Putnam
High Yield
Advantage
Fund
ANNUAL REPORT
November 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Morningstar, an independent rating agency, awarded Putnam High Yield
Advantage Fund's class A shares its highest rating of 5 stars for
overall performance as of December 31, 1997, based on the fund's
average annual returns for the 3-, 5-, and 10-year periods. Only 10%
of the 1,371 income funds rated receive 5-stars.*
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
34 Financial statements
* 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 12/31/97,
there were 1,371, 771, and 323 funds in the fixed-income category and the
fund received 5 stars for each period. Past performance is not indicative
of future results. Performance of other share classes will vary.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Since its inception in 1986, Putnam High Yield Advantage Fund has been popular
with investors. While such popularity is flattering, it carries its own
burdens. One of these is size. When the fund's assets grow beyond a certain
point, the ability to manage them efficiently becomes somewhat restricted.
Putnam Management believes your fund is approaching such a limit. At the
recommendation of the management company, your Trustees have voted to close
the fund to new investors effective January 31, 1998. As an existing
shareholder, you may continue to purchase additional shares of the fund.
I am confident this change will prove to be a positive development for your
fund. In the following report, Rosemary Thomsen, your fund's portfolio
manager, discusses performance during fiscal 1997 and looks at prospects for
the year just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 21, 1998
Report from the Fund Manager
Rosemary H. Thomsen
A Federal Reserve Board interest-rate increase and the near meltdown of
several developing Asian markets delivered a couple of high-profile shocks to
the fixed-income markets this year, but high-yield bond investors emerged
comparatively unscathed. A combination of strong market fundamentals and
astute bond selection enabled Putnam High Yield Advantage Fund's class A
shares to provide a total return of 13.30% at net asset value (NAV) and 7.93%
at public offering price (POP), for the 12-month period ended November 30,
1997. For the same period, your fund's class B shares returned 12.52% at NAV
and 7.52% with a contingent deferred sales charge, while class M shares
returned 13.05% at NAV and 9.42% at POP.
* STRONG RETURNS FROM HEALTHY MARKET
High-yield bond prices rose steadily this year, experiencing only temporary
setbacks in the weeks surrounding the Fed's March increase in short-term
interest rates and after the October Asian crisis. Economic growth and
corporate profits consistently exceeded expectations, helping to fuel a robust
stock market and a generally optimistic mood among investors. Actual inflation
was negligible, and even the threat of higher prices diminished as the year
rounded into summer.
A record-breaking supply of new high-yield issues came to market this year --
more than $100 billion through the end of November -- but was easily absorbed
by investors seeking yields higher than those available through government
paper and investment-grade corporate bonds. By the end of your fund's fiscal
year, the high-yield market had grown to more than $400 billion, representing
a number of rapidly growing industries and companies, from telecommunications
to cable TV. Although merger and acquisition activity soared during the year,
the percentage of new high-yield issues used for acquisition financing
actually declined. Indeed, in our opinion, the typical high-yield issuer today
has less debt on the books and is much less likely to default on payments of
principal and interest than in the junk-bond heyday of the late 80s.
The only drawback to such a healthy environment is that investors have pushed
the yields on below investment-grade debt to within three-to-four percentage
points of comparable U.S. Treasuries. When economic conditions are favorable
and investor confidence is high, investors feel more comfortable holding
lower-rated bonds. The increased demand for these bonds naturally pushes their
prices higher and their yields lower.
* RADIOS, PHONES, AND TELEVISION
Three areas of the high-yield market that helped drive fund performance during
the year were telecommunications, broadcasting, and cable TV. During the
period, the telecommunications industry represented the largest sector of the
high-yield market, as well as the largest sector of your fund. Typical of this
high-growth industry, many of the fund's telecom holdings were in the midst of
launching personal communications systems in major U.S. metropolitan markets
at the start of the fiscal year. During the infrastructure development stage,
these young companies represent their greatest business risk, and their bonds
are priced accordingly with relatively high yields to attract investors.
NEXTEL Communications is a good example. The company has undertaken a massive
investment in its digital mobile network, which is expected to deliver
wireless telephone, two-way dispatch, and paging services to approximately 85%
of the U.S. population by the end of 1998. With close to one million
subscribers to date, NEXTEL's potentially sizable position in the wireless
market is all but guaranteed. Its securities enjoyed a substantial rally
during the year as a result. Also in the telecommunications industry, the fund
has benefited from investments in competitive local exchange carriers, such as
Teleport Communications and Winstar Communications. These companies use
fiber-optic and wireless technologies to compete with local phone companies
and have enjoyed considerable success in the past year. While these and other
holdings discussed here were viewed favorably as of November 30, 1997, there
is no guarantee that the fund will hold these securities in the future.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Telecommunications 11.0%
Broadcasting 6.8%
Cable television 6.2%
Cellular communications 5.6%
Oil and gas 5.2%
Footnote reads:
*Based on net assets as of 11/30/97. Holdings will vary over time.
In the broadcasting industry, companies have benefited from 1986 legislation
that effectively eased ownership restrictions within the largest metropolitan
areas. This deregulation sparked a wave of merger and acquisition activity in
the past year as companies sought to spread the cost of administration and
sales across several stations and thereby improve profit margins. Fund
holdings that participated in this industry consolidation included SFX
Broadcasting, Jacor Communications, and Citadel Broadcasting.
In recent years, the securities of cable companies have languished as
investors weighed the prospects of increased competition from satellite TV and
industry deregulation. Lately, however, the sector has come back into favor as
cable operators have begun working together to manage their subscriber bases,
introduce new products, and upgrade networks. Of particular interest is the
delivery of Internet technology through conventional cable systems. In June,
Microsoft announced that it would invest $1 billion in Philadelphia cable
operator Comcast Corp. for an 11.5% stake in the company. Cable securities
rallied after the Microsoft announcement. Given that Microsoft wishes to
promote its own online service, the investment suggests Microsoft believes
cable will be a viable distribution network for Internet technology in the
future.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Transamerican Energy stepped-coupon, 2002
Oil and gas
Teleport Communications Group Inc. stepped-coupon, 2007
Telecommunications
Diamond Cable Communication Co. stepped-coupon, 2005
Cable television
Cablevision Systems Corp. Series M, 11.125 preferred
Cable television
Cencall Communications Corp. stepped-coupon, 2004
Cellular communications
NEXTEL Communications, Inc stepped-coupon, 2007
Cellular communications
Revlon Worldwide Corp. Series B, stepped-coupon 2001
Cosmetics
Midland Funding Corp. Series A, 11.75%, 2005
Electric utilities
Fox Kids Worldwide Inc. 9.25%, 2007
Broadcasting
ICG Holdings, Inc. stepped-coupon, 2005
Telecommunications
Footnote reads:
These holdings represent 8.0% of the fund's net assets as of 11/30/97.
Portfolio holdings will vary over time.
* HIGH-YIELD OUTLOOK STILL HEALTHY
The outlook for high-yield bonds remains favorable in our view. We believe
that healthy year-end economic conditions in the United States, coupled with
relatively low yields on U.S. Treasuries, should ensure continued strong
demand for below investment-grade bonds in the coming months.
While the economic crisis in Southeast Asia may translate into slower growth
for some large U.S. corporations, companies in the high-yield market typically
have relatively few global operations. The slower growth of the Southeast
Asian economies may actually have a positive effect on the U.S. bond market by
lowering global growth and inflation, thus forestalling another rate increase
by the Fed.
In the coming months, we intend to remain diligent on credit selection,
seeking overlooked issues -- both here and abroad -- that offer the potential
for income and price appreciation.
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 11/30/97, 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 11/30/97
Class A Class B Class M
(inception date) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 13.30% 7.93% 12.52% 7.52% 13.05% 9.42%
- ------------------------------------------------------------------------------
5 years 70.64 62.46 62.99 60.99 68.47 62.98
Annual average 11.28 10.19 10.26 9.99 11.00 10.26
- ------------------------------------------------------------------------------
10 years 199.74 185.38 174.11 174.11 190.66 181.13
Annual average 11.60 11.06 10.61 10.61 11.26 10.89
- ------------------------------------------------------------------------------
Life of fund 226.96 211.38 193.78 193.78 214.38 204.08
Annual average 10.67 10.20 9.66 9.66 10.29 9.98
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/97
Lehman Bros. First Boston
Corporate Bond High Yield Bond Consumer
Index Index Price Index
- ------------------------------------------------------------------------------
1 year 7.57% 13.79% 1.83%
- ------------------------------------------------------------------------------
5 years 51.13 75.38 13.73
Annual average 8.61 11.89 2.61
- ------------------------------------------------------------------------------
10 years 159.85 218.30 39.95
Annual average 10.02 12.27 3.42
- ------------------------------------------------------------------------------
Life of fund 181.83 251.67 48.44
Annual average 9.29 11.38 3.44
- ------------------------------------------------------------------------------
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 and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
[GRAPHIC OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 11/30/87
Fund's First Lehman
class A Boston Bros.
shares High Yield Corporate
Date/year at POP Index Bond Index
11/30/87 9521 10000 10000
11/30/88 11108 11571 11098
11/30/89 10818 11742 12682
11/30/90 9708 10892 13403
11/30/91 14121 15619 15598
11/30/92 16724 18149 17194
11/30/93 20048 21552 19522
11/30/94 19360 21384 18711
11/30/95 22614 25049 22689
11/30/96 25188 27973 24156
11/30/97 28538 31830 25985
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $27,411 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$29,066 ($28,113 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 11/30/97
Class A Class B Class M
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.914 $0.842 $0.891
- ------------------------------------------------------------------------------
Capital gains -- -- --
- ------------------------------------------------------------------------------
Total $0.914 $0.842 $0.891
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/96 $9.65 $10.13 $9.61 $9.64 $9.96
- ------------------------------------------------------------------------------
11/30/97 9.96 10.46 9.92 9.95 10.28
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 9.88% 9.41% 9.07% 9.65% 9.34%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 9.46 9.01 8.70 9.19 8.88
- ------------------------------------------------------------------------------
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 12/31/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (3/25/86) (5/16/94) (12/1/94)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 13.37% 8.01% 12.49% 7.49% 13.11% 9.38%
- ------------------------------------------------------------------------------
5 years 71.01 62.95 63.25 61.25 68.80 63.30
Annual average 11.33 10.26 10.30 10.03 11.04 10.31
- ------------------------------------------------------------------------------
10 years 198.97 184.73 173.39 173.39 189.92 180.44
Annual average 11.57 11.03 10.58 10.58 11.23 10.86
- ------------------------------------------------------------------------------
Life of fund 230.97 215.20 197.26 197.26 218.18 207.76
Annual average 10.70 10.25 9.70 9.70 10.33 10.02
- ------------------------------------------------------------------------------
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 maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Corporate Bond Index* is an unmanaged list of publicly
issued fixed-income non-convertible securities frequently used as a
general measure of the performance of the corporate bond market.
First Boston High Yield Index* is an unmanaged list of lower-rated
higher-yielding U.S. corporate bonds.
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.
