Putnam
High Yield
Advantage
Fund
SEMIANNUAL REPORT
May 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent rating agency, awarded Putnam High Yield
Advantage Fund's class A shares a rating of 4 out of 5 stars for overall
performance, based on the fund's average annual return for the 3-, 5-, and
10-year periods ended June 30, 1998. Only 22.5% of the 1,468 taxable bond
funds rated received 4 stars.*
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
32 Financial statements
* Past performance is not indicative of future results. Morningstar ratings
are subject to change every month and are calculated from a fund's 3-, 5-,
and 10-year average annual returns in excess of 90-day Treasury bill
returns, with appropriate sales charge adjustments and a risk factor that
reflects performance compared to 90-day Treasury bill monthly returns. For
the 3-, 5-, and 10-year periods ended June 30, 1998, there were 1,468,
890, and 337 funds in the fixed-income category, respectively. The fund
received 4 stars for the 3-, 5-, and 10-year periods. 22.5% of the funds
in an investment category receive 4 stars. Performance of other share
classes will vary.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The global flight to quality in the aftermath of events in Asia temporarily
stalled the U.S. high-yield bond market in late 1997 as investors flocked to
the safety of U.S. Treasury issues. But by the time Putnam High Yield
Advantage Fund closed the first half of its fiscal year on May 31, 1998, the
lower-rated high-yield bonds in which your fund invests had become markedly
more attractive.
The Federal Reserve Board's decision to maintain its hands-off position on
interest rates helped reassure investors about economic prospects. But it was
the continued trend of merger and acquisition activity that was the main
driver of the high-yield bond market during the period.
In the report that follows, Fund Manager Rosemary Thomsen provides greater
detail about the market environment in which your fund delivered its positive
semiannual results. Then she offers her views on prospects for the remainder
of fiscal 1998.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 15, 1998
Report from the Fund Manager
Rosemary H. Thomsen
A positive economic backdrop in the United States, combined with strong market
fundamentals, helped propel high-yield bond prices in the past several months.
At the same time, these bonds continued to make good on their promise of
above-average income. Putnam High Yield Advantage Fund's performance for the
six months ended May 31, 1998, exemplifies both of these trends. Your fund's
class A shares provided a total return of 5.11% at net asset value and 0.08%
at public offering price, along with an SEC yield of 9.09% at net asset value
at period's end (8.65% at public offering price). For more information on the
fund's performance, including returns for other share classes, please see
pages 8 and 9.
* FLIGHT TO QUALITY SUBSIDES IN '98
In the fourth quarter of 1997, with the Asian financial crisis under way, a
so-called flight to quality touched off a temporary setback for high-yield
bonds as investors flocked to U.S. Treasury bonds and other safe-haven
investments. In the uproar that often accompanies major economic events,
investors were concerned that corporate issuers in the United States would be
adversely affected by Asia's economic woes. Driven in part by the increased
demand, long-term Treasuries outperformed high-yield corporate bonds in
December.
Corporate America continued to flourish, not yet affected by events in Asia.
The overall economy grew at an annualized rate of 4.8% in the first quarter of
1998. Consumer spending soared, and yet inflation recorded its smallest
increase in 30 years. In fact, the Asian effect soon became a positive force
for fixed-income investors who were counting on the negative trade effects of
the Asian slump to offset any price increases in the United States. At a
minimum, Asia's economic problems appear to have put the Federal Reserve
Board's monetary policy on hold, enabling investors to feel more comfortable
owning lower-rated bonds.
Investors returned to the high-yield bond market in early 1998 and bid prices
higher across several industries. Also driving the market was a merger and
acquisition boom. After December, high-yield bonds outperformed long-term
Treasury bonds for the remainder of the period as measured by the First Boston
High Yield Index and the Lehman Brothers Long Treasury Bond Index.
* FUND BENEFITS FROM TELECOMMUNICATIONS STRENGTH
During the period, the fund's exposure to the telecommunications sector
increased to more than 15% of net assets. While the increase in
telecommunications holdings reflects the sector's growth prospects, it is not
a deliberate sector play on our part. Rather than focusing on key sectors,
additions to the portfolio are made on a company-by-company basis with an
emphasis on company-level research.
The large increase in telecommunications holdings was due in part to the flood
of attractive high-yield issues that came to market in recent months, many of
which were issued by telecommunications companies with exciting prospects for
business growth. Global Crossing is a good example. The company is developing
undersea fiber-optic cable systems to help satisfy the growing demand for
reliable global telecommunications. Global Crossing's Atlantic crossing cable
is expected to link the United States, the United Kingdom, the Netherlands,
and Germany by early 1999. The company is involved in several other undersea
projects in the Atlantic and Pacific oceans as well. While this holding and
others discussed in this report were viewed favorably at the end of the
period, all holdings are subject to review and adjustment in accordance with
the fund's investment strategy and may well vary in the future.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 15.1%
Cellular
communications 6.7%
Cable television 6.2%
Oil and gas 5.4%
Broadcasting 5.1%
Footnote reads:
* Based on net assets as of 5/31/98. Holdings will vary over time.
New high-yield issuance was so strong during the period -- $43.4 billion in
the first quarter of 1998 alone -- that many companies competed for investor
attention by offering double-digit yields. The inclusion in the portfolio of
some of these new issues helped generate a substantial level of income for the
fund.
While new issues helped increase the fund's yield, merger and acquisition
activity helped boost the fund's net asset value. For example, fund holding
Teleport Communications Group was bought at a premium by AT&T during the
period. Teleport is a successful competitive local exchange carrier, providing
local phone service nationwide by using wireless and fiber-optic technologies
to compete with local phone companies. In the past, long-distance companies
have had to pay access charges to local phone companies in order to connect to
homes. With the acquisition of Teleport, AT&T can eliminate those charges in
many markets.
Other holdings benefiting from merger activity during the period were Florida
Coast Paper and Stone Container Corporation. Stone (a half owner of Florida
Coast Paper) announced its agreement to merge with the Jefferson Smurfit
Corporation to create one of the world's largest manufacturers of paperboard
and paper-based packaging. Florida Coast's bonds traded up more than 10%
before we took profits.
Other companies that contributed to the fund's positive performance during the
period include Fox/Liberty, whose cable sports network owns exclusive rights
to cover the games of certain professional teams; and Transamerican Energy,
whose Louisiana refinery came closer to actual production during the period.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Transamerican Energy stepped-coupon, 2002
Oil and gas
Midland Funding Corp. Series A, 11.75%, 2005
Electric utilities
Global Crossing Holdings, 9.625%, 2008
Telecommunications
Diamond Cable Communications Co. stepped-coupon, 2005
Cable television
NEXTEL Communications, Inc. Series E, 11.125 preferred
Cellular communications
NTL Inc. stepped-coupon, 2008
Cable television
Cencall Communications Corp. stepped-coupon, 2004
Cellular communications
Transamerican Energy Series B, 11.5%, 2002
Oil and gas
NEXTEL Communications, Inc. stepped-coupon, 2007
Cellular communications
NEXTEL Communications, Inc. stepped-coupon, 2008
Cellular communications
These holdings represent 8.9% of the fund's net assets as of 5/31/98.
Portfolio holdings will vary over time.
* MARKET FUNDAMENTALS REMAIN STRONG
In our view, the outlook for high-yield bonds is extremely favorable. We
believe inflation poses no real threat to fixed-income investors and that
gross domestic product growth in the second quarter of 1998 will slow to
roughly half that of the first quarter, sparking renewed interest in the bond
market. Unlike the stock market, in which valuations are high, the constant
supply of new high-yield issues should continue to offer attractive investment
opportunities. At present, yields are more than three percentage points higher
than Treasuries on average, and credit-rating upgrades continue to outnumber
downgrades. As always, we intend to remain diligent on credit selection,
seeking opportunities for income and price appreciation in companies we
believe will benefit from the current economic and market environment.
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 5/31/98, there is no guarantee the fund will continue to hold
these securities in the future. The lower credit ratings of high-yield bonds
reflect a greater possibility that adverse changes in the economy or poor
performance by the issuers of these bonds may affect the issuer's ability to
pay principal and interest.
Performance summary
This section provides information about your fund's performance,
which should always be considered in light of its investment
strategy. Putnam High Yield Advantage Fund is designed for
investors seeking high current income, with capital growth as a
secondary objective.
TOTAL RETURN FOR PERIODS ENDED 5/31/98
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 5.11% 0.08% 4.75% -0.25% 4.99% 1.62%
- ------------------------------------------------------------------------
1 year 13.52 8.15 12.75 7.75 13.38 9.75
- ------------------------------------------------------------------------
5 years 61.87 54.13 54.59 52.65 59.84 54.68
Annual average 10.11 9.04 9.10 8.83 9.83 9.12
- ------------------------------------------------------------------------
10 years 190.06 176.24 165.65 165.65 181.61 172.54
Annual average 11.24 10.70 10.26 10.26 10.91 10.55
- ------------------------------------------------------------------------
Life of fund 243.66 227.29 207.75 207.75 230.07 219.25
Annual average 10.67 10.22 9.67 9.67 10.30 10.00
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/98
Lehman Bros. First Boston
Corporate Bond High Yield Bond Consumer
Index Index Price Index
- ------------------------------------------------------------------------
6 months 4.49% 5.04% 0.80%
- ------------------------------------------------------------------------
1 year 12.14 12.25 1.69
- ------------------------------------------------------------------------
5 years 46.33 66.89 12.90
Annual average 7.91 10.79 2.46
- ------------------------------------------------------------------------
10 years 158.37 205.05 38.55
Annual average 9.96 11.80 3.32
- ------------------------------------------------------------------------
Life of fund 194.47 269.38 49.63
Annual average 9.28 11.34 3.37
- ------------------------------------------------------------------------
Past performance is not indicative of future results. Returns for
class A and class M shares reflect the current maximum initial
sales charges of 4.75% and 3.25%, respectively. Class B share
returns for the 1-, 5-, and 10-year (where available) and
life-of-fund periods reflect the applicable contingent deferred
sales charge (CDSC), which is 5% in the first year, declines to 1%
in the sixth year, and is eliminated thereafter. Returns shown for
class B and class M shares for periods prior to their inception are
derived from the historical performance of class A shares, adjusted
to reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M
shares, the higher operating expenses applicable to such shares.
