4s, 2004 2,142,000
3,000,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 2,970,000
2,850,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006 2,956,875
4,690,000 Investors Capital Trust I 144A company guaranty
9.77s, 2027 4,664,352
400,000 Westinghouse Credit Corp. deb. 8 7/8s, 2014 434,000
--------------
44,653,152
Food and Beverages (0.9%)
- ------------------------------------------------------------------------------------------------------------
4,940,000 Canandaigua Wine Co. sr. sub. notes Ser. C,
8 3/4s, 2003 4,940,000
100,000 Chiquita Brands cv. sr. notes 9 5/8s 103,750
1,710,000 Del Monte Corp. 144A sr. sub. notes 12 1/4s, 2007 1,833,975
6,525,000 Doane Products Co. sr. notes 10 5/8s, 2006 6,949,125
6,375,000 Mafco, Inc. sr. sub. notes 11 7/8s, 2002 6,885,000
7,475,000 MBW Foods, Inc. 144A sr. sub. notes 9 7/8s, 2007 7,549,750
1,200,000 Windy Hill Pet Food Co. 144A sr.sub.notes
9 3/4s, 2007 1,212,000
--------------
29,473,600
Gaming (4.0%)
- ------------------------------------------------------------------------------------------------------------
13,800,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 12,972,000
3,535,000 Arizona Charlies Corp. 1st mtge. Ser. B, 12s, 2000 + 2,014,950
6,500,000 Aztar Corp. sr. sub. notes 11s, 2002 6,743,750
8,075,000 Casino America, Inc. sr. notes 12 1/2s, 2003 8,216,313
1,050,000 Casino Magic Finance Corp. 1st mtge. 11 1/2s, 2001 876,750
2,400,000 Casino Magic of Louisiana Corp. 144A 1st mtge.
13s, 2003 2,016,000
11,330,000 Coast Hotels & Casinos, Inc. company guaranty
Ser. B, 13s, 2002 12,576,300
5,042,678 Colorado Gaming & Entertainment Co. sr. notes
12s, 2003 [2 DBL. DAGGERS] 4,885,094
2,780,000 Empress River Casino sr. notes 10 3/4s, 2002 2,946,800
375,000 Eldorado Resorts LLC sr. sub. notes 10 1/2s, 2006 399,375
3,555,000 Fitzgeralds Gaming Co. 13s, 1998 3,226,163
5,755,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 5,970,813
950,000 Grate Bay Property Funding Corp. 1st mtge.
10 7/8s, 2004 840,750
6,290,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 6,635,950
11,200,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 11,816,000
7,565,000 Lady Luck Gaming 1st mtge. 11 7/8s, 2001 7,574,456
6,850,000 Mohegan Tribal Gaming sr. secd. notes Ser. B,
13 1/2s, 2002 9,007,750
10,396,000 Players International Inc. sr. notes 10 7/8s, 2005 10,863,820
7,444,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 5,806,320
6,990,000 Trump A.C. 1st mtge. 11 1/4s, 2006 6,850,200
3,078,000 Trump Castle notes 11 1/2s, 2000 3,078,000
--------------
125,317,554
Health Care (1.7%)
- ------------------------------------------------------------------------------------------------------------
5,270 Fresenius Medical Care AG pfd. Ser. D, zero %,
(Germany) 5,401,750
1,470,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 1,495,725
7,320,000 IMED Corp. sr. sub. notes 9 3/4s, 2006 7,429,800
11,400,000 Integrated Health Services, Inc. 144A sr. sub. notes
9 1/2s, 2007 11,742,000
2,000,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 2,170,000
6,570,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 6,537,150
1,900,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 1,947,500
7,865,000 Tenet Healthcare Corp. sr. notes 8s, 2005 7,874,831
8,175,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 8,256,750
--------------
52,855,506
Insurance (0.4%)
- ------------------------------------------------------------------------------------------------------------
2,700,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 2,774,250
10,550,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 11,024,750
--------------
13,799,000
Lodging (0.6%)
- ------------------------------------------------------------------------------------------------------------
14,105,000 Host Marriott Corp. sr. notes Ser. B, 9 1/2s, 2005 14,739,725
1,250,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 1,259,375
4,355,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 4,485,650
--------------
20,484,750
Media (0.9%)
- ------------------------------------------------------------------------------------------------------------
6,610,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 6,857,875
2,790,000 RBS Participacoes S.A. 144A company guaranty
11s, 2007 (Brazil) 2,901,600
20,750,000 Viacom International, Inc. sub. deb. 8s, 2006 20,179,375
--------------
29,938,850
Medical Supplies and Devices (0.8%)
- ------------------------------------------------------------------------------------------------------------
7,900,000 Dade International, Inc. sr. sub. notes Ser. B,
11 1/8s, 2006 8,828,250
5,375,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 5,966,250