Report of independent accountants
For the fiscal year ended November 30, 1997
To the Trustees and Shareholders of
Putnam High Yield Advantage Fund
We have audited the accompanying statement of assets and liabilities of Putnam
High Yield Advantage Fund, including the portfolio of investments owned, as of
November 30, 1997, and the related statement of operations for the year then
ended and the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of November 30, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Putnam High Yield Advantage Fund as of November 30, 1997, the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended and the financial highlights for
each of the periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 15, 1998
Portfolio of investments owned
November 30, 1997
<TABLE>
<CAPTION>
CORPORATE BONDS AND NOTES (83.0%) *
PRINCIPAL AMOUNT VALUE
Advertising (0.8%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 1,050,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 1,144,500
3,890,000 Lamar Advertising Co. sr. sub. notes 9 5/8s, 2006 4,123,400
12,250,000 Lamar Advertising Co. 144A sr. sub. notes 8 5/8s, 2007 12,387,813
6,490,000 Interact Systems, Inc. 144A stepped-coupon zero %
(14s, 8/1/99), 2003 ++ 2,466,200
6,135,000 Outdoor Comunications Inc. sr. sub. notes 9 1/4s, 2007 6,165,675
1,200,000 Outdoor Systems, Inc. sr. sub. notes 9 3/8s, 2006 1,260,000
5,460,000 Universal Outdoor, Inc. sr. sub. notes 9 3/4s, 2006 6,115,200
800,000 Universal Outdoor, Inc. sr. sub. notes Ser. B, 9 3/4s, 2006 896,000
--------------
34,558,788
Aerospace and Defense (1.4%)
- ------------------------------------------------------------------------------------------------------------
310,000 Alliant Techsystems, Inc. sr. sub. notes 11 3/4s, 2003 341,000
2,800,000 BE Aerospace sr. sub. notes Ser. B, 9 7/8s, 2006 2,968,000
5,890,000 Burke Industries, Inc. 144A sr. notes 10s, 2007 6,081,425
12,465,000 Howmet Corp. sr. sub. notes 10s, 2003 13,836,150
4,490,000 K & F Industries, Inc.144A sr. sub. notes 9 1/4s, 2007 4,551,738
3,650,000 L-3 Communications Corp. sr. sub. notes Ser. B, 10 3/8s, 2007 3,942,000
6,790,000 Moog Inc. sr. sub. notes Ser. B, 10s, 2006 7,129,500
9,800,000 Sabreliner Corp. sr. notes Ser. B, 12 1/2s, 2003 10,290,000
1,150,000 Sequa Corp. med. term notes Ser. A, 10.15s, 2001 1,203,855
2,610,000 Sequa Corp. sr. notes 9 5/8s, 1999 2,668,725
1,875,000 Sequa Corp. sr. sub. notes 9 3/8s, 2003 1,947,656
2,750,000 Sequa Corp. bonds 8 3/4s, 2001 2,777,500
3,600,000 Tracor, Inc. sr. sub. notes 8 1/2s, 2007 3,627,000
4,650,000 United Defense Industries Inc. 144A sr. sub. notes 8 3/4s, 2007 4,626,750
--------------
65,991,299
Agriculture (0.6%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 AGCO Corp. sr. sub. notes 8 1/2s, 2006 1,030,000
750,000 PMI Acquisition Corp. sr. sub. notes 10 1/4s, 2003 810,000
16,367,000 PMI Holdings Corp. sub. disc. deb. stepped-coupon
Ser. B, zero % (11 1/2s, 9/1/00), 2005 ++ 13,195,894
12,211,222 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003 [2 DBL. DAGGERS] 13,432,344
--------------
28,468,238
Airlines (0.3%)
- ------------------------------------------------------------------------------------------------------------
12,085,000 Continental Airlines, Inc. sr. notes 9 1/2s, 2001 12,568,400
Apparel (0.9%)
- ------------------------------------------------------------------------------------------------------------
5,375,000 GFSI, Inc. 144A stepped-coupon zero % (11.375s,
9/15/04), 2009 ++ 5,536,250
1,625,000 GFSI, Inc. sr. sub. notes Ser. B, 9 5/8s, 2007 1,665,625
14,050,000 Guess Jeans, Inc. sr. sub. notes 9 1/2s, 2003 14,471,500
7,140,000 Sassco Fashions Ltd. sr. notes 12 3/4s, 2004 7,568,400
8,000,000 Sun Apparel Inc Ser.B, 9 1/8s, 2004 8,000,000
3,645,000 William Carter Co. 144A sr. sub. notes 12s, 2008 3,900,150
--------------
41,141,925
Automotive Parts (1.1%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Aetna Industries Inc. sr. notes 11 7/8s, 2006 4,000,000
8,677,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 9,631,470
1,500,000 Aftermarket Technology Corp. sr. sub. notes Ser. D, 12s, 2004 1,665,000
5,000,000 American Axel & Manufacturing Bank Term Loan B, FRN
8s, 2005 5,075,000
2,250,000 Cambridge Industries Inc. 144A sr. sub. notes 10 1/4s, 2007 2,340,000
6,000,000 Delco Remy International, Inc. 144A 11 1/2s, 2004 6,090,000
1,425,000 Hawk Corp. sr. notes 10 1/4s, 2003 1,506,938
3,640,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 3,749,200
7,360,000 Lear Corp. sub. notes 9 1/2s, 2006 8,022,400
8,565,000 Safety Components International, Inc. sr. sub. notes
Ser. B, 10 1/8s, 2007 8,907,600
--------------
50,987,608
Banks (3.6%)
- ------------------------------------------------------------------------------------------------------------
21,850,000 Advanta Corp. company guaranty Ser. B, 8.99s, 2026 21,630,189
9,200,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 8,653,520
4,000,000 Advanta Corp. med. term notes Ser. C, 7.02s, 1999 3,987,240
850,000 Advanta Corp. med term notes Ser. D, 6.98s, 2002 830,841
3,000,000 Advanta Corp. med. term notes Ser. D, 6.65s, 2000 2,949,750
1,700,000 Advanta Corp. med. term notes Ser. D, 6.584s, 2000 1,669,434
1,215,000 Advanta Corp. med. term notes Ser. D, 6.54s, 2000 1,191,757
3,000,000 Advanta National Bank sr. notes FRN, 6.069s, 1999 2,973,900
3,685,000 Albank Capital Trust 144A company guaranty 9.27s, 2027 4,027,300
2,000,000 Chevy Chase Savings Bank sub. deb. 9 1/4s, 2008 2,040,000
550,000 Chevy Chase Savings Bank Inc. sub. deb. 9 1/4s, 2005 561,000
3,325,000 Colonial Capital I 144A company guaranty 8.92s, 2027 3,524,500
7,385,000 Dime Capital Trust I bank guaranty Ser. A, 9.33s, 2027 8,251,999
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 2,871,550
20,900,000 First Nationwide Holdings sr. sub. notes 10 5/8s, 2003 23,460,250
13,030,000 First Nationwide Holdings sr. sub. notes 9 1/8s, 2003 13,746,650
13,940,000 Greenpoint Capital Trust I company guaranty 9.1s, 2027 15,161,144
2,640,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 2,626,800
2,915,000 North Fork Capital Trust I company guaranty 8.7s, 2026 3,139,193
2,620,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 2,816,500
2,990,000 Ocwen Federal Bank FSB sub. deb. 12s, 2005 3,318,900
6,310,000 Ocwen Financial Corp. notes 11 7/8s, 2003 7,067,200
3,675,000 Onbank & Trust Co. company guaranty 9 1/4s, 2027 4,189,500
3,555,000 Peoples Heritage Capital Trust company guaranty
Ser. B, 9.06s, 2027 3,866,845
2,900,000 Provident Capital Trust company guaranty 8.6s, 2026 3,049,524
6,470,000 Riggs Capital Trust 144A bonds 8 5/8s 6,874,893
7,865,000 Sovereign Capital Trust company guaranty 9s, 2027 8,489,796
2,815,000 Webster Capital Trust I 144A bonds 9.36s, 2027 3,160,710
--------------
168,398,885
Basic Industrial Products (0.3%)
- ------------------------------------------------------------------------------------------------------------
2,475,000 Clark-Schwebel sr. notes 10 1/2s, 2006 2,673,000
5,180,000 Koppers Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 5,244,750
4,025,000 Motors and Gears, Inc. sr. notes Ser. B, 10 3/4s, 2006 4,266,500
2,025,000 Roller Bearing Co. 144A sr. sub. notes 9 5/8s, 2007 2,040,188
--------------
14,224,438
Broadcasting (5.6%)
- ------------------------------------------------------------------------------------------------------------
7,200,000 Acme Television/Finance 144A sr. disc. notes stepped-
coupon zero % (10 7/8s, 9/30/00), 2004 ++ 5,256,000
15,600,000 Allbritton Communications sr. sub. deb. Ser. B, 9 3/4s, 2007 15,717,000
2,000,000 American Radio Systems sr. sub. notes 9 3/4s, 2005 2,195,000
5,030,000 American Radio Systems Corp. company guaranty 9s, 2006 5,344,375
4,590,000 Antenna TV S.A. 144A sr. notes 9s, 2007 (Greece) 4,498,200
3,790,000 Argyle Television Corp. sr. sub. notes 9 3/4s, 2005 4,211,638
8,895,000 Australias Hldngs PTY Ltd. sr. disc, notes stepped-coupon
zero % (15s, 11/01/00), 2002 4,269,600
72,546 Australis Media, Ltd. sr. disc. notes stepped-coupon
1 3/4s, (15 3/4s 5/15/00), 2003 (Australia) ++ 21,764
3,880,000 Azteca Holdings 144A sr. notes 11s, 2002 3,977,000
9,175,000 Benedek Broadcasting sr. notes 11 7/8s, 2005 10,276,000
12,935,000 Benedek Communications Corp. sr. disc. notes stepped-
coupon zero % (13 1/4s, 5/15/01), 2006 ++ 9,507,225
4,965,000 Busse Broadcasting Corp. sr. notes 11 5/8s, 2000 5,312,550
11,220,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 ++ 7,966,200
5,425,000 Capstar Broadcasting sr. sub. notes 9 1/4s, 2007 5,533,500
3,150,000 Central European Media Enterprises Ltd. sr. notes 9 3/8s, 2004 3,118,500
5,060,000 Citadel Broadcasting Co. 144A 10 1/4s, 2007 5,414,200
290,300 Citadel Broadcasting Co. 144A sr. notes 10 1/4s, 2007 310,621
3,705,000 Commodore Media, Inc. sr. sub. notes stepped-coupon
7 1/2s, (13 1/4s, 5/1/98), 2003 ++ 4,149,600
19,210,000 Fox Kids Worldwide Inc. 144A sr. discount notes
stepped-coupon zero % (10 1/4s, 11/1/02), 2007 ++ 10,997,725
29,750,000 Fox Kids Worldwide Inc. 144A sr. notes 9 1/4s, 2007 28,336,875
15,000,000 Fox/Liberty Networks LLC 144A sr. discount notes
stepped-coupon zero % (9 3/4s,8/15/02), 2007 ++ 9,412,500
18,480,000 Fox/Liberty Networks LLC 144A sr. notes 8 7/8s, 2007 18,341,400
9,000,000 Granite Broadcasting Corp. sr. sub. notes 10 3/8s, 2005 9,337,500
8,310,000 Heartland Wireless Communications, Inc. sr. notes 13s, 2003 3,324,000
1,950,000 Heartland Wireless Communications, Inc. sr. notes Ser. D,
13s, 2003 838,500
385,000 Heartland Wireless Communications, Inc. sr. notes Ser. B,
14s, 2004 165,550
5,745,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 5,658,825
2,010,000 Jacor Communications, Inc. company guaranty 9 3/4s, 2006 2,140,650
13,555,000 JCAC, Inc. sr. sub. notes 10 1/8s, 2006 14,639,400
3,095,000 Lenfest Communications, Inc. sr. sub. notes 10 1/2s, 2006 3,396,763
9,500,000 Lenfest Communications, Inc. sr. notes 8 3/8s, 2005 9,547,500
9,450,000 Paxson Communications Corp. 144A sr. sub. notes 11 5/8s, 2002 10,158,750
8,462,000 Petracom Holdings, Inc. notes stepped-coupon zero %
(17 1/2s, 8/1/98), 2003 ++ 8,123,520
10,480,000 Radio One Inc. company guaranty stepped-coupon Ser. B,
7s, (12s, 5/15/00), 2004 ++ 10,375,200
8,050,000 Sinclair Broadcasting Group sr. sub. notes 10s, 2005 8,492,750
1,000,000 Spanish Broadcasting Systems stepped-coupon 7 1/2s,
(12.5s,), 2002 ++ 1,155,000
4,245,000 Sullivan Broadcasting sr. sub. notes 10 1/4s, 2005 4,531,538
1,950,000 TV Azteca S.A. de C.V. sr. notes 10 1/2s, 2007 (Mexico) 2,028,000
3,885,000 Wireless One, Inc. sr. notes 13s, 2003 1,942,500
300,000 Young Broadcasting, Inc. company guaranty Ser. B, 9s, 2006 295,500
--------------
260,318,919