All returns assume reinvestment of distributions at NAV. Investment
return and principal value will fluctuate so that an investor's
shares when redeemed may be worth more or less than their original
cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/98
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------
Income $0.482 $0.446 $0.470
- ------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------
Total $0.482 $0.446 $0.470
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
11/30/97 $9.96 $10.46 $9.92 $9.95 $10.28
- ------------------------------------------------------------------------
5/31/98 9.98 10.48 9.94 9.97 10.30
- ------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------
Current dividend rate1 9.39% 8.93% 8.69% 9.15% 8.85%
- ------------------------------------------------------------------------
Current 30-day SEC yield2 9.09 8.65 8.25 8.81 8.52
- ------------------------------------------------------------------------
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 6/30/98
(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 3.81% -1.13% 3.45% -1.50% 3.69% 0.27%
- ------------------------------------------------------------------------
1 year 11.72 6.38 10.96 5.96 11.46 7.81
- ------------------------------------------------------------------------
5 years 58.16 50.70 51.12 49.22 56.14 51.04
Annual average 9.60 8.55 8.61 8.33 9.32 8.60
- ------------------------------------------------------------------------
10 years 183.16 169.64 159.32 159.32 174.90 165.97
Annual average 10.97 10.43 10.00 10.00 10.64 10.28
- ------------------------------------------------------------------------
Life of fund 243.60 227.23 207.51 207.51 229.91 219.10
Annual average 10.58 10.14 9.59 9.59 10.22 9.92
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment
returns and principal value will fluctuate so that an investor's
shares, when sold, may be worth more or less than their original
cost. See first page of performance section for performance
calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over
time, assuming you held the shares through the entire period and
reinvested all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1
fee than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares, not
including any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share
plus the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the 4.75% maximum sales
charge for class A shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the
time of the redemption of class B shares and assumes redemption at
the end of the period. Your fund's 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 Bond Index* is an unmanaged list of
lower-rated higher-yielding U.S. corporate bonds.
Consumer Price Index (CPI) is a commonly used measure of inflation;
it does not represent an investment return.
* Securities indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or
taxes. Securities in the fund do not match those in the indexes and
performance of the fund will differ. It is not possible to invest
directly in an index.
Portfolio of investments owned
May 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (82.0%) (a)
PRINCIPAL AMOUNT VALUE
Advertising (0.5%)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$ 6,490,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 (STP) $ 2,596,000
3,890,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 4,152,575
7,490,000 Lamar Advertising Co. company guaranty 8 5/8s, 2007 7,639,800
8,325,000 Outdoor Communications Inc. sr. sub. notes 9 1/4s, 2007 8,491,500
--------------
22,879,875
Aerospace and Defense (1.4%)
- -------------------------------------------------------------------------------------------------------------
8,830,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 8,852,075
6,220,000 BE Aerospace, Inc. 144A sr. sub. notes 8s, 2008 6,188,900
3,890,000 Burke Industries, Inc. company guaranty 10s, 2007 3,967,800
4,490,000 K&F Industries, Inc. sr. sub. notes Ser. B, 9 1/4s, 2007 4,602,250
3,650,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 4,033,250
6,910,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 6,927,275
6,790,000 Moog Inc. sr. sub. notes Ser. B, 10s, 2006 7,282,275
9,800,000 Sabreliner Corp. sr. notes Ser. B, 12 1/2s, 2003 10,290,000
2,750,000 Sequa Corp. bonds 8 3/4s, 2001 2,811,875
1,150,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 1,204,982
2,610,000 Sequa Corp. sr. notes 9 5/8s, 1999 2,701,350
1,875,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 1,950,000
3,600,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 3,870,000
4,650,000 United Defense Industries Inc. company
guaranty 8 3/4s, 2007 4,696,500
--------------
69,378,532
Agriculture (0.5%)
- -------------------------------------------------------------------------------------------------------------
12,211,222 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 (PIK) 13,188,120
11,310,000 Purina Mills, Inc. 144A sr. sub. notes 9s, 2010 11,592,750
--------------
24,780,870
Airlines (1.1%)
- -------------------------------------------------------------------------------------------------------------
7,340,000 Calair LLC 144A company guaranty 8 1/8s, 2008 7,312,475
12,470,000 Canadian Airlines Corp. sec. 10s, 2005 (Canada) 12,672,610
8,085,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 8,570,100
14,000,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 14,700,000
7,670,000 Trans World Airlines, Inc. 144A notes 11 3/8s, 2006 7,670,000
--------------
50,925,185
Apparel (0.7%)
- -------------------------------------------------------------------------------------------------------------
5,375,000 GFSI, Inc. sr. disc. notes stepped-coupon Ser. B,
zero % (11 3/8s, 9/15/04), 2009 (STP) 6,020,000
17,555,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 17,906,100
7,140,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 7,729,050
3,645,000 William Carter Co. 144A sr. sub. notes 12s, 2008 3,927,488
--------------
35,582,638
Automotive Parts (0.5%)
- -------------------------------------------------------------------------------------------------------------
8,677,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 9,577,239
1,500,000 Aftermarket Technology Corp. sr. sub. notes
Ser. D, 12s, 2004 1,655,625
5,000,000 American Axel & Manufacturing Bank Term Loan B,
FRN 8.063s, 2005 5,000,000
8,565,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 8,971,838
--------------
25,204,702
Banks (3.5%)
- -------------------------------------------------------------------------------------------------------------
21,850,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 17,922,244
4,000,000 Advanta Corp. med. term notes Ser. C, 7.02s, 1999 3,939,600
9,200,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 8,598,412
850,000 Advanta Corp. notes Ser. D, 6.98s, 2002 784,236
3,000,000 Advanta Corp. med. term notes Ser. D, 6.65s, 2000 2,886,780
1,700,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 1,634,686
1,215,000 Advanta Corp. med. term notes Ser. D, 6.54s, 2000 1,165,914
3,685,000 Albank Capital Trust 144A company guaranty
Ser. AI, 9.27s, 2027 4,216,193
5,525,000 Colonial Capital I 144A company guaranty 8.92s, 2027 6,005,848
7,385,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 8,480,122
2,100,000 First Federal Financial Corp. notes 11 3/4s, 2004 2,268,000
2,530,000 First Nationwide Holdings sr. notes 12 1/2s, 2003 2,858,900
10,875,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 12,125,625
12,325,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 12,941,250
13,940,000 Greenpoint Capital Trust I company guaranty
9.1s, 2027 15,648,626
2,640,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 2,587,200
980,000 Korea Development Bank bonds 7 3/8s, 2004 (Korea) 826,434
14,925,000 Korea Development Bank bonds 7 1/8s, 2001 (Korea) 13,417,127
2,915,000 North Fork Capital Trust I company guaranty 8.7s, 2026 3,225,564
2,620,000 Ocwen Capital Trust company guaranty 10 7/8s, 2027 2,855,800
2,990,000 Ocwen Federal Bank sub. deb. 12s, 2005 3,289,000
6,310,000 Ocwen Financial Corp. notes 11 7/8s, 2003 7,193,400
3,675,000 Onbank & Trust Co. company guaranty 9 1/4s, 2027 4,293,215
3,555,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 3,929,661
2,900,000 Provident Capital Trust company guaranty 8.6s, 2026 3,093,633
6,470,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 6,966,249
7,865,000 Sovereign Capital Trust company guaranty 9s, 2027 8,601,715
4,460,000 Tokai Corp. 144A bonds FRB 11.0914s, 2049 (Japan) 4,147,800
2,815,000 Webster Capital Trust I 144A bonds 9.36s, 2027 3,142,300
--------------
169,045,534
Basic Industrial Products (0.7%)
- -------------------------------------------------------------------------------------------------------------
10,730,000 Grove Investors LLC 144A 14 1/2s, 2010 10,730,000
5,180,000 Koppers Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 5,335,400
13,915,000 UCAR Carbide Global Enterprises sr. sub. notes
Ser. B, 12s, 2005 15,062,988
--------------
31,128,388
Broadcasting (4.4%)
- -------------------------------------------------------------------------------------------------------------
10,000,000 Acme Television sr. disc. notes stepped-coupon
zero % (10 7/8s, 9/30/00), 2004 (STP) 8,200,000
19,445,000 Allbritton Communications Co. sr. sub. deb.