9,395,000 Wright Medical Technology, Inc. sr. secd. notes Ser. B,
10 3/4s, 2000 9,512,438
--------------
24,306,938
Metals and Mining (1.1%)
- ------------------------------------------------------------------------------------------------------------
4,455,000 Continental Global Group 144A sr. notes Ser. A,
11s, 2007 4,655,475
3,000,000 Echo Bay Mines jr. sub. deb. 11s, 2027 (Canada) 3,037,500
7,500,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 8,212,500
6,470,000 Maxxam Group Holdings Inc. sr. notes Ser. B, 12s, 2003 6,664,100
5,430,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 5,973,000
5,405,000 Royal Oak Mines, Inc. company guaranty Ser. B,
11s, 2006 (Canada) 5,391,488
960,000 Wells Aluminum 144A notes 10 1/8s, 2005 974,400
--------------
34,908,463
Motion Picture Distribution (1.4%)
- ------------------------------------------------------------------------------------------------------------
5,500,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 5,940,000
12,305,000 AMC Entertainment, Inc. 144A sr. sub. notes
9 1/2s, 2009 12,504,956
2,378,100 Cinemark Mexico USA notes Ser. B, 13s, 2003
(Mexico) [2 DBL. DAGGERS] 2,294,867
91,100 Cinemark Mexico USA notes Ser. D, 13s, 2003
(Mexico) [2 DBL. DAGGERS] 87,912
11,205,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 11,373,075
4,125,000 Cobb Theatres LLC company guaranty 10 5/8s, 2003 4,310,625
8,145,000 United Artists notes 11 1/2s, 2002 8,511,525
--------------
45,022,960
Office Equipment (--%)
- ------------------------------------------------------------------------------------------------------------
555,000 United Stationer Supply, Inc. sr. sub. notes
12 3/4s, 2005 618,825
Oil and Gas (4.3%)
- ------------------------------------------------------------------------------------------------------------
2,725,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B,
11 1/2s, 2004 2,970,250
11,350,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 12,314,750
11,500,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 12,478,650
5,208,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 5,351,220
1,850,000 CIA Naviera Perez Companc S.A. 144A bonds
9s, 2004 (Argentina) 1,853,469
920,000 Costilla Energy, Inc. sr. notes 10 1/4s, 2006 952,200
7,595,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 7,974,750
2,800,000 Gulf Canada Resources, Ltd. sr. sub. deb. 9 1/4s,
2004 (Canada) 2,933,000
5,000,000 Gulf Canada Resources, Ltd. sr. sub. notes 9 5/8s,
2005 (Canada) 5,337,500
3,550,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 3,541,125
9,581,000 KCS Energy, Inc. company guaranty Ser. B, 11s, 2003 10,299,575
1,185,000 Kelley Oil & Gas Corp. sr. sub. notes Ser. B,
10 3/8s, 2006 1,226,475
2,400,000 Magnum Hunter Resources Inc. 144A sr. notes
10s, 2007 2,406,000
4,500,000 Maxus Energy Corp. deb. 11 1/2s, 2015 4,725,000
1,000,000 Maxus Energy Corp. global notes 9 7/8s, 2002 1,040,000
5,170,000 Maxus Energy Corp. notes 9 1/2s, 2003 5,350,950
500,000 Maxus Energy Corp. notes 9 3/8s, 2003 530,000
4,200,000 Mesa Operating Co. company guaranty 10 5/8s, 2006 4,693,500
3,635,000 Mesa Operating Co. company guaranty zero %
(11 5/8s,), 2006 ++ 2,726,250
2,890,000 Parker Drilling Corp. sr. notes Ser. B, 9 3/4s, 2006 2,998,375
1,205,000 Pogo Producing Co. 144A notes 8 3/4s, 2007 1,201,988
3,540,000 Pride Petroleum Services, Inc. 9 3/8s, 2007 3,690,450
4,535,000 Transamerican Refining 144A 15s, 1998 4,535,000
5,500,000 Transamerican Refining Corp. 1st mtge. 16 1/2s, 2002 6,146,250
3,150,000 Transamerican Refining Corp. var. rate 1st mtge.
zero % (18.5s 2/15/98), 2002 ++ 3,094,875
14,254,000 TransTexas Gas Corp. sr. disc. notes stepped-coupon
zero % (13 1/4s, 12/16/01), 2003 ++ 9,265,100
12,750,000 TransTexas Gas Corp. sr. secd. notes 11 1/2s, 2002 14,216,250
2,410,000 Wiser Oil Co. 144A sr. sub. notes 9 1/2s, 2007 2,410,000
--------------
136,262,952
Paging (1.4%)
- ------------------------------------------------------------------------------------------------------------
9,320,000 Arch Communications Group sr. disc. notes
stepped-coupon zero % (10 7/8s, 3/15/01),
2008 ++ 4,916,300
9,500,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 8,526,250
14,750,000 Mobile Telecommunications Tech. sr. notes
13 1/2s, 2002 15,192,500
5,875,000 Pagemart Nationwide, Inc. sr. disc. notes
stepped-coupon zero % (15s, 2/1/00), 2005 ++ 4,288,750
4,500,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 4,331,250
7,590,000 Paging Network, Inc. sr. sub. notes 10s, 2008 7,172,550
1,000,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008 942,500
--------------
45,370,100
Paper and Forest Products (2.2%)