Building and Construction (1.1%)
- ------------------------------------------------------------------------------------------------------------
3,800,000 Atrium Companies Inc. sub. notes 10 1/2s, 2006 3,999,500
19,730,000 Consorcio/MCII Holdings sec. notes stepped-coupon zero %
(12s, 11/15/98), 2002 ++ 17,904,975
2,040,000 Continental Homes Holding Corp. sr. notes 10s, 2006 2,193,000
11,000,000 GS Superhighway Holdings 144A sr. notes 10 1/4s, 2007 10,697,500
12,472,000 Terex Corp. sr. notes Ser. B, 13 1/4s, 2002 14,264,850
--------------
49,059,825
Building Products (1.0%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 American Standard, Inc. sr. sub. notes stepped-coupon zero %
(10 1/2s, 6/1/98), 2005 ++ 2,000,000
3,000,000 Colombia Holdings sr. notes 10s, 1999 3,030,000
5,000,000 Consumers International 144A sr. notes 10 1/4s, 2005 5,450,000
9,700,000 Inter-City Products sr. notes 9 3/4s, 2000 9,966,750
1,425,000 Johns Manville International Group sr. notes 10 7/8s, 2004 1,596,000
11,375,000 Nortek, Inc. sr. sub. notes 9 7/8s, 2004 11,659,375
6,325,000 Southdown, Inc. sr. sub. notes Ser. B, 10s, 2006 7,020,750
3,350,000 Waxman Industries Inc. sr. notes stepped-coupon Ser. B,
zero % (12 3/4s, 6/1/99), 2004 ++ 2,931,250
--------------
43,654,125
Buses (0.1%)
- ------------------------------------------------------------------------------------------------------------
5,260,000 Atlantic Express, Transportation Corp.144A company guaranty
10 3/4s, 2004 5,523,000
Business Equipment (0.1%)
- ------------------------------------------------------------------------------------------------------------
6,240,000 Axiohm Transactions Solutions 144A sr. sub. notes 9 3/4s, 2007 6,255,600
Business Services (0.7%)
- ------------------------------------------------------------------------------------------------------------
690,000 Corporate Express, Inc. sr. sub. notes Ser. B, 9 1/8s, 2004 710,700
3,855,000 Intertek Finance PLC 144A sr. sub. notes 10 1/4s, 2006
(United Kingdom) 4,047,750
8,710,000 Iron Mountain, Inc. 144A sr. sub. notes 8 3/4s, 2009 8,840,650
1,870,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 2,085,050
3,792,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 4,284,960
7,158,000 United Stationer Supply, Inc. sr. sub. notes 12 3/4s, 2005 8,142,225
3,000,000 Williams Scotsman, Inc. 144A sr. notes 9 7/8s, 2007 3,105,000
--------------
31,216,335
Cable Television (5.5%)
- ------------------------------------------------------------------------------------------------------------
3,022,037 Adelphia Communications Corp. sr. notes 9 1/2s, 2004 [2 DBL. DAGGERS] 3,059,812
24,445,000 Adelphia Communications Corp. sr. notes Ser. B, 9 7/8s, 2007 25,117,238
11,990,000 American Telecasting, Inc. sr. disc. notes stepped-coupon zero %
(14 1/2s, 8/15/00), 2005 ++ 3,597,000
8,750,000 Cablevision Systems Corp. sr. sub. deb. 10 1/2s, 2016 9,996,875
$210,000 Cablevision Systems Corp. sr. sub. notes 9 1/4s, 2005 220,500
9,275,000 Century Communications Corp. sr. notes 8 7/8s, 2007 9,390,938
9,000,000 Charter Communications International disc. notes stepped-
coupon Ser. B, zero % (14s, 3/15/01), 2007 ++ 6,840,000
4,250,000 Charter Communications International sr. notes Ser. B,
11 1/4s, 2006 4,717,500
5,200,000 Comcast Corp. sr. sub. notes 9 1/2s, 2008 5,505,812
7,480,000 Comcast Corp. sr. sub. notes 9 3/8s, 2005 8,001,132
17,595,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) ++ 14,032,013
1,600,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (13 1/2s, 9/30/99), 2004
(United Kingdom) ++ 1,416,000
51,775,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (11 3/4s, 12/15/00), 2005
(United Kingdom) ++ 39,090,125
325,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) ++ 212,875
9,173,867 Falcon Holdings Group, Inc. sr. sub. notes 11s, 2003 [2 DBL. DAGGERS] 9,632,560
9,235,000 FrontierVision Holdings LP 144A sr. discount notes
stepped coupon zero % (11 7/8s, 9/15/01), 2007 ++ 6,441,413
2,890,000 FrontierVision Operating Partners L.P. sr. sub. notes 11s, 2006 3,135,650
700,000 Galaxy Telecom, L.P. sr. sub. notes 12 3/8s, 2005 757,750
24,750,000 International Cabletel, Inc. sr. notes stepped-coupon
Ser. B, zero % (11 1/2s, 2/01/01), 2006 ++ 18,686,250
10,400,000 Marcus Cable Co. (L.P.) sr. disc. notes stepped-coupon
zero % (14 1/4s, 6/15/00), 2005 ++ 8,788,000
11,715,000 Marcus Cable Co. (L.P.) sr. sub. disc. notes stepped-
coupon zero % (13 1/2s, 8/1/99), 2004 ++ 10,719,225
2,320,000 Northland Cable Television 144A sr. sub. notes 10 1/4s, 2007 2,378,000
2,050,000 Pegasus Communications Corp. 144A sr. notes 9 5/8s, 2005 2,050,000
6,000,000 Pegasus Media & Communications notes Ser. B, 12 1/2s, 2005 6,840,000
20,325,000 RCN Corp. 144A sr. disc. notes stepped-coupon zero%
(11 1/8s, 10/15/02), 2007 ++ 11,940,938
2,750,000 RCN Corp. 144A sr. notes 10s, 2007 2,756,875
580,000 Tele-Communications, Inc. sr. notes 7 3/8s, 2000 589,309
3,500,000 Telewest Communications PLC deb. 9 5/8s, 2006
(United Kingdom) 3,622,500
20,000,000 Time Warner, Inc. deb. 7 1/4s, 2017 19,979,600
5,810,000 UIH Australia/Pacific, Inc. 144A sr. disc. notes stepped-
coupon zero % (14s, 5/15/01), 2006 (Australia) ++ 3,776,500
17,735,000 UIH Australia/Pacific, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 5/15/01), 2006 (Australia) ++ 11,527,750
--------------
254,820,140
Cellular Communications (5.1%)
- ------------------------------------------------------------------------------------------------------------
6,400,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/98), 2004 ++ 6,560,000
5,850,000 Cellular, Inc. sr. sub. disc. notes stepped-coupon zero %
(11 3/4s, 9/1/98), 2003 ++ 5,776,875
35,980,000 Cencall Communications Corp. sr. disc. notes stepped-
coupon zero % (10 1/8s, 1/15/99), 2004 ++ 31,437,525
6,000,000 Centennial Cellular Corp. sr. notes 10 1/8s, 2005 6,450,000
5,972,000 Centennial Cellular Corp. sr. notes 8 7/8s, 2001 6,061,580
14,000,000 Clearnet Communications, Inc. sr. disc. notes stepped-
coupon zero % (14 3/4s, 12/15/00), 2005 ++ 10,920,000
9,555,000 Comcast Cellular Holdings sr. notes Ser. B, 9 1/2s, 2007 9,889,425
2,750,000 Commnet Cellular, Inc. bonds 11 1/4s, 2005 3,135,000
2,470,000 Consorcio Ecuatoriano 144A notes 14s, 2002 (Ecuador) 2,470,000
5,000,000 Dial Call Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/4s, 4/15/99), 2004 ++ 4,750,000
23,280,000 Intercel, Inc. sr. disc. notes stepped-coupon zero %
(12s, 2/1/01), 2006 ++ 16,878,000
8,310,000 McCaw International Ltd sr. discount notes stepped-
coupon zero % (13s, 4/15/02), 2007 ++ 4,882,125
23,175,000 Millicom International Cellular S.A. sr. disc. notes stepped-
coupon zero % (13 1/2s, 6/1/01), 2006 (Luxembourg) ++ 16,917,750
48,985,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (10.65s, 9/15/02), 2007 ++ 29,758,388
36,000,000 NEXTEL Communications, Inc. 144A sr. disc. notes
stepped-coupon zero % (9 3/4s, 10/31/02), 2007 ++ 20,790,000
2,480,000 Omnipoint Corp. sr. notes 11 5/8s, 2006 2,628,800
10,750,000 Omnipoint Corp. sr. notes Ser. A, 11 5/8s, 2006 11,395,000
5,000,000 Pricellular Wireless Corp. sr. disc. notes stepped-coupon
zero % (12 1/4s, 10/1/98), 2003 ++ 5,006,250
6,500,000 Powertel, Inc. sr. notes 11 1/8s, 2007 6,890,000
5,000,000 Powertel, Inc. 8 7/8s, 2001 4,993,750
7,250,000 Rogers Cantel, Inc. deb. 9 3/8s, 2008 (Canada) 7,648,750
4,900,000 Sprint Spectrum L.P. sr. notes 11s, 2006 5,512,500
1,650,000 Sygnet Wireless, Inc. sr. notes 11 1/2s, 2006 1,765,500
4,390,000 Telesystem International Wireless Inc. 144A sr. disc. notes
stepped-coupon zero % (10 1/2s, 11/1/02), 2007
(Canada) ++ 2,392,550
11,175,000 Transtel S.A. 144A pass through Certificates 12 1/2s, 2007
(Colombia) 10,504,500
1,700,000 Western Wireless Corp. sr. sub. notes 10 1/2s, 2007 1,802,000
--------------
237,216,268
Chemicals (2.6%)
- ------------------------------------------------------------------------------------------------------------
1,650,000 Buckeye Cellulose Corp. sr. sub. notes 9 1/4s, 2008 1,740,750
2,775,000 Buckeye Cellulose Corp. sr. sub. notes 8 1/2s, 2005 2,816,625
1,790,000 Chemical Leaman Corp. sr. notes 10 3/8s, 2005 1,861,600
5,300,000 Foamex, L.P. company guaranty 9 7/8s, 2007 5,439,125
13,590,000 Harris Chemical Corp. sr. sub. notes 10 3/4s, 2003 14,303,475
12,750,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 13,291,875
4,850,000 Huntsman Corp. 144A sr. sub. notes FRN 9.094s, 2007 5,019,750
5,500,000 Huntsman Specialty Bank Loan notes Ser. BK, zero %, 2007 5,500,000
5,430,000 NL Industries, Inc. sr. notes 11 3/4s, 2003 5,973,000
9,300,000 PCI Chemicals & Pharmaceuticals 144A sr. notes 9 1/4s,
2007 (Canada) 9,160,500
4,465,000 Pioneer Americas Acquisition 144A sr. notes 9 1/4s, 2007 4,431,513
4,000,000 Pioneer Americas Acquisition Bank Loan FRN 8.815s, 2006 4,050,000
2,992,500 Pioneer Americas Acquisititon Bank Loan FRN 8.38s, 2006 3,029,906
13,310,000 Polytama International notes 11 1/4s, 2007 11,712,800
12,175,000 Pharmaceutical Fine Chemicals 144A sr. sub. notes 9 3/4s,
2007 (Switzerland) 12,235,875
115,000 Sovereign Specialty Chemical 144A sr. sub. notes 9 1/2s, 2007 118,163
1,220,000 Texas Petrochemical Corp. sr. sub. notes 11 1/8s, 2006 1,342,000
5,550,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 4,842,375
13,915,000 Union Carbide Global Enterprises sr. sub. notes Ser. B, 12s, 2005 15,584,800
--------------
122,454,132
Computer Equipment (0.1%)
- ------------------------------------------------------------------------------------------------------------
6,385,000 Computervision Corp. sr. sub. notes 11 3/8s, 1999 6,289,225
Computer Services (0.5%)
- ------------------------------------------------------------------------------------------------------------
3,100,000 DecisionOne Corp. sr. sub. notes 9 3/4s, 2007 3,177,500
10,125,000 Unisys Corp. sr. notes 11 3/4s, 2004 11,491,875
10,250,000 Unisys Corp. deb. 9 3/4s, 2016 10,250,000
--------------
24,919,375
Conglomerates (0.2%)
- ------------------------------------------------------------------------------------------------------------
893,000 Axia, Inc. sr. sub. notes Ser. B, 11s, 2001 928,720
1,960,000 Cia Latino Americana 144A company guaranty 11 1/8s,
2004 (Argentina) 1,979,600
4,350,000 Dine S.A. de C.V. 144A company guaranty 8 3/4s, 2007
(Luxembourg) 4,230,375
1,980,000 MacAndrews & Forbes Holdings, Inc. sub. deb. notes 13s, 1999 1,987,425
--------------
9,126,120
Consumer Durable Goods (0.4%)
- ------------------------------------------------------------------------------------------------------------
6,250,000 Doskcil Manufacturing Co 144A sr. sub. notes 10 1/8s, 2007 6,437,500
5,585,000 Icon Fitness Corp. 144A sr. disc. notes stepped-coupon
Ser. B, zero % (14s, 11/15/01), 2006 ++ 3,183,450