Ser. B, 9 3/4s, 2007 20,271,413
8,755,000 Antenna TV S.A. 144A sr. notes 9s, 2007 (Greece) 8,886,325
2,000,000 American Radio Systems sr. sub. notes 9 3/4s, 2005 2,175,000
5,030,000 American Radio Systems Corp. company guaranty 9s, 2006 5,382,100
8,895,000 Australias Holdings Ltd. sr. disc. notes stepped-coupon
zero % (15s, 11/01/00), 2002 (Australia)
(In Default) (STP) (NON) 1,779,000
72,546 Australis Media, Ltd. sr. disc. notes stepped-coupon 1 3/4s,
(15 3/4s 5/15/00), 2003 (Australia)(In Default)(STP) (NON) 3,627
2,709,587 Australis Media, Ltd. sr. sec. disc. notes zero %, 2000
(Australia)(In Default)(NON) 1,869,615
3,880,000 Azteca Holdings S.A. sr. notes 11s, 2002 3,957,600
9,175,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 10,321,875
12,935,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 10,153,975
4,965,000 Busse Broadcasting Corp. sr. notes 11 5/8s, 2000 5,324,963
11,220,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 8,443,050
5,425,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 5,614,875
3,150,000 Central European Media Enterprises Ltd. sr. notes
9 3/8s, 2004 3,118,500
5,350,300 Citadel Broadcasting Inc. sr. sub. notes 10 1/4s, 2007 5,858,579
19,210,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 11,958,225
25,270,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 24,638,250
15,000,000 Fox/Liberty Networks LLC sr. disc. notes stepped-coupon
zero % (9 3/4s, 8/15/02), 2007 (STP) 10,125,000
4,430,000 Fox/Liberty Networks LLC sr. notes 8 7/8s, 2007 4,485,375
7,260,000 Granite Broadcasting Corp. 144A sr. sub. notes 8 7/8s, 2008 7,278,150
10,000,000 Grupo Televisa S.A. sr. disc. notes stepped-coupon
zero % (13 1/4s, 5/15/01), 2008 (Mexico) (STP) 7,800,000
5,745,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 6,046,613
2,010,000 Jacor Communications, Inc. company guaranty
9 3/4s, 2006 2,170,800
5,000,000 Panavision Term Loan B 8 1/8s, 2005 5,000,000
9,080,000 PHI Holdings Inc. sr. sub notes 16s, 2001 6,574,828
10,480,000 Radio One Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 10,689,600
7,690,000 SFX Entertainment Inc. 144A sr. sub. notes 9 1/8s, 2008 7,536,200
1,000,000 Spanish Broadcasting Systems sr. notes 12 1/2s, 2002 1,145,000
4,245,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 4,796,850
1,950,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 2,003,625
3,885,000 Wireless One, Inc. sr. notes 13s, 2003 922,688
--------------
214,531,701
Building and Construction (0.8%)
- -------------------------------------------------------------------------------------------------------------
4,700,000 American Architectural Products Corp. 144A sr. notes
11 3/4s, 2007 4,911,500
3,800,000 Atrium Companies, Inc. 144A sub. notes 10 1/2s, 2006 3,990,000
19,730,000 MCII Holdings notes stepped-coupon zero %
(12s, 11/15/98), 2002 (STP) 18,546,200
7,650,000 Doskocil Manufacturing Co 144A sr. sub. notes
10 1/8s, 2007 8,109,000
5,000,000 Terex Corp. sr. sub notes 8.18s, 2005 5,000,000
--------------
40,556,700
Building Products (0.4%)
- -------------------------------------------------------------------------------------------------------------
3,000,000 Colombia Holdings sr. notes 10s, 1999 3,060,000
4,360,000 Jackson Products, Inc. 144A company guaranty
9 1/2s, 2005 4,392,700
6,325,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 7,052,375
3,350,000 Waxman Industries Inc. sr. notes stepped-coupon
Ser. B, zero % (12 3/4s, 6/1/99), 2004 (STP) 3,023,375
--------------
17,528,450
Business Equipment and Services (0.7%)
- -------------------------------------------------------------------------------------------------------------
4,420,000 ATC Group Services Inc. 144A sr. sub. notes 12s, 2008 4,110,600
8,170,000 CEX Holdings, Inc. 144A sr. sub. notes 9 5/8s, 2008 8,210,850
8,689,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 9,818,570
8,158,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 9,300,120
--------------
31,440,140
Cable Television (6.2%)
- -------------------------------------------------------------------------------------------------------------
16,455,000 Adelphia Communications Corp. sr. notes
Ser. B, 9 7/8s, 2007 17,606,850
2,000,000 Adelphia Communications Corp. sr. notes
9 1/2s, 2004 (PIK) 2,090,000
9,000,000 Charter Communications International notes
stepped-coupon Ser. B, zero % (14s, 3/15/01), 2007 (STP) 7,245,000
2,250,000 Charter Communications International sr. notes
Ser. B, 11 1/4s, 2006 2,475,000
17,490,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 14,385,525
8,750,000 CSC Holdings, Inc. sr. sub. deb. 10 1/2s, 2016 10,150,000
3,000,000 CSC Holdings, Inc. sr. notes 7 7/8s, 2007 3,090,000
6,330,000 CTI Holdings S.A. 144A sr. notes stepped-coupon
zero % (11 1/2s, 4/15/03), 2008 (STP) 3,623,925
1,600,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) (STP) 1,488,000
51,775,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) (STP) 41,549,438
2,075,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 1,475,844
6,000,000 FrontierVision Operating Partners sr. notes L.P. 8.156s, 2006 6,007,500
3,530,000 Globo Communicacoes 144A sr. notes
10 5/8s, 2008 (Brazil) 3,406,450
2,070,000 Globo Communicacoes 144A sr. notes
10 1/2s, 2006 (Brazil) 2,067,413
$4,170,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 4,086,600
24,750,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 (STP) 20,295,000
$29,100,000 Knology Holdings Inc. sr. disc. notes stepped-coupon
zero % (11 7/8s, 10/15/02), 2007 (STP) 17,059,875
10,400,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 (STP) 9,516,000
8,600,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 9,202,000
57,120,000 NTL Inc. 144A sr. notes stepped-coupon zero %
(9 3/4s, 4/01/03), 2008 (United Kingdom) (STP) 37,056,600
6,000,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 6,780,000
3,050,000 RBS Participacoes S.A. 144A company guaranty
11s, 2007 (Brazil) 2,973,750
20,325,000 RCN Corp. sr. disc. notes stepped-coupon zero %
(11 1/8s, 10/15/02), 2007 (STP) 13,363,688
21,950,000 RCN Corp. 144A sr. disc. notes stepped-coupon
zero % (9.8s, 2/15/03), 2008 (STP) 13,828,500
8,820,000 Supercanal Holdings S.A. 144A sr. notes
11 1/2s, 2005 (Argentina) 8,643,600
28,440,000 21st Century Telecom Group 144A sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/15/03), 2008 (STP) 16,210,800
10,000,000 TV Azteca S.A. De C.V. sr. notes Ser. A,
10 1/8s, 2004 (Mexico) 10,200,000
20,110,000 United International Holdings sr. disc. notes stepped-coupon
Ser. B, zero % (10 3/4s, 2/15/03), 2008 (STP) 12,518,475
--------------
298,395,833
Cellular Communications (5.6%)
- -------------------------------------------------------------------------------------------------------------
4,830,000 American Cell Corp 144A sr. notes 10 1/2s, 2008 4,781,700
21,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 (STP) 22,577,000
35,457,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 20,299,133
35,865,000 Cencall Communications Corp. sr. disc. notes stepped-coupon
zero % (10 1/8s, 1/15/99), 2004 (STP) 35,058,038
5,350,000 Dobson Communications Corp. sr. notes 11 3/4s, 2007 5,751,250
14,030,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 (STP) 10,882,089
8,830,000 International Wireless Communications, Inc. sr. disc. notes
zero %, 2001 3,046,350
8,310,000 McCaw International Ltd sr. discount notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 5,505,375
23,175,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 18,250,313
50,950,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 4/15/03), 2008 (STP) 31,589,000
48,985,000 NEXTEL Communications, Inc. sr. disc. notes stepped-coupon
zero % (10.65s, 9/15/02), 2007 (STP) 32,575,025
31,520,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (9.95s, 2/15/03), 2008 (STP) 19,897,000
36,000,000 NEXTEL Communications, Inc. sr. disc. notes
stepped-coupon zero % (9 3/4s, 10/31/02), 2007 (STP) 23,220,000
4,600,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 4,922,000
8,940,000 Omnipoint Corp. 144A sr. notes FRN 8 7/8s, 2006 8,940,000
1,730,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 1,851,100
7,500,000 Powertel, Inc. sr. notes 8 7/8s, 2001 7,481,250
5,000,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 (STP) 5,450,000
340,000 Sprint Spectrum L.P. sr. notes 11s, 2006 391,850
11,175,000 Transtel S.A. 144A pass through certificates
12 1/2s, 2007 (Colombia) 10,504,500
--------------
272,972,973
Chemicals (1.6%)
- -------------------------------------------------------------------------------------------------------------
3,230,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 3,278,450
4,850,000 Huntsman Corp. 144A sr. sub. notes FRN 9.0938s, 2007 4,874,250
5,430,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 5,973,000
14,300,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (Canada) 14,300,000
12,175,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes
9 3/4s, 2007 (Switzerland) 13,575,125
4,465,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 4,465,000
3,975,904 Pioneer Americas Acquisition Bank Loan FRN 8.715s, 2006 4,025,603
2,977,500 Pioneer Americas Acquisition Bank Loan FRN 8.47s, 2006 3,022,163
13,310,000 Polytama International notes 11 1/4s, 2007 5,856,400
5,390,000 Radnor Holdings Corp. company guaranty 10s, 2003 5,592,125
10,200,000 Sterling Chemicals Holdings sr. disc. notes
stepped-coupon zero % (13 1/2s, 8/15/01), 2008 (STP) 6,069,000
5,550,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 4,995,000
--------------
76,026,116
Computer Services and Software (0.8%)
- -------------------------------------------------------------------------------------------------------------
3,205,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 3,477,425
20,260,000 IPC Information Systems sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 14,789,800
8,610,000 Psinet, Inc. 144A sr. notes 10s, 2005 8,739,150
5,885,000 Unisys Corp. sr. notes 11 3/4s, 2004 6,797,175
4,600,000 Unisys Corp. deb. 9 3/4s, 2016 4,749,500
--------------
38,553,050
Conglomerates (0.1%)
- -------------------------------------------------------------------------------------------------------------
1,960,000 Cia Latino Americana 144A company guaranty
11 1/8s, 2004 (Argentina) 1,989,400
4,350,000 Dine S.A. de C.V. 144A company guaranty
8 3/4s, 2007 (Luxembourg) 4,176,000
--------------
6,165,400
Consumer Durable Goods (0.7%)
- -------------------------------------------------------------------------------------------------------------
1,235,000 Hedstrom Holdings, Inc. 144A sr. disc. notes
stepped-coupon zero % (12s, 6/1/02), 2009 (STP) 768,788
5,585,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/01), 2006 (STP) 2,513,250
6,150,000 IHF Holdings, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (15s, 11/15/99), 2004 (STP) 4,981,500
3,245,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 3,009,738
6,500,000 Sealy Mattress Co. 144A sr. notes 12s, 2008 6,142,500
7,860,000 Sealy Mattress Co. 144A sr. disc. notes stepped-coupon
zero % (10 7/8s, 12/15/02), 2007 (STP) 5,266,200
4,540,000 Sealy Term Loan Ser. B 5.938s, 2007 4,565,538
3,269,091 Sealy Term Loan Ser. C 8.688s, 2008 3,287,479
4,177,273 Sealy Term Loan Ser. D 8.938s, 2009 4,200,770
--------------
34,735,763
Consumer Non Durables (0.4%)
- -------------------------------------------------------------------------------------------------------------
2,495,000 Amscan Holdings, Inc. sr. sub. notes 9 7/8s, 2007 2,576,088
14,885,000 Viasystems Inc. sr. sub notes 9 3/4s, 2007 15,517,613
--------------
18,093,701
Consumer Services (0.4%)
- -------------------------------------------------------------------------------------------------------------
15,402,000 Coinmach Corp. sr. notes Ser. D, 11 3/4s, 2005 17,327,250
Cosmetics (0.6%)
- -------------------------------------------------------------------------------------------------------------
1,795,000 Carson, Inc. company guaranty Ser. B, 10 3/8s, 2007 1,795,000
5,340,000 Chattem, Inc. 144A sr. sub. notes 8 7/8s, 2008 5,313,300
2,220,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 2,375,400
4,220,000 French Fragrances, Inc. 144A sr. notes 10 3/8s, 2007 4,515,400
3,500,000 Revlon Consumer Products sr. sub. notes 8 5/8s, 2008 3,473,750
11,375,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 8,787,188
--------------
26,260,038
Electric Utilities (3.7%)
- -------------------------------------------------------------------------------------------------------------
8,195,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 7,703,300
16,100,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 15,295,000
4,600,000 CE Casecnan Water & Energy 144A sr. notes
11.45s, 2005 (Philippines) 4,669,000
8,640,000 CMS Energy Corp. pass through certificates 7s, 2005 8,389,094
2,000,000 Connecticut Light & Power Co. 1st mtge. Ser. D,
7 7/8s, 2024 2,040,140
6,655,000 Espirito Santo Centrais 144A sr. notes 10s, 2007 (Brazil) 5,972,863
3,908,000 First PV Funding Corp. deb. Ser. 86A, 10.3s, 2014 4,127,395
123,000 First PV Funding Corp. deb. 10.15s, 2016 129,788
1,350,000 Long Island Lighting Co. refunding mtge. notes 9 5/8s, 2024 1,358,438
13,754,000 Long Island Lighting Co. deb. 9s, 2022 15,663,193
17,200,000 Long Island Lighting Co. deb. 8.9s, 2019 18,298,392
3,757,030 Midland Cogeneration Ventures (L.P.) deb.