- ------------------------------------------------------------------------------------------------------------
6,500,000 APP Finance II Mauritius Ltd. 144A bonds 12s,
(Indonesia) ++ 6,500,000
4,300,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 4,633,250
4,800,000 Domtar, Inc. notes 8 3/4s, 2006 (Canada) 4,764,000
14,650,000 Florida Coast Paper LLC 1st mtge. Ser. B,
12 3/4s, 2003 14,796,500
3,750,000 Gaylord Container Corp. sr. notes 11 1/2s, 2001 3,946,875
17,545,000 Repap New Brunswick sr. notes 10 5/8s, 2005
(Canada) 16,404,575
9,605,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 8,740,550
6,000,000 Stone Container Corp. 1st mtge. 10 3/4s, 2002 6,300,000
4,450,000 Stone Container Corp. sr. notes 11 1/2s, 2004 4,661,375
--------------
70,747,125
Publishing (0.7%)
- ------------------------------------------------------------------------------------------------------------
8,025,000 Affinity Group Holdings 144A sr. notes 11s, 2007 8,386,125
400,000 Affinity Group sr. sub. notes 11 1/2s, 2003 425,000
2,550,000 American Media Operation, Inc. sr. sub. notes
11 5/8s, 2004 2,734,875
2,875,000 Hollinger International Publishing, Inc. company
guaranty 9 1/4s, 2007 2,889,375
2,875,000 Hollinger International Publishing, Inc. company
guaranty 8 5/8s, 2005 2,889,375
1,710,000 Sun Media Corp. 144A sr. sub. notes 9 1/2s, 2007
(Canada) 1,705,725
2,400,000 Von Hoffman Press Inc. 144A sr. sub. notes
10 3/8s, 2007 2,520,000
--------------
21,550,475
Railroad (0.3%)
- ------------------------------------------------------------------------------------------------------------
9,583,750 Johnstown America Industries, Inc. effective yield of
5.773s, March 31, 2003 9,487,913
REIT's (Real Estate Investment Trust) (0.1%)
- ------------------------------------------------------------------------------------------------------------
2,100,000 Tanger Properties L.P. Gtd. notes 8 3/4s, 2001 2,145,738
Restaurants (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,420,000 AmeriKing, Inc. sr. notes 10 3/4s, 2006 1,491,000
4,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 5,088,000
--------------
6,579,000
Retail (2.1%)
- ------------------------------------------------------------------------------------------------------------
6,475,000 Barnes & Noble, Inc. sr. sub. notes Ser. B, 11 7/8s, 2003 7,009,188
2,500,000 Brylane (L.P.) sr. sub. notes 10s, 2003 2,650,000
1,600,000 Ethan Allen Interiors Inc. sr. notes 8 3/4s, 2001 1,656,000
3,130,000 Guitar Center Management Co. 144A sr. notes
11s, 2006 3,396,050
1,700,000 K mart Corp. deb. 13 1/2s, 2009 1,895,500
2,250,000 K mart Corp. med. term notes 9s, 2020 2,109,060
400,000 K mart Corp. med. term notes 8.19s, 2003 384,380
1,500,000 Kmart Corp. med. term notes 8.18s, 2003 1,440,705
300,000 K mart Corp. med. term notes 8s, 2001 290,517
1,400,000 K mart Corp. med. term notes 7.84s, 2002 1,346,744
600,000 K mart Corp. med. term notes 7.77s, 2002 594,000
1,400,000 K mart Corp. med. term notes 7.76s, 2002 1,334,536
150,000 K mart Corp. med. term notes 7.72s, 2002 142,725
500,000 K mart Corp. med. term notes 7.72s, 2002 495,000
1,000,000 K mart Corp. med. term notes 7 3/8s, 2000 965,550
1,400,000 K mart Corp. med. term notes 7.24s, 1999 1,367,324
300,000 K mart Corp. med. term notes 7.2s, 2000 288,036
3,000,000 K mart Corp. med. term notes 7.17s, 2000 2,877,600
4,100,000 K mart Corp. med. term notes 7.01s, 2000 3,913,819
1,500,000 K mart Corp. med. term notes 6.78s, 1999 1,450,170
2,900,000 K mart Corp. med. term notes 6 3/4s, 1999 2,802,270
175,000 K mart Corp. notes 8 1/8s, 2006 171,500
7,550,000 Loehmanns, Inc. sr. notes 11 7/8s, 2003 (acquired
various dates from 5/7/96 to 5/14/96,
cost $7,695,625) [DBL. DAGGER] 7,814,250
8,500,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 8,755,000
4,700,000 Phar-Mor, Inc. sr. notes 11.72s, 2002 4,864,500
1,500,000 Specialty Retailers, Inc. sr. sub. notes 11s, 2003 1,640,625
2,000,000 SRI Receivables Purchase 144A 12 1/2s, 2000 2,120,000
1,000,000 Waban, Inc. sr. sub. notes 11s, 2004 1,105,000
--------------
64,880,049
Satellite Services (0.6%)
- ------------------------------------------------------------------------------------------------------------
4,166,151 Direct Sat 1 P/p 144a 8 1/4s, 2001 3,999,506
3,040,000 Echostar Communications Corp. stepped-coupon
zero % (12 7/8s,6/1/99), 2004 ++ 2,508,000
4,612,109 Echostar I P/p 144a 8 1/4s, 2001 4,427,625
6,435,000 Orbcomm Global Capital Corp. sr. notes Ser. B,
14s, 2004 6,724,575
--------------
17,659,706
Semiconductors (0.8%)
- ------------------------------------------------------------------------------------------------------------
2,501,122 Cirent Semiconductor sr. sub. notes 10.22s, 2002 2,501,122