6,150,000 IHF Holdings, Inc. sr. disc. notes Ser. B, zero % (15s, 11/15/99),
2004 ++ 5,350,500
4,840,000 Remington Products Co. sr. sub. notes Ser. B, 11s, 2006 4,065,600
--------------
19,037,050
Consumer Non Durables (--%)
- ------------------------------------------------------------------------------------------------------------
2,400,000 CLN Holdings, Inc. sr. disc. notes zero %, 2001 1,320,000
1,235,000 Hedstrom Holdings, Inc. 144A sr. disc. notes zero %
(12s, 6/1/02), 2009 ++ 741,000
--------------
2,061,000
Consumer Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
9,695,000 Coinmach Corp. sr. notes Ser. B, 11 3/4s, 2005 10,737,213
4,805,000 Coinmach Corp. 144A sr. notes 11 3/4s, 2005 5,273,488
--------------
16,010,701
Cosmetics (1.4%)
- ------------------------------------------------------------------------------------------------------------
12,980,000 Carson, Inc. 144A sr. sub. notes 10 3/8s, 2007 13,369,400
450,000 Coty Inc. Gtd. sr. sub. notes 10 1/4s, 2005 480,375
2,220,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 2,331,000
5,275,000 Renaissance Cosmetics company guaranty 11 3/4s, 2004 4,800,250
12,035,000 Revlon Consumer Products sr. sub. notes Ser. B, 10 1/2s, 2003 12,696,925
42,840,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 2001 29,666,700
123,000 Revlon Worldwide Corp. sr. disc. notes Ser. B, zero %, 1998 120,848
--------------
63,465,498
Electric Utilities (3.7%)
- ------------------------------------------------------------------------------------------------------------
8,195,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 8,317,925
6,525,000 AES Corp. sr. sub. notes 8 3/8s, 2007 6,410,813
2,500,000 Calpine Corp. sr. notes 10 1/2s, 2006 2,737,500
9,255,000 Calpine Corp. sr. notes 9 1/4s, 2004 9,486,375
5,000,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 7 7/8s, 2001 5,062,250
7,200,000 Connecticut Light & Power Co. 1st mtge. Ser. A, 5 1/2s, 1999 7,100,352
2,000,000 Connecticut Light & Power Co. 1st mtge. Ser. D, 7 7/8s, 2024 2,050,120
6,500,000 El Paso Electric Co. 1st mtge. Ser. D, 8.9s, 2006 7,063,810
6,925,000 El Paso Electric Co. 1st mtge. Ser. E, 9.4s, 2011 7,782,038
6,655,000 Espirito Santo Centrais 144A sr. notes 10s, 2007 (Brazil) 6,388,800
295,000 First PV Funding deb. 10.15s, 2016 316,252
4,041,000 First PV Funding Corp. deb. Ser. 86A, 10.3s, 2014 4,411,075
12,879,000 Long Island Lighting Co. deb. 9s, 2022 14,273,796
17,200,000 Long Island Lighting Co. deb. 8.9s, 2019 18,963,860
1,350,000 Long Island Lighting Co. refunding mtge. notes 9 5/8s, 2024 1,386,815
338,054 Midland Funding Corp. I deb. Ser. C-94, 10.33s, 2002 369,067
24,265,000 Midland Funding Corp. II deb. Ser. A, 11 3/4s, 2005 29,009,535
9,600,000 Midland Funding Corp. II deb. Ser. B, 13 1/4s, 2006 12,275,424
800,000 Niagara Mohawk Power Corp. med. term notes 9.95s, 2000 803,152
1,873,000 North Atlantic Energy Corp. 1st mtge. Ser. A, 9.05s, 2002 1,897,667
6,924,397 Northeast Utilities System notes Ser. A, 8.58s, 2006 6,854,115
1,840,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 1,841,251
12,420,000 Panda Global Energy Co. company guaranty 12 1/2s, 2004 11,674,800
5,000,000 Texas New-Mexico Power Utilities deb. 12 1/2s, 1999 5,297,850
--------------
171,774,642
Electronics and Electrical Equipment (1.7%)
- ------------------------------------------------------------------------------------------------------------
8,830,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 8,741,700
2,110,000 Celestica International Ltd. 144A sr. sub. notes 10 1/2s,
2006 (India) 2,236,600
5,000,000 Details Holdings Corp. 144A sr. disc. notes stepped-
coupon zero % (12 1/2s, 11/15/02), 2007 ++ 2,862,500
2,790,000 Details, Inc. 144A sr. sub. notes 10s, 2005 2,824,875
10,550,000 DII Group, Inc. 144A sr. sub. notes 8 1/2s, 2007 10,418,125
5,240,000 Dobson Communications Corp. 11 3/4s, 2007 5,449,600
3,275,000 Figgie International, Inc. sr. notes 9 7/8s, 1999 3,414,188
6,280,000 Flextronics Internationsl Ltd. 144A sr. sub. notes 8 3/4s, 2007 6,264,300
2,875,000 HCC Industries, Inc. 144A sr. sub. notes 10 3/4s, 2007 2,990,000
25,560,000 International Semi-Tech. Corp. sr. secd. disc. notes
stepped-coupon zero % (11 1/2s, 8/15/98), 2003
(Canada) ++ 10,735,200
4,530,000 Therma-Wave Inc. sr. notes Ser. B, 10 5/8s, 2004 4,801,800
14,885,000 Viasystems Inc. 144A sr. sub. notes 9 3/4s, 2007 15,405,975
1,725,000 Wavetek Corp. company guaranty 10 1/8s, 2007 1,768,125
--------------
77,912,988
Entertainment (0.2%)
- ------------------------------------------------------------------------------------------------------------
6,040,000 Premier Parks, Inc. sr. notes 9 3/4s, 2007 6,417,500
3,800,000 Six Flags Corp. sr. sub. notes stepped-coupon zero %
(12 1/4s, 6/15/98), 2005 ++ 4,037,500
--------------
10,455,000
Environmental Control (0.3%)
- ------------------------------------------------------------------------------------------------------------
3,900,000 Allied Waste Industries, Inc. company guaranty 10 1/4s, 2006 4,251,000
15,010,000 Allied Waste Industries, Inc. 144A sr. disc. notes stepped-
coupon zero % (11.3s, 6/1/02), 2007 ++ 10,319,375
--------------
14,570,375
Financial Services (1.3%)
- ------------------------------------------------------------------------------------------------------------
15,275,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 15,275,000
2,000,000 AEI Holding Co. Inc. 144A sr. notes 10s, 2007 2,035,000
10,110,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 10,489,125
9,345,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 9,204,825
1,770,000 Dollar Financial Group Inc. sr. notes Ser. A, 10 7/8s, 2006 1,885,050
4,565,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 4,496,525
4,690,000 Investors Capital Trust I company guaranty Ser. B, 9.77s, 2027 4,977,263
5,500,000 Local Financial Corp. 144A sr. notes 11s, 2004 5,802,500
6,850,000 Resource America Inc. 144A bonds 12s, 2004 7,038,375
--------------
61,203,663
Food and Beverages (1.9%)
- ------------------------------------------------------------------------------------------------------------
12,405,000 Ameriserve Food Co. 144A sr. sub. notes 10 1/8s, 2007 12,901,200
8,345,000 Ameriserve Food Co. 144A sr. notes 8 7/8s, 2006 8,345,000
500,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D, 9 7/8s, 2007 525,000
7,475,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 7,848,750
5,200,000 Canandaigua Wine Co. sr. sub. notes Ser. C, 8 3/4s, 2003 5,278,000
435,000 Chiquita Brands cv. sr. notes 9 5/8s, 2004 461,100
1,710,000 Del Monte Corp. sr. sub. notes Ser. B, 12 1/4s, 2007 1,863,900
6,525,000 Doane Products Co. sr. notes 10 5/8s, 2006 6,981,750
11,400,000 International Home Foods, Inc. company gauranty 10 3/8s, 2006 12,084,000
6,765,000 Nebco Evans Holding Co. 144A sr. disc. notes stepped-
coupon zero % (12 3/8s, 7/15/02), 2007 ++ 4,397,250
1,970,000 Sampoerna International Finance Co. 144A company guaranty
8 3/8s, 2006 (Indonesia) 1,777,827
7,100,000 Southern Foods Group 144A sr. sub. notes 9 7/8s, 2007 7,384,000
5,883,360 Southern Foods Group 144A zero %, 2006 5,898,068
11,765,000 Windy Hill Pet Food Co. sr. sub. notes 9 3/4s, 2007 12,117,950
--------------
87,863,795
Gaming (3.4%)
- ------------------------------------------------------------------------------------------------------------
6,015,000 Argosy Gaming Co. 1st mtge. 13 1/4s, 2004 6,090,188
5,525,000 Autotote Corp. company guaranty Ser. B, 10 7/8s, 2004 5,759,813
150,000 Aztar Corp. sr. sub. notes 13 3/4s, 2004 172,125
6,500,000 Aztar Corp. sr. sub. notes 11s, 2002 6,695,000
1,915,000 Boyd Gaming Corp. 144A sr. sub. notes 9 1/2s, 2007 1,972,450
5,575,000 Casino America, Inc. sr. notes 12 1/2s, 2003 6,041,906
1,050,000 Casino Magic Finance Corp. 1st mtge. 11 1/2s, 2001 1,023,750
12,920,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B, 13s, 2002 14,535,000
4,000,000 Coast Hotels & Casinos, Inc. company guaranty Ser. B,
10 7/8s, 2001 4,000,000
5,042,678 Colorado Gaming & Entertainment Co. sr. notes 12s, 2003 5,345,239
2,780,000 Empress River Casino sr. notes 10 3/4s, 2002 2,974,600
3,555,000 Fitzgeralds Gaming Co. 13s, 1998 3,555,000
5,755,000 Grand Casinos, Inc. 1st mtge. 10 1/8s, 2003 6,114,688
6,290,000 Harveys Casino Resorts sr. sub. notes 10 5/8s, 2006 6,856,100
10,220,000 Hollywood Casino Corp. sr. notes 12 3/4s, 2003 10,986,500
5,735,000 Isle of Capri Black Hawk LLC 144A 1st mortgage 13s, 2004 5,792,350
8,215,000 Lady Luck Gaming Corp. 1st mtge. 11 7/8s, 2001 8,379,300
750,000 Louisiana Casino Cruises Corp. 1st mtge. 11 1/2s, 1998 757,500
7,040,000 101 Main L.L.C. P/P 144A 13s, 2000 7,110,400
9,796,000 Players International Inc. sr. notes 10 7/8s, 2005 10,579,680
11,370,000 PRT Funding Corp. sr. notes 11 5/8s, 2004 8,925,450
15,490,000 Trump A.C. 1st mtge. 11 1/4s, 2006 15,335,100
3,078,000 Trump Castle Funding Corp. notes 11 1/2s, 2000 3,108,780
6,050,000 Trump Holdings & Funding Corp. sr. notes 15 1/2s, 2005 7,018,000
10,000,000 Venetian Casino Term Bank Loan FRN 8.875s, 2003 9,950,000
--------------
159,078,919
Health Care (3.5%)
- ------------------------------------------------------------------------------------------------------------
10,000,000 Columbia/HCA Healthcare notes 7s, 2007 9,755,500
2,000,000 Columbia/HCA Healthcare Corp. med. term notes 8.85s, 2007 2,163,560
8,240,000 Genesis Eldercare 144A sr. sub. notes 9s, 2007 8,013,400
2,083,000 Genesis Health Ventures, Inc. sr. sub. notes 9 3/4s, 2005 2,150,698
135,000 Genesis Health Ventures, Inc. sr. sub. notes 9 1/4s, 2006 136,688
3,085,000 Integrated Health Services, Inc. 144A sr. sub. notes 9 1/2s, 2007 3,115,850
18,785,000 Integrated Health Services, Inc. 144A sr. sub. notes 9 1/4s, 2008 18,738,038
10,915,000 Leiner Health Products 144A sr. sub. notes 9 5/8s, 2007 11,542,613
2,000,000 Merit Behavioral Care sr. sub. notes 11 1/2s, 2005 2,320,000
6,570,000 Paracelsus Healthcare sr. sub. notes 10s, 2006 6,832,800
27,585,000 Paragon Health Networks, Inc. 144A sr. sub. notes 9 1/2s, 2007 27,447,075
8,750,000 Paragon Health Network Bank Term Loan C, FRN 8.5625s, 2005 8,870,313
1,900,000 Quorum Health Group, Inc. sr. sub. notes 8 3/4s, 2005 1,957,000
20,230,000 Sun Healthcare Group Inc. 144A sr. sub. notes 9 1/2s, 2007 20,584,025
7,000,000 Tenet Healthcare Corp. sr. sub. notes 10 1/8s, 2005 7,595,000
23,075,000 Tenet Healthcare Corp. sr. sub. notes 8 5/8s, 2007 23,594,188
7,865,000 Tenet Healthcare Corp. sr. notes 8s, 2005 7,943,650
--------------
162,760,398
Insurance and Finance (0.3%)
- ------------------------------------------------------------------------------------------------------------
3,025,000 Reliance Group Holdings, Inc. sr. notes 9s, 2000 3,165,874