Ser. C-91 10.33s, 2002 4,057,104
9,438,921 Midland Funding Corp. I deb. Ser. C-94 10.33s, 2002 10,191,297
9,600,000 Midland Funding Corp. II deb. Ser. B, 13 1/4s, 2006 12,364,896
35,765,000 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 42,921,577
800,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 812,360
1,746,000 North Atlantic Energy Corp. 1st mtge. Ser. A, 9.05s, 2002 1,795,866
6,486,145 Northeast Utilities System notes Ser. A, 8.58s, 2006 6,663,865
1,600,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 1,631,616
14,420,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 13,699,000
--------------
177,784,184
Electronics and Electrical Equipment (1.2%)
- -------------------------------------------------------------------------------------------------------------
5,000,000 Details, Inc. sr. discount notes stepped-coupon
Ser. B, zero %, (12 1/2s, 11/15/02), 2007 (STP) 3,200,000
2,790,000 Details, Inc. sr. sub. notes Ser. B, 10s, 2005 2,845,800
10,550,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 10,470,875
6,280,000 Flextronics International Ltd. sr. sub. notes Ser. B, 8 3/4s, 2007 6,342,800
10,605,000 Motors and Gears Inc. sr. notes Ser. B, 10 3/4s, 2006 11,453,400
4,830,000 Samsung Electronics 144A company guaranty 9 3/4s, 2003 4,612,650
4,530,000 Therma-Wave Inc. sr. notes Ser. B, 10 5/8s, 2004 4,484,700
15,870,000 Zilog Inc. 144A sr. notes 9 1/2s, 2005 12,854,700
--------------
56,264,925
Entertainment (0.5%)
- -------------------------------------------------------------------------------------------------------------
9,925,000 Premier Parks, Inc.144A sr. disc. notes stepped-coupon
zero %, (10s, 4/1/03), 2008 (STP) 6,327,188
6,040,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 6,485,450
5,600,000 Six Flags Corp. sr. notes 8 7/8s, 2006 5,656,000
5,275,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 (STP) 5,954,156
--------------
24,422,794
Environmental Control (0.3%)
- -------------------------------------------------------------------------------------------------------------
3,900,000 Allied Waste Industries, Inc. company guaranty 10 1/4s, 2006 4,299,750
15,010,000 Allied Waste Industries, Inc. sr. disc. notes stepped-coupon
zero % (11.3s, 6/1/02), 2007 (STP) 11,032,350
--------------
15,332,100
Financial Services (1.9%)
- -------------------------------------------------------------------------------------------------------------
19,015,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 19,015,000
10,110,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 10,488,114
9,345,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 9,345,000
1,770,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 1,911,600
4,565,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2032 4,565,000
4,690,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 5,179,152
5,500,000 Local Financial Corp. 144A sr. notes 11s, 2004 5,995,000
3,910,000 Nationwide Credit Inc. 144A sr. notes 10 1/4s, 2008 3,968,650
1,870,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 1,986,875
7,000,000 Outsourcing Solutions Inc. 144A 8.621s, 2004 7,000,000
3,875,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 4,050,150
10,250,000 Resource America Inc. 144A sr. notes 12s, 2004 10,967,500
6,670,000 Superior Financial 144A sr. notes 8.65s, 2003 6,820,075
--------------
91,292,116
Food and Beverages (3.2%)
- -------------------------------------------------------------------------------------------------------------
12,405,000 Ameriserve Food Co. company guaranty 10 1/8s, 2007 13,149,300
8,345,000 Ameriserve Food Co. company guaranty 8 7/8s, 2006 8,428,450
10,280,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 10,948,200
6,000,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 6,390,000
6,450,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 6,562,875
6,525,000 Doane Products Co. sr. notes 10 5/8s, 2006 7,079,625
10,525,000 Eagle Family Foods 144A sr. sub. notes 8 3/4s, 2008 10,261,875
10,100,000 Fleming Companies, Inc. company guaranty
Ser. B, 10 5/8s, 2007 10,605,000
12,047,000 International Home Foods, Inc. company guaranty
10 3/8s, 2006 13,251,700
6,765,000 Nebco Evans Holding Co. sr. disc. notes stepped-coupon
zero % (12 3/8s, 7/15/02), 2007 (STP) 4,600,200
8,305,000 Packaged Ice, Inc. 144A sr. notes 9 3/4s, 2005 8,388,050
7,290,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 7,362,900
10,250,000 RAB Food Holdings, Inc. 144A sr. notes 13s, 2008 10,352,500
1,970,000 Sampoerna International Finance Co. 144A
company guaranty 8 3/8s, 2006 (Indonesia) 1,122,900
7,500,000 Signature Brands Ltd. sr. sub. notes 13s, 2002 8,456,250
7,100,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 7,313,000
5,883,360 Southern Foods Group 144A sr. sub notes
8 5/8s, 2006 5,898,068
16,340,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 16,830,200
--------------
157,001,093
Gaming (3.3%)
- -------------------------------------------------------------------------------------------------------------
7,725,000 Argosy Gaming Co. company guaranty 13 1/4s, 2004 8,709,938
6,025,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 6,507,000
5,575,000 Casino America, Inc. sr. notes 12 1/2s, 2003 6,271,875
3,974,289 Casino America, Inc. sr. notes 11 1/2s, 2001 3,934,546
12,920,000 Coast Hotels & Casinos, Inc. 1st mtge. company guaranty
Ser. B, 13s, 2002 14,954,900
4,000,000 Coast Hotels & Casinos, Inc. company guaranty
Ser. B, 10 7/8s, 2001 4,240,000
6,442,678 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 6,990,306
16,900,000 Fitzgeralds Gaming Corp. 144A company guaranty
12 1/4s, 2004 16,900,000
8,255,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 8,915,400
10,220,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 11,318,650
8,235,000 Isle of Capri Black Hawk LLC 1st mortgage
Ser. B, 13s, 2004 8,440,875
750,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 757,500
3,210,000 Penn National Gaming, Inc. 144A sr. notes 10 5/8s, 2004 3,370,500
11,370,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 8,868,600
10,385,000 Trump A.C. 1st mtge. 11 1/4s, 2006 10,203,263
5,000,000 Trump A.C. 144A 1st mtge. 11 1/4s, 2006 4,850,000
17,975,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 18,154,750
2,500,000 Trump Castle Hotel 144A sr. sub. notes 10 1/4s, 2003 2,525,000
6,050,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 6,836,500
8,823,529 Venetian Casino Term Bank Loan 8 7/8s, 2003 8,790,441
--------------
161,540,044
Health Care (3.2%)
- -------------------------------------------------------------------------------------------------------------
2,000,000 Columbia/HCA Healthcare Corp. med. term notes
8.85s, 2007 2,147,540
5,125,000 Columbia/HCA Healthcare Corp. notes 7s, 2007 4,874,593
14,810,000 Extendicare Inc. 144A sr. sub. notes 9.35s, 2007 (Canada) 14,995,125
2,083,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 2,129,868
8,580,000 Global Health Sciences 144A sr. notes 11s, 2008 8,386,950
9,705,000 Integrated Health Services, Inc. sr. sub. notes
Ser. A, 9 1/4s, 2008 9,947,625
4,295,000 Magellan Health Services, Inc. 144A sr. sub. notes 9s, 2008 4,230,575
15,175,000 MedPartners, Inc. sr. notes 7 3/8s, 2006 13,700,597
1,750,000 MedPartners, Inc. sr. sub.notes 6 7/8s, 2000 1,639,803
9,190,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 8,960,250
6,570,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 6,701,400
5,280,000 Paragon Corp. Holdings 144A sr. notes 9 5/8s, 2008 5,068,800
19,735,000 Paragon Health Networks, Inc. sr. sub. notes Ser. B,
9 1/2s, 2007 19,932,350
8,750,000 Paragon Health Networks Bank Term Loan144A 8 1/2s, 2005 8,750,000
25,130,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 25,255,650
12,170,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 12,474,250
7,865,000 Tenet Healthcare Corp. sr. notes 8s, 2005 8,100,950
--------------
157,296,326
Medical Supplies and Devices (1.7%)
- -------------------------------------------------------------------------------------------------------------
12,185,000 ALARIS Medical Systems, Inc. company guaranty 9 3/4s, 2006 12,611,475
8,000,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 9,060,000
13,340,000 Fresenius Medical Care AG 144A company guaranty
7 7/8s, 2008 (Germany) 13,139,900
5,375,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 5,966,250
2,100,000 Imagyn Medical Technologies, Inc. company guaranty
12 1/2s, 2004 1,176,000
6,325,000 Kinetic Concepts, Inc. company guaranty Ser. B, 9 5/8s, 2007 6,404,063
10,915,000 Leiner Health Products sr. sub. notes 9 5/8s, 2007 11,729,586
12,520,000 Mediq, Inc. 144A sr. sub. notes 11s, 2008 12,770,400
9,530,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 9,434,700
--------------
82,292,374
Metals and Mining (0.6%)
- -------------------------------------------------------------------------------------------------------------
13,680,000 Anker Coal Group, Inc. sr. notes Ser. B, 9 3/4s, 2007 12,585,600
7,500,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 8,015,625
6,470,000 Maxxam Group Holdings, Inc. sr. notes Ser. B, 12s, 2003 7,003,775
--------------
27,605,000
Motion Picture Distribution (0.8%)
- -------------------------------------------------------------------------------------------------------------
12,285,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 12,592,125
175,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 (Mexico) 182,000
15,500,000 Cinemark USA, Inc. sr. sub. notes Ser. D, 9 5/8s, 2008 (Mexico) 15,965,000
8,120,000 United Artists Theatre 144A sr. sub. notes 9 3/4s, 2008 8,130,150
--------------
36,869,275
Oil and Gas (5.4%)
- -------------------------------------------------------------------------------------------------------------
2,725,000 Abraxas Petroleum Corp. 144A 11 1/2s, 2004 2,854,438
11,155,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 11,768,525
1,375,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 1,347,500