2,545,833 Cirent Semiconductor 144A sr. sub. notes
10.14s, 2004 2,545,833
4,825,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 4,825,000
14,580,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
10 1/8s, 2007 15,527,700
--------------
25,399,655
Shipping (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,290,000 Newport News Shipbuilding sr. notes 8 5/8s, 2006 4,375,800
Specialty Consumer Products (0.5%)
- ------------------------------------------------------------------------------------------------------------
2,530,000 Genesco, Inc. sr. notes 10 3/8s, 2003 2,580,600
5,025,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 5,376,750
7,185,000 Sassco Fashions Ltd. 144A notes 12 3/4s, 1999 7,472,400
--------------
15,429,750
Steel (0.5%)
- ------------------------------------------------------------------------------------------------------------
1,705,000 Acindar Industria Argentina de Aceros S.A. bonds
11 1/4s, 2004 (Argentina) 1,777,463
3,630,000 AK Steel Corp. sr. notes 9 1/8s, 2006 3,702,600
2,590,000 Altos Hornos De Mexico 144A bonds 11 7/8s, 2004
(Mexico) 2,732,450
1,500,000 Ispat Mexicana S.A. deb. 10 3/8s, 2001 (Mexico) 1,560,000
500,000 Ispat Mexicana, S.A. 144A deb. 10 3/8s, 2001 (Mexico) 520,000
5,320,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 5,479,600
--------------
15,772,113
Supermarkets (1.5%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Eagle Food Centers. Inc. sr. notes 8 5/8s, 2000 1,980,000
3,000,000 Ralphs Grocery Co. company guaranty 10.45s, 2004 3,288,750
8,000,000 Ralphs Grocery Co. sr. sub. notes 11s, 2005 8,780,000
3,000,000 Ralphs Grocery Co. 144A sr. sub. notes 11s, 2005 3,292,500
4,000,000 Smiths Food & Drug Centers sr. sub. notes
11 1/4s, 2007 4,680,000
3,850,000 Southland Corp. 1st priority sr. sub. deb. 5s, 2003 3,238,813
8,475,000 Star Markets Co. sr. sub. notes 13s, 2004 9,597,938
10,040,000 Stater Brothers sr. notes 11s, 2001 10,805,550
2,440,000 Supermercados Norte 144A bonds 10 7/8s, 2004
(Argentina) 2,519,300
--------------
48,182,851
Telecommunications (7.2%)
- ------------------------------------------------------------------------------------------------------------
7,045,000 American Communications Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 3,381,600
2,920,000 Brooks Fiber Properties, Inc. sr. disc. notes
stepped-coupon zero % (11 7/8s, 11/01/01),
2006 ++ 1,883,400
8,490,000 Brooks Fiber Properties, Inc. sr. disc. notes
stepped-coupon zero % (10 7/8s, 3/1/01), 2006 ++ 5,773,200
7,915,000 Brooks Fiber Properties, Inc. 144A sr. notes 10s, 2007 7,974,363
2,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 2,148,000
2,470,000 Consorcio Ecuatoriano 144A notes 14s, 2002
(Ecuador) 2,587,325
5,240,000 Dobson Communications Corp. 144A sr. notes
11 3/4s, 2007 5,095,900
6,000,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 6,600,000
27,548,000 GST Telecommunications,Inc. company guaranty
stepped-coupon zero % (13 7/8s, 15/15/00),
2005 ++ 17,079,760
13,985,000 Hyperion Telecommunication Corp. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01),
2003 ++ 7,412,050
34,500,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon
zero % (13 1/2s, 9/15/00), 2005 ++ 24,495,000
17,065,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 ++ 10,964,263
27,850,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 ++ 17,267,000
14,000,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon zero % (12 1/2s, 5/15/01),
2006 ++ 9,660,000
5,000,000 Intermedia Communications, Inc. sr. notes Ser. B,
13 1/2s, 2005 5,650,000
3,670,000 International Wireless Communications, Inc.
sr. disc. notes zero %, 2001 2,000,150
6,270,000 ITC Deltacom, Inc. 144A sr. notes 11s, 2007 6,458,100
8,915,000 McLeod, Inc. 144A sr. disc. notes stepped-coupon
zero % (10 1/2s, 3/1/02), 2007 ++ 5,304,425
21,500,000 MFS Communications sr. disc. notes stepped-coupon
zero % (8 7/8s, 1/1/01), 2006 ++ 16,764,195
7,650,000 Nextlink Communications sr. notes 12 1/2s, 2006 8,080,313
10,250,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 9,020,000
2,480,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 2,182,400
5,000,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 4,662,500
7,250,000 Rogers Cantel, Inc. deb. 9 3/8s, 2008 (Canada) 7,540,000
3,000,000 RSL Communications, Ltd. company guaranty
12 1/4s, 2006 3,000,000
9,900,000 Sprint Spectrum L.P. sr. notes 11s, 2006 10,939,500
5,000,000 Sprint Spectrum L.P. 6s, 2005 5,168,750
11,460,000 Teleport Communications Group Inc. sr. disc. notes
stepped-coupon zero % (11 1/8s, 7/1/01), 2007 ++ 8,050,650
400,000 Teleport Communications Group, Inc. sr. notes
9 7/8s, 2006 424,000