10,920,000 Reliance Group Holdings, Inc. sr. sub. deb. 9 3/4s, 2003 11,528,135
--------------
14,694,009
Lodging (0.7%)
- ------------------------------------------------------------------------------------------------------------
1,060,000 HMH Properties, Inc. sr. notes 9 1/2s, 2005 1,115,650
9,050,000 HMH Properties, Inc. company guaranty Ser. B, 8 7/8s, 2007 9,321,500
14,105,000 Host Marriott Travel Plaza sr. notes Ser. B, 9 1/2s, 2005 14,880,775
1,810,000 John Q Hammons Hotels, Inc. 1st mtge. 8 7/8s, 2004 1,837,150
4,355,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 4,638,075
--------------
31,793,150
Machinery (0.1%)
- ------------------------------------------------------------------------------------------------------------
2,890,000 Bucyrus International, Inc. 144A sr. notes 9 3/4s, 2007 2,918,900
Media (0.5%)
- ------------------------------------------------------------------------------------------------------------
2,420,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 2,226,400
21,000,000 Viacom International, Inc. sub. deb. 8s, 2006 20,847,540
--------------
23,073,940
Medical Supplies and Devices (1.1%)
- ------------------------------------------------------------------------------------------------------------
12,185,000 ALARIS Medical Inc. company guaranty 9 3/4s, 2006 12,855,175
8,000,000 Dade International, Inc. sr. sub. notes Ser. B, 11 1/8s, 2006 8,940,000
5,375,000 Graphic Controls Corp. sr. sub. notes Ser. A, 12s, 2005 5,993,125
10,800,000 Imagyn Medical Technologies, Inc. 12 1/2s, 2004 10,314,000
4,600,000 Kinetic Concepts, Inc. 144A sr. sub. notes 9 5/8s, 2007 4,634,500
9,530,000 Wright Medical Technology, Inc. 144A notes Ser. C,
11 3/4s, 2000 9,672,950
--------------
52,409,750
Metals and Mining (0.6%)
- ------------------------------------------------------------------------------------------------------------
2,590,000 Altos Hornos de Mexico bonds Ser. B, 11 7/8s, 2004 (Mexico) 2,751,875
2,800,000 Anker Coal Group, Inc. 144A sr. notes 9 3/4s, 2007 2,814,000
4,030,000 Armco, Inc. sr. notes 9s, 2007 3,979,625
4,455,000 Continental Global Group sr. notes Ser. B, 11s, 2007 4,744,575
7,500,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes 12 3/4s, 2003 8,025,000
6,470,000 Maxxam Group Holdings, Inc. sr. notes Ser. B, 12s, 2003 6,987,600
--------------
29,302,675
Motion Picture Distribution (1.2%)
- ------------------------------------------------------------------------------------------------------------
5,590,000 Act III Theatres, Inc. sr. sub. notes 11 7/8s, 2003 6,023,225
17,285,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 17,717,125
2,532,600 Cinemark Mexico USA notes Ser. B, 13s, 2003 (Mexico) [2 DBL. DAGGERS] 2,627,573
97,000 Cinemark Mexico USA notes Ser. D, 13s, 2003 (Mexico) [2 DBL. DAGGERS] 100,638
15,500,000 Cinemark USA, Inc. 9 5/8s, 2008 15,965,000
3,385,000 Cinemark USA, Inc. sr. sub. notes 9 5/8s, 2008 3,503,475
8,145,000 United Artists notes 11 1/2s, 2002 8,470,800
--------------
54,407,836
Oil and Gas (5.2%)
- ------------------------------------------------------------------------------------------------------------
2,725,000 Abraxas Petroleum Corp. 144A sr. notes Ser. B, 11 1/2s, 2004 2,943,000
11,350,000 Benton Oil & Gas Co. sr. notes 11 5/8s, 2003 12,513,375
1,375,000 Benton Oil & Gas Co. 144A sr. notes 9 3/8s, 2007 1,392,188
11,500,000 Chesapeake Energy Corp. sr. notes 10 1/2s, 2002 12,233,125
5,208,000 Chesapeake Energy Corp. sr. notes 9 1/8s, 2006 5,377,260
4,000,000 Clark R & M Holdings Inc. Bank Loan FRN 8.625s, 2004 4,030,000
3,500,000 Cliffs Drilling Co. 144A sr. notes 10 1/4s, 2003 3,771,250
5,490,000 Coho Energy, Inc. sr. sub. notes 8 7/8s, 2007 5,476,275
3,800,000 DI Industries Inc. sr. notes 8 7/8s, 2007 3,895,000
7,595,000 Flores & Rucks, Inc. sr. sub. notes 9 3/4s, 2006 8,126,650
5,000,000 Gulf Canada Resources Ltd. sr. sub. notes 9 5/8s, 2005 (Canada) 5,425,000
2,800,000 Gulf Canada Resources, Ltd. sr. sub. deb. 9 1/4s, 2004 (Canada) 2,954,476
3,550,000 HS Resources, Inc. company guaranty 9 1/4s, 2006 3,656,500
9,581,000 KCS Energy, Inc. company guaranty Ser. B, 11s, 2003 10,515,148
3,125,000 Pacalta Resources Ltd. sr. notes Ser. B, 10 3/4s, 2004 (Canada) 3,078,125
3,730,000 Panaco, Inc. 144A sr. notes 10 5/8s, 2004 3,711,350
2,890,000 Parker Drilling Corp. sr. notes Ser. Ser. B, 9 3/4s, 2006 3,092,300
2,465,000 Petsec Energy, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007 2,526,625
1,205,000 Pogo Producing Co. sr. sub. notes Ser. B, 8 3/4s, 2007 1,229,100
2,465,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 2,483,488
10,480,000 Southwest Royalties, Inc. 144A company guaranty 10 1/2s, 2004 10,375,200
103,200,000 Transamerican Energy 144A sr. disc. notes stepped-coupon
zero % (13s 6/15/2000), 2002 ++ 83,850,000
25,445,000 Transamerican Energy 144A sr. notes 11 1/2s, 2002 25,445,000
8,736,000 TransTexas Gas Corp. sr. sub. notes Ser. D, 13 3/4s, 2001 9,784,320
6,800,000 Trico Marine Services, Inc. company guaranty Ser. B,
8 1/2s, 2005 6,902,000
1,350,000 Trico Marine Services, Inc. 144A company guaranty Ser. C,
8 1/2s, 2005 1,360,125
3,475,000 XCL Ltd 144A 13 1/2s, 2004 3,787,750
2,410,000 Wiser Oil Co. company guaranty 9 1/2s, 2007 2,397,950
--------------
242,332,580
Packaging and Containers (0.5%)
- ------------------------------------------------------------------------------------------------------------
4,040,000 AEP Industries, Inc. 144A sr. sub. notes 9 7/8s, 2007 4,080,400
6,630,000 Huntsman Packaging Corp. 144A sr. sub. notes 9 1/8s, 2007 6,812,325
3,815,000 Owens-Illinois, Inc. sr. notes 8.1s, 2007 4,039,475
5,390,000 Radnor Holdings Corp. 144A sr. notes Ser. B, 10s, 2003 5,551,700
1,330,000 Radnor Holdings Corp. sr. notes 10s, 2003 1,376,550
--------------
21,860,450
Paging (1.3%)
- ------------------------------------------------------------------------------------------------------------
18,715,000 Arch Communications Group sr. disc. notes stepped-coupon
zero % (10 7/8s, 3/15/01), 2008 ++ 12,258,325
9,500,000 Metrocall, Inc. sr. sub. notes 10 3/8s, 2007 9,642,500
8,190,000 Metrocall, Inc. 144A sr. sub. notes 9 3/4s, 2007 8,108,100
14,050,000 Mobile Telecommunications Tech. sr. notes 13 1/2s, 2002 16,052,125
5,875,000 Pagemart Nationwide, Inc. sr. disc. notes stepped-coupon zero %
(15s, 2/1/00), 2005 ++ 4,846,875
7,000,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 6,090,000
2,025,000 Paging Network, Inc. sr. sub. notes 10 1/8s, 2007 2,095,875
1,135,000 Paging Network, Inc. sr. sub. notes 10s, 2008 1,166,213
1,650,000 Paging Network, Inc. 144A sr. sub. notes 10s, 2008 1,695,375
--------------
61,955,388
Paper and Forest Products (2.4%)
- ------------------------------------------------------------------------------------------------------------
11,500,000 APP Finance II Mauritius Ltd. bonds 12s, 2049 (Indonesia) ++ 10,752,500
220,000 APP International Finance Co. notes 11 3/4s, 2005
(Netherlands) 223,300
4,800,000 Domtar, Inc. notes 8 3/4s, 2006 (Canada) 5,141,952
5,770,300 Florida Coast Paper LLC notes 13 1/4s, 2007 5,481,785
14,650,000 Florida Coast Paper LLC 1st mtge. Ser. B, 12 3/4s, 2003 15,675,500
8,395,000 Indah Kiat Financial Mauritius 144A 10s, 2007 (Indonesia) 7,639,450
11,190,000 Pindo Deli Finance Mauritius Ltd. 144A company guaranty
10 3/4s, 2007 (India) 10,350,750
12,005,000 PT Pabrik Kertas Tjiwi Kimia 144A company guaranty 10s, 2004
(Indonesia) 10,984,575
18,925,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 18,357,250
4,605,000 Riverwood International Corp. company guranty 10 7/8s, 2008 4,512,900
6,000,000 Stone Container Corp. 1st mtge. 10 3/4s, 2002 6,405,000
4,450,000 Stone Container Corp. sr. notes 11 1/2s, 2004 4,806,000
8,825,000 Stone Container Corp. 144A company guaranty 11 1/2s, 2006 9,354,500
--------------
109,685,462
Pharmaceuticals (0.6%)
- ------------------------------------------------------------------------------------------------------------
15,750,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 16,537,500
10,870,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 10,652,600
--------------
27,190,100
Publishing (0.5%)
- ------------------------------------------------------------------------------------------------------------
400,000 Affinity Group sr. sub. notes 11 1/2s, 2003 428,000
8,025,000 Affinity Group Holdings sr. notes 11s, 2007 8,526,563
3,550,000 American Media Operation, Inc. sr. sub. notes 11 5/8s, 2004 3,851,750
6,900,000 Garden State Newspapers 144A sr. sub. notes 8 3/4s, 2009 6,796,500
2,875,000 Hollinger International Publishing, Inc. company guaranty
9 1/4s, 2007 2,961,250
2,875,000 Hollinger International Publishing, Inc. company guaranty
8 5/8s, 2005 2,939,688
--------------
25,503,751
Real Estate (--%)
- ------------------------------------------------------------------------------------------------------------
2,100,000 Tanger Properties Ltd. partnership gtd. notes 8 3/4s, 2001 2,181,627
Railroads (0.5%)
- ------------------------------------------------------------------------------------------------------------
22,975,000 CLN Holdings, Inc. company gauranty zero %, 2001 14,474,250
1,935,000 TFM S.A. de C.V. 144A company guaranty 10 1/4s, 2007
(Mexico) 2,002,725
9,750,000 TFM S.A. de C.V. 144A company guaranty stepped-coupon
zero % (11 3/4s, 6/15/02), 2009 (Mexico) ++ 6,435,000
--------------
22,911,975
Restaurants (0.1%)
- ------------------------------------------------------------------------------------------------------------
4,800,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 5,214,000
Retail (1.3%)
- ------------------------------------------------------------------------------------------------------------
9,160,000 Brylane (L.P.) sr. sub. notes 10s, 2003 9,709,600
3,130,000 Guitar Center Management Co. 144A sr. notes 11s, 2006 3,489,950
5,500,000 J Crew Group 144A deb. stepped-coupon zero % (13 1/8s,
10/15/02), 2008 ++ 3,052,500
3,500,000 J Crew Operating Corp. 144A sr. sub. notes 10 3/8s, 2007 3,447,500
1,700,000 K mart Corp. deb. 13 1/2s, 2009 1,851,793
2,250,000 K mart Corp. med. term notes 9s, 2020 2,352,150
175,000 K mart Corp. notes 8 1/8s, 2006 177,625
400,000 K mart Corp. med. term notes 8.19s, 2003 407,428
1,500,000 Kmart Corp. med. term notes 8.18s, 2003 1,527,150
300,000 K mart Corp. med. term notes 8s, 2001 302,961
1,400,000 K mart Corp. med. term notes 7.84s, 2002 1,406,146
600,000 K mart Corp. med. term notes 7.77s, 2002 600,612
1,400,000 K mart Corp. med. term notes 7.76s, 2002 1,400,896
150,000 K mart Corp. med. term notes 7.72s, 2002 149,864
500,000 K mart Corp. med. term notes 7.72s, 2002 499,575
1,150,000 K mart Corp. med. term notes 7.55s, 2004 1,128,909
1,000,000 K mart Corp. med. term notes 7 3/8s, 2000 994,710