8,190,000 Chesapeake Energy Corp. 144A sr. notes 9 5/8s, 2005 8,179,763
5,208,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 5,103,840
4,000,000 Clark R & M Holdings Inc. Bank Loan FRN 8 5/8s, 2004 4,010,000
5,490,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 5,160,600
7,610,000 Dailey Petroleum Services Corp. co. guaranty 9 1/2s, 2008 7,629,025
7,595,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 8,316,525
2,970,000 Gothic Production 144A sr. notes 11 1/8s, 2005 2,910,600
5,000,000 Gulf Canada Resources Ltd. sr. sub. notes
9 5/8s, 2005 (Canada) 5,400,000
3,550,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 3,638,750
7,160,000 Lodestar Holding, Inc. 144A sr. notes 11 1/2s, 2005 7,195,800
6,690,000 Michael Petroleum Corp. 144A sr. notes 11 1/2s, 2005 6,606,375
7,680,000 Northern Offshore 144A co. guaranty 10s, 2007 7,603,200
3,125,000 Pacalta Resources Ltd. sr. notes Ser. B, 10 3/4s, 2004 (Canada) 3,218,750
3,730,000 Panaco, Inc. company guaranty Ser. B, 10 5/8s, 2004 3,776,625
5,910,000 RAM Energy Inc. sr. notes 11 1/2s, 2008 5,983,875
3,705,000 Seven Seas Petroleum 144A sub. notes 12 1/2s, 2005 3,742,050
10,480,000 Southwest Royalties, Inc. company guaranty 10 1/2s, 2004 9,222,400
113,200,000 Transamerican Energy sr. disc. notes stepped-coupon
Ser. B, zero % (13s, 6/15/99), 2002 (STP) 93,956,000
35,935,000 Transamerican Energy sr. notes Ser. B, 11 1/2s, 2002 34,497,600
8,736,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 9,696,960
4,800,000 Trico Marine Services, Inc. company guaranty
Ser. B, 8 1/2s, 2005 4,848,000
1,350,000 Trico Marine Services, Inc. company guaranty
Ser. D, 8 1/2s, 2005 1,360,125
2,410,000 Wiser Oil Co. company guaranty 9 1/2s, 2007 2,325,650
3,475,000 XCL Ltd. 144A company guaranty 13 1/2s, 2004 3,648,750
--------------
264,001,726
Packaging and Containers (0.2%)
- -------------------------------------------------------------------------------------------------------------
5,290,000 AEP Industries, Inc. 144A sr. sub notes 9 7/8s, 2007 5,448,700
3,000,000 Consumers International 144A sr. notes 10 1/4s, 2005 3,217,500
1,330,000 Radnor Holdings Corp. sr. notes 10s, 2003 1,403,150
--------------
10,069,350
Paging (0.6%)
- -------------------------------------------------------------------------------------------------------------
6,000,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 6,180,000
6,440,000 Metrocall, Inc. sr. sub. notes 9 3/4s, 2007 6,504,400
7,420,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 8,607,200
8,000,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 7,640,000
1,650,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008 1,707,750
--------------
30,639,350
Paper and Forest Products (2.7%)
- -------------------------------------------------------------------------------------------------------------
10,480,000 Alabama River Newsprint Bank Loan 7.562s, 2002 9,641,600
11,720,000 APP Finance II Mauritius Ltd. bonds 12s, 2049 (Indonesia) 8,438,400
870,000 APP International Finance Co. notes
11 3/4s, 2005 (Netherlands) 756,900
6,158,585 Florida Coast Paper LLC notes 13 1/4s, 2007 6,220,171
5,020,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 5,547,100
6,630,000 Huntsman Packaging Corp. company guaranty 9 1/8s, 2007 6,746,025
10,465,000 Indah Kiat Financial Mauritius Ltd. company guaranty
10s, 2007 (Indonesia) 7,325,500
11,190,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 7,721,100
15,005,000 PT Pabrik Kertas Tjiwi Kimia company guaranty
10s, 2004 (Indonesia) 10,503,500
28,565,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 29,279,125
3,360,000 Repap New Brunswick 144A sr. notes 9s, 2004 (Canada) 3,397,800
21,175,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 21,492,625
10,000,000 Riverwood International Corp. company guaranty
10 5/8s, 2007 10,512,500
1,220,000 Riverwood International Corp. company guaranty
10 1/4s, 2006 1,256,600
1,270,000 Stone Container Corp. 144A company guaranty
11 1/2s, 2006 1,435,100
50,000 Stone Container Corp. 1st mtge. 10 3/4s, 2002 53,250
--------------
130,327,296
Pharmaceuticals (0.3%)
- -------------------------------------------------------------------------------------------------------------
9,750,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 10,481,250
5,370,000 PharMerica, Inc. 144A sr. sub. notes 8 3/8s, 2008 5,383,425
--------------
15,864,675
Photography (0.1%)
- -------------------------------------------------------------------------------------------------------------
4,480,000 Panavision Inc. 144A sr. disc. notes stepped-coupon
zero % (9 5/8s, 2/1/02), 2006 (STP) 3,192,000
Publishing (0.5%)
- -------------------------------------------------------------------------------------------------------------
8,025,000 Affinity Group Holdings sr. notes 11s, 2007 8,667,000
3,550,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 3,842,875
6,950,000 Perry-Judd 144A sr. sub. notes 10 5/8s, 2007 7,297,500
2,860,000 Tri State Media, Inc. 144A sr. sub. notes 11s, 2008 2,910,908
--------------
22,718,283
Railroads (0.2%)
- -------------------------------------------------------------------------------------------------------------
1,935,000 TFM S.A. de C.V. company guaranty 10 1/4s, 2007 (Mexico) 1,973,700
14,750,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero %, (11 3/4s, 6/15/02), 2009 (Mexico)(STP) 9,937,813
--------------
11,911,513
Real Estate (--%)
- -------------------------------------------------------------------------------------------------------------
1,580,000 Bluegreen Corp. 144A sr. notes 10 1/2s, 2008 1,587,900
Restaurants (0.1%)
- -------------------------------------------------------------------------------------------------------------
4,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 5,256,000
Retail (1.8%)
- -------------------------------------------------------------------------------------------------------------
19,505,000 Amazon.com Inc. 144A sr. disc. notes stepped-coupon
zero % (10s, 5/1/03), 2008 (STP) 11,995,575
9,160,000 Brylane (L.P.) sr. sub. notes 10s, 2003 9,652,350
4,500,000 Color Spot Nurseries sr. sub. notes 10 1/2s, 2007 4,275,000
3,130,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 3,454,738
3,875,000 Home Interiors & Gifts, Inc. 144A sr. sub. notes 10 1/8s, 2008 3,913,750
32,356,918 K mart Lease bond stepped-coupon zero %
(10.45s, 8/1/09), 2021 (STP) 11,365,367
1,700,000 K mart Corp. deb. 13 1/2s, 2009 1,811,010
2,250,000 K mart Corp. med. term notes 9s, 2020 2,338,605
400,000 K mart Corp. med. term notes 8.19s, 2003 408,684
1,500,000 K mart Corp. med. term notes 8.18s, 2003 1,531,905
300,000 K mart Corp. med. term notes 8s, 2001 304,656
1,400,000 K mart Corp. med. term notes 7.76s, 2002 1,410,094
300,000 K mart Corp. med. term notes 7.2s, 2000 299,163
3,000,000 K mart Corp. med. term notes 7.17s, 2000 2,989,800
9,120,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 9,963,600
17,460,000 NBTY Inc. 144A sr. sub. notes 8 5/8s, 2007 17,721,900
2,000,000 SRI Receivables Purchase 144A 12 1/2s, 2000 2,117,500
--------------
85,553,697
Satellite Services (1.7%)
- -------------------------------------------------------------------------------------------------------------
3,455,832 Direct Sat 1 144A notes 8 1/4s, 2001 3,421,274
4,000,518 Echostar I 144A sr. notes 8 1/4s, 2001 3,960,512
20,000,000 Echostar Satellite Broadcast Corp. sr. disc. notes
stepped-coupon zero % (13 1/8s, 3/15/00), 2004 (STP) 18,350,000
17,555,000 Iridium LLC/Capital Corp. company guaranty
Ser. B, 14s, 2005 19,573,825
180,000 Iridium LLC/Capital Corp. company guaranty
Ser. A, 13s, 2005 193,500
10,875,000 Primestar Bank Loan 8 5/8s, 2004 10,875,000
5,535,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes
10 1/8s, 2004 (Mexico) 5,521,163
13,978,000 Satelites Mexicanos S.A. de C.V. 144A company
guaranty FRB 9.43s, 2004 (Mexico) 13,908,110
5,440,000 TCI Satellite Entertainment, Inc. sr. sub. notes 10 7/8s, 2007 5,263,200
1,470,000 TCI Satellite Entertainment, Inc. sr. disc. notes
stepped-coupon zero % (12 1/4s, 2/102), 2007 (STP) 940,800
--------------
82,007,384
Semiconductors (0.8%)
- -------------------------------------------------------------------------------------------------------------
2,174,313 Cirent Semiconductor sr. sub. notes 10.22s, 2002 2,261,286
2,462,470 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 2,548,656
12,825,000 Fairchild Semiconductor Corp. 144A sr. sub. notes
11.74s, 2008 14,684,625
14,720,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 15,235,200
5,570,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 5,639,625
--------------
40,369,392
Shipping (0.2%)
- -------------------------------------------------------------------------------------------------------------
6,320,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 6,999,400
4,910,000 Stena Line AB sr. notes 10 5/8s, 2008 (Sweden) 4,965,238
--------------
11,964,638
Specialty Consumer Products (0.2%)
- -------------------------------------------------------------------------------------------------------------
9,910,000 Decora Industries, Inc. 144A sr. sec. notes 11s, 2005 9,687,025
Steel (0.3%)
- -------------------------------------------------------------------------------------------------------------
7,430,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, 2007 (Mexico) 7,225,675
1,500,000 Ispat Mexicana S.A. deb. 10 3/8s, 2001 (Mexico) 1,530,000
7,280,000 WHX Corp. 144A sr. notes 10 1/2s, 2005 7,462,000
--------------
16,217,675
Supermarkets (0.6%)
- -------------------------------------------------------------------------------------------------------------
14,300,000 Jitney-Jungle Stores company guaranty 12s, 2006 16,105,375
3,925,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 3,267,563
8,475,000 Star Markets Co. sr. sub. notes 13s, 2004 9,492,000
--------------
28,864,938
Telecommunications (12.4%)