5,000,000 Winstar Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 2,825,000
500,000 WorldCom, Inc. notes 7 3/4s, 2007 508,125
1,700,000 Western Wireless Corp. sr. sub. notes 10 1/2s, 2007 1,717,000
4,525,000 Winstar Equipment Corp. 144A company guaranty
12 1/2s, 2004 4,411,875
--------------
227,028,844
Textiles (1.2%)
- ------------------------------------------------------------------------------------------------------------
6,375,000 Day International Group, Inc. sr. sub. notes
11 1/8s, 2005 6,757,500
12,915,000 Foamex (L.P.) Capital Corp. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 7/1/99), 2004 ++ 11,494,350
5,300,000 Foamex (L.P.) 144A sr. sub. notes 9 7/8s, 2007 5,392,750
2,230,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 2,308,050
6,000,000 Polysindo Inernational Eka company guaranty
13s, 2001 (Indonesia) 6,735,000
4,645,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 5,051,438
100,000 Reeves Industries Inc. sub. deb. 13 3/4s, 2001 83,000
--------------
37,822,088
--------------
Total Corporate Bonds and Notes
(cost $2,473,247,149) $2,511,980,279
PREFERRED STOCKS (5.0%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
15,201 American Radio Systems Corp. 144A $ 0.000 pfd. $ 1,611,306
147,400 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 4,127,200
69,291 Alliance Gaming Corp. Ser. B, $15.00 pfd. [2 DBL. DAGGERS] 7,015,714
238,251 Cablevision Systems Ser. M, $11.125 dep. shs. pfd. [2 DBL. DAGGERS] 22,514,720
39,734 Cablevision Systems Ser. H, $11.75 pfd. [2 DBL. DAGGERS] 3,883,999
55,200 California Federal Capital Inc. Ser. A, $ 2.281 pfd. 1,393,800
66,300 California Federal Bank Ser. B, $ 10.625 exch. pfd. 7,210,125
47,700 Chancellor Radio Broadcasting 144A $12.00 pfd. 5,175,450
50,000 Chevy Chase Savings $3.25 pfd. 1,462,500
187,205 Chevy Chase Capital Corp. Ser. A, $5.1875 pfd. 9,219,846
116,495 Diva Systems Corp. Ser. C, $6.00 pfd. 990,208
84,121 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 9,379,492
10,408 ICG Holdings, Inc. 14.25% pfd. (Canada) 10,668,200
757 Intermedia Communications, 144A 13.50% pfd. 7,872,800
12,000 Jitney-jungle Stores P/p 144a Pfd Pct $0.000 1,644,000
40,825 K-III Communications Ser. D, $10.00 pfd. 4,082,500
158,191 Nextlink Communications, Inc. $7.00 pfd. 7,909,550
4,444 NTL Inc. 144A 13.00% pfd. [2 DBL. DAGGERS] 4,488,440
192,010 Public Service Co. of New Hampshire $2.65 pfd. 4,752,248
89,440 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 9,637,160
5,675 Spanish Broadcasting Systems 144A 14.25% pfd. [2 DBL. DAGGERS] 5,050,750
26,322 Time Warner Inc. Ser. M, 10.25% pfd. [2 DBL. DAGGERS] 29,020,005
--------------
Total Preferred Stocks (cost $156,045,584) $ 159,110,013
UNITS (1.7%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
6,730 Advanced Radio Telecommunications units 14s, 2007 $ 7,066,500
1,080 Anvil Holdings 144A units 13s, 2009 [2 DBL. DAGGERS] 1,074,600
8,190 Australis Media, Ltd. units stepped-coupon zero %
(15 3/4s, 5/15/00), 2003 (Australia) ++ 5,077,800
4,945 Colt Telecommunications Group PLC units
stepped-coupon zero % (12s, 12/15/01), 2006
(United Kingdom) ++ 3,140,075
5,390 Diva Systems Corp. 144A units stepped-coupon
zero % (13s, 5/15/01), 2006 ++ 3,274,425
4,335 Esat Holdings Ltd. 144A units stepped-coupon zero %
(12 1/2s, 2/1/02), 2007 (Ireland) ++ 2,590,163
6,250 Globalstar L.P. Capital units 11 3/8s, 2004 6,328,125
8,310 McCaw International Ltd. 144A units stepped-coupon
zero % (13s, 4/15/02), 2007 ++ 4,009,575
3,170 Paging Network do Brasil 144A units 13 1/2s, 2005 3,173,963
2,880 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 1,598,400
4,785 Stone Container Corp. units sr. sub. 12 1/4s, 2002 4,892,663
2,500 Urohealth Systems, Inc. 144A units 12 1/2s, 2004 2,600,000
8,810 Wireless One Inc. units zero % (13.5s,), 2006 ++ 2,378,700
6,195 Xcl Limited 13 1/2s, 2004 6,256,950
--------------
Total Units (cost $55,257,388) $ 53,461,939
CONVERTIBLE BONDS AND NOTES (1.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 3,975,000 Argosy Gaming cv. sub. notes 12s, 2001 $ 2,871,938
5,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 4,375,000
14,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 8,845,000
3,106,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero % (13 7/8s, 15/15/00),
2005 ++ 1,956,780
5,750,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 5,146,250
1,780,000 National Semiconductor Corp. cv. deb. 6 1/2s, 2002 1,824,500
5,000,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 4,603,125
7,768,000 Pricellular Wireless Corp. 144A cv. sub. notes
stepped-coupon zero % (10 3/4s, 8/15/00) ++ 6,602,800
5,200,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 5,148,000