1,400,000 K mart Corp. med. term notes 7.24s, 1999 1,396,570
300,000 K mart Corp. med. term notes 7.2s, 2000 297,126
3,000,000 K mart Corp. med. term notes 7.17s, 2000 2,969,010
4,100,000 K mart Corp. med. term notes 7.01s, 2000 4,041,698
1,500,000 K mart Corp. med. term notes 6.78s, 1999 1,485,030
2,900,000 K mart Corp. med. term notes 6 3/4s, 1999 2,869,927
8,870,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 9,490,900
3,600,000 Specialty Retailers, Inc. company guaranty Ser. B, 8 1/2s, 2005 3,672,000
2,000,000 SRI Receivables Purchase 144A 12 1/2s, 2000 2,120,000
--------------
60,841,630
Satellite Services (2.1%)
- ------------------------------------------------------------------------------------------------------------
3,848,896 Direct Sat 1 144A 8 1/4s, 2001 3,810,408
8,985,000 Echostar DBS Corp. 144A company guaranty 12 1/2s, 2002 9,557,794
10,000,000 Echostar Satellite Broadcast Corp. sr. disc. notes stepped-
coupon zero % (13 1/8s, 3/15/00), 2004 ++ 8,250,000
4,089,693 Echostar I 144A 8 1/4s, 2001 4,048,797
4,335,000 Esat Holdings Ltd. 144A sr. notes stepped-coupon zero %
(12 1/2s, 2/01/02), 2007 (Ireland) ++ 3,034,500
6,250,000 Globalstar L.P. Capital 11 3/8s, 2004 6,296,875
22,645,000 Iridium LLC/Capital Corp. company guaranty Ser. B, 14s, 2005 24,230,150
9,970,000 Iridium LLC company guaranty Ser. A, 13s, 2005 10,294,025
4,940,000 Iridium LLC/Capital Corp. 144A sr. notes 11 1/4s, 2005 4,779,450
10,435,000 Orbcomm Global Capital Corp. sr. notes Ser. B, 14s, 2004 11,113,275
5,775,000 Pratama Datakom Asia BV 144A company guaranty
12 3/4s, 2005 4,620,000
7,300,000 TCI Satellite Entertainment 144A sr. disc. notes stepped-
coupon zero % (12 1/4s, 2/15/02), 2007 ++ 4,599,000
4,080,000 TCI Satellite Entertainment 144A sr. sub. notes 10 7/8s, 2007 4,222,800
--------------
98,857,074
Semiconductors (0.7%)
- ------------------------------------------------------------------------------------------------------------
2,366,397 Cirent Semiconductor sr. sub. notes 10.22s, 2002 2,416,683
2,545,833 Cirent Semiconductor 144A sr. sub. notes 10.14s, 2004 2,606,297
11,825,000 Fairchild Semiconductor Corp. 144A sr. sub. notes 11.74s, 2008 12,091,063
14,580,000 Fairchild Semiconductor Corp. sr. sub. notes 10 1/8s, 2007 15,236,100
--------------
32,350,143
Shipping (0.2%)
- ------------------------------------------------------------------------------------------------------------
4,290,000 Newport News Shipbuilding sr. notes 8 5/8s, 2006 4,440,150
6,000,000 Pegasus Shipping 144A company guaranty 11 7/8s, 2004 5,940,000
--------------
10,380,150
Specialty Consumer Products (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,530,000 Genesco, Inc. sr. notes 10 3/8s, 2003 2,618,550
5,025,000 Herff Jones, Inc. sr. sub. notes 11s, 2005 5,452,125
--------------
8,070,675
Steel (0.7%)
- ------------------------------------------------------------------------------------------------------------
1,705,000 Acindar Industria Argentina de Aceros S.A. bonds
11 1/4s, 2004 (Argentina) 1,653,850
1,630,000 AK Steel Corp. sr. notes 9 1/8s, 2006 1,678,900
12,430,000 Hylsa S.A. de C.V. 144A bonds 9 1/4s, (Mexico) 12,150,325
1,500,000 Ispat Mexicana S.A. deb. 10 3/8s, 2001 (Mexico) 1,545,000
5,000,000 Murrin Holdings 144A sr. notes 9 3/8s, 2007 (Australia) 5,000,000
3,460,000 Northwestern Steel & Wire sr. notes 9 1/2s, 2001 3,321,600
5,320,000 WCI Steel, Inc. sr. notes Ser. B, 10s, 2004 5,506,200
--------------
30,855,875
Supermarkets (1.7%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Eagle Food Centers. Inc. sr. notes 8 5/8s, 2000 1,950,000
10,100,000 Fleming Companies, Inc. 144A sr. sub. notes 10 5/8s, 2007 10,655,500
5,000,000 Food 4 Less Supermarkets, Inc. deb. stepped-coupon zero %
(13 5/8s, 6/15/00), 2005 ++ 4,375,000
14,300,000 Jitney-Jungle Stores company guaranty 12s, 2006 16,159,000
3,000,000 Ralphs Grocery Co. company guaranty 10.45s, 2004 3,378,750
10,500,000 Ralphs Grocery Co. sr. notes 10.45s, 2004 11,825,625
630,000 Southland Corp. deb. 4s, 2004 492,408
3,925,000 Southland Corp. deb. Ser. A, 4 1/2s, 2004 3,208,688
8,475,000 Star Markets Co. sr. sub. notes 13s, 2004 9,703,875
12,210,000 Stater Brothers sr. notes 11s, 2001 13,492,050
2,760,000 Stater Brothers Holdings 144A sr. sub. notes 9s, 2004 2,870,400
--------------
78,111,296
Telecommunications (9.3%)
- ------------------------------------------------------------------------------------------------------------
10,175,000 Advanced Radio Telecom Corp. sr. notes 14s, 2007 9,666,250
15,995,000 American Communication Services, Inc. 144A sr. notes
13 3/4s, 2007 18,314,275
11,545,000 American Communications Services, Inc. sr. disc. notes
stepped-coupon zero % (12 3/4s, 4/1/01), 2006 ++ 8,139,225
2,500,000 American Communications Services, Inc. sr. disc. notes
stepped-coupon zero % (13s, 11/1/00), 2005 ++ 1,862,500
10,450,000 Barak ITC 144A sr. disc. notes stepped-coupon zero %
(12 1/2s, 11/15/02), 2007 (Israel) ++ 5,773,625
12,650,000 BTI Telecom Corp. 144A sr. notes 10 1/2s, 2007 12,586,750
11,250,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) ++ 7,537,500
6,000,000 Fonorola, Inc. sr. notes 12 1/2s, 2002 (Canada) 6,750,000
4,395,000 FWT, Inc. 144A sr. sub. notes 9 7/8s, 2007 4,405,988
27,548,000 GST Telecommunications, Inc. company guaranty stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 (Canada) ++ 20,110,040
7,930,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 8,683,350
13,985,000 Hyperion Telecommunications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (13s, 4/15/01), 2003 ++ 9,579,725
16,640,000 Hyperion Telecommunications, Inc. sr. notes Ser. B, 12 1/4s, 2004 17,804,800
34,500,000 ICG Holdings, Inc. sr. disc. notes stepped-coupon zero %
(13 1/2s, 9/15/00), 2005 ++ 27,600,000
17,065,000 Intelcom Group (USA), Inc. company guaranty stepped-
coupon zero % (12 1/2s, 5/1/01), 2006 ++ 12,542,775
14,000,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 5/15/01), 2006 ++ 10,850,000
9,500,000 Intermedia Communications, Inc. sr. disc. notes stepped-
coupon Ser. B, zero % (11 1/4s, 7/15/02), 2007 ++ 6,507,500
11,000,000 Intermedia Communications, Inc. 144A sr. notes 8 7/8s, 2007 11,000,000
13,160,000 International Wireless Communications, Inc. sr. disc. notes
zero %, 2001 7,106,400
6,270,000 ITC Deltacom, Inc. sr. notes 11s, 2007 6,724,575
6,715,000 McLeodUSA, Inc. sr. disc. notes stepped-coupon zero %
(10 1/2s, 3/1/02), 2007 ++ 4,599,775
3,420,000 McLeodUSA, Inc. 144A sr. notes 9 1/4s, 2007 3,488,400
4,500,000 Metronet Communications 144A sr. disc. notes zero %
(10.75s,), 2007 ++ 2,621,250
3,320,000 Netia Holdings B.V. 144A company guaranty 10 1/4s,
2007 (Poland) 3,145,700
1,880,000 Netia Holdings B.V. 144A company guaranty stepped-
coupon zero % (11 1/4s, 11/1/02), 2007 (Poland) ++ 1,062,200
7,650,000 Nextlink Communications sr. notes 12 1/2s, 2006 8,682,750
4,335,000 Nextlink Communications sr. notes 9 5/8s, 2007 4,378,350
8,600,000 NTL Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 9,008,500
11,630,000 Qwest Communications International, Inc. 144A sr. disc.
ntoes stepped-coupon zero % (9.47s, 10/15/02), 2007 ++ 7,501,350
13,025,000 RSL Communications, Ltd. company guaranty 12 1/4s, 2006 14,360,063
51,560,000 Teleport Communications Group Inc. sr. disc. notes stepped-
coupon zero % (11 1/8s, 7/1/01), 2007 ++ 40,861,300
1,900,000 Teleport Communications Group, Inc. sr.notes 9 7/8s, 2006 2,090,000
23,205,000 Teligent, Inc. sr. notes 11 1/2s, 2007 23,205,000
6,160,000 Viatel, Inc. sr. disc. notes stepped-coupon zero % (15s, 1/15/00),
2005 ++ 4,681,600
22,750,000 WinStar Communications, Inc. 144A sr. disc. notes stepped-
coupon zero % (14s, 10/15/00), 2005 ++ 17,403,750
11,500,000 WinStar Communications. Inc. company guaranty 14 1/2s, 2005 14,662,500
11,300,000 WinStar Communications. Inc. 144A sr. sub. notes 15s, 2007 13,164,500
15,255,000 WinStar Equipment Corp. company guaranty 12 1/2s, 2004 16,627,950
25,000,000 Worldcom Inc sr. notes 8 7/8s, 2006 26,796,500
--------------
431,886,716
Textiles (0.9%)
- ------------------------------------------------------------------------------------------------------------
6,375,000 Day International Group, Inc. sr. sub. notes 11 1/8s, 2005 6,885,000
2,230,000 Glenoit Corp. 144A sr. sub. notes 11s, 2007 2,408,400
6,360,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 6,248,700
6,000,000 Polysindo Inernational Eka company guaranty 13s, 2001
(Indonesia) 6,390,000
4,645,000 Polysindo International Finance company guaranty 11 3/8s,
2006 (Indonesia) 4,668,225
5,500,000 PT Polysindo Eka Perkasa notes 12.031s, 1998 (Indonesia) 4,957,920
2,000,000 PT Polysindo Eka Perkasa notes 12.0937s, 1998 (Indonesia) 1,850,140
6,030,000 Worldtex, Inc. 144A sr. notes 9 5/8s, 2007 6,060,150
--------------
39,468,535
Transportation (0.6%)
- ------------------------------------------------------------------------------------------------------------
6,320,000 Johnstown America Industries, Inc. 144A sr. sub. notes
11 3/4s, 2005 6,873,000
9,417,250 Johnstown America Industries, Inc. Bank Loan FRN 8.875s, 2003 9,393,707
11,750,000 Kitty Hawk, Inc. 144A sr. notes 9.95s, 2004 11,794,063
--------------
28,060,770
--------------
Total Corporate Bonds and Notes (cost $3,789,895,827) 3,859,705,131
PREFERRED STOCKS (5.8%) *
NUMBER OF SHARES VALUE
Apparel (--%)
- ------------------------------------------------------------------------------------------------------------
1,419 Anvil Holdings Ser. B, $3.25 pfd. 34,056
Banks (0.7%)
- ------------------------------------------------------------------------------------------------------------
455,200 California Federal Bancorp Inc. Ser. A, $2.281 pfd. 12,062,800
66,300 California Federal Bank Ser. B, $10.625 cum. pfd. 7,243,275
130,000 CGA Group Ltd. 144A Ser. A, $13.75 pfd. [2 DBL. DAGGERS] 3,250,000
187,205 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 9,547,455
50,000 Chevy Chase Savings Bank $3.25 pfd. 1,525,000
--------------
33,628,530
Broadcasting (1.2%)
- ------------------------------------------------------------------------------------------------------------
37,500 Capstar Broadcasting Inc. 144A $12.00 pfd. 4,237,500
69,900 Citadel Broadcasting Inc. 144A $13.25 pfd. [2 DBL. DAGGERS] 8,038,500
11,687 Paxson Communications Corp. 12.50% cum. pfd. [2 DBL. DAGGERS] 11,687,000
117,374 SFX Broadcasting, Inc. Ser. E, $12.625 pfd. [2 DBL. DAGGERS] 13,850,132
18,355 Spanish Broadcasting Systems 144A 14.25% cum. pfd. [2 DBL. DAGGERS] 19,456,300
--------------
57,269,432
Cable Television (0.7%)
- ------------------------------------------------------------------------------------------------------------
287,146 Cablevision Systems Corp. Ser. M, $11.125 dep. shs. cum. pfd.