- -------------------------------------------------------------------------------------------------------------
11,450,000 Barak I.T.C. sr. disc. notes stepped-coupon Ser. B,
zero % (12 1/2s, 11/15/02), 2007 (STP) 6,870,000
16,420,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 16,974,175
5,725,000 Colt Telecom Group PLC sr. disc. notes stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) (STP) 4,522,750
7,705,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 7,550,900
2,470,000 Consorcio Ecuatoiano notes 14s, 2002 (Ecuador) 2,420,600
5,000,000 Cox Communications, Inc. notes 8.255s, 2007 4,993,750
5,100,000 Econophone Inc. company guaranty 13 1/2s, 2007 5,865,000
21,790,000 Econophone Inc. 144A sr. disc. notes stepped-coupon
zero % (11s, 2/15/03), 2008 (STP) 12,638,200
16,085,000 E. Spire Communications, Inc. sr. notes 13 3/4s, 2007 18,497,750
9,500,000 E. Spire Communications, Inc. sr. disc. notes stepped-coupon
zero % (13s, 11/1/00), 2005 (STP) 7,837,500
5,750,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 6,095,000
5,360,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon
zero % (12 1/2s, 2/01/02), 2007 (Ireland) (STP) 3,966,400
6,425,000 Facilicom International 144A sr. notes 10 1/2s, 2008 6,392,875
17,725,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 17,990,875
28,800,000 Focal Communications Corp. 144A sr. disc. notes
stepped-coupon zero % (12 1/8s, 2/15/03), 2008 (STP) 17,280,000
6,000,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 6,705,000
250,000 FWT, Inc. 144A sr. sub. notes 9 7/8s, 2007 237,500
41,200,000 Global Crossing Holdings 144A sr. notes 9 5/8s, 2008 42,436,000
30,630,000 GST Telecommunication, Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 5/1/03), 2008 (STP) 18,378,000
28,548,000 GST Telecommunications, Inc. company guaranty
stepped-coupon zero % (13 7/8s, 12/15/00), 2005 (STP) 22,552,920
6,355,000 Hyperion Telecommunication, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (13s, 4/15/01), 2003 (STP) 4,670,925
13,700,000 Hyperion Telecommunications , Inc. sr. notes
Ser. B, 12 1/4s, 2004 15,035,750
13,530,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon
zero % (13 1/2s, 9/15/00), 2005 (STP) 11,534,325
10,850,000 ICG Services, Inc. 144A sr. disc. notes stepped-coupon
zero % (10s, 2/15/03), 2008 (STP) 6,618,500
38,440,000 ICG Services, Inc. 144A sr. discount notes stepped-coupon
zero %, (9 7/8s, 5/1/03), 2008 (STP) 23,784,750
17,065,000 Intelcom Group (USA), Inc. company guaranty
stepped-coupon zero % (12 1/2s, 5/1/01), 2006 (STP) 13,481,350
9,500,000 Intermedia Communications, Inc. sr. disc. notes
stepped-coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 (STP) 6,982,500
13,000,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 7/8s, 2007 13,325,000
13,820,000 Intermedia Communications, Inc. 144A sr. notes 8.6s, 2008 13,906,375
21,715,000 Intermedia Communications, Inc. sr. notes Ser. B, 8 1/2s, 2008 21,823,575
19,455,000 Ionica Group PLC sr. disc. notes stepped-coupon zero %
(15s, 5/1/02), 2007 (United Kingdom) (STP) 5,058,300
2,300,000 Ionica Group PLC sr. notes 13 1/2s, 2006 (United Kingdom) 1,449,000
3,070,000 ITC Deltacom, Inc. sr. notes 11s, 2007 3,499,800
11,910,000 IXC Communications, Inc. 144A sr. sub. notes 9s, 2008 11,776,013
5,720,000 Level 3 Communication, Inc. 144A sr. notes 9 1/8s, 2008 5,577,000
3,025,000 MetroNet Communications sr. notes 12s, 2007 3,478,750
4,500,000 MetroNet Communications Corp. sr. disc. notes
stepped-coupon zero % (10 3/4s, 11/1/02),
2007 (Canada) (STP) 3,015,000
6,445,000 Microcell Telecommunications sr. disc. notes
stepped-coupon Ser. B, zero % (14s, 12/1/01),
2006 (Canada) (STP) 4,769,300
3,170,000 MGC communications, Inc. sr. notes Ser. B, 13s, 2004 3,257,175
3,810,000 MJD Communications Inc. 144A notes FRN, 10s, 2008 3,843,338
3,510,000 MJD Communications Inc. 144A sr. sub. notes 9 1/2s, 2008 3,571,425
1,880,000 Netia Holdings B.V. 144A company guaranty
stepped-coupon zero % (11 1/4s, 11/1/02),
2007 (Poland) (STP) 1,299,550
3,320,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 3,290,950
30,780,000 NEXTLINK Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (9.45s, 4/15/03), 2008 (STP) 18,775,800
7,320,000 Primus Telecom Group 144A sr. notes 9 7/8s, 2008 7,246,800
11,630,000 Qwest Communications International Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 8,577,125
9,117,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 10,347,795
9,140,000 RSL Communications, Ltd. 144A sr. disc. notes
stepped-coupon zero % (10 1/8s, 3/1/03), 2008 (STP) 5,598,250
6,100,000 RSL Communications, Ltd. 144A sr. notes 9 1/8s, 2008 6,008,500
5,730,000 Telecom Tech, Inc. 144A sr. sub. notes 9 3/4s, 2008 5,787,300
4,390,000 Telesystem International Wireless Inc. sr. disc. notes
stepped-coupon Ser. C, zero % (10 1/2s, 11/1/02), 2007 (STP) 2,634,000
22,695,000 Teligent, Inc. sr. notes 11 1/2s, 2007 23,092,163
31,380,000 Teligent, Inc. 144A sr. disc. notes stepped-coupon zero %
(11 1/2s, 3/1/03), 2008 (STP) 17,259,000
7,920,000 USN Communications, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14 5/8s, 8/15/00), 2004 (STP) 6,256,800
4,310,000 Vialog Corp. company guaranty 12 3/4s, 2001 4,525,500
24,135,000 WinStar Communications, Inc. 144A sr. sub. notes 15s, 2007 31,134,150
11,500,000 WinStar Communications, Inc. company guaranty
14 1/2s, 2005 15,295,000
14,610,000 WinStar Communications, Inc. 144A sr. sub. notes
11s, 2008 14,062,125
10,495,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 11,754,400
--------------
603,608,554
Textiles (0.6%)
- -------------------------------------------------------------------------------------------------------------
6,360,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 6,519,000
6,790,000 Polymer Group, Inc. 144A sr. sub.notes 8 3/4s, 2008 6,857,900
6,000,000 Polysindo International Eka company guaranty
13s, 2001 (Indonesia) 3,060,000
4,645,000 Polysindo International Finance company guaranty
11 3/8s, 2006 (Indonesia) 2,229,600
1,000,000 Polysindo International Finance company guaranty
9 3/8s, 2007 (Indonesia) 430,000
2,000,000 PT Polysindo Eka Perkasa notes 12.094s, 1998 (Indonesia) 1,120,000
5,500,000 PT Polysindo Eka Perkasa notes 12.031s, 1998 (Indonesia) 3,080,000
8,000,000 Sun Apparel, Inc. Tranche B sr. notes 9 1/8s, 2004 7,940,000
--------------
31,236,500
Transportation (1.3%)
- -------------------------------------------------------------------------------------------------------------
16,310,000 GS Superhighway Holdings sr. notes 10 1/4s,
2007 (Hong Kong) 13,863,500
1,620,000 GS Superhighway Holdings sr. notes 9 7/8s,
2004 (Hong Kong) 1,393,200
7,930,000 Hermes Europe Railtel 144A sr. notes 11 1/2s,
2007 (Netherlands) 8,960,900
4,770,000 Johnstown America Industries, Inc. sr. sub. notes
11 3/4s, 2005 5,282,775
8,334,000 Johnstown America Industries, Inc. Bank Loan
FRN 5.773s, 2003 8,271,495
20,250,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 21,262,500
6,000,000 Pegasus Shipping 144A sr. sub notes 11 7/8s, 2004 6,090,000
--------------
65,124,370
--------------
Total Corporate Bonds and Notes (cost $3,860,220,712) 3,979,415,336
PREFERRED STOCKS (6.6%) (a)
NUMBER OF SHARES VALUE
Apparel (--%)
- -------------------------------------------------------------------------------------------------------------
1,515 Anvil Holdings Ser. B, $3.25 pfd. $ 37,875
Banks (0.8%)
- -------------------------------------------------------------------------------------------------------------
897,200 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 24,224,400
130,000 CGA Group Ltd. 144A Ser. A, $13.75 pfd. (PIK) 3,510,000
187,205 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 10,202,673
50,000 Chevy Chase Savings Bank $3.25 pfd. 1,537,500
--------------
39,474,573
Broadcasting (0.7%)
- -------------------------------------------------------------------------------------------------------------
39,925 Capstar Broadcasting Inc. 144A $12.00 pfd. 4,701,169
74,479 Citadel Broadcasting Inc. 144A $13.25 cum. pfd. (PIK) 9,198,157
19,662 Spanish Broadcasting Systems 14.25% cum. pfd. (PIK) 20,645,100
--------------
34,544,426
Building and Construction (0.1%)
- -------------------------------------------------------------------------------------------------------------
150,300 Brand Scaaffold Services, Inc. 144A $3.625 cum. pfd. 5,410,800
Cable Television (--%)
- -------------------------------------------------------------------------------------------------------------
7,388 CSC Holdings Inc. Ser. M, $11.125 cum. (PIK) 853,314
Cellular Communications (1.1%)
- -------------------------------------------------------------------------------------------------------------
13,290 Dobson Communications 144A $12.25 pfd. (PIK) 14,619,000
36,015 NEXTEL Communications, Inc. 144A Ser. E, $11.125 pfd. (PIK) 38,941,219
--------------
53,560,219
Cosmetics (--%)
- -------------------------------------------------------------------------------------------------------------
1,609 Renaissance Cosmetics Inc. 14.00% cum. pfd. (PIK) 80,450
Electric Utilities (0.1%)
- -------------------------------------------------------------------------------------------------------------
2,608 El Paso Electric Co. $11.40 pfd (PIK) 284,272
153,660 Public Service Co. of New Hampshire $2.65 1st mtge. pfd. 3,995,160
--------------
4,279,432
Financial Services (0.1%)
- -------------------------------------------------------------------------------------------------------------
3,090,000 CSBI Capital Trust I 144A $11.75 pfd. 3,337,200
Food and Beverages (0.2%)
- -------------------------------------------------------------------------------------------------------------
260,000 Doane Products Co. pfd. 10,140,000
Health Care (0.3%)
- -------------------------------------------------------------------------------------------------------------
15,370,000 Fresenius Medical Care AG Ser. D, $9.00 pfd. (Germany) 16,061,650
Motion Picture Distribution (0.1%)