2,750,000 VLSI Technology, Inc. cv. sub. notes 8 1/4s, 2005 2,715,625
6,860,000 Winstar Communications. Inc. cv sr. disc. notes
zero %, 2005 4,184,600
--------------
Total Convertible Bonds and Notes
(cost $47,161,933) $ 48,273,618
COMMON STOCKS (1.2%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
3,685 AmeriKing, Inc. + $ 184,250
150,000 Aztar Corp. + 1,050,000
1,036,363 Capstar Broadcasting Partners + 1,243,636
131,050 Colorado Gaming & Entertainment Co. + 393,150
349,854 Computervision Corp. + 1,705,538
60,000 Dr Pepper Bottling Holdings, Inc. Class A + 180,000
103,500 Exide Corp. 2,264,063
322,554 Grand Union Co. [DBL. DAGGER]+ 685,427
119,400 GST Telecommunications, Inc. (Canada) + 925,350
65,000 Intermedia Communications, Inc. + 1,958,125
395,000 NEXTEL Communications, Inc. Class A + 5,826,250
2,141 PMI Holdings Corp. 144A + 685,120
1,730 Premium Holdings (L.P.) 144A [DBL. DAGGER] + 8,648
707,186 PSF Holdings LLC Class A [DBL. DAGGER] 18,740,429
85,200 Specialty Foods Corp. + 42,600
12,840 Terex Corp. Rights + 138,030
19,703 UCC Investors Holding, Inc. 315,248
--------------
Total Common Stocks (cost $58,830,054) $ 36,345,864
WARRANTS EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
92,500 Becker Gaming Corp. 144A 11/15/00 $ 925
32,988 Capital Gaming International, Inc. 2/1/99 1,320
8,904 Casino America, Inc. 5/3/01 8,904
62,180 Cellnet Data Systems, Inc. 6/15/20 870,520
46,200 ClearNet Communications, Inc. 144A 9/15/05 300,300
5,000 County Seat Holdings, Inc. 10/15/98 100
49,560 Heartland Wireless Communications 144A 4/15/00 496
13,285 Hyperion Telecommunications 144A 4/15/01 398,550
97,350 Intelcom Group 144A 10/15/05 1,265,550
6,490 Interact Systems, Inc. 3/1/00 1,623
89,120 Intercel, Inc. 2/1/06 641,664
5,000 Intermedia Communications, Inc. 144A 6/11/00 137,500
3,670 International Wireless Communications Holdings 8/15/01 37
12,730 NEXTEL Communications Inc. 10/12/98 127
152,785 Nextlink Communications, Inc. 144A 2/1/09 1,528
33,580 Pagemart, Inc. 144A 12/31/03 218,270
11,999 Petracom Holdings, Inc. 8/1/05 85,493
30,905 President Riverboat Casinos, Inc. 9/30/99 15,453
3,000 RSL Communications Ltd. 144A 11/15/06 75,000
5,675 Spanish Broadcasting Systems 144A 6/30/99 629,925
2,365 Sterling Chemicals Holdings 8/15/08 82,775
240 Telemedia Broadcasting Corp. 4/1/04 179,930
3,000 Wireless One, Inc. 10/19/00 300
668 Wright Medical Technology, Inc. 144A 6/30/03 73,505
--------------
Total Warrants (cost $5,757,970) $ 4,989,795
CONVERTIBLE PREFERRED STOCKS (--%) * (cost $631,250)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
25,000 Kelly Oil & Gas Corp. cv. $2.625 pfd. $ 637,500
FOREIGN GOVERNMENT BONDS AND NOTES (--%) *(cost $432,500)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 400,000 Banco Nacional Comercio Exterior sovereign
eurobond 11 1/4s, 2006 (Mexico) $ 440,000
SHORT-TERM INVESTMENTS (8.6%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$75,000,000 Interest in $950,540,000 joint repurchase agreement
dated May 30, 1997 with Morgan (J.P) & Co. due
June 2, 1997 with year with respect to various
U.S. Treasury obligations -- maturity value of
$75,034,438 for an effective yield of 5.51% $ 75,022,958
25,000,000 Ciesco L.P. Dcp effective yield of 5.55s,
September 1, 1997 24,764,896
944,704 Continental Micronesia effective yield of 5 7/8s
July 31, 2003 954,151
25,000,000 Fed Home Loan Mortgage Corp effective yield of
51/2s, July 18, 1997 24,820,486
25,000,000 Fed Home Loan Mortgage Corp effective yield of
5.445s, June 30, 1997 24,890,343
20,000,000 Ford Motor Credit Corp Dcp effective yield of 5.54s,
June 9, 1997 19,975,377
25,000,000 Merrill Lynch & Co Inc. effective yield of 5.55s,
June 16, 1997 24,942,188
20,000,000 National Rural Utilities Cooperative Finance Corp.
effective yield of 5.57s, 8/1/97 19,811,239
25,000,000 Sheffield Receivables Corp. effective yield of 5.57s
June 3, 1997 24,992,264
16,000,000 U.S. Bancorp effective yield of 5.56s, June 17, 1997 15,960,462
14,520,000 USAA Capital Corp. effective yield of 5.52s
June 20, 1997 14,477,698
--------------
Total Short-Term Investments (cost $269,822,035) $ 270,612,062
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,067,185,863) *** $3,085,851,070
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,153,744,854
*** The aggregate identified cost on a tax basis is $3,066,810,125, resulting in gross unrealized
appreciation and depreciation of $89,001,907 and $69,960,962, respectively, or net unrealized
appreciation of $19,040,945.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the new interest rate to be paid and the date
the fund will begin receiving interest at this rate.