[2 DBL. DAGGERS] 32,878,217
Cellular Communication (0.5%)
- ------------------------------------------------------------------------------------------------------------
18,325 Nextel Communications Inc. 144A Ser. D, 13.00% cum. pfd. [2 DBL. DAGGERS] 20,982,125
Cosmetics (--%)
- ------------------------------------------------------------------------------------------------------------
1,500 Renaissance Cosmetics Inc. 14.00% cum. pfd. [2 DBL. DAGGERS] 975,000
Electric Utilities (0.3%)
- ------------------------------------------------------------------------------------------------------------
88,983 El Paso Electric Co. $11.40 pfd [2 DBL. DAGGERS] 9,788,130
153,660 Public Service Co. of New Hampshire $2.65 1st mtge. pfd. 3,918,330
--------------
13,706,460
Entertainment (0.2%)
- ------------------------------------------------------------------------------------------------------------
9,780 Time Warner Inc. Ser. M, 10.25% pfd. 11,149,200
Financial Services (0.1%)
- ------------------------------------------------------------------------------------------------------------
3,090 CSBI Capital Trust I 144A $11.75 pfd. 3,182,700
Health Care (0.3%)
- ------------------------------------------------------------------------------------------------------------
15,270 Fresenius Medical Care AG Ser. D, $9.00 pfd., (Germany) 15,918,975
Motion Picture Distribution (0.1%)
- ------------------------------------------------------------------------------------------------------------
116,495 Diva Systems Corp., $6.00 pfd. 1,252,321
269,000 Diva Systems Corp. Ser. C, $6.00 pfd. 2,891,750
--------------
4,144,071
Restaurants (0.1%)
- ------------------------------------------------------------------------------------------------------------
162,129 AmeriKing, Inc. $3.25 pfd. [2 DBL. DAGGERS] 4,377,483
Satellite Services (0.3%)
- ------------------------------------------------------------------------------------------------------------
5,470 Echostar Communications Corp. 144A Ser. B, 12.125% pfd. 5,620,425
5,600 ICG Holdings, Inc. $14.25 pfd. (Canada) 6,468,000
--------------
12,088,425
Supermarkets (0.1%)
- ------------------------------------------------------------------------------------------------------------
12,000 Jitney-Jungle Stores 144A Ser. A, $4.95 sr. exchange pfd. 1,812,000
Telecommunications (1.2%)
- ------------------------------------------------------------------------------------------------------------
2,765 American Communication Services, Inc. 144A $12.75 pfd. [2 DBL. DAGGERS] 2,702,788
6,510 Hyperion Telecommunications, Inc. 144A $12.875 pfd. [2 DBL. DAGGERS] 6,363,525
8,162 Intermedia Communication Ser. B, 13.50% pfd. 9,712,780
15,480 IXC Communications, Inc. 144A $12.50 pfd. [2 DBL. DAGGERS] 17,802,000
169,457 Nextlink Communications, Inc. 144A $7.00 pfd. 10,167,420
4,737 NTL Inc. 144A Ser. B, $13.00 pfd. [2 DBL. DAGGERS] 5,352,810
2,500 Pegasus Communications Corp. Ser. A, $12.75 cum. pfd. 2,725,000
101,050 Von Hoffman Corp. 144A $13.50 pfd. 2,890,030
--------------
57,716,353
--------------
Total Preferred Stocks (cost $252,772,660) $ 269,863,027
UNITS (2.5%) *
NUMBER OF UNITS VALUE
- ------------------------------------------------------------------------------------------------------------
19,680 Australis Media, Ltd. units stepped-coupon zero % (15 3/4s,
5/15/03), 2003 (Australia) ++ $ 5,904,000
35,457 Cellnet Data Systems, Inc. 144A units stepped-coupon zero %
(14s, 10/01/02), 2007 ++ 18,011,092
7,695 Club Regina, Inc. 144A units 13s, 2004 7,695,000
5,620 Colt Telecommunications Group PLC units stepped-coupon
zero % (12s, 12/15/01), 2006 (United Kingdom) ++ 4,299,300
7,705 Conecel Holdings 144A units 14s, 2000 7,705,000
2,815 DecisionOne Corp. units stepped-coupon zero % (11 1/2s,
8/01/02), 2008 ++ 1,843,825
5,390 Diva Systems Corp. 144A units stepped-coupon zero %
(13s, 5/15/01), 2006 ++ 4,736,463
5,100 Econophone Inc. 144A units 13 1/2s, 2007 5,661,000
8,025 Fitzgeralds Gaming Co. units 13s, 2002 8,105,250
18,530 Knology Holdings Inc. units stepped-coupon zero %
(11 7/8s, 10/15/02), 2007 ++ 9,542,950
3,025 Metronet Communications units sr. notes 12s, 2007 3,418,250
2,820 MGC communications, Inc. 144A units 13s, 2004 2,805,900
2,045 Real Time Data 144A units stepped-coupon zero %
(13 1/2s, 8/15/01), 2006 ++ 1,124,750
4,785 Stone Container Corp. units sr. sub. 12 1/4s, 2002 4,964,438
7,920 USN Communications Inc. units stepped-coupon zero,
(14 5/8s, 8/15/02), 2004 ++ 5,860,800
4,310 Vialog Corp. units 12 3/4s, 2001 4,406,975
8,810 Wireless One, Inc. units stepped-coupon zero %
(13 1/2s, 8/1/01), 2006 ++ 2,202,500
7,555 XCL Ltd. units sr. sec. notes 13 1/2s, 2004 9,821,500
44,189 XCL Ltd. units cum. pfd. 9.50% 8,174,965
--------------
Total Units (cost $104,499,673) $ 116,283,958
CONVERTIBLE BONDS AND NOTES (1.8%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 30,042,000 APP Global Finance Ltd. cv. bond zero %, 2012
(United Kingdom) $ 6,233,715
19,090,000 APP Global Finance (V) Ltd. 144A cv. sec. 2s, 2000
(United Kingdom) 16,894,650
5,000,000 Corporate Express, Inc. cv. notes 4 1/2s, 2000 4,512,500
14,500,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 9,225,625
3,106,000 GST Telecommunications, Inc. cv. sr. disc. notes stepped-
coupon zero % (13 7/8s, 12/15/00), 2005 (Canada) ++ 4,224,160
5,750,000 Integrated Device Technology, Inc. cv. sub. notes 5 1/2s, 2002 4,901,875
5,000,000 Lam Research Corp. 144a cv. sub. notes 5s, 2002 4,175,000
1,780,000 National Semiconductor Corp. 144A cv. deb. 6 1/2s, 2002 1,800,025
7,475,000 NovaCare, Inc. cv. sub. deb. 5 1/2s, 2000 7,045,188
7,000,000 Polymax 144A cv. notes 2s, 2006 5,530,000
7,768,000 Pricellular Wireless Corp. 144A cv. sub. notes stepped-
coupon zero % (10 3/4s, 8/15/00), 2004 ++ 7,612,640
1,000,000 Protection One, Inc. cv. sr. sub. notes 6 3/4s, 2003 1,203,750
2,750,000 VLSI Technology, Inc. cv. sub. notes 8 1/4s, 2005 2,719,063
7,110,000 Winstar Communications. Inc. 144A cv. sr. disc. notes
stepped-coupon zero % (14s, 10/15/00), 2005 ++ 7,536,600
--------------
Total Convertible Bonds and Notes (cost $77,434,916) $ 83,614,791
COMMON STOCKS (1.2%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
136,180 Advanced Radio Telecom Corp. + $ 1,293,710
3,685 AmeriKing, Inc. + 184,250
1,036,363 Capstar Broadcasting Partners + 1,243,636
124,360 CellNet Data Systems, Inc. + 1,041,515
250,000 Chesapeake Energy Corp. 1,921,875
131,050 Colorado Gaming & Entertainment Co. + 737,156
18,869 Crompton & Knowles Corp. 500,029
60,000 Dr Pepper Bottling Holdings, Inc. Class A + 180,000
75,000 French Fragrances Inc. + 735,938
322,554 Grand Union Co. (acquired 8/18/95, cost $14,142,875) +[DBL. DAGGER] 866,864
119,400 GST Telecommunications, Inc. (Canada) + 1,499,963
74,902 Hedstrom Holdings, Inc. 144A 74,902
65,000 Intermedia Communications, Inc. + 3,225,625
250,000 Lady Luck Gaming Corp. + 281,250
250,000 NBTY, Inc. 5,437,500
395,000 NEXTEL Communications, Inc. Class A + 9,973,750
113,832 NEXTEL Communications, Inc. 144A (acquired 9/12/97,
cost $1,836,839) [DBL. DAGGER] 2,730,545
7,000 Paging Do Brazil Holdings Co., LLC Class B 70
2,141 PMI Holdings Corp. 144A + 685,120
1,730 Premium Holdings (L.P.) 144A + 6,919
707,186 PSF Holdings LLC Class A (acquired various dates from
9/15/93 to 5/31/95, cost $24,258,998) +[DBL. DAGGER][SECTION MARK] 21,215,580
85,200 Specialty Foods Corp. + 8,520
12,840 Terex Corp. Rights (expiration date 5/1/00)+ 256,800
--------------
Total Common Stocks (cost $64,035,746) $ 54,101,517
CONVERTIBLE PREFERRED STOCKS (0.3%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
42,102 Cablevision Systems Corp. Ser. H, $11.75 cv. pfd. [2 DBL. DAGGERS] $ 4,925,934
200,000 Echostar Communications Corp. Ser. C, $3.375 cum. cv. pfd. 10,000,000
25,000 Kelly Oil & Gas Corp. $2.625 cv. pfd. 637,500
--------------
Total Convertible Preferred Stocks (cost $14,663,264) $ 15,563,434
WARRANTS (0.2%)*+ EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- ------------------------------------------------------------------------------------------------------------
92,500 Becker Gaming Corp. 144A 11/15/00 $ 925
32,988 Capital Gaming International, Inc. 2/1/99 1,320
8,904 Casino America, Inc. 5/3/01 8,904
130,000 CGA Group Ltd. 144A 4/15/01 1,300
46,200 ClearNet Communications, Inc. 144A 9/15/05 415,800
5,000 County Seat Holdings, Inc. 10/15/98 100
4,335 Esat Holdings, Inc. (Ireland) 2/1/07 151,725
6,250 Globalstar Telecom 144A 2/15/04 750,000
49,560 Heartland Wireless Communications Inc. 144A 4/15/00 496
13,285 Hyperion Telecommunications 144A 4/15/01 797,100
97,350 Intelcom Group 144A 10/15/05 1,314,225
6,490 Interact Systems Inc. 8/1/03 1,623
5,000 Intermedia Communications 6/1/00 375,000
3,670 International Wireless Communications
Holdings 144A 8/15/01 220,200
9,970 Iridium World Com 144A 7/15/05 1,355,920
8,310 McCaw International Ltd. 4/15/07 2,493
12,730 NEXTEL Communications Inc. 3/15/06 1,591
152,785 Nextlink Communications, Inc. 144A 2/1/09 1,528
8,890 Orion Network Systems 1/15/07 124,460
33,580 Pagemart, Inc. 144A 12/31/03 251,850
11,999 Petracom Holdings, Inc. 9/30/99 85,493
89,120 Powertel, Inc. 2/1/06 641,664
30,905 President Riverboat Casinos, Inc. 9/30/99 15,453
3,000 RSL Communications Ltd. 11/15/06 180,000
5,675 Spanish Broadcasting Systems 144A 6/30/99 1,333,625
2,365 Sterling Chemicals Holdings 8/15/08 89,870
10,800 Urohealth Systems Inc. 4/10/04 54,000
3,000 Wireless One, Inc. 10/19/00 30
668 Wright Medical Technology, Inc. 144A 6/30/03 66,823
--------------
Total Warrants (cost $6,281,972) $ 8,243,518
FOREIGN GOVERNMENT BONDS AND NOTES (0.1%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 27,010,000 Ivory Coast - FLIRB collaterized FRB 2s, 2049 [2 DBL. DAGGERS] ## $ 1,463,461
27,010,000 Ivory Coast - PDI bonds FRB 1.9s, 2049 [2 DBL. DAGGERS] ## 1,737,860
--------------
Total Foreign Government Bonds and Notes
(cost $3,711,465) $ 3,201,321
SHORT-TERM INVESTMENTS (3.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 25,000,000 Corporate Receivables Corp effective yield of 5.6s,
December 10, 1997 $ 24,891,111
25,000,000 Federal Home Loan Mortgage Corp. effective yield
of 5.45s, December 17, 1997 24,780,456
25,000,000 General Electric Capital Corp effective yield of 5.54s,
December 22, 1997 24,838,417
28,700,000 Sheffield Receivables Corp effective yield of 5.6s,
December 16, 1997 28,557,138
60,446,000 Interest in $571,175,000 joint repurchase agreement
dated November 28, 1997 with Merrill Lynch due
December 1, 1997 with respect to various U.S.