- -------------------------------------------------------------------------------------------------------------
116,495 Diva Systems Corp., $6.00 pfd. 1,514,435
269,000 Diva Systems Corp. Ser. C, $6.00 pfd. 3,497,000
--------------
5,011,435
Publishing (0.1%)
- -------------------------------------------------------------------------------------------------------------
108,250 Von Hoffman Corp. 144A $13.50 pfd. 3,572,250
Restaurants (0.1%)
- -------------------------------------------------------------------------------------------------------------
172,838 AmeriKing, Inc. $3.25 pfd. (PIK) 4,666,631
Satellite Services (0.1%)
- -------------------------------------------------------------------------------------------------------------
3,470 Echostar Communications, Inc. 12.125% pfd. 3,912,425
Supermarkets (0.1%)
- -------------------------------------------------------------------------------------------------------------
31,010 Jitney-Jungle Stores 144A Ser. A, $4.95 sr. exchange pfd. 5,039,125
Telecommunications (2.7%)
- -------------------------------------------------------------------------------------------------------------
1,900 E. Spire Communications, Inc.144A 14.75% pfd. (PIK) 2,280,000
2,943 E. Spire Communications, Inc. 12.75% pfd. (PIK) 3,355,020
6,949 Hyperion Telecommunications Ser. B, $12.875 pfd. (PIK) 7,574,410
6,005 ICG Holdings, Inc. $14.25 pfd. (Canada) 7,296,075
8,700 ICG Holdings, Inc. $14.00 pfd. (PIK) (Canada) 10,744,500
13,573 Intermedia Communication Ser. B, 13.50% pfd. 16,355,465
16,825 IXC Communications, Inc. $12.50 pfd. (PIK) 19,348,750
77,000 Nebco Evans Holding Co. 144A $11.25 pfd. (PIK) 7,854,000
20,126 NEXTEL Communications, Inc. Ser. D, $13.00 cum. pfd. (PIK) 22,893,325
181,525 Nextlink Communications, Inc. 144A $7.00 pfd. 10,800,738
2,659 Pegasus Communications Corp. Ser. A, $12.75 cum. pfd. 3,004,670
14,400 WinStar Communications. Inc. 144A $14.25 cum. pfd. (PIK) 17,136,000
--------------
128,642,953
--------------
Total Preferred Stocks (cost $296,178,231) $ 318,624,758
UNITS (5.9%) (a)
NUMBER OF UNITS VALUE
- -------------------------------------------------------------------------------------------------------------
19,680 Australis Media, Ltd. units stepped-coupon zero %,
(15 3/4s, 5/15/03), 2003 (In Default) (Australia) (STP) (NON) $ 984,000
32,209 Allegiance Telecom Inc. units sr. disc. stepped-coupon
notes zero % (11 3/4s, 2/15/08), 2008 (STP) 17,875,995
8,800 American Mobile Satellite Corp. units 12 1/4s, 2008 8,888,000
4,580 Bell Tech Ltd. 144A units 13s, 2005 4,717,400
7,660 Bestel S.A.de C.V. units, stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (STP) 5,247,100
13,030 Club Regina, Inc. 144A units 13s, 2004 14,072,400
40,320 Covad Communications Group 144A units, stepped-coupon
zero % (13 1/2s, 3/15/03), 2008 (STP) 21,672,000
28,511 Diva Systems Corp. 144A units stepped-coupon zero %
(12 5/8s, 3/1/03), 2008 (STP) 15,110,830
42,265 DTI Holdings Inc. units stepped-coupon zero %
(12 1/2s, 3/1/03), 2008 (STP) 24,091,050
35,370 Firstworld Communication 144A units stepped-coupon
zero % (13s, 4/15/03), 2008 (STP) 17,685,000
35,460 KMC Telecom Holdings, Inc. units stepped-coupon zero %
(12 1/2s, 2/15/03), 2008 (STP) 21,187,350
20,580 Long Distance International Inc. 144A units 12 1/4s, 2008 20,991,600
10,900 Mediq 144A units, stepped-coupon zero %
(13s, 6/1/03), 2009 (STP) 5,831,500
4,385 Onepoint Communications, Inc. units 14 1/2s, 2008 4,374,038
14,790 Pathnet, Inc. 144A units 12 1/4s, 2008 16,121,100
16,420 Rhythms Netcon 144A units stepped-coupon zero %
(13 1/2s, 5/15/03), 2008 (STP) 8,045,800
7,160 Startec Global Communications Corp. units 12s, 2008 7,177,900
4,785 Stone Container Corp. units sr. sub. 12 1/4s, 2002 4,934,531
14,550 Transamerican Refining units 16s, 2003 15,277,500
2,570 21st Century Telecom Group 144A units cum. pfd.
zero %, 2010 (PIK) 2,814,150
7,945 Versatel Teleco units 13 1/4s, 2008 8,223,075
1,560 Viatel Global 144A units 11 1/4s, 2008 1,622,400
35,245 Viatel, Inc. units, stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 20,970,775
7,070 WAMNET, Inc. 144A units stepped-coupon zero %
(13 1/4s, 3/1/02), 2005 (STP) 4,524,800
8,810 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 (STP) 881,000
7,555 XCL Ltd units sr. sec. notes 13 1/2s, 2004 8,688,250
44,189 XCL Ltd. units cv. cum. pfd. 9 1/2s, 2006 (PIK) 5,037,546
--------------
Total Units (cost $372,574,585) $ 287,047,090
CONVERTIBLE BONDS AND NOTES (2.0%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
30,042,000 APP Global Finance Ltd. cv. bond zero %, 2012
(United Kingdom) $ 6,121,058
10,000,000 APP Global Finance Ltd. 144A cv. company guaranty
3 1/2s, 2003 (United Kingdom) 7,800,000
19,090,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 16,512,850
2,900,000 Argosy Gaming cv. sub. notes 12s, 2001 2,863,750
5,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 4,600,000
14,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 9,352,500
3,106,000 GST Telecommunications, Inc. cv. sr. disc. notes
stepped-coupon zero %, (13 7/8s, 12/15/00),
2005 (Canada) (STP) 4,938,540
5,750,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 4,952,188
5,000,000 Lam Research Corp. cv. sub notes 5s, 2002 4,150,000
5,000,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 4,137,500
1,780,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 1,662,075
5,475,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 5,221,781
7,000,000 Plolymax 144A cv. notes 2s, 2006 3,745,000
7,768,000 Pricellular Wireless Corp. 144A cv. sub. notes
stepped-coupon zero % (10 3/4s, 8/15/00), 2004 (STP) 8,661,320
1,000,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 1,122,500
7,110,000 WinStar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 (STP) 10,451,700
--------------
Total Convertible Bonds and Notes (cost $94,494,363) $ 96,292,762
COMMON STOCKS (1.1%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
1 Advanced Radio Telecom Corp. (NON) $ 10
318,450 American Mobile Satellite Corp. (NON) 3,662,175
3,685 AmeriKing, Inc. (NON) 184,250
1,036,363 Capstar Broadcasting Partners (NON) 1,585,635
124,360 CellNet Data Systems, Inc. (NON) 1,259,145
250,000 Chesapeake Energy Corp. (NON) 1,078,125
131,050 Colorado Gaming & Entertainment Co. (NON) 720,775
60,000 Dr Pepper Bottling Holdings, Inc. Class A (NON) 180,000
75,000 French Fragrances Inc. (NON) 1,289,063
119,400 GST Telecommunications, Inc. (Canada) (NON) 1,492,500
74,908 Hedstrom Holdings, Inc. 144A 93,635
65,000 Intermedia Communications, Inc. (NON) 4,818,125
250,000 Lady Luck Gaming Corp. (NON) 312,500
455,300 NBTY, Inc. 7,939,294
508,832 NEXTEL Communications, Inc. Class A (NON) 11,989,354
7,000 Paging Do Brazil Holdings Co., LLC Class B (Brazil) 70
2,141 PMI Holdings Corp. 144A (NON) 1,070,500
1,730 Premium Holdings (L.P.) 144A (NON) 6,919
707,186 PSF Holdings LLC Class A (acquired various dates
from 9/15/93 to 5/31/95, cost $24,258,998)(NON)(RES)(AFF) 12,389,899
250,000 PsiNet, Inc. (NON) 2,687,500
85,200 Specialty Foods Corp. (NON) 8,520
--------------
Total Common Stocks (cost $53,696,542) $ 52,767,994
FOREIGN GOVERNMENT BONDS AND NOTES (0.4%) (a)(cost $18,606,770)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
18,860,000 Korea (Republic of) unsub. 8 7/8s, 2008 $ 17,586,950
CONVERTIBLE PREFERRED STOCKS (0.2%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
134,210 Cendant Corp. $3.75 cv.pfd. $ 5,066,428
53,640 Chesapeake Energy Corp. 144A $3.50 cv. cum. pfd. 2,467,440
25,000 Kelly Oil & Gas Corp. $2.625 cv. pfd. 625,000
--------------
Total Convertible Preferred Stocks (cost $8,507,848) $ 8,158,868
WARRANTS (0.4%) (a) (NON) 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 89
35,457 Cellnet Data Systems, Inc. 9/15/07 1,950,135
130,000 CGA Group Ltd. 144A 4/15/01 1,300
46,200 ClearNet Communications, Inc. 144A 9/15/05 323,400
5,620 Colt Telecommunications Group PLC 12/31/06 758,700
3,205 Concentric Network Corp. 7/15/07 304,475
104,017 Consorcio Ecuatoriano 144A 10/1/00 52,009
5,000 County Seat Holdings, Inc. 10/15/98 100
5,390 Diva Systems Corp. 5/15/06 1,414,875
10,370 E. Spire Communications, Inc. 11/1/05 1,762,900
5,100 Econophone Inc. 144A 7/15/07 306,000
4,335 Esat Holdings, Inc. (Ireland) 2/1/07 151,725
6,250 Globalstar Telecom 144A 2/15/04 875,000
13,285 Hyperion Telecommunications 144A 4/15/01 1,421,495
122,350 Intelcom Group 144A 10/15/05 3,915,200
6,490 Interact Systems, Inc. 8/1/03 1,623
5,000 Intermedia Communications 6/1/00 675,000
3,670 International Wireless Communications
Holdings 144A 8/15/01 3,670
9,970 Iridium World Com 144A 7/15/05 2,193,400
29,100 Knology Holdings, Inc. 144A 10/15/07 14,550
8,310 McCaw International Ltd. 4/15/07 2,493
3,025 Metronet Communications 144A 8/15/07 127,050
3,170 MGC Communications, Inc. 144A 10/1/04 253,600
12,730 NEXTEL Communications Inc. 3/15/06 255
8,890 Orion Network Systems 1/15/07 106,680
33,580 Pagemart, Inc. 144A 12/31/03 251,850
89,120 Powertel, Inc. 2/1/06 846,640
30,905 President Riverboat Casinos, Inc. 9/30/99 15,453
3,000 RSL Communications Ltd. 11/15/06 303,558
5,675 Spanish Broadcasting Systems 144A 6/30/99 1,163,375
2,365 Sterling Chemicals Holdings 8/15/08 56,760
23,545 UIH Australia/Pacific, Inc. 144A 5/15/06 353,175
110 Urohealth Systems Inc. 4/10/04 1
79,200 USN Communications Inc. 10/15/04 1,346,400
4,310 Vialog Corp. 11/15/01 258,600
3,000 Wireless One, Inc. 10/19/00 30
668 Wright Medical Technology, Inc. 144A 6/30/03 66,823
--------------
Total Warrants (cost $9,266,134) $ 21,280,634
BRADY BONDS (--%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$27,010,000 Ivory Coast - 144A FLIRB collateralized FRB 2s, 2018 $ 1,499,303
27,010,000 Ivory Coast - 144A PDI bonds FRB 1.9s, 2018 1,730,399
--------------
Total Brady Bonds (cost $3,730,550) $ 3,229,702
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,717,275,735) (b) $4,784,404,094
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $4,852,894,460.