[DBL. DAGGER] Restricted, excluding 144A as to public resale. The total market value of restricted securities
held at May 31, 1997 was $19,434,504 or .6% of net assets.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at the discretion of the issuer.
## When-issued securities (Note 1).
144A after the name of a security represents those exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
The rates shown on IFB and FRN are the current interest rates shown at May 31, 1997 which are
subject to change based on the terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,067,185,863) (Note 1) $3,085,851,070
- ---------------------------------------------------------------------------------------------------
Cash 26,797,481
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 51,178,842
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 37,063,398
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 59,873,089
- ---------------------------------------------------------------------------------------------------
Total assets 3,260,763,880
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 95,225,498
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,701,414
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,080,451
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 452,898
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 24,665
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,991
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,963,967
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 564,142
- ---------------------------------------------------------------------------------------------------
Total liabilities 107,019,026
- ---------------------------------------------------------------------------------------------------
Net assets $3,153,744,854
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,214,484,391
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 1,499,099
- ---------------------------------------------------------------------------------------------------
Distributions in excess of gains on investments
(Note 1) (80,903,676)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 18,665,040
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,153,744,854
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,206,863,247 divided by 124,634,392 shares) $9.68
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.68)* $10.16
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($844,942,710 divided by 87,667,061 shares)** $9.64
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,102,938,897 divided by 114,125,352 shares) $9.66
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.67)* $9.98
- ---------------------------------------------------------------------------------------------------
* 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 charges.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $130,434,789
- --------------------------------------------------------------------------------------------------
Dividends 5,299,956
- --------------------------------------------------------------------------------------------------
Total investment income 135,734,745
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,584,033
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,819,197
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 25,107
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 10,914
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,402,643
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 3,579,235
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 2,079,416
- --------------------------------------------------------------------------------------------------
Reports to shareholders 86,055
- --------------------------------------------------------------------------------------------------
Registration fees 302,369
- --------------------------------------------------------------------------------------------------
Auditing 40,232
- --------------------------------------------------------------------------------------------------
Legal 27,656
- --------------------------------------------------------------------------------------------------
Postage 14,436
- --------------------------------------------------------------------------------------------------
Other 58,181
- --------------------------------------------------------------------------------------------------
Total expenses 17,029,474
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (505,786)
- --------------------------------------------------------------------------------------------------
Net expenses 16,523,688
- --------------------------------------------------------------------------------------------------
Net investment income 119,211,057
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 16,679,440
- --------------------------------------------------------------------------------------------------
Net realized gain on forward currency transactions 77,007
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments period during the period (10,918,649)
- --------------------------------------------------------------------------------------------------
Net gain on investments 5,837,798
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $125,048,855
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
May 31 November 30
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 119,211,057 $ 135,958,662
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 16,756,447 18,695,144
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments (10,918,649) 7,206,852
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 125,048,855 161,860,658
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (50,696,216) (90,491,621)
- ----------------------------------------------------------------------------------------------------------------------
Class B (29,820,817) (39,385,557)
- ----------------------------------------------------------------------------------------------------------------------
Class M (37,041,581) (7,710,205)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (100,855)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (43,896)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (8,593)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 986,950,091 956,420,816
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 994,440,332 980,540,747
- ----------------------------------------------------------------------------------------------------------------------
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 2,159,304,522 1,178,763,775
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $1,499,099 and distribution in excess of
net investment income of $153,344, respectively) $3,153,744,854 $2,159,304,522
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share May 31
operating performance (Unaudited) Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.65 $9.52 $9.07 $10.41 $9.74 $9.30
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .44 .89 1.00 .98 1.13 1.23
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .02 .14 .45 (1.30) .70 .42
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .46 1.03 1.45 (.32) 1.83 1.65
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.90) (1.00) (1.02) (1.15) (1.21)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (c) -- -- (.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.43)* (.90) (1.00) (1.02) (1.16) (1.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.68 $9.65 $9.52 $9.07 $10.41 $9.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.90 * 11.38 16.81 (3.43) 19.88 18.44
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,205,863 $1,071,702 $870,810 $653,094 $742,472 $484,520
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .49 * 1.09 1.12 1.03 .96 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.57 * 9.24 10.35 10.87 11.04 12.40
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.45 * 74.47 89.96 69.61 50.89 68.29
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0476
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts. ( Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Year ended May 16, 19994+
operating performance (Unaudited) November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.61 $9.49 $9.05 $9.83
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .40 .82 .92 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .03 .13 .45 (.77)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .43 .95 1.37 (.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (c) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.40)* (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.64 $9.61 $9.49 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.54 * 10.52 15.94 (3.12)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $844,943 $623,097 $287,877 $37,017
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .87 * 1.84 1.85 1.02 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.19 * 8.50 9.61 7.47 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.45 * 74.47 89.96 69.61
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0476
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts. ( Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the year
Per-share May 31 Year ended Dec. 1, 1994+
operating performance (Unaudited) Nov. 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $9.64 $9.51 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .42 .87 .99
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .02 .14 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .44 1.01 1.44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- -- (c) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42)* (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.66 $9.64 $9.51
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.68 * 11.15 16.72
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,102,939 $464,506 $20,077
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .62 * 1.36 1.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.40 * 8.86 10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.45 * 74.47 89.96
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (d) $.0476
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended November 30, 1995 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts. ( Note 2)
(c) Distributions in excess of net investment income were less than $0.01 per share.