Treasury obligations -- maturity value of $60,474,712
for an effective yield of 5.70% 60,474,712
--------------
Total Short-Term Investments (cost $167,222,142) $ 163,541,834
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $4,480,517,665) *** $4,574,118,531
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $4,651,330,245.
*** The aggregate identified cost on a tax basis is $4,480,986,282,
resulting in gross unrealized appreciation and depreciation of
$269,970,660 and $176,838,411, respectively, or net unrealized
appreciation of $93,132,249.
+ Non-income-producing security.
++ The interest rate and date shown parenthetically represent the
new interest rate to be paid and the date the fund will begin
receiving interest at this rate.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at November 30, 1997
was $24,812,989 or 0.5% of net assets.
[2 DBL. DAGGERS] Income may be received in cash or additional securities at the
discretion of the issuer.
## When-issued securities (Note 1).
[SECTION MARK] Affiliated Issues (Note 5).
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rate shown on FRB and FRN are the current interest rates shown
at Novermber 30, 1997, which are subject to change based on the terms of
the security.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Futures Currency Contracts to buy at November 30,1997
Aggregate Face Expiration Unrealized
Market Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Venezuelan Bolivar $342 $347 6/19/98 $(5)
Venezuelan Bolivar 686 690 6/5/98 (4)
- ----------------------------------------------------------------------------------------
$(9)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $4,480,517,665) (Note 1) $4,574,118,531
- ---------------------------------------------------------------------------------------------------
Cash 11,836,202
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 80,888,987
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 89,874,117
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 68,036,763
- ---------------------------------------------------------------------------------------------------
Total assets 4,824,754,600
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 145,838,828
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 17,496,728
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 5,521,860
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 566,184
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 53,940
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,768
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,955,668
- ---------------------------------------------------------------------------------------------------
Payable for closed forward currency contracts 5,207
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 980,172
- ---------------------------------------------------------------------------------------------------
Total liabilities 173,424,355
- ---------------------------------------------------------------------------------------------------
Net assets $4,651,330,245
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $4,618,873,538
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (Note 1) (61,144,150)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities in
foreign currencies 93,600,857
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $4,651,330,245
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,436,698,856 divided by 144,261,821 shares) $9.96
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.96)* $10.46
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,143,329,447 divided by 115,275,957 shares)** $9.92
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,071,301,942 divided by 208,229,301 shares) $9.95
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.95)* $10.28
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge .
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended November 30, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Interest $313,724,514
- --------------------------------------------------------------------------------------------------
Dividends 16,355,296
- --------------------------------------------------------------------------------------------------
Total investment income 330,079,810
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 17,916,237
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,998,691
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 71,841
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 28,020
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,070,987
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 8,591,350
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 5,746,875
- --------------------------------------------------------------------------------------------------
Reports to shareholders 135,672
- --------------------------------------------------------------------------------------------------
Registration fees 668,353
- --------------------------------------------------------------------------------------------------
Auditing 210,495
- --------------------------------------------------------------------------------------------------
Legal 87,754
- --------------------------------------------------------------------------------------------------
Postage 68,836
- --------------------------------------------------------------------------------------------------
Other 141,215
- --------------------------------------------------------------------------------------------------
Total expenses 40,736,326
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,333,008)
- --------------------------------------------------------------------------------------------------
Net expenses 39,403,318
- --------------------------------------------------------------------------------------------------
Net investment income 290,676,492
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 36,689,621
- --------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions 4,362,513
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (9)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 64,017,177
- --------------------------------------------------------------------------------------------------
Net gain on investments 105,069,302
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $395,745,794
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended November 30
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 290,676,492 $ 135,958,662
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 41,052,134 18,695,144
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and assets and liabilities in foreign currencies 64,017,168 7,206,852
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 395,745,794 161,860,658
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (112,832,859) (90,491,621)
- ----------------------------------------------------------------------------------------------------------------------
Class B (72,788,644) (39,385,557)
- ----------------------------------------------------------------------------------------------------------------------
Class M (105,092,366) (7,710,205)
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income
Class A (2,616,295) (100,855)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,687,775) (43,896)
- ----------------------------------------------------------------------------------------------------------------------
Class M (2,436,813) (8,593)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 2,393,734,681 956,420,816
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 2,492,025,723 980,540,747
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 2,159,304,522 1,178,763,775
- ----------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $-- and $153,344, respectively) $4,651,330,245 $2,159,304,522
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.65 $9.52 $9.07 $10.41 $9.74
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .90 .89 1.00 .98 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .32 .14 .45 (1.30) .70
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.22 1.03 1.45 (.32) 1.83
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.89) (.90) (1.00) (1.02) (1.15)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) --(c) -- -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.91) (.90) (1.00) (1.02) (1.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.96 $9.65 $9.52 $9.07 $10.41
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 13.30 11.38 16.81 (3.43) 19.88
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,436,699 $1,071,702 $870,810 $653,094 $742,472
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .97 1.09 1.12 1.03 .96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 9.17 9.24 10.35 10.87 11.04
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share May 16, 1994+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.61 $9.49 $9.05 $9.83
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .83 .82 .92 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .32 .13 .45 (.77)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.15 .95 1.37 (.29)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.82) (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) --(c) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.84) (.83) (.93) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.92 $9.61 $9.49 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 12.52 10.52 15.94 (3.12)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,143,329 $623,097 $287,877 $37,017
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.72 1.84 1.85 1.02*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.41 8.50 9.61 7.47*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the year
Per-share Dec. 1, 1994+
operating performance Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $9.64 $9.51 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .87 .87 .99
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .33 .14 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.20 1.01 1.44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.87) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
investment income (.02) --(c) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.89) (.88) (.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.95 $9.64 $9.51
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 13.05 11.15 16.72
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,071,302 $464,506 $20,077
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.22 1.36 1.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 8.93 8.86 10.06
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 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.
</TABLE>
Notes to financial statements
November 30, 1997
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. Effective January
31, 1998, all classes of shares will be closed to new investors. Class A
shares are sold with a maximum front-end sales charge of 4.75%. Class B
shares, which convert to class A shares after approximately eight years, do
not pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales charge, if
those shares are redeemed within six years of purchase. Class M shares are
sold with a maximum front-end sales charge of 3.25% and pay an ongoing
distribution fee that is lower than class B shares and higher than class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value, and
other investments, including restricted securities, are stated at fair value
following procedures approved by the Trustees. Market quotations are not
considered to be readily available for long-term corporate bonds and notes;
such investments are stated at fair value on the basis of valuations furnished
by a pricing service, approved by the Trustees, which determines valuations
for normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date, (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date 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. Any premium resulting from the purchase of
stepped-coupon securities is amortized on a yield-to-maturity basis.
Securities purchased or sold on a when-issued or forward commitment basis may
be settled a month or more after the trade date; interest income is accrued
based on the terms of the security. Losses may arise due to changes in the
market value of the underlying securities or if the counterparty does not
perform under the contract.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, other assets and liabilities are recorded in the books and records
of the fund after translation to U.S. dollars based on the exchange rates on
that day. The cost of each security is determined using historical exchange
rates. Income and withholding taxes are translated at prevailing exchange
rates when accrued or incurred. The fund does not isolate that portion of
realized or unrealized gains or losses resulting from changes in the foreign
exchange rate on investments from fluctuations arising from changes in the
market prices of the securities. Such 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 period ended November 30, 1997, 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 are recorded by
the fund on the ex-dividend date. At certain times, the fund may pay
distributions at a level rate even though , as a result of market conditions
or investment decisions, the fund may not achieve projected investment results
for a given period. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences
include temporary and permanent differences of losses on wash sale
transactions, and foreign currency gains and losses. Reclassifications are
made to the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended November 30, 1997, the fund reclassified
$6,931,604 to decrease distributions in excess of net investment income and
$2,395,443 to decrease paid-in-capital, with an increase to accumulated net
realized loss on investments of $4,536,161. The calculation of net investment
income per share in the financial highlights table excludes these adjustments.
Note 2
Management fees, administrative
services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.70% of the first $500 million 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.
Prior to March 20, 1997, any amount over $1.5 billion was based on a rate of
0.50%.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended November 30, 1997, fund expenses were reduced by $1,333,008
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 $2,460 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 year ended November 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $1,204,210 and $52,940 from the sale
of class A and class M shares, respectively and $1,777,245 in contingent
deferred sales charges from redemptions of class B shares. A deferred sales
charge of up to 1% is assessed on certain redemptions of class A shares. For
the year ended November 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $37,202 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended November 30, 1997, purchases and sales of investment
securities other than short-term investments aggregated $4,159,863,189 and
$2,095,677,499, 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 November 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
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
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 47,193,610 $451,272,043
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,702,689 44,772,621
- ------------------------------------------------------------
51,896,299 496,044,664
Shares
repurchased (32,325,152) (309,244,808)
- ------------------------------------------------------------
Net increase 19,571,147 $186,799,856
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 44,638,934 $425,459,899
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,790,363 16,975,750
- ------------------------------------------------------------
46,429,297 442,435,649
Shares
repurchased (11,949,679) (113,790,264)
- ------------------------------------------------------------
Net increase 34,479,618 $328,645,385
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 46,977,814 $449,474,407
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 200,933 1,909,357
- ------------------------------------------------------------
47,178,747 451,383,764
Shares
repurchased (1,092,778) (10,408,189)
- ------------------------------------------------------------
Net increase 46,085,969 $440,975,575
- ------------------------------------------------------------
Note 5
Transactions with Affiliated Issuers
Transactions during the year with companies in which the fund
owns at least 5% of the voting securities were as follows:
Purchase Sales Dividend Market
Name of affiliate cost cost Income Value
- ----------------------------------------------------------------
PSF Holdings LLC Class A $-- $-- $-- $21,215,580
Federal tax information
(Unaudited)
The fund has designated 5.55% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
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
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
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
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Edward H. D'Alelio
Vice President
Rosemary H. Thomsen
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam High Yield
Advantage Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most recent
copy of Putnam's Quarterly Performance Summary. For more information or to
request a prospectus, call toll free: 1-800-225-1581. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution; are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency;
and involve risk, including the possible loss of 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
- --------------------
AN032-36886-060/327/702 1/98