(b) The aggregate identified cost on a tax basis is $4,717,744,352, resulting in gross unrealized
appreciation and depreciation of $210,430,374 and $143,770,632, respectively, or net unrealized
appreciation of $66,659,742.
(NON) Non-income-producing security.
(STP) 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.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted
securities held at May 31, 1998 was $12,389,899 or 0.3% of net assets.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
(AFF) Affiliated issues (Note 5)
144A after the name of a security represents those exempt from mregistration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
FLIRB represents Front Loaded Interest Reduction Bond.
The rates shown on Floating Rate Notes (FRN) and Floating Rate Bonds (FRB) are the current interest rates
shown at May 31, 1998, which are subject to change based on the terms of the security.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at May 31, 1998 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Appreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
French Franc $3,731,801 $3,768,059 9/16/98 $36,258
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,717,275,735) (Note 1) $4,784,404,094
- ---------------------------------------------------------------------------------------------------
Cash 5,316,335
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 83,094,186
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,801,662
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 139,302,293
- ---------------------------------------------------------------------------------------------------
Receivable for open forward currency contracts 36,258
- ---------------------------------------------------------------------------------------------------
Total assets 5,015,954,828
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 61,782,297
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 83,711,760
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 6,846,024
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 813,674
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 55,986
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,631
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 3,577,925
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 103,946
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 6,163,125
- ---------------------------------------------------------------------------------------------------
Total liabilities 163,060,368
- ---------------------------------------------------------------------------------------------------
Net assets $4,852,894,460
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,810,760,371
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (17,844,662)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (7,185,866)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and
liabilities in foreign currencies 67,164,617
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,852,894,460
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,569,642,340 divided by 157,231,528 shares) $9.98
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.98)* $10.48
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,330,262,557 divided by 133,861,737 shares)** $9.94
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,952,989,563 divided by 195,903,828 shares) $9.97
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.97)* $10.30
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $230,187,989
- --------------------------------------------------------------------------------------------------
Dividends 16,028,135
- --------------------------------------------------------------------------------------------------
Total investment income 246,216,124
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 13,532,703
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,108,502
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 51,758
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 16,859
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,969,500
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,555,197
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 5,444,766
- --------------------------------------------------------------------------------------------------
Reports to shareholders 43,342
- --------------------------------------------------------------------------------------------------
Registration fees 69,249
- --------------------------------------------------------------------------------------------------
Auditing 58,756
- --------------------------------------------------------------------------------------------------
Legal 98,244
- --------------------------------------------------------------------------------------------------
Postage 64,843
- --------------------------------------------------------------------------------------------------
Other 118,677
- --------------------------------------------------------------------------------------------------
Total expenses 31,132,396
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (849,144)
- --------------------------------------------------------------------------------------------------
Net expenses 30,283,252
- --------------------------------------------------------------------------------------------------
Net investment income 215,932,872
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 53,980,095
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (21,811)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 36,267
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (26,472,507)
- --------------------------------------------------------------------------------------------------
Net gain on investments 27,522,044
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $243,454,916
- --------------------------------------------------------------------------------------------------
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
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 215,932,872 $ 290,676,492
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 53,958,284 41,052,134
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies (26,436,240) 64,017,168
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 243,454,916 395,745,794
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (74,597,119) (112,832,859)
- ----------------------------------------------------------------------------------------------------------------------
Class B (58,141,882) (72,788,644)
- ----------------------------------------------------------------------------------------------------------------------
Class M (101,038,533) (105,092,366)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A -- (2,616,295)
- ----------------------------------------------------------------------------------------------------------------------
Class B -- (1,687,775)
- ----------------------------------------------------------------------------------------------------------------------
Class M -- (2,436,813)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 191,886,833 2,393,734,681
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 201,564,215 2,492,025,723
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 4,651,330,245 2,159,304,522
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $17,844,662 and
$--, respectively) $4,852,894,460 $4,651,330,245
- ----------------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.96 $9.65 $9.52 $9.07 $10.41 $9.74
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .45(d) .90 .89 1.00 .98 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .05 .32 .14 .45 (1.30) .70
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .50 1.22 1.03 1.45 (.32) 1.83
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.48) (.89) (.90) (1.00) (1.02) (1.15)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) --(c) -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.48) (.91) (.90) (1.00) (1.02) (1.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.98 $9.96 $9.65 $9.52 $9.07 $10.41
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.11* 13.30 16.81 (3.43) 19.88
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,569,642 $1,436,699 $1,071,702 $870,810 $653,094 $742,472
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .46* .97 1.09 1.12 1.03 .96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.43* 9.17 9.24 10.35 10.87 11.04
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 38.55* 67.62 74.47 89.96 69.61 50.89
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 May 16, 1994+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.92 $9.61 $9.49 $9.05 $9.83
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .41(d) .83 .82 .92 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .06 .32 .13 .45 (.77)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .47 1.15 .95 1.37 (.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.82) (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) -- (c) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.84) (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.94 $9.92 $9.61 $9.49 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.75* 12.52 10.52 15.94 (3.12)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,330,263 $1,143,329 $623,097 $287,877 $37,017
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .84* 1.72 1.84 1.85 1.02*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.05* 8.41 8.50 9.61 7.47*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 38.55* 67.62 74.47 89.96 69.61
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the year
Per-share May 31 Dec. 1, 1994+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.95 $9.64 $9.51 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .44 (d) .87 .87 .99
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .05 .33 .14 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .49 1.20 1.01 1.44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.87) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income -- (.02) --(c) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.89) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.97 $9.95 $9.64 $9.51
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.99* 13.05 11.15 16.72
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,952,990 $2,071,302 $464,506 $20,077
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .59* 1.22 1.36 1.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.30* 8.93 8.86 10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 38.55* 67.62 74.47 89.96
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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.
(d) Per share net investment income has been determined on the basis of the weighted average
number of shares outstanding during the period.
</TABLE>
Notes to financial statements
May 31, 1998 (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 primarily
through a diversified portfolio of high-yielding, lower-rated corporate bonds.
Capital growth is a secondary objective when consistent with the objective of
high current income.
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 within approximately six to 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 except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date. Discounts on zero coupon bonds, original issue discount bonds,
stepped-coupon bonds and payment in kind bonds are accreted according to the
yield-to-maturity basis.
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 gains and losses are included with the
net realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net exchange gains or
losses on closed forward currency contracts, disposition of foreign currencies
and the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar equivalent
amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using current forward currency
exchange rates supplied by a quotation service. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is "marked to market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The fund could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet the
terms of their contracts or if the fund is unable to enter into a closing
position.
G) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the six months ended May 31, 1998, the fund
had no borrowings against the line of credit.
H) Federal taxes It is the policy of the fund to distribute all of its 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, 1997, the fund had a capital loss carryover of approximately
$60,676,000 available to offset future capital gains, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
------------------ ------------------
$9,632,000 November 30, 1999
16,967,000 November 30, 2002
34,077,000 November 30, 2003
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date. Capital
gain distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% of the first $500 million of
average net assets, 0.60% of the next $500 million, 0.55% of the next $500
million, 0.50% of the next $5 billion, 0.475% of the next $5 billion, 0.455%
of the next $5 billion, 0.44% of the next $5 billion, and 0.43% thereafter.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended May 31, 1998, fund expenses were reduced by $849,144
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $2,990 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees currently limit payment by the fund to an annual rate of 0.25%, 1.00%
and 0.50% of the average net assets attributable to class A, class B and class
M shares respectively.
For the six months ended May 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $525,263 and $14,398 from the sale of
class A and class M shares, respectively and $1,160,828 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, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $20,521 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended May 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $2,215,722,961 and
$1,882,133,765, 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, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 32,133,395 $323,081,932
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,091,614 41,083,090
- ------------------------------------------------------------
36,225,009 364,165,022
Shares
repurchased (23,255,302) (234,251,636)
- ------------------------------------------------------------
Net increase 12,969,707 $129,913,386
- ------------------------------------------------------------
Year ended
November 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 84,416,332 $826,734,675
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,293,823 61,557,151
- ------------------------------------------------------------
90,710,155 888,291,826
Shares
repurchased (57,530,762) (562,643,340)
- ------------------------------------------------------------
Net increase 33,179,393 $325,648,486
- ------------------------------------------------------------
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 30,220,968 $302,272,003
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,886,905 28,866,282
- ------------------------------------------------------------
33,107,873 331,138,285
Shares
repurchased (14,522,093) (145,470,770)
- ------------------------------------------------------------
Net increase 18,585,780 $185,667,515
- ------------------------------------------------------------
Year ended
November 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 93,850,150 $918,070,746
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,708,531 36,188,311
- ------------------------------------------------------------
97,558,681 954,259,057
Shares
repurchased (47,098,085) (460,535,573)
- ------------------------------------------------------------
Net increase 50,460,596 $493,723,484
- ------------------------------------------------------------
Six months ended
May 31, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 33,233,655 $333,658,470
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 272,839 2,736,251
- ------------------------------------------------------------
33,506,494 336,394,721
Shares
repurchased (45,831,967) (460,088,789)
- ------------------------------------------------------------
Net decrease (12,325,473) $(123,694,068)
- ------------------------------------------------------------
Year ended
November 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 202,591,979 $1,990,624,142
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 397,255 3,884,813
- ------------------------------------------------------------
202,989,234 1,994,508,955
Shares
repurchased (42,956,933) (420,146,244)
- ------------------------------------------------------------
Net increase 160,032,301 $1,574,362,711
- ------------------------------------------------------------
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund owned at
least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Affiliates cost cost Income Value
- ----------------------------------------------------------------------
PSF Holdings LLC Class A $-- $-- $-- $12,389,899
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
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
William J. Curtin
Vice President
Rosemary H. Thomsen
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA032-43761-060/327/702 7/98