</TABLE>
Notes to financial statements
May 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam High Yield Advantage Fund (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 through a
diversified portfolio of high-yielding, lower-rated corporate bonds with
potential for capital growth.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.25% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value, and
other investments, including restricted securities, are stated at fair value
following procedures approved by the Trustees. Market quotations are not
considered to be readily available for long-term corporate bonds and notes;
such investments are stated at fair value on the basis of valuations furnished
by a pricing service, approved by the Trustees, which determines valuations
for normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date. Discounts on zero coupon bonds, original
issue discounts, stepped-coupon bonds and payment in kind bonds are accreted
according to the effective yield method.
Securities purchased or sold on a when-issued or forward commitment or delayed
delivery basis may be settled a month or more after the trade date; interest
income is accrued based on the terms of the security. Losses may arise due to
changes in the market value of the underlying securities or if the
counterparty does not perform under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such fluctuations are included with the net
realized and unrealized gain or loss on investments. Net realized gains and
losses on foreign currency transactions represent net exchange gains or losses
on closed forward currency contracts, disposition of foreign currencies and
the difference between the amount of investment income and foreign withholding
taxes recorded on the fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net unrealized appreciation and depreciation of
assets and liabilities in foreign currencies arise from changes in the value
of open forward currency contracts and assets and liabilities other than
investments at the period end, resulting from changes in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using 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 change unfavorably, if the counterparties to
the contracts are unable to meet the terms of their contracts or if the fund
is unable to enter into a closing position.
G) 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 November 30, 1996, the fund had a capital loss carryover of approximately
$97,229,000 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
- ------------------ ------------------
$30,776,000 November 30, 1998
15,409,000 November 30, 1999
16,967,000 November 30, 2002
34,077,000 November 30, 2003
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
Note 2
Management fees, 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,
0.60% of the next $500 million, 0.55% of the next $500 million, 0.50% of the
next $5 billion, .475% of the next $5 billion, .455% of the next $5 billion,
.44% of the next $5 billion and .43% of any excess thereafter. Prior to March
20, 1997, any amount over $1.5 billion was based on a rate of .50%.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended May 31, 1997, fund expenses were reduced by $505,786
under expense offset arrangements with PFTC. Investor servicing and custodian
fees reported in the Statement of operations exclude these credits. The fund
could have invested a portion of the assets utilized in connection with the
expense offset arrangements in an income producing asset if it had not entered
into such arrangements.
Trustees of the fund receive an annual Trustees fee of 2,310 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on
or after July 1, 1995. The deferred fees remain in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%
and 0.50% of the average net assets attributable to class A, class B and class
M shares, respectively.
For the six months ended May 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $515,917 and $23,363 from the sale of
class A and class M shares, respectively and $829,618 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the six
months ended May 31, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $21,632 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $1,494,850,711 and
$876,438,676, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At May 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
May 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 39,100,808 $376,687,471
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 2,769,540 26,628,245
- ------------------------------------------------------------
41,870,348 403,315,716
Shares
repurchased (28,318,384) (272,918,142)
- ------------------------------------------------------------
Net increase 13,551,964 $130,397,574
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 47,193,610 $451,272,043
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 4,702,689 44,772,621
- ------------------------------------------------------------
51,896,299 496,044,664
Shares
repurchased (32,325,152) (309,244,808)
- ------------------------------------------------------------
Net increase 19,571,147 $186,799,856
- ------------------------------------------------------------
Six months ended
May 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 39,194,923 $376,830,325
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 1,474,372 14,121,945
- ------------------------------------------------------------
40,669,295 390,952,270
Shares
repurchased (17,817,595) (171,023,216)
- ------------------------------------------------------------
Net increase 22,851,700 $219,929,054
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 44,638,934 $425,459,899
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 1,790,363 16,975,750
- ------------------------------------------------------------
46,429,297 442,435,649
Shares
repurchased (11,949,679) (113,790,264)
- ------------------------------------------------------------
Net increase 34,479,618 $328,645,385
- ------------------------------------------------------------
Six months ended
May 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 89,338,771 $862,308,215
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 162,336 1,558,742
- ------------------------------------------------------------
89,501,107 863,866,957
Shares
repurchased (23,572,755) (227,243,494)
- ------------------------------------------------------------
Net increase 65,928,352 $636,623,463
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 46,977,814 $449,474,407
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 200,933 1,909,357
- ------------------------------------------------------------
47,178,747 451,383,764
Shares
repurchased (1,092,778) (10,408,189)
- ------------------------------------------------------------
Net increase 46,085,969 $440,975,575
- ------------------------------------------------------------
Note 5
Transactions with Certain Companies
Transactions during the year with companies in which the fund owns at least
5% of the voting securities were as follows:
Purchase Sales Dividend Market
Name of Affiliates cost cost Income Value
- -------------------------------------------------------------------------
PSF Holding LLC $-- $-- $-- $18,740,429
- -------------------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM 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
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain
a price of $1.00 per share, although there is no assurance that this
price will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured
up to certain limits by federal/state agencies. Savings
accounts may also be insured up to certain limits. 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.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Edward H. D'Alelio
Vice President
Rosemary H. Thomsen
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield
Advantage Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most recent
copy of Putnam's Quarterly Performance Summary. For more information, or to
request a prospectus, call toll free: 1-800-225-1581. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of principal amount invested.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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34404-060/327/702 7/97
